Washington, D. C. 20549
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996. Commission File No. 0-10852
SOUTHERN BANCSHARES (N.C.), INC.
DELAWARE 56-1538087
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
121 East Main Street Mount Olive, North Carolina 28365
(Address of Principal Executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (919) 658-7000
On April 17, 1996 the Company amended its Certificate Of Incorporation to
reduce the number of authorized shares of the Company's $2 preferred stock
from 2,060 shares to -0- shares and to delete said class of stock; to
reduce the number of authorized shares of its Series B preferred stock from
840,744 shares to 408,728 shares; and to reduce the number of authorized
shares of its Series C preferred stock from 420,372 shares to 43,631
shares, for a total aggregate reduction in the number of authorized shares
of 810,817 shares. Pursuant to resolutions of the Company's Board of Directors,
the Annual Meeting of the Shareholders of the Corporation was duly called and
held on April 17, 1996, upon notice in accordance with Section 222 of the
General Corporation Law of the State of Deleware, at which meeting the necessary
numbers of shares of each class of preferred stock, each class voting separately
as a class, and of all classes of common and preferred stock voting together as
a group, were voted affirmatively in favor of the amendment, as required by
statute. See Exhibit A, Certificate of Amendment of Certificate of
Incorporation of Southern BancShares (N.C.), Inc., attached.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of the Registrant's common stock
as of the close of the period covered by this report.
119,918 shares
<PAGE>
<TABLE>
<CAPTION>
SOUTHERN BANCSHARES (N.C.), INC June 30, December 31,
CONSOLIDATED BALANCE SHEETS 1996 1995
(In thousands except share and per share data) (Unaudited
<S> <C> <C>
ASSETS
Cash and due from banks $22,010 $27,186
Federal funds sold 0 15,720
Investment securities:
Held-to-maturity, at amortized cost (fair value $87,280 and $108,679, respectively) 86,691 106,873
Available-for-sale, at fair value (amortized cost $62,803 and $31,257, respectively) 74,638 41,933
Loans, net of unearned income 317,709 287,960
Less allowance for loan losses (6,280) (6,321)
311,429 281,639
Premises and equipment, net of accumulated depreciation and amortization 13,354 11,997
Accrued interest receivable 7,238 3,971
Intangible assets 6,392 6,748
Other assets 272 913
$522,024 $496,980
LIABILITIES AND SHAREHOLDERS' EQUITY:
Demand deposits $56,663 $56,440
Savings and interest bearing demand deposits 146,671 152,405
Time deposits 246,350 240,157
Total deposits 449,684 449,002
Federal funds purchased 17,660 0
Short-term borrowed funds 5,486 1,469
Accrued interest payable 3,011 3,491
Note payable 2,000 2,600
Other liabilities 4,498 3,255
Total liabilities 482,339 459,817
SHAREHOLDERS' EQUITY:
Series B non-cumulative preferred stock, no par value; 840,744 shares authorized,
at December 31, 1995 and 408,728 shares authorized at June 30, 1996, 408,728
shares issued and outstanding at June 30, 1996 and December 31, 1995 1,991 1,991
Series C preferred stock, no par value; 420,372 shares authorized at December
31, 1995 and 43,631 shares authorized at June 30, 1996, 43,631 shares issued and
outstanding at June 30, 1996 and December 31, 1995 578 578
Common stock, $5 par value; 158,485 shares authorized,119,918 shares issued and
outstanding at June 30, 1996 and December 31, 1995 600 600
Surplus 10,000 10,000
Retained earnings 18,705 16,948
Unrealized appreciation on securities available-for-sale, net of tax effect of $4,02
and $3,630 at June 30, 1996 and December 31, 1995, respectively 7,811 7,046
Total shareholders' equity 39,685 37,163
$522,024 $496,980
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
SOUTHERN BANCSHARES (N.C.), INC. (Unaudited)
CONSOLIDATED STATEMENTS OF INCOME Three Months Ended June 30,
<CAPTION> 1996 1995
(In thousands except per share data)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $6,653 $6,074
Investment securities:
U. S. Treasury securities and obligations of U. S. Government agencies 1,719 1,256
Obligations of states and political subdivisions 520 536
Other securities 146 64
Federal funds sold 64 88
Total interest income 9,102 8,018
INTEREST EXPENSE:
Savings and interest bearing demand deposits 851 824
Time deposits 3,347 2,806
Federal funds purchased 57 114
Note payable 55 88
Other 34 16
Total interest expense 4,344 3,848
NET INTEREST INCOME 4,758 4,170
Provision for loan losses 20 0
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,738 4,170
OTHER OPERATING INCOME:
Service charges on deposit accounts 674 546
Other service charges and fees 184 165
Insurance commissions 28 24
Other 127 165
Total other operating income 1,013 900
OTHER OPERATING EXPENSES:
Personnel 1,991 1,573
Occupancy 299 217
Furniture and equipment 360 279
Other 1,572 1,522
Total other operating expenses 4,222 3,591
INCOME BEFORE INCOME TAXES 1,529 1,479
Income tax expense 415 496
NET INCOME $1,114 $983
Net income applicable to common shares $1,015 $882
EARNINGS PER COMMON SHARE $8.46 $7.24
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION> (Unaudited)
SOUTHERN BANCSHARES (N.C.), INC. Six Months Ended June 30,
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data) 1996 1995
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $13,008 $11,737
Investment securities:
U. S. Treasury securities and obligations of U. S. Government agencies 3,358 2,421
Obligations of states and political subdivisions 1,075 1,089
Other securities 241 122
Federal funds sold 304 89
Total interest income 17,986 15,458
INTEREST EXPENSE:
Savings and interest bearing demand deposits 1,796 1,615
Time deposits 6,760 5,045
Federal funds purchased 57 230
Note payable 115 169
Other 64 30
Total interest expense 8,792 7,089
NET INTEREST INCOME 9,194 8,369
Provision for loan losses 20 0
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,174 8,369
OTHER OPERATING INCOME:
Service charges on deposit accounts 1,336 1,073
Other service charges and fees 363 318
Insurance commissions 92 47
Non-recurring income 213 530
Other 60 116
Total other operating income 2,064 2,084
OTHER OPERATING EXPENSES:
Personnel 3,856 3,155
Occupancy 585 435
Furniture and equipment 706 512
Other 3,175 3,084
Total other operating expenses 8,322 7,186
INCOME BEFORE INCOME TAXES 2,916 3,267
Income tax expense 870 1,019
NET INCOME $2,046 $2,248
Net income applicable to common shares $1,847 $2,047
EARNINGS PER COMMON SHARE $15.40 $16.81
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SOUTHERN BANCSHARES (N.C.), INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited dollars in PREFERRED STOCK COMMON Unrealized TOTAL
thousands except per Series B Series C STOCK Retained appreciation SHAREHOLDERS'
share data) Shares Amount Shares Amount Shares Amount Surplus Earnings on securities EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DEC. 31, 1994 413,389 $2,014 43,959 $582 121,767 $609 $10,000 $13,783 $3,977 $30,965
Net income 2,248 2,248
Retirement of stock (1,000) (5) (5) (10)
Cash dividends:
Common stock (60) (60)
($.50 per share)
Preferred B (182) (182)
($.44 per share)
Preferred C (19) (19)
($.44 per share)
Change in unrealized
gain on
available-for-sale
securities, net of
income tax effect 2,222 2,222
BALANCE, JUNE 30, 1995 412,389 $2,009 43,959 $582 121,767 $609 $10,000 $15,765 $6,199 $35,164
BALANCE, DEC. 31, 1995 408,728 $1,991 43,631 $578 119,918 $600 $10,000 $16,948 $7,046 $37,163
Net income 2,046 2,046
Cash dividends:
Common stock (90) (90)
($.75 per share)
Preferred B (180) (180)
($.44 per share)
Preferred C (19) (19)
($.44 per share)
Change in unrealized
gain on
available-for-sale
securities, net of
income tax effect 765 765
BALANCE, JUNE 30, 1996 408,728 $1,991 43,631 $578 119,918 $600 $10,000 $18,705 $7,811 $39,685
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> (Unaudited)
Six months ended
June 30,
(thousands) 1996 1995
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $2,046 $2,248
Adjustments to reconcile net income
(used in) provided by operating activities:
Provision for loan losses 20 0
Net accretion on investments (29) (17)
Amortization of intangibles 822 432
Depreciation 472 310
Increase in accrued interest receivable (3,267) (641)
(Decrease) increase in accrued interest payable (480) 907
Net decrease in other assets 247 1,892
Net increase in other liabilities 1,029 2,084
NET CASH PROVIDED BY OPERATING ACTIVITIES 860 7,215
INVESTING ACTIVITIES:
Proceeds from maturities of securities avail-for-sale 110 0
Proceeds from maturities of sec. held-to-maturity 24,660 22,094
Proceeds from sales of securities available-for-sale 75 0
Purchases of investment sec. held-to-maturity (4,685) (33,666)
Purchases of investment sec. available-for-sale (31,495) (4,615)
Net increase in loans (29,769) (20,233)
Acquisition of branches, net of cash paid 3,018 46,056
Additions to premises and equipment (1,829) (1,070)
NET CASH (USED) PROVIDED IN INVESTING ACTIVITIES (39,915) 8,566
FINANCING ACTIVITIES:
Net decrease in demand deposits (7,586) (16,453)
Net increase in time deposits 4,957 18,934
Purchase of federal funds 17,660 0
Principal payments on note payable (600) (600)
Net proceeds of short-term borrowed funds 4,017 1,688
Cash dividends paid (289) (261)
Acquisition of branches 3,018 46,056
Purchase and retirement of stock 0 (10)
NET CASH PROVIDED BY FINANCING ACTIVITIES 21,177 49,354
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (20,896) 19,079
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 42,906 17,147
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $22,010 $36,226
SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING THE PERIOD FOR:
Interest (paid and credited) $5,545 $4,501
Income taxes $383 $1,226
UNREALIZED GAIN ON AVAILABLE-FOR-SALE SECURITIES $1,159 $3,530
The accompanying notes are an integral part of these
consolidated financial statements
</TABLE>
<PAGE>
SOUTHERN BANCSHARES (N. C.), INC.
Notes to consolidated financial statements
(In thousands except share and per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Southern BancShares (N. C.), Inc. (the "Company") is holding company for
Southern Bank and Trust Company (the "Bank") , which operates 40 banking offices
in eastern North Carolina. The Bank, which began operations in January, 1901,
has two subsidiaries, Goshen, Inc. and Goshen Properties, Inc. whose insurance
operations and property management operations complement the operations of its
parent. The Company and the Bank are headquartered in Mount Olive, North
Carolina.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiary, the Bank, and the accounts of the Bank's wholly-owned
subsidiaries, Goshen, Inc. and Goshen Properties, Inc. The Company's financial
resources are primarily provided by dividends from the Bank and there are no
material differences between the results of operations or financial position of
the Company and of the Bank. All significant intercompany balances have been
eliminated in consolidation. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
most significant estimates made by the Company in the preparation of its
consolidated financial statements are the determination of the allowance for
loan losses, the valuation of other real estate, the valuation allowance for
deferred tax assets and fair value estimates for financial instruments. The
statements should be read in conjunction with the consolidated financial
statements and accompanying notes for the year ended December 31, 1995,
incorporated by reference in the 1995 Annual Report on Form 10-K.
2. RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the current
year presentation. Such reclassifications had no effect on net income or
shareholders' equity as previously reported.
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC.
Notes to consolidated financial statements continued
<TABLE>
<CAPTION>
3. INVESTMENT SECURITIES JUNE 30, 1996 DECEMBER 31, 1995
Gross Gross Estimated Gross Gross Estimated
(In thousands) Amortized UnrealizedUnrealized Market Amortized UnrealizedUnrealized Market
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY:
U. S. Government $61,303 $214 0 $61,517 $78,298 837 ($10) $79,125
Obligations of states and 25,088 381 0 25,469 28,275 976 0 29,251
political subdivisions
Corporate securities 300 0 (6) 294 300 3 0 303
86,691 595 (6) 87,280 106,873 1,816 (10) 108,679
SECURITIES AVAILABLE-FOR-SALE:
U. S. Government 47,134 0 (410) 46,724 16,654 114 0 16,768
Marketable equity securities 7,052 12,166 0 19,218 6,469 10,207 0 16,676
Obligations of states and 6,268 37 0 6,305 5,474 259 (9) 5,724
political subdivisions
Mortgage-backed securities 2,349 42 0 2,391 2,660 105 0 2,765
62,803 12,245 (410) 74,638 31,257 10,685 (9) 41,933
TOTALS $149,494 $12,840 ($416) $161,918 $138,130 $12,501 ($19) $150,612
</TABLE>
<PAGE>
SOUTHERN BANCSHARES (N. C.), INC.
Notes to consolidated financial statements
(In thousands except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands except share data) 1996 1995
<S> <C> <C>
4. LOANS
Loans by type were as follows:
Commercial, financial and agricultural $76,581 $57,398
Real estate - construction 2,516 1,533
Real estate - mortgage 200,940 189,315
Consumer 35,840 37,548
Lease financing 2,067 2,410
Total loans 317,944 288,204
Less unearned income (235) (244)
Total loans less unearned income $317,709 $287,960
Loans held for sale $5,461 $3,411
Loans serviced for others $69,211 $65,563
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 1996 1995
<S> <C> <C>
5. ALLOWANCE FOR LOAN LOSSES
Balance at beginning of year $6,321 $6,653
Provision for loan losses 20 0
Loans charged off (206) (463)
Loan recoveries 145 131
Balance at end of the period $6,280 $6,321
</TABLE>
<PAGE>
SOUTHERN BANCSHARES (N. C.), INC.
Notes to consolidated financial statements
(In thousands except share and per share data)
<PAGE>
<TABLE>
<CAPTION>
(In thousands) June 30, December 31
1996 1995
<S> <C> <C>
6. PREMISES AND EQUIPMENT
Land $2,782 $2,715
Buildings and improvements 8,985 8,543
Furniture and equipment 5,468 4,881
Construction-in-progress 1,922 1,189
19,157 17,328
Less: accumulated depreciation (5,803) (5,331)
$13,354 $11,997
</TABLE>
7. EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing income applicable to
common shares by the weighted average number of common shares outstanding
during the period. Income applicable to common shares represents net
income reduced by dividends paid to preferred shareholders and is
calculated as follows for the six months ended June 30:
<TABLE>
<CAPTION>
(In thousands except share data) 1996 1995
<S> <C> <C>
Net income $2,046 $2,248
Less: preferred dividends ($199) ($201)
Net income applicable to common shares $1,847 $2,047
Weighted average common shares
outstanding during the period 119,918 121,767
/</TABLE>
<PAGE>
8. RELATED PARTIES
The Company has entered into various service contracts with
another corporation and its subsidiary (the "Corporation")
The Corporation has two significant shareholders, which are
also shareholders of the Company. The following table lists
the various charges paid to the Corporation:
<PAGE>
<TABLE>
<CAPTION>
June 30, JUNE 30,
(In thousands) 1996 1995
<S> <C> <C>
Data and item processing $798 $678
Forms, supplies and equipment 87 92
Trustee for employee benefit plans 32 23
Consulting fees 43 34
Trust investment services 12 10
Internal auditing services 26 24
Other services 50 33
$1,048 $894
</TABLE>
<PAGE>
Data and item processing expenses include courier services, proof and
encoding, microfilming, check storage, statement rendering and item
processing forms. The Company also has a correspondent relationship with
the Corporation. Correspondent account balances with the Corporation
included in cash and due from banks totaled $10,043 at June 30, 1996 and
$16,167 at December 31, 1995. The first significant shareholder is a
director of the Company and, at June 30, 1996, beneficially owned 30,691
shares, or 25.59%, of the Company's outstanding common stock and 22,171
shares, or 5.42%, of the Company's outstanding Series B preferred stock. At
the same date, the second significant shareholder beneficially owned 28,185
shares, or 23.50%, of the Company's outstanding common stock, and 17,205
shares, or 4.21%, of the Company's Series B preferred stock. The above
totals include 17,205 Series B preferred shares, or 4.21%, that are
considered to be beneficially owned by both of the shareholders and,
therefore, are included in each of their totals. These two significant
shareholders are directors and executive officers of the Corporation and at
June 30, 1996, beneficially owned 2,603,948 shares, or 26.88%, and 1,214,096
shares, or 12.53%, respectively, of the Corporation's outstanding Class A
common stock, and 636,421 shares, or 36.13%, and 328,494 shares, or 18.65%,
respectively, of the Corporation's outstanding Class B common stock. The
above totals include 282,670 Class A common shares, or 2.92%, and 52,400
Class B Common shares, or 2.98%, that are considered to be beneficially
owned by both of the shareholders and, therefore, are included in each of
their totals. A subsidiary of the Corporation is First-Citizens Bank &
Trust Company ("First Citizens"). As more fully discussed elsewhere herein,
the Company acquired a branch from First Citizens in both 1995 and 1996.
<PAGE>
SOUTHERN BANCSHARES (N.C), INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - FIRST SIX MONTHS OF 1996
VS. FIRST SIX MONTHS OF 1995
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
INTRODUCTION
In early June 1995, Southern Bank and Trust Company ("the Bank"), a
wholly-owned subsidiary of Southern BancShares (N.C.), Inc. ("the Company")
acquired branches in Farmville, North Carolina, Garland, North Carolina, Kill
Devil Hills, North Carolina and Salemburg, North Carolina from First Union
National Bank ("First Union") and one branch in Kill Devil Hills, North
Carolina from First-Citizens Bank & Trust Company ("First Citizens") . These
acquisitions were accounted for as purchases, and therefore, the results of
operations prior to the purchase of these branches are not included in the
consolidated financial statements. In these transactions, the Bank acquired
approximately $46 million of cash, $26 million of demand and savings deposits,
$25 million of time deposits, $2 million of goodwill, and $3 million of loans.
The Company opened a branch in Whitakers, North Carolina in March, 1996 and
opened a second branch in Farmville, North Carolina in May, 1996. In June
1996, the Company acquired approximately $7 million of the deposits of the
Windsor, North Carolina office of First Citizens and sold $4 million of the
deposits of its Scotland Neck, North Carolina office to Triangle Bank. The
Company purchased $83 of the loans of the First Citizens Windsor branch and
sold $42 of the loans of its Scotland Neck branch. The Company paid a premium
of $539, or approximately 7%, for the deposits of the Windsor branch. This
acquisition was accounted for as a purchase, and therefore, the results of
operations prior to the purchase are not included in the consolidated
financial statements. The Company had a gain of $213 on the sale of the
Scotland Neck branch. The Company did not sell any branches in the 1995
period. The following comparisons of the six months and quarter ending June
30, 1996 to the six months and quarter ending June 30, 1995 are accordingly
impacted by the above transactions.
In the first six months of 1996, Southern BancShares net income decreased $202
from $2,248 in the first six months of 1995 to $2,046 in the first six months of
1996, a decrease of 9%. This decrease resulted primarily because of the $317
decrease in nonrecurring income. In the six months ended June 30, 1995, $530 of
nonrecurring income was realized from legal settlements and other real estate
sales. For the six months ended June 30, 1996, nonrecurring income of $213
resulted from the sale of a branch. Net income per share for the first six
months of 1996 was $15.40 per common share, a decrease of $1.41, or 8%, from
$16.81 in 1995. The return on average equity declined to 11.58%, at June 30,
1996, from 13.93% at June 30, 1995 and the return on average assets declined to
.87%, at June 30, 1996, from 1.13% at June 30, 1995. At June 30, 1996, the
Company's assets totaled $522,024 an increase of $25,044, or 5%, from the
$496,980 reported at December 31, 1995. During this six month period, net loans
increased $29,790 or 11%, from $281,639 to $311,429. During the six months
ended June 30, 1996 investment securities increased $12,523, or 8% from $148,806
at December 31, 1995 to $161,329 at June 30, 1996. Total deposits increased
$682, or .2% from $449,002 at December 31, 1995 to $449,684 at June 30, 1996.
During the quarter ended June 30, 1996 the Bank purchased the Windsor branch of
First Citizens and sold its Scotland Neck branch to Triangle Bank. These
transactions resulted in a net increase in deposits of approximately $3 million.
The Whitakers branch, which opened in the first quarter of 1996, resulted in $2
million of new deposits as of June 30, 1996.
INTEREST INCOME
Interest and fees on loans increased $1,271, or 11%, from $11,737 for the six
months ended June 30, 1995 to $13,008 for the six months ended June 30, 1996.
This increase was primarily due to increased loan volume that more than offset
a slight decrease in loan yields. Average loans for the six months ending
June 30, 1996 were $301 million, an increase of 14% from $264 million for the
prior year six month period. The yield on the loan portfolio decreased from
9.0% in the six months ended June 30, 1995 to 8.7% for the six months ended
June 30, 1996. Interest income from investment securities, including U. S.
Treasury and Government obligations, obligations of state and county
subdivisions and other securities increased $1,042, or 29%, from $3,632 in the
six months ended June 30, 1995 to $4,674 in the six months ended June 30, 1996.
This increase was primarily due to an increase in the volume of average
investment securities for the six months ended June 30, 1996 to $145 million as
compared to $121 million for the 1995 period. The yield on investment
securities was 5.9% for 1995 and 6.3% in 1996. Interest income on federal
funds sold increased $215, or 242%, from $89 for the six months ended June 30,
1995 to $304 for the six months ended June 30, 1996. This increase in income
resulted primarily from the increase in the average federal funds sold to
$11.3 million for the six months ended June 30, 1996 from $3.0 million for the
six months ended June 30, 1995. Average federal funds sold yields were 5.4 %
for the six months ended June 30, 1996 down from 5.9% for the six months ended
June 30, 1995. Total interest income increased $2,528, or 16%, from $15,458
for the six months ended June 30, 1995 to $17,986 for the six months ended
June 30, 1996. This increase was primarily the result of volume increases more
than offsetting an overall decrease in average earning asset interest yields.
Average earning asset interest yields for the six months ended June 30, 1996
decreased to 7.8% from the 8.0% yield on average earning assets for the six
months ended June 30, 1995. Average earning assets increased from $388 million
in the six months ended June 30, 1995 to $457 million in the period ended June
30, 1996. This $69 million increase in the average earning assets primarily
resulted from the 1995 acquisitions discussed above.
INTEREST EXPENSE
Total interest expense increased $1,703 or 24%, from $7,089 in the six months
ended June 30, 1995 to $8,792 for the six months ended June 30, 1996. The
principal reason for the increase was the interest bearing time and savings
deposits acquired in June 1995, although the Company's cost of funds did
increase from 4.14% at June 30, 1995 to 4.35% one year later. Average interest
bearing demand and savings deposits were $154 million in the six months ended
June 30, 1996, an increase of $2 million from the $152 million in the six
months ending June 30, 1995. Overall, average total interest bearing deposits
increased $71 million, or 22%, from $328 million at June 30, 1995 to $399
million at June 30, 1996.
NET INTEREST INCOME
Net interest income was up $825, or 10%, from $8,369 for the six months ended
June 30, 1995 to $9,194 for the six months ended June 30, 1996. This increase
was primarily due to the 1995 branch acquisitions from First Union and First
Citizens. The net interest margin at June 30, 1996 was 3.49% a decrease of 38
basis points from 3.87% at June 30, 1995. The Company had $57 in interest for
federal funds purchased in the six months ended June 30, 1996 compared to
$230 in the six months ended June 30, 1995. In 1995, the Company utilized
federal funds purchased to fund loan and investment increases in anticipation
of the deposits it received in the branch acquisitions discussed above.
PROVISION FOR LOAN LOSSES
For the six months ended June 30, 1996 management added $20 as a volume related
addition to the provision for loan losses. Management made no provisions for
loan losses for the six months ended June 30, 1995. During the first six months
of 1996 management charged-off loans totaling $206 and received recoveries of
$145, resulting in net charge-offs of $61. During the same period in 1995, $277
in loans were charged-off and recoveries of $48 were received, resulting in net
charge-offs of $229. The decrease in net charge-offs was principally due to
increased recoveries in 1996. The following table presents comparative Asset
Quality ratios of the company:
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
<S> <C> <C>
Ratio of net charge-offs
to average loans outstanding .02% .12%
Allowance for loan losses
to total loans 1.98% 2.20%
Non-performing loans
to total loans .16% .19%
Non-performing loans and assets
to total assets .10% .13%
Allowance for loan losses
to non-performing loans 1,246% 1,133%
</TABLE>
<PAGE>
The ratio of net charge-offs to average loans outstanding decreased to .02% at
June 30, 1996 from .12% at December 31, 1995 primarily due to increased
recoveries of loans previously charged off. The allowance for loan losses
represented 1.98% of total loans outstanding at June 30, 1996, a decrease of 22
basis points from the December 31, 1995 ratio of 2.20%. Loans outstanding
increased $30 million, or 10%, between December 31, 1995 and June 30, 1996 and
there was no substantial change in the credit quality of the loan portfolio
during the period. The decrease in the ratio of nonperforming loans to total
loans, from .19% at December 31, 1995 to .16% at June 30, 1996 is the result of
a slight improvement in the loan portfolio. Nonperforming loans and assets to
total assets decreased to .10% at June 30, 1996 from .13% at December 31, 1995.
The allowance for loan losses to nonperforming loans represented 1,246% of
nonperforming loans at June 30, 1996, an increase from the 1,133% at December
31,1995. This increase is primarily the result of a decrease in nonperforming
loans to $504 at June 30, 1996 from $558 at December 31, 1995. The
nonperforming loans at June 30, 1996 included $177 of nonaccrual loans, $327 of
loans 90 days past due and no restructured loans. Management considers the
June 30, 1996 allowance for loan losses adequate to cover the losses and risks
inherent in the loan portfolio at June 30, 1996 and will continue to monitor its
portfolio and to adjust the relative level of the allowance as needed. At June
30, 1996, the Bank has no loans classified for regulatory purposes as loss, no
loans classified as doubtful and $653 of loans classified as substandard.
Management actively maintains a current loan watch list and knows of no other
loans which are material and (i) represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity or capital resources, or (ii) represent material
credits about which management is aware of any information which causes
management to have serious doubts as to the ability of such borrowers to comply
with the loan repayment terms.
OTHER OPERATING INCOME
The Company had no gains on sale of investments for the six months ended June
30, 1995 or June 30, 1996. The Company had a nonrecurring gain of $213 on the
sale of its Scotland Neck branch to Triangle Bank in June 1996. The Company
did not sell any branches in the six months ended June 30, 1995 but
did have nonrecurring income of $530 related to the settlement of law suits and
gains on the sale of other real estate. The Company had losses on the sale of
mortgage loans of $115 in the six months ended June 30, 1996 compared to $5 in
gains on the sale of mortgage loans in the six months ended June 30, 1995.
Income from service charges on deposit accounts, other service charges and
fees, insurance commissions and other income not detailed above increased $407,
or 26%, from $1,559 for the six months ended June 30, 1995 to $1,966 for the
six months ended June 30, 1996. This increase was principally caused by the
1995 branch acquisitions discussed above.
OTHER OPERATING EXPENSES
Other operating expenses, including personnel, occupancy, furniture and
equipment, data processing, FDIC & state assessment, printing & supplies and
other expenses, increased $1,136 or 16%, from $7,186 in the six months ended
June 30, 1995 to $8,322 in the six months ended June 30, 1996. This increase
was primarily due to an increase in personnel expense of $701, or 22% from
$3,155 at June 30, 1995 to $3,856 at June 30, 1996 and increased occupancy,
furniture and equipment expense and other volume related expenses resulting from
the 1995 acquisitions of the branch locations from First Union and First
Citizens. The late second quarter 1996 purchase of the First Citizens Windsor
branch and the sale of the Scotland Neck branch had no material impact on other
operating expenses for the quarter ended June 30, 1996.
INCOME TAXES
In the six months ended June 30, 1996 the Company had income tax expense of
$870, a decrease of $149, or 15%, from $1,019 in the prior year period. This
decrease was due principally to reduced profitability. The resulting effective
tax rates based on the accruals for the six months ended in June 1996 and 1995
were 30% and 31%, respectively.
SOUTHERN BANCSHARES (N.C), INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION - SECOND QUARTER OF 1996
VS. SECOND QUARTER OF 1995
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
INTRODUCTION
Southern BancShares net income increased $131, or 13% from $983 in the second
quarter of 1995 to $1,114 in the second quarter of 1996. Earnings per common
share increased $1.22, or 17%, to 8.46 for the quarter ended June 30, 1996
compared to $7.24 for the prior year quarter. This increase was principally
the result of a $213 nonrecurring gain on the sale of the Company's Scotland
Neck branch. In June 1996, the Company acquired $7 million of the deposits of
the Windsor, North Carolina office of First Citizens Bank and sold $4 million of
the deposits of it's Scotland Neck, North Carolina office to Triangle Bank.
The Company purchased $83 of the First Citizens Windsor loans and sold $42 of
it's Scotland Neck loans. The Company paid a premium of $539, or approximately
7%, for the Windsor deposits.
INTEREST INCOME
Interest and fees on loans increased $579 or 10%, from $6,074 in the quarter
ended June 30, 1995 to $6,653 in the quarter ended June 30, 1996. This increase
was due principally to the higher average outstanding balances in 1996
principally as a result of loan growth. The June 1995 branch acquisitions from
First Union and First Citizens provided the Company with approximately $3
million in loans. The late second quarter 1996 purchase of the First Citizens
Windsor loans and the sale of the Scotland Neck loans had no material impact on
the interest income for the quarter ended June 30, 1996. Average loans
outstanding for the 1996 quarter were $309 million, up from $263 million in
1995, an increase of $46 million or 17%. Interest income from investment
securities, including U.S. Treasuries and obligations of U. S. Government
agencies, obligations of state and political subdivisions and other securities,
increased $529, or 29%, from $1,856 in 1995 to $2,385 in 1996. The increase is
the result of both an increase in the yields of the portfolio for the 1996
quarter to 6.29% as compared to 5.98% for the quarter ended June 30, 1995 and
an increase in the volume of average investments of $26 million, or 21%, in the
quarter ending June 30, 1996 to $147 million from $121 million for the quarter
ended June 30, 1995.
INTEREST EXPENSE
Total interest expense increased $496, or 13%, from $3,848 in the quarter ended
June 30, 1995 to $4,344 in the quarter ended June 30, 1996. This increase is
principally attributable to the branch deposit acquisitions in the second
quarter of 1995. The late second quarter 1996 purchase of the First Citizens
Windsor deposits and the sale of the Scotland Neck deposits had no material
impact on the interest expense for the quarter ended June 30, 1996. Average
interest bearing liabilities increased $62 million or 18% from $345 million for
the quarter ending June 30, 1995 to $407 million for the quarter ending June
30, 1996. The cost of interest bearing liabilities decreased 15 basis points
from 4.39% for the 1995 quarter ending June 30 to 4.24% for the 1996 quarter
ending June 30.
NET INTEREST INCOME
Net interest income was up $588, or 14%, from $4,170 for the three months ended
June 30, 1995 to $4,758 for the three months ended June 30, 1996. This
increase was primarily due to the 1995 branch acquisitions from First Union and
First Citizens. The late second quarter 1996 purchase of the First Citizens
Windsor assets and liabilities and the sale of the Scotland Neck assets and
liabilities had no material impact on net interest income for the quarter
ended June 30, 1996. The net interest margin at June 30, 1996 was 3.43% a
decrease of 44 basis points from 3.87% at June 30, 1995. The Company had $57
interest for Federal Funds Purchased in the three months ended June 30, 1996
compared to $114 in the three months ended June 30, 1995. In 1995, the Company
utilized Federal Funds Purchased to fund loan and investment increases in
anticipation of the deposits it received in the branch acquisitions discussed
above.
PROVISION FOR LOAN LOSSES
In the three months ended June 30, 1995, management considered the overall
reserve adequate to cover the risks inherent in the loan portfolio and,
accordingly, made no provisions to the reserve for loan losses. In the three
months ended June 30, 1996, management accrued $20 as a volume growth addition
to the reserve for loan losses. During the second quarter of 1996, the Company
realized charge-offs net of recoveries of $30. During the same period in 1995
the Company realized charge-offs net of recoveries, of $61. The reserve for
loan losses at June 30, 1996 of 1.98% of loans decreased approximately 22 basis
points from 2.20% at June 30, 1995 and is considered adequate by management to
cover the losses and risks inherent in the loan portfolio at June 30, 1996.
OTHER OPERATING INCOME
In the quarter ended June 30, 1995 and 1996 the Company had no gains or losses
on sales of investment securities. The Company had a nonrecurring gain of $213
on the sale of its Scotland Neck assets and liabilities to Triangle Bank in the
quarter ended June 30, 1996. The Company did not sell any branches in the
quarter ended June 30, 1995. The Company had losses on the sale of mortgage
loans of $151 in the three months ended June 30, 1996 compared to $3 in losses
on the sale of mortgage loans in the three months ended June 30, 1995. Income
from service charges on deposit accounts, other service charges and fees,
insurance commissions and other income not detailed above increased $48, or 5%
from $903 in the three months ended June 30, 1995 to $951 in the three months
ended June 30, 1996. This increase was principally attributed to overall
increased service charges resulting from the acquisition of the four branch
locations from First Union and the one location from First Citizens discussed
above.
OTHER OPERATING EXPENSES
Other operating expenses including personnel, occupancy, furniture and
equipment, data processing, FDIC and state assessments, printing and supplies
and other expenses increased $631, or 18% from $3,591 in 1995 to $4,222 in 1996
This increase was primarily due to an increase of $418, or 27%, in personnel
expenses which increased from $1,573 for the quarter ended June 30, 1995 to
$1,991 for the quarter ended June 30, 1996. This increase in personnel expense
was principally the result of the staff additions in June 1995 for the five
branch additions discussed above. The remaining expense categories also
increased principally as a result of the branch locations acquired in June
1995. The second quarter 1996 purchase of the First Citizens Windsor assets
and liabilities and the sale of the Scotland Neck assets and liabilities had no
material impact on other operating expenses for the quarter ended June 30,
1996.
INCOME TAXES
Income tax expense for the quarter ended June 30, 1996 was $415, a decrease of
$81, or 16% from $496 in the quarter ending June 30, 1995. This decrease is
principally due to a reduction in the estimated effective income tax rate for
the Company for the six months ended June 30, 1996 which was adjusted in the
quarter ended June 30, 1996. The tax rates estimated for the three months ended
June 30, 1996 and 1995 were 27% and 34%, respectively. The tax rates estimated
for the six months ended June 30, 1996 and 1995 were 30% and 31%, respectively.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
Sufficient levels of capital are necessary to sustain growth and absorb losses.
To this end, the Federal Reserve Board, which regulates the Company, and the
Federal Deposit Insurance Corporation, which regulates the Bank, have
established minimum capital guidelines for the institutions they supervise.
One of the guidelines sets minimum requirements for the Company's leverage
capital ratio. Leverage capital equals total equity less goodwill and certain
other intangibles. According to these guidelines, the Company's leverage
capital ratio at June 30, 1996 was 5.21%. At December 31, 1995, the Company's
leverage capital ratio was 5.60%. Both of these ratios are greater than the
level designated as well capitalized by the FDIC. The Company is also required
to meet minimum requirements for Risk Based Capital ("RBC"). The Company's
assets, including loan commitments and other off-balance sheet items, are
weighted according to federal guidelines for the risk considered inherent in
each asset. At June 30, 1996, the Total RBC ratio was 10.20%. At December 31,
1995 the RBC ratio was 10.22%. Both of these ratios are greater than the level
designated as well capitalized by the FDIC. The regulatory capital ratios
reflect increases in assets and liabilities from the acquisitions discussed
above. Each of the acquisitions required the payment of a premium for the
assets and liabilities received. Each of these premiums resulted in increased
intangible assets on the Company's financial statements, which is deducted from
total equity in the ratio calculations. The sale discussed above required the
write-off of the remaining unamortized premium originally paid in 1994 for this
branch's assets and liabilities and accordingly resulted in a reduction of $73
of intangible assets on the Company's financial statements. The unrealized
gains on securities available for sale at June 30, 1996 of $7.8 million and at
December 31, 1995 of $7.0 million, although a part of total shareholders'
equity, are not included in the calculation of either the RBC or leverage
capital ratios pursuant to regulatory definitions of these capital requirements.
The following table presents capital adequacy calculations and ratios of the
Company:
<TABLE>
<CAPTION>
(thousands except percentages) June 30 December 31
1996 1995
<S> <C> <C>
Total Shareholders' Equity $39,685 $ 37,163
Leverage Capital $ 25,481 $ 23,369
Risk Based Capital $ 29,291 $ 26,819
Leverage Capital Ratio 5.21%(1) 5.60%(1)
Tier I Capital Ratio 8.77%(1) 8.91%(1)
Total Risk-Based Capital Ratio 10.20%(1) 10.22%(1)
(1) These ratios exceed the minimum ratios required for a bank to be
classified as "well-capitalized," as defined by the FDIC.
</TABLE>
<PAGE>
LIQUIDITY
Liquidity refers to the ability of the Company to generate sufficient funds to
meet its financial obligations and commitments at a reasonable cost.
Maintaining liquidity ensures that funds will be available for reserve
requirements, customer demand for loans, withdrawal of deposit balances and
maturities of other deposits and liabilities. Past experiences help management
anticipate cyclical demands and amounts of cash required. These obligations
can be met by existing cash reserves or funds from maturing loans and
investments, but in the normal course of business are met by deposit growth.
In assessing liquidity, many relevant factors are considered, including
stability of deposits, quality of assets, economy of the markets served,
business concentrations, competition and the Company's overall financial
condition. The Company's liquid assets include cash and due from banks,
federal funds sold and investment securities available for sale. The liquidity
ratio, which is defined as net cash plus short term and marketable securities
divided by net deposits and short term liabilities, was 33% at June 30, 1996 and
39% at December 31, 1995. The Statement of Cash Flows discloses the principal
sources and uses of cash from operating, investing and financing activities for
the six months ended June 30, 1996 and 1995, respectively. The Company has no
brokered deposits. Jumbo time deposits are considered to include all time
deposits of $100,000 or more. The Company has never aggressively bid on these
deposits. Almost all jumbo time deposit customers have other relationships with
the Company, including savings, demand and other time deposits, and in some
cases, loans. At June 30, 1996 and at December 31, 1995 jumbo time deposits
represented 10% and 9%, respectively, of total deposits. Management believes
that the Company has the ability to generate sufficient amounts of cash to cover
normal requirements and any additional needs which may arise, within realistic
limitations, and management is not aware of any known demands, commitments or
uncertainties that will affect liquidity in a material way. The following table
presents comparative liquidity ratios of the company:
<TABLE>
<CAPTION>
June 30 December 31 Legal
1996 1995 Limits
<S> <C> <C> <C>
Total Loans to Deposits 67% 64% 80%(1)
Interest Bearing Deposits To Total Deposits 88% 87%
Jumbo Time Deposits to Total Deposits 10% 9%
Total Loans to Total Assets 61% 58% 70%(1)
Liquidity 33% 39% 25%(2)
Temporary Investments To Volatile Liabilities (3) 124% 170% 100%(2)
Volatile Liability Dependency -3% -8% 0 or (-) (3)
(1) Maximum
(2) Minimum
(3) Volatile Liabilities include certificates of deposit of $100,000 or more,
repurchase agreements, and the Treasury Tax and Loan Account.
</TABLE>
<PAGE>
ACCOUNTING AND REGULATORY MATTERS
In March 1995, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121") which establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for those to be disposed of. This statement requires that long-lived
assets and certain intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. An impairment loss should be recognized if the sum of the
undiscounted future cash flows is less than the carrying amount of the asset.
Those assets to be disposed of are to be reported at the lower of the carrying
amount or fair value, less costs to sell. Adoption of SFAS No. 121 was
required for fiscal years beginning after December 15, 1995. Adoption of this
statement did not have a material effect on the Company's consolidated
financial statements. However, this statement could have a material impact on
the Company's consolidated financial statements for future periods should an
event or changes in circumstances occur in such future periods, requiring a
review by management for impairment.
In October 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights, an amendment of SFAS No. 65." The statement amends SFAS No.
65, "Accounting for Certain Mortgage Banking Activities," to require that a
mortgage banking enterprise, or an entity engaged in mortgage banking
activities, recognize as separate assets rights to service mortgage loans for
others, however those rights are acquired. A mortgage banking enterprise that
acquires mortgage servicing rights through either the purchase or origination of
mortgage loans and sells or securitizes those loans with servicing rights
retained should allocate the total cost of the mortgage loans to the mortgage
servicing rights and the loans (without the mortgage servicing rights) based on
their relative fair values if it is practicable to estimate those fair values.
This statement also requires that a mortgage banking enterprise assess its
capitalized mortgage servicing rights for impairment based on the fair values of
these rights. Impairment should be recognized through a valuation allowance for
each impaired stratum. The adoption of this statement on January 1, 1996 has
had no material impact on the Company's financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The statement defines a fair value method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. It also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). SFAS No. 123 requires
that an employers' financial statements include certain disclosures about
stock-based compensation arrangements regardless of the method used to account
for them. Entities electing to remain with the accounting in APB 25 must make
pro forma disclosures of net income and, if presented, earnings per share, as if
the fair value based method of accounting defined in SFAS No. 123 had been
applied. The accounting requirements of this statement are effective for
transactions entered into in fiscal years that begin after December 31, 1995.
The disclosure requirements of this statement are effective for financial
statements for fiscal years beginning after December 15, 1995, or for an earlier
fiscal year for which this statement is initially adopted for recognizing
compensation cost. Pro forma disclosures required for entities that elect to
continue to measure compensation cost using APB 25 must include the effects of
all awards granted in fiscal years that begin after December 15, 1994. The
Company does not currently have any stock-based compensation plans, but has
determined that in the event it does offer stock-based compensation plans in
future periods that it will elect to continue to measure compensation cost using
APB 25.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," ("SFAS No.
124") which establishes accounting standards for determining when a liability
should be considered extinguished through the transfer of assets to a creditor
or the setting aside of assets dedicated to eventually settling a liability.
The statement provides conditions for determining if a transferor has
surrendered control over transferred financial assets and requirements for
derecognizing a liability when it is extinguished. The statement also requires
the recognition of either a servicing asset or a servicing liability when an
entity undertakes an obligation to service financial assets. Such servicing
assets or liabilities shall be amortized in proportion to and over the period of
the estimated net servicing income or loss, as appropriate. SFAS 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996 annnd is to be only applied on a
prospective basis. The application of SFAS 125 is not anticipated to have a
material impact on the Company's financial condition or results of operations.
The FASB also issues exposure drafts for proposed statements of financial
accounting standards. Such exposure drafts are subject to comment from the
public, to revisions by the FASB and to final issuance by the FASB as statements
of financial accounting standards. Management considers the effect of the
proposed statements on the consolidated financial statements of the Company and
monitors the status of changes to issued exposure drafts and to proposed
effective dates.
The Company has deposits insured under both of the FDIC's insurance funds, the
Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF").
In July 1995, the FDIC and other regulatory agencies proposed a plan to
recapitalize the SAIF, and Congress is currently considering the proposed
legislation. The current legislation, if enacted, would result in a one-time
assessment of approximately 80 basis points to be charged on 80% of the
Company's SAIF deposits. At June 30, 1996 the Company had approximately $118
million of SAIF-insured deposits. The Company is unable to predict the timing
or exact amount of any SAIF special assessment that might be required. The
Company has not and will not accrue a liability for the potential special
assessment until the period in which any proposed legislation is enacted. If
and when such legislation is enacted, the liability will be accrued and a
charge will be recorded in operating expense in the period that includes the
enactment date.
OTHER EVENTS
In the third quarter of 1996, subject to regulatory approval, the Company plans
to acquire the $6 million deposit Edenton office of United Carolina Bank. The
Company expects to pay a premium of approximately $420, or 7%, on the deposits.
The Company has announced that Mr. John C. Pegram, Jr., Senior Vice President
of the Bank, will become President of the Bank upon the retirement of Bank
President M. J. McSorley on January 31, 1998.
Management is not aware of any other trends, events, uncertainties, or current
recommendations by regulatory authorities that will have or that are reasonably
likely to have a material effect on BancShares' liquidity, capital resources or
other operations.
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.
SOUTHERN BANCSHARES (N.C.), INC.
Dated: August 1, 1996 __________________________________
M. J. McSorley, Vice President
Dated: August 1, 1996 __________________________________
David A. Bean, Secretary/Treasurer
EXHIBIT A
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SOUTHERN
BANCSHARES (N.C.), INC.
Southern BancShares (N. C.), Inc. , a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
1. That by action of the Board of Directors of the Corporation on January 24,
1996, resolutions were duly adopted setting forth a proposed amendment of the
Corporation's Certificate of Incorporation, declaring said amendment to be
advisable and calling for consideration of the amendment by the
shareholders of the Corporation at the next Annual Meeting of Shareholders.
The resolution setting forth the proposed amendment is as follows: Resolved,
that the Certificate of Incorporation of this Corporation be amended by
changing the Article thereof numbered "ARTICLE IV" so that, as amended, said
Article shall be and read as follows:
ARTICLE IV
The aggregate number of shares which the corporation shall have authority to
issue is Six Hundred Ten Thousand Eight Hundred Forty-Four (610,844) shares
divided into three classes. The designation, the number of authorized shares
and the par value of the shares of each class are as follows:
<TABLE>
<CAPTION>
Number Par Value
Class of Shares Per Share
<S> <C> <C>
Common 158,485 $5.00
Series B Non-Cumulative Convertible Preferred 408,728 No Par
Series C Non-Cumulative Convertible Preferred 43,631 No Par
</TABLE>
<PAGE>
The preferences, limitations and relative rights of the shares of each class
are as follows:
COMMON - The common stock has one (1) vote for each share outstanding and, as
to dividends and liquidation, is subject to the specific preferences
of the various classes of preferred stock. No dividend shall be paid
on the common stock in any calendar quarter after the first calendar
quarter of 1987 in which a dividend is not paid on Series B
Non-Cumulative Convertible Preferred stock and on Series C
Non-Cumulative Convertible Preferred stock.
SERIES B NON-CUMULATIVE CONVERTIBLE PREFERRED - Dividends are payable on a non-
cumulative basis in cash pursuant to the "Schedule of Dividends on
Series B and Series C Non-Cumulative Convertible Preferred Stock" set
forth below, solely at the discretion of the corporation; however, in
any calendar quarter after the first calendar quarter of 1987, if a
dividend is paid on the common stock a dividend must also be paid on
the Series B stock. The first dividend on Series B stock shall not be
payable until at least the end of the first calendar quarter of 1987.
Shareholders of Series B stock are entitled to one (1) vote for each
thirty-eight (38) shares of Series B stock held of record. Series B
stock is convertible at the election of the holder thereof into $5 par
value common stock of the corporation on the basis of one (1) share of
common stock for each thirty-eight (38) shares of Series B stock at any
time following the issuance of Series B stock by the corporation and
for a period of five (5) years thereafter. Such conversion privilege
shall cease on the first (1st) day of the sixth (6th) year following
the issuance of Series B stock by the corporation. The Series B stock
does not have class voting privileges except as required by law and has
liquidation and dividend preferences and protection against dilution as
provided below.
SERIES C NON-CUMULATIVE CONVERTIBLE PREFERRED - Dividends are payable on a non-
cumulative basis in cash pursuant to the "Schedule of Dividends on
Series B and Series C Non-Cumulative Convertible Preferred Stock" set
forth below, solely at the discretion of the corporation; however, in
any calendar quarter after the first calendar quarter of 1987, if a
dividend is paid on the common stock a dividend must also be paid on
the Series C stock. The first dividend on Series C stock shall not be
payable until at least the end of the first calendar quarter of 1987.
Shareholders of Series C stock are entitled to one (1) vote for each
thirty-eight (38) shares of Series C stock held of record. Series C
stock is convertible at the election of the holder thereof into $5 par
value common stock of the corporation on the basis of one (1) share of
common stock for each thirty-eight (38) shares of Series C stock at
any time following the issuance of Series C stock by the corporation
and for a period of five (5) years thereafter. Such conversion
privilege shall cease on the first (1st) day of the sixth (6th) year
following the issuance of Series C stock by the corporation. At any
time during the six (6) months period beginning on the first day of
the sixth (6th) year following the issuance of Series C stock by the
corporation and ending on the one hundred eighty-second (182nd) day of
the sixth (6th) year following the issuance of Series C stock by the
corporation, each Series C shareholder shall have a put option whereby
the shareholder can require the corporation to repurchase, subject to
any required regulatory approval, any or all of said shareholder's
Series C shares at a price of $13.25 per share by giving timely written
notice of such election to the corporation during the said six (6)
month period and by surrendering to the corporation any and all Series
C shares with respect to which the put option has been elected on or
before the one hundred eighty-second (182nd) day of the sixth (6th)
year following the issuance of Series C stock by the corporation. Once
such expiration day has passed, Series C shareholders shall have no
further rights to receive the put option price of $13.25 per share for
Series C stock. The Series C stock does not have class voting
privileges except as required by law and has liquidation and dividend
preferences and protection against dilution as provided below.
Schedule of Dividends on Series B and Series C Non-Cumulative Convertible
Preferred Stock
<TABLE>
<CAPTION>
First Second Third Fourth
Year Quarter Quarter Quarter Quarter Total
<S> <C> <C> <C> <C> <C>
1 (1987) $.06 $.06 $.06 $.06 $.24
2 $.08 $.08 $.08 $.08 $.32
3 $.10 $.10 $.10 $.10 $.40
4 $.12 $.12 $.12 $.12 $.48
5 $.14 $.14 $.14 $.14 $.56
6 $.15 $.15 $.15 $.15 $.60
7 $.17 $.17 $.17 $.17 $.68
8 $.19 $.19 $.19 $.19 $.76
9 $.22 $.22 $.23 $.23 $.90
</TABLE>
<PAGE>
The dividend would remain at $.90 per share per year for the 10th year and
beyond.
DIVIDEND AND LIQUIDATION PREFERENCES - The amounts declared available for
payment of preferred dividends shall be paid to the Series B and Series C
shareholders pro rata, based on the schedule set forth above entitled "Schedule
of Dividends on Series B and Series C Non-Cumulative Convertible Preferred
Stock", but only after affirmative declaration of said amounts on a
non-cumulative basis. Upon liquidation, the amounts available for distribution
to shareholders shall be applied first to the dividends due on the Series B and
Series C stock, allocated pro rata based on the then outstanding amounts due
which have been declared, but only on a non-cumulative basis, according to the
"Schedule of Dividends on Series B and Series C Non-Cumulative Convertible
Preferred Stock" set forth above, on each share of Series B and Series C: then
pro rata to the Series B and Series C shares based on a liquidation value of
$10 of said shares; then to the common dividends declared and due and then to
the outstanding common shares pro rata based on par value.
PROTECTION AGAINST DILUTION - The voting privilege and the exchange ratio for
conversion to common stock of the corporation of the Series B and Series C stock
will be proportionately amended in the event of a change in the common stock
outstanding by reason of stock split, stock dividend or other like transaction.
FRACTIONAL SHARES - The conversion privilege of the Series B and Series C stock
to common stock of the corporation pertains only to full shares of common stock
and the shareholders of Series B and Series C stock shall have the sole
responsibility to hold, sell, or otherwise dispose of any shares of Series B or
Series C stock in a number less than sufficient to convert into a full share of
common stock of the corporation. If, due to stock dividends, stock splits or
other like transactions, the required number of shares of series B or Series C
stock to be exchanged for a full share of common stock should be altered to a
fractional figure, then upon tender for conversion the corporation shall issue
to the tendering shareholder the number of full shares of common stock to which
such shareholder's holdings of that particular class of convertible preferred
stock entitle him and, for anything less than a full share of such class of
convertible preferred stock remaining after conversion, the corporation shall
pay such tendered preferred stock plus declared and unpaid dividends, the
responsibility remaining with the shareholder to handle any full shares of the
said class of preferred stock remaining in any manner the said shareholder
desires. No certificate for fractional shares shall be issued in any event.
2. That thereafter, pursuant to resolutions of its Board of Directors, the
Annual Meeting of the Shareholders of the Corporation was duly called and held
on April 17, 1996, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary
numbers of shares of each class of preferred stock, each class voting separately
as a class, and of all classes of common and preferred stock voting together as
a group, were voted affirmatively in favor of the amendment, as required by
statute.
3. That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
4. That the effect of the amendment is to reduce the number of authorized shares
of the Corporation's $2 preferred stock from 2,060 shares to -0- shares and to
delete said class of stock; to reduce the number of authorized shares of its
Series B preferred stock from 840,744 shares to 408,728 shares; and to reduce
the number of authorized shares of its Series C preferred stock from 420,372
shares to 43,631 shares, for a total aggregate reduction in the number of
authorized shares of 810,817 shares.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to
be signed by its President and its Secretary, this the 17th day of April, 1996.
SOUTHERN BANCSHARES (N.C.), INC.
By: R. S. Williams
President
ATTEST:
David A. Bean
Secretary
[CORPORATE SEAL]
STATE OF NORTH CAROLINA
COUNTY OF WAYNE
I, Sandy Cashwell McCarty, a Notary Public, hereby certify that on this 19th
day of April, 1996, personally appeared before me R. S. WILLIAMS, President, and
DAVID A. BEAN, Secretary, of SOUTHERN BANCSHARES (N.C.), INC. each of whom being
by me first duly sworn, declared that they signed the foregoing document in the
capacity indicated, that they were authorized so to sign, that the statements
therein contained are true, and that the foregoing document is the act and deed
of said Corporation.
Sandy Cashwell McCarty
Notary Public
My Commission Expires: October 21, 1997
