U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission File Number 0-24476
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SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
-----------------------------------------
Exact name of Registrant as specified in its Charter)
Delaware 22-0999615
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
110 S. Congress Street, Winnsboro, South Carolina 29180
- ------------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803) 635-5536
--------------
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.
X Yes ___ No
---
As of September 30, 1996, there were 735,410 shares of the
Registrant's common stock, par value $0.01 per share, outstanding. The
Registrant has no other classes of common equity outstanding.
Transitional small business disclosure format:
___ Yes X No
---
1
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
WINNSBORO, SOUTH CAROLINA
Index
PART I. PAGE(S)
- ------- -------
FINANCIAL INFORMATION
ITEM 1.
Financial Statements
Consolidated Balance Sheets-(Unaudited) as of June 30, 1996 and
September 30, 1996........................................................3
Consolidated Statements of Income - (Unaudited) for the three
month periods ended September 30, 1995 and 1996, ..........................4
Consolidated Statements of Stockholders' Equity (unaudited)................5
Consolidated Statements of Cash Flows - (Unaudited) for the three
months ended September 30, 1995 and 1996................................6-7
Notes to (Unaudited) Consolidated Financial Statements...................8-9
ITEM 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 10-12
PART II.
- -------
OTHER INFORMATION
Item 1. Legal Proceedings.................................................13
Item 2. Changes in Securities.............................................13
Item 3. Defaults Upon Senior Securities...................................13
Item 4. Submission of Matters to a Vote of Security Holders...............13
Item 5. Other Information.................................................13
Item 6. Exhibits and Reports on Form 8-K..................................13
Signatures................................................................14
2
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
(in thousands, except net income per share)
JUNE 30, SEPTEMBER 30,
-----------------------------
ASSETS 1996 1996
------ ---- ----
Cash and due from banks $ 416 $ 379
Interest earning deposits 4,171 4,147
Investment securities:
Held to maturity (market value of $4,774 and $3,776) 4,749 3,750
Loans receivable, net 33,338 33,322
Mortgage-backed securities:
Held to maturity (market value of $62 and $58) 62 58
Premises and equipment, net 415 458
Federal Home Loan Bank stock 429 429
Interest receivable 347 335
Real estate 156 249
Prepaid expenses and other assets 89 105
-------- --------
Total assets $ 44,172 $ 43,232
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits $ 31,273 $ 30,318
Advance payments for taxes and insurance 23 41
Accrued expenses and other liabilities 385 339
Income taxes:
Current 68 109
Deferred 114 39
-------- --------
Total liabilities 31,863 30,846
-------- --------
Stockholders' equity:
Preferred stock ($.01 par value, 200,000
shares authorized; none outstanding) - -
Common stock ($.01 par value,1,400,000 shares authorized;
780,275 shares issued; 735,410 outstanding at
June 30, 1996 and September 30, 1996) 8 8
Paid in capital 7,279 7,288
Retained earnings, substantially restricted 6,769 6,800
Treasury stock at cost (44,865 shares) (790) (790)
Unearned compensation:
Employee Stock Ownership Plan (514) (497)
Management Recognition Plan (443) (423)
-------- --------
Total stockholders' equity 12,309 12,386
-------- --------
Total liabilities and stockholders' equity $ 44,172 $ 43,232
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
(in thousands, except net income per share)
FOR THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1995 1996
---- ----
Interest income:
Loans $ 717 $ 705
Mortgage-backed securities 2 2
Investments 94 77
Interest earning deposits 53 60
-------- --------
Total interest income 866 844
Interest expense:
Deposits 414 398
-------- --------
Net interest income 452 446
Provision for loan losses - -
-------- --------
Net interest income after provision
for loan losses 452 446
-------- --------
Noninterest income:
Other 4 13
-------- --------
Total noninterest income 4 13
-------- --------
Noninterest expenses:
Compensation and employee benefits 146 136
Net occupancy expense 16 12
Deposit insurance premiums 17 211
Data processing 9 11
Other 61 60
-------- --------
Total noninterest expenses 249 430
-------- --------
Income before income taxes 207 29
Income tax expense 79 13
-------- --------
Net income $ 128 $ 16
======== ========
Weighted average common equivalent
shares outstanding 758 691
Net income per share $.17 $.02
The accompanying notes are an integral part of these consolidated financial
statements.
4
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(Unaudited)
(in thousands)
COMMON PAID-IN RETAINED TREASURY UNEARNED COMPENSATION
-------------------------
STOCK CAPITAL EARNINGS STOCK FOR ESOP FOR MRP TOTAL
----- ------- -------- ----- -------- ------- -----
Balance at June 30, 1995 $ 8 7,227 $ 6,704 $ - $ (589) $ - $ 13,350
Net income - - 488 - - - 488
Cash dividends ($.60 per share) - - (423) - - - (423)
Purchase of MRP shares - - - - - (568) (568)
ESOP and MRP compensation earned - 52 - - 75 125 252
Treasury stock purchased (44,865 shares) - - - (790) - - (790)
------ -------- --------- -------- ------- ------ --------
Balance at June 30, 1996 8 7,279 6,769 (790) (514) (443) 12,309
Net income - - 16 - - - 16
ESOP and MRP compensation earned - 9 15 - 17 20 61
------ -------- --------- -------- ------- ------ --------
Balance at September 30, 1996 $ 8 $ 7,288 $ 6,800 $ (790) $ (497) $ (423) $ 12,386
====== ======== ========= ======== ======= ====== ========
The accompanying notes are an integral part of these consolidated financial
statements
5
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
FOR THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1995 1996
---- ----
Operating activities:
Net income $ 128 $ 16
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 7 7
Loss on sale of real estate owned 6 -
Deferred income taxes (benefit) (4) (75)
Amortization of premium (accretion
of discounts) on investment securities (2) (1)
Amortization of unearned compensation 27 46
Net increase (decrease) in deferred loan fees (8) (9)
(Increase) decrease in accrued interest receivable 11 12
(Increase) decrease in prepaid expenses and other
assets 25 (16)
Increase (decrease) in income taxes payable 37 41
Increase in accrued expenses and other liabilities 40 175
------- --------
Net cash provided by operating activities 267 196
------- --------
Investing activities:
Net (increase) decrease in loans 287 (68)
Proceeds from sale of real estate owned 52 -
Proceeds from maturities of investment
securities 1,098 1,000
Principal payments on mortgage-backed securities 3 4
Purchases of premises and equipment - (50)
------- --------
Net cash provided (used) by investing
activities 1,440 886
------- --------
(continued)
6
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
YEARS ENDED
JUNE 30,
---------------------
1995 1996
---- ----
Financing activities:
Net increase (decrease) in deposits $ 468 $ (955)
Increase in advance payments for taxes and insurance - 18
Dividends paid (180) (206)
------- --------
Net cash provided (used) by financing activities 288 (1,143)
------- --------
Net increase (decrease) in cash and cash equivalents 1,995 (61)
Cash and cash equivalents at beginning of period 3,149 4,587
------- --------
Cash and cash equivalents at end of period $ 5,144 $ 4,526
======= ========
Supplemental disclosures of cash flow information
- -------------------------------------------------
Cash paid during the period for:
Interest $ 414 $ 413
======= ========
Noncash investing and financing
activities:
Real estate acquired in satisfaction of mortgage loans $ - $ 93
======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
7
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
1. General
-------
South Carolina Community Bancshares, Inc. (the "Company") was incorporated
under the laws of the State of Delaware for the purpose of becoming the
savings and loan holding company of Community Federal Savings Bank (the
"Savings Bank"). Both companies are headquartered in Winnsboro, South
Carolina. The Company is engaged primarily in the business of directing,
planning and coordinating the business activities of the Savings Bank. The
financial statements of the Savings Bank are presented on a consolidated
basis with those of the Company.
2. Basis of Preparation
--------------------
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-QSB and therefore, do not
include all disclosures necessary for a complete presentation of the
consolidated balance sheets, consolidated statements of income,
consolidated statements of stockholders' equity, and consolidated
statements of cash flows in conformity with generally accepted accounting
principles. However, all adjustments which are, in the opinion of
management, necessary for the fair presentation of the interim financial
statements have been included. All such adjustments are of a normal
recurring nature. The statement of income for the three month period ended
September 30, 1996 is not necessarily indicative of the results which may
be expected for the entire year.
It is suggested that these consolidated financial statements be read in
conjunction with the audited consolidated financial statements and notes
thereto for the Company for the year ended June 30, 1996.
3. Earnings Per Share
------------------
Earnings per share amounts for the three month periods ended September 30,
1995 and 1996 are based on the average number of shares and equivalents
outstanding throughout the period. Unallocated ESOP shares are not
considered as outstanding for purposes of this calculation.
4. Deposit Insurance Assessment
----------------------------
The Savings Bank has recorded a liability at September 30, 1996 for the
one-time special assessment levied by the omnibus appropriation bill to
recapitalize the SAIF insurance fund. The special assessment for deposit
insurance premiums of approximately $193,000 has been reflected in
operations for the quarter ending September 30, 1996 with an after tax
impact on net income of approximately $119,000. The FDIC will collect the
assessment in late
8
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
ANS SUBSIDIARY Notes to Consolidated Financial Statement, Continued
- --------------------------------------------------------------------------------
November and effective January 1, 1997 the Savings Bank will begin paying
reduced premium assessments in accordance with the BIF/SAIF legislation.
5. Tax Bad Debt Reserves
---------------------
With the repeal of the reserve method of accounting for thrift bad debt
reserves for tax years beginning after December 31, 1995, the Company will
have to recapture its post-1987 excess reserves over a six-year period. The
amount of the post-1987 excess is approximately $117,000. Since the tax
effect of this excess had been previously recorded as deferred income taxes
the Company will have no impact on its results of operations when the
excess reserves are recaptured.
6. Commitments
-----------
On May 2, 1996, the Company entered into an agreement with First Palmetto
Savings Bank (Seller) to purchase certain assets and assume certain
deposits and other liabilities associated with the operations of the
Sellers branch office in Winnsboro, South Carolina. The assets to be
purchased will consist of branch loans, cash on hand, premises and
equipment, safe deposit contracts and records. It is anticipated that total
assets acquired will be approximately $4 million based on preliminary
information. The liabilities assumed will consist of branch deposits and
assumption of assignable leases and operating contracts.
The closing of the transaction contemplated by the agreement shall take
place at an agreed upon time within thirty (30) days following the first
date on which both regulatory approvals and consents have been received and
all waiting periods required by law and regulation have expired. The
purchase price will be established based on the assets and liabilities
outlined in the agreement at or near the closing date. The anticipated
closing of the transaction is second quarter of fiscal 1997.
9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis is intended to assist in understanding the
financial condition and the results of operations of the Company. References to
the "Company" include South Carolina Community Bancshares, Inc. and/or Community
Federal Savings Bank as appropriate.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1996 AND SEPTEMBER 30, 1996
The Company's total consolidated assets decreased by approximately $940,000 or
2.1% from $44.2 million at June 30, 1996 to $43.2 million at September 30, 1996.
The decrease in assets for the period was primarily attributable to the
withdrawal of deposits which were funded with cash and maturing investment
securities.
The composition of the Company's balance sheet has not been materially affected
by market conditions between June 30, 1996 and September 30, 1996. Net loans
remained relatively unchanged.
Consistent with its historical lending practices, virtually all of the Companys
loan portfolio at September 30, 1996 consisted of fixed rate loans with
maturities up to twenty-five (25) years. Consequently, the Company is exposed
to a high degree of interest rate risk in a rising interest rate environment.
The Company has historically accepted this risk in light of its relatively high
capital levels. See Liquidity and Capital Resources discussion below.
Deposits decreased $955,000 or 3.1%, from $31.3 million at June 30, 1996 to
$30.3 million at September 30, 1996. The most significant decrease in deposits
was primarily attributable to $698,000 of withdrawals from deposits in
certificate accounts.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1995 AND 1996
NET INCOME. Net income decreased $112,000 or 87.5% from $128,000 for the three
months ended September 30, 1995 to $16,000 for the three months ended September
30, 1996. included in operations for the three months ending September 30, 1996
was $193,000 for the SAIF premium assessment signed into law on September 30,
1996. The after tax effect of the one-time assessment was approximately
$119,000. The return on average assets was 1.16% for the three months ended
September 30, 1995 compared to .15% for the three months ended September 30,
1996. This decrease resulted primarily from the SAIF insurance assessment
recorded at quarter end.
10
NET INTEREST INCOME. Net interest income decreased $6,000 or 1.3% from $452,000
for the three months ended September 30, 1995 to $446,000 for the three months
ended September 30, 1996. The decline in net interest income primarily reflects
a decrease in average interest-earning assets over average interest-bearing
liabilities for the Company of $798,000 offset by an increase in the interest
rate spread of 14 basis point for the three months ended September 30, 1996 as
compared to 1995. the interest rate spread increased from 2.65% for three months
ending September 30, 1995 to 2.79% for the three months ending September 30,
1996.
INTEREST INCOME. Total interest income decreased $22,000 from $866,000 for the
three months ended September 30, 1995 to $844,000 for the three months ended
September 30, 1996. Interest on loans decreased $12,000, or 1.7%. interest on
investments decreased by $17,000 as the average investment portfolio decreased.
INTEREST EXPENSE. Interest expense decreased $16,000 from $414,000 for the
three months ended September 30, 1995 to $398,000 for the three months ended
September 30, 1996. The decrease for the three months ending September 30, 1996
was the result of a 25 basis point decrease in the average cost of funds.
PROVISION FOR LOAN LOSSES. The Company did not record any provision for loan
losses for both three month periods ended September 30. Historically,
management has emphasized the Company's loss experience over other factors in
establishing provisions for loan losses. However, management has reviewed the
allowance for loan losses in relation to the Company's composition of its loan
portfolio and observations of the general economic climate and loan loss
expectations. The ratio of the allowance to non-performing loans at September
30, 1996 was 89.9% and non-performing loans to total loans was only .97%.
NON-INTEREST INCOME. Non-interest income continues to be an insignificant
source of income for the Company. This income was $4,000 for the three months
ending September 30, 1995 and $13,000 for the same period in 1996.
NON-INTEREST EXPENSE. Non-interest expense increased by $181,000 from $249,000
for the three months ending September 30, 1995 to $430,000 for 1996. This
increase was the direct result of additional operating expense as a public
company, the effect of increased compensation from the recognition of allocated
ESOP shares at fair market value and the recognition of the SAIF special
assessment. During the three month period ending September 30, 1996, the
Company recognized $193,000 of additional deposit insurance premiums. Other
non-interest expense items remained relatively stable with anticipated
inflationary increases.
INCOME TAXES. Income tax expense for the three months ending September 30,
1996 was $13,000 compare to $79,000 for the same period in 1995. The decrease
was the result of pre-tax income being $178,000 less for the three months in
1996.
LIQUIDITY AND CAPITAL RESOURCES. The Company's primary sources of funds are
deposits, proceeds from principal and interest payments on loans, and investment
maturities. While maturities and scheduled amortization of loans are a
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and
11
competition. The Company's primary investing activity is loan originations. The
Company maintains liquidity levels adequate to fund loan commitments, investment
opportunities, deposit withdrawals and other financial commitments.
At September 30, 1996, there were no material commitments for capital
expenditures.
At September 30, 1996, management had no knowledge of any trends, events or
uncertainties that will have or are reasonably likely to have material effects
on the liquidity, capital resources or operations of the Company. However, the
pending acquisition of a branch location in Winnsboro, South Carolina, and
additional banking products to be implemented by management as a result of the
acquisition will have an impact on future operations of the Company. The impact
will be from the perspective of having a second banking location and the
introduction of new products and services for the Companys customers.
Further at September 30, 1996, management was not aware of any current
recommendations by the regulatory authorities which, if implemented, would have
such an effect.
The Savings Bank exceeded all of its capital requirements at September 30, 1996.
The Savings Bank had the following capital ratios at September 30,1996:
SEPTEMBER 30, 1996
------------------
Tier I capital to adjusted total assets 24.6%
Tier I capital to risk-weighted assets 52.0%
Total capital to risk-weighted assets 53.1%
12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time, the Company and any subsidiary may be a party
to various legal proceedings incident to its or their business. At
September 30, 1996, there were no legal proceedings to which the
Company or any subsidiary was a party, or to which of any of their
property was subject, which were expected by management to result in a
material loss.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
27 Financial Data Schedule
A Form 8-K was filed to report the October 25, 1996 branch acquisition
of First Palmetto Savings Bank, F.S.B.'s Winnsboro branch. No financial
statements were filed with the report.
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.
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
Date: November 13, 1996 By /s/ Alan W. Pullen
----------------- ----------------------------------
Alan W. Pullen
(President and Chief Executive
Officer)