<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 30, 1993
BB&T FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 0-7871 56-1056232
- ---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (I.R.S. employer
of incorporation) file number) identification no.)
223 West Nash Street, Wilson, North Carolina 27893
- -------------------------------------------- ---------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (919)399-4291
-------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits
(c) Exhibits
28.1 Unaudited interim financial statements of Old Stone Bank of North
Carolina.
28.2 Unaudited interim financial statements of Citizens Savings Bank,
SSB and subsidiary.
28.3 Unaudited interim financial statements of Asheville Savings Bank,
SSB, and Subsidiary.
28.4 Audited financial statements of Home Savings Bank of Albemarle,
S.S.B. and subsidiary.
28.5 Audited financial statements of L.S.B. Bancshares, Inc. of South
Carolina and subsidiaries.
28.6 Unaudited interim financial statements of L.S.B. Bancshares, Inc. of
South Carolina and subsidiaries.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BB&T FINANCIAL CORPORATION
DATE: December 30, 1993 BY: Scott E. Reed
----------------- -------------
<PAGE>
Exhibit 28.1
OLD STONE BANK OF NORTH CAROLINA
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
September 30, December 31,
Assets 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks - noninterest bearing $ 9,496,106 12,755,877
Interest bearing deposits in other banks 29,286,117 5,327,830
Investment securities 71,087,097 64,821,513
Mortgage-backed securities 43,109,072 54,195,034
Loans, net of allowance for loan losses 377,965,592 395,737,548
Loans held for sale 4,344,286 24,677,173
Accrued interest receivable 3,162,537 3,705,247
Real estate acquired in settlement of loans 817,236 1,162,392
Stock in the Federal Home Loan Bank, at cost 4,556,000 4,365,800
Premises and equipment, net 2,482,103 2,786,193
Other assets 2,416,184 2,180,826
- --------------------------------------------------------------------------------------------------------------------
Total assets $548,722,330 571,715,433
====================================================================================================================
Liabilities and stockholder's equity
- --------------------------------------------------------------------------------------------------------------------
Deposit accounts $483,236,498 495,537,389
Advances from the Federal Home Loan Bank 20,000,000 32,000,000
Advance payments by borrowers for property taxes and insurance 1,691,637 1,204,660
Accrued interest payable 122,318 152,439
Current income taxes payable 0 1,153,731
Other liabilities 5,735,033 4,706,054
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 510,785,486 534,754,273
- --------------------------------------------------------------------------------------------------------------------
Stockholder's equity
Common stock, $1 par value, 100 shares authorized, issued and outstanding 100 100
Additional paid-in capital 34,999,900 34,999,900
Retained earnings 2,936,844 1,961,160
- --------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 37,936,844 36,961,160
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $548,722,330 571,715,433
====================================================================================================================
</TABLE>
<PAGE>
OLD STONE BANK OF NORTH CAROLINA
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Nine Months Ended September 30,
1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Interest-bearing deposits $ 447,884 719,109
Investment securities 2,395,529 1,203,983
Mortgage-backed securities 2,557,528 3,247,686
Mortgage loans 15,380,605 17,197,625
Consumer loans 9,025,703 13,246,948
Other 271,036 322,257
- -------------------------------------------------------------------------------
Total interest income 30,078,285 35,937,608
- -------------------------------------------------------------------------------
Interest expense:
Deposit accounts 14,483,209 18,526,155
Borrowings 1,009,044 1,911,140
- -------------------------------------------------------------------------------
Total interest expense 15,492,253 20,437,295
- -------------------------------------------------------------------------------
Net interest income 14,586,032 15,500,313
Provision for loan losses 1,245,601 2,047,000
- -------------------------------------------------------------------------------
Net interest income after provision for
loan losses 13,340,431 13,453,313
- -------------------------------------------------------------------------------
Other income (expense):
Loan servicing and other loan fees 969,471 929,866
Deposit and other service charge income 548,539 555,167
Gain on sales of loans, net 264,421 266,473
Gain on sales of foreclosed real estate, net 98,581 18,923
Gain on sale of mortgage-backed securities 0 80,182
Provision for loss on foreclosed real estate (308,960) (270,587)
Expense from foreclosed real estate operations,
net (106,309) (18,910)
Other income 653,587 762,032
- -------------------------------------------------------------------------------
Total other income, net 2,119,330 2,323,146
- -------------------------------------------------------------------------------
General and administrative expenses:
Compensation, payroll taxes and fringe benefits 4,085,331 4,035,009
Occupancy 851,511 922,668
Advertising 235,917 293,749
Telephone, postage, and supplies 496,969 545,379
Federal and other insurance premiums 998,092 990,447
Data processing fees 397,232 437,194
Other expenses 2,090,310 1,195,530
- -------------------------------------------------------------------------------
Total general and administrative expenses 9,155,362 8,419,976
- -------------------------------------------------------------------------------
Income before income taxes 6,304,399 7,356,483
Income taxes 2,328,715 2,845,652
- -------------------------------------------------------------------------------
Net Income before cumulative effect or change
in accounting principle 3,975,684 4,510,831
Cumulative effect of change in accounting
principle-adoption of SFAS Number 109 0 790,000
- -------------------------------------------------------------------------------
Net income 3,975,684 5,300,831
===============================================================================
</TABLE>
<PAGE>
OLD STONE BANK OF NORTH CAROLINA
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Nine Months Ended
September 30, 1993 September 30, 1992
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $3,975,684 5,300,831
Adjustments to reconcile net income to
net cash provided by operating
activities:
Amortization of:
Deferred loan origination fees (822,463) (428,645)
Premiums and discounts, net 346,932 (492,459)
Provision for loan losses 1,245,601 2,047,000
Provision for loss on foreclosed real
estate 308,960 270,587
Deferred income tax benefit - (804,451)
Net gain (loss) on sales of assets (329,203) (388,776)
Depreciation of premises and equipment 294,977 257,551
Net loan origination fees deferred 445,900 944,213
Stock dividends on FHLB stock (190,200) (264,300)
Proceeds from loan sales 57,419,980 115,039,754
(Increase)decrease in other assets 307,290 (4,707)
(Decrease) in other liabilities (122,247) (442,450)
- --------------------------------------------------------------------------------
Total adjustments 58,905,527 115,733,317
- --------------------------------------------------------------------------------
Net cash provided by operating activities 62,881,211 121,034,148
- --------------------------------------------------------------------------------
Cash flows from investing avtivities:
Net increase in loans from originations
and repayments (21,117,839) (42,215,868)
Principal payments on mortgage-backed
secruities 10,858,467 10,039,417
Proceeds from maturities of Investment
securities 38,000,000 8,300,000
Proceeds from sales of real estate 1,321,743 2,063,917
Purchases of premises and equipment (30,257) (565,646)
Proceeds from disposal of premises and
equipment 5,571 105,586
Proceeds from sale of Mortgage-backed
securities - 5,147,688
Purchases of investment and Mortgage-
backed securities (44,569,466) (86,078,814)
- --------------------------------------------------------------------------------
Net cash used by Investing activities ($15,531,781) (103,203,720)
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
OLD STONE BANK OF NORTH CAROLINA
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30, 1993 September 30, 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits ($12,137,891) $12,300,841
Net decrease in FHLB advances (12,000,000) (50,287,000)
Net increase in advance payments by borrowers
for property taxes and insurance 486,977 514,531
Dividends paid (3,000,000) (3,000,000)
- -----------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (26,650,914) (40,471,628)
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 20,698,516 (22,641,200)
Cash and cash equivalents at beginning of period 18,083,707 35,483,247
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $38,782,223 $12,842,047
=================================================================================================================
</TABLE>
<PAGE>
Exhibit 28.2
CITIZENS SAVINGS BANK, SSB, INC.
AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, September 30,
1993 1992
------------- -------------
(Unaudited) (Note)
<S> <C> <C>
ASSESTS
Cash:
Interest-Bearing $ 12,563,940 $ 10,088,763
Noninterest-Bearing 3,983,767 2,954,696
Certificates of Deposit 4,267,000 5,852,000
Investment Securities 20,522,247 15,957,211
Mortgage-Backed Securities 3,308,055 10,708,041
Loans Held For Sale 8,580,255 19,616,340
Loans Receivable, Net 198,951,138 200,277,506
Office Properties And Equipment, Net 4,713,765 5,193,243
Real Estate Owned, Net 810,631 826,175
Accrued Interest On Cash And Investment Securities 264,788 160,215
Accrued Interest On Mortgage-Backed Securities
And Loans Receivable 1,248,890 1,476,561
Cost In Excess Of Fair Value Of Net Assets
Acquired, Net 1,662,760 1,962,760
Prepaid And Other Assets 1,002,265 753,594
------------- -------------
$ 261,879,501 $ 275,827,105
============= =============
LIABILTIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings Deposits $ 223,547,424 $ 235,258,900
Advance Payments By Borrowers For Taxes
And Insurance 514,522 1,437,074
Accounts Payable And Other Liabilities 750,616 760,703
Income Taxes Payable 69,048 201,123
Advances From The Federal Home Loan Bank 15,000,000 18,000,000
------------- -------------
$ 239,881,610 $ 255,657,800
============= =============
Stockholders' Equity:
Preferred Stock $ - $ -
Common Stock 1,245,043 1,212,413
Additional Paid-In Capital 5,335,694 5,038,717
Retained Earnings, Substantially Restricted 15,417,154 13,918,175
------------- -------------
Total Stockholders' Equity $ 21,997,891 $ 20,169,305
------------- -------------
$ 261,879,501 $ 275,827,105
============= =============
</TABLE>
Note: The Consolidated Condensed Statement of Financial
Condition at September 30, 1992 has been
taken from the audited financial statements at that date.
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
CITIZENS SAVINGS BANK, SSB, INC.
AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
SEPTMEBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1993 1992 1993 1992
---------------------------- ----------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans $ 4,807,879 $ 5,250,687 $ 19,818,657 $ 22,012,231
Mortgage-backed securities 64,519 181,528 448,948 700,857
Investment securities 272,208 237,658 1,013,673 1,023,044
Other short-term investments
and interest-bearing deposits 136,094 165,623 570,882 738,368
------------ ----------- ------------ ------------
$ 5,280,700 $ 5,835,496 $ 21,852,160 $ 24,474,500
------------ ------------ ------------ ------------
Interest expense:
Savings deposits $ 2,072,869 $ 2,774,823 $ 8,992,603 $ 12,767,867
Advances from Federal Home Loan Bank 253,359 311,763 1,169,137 985,253
------------ ------------ ------------ ------------
$ 2,326,228 $ 3,086,586 $ 10,161,740 $ 13,753,120
------------ ------------ ------------ ------------
Net interest income $ 2,954,472 $ 2,748,910 $ 11,690,420 $ 10,721,380
Provison for loan losses 352,500 35,242 708,730 190,492
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses $ 2,601,972 $ 2,713,668 $ 10,981,690 $ 10,530,888
------------ ------------ ------------ ------------
Other income:
Service charges on loans $ 58,529 $ 53,294 230,703 188,166
Gains on sale of interest-earning
assests, net 36,971 0 400,262 529,598
Other 319,623 345,782 1,252,168 1,335,473
------------ ------------ ------------ ------------
$ 415,123 $ 399,076 $ 1,883,133 $ 2,053,237
------------ ------------ ------------ ------------
Other expenses:
Compensation and employee benefits $ 918,235 $ 986,195 $ 3,225,404 $ 3,360,461
Net occupancy 166,432 137,795 838,683 828,602
Federal insurance premiums 129,674 134,218 484,848 542,687
Computer service 83,259 81,950 348,865 347,108
Amortization of cost in excess of
fair value of net assets acquired 75,000 75,000 300,000 300,000
Real estate owned expense
(income), net 12,626 18,993 51,468 23,772
Other 250,007 299,655 1,241,563 1,248,716
------------ ------------ ------------ ------------
$ 1,635,233 $ 1,733,806 $ 6,490,831 $ 6,651,346
------------ ------------ ------------ ------------
Income before income taxes $ 1,381,862 $ 1,378,938 $ 6,373,992 $ 5,932,779
Income taxes 649,441 530,507 2,670,052 2,287,433
------------ ------------ ------------ ------------
Net income $ 732,421 $ 848,431 $ 3,703,940 $ 3,645,346
============ ============ ============ ============
Average number of common
shares outstanding 1,229,043 1,212,413 1,219,384 1,210,406
============ ============ ============ ============
Net income per share of common stock $0.60 $0.70 $3.04 $3.01
============ ============ ============ ============
Dividends declared per share $0.50 $0.00 $1.80 $0.55
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
CITIZENS SAVINGS BANK, SSB, INC.
AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------------ ----------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Year Ended September 30, 1993
- ------------------------------
Balance at September 30, 1992 $ 1,212,413 $ 5,038,717 $ 13,918,175 $ 20,169,305
Issuance of 1,880 shares under
option at $6.43 per share 1,880 10,202 - 12,082
Issuance of 12,400 shares under
option at $9.50 per share 12,400 105,400 - 117,800
Issuance of 4,250 shares under
option at $10.50 per share 4,250 40,375 - 44,625
Issuance of 14,100 shares under
option at $11.00 per share 14,100 141,000 - 155,100
Cash dividends ($1.80 per share) - - (2,204,961) (2,204,961)
Net income - - 3,703,940 3,703,940
------------ ----------- ------------ ------------
Balance at September 30, 1993 $ 1,245,043 $ 5,335,694 $ 15,417,154 $ 21,997,891
============ =========== ============ ============
Year Ended September 30, 1992
- ------------------------------
Balance at September 30, 1991 $ 1,207,552 $ 5,022,661 $ 10,938,441 $ 17,168,654
Issuance of 2,541 shares under
option at $2.36 per share 2,541 3,459 - 6,000
Issuance of 2,320 shares under
option at $6.43 per share 2,320 12,597 - 14,917
Cash dividends ($.55 per share) - - (665,612) (665,612)
Net income - - 3,645,346 3,645,346
------------ ----------- ------------ ------------
Balance at September 30, 1992 $ 1,212,413 $ 5,038,717 $ 13,918,175 $ 20,169,305
============ =========== ============ ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE>
CITIZENS SAVINGS BANK, SSB, INC.
AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1993 1992
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,703,940 $ 3,645,346
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 708,730 190,492
Provision for loss on real estate owned 39,000 75,000
Amortization (accretion) of premiums (discounts)
on mortgage-backed securities 99,829 30,656
Amortization (accretion) of premiums (discounts)
on investment securities 62,795 (25,806)
Accretion of discount on loans (2,857) (4,590)
Gain on sale of loans (363,291) (287,972)
Net gain on sale of mortgage-backed securities (36,971) (241,626)
FHLB stock dividend (130,300) (145,600)
Gain on sale of real estate owned (21,497) (96,863)
Provision for depreciation 538,390 502,756
Amortization of deferred loan fees (838,145) (578,101)
Amortization of goodwill 300,000 300,000
(Gain) loss on sale of office properties
and equipment (10,033) -
Changes in operation assets and liabilities:
Decrease in interest receivable 123,098 211,681
Decrease in interest payable (106,486) (298,777)
(Increase) in prepaid and other assets (245,668) (188,490)
Increase (decrease) in accounts payable (142,162) 13,099
------------ ------------
Net cash provided by operating activities $ 3,678,372 $ 3,101,205
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in certificates of deposits $ 1,585,000 $ 3,653,338
Proceeds from maturities of investment securities 5,900,000 5,520,000
Purchases of investment securities (10,397,531) (6,969,396)
Purchases of mortgage-backed securities - (11,234,996)
Proceeds from sale of mortgage-backed securities 2,923,437 10,778,525
Proceeds from sale of loans 11,240,252 9,265,776
Originations and principal payments on loans
receivable, net 1,492,476 (11,203,052)
Principal collected on mortgage-backed securities 4,413,691 1,531,963
Proceeds from sale of real estate owned 248,142 370,321
(Investment) reduction in foreclosed real estate (127,816) 17,407
Proceeds from sale of office properties and equipment 80,000 -
Purchase of office properties and equipment (128,879) (309,662)
------------ ------------
Net cash provided by investing activities $ 17,228,772 $ 1,420,224
------------ ------------
</TABLE>
<PAGE>
CITIZENS SAVINGS BANK, SSB, INC.
AND SUBSIDARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
-----------------------------
1993 1992
------------- ------------
(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits $ (11,604,990) $ (9,758,500)
(Increase) decrease in advance payments by
borrowers for taxes and insurance (922,552) 55,723
Proceeds from FHLB advances - 14,000,000
Payments of FHLB advances (3,000,000) (6,500,000)
Cash dividends (2,204,961) (665,612)
Options exercised 329,607 20,917
------------- ------------
Net cash used in financing activities $ (17,402,896) $ (2,847,472)
------------- ------------
Net increase (decrease) in cash and
cash equivalents $ 3,504,248 $ 1,673,957
Cash and cash equivalents:
Beginning 13,043,459 11,369,502
------------- ------------
Ending $ 16,547,707 $ 13,043,459
============= ============
SUPPLEMENTAL SCHEDULE OF CASH AND CASH EQUIVALENTS
Cash:
Interest-bearing deposits $ 12,563,940 $ 10,088,763
Noninterest bearing 3,983,767 2,954,696
------------- ------------
Cash and cash equivalents, ending $ 16,547,707 $ 13,043,459
============= ============
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest $ 10,161,897 $ 14,051,897
============= ============
Income taxes, net $ 2,802,127 $ 2,460,065
============= ============
Transfers from loans receivable to real estate
acquired in settlement of loans $ 156,288 $ 318,560
============= ============
Loans originated to finance the sale of real
estate acquired in settlement of loans $ 31,000 $ 105,000
============= ============
See Notes to Consolidated Condensed Financial Statements
<PAGE>
CITIZENS SAVINGS BANK, SSB, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (all which were
normal recurring accruals) necessary for a fair presentation.
2. Advances From Federal Home Loan Bank
Advances from the Federal Home Loan Bank consist of the following:
<TABLE>
<CAPTION>
Maturity
Year Ending
September 30, Interest September 30, 1993 September 30, 1992
------------- -------- ------------------ ------------------
<S> <C> <C> <C>
1993 8.40%-8.75% $ - $ 1,000,000
1994 5.30%-8.30% 4,000,000 6,000,000
1995 6.05%-7.68% 2,500,000 2,500,000
1996 6.50%-8.00% 3,000,000 3,000,000
1997 6.85%-7.04% 2,500,000 2,500,000
Thereafer 7.33% 3,000,000 3,000,000
------------- ------------
$ 15,000,000 $ 18,000,000
============= ============
</TABLE>
Citizens Savings has pledged, in addition to all of its stock in the Federal
Home Loan Bank, real estate loans of approximately $23,120,000 as collateral
for such borrowings.
3. Capital Requirements
On August 9, 1989, the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") was signed into law. This legislation,
among other things, strengthened the deposit insurance for savings
institutions' customers by creating a new fund called the Savings
Association Insurance Fund ("SAIF"). SAIF is backed by the full faith and
credit of the U.S. Government and administered by the Federal Deposit
Insurance Corporation ("FDIC"), FIRREA significantly restructured the
regulation of thrift institutions, increased the capital requirements
applicable to thrift institutions and contained other revisions that may
materially impact the future operations of thrift institutions.
Prior to its conversion to a North Carolina-chartered savings bank on
October 1, 1992, Citizens Savings was subject to capital requirements of the
Office of Thrift Supervision (OTS). Upon its conversion to a state savings
bank, Citizens Savings ceased to be subject to the OTS capital requirements
and became subject to the capital requirements of the FDIC and the North
Carolina Administrator. The FDIC requires Citizens Savings to have a
minimum leverage ratio of Tier I capital (principally consisting of common
shareholders equity, noncumulative perpetual preferred stock and a limited
amount of cumulative perpetual preferred stock, less certain goodwill
items) to adjusted assets (adjusted for goodwill and any other items
deducted from capital to arrive at
<PAGE>
Tier I capital) of at least 3%; provided, however that all institutions,
other than those (i) receiving the hightest rating during the examination
process and (ii) not anticipating or experiencing any significant growth, are
required to maintain a ratio of 1% or 2% above the stated minimum, with an
absolute minimum leverage ratio of not less than 4%. The FDIC also requires
Citizens Savings to have a ratio of Tier II capital (primarily Tier I capital
plus general loss reserves) to risk-weighted assets of least 8%. The NC
Administrator requires a net worth equal to at least 5% of total assets.
At September 30, 1993, Citizens Savings had Tier I capital as a percentage
of adjusted assets of 7.8%, Tier II capital as a percentage of risk-weighted
assets of 15.3% and total capital as a percentage of total assets of 8.4%.
Pursuant to Section 7 of the Federal Deposit Insurance Act, as amended by
Section 302 of the Federal Deposit Insurance Corporation Improvement Act of
1991 (FIDICA), the FDIC has implemented the Risk-Related Premium System
(RRPS) beginning with the assessment period starting January 1, 1993. In the
RRPS, the FDIC has placed institutions into RRPS capital groups and
supervisory subgroups. Assignment to one of three capital groups, coupled
with assignment to one of three supervisory subgroups, will determine which
of the nine risk classifications is appropriate for an institution. Risk
classifications of institutions, in turn, determine the appropriate premium
rate, ranging from .23% to .31% of domestic deposits. Citizens Savings has
been notified by the FDIC that it will be assessed its insurance premium at a
rate of .23%.
4. Pending Change of Ownership of Citizens Savings Bank
On January 19, 1993 Citizens Savings and BB&T Financial Corporation ("BB&T"),
a registered North Carolina bank holding company headquarted in Wilson, North
Carolina, entered into an Agreement and Plan of Reorganization and related
Plan of Share Exchange for Aquisition of Shares of Citizens Savings Bank,
SSB, Inc. by BB&T Financial Corporation (the "Agreements") which provided
for the acquisition of Citizens Savings by BB&T through an exchange of all
of the issued and outstanding stock of Citizens for common stock of BB&T (the
"Acquisition").
The Acquisition was completed on October 25, 1993. Shareholders of Citizens
Savings received .9389 shares of BB&T Financial Corporation common stock for
each outstanding share of Citizens Savings common stock. All assets and
liabilities at the merger date became the responsibility of BB&T as of
October 26, 1993.
<PAGE>
Exhibit 28.3
ASHEVILLE SAVINGS BANK, SSB AND SUBSIDIARY
Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1993 1992
------ ------
(in thousands)
<S> <C> <C>
INTEREST INCOME:
Interest on loans $15,363 $17,614
Interest on investment and
mortgage-banking securities 2,117 3,158
------- -------
Total interest income 17,480 20,772
------- -------
INTEREST EXPENSE:
Interest on deposits 8,235 11,951
Interest on borrowed funds 1,583 2,514
------- -------
Total interest expense 9,818 14,465
------- -------
NET INTEREST INCOME 7,662 6,307
PROVISION FOR LOAN LOSSES 464 463
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 7,198 5,844
NONINTEREST INCOME 3,900 3,845
------- -------
NONINTEREST EXPENSE:
Personnel expense 3,550 3,194
Occupancy 1,463 1,375
Other 4,383 2,754
------- -------
Total noninterest expense 9,396 7,323
Income before income taxes 1,702 2,366
*Income taxes 207 1,183
------- -------
Net Income $ 1,495 $ 1,183
====== =======
</TABLE>
* - Net of SFAs 109 Cumulative Effect Adjustment of $643.
<PAGE>
ASHEVILLE SAVINGS BANK, SSB AND SUBSIDIARIES
BALANCE SHEET (000's) -- UNAUDITED
<TABLE>
<CAPTION>
9-30-93
---------
<S> <C>
ASSETS
Cash and Due from Banks (Including Interest-
Bearing Deposits of $19,606) $29,540
Federal Funds Sold 1,150
Investment and Mortgage-Backed Securities 33,685
Loans 242,825
Less Allowance for Loan Losses 1,758
--------
Net Loans 241,067
Bank Premises and Equipment 5,927
Accrued Interest Receivable 2,121
Other Assets 9,897
--------
Total Assets $323,387
========
LIABILITIES AND RETAINED EARNINGS
Deposits
Non-interest Bearing $9,381
Interest Bearing 269,820
--------
Total Deposits 279,201
Advances from Federal Home Loan Bank 17,000
Other Borrowed Funds 59
Accrued Interest Payable 268
Other Liabilities 1,952
--------
Total Liabilities 298,480
Retained Earnings 24,907
--------
Total Liabilities and Retained Earnings $323,387
========
</TABLE>
<PAGE>
ASHEVILLE SAVINGS BANK, SSB AND SUBSIDIARY
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1993 1992
------ ------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 1,495 $ 1,183
Adjustment to reconcile net income to cash
provided by (used in) operating activities
Provision for loan losses and foreclosed
real estate 1,054 463
Depreciation and amortization 1,706 2,186
Gain on sale of loans, net (571) (706)
Increase (decrease) in income taxes payable (26) (489)
Deferred income tax cumulative adjustment (634)
Dividends on Federal Home Loan Bank stock (195) (208)
Increase (decrease) in accrued interest
receivable 450 1,480
Increase (decrease) in accrued interest
payable 18 (6)
Other (304) 1,482
-------- --------
Net Cash Provided by Operating Activities 2,993 5,385
-------- --------
Investing Activities:
Loans originated or acquired (83,385) (85,754)
Loan principal repayments 49,174 50,372
Loans sold 46,762 49,182
Proceeds from maturities of investment
securities 8,000 13,998
Purchase of investment securities (10,052) (10,036)
Purchase of mortgage-backed securities 0 (5,394)
Mortgage-backed securities principal
repayments 2,620 1,588
Other 326 (50)
-------- --------
Cash Provided by Investing Activities 13,445 13,906
-------- --------
FINANCING ACTIVITIES:
Net decrease in deposits (7,741) (29,736)
Decrease in borrowed funds (2,005) (5,004)
-------- --------
Cash Used in Financing Activities (9,746) (34,740)
-------- --------
Increase (decrease) in Cash and Cash
Equivalents 6,692 (15,449)
Cash and Cash Equivalents -- January 1 22,776 49,931
-------- --------
Cash and Cash Equivalents -- June 30 $ 29,468 $34,482
======== ========
</TABLE>
<PAGE>
Exhibit 28.4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Home Savings Bank of Albemarle, S.S.B.
Albemarle, North Carolina
We have audited the accompanying consolidated statements of financial
condition of Home Savings Bank of Albemarle, S.S.B. and subsidiary as of
September 30, 1993 and 1992, and the related consolidated statements of income,
retained earnings and cash flows for each of the three years in the period ended
September 30, 1993. These financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Home Savings
Bank of Albemarle, S.S.B. and subsidiary as of September 30, 1993 and 1992, and
the results of their operations and their cash flows for each of the three years
in the period ended September 30, 1993, in conformity with generally accepted
accounting principles.
(SIGNATURE APPEARS HERE)
Charlotte, North Carolina
November 10, 1993
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1993 and 1992
<TABLE>
<CAPTION>
ASSETS 1993 1992
------------ ------------
<S> <C> <C>
Cash and cash equivalents:
Noninterest-bearing deposits (Note 2) $ 3,532,000 $ 2,594,000
Interest-bearing deposits 7,038,000 6,303,000
Investment securities, estimated market
value 1993 $20,663,000; 1992
$21,136,000 (Notes 3 and 9) 20,269,000 20,600,000
Mortgage-backed certificates, estimated
market value 1993 $7,554,000;
1992 $8,547,000 (Note 4) 7,076,000 8,175,000
Loans receivable, net (Note 5) 117,055,000 113,116,000
Real estate acquired in
settlement of loans 119,000 81,000
Accrued interest receivable
(Note 6) 1,138,000 1,239,000
Office properties and
equipment, net (Note 7) 1,029,000 781,000
Prepaid expenses and other
assets (Note 8) 653,000 481,000
------------ ------------
$157,909,000 $153,370,000
============ ============
<CAPTION>
LIABILITIES AND RETAINED
EARNINGS
<S> <C> <C>
Liabilities:
Deposits (Note 9) $139,685,000 $138,753,000
Advance payments by borrowers for taxes
and insurance 485,000 448,000
Accounts payable and other liabilities 706,000 477,000
Checks outstanding on disbursement
account 530,000 493,000
------------ ------------
Total liabilities $141,406,000 $140,171,000
Commitments (Notes 10 and 17)
Retained earnings,
substantially restricted
(Notes 11 and 12) 16,503,000 13,199,000
------------ ------------
$157,909,000 $153,370,000
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended September 30, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Loans $10,805,000 $11,663,000 $11,690,000
Mortgage-backed certificates 636,000 606,000 514,000
Investment securities 1,334,000 1,122,000 813,000
Other interest-bearing deposits 197,000 334,000 272,000
----------- ----------- -----------
$12,972,000 $13,725,000 $13,289,000
----------- ----------- -----------
Interest expense:
Deposits (Note 9) $ 6,037,000 $ 8,042,000 $ 9,084,000
Advances from FHLB - - 26,000
----------- ----------- -----------
$ 6,037,000 $ 8,042,000 $ 9,110,000
----------- ----------- -----------
Net interest income $ 6,935,000 $ 5,683,000 $ 4,179,000
Provision for loan losses
(Note 5) - - 100,000
----------- ----------- -----------
Net interest income after
provision for loan losses $ 6,935,000 $ 5,683,000 $ 4,079,000
----------- ----------- -----------
Noninterest income $ 278,000 $ 300,000 $ 249,000
----------- ----------- -----------
Noninterest expenses:
Compensation (Notes 8 and 10) $ 1,051,000 $ 1,059,000 $ 989,000
Net occupancy 202,000 189,000 174,000
Federal insurance premium
expense 290,000 337,000 292,000
Data processing 188,000 134,000 130,000
Other (Note 14) 413,000 636,000 571,000
----------- ----------- -----------
$ 2,144,000 $ 2,355,000 $ 2,156,000
----------- ----------- -----------
Income before income taxes $ 5,069,000 $ 3,628,000 $ 2,172,000
Income taxes (Note 11) 1,765,000 1,215,000 798,000
----------- ----------- -----------
Net income $ 3,304,000 $ 2,413,000 $ 1,374,000
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years Ended September 30, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning $13,199,000 $10,786,000 $ 9,412,000
Net income 3,304,000 2,413,000 1,374,000
----------- ----------- -----------
Balance, ending $16,503,000 $13,199,000 $10,786,000
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,304,000 $ 2,413,000 $ 1,374,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses - - 100,000
Write down of real estate owned to
net realizable value - - 48,000
Donation of real estate owned - 68,000 -
Accretion of premiums and discounts
on investment and mortgaged-backed
certificates, net (3,000) (3,000) (53,000)
Amortization of deferred loan fees (247,000) (362,000) (38,000)
FHLB stock dividends (75,000) (62,000) (86,000)
Gain on recalled securities (33,000) - -
Loss (gain) on sale of real estate
acquired in settlement of loans (41,000) (21,000) 1,000
Provision for depreciation 59,000 58,000 49,000
Change in operating assets
and liabilities:
Increase (decrease) in accrued
interest receivable 101,000 (124,000) (149,000)
Increase in prepaid and other
assets (195,000) (111,000) (59,000)
Increase (decrease) in accounts
payable and other liabilities 229,000 (230,000) 100,000
(Increase) decrease in interest
payable (4,000) (152,000) 37,000
Increase (decrease) in checks
outstanding on disbursement
account 37,000 (38,000) (30,000)
Increase (decrease) in deferred
income tax charges 23,000 54,000 (62,000)
----------- ------------ -----------
Net cash provided by operating
activities $ 3,155,000 $ 1,490,000 $ 1,232,000
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and recalls of
investment securities $10,400,000 $ 7,522,000 $ 1,920,000
Purchases of investment securities (9,952,000) (15,444,000) (5,498,000)
Purchases of mortgage-backed
certificates (1,020,000) (3,785,000) -
Principal payments on mortgage- backed
certificates 2,113,000 1,357,000 624,000
Loan originations and principal
payments on loans, net (3,786,000) 4,313,000 (9,433,000)
Purchases of loans - (405,000) -
Purchase of office properties and
equipment (307,000) (103,000) (197,000)
</TABLE>
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------- -------------
<S> <C> <C> <C>
Proceeds from sale of real estate
owned $ 112,000 $ 75,000 $ 6,000
Investment reduction in foreclosed
real estate (15,000) - -
----------- ----------- ------------
Net cash used in investing
activities $(2,455,000) $(6,470,000) $(12,578,000)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in certificates of
deposit, demand deposits,
NOW accounts and passbook savings
accounts $ 936,000 $ 5,381,000 $ 19,025,000
Net decrease in short-term
borrowings - - (955,000)
Net increase (decrease) in advance
payments by borrowers for taxes
and insurance 37,000 (7,000) 36,000
Repayment of FHLB advances - - (1,000,000)
----------- ----------- ------------
Net cash provided by financing
activities $ 973,000 $ 5,374,000 $ 17,106,000
----------- ----------- ------------
Increase in cash and cash
equivalents $ 1,673,000 $ 394,000 $ 5,760,000
Cash and cash equivalents:
Beginning 8,897,000 8,503,000 2,743,000
----------- ----------- ------------
Ending $10,570,000 $ 8,897,000 $ 8,503,000
=========== =========== ============
SUPPLEMENTAL SCHEDULE OF CASH AND
CASH EQUIVALENTS
Cash:
Interest-bearing deposits $ 7,038,000 $ 6,303,000 $ 5,915,000
Noninterest-bearing deposits 3,532,000 2,594,000 2,588,000
----------- ----------- ------------
$10,570,000 $ 8,897,000 $ 8,503,000
=========== =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for:
Interest $ 6,042,000 $ 8,194,000 $ 9,073,000
=========== =========== ============
Income taxes $ 1,520,000 $ 1,253,000 $ 855,000
=========== =========== ============
SUPPLEMENTAL DISCLOSURES OF NONCASH
TRANSACTIONS
Transfer of loans to real estate
owned $ 376,000 $ 113,000 $ 339,000
=========== =========== ============
Loans originated to finance the
sale of foreclosed real estate $ 282,000 $ 106,000 $ 181,000
=========== =========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Summary of Significant Accounting
Policies
Nature of business:
Home Savings Bank of Albemarle, S.S.B. (the "Bank"), formerly Home
Savings and Loan Association as discussed in Note 16, is primarily
engaged in the business of obtaining savings deposits and originating
single-family residential loans within its primary lending area, the
Stanly County, North Carolina area. The Bank's underwriting policies
require such loans to be made 80% loan-to-value based upon appraised
values unless private mortgage insurance is obtained. These loans are
secured by the underlying properties.
The following is a description of the significant accounting policies
used in the preparation of the accompanying consolidated financial
statements:
Principles of consolidation:
These financial statements include the accounts of the Bank and its
wholly-owned subsidiary, Stanly County Service Corp. The service
corporation is inactive except for income received from its
investment in the Investors Title Agency partnership. All
significant intercompany transactions and balances have been
eliminated in consolidation.
Cash and cash equivalents:
For purposes of reporting the consolidated statements of cash flows,
the Bank includes cash on hand and demand deposits at other
financial institutions as cash equivalents. The Bank may have
deposits with financial institutions which are in excess of the
federally-insured amounts.
Investment securities:
Bonds and notes are carried at cost, adjusted for premiums and
discounts that are recognized in interest income using a method
which approximates the interest method over the period to maturity.
Management has the ability and intends to hold such investments to
maturity. In determining whether securities can be held to maturity,
management considers whether there are conditions, such as liquidity
or regulatory requirements which would impair its ability to hold
such securities.
Equity securities that are nonmarketable are carried at cost. All
other equity securities are carried at the lower of cost or
estimated market value in the aggregate.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gains and losses on the sale of investment securities are determined
using the specific-identification method.
Mortgage-backed certificates:
Mortgage-backed certificates are stated at cost, adjusted for
amortization of premiums and accretion of fees and discounts using a
method that approximates level yield. The Bank has adequate
liquidity and capital, and it is generally management's intention,
and it has the ability to hold such assets to maturity. Should any
be sold, gains and losses will be recognized based on the
specific-identification method. All sales are made without
recourse.
At September 30, 1993, the Bank had no outstanding commitments to
sell loans or mortgage-backed certificates.
Loans receivable:
Loans receivable are stated at unpaid principal balances, less the
allowance for loan losses, the undisbursed portion of construction
loans, participations sold and net deferred loan origination fees.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's
past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability
to repay, the estimated value of any underlying collateral, and
current economic conditions.
Loan origination fees:
Loan fees and certain direct loan origination costs are deferred,
and the net fee or cost is recognized as an adjustment to interest
income using the interest method over the contractual life of the
loans, adjusted for actual prepayments.
Real estate acquired in settlement of loans:
Real estate acquired in settlement of loans ("REO") is initially
recorded at the lower of cost (loan value of real estate acquired in
settlement of loans plus incidental expenses) or estimated fair
value.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Prior to September 30, 1992, the carrying values were reduced when
they exceeded net realizable value. Subsequent to September 30,
1992, the Bank complied with SOP 92-3, Accounting for Foreclosed
-------------------------
Assets. Subsequent to September 30, 1992, the carrying values of
------
REO are reduced when they exceed fair value minus the estimated
costs to sell. Costs relating to the development and improvement of
the property are capitalized, while holding costs of the property
are charged to expense in the period incurred.
Office properties and equipment:
Office properties and equipment are stated at cost less accumulated
depreciation which is computed principally by the straight-line
method.
Off-balance-sheet risk:
The Bank is a party to financial instruments with off-balance-sheet
risk such as commitments to extend credit and lines of credit.
Management assesses the risk related to these instruments for
potential losses on an ongoing basis.
Pension plan:
The Bank has a noncontributory defined benefit pension plan covering
all employees who meet the eligibility requirements. To be
eligible, an employee must be 21 years of age and have completed 1
year of continuous service. The plan provides benefits based on a
final average salary and service and is integrated with Social
Security. The employee's benefits are subject to certain reductions
if the employee retires before 35 years of service or before
reaching the age of 65. The Bank's funding policy is to make the
maximum annual contribution that is deductible for income tax
purposes.
Income taxes:
The Bank and its subsidiary file a consolidated tax return.
Deferred income taxes result from timing differences in the
recognition of certain items of income and expense for tax and
financial statement purposes as explained more fully in Note 11.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value of financial instruments:
The estimated fair values required under SFAS No. 107, Disclosures
-----------
About Fair Value of Financial Instruments, have been determined by
-----------------------------------------
the Bank using available market information and appropriate
valuation methodologies; however, considerable judgment is required
to develop the estimates of fair value. Accordingly, the estimates
presented for the fair value of the Bank's financial instruments are
not necessarily indicative of the amounts the Bank could realize in
a current market exchange. The use of different market assumptions
or estimation methodologies may have a material effect on the
estimated fair market value amounts.
The fair value of the Bank's cash and cash equivalents is estimated
to be equal to their recorded amounts. Investment securities' and
mortgage-backed certificates' fair value is estimated using quoted
market values obtained from independent pricing services. The fair
value of loans is estimated by the use of discounted cash flows
adjusted by a credit risk factor equal to the Bank's recorded loss
allowances. Borrowings and savings deposits, other than deposits
with no stated maturities, are estimated to have a fair value
determined on the discounted value of contractual cash flows. The
fair value of deposits with no stated maturities, primarily checking
and statement savings accounts, is estimated to be equal to the
amount payable on demand.
The fair value estimates presented are based on pertinent
information available to management as of September 30, 1993.
Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts
have not been comprehensively revalued for purposes of these
financial statements since that date and therefore, current
estimates of fair value may differ significantly from the amounts
presented here.
Note 2. Cash
Noninterest-bearing cash amounting to approximately $47,000, and
$59,000 was held by a trustee at September 30, 1993 and 1992,
respectively, and was required to be used to repay loan principal and
interest due to the Federal National Mortgage Association and taxes and
insurance for the related loans.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Investment Securities
The amortized cost and estimated market value of investment securities
are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1993
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------------- ---------- -----------
<S> <C> <C> <C> <C>
U. S. Government
and Federal
agency
obligations $18,941,000 $ 394,000 $ - $19,335,000
Federal Home Loan
Bank stock 1,313,000 - - 1,313,000
Other securities 15,000 - - 15,000
----------- ---------------- ---------- -----------
$20,269,000 $ 394,000 $ - $20,663,000
=========== ================ ========== ===========
<CAPTION>
September 30, 1992
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------------- ---------- -----------
<S> <C> <C> <C> <C>
U. S. Government and
Federal agency
obligations $18,946,000 $ 552,000 $ - $19,498,000
Corporate bonds 400,000 - 16,000 384,000
Federal Home Loan
Bank stock 1,238,000 - - 1,238,000
Other securities 16,000 - - 16,000
----------- ---------------- ---------- -----------
$20,600,000 $552,000 $16,000 $21,136,000
=========== ================ ========== ===========
</TABLE>
The amortized cost and estimated market value of debt securities by
contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
September 30, 1993
----------------------------
Estimated
Amortized Market
Cost Value
-------------- ------------
<S> <C> <C>
Due in one year or less $ 500,000 $ 511,000
Due after one year through five years 16,455,000 16,676,000
Due after five years through ten years 1,986,000 2,148,000
----------- -----------
$ 18,941,000 $19,335,000
=============== ===========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Federal Home Loan Bank ("FHLB") stock and other securities, which
consist of stock in the Bank's service center, have been excluded from
the maturity table above because they do not have a contractual maturity
associated with debt securities. The Bank, as a member of the FHLB
system, is required to maintain an investment in capital stock of the
FHLB in an amount equal to the greater of 1% of its outstanding home
loans or 5% of advances from the FHLB. No ready market exists for such
stock, and it has no quoted market value. For presentation purposes,
such stock is assumed to have a market value which is equal to cost.
Results from investment securities are as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1993 1992 1991
---------- -------- --------
<S> <C> <C> <C>
Gross proceeds from maturities
and recalled securities $1,000,000 $ - $ -
========== ======== ========
Gross realized gains $ 33,000 $ - $ -
Gross realized losses - - -
---------- -------- --------
Net realized gains $ 33,000 $ - $ -
========== ======== ========
</TABLE>
Net realized gains are included in noninterest income on the
consolidated statements of income.
Note 4. Mortgage-Backed and Related Securities
The carrying values and estimated market values of mortgage-backed and
related securities are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1993
--------------------------------------------------------------------------------------------
Gross Gross Estimated
Principal Unamortized Unearned Carrying Unrealized Unrealized Market
Balance Premiums Discounts Value Gains Losses Value
---------- -------------- ------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA certificates $3,702,000 $41,000 $20,000 $3,723,000 $240,000 $ - $3,963,000
FHLMC certificates 1,848,000 17,000 42,000 1,823,000 126,000 - 1,949,000
FNMA certificates 1,381,000 2,000 - 1,383,000 117,000 - 1,500,000
Small Business
Administration 134,000 13,000 - 147,000 - 5,000 142,000
---------- ------- ------- ---------- -------- ---------- ----------
$7,065,000 $73,000 $62,000 $7,076,000 $483,000 $ 5,000 $7,554,000
========== ======= ======= ========== ======== ========== ==========
<CAPTION>
September 30, 1992
--------------------------------------------------------------------------------------------
Gross Gross Estimated
Principal Unamortized Unearned Carrying Unrealized Unrealized Market
Balance Premiums Discounts Value Gains Losses Value
---------- -------------- ------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA certificates $4,940,000 $50,000 $22,000 $4,968,000 $274,000 $ - $5,242,000
FHLMC certificates 2,493,000 19,000 47,000 2,465,000 96,000 - 2,561,000
FNMA certificates 565,000 3,000 - 568,000 14,000 - 582,000
Small Business
Administration 159,000 15,000 - 174,000 - 12,000 162,000
---------- ------- ------- ---------- -------- ---------- ----------
$8,157,000 $87,000 $69,000 $8,175,000 $384,000 $12,000 $8,547,000
========== ======= ======= ========== ======== ========== ==========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Loans Receivable
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
September 30,
---------------------------
1993 1992
------------ ------------
<S> <C> <C>
First mortgage loans (principally
conventional):
Principal balances:
Secured by one-to-four family
residences $ 98,135,000 $ 96,452,000
Secured by other properties 11,648,000 10,557,000
Construction loans 6,644,000 5,919,000
------------ ------------
$116,427,000 $112,928,000
------------ ------------
Other loans:
Principal balances:
Home equity and second mortgage $ 3,715,000 $ 3,358,000
Other 392,000 376,000
------------ ------------
Total other loans $ 4,107,000 $ 3,734,000
------------ ------------
Allowance for loan losses $ (144,000) $ (144,000)
Undisbursed portion of construction
loans (2,895,000) (3,096,000)
Net deferred loan origination fees (440,000) (306,000)
------------ ------------
$ (3,479,000) $ (3,546,000)
------------ ------------
$117,055,000 $113,116,000
============ ============
</TABLE>
The following is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning $144,000 $177,000 $103,000
Provisions charged to
operations - - 100,000
Loans charged off (600) (33,000) (26,000)
Recoveries 600 - -
-------- -------- --------
Balance, ending $144,000 $144,000 $177,000
======== ======== ========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nonaccrual loans for which interest has been reduced totaled
approximately $844,000 and $-0- at September 30, 1993 and 1992,
respectively. Interest income that would have been recorded under the
original terms of such loans and the interest income actually
recognized is summarized below:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1993 1992 1991
---------- -------- --------
<S> <C> <C> <C>
Interest income that would
have been recorded $80,000 $ - $ -
Interest income recognized 33,000 - -
------- -------- --------
Interest income foregone $47,000 $ - $ -
======= ======== ========
</TABLE>
The Bank is not committed to lend additional funds to debtors whose
loans have been modified.
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal
balances of these loans are summarized as follows:
<TABLE>
<CAPTION>
September 30,
----------------------
1993 1992
---------- ----------
<S> <C> <C>
Mortgage loan portfolios
serviced for FNMA $1,776,000 $2,853,000
========== ==========
</TABLE>
Custodial escrow balances maintained in connection with the foregoing
loan servicing was approximately $50,000 and $40,000 at September 30,
1993 and 1992, respectively.
Note 6. Accrued Interest Receivable
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
September 30,
----------------------
1993 1992
---------- ----------
<S> <C> <C>
Investment securities $ 303,000 $ 325,000
Mortgage-backed certificates 74,000 86,000
Loans receivable 761,000 828,000
---------- ----------
$1,138,000 $1,239,000
========== ==========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Office Properties and Equipment
Office properties and equipment consist of the following:
<TABLE>
<CAPTION>
September 30,
----------------------
1993 1992
---------- ----------
<S> <C> <C>
Land $ 138,000 $ 138,000
Buildings and improvements 1,244,000 1,006,000
Furniture and equipment 426,000 392,000
---------- ----------
$1,808,000 $1,536,000
Accumulated depreciation 779,000 755,000
---------- ----------
$1,029,000 $ 781,000
========== ==========
</TABLE>
Note 8. Employee Pension Plan
The Bank has a defined benefit pension plan covering substantially all
of its employees. The benefits are based on years of service and the
employee's compensation during the last five years of employment. The
Bank's funding policy is to contribute annually the maximum amount that
can be deducted for federal income tax purposes.
The following table sets forth the plan's funded status and amounts
recognized in the Bank's consolidated statements of financial condition:
<TABLE>
<CAPTION>
September 30,
--------------------------
1993 1992
------------ ------------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation:
Vested $ (953,000) $ (819,000)
Nonvested (1,000) (3,000)
----------- -----------
$ (954,000) $ (822,000)
Effect of projected future
compensation (242,000) (237,000)
----------- -----------
Projected benefit obligation for
service rendered to date $(1,196,000) $(1,059,000)
Plan assets at fair value; primarily
cash and short-term investments 1,344,000 1,146,000
----------- -----------
Plan assets in excess of projected
benefit obligation $ 148,000 $ 87,000
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
September 30,
------------------------
1993 1992
----------- -----------
<S> <C> <C>
Unrecognized net loss from past
experience different from that assumed
and effects of changes in assumptions $131,000 $ 95,000
Unrecognized net transition obligation
from adoption of FASB Statement No.
87 being amortized over 17 years 5,000 6,000
-------- -----------
Prepaid pension cost (included in prepaid
and other assets) $284,000 $188,000
======== ===========
</TABLE>
The components of net pension expense are as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1993 1992 1991
--------- --------- --------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 44,000 $ 42,000 $ 39,000
Interest cost on projected
benefit obligation 85,000 75,000 64,000
Actual return on plan assets (97,000) (79,000) (67,000)
Net amortization and deferral 1,000 - 2,000
-------- -------- --------
Net pension expense $ 33,000 $ 38,000 $ 38,000
======== ======== ========
Assumptions used to develop the
net periodic pension cost were:
Discount rate 8.0% 8.0% 8.0%
Expected long-term rate of return
on assets 8.0 8.0 8.0
Rate of increase in compensation
levels 4.0 4.0 4.0
</TABLE>
The pension plan has all plan assets deposited with the bank.
On September 14, 1993, the Bank's Board of Directors voted to terminate
the employee pension plan. The effective date of the plan's termination
is November 10, 1993.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
Weighted September 30,
Average -------------------------------------------------
Rate at 1993 1992
September 30, -------------------------------------------------
1993 Amount Percent Amount Percent
------------- -------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Demand and NOW accounts, including
noninterest-bearing deposits of
$507,000 at September 30, 1993 and
$481,000 at September 30, 1992 3.00% $ 6,372,000 4.56% $ 5,162,000 3.72%
Money market 3.25 11,219,000 8.03 9,632,000 6.94
Passbook savings 3.00 17,984,000 12.87 16,142,000 11.64
------------ ------ ------------ -------
$ 35,575,000 25.46% $ 30,936,000 22.30%
------------ ------ ------------ -------
Certificates of deposit:
2.00% to 3.99% $ 53,554,000 38.34% $ 38,000 .03%
4.00% to 5.99% 46,725,000 33.45 76,768,000 55.33
6.00% to 7.99% 3,684,000 2.64 19,295,000 13.90
8.00% to 9.99% 39,000 .03 11,603,000 8.36
------------ ------ ------------ -------
4.08 $104,002,000 74.46% $107,704,000 77.62%
------------ ------ ------------ -------
Accrued interest payable $ 108,000 .08% $ 113,000 .08%
------------ ------ ------------ -------
$139,685,000 100.00% $138,753,000 100.00%
============ ====== ============ =======
Weighted average cost of savings deposits 3.82% 4.93%
============ ======
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with a
minimum denomination of $100,000 was approximately $6,819,000 and
$6,892,000 at September 30, 1993 and 1992, respectively.
At September 30, 1993, scheduled maturities of certificates of deposit
are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------------------------
1994 1995 1996 Total
------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
2.00% to 3.99% $53,554,000 $ - $ - $ 53,554,000
4.00% to 5.99% 29,290,000 13,913,000 3,522,000 46,725,000
6.00% to 7.99% 3,684,000 - - 3,684,000
8.00% to 9.99% - 39,000 - 39,000
----------- ----------- ---------- ------------
$86,528,000 $13,952,000 $3,522,000 $104,002,000
=========== =========== ========== ============
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------
1993 1992 1991
----------- ----------- ----------
<S> <C> <C> <C>
Passbook savings $ 553,000 $ 643,000 $ 736,000
NOW and money market 545,000 535,000 591,000
Certificates of deposit 4,939,000 6,864,000 7,757,000
----------- ----------- ----------
$ 6,037,000 $ 8,042,000 $9,084,000
=========== =========== ==========
</TABLE>
The Bank has pledged investment securities with a book value of
$1,000,000 at September 30, 1993 as collateral for public deposits.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Deferred Compensation Agreements
The Bank has entered into unfunded deferred compensation agreements
providing retirement and death benefits for six directors and
supplemental retirement and death benefits income agreements for two
executive officers. Vested benefits under the deferred compensation
agreements are payable in monthly installments over a 10-year period
upon death or retirement and over a 15-year and 18-year period for the
supplemental income agreements. The present value of the liability for
the benefits is being accrued over the vesting period per the
underlying agreements. The total of the deferred compensation expense
and supplemental income amounted to approximately $-0-, $55,000 and
$72,000 for the years ended September 30, 1993, 1992 and 1991,
respectively.
Note 11. Income Taxes
Under the Internal Revenue Code and North Carolina Income Tax Law, the
Bank is allowed a special bad debt deduction related to additions to
tax bad debt reserves established for the purpose of absorbing losses.
The applicable provisions of the law permit the Bank to deduct from
taxable income an allowance for bad debts based on the greater of 8% of
taxable income before such deduction or actual loss experience.
Because the Bank does not intend to use the reserve for purposes other
than to absorb losses, deferred income taxes have not been provided.
Retained earnings include approximately $3,957,000 and $3,576,000 at
September 30, 1993 and 1992, respectively, for which no provision for
federal income taxes has been made. This amount represents allocations
of income to bad debt deductions for tax purposes only. If the amounts
that qualify as deductions for federal income tax purposes are later
used for purposes other than bad debt losses, or adjustments arising
from carryback of net operating losses, they will be subject to federal
income tax at the then current corporate rate. As discussed in Note
16, the Bank has reached an agreement to provide for the acquisition of
the Bank by BB&T Financial Corporation. In the event of a successful
merger, the retained earnings discussed above will be subject to
federal income taxes.
Income tax consists of the following:
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------
1993 1992 1991
---------- ---------- --------
<S> <C> <C> <C>
Current $1,742,000 $1,161,000 $860,000
Deferred (reduction) 23,000 54,000 (62,000)
---------- ---------- --------
$1,765,000 $1,215,000 $798,000
========== ========== ========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred taxes result from timing differences in the recognition of
income and expense for tax and financial reporting purposes, primarily
from deferred loan fees, FHLB stock dividends, pension expense,
deferred compensation and supplemental income expense.
The following is a reconciliation of the federal income tax rate of 34%
to the effective tax rate:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1993 1992 1991
-------- ------ -------
<S> <C> <C> <C>
Statutory federal income tax
rate 34.0% 34.0% 34.0%
Increase (decrease) in taxes
resulting from:
Tax bad debt deduction (2.9) (2.5) (1.0)
State income taxes 4.2 4.6 3.2
Other (.5) (2.6) .5
------- ----- -----
34.8% 33.5% 36.7%
======= ===== =====
</TABLE>
In August 1993, the United States' Congress passed the Omnibus Budget
Reconciliation Act of 1993. Although the effects of this new tax
legislation have not yet been determined, management does not expect
the impact to be material to the consolidated financial statements
viewed on an overall basis.
Note 12. Capital Requirements
Prior to its conversion to a North Carolina-chartered savings bank on
October 1, 1992, Home Savings Bank of Albemarle, S.S.B. was subject to
capital requirements of the Office of Thrift Supervision (OTS). Upon
its conversion to a state savings bank, (as discussed in Note 16) the
Bank ceased to be subject to the OTS capital requirements and became
subject to the capital requirements of the FDIC and the Administrator
of the North Carolina Savings Institutions Division ("the
Administrator").
The FDIC requires Home Savings Bank of Albemarle, S.S.B. to have a
minimum leverage ratio of Tier I Capital (principally consisting of
retained earnings and any future common stockholders' equity, less any
intangible assets) to total assets of at least 3%, provided that it
receives the highest rating during the examination process. For
institutions that receive less than the highest rating, the Tier I
capital requirement is 1% to 2% above the stated minimum. The FDIC
also requires the Bank to have a ratio of total capital to
risk-weighted assets of 8%, of which at least 4% must be in the form of
Tier I capital. The FDIC capital requirements are very similar to the
OTS's core capital and risk-based capital requirements, but the FDIC
does not impose tangible capital requirement. The Administrator
requires a net worth equal to at least 5% of total assets.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 1993, Home Savings Bank of Albemarle, S.S.B.
complied with all the capital requirements described above as shown
below:
<TABLE>
<CAPTION>
September 30, 1993
-----------------------------------------
Leverage Tier I N. C.
Ratio of Risk- Risk- Savings
Tier I Adjusted Based Bank
Capital Capital Capital Capital
-----------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Retained earnings (GAAP) $ 16,503 $16,503 $16,503 $ 16,503
Intangible assets - - - -
Supplemental capital items:
General valuation allowance - - 144 144
-------- ------- ------- --------
Regulatory capital $ 16,503 $16,503 $16,647 $ 16,647
Minimum capital requirement 6,316 2,953 5,906 7,895
-------- ------- ------- --------
Excess regulatory capital $ 10,187 $13,550 $10,741 $ 8,752
======== ======= ======= ========
Total assets at
September 30, 1993 $157,909 $ - $ - $157,909
Risk-weighted assets at
September 30, 1993 - 73,825 73,825 -
Capital as a percentage
of assets:
Actual 10.45% 22.35% 22.55% 10.54%
Required 4.00 4.00 8.00 5.00
-------- ------- ------- --------
Excess 6.45% 18.35% 14.55% 5.54%
-------- ------- ======= ========
</TABLE>
The Bank has not received a rating from the FDIC. For purposes of
computing the leverage ratio of Tier I Capital, the midpoint of the
required capital range is presented.
Note 13. Related Party Matters
Officers and directors of the Bank were indebted to the Bank for loans
made in the ordinary course of business. The balance of such loans
was $886,000 and $702,000 at September 30, 1993 and 1992, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14. Other Noninterest Expense
Other noninterest expenses are summarized as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Contributions $ - $253,000 $ 43,000
Other 413,000 383,000 528,000
-------- -------- --------
$413,000 $636,000 $571,000
======== ======== ========
</TABLE>
Note 15. FASB Statements and Proposed Regulations
The Financial Accounting Standards Board has issued FASB Statement No.
106, Employer's Accounting for Postretirement Benefits Other Than
------------------------------------------------------------
Pensions, which the Bank has not adopted as of September 30, 1993,
--------
relative to postretirement health care, life insurance and other
welfare benefits. The Bank's current accounting policy is in
compliance with paragraph 13 of FASB Statement No. 106 (see Note 10) at
September 30, 1993.
The Statement, which will be in effect for the Bank's fiscal year
beginning October 1, 1993 will revise the financial accounting and
reporting for an employer that offers certain postretirement benefits
to its employees. This statement is not expected to have a material
effect on the Bank's financial statements.
The FASB has issued Statement No. 109 which has not been adopted by
the Bank as of September 30, 1993. FASB Statement No. 109 is effective
for the Bank's fiscal year ending September 30, 1994.
FASB Statement No. 109, Accounting for Income Taxes, establishes
---------------------------
financial accounting and reporting standards for the effects of income
taxes that result from an enterprise's activities during the current
and preceding years. It requires an asset and liability approach for
financial accounting and reporting for income taxes. The future effect
on retained earnings of adopting this statement is estimated to be
approximately $485,000 which represents a net deferred tax liability.
In June 1993, the FASB issued SFAS No. 114, Accounting by Creditors for
---------------------------
Impairment of Loans, relating to the accounting for impaired loans.
-------------------
SFAS No. 114 requires that specified impaired loans be measured based
on the present value of expected future cash flows discounted at the
loan's effective interest rate. The effective rate of a loan is
defined as the contractual interest rate adjusted for any deferred loan
fees or costs, premiums or discounts existing at the inception or
acquisition of the loan. Implementation of SFAS No. 114 is required for
fiscal years beginning after December 15, 1994. SFAS No. 114 is not
expected to have a material effect on the Bank's results of operations.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1993, the FASB issued SFAS No. 115, Accounting for Certain
----------------------
Investments in Debt and Equity Securities, relating to the accounting
-----------------------------------------
for investments such as debt securities and equity securities which
have a readily determined fair value. Implementation of SFAS No. 115 is
required for fiscal years beginning after December 15, 1993. This
statement classifies securities as either securities that the holder
has the positive intent and ability to hold to maturity, securities
that were bought with the intention to sell in the near future which
are defined as trading securities, or securities that are available for
sale. Securities that will be held until maturity will be reported at
amortized cost. Securities that are classified as trading securities
will be reported at fair value, with unrealized gains and losses
included in the statement of operations. Securities that are not
classified as held to maturity or trading will be recorded at fair
value with unrealized gains and losses excluded from earnings and shown
as a component of stockholders' equity. The impact of SFAS No. 115
upon the results of operations of the Bank has not been determined.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) was
enacted on December 19, 1991, and requires the implementation of
uniform accounting standards for all financial institutions that are no
less stringent than generally accepted accounting principles, the
development of a risk-based insurance assessment system (implemented
and effective January 1, 1993), gives the federal banking agencies
broad corrective action powers, additional restrictions on brokered
deposits, and new disclosure requirements for savings accounts, among
many other aspects of the Act.
Note 16. Charter and Stock Conversion
On October 29, 1992, Home Savings and Loan Association of Albemarle
converted from a state-chartered savings and loan association operating
under Chapter 54B to a state-chartered savings bank under Chapter 54C
of the North Carolina General Statutes. In connection therewith, it
adopted the name of Home Savings Bank of Albemarle, S.S.B.
On May 27, 1993, BB&T Financial Corporation ("BB&T") and the Bank
reached a definitive agreement providing for BB&T's acquisition of the
Bank contemporaneously with the Bank's conversion from a state mutual
savings bank to a state capital stock savings bank. The acquisition
will be accomplished by the offering of BB&T's common stock. Priority
will be given to eligible members of the Bank in a Subscription
Offering and in a simultaneous Community Offering to residents of
Stanly County, North Carolina. It is currently anticipated that any
shares remaining unsold after the Subscription and Community Offerings
will not be sold in a public offering or otherwise. The net proceeds
from the issuance and sale of BB&T's common stock will be infused as
additional capital for the Bank and as consideration of BB&T's
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
acquisition of the Bank as a wholly-owned subsidiary. Acquisition and
merger costs of approximately $64,000 are included in prepaids and
other assets and will be netted out of the proceeds. In the event the
acquisition is unsuccessful, these costs will be charged to operations.
The acquisition and conversion are subject to the approval of the
Federal Reserve, the FDIC and the Administrator and the deposit base.
The acquisition will be accounted for under the purchase method of
accounting which requires that all assets and liabilities of the Bank
be adjusted to their estimated fair value as of the date of the
acquisition. As of September 30, 1993, no significant transactions
between BB&T and the Bank have occurred, nor are any anticipated by
management.
The Plan of Conversion requires that the converted institution
establish a "Liquidation Account" for the benefit of eligible account
holders. This liquidation account will be assumed by BB&T upon
consummation of the Merger. In the unlikely event of liquidation of
the Bank or BB&T, assets would be first applied against the claims of
all creditors, including claims of all depositors. Any remaining
assets would then be distributed pro rata to eligible account holders
who continue to hold deposits at the Bank and following merger, BB&T.
Note 17. Financial Instruments With Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit. These instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount recognized in
the statement of financial position. The contract or notional amounts
of those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit is represented by the contractual or notional amount of these
instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
<TABLE>
<CAPTION>
Fixed Variable
Rate Rate
---------- ---------
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit,
mortgage loans $5,349,000 $ -
Undisbursed lines of credit - 2,434,000
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and many require payment of a fee. The total
commitment amounts do not necessarily represent future requirements,
since some may expire without being drawn upon. The Bank evaluates
each customer's credit worthiness on a case-by-case basis.
Note 18. Reclassification of Financial Statements
Certain amounts in the consolidated financial statements for 1992 have
been reclassified to conform with classifications used in the September
30, 1993 consolidated financial statements. These reclassifications
had no effect on 1992 or 1991 net income or retained earnings.
Note 19. Disclosures About Fair Value of Financial Instruments
The fair value of the Bank's cash and cash equivalents, is estimated
to be equal to its recorded amount. For investment securities and
mortgage-backed certificates, the fair value is estimated using quoted
market values obtained from independent pricing services.
The fair value of loans has been estimated by discounting projected
cash flows at September 30, 1993, using nationally published rates
including those published by the Federal Reserve Bank and the Federal
Home Loan Bank of Atlanta. These rates have been adjusted as necessary
to conform with the attributes of the specific loan types in the
portfolio. The valuation has also been adjusted for prepayment risk
using prepayment percentages published by the Federal Home Loan Bank of
Atlanta, which approximate the Bank's estimates of actual prepayment
activity experienced in the portfolio. Nonperforming loans are valued
at their recorded book values, because it is not practicable to
reasonably assess the credit adjustment that would be applied in the
marketplace for such loans. Management believes that the Bank's
general valuation allowances at September 30, 1993 are an appropriate
indication of the applicable credit risk associated with determining
the fair value of its loan portfolio and such allowances have been
deducted from the estimated fair value of loans.
The fair value of deposits with no stated maturities, including
checking accounts and statement savings accounts, is estimated to be
equal to the amount payable on demand as of September 30, 1993. The
fair value of certificates of deposit is based upon the discounted
value of the contractual cash flows. The discount rates used in these
calculations approximate the current rates offered for deposits of
similar remaining maturities.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of checks outstanding on disbursement account is
presumed to be its recorded book value.
The estimated fair value of commitments to extend credit is estimated
using fees currently charged for similar arrangements adjusted for
changes in interest rates and credit risk that has occurred subsequent
to origination. Because the Bank believes that the credit risk
associated with available but undisbursed commitments would essentially
offset fees that could be recognized under similar arrangements, and
because the commitments are either short term in nature or subject to
immediate repricing, no fair value has been assigned to these
off-balance-sheet commitments.
<TABLE>
<CAPTION>
Recorded Estimated
Book Value Fair Value
------------ ------------
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $ 10,570,000 $ 10,570,000
Investment securities 20,269,000 21,136,000
Mortgage-backed securities 7,076,000 7,554,000
Loans receivable, net 117,055,000 122,298,000
Financial Liabilities:
Savings deposits with no stated
maturities 35,575,000 35,575,000
Savings deposits with stated
maturities 104,002,000 104,647,000
Checks outstanding on disbursement
account 530,000 530,000
</TABLE>
<PAGE>
EXHIBIT 28.5
Independent Auditors' Report
The Stockholders and Board of Directors
of L.S.B. Bancshares, Inc. of South Carolina
We have audited the consolidated balance sheet of L.S.B. Bancshares, Inc.
of South Carolina and subsidiaries as of December 31, 1992 and 1991, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1992.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of L.S.B. Bancshares, Inc. of
South Carolina ans subsidiaries as of December 31, 1992 and 1991, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1992, in conformity with generally accepted
accounting principles.
[SIGNATURE APPEARS HERE]
Columbia, South Carolina
March 11, 1993
<PAGE>
Consolidated Balance Sheet
L.S.B. Bancshares, Inc. of South Carolina
- --------------------------------------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
-------------------
1992 1991
-------- --------
<S> <C> <C>
Assets
Cash and due from banks (Note 3).............................................. $ 38,741 $ 31,963
Time deposits in other banks.................................................. 100
Investment securities (estimated fair value -- 1992-$141,274;
1991-$142,492)(Note 4)..................................................... 137,779 137,589
Federal funds sold and securities purchased under agreements to resell........ 36,725 14,400
Other investments (Note 5).................................................... 16,567 9,348
Loans (Note 6 and 20)......................................................... 372,017 325,041
Unearned income............................................................. (2,246) (4,392)
Allowance for loan losses................................................... (4,716) (4,037)
-------- --------
Loans - net............................................................... 365,055 316,612
Premises and equipment - net (Note 7)......................................... 12,931 10,674
Other assets (Note 8)......................................................... 12,005 13,232
-------- --------
Total assets.............................................................. $619,803 $533,918
======== ========
Liabilities
Deposits (Note 9)
Noninterest bearing......................................................... $ 64,950 $ 47,431
Interest bearing............................................................ 474,562 430,186
-------- --------
Total deposits............................................................ 539,512 477,617
Short-term borrowings (Note 10)............................................... 32,628 14,730
Long-term debt (Note 11)...................................................... 4,000 2,000
Other liabilities............................................................. 2,831 3,219
-------- --------
Total liabilities......................................................... 578,971 497,566
-------- --------
Commitments and contingent liabilities (Note 17)
Stockholders' equity (Note 12)
Common stock - $2.50 par value; 5,000,000 shares authorized;
issued and outstanding 2,658,219 for 1992 and 2,634,057 for 1991............ 6,646 6,585
Capital surplus............................................................... 18,827 18,507
Retained earnings............................................................. 15,416 11,260
Net unrealized loss on marketable equity securities........................... (57)
-------- --------
Total stockholders' equity................................................ 40,832 36,352
-------- --------
Total liabilities and stockholders' equity................................ $619,803 $533,918
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statement of Income
L.S.B. Bancshares, Inc. of South Carolina
- --------------------------------------------------------------------------------
(Amounts in thousands, except per share)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1992 1991 1990
------- ------- -------
<S> <C> <C> <C>
Interest income
Loans, including fees......................................................... $33,244 $34,253 $34,421
Investment securities
Taxable..................................................................... 8,917 8,884 8,819
Tax-exempt.................................................................. 1,546 1,669 1,837
Trading account interest...................................................... 49
Federal funds sold and securities purchased under agreements to resell........ 774 972 1,492
Time deposits in other banks.................................................. 2 14 9
Other dividends and interest.................................................. 1,052 877 451
------- ------- -------
Total interest income..................................................... 45,584 46,669 47,029
------- ------- -------
Interest expense
Deposits...................................................................... 18,974 24,927 26,657
Short-term borrowings......................................................... 878 1,337 2,061
Long-term debt................................................................ 202 175 69
------- ------- -------
Total interest expense.................................................... 20,054 26,439 28,787
------- ------- -------
Net interest income............................................................. 25,530 20,230 18,242
Provision for loan losses (Note 6).............................................. 2,463 3,598 2,110
------- ------- -------
Net interest income after provision............................................. 23,067 16,632 16,132
------- ------- -------
Other operating income
Service charges on deposit accounts........................................... 3,074 2,989 2,705
Credit life insurance commissions............................................. 153 329 401
Gain on sale of investment securities......................................... 256 190 44
Other income.................................................................. 2,321 1,435 1,093
------- ------- -------
Total other operating income.............................................. 5,804 4,943 4,243
------- ------- -------
Other operating expenses (Note 13)
Salaries and employee benefits................................................ 10,957 9,278 8,330
Net occupancy expense......................................................... 1,087 945 940
Furniture and equipment expense............................................... 1,680 1,631 1,462
Other expense................................................................. 6,971 5,560 4,743
------- ------- -------
Total other operating expenses............................................ 20,695 17,414 15,475
------- ------- -------
Income before income taxes...................................................... 8,176 4,161 4,900
Income tax expense (Note 15).................................................... 2,407 948 841
------- ------- -------
Net income...................................................................... $ 5,769 $ 3,213 $ 4,059
======= ======= =======
Per share
Average shares outstanding.................................................... 2,643 2,621 2,599
Net income.................................................................... $ 2.18 $ 1.23 $ 1.56
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statement of Changes in Stockholders' Equity
L.S.B. Bancshares, Inc. of South Carolina
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share)
<TABLE>
<CAPTION>
Net
Unrealized
Common Stock Loss on
------------------------- Marketable
Number Capital Retained Equity
of Shares Amount Surplus Earnings Securities Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1990.................... 2,591,410 $6,479 $18,050 $ 7,015 $ (153) $31,391
Net income................................. 4,059 4,059
Cash dividends declared by
merged company........................... (30) (30)
Cash dividends declared by LSB -
$.60 per share........................... (1,425) (1,425)
Sale of common stock....................... 20,098 50 222 272
Valuation adjustment on
marketable equity securities............. 40 40
---------- ------- -------- ------ -------- -------
Balance December 31, 1990.................. 2,611,508 6,529 18,272 9,619 (113) 34,307
Net income................................. 3,213 3,213
Cash dividends declared -
$.60 per share........................... (1,572) (1,572)
Sale of common stock....................... 22,549 56 235 291
Valuation adjustment on
marketable equity securities............. 113 113
--------- ------- ------- ------- --------- -------
Balance December 31, 1991.................. 2,634,057 6,585 18,507 11,260 36,352
Net income................................. 5,769 5,769
Cash dividends declared -
$.61 per share........................... (1,613) (1,613)
Sale of common stock....................... 24,162 61 320 381
Valuation adjustment on
marketable equity securities............. (57) (57)
--------- ------- -------- -------- ---------- -------
Balance December 31, 1992.................. 2,658,219 $6,646 $18,827 $15,416 $ (57) $40,832
========== ======= ======== ======== ========== =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statement of Cash Flows
L.S.B. Bancshares, Inc. of South Carolina
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Years Ended December 31,
--------------------------------
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income....................................................... $ 5,769 $ 3,213 $ 4,059
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses..................................... 2,463 3,598 2,110
Depreciation and amortization................................. 1,186 997 1,004
Writedowns of other real estate............................... 274 244 177
Deferred income taxes......................................... (394) 51 (305)
Amortization of intangibles................................... 183 51 62
Amortization of net loan fees and costs....................... 216 291 410
Accretion and premium amorization............................. 130 140 (123)
Gain on sale of investment securities......................... (256) (190) (44)
(Gain) loss on sale of other investments...................... (126) 3
(Gain) loss on sale of other real estate...................... 253 90 (66)
(Increase) decrease in interest receivable.................... 973 339 (748)
Increase (decrease) in interest payable....................... (599) (338) 148
Decrease (increase) in prepaid expenses and other receivables. 733 (897) (325)
Increase (decrease) in other accrued expenses................. 110 (107) (57)
-------- -------- --------
Net cash provided by operating activities................... 10,915 7,485 6,302
-------- -------- --------
Investing activities
Net decrease in prime deposits in other banks.................... 100 100 1
Sales of investment securities................................... 29,773 10,836 7,487
Maturities of investment securities.............................. 84,734 41,964 49,270
Purchases of investment securities............................... (114,571) (59,637) (75,814)
Sales of other investments....................................... 57,980 5,043
Purchases of other investments................................... (65,130) (9,348)
Net increase in loans made to customers.......................... (30,552) (28,771) (15,642)
Purchases of premises and equipment.............................. (3,356) (589) (640)
Sales of other real estate....................................... 2,674 1,719 1,233
Branch office acquisitions (Note 2).............................. 15,712
Other............................................................ (40)
-------- -------- --------
Net cash used by investing activities.......................... (22 ,636) (38,683) (34,145)
-------- -------- --------
Financing activities
Net increase in demand deposits, interest
checking and savings accounts.................................. 37,318 39,847 27,725
Net increase (decrease) in certificates of deposit
and other time deposits........................................ (15,160) 2,590 11,180
Net increase (decrease) in short-term borrowings................. 17,898 (3,294) (10,618)
Proceeds from long-term debt..................................... 2,000 2,000
Repayment of long-term debt...................................... (450) (50)
Sale of common stock............................................. 381 291 272
Cash dividends paid.............................................. (1,613) (1,572) (1,455)
-------- -------- --------
Net cash provided by financing activities...................... 40,824 37,412 29,054
-------- -------- --------
Increase in cash and cash equivalents............................ 29,103 6,214 1,211
Cash and cash equivalents, beginning............................. 46,363 40,149 38,938
-------- -------- --------
Cash and cash equivalents, ending................................ $ 75,466 $ 46,363 $ 40,149
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
L.S.B. Bancshares, Inc. of South Carolina
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation -- L.S.B. Bancshares, Inc.
of South Carolina (LSB), a bank holding company, and its wholly-owned
subsidiaries, The Lexington State Bank (including its wholly-owned subsidiary,
Carolina Securities Corporation) and The Community Bank of South Carolina,
provide banking services to domestic markets principally in Lexington,
Richland, Beaufort, and Hampton Counties of South Carolina. The consolidated
financial statements include the accounts of the parent company and its
subsidiaries after elimination of all significant intercompany balances and
transactions. The accounting and reporting policies of LSB and its subsidiaries
are in conformity with generally accepted accounting principles and general
practices within the banking industry.
Securities -- Investment securities are those securities that management
acquires with the intent and ability to hold until maturity. Securities chosen
for investment are selected according to several criteria including current
funding opportunities, anticipated cash flow needs, analysis of overall expected
net yield and pledging requirements. Investment securities are stated at cost,
increased by accretion of discounts and decreased by amortization of premiums
using the interest method. The gain or loss recognized on the sale of an
investment security is based on the adjusted cost of the specific certificate on
a trade date basis.
Trading account securities, primarily debt securities, are those securities that
have been purchased for resale. The carrying amounts for trading account
securities are adjusted to estimated fair value. Realized and unrealized gains
and losses resulting from such adjustments, and from recording the effects of
sales of trading account securities, are recognized in noninterest income on a
trade date basis.
Other investments include shares in mutual funds which are stated at the lower
of aggregate cost or estimated fair value. Unrealized losses on mutual funds are
recorded directly in a separate stockholders' equity account. Realized gains or
losses are determined using the specific identification method and are reflected
in income on a trade date basis.
Interest and Fees on Loans -- Interest income on installment loans is generally
recognized using the sum-of-the-months digits method. The results of using this
method were not materially different from those obtained by using the interest
method. Interest income on all other loans is recognized using the interest
method based upon the principal amounts outstanding. Loan origination and
commitment fees and certain direct loan origination costs (principally salaries
and employee benefits) are being deferred and amortized as an adjustment of the
related loan yields. Generally, these amounts are being amortized over the
contractual life of the related loans or commitments.
When a loan is 90 days past due as to interest or principal or there is serious
doubt as to collectibility, the accrual of interest income is generally
discontinued unless the estimated net realizable value of collateral is
sufficient to assure collection of the principal balance and accrued interest.
Previously accrued interest on loans placed in a nonaccrual status is reversed
against current income, and subsequent interest income is recognized when
received. When the collectibility of a significant amount of principal is in
serious doubt, the principal balance is reduced to the estimated net realizable
value of collateral by charge-off to the allowance for loan losses and any
subsequent payments are credited to the outstanding principal balance until the
loan is repaid; then, such payments are credited to the allowance for loan
losses as recoveries. A nonaccrual loan is not returned to accrual status unless
principal and interest are current and the borrower has demonstrated the ability
to continue making payments as agreed.
Allowance for Loan Losses -- An allowance for possible loan losses is maintained
at a level deemed appropriate by management to provide adequately for known and
inherent risks in the loan portfolio. The allowance is based upon a continuing
review of past loan loss experience, current economic conditions which may
affect the borrowers' ability to pay the underlying collateral value of the
loans. When it is determined that a loan will not perform substantially as
agreed, a review of the loan is initiated to ascertain whether it is more likely
than not that a loss has occurred. If it is determined that a loss is likely,
the estimated loss amount is charged off and deducted from the allowance. The
provision for possible loan losses and recoveries on loans previously charged
off are added to the allowance.
<PAGE>
Premises and Equipment -- Premises and equipment are stated at cost, less
accumulated depreciation and amortization. The provision for depreciation and
amortization is computed by using the straight-line method. Rates of
depreciation are generally based on the following estimated useful lives:
buildings - 33 to 40 years; furniture and equipment - 3 to 15 years; leasehold
improvements - 3 to 10 years.
Other Real Estate -- Other real estate includes properties acquired through
foreclosure or acceptance of a deed in lieu of foreclosure, and loans accounted
for as in-substance foreclosures. Collateral is considered foreclosed in
substance when the borrower has little or no equity in its current fair value,
proceeds for repayment of the related loan can be expected to come only from the
operation or sale of the collateral, and the borrower has either formally or
effectively abandoned control of the collateral to LSB or has retained control
but it is doubtful that the borrower can rebuild equity or otherwise repay the
loan in the foreseeable future. Other real estate is initially recorded at the
lower of cost or the estimated fair market value less estimated selling costs.
Loan losses arising from the acquisition of such property and in recognition of
in-substance foreclosures are charged to the allowance for loan losses. An
allowance for losses on other real estate is maintained for subsequent downward
valuation adjustments.
Employee Benefit Plans -- LSB sponsors a trusteed non-contributory defined
benefit pension plan covering substantially all officers and employees meeting
certain age and service requirements. The benefits are based on years of
service and compensation during the five consecutive calendar years that
produces the highest average level of annual compensation within the last ten
years of participation. It is LSB's policy to find an amount between the
minimum funding amount required by ERISA and the maximum tax deductible
contribution. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned in the
future.
LSB also provides a trusteed profit-sharing plan which provides retirement and
other benefits to substantially all officers and employees who meet certain age
and service requirements. The plan includes a "salary reduction" feature
pursuant to Section 401(k) of the Internal Revenue Code. Under the plan and
present policies, participants are permitted to make discretionary contributions
up to 10% of annual compensation. LSB makes marching contributions of 50% of
each participants contributions until the participant's contributions reach 6%
of annual compensation.
In December 1990, the Financial Accounting Standards Board issued Statement No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
This Statement requires the implementation, no later than 1993, of new
accounting and disclosure rules for benefits other than pensions, such as
postretirement health care programs. In addition, Statement No. 112, "Employers'
Accounting for Postemployment Benefits," was issued in November 1992, by the
Financial Accounting Standards Board. Statement No. 112 requires, no later than
1994, the implementation of new accounting and disclosure rules for
postemployment benefits such as payments to employees for disability, layoff, or
other event. LSB and its subsidiaries do not sponsor any postretirement
benefits, nor are any material postemployment benefits provided. Therefore, the
new requirements are not expected to have any material effect on the
consolidated financial position or results of operations of LSB.
Income Taxes -- Amounts provided for income taxes are based on income reported
for financial statement purposes. Deferred income taxes are provided for timing
differences between the period in which certain income and expense items are
recognized for financial reporting purposes and the period in which they affect
taxable income.
Earnings Per Share -- Earnings per share is calculated using the weighted
average number of shares outstanding during the year.
Statement of Cash Flows -- The statement of cash flows reports net cash
provided or used by operating, investing and financing activities and the net
effect of those flows on cash and cash equivalents. Cash equivalents include
amounts due from banks and federal funds sold and securities purchased under
agreements to recall.
During 1992, 1991 and 1990, interest paid on deposits, short-term borrowings and
long-term debt amounted to $20,653,000, $26,777,000, and $28,639,000,
respectively. Income tax payments of $2,257,000, $1,599,000, and $759,000 were
made in 1992, 1991 and 1990, respectively.
<PAGE>
Fair Value Estimates -- Fair value estimates are made at a specific point in
time based on relevant market information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time LSB's entire holdings of a particular financial instrument.
Because no active trading market exists for a significant portion of LSB's
financial instruments, fair value estimates are based on management's judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and-off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. For example, LSB has a substantial trust department that
contributes net fee income annually. The trust department is not a financial
instrument, and its value has not been considered into the fair value estimates.
Other significant assets and liabilities that are not considered financial
assets or liabilities include net deferred tax assets, premises and equipment
and intangible assets. In addition, the income tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimates.
For cash and due from banks, federal funds sold and securities purchased under
agreements to resell, accrued interest receivable and payable and short-term
borrowings, the carrying amount approximates fair value because these
instruments generally mature in 90 days or less and do not present unanticipated
credit concerns.
NOTE 2 -- BRANCH ACQUISITION
On May 7, 1992, LSB's subsidiary, The Community Bank of South Carolina, acquired
substantially all of the assets and assumed substantially all of the liabilities
of three branch offices in Beaufort, South Carolina which formerly belonged to
NationsBank of South Carolina, NA. The transaction was accounted for using the
purchase method. Accordingly, the consolidated financial statements reflect the
results of operations and the assets and liabilities of the acquired offices
since the date of acquisition. The pro forma effect of this transaction on the
consolidated operations of LSB is not material.
The principal assets acquired and liabilities assumed in the purchase are
summarized below.
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Loans, net...................................... $ 22,477
Premises, equipment and other assets............ 111
Intangible core deposit premium................. 1,537
Deposits and other liabilities.................. (39,837)
--------
Cash received for net liabilities assumed....... $(15,712)
========
</TABLE>
The intangible value of core deposits represents the estimated net present value
of the future economic benefits related to use of the deposits purchased. Such
amount is being amortized in proportion to the estimated annual benefit to be
derived over a period not to exceed fifteen years.
NOTE 3 -- CASH AND DUE FROM BANKS
The banking subsidiaries are required by regulation to maintain average cash
reserve balances based on a percentage of deposits. The average amounts of the
cash reserve balances at December 31, 1992 and 1991 were approximately
$13,000,000 and $12,971,000, respectively.
<PAGE>
NOTE 4 -- INVESTMENT SECURITIES
The aggregate carrying amount estimated fair value of investment accurities
were:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1992 1991
-------------------------- --------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
agencies and corporations................................. $ 99,733 $102,357 $104,376 $108,639
Obligations of states and political subdivisions............ 22,098 22,918 25,618 26,260
Mortgage-backed securities.................................. 15,948 15,999 7,594 7,593
Other....................................................... 1
-------- -------- -------- --------
Total.................................................. $137,779 $141,274 $137,589 $142,492
======== ======== ======== ========
</TABLE>
The aggregate carrying amount and estimated fair value of investment securities
by maturity date were as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1992 1991
-------------------------- --------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year or less..................................... $ 32,506 $ 33,169 $ 43,400 $ 44,002
Due after one through five years............................ 73,403 75,487 66,905 70,359
Due after five through ten years............................ 15,922 16,619 19,689 20,538
-------- -------- -------- --------
121,831 125,275 129,994 134,899
Mortgage-backed securities.................................. 15,948 15,999 7,594 7,593
Other....................................................... 1
-------- -------- -------- --------
Total.................................................. $137,779 $141,274 $137,589 $142,492
======== ======== ======== ========
</TABLE>
The fair value of investment securities, except certain obligations of states
and political subdivisions, is estimated based on published closing quotations
or dealers' quotes. The fair value of certain obligations of states and
political subdivisions is not readily available from market sources other than
dealer quotations; consequently, fair value estimates are based on quoted market
prices of similar instruments, adjusted for differences between the quoted
instruments and the instruments being valued.
Following are the approximate gross unrealized gains and gross unrealized losses
for investment securities:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1992 1991
-------------------------- --------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
------------ ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
agencies and corporations................................ $ 2,679 $ 55 $ 4,263 $
Obligations of states and political subdivisions........... 827 7 886 244
Mortage-backed securities.................................. 220 169 1
Other...................................................... 1
-------- -------- -------- --------
Total................................................. $ 3,276 $ 231 $ 5,149 $ 246
======== ======== ======== ========
</TABLE>
<PAGE>
The proceeds from sales of investment securities and the gross realized gains
and gross realized losses on such sales were as follows.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1992 1991 1990
------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
Proceeds from sales............................... $29,733 $10,836 $7,487
Gross realized gains.............................. 256 190 44
</TABLE>
At December 31, 1992 and 1991, investment securities with a book value of
$122,694,000 and $97,827,000, respectively, were pledged as collateral to secure
public deposits, securities sold under agreements to repurchase, and for other
purposes.
NOTE 5 -- OTHER INVESTMENTS
Other investments are presented in the balance sheet as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1992 1991
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Aggregate carrying amount......................... $16,624 $9,348
Gross unrealized gains............................ 6
Gross unrealized losses........................... (57)
---------- ----------
Estimated fair value........................ $16,567 $9,354
========== ==========
</TABLE>
The fair value of other investments is estimated based on closing quotations
published in financial newspapers.
NOTE 6 -- LOANS
Loans consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1992 1991
--------------------- --------
Carrying Estimated Carrying
Amount Fair Value Amount
--------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial, financial and agricultural......... $ 56,443 $ 56,526 $ 46,034
Real estate -- construction.................... 15,247 15,231 16,775
Real estate -- mortgage........................ 235,361 236,442 193,242
Consumer installment loans..................... 64,966 65,657 68,990
--------- ---------- --------
Total loans............................... $ 372,017 $373,856 $325,041
======== ========== ========
</TABLE>
Included in the above carrying amounts were nonperforming loans as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1992 1991
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans................................. $2,914 $3,544
Accruing loans 90 days or more past due.......... 298 1,224
---------- ----------
Total....................................... $3,212 $4,768
========== ==========
</TABLE>
<PAGE>
interest income that would have been recorded if nonaccrual loans had been in
accordance with their original terms amounted to $322,000, $430,000 and $428,000
for the years ended December 31, 1992, 1991 and 1990, respectively. Recognized
interest income on these loans was $102,000, $252,000 and $206,000 for the years
ended December 31, 1992, 1991 and 1990, respectively. There were no outstanding
commitments at December 31, 1992, to lend additional funds to debtors owing
nonaccrual loans.
Fair values are estimated for loan categories with similar financial
characteristics. Within each category, the fair value of loans is calculated by
discounting estimated cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent in
the loan. For certain categories of loans, such as variable rate loans, credit
card receivables, and other lines of credit, the carrying amount, adjusted for
credit risk, is a reasonable estimate of fair value because there is no
contractual maturity or because LSB has the ability to reprice the loans as
interest rate shifts occur. Since the discount rates are based on current loan
rates offered as well as management's estimates, the fair values presented may
not necessarily be indicative of the value negotiated in an actual sale.
Transactions in the allowance for loan losses are summarized below:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1992 1991 1990
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at January 1...................... $ 4,037 $ 3,838 $ 3,570
Provision charged to expense.............. 2,463 3,598 2,110
Recoveries................................ 288 216 202
Charge-offs............................... (2,072) (3,615) (2,044)
-------- -------- --------
Balance at December 31.................... $ 4,716 $ 4,037 $ 3,838
======== ======== ========
</TABLE>
As of December 31, 1992, there were no significant concentrations of credit risk
in any single borrower or groups of borrowers. The loan portfolio consists of
extensions of credit to businesses and individuals principally in Lexington,
Richland, Beaufort and Hampton Counties of South Carolina. Approximately 82% of
LSB's loans were made in the Lexington-Richland County area, 12% in the Hampton
County area, and 6% in the Beaufort County area. The economy of the
Lexington-Richland County area is diversified and the area is a major center of
state and county government, banking, insurance, manufacturing, service
industries and higher education. Beaufort County's economy is influenced by
tourism, the Paris Island Marine Depot and Training Center, retail businesses
and agriculture. The county is increasingly attracting retirees to live in its
coastal area. Hampton County is a rural area whose economy consists primarily of
agriculture, timber and wood products, and plastics industries. LSB's management
has established loan policies and practices that include set limitations on
loan-to-collateral value for various types of collateral, requirements for
appraisals, obtaining and maintaining current credit and financial information
to borrowers, and credit approvals.
NOTE 7 -- PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1992 1991
-------- --------
(Dollars in thousands)
<S> <C> <C>
Land...................................... $ 2,086 $ 1,952
Buildings................................. 9,766 8,549
Leasehold improvements.................... 229 228
Furniture and equipment................... 9,599 7,623
-------- --------
Total................................ 21,680 18,352
Accumulated depreciation and
amortization............................. (8,749) (7,678)
-------- --------
Premises and equipment - net......... $ 12,931 $ 10,674
======== ========
</TABLE>
<PAGE>
Depreciation and amortization expense for the years ended December 31, 1992,
1991 and 1990, was $1,186,000, $997,000 and $1,004,000, respectively.
As of December 31, 1992, commitments totaling $1,769,000 had been entered into
for construction, renovations, computer equipment and software purchases for
1993.
NOTE 8 -- OTHER REAL ESTATE
Other real estate of $1,690,000 and $3,331,000, is included in other assets at
December 31, 1992 and 1991, respectively. At December 31, 1992, an allowance of
$188,000 for other real estate losses subsequent to acquisition has been
established by charges to net cost of operation of other real estate.
NOTE 9 -- DEPOSITS
Deposits consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1992 1991
-------------------- --------
Carrying Estimated Carrying
Amount Fair Value Amount
-------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Noninterest bearing demand.............. $ 64,950 $ 64,950 $ 47,431
Interest bearing transaction accounts... 208,306 208,306 171,900
Savings................................. 40,630 40,630 28,537
Time deposits $100M and over............ 42,579 43,067 42,685
Other time deposits..................... 183,047 184,247 187,064
-------- -------- --------
Total deposits...................... $539,512 $541,200 $477,617
======== ======== ========
</TABLE>
The fair value of deposits with no stated maturity (noninterest bearing demand,
interest bearing transaction accounts and savings) is equal to the amount
payable on demand, or carrying amount, as of December 31, 1992. The fair value
of time deposits is estimated based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered as of
December 31, 1992, for deposits of similar remaining maturities.
NOTE 10 -- SHORT-TERM BORROWINGS
Short-term borrowings payable were:
<TABLE>
<CAPTION>
December 31,
--------------------
1992 1991
------- -------
(Dollars in thousands)
<S> <C> <C>
Federal funds purchased and securities
sold under agreements to repurchase............. $31,628 $13,730
Interest bearing demand notes issued to the
U.S. Treasury................................... 1,000 1,000
------- -------
Total......................................... $32,628 $14,730
======= =======
</TABLE>
Federal funds purchased and securities sold under agreements to repurchase
generally mature on a one to thirty-one day basis. At December 31, 1992 and
1991, the combined weighted average interest rates related to Federal funds
purchased and securities sold under agreements to repurchase were 2.96% and
3.77%, respectively. At December 31, 1992 and 1991, the interest rates on
interest bearing notes issued to the U.S. Treasury were 2.85% and 4.02%,
respectively.
At December 31, 1992, the banking subsidiaries had unused short-term lines of
credit to purchase federal funds from unrelated banks totaling $18,500,000.
These lines of credit are available on a one to seven day basis for general
corporate purposes of the banks. All of the lenders have reserved the right to
withdraw these lines at their option.
<PAGE>
NOTE 11--LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1992 1991
-------- --------
(Dollars in thousands)
<S> <C> <C>
L.S.B. Bancshares, Inc. of South Carolina-
5.82%, $4 million subordinated capital note,
dated 1990, with interest only due quarterly
until annual principal installments of $1,000,000
begin in 1996 with final maturity in 1999.............. $4,000 $2,000
======== ========
</TABLE>
As of December 31, 1992, the carrying amount of LSB's long-term debt
approximates fair value because the interest rate on such debt reprices
immediately with changes in the lender's prime rate, and management is not aware
of any significant change in the credit risk associated with the debt.
Future debt maturities are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, (Dollars in thousands)
----------------------- ----------------------
<S> <C>
1996.................................. $1,000
1997.................................. 1,000
1998.................................. 1,000
1999.................................. 1,000
------
Total............................ $4,000
======
</TABLE>
Interest on the subordinated note fluctuates at 97% of the lender's prime rate
with LSB having certain options to fix the interest rate. The note is
subordinate to the claims of depositors. In a related loan agreement, LSB has
agreed to certain covenants including: maintenance of specified amounts of net
worth; minimum ratios of capital adequacy, income to average assets and income
to average equity; a maximum ratio of loans to deposits; maximum ratios of
problem loans and other problem assets to total loans, and that ratios of the
allowance for loan losses to problem loans and other problem assets be
maintained above prescribed levels. The loan agreement also restricts the
disposition of subsidiaries' common stock, the pledging of certain assets to
secure indebtedness, additional borrowings, and the payment of cash dividends.
Under the provisions of the loan agreement, $5,769,000 of consolidated retained
earnings are available for cash dividends after December 31, 1992, provided that
such payments would not thereafter cause net worth and ratios of capital
adequacy to decrease below the specified levels. LSB was in compliance with each
of the covenants as of December 31, 1992.
<PAGE>
NOTE 12 -- STOCKHOLDERS' EQUITY
Sale of Common Stock -- As of July 14, 1992, LSB registered 200,000 shares of
its authorized but unissued common stock for sale through its Dividend
Reinvestment and Shareholder Stock Purchase Plan. Under this new plan, LSB is
offering all holders of its common stock the opportunity to reinvest
automatically their cash dividends in shares of common stock, and to invest up
to $1,000 in cash contributions per calendar quarter to purchase additional
shares. The price paid for shares purchased through the plan is the bid price
of the common stock reported on the NASDAQ over-the-counter market on the
trading day preceding the date an investment is made. Prior to this plan, a
dividend reinvestment plan was in effect that permitted only the reinvestment
of cash dividends to purchase shares. Shares issued under the Dividend
Reinvestment and Stock Purchase plan generally are newly issued shares.
However, LSB may purchase shares for participants in the open market.
Following is a summary of the activity in the aforementioned plans:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
Shares reserved for Dividend Reinvestment and
Shareholder Stock Purchase Plans -- beginning.... 11,743 34,292 54,390
-------- -------- --------
Registration of additional shares.................. 200,000
--------
Shares issued to participants:
First quarter................................... 5,371 6,274 4,494
Second quarter.................................. 5,269 5,551 4,723
Third quarter................................... 4,607 5,407 4,625
Fourth quarter.................................. 8,915 5,317 6,256
-------- -------- --------
Total shares issued .......................... 24,162 22,549 20,098
-------- -------- --------
Shares reserved for Dividend Reinvestment and
Shareholder Stock Purchase Plans -- ending...... 187,581 11,743 34,292
======== ======== ========
</TABLE>
Regulatory Capital -- LSB and its banking subsidiaries are subject to regulatory
risk-based capital adequacy standards. Under these standards, bank holding
companies and banks are required to maintain various minimum ratios of capital
to risk-weighted assets and average assets.
The following table sets forth the risk-based capital ratios of LSB and its
banking subsidiaries compared to the minimum levels prescribed by regulation:
<TABLE>
<CAPTION>
Tier 1 Total Capital Leverage
-------- --------------- ----------
<S> <C> <C> <C>
LSB....................................... 10.49% 12.65% 6.41%
The Lexington State Bank.................. 11.18% 12.39% 7.00%
The Community Bank of South Carolina...... 11.94% 13.19% 6.34%
Minimum required.......................... 4.00% 8.00% 3.00%
</TABLE>
<PAGE>
NOTE 13 -- OTHER OPERATING EXPENSES
Other operating expenses are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1992 1991 1990
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Salaries and employee benefits........................ $10,957 $ 9,278 $ 8,330
Net occupancy expense................................. 1,087 945 940
Furniture and equipment expense....................... 1,680 1,631 1,462
Other expense
Stationary, printing and supplies................... 904 746 730
Postage............................................. 612 546 467
Telephone........................................... 368 264 236
Advertising......................................... 427 377 400
Net cost of operation of other real estate.......... 509 522 251
Amortization of intangibles......................... 183 51 62
FDIC insurance assessment........................... 1,114 914 475
Other............................................... 2,854 2,140 2,122
------- ------- -------
Total............................................. $20,695 $17,414 $15,475
======= ======= =======
</TABLE>
NOTE 14 -- RETIREMENT PLANS
The following table sets forth the funded status of LSB's pension plan and
amounts recognized in the consolidated balance sheet:
<TABLE>
<CAPTION>
December 31,
-------------------
1992 1991
------- -------
(Dollars in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits of $2,272 for 1992 and $1.033 for 1991........................ $ 2,354 $ 1,080
======= =======
Projected benefit obligation for service rendered to date.................. $(4,074) $(1,714)
Plan assets at fair value, primarily listed stocks and bonds............... 2,026 1,381
------- -------
Projected benefit obligation greater than plan assets...................... (2,048) (333)
Unrecognized prior service cost............................................ 1,400 129
Unrecognized net loss...................................................... 818 248
Adjustment required to recognize minimum liability......................... (327)
------- -------
(Accrued) prepaid pension cost included in other (liabilities) assets...... $ (157) $ 44
======= =======
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 87, LSB has
recorded an adjustment, as shown in the table above, to recognize a minimum
pension liability for 1992. A corresponding offsetting asset, "Deferred pension
costs," has been recorded and included in other assets in the consolidated
balance sheet.
Net pension cost consisted of the following components:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1992 1991 1990
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Service cost.......................................... $ 282 $ 376 $ 357
Interest cost......................................... 228 90 59
Actual return on plan assets.......................... (69) (42) (43)
Net amortization and deferral......................... 41 (38) 10
----- ----- -----
Net periodic pension cost......................... $ 482 $ 386 $ 383
===== ===== =====
</TABLE>
<PAGE>
Assumptions used in accounting for the plan were:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1992 1991
------ ------
<S> <C> <C>
Weighted average discount rate....................... 6.75% 7.50%
Average rate of increase in future compensation
levels............................................. 5.50% 5.50%
Expected long-term rate of return on assets.......... 8.00% 8.00%
</TABLE>
Included in expenses were contributions to the banking subsidiaries' profit-
sharing plans of $125,000, $107,000 and $83,000 for the years ended December 31,
1992, 1991 and 1990, respectively.
NOTE 15--INCOME TAXES
Income tax expense is summarized below:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1992 1991 1990
------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
Currently payable
Federal............................................. $2,505 $ 750 $ 980
State............................................... 296 147 166
------ ----- ------
Total current.................................... 2,801 897 1,146
====== ===== ======
Deferred
Federal............................................. (360) 48 (286)
State............................................... (34) 3 (19)
------ ----- ------
Total deferred................................... (394) 51 (305)
------ ----- ------
Total............................................ $2,407 $ 948 $ 841
====== ===== ======
</TABLE>
Deferred income taxes of $786,000 and $392,000 at December 31, 1992 and 1991,
respectively, are included in other assets. Deferred income taxes result from
timing differences in the recognition of certain items of income and expense for
tax and financial reporting purposes.
The principal sources of these differences and the related deferred tax effects
are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1992 1991 1990
------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
Provision for loan losses............................ $ (471) $ 65 $ (317)
Accelerated depreciation............................. 39 61 124
Deferred net loan costs.............................. (14) (64) (87)
Other................................................ 52 (11) (25)
------ ---- ------
Total........................................... $ (394) $ 51 $ (305)
====== ==== ======
</TABLE>
<PAGE>
A reconciliation between the income tax expense and the amount computed by
applying the federal statutory rate of 34% to income before income taxes
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------- ------- ------
1992 1991 1990
------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C>
Tax expense at statutory rate..................................... $ 2,780 $ 1,415 $ 1,666
State income tax, net of federal income tax benefit............... 173 99 111
Tax-exempt interest income........................................ (680) (661) (720)
Non-deductible interest expense to carry tax-exempt instruments .. 75 91 115
Tax credit for rehabilitation of historic structure............... (145)
Other............................................................. 59 4 37
Restoration of net deferred tax charges of merged company......... (223)
Net operating loss of merged company for which
no tax benefits were recognized.................................
------- ------- ------
Total......................................................... $ 2,407 $ 948 $ 841
======= ======= ======
</TABLE>
Income tax expense related to investment security gains was $92,000, $68,000,
and $16,000 for 1992, 1991, and 1990 respectively.
In February 1992, the Financial Accounting Standards Board issued Statement No.
109, "Accounting for Income Taxes," which requires a change in the method of
accounting primarily for deferred income taxes. LSB has elected to adopt the new
accounting rule as of January 1, 1993, without restatement of prior periods. The
effects of adopting Statement No. 109 as of the adoption date have been
calculated and found by management to have no material adverse or beneficial
effect on consolidated financial position or results of operations.
NOTES 16 -- L.S.B. BANCSHARES, INC. OF SOUTH CAROLINA (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
December 31,
------------------
1992 1991
------- -------
(Dollars in thousands)
<S> <C> <C>
Balance Sheet
Assets
Cash............................................. $ 171 $ 41
Time deposits in other banks..................... 100
Other investments................................ 452 1,308
Investment in banking subsidiaries............... 44,003 36,699
Land............................................. 75 170
Other assets..................................... 416 115
------- -------
Total assets................................... $45,117 $38,433
======= =======
Liabilities
Long-term debt................................... $ 4,000 $ 2,000
Other liabilities................................ 285 81
Stockholders' equity............................... 40,832 36,352
------- -------
Total liabilities and stockholders' equity..... $45,117 $38,433
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1992 1991 1990
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Statement of Income
Income
Dividends from banking subsidiaries............. $ 1,607 $ 1,574 $ 1,446
Other dividends and interest.................... 39 98 110
Other income.................................... 2 9
-------- -------- --------
Total income.................................. 1,646 1,674 1,565
-------- -------- --------
Expenses
Interest expense................................ 202 167 42
Other expense................................... 286 94 229
-------- -------- --------
Total expenses................................ 488 261 271
-------- -------- --------
Income before income taxes and equity in
undistributed earnings of banking subsidiaries.. 1,158 1,413 1,294
Income tax expense (credit)....................... (153) (55) 7
Equity in undistributed earnings of banking
subsidiaries..................................... 4,458 1,745 2,772
-------- -------- --------
Net income........................................ $ 5,769 $ 3,213 $ 4,059
======== ======== ========
<CAPTION>
Years Ended December 31,
----------------------------
1992 1991 1990
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Statement of Cash Flows
Operating activities
Net income...................................... $ 5,769 $ 3,213 $ 4,059
Adjustments to reconcile net income to
net cash provided by operating activities
Equity in undistributed earnings of
banking subsidiaries...................... (4,458) (1,745) (2,772)
(Gain) loss on sale of other investments... 2 (2)
Decrease in interest receivable............ 2 4 5
Increase in interest payable............... 14 1 24
(Increase) decrease in prepaid expenses
and receivables........................... (303) (109) 4
Increase (decrease) in other accrued
expenses and payables..................... 190 49 (13)
-------- -------- --------
Net cash provided by operating
activities.............................. 1,216 1,411 1,307
-------- -------- --------
Investing activities
Net decrease in time deposits in other banks.... 100 50 1
Sales of other investments...................... 951 997
Purchase of other investments................... (100) (1,307)
Investment in banking subsidiaries.............. (2,900) (2,000)
Purchases of land............................... (75)
Sales of land................................... 95 1 86
-------- -------- --------
Net cash used by investing
activities.............................. (1,854) (259) (1,988)
-------- -------- --------
Financing activities
Sale of common stock............................ 381 291 272
Net decrease in short-term borrowings........... (178)
Proceeds from long-term debt.................... 2,000 2,000
Cash dividends paid............................. (1,613) (1,572) (1,455)
-------- -------- --------
Net cash provided (used) by financing
activities.............................. 768 (1,281) 639
-------- -------- --------
Increase (decrease) in cash and cash equivalents.. 130 (129) (42)
Cash and cash equivalents, beginning.............. 41 170 212
-------- -------- --------
Cash and cash equivalents, ending................. $ 171 $ 41 $ 170
======== ======== ========
<PAGE>
NOTE 17--COMMITMENTS AND CONTINGENT LIABILITIES
Commitments--In the normal course of business, LSB's banking subsidiaries are
parties to financial instruments with off-balance-sheet risk. These financial
instruments include commitments to extend credit, standby letters of credit and
securities lent, and have elements of credit risk in excess of the amount
recognized in the balance sheet. The exposure to credit loss in the event of
nonperformance by the other parties to these financial instruments is
represented by the contractual notional amount of those instruments. Generally,
the same credit policies used for on-balance-sheet instruments, such as loans,
are used in extending commitments, standby letters of credit, and securities
lent.
Following are the off-balance-sheet financial instruments whose contract amounts
represent credit risk:
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------
1992 1991
-------- --------
(Dollars in thousands)
<S> <C> <C>
Loan commitments............................. $60,291 $44,891
Standby letters of credit.................... 1,751 2,144
Securities lent.............................. 8,059
</TABLE>
Loan commitments involve agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and some involve
payment of a fee. Many of the commitments are expected to expire without being
fully drawn; therefore, the total amount of loan commitments does not
necessarily represent future cash requirements. Each customer's creditworthiness
is evaluated on a case-by-case basis. The amount of collateral obtained, if
any, upon extension of credit is based on management's credit evaluation of the
borrower. Collateral held varies but may include commercial and residential real
properties, accounts receivable, inventory and equipment.
Standby letters of credit are conditional commitments to guarantee the
performance of a customer to a third party. All of the standby letters of credit
expire within 1993. The credit risk involved in issuing standby letters of
credit is the same as that involved in making loan commitments to customers. As
of December 31, 1992 and 1991, approximately $499,000 and $286,000,
respectively, of the standby letters of credit were unsecured. Collateral for
secured standby letters of credit varies but may include commercial and
residential real properties, accounts receivable, inventory, equipment,
marketable securities and certificates of deposit. Since most of the letters of
credit are expected to expire without being drawn upon, the contract amounts do
not necessarily represent future cash requirements.
Securities lent represent customer securities lent to third parties. LSB's
banking subsidiaries assume credit risk on these instruments by indemnifying the
customer against the borrower's failure to return the securities. To minimize
this risk, the banking subsidiaries evaluate the creditworthiness of the
borrower on a case-by-case basis, and collateral with a market value exceeding
100% of the contract amount of securities lent is obtained.
Statement of Financial Accounting Standards No. 107 requires the discosure of
the estimated fair values of off-balance-sheet financial instruments for which
it is practicable to estimate fair value. The estimated fair values of such
off-balance-sheet financial instruments are generally based upon fees charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' creditworthiness. The vast majority of LSB's
loan commitments do not involve the charging of a fee, and the fees associated
with outstanding standby letters of credit and securities lent are not material.
Therefore, as of December 31, 1992, the estimated fair value of LSB's
off-balance-sheet financial instruments is nominal. For loan commitments and
standby letters of credit, the committed interest rates are either variable or
approximate current interest rates offered for similar commitments. Management
is not aware of any significant change in the credit risk associated with these
commitments. Securities lent positions mature on a demand basis and do not
present unanticipated credit concerns.
Contingent Liabilities--LSB and its subsidiaries are, from time to time,
involved as defendants in various legal proceedings arising in the normal
course of business. As of December 31, 1992, one of LSB's subsidiaries banks was
named as a defendant in a lawsuit in which the plaintiff seeks damages arising
from the bank's repossession and foreclosure of collateral securing a loan.
Management believes that the bank has meritorious defenses available
<PAGE>
and intends to vigorously contest this lawsuit. Although the amount of any
ultimate liability with respect to this matter cannot be determined with
certainty, in the opinion of management and legal counsel, these proceedings
will not have a material adverse effect on LSB's consolidated financial
position. Management and legal counsel are not aware of any other pending or
threatened litigation, or unasserted claims or assessments that could result in
losses, if any, that would be material to the consolidated financial
statements.
NOTE 18--RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
South Carolina banking regulations restrict the amount of dividends that can be
paid to stockholders. All of the banking subsidiaries' dividends to LSB are
subject to the prior approval of the Commissioner of Banking and are payable
only from their undivided profits. At December 31, 1992, the banking
subsidiaries' undivided profits totaled $16,505,000. Under Federal Reserve Board
regulations, the amounts of loans or advances from the banking subsidiaries to
the parent company are also restricted.
NOTE 19--LEASING
The annual minimum rental commitments under the terms of noncancelable operating
leases as of December 31, 1992, are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
1993................................... $ 81
1994................................... 78
1995................................... 73
1996................................... 41
1997................................... 37
Thereafter............................. 293
----
Total minimum lease payments...... $603
====
</TABLE>
Rental expense for all operating leases was $63,000, $265,000, and $278,000 for
the years ended December 31, 1992, 1991 and 1990, respectively. Some leases
provide for the payment of executory costs and contain options to renew.
NOTE 20--LOANS TO RELATED PARTIES
Certain executive officers and directors of the consolidated companies, their
immediate families and business interests were loan customers of, and had other
transactions in the normal course of business with, the banking subsidiaries.
Related party loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than normal risk of
collectibility. The aggregate dollar amount of these loans was $2,977,000 and
$2,962,000 at December 31, 1992 and 1991, respectively. During 1992, $1,473,000
of new loans were made and repayments totaled $1,458,000.
NOTE 21--PENDING TRANSACTION
LSB entered into an Agreement and Plan of Merger (Agreement), as amended, dated
November 10, 1992 whereby LSB will exchange previously unissued shares of its
authorized common stock for all of the 20,000 outstanding common shares of The
Dorn Banking Company (Dorn), McCormick, South Carolina. Dorn provides banking
services to domestic markets principally in McCormick and Greenwood Counties of
South Carolina. Under the terms of the Agreement, Dorn will be merged into LSB's
subsidiary, The Lexington State Bank. The proposed business combination is
expected to be accounted for using the pooling-of-interests method.
<PAGE>
Under terms of the Agreement, 418,944 shares of LSB common stock will be
exchanged for the 20,000 outstanding shares of Dom. Therefore, the exchange
ratio is 20.95 shares of LSB common stock for one share of Dom common stock.
The agreement is subject to approval by the stockholders of Dom and by
regulatory authorities. The Agreement may be terminated at any time prior to
the effective date of the merger by the mutual consent of the LSB and Dom Boards
of Directors, or by either party should material adverse changes occur in the
business of the other party.
The following table presents selected consolidated financial data for LSB and
Dom on an historical basis and on a pro forma combined basis:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1992 1991 1990
---------- ---------- ----------
(Dollars in thousands, except per share)
<S> <C> <C> <C>
Results of operations
Total interest income
LSB............................... $ 45,584 $ 46,669 $ 47,029
Dom............................... 2,141 2,099 2,149
LSB and Dom pro forma............. 47,725 48,768 49,178
Total interest expense
LSB............................... $ 20,054 $ 26,439 $ 28,787
Dom............................... 1,039 1,087 1,084
LSB and Dom pro forma............. 21,093 27,526 29,871
Net interest income
LSB............................... $ 25,530 $ 20,230 $ 18,242
Dom............................... 1,102 1,012 1,065
LSB and Dom pro forma............. 26,632 21,242 19,307
Provision for loan losses
LSB............................... $ 2,463 $ 3,598 $ 2,110
Dom............................... 65 10 11
LSB and Dom pro forma............. 2,528 3,608 2,121
Investment securities gains
LSB............................... $ 256 $ 190 $ 44
Dom...............................
LSB and Dom pro forma............. 256 190 44
Total other operating income
LSB............................... $ 5,548 $ 4,753 $ 4,199
Dom............................... 160 156 141
LSB and Dom pro forma............. 5,708 4,909 4,340
Total other operating expenses
LSB............................... $ 20,695 $ 17,414 $ 15,475
Dom............................... 800 766 735
LSB and Dom pro forma............. 21,495 18,180 16,210
Income (loss) before income taxes
LSB............................... $ 8,176 $ 4,161 $ 4,900
Dom............................... 397 392 460
LSB and Dom pro forma............. 8,573 4,553 5,360
Income tax expense (credit)
LSB............................... $ 2,407 $ 948 $ 841
Dom............................... 27 (11) 8
LSB and Dom pro forma............. 2,434 937 849
Net income (loss)
LSB............................... $ 5,769 $ 3,213 $ 4,059
Dom............................... 370 403 452
LSB and Dom pro forma............. 6,139 3,616 4,511
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Financial condition
Total assets (end of period)
LSB......................................... $619,803 $533,918 $493,625
Dom......................................... 31,518 26,950 24,578
LSB and Dom pro forma....................... 651,321 560,868 518,203
Loans, net of unearned income (end of period)
LSB......................................... $369,771 $320,649 $299,202
Dom......................................... 8,727 8,169 8,127
LSB and Dom pro forma....................... 378,498 328,818 307,329
Total deposits (end of period)
LSB......................................... $539,512 $477,617 $435,180
Dom......................................... 23,912 19,680 17,690
LSB and Domn pro forma...................... 563,424 497,297 452,870
Long-term debt (end of period)
LSB......................................... $ 4,000 $ 2,000 $ 2,450
Dorm........................................
LSB and Dom pro forma....................... 4,000 2,000 2,450
Stockholders' equity (end of period)
LSB......................................... $ 40,832 $ 36,352 $ 34,307
Dom......................................... 6,760 6,490 6,187
LSB and Dom pro forma....................... 47,592 42,842 40,494
Per share
Net income per share
LSB......................................... $ 2.18 $ 1.23 $ 1.56
Dom......................................... 18.50 20.15 22.60
LSB and Dom pro forma....................... 2.00 1.19 1.49
Book value per share at year end
LSB......................................... $ 15.36 $ 13.80 $ 13.14
Dom......................................... 338.00 324.50 309.35
LSB and Dom pro forma....................... 15.47 14.03 13.36
</TABLE>
<PAGE>
EXHIBIT 28.6
L.S.B. Bancshares, Inc. of South Carolina
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
<TABLE>
<CAPTION>
Sept. 30, 1993 Sept. 30, 1992
----------------- -----------------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $35,294,305.28 $32,531,957.48
Time deposits due from banks .00 .00
Investment securities 168,600,162.34 142,081,479.38
FHLB stock 1,551,100.00 .00
Federal funds sold and sec purch 12,100,000.00 2,375,000.00
Other investments 31,745,215.63 16,622,815.05
Securities trading account 1,561,268.31 3,000,000.00
Loans, net of unearned income 372,767,547.19 368,674,130.08
Allowance for loan losses (4,895,380.09) (4,535,167.34)
----------------- -----------------
Net loans 367,872,167.10 364,138,962.74
----------------- -----------------
Premises and equipment 14,378,645.54 12,874,938.47
Other real estate owned 1,866,542.29 2,109,433.07
Intangible assets 1,280,618.09 1,596,743.38
Other assets 9,818,193.57 8,921,341.86
----------------- -----------------
TOTAL ASSETS $646,068,218.15 $586,252,671.43
================= =================
LIABILITIES
- -----------
Deposits
Non-interest bearing demand $73,027,945.17 $59,181,299.59
Interest bearing 472,106,430.32 450,610,610.01
----------------- -----------------
Total deposits 545,134,375.49 509,791,909.60
----------------- -----------------
Short-term borrowings 45,014,923.75 29,181,673.57
Long-term debt 8,000,000.00 4,000,000.00
Other liabilities 2,955,965.89 3,781,954.16
----------------- -----------------
TOTAL LIABILITIES 601,105,265.13 546,755,537.33
----------------- -----------------
STOCKHOLDERS' EQUITY
- --------------------
Common stock 6,720,070.00 6,623,260.00
Surplus 19,380,457.91 18,701,892.91
Undivided profits 14,135,288.27 10,071,192.02
Market valuation adjustment (26,697.75) (681.50)
Net income 4,753,834.59 4,101,470.67
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 44,962,953.02 39,497,134.10
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $646,068,218.15 $586,252,671.43
================= =================
</TABLE>
<PAGE>
L.S.B. BANCSHARES, INC. OF SOUTH CAROLINA
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Sept. 30, 1993 Sept. 30, 1992
-------------- --------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $24,648,758.63 $24,726,630.29
Investment securities:
Taxable 6,426,034.45 6,772,229.58
Tax-exempt 989,570.66 1,167,228.39
-------------- --------------
Total Investment Securities 7,415,605.11 7,939,457.97
-------------- --------------
Securities trading account 58,772.79 28,782.21
Dividends on FHLB stock 34,794.62 .00
Federal funds sold & sec purch 353,113.17 616,192.09
Tax refunds .00 48.17
Time balances (451.63) 1,989.45
Other investments 839,131.05 873,894.77
-------------- --------------
TOTAL INTEREST INCOME 33,349,723.74 34,186,994.95
-------------- --------------
INTEREST EXPENSE
Deposits 11,990,017.97 14,762,939.59
Federal funds purch. & sec. sold 794,020.61 635,986.17
Short-term borrowings 20,547.51 27,511.80
Long-term debt 200,340.06 144,934.22
-------------- --------------
TOTAL INTEREST EXPENSE 13,004,926.15 15,571,371.78
-------------- --------------
Net interest income 20,344,797.59 18,615,623.17
Less: Provision for Loan Losses 1,162,000.00 1,880,000.00
-------------- --------------
Net interest income after provision 19,182,797.59 16,735,623.17
-------------- --------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
OTHER OPERATING INCOME
Trust department income 286,324.84 166,013.49
Service charges on deposit accounts 2,860,332.56 2,245,520.69
Insurance commissions 132,220.50 108,225.19
Other service charges & commissions 1,263,432.24 1,080,701.18
Net securities gains 132,749.01 326,649.10
Trading account gains 74,851.03 .00
Net gain on sale of ORE 6,130.90 .00
Gain on disposition of assets (7,866.98) .00
Other income 561,946.47 353,728.72
------------- -------------
TOTAL OTHER OPERATING INCOME 5,310,120.57 4,280,838.37
------------- -------------
OTHER OPERATING EXPENSE
Salaries & employee benefits 9,364,018.08 8,031,790.91
Occupancy expense 911,058.97 817,951.29
Furniture & equipment expense 1,462,673.45 1,238,850.61
Net securities losses .00 .00
Trading account losses .00 .00
Net loss on sale of ORE .00 236,495.81
FDIC assessment 896,978.95 822,735.67
Other expense 5,111,006.12 4,126,276.58
------------- -------------
TOTAL OTHER OPERATING EXPENSE 17,745,735.57 15,274,100.87
------------- -------------
Income before income taxes 6,747,182.59 5,742,360.67
Less: Provision for income taxes 1,993,348.00 1,640,890.00
------------- -------------
NET INCOME $4,753,834.59 $4,101,470.67
============= =============
</TABLE>
<PAGE>
L.S.B. BANCSHARES, INC. OF SOUTH CAROLINA
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Ended September 30,
1993 1992
---- ----
(unaudited)
<S> <C> <C>
Operating Activities
Net income $ 4,754 $ 4,101
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 1,162 1,880
Depreciation and amortization 1,107 800
Writedowns of other real estate 215 222
Amortization of intangibles 255 2
Amortization of net loan fees and costs 156 144
Accretion and premium amortization 732 155
Gain on sale of investment securities (133) (192)
Realized gain on sales of other investments (126)
Net securities trading account activities (1,561) (3,000)
Net mortgage loans held for sale activities (50) 687
Gain (loss) on sale of other real estate (6) 236
Decrease in interest receivable 441 818
Decrease in interest payable (315) (455)
(Increase) decrease in prepaid expenses and other
receivables (1,676) 1
Increase in other accrued expenses 440 1,005
------- -------
Net cash provided by operating activities 5,521 6,278
------- -------
Investing Activities
Net decrease in time deposits in other banks 100
Sales of investment securities 4,681 26,050
Maturities of investment securities 57,104 71,836
Purchases of investment securities (94,756) (102,341)
Increase in other investments (15,145) (7,150)
Net increase in loans made to customers (5,772) (41,789)
Purchases of premises and equipment (2,555) (2,914)
Sales of other real estate 1,497 2,197
Net cash received in branch office acquisitions 20,968
------- -------
Net cash used by investing activities (54,949) (33,043)
------- -------
Financing Activities
Net increase (decrease) in demand deposits, interest
checking and savings accounts (5,916) 6,999
Net increase (decrease) in certificates of deposits and
other time deposits 11,538 (7,187)
Net increase in short-term borrowings 12,387 14,452
Additional long-term debt 4,000 2,000
Sale of common stock 628 233
Cash dividends paid (1,281) (1,188)
------- -------
Net cash provided by financing activities 21,356 15,309
------- -------
Increase (decrease) in cash and cash equivalents (28,072) (11,456)
Cash and cash equivalents, January 1 75,466 46,363
------- -------
Cash and cash equivalents, September 30 $47,394 $34,907
------- -------
</TABLE>
