-----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, Vf1P9C3mzbv3ionalo8J9oCIieEI7/Gc4w1t5TJvhddi7xZELB1ScpuFf9dwsWiX wtdrpgesNm8LnYDHrG0syQ== 0000912057-95-009862.txt : 19951119 0000912057-95-009862.hdr.sgml : 19951119 ACCESSION NUMBER: 0000912057-95-009862 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 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: 95591306 BUSINESS ADDRESS: STREET 1: 3800 EAST LAPALMA AVENUE CITY: ANAHEIM STATE: CA ZIP: 92807 BUSINESS PHONE: 7142288200 MAIL ADDRESS: STREET 1: 3800 EAST LAPALM AVENUE CITY: ANAHEIM STATE: CA ZIP: 92807 10-Q 1 10-Q 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 and nine months ended September 30, 1995. 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) 228-8200 NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- -------------------- Common Stock American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 7,468,505 shares of common stock for the registrant issued and outstanding as of November 1, 1995. SC BANCORP FORM 10-Q INDEX PART I FINANCIAL INFORMATION Pages ITEM 1. Financial Statements 1 A. Consolidated Balance Sheets 1 B. Consolidated Statements of Operations 2 C. Consolidated Statements of Cash Flows 3 D. Notes to Consolidated Financial Statements 4 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION 28 Part I. Item 1. Financial Statements SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------ ------------ (UNAUDITED) ASSETS Cash and due from banks $ 36,745 $ 31,118 Federal funds sold 27,800 -- ----------- ----------- Cash and cash equivalents 64,545 31,118 ----------- ----------- Securities held-to-maturity, at amortized cost: fair value 1995 - $52,501; 1994 - $54,680 (Note 2) 54,180 60,023 Securities available-for-sale, at fair value (Note 2) 42,411 71,858 Loans (Note 3) 278,699 207,688 Less: Deferred fee income (396) (298) Allowance for possible loan losses (5,354) (5,318) ----------- ----------- Loans, net 272,949 202,072 ----------- ----------- Premises and equipment, net 10,088 10,254 Other real estate owned, net 3,273 5,837 Accrued interest receivable 2,557 4,330 Other assets 18,224 13,063 ----------- ----------- TOTAL ASSETS $ 468,227 $ 398,555 =========== =========== LIABILITIES Deposits: Interest-bearing $ 282,062 $ 221,919 Noninterest-bearing 133,540 118,020 ----------- ----------- Total deposits 415,602 339,939 ----------- ----------- Borrowed funds and other interest-bearing liabilities 6,566 13,621 Accrued interest payable and other liabilities 1,380 3,151 ----------- ----------- Total Liabilities 423,548 356,711 ----------- ----------- 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; 7,468,505 shares issued and outstanding in 1995 and 1994, respectively 37,643 37,643 Retained earnings 7,598 7,731 Unrealized loss on available-for-sale securities, net of taxes (562) (3,530) ----------- ----------- Total Shareholders' Equity 44,679 41,844 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 468,227 $ 398,555 =========== ===========
See Notes to Consolidated Financial Statements. 1 SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS END SEPTEMBER 30, SEPTEMBER 30, ------------------ ---------------- 1995 1994 1995 1994 ------- ------- ------- ------ INTEREST INCOME Interest and fees on loans (Note 3) $ 7,090 $ 4,839 $18,790 $14,071 Interest on investment securities (Note 2): 1,618 1,798 5,060 5,379 Interest on Federal funds sold 88 137 727 189 ------- ------- ------- ------- Total interest income 8,796 6,774 24,577 19,639 ------- ------- ------- ------- INTEREST EXPENSE Interest on deposits: Interest-bearing demand 399 376 1,031 1,049 Savings 280 382 884 1,205 Time certificates of deposit 2,313 743 6,306 2,203 ------- ------- ------- ------- Total interest on deposits 2,992 1,501 8,221 4,457 ------- ------- ------- ------- Other interest expense 115 83 919 238 ------- ------- ------- ------- Total interest expense 3,107 1,584 9,140 4,695 ------- ------- ------- ------- NET INTEREST INCOME 5,689 5,190 15,437 14,944 Provision for (recovery of) possible loan losses (Note 3) 900 - 1,224 (850) ------- ------- ------- ------- Net interest income after provision for possible losses on loans 4,789 5,190 14,213 15,794 ------- ------- ------- ------- Other income: Service charges on deposit accounts 449 408 1,292 1,283 Other fees and charges 813 1,138 2,349 3,385 Net gain (loss) on sales of investment securities (620) - (620) 17 Net gain on sale of loans 148 - 148 215 Net gain (loss) on sales of fixed assets (107) 1 (107) 454 Life insurance income 53 - 460 33 Other income 33 40 209 111 ------- ------- ------- ------- Total other income 769 1,587 3,731 5,498 ------- ------- ------- ------- Other expenses: Salaries and employee benefits 3,062 2,468 8,282 7,295 Occupancy, furniture and equipment 1,492 1,143 3,700 3,334 Professional fees 558 373 1,479 1,373 Office supplies 316 268 824 763 Data processing 208 236 623 757 FDIC assessment (17) 248 415 758 Goodwill amortization 552 52 706 158 Other real estate owned 142 407 387 1,412 Merchant bankcard expense 132 294 352 742 Advertising and promotion 149 153 513 436 Other operating expense 249 315 810 1,024 ------- ------- ------- ------- Total other expense 6,843 5,957 18,091 18,052 ======= ======= ======= ======= Income (loss) before provision (benefit) for income taxes (1,285) 820 (147) 3,240 Provision (benefit) for income taxes (377) 318 (14) 1,354 ------- ------- ------- ------- NET INCOME (LOSS) $ (908) $ 502 $ (133) $ 1,886 ======= ======= ======= ======= Weighted average number of shares outstanding 7,469 7,469 7,469 4,831 ======= ======= ======= ======= Earnings (loss) per share $ (0.12) $ 0.07 $ (0.02) $ 0.39 ======= ======= ======= ======= See Notes to Consolidated Financial Statements.
2 SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ----------------- 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (133) $ 1,886 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for (recovery of) possible loan losses 1,224 (850) Provision for loss on other real estate owned 128 882 (Gain)/loss on sale of other real estate owned 22 5 (Gain)/loss on sale of available-for-sale investment securitities 620 (17) Net amortization of premiums on investment securities 1,884 1,322 (Gain)/loss on sale of loans (148) 215 Net amortization of deferred fees and unearned income on loans (106) (12) Depreciation and amortization 2,203 1,605 (Gain)/loss on sale of fixed asset and other assets (109) (454) (Increase)/decrease in accrued interest receivable and other assets (5,556) 3,684 Increase/(decrease) in accrued interest payable and other liabilities (504) (163) ------- ------ Net cash provided by (used in) operating activities (475) 8,103 ------- ------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of available-for-sale investment securities 26,860 5,244 Proceeds from maturities of available-for-sale investment securities 6,000 - Proceeds from maturities of held-to-maturity investment securities 5,562 8,613 Purchase of investment securities (1,205) (4,946) Proceeds from sale of loans 2,142 - Purchase of IOBOC loans (71,576) - Loans funded, net of payments received (3,834) 4,942 Proceeds from sale of fixed assets and other assets 1 977 Purchase of fixed assets (1,333) (1,334) Proceeds from sale of other real estate owned 3,835 2,834 ------- ------ Net cash provided by (used in) investing activities (33,548) 16,330 ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Rights Offering - 14,187 Purchase of IOBOC interest-bearing deposits 14,965 - Purchase of IOBOC noninterest-bearing deposits 19,762 - Increase/(decrease) in demand deposits, NOW accounts and saving accounts (30,442) 3,989 Increase/(decrease) in time certificates of deposit 71,378 (18,447) Increase/(decrease) in other borrowings (8,213) (2,122) ------- ------ Net cash provided by (used in) financing activities 67,450 (2,393) ------- ------ Increase/(decrease) in cash and cash equivalents 33,427 22,040 Cash and cash equivalents, beginning of period 31,118 23,564 ------- ------ Cash and cash equivalents, end of period $64,545 $45,604 ======= ======= SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS Unrealized loss on investment securities, available-for-sale, net of tax $2,968 $4,326 Change in deferred tax asset $1,463 $1,456
3 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, 1994) NOTE 1 -- BASIS OF PRESENTATION References to the "Company" are to SC Bancorp and Southern California Bank on a consolidated basis. References to "SC Bancorp" are to SC Bancorp on an unconsolidated basis, and references to the "Bank" are to Southern California Bank. See notes to the consolidated financial statements presented in SC Bancorp's 1994 Annual Report on Form 10-K. The Company's accounting and reporting policies conform to generally accepted accounting principles prescribed for bank holding companies and banks, and predominant banking industry practice. 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 periods ending September 30, 1995, are not necessarily indicative of results that may be expected for any other interim periods or for the year as a whole. SECURITIES: At September 30, 1995, the Company's available-for-sale portfolio had a net unrealized loss of $960 thousand. The tax-effected reduction to shareholders' equity at September 30, 1995, was $562 thousand. 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. LOANS: The Company adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," and Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures-An Amendment of FASB Statement No. 114," effective January 1, 1995. The Company has determined that the combined effect of adoption of Statements No. 114 and No. 118 is immaterial to the consolidated financial statements due to the Company's pre-existing methodology for calculation of its allowance for possible loan losses, which is based on the value of the underlying collateral of "impaired" loans, as defined by Statement No. 114. 4 NOTE 2 - INVESTMENT SECURITIES The amortized cost and estimated market values of investments in debt secuities are as follows:
SEPTEMBER 30, 1995 ------------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS (LOSSES) VALUE --------- ---------- ---------- --------- (IN THOUSANDS) HELD-TO-MATURITY: US Treasury securities and obligations of US government agencies $ 59 $ - $ - $ 59 Mortgage-backed securities 54,121 - (1,679) 52,442 ------- ------- ------- ------- Total $54,180 $ - $(1,679) $52,501 ======= ======= ======= =======
SEPTEMBER 30, 1995 ------------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS (LOSSES) VALUE --------- ---------- ---------- --------- (IN THOUSANDS) AVAILABLE-FOR-SALE: US Treasury securities and obligations of US government agencies $43,371 $ - $ (960) $42,411 ------- ------- ------- ------- Total $43,371 $ - $ (960) $42,411 ======= ======= ======= =======
DECEMBER 31, 1994 ------------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS (LOSSES) VALUE --------- ---------- ---------- --------- (IN THOUSANDS) HELD-TO-MATURITY: US Treasury securities and obligations of US government agencies $ 59 $ - $ - $ 59 Mortgage-backed securities 59,964 - (5,343) 54,621 ------- ------- ------- ------- Total $60,023 $ - $(5,343) $54,680 ======= ======= ======= =======
DECEMBER 31, 1994 ------------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS (LOSSES) VALUE --------- ---------- ---------- --------- (IN THOUSANDS) AVAILABLE-FOR-SALE: US Treasury securities and obligations of US government agencies $77,249 $ 2 $(5,393) $71,858 ------- ------- ------- ------- Total $77,249 $ 2 $(5,393) $71,858 ======= ======= ======= =======
Investment securities with a carrying value of $18,798,000 and $22,318,000 were pledged to secure public deposits and as collateral for other borrowings at September 30, 1995, and December 31, 1994, respectively. 5 NOTE 2 -- INVESTMENT SECURITIES (CON'T) The amortized cost and estimated fair value of debt securities at September 30, 1995, by contractual maturities are shown below. 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.
MATURING IN ---------------------------------------------------------------------- OVER ONE OVER FIVE ONE YEAR YEAR THROUGH YEARS THROUGH OVER (IN THOUSANDS) OR LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL SEPTEMBER 30, 1995 ---------- ------------- ------------- ---------- --------- Held-to-maturity, amortized cost $ -- $46,017 $8,104 $ 59 $54,180 Held-to-maturity, estimated fair value $ -- $44,650 $7,792 $ 59 $52,501 Available-for-sale, amortized cost $ 5 $42,166 $ -- $1,200 $43,371 Available-for-sale, estimated fair value $ 5 $41,206 $ -- $1,200 $42,411
NOTE 3 -- LOANS Loans by category are summarized below:
SEPTEMBER 30, DECEMBER 31, (IN THOUSANDS) 1995 PERCENT 1994 PERCENT ------------- --------- ----------- ---------- Commercial $ 124,226 44.57% $ 79,369 38.22% Real estate, construction 2,356 0.85% 30 0.01% Real estate, mortgage 99,402 35.67% 83,712 40.31% Consumer 52,715 18.91% 44,577 21.46% -------- ------- ------- ------- Gross loans 278,699 100.00% 207,688 100.00% ======= ======= Deferred fee income (396) (298) Allowance for possible loan losses (5,354) (5,318) -------- -------- Loans, net $272,949 $202,072 ======== ========
No industry constitutes a concentration in the Bank's loan portfolio. 6 NOTE -- 3 LOANS (CON'T) The following table summarizes the balances and changes in the allowance for possible loan losses:
NINE MONTHS ENDED SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------- ------------ Average balance of gross loans outstanding $253,506 $203,760 ======== ======== Gross loan balance at end of period $278,699 $207,688 ======== ======== Allowance at beginning of period $ 5,318 $ 10,800 Charge-offs: Commercial 734 2,004 Real estate 1,207 3,453 Consumer 500 362 -------- -------- Total charge-offs 2,441 5,819 Recoveries: Commercial 421 915 Real estate 64 214 Consumer 151 58 -------- -------- Total recoveries 636 1,187 Net charge-offs 1,805 4,632 Provision (recovery) charged (credited) to expense 1,224 (850) Allowance on purchased loans 617 -------- -------- Allowance at end of period $ 5,354 $ 5,318 ======== ======== Ratio of allowance for loan losses to loans outstanding at end of period 1.92% 2.56% Ratio of allowance for loan losses to nonaccrual loans at end of period 292.73% 329.90% Ratio of annualized net charge-offs to average loans 0.95% 2.27%
Loans on nonaccrual status were approximately $1,829,000 and $906,000 at September 30, 1995 and 1994, respectively. Interest income that would have been collected on these loans had they performed in accordance with their original terms, was approximately $167,000 and $288,000, for the nine months ended September 30, 1995 and 1994, respectively. NOTE 4 -- PURCHASE OF LOANS AND DEPOSITS On April 30, 1995, the Bank acquired substantially all of the corporate and private banking loans and deposits from Independence One Bank of California, F.S.B. (IOBOC). The loans purchased included approximately $71.6 million of floating rate commercial, real estate and consumer loans. The purchase price for the loans and deposits acquired was $39.4 million. Funds for the acquisition were generated through a $5.0 million capital contribution from SC Bancorp, and a promotional certificates of deposit program held during the first quarter of 1995. Financial information on the loans and deposits acquired is provided below: 7 NOTE 4- PURCHASE OF LOANS AND DEPOSITS (CON'T)
(IN THOUSANDS) BALANCE ANNUALIZED APRIL 30, 1995 YIELD -------------- ---------- Loans Commercial $ 37,227 10.01% Real Estate 16,761 10.02% Construction 912 10.14% Consumer 17,497 9.97% -------------- --------- Gross loans 72,397 10.01% -------------- ========= Deferred fees (204) Allowance for loan losses (617) -------------- Loans, net $ 71,576 ============== Deposits Interest-bearing $ 14,965 2.39% Noninterest-bearing 19,762 -------------- Total deposits $ 34,727 ==============
The Bank recorded an intangible asset of approximately $2 million relating to the loans and deposits acquired. The intangible is being amortized over a period of seven years. Reference can be made to Form 8-K and Form 8-K/A Current Reports for additional information on the acquisition transaction. NOTE 5 -- COMMITMENTS AND CONTINGENCIES 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. Commercial and standby letters of credit totaled approximately $4,538,000 and $4,516,000 at September 30, 1995, and December 31, 1994, respectively. In addition, the Company had unfunded loan commitments of $74,517,000 and $48,250,000 at September 30, 1995, and December 31, 1994, respectively. The Company acquired approximately $32,500,000 of unfunded loan commitments from IOBOC on April 30, 1995. 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 commercial properties. In the third quarter of 1993 and first quarter of 1994, 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 September 30, 1995, the Company had outstanding one interest rate swap agreement with a commercial bank having a total notional principal amount of $50 million (Swap #1), and one interest rate swap agreement with a broker dealer having a notional principal amount of $25 million (Swap #2). 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 durations 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 3-month LIBOR and to receive interest semi-annually at a fixed rate of 4.865%. The agreement matures in September 1998. Swap #2 was entered into in January 1994. The terms of the second agreement require the Company to pay interest quarterly based on 3-month LIBOR in arrears, and to receive interest semi-annually at a fixed rate of 8 5.04% through the January 1997 maturity date. The Company accrues monthly interest income and expense on the swaps, the net of which is included in income on loans. For the period ended September 30, 1995, net interest expense of $751,000 from the swap agreements is included in interest income on loans in the consolidated statements of operations. The Company is required to pledge collateral on the transaction. US Agency notes having a market value of approximately $ 6,443,000 were pledged as collateral for the agreements as of September 30, 1995. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the agreements. However, the Company does not anticipate nonperformance by the counterparties. NOTE 6 -- SUBSEQUENT EVENTS Subsequent to the end of the third quarter 1995, the Company implemented various elements of its restructuring plan. The restructuring plan includes actions designed to streamline the Bank's branch system. On October 17, 1995, the Company announced the signing of an agreement to sell the core deposits, consisting of approximately $4.1 million, from the Bank's Signal Hill branch to Home Bank, a subsidiary of Home Interstate Bancorp. The sale is subject to regulatory approval. Management intends to close the Signal Hill branch after customer notification, regulatory approval, and completion of the sale transaction, which is expected by the end of January 1996. The Bank is negotiating the sale of another small branch and has elected to consolidate its Yorba Linda branch into the Tustin-La Palma office. Additionally, the Company and the Bank have elected to outsource the internal audit function. All of these actions are designed to improve the efficiency and financial performance of the Bank. 9 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion represents 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 1994 audited consolidated financial statements of the Company and the notes thereto and the accompanying quarterly unaudited consolidated financial statements and notes thereto. OVERVIEW The Company reported a net loss of $908 thousand for the third quarter of 1995 compared to net income of $502 thousand for the third quarter of 1994. The net loss for the first nine months of 1995 was $133 thousand, compared to net income of $1.9 million for the same period in 1994. The previous year's results include a $448 thousand gain on the sale of the Company's headquarters building, a $215 thousand gain on the sale of loans, and a $850 thousand reversal of previously recorded allowance for possible loan losses. The year-to-date loss for 1995 reflects approximately $1.7 million of restructuring charges and losses pretax, along with additional loan loss provision specific to the collateral valuation of a few commercial loans for $600 thousand pretax, and a nonrecurring adjustment to interest expense for deferred compensation plans of $408 thousand. These expenses and losses are offset by a $407 thousand gain resulting from benefit payment received on corporate owned life insurance which is reflected in noninterest income; a refund of FDIC insurance premiums of approximately $239 thousand which is reported in noninterest expense; and a gain on sale of loans of approximately $148 thousand which is also reported in noninterest income. Net interest income was $5.7 million for the three months ended September 30, 1995 compared to $5.2 million for the three months ended September 30, 1994. Year-to-date net interest income was $15.4 million, an increase of $493 thousand from the $14.9 million reported for 1994; however, the Company's net interest margin decreased to 5.19% for the nine months ended September 30, 1995, compared to 5.72% for the prior year. The decrease in the net interest margin can be attributed to the adjustment recorded on the Company's deferred compensation plans and the increased interest expense associated with the promotional certificates of deposit ("TCD") program that provided funding for the IOBOC transaction. Most of these TCDs matured in September 1995 and many were renewed at significantly lower rates. Noninterest income was $769 thousand and $1.6 million for the three months ended September 30, 1995 and 1994, respectively. Noninterest income was $3.7 million and $5.5 million for the nine months ended September 30, 1995 and 1994, respectively. Noninterest income for the first half of 1994 included nonrecurring gains on the sale of assets as discussed above. On September 28, 1995, the Company announced a restructuring plan, which included reductions in staff and consolidation of selected operations to improve operating efficiencies. As part of the restructuring plan, the Company also sold approximately $27 million of its investment securities classified as available-for-sale and realized a loss of approximately $620 thousand. Other fees and charges also declined compared to the prior year due to a reduction in merchant bankcard fee income. Operating expenses, as adjusted for the effects of approximately $948 thousand of restructuring charges, decreased from $6.0 million for the three months ended September 30, 1994, to $5.9 million for the three months ended September 30, 1995. Adjusted operating expenses also decreased for the nine months ended September 30, 1995, and 1994, from $18.1 million to $17.1 million, respectively. The decrease in operating expense largely occurred in the OREO and merchant bankcard expense categories. 10 Total assets at September 30, 1995, were $468.2 million, an increase of 17.5% from $398.6 million at year-end 1994. Total deposits at September 30, 1995, were $415.6 million, an increase of 22.3% from $339.9 million at year-end 1994. Almost all of the increase in assets resulted from the purchase of loans from IOBOC in the second quarter of 1995; approximately half of the increase in deposits resulted from the IOBOC purchase and the rest of the increase in deposits was due to a promotional TCD program in the first quarter of 1995. The following table summarizes key performance indicators pertaining to the Company's operating results. Average balances are computed using daily averages.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- -------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 1994 1995 1994 --------- -------- -------- -------- Return on average assets (1) (0.76)% 0.49% (0.04)% 0.63% as adjusted for restructuring items (2) 0.08% 0.26% Return on average shareholders' equity (1) (7.96)% 5.83% (0.41)% 7.69% as adjusted for restructuring items (2) 0.86% 2.66% Net income (loss) $ (908) $ 502 $ (133) $ 1,886 Earnings (loss) per share $ (0.12) $ 0.07 $ (0.02) $ 0.39 Total average assets $ 472,612 $404,724 $455,091 $403,130 ____________________ (1) Annualized (2) Restructuring items: loss on securities $ 620 $ 620 loss on fixed assets 109 109 noninterest expense 948 948 -------- -------- 1,677 1,677 -------- -------- net of taxes $ 1,006 $ 1,006 ========= ========
RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income increased $499 thousand to $5.7 million for the quarter ended September 30, 1995, from $5.2 million for the same quarter a year ago. Most of the increase is due to higher average balances, principally average loans outstanding, which increased $82.9 million over the third quarter of 1994 largely due to the purchase of IOBOC loans. The increase in average loans was offset by lower average balances for investment securities and Federal funds sold, which decreased by $20.0 million and $6.0 million, respectively. The decrease in investment securities in the third quarter of 1995 reflects the sale of approximately $27 million of available-for-sale securities and the maturity of approximately $6.0 million and $2.4 million of securities classified as available-for-sale and held-to-maturity, respectively, whereas during the third quarter of 1994 only $2.5 million of securities matured. Average yields on earning assets for the third quarter of 1995 increased by 90 basis points to 8.39% from 7.49% for the third quarter of 1994. However, the Company's net interest margin decreased 31 basis points from 5.74% to 5.43% for the third quarter ended September 30, 1995, and 1994, respectively. Higher average interest rates, 4.05% as compared to 11 2.43%, on higher average balances for TCDs, $155.9 million as compared to $78.6 million, resulted in the lower margin. The $48.3 million increase in average earning assets between September 30, 1994, and September 30, 1995, is primarily due to the loans purchased from IOBOC. The increase in the national prime rate from 7.75% at September 30, 1994, to 8.75% at September 30, 1995, contributed to the increase in loan yields. The average yield on loans, including the effect of the interest rate swaps, was 9.92% for the nine months ended September 30, 1995, up 73 basis points from 9.19% for the same period in 1994. During September 1995, the Company sold approximately $27 million of its investment securities classified as available-for-sale. The Company plans to use the proceeds from this sale to fund anticipated loan growth and to strengthen the Bank's funding mix. Currently, funds raised through the securities sale have been invested in overnight Federal funds. The Company's net interest margin for the nine months ended September 30, 1995 decreased compared to the same period in 1994 despite an increase in earning assets and loan yields due to an increase in interest expense. Most of the increase in interest expense can be attributed to a $408 thousand nonrecurring interest adjustment during the first quarter of 1995 relating to the Company's deferred compensation plans, and to the increase in TCD balances and rates compared to the prior year. The increase in deposit rates can be attributed to the increase in overall market rates from the prior year, and to the higher rates offered through a deposit promotion in the first quarter of 1995. The average balance of TCDs increased by $62.9 million to $144.1 million for the nine months ended September 30, 1995, from $81.2 million for the nine months ended September 30, 1994. The average cost of funds on TCDs increased from 3.62 % in 1994 to 5.85% for the nine months ended September 30, 1995. The Company lowered the average rates on the promotional TCDs from 7.20% to approximately 5.89% and retained approximately 70% of the promotional TCDs that matured in September 1995. 12 NET INTEREST INCOME The following tables present, for the periods indicated, condensed average balance sheet information for the Company, together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interet-bearing liabilities. Average balances are average daily balances. Nonaccrual loans are included in total average loans outstanding. The Company's primary source of revenue is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid on deposits and other funds. The Company's net interest income is affected by changes in the amount and mix of interest-earnings assets and interest-bearing liabilities and by changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities. The tables below set forth, for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in average interest rates (rate) and changes in average asset and liability balances (volume). The change in interest due to both rate and volume has been allocated to change due to volume and rate in proportion to the relationship of absolute dollar amounts in each.
QUARTER ENDED QUARTER ENDED SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 --------------------------- -------------------------- YIELD/ YIELD AVG. BAL. INTEREST RATE(1) AVG. BAL. INTEREST RATE(1) RATE VOLUME -------- -------- ------- -------- ------- ------ -------- ------- Loans, net of deferred fees(2) $285,502 $7,090 9.85% $202,108 $4,839 9.50% $ 185 $2,067 Investment securities 124,363 1,618 5.16% 144,602 1,798 4.93% 454 (634) Federal funds sold and other 5,880 88 5.93% 12,113 137 4.50% 195 (245) -------- ------ ---- -------- ------ ---- -------- ------ Total interest earning assets/interest income 415,745 8,796 8.39% 358,823 6,774 7.49% 871 1,150 -------- ------ ---- -------- ------ ---- -------- ------ Noninterest earning assets 56,867 45,901 -------- -------- Total assets $472,612 $404,724 ======== ====== ==== ======== ====== ==== ======== ====== DEPOSITS $291,075 $2,992 4.08% $245,401 $1,501 2.43% $ 1,170 $ 321 Other interest-bearing liabilities 5,405 115 8.45% 4,682 83 7.06% 18 14 -------- ------ ---- -------- ------ ---- -------- ------ Total interest-bearing liabilities/interest expense 296,480 3,107 4.16% 250,083 1,584 2.51% 1,188 335 -------- ------ ---- -------- ------ ---- -------- ------ Demand deposits 129,417 119,422 Other liabilities 1,465 1,039 Shareholders' equity 45,250 34,180 -------- -------- Total liabilities and equity $472,612 $404,724 ======== ====== ==== ======== ====== ==== ======== ====== Net interest income/net interest margin $5,689 5.43% $5,190 5.74% $ (1,533) $2,032 ======== ====== ==== ======== ====== ==== ======== ======
- ---------------------- (1) Annualized. (2) Includes loans on nonaccrual status of approximately $1.8 million and $0.9 million at September 30, 1995 and 1994, respectively. The amounts of interest income foregone on loans that were on nonaccrual status were approximately $42 thousand and $14 thousand for the quarter ended September 30, 1995 and 1994, respectively. Interest income on loans includes amortization of net loan fees of approximately $208 thousand and $157 thousand for the quarter ended September 30, 1995 and 1994, respectively. Additionally, net interest (expense) of ($203) thousand and ($26) thousand relating to the interest rate swap agreements was included in interest income on loans for the quarter ended September 30, 1995 and 1994, respectively. 13
NINE MONTHS ENDED ------------------------------------------------------- SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 --------------------------- -------------------------- YIELD/ YIELD AVG. BAL. INTEREST RATE(1) AVG. BAL. INTEREST RATE(1) RATE VOLUME -------- -------- ------- -------- ------- ------ -------- ------- Loans, net of deferred fees(2) $253,163 $18,790 9.92% $204,805 $14,071 9.19% $ 1,188 $3,531 Investment securities 128,062 5,060 5.28% 138,405 5,379 5.20% 129 (448) Federal funds sold and other 16,401 727 5.93% 6,108 189 4.13% 111 428 -------- ------- ---- -------- ------ ---- -------- ----- Total interest earning assets/interest income 397,626 24,577 8.26% 349,318 19,639 7.52% 2,053 2,885 -------- ------- ---- -------- ------ ---- -------- ----- Noninterest earning assets 57,465 53,812 -------- -------- Total assets $455,091 $403,130 ======== ======= ==== ======== ====== ==== ======== ====== Deposits $277,418 $ 8,221 3.96% $245,047 $4,457 2.43% $ 3,111 $ 653 Other interest-bearing liabilities 9,440 919 13.02% 6,110 238 5.20% 500 181 -------- ------- ----- -------- ------ ---- -------- ------ Total interest-bearing liabilities/interest expense 286,858 9,140 4.26% 251,157 4,695 2.50% 3,698 747 -------- ------- ---- -------- ------ ---- -------- ------ Demand deposits 122,092 116,810 Other liabilities 2,274 2,383 Shareholders' equity 43,867 32,780 -------- ------- ---- -------- ------ ---- -------- ------ Total liabilities and equity $455,091 $403,130 ======== ======= ==== ======== ====== ==== ======== ------ Net interest income/net interest margin $15,437 5.19% $14,944 5.72% $ (2,020) $2,512 ======== ======= ==== ======== ====== ==== ======== ======
- ---------------------- (1) Annualized. (2) Includes loans on nonaccrual status of approximately $1.8 million and $0.9 million at September 30, 1995 and 1994, respectively. The amounts of interest income foregone on loans that were on nonaccrual status were approximately $167 thousand and $288 thousand for the nine months ended September 30, 1995 and 1994, respectively. Interest income on loans includes amortization of net loan fees of approximately $569 thousand and $444 thousand for the nine months ended September 30, 1995 and 1994, respectively. Additionally, net interest (expense) income of ($727) thousand and $320 thousand relating to the interest rate swap agreements was included in interest income on loans for the nine months ended September 30, 1995 and 1994, respectively. PROVISION FOR LOAN LOSSES During the third quarter of 1995, the Company recorded a $900 thousand provision for loan losses. Management took this action to provide against the impact on the collateral of a few large commercial real estate loans in the weak Southern California commercial real estate market, approximately $600 thousand of additional loan loss provision. The Company's provision for loan losses was $1.2 million in the first nine months of 1995. Gross loan charge-offs totaled $2.4 million and recoveries totaled $637 thousand during this period. The net increase in the allowance for loan losses from $5.3 million at year-end 1994 to $5.4 million at September 30, 1995, also reflects the addition of $617 thousand relating to the purchase of IOBOC loans during the second quarter. Nonaccrual loans increased from $1.6 million at year-end 1994 to $1.8 million at September 30, 1995. Net loan charge-offs for the first nine months of 1994 were $4.6 million. The Company reduced the allowance for possible loan losses by $850 thousand in the third quarter of 1994 due to a sale of classified loans outstanding at September 30, 1994. (Please refer to NOTE 3 - LOANS.) 14 NONINTEREST INCOME The following tables set forth the major components of noninterest income for the period indicated:
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------- 1995 RESTRUCTURING 1995, NET 1994 ---- ------------- --------- ---- (IN THOUSANDS) Service charges on deposit accounts $ 449 $ -- $ 449 $ 408 Other fees and charges 813 -- 813 1,138 Net gain (loss) on sales of investment securities (620) (620) -- -- Net gains on sales of loans 148 -- 148 -- Net gain (loss) on sales of fixed assets (107) (109) 2 1 Life insurance income 53 -- 53 -- Other income 33 -- 33 40 -------- -------------- ------- ------ Total noninterest income $ 769 $ (729) $ 1,498 $1,587 ======== ============== ======= ====== NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------- 1995 RESTRUCTURING 1995, NET 1994 ---- ------------- --------- ---- (IN THOUSANDS) Service charges on deposit accounts $1,292 $ -- $ 1,292 $1,283 Other fees and charges 2,350 -- 2,350 3,385 Net gain (loss) on sales of investment securities (620) (620) -- 17 Net gains on sales of loans 148 -- 148 215 Net gain (loss) on sales of fixed assets (107) (109) 2 454 Life insurance income 460 -- 460 33 Other income 209 -- 209 111 -------- -------------- ------- ------ Total noninterest income $3,731 $ (729) $ 4,460 $5,498 ======== ============== ======= ======
During the third quarter 1995, the Company implemented a restructuring plan. In connection with the restructuring plan, the Company recorded losses on fixed assets for approximately $109 thousand that it expects to incur from the sales of branches and realized a loss of approximately $620 thousand from the sale of $27 million of securities from its available-for-sale investment portfolio. The Company also realized a gain of approximately $148 thousand on the sale of $2.0 million of loans. As adjusted for these losses, noninterest income for the third quarter of 1995 was approximately $1.5 million, a decrease of $88 thousand from the third quarter of 1994. Most of the adjusted decrease is in other fees and charges, which is due to declines in merchant bankcard income of $253 thousand, and lower charges for returned checks and NSF items for $72 thousand. Offsetting these decreases were increases in service charges on deposit accounts, a gain on sale of loans, and insurance income. The Company settled several months' service charges with a large commercial customer for $45 thousand in the third quarter of 1995; the customer has subsequently transferred its business to another bank. During the third quarter of 1995, the Company recorded an adjustment for $53 thousand to the 1995 cash surrender values of life insurance policies it maintains in connection with its deferred compensation plans. Last year, the Company recorded this adjustment in the second quarter. Noninterest income, as adjusted for restructuring losses, decreased to $4.5 million for the first nine months of 1995 from $5.5 million for the same period in 1994. The decrease in other fees and charges is largely due to the decline in merchant bankcard income. The Bank's largest merchant customer left the Bank during the third quarter of 1994. The reduction in merchant bankcard activity led to a corresponding decrease in merchant bankcard expense. The remainder of the decrease in noninterest income can be attributed to other nonrecurring items. The Company received a benefit payment of $407 thousand on corporate owned life insurance in the first quarter of 1995. In the first half of 1994, the Company recorded a $448 thousand gain on sale of its head office facility and gains totaling $215 thousand on the sale of loans. 15 NONINTEREST EXPENSE The following table sets forth information by category on the Company's noninterest expense for the periods indicated:
THREE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------- 1995 RESTRUCTURING 1995,NET 1994 ------ ------------- -------- ------ (IN THOUSANDS) Salaries and employee benefits $3,062 $179 $2,883 $2,468 Occupancy, furniture and equipment 1,492 256 1,236 1,143 Professional fees 558 86 472 373 Office supplies 316 - 316 268 Data processing 208 - 208 236 FDIC assessment (17) - (17) 248 Goodwill amortization 552 427 125 52 Other real estate owned 142 - 142 407 Merchant bankcard expense 132 - 132 294 Advertising and promotion 149 - 149 153 Other operating expense 249 - 249 315 ------ ---- ------ ------ Total noninterest expense $6,843 $948 $5,895 $5,957 ====== ==== ====== ====== Annualized noninterest expense as a % of average earning assets 5.63% 6.59%
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------- 1995 RESTRUCTURING 1995,NET 1994 ------ ------------- -------- ------ (IN THOUSANDS) Salaries and employee benefits $8,282 $179 $8,103 $7,295 Occupancy, furniture and equipment 3,700 256 3,444 3,334 Professional fees 1,479 86 1,393 1,373 Office supplies 824 - 824 763 Data processing 623 - 623 757 FDIC assessment 415 - 415 758 Goodwill amortization 706 427 279 158 Other real estate owned 387 - 387 1,412 Merchant bankcard expense 352 - 352 742 Advertising and promotion 513 - 513 436 Other operating expense 810 - 810 1,024 ------- ---- ------- ------- Total noninterest expense $18,091 $948 $17,143 $18,052 ======= ==== ======= ======= Annualized noninterest expense as a % of average earning assets 5.76% 6.91%
16 The Company reported noninterest expense of $6.8 million for the third quarter of 1995. This included $948 thousand of restructuring charges for (1) staff reductions, including branch sales - $179 thousand; (2) closure of an administrative facility and branch lease obligations on branch sales - $256 thousand; (3) accruals for legal and professional fees anticipated for the branch sale transactions - $86 thousand; and (4) write-off of $427 thousand of goodwill associated with one of the branches being sold. As adjusted for restructuring charges, noninterest expense for the third quarter was $5.9 million as compared to approximately $6.0 million for the third quarter of 1994. The net decrease reflects decreases in FDIC assessment, net expenses for OREO, and merchant bankcard expenses offset by increases in salaries and benefits, occupancy, professional fees, and goodwill amortization. In August and September 1995, the Bank received refunds of $288 thousand for excess FDIC premiums paid during the first nine months of 1995 that were partly offset by increased assessments on higher deposit balances resulting from the IOBOC purchase. Additionally, the Bank's FDIC assessment rate has been lowered from 23 cents to 4 cents per $100 of insured deposits. Net OREO expenses decreased by $265 thousand for the quarter ended September 30, 1995 from $407 thousand for the third quarter of 1994. This decrease in expenses corresponds to lower OREO balances: $3.3 million at September 30, 1995, as compared to $6.2 million at September 30, 1994. Merchant bankcard expenses dropped $162 thousand from $294 thousand to $132 thousand for the third quarter ended September 30, 1994 and 1995, respectively. Salaries and benefits, occupancy and goodwill amortization all exceeded the amounts reported for the third quarter 1994 due to the additional offices and staff assumed from IOBOC in April 1995. The $907 thousand decrease in noninterest expense for the nine months ended September 30, 1995, after adjusting for restructuring charges, compared to the same period in 1994 is primarily due to decreases in FDIC assessment, net expenses for OREO, and merchant bankcard expenses. FDIC assessments decreased by $343 thousand, OREO expense decreased by $1.0 million, and merchant bankcard expense decreased by $390 thousand compared to the first nine months of 1994. The decrease in FDIC assessment resulted primarily from the premium refunds received in August and September 1995. The decrease in OREO expense is due mostly to a $754 thousand reduction in OREO writedowns. The decrease in merchant bankcard expense is due to a decline in merchant card activity following the departure of a significant merchant customer. The Company has improved its operating efficiencies and achieved lower noninterest expense, as adjusted for the expenses and losses of the Plan, on a larger average earning assets base. As adjusted, noninterest expense as a percentage of average earning assets has decreased 0.96% and 1.15% for the quarter and nine months ended September 30, 1995, respectively, from the prior year's periods. 17 The following table summarizes the components of salaries and employee benefits for the periods indicated:
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------------------- (IN THOUSANDS) 1995 RESTRUCTURING 1995, NET 1994 --------- ------------- --------- -------- Exempt and nonexempt salaries $ 2,553 $119 $ 2,434 $ 1,981 Incentives and referral awards 52 -- 52 101 Payroll taxes 169 13 156 149 Medical and other benefits 288 47 241 237 ------- ----- ------ ------- Total salaries and employee benefits $ 3,062 179 $ 2,883 $ 2,468 ======= ===== ======= ======= Salaries & benefits/Avg FTE(1) $51,597 $ -- $48,581 $41,687
(1) Annualized
NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------------------- (IN THOUSANDS) 1995 RESTRUCTURING 1995, NET 1994 --------- ------------- --------- -------- Exempt and nonexempt salaries $ 6,574 $119 $ 6,455 $ 5,931 Incentives and referral awards 340 -- 340 151 Payroll taxes 568 13 555 511 Medical and other benefits 800 47 753 702 ------- ----- ------ ------- Total salaries and employee benefits $ 8,282 179 $ 8,103 $ 7,295 ======= ===== ======= ======= Full-time equivalent staff, period end 235 -- -- 234 Salaries & benefits/Avg FTE(1) $47,030 $ -- $46,014 $41,524
(1) Annualized The increase in salaries, after adjusting for restructuring charges, for the three and nine month periods ended September 30, 1995, compared to the previous year is due to the addition of the IOBOC corporate banking staff. Average salaries and benefits per full-time equivalent employee ("FTE"), as adjusted for restructuring charges, increased $6 thousand and $5 thousand for the quarter and nine months ended September 30, 1995, over the prior-year periods. The increase in incentives expense for the nine months ended September 30, 1995, is primarily due to payment of 1994 incentives during the first quarter of 1995. The Company had 235 and 234 full-time equivalent staff at September 30, 1995 and 1994, respectively. OREO EXPENSE The following table sets forth the components of net OREO expense for the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- -------------------- (IN THOUSANDS) 1995 1994 1995 1994 --------- -------- -------- -------- OREO income $ (23) $ -- $ (56) $ -- OREO holding expenses 97 344 293 535 Writedowns -- -- 128 882 Net (gains)/losses from sales 68 62 22 (5) --------- -------- -------- -------- Total noninterest expense $ 142 $ 406 $ 387 $ 1,412 ========= ======== ======== ========
OREO expense decreased by $265 thousand and $1.0 million for the quarter and nine months ended September 30, 1995, respectively, from the same periods a year ago. Most of the decrease for the quarter is reflected in lower holding costs for OREO properties, which decreased $249 thousand, primarily as the result of fewer OREO properties. The $1.0 million decrease in net OREO holding costs for the nine months ended September 30, 1995, includes $243 thousand of lower OREO holding costs, as well as a decrease in writedowns of OREO properties of $754 thousand from $882 thousand for the nine months ended September 30, 1994, to $128 thousand for the nine months ended September 30, 1995. 18 FINANCIAL CONDITION The following table provides a summary comparison of assets and liabilities in the Company's consolidated balance sheets for the dates indicated:
SEPTEMBER 30, DECEMBER 31, AMOUNT PERCENT (IN THOUSANDS) 1995 1994 CHANGE CHANGE ------------- ----------- -------- -------- ASSETS Cash and cash equivalents $ 64,545 $ 31,118 $ 33,427 107.42% Investment securities 96,591 131,881 (35,290) (26.76)% Loans, net 272,949 202,072 70,877 35.08% Premises and equipment, net 10,088 10,254 (166) (1.62)% Other real estate owned, net 3,273 5,837 (2,564) (43.93)% Accrued interest receivable 2,557 4,330 (1,773) (40.94)% Other assets 18,224 13,063 5,161 39.51% -------- -------- -------- ------- TOTAL ASSETS $468,227 $398,555 $ 69,672 17.48% ======== ======== ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing deposits $133,540 $118,020 $ 15,520 13.15% Interest-bearing demand & savings deposits 133,550 147,302 (13,752) (9.34)% Time certificates of deposit 148,512 74,617 73,895 99.03% -------- -------- -------- ------- Total deposits 415,602 339,939 75,663 22.26% -------- -------- -------- ------- Borrowed funds and other interest-bearing liabilities 6,566 13,621 (7,055) (51.80)% Accrued interest payable and other liabilities 1,380 3,151 (1,771) (56.20)% Total Shareholders' Equity 44,679 41,844 2,835 6.78% -------- -------- -------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $468,227 $398,555 $ 69,672 17.48% ======== ======== ======== =======
TOTAL ASSETS Total assets increased by $69.7 million, or 17.48%, from $398.6 million at year-end 1994 to $468.2 million at September 30, 1995. The increase in assets was largely due to the purchase of loans from IOBOC. 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. In accordance with Federal regulations, reserve balances of $3.3 million were maintained in the form of deposits with the Federal Reserve Bank at September 30, 1995. Cash and cash equivalents increased $33.4 million from $31.1 million at year end 1994 to $64.5 million at September 30, 1995. Most of the increase is comprised of $27.8 million of overnight investments in Federal funds sold from the proceeds of the Company's sale of certain securities from its available-for-sale investment portfolio as part of its restructuring plan. LOANS The Company provides a full range of credit products designed to meet the credit needs of borrowers in its service area. The Company engages in medium-term commercial real estate loans secured by commercial properties, commercial loans, term financing, SBA loans, 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 has added construction loan products principally for entry level housing and owner-user commercial industrial properties. Construction loans outstanding at September 30, 1995, were $2,356,305. Please refer to NOTE 3 - LOANS as a basis for the following discussion of changes in the Company's loan portfolio from December 31, 1994 to September 30, 1995. COMMERCIAL LOANS. Commercial loans totaled $124.2 million or 44.57% of total loans and $79.4 million or 38.22% of total loans at September 30, 1995, and December 31, 1994, respectively. Most of the increase of $44.8 million resulted from the purchase of $37.2 million of commercial loans from IOBOC in the second quarter of 1995. As adjusted for the purchased loans, commercial and industrial loans increased $7.6 million or 9.61% from year end 1994. Most of the Bank's commercial borrowers and customers are small to medium size businesses and professionals. Most of the commercial loans are short term, are reviewed and renewed annually, and bear a floating rate of interest. Approximately 65% 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 September 30, 1995, $32.3 million or 11.58% of total loans were secured by accounts receivable as compared to $26.0 or 12.53% of loans at December 31, 1994. Commercial loans secured by real estate were $22.5 million or 8.09% at September 30, 1995, as compared to $13.7 million or 6.60% of loans at December 31, 1994. In 1994, the Company began participating in government-insured lending programs, including SBA loans. At September 30, 1995, the Company reported $1.4 million of SBA loans. REAL ESTATE CONSTRUCTION LOANS. Real estate construction loans comprised $2.4 million or 0.85% of outstanding loans at September 30, 1995. Construction loans were not part of the Bank's previous market strategy. However, during the first quarter of 1995, the Bank created a Real Estate 19 Industries Department and appointed an experienced real estate lender to manage the department. Going forward, the Bank plans to conservatively enter the recovering real estate market and to offer construction financing on quality projects. REAL ESTATE MORTGAGE LOANS. Real estate mortgage loans comprised $99.4 million or 35.67% of the total loan portfolio at September 30, 1995, as compared to $83.7 million or 40.31% of the total loans outstanding at year end 1994. Approximately $16.8 million of real estate loans were purchased from IOBOC. Therefore, adjusted real estate loans have decreased $1.1 million or 1.28% since year end. This decrease resulted from deliberate actions by the Bank's management to reduce the concentration of real estate loans in the Bank's loan portfolio. During 1994, the Bank limited new real estate loans to existing borrowers who were owner/users or to new borrowers who provided a new major banking relationship and demonstrated adequate cash flows. All new real estate borrowers must provide financial reporting that meets FDICIA standards and the loans must have conservative loan to value ratios. Approximately 80% of the Bank's real estate loans are secured by first trust deeds; and approximately 50% are to owner/users. CONSUMER LOANS. Approximately $52.7 million or 18.91% of the loan portfolio was made up of consumer loans at September 30, 1995. At September 30, 1995, $30.6 million or 11.00% of total loans were comprised of home equity loans and home equity lines of credit. Vehicle loans comprised approximately $12.8 million of outstanding consumer loans at September 30, 1995. Approximately $5.2 million of consumer loans outstanding at September 30, 1995 consisted of a successful new loan product, "Loans to High Net Worth Individuals," which was acquired from IOBOC and has been integrated into the Bank's portfolio of products. 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 September 30, 1995, based on remaining scheduled principal repayments:
MATURING IN ---------------------------------------------------- OVER ONE ONE YEAR YEAR THROUGH OVER (GROSS LOANS, IN THOUSANDS) OR LESS FIVE YEARS FIVE YEARS TOTAL ------------ -------------- ------------- ---------- Real estate $19,236 $ 65,153 $13,639 $ 98,028 Commercial 74,286 41,087 8,447 123,820 Construction 747 1,609 -- 2,356 ------------ -------------- ------------- ---------- Total $94,269 $107,849 $22,086 $224,204 ============ ============== ============= ==========
The following table sets forth sensitivity of the amounts due to changes in interest rates for the Company's loan portfolio (excluding consumer and nonaccrual loans) at September 30, 1995:
REPRICING IN ---------------------------------------------------- OVER ONE ONE YEAR YEAR THROUGH OVER (GROSS LOANS, IN THOUSANDS) OR LESS FIVE YEARS FIVE YEARS TOTAL ------------ -------------- ------------- ---------- Fixed interest rates $ 16,418 $ 48,534 $10,748 $ 75,700 Variable interest rates 148,504 -- -- 148,504 ------------ -------------- ------------- ---------- Total $164,922 $ 48,534 $10,748 $224,204 ============ ============== ============= ==========
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. 20 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. ASSET QUALITY The Company analyzes the adequacy of the collateral securing all loans quarterly. Impaired loans for $9.5 million had been identified as of September 30, 1995, in accordance with the provisions of Statements of Financial Accounting Standards Nos. 114 and 118. These loans have been reported in the balance sheets at their fair values based on the appraised value of the collateral, including estimated estimated disposal costs. All nonaccrual loans are classified as impaired. At September 30, 1995, the Company had $6 thousand of loans past due 90 days or more past due and still accruing interest. Nonaccrual loans by category are summarized below:
SEPTEMBER 30, DECEMBER 31, (IN THOUSANDS) 1995 1994 ------------- ------------ Commercial $ 406 $ 283 Real estate, construction - - Real estate, mortgage 1,116 930 Consumer 307 399 ------------- ------------ Total nonaccrual loans $1,829 $1,612 ============= ============
Delinquent loans (past due 30 to 89 days) by category are summarized below:
SEPTEMBER 30, DECEMBER 31, (IN THOUSANDS) 1995 1994 ------------- ------------ Commercial $609 $ 998 Real estate, construction - - Real estate, mortgage 153 2,089 Consumer 162 416 ------------- ------------ Total nonaccrual loans $924 $3,503 ============= ============ Percentage of total gross loans: Nonaccrual loans 0.66% 0.78% Delinquent loans, still accruing interest 0.33% 1.69% Nonaccrual and delinquent loans 0.99% 2.47%
21 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 on a regular basis and its current allowance for loan losses to determine that 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, the 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. OTHER REAL ESTATE OWNED Real estate acquired in satisfaction of debts includes properties acquired through foreclosures and, in 1994, properties that have been determined to be in-substance repossessions. These properties are carried at the lower of cost or net fair value. The difference between the fair value of the real estate collateral, net of any estimated disposal costs, and the loan balance is reflected through the allowance for loan losses as a loan charge-off. Subsequent declines in the fair value of the property, routine holding costs, net of any income, and net gains or losses on disposal are included in noninterest expense. Activity in OREO for the periods indicated is as follows: NINE MONTHS FISCAL YEAR ENDED ENDED SEPTEMBER 30, DECEMBER 31, (IN THOUSANDS) 1995 1994 ------------- ------------- Balance, beginning of period $ 5,837 $ 6,133 Additions 1,421 3,585 Sales (3,857) (2,699) Valuation and other adjustments (128) (1,182) ------- ------- Balance, end of period $ 3,273 $ 5,837 ======= ======= The OREO portfolio at September 30, 1995 consisted of five properties valued at $3.3 million. In October 1995, two of the properties were sold for a net gain of $145,000. The Company is actively marketing the remaining OREO properties. 22 DEPOSITS Total deposits increased by $75.7 million, or 22.26%, from $339.9 million at year-end 1994 to $415.6 million at September 30, 1995. Noninterest-bearing deposits increased $15.5 million, and interest-bearing deposits increased, net, $60.1 million from year-end 1994. The increase in deposits is due to the funding raised for the IOBOC purchase of loans and deposits. Time certificates of deposit increased from 22.06% of total average deposits at year-end 1994, to 36.07% of total average deposits at September 30, 1995.
NINE MONTHS ENDED FISCAL YEAR ENDED SEPTEMBER 30, 1995 DECEMBER 31, 1994 ------------------------------- ------------------------------- (IN THOUSANDS) AVG. BAL. RATE(1) % OF TOTAL AVG. BAL. RATE(1) % OF TOTAL --------- ------- ---------- --------- ------- ---------- Demand deposits $122,092 30.56% $118,066 32.58% NOW/MMDA 76,543 1.80% 19.16% 121,338 1.60% 33.48% Savings 56,761 2.08% 14.21% 43,039 2.30% 11.88% TCDs 144,114 5.85% 36.07% 79,937 3.80% 22.06% -------- ------- -------- ------- Deposits $399,510 100.00% $362,380 100.00% ======== ======= ======== =======
(1) Annualized The Company purchased approximately $19.8 million of noninterest bearing demand deposits from IOBOC in the second quarter of 1995. Since the purchase, IOBOC demand deposits have decreased $4.7 million, primarily due to a significant reduction in balances maintained by a large commercial customer. Most of the IOBOC customer base has been retained. Demand deposits, net of the effects of the IOBOC purchase, have remained flat since year end 1994. Interest-bearing demand and savings accounts have decreased $22.9 million or 15.6% since year end 1994, after adjusting for the acquired IOBOC deposits. Much of the decrease represents a shift in the Company's deposit mix as customers have transferred lower yielding savings and idle MMDA balances into higher rate certificates of deposit, which have increased 27.3% since year end on an adjusted basis. During the first quarter of 1995, the Company introduced a promotional time certificates of deposit program. This program proved to be highly successful, procuring in excess of $70 million in 7 to 12 month TCDs. The majority of the TCDs, approximately $52.6 million, matured during a two week period from August 31, 1995, to September 15, 1995. The Company retained $36.2 million or about 70% of the maturing TCDs at an average rate of 5.89%, with maturities ranging from 7 months to 15 months. Approximately another $20 million of promotional TCDs will mature by February 1996. 23 The following table sets forth the maturities of the Company's time certificates of deposit outstanding at the dates indicated:
SEPTEMBER 30, 1995 MATURING IN ----------------------------------------------------------------------------- OVER THREE OVER SIX THREE MONTHS MONTHS THROUGH MONTHS THROUGH OVER (IN THOUSANDS) OR LESS SIX MONTHS TWELVE MONTHS TWELVE MONTHS TOTAL ------------ -------------- -------------- ------------- -------- Under $100,000 $ 7,891 $11,814 $65,779 $18,055 $103,539 $100,000 and over 9,711 7,794 20,804 6,664 44,973 ------- ------- ------- ------- -------- Total $17,602 $19,608 $86,583 $24,719 $148,512 ======= ======= ======= ======= ========
DECEMBER 31, 1994 MATURING IN ----------------------------------------------------------------------------- OVER THREE OVER SIX THREE MONTHS MONTHS THROUGH MONTHS THROUGH OVER (IN THOUSANDS) OR LESS SIX MONTHS TWELVE MONTHS TWELVE MONTHS TOTAL ------------ -------------- -------------- ------------- -------- Under $100,000 $16,467 $ 9,541 $ 9,905 $ 9,497 $45,410 $100,000 and over 15,806 6,249 4,532 2,620 29,207 ------- ------- ------- ------- -------- Total $32,273 $15,790 $14,437 $12,117 $74,617 ======= ======= ======= ======= ========
ASSET/LIABILITY MANAGEMENT The objective of asset/liability management is to reduce the Company's exposure to interest rate fluctuations. The Company seeks to achieve this objective by matching its interest 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 is only a general indicator of interest rate sensitivity. 24 The following table sets forth information concerning the Company's rate sensitive assets and rate sensitive liabilities as of September 30, 1995. 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 table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees and at different times to changes in market interest rates. Also, loan prepayments and early withdrawals of certificates of deposit could cause the interest sensitivities to vary from those which appear in the table. The following table sets forth information concerning the Company's rate-sensitive liabilities at September 30, 1995. Such assets and liabilities are classified by the earlier of maturity or repricing date.
THREE MONTHS ONE YEAR THREE MONTHS THROUGH THROUGH OVER (IN THOUSANDS) OR LESS TWELVE MONTHS FIVE YEARS FIVE YEARS TOTAL ------------ ------------- ---------- ---------- --------- INTEREST-EARNING ASSETS Federal funds sold $ 27,800 $ - $ - $ - $ 27,800 Investment securities 2,428 7,094 84,976 3,053 97,551 Loans (1) 179,032 21,074 62,500 14,264 276,870 Interest rate swap - - 75,000 - 75,000 -------- ------- -------- ------- -------- Total interest-earning assets $209,260 $ 28,168 $222,476 $ 17,317 $477,221 ======== ======= ======== ======== ======== INTEREST-BEARING LIABILITIES Interest-bearing demand and savings deposits $133,550 $ - $ - $ - $133,550 Time certificates of deposit 17,601 106,192 24,682 37 148,512 Other borrowings and interest- bearing liabilities 6,566 - - - 6,566 Interest rate swap 75,000 - - - 75,000 -------- -------- -------- -------- -------- Total interest-bearing liabilities $232,717 $106,192 $ 24,682 $ 37 $363,627 ======== ======== ======== ======== ======== Interest rate sensitivity gap $(23,457) $ (78,024) $197,794 $ 17,280 Cumulative interest rate sensitivity gap (23,457) (101,481) 96,313 113,593 Cumulative interest rate sensitivity gap as a percentage of total interest- earning assets -4.92% -21.26% 20.18% 23.80%
____________________________________________ (1) Loans exclude nonaccrual loans of $1,829 At September 30, 1995, the Company's rate sensitive balance sheet was shown to be in a negative gap position. The gap between assets and liabilities that reprice within 3 months was $23.5 million or 4.92% of assets. The cumulative negative gap increases to $101.5 million or 21.26% of total assets that mature or reprice within one year. After one year, the gap turns positive. The table above implies that the Company's earnings would 25 be reduced in the short-term if interest rates rise. However, repricing of the Company's interest-bearing demand and savings deposits generally lags repricing on the Company's variable rate loan portfolio. During the declining rate environment in 1992 and 1993, the Company entered into a $50 million 5-year interest rate swap agreement in September 1993 and a $25 million 3-year interest rate swap agreement in January 1994, in order to stabilize interest income from the Company's variable rate loan portfolio. The terms of these swap agreements require the Company to pay a floating rate of interest tied to three-month LIBOR, and to receive fixed rates of interest of 4.87% and 5.04% for swap #1 and swap #2, respectively. The Company's combined break-even point on both swap agreements is approximately 4.92%. Since the fourth quarter of 1994, three-month LIBOR has exceeded the Company's break-even point, so that interest expense on the swap agreements has exceeded interest income. Net interest expense on the swaps for the nine months ended September 30, 1995 was $751.2 thousand, as compared to net interest income of $320 thousand for the nine months ended September 30, 1994. The Company's held-to-maturity investment portfolio consists primarily of fixed-rate mortgage-backed securities with final maturities principally of four to six years. Cash flows from these securities help to reduce the impact of the Company's short-term negative gap. 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 and those classified as held-to-maturity. It is the Company's policy to maintain a liquidity ratio (liquid assets to liabilities) of between 25% and 50%, and to limit loans to no more than 75% to 85% of deposits. At September 30, 1995, the Company's ratios were well within these guidelines: liquidity was 33.0% and gross loans to deposits was 67.1%. 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. As part of its restructuring plan, the Company liquidated a portion of its available-for-sale investment securities portfolio during the quarter ended September 30, 1995. These securities sales were undertaken to provide a funding source for future loan growth, and to strengthen the Bank's funding mix. The Company's liquid assets were $136.1 million at September 30, 1995, up from $125.3 million at December 31, 1994. 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 and Federal funds lines of credit that allow the Company to temporarily borrow an aggregate of up to $25.0 million from three commercial banks. At September 30, 1995, the Company had approximately $23.4 million in unpledged securities that could be used for reverse repurchases. During the nine months ended September 30, 1995, the largest amount of funds so borrowed was $20.6 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 $5.0 million and $17.3 million were borrowed during the quarter and nine months ended September 30, 1995, respectively. 26 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 standby letters of credit. The regulations require that a portion of total capital be core, or Tier 1, capital consisting of common stockholders' 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 debts, and grandfathered senior debt, plus the allowance for 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 in this category 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 deposits insurance assessments. Management seeks to maintain capital ratios in excess of the regulatory minimums. Prior to December 1994, the Bank was required to attain a minimum leverage ratio of 7.0% under the conditions of a Memorandum of Understanding ("MOU") the Bank entered into with the FDIC and the California State Banking Department in November 1993. The FDIC and State Banking Department released the Bank from the MOU effective February 15, 1995. As of September 30, 1995, the capital ratios of the Company and the Bank exceeded the "well capitalized" thresholds prescribed in the rules. The following table sets forth the Company's and the Bank's risk-based capital and leverage ratios at September 30, 1995:
COMPANY BANK ------------------------- ---------------------- (IN THOUSANDS) AMOUNT % AMOUNT % --------- ------- --------- ------ Leverage ratio $40,994 8.67% $38,569 8.16% Regulatory minimum 18,904 4.00% 18,904 4.00% Excess 22,090 4.67% 19,665 4.16% Risk-based ratios Tier 1 capital $40,994(a) 11.25%(b) $38,569(a) 10.58%(b) Tier 1 minimum 14,573 4.00%(c) 14,582 4.00%(c) Excess 26,421 7.25% 23,987 6.58% Total capital $45,558(d) 12.50%(b) $43,135(d) 11.83%(b) Total capital minimum 29,146 8.00% 29,164 8.00% Excess 16,412 4.50% 13,971 3.83%
- ------------ (a) Includes common shareholders' equity (excluding unrealized losses on available-for-sale securities) less goodwill. The Tier 1 capital ratio is adjusted for the disallowed portion of deferred tax assets, if applicable. (b) Risk-weighted assets of $364.3 million and $364.5 million were used to compute these percentages. (c) Insured institutions, such as the Bank, must maintain a Tier 1 capital ratio of at least 4% or 6%, and a Total capital 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. 27 PART II. OTHER INFORMATION Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities Not Applicable 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 Not Applicable 28 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: 10 November, 1995 SC BANCORP (Registrant) By: /s/ BRUCE ROAT --------------------------- Bruce Roat E.V.P./C.F.O. (Principal Financial and Accounting Officer) 29 EX-27.1 2 EXHIBIT 27.1
9 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 36,745 282,062 27,800 0 42,411 54,180 52,501 278,699 5,354 468,227 415,602 6,566 1,380 0 37,643 0 0 7,598 468,227 18,789 5,060 727 24,577 8,221 9,140 15,437 1,224 (620) 18,092 (147) (133) 0 0 (133) (0.02) (0.02) 5.19 1,829 6 1,300 13,233 5,318 2,441 637 5,354 5,354 0 0
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