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, 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
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SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
-----------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 22-0999615
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
110 S. Congress Street, Winnsboro, South Carolina 29180
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803) 635-5536
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
--- ---
As of March 31, 1998, there were 579,664 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, 1997, and March 31, 1998...............3
Consolidated Statements of Income - (Unaudited) for the three and nine months
ended March 31, 1997 and 1998...............................................................4
Consolidated Statements of Stockholders' Equity (unaudited)...................................5
Consolidated Statements of Cash Flows - (Unaudited) for the nine months
ended March 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
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 1997 1998
------ ---- ----
Cash and due from banks $ 436 $ 194
Interest earning deposits 5,242 4,613
Investment securities:
Held to maturity (market value of $3,370 and $4,369) 3,352 4,370
Loans receivable, net 35,955 35,635
Mortgage-backed securities:
Held to maturity (market value of $49 and $39) 48 39
Premises and equipment, net 551 558
Federal Home Loan Bank stock 429 321
Interest receivable 340 334
Real estate owned 96 71
Prepaid expenses and other assets 149 170
--------- ---------
Total assets $ 46,598 $ 46,305
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Deposits $ 34,024 $ 36,457
Advance payments for taxes and insurance 42 29
Accrued expenses and other liabilities 374 209
Income taxes:
Current 78 54
Deferred 118 118
--------- ---------
Total liabilities 34,636 36,867
--------- ---------
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; 699,733 outstanding at June 30, 1997,
and 579,664 at March 31, 1998) 8 8
Paid in capital 7,321 7,370
Retained earnings, substantially restricted 6,801 6,954
Treasury stock, at cost (80,542 shares at June 30, 1997 and
200,611 at March 31, 1998) (1,352) (4,185)
Unearned compensation:
Employee Stock Ownership Plan (452) (404)
Management Recognition Plan (364) (305)
--------- ---------
Total stockholders' equity 11,962 9,438
--------- ---------
Total liabilities and stockholders' equity $ 46,598 $ 46,305
========= =========
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,
------------------------------- -------------------------------
1997 1998 1997 1998
---- ---- ---- ----
Interest income:
Loans $ 743 $ 760 $ 2,196 $ 2,268
Mortgage-backed securities 1 - 3 2
Investments 67 75 214 203
Interest earning deposits 59 54 187 181
------------ ------------ ------------ ------------
Total interest income 870 889 2,600 2,654
Interest expense:
Deposits 415 423 1,232 1,272
------------ ------------ ------------ ------------
Net interest income 455 466 1,368 1,382
Provision for loan losses - - - -
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 455 466 1,368 1,382
------------ ------------ ------------ ------------
Noninterest income:
Loan fees and services 14 12 20 35
Other 17 23 38 55
------------ ------------ ------------ ------------
Total noninterest income 31 35 58 90
------------ ------------ ------------ ------------
Noninterest expenses:
Compensation and employee benefits 160 175 445 513
Net occupancy expense 18 23 45 69
Deposit insurance premiums 4 5 236 16
Data processing 24 24 49 63
Other 89 87 207 300
------------ ------------ ------------ ------------
Total noninterest expenses 295 314 982 961
------------ ------------ ------------ ------------
Income before income taxes 191 187 444 511
Income tax expense 70 65 173 200
------------ ------------ ------------ ------------
Net income $ 121 $ 122 $ 271 $ 311
============ ============ ============ ============
Weighted average common shares
outstanding 658 541 675 594
Basis net income per share $.18 $.22 $.40 $.52
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)
Unearned Compensation
Common Paid-In Retained Treasury -----------------------
Stock Capital Earnings Stock for ESOP for MRP Total
----- ------- -------- ----- -------- ------- -----
Balance at June 30, 1996 $ 8 $ 7,279 $ 6,769 $ (790) $ (514) $ (443) $ 12,309
Net income -- -- 423 -- -- -- 423
Cash dividends ($.60 per share) -- -- (391) -- -- -- (391)
ESOP and MRP compensation earned -- 42 -- -- 62 79 183
Treasury stock purchased (35,677 shares) -- -- -- (562) -- -- (562)
-------- -------- -------- -------- -------- -------- --------
Balance at June 30, 1997 8 7,321 6,801 (1,352) (452) (364) 11,962
Net income -- -- 311 -- -- -- 311
Cash dividends ($.32 per share) -- -- (158) -- -- -- (158)
ESOP and MRP compensation earned -- 51 -- -- 48 59 158
Stock Options Exercised ( 360 shares) -- (2) -- 7 -- -- 5
Treasury stock purchased (120,069 shares) -- -- -- (2,840) -- -- (2,840)
-------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1998 $ 8 $ 7,370 $ 6,954 $ (4,185) $ (404) $ (305) $ 9,438
======== ======== ======== ======== ======== ======== ========
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,
---------------------------
1997 1998
---- ----
Operating activities:
Net income $ 271 $ 311
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 26 41
Deferred income taxes 17 -
Amortization of premium (accretion
of discounts) on investment securities (2) (18)
Amortization of unearned compensation 147 158
Net decrease in deferred loan fees (31) (28)
(Increase) decrease in accrued interest receivable 2 6
(Increase) decrease in prepaid expenses and other assets (107) (21)
Increase (decrease) in income taxes payable (65) (24)
Increase (decrease) in accrued expenses and other liabilities (6) 45
---------- ----------
Net cash provided (used) by operating
activities 252 470
---------- ----------
Investing activities:
Net (increase) decrease in loans (2,476) 373
Proceeds from sale of real estate owned 3 -
Proceeds from sale of FHLB stock - 108
Proceeds from maturities of
investment securities 1,400 4,000
Purchase of investment securities held to maturity (200) (5,000)
Principal payments on mortgage-backed securities 11 9
Purchases of premises and equipment (169) (48)
---------- ----------
Net cash provided (used) by investing activities (1,431) (558)
---------- ----------
(continued)
6
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
For Nine Months Ended
March 31,
---------------------------------
1997 1998
---- ----
Financing activities:
Net increase in deposits $ 2,767 $ 2,433
Increase (decrease) in advance payments for taxes and insurance 9 (13)
Stock options exercised - 5
Purchase of treasury stock (482) (2,840)
Dividends paid (418) (368)
----------- ----------
Net cash provided (used) by financing activities 1,876 (783)
----------- ----------
Net increase (decrease) in cash and cash equivalents 697 (871)
Cash and cash equivalents at beginning of period 4,587 5,678
---------- ----------
Cash and cash equivalents at end of period $ 5,284 $ 4,807
========== ==========
Supplemental disclosures of cash flow information
- -------------------------------------------------
Cash paid during the period for:
Interest $ 1,250 $ 1,246
========== ==========
Noncash investing and financing activities:
Real estate acquired in satisfaction of
mortgage loans $ 97 $ -
========== ==========
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
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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, 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, 1997, which are
included in the Form 10-KSB by reference (file no. 0-24476).
3. Earnings Per Share
------------------
Basic earnings per share amounts for the three and nine month periods ended
March 31, 1997 and 1998, are based on the average number of shares
outstanding during the period in accordance with SFAS 128. Prior earnings
per share amounts have been restated to conform with SFAS 128. Unallocated
ESOP shares are not considered as outstanding for purposes of this
calculation. Diluted earnings per share include the effect of dilution for
stock options and stock awards.
8
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
4. Treasury Stock
--------------
During the nine months ending March 31, 1998, the holding company
repurchased 120,069 shares of common stock held in treasury. These
repurchases represent 15.4% of the total shares issued.
5. 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 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.
6. Asset Quality
-------------
At March 31, 1998, the Company had total nonperforming loans (i.e., loans
which are contractually past due 90 days or more) of approximately
$511,000. Nonperforming loans was 1.42 % of total loans at March 31, 1998.
Total nonperforming assets as a percent of total assets at March 31, 1998
were 1.26%. Nonperforming assets include the nonperforming loans of
$511,000 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, 1997 and March 31, 1998
The Company's total consolidated assets decreased by approximately $300,000 or
0.6% from $46.6 million at June 30, 1997 to $46.3 million at March 31, 1998.
The composition of the Company's balance sheet has not been materially affected
by market conditions between June 30, 1997 and March 31, 1998. Net loans
decreased $320,000 or .9%.
Consistent with its historical lending practices, virtually all of the Company's
loan portfolio at March 31, 1998 consisted primarily of fixed rate loans with
maturities up to thirty (30) 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 $2.5 million or 7.1%, from $34.0 million at June 30, 1997 to
$36.5 million at March 31, 1998. The increase in deposits was primarily
attributable to a $2.3 million growth in certificates of deposit.
Comparison of Results of Operations for the Three Months Ended March 31, 1997
and 1998
Net Income. Net income increased $1,000 from $121,000 for the three months ended
March 31, 1997 to $122,000 for the three months ended March 31, 1998. The return
on average assets was 1.15% for the three months ended March 31, 1997 compared
to 1.06% for the three months ended March 31, 1998.
Net Interest Income. Net interest income increased $11,000 or 2.4% from $455,000
for the three months ended March 31, 1997 to $466,000 for the three months ended
March 31, 1998. The improvement in net interest income primarily reflects an
increase in interest rate spread from 3.04% for three months ending March 31,
1997 to 3.31% for the three months ended March 31, 1998.
Interest Income. Total interest income increased $19,000 from $870,000 for the
three months ended March 31, 1997 to $889,000 for the three months ended March
31, 1998. Interest on loans
10
increased $17,000, or 2.3%. Interest on investments increased $8,000 as the
average portfolio increased during the March 98 quarter.
Interest Expense. Interest expense increased $8,000 from $415,000 for the three
months ended March 31, 1997 to $423,000 for the three months ended March 31,
1998. The increase for the three months ending March 31, 1998 was the result of
a $2.5 million increase in the average deposits outstanding offset by a 26 basis
point decrease in the cost of funds. The majority of this deposit growth came as
a result of an increase in certificates of deposit accounts.
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, 1998
was 57.3% and nonperforming loans to total loans was only 1.42%.
Non-Interest Income. Non-interest income continues to be an insignificant source
of income for the Company. This income was $31,000 for the three months ending
March 31, 1997 and $35,000 for the same period in 1998. The marginal increase is
the result of the continued effort to offer additional banking services to the
Bank's customers.
Non-Interest Expense. Non-interest expense increased by $19,000 from $295,000
for the three months ending March 31, 1997 to $314,000 for 1998. The increase
was the direct result of a $15,000 increase in compensation expense primarily
from normal salary increases. Net occupancy expense increased $5,000 as a result
of increased depreciation expense due to the additional branch facility. Other
non-interest expense items 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, 1997 and
1998
Net Income. Net income increased $40,000 or 14.8% from $271,000 for the nine
months ended March 31, 1997 to $311,000 for the nine months ended March 31,
1998. 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 0.79% for the nine months ended March
31, 1997 compared to 0.90 % for the nine months ended March 31, 1998.
Net Interest Income. Net interest income increased $14,000 or 1.0% from
$1,368,000 for the nine months ended March 31, 1997 to $1,382,000 for the nine
months ended March 31, 1998. The improvement in net interest income primarily
reflects an increase in the interest rate spread from 2.92% for nine months
ending March 31, 1997 to 3.31% for the nine months ending March 31, 1998 offset
by a decrease in net average interest-earning assets for the Company which were
used to fund the stock repurchase program. During the nine months ending March
31, 1998 the Company paid $2.8 million for the repurchase of 120,069 shares of
common stock.
11
Interest Income. Total interest income increased $54,000 or 2.1% for the nine
months ended March 31, 1998. Interest on loans increased $72,000, or 3.3%, while
interest on investments, mortgage-backed securities and interest earning
deposits decreased in aggregate by $18,000 as the average invested balances
decreased.
Interest Expense. Interest expense increased $40,000 from $1,232,000 for the
nine months ended March 31, 1997 to $1,272,000 for the nine months ended March
31, 1998. The increase for the nine months ending March 31, 1998 was the result
of a $2.4 million increase in the average deposits outstanding offset by a 25
basis point decrease in the cost of funds.
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.
Non-Interest Income. Non-interest income continues to be an insignificant source
of income for the Company. This income was $58,000 for the nine months ending
March 31, 1997 and $90,000 for the same period in 1998. The increase is the
result of additional service fee transactions being offered by the Bank.
Non-Interest Expense. Non-interest expense decreased by $21,000 from $982,000
for the nine months ending March 31, 1997 to $961,000 for 1998. The decrease was
the direct result of the Company recognizing $193,000 of additional deposit
insurance premiums during the nine months ending March 31, 1997 as a one time
expense. Therefore, deposit insurance premiums were $220,000 less for the nine
months ending March 31, 1998 as compared to the same period in the 1997.
Compensation expense increased by $68,000 for the nine month period in 1998
compared to 1997 as additional personnel from the new branch location were
employed during the entire nine month period of 1998 as compared to only a
portion of the same nine month period ending March 31, 1997. Other non-interest
expense such as occupancy expense, data processing and other operating expenses
reflect increases for the same reason.
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,
1998 commitments to fund new loans were approximately $615,000 and unfunded
loans in process were approximately $570,000.
At March 31, 1998, there were no material commitments for capital expenditures.
At March 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
12
operations of the Company. Further at March 31, 1998, 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, 1998. The Bank
had the following capital ratios at March 31, 1998:
For Capital Categorized as
Actual Adequacy Purposes "Well Capitalized"(1)
------------------------ ---------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------ ---------------------- -----------------------
As of March 31, 1998:
Total Capital
(To risk weighted assets) $ 8,643 39.8% $ 1,736 8.00% $ 2,170 10.0%
Tier I Capital
(To risk weighted assets) $ 8,375 38.6% $ 868 4.00% $ 1,302 6.0%
Tier I Capital
(To total assets) $ 8,437 18.3% $ 1,372 3.00% $ 2,287 5.0%
Tangible Capital
(To total assets) $ 8,437 18.3% $ 686 1.50% $ 2,287 5.0%
(1) As categorized under the Prompt Corrective Action Provisions.
Year 2000 Compliance. The Company has established a plan to address Year 2000
issues. Successful implementation of this plan will eliminate any extraordinary
expenses related to the Year 2000 issue. The Company has received confirmation
from its sole data processing company regarding their Year 2000 plans and
compliance. The Company has requested from its data processing company
information that would enable it to test all critical systems by mid 1998 in
order to ensure compliance by December 31, 1998. 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.
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, 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
---------------------------------------------------
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, 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: May 13, 1998 By /s/ Alan W. Pullen
-------------------- Alan W. Pullen
(President and Chief Executive
Officer)
South Carolina Community Bancshares, Inc.
Date: May 13, 1998 By /s/ Terri Robinson
-------------------- Terri Robinson
(Chief Financial Officer)
15