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 December 31, 1998
[ ] 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 57-0999615
- ------------------------------- --------------------------------------
(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 December 31, 1998, there were 578,716 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, 1998,
and December 31, 1998........................................................3
Consolidated Statements of Income (Unaudited) for the three and six months
ended December 31, 1997 and 1998.............................................4
Consolidated Statements of Stockholders' Equity (Unaudited)....................5
Consolidated Statements of Cash Flows (Unaudited) for the six months
ended December 31, 1997 and 1998...........................................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
2
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share data)
June 30, December 31,
---------------- -----------------
Assets 1998 1998
---- ----
Cash and due from banks $ 578 $ 214
Interest earning deposits 8,100 3,905
Investment securities, held to maturity (market value of $1,871 and $2,126) 1,855 2,105
Investment securities, available for sale (amortized cost of $47 and $58) 47 58
Loans receivable, net 36,007 37,930
Mortgage-backed securities, held to maturity (market value of $35 and $29) 35 29
Premises and equipment, net 547 518
Federal Home Loan Bank stock 321 321
Interest receivable 301 326
Real estate 71 71
Prepaid expenses and other assets 130 93
------- -------
Total assets $ 47,992 $ 45,570
======= =======
Liabilities and Stockholders' Equity
Deposits $ 37,997 $ 35,538
Advance payments for taxes and insurance 38 14
Accrued expenses and other liabilities 361 337
Income taxes:
Current 58 38
Deferred 124 124
------- -------
Total liabilities 38,578 36,051
======= =======
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; 579,664 outstanding at June 30, 1998,
and 578,716 at December 31, 1998) 8 8
Paid in capital 7,389 7,405
Retained earnings, substantially restricted 6,865 6,898
Treasury stock, at cost (200,611 shares at June 30, 1998 and
201,559 at December 31, 1998) (4,185) (4,196)
Unearned compensation:
Employee Stock Ownership Plan (392) (364)
Management Recognition Plan (271) (232)
------- -------
Total stockholders' equity 9,414 9,519
------- -------
Total liabilities and stockholders' equity $ 47,992 $ 45,570
======= =======
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 Six Months Ended
December 31, December 31,
------------------------------ -------------------------------
1997 1998 1997 1998
---- ---- ---- ----
Interest income:
Loans $ 748 $ 772 $ 1,508 $ 1,528
Mortgage-backed securities 1 - 2 1
Investments 74 43 128 89
Interest earning deposits 55 49 127 112
-------- -------- -------- --------
Total interest income 878 864 1,765 1,730
Interest expense:
Deposits 434 426 849 855
-------- -------- -------- --------
Net interest income 444 438 916 875
Provision for loan losses - - - -
-------- -------- -------- --------
Net interest income after provision
for loan losses 444 438 916 875
-------- -------- -------- --------
Noninterest income:
Fees and services 12 14 23 30
Other 13 14 32 33
-------- -------- -------- --------
Total noninterest income 25 28 55 63
-------- -------- -------- --------
Noninterest expenses:
Compensation and employee benefits 168 175 338 332
Net occupancy expense 24 24 46 51
Deposit insurance premiums 6 5 11 11
Data processing 19 17 39 36
Other 129 83 213 152
-------- -------- -------- --------
Total noninterest expenses 346 304 647 582
-------- -------- -------- --------
Income before income taxes 123 162 324 356
Income tax expense 53 66 135 139
-------- -------- -------- --------
Net income $ 70 $ 96 $ 189 $ 217
======== ======== ======== ========
Net income per common share:
Basic $.12 $.18 $.30 $.40
Diluted $.12 $.18 $.30 $.39
=== === === ===
Weighted average shares:
Basic 584 544 620 543
Diluted 604 546 639 553
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, 1997 $ 8 $ 7,321 $ 6,801 $ (1,352) $ (452) $ (364) $ 11,962
Net income - - 408 - - - 408
Cash dividends declared ($.64 per share) - - (344) - - - (344)
ESOP and MRP compensation earned - 70 - - 60 93 223
Exercise of stock options (360 shares) - (2) - 7 - - 5
Treasury stock purchased (120,429 shares) - - - (2,840) - - (2,840)
------ ------ ------ ------ ------ ------ ------
Balance at June 30, 1998 8 7,389 6,865 (4,185) (392) (271) 9,414
Net income - - 217 - - - 217
Cash dividends declared ($.34 per share) - - (198) - - - (198)
ESOP and MRP compensation earned - 20 14 - 28 39 101
Stock Options exercised (480 shares) - (4) - 10 - - 6
Treasury stock purchased (1,428 shares) - - - (21) - - (21)
------ ------ ------ ------ ------ ------ ------
Balance at December 31, 1998 $ 8 $ 7,405 $ 6,898 $ (4,196) $ (364) $ (232) $ 9,519
====== ====== ====== ====== ====== ====== ======
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 Six Months Ended
December 31,
--------------------------
1997 1998
---- ----
Operating activities:
Net income $ 189 $ 217
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 40 32
Gain on sale of real estate owned (6) -
Amortization of deposit premium 14 11
Deferred income taxes (benefit) (7) -
Accretion of discounts on investment securities (2) -
Amortization of unearned compensation 105 87
Net increase (decrease) in deferred loan fees (20) 7
(Increase) decrease in interest receivable 37 (25)
Decrease in prepaid expenses and other assets 2 37
Decrease in income taxes payable (78) (20)
Increase (decrease) in accrued expenses and other liabilities 14 (36)
---------- ----------
Net cash provided by operating activities 288 310
---------- ----------
Investing activities:
Net (increase) decrease in loans 286 (1,930)
Proceeds from maturities of
investment securities held to maturity 1,400 800
Purchase of investment securities held to maturity (2,700) (1,061)
Principal payments on mortgage-backed securities 6 6
Purchases of premises and equipment (48) (3)
---------- ----------
Net cash provided (used) by investing activities (1,056) (2,188)
---------- ----------
(continued)
6
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
For Six Months Ended
December 31,
---------------------------
1997 1998
---- ----
Financing activities:
Net increase (decrease) in deposits $ 1,218 $ (2,470)
Increase (decrease) in advance payments for taxes and insurance (17) (24)
Stock options exercised 3 6
Purchase of treasury stock (2,760) (21)
Dividends paid (195) (172)
-------- --------
Net cash used by financing activities (1,751) (2,681)
-------- --------
Net increase (decrease) in cash and cash equivalents (2,519) (4,559)
Cash and cash equivalents at beginning of period 5,678 8,678
-------- --------
Cash and cash equivalents at end of period $ 3,159 $ 4,119
======== ========
Supplemental disclosures of cash flow information
- -------------------------------------------------
Cash paid during the period for:
Interest $ 805 $ 876
======== ========
Noncash investing and financing activities:
Dividends declared but not paid $ 187 $ 198
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/or six month periods ended
December 31, 1998 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, 1998, which are
included in the Form 10-KSB by reference (file no. 0-24476).
3. Income Per share
----------------
Basic and diluted income per share amounts for the three and six month
periods ended December 31, 1997 and 1998, are computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128). Income per share amounts for the three and six months ending
December 31, 1997 have been restated to conform with SFAS 128. Unallocated
ESOP shares are not considered as outstanding in accordance with SFAS 128.
Diluted income per share includes the effect of dilution for stock options.
8
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
4. Asset Quality
-------------
At December 31, 1998, the Company had total nonperforming loans (i.e.,
loans which are contractually past due 90 days or more) of approximately
$838,000. Nonperforming loans were 2.19% of total loans at December 31,
1998. The ratio of total nonperforming assets to total assets at December
31, 1998 was 1.99%. Nonperforming assets include the nonperforming loans of
$838,000 plus $71,000 of real estate owned.
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.
Comparison of Financial Condition at June 30, 1998 and December 31, 1998
The Company's total consolidated assets decreased by approximately $2.4 million
or 5.0% from $48.0 million at June 30, 1998 to $45.6 million at December 31,
1998. The decrease in assets for the period was primarily attributable to assets
used to repay a $2.4 million public deposit that was withdrawn during the
period. This deposit was short-term in nature.
The composition of the Company's balance sheet has not been materially affected
by market conditions between June 30, 1998 and December 31, 1998. Net loans
increased $1.9 million or 5.3% as a result of new loan originations exceeding
principal repayments and refinancing payoffs.
Consistent with its historical lending practices, the Company's loan portfolio
as of December 31, 1998 consisted primarily of fixed rate loans with maturities
of up to twenty-five (25) years. The Company also makes (30) years loans.
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".
Deposits decreased $2.5 million or 6.5%, from $38.0 million at June 30, 1998 to
$35.5 million at December 31, 1998. The decrease in deposits was primarily
attributable the withdrawal of a public deposit of $2.4 million.
Comparison of Results of Operations for the Three Months Ended December 31, 1997
and 1998
Net Income. Net income increased $26,000 from $70,000 for the three months ended
December 31, 1997 to $96,000 for the three months ended December 31, 1998. The
return on average assets was 0.61% for the three months ended December 31, 1997
compared to 0.84 % for the three months ended December 31, 1998.
Net Interest Income. Net interest income decreased $6,000 from $444,000 for the
three months ended December 31, 1997 to $438,000 for the three months ended
December 31, 1998. The decline in net interest income reflects a decrease in
total interest income offset by a corresponding decrease in interest expense.
Average interest earning assets decreased by approximately $335,000 for the
three months ending December 31, 1998 as compared to the same period in 1997.
10
Interest Income. Total interest income decreased $14,000 from $878,000 for the
three months ended December 31, 1997 to $864,000 for the three months ended
December 31, 1998. Interest on loans increased by $24,000 or 3.2%. Interest on
investments decreased $31,000 or 41.9% as the average portfolio decreased by
approximately $2.2 million. The average portfolio decreased during the
comparable periods as a result of the use of investment securities as they
matured or were called to provide funds for stock repurchases and new loan
originations.
Interest Expense. Interest expense decreased $8,000 from $434,000 for the three
months ended December 31, 1997 to $426,000 for the three months ended December
31, 1998. The decrease for the three months ending December 31, 1998 was the
result of a 15 basis point decrease in the cost of funds offset by a $454,000
increase in the average deposits outstanding.
Provision for Loan Losses. The Company did not record any provision for loan
losses for either of the three month periods ended December 31, 1997 or 1998.
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. Based on the loss model, management
feels that the allowance for loan loss is adequate at the end of both periods.
The ratio of the allowance to non-performing loans at December 31, 1998, was
35.0% and nonperforming loans to total loans were only 2.2%.
Non-Interest Income. Non-interest income increased $3,000 for the three months
ending December 31, 1998. This increase was the result of additional fees and
service charges.
Non-Interest Expense. Non-interest expense decreased by $42,000 or 12.1% from
$346,000 for the three months ending December 31, 1997 to $304,000 for 1998. The
decrease was the result of management's efforts to control operating expenses.
Compensation expense and employee benefits increased $7,000 or 4.2%, while total
other non-interest expenses decreased by $49,000.
Comparison of Results of Operations for the Six Months Ended December 31, 1997
and 1998
Net Income. Net income increased $28,000 from $189,000 for the six months ended
December 31, 1997 to $217,000 for the six months ended December 31, 1998. The
return on average assets was 0.82% for the six months ended December 31, 1997
compared to 0.95% for the six months ended December 31, 1998.
Net Interest Income. Net interest income decreased $41,000 or 4.5% from $916,000
for the six months ended December 31, 1997 to $875,000 for the six months ended
December 31, 1998. The decline in net interest income primarily reflects a
decrease in average interest earning assets of $477,000 and an increase in
average interest bearing liabilities of approximately $1.4 million or 4.6%.
Interest Income. Total interest income decreased $35,000 or 2.0% from $1,765,000
for the six months ended December 31, 1997 to $1,730,000 for the six months
ended December 31, 1998. Interest on loans increased $20,000, or 1.3%. Interest
on investments decreased $39,000 or 30.5%, as the average investment portfolio
during the six months ending December 31, 1998 was
11
approximately $1.2 million less than the same period in 1997. As the investment
portfolio matured or was called, the proceeds were used to fund new loans and
stock repurchases.
Interest Expense. Interest expense increased $6,000 from $849,000 for the six
months ended December 31, 1997 to $855,000 for the six months ended December 31,
1998. The increase for the six months ending December 31, 1998 was the result of
a $1.4 million increase in the average interest bearing deposits offset by a 15
basis point decrease in the cost of funds. Management continues to focus on
attracting deposit accounts with a lower cost of funds.
Provision for Loan Losses. The Company did not record any provision for loan
losses for either of the six month periods ended December 31, 1997 or 1998.
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. Based on its loan loss model,
management feels that the allowance for loan loss is adequate at the end of both
periods.
Non-Interest Income. Non-interest income increased $8,000 for the six months
ending December 31, 1998. This increase was the result of additional fees and
service charges produced through its banking operations.
Non-Interest Expense. Non-interest expense decreased by $65,000 or 10.0% from
$647,000 for the six months ending December 31, 1997 to $582,000 for 1998.
Expenses associated with the expanded bank facilities, products and general
operations have stabilized.
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 investment 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
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 December 31, 1998, there were no material commitments for capital
expenditures. Obligations to fund outstanding loan commitments at December 31,
1998 were approximately $614,000.
At December 31, 1998, 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. Furthermore,
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 December 31, 1998.
The Savings Bank had the following capital ratios at December 31,1998 and was
categorized as "well capitalized" under the Prompt Corrective Action regulations
adopted by the OTS pursuant to the Federal Deposit Insurance Corporation
Improvement Act of 1991.
12
For Capital Categorized as
Actual Adequacy Purposes 'Well Capitalized'(1)
------------------------ ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ----------- ----------- ----------- ------------ -----------
As of December 31, 1998:
Adjusted total Capital
(To risk weighted assets) $ 8,886 37.5% $ 1,895 8.0% $ 2,369 10.0%
Tier I Capital
(To risk weighted assets) $ 8,595 36.3% $ 948 4.0% $ 1,421 6.0%
Tier I Capital
(To total assets) $ 8,595 19.2% $ 1,794 4.0% $ 2,242 5.0%
(1) As categorized under the Prompt Corrective Action Provisions.
Year 2000 Issues. The Company has formulated a Year 2000 Compliance Plan to
address the Year 2000 issue. The phases identified under the plan are awareness,
assessment, renovation, validation and implementation. The purpose of the plan
is to outline the procedures necessary for assuring that the Company is in a
state of readiness for the century date change. Substantially all of the
Company's material data processing functions are provided by a third party
service bureau. The service bureau has advised the Company in writing that it is
Year 2000 compliant. The Company has received certifications of compliance from
approximately 90% of its other software vendors. Company personnel have
completed testing on all computer hardware and software with minimal failures
being detected. The Company is making written and oral inquiries of customers,
suppliers and non-information technology providers as to their year 2000
readiness. Testing to date indicates very little hard cost of remediation in
management's opinion, with the primary cost of the Company's Year 2000
compliance being staff time during the assessment, testing and implementation
stages. As of December 31, 1998, the Company has incurred approximately $5,000
in expenses toward remediating the Year 2000 issue.
Based on the results of further system testing and results of written and oral
inquiries, the Company will continue to develop its contingency plan to provide
solutions to the Year 2000 issue. This contingency plan will be designed to
prepare an operating alternative in the event that systems do not perform as
planned either before or after the century date change. The Company has a
reasonable basis to conclude that the Year 2000 issue will not materially affect
future financial results, or cause reported financial information not to be
necessarily indicative of future operating results or future financial
condition. Successful implementation of this plan is expected to mitigate any
extraordinary expenses related to the Year 2000 issue. However, no assurance can
be given that the Year 2000 compliance plan will be completed successfully by
the Year 2000.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events.
These events are inherently uncertain, including the progress and results of
vendors, suppliers and customers Year 2000 readiness.
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
December 31, 1998, 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
---------------------------------------------------
The Annual Meeting of Stockholders of the Company ("Meeting") was held
on December 16, 1998. The results of the vote on the matters presented
at the Meeting were as follows:
1. The following individuals were elected as directors, each for a
three-year term:
Vote For Vote Withheld
-------- -------------
Richard H. Burton 423,580 3,700
George R. Lauderdale, Jr. 423,580 3,700
2. Crisp Hughes Evans LLP was ratified as the independent auditors for
the year ending June 30, 1999. The vote was 427,280 for, none
against and none abstained.
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 December 31, 1998.
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: February 12, 1999 By /s/ Alan W. Pullen
-------------------------- ------------------
Alan W. Pullen
(President and Chief Executive
Officer)
South Carolina Community Bancshares, Inc.
Date: February 12, 1999 By /s/ Terri Robinson
-------------------------- ------------------
Terri Robinson
(Chief Financial Officer)
15