SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OT 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO _______________.
FDIC Certificate Number 26588-8
DARLINGTON COUNTY BANCSHARES, INC.
(Exact Name of Registrant as Specified in the Charter)
Incorporated in the State of South Carolina
I.R.S. Employer Identification Number 57-0805621
202 Cashua Street, Darlington, S.C. 29532
(Address of Principal Executive Offices)
(843) 395-1956
(Registrant's Telephone Number, including Area Code)
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 periods 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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock - $.01 Par Value
158,000 Shares Outstanding on September 30, 1999
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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DARLINGTON COUNTY BANCSHARES, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED) (AUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------- ----------
ASSETS
Cash and due from banks $ 1,341 $ 872
Investment securities - held to maturity 1,023 755
Investment securities - available for sale 5,196 4,422
Other investments, at cost 50 50
Federal funds sold 1,710 7,270
Loans 16,935 16,227
Less allowance for loan losses (227) (280)
---- ----
Loans - net 16,708 15,947
Premises and equipment - net 918 888
Other assets 451 428
--- ---
Total assets $ 27,397 $ 30,632
=============== ===============
LIABILITIES
Deposits
Demand deposits $ 4,794 $ 5,531
Savings and NOW accounts 9,988 12,395
Time deposits $100,000 and over 1,864 1,781
Other time deposits 7,542 7,623
----- -----
Total deposits 24,188 27,330
Other liabilities 79 194
-- ---
Total liabilities 24,267 27,524
------ ------
STOCKHOLDERS' EQUITY
Common stock - $.01 par value 1,000,000 shares
authorized; 158,000 shares outstanding at
September 30, 1999; $5.00 par value authorized,
issued and outstanding 158,000 shares at
December 31, 1998. 2 790
Capital surplus 1,618 830
Undivided profits 1,664 1,477
Accumulated other comprehensive income (loss) (154) 11
---- --
Total stockholders' equity 3,130 3,108
----- -----
Total liabilities and stockholders' equity $ 27,397 $ 30,632
=============== ===============
See notes to unaudited financial statements.
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DARLINGTON COUNTY BANCSHARES, INC.
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
INTEREST INCOME
Loans, including fees $ 349 $ 396 $ 1,093 $ 1,164
Investment securities
U. S. Government Agencies 80 55 236 154
Municipal securities 11 12 35 30
Other equity securities - - 3 2
Federal funds sold and securities purchased
under agreements to resell 27 52 119 147
-- -- --- ---
Total interest income 467 515 1,486 1,497
--- --- ----- -----
INTEREST EXPENSE
Time deposits $100,000 and over 88 21 122 47
Other deposits 73 169 381 501
-- --- --- ---
Total interest expense 161 190 503 548
--- --- --- ---
NET INTEREST INCOME 306 325 983 949
PROVISION FOR LOAN LOSSES - (15) - (45)
--- ---
Net interest income after provision for loan losses 306 310 983 904
--- --- --- ---
NONINTEREST INCOME
Service charges on deposit accounts 75 53 192 170
Other service charges, commissions and fees 8 8 18 18
- - -- --
Total noninterest income 83 61 210 188
-- -- --- ---
NONINTEREST EXPENSES
Salaries and employee benefits 119 110 358 325
Net occupancy 19 14 49 39
Furniture and equipment 17 17 53 46
Other 92 79 297 227
-- -- --- ---
Total noninterest expenses 247 220 757 637
--- --- --- ---
Income before income taxes 142 151 436 455
Provision for income taxes 42 50 147 156
-- -- --- ---
Net income $ 100 $ 101 $ 289 $ 299
=========== ============ =========== ===========
PER SHARE
Average shares outstanding 158,000 158,000 158,000 158,000
======= ======= ======= =======
Net income $ .63 $ .64 $ 1.83 $ 1.89
=========== ============ =========== ===========
Dividends paid $ - $ - $ .65 $ .55
========== =========== =========== ===========
See notes to unaudited financial statements.
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DARLINGTON COUNTY BANCSHARES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Common stock
------------ Accumulated
Number other com-
of Paid-in Retained prehensive
shares Amount capital earnings income (loss) Total
------ ------ ------- -------- ------------- -----
BALANCE, JANUARY 1, 1998 158,000 $ 790 $ 830 $ 1,154 $ 2 $ 2,776
Net income - - - 299 - 299
Other comprehensive income, net
of income taxes:
Unrealized gain on securities
available for sale, net - - - - 10 10
-- --
Comprehensive income - - - - - 309
Cash dividend, $.55 per share - - - (87) - (87)
---- --- ---
BALANCE, SEPTEMBER 30, 1998 158,000 $ 790 $ 830 $ 1,366 $ 12 $ 2,998
=== ==== ======= ========== ========== ============ =============== ===========
BALANCE, JANUARY 1, 1999 158,000 $ 790 $ 830 $ 1,477 $ 11 $ 3,108
Net income - - - 289 - 289
Other comprehensive income, net
of income taxes:
Unrealized loss on securities
available for sale, net - - - - (165) (165)
---- ----
Comprehensive income - - - - - 124
Cash dividend, $.65 per share - - - (102) - (102)
Par value conversion - (788) 788 - - -
---- ---
BALANCE, SEPTEMBER 30, 1999 158,000 $ 2 $ 1,618 $ 1,664 $ (154) $ 3,130
======= ========== ========== ============ =============== ===========
See notes to unaudited financial statements.
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DARLINGTON COUNTY BANCSHARES, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Nine months ended September 30,
-------------------------------
1999 1998
---- ----
OPERATING ACTIVITIES
Net income $ 289 $ 299
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses - 45
Depreciation 46 37
(Increase) decrease in other assets (23) (19)
Decrease in other liabilities (175) (101)
---- ----
Net cash provided by operating activities 137 261
--- ---
INVESTING ACTIVITIES
Decrease (increase) in federal funds sold 5,560 (2,450)
Proceeds from maturities of investment securities
available for sale 1,264 2,488
Purchase of investment securities available for sale (2,471) (2,613)
Net increase in loan balances (761) (498)
Purchase of equipment (16) (283)
--- ----
Net cash provided by (used for) investing activities 3,576 (3,356)
----- ------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (3,142) 3,057
Cash dividends paid (102) (87)
---- ---
Net cash provided by (used for) financing activities (3,244) 2,970
------ -----
Increase (decrease) in cash and due from banks 469 (125)
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 872 965
--- ---
CASH AND DUE FROM BANKS, END OF PERIOD $ 1,341 $ 840
================ ===============
SUPPLEMENTAL DISCLOSURES
Schedule of cash paid for:
Interest $ 503 $ 548
---------------- ---------------
Income taxes $ 186 $ 10
---------------- ---------------
See notes to unaudited financial statements.
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DARLINGTON COUNTY BANCSHARES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and item 310(b) of
Regulation S-B of the Securities and Exchange Commission. Accordingly, they do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. However, in the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.
NOTE 2 - NET INCOME PER SHARE
- -----------------------------
Net income per share is computed on the basis of the weighted average
number of common shares outstanding in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share". The Bank does not have any
instruments which are dilutive; therefore, only basic net income per share of
common stock is presented.
NOTE 3 - ORGANIZATION
- ---------------------
Darlington County Bancshares, Inc. (the "Company"), was organized in July
1999 for the purpose of being a holding company for Darlington County Bank (the
"Bank"). On July 1, 1999, pursuant to a Plan of Exchange approved by the
shareholders, all of the outstanding shares of capital stock of the Bank were
exchanged for shares of common stock of the Company. A par value conversion of
$788,000 was recorded to reflect a change in the par value of common stock from
$5.00 per share to $.01 per share. The Company presently engages in no business
other than that of owning the Bank and has no employees.
ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and related notes appearing in the 1998 Annual Report
of Darlington County Bank. Results of operations for the nine-month and
three-month period ending September 30, 1999 are not necessarily indicative of
the results to be attained for any other period. The following information may
contain forward-looking statements that involve risks and uncertainties. The
Bank's actual results may differ materially from the results discussed in the
forward- looking statements.
NET INTEREST INCOME
Net interest income is the difference between the interest earned on
earning assets and the interest paid for funds acquired to support those
assets. Net interest income, the principal source of the Bank's earnings,
was $983,000 and $949,000 for the nine months ended September 30, 1999 and
September 30, 1998 and $306,000 and $325,000 for the quarter ended
September 30, 1999 and 1998, respectively.
Changes that affect net interest income are changes in the average rate
earned on interest-earning assets, changes in the average rate paid on
interest-bearing liabilities, and changes in the volume of interest-earning
assets and interest-bearing liabilities.
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Interest-earning assets for the third quarter of 1999 decreased by
$1,712,000 or 6 percent over the same period in 1998, while
interest-bearing liabilities decreased by $20,000 or less than 1 percent
comparing the third quarter of 1999 with the third quarter of 1998.
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
For the nine months ended September 30,
---------------------------------------
1999 1998
------------------------------------------ -------------------------------------------
Annualized Annualized
Average Income/ Yield/ Average Income/ Yield/
balance expense rate balance expense rate
Federal funds sold $ 3,268,205 $ 119,000 4.85% $ 3,697,037 $ 147,000 5.30%
Investment securities 6,264,198 274,000 5.83 4,136,531 186,000 6.00
Loans 15,931,199 1,093,000 9.15 16,652,811 1,164,000 9.32
---------- --------- ---- ---------- --------- ----
Total earning assets $ 25,463,602 1,486,000 7.78 $ 24,486,379 1,497,000 8.15
============= =============
Total interest bearing
liabilities $ 19,779,854 503,000 3.39 $ 18,485,407 548,000 3.95
============= ------- ---- ============= ------- ----
Net interest spread 4.39% 4.20%
Net interest income/margin $ 983,000 5.15% $ 949,000 5.17%
============== ==== ============== ====
As reflected above, for the nine months of 1999 the average yield on earning
assets amounts amounted to 7.78 percent, while the average cost of
interest-bearing liabilities was 3.39 percent. For the same period of 1998, the
average yield on earning assets was 8.15 percent and the average cost of
interest-bearing liabilities was 3.95 percent. The decrease in the yield on
earning assets is attributable to a decrease in the yield on loans that have a
larger average balance than other components of earning assets. The net interest
margin is computed by subtracting interest expense from interest income and
dividing the resulting figure by average interest-earning assets. The net
interest margin for the period ended September 30, 1999 was 5.15 percent and for
1998 was 5.17 percent.
The following table represents changes in the Company's net interest income
which are primarily a result of changes in the volume and rates of its
interest-earning assets and interest-bearing liabilities.
Analysis of Changes in Net Interest Income
FOR THE NINE MONTHS ENDED
September 30, 1999 versus 1998
------------------------------
Volume Rate Net change
------ ---- ----------
Interest income related to:
Federal fund sold $ (17,000) $ (11,000) $ (28,000)
Investment securities 95,000 (7,000) 88,000
Loans (50,000) (21,000) (71,000)
------- ------- -------
Total income on earning assets 28,000 (39,000) (11,000)
Total expense on interest-bearing liabilities (38,000) 83,000 45,000
------- ------ ------
Net interest income $ (10,000) $ 44,000 $ 34,000
============= =========== ===============
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RESULTS OF OPERATIONS
The Bank's net income for the third quarter of 1999 was $100,000 or $.63
per share compared to $101,000 or $.64 per share for the third quarter of
1998. The Bank's net income for the nine months ended September 30, 1999
was $289,000 or $1.83 per share as compared to $299,000 or $1.89 per share
for the nine months ended September 30, 1998.
Noninterest income for the three months ended September 30, 1999 and 1998
were $83,000 and $61,000, respectively. Noninterest income for the nine
months ended September 30, 1999 and 1998 were $210,000 and $188,000,
respectively. Noninterest income increased as a result of higher service
charges on deposit accounts.
Noninterest expenses for the three months ended September 30, 1999 and 1998
were $247,000 and $220,000, respectively. Noninterest expenses for the nine
months ended September 30, 1999 and 1998 were $757,000 and $637,000,
respectively. The increase is due to higher salaries and data processing
costs in 1999.
The allowance for loan losses was 1.34 percent of loans, net of unearned
income, at September 30, 1999 compared to 1.30 percent at September 30,
1998. In management's opinion, the allowance for loan losses at September
30, 1999 and 1998 is adequate.
LIQUIDITY
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of
liabilities. Darlington County Bank manages both assets and liabilities to
achieve appropriate levels of liquidity. Cash and short-term investments
are the Bank's primary sources of asset liquidity. These funds provide a
cushion against short-term fluctuations in cash flow from both deposits and
loans. The investment portfolio is the Bank's principal source of secondary
asset liquidity. However, the availability of this source of funds is
influenced by market conditions. Individual and commercial deposits are the
Bank's primary source of funds for credit activities. Management believes
that the Bank's liquidity sources are adequate to meet its operating needs.
LOANS
Commercial, financial and agricultural loans totaling $6,417,000 comprised
38.4 percent of the total loan portfolio as of September 30, 1999. Loans
secured by real estate for construction and land development totaled
$369,000 or 2.2 percent of the total loan portfolio while all other loans
secured by real estate totaled $6,180,000 or 37 percent of the total loan
portfolio as of September 30, 1998. Installment loans and other consumer
loans to individuals totaling $3,742,000 comprised 22.4 percent of the
total loan portfolio.
CAPITAL RESOURCES
The capital base for the Bank increased by $22,000 during the nine months
of 1999. This net change includes an increase to equity for net income of
$289,000 offset by dividends of $102,000 and unrealized losses on
investment securities of $165,000. The Bank's equity to asset ratio was 9.3
percent on September 30, 1999, compared to 10.52 percent on December 31,
1998. The Federal Deposit Insurance Corporation has issued guidelines for
risk-based capital requirements. As of June 30, 1999, the Bank exceeds the
capital requirement levels that are to be maintained.
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CAPITAL RATIOS
(AMOUNTS IN THOUSANDS)
Well Adequately
Capitalized Capitalized
Actual Requirement Requirement
------ ----------- -----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total capital (to risk weighted
assets) $ 3,501 20.2% $ 1,733 10.0% $ 1,386 8.0%
Tier 1 capital (to risk weighted
assets) 3,284 19.0% 1,040 6.0% 693 4.0%
Tier 1 capital (to average assets) 3,284 12.0% 1,372 5.0% 1,097 4.0%
YEAR 2000
The Bank recognizes that there is business risk surrounding computerized
systems as the new century approaches. Many computer-based information
systems in use today exclude the century as part of the date definition,
which could cause inaccurate interest calculations on loans and deposits. A
number of computer systems used by the Bank in its day-to-day operations
will be affected by the "Year 2000 Problem". Management has established a
Year 2000 Project Team (the "Y2K Team") which has identified all affected,
mission critical systems and is currently working to ensure that this event
will not disrupt operations. The Y2K Team reports regularly to the Board of
Directors.
The Bank relies heavily on third party service providers and is working
closely with all outside computer vendors to ensure that software
corrections and warranty commitments are obtained. The Bank has performed
internal and external testing with third parties to ensure that remediated
systems accurately process data. The last phase of integrated testing was
completed July 1999. The estimated cost to the Bank for these corrective
actions was not material. Incomplete or untimely compliance, however, could
have a material adverse effect on the company, the dollar amount of which
cannot be accurately quantified at this time because of the inherent
variables and uncertainties involved. Management has developed contingency
plans to address failures by third party service providers to remediate
Bank defined mission critical systems. The plan includes the development of
an in-house system to meet the Bank's needs.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as the Bank are primarily monetary in nature. Therefore,
interest rates have a more significant impact on the Bank's performance
than do the effects of changes in the general rate of inflation and changes
in prices. In addition, interest rates do not necessarily move in the same
magnitude as the prices of goods and services. As discussed previously,
management seeks to manage the relationships between interest sensitive
assets and liabilities in order to protect against wide rate fluctuations,
including those resulting from inflation.
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SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Bank has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Darlington County Bank
----------------------
Name of Bank
By: /s/ W. B. McCown, III Date: March 30, 2000
- --------------------------------- ----------------------
W. B. McCown, III, President and
Chief Executive Officer
By: /s/ Ellen T. Berry Date: March 30, 2000
- ---------------------------------- -----------------------
Ellen T. Berry, Vice President and
Cashier
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