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 JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OT 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO
_______________.
Commission File No. 000-30001
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 August 1, 2000
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DARLINGTON COUNTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED) (AUDITED)
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
ASSETS
Cash and due from banks $ 1,125 $ 1,409
Investment securities - held to maturity 722 1,023
Investment securities - available for sale 5,192 5,181
Other investments, at cost 50 50
Federal funds sold 1,140 1,960
Loans 17,021 16,491
Less allowance for loan losses (240) (209)
--------------- --------------
Loans - net 16,781 16,282
Premises and equipment - net 886 914
Other assets 528 548
--------------- --------------
Total assets $ 26,424 $ 27,367
================ ===============
LIABILITIES
Deposits
Demand deposits $ 5,255 $ 4,645
Savings and NOW accounts 8,428 9,850
Time deposits $100,000 and over 1,762 2,046
Other time deposits 7,551 7,393
---------------- --------------
Total deposits 22,996 23,934
Other liabilities 93 129
---------------- --------------
Total liabilities 23,089 24,063
---------------- --------------
STOCKHOLDERS' EQUITY
Common stock - $.01 par value authorized, issued and
outstanding 158,000 shares at June 30, 2000 and
December 31, 1999 2 2
Additional paid in capital 1,618 1,618
Retained earnings 1,856 1,787
Accumulated other comprehensive loss (141) (103)
---------------- --------------
Total stockholders' equity 3,335 3,304
---------------- --------------
Total liabilities and stockholders' equity $ 26,424 $ 27,367
================ ===============
See notes to consolidated financial statements.
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DARLINGTON COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ----------------------
2000 1999 2000 1999
--------- -------- -------- --------
INTEREST INCOME
Loans, including fees $ 395 $ 357 $ 784 $ 744
Investment securities
U. S. Government Agencies 83 77 163 156
Municipal securities 8 11 19 24
Other equity securities - - 1 3
Federal funds sold and securities purchased
under agreements to resell 29 35 72 92
------------- ------------- ------------- -------------
Total interest income 515 480 1,039 1,019
------------- ------------- ------------- -------------
INTEREST EXPENSE
Time deposits $100,000 and over 25 18 52 34
Other deposits 147 145 290 308
------------- ------------- ------------- -------------
Total interest expense 172 163 342 342
------------- ------------- ------------- -------------
NET INTEREST INCOME 343 317 697 677
PROVISION FOR LOAN LOSSES 36 - 45 -
------------- ------------- ------------- -------------
Net interest income after provision for loan losses 307 317 652 677
------------- ------------- ------------- -------------
NONINTEREST INCOME
Service charges on deposit accounts 56 64 109 117
Other service charges, commissions and fees 6 5 11 10
------------- ------------- ------------- -------------
Total noninterest income 62 69 120 127
------------- ------------- ------------- -------------
NONINTEREST EXPENSES
Salaries and employee benefits 123 119 249 239
Net occupancy 20 15 40 30
Furniture and equipment 16 16 32 36
Other 94 109 184 205
------------- ------------- ------------- -------------
Total noninterest expenses 253 259 505 510
------------- ------------- ------------- -------------
Income before income taxes 116 127 267 294
Provision for income taxes 36 45 72 105
------------- ------------- ------------- -------------
Net income $ 80 $ 82 $ 195 $ 189
============= ============= ============= =============
PER SHARE
Average shares outstanding 158,000 158,000 158,000 158,000
============= ============= =========== =============
Net income $ 0.51 $ 0.52 $ 1.23 $ 1.20
============= ============= ========== =============
Dividends paid $ 0.80 $ 0.65 $ 0.80 $ 0.65
============= ============= ========== =============
See notes to consolidated financial statements.
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DARLINGTON COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
COMMON STOCK ACCUMULATED
----------------- OTHER COMPRE-
NUMBER ADDITIONAL HENSIVE
OF PAID IN RETAINED INCOME
SHARES AMOUNT CAPITAL EARNINGS (LOSS) TOTAL
------ ------ ---------- -------- ------------- -------
BALANCE, JANUARY 1, 1999 158,000 $ 790 $ 830 $ 1,477 $ 11 $ 3,108
Net income for period - - - 189 - 189
Comprehensive income, net of tax
Net change in unrealized gain on
securities available for sale - - - - (129) (129)
----------- -----------
Comprehensive income 60
Cash dividend ($.65 per share) - - - (102) - (102)
------- --------- ---------- ----------- ----------- -----------
BALANCE, JUNE 30, 1999 158,000 $ 790 $ 830 $ 1,564 (118) $ 3,066
======= ========== ========== ============ =========== ===========
BALANCE, JANUARY 1, 2000 158,000 $ 2 $ 1,618 $ 1,787 $ (103) $ 3,304
Net income for period - - - 195 - 195
Comprehensive income, net of tax
Net change in unrealized loss on
securities available for sale - - - - (38) (38)
---------- ----------
Comprehensive income 157
Cash dividend ($.80 per share) - - - (126) - (126)
------- --------- --------- ----------- ---------- ----------
BALANCE, JUNE 30, 2000 158,000 $ 2 $ 1,618 $ 1,856 $ (141) $ 3,335
======= ========== ========== ============ ============ ===========
See notes to consolidated financial statements.
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DARLINGTON COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------------
2000 1999
-------------- --------------
OPERATING ACTIVITIES
Net income $ 195 $ 189
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses 45 -
Depreciation 28 28
Decrease in other assets 20 57
Decrease in other liabilities (36) (104)
--------------- --------------
Net cash provided by operating activities 252 170
--------------- --------------
INVESTING ACTIVITIES
Decrease in Federal funds sold 820 5,300
Proceeds from maturities of investment securities
held to maturity 301 -
Proceeds from maturities of investment securities
available for sale - 743
Purchase of investment securities available for sale (49) (2,000)
Net increase in loan balances (544) (372)
Purchase of equipment - (16)
-------------- -------------
Net cash provided by investing activities 528 3,655
-------------- -------------
FINANCING ACTIVITIES
Net decrease in deposits (938) (3,505)
Cash dividends paid (126) (102)
-------------- --------------
Net cash used for financing activities (1,064) (3,607)
-------------- --------------
Increase (decrease) in cash and cash equivalents (284) 218
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,409 872
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,125 $ 1,090
================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Decrease (increase) in net unrealized gains on securities available for sale $ 6 $ (129)
================ ===============
CASH PAID FOR
Interest $ 340 $ 355
================ ===============
Income taxes $ 44 $ 105
================ ===============
See notes to consolidated financial statements.
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DARLINGTON COUNTY BANCSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED 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 Merger 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 in July 1999 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.
Reporting periods presented earlier than July 1, 1999 include the operations of
Darlington County Bank only.
ITEM 2.
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 1999 Annual Report
of Darlington County Bancshares, Inc. Results of operations for the six months
ending June 30, 2000 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 Company's
actual results may differ materially from the results discussed in the
forward-looking statements.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
RESULTS OF OPERATIONS - Six months ended June 30, 2000
The Company's net income for the six months ended June 30, 2000 was
$195,000 or $1.23 per share as compared to $189,000 or $1.20 per share for
the six months ended June 30, 1999.
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 $697,000 and $677,000 for the six months ended June 30, 2000 and 1999,
respectively.
(Continued)
-6-
ITEM 2: (Continued)
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.
Interest-earning assets for the second quarter of 2000 decreased by
$776,000 or 3.12% over the same period in 1999, while interest-bearing
liabilities decreased by $830,000 or 3.48% comparing the second quarter of
2000 with the second quarter of 1999.
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------------
AVERAGE INCOME/ ANNUALIZED AVERAGE INCOME/ ANNUALIZED
BALANCE EXPENSE YIELD/RATE BALANCE EXPENSE YIELD/RATE
---------- ------- ---------- ------- ------- ----------
Federal funds sold $ 2,324,945 $ 72,000 6.19% $ 2,859,560 $ 92,000 6.43%
Investment securities 6,026,070 183,000 6.04% 6,262,623 183,000 5.84%
Loans 16,579,574 784,000 9.46% 15,829,432 744,000 9.40%
----------- ---------- ----- ------------ ---------- -----
Total earning assets $ 24,930,589 1,039,000 8.33% $ 24,951,615 1,019,000 8.17%
============ =============
Total interest bearing
liabilities $ 24,054,021 342,000 2.84% $ 19,456,631 342,000 3.52%
============ --------- ----- ============= ---------- -----
Net interest spread 5.48% 3.91%
Net interest income/margin $ 697,000 5.58% $ 677,000 5.43%
=========== ===== =========== =====
As reflected above, for the six months of 2000 the average yield on earning
assets amounts amounted to 8.33%, while the average cost of interest-bearing
liabilities was 2.84%. For the same period of 1999, the average yield on earning
assets was 8.17% and the average cost of interest-bearing liabilities was 3.52%.
The increase in the yield on earning assets is attributable to an increase in
the yield on investment securities and loans sold. 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 June 30, 2000 was 5.58% and for 1999 was 5.43%. This increase
was the result of a decrease in the rate on interest-bearing deposits, and an
increase in the volume of earning assets.
The following table represents changes in the Company's net interest income
which are primarily a result of changes in volume and rates of its
interest-earning assets and interest-bearing liabilities. The decrease in net
interest income is due to decreased volume of earning assets and interest
bearing liabilities and a decrease in rates on earning assets and interest
bearing liabilities.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
FOR THE SIX MONTHS ENDED
JUNE 30, 2000 VERSUS 1999
-------------------------------------------------
VOLUME RATE NET CHANGE
------------- ---------- ---------------
Federal fund sold $ (17,200) $ (2,800) $ (20,000)
Investment securities (6,912) 6,912 -
Loans 35,257 4,743 40,000
------------ --------- -------------
Total earning assets 11,145 8,855 20,000
Total interest on interest-bearing liabilities 80,811 (80,811) -
------------ --------- -------------
Net interest income $ (69,666) $ 89,666 $ 20,000
============= =========== ===============
(Continued)
-7-
ITEM 2: (Continued)
NONINTEREST INCOME
Noninterest income for the six months ended June 30, 2000 and 1999 were
$120,000 and $127,000, respectively. Noninterest income remained flat
despite a decrease in average interest-bearing liabilities due to fees and
charges on different types of deposits.
NONINTEREST EXPENSES
Noninterest expenses for the six months ended June 30, 2000 and 1999 were
$505,000 and $510,000, respectively. Noninterest expenses is comparable due
to the results of operations remaining relatively stable.
The allowance for loan losses was 1.41% of loans, net of unearned income,
as of June 30, 2000 compared to 1.59% at June 30, 1999. The provision for
loan losses was $45,000 and $0 for the six months ended June 30, 2000 and
1999, respectively. The 1999 provision was lower because of a recovery of a
previously charged off loan in 4th quarter 1998. Management reviews the
adequacy of the allowance on an ongoing basis and believes the allowance is
adequate.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
RESULTS OF OPERATIONS - Three months ended June 30, 2000
The Company's net income for the second quarter of 2000 was $80,000 or $.51
per share compared to $82,000 or $.52 per share for the second quarter of
1999.
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 $343,000 and $317,000 for the quarters ended June 30, 2000 and 1999,
respectively.
NONINTEREST INCOME
Noninterest income for the three months ended June 30, 2000 and 1999 were
$62,000 and $69,000, respectively. Noninterest income remained flat despite
a decrease in average interest-bearing liabilities due to an increase in
fees and charges on different types of deposits.
NONINTEREST EXPENSES
Noninterest expenses for the three months ended June 30, 2000 and 1999 were
$253,000 and $259,000, respectively. Noninterest expenses is comparable due
to the results of operations remaining relatively stable.
FINANCIAL CONDITION
LIQUIDITY
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of
liabilities. The Company manages both assets and liabilities to achieve
appropriate levels of liquidity. Cash and short-term investments are the
Company'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
Company's liquidity sources are adequate to meet its operating needs.
-8-
ITEM 2: (Continued)
Total assets decreased $943,000 during the six months ended June 30, 2000
as a result of lower investments in federal funds sold. The Bank's deposits
decreased $938,000 in public funds and commercial deposits.
LOANS
Commercial, financial and agricultural loans made up 29.8% of the total
loan portfolio as of June 30, 2000, totaling $5,075,000. Loans secured by
real estate for construction and land development totaled $498,000 or 2.9%
of the total loan portfolio while all other loans secured by real estate
totaled $7,516,000 or 44.2% of the total loan portfolio as of June 30,
2000. Installment loans and other consumer loans to individuals comprised
23.1% of the total loan portfolio totaling $3,932,000.
CAPITAL RESOURCES
The capital base for the Company increased by $31,000 for the six months of
2000. This net change includes an increase to equity for net income of
$195,000 offset by an increase in unrealized losses on investment
securities of $38,000 and cash dividends paid of $126,000. The Company's
equity to asset ratio was 12.6% on June 30, 2000, as compared to 12.07% on
December 31, 1999.
The Federal Deposit Insurance Corporation has issued guidelines for
risk-based capital requirements. As of June 30, 2000, the Bank exceeds the
capital requirement levels that are to be maintained.
CAPITAL RATIOS
(AMOUNTS IN THOUSANDS)
Well Adequately
Capitalized Capitalized
Actual Requirement Requirement
-------------------- ------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ------ ------- ----- ------ -----
Total capital (to risk weighted assets) $ 3,704 21.7% $ 1,704 10.0% $ 1,363 8.0%
Tier 1 capital (to risk weighted assets) 3,491 20.5% 1,023 6.0% 682 4.0%
Tier 1 capital (to average assets) 3,491 13.2% 1,332 5.0% 1,065 4.0%
ASSET QUALITY
Nonperforming assets as a percentage of loans and foreclosed property
totaled 6.60% and 6.20% as of June 30, 2000 and December 31, 1999,
respectively. Nonperforming assets were $1,600,000 as of June 30, 2000 and
$1,024,000 at December 31, 1999. The nonperforming assets at June 30, 2000
and December 31, 1999 include a farm loan totaling $926,000 of which
$740,000 is guaranteed by the US Government.
EFFECTS OF REGULATORY ACTION
The management of the Company is not aware of any current recommendations
by regulatory authorities, which if they were to be implemented, would have
a material effect on liquidity, capital resources, or operations.
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
133, "Accounting for Derivative Instrument and Hedging Activities". All
derivatives are to be measured at fair value and recognized in the
statement of financial position as assets and liabilities. This statement's
effective date was delayed by the issuance of SFAS 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of SFAS 133," and is effective for fiscal years and quarters beginning
after June 15, 2000. The Bank does not expect that the adoption of SFAS 133
will have a material impact on the presentation of the Bank's results of
financial position.
-9-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
There are no material pending legal proceedings to which the Company or its
subsidiary party or of which any of their property is the subject.
ITEM 2. CHANGES IN SECURITIES
- ------------------------------
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Annual Meeting of Shareholders
------------------------------
On April 25, 2000, the Company held its 2000 Annual Meeting of
Shareholders. The results of the 2000 Annual Meeting of Shareholders
follow.
PROPOSAL #1 - ELECTION OF DIRECTORS
The shareholders approved setting the number of Company directors at 9
persons. The following persons were elected as Directors with the votes
indicated.
Voting shares in favor
---------------------- Withheld
# % Authority
- - ---------
W. Edwin Dargan
Hubert C. Baker
Eugene A. Vaughan
G. Clyde Scott
Albert L. James, III
W. B. McCown, III, Raymond Galloway, R.E. Goodson, Sr. and Charles G.
Howard continued in their present terms as directors.
ITEM 5. OTHER INFORMATION
- --------------------------
None
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
- ---------------------------------------
-10-
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 BANCSHARES, INC.
- ----------------------------------------------------------------
Name of Bank
By: /s/ W. B. McCown, III Date: August 14, 2000
--------------------------------- ----------------------------
W. B. McCown, III, President and
Chief Executive Officer
-11-