-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BWdWfzkd5X30J2EFwZs6YbmHH1LTHzPoQjOiUEONwLTWCiwWgFiPyDzmNm1z3Wwv aHtsQDV8q+XED0dTyRpSJA== 0000912057-97-016255.txt : 19970512 0000912057-97-016255.hdr.sgml : 19970512 ACCESSION NUMBER: 0000912057-97-016255 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970509 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: SC BANCORP CENTRAL INDEX KEY: 0000351617 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 953585586 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10699 FILM NUMBER: 97598547 BUSINESS ADDRESS: STREET 1: 3800 EAST LAPALMA AVENUE CITY: ANAHEIM STATE: CA ZIP: 92807 BUSINESS PHONE: 7142383110 MAIL ADDRESS: STREET 1: 3800 EAST LAPALM AVENUE CITY: ANAHEIM STATE: CA ZIP: 92807 10-Q 1 FORM 10Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT to SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 1997 Commission File Number 0-11046 SC BANCORP (Exact name of registrant as specified in its charter) California 95-3585586 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 3800 E. La Palma Ave., Anaheim, California 92807-1798 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (714) 238-3110 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES. [ X ] NO. [ ] There were 7,492,715 shares of common stock for the registrant issued and outstanding as of May 1, 1997. Part I. Item 1. Financial Statements SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK Consolidated Balance Sheets
March 31, December 31, (DOLLARS IN THOUSANDS) 1997 1996 - ----------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 28,923 $ 29,968 Federal funds sold 45,808 3,800 - ----------------------------------------------------------------------------------------------------- Cash and cash equivalents 74,731 33,768 - ----------------------------------------------------------------------------------------------------- Securities available-for-sale, at fair value (Notes 1 and 2) 66,981 74,533 Investment in Federal Home Loan Bank stock, at cost 1,473 1,450 Investment in Federal Reserve Bank stock, at cost 607 607 Loans (Notes 1 and 3) 348,109 347,864 Less: Deferred fee income (694) (689) Allowance for possible loan losses (5,345) (4,947) - ----------------------------------------------------------------------------------------------------- Loans, net 342,070 342,228 - ----------------------------------------------------------------------------------------------------- Premises and equipment, net 7,403 7,740 Other real estate owned, net 654 536 Accrued interest receivable 2,665 3,931 Other assets 10,542 11,220 - ----------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 507,126 $ 476,013 - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- LIABILITIES Deposits: Noninterest-bearing $ 130,850 $ 125,903 Interest-bearing 317,768 289,423 - ----------------------------------------------------------------------------------------------------- Total deposits 448,618 415,326 - ----------------------------------------------------------------------------------------------------- Borrowed funds and other interest-bearing liabilities 5,830 8,096 Accrued interest payable and other liabilities 2,307 2,672 - ----------------------------------------------------------------------------------------------------- Total liabilities 456,755 426,094 - ----------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Preferred stock, no par or stated value: 10,000,000 shares authorized; no shares issued or outstanding - - Common stock, no par or stated value: 20,000,000 shares authorized; 7,490,915 and 7,486,375 shares issued and outstanding at March 31, 1997 and December 31, 1996, respectively. 37,763 37,738 Retained earnings 14,200 13,055 Dividends paid (374) - Unrealized loss on available-for-sale securities, net of taxes (Note 1) (1,218) (874) - ----------------------------------------------------------------------------------------------------- Total Shareholders' Equity 50,371 49,919 - ----------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 507,126 $ 476,013 - ----------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 1 Part I. Item 1. (continued) SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK Consolidated Statements of Operations
Three Months Ended (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) March 31, - ----------------------------------------------------------------------------------------------- 1997 1996 --------- --------- INTEREST INCOME Interest and fees on loans $ 7,762 $ 7,378 Interest on investment securities 951 1,144 Interest on Federal funds sold 201 80 - ----------------------------------------------------------------------------------------------- Total interest income 8,914 8,602 - ----------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits: Interest-bearing demand 725 394 Savings 242 248 Time certificates of deposit 1,900 2,018 - ----------------------------------------------------------------------------------------------- Total interest on deposits 2,867 2,660 - ----------------------------------------------------------------------------------------------- Other interest expense 114 306 - ----------------------------------------------------------------------------------------------- Total interest expense 2,981 2,966 - ----------------------------------------------------------------------------------------------- Net interest income 5,933 5,636 Provision for possible loan losses (Note 3) 350 280 - ----------------------------------------------------------------------------------------------- Net interest income after provision for possible loan losses 5,583 5,356 - ----------------------------------------------------------------------------------------------- NONINTEREST INCOME 1,257 1,287 NONINTEREST EXPENSE: Salaries and benefits 2,527 2,649 Net occupancy, furniture and equipment 847 1,110 Other operating expense 1,505 1,565 - ----------------------------------------------------------------------------------------------- Total noninterest expense 4,879 5,324 - ----------------------------------------------------------------------------------------------- Income before provision for income taxes 1,961 1,319 Provision for income taxes 816 556 - ----------------------------------------------------------------------------------------------- NET INCOME $ 1,145 $ 763 - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Weighted average number of shares outstanding 7,488 7,472 - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Earnings per share $ 0.15 $ 0.10 - ----------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2 Part I. Item 1. (continued) SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK Consolidated Statements of Cash Flows
Three months ended (DOLLARS IN THOUSANDS) March 31, - ---------------------------------------------------------------------------------------------------- 1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,145 $ 763 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses 350 280 Provision for loss on other real estate owned - 20 Gain on sale of available-for-sale investment securities - (14) Net amortization of premiums on investment securities 188 244 Gain on sale of loans (78) - Net increase (decrease) in deferred fees and unearned income on loans 5 (29) Depreciation and amortization 405 493 (Gain) loss on sale of fixed assets (4) 1 Decrease in accrued interest receivable and other assets 2,211 1,979 (Decrease) increase in accrued interest payable and other liabilities (390) 350 - ---------------------------------------------------------------------------------------------------- Net cash provided by operating activities 3,832 4,087 - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of available-for-sale investment securities - 8,549 Proceeds from maturities of available-for-sale investment securities 6,778 1,709 Purchase of FHLB and FRB stock (23) (184) Proceeds from sale of loans 1,299 - Loans funded, net of payments received (1,449) 471 Proceeds from sale of fixed assets and other assets 4 184 Purchase of fixed assets (68) (94) - --------------------------------------------------------------------------------------------------- Net cash provided by investing activities 6,541 10,635 - --------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of stock options 25 6 Dividends paid (374) - Increase (decrease) in noninterest-bearing deposits 4,947 (13,922) Increase in interest-bearing deposits 28,345 5,670 (Decrease) increase in other borrowings (2,353) 3,264 - --------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 30,590 (4,982) - --------------------------------------------------------------------------------------------------- Increase in cash and cash equivalents 40,963 9,740 Cash and cash equivalents, beginning of period 33,768 29,088 - --------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 74,731 $ 38,828 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS Unrealized loss on investment securities available-for-sale, net of tax $ 344 $ 422 Transfers of loans to other real estate owned 31 - Assumption of senior liens on other real estate owned 87 - Asset sales offset to restructuring reserve - 91 Close out of capital lease accounts - 118 - --------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 Part I. Item 1. (continued) SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, except for information as of and for the year ended December 31, 1996) NOTE 1-SIGNIFICANT ACCOUNTING POLICIES SC Bancorp, a California bank holding company (the "Company"), and its subsidiary, Southern California Bank, a California state-chartered bank (the "Bank"), operate 14 branches in Southern California. The Company's primary source of revenue is providing loans to customers who are predominantly small and mid-sized businesses. The accounting and reporting policies of the Company conform to generally accepted accounting principles and general practices within the banking industry. See the notes to SC Bancorp's consolidated financial statements contained in the Company's Annual Report on Form 10-K. The interim period financial statements are unaudited. It is the opinion of Company management that all adjustments consisting of normal, recurring accruals necessary for a fair presentation of the results of operations have been reflected therein. Results for the period ending March 31, 1997, are not necessarily indicative of results that may be expected for any other interim periods or for the year as a whole. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and the Bank. All material intercompany balances and transactions have been eliminated in consolidation. USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS: The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. SECURITIES: At March 31, 1997, the Company's available-for-sale portfolio had a net unrealized loss of $2.1 million. The tax-effected reduction to shareholders' equity at March 31, 1997, was $1.2 million. In January 1995, the FDIC issued a final rule excluding unrealized holding gains and losses on available-for-sale debt securities from the calculation of Tier 1 capital. STOCK OF FEDERAL HOME LOAN BANK OF SAN FRANCISCO: As a member of the Federal Home Loan Bank of San Francisco ("FHLB"), the Bank is required to own common stock in the FHLB based upon a percentage of one of the following balances: residential mortgage loans, total assets, or the outstanding balance of FHLB advances, whichever is greater. STOCK OF FEDERAL RESERVE BANK OF SAN FRANCISCO: As a member of the Federal Reserve System, the Bank is required to own common stock in the Federal Reserve Bank of San Francisco ("FRB") based upon a percentage of capital and surplus at the time of initial membership. LOANS: All loans on nonaccrual are considered to be impaired; however, not all impaired loans are on nonaccrual status. Impaired loans on accrual status must meet the following criteria: all payments must be current and the loan underwriting must support the debt service requirements. Factors that contribute to a performing loan being classified as impaired include: a below market interest rate, delinquent taxes and debts to other lenders that cannot be serviced out of existing cash flow. 4 Part I. Item 1. (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STOCK-BASED COMPENSATION: The Company maintains a stock option plan for the benefit of its executives. In 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based Compensation," which encourages, but does not require, companies to record compensation expense for stock-based employee compensation at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, compensation expense for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. There were no stock option grants during the first quarter of 1997. TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES: In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This Statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities, and is applied prospectively to financial statements for fiscal years beginning after December 31, 1996. In 1996, the FASB also issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125," which defers for one year the effective date of certain provisions within SFAS No. 125. The adoption of SFAS No. 125 and SFAS No. 127 effective January 1, 1997 did not have a material impact on the Company's operations or financial condition. 5 Part I. Item 1. (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2-INVESTMENT SECURITIES The amortized cost and estimated fair value of investment securities as of March 31, 1997 and December 31, 1996 are as follows:
(DOLLARS IN THOUSANDS) March 31,1997 - --------------------------------------------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ------------ ------------ ---------- AVAILABLE-FOR-SALE U.S. Treasury securities and obligations of U.S. government agencies $ 27,854 $ - $ (300) $ 27,554 Mortgage-backed securities 41,207 - (1,780) 39,427 - --------------------------------------------------------------------------------------------------------- Total $ 69,061 $ - $ (2,080) $ 66,981 - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) December 31,1996 - --------------------------------------------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ------------ ------------ ---------- AVAILABLE-FOR-SALE: U.S. Treasury securities and obligations of U.S. government agencies $ 32,967 $ - $ (285) $ 32,682 Mortgage-backed securities 43,060 - (1,209) 41,851 - --------------------------------------------------------------------------------------------------------- Total $ 76,027 $ - $ (1,494) $ 74,533 - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
Investment securities with a carrying value of $13.8 million and $15.5 million were pledged to secure public deposits and as collateral for other borrowings at March 31, 1997 and December 31, 1996, respectively. The amortized cost and estimated fair value of debt securities at March 31, 1997 by contractual maturities are shown in the following table. Expected maturities will differ from contractual maturities, particularly with respect to mortgage-backed securities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(DOLLARS IN THOUSANDS) Maturing in - ------------------------------------------------------------------------------------------------------------------------ Over one Over five One year year through years through Over MARCH 31, 1997 or less five years ten years ten years Total --------- ------------ ------------- ------------ --------- Available-for-sale, amortized cost $ 14,773 $ 48,310 $ 5,897 $ 81 $ 69,061 Available-for-sale, estimated fair value $ 14,728 $ 46,592 $ 5,580 $ 81 $ 66,981
There were no sales of investment securities during the first quarter of 1997. Proceeds from the sale of an investment security during the same period in 1996 were $8.5 million. A gross gain of $14,000 was realized on the sale. 6 Part I. Item 1. (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3-LOANS Loans by category are summarized below:
March 31, December 31, (DOLLARS IN THOUSANDS) 1997 Percent 1996 Percent - --------------------------------------------------------------------------------------------------------- Commercial $ 165,256 47.47% $ 160,633 46.17% Real estate, construction 10,069 2.89% 8,544 2.46% Real estate, mortgage 105,691 30.36% 105,123 30.22% Consumer 67,093 19.28% 73,564 21.15% - --------------------------------------------------------------------------------------------------------- Gross loans 348,109 100.00% 347,864 100.00% - --------------------------------------------------------------------------------------------------------- Deferred fee income (694) (689) Allowance for possible loan losses (5,345) (4,947) - --------------------------------------------------------------------------------------------------------- Loans, net $ 342,070 $ 342,228 - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
No industry constitutes a concentration in the Company's loan portfolio. The following table summarizes the balances and changes in the allowance for possible loan losses for the periods indicated:
March 31, December 31, March 31, December 31, (DOLLARS IN THOUSANDS) 1997 1996 1996 1995 - ----------------------------------------------------------------------------- ------------------------- Average balance of gross loans outstanding $ 341,896 $ 321,843 $ 312,304 $ 261,631 - ----------------------------------------------------------------------------- ------------------------- - ----------------------------------------------------------------------------- ------------------------- Gross loan balance at end of period $ 348,109 $ 347,864 $ 316,507 $ 316,841 - ----------------------------------------------------------------------------- ------------------------- - ----------------------------------------------------------------------------- ------------------------- Allowance at beginning of period $ 4,947 $ 5,734 $ 5,734 $ 5,318 Charge-offs: Commercial - 422 7 834 Real estate - 279 7 1,227 Consumer 11 168 33 587 - ----------------------------------------------------------------------------- ------------------------- Total charge-offs 11 869 47 2,648 Recoveries: Commercial 52 477 156 587 Real estate - 21 2 129 Consumer 7 54 26 192 - ----------------------------------------------------------------------------- ------------------------- Total recoveries 59 552 184 908 Net (recoveries) charge-offs (48) 317 (137) 1,740 Provision (recovery) charged (credited) to operations 350 (470) 280 1,539 Allowance on purchased loans - - - 617 - ----------------------------------------------------------------------------- ------------------------- Allowance at end of period $ 5,345 $ 4,947 $ 6,151 $ 5,734 - ----------------------------------------------------------------------------- ------------------------- - ----------------------------------------------------------------------------- -------------------------
7 Part I. Item 1. (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3-LOANS (CONTINUED)
March 31, December 31, March 31, December 31, (DOLLARS IN THOUSANDS) 1997 1996 1996 1995 - ----------------------------------------------------------------------------- ------------------------- Ratio of allowance for loan losses to loans outstanding at end of period 1.54% 1.42% 1.94% 1.81% Ratio of allowance for loan losses to nonaccrual loans at end of period 67.91% 173.84% 364.61% 414.01% Ratio of annualized net charge-offs to average loans -0.06% 0.10% -0.18% 0.67%
Loans on nonaccrual status were $7.9 million and $1.7 million, respectively at March 31, 1997 and 1996. Interest income that would have been collected on these loans had they performed in accordance with their original terms was approximately $161,000 and $62,000, for the three months ended March 31, 1997 and 1996, respectively. The Company's average recorded investment in impaired loans at March 31, 1997 was $8.2 million. The Company's allowance for possible loan losses at March 31, 1997 includes $1.9 million related to impaired loans. Interest income recognized on impaired loans during the first quarter of 1997 and 1996 was $114,000 and $102,000, of which $114,000 and $86,000, respectively, was collected in cash. NOTE 4-COMMITMENTS AND CONTINGENCIES CREDIT EXTENSION: In the normal course of business, there are various outstanding commitments to extend credit which are not reflected in the accompanying consolidated financial statements. The Company does not anticipate losses as a result of these transactions. However, the commitments are a component of the estimate of the allowance for possible loan losses. Commercial and standby letters of credit totaled approximately $5.4 million and $4.1 million at March 31, 1997, and December 31, 1996, respectively. In addition, the Company had unfunded loan commitments of $119.8 million and $110.5 million at March 31, 1997 and December 31, 1996, respectively. All of the commitments outstanding at March 31, 1997 and December 31, 1996 represent unfunded loans which bear a floating interest rate. The Company uses the same credit policies in making commitments and conditional obligations as it does in extending loan facilities to customers. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. INTEREST RATE SWAPS: The Company entered into two interest rate swap agreements to reduce the impact of changes in interest rates on its floating-rate loan portfolio. At March 31, 1997, the Company had outstanding one interest rate swap agreement with a commercial bank having a total notional principal amount of $50 million (Swap #1). The second interest rate swap agreement was with a securities broker having a notional principal amount of $25 million (Swap #2). Swap #2 matured in January 1997. The agreements were intended to reduce the Company's exposure to declines in prime lending rates by artificially converting $75 million of the Company's prime-based loans to fixed rates for the duration of the agreements. Swap #1 was entered into in September 1993. The terms of the first agreement require the Company to pay interest quarterly based on three-month LIBOR and to receive interest semi-annually at a fixed rate of 4.865%. The agreement matures in September 1998. The Company accrues monthly interest income and expense on the swaps, the net of which is included in income on loans. Net interest expense of $86,000 and $146,000 related to the swap agreements is included in interest income for the three months ended March 31, 1997 and 1996, respectively. The Company is required to pledge collateral on the swaps. A U.S. Agency note having a fair value of approximately $3.4 million was pledged as collateral for the outstanding agreement as of March 31, 1997. The Company is exposed to credit loss in the event of nonperformance by the counterparty to the remaining agreement. However, the Company does not anticipate nonperformance by the counterparty. 8 Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW The following discussion presents information about the results of operations, financial condition, liquidity and capital resources of SC Bancorp and its subsidiary, Southern California Bank (together, the "Company"). This information should be read in conjunction with the audited 1996 consolidated financial statements of the Company and the notes thereto, and the accompanying quarterly unaudited consolidated financial statements and notes thereto. RESULTS OF OPERATIONS The Company reported net income of $1.1 million for the first quarter of 1997 compared to net income of $763,000 for the first quarter of 1996. Net income for the first quarter of 1997 reflects continued cost savings associated with the sale of two branches and the consolidation of a third branch during the first quarter of 1996. The following table summarizes key performance indicators pertaining to the Company's operating results:
Three months ended March 31, - ----------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 - ----------------------------------------------------------------------------------------------- Return on average assets (1) 0.97% 0.66% Return on average shareholders' equity (1) 9.11% 6.99% Net income $ 1,145 $ 763 Earnings per share $ 0.15 $ 0.10 Total average assets $ 476,966 $ 456,149 - -----------------------------------------------------------------------------------------------
(1) Annualized NET INTEREST INCOME Net interest income is the difference between interest earned on assets and interest paid on liabilities. Net interest margin is net interest income expressed as a percentage of average interest-earning assets. The following table provides information concerning average interest-earning assets and interest-bearing liabilities and the yields and rates thereon for the periods indicated. The table also provides a summary of the changes in interest income and interest expense resulting from changes in average interest rates (rate) and changes in average balances (volume) for the periods indicated. The changes in interest income and interest expense attributable to the rate/volume variance are allocated to the rate and volume variances based upon the absolute value of each of those variances as a percentage of the sum of the absolute values of the individual rate and volume variances. Average balances are average daily balances. Nonaccrual loans are included in total average loans outstanding. 9 Part I. Item 2. (continued)
THREE MONTHS ENDED ----------------------------------------------------------------------------- March 31, 1997 March 31, 1996 ----------------------------------------------------------------------------- Average Yield/ Average Yield/ (DOLLARS IN THOUSANDS) Balance Interest Rate(1) Balance Interest Rate(1) - ---------------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Loans, net of deferred fees $ 341,896 $ 7,762 9.21% $ 312,304 $ 7,378 9.50% Investment securities 73,858 951 5.22% 89,475 1,144 5.14% Federal funds sold and other 15,298 201 5.33% 5,979 80 5.40% - ---------------------------------------------------------------------------------------------------------------------------------- Total interest earning assets/interest income 431,052 8,914 8.39% 407,758 8,602 8.48% - ---------------------------------------------------------------------------------------------------------------------------------- Noninterest earning assets 45,914 48,391 - ---------------------------------------------------------------------------------------------------------------------------------- Total assets $ 476,966 $ 456,149 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing deposits $ 292,241 $ 2,867 3.98% $ 276,129 $ 2,660 3.87% Other interest-bearing liabilities 7,074 114 6.54% 18,274 306 6.73% - ---------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities/interest expense 299,315 2,981 4.04% 294,403 2,966 4.05% - ---------------------------------------------------------------------------------------------------------------------------------- Noninterest-bearing liabilities 126,684 117,862 Shareholders' equity 50,967 43,884 - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 476,966 $ 456,149 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME/NET INTEREST MARGIN $ 5,933 5.58% $ 5,636 5.56% - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------
(1) Annualized. 10 Part I. Item 2. (continued)
March 31, 1997 and 1996 -------------------------------------- Increase (decrease) due to change in (DOLLARS IN THOUSANDS) Rate Volume Change - ----------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Loans, net of deferred fees $ (244) $ 628 $ 384 Investment securities 17 (210) (193) Federal funds sold and other (1) 122 121 - ----------------------------------------------------------------------------------------------- Total interest earning assets/interest income (228) 540 312 - ----------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing deposits $ 68 $ 139 $ 207 Other interest-bearing liabilities (66) (126) (192) - ----------------------------------------------------------------------------------------------- Total interest-bearing liabilities/interest expense 2 13 15 - ----------------------------------------------------------------------------------------------- NET INTEREST INCOME/NET INTEREST MARGIN $ (230) $ 527 $ 297 - ----------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------
(1) Annualized. Net interest income was $5.9 million for the three months ended March 31, 1997, compared to $5.6 million for the first quarter of 1996. The increase is primarily due to a $29.6 million increase in average loan balances for the first quarter of 1997 compared to the comparable period for 1996. The reduction in the average balance of investment securities for 1997 compared to the prior year is due to the maturity of $6.8 million of securities during the first quarter of 1997, and sales and maturities of available-for-sale securities totaling $10.3 million during the first quarter of 1996. Proceeds from the sale and maturity of securities were used to fund loan growth. The average yield on earning assets decreased to 8.39% for the first quarter of 1997 from 8.48% for the first quarter of 1996. The overall decrease in yield in the first quarter of 1997 can be attributed to the decrease in the average yield on loans, including the effect of the interest rate swaps, to 9.21% from 9.50% for the same period last year. Pricing spreads on variable-rate commercial and real estate loans decreased modestly in 1997 compared to 1996 due to competitive pricing practices in the Company's market area. In addition, the yield on real estate loans for the first quarter of 1997 was impacted by the reversal of approximately $80,000 of accrued interest on two real estate loans that were placed on nonaccrual status. The average yield on loans is impacted by changes in the national prime rate. The national prime rate increased to 8.50% from 8.25% on March 26, 1997. The last change in the prime rate was a reduction from 8.50% to 8.25% on January 31, 1996. The net interest margin increased to 5.58% for the first quarter of 1997 from 5.56% for the comparable period of the prior year. The increase in the net interest margin is attibutable in part to a change in the earning asset mix that includes a higher proportion of loans to investment securities. On a year-to-date basis, average loans increased to 79% of total average earning assets for the current year from 77% of average earning assets a year ago. The Company's overall cost of funds decreased slightly for the first quarter of 1997 to 4.04% from 4.05% for the first quarter of 1996. 11 Part I. Item 2. (continued) PROVISION FOR POSSIBLE LOAN LOSSES The Company recorded a $350,000 provision for possible loan losses for the first quarter of 1997. Gross loan charge-offs and recoveries for the quarter were $11,000 and $59,000, respectively. Nonaccrual loans increased to $7.9 million at March 31, 1997 from $2.8 million at December 31, 1996. The loan loss provision was increased in the first quarter to support growth in the loan portfolio and to increase reserves associated with one real estate loan that was placed on nonaccrual status. The ratio of the allowance for possible loan losses to total loans was 1.54% at March 31, 1997 and 1.94% at March 31, 1996. Refer to NOTE 3-LOANS of the Company's consolidated financial statements which are included in Part I. Item 1. of this Form 10-Q and to "Asset Quality" below. The Company recorded a $280,000 provision for possible loan losses for the first three months of 1996. Year-to-date loan charge-offs and recoveries for the first quarter of 1996 were $47,000 and $184,000, respectively, representing a year-to-date net recovery of $137,000. NONINTEREST INCOME The following tables set forth the major components of noninterest income for the periods indicated:
Three Months Ended (DOLLARS IN THOUSANDS) March 31, - -------------------------------------------------------------------------------- 1997 1996 --------- -------- Service charges on deposit accounts $ 261 $ 386 Other fees and charges 654 610 Merchant bankcard income 119 117 Net gain on sales of securities - 14 Net gain on sale of SBA loans 78 - Net gain (loss) on sales of fixed assets 4 (1) Life insurance income 32 27 Other income 109 134 - -------------------------------------------------------------------------------- Total noninterest income $ 1,257 $ 1,287 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Noninterest income was $1.3 million for each of the three months ended March 31, 1997 and 1996, respectively. Noninterest income for the first quarter of 1997 includes a $78,000 gain on sale of SBA loans. 12 Part I Item 2. (continued) NONINTEREST EXPENSE The following tables provide detail of the Company's noninterest expense by category for the periods indicated:
Three Months Ended (DOLLARS IN THOUSANDS) March 31, - -------------------------------------------------------------------------------- 1997 1996 -------- -------- Salaries and employee benefits $ 2,527 $ 2,649 Net occupancy, furniture and equipment 847 1,110 Professional and legal fees 340 321 Postage and delivery 149 161 Goodwill amortization 135 114 Software 121 61 Merchant bankcard expense 95 97 Office supplies 87 80 Advertising and promotion 81 95 Telecommunications 80 112 Insurance and assessment 68 101 Data processing 62 70 Operating losses 57 61 Professional and community 50 49 Other real estate owned, net (2) 62 Miscellaneous 182 181 - -------------------------------------------------------------------------------- Total noninterest expense $ 4,879 $ 5,324 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Annualized noninterest expense as a % of average earning assets 4.59% 5.25%
Noninterest expense for the first quarter of 1997 decreased to $4.9 million from $5.3 million for the first quarter of 1996. The reduction in noninterest expense occurred as a result of ongoing expense reduction efforts and the realization of cost savings, particularly in the areas of salaries and occupancy expenses, resulting from the sale of two branches and the consolidation of a third branch completed during the first quarter of 1996. FINANCIAL CONDITION Total assets at March 31, 1997 were $507.1 million, an increase of $31.1 million from $476.0 million at December 31, 1996. Gross loan balances increased slightly to $348.1 million at March 31, 1997 from $347.9 million at December 31, 1996. Total deposits increased to $448.6 million at March 31, 1997 from $415.3 million at December 31, 1996. The increase in deposit balances is primarily due to the Bank's core deposit generation programs and to increases in short-term money market deposits. 13 Part I. Item 2. (continued) The following table provides a summary comparison of assets and liabilities in the Company's consolidated balance sheets and the percentage change in these balances for the dates indicated:
March 31, December 31, Amount Percent (DOLLARS IN THOUSANDS) 1997 1996 Change Change - ------------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 74,731 $ 33,768 $ 40,963 121.31% Securities available-for-sale, at fair value 66,981 74,533 (7,552) -10.13% Investment in Federal Home Loan Bank stock, at cost 1,473 1,450 23 1.59% Investment in Federal Reserve Bank stock, at cost 607 607 - 0.00% Loans, net 342,070 342,228 (158) -0.05% Premises and equipment, net 7,403 7,740 (337) -4.35% Other real estate owned, net 654 536 118 22.01% Accrued interest receivable 2,665 3,931 (1,266) -32.21% Other assets 10,542 11,220 (678) -6.04% - ------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 507,126 $ 476,013 $ 31,113 6.54% - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing deposits $ 130,850 $ 125,903 $ 4,947 3.93% Interest-bearing demand deposits 116,603 104,435 12,168 11.65% Savings deposits 48,904 39,755 9,149 23.01% Time certificates of deposit 152,261 145,233 7,028 4.84% - ------------------------------------------------------------------------------------------------------------- Total deposits 448,618 415,326 33,292 8.02% - ------------------------------------------------------------------------------------------------------------- Borrowed funds and other interest- bearing liabilities 5,830 8,096 (2,266) -27.99% Accrued interest payable and other liabilities 2,307 2,672 (365) -13.66% Total shareholders' equity 50,371 49,919 452 0.91% - ------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 507,126 $ 476,013 $ 31,113 6.54% - ------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on hand, deposits at correspondent banks and overnight investment of excess cash balances as Federal funds sold. The Company maintains balances at correspondent banks adequate to cover daily inclearings and other charges. The Company's net reserve requirement with the Federal Reserve Bank was $2.1 million at March 31, 1997. Cash and cash equivalents increased $40.9 million to $74.7 million at March 31, 1997 from $33.8 million at December 31, 1996. The increase is due to a $42.0 million increase in investments in overnight Federal funds sold. INVESTMENT SECURITIES The Company's available-for-sale securities portfolio includes U.S. Treasury securities and U.S. government agency securities, most of which are mortgage-backed securities. 14 Part I. Item 2. (continued) The following table sets forth the maturity distribution of the Company's investment securities at their estimated fair values at March 31, 1997:
Maturing in - ------------------------------------------------------------------------------------------------------------------------ Over one Over five One year year through years through Over (DOLLARS IN THOUSANDS) or less five years ten years ten years Total - ------------------------------------------------------------------------------------------------------------------------ U.S. Treasury securities and obligations of U.S. goverment agencies $ 14,728 $ 12,745 $ - $ 81 $ 27,554 Mortgage-backed securities - 33,847 5,580 - 39,427 - ------------------------------------------------------------------------------------------------------------------------ Total $ 14,728 $ 46,592 $ 5,580 $ 81 $ 66,981 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------
LOANS The Company provides a full range of credit products designed to meet the credit needs of borrowers in its market area. The Company engages in medium-term commercial real estate loans secured by commercial properties, commercial loans, term financing, SBA loans, loan participations, and consumer loans principally in the form of home equity lines of credit, vehicle loans, and loans to high net worth individuals. Additionally, the Company offers construction loan products principally for entry level housing and owner-user commercial industrial properties. Refer to NOTE 3-LOANS of the Company's consolidated financial statements which are included in Part 1. Item 1. of this Form 10-Q for a comparison of loans by category at March 31, 1997 and December 31, 1996. COMMERCIAL LOANS. Commercial loans totaled $165.3 million, or 47.5%, of total loans and $160.6 million, or 46.2%, of total loans at March 31, 1997 and December 31, 1996, respectively. Most of the Bank's commercial borrowers and customers are small-to medium-sized businesses and professionals. Most of the commercial loans are short term and bear a floating rate of interest. Approximately 63% of the commercial loan portfolio is secured. Collateral for these loans consists of accounts receivable, inventories, equipment and other business assets, including real estate. At March 31, 1997, $42.2 million, or 12.1%, of total loans were secured by accounts receivable as compared to $40.6 million, or 11.7%, of loans at December 31, 1996. Commercial loans secured by real estate comprised $18.3 million, or 5.3%, of total loans at March 31, 1997, compared to $14.4 million, or 4.2%, of loans at December 31, 1996. In 1995, the Company began participating in government-insured lending programs, including SBA loans. At March 31, 1997, the Company had $18.7 million of SBA loans. REAL ESTATE CONSTRUCTION LOANS. Real estate construction loans increased to $10.1 million, or 2.9%, of total loans at March 31, 1997 compared to $8.5 million, or 2.5%, of total loans at December 31, 1996. The Company's construction loan products are primarily targeted to developers of quality entry-level housing projects, to existing borrowers who are owner/users of commercial industrial property, and CRA community projects. REAL ESTATE MORTGAGE LOANS. Real estate mortgage loans comprise $105.7 million, or 30.4%, of the total loan portfolio at March 31, 1997 compared to $105.1 million, or 30.2%, of the total loans outstanding at December 31, 1996. Commercial real estate loans comprise the majority of the Company's mortgage loan portfolio. New real estate loans are generally made only to existing borrowers who are owner/users or to new borrowers who provide a new major banking relationship and demonstrate adequate cash flows. All new real estate borrowers must provide financial reporting that meets FDICIA standards and the loans must meet the Company's underwriting standards. The majority of the Company's real estate loans are secured by first trust deeds; and approximately 50% are to owner/users. CONSUMER LOANS. Consumer loans decreased to $67.1 million, or 19.3%, of the loan portfolio at March 31, 1997 from $73.6 million, or 21.2%, of total loans at December 31, 1996. The decrease in consumer loan balances at March 31, 1997 occured in homeowner equity loans, stock secured loans, and loans to high net worth individuals. The consumer loan portfolio at March 31, 1997 includes $26.4 million of home equity loans and home equity lines of credit representing 7.6% of total loans. Auto and recreational vehicle loans comprise approximately $18.6 million, or 5.4%, of total loans, and lines of credit to high net worth individuals comprise $17.1 15 Part I. Item 2. (continued) million, or 4.9% of total loans. The levels of consumer loans at period ends may fluctuate and may not necessarily be representative of average levels experienced during the respective periods due to the timing of advances and payments made on such loans by borrowers. MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES. The following table sets forth the maturity distribution of the Company's loan portfolio (excluding consumer and nonaccrual loans) at March 31, 1997, based on remaining scheduled principal repayments:
Maturing in - --------------------------------------------------------------------------------------------------------- Over one One year year through Over five (DOLLARS IN THOUSANDS) or less five years years Total - --------------------------------------------------------------------------------------------------------- Commercial $ 91,357 $ 53,256 $ 19,503 $ 164,116 Real estate, construction 5,326 2,236 2,507 10,069 Real estate, mortgage 10,618 64,867 23,515 99,000 - --------------------------------------------------------------------------------------------------------- Total $ 107,301 $ 120,359 $ 45,525 $ 273,185 - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
The following table sets forth information on sensitivity to changes in interest rates for the Company's loan portfolio (excluding consumer and nonaccrual loans) at March 31, 1997:
Maturing or Repricing in - --------------------------------------------------------------------------------------------------------- Over one One year year through Over five (DOLLARS IN THOUSANDS) or less five years years Total - --------------------------------------------------------------------------------------------------------- Fixed interest rates $ 22,563 $ 45,561 $ 17,498 $ 85,622 Variable interest rates 187,030 29 504 187,563 - --------------------------------------------------------------------------------------------------------- Total $ 209,593 $ 45,590 $ 18,002 $ 273,185 - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
The amounts reported in the categories in the tables do not reflect loan prepayments or other factors which may cause the loans to react in different degrees and at different times to changes in market interest rates. ASSET QUALITY NONACCRUAL, PAST DUE AND MODIFIED LOANS The Company recognizes income principally on the accrual basis of accounting. In determining income from loans, the Company generally adheres to a policy of not accruing interest on loans on which a default of principal or interest has existed for a period of 90 days or more. The Company's policy is to assign nonaccrual status to a loan if either (i) principal or interest payments are past due in excess of 90 days, unless the loan is both well secured and in the process of collection; or (ii) the full collection of interest or principal becomes uncertain, regardless of the length of past due status. When a loan reaches nonaccrual status, any interest accrued on such a loan is reversed and charged against current income. Nonaccrual loans increased to $7.9 million, or 2.26% of total loans, at March 31, 1997 from $2.8 million, or 0.82% of total loans, at December 31, 1996. The increase was primarily due to one matured real estate loan that was placed on nonaccrual status following the completion of an updated collateral valuation analysis. Payments on the loan were current as of March 31, 1997. 16 Part I. Item 2. (continued) Nonaccrual loans by category are summarized below:
March 31, December 31, (DOLLARS IN THOUSANDS) 1997 1996 - -------------------------------------------------------------------------------- Commercial $ 1,140 $ 1,316 Real estate, construction - - Real estate, mortgage 6,691 1,446 Consumer 40 84 - -------------------------------------------------------------------------------- Total nonaccrual loans $ 7,871 $ 2,846 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Delinquent loans (past due 30 to 89 days and still accruing interest) by category are summarized below:
March 31, December 31, (DOLLARS IN THOUSANDS) 1997 1996 - -------------------------------------------------------------------------------- Commercial $ 948 $ 1,273 Real estate, construction - - Real estate, mortgage 979 415 Consumer 719 1,125 - -------------------------------------------------------------------------------- Total delinquent loans $ 2,646 $ 2,813 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Percentage of total gross loans: Nonaccrual loans 2.26% 0.82% Delinquent loans, still accruing interest 0.76% 0.81% Nonaccrual and delinquent loans 3.02% 1.63%
ALLOWANCE FOR POSSIBLE LOAN LOSSES A certain degree of risk is inherent in the extension of credit. Management has adopted a policy to maintain the allowance for possible loan and lease losses at a level considered by management to be adequate to absorb estimated known and inherent risks in the existing portfolio. Management performs a comprehensive analysis of the loan portfolio and its current allowance for loan losses on a regular basis to determine if loans are currently protected according to financial and collateral standards deemed acceptable. The allowance for possible loan losses represents management's recognition of the assumed risks of extending credit and the quality of the loan portfolio. The allowance is management's estimate, which is inherently uncertain and depends on the outcome of future events. The evaluation of the quality of the loan portfolio considers the borrower's management, financial condition, cash flow and repayment program, as well as the existence of collateral and guarantees. External business and economic factors beyond the borrower's control, combined with the Company's previous loan loss experience, are considered in management's evaluation of the allowance for possible loan losses. In addition, bank regulatory authorities, as an integral part of their examination process, periodically review the Company's allowance for possible loan losses and may recommend additions to the allowance based on their assessment of information available to them at the time of their examination. When it is determined that additions are required, additions to the allowance are made through charges to operations and are reflected in the statements of operations as a provision for loan losses. Loans which are deemed to be uncollectible are charged to the allowance. Subsequent recoveries, if any, are credited back to the allowance. Management's analysis of loan portfolio for the first quarter of 1997 considered the factors discussed above and incorporated the 17 Part I. Item 2. (continued) Company's actual four year average charge-off experience for purposes of determining the adequacy of the allowance for possible loan losses. The valuation analysis supports a 1.30% ratio of allowance to total loans. The Company's 1.54% ratio of the allowance for possible loans losses to total loans at March 31, 1997 remains above this level. Refer to NOTE 3-LOANS of the Company's consolidated financial statements which are included in Part I. Item 1. of this Form 10-Q for additional information concerning activity in the allowance for possible loan losses, including charge-offs and recoveries. The provision for possible loan losses is discussed above. See "Provision for Loan Losses." OTHER REAL ESTATE OWNED OREO primarily includes properties acquired through foreclosure or through full or partial satisfaction of loans. The difference between the fair value of the real estate collateral, less the estimated costs of disposal, and the loan balance at the time of transfer to OREO is reflected in the allowance for possible loan losses as a charge-off. Any subsequent declines in the fair value of the OREO property after the date of transfer are recorded through a provision for writedowns on OREO. Routine holding costs, net of any income and net gains or losses on disposal, are reported in noninterest expense. Activity in OREO for the periods indicated is as follows:
Three months Ended Year Ended March 31, December 31, (DOLLARS IN THOUSANDS) 1997 1996 - -------------------------------------------------------------------------------- Balance, beginning of period $ 536 $ 2,073 Additions 118 699 Sales - (4,317) Valuation - 2,081 - -------------------------------------------------------------------------------- Balance, end of period $ 654 $ 536 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
At March 31, 1997, the OREO portfolio consisted of three properties. The Company is actively marketing these properties. DEPOSITS Total deposits at March 31, 1997 were $448.6 million, a $33.3 million increase from $415.3 million at December 31, 1996. The following table sets forth the distribution of average deposits and the rates paid thereon for the periods indicated:
Three Months Ended Year Ended March 31, 1997 December 31, 1996 - ------------------------------------------------------------------------------------------------------------------------- Average Average (DOLLARS IN THOUSANDS) Balance Rate (1) % of total Balance Rate % of total - ------------------------------------------------------------------------------------------------------------------------- Demand deposits $ 125,736 30.07% $ 119,570 29.70% NOW/MMDA 104,119 2.82% 24.91% 95,098 2.58% 23.63% Savings 42,295 2.32% 10.12% 44,272 2.11% 11.00% TCDs 145,827 5.28% 34.90% 143,582 5.36% 35.67% - ------------------------------------------------------------------------------------------------------------------------- Deposits $ 417,977 100.00% $ 402,522 100.00% - ------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------
(1) Annualized. The increase in average deposit balances to $418.0 million at March 31, 1997 from $402.5 million at December 31, 1996 can be 18 Part I. Item 2. (continued) attributed to various core deposit promotions by the Bank, as well as to an increase in short-term money market deposits at March 31, 1997. The reduction in the average rate paid on time certificates of deposit ("TCD") to 5.28% for the three months ending March 31, 1997 from 5.36% for the comparable period in 1996, is largely due to the managed reduction in higher rate TCD accounts raised through TCD promotion programs. These accounts have largely been replaced with lower cost deposits. The following table sets forth the maturities of the Company's time certificate of deposit accounts at the dates indicated:
March 31,1997 Maturing in - ------------------------------------------------------------------------------------------------------------------------ Over three Over six Three months months through months through Over (DOLLARS IN THOUSANDS) or less six months twelve months twelve months Total - ------------------------------------------------------------------------------------------------------------------------ Under $100,000 $ 26,885 $ 24,845 $ 13,683 $ 7,064 $ 72,477 $100,000 and over 32,719 36,110 9,185 1,770 79,784 - ------------------------------------------------------------------------------------------------------------------------ Total $ 59,604 $ 60,955 $ 22,868 $ 8,834 $ 152,261 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ December 31, 1996 Maturing in - ------------------------------------------------------------------------------------------------------------------------ Over three Over six Three months months through months through Over (DOLLARS IN THOUSANDS) or less six months twelve months twelve months Total - ------------------------------------------------------------------------------------------------------------------------ Under $100,000 $ 31,750 $ 20,563 $ 19,700 $ 9,564 $ 81,577 $100,000 and over 41,016 9,170 11,097 2,373 63,656 - ------------------------------------------------------------------------------------------------------------------------ Total $ 72,766 $ 29,733 $ 30,797 $ 11,937 $ 145,233 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------
BORROWED FUNDS AND OTHER INTEREST-BEARING LIABILITIES Borrowed funds and other interest-bearing liabilities consist of overnight Federal funds purchased, Treasury, tax and loan notes ("TT&L"), obligations to senior lienholders for certain OREO properties and deferred compensation liabilities. The balance of borrowed funds and other interest-bearing liabilities decreased to $5.8 million at March 31, 1997 from $8.1 million at December 31, 1996. $1.9 million of overnight Federal funds purchased were outstanding at December 31, 1996. There were no Federal funds purchased as of March 31, 1997. ASSET/LIABILITY MANAGEMENT The objective of asset/liability management is to manage and control the Company's exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. The Company seeks to achieve this objective by matching its interest rate-sensitive assets and liabilities, and maintaining the maturity and repricing of these assets and liabilities at appropriate levels given the interest rate environment. Generally, if rate-sensitive assets exceed rate-sensitive liabilities, the net interest income will be positively impacted during a rising rate environment and negatively impacted during a declining rate environment. When rate-sensitive liabilities exceed rate-sensitive assets, the net interest income will generally be positively impacted during a declining rate environment and negatively impacted during a rising rate environment. However, because interest rates for different asset and liability products offered by depository institutions respond differently to changes in the interest rate environment, the gap between rate-sensitive assets and rate-sensitive liabilities can only be used as a general indicator of interest rate sensitivity. 19 Part I. Item 2. (continued) The following gap repricing table sets forth information concerning the Company's rate-sensitive assets and rate-sensitive liabilities, including the off-balance sheet amount for the interest rate swap, as of March 31, 1997. Such assets and liabilities are classified by the earlier of maturity or repricing date in accordance with their contractual terms. Certain shortcomings are inherent in the method of analysis presented in the following gap table. For example, although certain assets and liabilities may have similar maturities or periods to reprice, they may react in different degrees and at different times to changes in market interest rates. Also, loan prepayments and changes in the mix or level of deposits could cause the interest sensitivities to vary from those which appear in the table.
Over three Over one Three months months through year through Over (DOLLARS IN THOUSANDS) or less twelve months five years five years Total - ------------------------------------------------------------------------------------------------------------------- INTEREST-EARNING ASSETS Federal funds sold $ 45,808 $ - $ - $ - $ 45,808 Investment securities, at cost - 14,773 48,310 5,978 69,061 Gross Loans (1) 205,981 45,782 60,474 28,001 340,238 Interest rate swap 50,000 - - - 50,000 - ------------------------------------------------------------------------------------------------------------------- Total interest-earning assets $ 301,789 $ 60,555 $ 108,784 $ 33,979 $ 505,107 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- INTEREST-BEARING LIABILITIES Interest-bearing demand and savings deposits $ - $ 39,293 $ 109,075 $ 17,139 $ 165,507 Time certificates of deposit 59,604 83,823 8,817 17 152,261 Other borrowings and interest- bearing liabilities 4,623 1,207 - - 5,830 Interest rate swap 50,000 - - - 50,000 - ------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities $ 114,227 $ 124,323 $ 117,892 $ 17,156 $ 373,598 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Interest rate sensitivity gap $ 187,562 $ (63,768) $ (9,108) $ 16,823 Cumulative interest rate sensitivity gap 187,562 123,794 114,686 131,509 Cumulative interest rate sensitivity gap as a percentage of total interest- earning assets 37.13% 24.51% 22.71% 26.04% - ------------------------------------------------------- (1) Excludes nonaccrual loans of $7.9 million.
At March 31, 1997, the Company's rate-sensitive balance sheet was shown to be in a positive gap position over a one-year horizon. The gap between assets and liabilities that reprice within 12 months was $123.8 million or 24.51% of assets. The table above implies that the Company is moderately asset-sensitive and that its earnings would increase in the short-term if interest rates rise. Repricing of the Company's interest-bearing demand and savings deposits generally lags repricing on the Company's variable rate loan portfolio. These core deposits tend to be fairly stable over time and exhibit a low sensitivity to changes in interest rates. In preparing the gap table, management distributes core deposit balances across the maturity ranges in accordance with regulatory guidelines in order to incorporate these characteristics of its core deposits. In addition to utilizing the repricing gap table above in managing its interest rate risk, the Company performs a quarterly income simulation analysis. This simulation analysis provides a dynamic evaluation of the Company's balance sheet and income statement under varying scenarios, providing an estimate of both the dollar amount and percentage change in net interest income under various changes in interest rates. Based on the income simulation analysis conducted as of March 31, 1997, the Company remains moderately asset-sensitive. Thus, a rising rate environment would tend to lead to a moderate increase in net interest income. 20 Part I. Item 2. (continued) LIQUIDITY Liquidity management involves the Company's ability to meet the cash flow requirements of its customers who may be depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. The Company's liquid assets consist of cash and cash equivalents and investment securities, excluding those pledged as collateral. The Company has established policy guidelines to support the sound management of its liquidity position based on regulatory guidance and industry practice. It is the Company's policy to maintain a liquidity ratio (liquid assets to liabilities) of between 20% and 40%, and to limit gross loans to no more than 85% of deposits. At March 31, 1997, the Company's ratios were within these guidelines: the liquidity ratio was 27.4% and the loan to deposit ratio was 77.6%. At December 31, 1996, the Company's liquidity ratio was 21.64% and the loan to deposit ratio was 83.59%. The Company maintains short-term sources of funds to meet periodic planned and unplanned increases in loan demand and deposit withdrawals and maturities. The initial source of liquidity is the excess funds sold daily to other banks in the form of Federal funds. Besides cash and cash equivalents, the Company maintains a portion of its investment securities portfolio as available-for-sale. Available-for-sale securities can be sold in response to liquidity needs or used as collateral under reverse repurchase agreements. While the Company currently has no plans to liquidate securities in the portfolio, it has sold securities in previous years. The likelihood that securities would be sold in the future and the potential for losses to be realized remains uncertain. In the event that securities held as available-for-sale were sold at a loss, any loss would be reflected in the results of operations on an after-tax basis. However, there would be no expected impact on the Company's financial condition, given that the securities are carried at their estimated fair value, net of any unrealized loss. The unrealized loss on available-for-sale securities increased to $2.1 million at March 31, 1997 from $1.5 million at December 31, 1996. The Company's liquid assets were $121.6 million at March 31, 1997, an increase of $32.3 million from December 31, 1996. The increase can be attributed to the increase in deposit balances as previously discussed. Secondary sources of liquidity include reverse repurchase arrangements to borrow cash for short to intermediate periods of time using the Company's available-for-sale securities as collateral, Federal funds lines of credit that allow the Company to temporarily borrow an aggregate of up to $35.0 million from three commercial banks and a $5.4 million line of credit with the Federal Home Loan Bank ("FHLB") collateralized by mortgage loans. At March 31, 1997, the Company had approximately $53.2 million in unpledged securities that could be used to secure borrowings such as reverse repurchase agreements. During the three months ended March 31, 1997, the largest amount of funds so borrowed was $9.8 million. Federal funds arrangements with correspondent banks are subject to the terms of the individual arrangements and may be terminated at the discretion of the correspondent bank. Federal funds purchases of up to $10.0 million were borrowed during the quarter ended March 31, 1997. CAPITAL RESOURCES The Company and its bank subsidiary are subject to risk-based capital regulations adopted by the federal banking regulators in January 1990. These guidelines are used to evaluate capital adequacy, and are based on an institution's asset risk profile and off-balance sheet exposures, such as unused loan commitments and letters of credit. The regulations require that a portion of total capital be core, or Tier 1, capital consisting of common shareholders' equity and perpetual preferred stock, less goodwill and certain other deductions, with the remaining, or Tier 2, capital consisting of other elements, primarily subordinated debt, mandatory convertible debt, and grandfathered senior debt, plus the allowance for possible loan losses, subject to certain limitations. As of December 1992, the risk-based capital rules were further supplemented by a leverage ratio defined as Tier 1 capital divided by quarterly average assets after certain adjustments. The minimum leverage ratio is 3 percent for banking organizations that do not anticipate significant growth and have well-diversified risk (including no undue interest rate exposure), excellent asset quality, high liquidity and good earnings. Other banking organizations not meeting these standards are expected to have ratios of at least 4 to 5 percent, depending on their particular condition and growth plans. Higher capital ratios can be mandated by the regulators if warranted by the particular circumstances or risk profile of a banking organization. In the current regulatory environment, banking companies must stay well-capitalized, as defined in the banking regulations, in order to receive favorable regulatory treatment on acquisitions and favorable risk-based deposit insurance assessments. Management seeks to maintain capital ratios in excess of the regulatory minimums. As of March 31, 1997, the capital ratios of the Company and the Bank exceeded the well-capitalized thresholds prescribed in the rules. 21 Part I. Item 2. (continued) The following table sets forth the Company's and the Bank's leverage and risk-based capital ratios at March 31, 1997:
Company Bank - ----------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Amount % Amount % - ----------------------------------------------------------------------------------------------- Leverage ratio $48,041 10.12% $46,301 9.75% Regulatory minimum 18,997 4.00% (c) 18,986 4.00% (c) Excess 29,044 6.12% 27,315 5.75% Risk-based ratios Tier 1 capital $48,041 (a) 11.11% (b) $46,301 (a) 10.72% (b) Tier 1 minimum 17,295 4.00% (c) 17,284 4.00% (c) Excess 30,746 7.11% 29,017 6.72% Total capital $53,386 (d) 12.35% (b) $51,646 (d) 11.95% (b) Total capital minimum 34,591 8.00% 34,569 8.00% (c) Excess 18,795 4.35% 17,077 3.95% - -----------------------------------------------------------------------------------------------
(a) Includes common shareholders' equity (excluding unrealized losses on available-for-sale securities) less goodwill and other intangibles. The Tier 1 capital ratio is adjusted for the disallowed portion of deferred tax assets, if applicable. (b) Risk-weighted assets of $432.4 million and $432.1 million were used to compute these percentages for the Company and the Bank, respectively. (c) Insured institutions, such as the Bank, must maintain a leverage capital ratio of at least 4% or 5%, a Tier 1 captial ratio of at least 4% or 6%, and a Total captial ratio of at least 8% or 10% in order to be categorized adequately capitalized or well-capitalized, respectively. (d) Tier 1 capital plus the allowance for loan losses, limited to 1.25% of total risk-weighted assets. 22 Part II. Other Information Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities On January 30, 1997, the Company amended Section 10 of its by- laws relating to action taken by holders of the Company's common stock by written consent without a meeting. Such amendment institutes a more detailed procedure whereby a record date will be set to determine shareholders entitled to consent to action in writing without a meeting. The amendment also requires that: (1) the Company appoint independent inspectors of election for the purpose of performing a ministerial review of the validity of such consents; (2) all such consents bear the date of signature of each shareholder signing such consent; and (3) no written consent dated more than sixty (60) days after the earliest dated consent received by the Company pertaining to such action shall be effective. Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Index - -------------------------------------------------------------------------------- Exhibit Description No. - -------------------------------------------------------------------------------- 3(i).1 SC Bancorp Articles of Incorporation (d) 3(i).2 Certificate of Amendment to SC Bancorp Articles of Incorporation dated May 9, 1995(e) 3(ii).1 Amended and Restated Bylaws of SC Bancorp(f) 4.1 Specimen Common Stock Certificate(a) 4.2 SC Bancorp 1989 Stock Option Plan(c) 4.3.1 Amended and restated Southern California Bank Employee Retirement Plan(b) 4.3.2 First amendment to the amended and restated Southern California Bank Employee Retirement Plan(e) 4.3.3 Second amendment to the amended and restated Southern California Bank Employee Retirement Plan(e) 4.3.4 Third amendment to the amended and restated Southern California Bank Employee Retirement Plan(e) 4.3.5 Fourth amendment to the amended and restated Southern California Bank Employee Retirement Plan(e) 4.4.1 SC Bancorp Executive Deferral Plan (IV)(c) 4.4.2 Amendment No. 6 to SC Bancorp Executive Deferral Plan I 4.4.3 Amendment No. 3 to SC Bancorp Executive Deferral Plan II 4.4.4 Amendment No. 2 to SC Bancorp Executive Deferral Plan III 4.4.5 Amendment No. 2 to the amended and restated Southern California Bank Executive Deferral Plan IV 4.4.6 Amendment No. 1 to the Master Trust Agreement for SC Bancorp Executive Deferral Plans 4.5 Southern California Bank Executive Incentive Compensation Plans for 1994(a) 4.6 Southern California Bank Executive Incentive Compensation Plans for 1995(e) 4.7 Southern California Bank Executive Incentive Compensation Plans for 1996(f) 10.1 Employment Agreement between SC Bancorp and Southern California Bank and Larry D. Hartwig, dated January 1, 1997(f) 10.2 Employment Agreement between SC Bancorp and Southern California Bank and David A. McCoy, dated February 25, 1992(f) 10.3 Amended and Restated Employment Security Agreement between SC Bancorp and Southern California Bank and David A. McCoy, dated January 1, 1997(f) 10.4 Amended and Restated Employment Security Agreement between SC Bancorp and Southern California Bank and Bruce W. Roat, dated January 1, 1997(f) 23 Exhibit Index (continued) 10.5 Amended and Restated Employment Security Agreement between SC Bancorp and Southern California Bank and Ann E. McPartlin, dated January 1, 1997(f) 10.6 Amended and Restated Employment Security Agreement between SC Bancorp and Southern California Bank and M. V. Cummings, dated January 1, 1997(f) 27.1 Financial Data Schedule - -------------------------------------------------------------------------------- (a) This exhibit is contained in SC Bancorp's Registration Statement on Form S-2, filed with the Commission on March 9, 1994, (Commission File No. 33-76274), and incorporated herein by reference. (b) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K for the year ended December 31,1991, filed with the Commission on March 30, 1992, (Commission File No. 0-11046) and incorporated herein by reference. (c) This exhibit is contained in SC Bancorp's Proxy Statement, filed with the Commission on on March 23, 1990, (Commission File No. 0-11046) and incorporated herein by reference. (d) This exhibit is contained in SC Bancorp's Quarterly Report on Form 10-Q for the period ended March 31, 1995, filed with the Commission on May 15, 1995, (Commission File No. 0-11046) and incorporated herein by reference. (e) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K for the year ended December 31,1995, filed with the Commission on March 29, 1996, (Commission File No. 0-11046) and incorporated herein by reference. (f) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K for the year ended December 31, 1996, filed with the Commission of March 27, 1997, (Commission File No. 0-11046) and incorporated herein by reference. - ------------------- (b) Reports filed on Form 8-K None filed during the first quarter of 1997. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: 9 May, 1997 SC BANCORP (Registrant) ` By: /S/ Bruce Roat ---------------------------- Bruce Roat E.V.P./C.F.O. (Principal Financial and Accounting Officer) 24 EX-4.4(2) 2 EXHIBIT 4.4.2 SC BANCORP AMENDMENT NO. 6 EXECUTIVE DEFERRAL PLAN I SC Bancorp, a California corporation, hereby amends the SC Bancorp Executive Deferral Plan I, which was initially effective on June 1, 1986 (the "Plan"), as follows: 1. New Section 1.0 of the Plan is added to read as follows: "1.0 'Bank' shall mean Southern California Bank, a California corporation." 2. New Section 1.2A of the Plan is added to read as follows: "1.2A 'Change in Control Event' shall be deemed to have occurred if and when: a. the Company shall consummate a merger or consolidation (a 'Transaction') with another corporation; PROVIDED, HOWEVER, that a Change of Control shall not be deemed to have occurred with respect to a Transaction if the beneficial owners of the outstanding shares entitled to vote in the election of directors immediately prior to such Transaction will beneficially own more than sixty percent (60%) of the outstanding shares entitled to vote in the election of directors of the corporation resulting from the consummation of the Transaction; or b. twenty-five percent (25%) of the Company's securities then entitled to vote in the election of directors shall be acquired by any 'person' (as such term is used in Sections 13(d) of the Securities Exchange Act of 1934, as amended); or c. during any period of twenty-four (24) consecutive months, individuals who at the beginning of such period were members of the Board of Directors of the Company (the 'Incumbent Board') shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company, provided that any -1- person becoming a director subsequent to the beginning of such period whose election or nomination for election was approved by a vote of at least eighty-five percent (85%) of the directors comprising the Incumbent Board shall be, for purposes hereof, considered as though such person were a member of the Incumbent Board; or d. the Bank or the Company shall sell all, or substantially all, of its assets to another corporation." 3. New Section 7.6 shall be added to the Plan to read as follows: "7.6 COMMITTEE DISCRETION. For purposes of determining the form of payment of a Participant's termination benefit, the Committee may, in its sole and absolute discretion, deem a Participant who has experienced a Termination of Employment prior to the Participant's Retirement as being eligible for Retirement under Article 5. Such Participant's benefit shall be paid at the same time and in the same manner as elected by the Participant prior to the beginning of the Benefit Unit. The applicable interest rate on the EDP Account, including any unpaid balances, will be based on a fixed rate which is an average of the annual Moody's Seasoned Corporate Bond Rate over the five (5) years prior to the Participant's deemed Retirement, with an additional five (5%) interest." 4. Section 12.3 shall be added to the Plan to read as follows: "12.3 TERMINATION, AMENDMENT OR MODIFICATION AFTER A CHANGE IN CONTROL EVENT. Notwithstanding any other provision of this Plan, subsequent to a Change in Control Event, the benefits of a Participant who is receiving payments under this Plan shall not be affected by a Plan termination, or any amendment or modification which adversely affects such Participant's benefits, under Sections 12.1 or 12.2. The benefits of a Participant who has not yet begun to receive payments prior to such Change in Control Event shall be paid at the same time and in the same manner as elected by the Participant prior to the beginning of the Benefit Unit." * * * * * -2- SC Bancorp has signed this Amendment on the date indicated below to be effective January 1, 1997. SC BANCORP Date: Feb. 27, 1997 By: /s/ H.A. Beisswenger ---------------------- Its: Chr. --------------------- -3- EX-4.4(3) 3 EXHIBIT 4.4.3 SC BANCORP AMENDMENT NO. 3 TO SC BANCORP EXECUTIVE DEFERRAL PLAN II SC Bancorp, a California corporation, hereby amends the SC Bancorp Executive Deferral Plan II, which was initially effective on January 1, 1989 (the "Plan"), as follows: 1. Article I, entitled DEFINITIONS, is amended by adding Section 1.1A as follows: "1.1A 'Bank' shall mean Southern California Bank, a California corporation." 2. Article I, entitled DEFINITIONS, is amended by adding Section 1.3A as follows: "1.3A 'Change in Control Event' shall be deemed to have occurred if and when: a. the Company shall consummate a merger or consolidation (a 'Transaction') with another corporation; PROVIDED, HOWEVER, that a Change of Control shall not be deemed to have occurred with respect to a Transaction if the beneficial owners of the outstanding shares entitled to vote in the election of directors immediately prior to such Transaction will beneficially own more than sixty percent (60%) of the outstanding shares entitled to vote in the election of directors of the corporation resulting from the consummation of the Transaction; or b. twenty-five percent (25%) of the Company's securities then entitled to vote in the election of directors shall be acquired by any 'person' (as such term is used in Sections 13(d) of the Securities Exchange Act of 1934, as amended); or c. during any period of twenty-four (24) consecutive months, individuals who at the beginning of such period were members of the Board of Directors of the Company (the 'Incumbent Board') shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company, provided that any person becoming a director subsequent to the beginning of such -1- period whose election or nomination for election was approved by a vote of at least eighty-five percent (85%) of the directors comprising the Incumbent Board shall be, for purposes hereof, considered as though such person were a member of the Incumbent Board; or d. the Bank or the Company shall sell all, or substantially all, of its assets to another corporation." 3. The last sentence of Section 4.1 is amended in its entirety to read as follows: "Notwithstanding any other provision of the Plan, excess values will continue to accumulate at a rate equal to Moody's plus 5.0% until the earliest of death or retirement." 4. Section 14.6 shall be added to the Plan to read as follows: "14.6 TERMINATION, AMENDMENT OR MODIFICATION AFTER A CHANGE IN CONTROL EVENT. Notwithstanding any other provision of this Plan, subsequent to a Change in Control Event, the benefits of a Participant who is receiving payments under this Plan shall not be affected by a Plan termination, or any amendment or modification which adversely affects such Participant's benefits, under Sections 14.1 or 14.2. The benefits of a Participant who has not yet begun to receive payments prior to such Change in Control Event shall be paid at the same time and in the same manner as elected by the Participant prior to the beginning of the Benefit Unit." * * * * * SC Bancorp has signed this Amendment on the date indicated below to be effective as of January 1, 1997. SC BANCORP, Date: Feb. 27, 1997 By: /s/ H.A. Beisswenger -------------------- Its: Chr. ----------------- -2- EX-4.4(4) 4 EXHIBIT 4.4.4 AMENDMENT NO. 2 TO SC BANCORP EXECUTIVE DEFERRAL PLAN III SC BANCORP, a California corporation, hereby amends the SC Bancorp Executive Deferral Plan III, which was initially effective on June 1, 1990 (the "Plan"), as follows: 1. New Section 1.1A of the Plan is added to read as follows: "1.1A 'Bank' shall mean Southern California Bank, a California corporation." 2. New Section 1.7A of the Plan is added to read as follows: "1.7A' Change in Control Event' shall be deemed to have occurred if and when: a. the Company shall consummate a merger or consolidation (a 'Transaction') with another corporation; PROVIDED, HOWEVER, that a Change of Control shall not be deemed to have occurred with respect to a Transaction if the beneficial owners of the outstanding shares entitled to vote in the election of directors immediately prior to such Transaction will beneficially own more than sixty percent (60%) of the outstanding shares entitled to vote in the election of directors of the corporation resulting from the consummation of the Transaction; or b. twenty-five percent (25%) of the Company's securities then entitled to vote in the election of directors shall be acquired by any 'person' (as such term is used in Sections 13(d) of the Securities Exchange Act of 1934, as amended); or c. during any period of twenty-four (24) consecutive months, individuals who at the beginning of such period were members of the Board of Directors of the Company (the 'Incumbent Board') shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company, provided that any -1- person becoming a director subsequent to the beginning of such period whose election or nomination for election was approved by a vote of at least eighty-five percent (85%) of the directors comprising the Incumbent Board shall be, for purposes hereof, considered as though such person were a member of the Incumbent Board; or d. the Bank or the Company shall sell all, or substantially all, of its assets to another corporation." 3. The last sentence of Section 3.5 is amended in its entirety to read as follows: "For purposes of any Long-Term Payments described in Article 5, the Moody's Rate for the current Plan Year plus five (5) percentage points and the Moody's Rates plus five (5) percentage points for each of the preceding five (5) Plan Years will be averaged and used to calculate the interest for benefit payments." 4. New Section 7.5 shall be added to the Plan to read as follows: "7.5 COMMITTEE DISCRETION. For purposes of determining the form of payment of a Participant's termination benefit, the Committee may, in its sole and absolute discretion, deem a Participant who has experienced a Termination of Employment prior to the Participant's Benefit Commencement Date as being eligible for the Long-Term Payment Option under Article 5. Such Participant's benefit shall be paid at the same time and in the same manner as elected by the Participant prior to the beginning of the Benefit Unit. The applicable interest rate to be used in determining such Participant's Account Balance shall be the Moody's Rate plus five (5) percentage points and the interest rate to be used in determining a Participant's installment payments shall be the interest rate set forth in Section 3.5." 5. Section 14.6 shall be added to the Plan to read as follows: "14.6 TERMINATION, AMENDMENT OR MODIFICATION AFTER A CHANGE IN CONTROL EVENT Notwithstanding any other provision of this Plan, subsequent to a Change -2- in Control Event, the benefits of a Participant who is receiving payments under this Plan shall not be affected by a Plan termination, or any amendment or modification which adversely affects such Participant's benefits, under Sections 14.1 or 14.2. The benefits of a Participant who has not yet begun to receive payments prior to such Change in Control Event shall be paid at the same time and in the same manner as elected by the Participant prior to the beginning of the Benefit Unit." * * * * * SC Bancorp has signed this Amendment on the date indicated below to be effective as of January 1, 1997. SC BANCORP Date: Feb. 27, 1997 By: /s/ H.A. Beisswenger ----------------------- Its: Chr. ------------------- -3- EX-4.4(5) 5 EXHIBIT 4.4.5 AMENDMENT NO. 2 TO THE SOUTHERN CALIFORNIA BANK EXECUTIVE DEFERRAL PLAN IV (AMENDED AND RESTATED) SOUTHERN CALIFORNIA BANK, a California corporation (the "Company") hereby amends the above-named plan (the "Plan"), effective as of January 1, 1997, as follows: 1. Section 1.9 of the Plan is amended in its entirety to read as follows: "1.9 'Change in Control Event' shall be deemed to have occurred if and when: (a) the Holding Company shall consummate a merger or consolidation (a 'Transaction') with another corporation; PROVIDED, HOWEVER, that a Change of Control shall not be deemed to have occurred with respect to a Transaction if the beneficial owners of the outstanding shares entitled to vote in the election of directors immediately prior to such Transaction will beneficially own more than sixty percent (60%) of the outstanding shares entitled to vote in the election of directors of the corporation resulting from the consummation of the Transaction; or (b) twenty-five percent (25%) of the Holding Company's securities then entitled to vote in the election of directors shall be acquired by any 'person' (as such term is used in Sections 13(d) of the Securities Exchange Act of 1934, as amended); or (c) during any period of twenty-four (24) consecutive months, individuals who at the beginning of such period were members of the Board of Directors of the Holding Company (the 'Incumbent Board') shall cease to constitute a majority of the Board of Directors of the Holding Company or any successor to the Holding Company, provided that any person becoming a director subsequent to the beginning of such period whose election or nomination for election was approved by a vote of at least eighty-five percent (85%) of the -1- directors comprising the Incumbent Board shall be, for purposes hereof, considered as though such person were a member of the Incumbent Board; or (d) the Holding Company or the Company shall sell all, or substantially all, of its assets to another corporation." 2. Section 3.6(a) of the Plan is amended in its entirety to read as follows: "3.6 (a) INTEREST RATE. The interest rate to be used to calculate installment payment amounts shall be a fixed interest rate that is determined by averaging the Preferred Rates for the Plan Year in which installment payments commence and the four (4) preceding Plan Years. If a Participant has completed fewer than five (5) Plan Years, this average shall be determined using the Preferred Rates for the Plan Years during which the Participant participated in the Plan." 3. Section 7.3 shall be added to the Plan to read as follows: "7.3 COMMITTEE DISCRETION. For purposes of determining the form of payment of a Participant's Termination Benefit, the Committee may, in its sole and absolute discretion, deem a Participant who has experienced a Termination of Employment prior to the Participant's Retirement as having terminated employment on account of Retirement. Payment of such Participant's benefit shall be made in a lump sum, or installment payments shall commence, no later than 60 days from the date of such deemed Retirement. The Election Form submitted at least two (2) years prior to the Participant's deemed Retirement shall govern the payout of the Retirement Benefit. For example, a Participant who is deemed Retired in 1998 shall be paid his or her Retirement Benefit in accordance with the 1996 Election Form. A Participant who has been a Participant for less than two (2) years shall have his or her Retirement Benefit paid in accordance with the first Election Form filed by the Participant. The applicable interest rate to be used in determining such Participant's Retirement Benefit shall be the Preferred Rate and the interest rate to be used in determining a Participant's installment payments shall be the interest rate set forth in Section 3.6(a)." -2- 4. Section 11.1 of the Plan is amended by deleting the fourth sentence of said Section in its entirety. 5. Section 11.3 of the Plan is amended by deleting the second sentence of said Section in its entirety. 6. Section 11.5 shall be added to the Plan to read as follows: "11.5 TERMINATION, AMENDMENT OR MODIFICATION AFTER A CHANGE IN CONTROL EVENT. Notwithstanding any other provision of this Plan, subsequent to a Change in Control Event, the benefits of a Participant who is receiving payments under this Plan shall not be affected by a Plan termination, or any amendment or modification which adversely affects such Participant's benefits, under Sections 11.1 or 11.2. The benefits of a Participant who has not yet begun to receive payments prior to such Change in Control Event shall be paid no later than 60 days from the date of the Plan termination, or any amendment or modification which adversely affects such Participant's benefits either in a lump sum, or if the Participant is eligible to Retire (or the Committee deems the Participant eligible to Retire) in accordance with the Election Form filed at least two (2) years prior to the Plan's termination, amendment or modification." * * * * * The Company has caused this Amendment No. 2 to be signed by its duly authorized officer on Feb. 27, 1997. "Company" SOUTHERN CALIFORNIA BANK, a California corporation By: /s/ H.A. Beisswenger ---------------------- Its: Chr. ----------------- -3- EX-4.4(6) 6 EXHIBIT 4.4.6 AMENDMENT NO. 1 TO THE MASTER TRUST AGREEMENT FOR SC BANCORP EXECUTIVE DEFERRAL PLANS SC BANCORP, a California corporation (the "Company") hereby amends the above-named trust (the "Trust"), effective as of January 1, 1997, as follows: Section 1.5(d) of the Trust is amended in its entirety to read as follows: "1.5 (d) 'Change in Control' shall be deemed to have occurred if and when: (i) the Company shall consummate a merger or consolidation (a 'Transaction') with another corporation; PROVIDED, HOWEVER, that a Change of Control shall not be deemed to have occurred with respect to a Transaction if the beneficial owners of the outstanding shares entitled to vote in the election of directors immediately prior to such Transaction will beneficially own more than sixty percent (60%) of the outstanding shares entitled to vote in the election of directors of the corporation resulting from the consummation of the Transaction; or (ii) twenty-five percent (25%) of the Company's securities then entitled to vote in the election of directors shall be acquired by any 'person' (as such term is used in Sections 13(d) of the Securities Exchange Act of 1934, as amended); or (iii)during any period of twenty-four (24) consecutive months, individuals who at the beginning of such period were members of the Board of Directors of the Company (the 'Incumbent Board') shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company, provided that any person becoming a director -1- subsequent to the beginning of such period whose election or nomination for election was approved by a vote of at least eighty-five percent (85%) of the directors comprising the Incumbent Board shall be, for purposes hereof, considered as though such person were a member of the Incumbent Board; or (iv) the Company or the Bank shall sell all, or substantially all, of its assets to another corporation." * * * * * IN WITNESS WHEREOF the Company and the Trustee have signed this Amendment No. 1 to the Master Trust Agreement effective as of January 1, 1997. TRUSTEE: THE COMPANY: WELLS FARGO BANK, N.A. SC BANCORP, a California corporation By: /s/ Jonathan L. Andersen By: /s/ H.A. Beisswenger ------------------------------- --------------------------- Title: Assistant Vice President Title: Chr. ------------------------ ---------- By: /s/ Dana Chrisikos By: /s/ Donald E. Wood ------------------------------- --------------------------- Title: Assistant Vice President Title: Vice Chr. ------------------------ -------------------- -2- EX-27 7 EXHIBIT 27
9 1,000 3-MOS DEC-31-1996 JAN-01-1997 MAR-31-1997 28,923 0 45,808 0 66,981 0 0 348,109 5,345 507,126 448,618 5,830 2,307 0 0 0 37,763 12,608 507,126 7,762 951 201 8,914 2,867 2,981 5,933 350 0 4,879 1,961 0 0 0 1,145 0.15 0 5.58 7,871 5 0 0 4,947 11 59 5,345 0 0 0
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