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, 2001
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. 0-30001
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, 2001
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DARLINGTON COUNTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED) (AUDITED)
JUNE 30, DECEMBER 31,
2001 2000
-------------------- --------------------
ASSETS
Cash and due from banks $ 2,367 $ 1,090
Investment securities - held to maturity 720 720
Investment securities - available for sale 5,326 4,662
Other investments, at cost 50 50
Federal funds sold 1,565 4,420
Loans 19,039 16,331
Less allowance for loan losses (374) (252)
-------------------- --------------------
Loans - net 18,665 16,079
Premises and equipment - net 1,062 875
Other assets 407 574
-------------------- --------------------
Total assets $ 30,162 $ 28,470
==================== ====================
LIABILITIES
Deposits
Demand deposits $ 5,326 $ 4,788
Savings and NOW accounts 10,904 9,246
Time deposits $100,000 and over 8,783 1,722
Other time deposits 1,434 8,994
-------------------- --------------------
Total deposits 26,447 24,750
Other liabilities 90 132
-------------------- --------------------
Total liabilities 26,537 24,882
-------------------- --------------------
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 1,982 2,004
Accumulated other comprehensive loss 23 (36)
-------------------- --------------------
Total stockholders' equity 3,625 3,588
-------------------- --------------------
Total liabilities and stockholders' equity $ 30,162 $ 28,470
==================== ====================
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,
---------------------------------- ----------------------------------
2001 2000 2001 2000
--------------- ---------------- --------------- ----------------
INTEREST INCOME
Loans, including fees $ 395 $ 395 $ 758 $ 784
Investment securities
U. S. Government Agencies 73 83 145 163
Municipal securities 8 8 16 19
Other equity securities - - 1 1
Federal funds sold and securities purchased
under agreements to resell 38 29 99 72
--------------- ---------------- --------------- ----------------
Total interest income 514 515 1,019 1,039
--------------- ---------------- --------------- ----------------
INTEREST EXPENSE
Time deposits $100,000 and over 20 25 43 52
Other deposits 187 147 379 290
--------------- ---------------- --------------- ----------------
Total interest expense 207 172 422 342
--------------- ---------------- --------------- ----------------
NET INTEREST INCOME 307 343 597 697
PROVISION FOR LOAN LOSSES 15 36 30 45
--------------- ---------------- --------------- ----------------
Net interest income after provision for
loan losses 292 307 567 652
--------------- ---------------- --------------- ----------------
NONINTEREST INCOME
Service charges on deposit accounts 78 56 147 109
Other service charges, commissions and fees 5 6 10 11
--------------- ---------------- --------------- ----------------
Total noninterest income 83 62 157 120
--------------- ---------------- --------------- ----------------
NONINTEREST EXPENSES
Salaries and employee benefits 146 123 285 249
Net occupancy 16 20 33 40
Furniture and equipment 13 16 27 32
Other 100 94 198 184
--------------- ---------------- --------------- ----------------
Total noninterest expenses 275 253 543 505
--------------- ---------------- --------------- ----------------
Income before income taxes 100 116 181 267
Provision for income taxes 26 36 45 72
--------------- ---------------- --------------- ----------------
Net income $ 74 $ 80 $ 136 $ 195
=============== ================ =============== ================
PER SHARE
Average shares outstanding 158,000 158,000 158,000 158,000
=============== ================ =============== ================
Net income $ 0.47 $ 0.51 $ $ 1.23
.86
=============== ================ =============== ================
Dividends paid $ - $ 0.65 $ 1.00 $ 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
--------------------------
NUMBER ADDITIONAL OTHER
OF PAID IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) TOTAL
------------ ------------- ------------- ---------------- ------------------ --------------
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
gain on securities
available for sale - - - - (38) (38)
------------------ --------------
Comprehensive income 157
Cash dividend ($.65 per share) - - - (126) - (126)
------------ ------------- ------------- ---------------- ------------------ --------------
BALANCE, JUNE 30, 2000 158,000 $ 2 $ 1,618 $ 1,856 $ (141) $ 3,335
============ ============= ============= ================ ================== ==============
BALANCE, JANUARY 1, 2001 158,000 $ 2 $ 1,618 $ 2,004 $ (36) $ 3,588
Net income for period - - - 136 - 136
Comprehensive income, net of tax
Net change in unrealized loss
on securities available for
sale - - - - 59 59
------------------ --------------
Comprehensive income 196
Cash dividend ($1.00 per share) - - - (158) - (158)
------------ ------------- ------------- ---------------- ------------------ --------------
BALANCE, JUNE 30, 2001 158,000 $ 2 $ 1,618 $ 1,982 $ 23 $ 3,625
============ ============= ============= ================ ================== ==============
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,
-------------------------------------
2001 2000
----------------- -----------------
OPERATING ACTIVITIES
Net income $ 136 $ 195
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses 122 45
Depreciation 24 28
Decrease in other assets 167 20
Decrease in other liabilities (42) (36)
----------------- -----------------
Net cash provided by operating activities 407 252
----------------- -----------------
INVESTING ACTIVITIES
Decrease in Federal funds sold 2,855 820
Proceeds from maturities of investment securities
held to maturity - 301
Proceeds from maturities of investment securities
available for sale - -
Purchase of investment securities available for sale (605) (49)
Net increase in loan balances (2,708) (544)
Purchase of equipment (211) -
----------------- -----------------
Net cash provided by (used in ) investing activities (669) 528
----------------- -----------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 1,697 (938)
Cash dividends paid (158) (126)
----------------- -----------------
Net cash provided by (used in) financing activities 1,539 (1,064)
----------------- -----------------
Increase (decrease) in cash and cash equivalents 1,277 (284)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,090 1,409
----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,367 $ 1,125
================= =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Decrease (increase) in net unrealized gains on securities available for sale $ 59 $ 6
================= =================
CASH PAID FOR
Interest $ 432 $ 340
================= =================
Income taxes $ 86 $ 44
================= =================
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
converted into shares of common stock of the Company (and the Bank became a
wholly-owned subsidiary 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 Company's 2000
Annual Report to Shareholders. Results of operations for the six months ending
June 30, 2001 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.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements (as defined
in the Private Securities Litigation Reform Act of 1995) to assist in the
understanding of anticipated future operating and financial performance, growth
opportunities, growth rates, and other similar forecasts and statements of
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expectations. These forward-looking statements reflect current views, but are
based on assumptions and are subject to risks, uncertainties and other factors,
which may cause actual results to differ materially from those in such
statements. These factors include, but are not limited to, the following: risks
from changes in economic, monetary policy and industry conditions; changes in
interest rates, deposit rates, the net interest margin and funding sources;
market risk; inflation; risks inherent in making loans including repayment risks
and value of collateral; loan growth; adequacy of the allowance for loan losses
and the assessment of problem loans; fluctuations in consumer spending; the
demand for our products and services; dependence on senior management;
technological changes; ability to increase market share; expense projections;
estimates of impairment loss; changes in accounting policies and practices;
costs and effects of litigation; and recently-enacted or proposed legislation.
Such forward-looking statements speak only as of the date on which
such statements are made. We undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events.
In addition, certain statements in future filings by us with the Securities and
Exchange Commission, in press releases and in oral and written statements made
by or with the approval of Darlington County Bancshares, Inc. which are not
statements of historical fact constitute forward-looking statements.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS
ENDED JUNE 30, 2000
RESULTS OF OPERATIONS -
The Company's net income for the six months ended June 30, 2001 was $136,000
or $0.86 per share as compared to $195,000 or $1.23 per share for the six
months ended June 30, 2000. The decrease in net income resulted primarily
from lower net interest income of $100,000.
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 $597,000
and $697,000 for the six months ended June 30, 2001 and 2000, respectively.
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 2001 increased by
$2,441,000 or 10.22% over the same period in 2000, while interest-bearing
liabilities increased by $3,451,000 or 15.01% comparing the second quarter of
2001 with the second quarter of 2000.
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AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------------------------
2001 2000
------------------------------------------ ----------------------------------------
AVERAGE INCOME/ ANNUALIZED AVERAGE INCOME/ ANNUALIZED
BALANCE EXPENSE YIELD/RATE BALANCE EXPENSE YIELD/RATE
-------------- ------------- ------------- -------------- ----------- -------------
Federal funds sold $3,196,165 $ 99,000 6.19% $2,324,945 $ 72,000 6.19%
Investment securities 5,725,955 162,000 5.66% 6,026,070 183,000 6.07%
Loans 17,988,693 758,000 8.43% 16,579,574 784,000 9.46%
------------- ----------- ------------- ----------
Total earning assets $ 26,910,813 1,019,000 7.57% $ 24,930,589 1,039,000 8.34%
============ ============
Total interest bearing liabilities $ 25,693,852 422,000 3.28% $ 24,054,021 342,000 2.84%
============ ----------- ----------- ============ ---------- -----------
Net interest spread 4.29% 5.50%
Net interest income/margin $ 597,000 4.44% $ 697,000 5.59%
=========== ============ ========== ============
As reflected above, for the first six months of 2001 the average yield on
earning assets amounts amounted to 7.57%, while the average cost of
interest-bearing liabilities was 3.28%. For the same period of 2000, the average
yield on earning assets was 8.34% and the average cost of interest-bearing
liabilities was 2.84%. The decrease in the yield on earning assets is
attributable to the overall decreasing rate environment where interest sensitive
loans reprice more quickly than deposits. The Bank also had a group of
certificates of deposits that matured and were renewed in the second quarter,
but increased overall interest expense during the quarter 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, 2001 was 4.44% and for 2000 was
5.59%. This decrease resulted from the lowered rates earned on earning assets
because of the Federal Reserve's lowering of rates six times since January 2001.
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 an increased volume and rate on interest bearing
liabilities and a decrease in rates on interest earning assets, off set by an
increased volume of interest-earning assets.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
FOR THE SIX MONTHS ENDED
JUNE 30, 2001 VERSUS 2000
-------------------------------------------------------------
VOLUME RATE NET CHANGE
------------------- ------------------- -------------------
Federal fund sold $ 26,980 $ 20 $ 27,000
Investment securities (9,114) (11,886) (21,000)
Loans 66,633 (92,633) (26,000)
------------------- ------------------- -------------------
Total earning assets 84,499 (104,499) (20,000)
Total interest on interest-bearing liabilities 23,315 56,685 80,000
------------------- ------------------- -------------------
Net interest income $ (61,184) $ (161,184) $ ( 100,000)
=================== =================== ===================
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ITEM 2: (CONTINUED)
NONINTEREST INCOME
Noninterest income for the six months ended June 30, 2001 and 2000 were
$157,000 and $120,000, respectively. Noninterest income increased due to
higher service fees on deposit accounts.
NONINTEREST EXPENSES
Noninterest expenses for the six months ended June 30, 2001 and 2000 were
$543,000 and $505,000, respectively. Noninterest expenses increased as a
result of cost of living raises in salaries.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was 1.97% of loans, net of unearned income, as
of June 30, 2001 compared to 1.41% at June 30, 2000. The provision for loan
losses was $30,000 and $45,000 for the six months ended June 30, 2001 and
2000, respectively. Management reviews the adequacy of the allowance on an
ongoing basis and believes the allowance is adequate to cover possible losses
in the loan portfolio.
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2001
The Company's net income for the second quarter of 2001 was $74,000 or $.47
per share compared to $80,000 or $.51 per share for the second quarter of
2000.
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 $307,000
and $343,000 for the quarters ended June 30, 2001 and 2000, respectively. The
decrease in net interest income of $36,000 resulted from overall lower rates
on earning assets. The Bank also has a significant number of deposits that
will mature over the next three months, which will renew at lower rates and
improve net interest income in future quarters.
NONINTEREST INCOME
Noninterest income for the three months ended June 30, 2001 and 2000 were
$83,000 and $62,000, respectively. Noninterest income increased due to the
increase in interest-bearing liabilities.
NONINTEREST EXPENSES
Noninterest expenses for the three months ended June 30, 2001 and 2000 were
$275,000 and $253,000, respectively. Noninterest expenses increased
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.
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ITEM 2: (CONTINUED)
LOANS
Commercial, financial and agricultural loans made up 29.3% of the total loan
portfolio as of June 30, 2001, totaling $5,588,000. Loans secured by real
estate for construction and land development totaled $1028,000 or 5.4% of the
total loan portfolio while all other loans secured by real estate totaled
$8,751,000 or 46% of the total loan portfolio as of June 30, 2001.
Installment loans and other consumer loans to individuals comprised 19.3% of
the total loan portfolio totaling $3,676,000.
CAPITAL RESOURCES
The capital base for the Company increased by $37,000 for the first six
months of 2001. This net change includes an increase to equity for net income
of $136,000 and an increase in unrealized gains on investment securities of
$59,000, offset by cash dividends paid of $158,000. The Company's equity to
asset ratio was 12.02% on June 30, 2001, as compared to 12.6% on December 31,
2000.
The Federal Deposit Insurance Corporation has issued guidelines for
risk-based capital requirements. As of June 30, 2001, the Bank exceeded the
well-capitalized capital requirement levels that are to be maintained.
CAPITAL RATIOS
(AMOUNTS IN THOUSANDS)
ADEQUATELY
WELL CAPITALIZED CAPITALIZED
ACTUAL REQUIREMENT REQUIREMENT
---------------------------- ---------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------------- ------------- ------------- -------------- ------------ --------------
Total capital (to risk weighted assets) $ 3,976 20.3% $ 1,704 10.0% $ 1,363 8.0%
Tier 1 capital (to risk weighted assets) 3,602 18.4% 1,023 6.0% 682 4.0%
Tier 1 capital (to average assets) 3,602 12.3% 1,332 5.0% 1,065 4.0%
ASSET QUALITY
Nonperforming assets as a percentage of loans and foreclosed property totaled
.98% and 5.77% as of June 30, 2001 and December 31, 2000, respectively.
Nonperforming assets were $186,181 as of June 30, 2001 and $940,491 at
December 31, 2000. The nonperforming assets at December 31, 2000 included a
farm loan totaling $926,000 of which $740,000 was guaranteed and received
from 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 July 2001, the SEC issued Staff Accounting Bulletin (SAB) No. 102 -
Selected Loan Loss Allowance Methodology and Documentation Issues. This
staff accounting bulletin clearly defines the required development,
documentation, and application of a systematic methodology for determining
allowances for loan and lease losses in accordance with generally accepted
accounting principles. The Company believes that it is in compliance with
SAB 102. Additional accounting standards that have been issued or proposed
by the FASB that do not require adoption until a future date are not
expected to have a material impact on the consolidated financial statements
upon adoption.
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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
(a) The Company held its annual meeting of shareholders on April 24, 2001.
The following persons were elected as directors of the Company with the votes
shown:
Name For Withhold
----------------------------------- ----------------------- --------------
Raymond Galloway 92,044 (58%) 200 (.12%)
R.E. Goodson, Sr. 92,244 (58%) 0
Charles G. Howard 92,044 (58%) 200(.12%)
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DARLINGTON COUNTY BANCSHARES, INC.
----------------------------------
By: /s/ W. B. McCown, III Date: August 15, 2001
--------------------------------------- -----------------------
W. B. McCown, III, President and
Chief Executive Officer
By: /s/ Albert L. James, III Date: August 15, 2001
--------------------------------------- -----------------------
Albert L. James, III
Treasurer (Principal Financial Officer)
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