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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 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 November 1, 2001
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DARLINGTON COUNTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED) (AUDITED)
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------------- -------------------
ASSETS
Cash and due from banks $1,090
$1,180
Investment securities - held to maturity 718 720
Investment securities - available for sale 5,284 4,662
Other investments, at cost 50 50
Federal funds sold 4,014 4,420
Loans 18,778 16,331
Less allowance for loan losses (173) (252)
------------------- -------------------
Loans - net 18,605 16,079
Premises and equipment - net 1,091 875
Other assets 424 574
------------------- -------------------
Total assets $31,366 $28,470
=================== ===================
LIABILITIES
Deposits
Demand deposits $5,004 $4,788
Savings and NOW accounts 11,885 9,246
Time deposits $100,000 and over 1,577 1,722
Other time deposits 9,043 8,994
Total deposits 27,509 24,750
------------------- -------------------
Other liabilities 130 132
------------------- -------------------
Total liabilities 27,639 24,882
------------------- -------------------
STOCKHOLDERS' EQUITY
Common stock - $.01 par value authorized, issued and outstanding 158,000
shares at September 30, 2001 and
December 31, 2000 2 2
Additional paid in capital 1,618 1,618
Retained earnings 2,074 2,004
Accumulated other comprehensive loss 33 (36)
------------------- -------------------
Total stockholders' equity 3,727 3,588
------------------- -------------------
Total liabilities and stockholders' equity $31,366 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ----------------------------------
2001 2000 2001 2000
--------------- ---------------- --------------- ----------------
INTEREST INCOME
Loans, including fees $401 $401 $1,159 $1,185
Investment securities
U. S. Government Agencies 79 83 224 246
Municipal securities 7 9 23 28
Other equity securities 1 1 2 2
Federal funds sold and securities purchased
under agreements to resell 29 34 128 106
--------------- ---------------- --------------- ----------------
Total interest income 517 528 1,536 1,567
--------------- ---------------- --------------- ----------------
INTEREST EXPENSE
Time deposits $100,000 and over 18 26 61 78
Other deposits 174 163 553 453
--------------- ---------------- --------------- ----------------
Total interest expense 192 189 614 531
--------------- ---------------- --------------- ----------------
NET INTEREST INCOME 325 339 922 1,036
PROVISION FOR LOAN LOSSES 15 16 45 61
--------------- ---------------- --------------- ----------------
Net interest income after provision for
loan losses 310 323 877 975
--------------- ---------------- --------------- ----------------
NONINTEREST INCOME
Service charges on deposit accounts 78 64 225 173
Other service charges, commissions and fees 10 12 20 23
--------------- ---------------- --------------- ----------------
Total noninterest income 88 76 245 196
--------------- ---------------- --------------- ----------------
NONINTEREST EXPENSES
Salaries and employee benefits 130 129 415 378
Data processing 27 23 75 70
Occupancy 17 18 50 58
Furniture and equipment 15 18 42 50
Other 88 58 238 195
--------------- ---------------- --------------- ----------------
Total noninterest expenses 277 246 820 751
--------------- ---------------- --------------- ----------------
Income before income taxes 121 153 302 420
Provision for income taxes 28 51 73 123
--------------- ---------------- --------------- ----------------
Net income $ 93 $ 102 $ 229 $ 297
=============== ================ =============== ================
PER SHARE
Average shares outstanding 158,000 158,000 158,000 158,000
=============== ================ =============== ================
Net income $0.59 $ 0.65 $1.45 $ 1.88
=============== ================ =============== ================
Dividends paid $ - $ - $1.00 $ 0.80
=============== ================ =============== ================
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, 158,000 $ 2 $ 1,618 $ 1,787 $ (103) $ 3,304
Net income for period - - - 297 - 297
Comprehensive income, net of tax
Net change in unrealized gain
on securities available for
sale - - - - 24 24
------------------ --------------
Comprehensive income 321
Cash dividend ($.80 per share) - - (126) - (126)
Par value conversion - (788) 788 - - -
------------ ------------- ------------- ---------------- ------------------ --------------
BALANCE, SEPTEMBER 30, 2000
158,000 $ 2 $ 1,618 $ 1,958 $ (79) $ 3,499
============ ============= ============= ================ ================== ==============
BALANCE, JANUARY 1, 2001 158,000 $ 2 $ 1,618 $ 2,003 $ (35) $ 3,588
Net income for period - - - 229 - 229
Comprehensive income, net of tax
Net change in unrealized gain
on securities available for
sale - - - - 68 68
------------------ --------------
Comprehensive income 297
Cash dividend ($1.00 per share) - - - (158) - (158)
------------ ------------- ------------- ---------------- ------------------ --------------
BALANCE, SEPTEMBER 30, 2001
158,000 $ 2 $ 1,618 $ 2,074 $ 33 $3,727
============ ============= ============= ================ ================== ==============
See notes to consolidated financial statements.
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DARLINGTON COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
2001 2000
----------------- -----------------
OPERATING ACTIVITIES
Net income $229 $ 297
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses 45 61
Depreciation 38 55
(Increase) decrease in other assets 150 9
Increase (decrease) in other liabilities (2) (8)
----------------- -----------------
Net cash provided by operating activities 460 414
----------------- -----------------
INVESTING ACTIVITIES
(Increase) decrease in federal funds sold 406 (1,960)
Proceeds from maturities of investment securities
held to maturity - 302
Purchase of investment securities available for sale (631) 28
Net increase in loan balances (2,492) (534)
Purchase of equipment (254) (11)
----------------- -----------------
Net cash provided by (used for) investing activities (2,971) (2,175)
----------------- -----------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 2,759 1,576
Cash dividends paid (158) (126)
----------------- -----------------
Net cash used for financing activities 2,601 1,450
----------------- -----------------
Increase (decrease) in cash and cash equivalents 90 (311)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,090 1,409
----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,180 $ 1,098
================= =================
CASH PAID FOR
Interest $625 $ 510
================= =================
Income taxes $105 $ 89
================= =================
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". Darlington County
Bancshares, Inc. (the "Company") does not have any instruments which are
dilutive; therefore, only basic net income per share of common stock is
presented.
NOTE 3 - ORGANIZATION
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. 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.
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 nine months ending
September 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.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2000
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2001
The Company's net income for the nine months ended September 30, 2001 was
$229,000 or $1.45 per share as compared to $297,000 or $1.88 per share for
the nine months ended September 30, 2000. Net income decreased due to
tightening interest rate spreads because of an overall lower interest rate
environment compared to the comparable period in the prior year.
(Continued)
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ITEM 2: (CONTINUED)
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 $922,000
and $1,036,000 for the nine months ended September 30, 2001 and 2000,
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.
Interest-earning assets at September 30, 2001 increased by $1,978,000 or
7.35% since the same period in the prior year, while interest-bearing
liabilities increased by $1,999,000 or 11.15% comparing the same period of
2001 with 2000.
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------
2001 2000
------------------------------------------ ------------------------------------------
AVERAGE INCOME/ ANNUALIZED AVERAGE INCOME/ ANNUALIZED
BALANCE EXPENSE YIELD/RATE BALANCE EXPENSE YIELD/RATE
-------------- ------------- ------------- -------------- ------------ --------------
Federal funds sold $3,651,685 $ 128,000 4.67% $2,264,781 $ 106,000 6.24%
Investment securities 5,742,398 249,000 5.78% 6,001,589 276,000 6.13%
Loans 17,949,393 1,159,000 8.61% 16,718,848 1,185,000 9.45%
-------------- ------------- ------------- -------------- ------------ --------------
Total earning assets $ 27,343,476 1,536,000 7.49% $ 24,985,218 1,567,000 8.36%
============== ==============
Total interest bearing $ 26,080,599 614,000 3.14% $ 23,994,194 531,000 2.95%
liabilities
============== ------------- ------------- ============== ------------ --------------
Net interest spread 4.35% 5.41%
Net interest income/margin $922,000 4.50% $1,036,000 5.53%
============= ============= ============ ==============
As reflected above, for the nine months of 2001 the average yield on earning
assets amounts amounted to 7.49%,
while the average cost of interest-bearing liabilities was 3.14%. For the same
period of 2000, the average yield on earning assets was 8.36% and the average
cost of interest-bearing liabilities was 2.95%. The decrease in the in the yield
on earning assets is attributable to a decrease in overall rates by the Federal
reserve. During the first nine months of 2001, fed funds rate decreased 350
basis points. 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 year. 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 nine month period ended
September 30, 2001 was 4.50% and for the comparable period in 2000 was 5.53%.
This decrease was the result of the overall lower rate environment where
interest sensitive loans reprice more quickly than deposits.
The following table represents changes in the Company's net interest income
which primarily result from changes in volume and rates of its interest-earning
assets and interest-bearing liabilities. The decrease in net interest income is
due to increased volume of both earning assets and interest bearing liabilities
offset by a decrease in rates on earning assets and interest bearing
liabilities.
(Continued)
-7-
ITEM 2: (CONTINUED)
NET INTEREST INCOME, CONTINUED
ANALYSIS OF CHANGES IN NET INTEREST INCOME
FOR THE NINE MONTHS ENDED
9/30/01 VERSUS 9/30/00
-------------------------------------------------------------
VOLUME RATE NET CHANGE
------------------- ------------------- -------------------
Federal fund sold $ 65,000 $ (43,000) $ 22,000
Investment securities (12,000) (15,000) (27,000)
Loans 87,000 (113,000) (26,000)
------------------- ------------------- -------------------
Total earning assets 140,000 (171,000) (31,000)
Total interest on interest-bearing liabilities (46,000) (37,000) (83,000)
------------------- ------------------- -------------------
Net interest income $ (94,000) $ (208,000) $ (114,000)
=================== =================== ===================
NONINTEREST INCOME
Noninterest income for the nine months ended September 30, 2001 and 2000 were
$245,000 and $196,000, respectively. Noninterest income is comprised of fees
and charges on deposits. Service charges on deposits increased over the prior
year.
NONINTEREST EXPENSES
Noninterest expenses for the nine months ended September 30, 2001 and 2000
were $820,000 and $751,000, respectively. Noninterest expenses increased due
to cost of living and merit increases in salaries. Other cpmponents were
consistent with prior year due to the results of operations remaining
relatively stable.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was .92% of loans, net of unearned income, at
September 30, 2001 compared to 1.46% at September 30, 2000. This decrease is
due to charge-offs of $235,210 which is primarily related to one borrower,
which will be partially offset by an anticipated recovery that had not been
received at the close of the quarter. The provision for loan losses was
$45,000 and $61,000 for the nine months ended September 30, 2001 and 2000,
respectively. Management reviews the adequacy of the allowance on an ongoing
basis and believes the allowance is adequate to fund potential losses in the
portfolio at September 30, 2001.
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2000
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2001
The Company's net income for the third quarter of 2001 was $93,000 or $0.59
per share compared to $102,000 or $.62 per share for the third 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 $325,000
and $339,000 for the quarters ended September 30, 2001 and 2000,
respectively.
-8-
ITEM 2: (CONTINUED)
NONINTEREST INCOME
Noninterest income increased due to higher service charges collected on
deposits. During the three months ended September 30, 2001 and 2000 amounts
were $88,000 and $76,000, respectively.
NONINTEREST EXPENSES
Noninterest expenses for the three months ended September 30, 2001 and 2000
were $277,000 and $246,000, respectively. Noninterest expenses increased
slightly compared to prior period amounts.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $15,000 and $16,000 for the three months
ended September 30, 2001 and 2000, respectively. The 2000 provision was
consistent with the third quarter of the prior year as the allowance was
funded for the growth in the loan portfolio.
FINANCIAL CONDITION
The Company's primary source of funds for loans and investments is deposits.
Deposits were $27,509,000, an increase of $1,999,000 from September 30, 2000.
This increase was used primarily to fund an increase in loans. The loan
portfolio increased $1,772,000.
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.
LOANS
Commercial, financial and agricultural loans made up 32.3% of the total loan
portfolio as of September 30, 2001, totaling $6,052,000. Loans secured by
real estate for construction and land development totaled $1,029,000 or 5.5%
of the total loan portfolio while all other loans secured by real estate
totaled $7,329,000 or 39.0% of the total loan portfolio as of September 30,
2000. Installment loans and other consumer loans to individuals totaling
$4,360,000 comprised 23.2% of the total loan portfolio.
CAPITAL RESOURCES
Stockholders' Equity for the Company increased by $139,000 for the nine
months of 2001. This net change includes an increase to equity for net income
of $229,000 offset by an increase in unrealized gains on investment
securities of $68,000 and cash dividends paid of $158,000. The Company's
equity to asset ratio was 11.90% on September 30, 2001, as compared to 12.00%
on September 30, 2000.
The Federal Deposit Insurance Corporation has issued guidelines for
risk-based capital requirements. As of September 30, 2001, the Bank's capital
ratios were as follows:
CAPITAL RATIOS
(AMOUNTS IN THOUSANDS)
ADEQUATELY
WELL CAPITALIZED CAPITALIZED
ACTUAL REQUIREMENT REQUIREMENT
---------------------------- ---------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------------- ------------- ------------- -------------- ------------ --------------
Total capital (to risk weighted assets $ 3,867 19.0% $ 2,040 10.0% $ 1,632 8.0%
Tier 1 capital (to risk weighted assets 3,694 18.1% 1,224 6.0% 816 4.0%
Tier 1 capital (to average assets) 3,694 11.8% 1,556 5.0% 1,253 4.0%
-9-
ITEM 2: (CONTINUED)
ASSET QUALITY
Nonperforming assets as a percentage of loans and foreclosed property totaled
.22% and 5.77% as of September 30, 2001 and December 31, 2000, respectively.
Nonperforming assets were $43,000 as of September 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. Charge-offs during the nine months ended September
30, 2001 and 2000 were $235,210 and $15,437, respectively.
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.
Other accounting standards that have been issued or proposed by the Financial
Accounting Standards Board that do not require adoption until a future date
are not expected to have a material impact on the consolidated financial
statements upon adoption.
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
-10-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to security holders for a vote during the three
months ended September 30, 2000.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
None
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 Company
By: /s/ Albert L. James, III Date:
--------------------------------------- -----------------------
Albert L. James, III
Secretary and Treasurer
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