SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 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, 2000 Commission File No. 0-10852
SOUTHERN BANCSHARES (N.C.), INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1538087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
121 East Main Street Mount Olive, North Carolina 28365
( Address of Principal Executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (919) 658-7000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of the Registrant's common stock as of
the close of the period covered by this report. 118,526 shares
(Unaudited)
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES March 31, December 31,
CONSOLIDATED BALANCE SHEETS 2000 1999
--------- ---------
(Dollars in thousands except per share data)
ASSETS
Cash and due from banks ................................................... $ 26,918 $ 28,524
Federal funds sold ........................................................ 13,375 20,370
Investment securities:
Available-for-sale, at fair value (amortized cost
$82,941 and $83,095, respectively) ................................... 91,970 94,084
Held-to-maturity, at amortized cost (fair value
$115,923 and $99,979, respectively) .................................. 116,356 100,129
Loans ..................................................................... 405,680 398,060
Less allowance for loan losses ....................................... (6,184) (6,188)
--------- ---------
Net loans ................................................................. 399,496 391,872
Premises and equipment .................................................... 21,479 21,257
Intangible assets ......................................................... 6,441 6,411
Accrued interest receivable ............................................... 5,215 4,730
Other assets .............................................................. 1,792 1,855
--------- ---------
Total assets ................................................ $ 683,042 $ 669,232
========= =========
LIABILITIES
Deposits:
Noninterest-bearing .................................................. $ 94,306 $ 89,181
Interest-bearing ..................................................... 498,930 489,069
--------- ---------
Total deposits ............................................................ 593,236 578,250
Short-term borrowings ..................................................... 6,667 6,658
Long-term obligations ..................................................... 23,000 23,000
Accrued interest payable .................................................. 4,430 4,471
Other liabilities ......................................................... 1,799 1,909
--------- ---------
Total liabilities ............................................... 629,132 614,288
--------- ---------
SHAREHOLDERS' EQUITY
SeriesB non-cumulative preferred stock, no par value;
408,728 shares authorized; 397,170 and 397,370 shares issued
and outstanding at March 31, 2000 and December 31, 1999, respectively 1,934 1,936
Series C non-cumulative preferred stock, no par value; 43,631 shares
authorized; 39,825 shares issued and outstanding at March 31, 2000
and December 31, 1999, respectively ................................. 555 555
Common stock, $5 par value; 158,485 shares authorized; 118,526 and
118,912 shares issued and outstanding at March 31, 2000 and December
31, 1999, respectively .............................................. 593 595
Surplus ................................................................... 10,000 10,000
Retained earnings ......................................................... 34,900 34,606
Accumulated other comprehensive income .................................... 5,928 7,252
--------- ---------
Total shareholders' equity ........................................ 53,910 54,944
--------- ---------
Total liabilities and shareholders' equity .................. $ 683,042 $ 669,232
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES (Unaudited)
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Three Months Ended March 31,
2000 1999
--------- ---------
(Dollars in thousands except share and per share data)
Interest income:
Loans ............................................................ $ 8,434 $ 7,439
Investment securities:
U. S. Government ............................................. 1,958 1,891
State, county and municipal .................................. 478 434
Other ........................................................ 156 186
--------- ---------
Total investment securities interest income ............. 2,592 2,511
Federal funds sold ............................................... 310 277
--------- ---------
Total interest income ........................... 11,336 10,227
Interest expense:
Deposits ........................................................ 4,738 4,378
Short-term borrowings ........................................... 63 48
Long-term obligations ........................................... 517 517
--------- ---------
Total interest expense ................................ 5,318 4,943
--------- ---------
Net interest income ............................... 6,018 5,284
Provision for loan losses ........................................ 75 60
--------- ---------
Net interest income after provision for loan losses 5,943 5,224
Noninterest income:
Service charges on deposit accounts ............................... 862 807
Investment securities (losses) gains, net ......................... (843) 1
Other service charges and fees .................................... 285 247
Gain on sale of other real estate ................................. 82 --
Credit card merchant discount ..................................... 72 28
Gain (loss) on sale of loans ...................................... (2) (40)
Other ............................................................. 28 66
--------- ---------
Total noninterest income .................................... 484 1,109
Noninterest expense:
Personnel ........................................................ 2,823 2,733
Data processing .................................................. 479 492
Intangibles amortization ......................................... 457 610
Occupancy ........................................................ 495 382
Furniture and equipment .......................................... 382 358
Professional fees ................................................ 229 164
Other ............................................................ 927 662
--------- ---------
Total noninterest expense ................................. 5,792 5,401
--------- ---------
Income before income taxes ............................................. 635 932
Income taxes ........................................................... 130 240
--------- ---------
Net income ...................................... 505 692
--------- ---------
Other comprehensive income (loss) net of tax:
Unrealized (losses) gains arising during period ..................... (1,880) (2,069)
Less: reclassification adjustment for gains included in net income (556) --
--------- ---------
Other comprehensive (loss) income ............................. $ (1,324) $ (2,069)
--------- ---------
Comprehensive income (loss) ................................ $ (819) $ (1,377)
========= =========
Per share information:
Net income per common share ......................................... $ 3.44 $ 4.99
Cash dividends declared on common shares ............................ 0.38 0.38
Weighted average common shares outstanding .......................... 118,773 119,250
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollars in thousands except per share data)
(Unaudited)
Preferred Stock Common Stock
----------------- -----------------
Series B Series C
------------------ ----------------- Retained
Shares Amount Shares Amount Shares Amount Surplus Earnings
------ ------ ------ ------ ------ ------ ------- --------
Balance, December 31, 1998 398,653 $1,942 40,373 $562 119,266 $596 $10,000 $31,571
Net income 692
Retirement of stock (80) (14)
Cash dividends:
Common stock ($.38 per share) (45)
Preferred B ($.22 per share) (88)
Preferred C ($.22 per share) (9)
Unrealized loss on securities
available-for-sale, net of tax
------- ------ ------ ---- ------- ---- ------- -------
Balance, March 31, 1999 398,653 $1,942 40,373 $562 119,186 $596 $10,000 $32,107
======= ====== ====== ==== ======= ==== ======= =======
Balance, December 31, 1999 397,370 $1,936 39,825 $555 118,912 $595 $10,000 $34,606
Net income 505
Retirement of stock (200) (2) (386) (2) (70)
Cash dividends:
Common stock ($.38 per share) (45)
Preferred B ($.22 per share) (87)
Preferred C ($.22 per share) (9)
Unrealized loss on securities
available-for-sale, net of tax
------- ------ ------ ---- ------- ---- ------- -------
Balance, March 31, 2000 397,170 $1,934 39,825 $555 118,526 $593 $10,000 $34,900
======= ====== ====== ==== ======= ==== ======= =======
Compre- Total
hensive Shareholders'
Income Equity
------ ------
Balance, December 31, 1998 $11,362 $56,033
Net income 692
Retirement of stock (14)
Cash dividends:
Common stock ($.38 per share) (45)
Preferred B ($.22 per share) (88)
Preferred C ($.22 per share) (9)
Unrealized loss on securities
available-for-sale, net of tax (2,069) (2,069)
---------- ---------------
Balance, March 31, 1999 $9,293 $54,500
========== ===============
Balance, December 31, 1999 $7,252 $54,944
Net income 505
Retirement of stock (74)
Cash dividends:
Common stock ($.38 per share) (45)
Preferred B ($.22 per share) (87)
Preferred C ($.22 per share) (9)
Unrealized loss on securities
available-for-sale, net of tax (1,324) (1,324)
---------- ---------------
Balance, March 31, 2000 $5,928 $53,910
========== ===============
The accompanying notes are an integral part of these consolidated financial
statements.
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) Three Months ended March 31,
(Unaudited) 2000 1999
-------- ---------
OPERATING ACTIVITIES:
Net income ................................................................ $ 505 $ 692
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses ..................................... 75 60
Losses (gains) on sales and issuer calls of securities ........ 843 (1)
Loss on sale and abandonment of premises and equipment ........ 8 2
Net accretion on discounts on investments ..................... (17) (20)
Amortization of intangibles ................................... 502 610
Depreciation .................................................. 413 362
Net increase in accrued interest receivable ................... (485) (297)
Net decrease in accrued interest payable ...................... (41) (918)
Net decrease (increase) in other assets ....................... 63 (70)
Net increase (decrease) in other liabilities .................. (117) 256
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................. 1,749 676
-------- --------
INVESTING ACTIVITIES:
Proceeds from maturities and issuer calls of investment
securities available-for-sale ................................... 6,598 6,090
Proceeds from maturities and issuer calls of investment
securities held-to-maturity ..................................... 15,228 11,196
Purchases of investment securities held-to-maturity ................. (33,089) (6,967)
Purchases of investment securities available-for-sale ............... (5,000) (15,678)
Net cash received for branches acquired ............................. 5,157 --
Net decrease (increase) in loans .................................... (6,364) 620
Purchases of fixed assets ........................................... (543) (651)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ..................................... (18,013) (5,390)
-------- --------
FINANCING ACTIVITIES:
Net increase (decrease) in demand and interest-bearing demand deposits 2,470 (9,631)
Net increase in time deposits ........................................ 5,399 2,106
Net proceeds of short-term borrowed funds ............................ 9 294
Cash dividends paid .................................................. (141) (142)
Purchase and retirement of stock ..................................... (74) (14)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES .......................... 7,663 (7,387)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ................................. $ (8,601) $(12,101)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR ........................ 48,894 56,954
-------- --------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD ............................ $ 40,293 $ 44,853
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING THE PERIOD FOR:
Interest ............................................................. $ 5,360 $ 5,861
Income taxes ......................................................... $ 233 $ 145
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
SOUTHERN BANCSHARES (N. C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. Summary Of Significant Accounting Policies
Basis of Financial Statement Presentation
Southern BancShares (N. C.), Inc. ("BancShares") is the holding company for
Southern Bank and Trust Company ("Southern"), which operates 46 banking offices
in eastern North Carolina, and Southern Capital Trust I (the "Trust"), a
statutory business trust that issued $23.0 million of 8.25% Capital Securities
("the Capital Securities") in June 1998 maturing in 2028. Southern, which began
operations January 29, 1901, has a wholly-owned subsidiary, Goshen, Inc. which
acts as agent for credit life and credit accident and health insurance written
in connection with loans made by Southern. BancShares and Southern are
headquartered in Mount Olive, North Carolina.
The consolidated financial statements in this report are unaudited. In the
opinion of management, all adjustments (none of which were other than normal
accruals) necessary for a fair presentation of the financial position and
results of operations for the periods presented have been included.
The preparation of 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 disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The statements should be read in conjunction
with the consolidated financial statements and accompanying notes for the year
ended December 31, 1999, incorporated by reference in the 1999 Annual Report on
Form 10-K.
Principles Of Consolidation
The consolidated financial statements include the accounts of BancShares and its
wholly-owned subsidiaries, Southern and the Trust. The statements also include
the accounts of Goshen, Inc., a wholly-owned subsidiary of Southern. BancShares'
financial resources are primarily provided by dividends from Southern. All
significant intercompany balances have been eliminated in consolidation.
Cash And Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks and federal funds sold. Federal funds are purchased and sold for
one day periods.
Reclassifications
Certain prior period balances have been reclassified to conform to the current
period presentation. Such reclassifications had no effect on net income or
shareholders' equity as previously reported.
Note 2. Investment securities
March 31, 2000 December 31, 1999
(Unaudited)
----------------------------------------------- ---------------------------------------------
(In thousands) Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
-------- ------- ------- -------- -------- ------- ------- --------
SECURITIES HELD-TO-MATURITY:
U. S. Government $79,969 - (671) $79,298 $80,298 12 ($499) $79,811
Obligations of states
and political subdivisions 36,287 323 (81) 36,529 19,731 347 (6) 20,072
Corporate debenture 100 - (4) 96 100 - (4) 96
-------- ------- ------- -------- -------- ------- ------- --------
116,356 323 (756) 115,923 100,129 359 (509) 99,979
-------- ------- ------- -------- -------- ------- ------- --------
SECURITIES AVAILABLE-FOR-SALE:
U. S. Government 57,967 - (626) 57,341 57,968 - (551) 57,417
Marketable equity securities 15,338 9,735 (196) 24,877 10,262 12,559 (1,112) 21,709
Obligations of states
and political subdivisions 8,342 182 (43) 8,481 13,472 178 (72) 13,578
Mortgage-backed securities 1,294 13 (36) 1,271 1,393 14 (27) 1,380
-------- ------- ------- -------- -------- ------- ------- --------
82,941 9,930 (901) 91,970 83,095 12,751 (1,762) 94,084
-------- ------- ------- -------- -------- ------- ------- --------
Totals $199,297 $10,253 $(1,657) $207,893 $183,224 $13,110 $(2,271) $194,063
======== ======= ======= ======== ======== ======= ======= ========
During the three months ended March 31, 2000, management of BancShares reviewed
its portfolio of securities available-for-sale and determined that certain
marketable equity securities had declines in their value that were deemed to be
other than temporary. Accordingly, BancShares recorded a charge of $855,000 to
investment securities gains (losses) in the accompanying consolidated statement
of income and comprehensive income for the three months ended March 31, 2000 for
this amount and reduced the carrying amount of the related investments
accordingly. There can be no certainty that future charges to earnings for other
than temporary declines in the fair values of these or other investment
securities will not be required.
Note 3. LOANS
(Unuadited)
(Dollars in thousands) March 31, December 31,
2000 1999
-------- --------
Commercial, financial and agricultural ............. $101,855 $101,128
Real estate:
Construction ................................. 11,186 8,647
Mortgage:
One to four family residential ......... 106,421 111,793
Commercial ............................. 84,774 74,873
Equity line ............................ 29,964 30,152
Other .................................. 32,500 32,851
Consumer ........................................... 34,115 34,309
Lease financing .................................... 4,865 4,307
-------- --------
Total loans .................................. $405,680 $398,060
======== ========
Loans held for sale ................................ $ 6,508 $ 3,508
Loans serviced for others .......................... $178,316 $180,345
Note 4. ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands) (Unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
------- --------
Balance at beginning of year ............... $ 6,188 $ 5,962
Provision for loan losses ................ 75 60
Loans charged off ........................ (101) (186)
Loan recoveries .......................... 22 62
------- -------
Balance at end of the period ............... $ 6,184 $ 5,898
======= =======
Note 5. Earnings Per Common Share
Earnings per common share are computed by dividing income applicable to common
shares by the weighted average number of common shares outstanding during the
period. Income applicable to common shares represents net income reduced by
dividends paid to preferred shareholders. Since BancShares had no potentially
dilutive securities during 2000 or 1999, the computation of basic and diluted
earnings per share is the same.
Note 5. EARNINGS PER COMMON SHARE (Unaudited)
(Dollars in thousands) Three Months Ended March 31,
----------------------------
2000 1999
---------- ---------
Net income ..................................... $ 505 $ 692
Less: Preferred dividends .................... (96) (97)
--------- ---------
Net income applicable to common shares ......... $ 409 $ 595
========= =========
Weighted average common shares
outstanding during the period ................ 118,773 119,250
========= =========
Note 6. Related Parties
BancShares has entered into various service contracts with another bank holding
company (the "Corporation") and its subsidiary. The Corporation has two
significant shareholders, who also are significant shareholders of BancShares.
The first significant shareholder is a director of BancShares and, at March 31,
2000, beneficially owned 32,294 shares, or 27.22%, of BancShares' outstanding
common stock and 22,171 shares, or 5.58%, of BancShares' outstanding Series B
preferred stock. At the same date, the second significant shareholder
beneficially owned 27,577 shares, or 23.25%, of BancShares' outstanding common
stock, and 17,205 shares, or 4.33%, of BancShares' Series B preferred stock. The
above totals include 17,205 Series B preferred shares, or 4.33%, that are
considered to be beneficially owned by both of the shareholders and, therefore,
are included in each of their totals.
These two significant shareholders are directors and executive officers of the
Corporation and at March 31, 2000, beneficially owned 2,533,689 shares, or
28.63%, and 1,491,324 shares, or 16.87%, of the Corporation's outstanding Class
A common stock, and 644,631 shares, or 37.47%, and 194,497 shares, or 11.31%, of
the Corporation's outstanding Class B common stock. The above totals include
487,557 Class A common shares, or 5.51%, and 104,644 Class B Common shares, or
6.08 %, that are considered to be beneficially owned by both of the shareholders
and, therefore, are included in each of their totals.
A subsidiary of the Corporation is First-Citizens Bank & Trust Company ("First
Citizens"). Southern acquired a branch in Ahoskie, North Carolina from First
Citizens in 1999. In the fourth quarter of 2000 Southern expects to acquire,
subject to regulatory approval, two Rocky Mount, North Carolina offices and one
Nashville, North Carolina office of First Citizens containing approximately
$71.0 million of deposits and approximately $64.0 million of loans. Southern
expects to pay approximately $6.4 million to First Citizens for this
acquisition.
(Dollars in thousands)
Six Months Ended March 31,
--------------------------
2000 1999
---- ----
Data and item processing ............... $605 $558
Forms, supplies and equipment .......... 62 63
Trustee for employee benefit plans ..... 22 22
Consulting fees ........................ 20 26
Other services ......................... 29 22
---- ----
$738 $691
==== ====
Note 7. Subsequent Events
On April 17, 2000, Southern acquired the Battleboro, North Carolina, Nashville,
North Carolina and Sharpsburg, North Carolina offices of Centura Bank. In
connection with these acquisitions, Southern assumed total deposit liabilities
of $32.6 million, purchased $5.1 million of loans and recorded $3.2 million of
intangible assets.
In the fourth quarter of 2000 Southern expects to complete the acquisition
discussed above under "Related Parties".
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - FIRST THREE MONTHS OF 2000 VS. FIRST THREE MONTHS OF 1999
INTRODUCTION
In the first three months of 2000, the net income of BancShares decreased
$187,000 from $692,000 in the first three months of 1999 to $505,000 in the
first three months of 2000, a decrease of 27.02%. This decrease resulted
primarily from an adjustment for unrealized investment security losses,
considered other than temporary, that more than offset increased interest and
fees on commercial loans. One branch acquisition in September 1999, the opening
of one new branch in November 1999 and one branch acquisition in February 2000
resulted in increased net interest income, increased other noninterest income
and increased personnel expense and other related operating expenses for the
three months ended March 31, 2000.
Annualized per share net income available to common shares for the first three
months of 2000 was $3.44, a decrease of $1.55, or 31.06%, from $4.99 in 1999.
The return on average equity decreased to 3.72%, for the period ended March 31,
2000, from 4.96% for the period ended March 31, 1999 and the return on average
assets decreased to 0.30%, for the period ended March 31, 2000, from 0.43% for
the period ended March 31, 1999.
At March 31, 2000, BancShares' assets totaled $683.0 million, an increase of
$13.8 million, or 2.06%, from the $669.2 million reported at December 31, 1999.
During this three month period, loans increased $7.6 million, or 1.91%, from
$398.1 million to $405.7 million. During the three months ended March 31, 2000
investment securities increased $14.1 million, or 7.27% from $194.2 million at
December 31, 1999 to $208.3 million at March 31, 2000. Total deposits increased
$15.0 million, or 2.59% from $578.3 million at December 31, 1999 to $593.2
million at March 31, 2000. The above changes resulted principally from the
acquisitions discussed below and the seasonal impact of the agricultural markets
served by Southern .
ACQUISITIONS
In September 1999, Southern acquired $9.2 million of the loans and $14.8 million
of the deposits of the Ahoskie office of First-Citizens Bank & Trust Company, a
related party. Southern recorded intangible assets of $1.3 million for the
Ahoskie acquisition.
In February 2000, Southern acquired $1.3 million of the loans and $7.1 million
of the deposits of the Robersonville office of Cooperative Bank for Savings,
Inc. Southern recorded intangible assets of $532,000 for the Robersonville
acquisition.
These acquisitions were accounted for as purchases, and, therefore, the results
of operations prior to the purchases are not included in the consolidated
financial statements. The proforma impact of the acquisitions and dispositions,
as though they had been made at the beginning of the period presented, is not
material to BancShares' consolidated financial statements.
The comparisons of the three months ended March 31, 2000 to the three months
ended March 31, 1999 are accordingly impacted by the above transactions.
INTEREST INCOME
Interest and fees on loans increased $995,000, or 13.38%, from $7.4 million for
the three months ended March 31, 1999 to $8.4 million for the three months ended
March 31, 2000. This increase was due to higher overall interest rates and
increased loans as a result of the acquisitions discussed above. Average loans
increased $35.2 million, or 9.68%, from $363.5 million for the three months
ended March 31, 1999 to $398.7 million for the three months ended March 31,
2000. The yield on the loan portfolio was 8.19% in the three months ended March
31, 1999 and 8.52% in the three months ended March 31, 2000.
Interest income from investment securities, including U. S. Treasury and
Government obligations, obligations of state and county subdivisions and other
securities increased 3.23%, from $2.5 million in the three months ended March
31, 1999 to $2.6 million in the three months ended March 31, 2000. This change
was principally due to an increase in the volume of average investment
securities from $190.3 million for the three months ended March 31, 1999 to
$201.6 million for the three months ended March 31, 2000. In addition, the yield
on investment securities increased from 5.35% for the three-month period ended
March 31, 1999 to 5.43% for the three-month period ended March 31, 2000.
Interest income on federal funds sold increased $33,000 or 11.91%, from $277,000
for the three months ended March 31, 1999 to $310,000 for the three months ended
March 31, 2000. This increase in income resulted from increased interest rates
as average federal funds sold decreased from $23.3 million for the three months
ended March 31, 1999 to an average of $21.9 million for the three months ended
March 31, 2000. Average federal funds sold yields increased from 4.76% for the
three months ended March 31, 1999 to 5.67% for the three months ended March 31,
2000.
Total interest income increased $1.1 million or 10.84%, from $10.2 million for
the three months ended March 31, 1999 to $11.3 million for the three months
ended March 31, 2000. This increase was primarily the result of volume increases
resulting from the acquisitions discussed above and a 33 basis point increase in
average earning asset yields.
Average earning asset yields increased from 7.12% for the three months ended
March 31, 1999 to 7.45% for the three months ended March 31, 2000. Average
earning assets increased from $577.1 million in the three months ended March 31,
1999 to $613.1 million in the period ended March 31, 2000. This $36.0 million
increase in the average earning assets resulted primarily from the acquisitions
discussed above.
INTEREST EXPENSE
Total interest expense increased $375,000 or 7.59%, from $4.9 million in the
three months ended March 31, 1999 to $5.3 million for the three months ended
March 31, 2000. The principal reason for this increase was the overall increase
in financial market rates by the Federal Reserve Bank. BancShares' total cost of
funds increased from 3.96% for the three months ended March 31, 1999 to 4.10%
for the three months ended March 31, 2000. Average interest-bearing deposits
were $496.1 million in the three months ended March 31, 2000, an increase of
$21.2 million from the $474.9 million average in the three months ending March
31, 1999. The increase in interest-bearing liabilities was primarily the result
of the aforementioned acquisitions.
NET INTEREST INCOME
Net interest income increased to $6.0 million for the three months ended March
31, 2000 from $5.3 million for the three months ended March 31, 1999.
The interest rate spread for the three months ended March 31, 2000 was 3.35%, an
increase of 20 basis points from the 3.15% interest rate spread for the three
months ended March 31, 1999.
ASSET QUALITY AND PROVISION FOR LOAN LOSSES
For the three months ended March 31, 2000 management recorded $75,000 as
provision for loan losses. Management recorded a $60,000 addition to the
provision for loan losses for the three months ended March 31, 1999.
During the first three months of 2000 management charged-off loans totaling
$100,000 and received recoveries of $21,000, resulting in net charge-offs of
$79,000. During the same period in 1999, $186,000 in loans were charged-off and
recoveries of $62,000 were received, resulting in net charge-offs of $124,000.
The following table presents comparative Asset Quality ratios of BancShares:
(Unaudited)
March 31, December 31,
2000 1999
---- ----
Ratio of annualized net loans charged off
to average loans ......................... 0.08% 0.16%
Allowance for loan losses
to loans ................................ 1.52% 1.55%
Non-performing loans
to loans ............................... 0.38% 0.19%
Non-performing loans and assets
to total assets ........................ 0.27% 0.17%
Allowance for loan losses
to non-performing loans ................ 398.20% 830.60%
The ratio of annualized net charge-offs to average loans outstanding decreased
to 0.08% for the three months ended March 31, 2000 from 0.16% for the year ended
December 31, 1999. The allowance for loan losses represented 1.52% of loans at
March 31, 2000. The allowance for loan losses represented 1.55% of loans at
December 31, 1999. Loans increased $7.6 million, or 1.91% from $398.1 million at
December 31, 1999 to $405.7 million at March 31, 2000.
The ratio of nonperforming loans to loans, increased from 0.19% at December 31,
1999 to 0.38% at March 31, 2000. Nonperforming loans and assets to total assets
increased to 0.27% at March 31, 2000 from 0.17% at December 31, 1999. The
allowance for loan losses to nonperforming loans represented 398.20% of
nonperforming loans at March 31, 2000, a decrease from the 830.60% at December
31, 1999. The above performance declines resulted primarily from an increase in
nonperforming loans to $1.6 million at March 31, 2000 from $745,000 at December
31, 1999. The nonperforming loans at March 31, 2000 included $183,000 of
nonaccrual loans, $1.4 million of accruing loans 90 days or more past due and
$42,000 of restructured loans. BancShares had $279,000 of assets classified as
other real estate at March 31, 2000. BancShares had $414,000 of assets
classified as other real estate at December 31, 1999.
Management considers the March 31, 2000 allowance for loan losses to be adequate
to cover the losses and risks inherent in the loan portfolio at March 31, 2000
and will continue to monitor its portfolio and to adjust the relative level of
the allowance as needed. BancShares' impaired loans were less than the
nonaccrual and restructured loan amounts presented above and no additional
allowances for loan losses were required for these impaired loans.
Management actively maintains a current loan watch list and knows of no other
loans which are material and (i) represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity or capital resources, or (ii) represent material
credits about which management is aware of any information which causes
management to have serious doubts as to the ability of such borrowers to comply
with the loan repayment terms.
Management believes it has established the allowance in accordance with
generally accepted accounting principles and in consideration of the current
economic environment. While management uses the best information available to
make evaluations, future adjustments may be necessary if economic and other
conditions differ substantially from the assumptions used.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review Southern's allowance for loan losses
and losses on other real estate owned. Such agencies may require Southern to
recognize additions to the allowances based on the examiners' judgments about
information available to them at the time of their examinations.
NONINTEREST INCOME
During the three months ended March 31, 2000, BancShares realized a $625,000
decrease in noninterest income primarily as a result of a net loss on
available-for-sale investment securities of $843,000.
During the three months ended March 31, 2000, management of BancShares reviewed
its portfolio of securities available-for-sale and determined that certain
marketable equity securities had declines in their value that were deemed to be
other than temporary. Accordingly, BancShares recorded a charge of $855,000 to
investment securities gains (losses) in the accompanying consolidated statement
of income and comprehensive income for the three months ended March 31, 2000 for
this amount and reduced the carrying amount of the related investments
accordingly. There can be no certainty that future charges to earnings for other
than temporary declines in the fair values of these or other investment
securities will not be required.
NONINTEREST EXPENSE
Noninterest expense including personnel, occupancy, furniture and equipment,
data processing, FDIC insurance and state assessments, printing and supplies and
other expenses, increased $391,000 or 7.24%, from $5.4 million in the three
months ended March 31, 1999 to $5.8 million in the three months ended March 31,
2000.
This increase was primarily due to an increase in personnel expense of $90,000,
or 3.29%, from $2.7 million at March 31, 1999 to $2.8 million at March 31, 2000
and increased occupancy, furniture and equipment expense and other expenses
resulting principally from acquisitions discussed above.
INCOME TAXES
In the three months ended March 31, 2000, BancShares had income tax expense of
$130,000, a decrease of $110,000 from $240,000 in the prior year period. This
decrease is due primarily to decreased earnings resulting from the write-down of
investment securities discussed above. The resulting effective tax rate for the
three months ended March 31, 2000 was 20.47%. The effective tax rate for the
three months ended March 31, 1999 was 25.75%. The effective tax rates in 1999
and 2000 differ from the federal statutory rates of 34.00% for 1999 and 35.00%
for 2000 primarily due to tax exempt income.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
Sufficient levels of capital are necessary to sustain growth and absorb losses.
In June 1998, the Trust issued $23.0 million of 8.25% Capital Securities
maturing in 2028. The Trust invested the $23.0 million proceeds in Junior
Subordinated Debentures issued by BancShares (the "Junior Debentures") which,
upon consolidation of BancShares, are eliminated. The Junior Debentures, with a
maturity of 2028, are the primary assets of the Trust. With respect to the
Capital Securities, BancShares irrevocably and unconditionally guarantees the
Trust's obligations.
BancShares contributed Capital Securities proceeds of $12.0 million to Southern
which are included in Tier I capital for Southern's regulatory capital adequacy
requirements. BancShares has similar regulatory capital adequacy requirements as
Southern and is in compliance with those capital adequacy requirements at March
31, 2000.
The Federal Reserve Board, which regulates BancShares, and the Federal Deposit
Insurance Corporation, which regulates Southern, have established minimum
capital guidelines for the institutions they supervise.
Regulatory guidelines define minimum requirements for Southern's leverage
capital ratio. Leverage capital equals total equity less goodwill and certain
other intangibles and is measured relative to total adjusted assets as defined
by regulatory guidelines. According to these guidelines, Southern's leverage
capital ratio at March 31, 2000 was 8.60%. At December 31, 1999, Southern's
leverage capital ratio was 8.47%. Both of these ratios are greater than the
level designated as "well capitalized" by the FDIC.
Southern is also required to meet minimum requirements for Risk Based Capital
("RBC"). Southern's assets, including loan commitments and other off-balance
sheet items, are weighted according to federal guidelines for the risk
considered inherent in each asset. At March 31, 2000, Southern's Total RBC ratio
was 16.45%. At December 31, 1999 the RBC ratio was 16.28%. Both of these ratios
are greater than the level designated as "well capitalized" by the FDIC.
The regulatory capital ratios reflect increases in assets and liabilities from
the acquisitions Southern has made. Each of the acquisitions required the
payment of a premium for the deposits received. Each of these premiums resulted
in increased intangible assets, which is deducted from total equity in the ratio
calculations.
The accumulated other comprehensive income was $5.9 million at March 31, 2000,
and $7.3 million at December 31, 1999. Comprehensive income consists entirely of
unrealized gains on securities available-for-sale, net of taxes. Although a part
of total shareholders' equity, comprehensive income is not included in the
calculation of either the RBC or leverage capital ratios pursuant to regulatory
definitions of these capital requirements. The following table presents capital
adequacy calculations and ratios of Southern:
(Unaudited)
March 31, December 31,
2000 1999
---- ----
(Dollars in thousands)
Risk-based capital:
Tier 1 capital ........................... $ 56,437 $ 55,398
Total capital ............................ 63,389 62,967
Risk-adjusted assets ..................... 385,276 386,761
Average tangible assets .................. 655,935 654,268
Tier 1 capital ratio (1) ................ 14.65% 14.32%
Total capital ratio (1) ................. 16.45% 16.28%
Leverage capital ratio (1) .............. 8.60% 8.47%
- -----------
(1) These ratios exceed the minimum ratios required for a bank to be
classified as "well capitalized" as defined by the FDIC.
At March 31, 2000 and December 31, 1999, BancShares was also in compliance with
its regulatory capital requirements and all of its regulatory capital ratios
exceeded the minimum ratios required by the regulators to be classified as "well
capitalized".
LIQUIDITY
Liquidity refers to the ability of Southern to generate sufficient funds to meet
its financial obligations and commitments at a reasonable cost. Maintaining
liquidity ensures that funds will be available for reserve requirements,
customer demand for loans, withdrawal of deposit balances and maturities of
other deposits and liabilities. Past experiences help management anticipate
cyclical demands and amounts of cash required. These obligations can be met by
existing cash reserves or funds from maturing loans and investments, but in the
normal course of business are met by deposit growth.
In assessing liquidity, many relevant factors are considered, including
stability of deposits, quality of assets, economy of the markets served,
business concentrations, competition and BancShares' overall financial
condition. BancShares' liquid assets include cash and due from banks, federal
funds sold and investment securities available-for-sale. The liquidity ratio,
which is defined as cash plus short term available-for-sale securities divided
by deposits plus short term liabilities, was 38.16% at March 31, 2000 and 29.34%
at December 31, 1999.
The Statement of Cash Flows discloses the principal sources and uses of cash
from operating, investing and financing activities for the three months ended
March 31, 2000 and for the three months ended March 31, 1999. BancShares has no
brokered deposits. Jumbo time deposits are considered to include all time
deposits of $100,000 or more. BancShares has never aggressively bid on these
deposits. Almost all jumbo time deposit customers have other relationships with
Southern, including savings, demand and other time deposits, and in some cases,
loans. At March 31, 2000 jumbo time deposits represented 10.77% of total
deposits compared to 10.44% of total deposits at December 31, 1999.
Management believes that BancShares has the ability to generate sufficient
amounts of cash to cover normal requirements and any additional needs which may
arise, within realistic limitations, and management is not aware of any known
demands, commitments or uncertainties that will affect liquidity in a material
way.
ACCOUNTING AND OTHER MATTERS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative depends on the intended use of the derivative and the resulting
designation. This statement, as amended by Statement 137, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. Earlier
application of all provisions of this statement is encouraged. BancShares plans
to adopt this statement on January 1, 2001 and does not anticipate any material
effect on its consolidated financial statements.
The FASB also issues exposure drafts for proposed statements of financial
accounting standards. Such exposure drafts are subject to comment from the
public, to revisions by the FASB and to final issuance by the FASB as statements
of financial accounting standards. Management considers the effect of the
proposed statements on the consolidated financial statements of BancShares and
monitors the status of changes to issued exposure drafts and to proposed
effective dates.
Other matters
In April 2000, BancShares acquired the Battleboro, North Carolina, the
Nashville, North Carolina and the Sharpsburg, North Carolina offices of Centura
Bank. BancShares has received regulatory approval to open de novo branches in
three new eastern North Carolina markets. These offices are planned to open in
the fourth quarter of 2000.
On April 28, 2000 Southern announced, subject to regulatory approval, the
planned fourth quarter 2000 acquisitions of one Nashville, North Carolina and
two Rocky Mount, North Carolina offices of First-Citizens Bank & Trust Company,
a related party. In connection with these acquisitions, Southern expects to
assume total deposit liabilities of approximately $71.0 million, to purchase
approximately $64.0 million of loans and to record approximately $6.4 million of
intangible assets.
Management is not aware of any other trends, events, uncertainties, or current
recommendations by regulatory authorities that will have or that are reasonably
likely to have a material effect on BancShares' liquidity, capital resources or
other operations.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHERN BANCSHARES (N.C.), INC.
/s/John C. Pegram, Jr.
Dated: May 9, 2000 ----------------------
John C. Pegram, Jr.,
President and Chief Executive Officer
/s/David A. Bean
Dated: May 8, 2000 -----------------
David A. Bean,
Secretary, Treasurer and Chief Financial Officer