U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
- ----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2004
OR
- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________to_________
Commission File No.
000-50466
DEKALB BANKSHARES, INC.
(Exact name of small business issuer as specified in its charter)
South Carolina 61-1444253
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
631 West DeKalb Street
Camden, South Carolina 29020
(Address of principal executive offices)
(803) 432-7575
(Issuer's telephone number, including area code)
------------------------------------------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date.
609,060 shares of common stock, no par value, as of April 30, 2004
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
DEKALB BANKSHARES, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 2004 and December 31, 2003.....................................3
Condensed Consolidated Statements of Income - Three months ended March 31, 2004 and, 2003........................4
Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income -
Three months ended March 31, 2004 and 2003.....................................................................5
Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2004 and 2003.....................6
Notes to Condensed Consolidated Financial Statements....................................................................7-9
Item 2. Management's Discussion and Analysis or Plan of Operation....................................................10-14
Item 3. Controls and Procedures.........................................................................................14
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.............................................................15
Item 6. Exhibits and Reports on Form 8-K................................................................................15
(a) Exhibits....................................................................................................15
(b) Reports on Form 8-K.........................................................................................15
DEKALB BANKSHARES, INC.
Condensed Consolidated Balance Sheets
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
March 31, December 31,
2004 2003
---- ----
(Unaudited)
Assets
Cash and cash equivalents:
Cash and due from banks ................................................... $ 974,203 $ 867,695
Federal funds sold ........................................................ 2,012,000 1,402,000
------------ ------------
Total cash and cash equivalents ......................................... 2,986,203 2,269,695
------------ ------------
Time deposits with other banks .............................................. 311,572 310,078
Securities available-for-sale ............................................... 9,255,480 6,938,632
Nonmarketable equity securities ............................................. 343,213 220,000
------------ ------------
Total investment securities ............................................. 9,598,693 7,158,632
------------ ------------
Loans receivable ............................................................ 22,108,199 21,624,149
Less allowance for loan losses .............................................. (303,708) (305,000)
------------ ------------
Loans, net .............................................................. 21,804,491 21,319,149
Premises and equipment, net ................................................. 1,385,530 1,410,202
Accrued interest receivable ................................................. 121,227 111,817
Other assets ................................................................ 445,084 455,844
------------ ------------
Total assets ............................................................ $ 36,652,800 $ 33,035,417
============ ============
Liabilities
Deposits
Noninterest-bearing transaction accounts .................................. $ 2,176,673 $ 2,314,452
Interest-bearing transaction accounts ..................................... 3,133,228 2,901,206
Savings ................................................................... 3,796,010 3,702,360
Time deposits $100,000 and over ........................................... 10,327,492 10,085,481
Other time deposits ....................................................... 4,933,663 4,843,043
------------ ------------
24,367,066 23,846,542
Advances from Federal Home Loan Bank ........................................ 4,000,000 4,000,000
Securities sold under agreements to repurchase .............................. 3,000,000 -
Accrued interest payable .................................................... 40,344 37,793
Other liabilities ........................................................... 63,589 39,236
------------ ------------
Total liabilities ....................................................... 31,470,999 27,923,571
------------ ------------
Shareholders' equity
Common stock, no par value; 20,000,000 shares
authorized, 609,060 shares issued and outstanding ......................... 5,866,807 5,866,807
Retained earnings (deficit) ................................................. (713,822) (732,329)
Accumulated other comprehensive income (loss) ............................... 28,816 (22,632)
------------ ------------
Total shareholders' equity .............................................. 5,181,801 5,111,846
------------ ------------
Total liabilities and shareholders' equity .............................. $ 36,652,800 $ 33,035,417
============ ============
See notes to consolidated financial statements.
3
DEKALB BANKSHARES, INC.
Condensed Consolidated Statements of Income
(Unaudited)
For the three months ended
March 31,
---------
2004 2003
---- ----
Interest income
Loans, including fees .......................................................... $ 342,804 $ 311,204
Investment securities, taxable ................................................. 84,911 41,184
FHLB interest and dividends .................................................... 2,154 783
Federal funds sold ............................................................. 4,304 3,427
Time deposits with other banks ................................................. 1,999 1,375
--------- ---------
Total ...................................................................... 436,172 357,973
--------- ---------
Interest expense
Time deposits $100,000 and over ................................................ 44,143 35,541
Other deposits ................................................................. 41,011 50,275
Other interest expense ......................................................... 39,025 23,133
--------- ---------
Total ...................................................................... 124,179 108,949
--------- ---------
Net interest income ............................................................... 311,993 249,024
Provision for loan losses ......................................................... 17,500 27,500
--------- ---------
Net interest income after provision for loan losses ............................... 294,493 221,524
--------- ---------
Other operating income
Service charges on deposit accounts ............................................ 31,915 26,075
Gain on sales of securities available for sale ................................. - 24,019
Residential mortgage origination fees .......................................... 18,332 24,741
Other service charges, commissions and fees .................................... 7,059 5,111
--------- ---------
Total ...................................................................... 57,306 79,946
--------- ---------
Other operating expenses
Salaries and employee benefits ................................................. 161,830 170,091
Occupancy expense .............................................................. 20,759 18,831
Furniture and equipment expense ................................................ 11,481 12,194
Other operating expenses ....................................................... 127,961 113,299
--------- ---------
Total ...................................................................... 322,031 314,415
--------- ---------
Income (loss) before income taxes ................................................. 29,768 (12,945)
Income tax expense (benefit) ...................................................... 11,261 (4,745)
--------- ---------
Net income (loss) ................................................................. $ 18,507 $ (8,200)
========= =========
Earnings (loss) per share
Basic earnings per share .......................................................... $ .03 $ (.01)
See notes to consolidated financial statements.
4
DEKALB BANKSHARES, INC.
Condensed Consolidated Statement of Shareholders' Equity and
Comprehensive Income for the three months ended March 31, 2004 and 2003
(Unaudited)
Accumulated
Common Stock Retained Other
------------ Earnings Comprehensive
Shares Amount (Deficit) Income Total
------ ------ --------- ------ -----
Balance,
December 31, 2002 ............................... 609,060 $ 5,866,807 $ (782,412) $ 51,066 $ 5,135,461
Net income (loss)
for the period .................................. (8,200) (8,200)
Other
comprehensive
income (loss),
net of tax of $11,079 ........................... (18,864) (18,864)
--------------
Comprehensive
income (loss) ................................... (27,064)
------- -------------- ------------- -------------- -------------
Balance,
March 31, 2003 .................................. 609,060 $ 5,866,807 $ (790,612) $ 32,202 $ 5,108,397
======= ============== ============= ============== =============
Balance,
December 31, 2003 ............................... 609,060 $ 5,866,807 $ (732,329) $ (22,632) $ 5,111,846
Net income ........................................ 18,507 18,507
for the period
Other
comprehensive
income (loss),
net of tax of $30,215 ........................... 51,448 51,448
-------------
Comprehensive
income (loss) ................................... 69,955
------- -------------- ------------- -------------- -------------
Balance,
March 31, 2004 .................................. 609,060 $ 5,866,807 $ (713,822) $ 28,816 $ 5,181,801
======= ============== ============= ============== =============
See notes to consolidated financial statements.
5
DEKALB BANKSHARES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the three months ended
March 31,
---------
2004 2003
---- ----
Cash flows from operating activities
Net income (loss) ................................................................. $ 18,507 $ (8,200)
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses ..................................................... 17,500 27,500
Depreciation and amortization expense ......................................... 30,254 31,666
Gain on sale of securities .................................................... - (24,019)
Accretion and premium amortization ............................................ 4,277 3,962
Deferred income tax provision (benefit) ....................................... 10,748 (5,151)
(Increase) decrease in interest receivable .................................... (9,410) 2,787
Increase (decrease) in interest payable ....................................... 2,551 381
(Increase) decrease in other assets ........................................... 12 (18,427)
Increase in other liabilities ................................................. 24,351 8,433
----------- -----------
Net cash provided by operating activities ................................... 98,790 18,932
----------- -----------
Cash flows from investing activities
Net increase in loans made to customers ........................................... (502,842) (2,136,021)
Purchases of securities available-for-sale ........................................ (3,564,984) -
Sales/calls or maturities of securities available-for-sale ........................ 969,784 956,527
Payments received on mortgage backed securities ................................... 325,522 252,913
Sale (purchase) of Federal Home Loan Bank stock ................................... 20,000 (25,000)
Purchase of Community Financial Services, Inc. stock .............................. (143,212) -
Purchases of premises and equipment ............................................... (5,582) -
Purchases of time deposits with other banks ....................................... (1,494) -
----------- -----------
Net cash used by investing activities ....................................... (2,902,808) (951,581)
----------- -----------
Cash flows from financing activities
Net increase in demand deposits, interest-bearing transaction
accounts and savings accounts ................................................... 187,894 161,652
Net increase in certificates of deposit and other time deposits ................... 332,632 696,611
Increase in advances from the Federal Home Loan Bank .............................. - 500,000
Increase in securities sold under agreements to repurchase ........................ 3,000,000 -
Issuance of common stock, net of direct costs ..................................... - 500,000
----------- -----------
Net cash provided by financing activities ................................... 3,520,526 1,358,263
----------- -----------
Net increase in cash and cash equivalents ............................................ 716,508 425,614
Cash and cash equivalents, beginning ................................................. 2,269,695 2,758,871
----------- -----------
Cash and cash equivalents, end ....................................................... $ 2,986,203 $ 3,184,485
=========== ===========
Cash paid during the period for:
Interest .......................................................................... $ 121,628 $ 109,330
See notes to consolidated financial statements.
6
DEKALB BANKSHARES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying financial statements have been prepared in accordance with the
requirements for interim financial statements and, accordingly, they are
consolidated and omit disclosures, which would substantially duplicate those
contained in our 2003 Annual Report on Form 10-KSB. The financial statements as
of March 31, 2004 are unaudited and, in our opinion, include all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation. The financial information as of December 31, 2003 has been derived
from the audited financial statements as of that date. For further information,
refer to the financial statements and the notes included in the DeKalb
Bankshares, Inc. Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission.
Note 2 - Recently Issued Accounting Pronouncements
No recent authoritative pronouncements that affect accounting, reporting, and
disclosure of financial information by us have occurred during the quarter
ending March 31, 2004.
Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies that do not require adoption until a future date
are not expected to have a material impact on the consolidated financial
statements upon adoption.
Note 3 - Earnings Per Share
A reconciliation of the numerators and denominators used to calculate basic and
diluted earnings per share for the three month periods ended March 31, 2004 and
2003 are as follows:
Three Months Ended March 31, 2004
----------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- -------------
Basic earnings per share
Income available to common shareholders .................. $ 18,507 609,060 $ .03
=============
Effect of dilutive securities
Stock options ............................................ -
------------- -------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions ............................... $ 18,507 609,060 $ .03
============= ======= =============
Three Months Ended March 31, 2003
----------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- -------------
Basic earnings per share
Income available to common shareholders .................. $ (8,200) 609,060 $ (0.01)
============
Effect of dilutive securities
Stock options ............................................ - -
------------- -------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions ............................... $ (8,200) 609,060 $ (0.01)
============= ======= ============
7
DEKALB BANKSHARES, INC.
Note 4 - Comprehensive Income
Comprehensive income includes net income and other comprehensive income, which
is defined as nonowner related transactions in equity. The following table sets
forth the amounts of other comprehensive income included in equity along with
the related tax effect for the three month periods ended March 31, 2004 and
2003:
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------------- ------------- -------------
For the Three Months Ended March 31, 2004
Unrealized gains (losses) on securities
available-for-sale ..................................... $ 81,663 $ (30,215) $ 51,448
Plus - reclassification adjustment for gains
(losses) realized in net income - - -
------------- ------------- -------------
Net unrealized gains (losses) on securities .............. 81,663 (30,215) 51,448
------------- -------------- -------------
Other comprehensive income ............................... $ 81,663 $ (30,215) $ 51,448
============= ============== =============
Pre-tax (Expense) Net-of-tax
Amount Benefit Amount
------------- ------------- -------------
For the Three Months Ended March 31, 2003
Unrealized gains (losses) on securities
available-for-sale ..................................... $ (53,962) $ 19,966 $ (33,996)
Plus - reclassification adjustment for gains
(losses) realized in net income ........................ 24,019 (8,887) 15,132
------------- ------------- -------------
Net unrealized gains (losses) on securities .............. (29,943) 11,079 (18,864)
------------- ------------- -------------
Other comprehensive income ............................... $ (29,943) $ 11,079 $ (18,864)
============= ============= =============
8
DEKALB BANKSHARES, INC.
Item 2 - Management's Discussion and Analysis or Plan of Operation
The following is a discussion of our financial condition as of March 31, 2004
compared to December 31, 2003, and the results of operations for the three
months ended March 31, 2004 and 2003. This discussion should be read in
conjunction with our consolidated financial statements and accompanying notes
appearing in this report and in conjunction with the financial statements and
related notes and disclosures in our 2003 Annual Report on Form 10-KSB filed
with the Securities and Exchange Commission. This report contains
"forward-looking statements" relating to, without limitation, future economic
performance, plans and objectives of management for future operations, and
projections of revenues and other financial items that are based on our beliefs,
as well as assumptions made by and information currently available to us. The
words "expect," "estimate," "anticipate," "plan," and "believe," as well as
similar expressions, are intended to identify forward-looking statements. Our
actual results may differ materially from the results discussed in the
forward-looking statements, and the our operating performance each quarter is
subject to various risks and uncertainties that are discussed in detail in our
filings with the Securities and Exchange Commission.
Results of Operations
Net Interest Income
For the three months ended March 31, 2004, net interest income, the major
component of our net income, was $311,993, as compared to $249,024 for the same
period in 2003, an increase of $62,969. The improvements in the 2004 period were
primarily attributable to increased volume as we continued to build our loan
portfolio. The average rate paid on interest-bearing liabilities decreased from
2.34% for the three months ended March 31, 2003 to 1.64% for the three months
ended March 31, 2004, while the average rate realized on interest-earning assets
decreased from 6.20% to 5.17%, for the same period.
The net interest spread and net interest margin were 3.53% and 3.38%,
respectively, for the three month period ended March 31, 2004, compared to 3.86%
and 4.31% for the three month period ended March 31, 2003.
Provision and Allowance for Loan Losses
The provision for loan losses is the charge to operating earnings that in
management's judgment is necessary to maintain the allowance for loan losses at
an adequate level. For the three months ended March 31, 2004 and the same period
in 2003, the provision was $17,500 and $27,500, respectively. There were
$251,089 in nonperforming loans at March 31, 2004 and no nonperforming loans at
March 31, 2003. $251,089 in loans have been criticized or classified as of March
31, 2004. Based on present information, we believe the allowance for loan losses
is adequate at March 31, 2004 to meet presently known and inherent losses in the
loan portfolio. The allowance for loan losses was 1.37% of total loans at March
31, 2004. There are risks inherent in making all loans, including risks with
respect to the period of time over which loans may be repaid, risks resulting
from changes in economic and industry conditions, risks inherent in dealing with
individual borrowers, and, in the case of a collateralized loan, risks resulting
from uncertainties about the future value of the collateral. We maintain an
allowance for loan losses based on, among other things, historical experience,
including management's experience at other institutions, an evaluation of
economic conditions, and regular reviews of delinquencies and loan portfolio
quality. Our judgment about the adequacy of the allowance is based upon a number
of assumptions about future events, which we believe to be reasonable, but which
may not prove to be accurate. Thus, there is a risk that charge-offs in future
periods could exceed the allowance for loan losses or that substantial
additional increases in the allowance for loan losses could be required.
Additions to the allowance for loan losses would result in a decrease of our net
income and, possibly, our capital.
9
DEKALB BANKSHARES, INC.
Item 2 - Management's Discussion And Analysis or Plan of Operation - continued
Noninterest Income
Total noninterest income for the quarter ended March 31, 2004 was $57,306, a
decrease of $22,640, compared to $79,946 for the same period in 2003. This
decrease is primarily the result of there being no gain on sale of investment
securities during the quarter ended March 31, 2004 compared to a $24,019 gain on
sale of investment securities during the quarter ended March 31, 2003. Service
charges on deposit accounts increased $5,840 from $26,075 for the quarter ended
March 31, 2003 to $31,915 for the quarter ended March 31, 2004. This increase is
the result of an increase in the number of deposit accounts during the period.
Noninterest Expense
Total noninterest expense for the three months ended March 31, 2004 was
$322,031, an increase of $7,616, when compared to the same period in 2003. The
primary component of noninterest expense is salaries and benefits, which were
$161,830 and $170,091 for the three months ended March 31, 2004 and 2003,
respectively. Other operating expenses increased from $113,299 for the three
months ended March 31, 2003 to $127,961 for the three months ended March 31,
2004, due to an increase in other expenses necessary to support the overall
growth of the Company.
Net Income
The Company's net income for the three months ended March 31, 2004 was $18,507
after the recognition of an income tax expense of $11,261 for the period. The
net loss for the same period in 2003 was $8,200 after the recognition of an
income tax benefit of $4,745.
Assets and Liabilities
During the first three months of 2004, total assets increased $3,617,383, or
10.95%, when compared to December 31, 2003. The primary growth in assets was
composed of an increase in securities available for sale of $2,316,848, or
33.39%. Loans receivable increased by $484,050 when compared to December 31,
2003. Deposits increased $520,524 during the first three months of 2004. We also
entered into a leveraged transaction with The Bankers Bank to borrow funds
through securities sold under agreements to repurchase totaling $3,000,000. We
then invested these funds in a mortgage-backed security.
Investment Securities
Investment securities totaled $9,598,693 at March 31, 2004, compared to
$7,158,632 at December 31, 2003. All investments in the portfolio were
designated as available-for-sale except for nonmarketable equity securities,
consisting of stock in the Federal Home Loan Bank of Atlanta, which totaled
$200,000 of March 31, 2004, and stock in The Bankers Bank, which totaled
$143,213 as of March 31, 2004. As discussed earlier, we purchased a $3,000,000
security as part of a leveraged transaction.
10
DEKALB BANKSHARES, INC.
Item 2 - Management's Discussion And Analysis or Plan of Operation - continued
Loans
Gross loans increased $484,050 during the three months ended March 31, 2004. The
largest increase in loans was in residential 1-4 family loans secured by a real
estate mortgage, which increased $406,477 to $9,256,284 as of March 31, 2004.
Balances within the major loans receivable categories as of March 31, 2004 and
December 31, 2003 were as follows:
March 31, December 31,
2004 2003
---- ----
Mortgage loans on real estate
Residential 1-4 family ............................................... $ 9,256,284 $ 8,849,807
Commercial ........................................................... 7,119,895 7,038,179
Construction ......................................................... 1,346,607 1,162,574
Second mortgages ..................................................... 104,238 105,743
Equity lines of credit ............................................... 1,491,854 1,359,870
----------- -----------
Total mortgage loans ............................................... 19,318,878 18,516,173
Commercial and industrial .............................................. 1,758,286 1,831,844
Consumer and other ..................................................... 1,031,035 1,276,132
----------- -----------
Total gross loans .................................................. $22,108,199 $21,624,149
=========== ===========
Risk Elements in the Loan Portfolio
Transactions in the allowance for loan losses for the quarters ended March 31,
2004 and 2003 are summarized below:
March 31, March 31,
2004 2003
---- ----
Balance, January 1 .......................................................... $ 305,000 $ 245,000
Provision for loan losses for the period .................................... 17,500 27,500
Net loans (charged-off) recovered for the period ............................ (18,792) -
------------ ------------
Balance, end of period ...................................................... $ 303,708 $ 272,500
============ ============
Gross loans outstanding, end of period ...................................... $ 22,108,199 $ 18,755,816
============ ============
Allowance for loan losses to loans outstanding .............................. 1.37% 1.45%
There were $251,089 loans in nonaccrual status at March 31, 2004. There were no
loans past due ninety days or more and still accruing interest and no
restructured loans at March 31, 2004. There were no nonaccrual loans, no loans
past due ninety days or more and still accruing interest, or restructured loans
at March 31, 2003.
11
DEKALB BANKSHARES, INC.
Item 2 - Management's Discussion And Analysis or Plan of Operation - continued
Deposits
Total deposits increased $520,524 or 2.18% from December 31, 2003 to $24,367,066
at March 31, 2004. The largest increase was in time deposits $100,000 and over,
which increased $242,011, or 2.4%, to $10,327,492 at March 31, 2004. These
deposits are generally more sensitive to changes in interest rates and are,
therefore, considered less stable than core deposits. Expressed in percentages,
noninterest-bearing deposits decreased 5.95% and all other interest-bearing
deposits increased 1.75%.
Balances within the major deposit categories as of March 31, 2004 and December
31, 2003 are as follows:
March 31, December 31,
2004 2003
------------- -------------
Noninterest-bearing transaction accounts ..................................... $ 2,176,673 $ 2,314,452
Interest-bearing transaction accounts ........................................ 3,133,228 2,901,206
Savings ...................................................................... 3,796,010 3,702,360
Time deposits $100,000 and over .............................................. 10,327,492 10,085,481
Other time deposits .......................................................... 4,933,663 4,843,043
------------- -------------
Total deposits ........................................................... $ 24,367,066 $ 23,846,542
============= =============
Advances from the Federal Home Loan Bank
Advances from the Federal Home Loan Bank totaled $4,000,000 at March 31, 2004
and December 31, 2003. One of the advances totaling $500,000 is a ten year
convertible advance with a one year call. It currently has a fixed interest rate
of 3.23% and matures on September 6, 2011. A second advance of $1,000,000 was
entered into on July 23, 2002 with a rate of interest of 3.87% and a maturity
date of July 23, 2012. This advance has a "knockout" provision beginning on July
23, 2003, that allows the Federal Home Loan Bank of Atlanta to convert the
advance to an adjustable rate advance if the 3 Month LIBOR rate exceeds 7.00%.
Another advance totaling $400,000 has an interest rate of 1.27% and can be
converted by the Federal Home Loan Bank of Atlanta on March 10, 2004 and
thereafter until maturity on March 10, 2006. The Company also borrowed
$2,100,000 under the daily rate credit program with a rate of 1.25% as of March
31, 2004 that is subject to change daily.
Securities Sold Under Agreements to Repurchase
We obtained securities sold under agreements to repurchase during the first
three months of 2004 totaling $3,000,000. The agreement has an interest rate of
2.95% and matures January 20, 2007.
Liquidity
The Company meets its liquidity needs through cash and short-term investments,
and scheduled maturities of loans on the asset side and through pricing policies
on the liability side for interest-bearing deposit accounts. As of March 31,
2004, the Company's primary sources of liquidity included federal funds sold
totaling $2,012,000 and securities available-for-sale totaling $9,255,480. The
Company also has lines of credit available with correspondent banks to purchase
federal funds totaling $1,900,000 at March 31, 2004. In addition, The Company
also has borrowing capacity available through the Federal Home Loan Bank. The
Company's availability to borrow funds from the Federal Home Loan Bank totaled
$7,330,560 of which the Company had borrowed $4,000,000 at March 31, 2004.
12
DEKALB BANKSHARES, INC.
Item 2 - Management's Discussion And Analysis or Plan of Operation - continued
Critical Accounting Policies
We have adopted various accounting policies which govern the application of
accounting principles generally accepted in the United States in the preparation
of our financial statements. Our significant accounting policies are described
in the notes to the consolidated financial statements at December 31, 2003 as
filed in our 2003 Annual Report on Form 10-KSB. Certain accounting policies
involve significant judgments and assumptions by us which have a material impact
on the carrying value of certain assets and liabilities. We consider these
accounting policies to be critical accounting policies. The judgments and
assumptions we use are based on the historical experience of our management in
the banking industry and other factors, which we believe to be reasonable under
the circumstances. Because of the nature of the judgments and assumptions we
make, actual results could differ from these judgments and estimates which could
have a material impact on our carrying values of assets and liabilities and our
results of operations.
We believe the allowance for loan losses is a critical accounting policy that
requires the most significant judgments and estimates used in preparation of our
consolidated financial statements. Refer to the portions of the discussion in
this report on Form 10-QSB and in our 2003Annual Report on Form 10-KSB that
address our allowance for loan losses for a description of our processes and
methodology for determining our allowance for loan losses.
Capital Resources
Total shareholders' equity increased $69,955 to $5,181,801 at March 31, 2004.
This is the result of net income for the period of $18,507 and a positive
adjustment of $28,816 for the unrealized gain on securities available for sale.
The Company and the Bank are subject to various regulatory capital requirements
administered by the Federal Reserve and the federal banking agencies.
Quantitative measures established by regulation to ensure capital adequacy
require us to maintain minimum ratios of Tier 1 and total capital as a
percentage of assets and off-balance-sheet exposures, adjusted for risk weights
ranging from 0% to 100%. Tier 1 capital consists of common stockholders' equity,
excluding the unrealized gain or loss on securities available-for-sale, minus
certain intangible assets. Tier 2 capital consists of the allowance for loan
losses subject to certain limitations. Total capital for purposes of computing
the capital ratios consists of the sum of Tier 1 and Tier 2 capital. The
regulatory minimum requirements are 22.64% for Tier 1 and 23.89% for total
risk-based capital.
We are also required to maintain capital at a minimum level based on adjusted
quarterly average assets, which is known as the leverage ratio. The Federal
Reserve applies its guidelines on a bank only basis for bank holding companies
with less than $150 million in consolidated assets. Only the strongest banks are
allowed to maintain capital at the minimum requirement of 3%. All others are
subject to maintaining ratios 1% to 2% above the minimum.
The following table summarizes The Company's risk-based capital at March 31,
2004:
Shareholders' equity .......................................... $ 5,174,844
Less - unrealized gains on available-for-sale securities ...... 28,816
-----------
Tier 1 capital ................................................ 5,146,028
Plus - allowance for loan losses(1) ........................... 284,000
-----------
Total capital ................................................. $ 5,430,028
===========
Risk-weighted assets .......................................... $22,729,000
===========
Risk-based capital ratios
Tier 1 capital (to risk-weighted assets) .................... 23.89%
Total capital (to risk-weighted assets) ..................... 22.64%
Tier 1 capital (to total average assets) .................... 14.55%
(1) Limited to 1.25% of risk-weighted assets
13
DEKALB BANKSHARES, INC.
Item 2 - Management's Discussion And Analysis or Plan of Operation - continued
Off-Balance Sheet Risk
Through its operations, the Company has made contractual commitments to extend
credit in the ordinary course of its business activities. These commitments are
legally binding agreements to lend money to The Company's customers at
predetermined interest rates for a specified period of time. At March 31, 2004,
the Company had issued commitments to extend credit of $3,743,211 and standby
letters of credit of $32,373 through various types of commercial lending
arrangements. Approximately $1,827,000 of these commitments to extend credit had
variable rates.
The following table sets forth the length of time until maturity for unused
commitments to extend credit and standby letters of credit at March 31, 2004.
After One After Three
Within Through Through Within Greater
One Three Twelve One Than
Month Months Months Year One Year Total
----- ------ ------ ---- -------- -----
(Dollars in thousands)
Unused commitments to
extend credit .......................... $ 131 $ 343 $ 447 $ 921 $2,822 $3,743
Standby letters of
credit ................................. - - - - 32 32
------ ------ ------ ------ ------ ------
Totals ............................... $ 131 $ 343 $ 447 $ 921 $2,854 $3,775
====== ====== ====== ====== ====== ======
Based on historical experience, many of the commitments and letters of credit
will expire unfunded. Accordingly, the amounts shown in the table above do not
necessarily reflect the Company's need for funds in the periods shown.
The Company evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on its credit evaluation of the borrower.
Collateral varies but may include accounts receivable, inventory, property,
plant and equipment, commercial and residential real estate.
Item 3. Controls and Procedures
Based on the evaluation required by 17 C.F.R. Section 240.13a-15(b) or
240.15d-15(b) of the Company's disclosure controls and procedures (as defined in
17 C.F.R. Sections 240.13a-15(e) and 240.15d-15(e)), the Company's chief
executive officer and chief financial officer concluded that the effectiveness
of such controls and procedures, as of the end of the period covered by this
quarterly report, was adequate.
No disclosure is required under 17 C.F.R. Section 228.308(c).
14
DEKALB BANKSHARES, INC.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On March 31, 2004, the Company held its annual meeting of shareholders at which
the shareholders: (1) elected three directors to each serve a one-year term,
three directors to each serve a two-year term, and three directors to each serve
a three-year term; and (2) ratified appointment of Elliott Davis, LLC, as the
Company's independent auditors for the year ended December 31, 2004. The votes
cast with respect to each matter were as follows:
1. Election of Directors:
For Withheld
--- --------
Anne duPont Shirley 344,067 100
Roderick M. Todd, Jr. 339,067 5,100
John C. West, Jr. 344,167 0
William C. Bochette, III 344,167 0
Daniel D. Riddick 343,867 300
Sylvia U. Wood 343,167 1,000
D. Edward Baxley 344,167 0
David R. Blakely 344,067 100
James D. King 344,167 0
2. Ratification of appointment of Elliott Davis, LLC
For Against Abstain
344,167 1,200 1,050
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 31 - Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32 - Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This
exhibit is not "filed" for purposes of Section 18 of the Securities
Exchange Act of 1934 but is instead furnished as provided by applicable
rules of the Securities and Exchange Commission.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter
ended March 31, 2004
15
DEKALB BANKSHARES, INC.
SIGNATURE
In accordance with 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.
s/William C. Bochette, III
By: -------------------------------------
William C. Bochette, III
Chief Executive Officer, President,
and Chief Financial Officer
Date: May 12, 2004
16
DEKALB BANKSHARES, INC.
Exhibit Index
31 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This
exhibit is not "filed" for purposes of Section 18 of the Securities
Exchange Act of 1934 but is instead furnished as provided by
applicable rules of the Securities and Exchange Commission.
17