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 MARCH 31, 2002
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 April 30, 2002
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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DARLINGTON COUNTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED) (AUDITED)
MARCH 31, DECEMBER 31,
2002 2001
------------------ ------------------
ASSETS
Cash and due from banks $ 1,164 $ 315
Federal funds sold 2,241 3,513
Investment securities - held to maturity 717 718
Investment securities - available for sale 8,004 7,638
Other investments, at cost 50 50
Loans 17,868 17,613
Less allowance for loan losses (173) (188)
------------------ ------------------
Loans - net 17,695 17,425
Premises and equipment - net 1,046 1,063
Other assets 413 451
------------------ ------------------
Total assets $ 31,330 $ 31,173
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand $ 4,848 $ 4,910
Savings and NOW 14,161 12,744
Other time deposits 8,671 9,705
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Total deposits 27,680 27,359
Other liabilities 67 120
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Total liabilities 27,747 27,479
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STOCKHOLDERS' EQUITY
Common stock - $.01 par value, 1,000,000 shares authorized, 158,000 shares
issued and outstanding at
March 31, 2002 and December 31, 2001 2 2
Capital in excess of par value of stock 1,618 1,618
Retained earnings 2,000 2,096
Accumulated other comprehensive loss (37) (22)
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Total stockholders' equity 3,583 3,694
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Total liabilities and stockholders' equity $ 31,330 $ 31,173
================== ==================
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 MARCH 31,
--------------------------------------
2002 2001
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INTEREST INCOME
Loans, including fees $ 338 $ 363
Investment securities
U. S. Government Agencies 102 72
Municipal securities 8 8
Other equity securities - 1
Federal funds sold 10 61
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------------------ -----------------
Total interest income 458 505
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INTEREST EXPENSE
Deposits 134 215
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Net interest income 324 290
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PROVISION FOR LOAN LOSSES 16 15
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Net interest income after provision for loan losses 308 275
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NONINTEREST INCOME
Service charges on deposit accounts 82 69
Other service charges, commissions and fees 3 5
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Total noninterest income 85 74
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NONINTEREST EXPENSES
Salaries and employee benefits 161 139
Data processing 32 24
Occupancy 18 17
Furniture and equipment 21 14
Other 69 74
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Total noninterest expenses 301 268
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Income before income taxes 92 81
PROVISION FOR INCOME TAXES 30 19
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Net income $ 62 $ 62
================== =================
PER SHARE
Average shares outstanding 158,000 158,000
================== =================
Net income $ 0.39 $ 0.39
================== =================
Dividends paid $ 1.00 $ 1.00
================== =================
See notes to consolidated financial statements.
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DARLINGTON COUNTY BANCSHARES, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CAPITAL IN ACCUMULATED
COMMON STOCK EXCESS OF OTHER
----------------------- PAR VALUE RETAINED COMPREHENSIVE
SHARES AMOUNT OF STOCK EARNINGS INCOME (LOSS) TOTAL
----------- ---------- ----------- ---------- -------------- --------
BALANCE, JANUARY 1, 2001 158,000 $ 2 $ 1,618 $ 2,004 $ (36) 3,588
--------
Net income for period - - - 62 - 62
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale - - - - 55 55
--------
Comprehensive income 117
Cash dividend ($1.00 per share) - - - (158) - (158)
---------- ------- ----------- ------------ ------------ --------
BALANCE, MARCH 31, 2001 158,000 $ 2 $ 1,618 $ 1,908 $ 19 $ 3,547
========== ======= =========== =========== ============ ========
BALANCE, JANUARY 1, 2002 158,000 $ 2 $ 1,618 $ 2,096 $ (22) $ 3,694
--------
Net income for period - - - 62 - 62
Other comprehensive income, net of tax:
Unrealized losses on securities
available for sale - - - - (15) (15)
--------
Comprehensive income 47
Cash dividend ($1.00 per share) - - - (158) - (158)
---------- ------- ----------- ----------- ------------ --------
BALANCE, MARCH 31, 2002 158,000 $ 2 $ 1,618 $ 2,000 $ (37) $ 3,583
========== ======= =========== =========== ============ ========
See notes to consolidated financial statements.
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DARLINGTON COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------------------------
2002 2001
--------------------- ---------------------
OPERATING ACTIVITIES
Net income $ 62 $ 62
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for loan losses 16 (2)
Depreciation 18 12
(Increase) decrease in other assets 38 (18)
Decrease in other liabilities (53) (14)
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Net cash provided by operating activities 81 40
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INVESTING ACTIVITIES
(Increase) decrease in federal funds sold 1,272 (280)
Proceeds from maturities of investment securities
available for sale 620 44
Purchase of investment securities available for sale (1,000) -
Net increase in loans (286) (434)
Purchase of equipment (1) (136)
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Net cash provided by (used for) investing activities 605 (806)
--------------------- ---------------------
FINANCING ACTIVITIES
Net increase in deposits 321 1,010
Cash dividends paid (158) (158)
--------------------- ---------------------
Net cash provided by financing activities 163 852
--------------------- ---------------------
Increase in cash and cash equivalents 849 86
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 315 1,090
--------------------- ---------------------
CASH AND DUE FROM BANKS, END OF PERIOD $ 1,164 $ 1,176
===================== =====================
SUPPLEMENTAL DISCLOSURES
CASH PAID FOR:
Interest $ 154,900 $ 212,235
===================== =====================
Income taxes $ - $ 9,148
===================== =====================
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.
ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
From time to time, Darlington County Bancshares, Inc. (the "Company") may
publish forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performances, development and results of the Company's business
include, but are not limited to, the following: risks from changes in economic
and industry conditions; changes in interest rates; risks inherent in making
loans including repayment risks and value of collateral; dependence on senior
management; and recently-enacted or proposed legislation. Statements contained
in this filing regarding the demand for the Company's products and services,
changing economic conditions, interest rates, consumer spending and numerous
other factors may be forward-looking statements and are subject to uncertainties
and risks. When relying on forward-looking statements to make decisions with
respect to the Company, investors and other are cautioned to consider these and
other risks and uncertainties.
RESULTS OF OPERATIONS
The Company's net income for the first quarter of 2002 and 2001 was $62,000
or $.39 per share.
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 $324,000
and $290,000 for the three months ended March 31, 2002 and 2001,
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.
(Continued)
-6-
ITEM 2: (CONTINUED)
Interest-earning assets for the first quarter of 2002 increased by $1,972,000
or 7.3% over the same period in 2001, while interest-bearing liabilities for
the first quarter of 2002 increased by $1,920,000 or 7.5% over the same
period in 2001.
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------------------------
2002 2001
------------------------------------------ ----------------------------------------
AVERAGE INCOME/ ANNUALIZED AVERAGE INCOME/ ANNUALIZED
BALANCE EXPENSE YIELD/RATE BALANCE EXPENSE YIELD/RATE
-------------- ------------- ------------- -------------- ----------- -------------
Federal funds sold $ 2,374,667 $ 10,000 1.68% $ 4,298,911 $ 61,000 5.68%
Investment securities 9,187,311 110,000 4.79% 5,431,275 81,000 5.97%
Loans 17,498,913 338,000 7.73% 16,601,175 363,000 8.75%
------------- ----------- -------------- ----------
Total earning assets $ 29,060,891 458,000 6.30% $ 26,331,361 505,000 7.67%
============ ============
Total interest bearing liabilities $ 27,860,509 135,000 1.94% $ 24,962,517 215,000 3.45%
============ ----------- ---------- ============ ------- ------
Net interest spread 4.36% 4.22%
Net interest income/margin $ 323,000 4.45% $290,000 4.41%
=========== =========== =========== ======
As reflected above, for the first three months of 2002 the average yield on
earning assets amounts amounted to 6.30%, while the average cost of
interest-bearing liabilities was 1.94%. For the same period of 2001, the average
yield on earning assets was 7.67% and the average cost of interest-bearing
liabilities was 3.45%. The decrease in the yield on earning assets is
attributable to a decrease in the yield on Federal Funds sold, and a decrease in
overall interest rates on investments and loans. 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 March 31, 2002 was 4.45% and for 2001 was 4.41%. This slight
increase was the result of a greater decrease in the rate on interest-bearing
deposits than the interest rates on 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 increase in net
interest income is due to increased volume of earning assets and
interest-bearing liabilities and a decrease in rates on earning assets with a
slightly larger decrease in rates on interest bearing liabilities.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
FOR THE THREE MONTHS ENDED
MARCH 31, 2002 VERSUS 2001
-------------------------------------------------------------
VOLUME RATE NET CHANGE
------------------- ------------------- -------------------
Federal fund sold $ (27,304) $ (23,696) $ (51,000)
Investment securities 56,016 (27,016) 29,000
Loans 15,806 (40,806) (25,000)
------------------- ------------------- -------------------
Total earning assets 44,518 (91,518) (47,000)
Total interest on interest-bearing liabilities 24,960 (104,960) (80,000)
------------------- ------------------- -------------------
Net interest income $ 19,558 $ 13,442 $ 33,000
=================== =================== ===================
(Continued)
-7-
ITEM 2: (CONTINUED)
NONINTEREST INCOME
Noninterest income was $85,000 and $74,000 for the three months ended March
31, 2002 and 2001, respectively. Noninterest income increased due to fees
charged on an increased number of deposits.
NONINTEREST EXPENSES
Noninterest expenses for the three months ended March 31, 2002 and 2001 were
$301,000 and $268,000, respectively. Noninterest expenses increased due to
cost of living pay increases to employees and an increase in health
insurance.
The allowance for loan losses was .97% of loans, net of unearned income, as
of March 31, 2002 compared to 1.07% as of December 31, 2001. The provision
for loan losses was $16,000 and $15,000 for the three months ended March 31,
2002 and 2001, respectively. Management reviews the adequacy of the allowance
on an ongoing basis and believes it 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.
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 25.1% of the total loan
portfolio as of March 31, 2002, totaling $4,479,000. Loans secured by real
estate for construction and land development totaled $454,000 or 2.5% of the
total loan portfolio while all other loans secured by real estate totaled
$8,204,000 or 45.9% of the total loan portfolio as of March 31, 2002.
Installment loans and other consumer loans to individuals comprised 26.5% of
the total loan portfolio totaling $4,731,000.
CAPITAL RESOURCES
The capital base for the Company decreased by $111,000 for the first three
months of 2002. This net change includes an increase to equity for net income
of $62,000 offset by unrealized losses on investment securities of $15,000
and cash dividends of $158,000. The Company's equity to asset ratio was 11.4%
on March 31, 2002, as compared to 11.8% on December 31, 2001.
The Federal Deposit Insurance Corporation has issued guidelines for
risk-based capital requirements. As of March 31, 2002, the Bank exceeds the
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) $ 3,720 18.4% $ 2,019 10.0% $ 1,615 8.0%
Tier 1 capital (to risk weighted assets) 3,547 17.6% 1,211 6.0% 808 4.0%
Tier 1 capital (to average assets) 3,547 11.5% 1,537 5.0% 1,230 4.0%
(Continued)
-8-
ASSET QUALITY
Nonperforming assets as a percentage of loans and foreclosed property totaled
.02% and .09% as of March 31, 2002 and December 31, 2001, respectively.
Nonperforming assets were $4,000 as of March 31, 2002 and $15,900 at December
31, 2001.
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
Accounting pronouncements recently issued or proposed by the Financial
Accounting Standards Board are not expected to have a material effect on the
financial position of the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
There are no material pending legal proceedings to which the Company or its
subsidiary is a party or 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
- ------------------------------------------------------------
There were no matters submitted to security holders for a vote during the three
months ended March 31, 2002.
ITEM 5. OTHER INFORMATION
- --------------------------
None
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
- ---------------------------------------
-9-
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: 3/14/02
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W. B. McCown, III, President and
Chief Executive Officer
By: /a/ Albert L. James, III Date: 3/14/02
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Albert L. James, III Secretary and
Treasurer (Principal Financial Officer)
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