U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 (I.R.S. Employer
of incorporation or organization) Identification Number)
110 S. Congress Street, Winnsboro, South Carolina 29180
- ----------------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803) 635-5536
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
----- ------
As of September 30, 1998, there were 579,451 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 September 30, 1998...................................3
Consolidated Statements of Income - (Unaudited) for the three months
ended September 30, 1997 and 1998.....................................................................................4
Consolidated Statements of Stockholders' Equity (Unaudited).............................................................5
Consolidated Statements of Cash Flows - (Unaudited) for the three months
ended September 30, 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
2
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share data)
June 30, September 30,
-----------------------------
Assets 1998 1998
------ ---- ----
Cash and due from banks $ 578 $ 307
Interest earning deposits 8,100 4,236
Investment securities, held to maturity (market value of $1,871 and $2,843) 1,855 2,805
Investment securities, available for sale (amortized cost of $47 and $58) 47 58
Loans receivable, net 36,007 36,746
Mortgage-backed securities, held to maturity (market value of $35 and $32) 35 32
Premises and equipment, net 547 533
Federal Home Loan Bank stock 321 321
Interest receivable 301 345
Real estate 71 71
Prepaid expenses and other assets 130 118
-------- --------
Total assets $ 47,992 $ 45,572
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Deposits $ 37,997 $ 35,546
Advance payments for taxes and insurance 38 56
Accrued expenses and other liabilities 361 140
Income taxes:
Current 58 115
Deferred 124 124
-------- --------
Total liabilities 38,578 35,981
-------- --------
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 579,451 at September 30, 1998) 8 8
Paid in capital 7,389 7,403
Retained earnings, substantially restricted 6,865 7,000
Treasury stock, at cost (200,611 shares at June 30, 1998 and
200,824 at September 30, 1998) (4,185) (4,190)
Unearned compensation:
Employee Stock Ownership Plan (392) (378)
Management Recognition Plan (271) (252)
-------- --------
Total stockholders' equity 9,414 9,591
-------- --------
Total liabilities and stockholders' equity $ 47,992 $ 45,572
======== ========
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 per share data)
For Three Months Ended
September 30,
-----------------------------
1997 1998
---- ----
Interest income:
Loans $ 760 $ 756
Mortgage-backed securities 1 1
Investments 54 46
Interest earning deposits 72 63
------- --------
Total interest income 887 866
Interest expense:
Deposits 415 429
------- --------
Net interest income 472 437
Provision for loan losses -- --
------- --------
Net interest income after provision
for loan losses 472 437
------- --------
Noninterest income:
Loan fees and services 11 16
Other 19 19
------- --------
Total noninterest income 30 35
------- --------
Noninterest expenses:
Compensation and employee benefits 170 157
Net occupancy expense 22 27
Deposit insurance premiums 5 6
Data processing 20 19
Other 84 69
------- --------
Total noninterest expenses 301 278
------- --------
Income before income taxes 201 194
Income tax expense 82 73
------- --------
Net income $ 119 $ 121
======= ========
Net income per common share:
Basic $.18 $.22
Diluted $.18 $.22
==== ====
Weighted average shares:
Basic 656 542
Diluted 674 556
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, 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 -- -- 121 -- -- -- 121
ESOP and MRP compensation earned -- 14 14 -- 14 19 61
Treasury stock purchased (213 shares) -- -- -- (5) -- -- (5)
-------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1998 $ 8 $ 7,403 $ 7,000 $ (4,190) $ (378) $ (252) $ 9,591
======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
For Three Months Ended
September 30,
----------------------------------
1997 1998
---- ----
Operating activities:
Net income $ 119 $ 121
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 19 17
Gain on sale of real estate owned (6) -
Amortization of deposit premium - 5
Accretion of discounts on investment securities (1) -
Amortization of unearned compensation 52 47
Net increase (decrease) in deferred loan fees (9) 2
Increase in accrued interest receivable (4) (44)
Decrease in prepaid expenses and other assets 4 12
Increase (decrease) in income taxes payable (5) 57
Increase (decrease) in accrued expenses and other liabilities 4 (35)
------------ ------------
Net cash provided by operating
activities 173 182
------------ ------------
Investing activities:
Net (increase) decrease in loans 19 (741)
Proceeds from maturities of
investment securities held to maturity 1,000 -
Purchases of investment securities - (961)
Principal payments on mortgage-backed securities 3 3
Purchases of premises and equipment - (3)
------------ ------------
Net cash provided (used) by investing activities 1,022 (1,702)
------------ ------------
(continued)
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
For Three Months Ended
September 30,
----------------------------------
1997 1998
---- ----
Financing activities:
Net decrease in deposits $ (945) $ (2,456)
Increase in advance payments for taxes and insurance 6 18
Purchase of treasury stock (22) (5)
Dividends paid (195) (172)
------------- ------------
Net cash provided (used) by financing activities (1,156) (2,615)
------------- ------------
Net increase (decrease) in cash and cash equivalents 39 (4,135)
Cash and cash equivalents at beginning of period 5,678 8,678
------------ ------------
Cash and cash equivalents at end of period $ 5,717 $ 4,543
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 412 $ 445
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
7
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Interim 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 interim financial statements were
prepared in accordance with instructions for Form 10-QSB and therefore, do
not include all disclosures necessary for a complete presentation of the
consolidated balance sheets, consolidated statements of income,
consolidated statements of stockholders' equity, and consolidated
statements of cash flows in conformity with generally accepted accounting
principles. However, all adjustments which are, in the opinion of
management, necessary for the fair presentation of the interim financial
statements have been included. All such adjustments are of a normal
recurring nature. The statement of income for the three month period ended
September 30, 1998, is not necessarily indicative of the results which may
be expected for the entire year.
It is suggested that these unaudited consolidated interim 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 month periods
ended September 30, 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 months ending September
30, 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 outstanding
stock options.
8
SOUTH CAROLINA COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
4. Asset Quality
-------------
At September 30, 1998, the Company had total nonperforming loans (i.e.,
loans which are contractually past due 90 days or more) of approximately
$938,000. Nonperforming loans were 2.53% of total loans at September 30,
1998. Total nonperforming assets as a percent of total assets at September
30, 1998, was 2.21%.
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.
This quarterly report on Form 10-Q may contain certain forward-looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to, general economic
competition; changes in accounting principles, policies, or guidelines; changes
in legislation or regulation: and other economic, competitive, governmental,
regulatory, and technological factors affecting the Company's operations,
pricing, products, and services.
Comparison of Financial Condition at June 30, 1998 and September 30, 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 September 30,
1998. The decrease in assets for the period was primarily attributable to assets
used to repay the public deposits that were withdrawn during the quarter. These
deposits are 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 September 30, 1998. Net loans
increased $739,000 or 2.1% as a result of new loan originations exceeding
principal repayments and refinancing payoffs.
Consistent with its historical lending practices, the Company's loan portfolio
at September 30, 1998, consisted primarily of fixed rate loans with maturities
of up to twenty-five (25) years. The Company also makes thirty (30) year 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 September 30, 1998. The decrease in deposits was primarily
attributable to a $2.1 million decline in various certificates of deposit and
$0.4 million decline in NOW accounts. These certificates of deposit represent
public funds deposits that were withdrawn during the quarter.
10
Comparison of Results of Operations for the Three Months Ended September 30,
1997 and 1998
Net Income. Net income increased $2,000 from $119,000 for the three months ended
September 30, 1997, to $121,000 for the three months ended September 30, 1998.
The return on average assets was 1.04 % for the three months ended September 30,
1997, compared to 1.02% for the three months ended September 30, 1998.
Net Interest Income. Net interest income decreased $35,000 or 7.4% from $472,000
for the three months ended September 30, 1997, to $437,000 for the three months
ended September 30, 1998. The decline in net interest income primarily reflects
a decrease in average interest earning assets of $679,000 or 1.5% while average
interest bearing liabilities increased by $2.3 million or 6.9%. The majority of
the average deposit growth was from certificates of deposit which carry the
highest cost of funds.
Interest Income. Total interest income decreased $21,000 from $887,000 for the
three months ended September 30, 1997, to $866,000 for the three months ended
September 30, 1998. Interest on loans decreased $4,000 while interest on
investments and interest earning deposits decreased $17,000. The balance of
interest earning deposits has been declining because of the need to fund deposit
withdrawals and stock repurchases.
Interest Expense. Interest expense increased $14,000 from $415,000 for the three
months ended September 30, 1997, to $429,000 for the three months ended
September 30, 1998. The increase for the three months ending September 30, 1998,
was the result of a $2.3 million increase in the average interest-bearing
deposits offset by a 17 basis point decrease in the cost of funds. The majority
of this average deposit growth came as a result of an increase in certificate 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 September 30, 1998 and 1997.
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 its internal loan 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 September 30,
1998 was 31.2% and nonperforming loans to total loans was 2.5%.
Non-Interest Income. Non-interest income continues to be an additional source of
income for the Company. This income was $30,000 for the three months ending
September 30, 1997, and $35,000 for the same period in 1998. The increase is the
result of additional fees produced by new loan production.
Non-Interest Expense. Non-interest expense decreased by $23,000 from $301,000
for the three months ending September 30, 1997, to $278,000 for 1998. The
decrease was the result of expense stabilization by management. Decreases in
compensation expense and other non-interest expenses were slightly offset by an
increase in net occupancy expense.
11
Liquidity and Capital Resources. The Company's primary sources of funds are
deposits, proceeds from principal and interest payments on loans, and investment
maturities. While maturities and scheduled amortization of loans are a
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition. The
Company's primary investing activity is loan originations. The Company maintains
liquidity levels adequate to fund loan commitments, investment opportunities,
deposit withdrawals and other financial commitments.
At September 30, 1998, there were no material commitments for capital
expenditures. Obligations to fund outstanding loan commitments at September 30,
1998, were approximately $839,000.
At September 30, 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 September 30, 1998.
The Savings Bank had the following capital ratios at September 30, 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.
For Capital Categorized as
Actual Adequacy Purposes "Well Capitalized"/(1)/
------------------------ ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ----------- ----------- ----------- ------------ -----------
As of September 30, 1998:
Adjusted total Capital
(To risk weighted assets) $ 8,733 37.7% $ 1,855 8.0% $ 2,319 10.0%
Tier I Capital
(To risk weighted assets) $ 8,447 36.4% $ 928 4.0% $ 1,391 6.0%
Tier I Capital
(To total assets) $ 8,447 18.9% $ 1,345 4.0% $ 2,241 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 80% of its other software vendors. Company personnel have
completed testing on all computer hardware with minimal failure being
12
detected and are scheduled to perform testing on the system by the end of 1998.
The Company plans to make 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 September 30,
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 a operating alternative in the event that systems do not perform as
planned either before or after the century date change. In accordance with a
recent regulatory examination, many of the steps under the Year 2000 compliance
plan are to be addressed by January 1999. 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 are 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
September 30, 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 September
30, 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: November 13, 1998 By /s/ Alan W. Pullen
----------------------- ----------------------------------
Alan W. Pullen
(President and Chief Executive
Officer)
South Carolina Community Bancshares, Inc.
Date: November 13, 1998 By /s/ Terri Robinson
----------------------- ----------------------------------
Terri Robinson
(Chief Financial Officer)
15