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 March 31, 1997
[ ] 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
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
- -----------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 22-0999615
- -----------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or Number)
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 March 31, 1997, there were 704,233 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 No /X/
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 March 31, 1997 3
Consolidated Statements of Income - (Unaudited)
for the three and nine months ended
March 31, 1996 and 1997 4
Consolidated Statements of Stockholders'
Equity (unaudited) 5
Consolidated Statements of Cash Flows -
(Unaudited) for the nine months ended
March 31, 1996 and 1997 6-7
Notes to (Unaudited) Consolidated Financial
Statements 8-9
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit 27 Financial Data Schedule 16-17
2
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share data)
June 30, March 31,
Assets 1996 1997
Cash and due from banks $ 416 $ 357
Interest earning deposits 4,171 4,927
Investment securities:
Held to maturity (market value of $4,774 and $3,560) 4,749 3,551
Loans receivable, net 33,338 35,748
Mortgage-backed securities:
Held to maturity (market value of $62 and $51) 62 51
Premises and equipment, net 415 558
Federal Home Loan Bank stock 429 429
Interest receivable 347 345
Real estate 156 250
Prepaid expenses and other assets 89 196
Total assets $ 44,172 $ 46,412
Liabilities and Stockholders' Equity
Deposits $ 31,273 $ 34,040
Advance payments for taxes and insurance 23 32
Accrued expenses and other liabilities 385 158
Income taxes:
Current 68 3
Deferred 114 131
Total liabilities 31,863 34,364
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 704,233 at March 31, 1997) 8 8
Paid in capital 7,279 7,306
Retained earnings, substantially restricted 6,769 6,859
Treasury stock, at cost (44,865 shares at June 30, 1996 and
76,042 at March 31, 1997) (790) (1,272)
Unearned compensation:
Employee Stock Ownership Plan (514) (469)
Management Recognition Plan (443) (384)
Total stockholders' equity 12,309 12,048
Total liabilities and stockholders' equity $ 44,172 $ 46,412
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 For Nine Months Ended
March 31, March 31,
1996 1997 1996 1997
Interest income:
Loans $ 690 $ 743 $ 2,109 $ 2,196
Mortgage-backed securities 2 1 6 3
Investments 77 67 252 214
Interest earning deposits 66 59 192 187
Total interest income 835 870 2,559 2,600
Interest expense:
Deposits 412 415 1,242 1,232
Net interest income 423 455 1,317 1,368
Provision for loan losses - - - -
Net interest income after provision
for loan losses 423 455 1,317 1,368
Noninterest income:
Other 12 31 26 58
Total noninterest income 12 31 26 58
Noninterest expenses:
Compensation and employee benefits 117 160 431 445
Net occupancy expense 13 18 42 45
Deposit insurance premiums 18 4 52 236
Data processing 13 24 32 49
Other 59 89 185 207
Total noninterest expenses 220 295 742 982
Income before income taxes 215 191 601 444
Income tax expense 63 70 210 173
Net income $ 152 $ 121 $ 391 $ 271
Weighted average common equivalent
shares outstanding 684 668 688 681
Net income per share $ .20 $ .18 $ .53 $ .40
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, except share data)
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 - - 271 - - - 271
Cash Dividend ($.30 per share) - - (212) - - - (212)
ESOP and MRP compensation earned - 27 31 - 45 59 162
Treasury stock purchased (31,177 shares) - - - (482) - - (482)
Balance at March 31, 1997 $8 $7,306 $6,859 $(1,272) $(469) $ (384) $12,048
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 Nine Months Ended
March 31,
1996 1997
Operating activities:
Net income $ 391 $ 271
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 21 26
Loss on sale of real estate owned 6 -
Deferred income taxes (benefit) (1) 17
Amortization of premium (accretion
of discounts) on investment securities - (2)
Amortization of unearned compensation 188 147
Purchase of MRP shares (568) -
Net increase (decrease) in deferred loan fees (18) (31)
(Increase) decrease in accrued interest receivable 36 2
(Increase) decrease in prepaid expenses and other assets (21) (107)
Increase (decrease) in income taxes payable 33 (65)
Increase (decrease) in accrued expenses and other
liabilities (3) (6)
Net cash provided (used) by operating
activities 64 252
Investing activities:
Net (increase) decrease in loans 338 (2,476)
Proceeds from sale of real estate owned 57 3
Proceeds from maturities of
investment securities 2,096 1,400
Purchase of investment securities held to maturity (299) (200)
Principal payments on mortgage-backed securities 11 11
Purchases of premises and equipment (1) (169)
Net cash provided (used) by investing activities 2,202 (1,431)
(continued)
6
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
For Nine Months Ended
March 31,
1996 1997
Financing activities:
Net increase (decrease) in deposits $1,086 $2,767
Increase (decrease) in advance payments
for taxes and insurance 48 9
Purchase of treasury stock (590) (482)
Dividends paid (413) (418)
Net cash provided (used) by
financing activities 131 1,876
Net increase (decrease) in cash and cash
equivalents 2,397 697
Cash and cash equivalents at beginning
of period 3,149 4,587
Cash and cash equivalents at end of period $5,546 $5,284
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $1,256 $1,250
Noncash investing and financing activities:
Real estate acquired in satisfaction of
mortgage loans $ 4 $ 97
Dividends declared but not paid $ - $ -
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 statements of income for the three
and nine month periods ended March 31, 1997, are not necessarily
indicative of the results which may be expected for the entire
year.
It is suggested that these unaudited 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 and nine month
periods ended March 31, 1996 and 1997, 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 Company was required to pay a special assessment to
recapitalize the Savings Association Insurance Fund (SAIF).The
Company recorded the special assessment for
8
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
deposit insurance premiums of approximately $193,000 in
operations for the nine months ending March 31, 1997, with an
after tax impact on net income of approximately $119,000. The
Company began paying reduced premium assessments effective
January 1, 1997 of .067% of assessable deposits which was down
from .23% of assessable deposits prior to the recapitalization.
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 $132,000. Since the tax effect of this
excess had been previously recorded as deferred income taxes the
Company will not have a material impact on its results of
operations when the excess reserves are recaptured.
9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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.
Recent Developments
On October 25, 1996 the Company closed on its agreement with
First Palmetto Savings Bank to acquire a branch office in
Winnsboro, South Carolina. The Company purchased branch loans of
approximately $2.2 million and assumed deposit account
liabilities of approximately $4.0 million. In connection with the
acquisition of the deposit accounts, the Company paid a premium
of approximately $219,000. The Company also received cash at the
closing of the deal of approximately $1.5 million due to the fact
that it assumed more liabilities than assets purchased.
Comparison of Financial Condition at June 30, 1996 and March 31,
1997
The Company's total consolidated assets increased by
approximately $2.2 million or 5.0% from $44.2 million at June 30,
1996 to $46.4 million at March 31, 1997. The increase in assets
for the period was primarily attributable to the acquisition of
the branch facility.
The composition of the Company's balance sheet has not been
materially affected by market conditions between June 30, 1996
and March 31, 1997. Net loans increased $2.4 million or 7.2%.
This increase resulted from the Company's acquisition of
approximately $2.2 million from the branch acquisition and normal
loan originations.
Consistent with its historical lending practices, virtually all
of the Company's loan portfolio at March 31, 1997 consisted
primarily 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 increased $2.7 million or 8.8%, from $31.3 million at
June 30, 1996 to $34.0 million at March 31, 1997. The increase in
deposits was primarily attributable to a $1.6 million growth in
Now accounts and $800,000 growth in certificates of deposit. This
overall growth is directly the result of deposits assumed with
the branch acquisition.
10
Comparison of Results of Operations for the Three Months Ended
March 31, 1996 and 1997
Net Income. Net income decreased $31,000 or 20.4% from $152,000
for the three months ended March 31, 1996 to $121,000 for the
three months ended March 31, 1997. The return on average assets
was 1.39% for the three months ended March 31, 1996 compared to
1.15% for the three months ended March 31, 1997. The net income
decrease resulted primarily from an increase of $75,000 in non-
interest expenses offset by a $32,000 increase in net interest
income.
Net Interest Income. Net interest income increased $32,000 or
7.6% from $423,000 for the three months ended March 31, 1996 to
$455,000 for the three months ended March 31, 1997. The
improvement in net interest income primarily reflects an increase
in average interest-earning assets for the Company of $1.1
million or 2.5% for the three months ended March 31, 1997 as
compared to 1996 as a result of the loan growth from the branch
acquisition. The interest rate spread increased from 2.49% for
three months ending March 31, 1996 to 3.04% for the three months
ending March 31, 1997.
Interest Income. Total interest income increased $35,000 from
$835,000 for the three months ended March 31, 1996 to $870,000
for the three months ended March 31, 1997. Interest on loans
increased $53,000, or 7.7%. Interest on investments decreased
$11,000 as the average portfolio decreased.
Interest Expense. Interest expense increased $3,000 from $412,000
for the three months ended March 31, 1996 to $415,000 for the
three months ended March 31, 1997. The increase for the three
months ending March 31, 1997 was the result of a $2.9 million
increase in the average deposit outstanding offset by a 42 basis
point decrease in the cost of funds. The majority of this deposit
growth came as a result of the branch acquisition.
Provision for Loan Losses. The Company did not record any
provision for loan losses for either of the three month periods
ended March 31. 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
allowance to non-performing loans at March 31, 1997 was 50.9% and
nonperforming loans to total loans was only 1.60%.
Non-Interest Income. Non-interest income continues to be an
insignificant source of income for the Company. This income was
$12,000 for the three months ending March 31, 1996 and $31,000
for the same period in 1997. The increase is the result of
additional banking services being offered to customers in 1997
that were not offered in 1996.
Non-Interest Expense. Non-interest expense increased by $75,000
from $220,000 for the three months ending March 31, 1996 to
$295,000 for 1997. The increase was the direct result of a
$43,000 increase in compensation expense primarily from
additional employees added following the branch acquisition and
normal salary increases. Data processing increased $11,000 and
other expenses increased $30,000 as a result of increased
operations. Other non-interest expense items
11
remained relatively stable with anticipated inflationary
increases or expected decreases such as for deposit insurance
premiums.
Comparison of Results of Operations for the Nine Months Ended
March 31, 1996 and 1997
Net Income. Net income decreased $120,000 or 30.7% from $391,000
for the nine months ended March 31, 1996 to $271,000 for the nine
months ended March 31, 1997. Included in operations for the nine
months ending March 31, 1997 was $193,000 for the SAIF premium
assessment signed into law on September 3, 1996. The after tax
effect of this one-time special assessment was approximately
$119,000. The return on average assets was 1.18% for the nine
months ended March 31, 1996 compared to .79 % for the nine months
ended March 31, 1997.
Net Interest Income. Net interest income increased $51,000 or
3.9% from $1,317,000 for the nine months ended March 31, 1996 to
$1,368,000 for the nine months ended March 31, 1997. The
improvement in net interest income primarily reflects an increase
in average interest-earning assets for the Company of $828,000 or
1.9% for the nine months ended March 31, 1997 as compared to 1996
as a result of the loan growth from the branch acquisition. The
interest rate spread increased from 2.55% for nine months ending
March 31, 1996 to 2.92% for the nine months ending March 31,
1997.
Interest Income. Total interest income increased $41,000 or 1.6 %
for the nine months ended March 31, 1997. Interest on loans
increased $87,000, or 4.1%, while interest on investments
decreased $41,000 as the average portfolio decreased.
Interest Expense. Interest expense decreased $10,000 from
$1,242,000 for the nine months ended March 31, 1996 to $1,232,000
for the nine months ended March 31, 1997. The decrease for the
nine months ending March 31, 1997 was the result of a 39 basis
point decrease in the cost of funds offset by a $2.1 million
increase in the average deposits outstanding. The majority of
this deposit growth came as a result of the branch acquisition.
Provision for Loan Losses. The Company did not record any
provision for loan losses for either of the nine month periods
ended March 31. 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
allowance to non-performing loans at March 31, 1997 was 50.9% and
nonperforming loans to total loans was only 1.60%.
Non-Interest Income. Non-interest income continues to be an
insignificant source of income for the Company. This income was
$26,000 for the nine months ending March 31, 1996 and $58,000 for
the same period in 1997. The increase is the result of new
banking services being offered by the Company.
12
Non-Interest Expense. Non-interest expense increased by $240,000
from $742,000 for the nine months ending March 31, 1996 to
$982,000 for 1997. The increase was the direct result of the
Company recognizing $193,000 of additional deposit insurance
premiums during the nine months ending March 31, 1997.
Compensation expense increased by $14,000 for the nine month
period in 1997 compared to 1996 even though MRP compensation
expense during the nine months of 1997 was $46,000 less than the
same period in 1996. Other non-interest expense items reflected
increases as operations have continued to expand as a result of
the branch acquisition.
Liquidity and Capital Resources. The Company's primary sources of
funds are new deposits , investment maturities and proceeds from
principal and interest payments on loans. While maturities of
investments 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 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 March 31, 1997
commitments to fund new loans were approximately $60,000 and
unfunded loans in process were approximately $241,000.
At March 31, 1997, there were no material commitments for capital
expenditures.
At March 31, 1997, 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. Further at March 31, 1997, management
was not aware of any current recommendations by the regulatory
authorities which, if implemented, would have such an effect.
The Bank exceeded all of its capital requirements at March 31,
1997. The Bank had the following capital ratios at March 31,1997:
Required Required to be
For Capital Categorized as
Actual Adequacy Purposes "Well Capitalized"(1)
Amount Ratio Amount Ratio Amount Ratio
As of March 31, 1997:
Total Capital
(To risk weighted assets) $10,777 48.9% $1,763 8.00% $2,204 10.0%
Tier I Capital
(To risk weighted assets) $10,545 47.8% $ 882 4.00% $1,322 6.0%
Tier I Capital
(To total assets) $10,545 23.2% $1,362 3.00% $2,270 5.0%
Tangible Capital
(To total assets) $10,545 23.2% $ 681 1.50% N/A
(1) As categorized under the Prompt Corrective Action Provisions.
13
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 March 31, 1997, 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
No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
14
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: May 14, 1997 By: /s/ Alan W. Pullen
------------------------------
Alan W. Pullen
(President and Chief Executive
Officer)
South Carolina Community Bancshares, Inc.
Date: May 14, 1997 By: /s/ Terri Robinson
------------------------------
Terri Robinson
(Chief Financial Officer)