SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000 Commission File No. 0-10852
SOUTHERN BANCSHARES (N.C.), INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1538087
(State or 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
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 quarter covered by this report.
118,225 shares
Part i - FINANCIAL INFORMATION
Item 1 - Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES June 30, December 31,
CONSOLIDATED BALANCE SHEETS 2000 1999
------------------- ----------------
(Dollars in thousands except per share data)
ASSETS
<S> <C> <C>
Cash and due from banks $ 28,411 $ 28,524
Federal funds sold 9,905 20,370
Investment securities:
Available-for-sale, at fair value (amortized cost $95,296 and $83,095, respectively) 103,759 94,084
Held-to-maturity, at amortized cost (fair value $113,786 and $99,979, respectively) 114,018 100,129
Loans 424,250 398,060
Less allowance for loan losses (6,351) (6,188)
------------- -------------
Net loans 417,899 391,872
Premises and equipment 23,778 21,257
Intangible assets 8,732 6,411
Accrued interest receivable 5,709 4,730
Other assets 1,644 1,855
------------- -------------
Total assets $ 713,855 $ 669,232
============= =============
LIABILITIES
Deposits:
Noninterest-bearing $ 102,359 $ 89,181
Interest-bearing 521,079 489,069
------------- -------------
Total deposits 623,438 578,250
Short-term borrowings 8,255 6,658
Long-term obligations 23,000 23,000
Accrued interest payable 4,191 4,471
Other liabilities 690 1,909
------------- -------------
Total liabilities 659,574 614,288
------------- -------------
SHAREHOLDERS' EQUITY
Series B non-cumulative preferred stock, no par value; 408,728 shares authorized;
370,541 and 397,370 shares issued and outstanding at June 30, 2000 and December
31,1999, respectively 1,805 1,936
Series C non-cumulative preferred stock, no par value; 43,631 shares authorized; 39,825
shares issued and outstanding at June 30, 2000 and December 31, 1999, respectively 555 555
Common stock, $5 par value; 158,485 shares authorized; 118,225 and 118,912 shares
issued and outstanding at June 30, 2000 and December 31, 1999, respectively 591 595
Surplus 10,000 10,000
Retained earnings 35,745 34,606
Accumulated other comprehensive income 5,585 7,252
------------- -------------
Total shareholders' equity 54,281 54,944
------------- -------------
Total liabilities and shareholders' equity $ 713,855 $ 669,232
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES (Unaudited)
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE Three Months Ended June 30,
INCOME 2000 1999
---- ----
(Dollars in thousands except share and per share data)
Interest income:
<S> <C> <C>
Loans $ 9,024 $ 7,625
Investment securities:
U. S. Government 2,236 1,858
State, county and municipal 491 453
Other 141 188
----------- -----------
Total investment securities interest income 2,868 2,499
Federal funds sold 301 153
----------- -----------
Total interest income 12,193 10,277
Interest expense:
Deposits 5,327 4,323
Short-term borrowings 97 49
Long-term obligations 518 518
----------- -----------
Total interest expense 5,942 4,890
----------- -----------
Net interest income 6,251 5,387
Provision for loan losses 75 60
----------- -----------
Net interest income after provision for loan losses 6,176 5,327
Noninterest income:
Service charges on deposit accounts 993 916
Investment securities (losses) gains, net - -
Other service charges and fees 401 272
Gain (loss) on sale of other real estate (36) (34)
Credit card merchant discount 86 147
Gain (loss) on sale of loans (98) (149)
Other 144 87
----------- -----------
Total noninterest income 1,490 1,239
Noninterest expense:
Personnel 2,902 2,674
Data processing 579 469
Intangibles amortization 594 258
Occupancy 515 397
Furniture and equipment 430 368
Professional fees 180 129
Other 929 1,044
----------- -----------
Total noninterest expense 6,129 5,339
----------- -----------
Income before income taxes 1,537 1,227
Income taxes 330 270
----------- -----------
Net income 1,207 957
----------- -----------
Other comprehensive income (loss) net of tax:
Unrealized (losses) gains arising during period 213 (119)
Less: reclassification adjustment for gains included in net income - -
----------- -----------
Total comprehensive (loss) income $ 1,420 $ 838
=========== ===========
Per share information:
Net income per common share $ 9.40 $ 7.22
Cash dividends declared on common shares 0.37 0.37
Weighted average common shares outstanding 118,267 119,186
=========== ===========
<CAPTION>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES (Unaudited)
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE Six Months Ended June 30,
INCOME 2000 1999
---- ----
(Dollars in thousands except share and per share data)
Interest income:
<S> <C> <C>
Loans $ 17,458 $ 15,064
Investment securities:
U. S. Government 4,194 3,749
State, county and municipal 969 887
Other 297 374
---------- -----------
Total investment securities interest income 5,460 5,010
Federal funds sold 611 430
---------- -----------
Total interest income 23,529 20,504
Interest expense:
Deposits 10,065 8,701
Short-term borrowings 160 97
Long-term obligations 1,035 1,035
---------- -----------
Total interest expense 11,260 9,833
---------- -----------
Net interest income 12,269 10,671
Provision for loan losses 150 120
---------- -----------
Net interest income after provision for loan losses 12,119 10,551
Noninterest income:
Service charges on deposit accounts 1,855 1,723
Investment securities (losses) gains, net (843) 1
Other service charges and fees 686 519
Gain (loss) on sale of other real estate 46 (34)
Credit card merchant discount 158 175
Gain (loss) on sale of loans (100) (189)
Other 172 119
---------- -----------
Total noninterest income 1,974 2,314
Noninterest expense:
Personnel 5,725 5,407
Data processing 1,058 961
Intangibles amortization 1,051 868
Occupancy 1,010 779
Furniture and equipment 812 726
Professional fees 409 293
Other 1,856 1,672
---------- -----------
Total noninterest expense 11,921 10,706
---------- -----------
Income before income taxes 2,172 2,159
Income taxes 460 510
---------- -----------
Net income 1,712 1,649
---------- -----------
Other comprehensive income (loss) net of tax:
Unrealized (losses) gains arising during period (1,667) (2,188)
Less: reclassification adjustment for gains included in net income (556) -
---------- -----------
Total comprehensive (loss) income $ 601 $ (539)
========== ===========
Per share information:
Net income per common share $ 12.83 $ 11.93
Cash dividends declared on common shares 0.75 0.75
Weighted average common shares outstanding 118,520 119,218
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------------------------------------- ------------------------
Series B Series C
------------------------ ----------------------
Shares Amount Shares Amount Shares Amount
------------ ----------- ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 398,653 $1,942 40,373 $562 119,266 $596
Net income
Retirement of stock (952) (5) (548) (5) (80)
Cash dividends:
Common stock ($.75 per share)
Preferred B ($.44 per share)
Preferred C ($.44 per share)
Unrealized loss on securities
available-for-sale, net of tax
------------ ----------- ----------- --------- ------------ ---------
Balance, June 30, 1999 397,701 $1,937 39,825 $557 119,186 $596
============ =========== =========== ========= ============ =========
Balance, December 31, 1999 397,370 $1,936 39,825 $555 118,912 $595
Net income
Retirement of stock (26,829) (131) (687) (4)
Cash dividends:
Common stock ($.75 per share)
Preferred B ($.44 per share)
Preferred C ($.44 per share)
Unrealized loss on securities
available-for-sale, net of tax
------------ ----------- ----------- --------- ------------ ---------
Balance, June 30, 2000 370,541 $1,805 39,825 $555 118,225 $591
============ =========== =========== ========= ============ =========
<CAPTION>
Accumulated
Other
Compre- Total
Retained hensive Shareholders'
Surplus Earnings Income Equity
------------ ------------- ---------------- ----------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $10,000 $31,571 $11,362 $56,033
Net income 1,649 1,649
Retirement of stock (21) (31)
Cash dividends:
Common stock ($.75 per share) (89) (89)
Preferred B ($.44 per share) (175) (175)
Preferred C ($.44 per share) (18) (18)
Unrealized loss on securities
available-for-sale, net of tax (2,188) (2,188)
------------ ------------- ---------------- ----------------------
Balance, June 30, 1999 $10,000 $32,917 $9,174 $55,181
============ ============= ================ ======================
Balance, December 31, 1999 $10,000 $34,606 $7,252 $54,944
Net income 1,712 1,712
Retirement of stock (294) (429)
Cash dividends:
Common stock ($.75 per share) (88) (88)
Preferred B ($.44 per share) (173) (173)
Preferred C ($.44 per share) (18) (18)
Unrealized loss on securities
available-for-sale, net of tax (1,667) (1,667)
------------ ------------- ---------------- ----------------------
Balance, June 30, 2000 $10,000 $35,745 $5,585 $54,281
============ ============= ================ ======================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Six months ended June 30,
(Thousands) 2000 1999
---------- ----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,712 $ 1,649
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 150 120
Gains on sales and issuer calls of securities 843 (1)
Loss on sale and abandonment of premises and equipment 8 1
Net accretion on discounts on investments (43) (42)
Amortization of intangibles 1,051 868
Depreciation 843 731
Net increase in accrued interest receivable (979) (248)
Net decrease in accrued interest payable (280) (672)
Net decrease (increase) in other assets 239 61
Net (decrease) increase in other liabilities (1,230) 503
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,314 2,970
---------- ----------
INVESTING ACTIVITIES:
Proceeds from maturities and issuer calls of investment securities available-for-sale 12,162 17,111
Proceeds from maturities and issuer calls of investment securities held-to-maturity 23,666 22,798
Purchases of investment securities held-to-maturity (41,863) (23,645)
Purchases of investment securities available-for-sale (20,000) (15,000)
Net cash received for branches acquired 26,074 -
Net increase in loans (19,705) (15,516)
Purchases of fixed assets (2,800) (1,400)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (22,466) (15,652)
---------- ----------
FINANCING ACTIVITIES:
Net increase (decrease) in demand and interest-bearing demand deposits 1,376 (8,706)
Net increase (decrease) in time deposits 7,309 (1,286)
Net proceeds of short-term borrowed funds 1,597 1,807
Cash dividends paid (279) (282)
Purchase and retirement of stock (429) (31)
---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 9,574 (8,498)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (10,578) $ (21,180)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR 48,894 56,954
---------- ----------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 38,316 $ 35,774
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING THE PERIOD FOR:
Interest $ 11,540 $ 10,505
Income taxes $ 484 $ 247
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
SOUTHERN BANCSHARES (N. C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. Summary Of Significant Accounting Policies
Basis of Financial Statement Presentation
Southern BancShares (N. C.), Inc. ("BancShares") is the holding company for
Southern Bank and Trust Company ("Southern"), which operates 47 banking offices
in eastern North Carolina, and Southern Capital Trust I (the "Trust"), a
statutory business trust that issued $23.0 million of 8.25% Capital Securities
("the Capital Securities") in June 1998 maturing in 2028. Southern, which began
operations January 29, 1901, has a wholly-owned subsidiary, Goshen, Inc. which
acts as agent for credit life and credit accident and health insurance written
in connection with loans made by Southern. BancShares and Southern are
headquartered in Mount Olive, North Carolina.
The consolidated financial statements in this report are unaudited. In the
opinion of management, all adjustments (none of which were other than normal
accruals) necessary for a fair presentation of the financial position and
results of operations for the quarters presented have been included.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses for the
reporting periods. Actual results could differ from those estimates. The
statements should be read in conjunction with the consolidated financial
statements and accompanying notes for the year ended December 31, 1999,
incorporated by reference in the 1999 Annual Report on Form 10-K.
Principles Of Consolidation
The consolidated financial statements include the accounts of BancShares and its
wholly-owned subsidiaries, Southern and the Trust. The statements also include
the accounts of Goshen, Inc., a wholly-owned subsidiary of Southern. BancShares'
financial resources are primarily provided by dividends from Southern. All
significant intercompany balances have been eliminated in consolidation.
2
<PAGE>
Cash And Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash,
due from banks and federal funds sold. Federal funds are purchased and sold for
one day periods.
Reclassifications
Certain prior period balances have been reclassified to conform to the current
period presentation. Such reclassifications had no effect on net income or
shareholders' equity as previously reported.
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to consolidated financial statements
Dollars in thousands
<TABLE>
<CAPTION>
Note 2. Investment securities June 30, 2000
-----------------------------------------------------------
(In thousands, unaudited) Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- -------------- ------------
SECURITIES HELD-TO-MATURITY:
<S> <C> <C> <C> <C>
U. S. Government $ 89,673 - (541) $ 89,132
Obligations of states
and political subdivisions 24,245 318 (4) 24,559
Corporate debenture 100 - (5) 95
------------ -------------- -------------- ----------------
114,018 318 (550) 113,786
------------ -------------- -------------- ----------------
SECURITIES AVAILABLE-FOR-SALE:
U. S. Government $ 71,959 - (456) $ 71,503
Marketable equity securities 13,921 9,213 (434) 22,700
Obligations of states
and political subdivisions 8,177 192 (33) 8,336
Mortgage-backed securities 1,239 53 (72) 1,220
------------ -------------- -------------- ----------------
95,296 9,458 (995) 103,759
------------ -------------- -------------- ----------------
Totals $ 209,314 $ 9,776 $ (1,545) $ 217,545
============ ============== ============== ================
<CAPTION>
Note 2. Investment securities December 31, 1999
---------------------------------------------------------
(In thousands, unaudited) Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- -------------- -----------
SECURITIES HELD-TO-MATURITY:
<S> <C> <C> <C> <C>
U. S. Government $ 80,298 12 (499) $ 79,811
Obligations of states
and political subdivisions 19,731 347 (6) 20,072
Corporate debenture 100 - (4) 96
--------- ------------- -------------- ---------------
100,129 359 (509) 99,979
--------- ------------- -------------- ---------------
SECURITIES AVAILABLE-FOR-SALE:
U. S. Government $ 57,968 - (551) $ 57,417
Marketable equity securities 10,262 12,559 (1,112) 21,709
Obligations of states
and political subdivisions 13,472 178 (72) 13,578
Mortgage-backed securities 1,393 14 (27) 1,380
--------- ------------- -------------- ---------------
83,095 12,751 (1,762) 94,084
--------- ------------- -------------- ---------------
Totals $ 183,224 $ 13,110 $ (2,271) $ 194,063
========= ============= ============== ===============
</TABLE>
During the six months ended June 30, 2000, management of BancShares reviewed its
portfolio of securities available-for-sale and determined that certain
marketable equity securities had declines in their value that were deemed to be
other than temporary. Accordingly, BancShares recorded a charge of $855,000 to
investment securities gains (losses) in the accompanying consolidated statement
of income and comprehensive income for the three months ended March 31, 2000 for
this amount and reduced the carrying amount of the related investments
accordingly. There can be no certainty that future charges to earnings for other
than temporary declines in the fair values of these or other investment
securities will not be required.
<TABLE>
<CAPTION>
Note 3. LOANS
(Dollars in thousands, unaudited) June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Commercial, financial and agricultural $ 106,533 $ 101,128
Real estate:
Construction 13,054 8,647
Mortgage:
One to four family residential 108,919 111,793
Commercial 89,864 74,873
Equityline 30,774 30,152
Other 33,637 32,851
Consumer 36,207 34,309
Lease financing 5,262 4,307
------------ ------------
Total loans $ 424,250 $ 398,060
============ ============
Loans held for sale $ 2,254 $ 3,508
Loans serviced for others $ 179,683 $ 180,345
</TABLE>
Note 4. ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands) (Unaudited)
Six Months Ended June 30,
--------------------------
2000 1999
----------- -----------
Balance at beginning of year $ 6,188 $ 5,962
Provision for loan losses 150 120
Loans charged off (155) (423)
Loan recoveries 168 86
----------- -----------
Balance at end of the period $ 6,351 $ 5,745
=========== ===========
Note 5. 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. Since BancShares had no potentially
dilutive securities during 2000 or 1999, the computation of basic and diluted
earnings per share is the same. The following table presents the components of
the earnings per share computations:
3
<PAGE>
<TABLE>
<CAPTION>
Note 5. EARNINGS PER COMMON SHARE (Unaudited) (Unaudited)
(Dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
---------------------------- --------------------------
2000 1999 2000 1999
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net income $ 1,207 $ 957 $ 1,712 $ 1,649
Less: Preferred dividends (95) (96) (191) (193)
---------- ---------- --------- -----------
Net income applicable to common shares $ 1,112 $ 861 $ 1,521 $ 1,456
========== ========== ========= ===========
Weighted average common shares
outstanding during the period 118,267 119,186 118,520 119,218
========== ========== ========= ===========
</TABLE>
Note 6. Related Parties
BancShares has entered into various service contracts with another bank holding
company (the "Corporation") and its subsidiary. The Corporation has two
significant shareholders, who also are significant shareholders of BancShares.
The first significant shareholder is a director of BancShares and, at June 30,
2000, beneficially owned 32,294 shares, or 27.32%, of BancShares' outstanding
common stock and 4,966 shares, or 1.34%, of BancShares' outstanding Series B
preferred stock. At the same date, the second significant shareholder
beneficially owned 27,577 shares, or 23.32%, of BancShares' outstanding common
stock.
These two significant shareholders are directors and executive officers of the
Corporation and at June 30, 2000, beneficially owned 2,532,334 shares, or
28.72%, and 1,491,324 shares, or 16.91%, of the Corporation's outstanding Class
A common stock, and 646,932 shares, or 37.60%, and 197,046 shares, or 11.45%, of
the Corporation's outstanding Class B common stock. The above totals include
487,557 Class A common shares, or 5.53%, and 104,644 Class B Common shares, or
6.08%, 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"). Southern acquired a branch in Ahoskie, North Carolina from First
Citizens in 1999. In the fourth quarter of 2000 Southern expects to acquire,
subject to regulatory approval, two Rocky Mount, North Carolina offices and one
Nashville, North Carolina office of First Citizens containing approximately
$66.0 million of deposits and approximately $64.0 million of loans. Southern
expects to pay approximately $5.9 million to First Citizens for this
acquisition.
The following table lists the various charges paid to the Corporation:
(Dollars in thousands) (Unaudited)
Six Months Ended June 30,
--------------------------
2000 1999
------------ -----------
Data and item processing $ 1,221 $1,100
Forms, supplies and equipment 145 135
Trustee for employee benefit plans 45 44
Consulting fees 40 45
Other services 51 65
----------- -----------
$ 1,502 $1,389
=========== ===========
Note 7. Subsequent Events
Southern plans to open its first Greenville, North Carolina branch in the third
quarter of 2000, in a banking facility purchased in the second quarter of 2000,
at 2310 South Charles Street. In the fourth quarter of 2000 Southern expects to
complete the acquisitions discussed above under "Note 6. Related Parties".
4
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - SIX MONTHS ENDED
2000 VS. SIX MONTHS ENDED 1999
INTRODUCTION
In the first six months of 2000, the net income of BancShares increased
approximately $63,000 from $1.6 million in the first six months of 1999 to $1.7
million in the first six months of 2000, an increase of 3.82%. This increase
resulted primarily from the reduction in the estimated tax rate in 2000. One
branch acquisition in September 1999, the opening of Southern's first Clinton,
North Carolina office in November 1999, one branch acquisition in February 2000,
three branch acquisitions in April 2000 and preparations for the third quarter
opening of Southern's first Greenville, North Carolina office resulted in
increased personnel expense and other related operating expenses for the six
months ended June 30, 2000. BancShares also recorded a charge of $855,000 to
investment securities gains (losses) to reduce the carrying values of certain
marketable equity securities in the first three months of 2000.
Per share net income available to common shares for the first six months of 2000
was $12.83, an increase of $0.62, or 5.07%, from $12.21 for the first six months
of 1999. The annualized return on average equity increased to 6.31%, for the
period ended June 30, 2000, from 5.95% for the period ended June 30, 1999 and
the return on average assets decreased to 0.50%, for the period ended June 30,
2000, from 0.51% for the period ended June 30, 1999.
At June 30, 2000, BancShares' assets totaled $713.9 million, an increase of
$44.6 million, or 6.67%, from the $669.2 million reported at December 31, 1999.
During this six month period, cash and due from banks decreased $113,000, or
0.40% from $28.5 million to $28.4 million. During this six month period, federal
funds sold decreased $10.5 million, or 51.37% from $20.4 million to $9.9
million. During this six month period, loans increased $26.2 million, or 6.58%,
from $398.1 million to $424.3 million. During the six months ended June 30, 2000
investment securities increased $23.6 million, or 12.13% from $194.2 million at
December 31, 1999 to $217.8 million at June 30, 2000. Total deposits increased
$45.2 million, or 7.81% from $578.3 million at December 31, 1999 to $623.4
million at June 30, 2000. The above changes resulted principally from the
acquisitions and new branch opening discussed below and the seasonal impact of
the agricultural markets served by Southern.
5
<PAGE>
ACQUISITIONS
In September 1999, Southern acquired $9.2 million of the loans and $14.8 million
of the deposits of the Ahoskie office of First Citizens, a related party.
Southern recorded intangible assets of $1.3 million for the Ahoskie acquisition.
In February 2000, Southern acquired $1.3 million of the loans and $7.1 million
of the deposits of the Robersonville office of Cooperative Bank for Savings,
Inc. Southern recorded intangible assets of $532,000 for the Robersonville
acquisition.
In April 2000, Southern acquired $5.1 million of the loans and $29.4 million of
the deposits of the Battleboro, Nashville and Sharpsburg offices of Centura
Bank. Southern recorded intangible assets of $3.2 million for the Centura
acquisitions.
These acquisitions were accounted for as purchases, and, therefore, the results
of operations prior to the purchases are not included in the consolidated
financial statements. The proforma impact of the acquisitions, as though they
had been made at the beginning of the period presented, is not material to
BancShares' consolidated financial statements.
The comparisons of the six months ended June 30, 2000 to the six months ended
June 30, 1999 are accordingly impacted by the above transactions. Southern had
no acquisitions in the six months ended June 30, 1999.
INTEREST INCOME
Interest and fees on loans increased $2.4 million, or 15.89%, from $15.1 million
for the six months ended June 30, 1999 to $17.5 million for the six months ended
June 30, 2000. This increase resulted from both overall higher loan portfolio
yields and increased balances. Average loans for the six months ended June 30,
2000 were $407.1 million, an increase of 9.26% from $372.6 million for the prior
year period. This increase in average loans was principally the result of loan
growth in the existing branches as the acquisitions discussed above resulted in
growth of only approximately $6.5 million in average loans. The yield on the
loan portfolio was 8.06% for the six months ended June 30, 1999 and 8.58% in the
six months ended June 30, 2000.
Interest income from investment securities, including U. S. Treasury and
Government obligations, obligations of state and county subdivisions and other
securities increased $450,000 or 8.98%, from $5.0 million in the six months
ended June 30, 1999 to $5.5 million in the six months ended June 30, 2000. This
increase was due to an increase in the volume of average investment securities
for the six months ended June 30, 2000 to $199.7 million as compared to $197.6
million for the same 1999 period and an overall increase in portfolio yields.
The increase in volume principally resulted from the acquisitions discussed
above. The yield on investment securities was 5.26% for the six-month period
ended June 30, 1999 and 5.49% for the six-month period ended June 30, 2000.
6
<PAGE>
Interest income on federal funds sold increased $181,000, or 42.09%, from
$430,000 for the six months ended June 30, 1999 to $611,000 for the six months
ended June 30, 2000. This increase in income resulted from both an increase in
the average federal funds sold to $20.9 million for the six months ended June
30, 2000 from an average of $18.1 million for the six months ended June 30, 1999
and an increase in the yield on federal funds. The increase in average federal
funds resulted primarily from the acquisitions discussed above. Average federal
funds sold yields were 5.81% for the six months ended June 30, 2000, up from
4.73% for the six months ended June 30, 1999.
Total interest income increased $3.0 million or 14.75%, from $20.5 million for
the six months ended June 30, 1999 to $23.5 million for the six months ended
June 30, 2000. This increase was the result of a 47 basis point increase in
average earning asset yields and an increase of $44.4 million in average earning
assets.
Average earning asset yields for the six months ended June 30, 2000 increased to
7.51% from the 7.04% yield on average earning assets for the six months ended
June 30, 1999. Average earning assets increased from $583.3 million in the six
months ended June 30, 1999 to $627.7 million in the six months ended June 30,
2000. This $44.4 million increase in the average earning assets resulted
primarily from the acquisitions discussed above.
INTEREST EXPENSE
Total interest expense increased $1.4 million, or 14.51%, from $9.8 million in
the six months ended June 30, 1999 to $11.3 million for the six months ended
June 30, 2000. The principal reasons for this increase were the increase in the
cost of deposits, the increase in the cost of short-term borrowings and
increased deposits primarily from the acquisitions discussed above. BancShares'
total cost of funds increased from 3.92% for the six months ended June 30, 1999
to 4.21% for the six months ended June 30, 2000. Average interest-bearing
deposits were $508.5 million in the six months ended June 30, 2000, an increase
of $34.1 million from the $474.4 million average in the six months ending June
30, 1999. The increase in interest-bearing deposits was primarily the result of
the aforementioned acquisitions .
NET INTEREST INCOME
Net interest income was $12.3 million for the six months ended June 30, 2000 and
$10.7 million for the six months ended June 30, 1999.
The interest rate spread for the six months ended June 30, 2000 was 3.30%, an
increase of 19 basis points from the 3.11% interest rate spread for the six
months ended June 30, 1999.
7
<PAGE>
ASSET QUALITY AND PROVISION FOR LOAN LOSSES
For the six months ended June 30, 2000 management recorded $150,000 as a
provision for loan losses. Management made a $120,000 addition to the provision
for loan losses for the six months ended June 30, 1999.
During the first six months of 2000 management charged-off loans totaling
$155,000 and received recoveries of $168,000, resulting in net recoveries of
$13,000. During the same period in 1999, $423,000 in loans were charged-off and
recoveries of $87,000 were received, resulting in net charge-offs of $336,000.
For the six months ended June 30, 2000 $150,000 was added to the allowance for
loan losses through charges to the operations of BancShares. The allowance for
loan losses accordingly increased $163,000 from December 31, 1999. The following
table presents comparative Asset Quality ratios of BancShares:
(Unaudited)
June 30, December 31,
2000 1999
------------ -------------
Ratio of annualized net loans charged off
to average loans 0.00% 0.16%
Allowance for loan losses
to loans 1.50% 1.55%
Non-performing loans
to loans 0.45% 0.19%
Non-performing loans and assets
to total assets 0.29% 0.17%
Allowance for loan losses
to non-performing loans 333.56% 830.60%
The ratio of annualized net charge-offs to average loans outstanding decreased
to -0.00% for the six months ended June 30, 2000 from 0.16% for the year ended
December 31, 1999. The allowance for loan losses represented 1.50% of loans at
June 30, 2000. The allowance for loan losses represented 1.55% of loans at
December 31, 1999. The allowance for loan losses to loans ratio was impacted by
the acquisitions discussed above. Loans increased $26.2 million, or 6.58% from
$398.1 million at December 31, 1999 to $424.3 million at June 30, 2000.
The ratio of nonperforming loans to loans, increased from 0.19% at December 31,
1999 to 0.45% at June 30, 2000. Nonperforming loans and assets to total assets
increased to 0.29% at June 30, 2000 from 0.17% at December 31, 1999. The
allowance for loan losses to nonperforming loans represented 333.56% of
nonperforming loans at June 30, 2000, a decrease from the 830.60% at December
31, 1999. The above performance declines resulted primarily from an increase in
nonperforming loans to $1.9 million at June 30, 2000 from $745,000 at December
31, 1999. The nonperforming loans at June 30, 2000 included $272,000 of
nonaccrual loans, $1.6 million of accruing loans 90 days or more past due and
$41,000 of restructured loans. BancShares had $182,000 of assets classified as
other real estate at June 30, 2000. BancShares had $414,000 of assets classified
as other real estate at December 31, 1999.
Management considers the June 30, 2000 allowance for loan losses to be adequate
to cover the losses and risks inherent in the loan portfolio at June 30, 2000
and will continue to monitor its portfolio and to adjust the relative level of
the allowance as needed.
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
8
<PAGE>
serious doubts as to the ability of such borrowers to comply with the loan
repayment terms.
Management believes it has established the allowance in accordance with
generally accepted accounting principles and in consideration of the current
economic environment. While management uses the best information available to
make evaluations, future adjustments may be necessary if economic and other
conditions differ substantially from the assumptions used.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review Southern's allowance for loan losses
and losses on other real estate owned. Such agencies may require Southern to
recognize adjustments to the allowances based on the examiners' judgments about
information available to them at the time of their examinations.
NONINTEREST INCOME
During the six months ended June 30, 2000, BancShares realized a $312,000
decrease in noninterest income primarily as a result of a $843,000 net loss
recorded for available-for-sale investment securities.
During the six months ended June 30, 2000, management of BancShares reviewed its
portfolio of securities available-for-sale and determined that certain
marketable equity securities had declines in their value that were deemed to be
other than temporary. Accordingly, BancShares recorded a charge of $855,000 to
investment securities gains (losses) in the accompanying consolidated statement
of income and comprehensive income for the six months ended June 30, 2000 for
this amount and reduced the carrying amount of the related investments
accordingly. There can be no certainty that future charges to earnings for other
than temporary declines in the fair values of these or other investment
securities will not be required.
Service charges on deposit accounts for the six months ended June 30, 2000
increased $132,000 and other service charges and fees for the six months ended
June 30, 2000 increased $167,000 over the six months ended June 30, 1999
primarily as a result of the acquisitions discussed above. Losses on the sale of
mortgage loans for the six months ended June 30, 2000 decreased $151,000 from
the six months ended June 30, 1999 primarily as a result of decreased mortgage
lending due to increasing mortgage interest rates in the six months ended June
30, 2000.
9
<PAGE>
NONINTEREST EXPENSE
Noninterest expense increased $1.2 million or 11.57%, from $10.8 million in the
six months ended June 30, 1999 to $12.0 million in the six months ended June 30,
2000.
This increase was primarily due to an increase in personnel expense of $318,000,
or 5.88%, from $5.4 million at June 30, 1999 to $5.7 million at June 30, 2000
and increased occupancy, furniture and equipment expense and other expenses
resulting principally from the branch acquisitions discussed above.
INCOME TAXES
In the six months ended June 30, 2000, BancShares had income tax expense of
$460,000, a decrease of $50,000 from $510,000 in the prior year period. The
majority of this decrease is due to the effect of a reduction in the effective
tax rate for the six months ended June 30, 2000. The resulting effective tax
rate for the six months ended June 30, 2000 was 21.18%. The effective tax rate
for the six months ended June 30, 1999 was 23.62%. The effective tax rate in
2000 of 21.18% differs from the federal statutory rate of 35.00% primarily due
to tax exempt income.
10
<PAGE>
SOUTHERN BANCSHARES (N.C.), INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - SECOND QUARTER OF
2000 VS. SECOND QUARTER OF 1999
INTRODUCTION
In the three months ended June 30, 2000, the net income of BancShares increased
$250,000 from $957,000 in the three months ended June 30, 1999 to $1.2 million
in the three months ended June 30, 2000, an increase of 26.12%. The increase in
net income for the quarter ended June 30, 2000 resulted primarily from increased
net interest income that more than offset increased personnel expense and other
related operating expenses of one branch acquisition each in September 1999 and
February 2000, the opening of one new branch in November 1999 and three branch
acquisitions in April 2000.
Per share net income available to common shares for the three months ended June
30, 2000 was $9.40, an increase of $2.18, or 30.19%, from $7.22 in the three
months ended June 30, 1999.
ACQUISITIONS
In April 2000 Southern acquired $5.1 million of the loans and $29.4 million of
the deposits of the Battleboro, Nashville and Sharpsburg offices of Centura
Bank. Southern recorded intangible assets of $2.9 million for the Centura
acquisitions. Southern had no acquisitions in the quarter ended June 30, 1999.
The comparisons of the three months ended June 30, 2000 to the three months
ended June 30, 1999 are accordingly impacted by the acquisitions discussed
above.
INTEREST INCOME
Interest and fees on loans increased $1.4 million, or 18.35%, from $7.6 million
for the quarter ended June 30, 1999 to $9.0 million for the quarter ended June
30, 2000. This increase was due to both increased balances and higher overall
2000 interest rates. Average loans for the quarter ended June 30, 2000 were
$415.8 million, an increase of 10.88% from $375.0 million for the prior year
quarter. The yield on the loan portfolio was 8.05% for the three months ended
June 30, 1999 and 8.64% for the three months ended June 30, 2000.
Interest income from investment securities, including U. S. Treasury and
Government obligations, obligations of state and county subdivisions and other
securities increased $369,000, or 14.77%, from $2.5 million in the three months
ended June 30, 1999 to $2.9 million in the three months ended June 30, 2000.
This increase was due to both higher overall interest rates and an increase in
the average investment portfolio. The acquisitions discussed above resulted in
increased average investment securities for the quarter ended June 30, 2000 to
$206.4 million as compared to $193.9 million for the same 1999 quarter. The
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<PAGE>
yield on investment securities was 5.17% for the quarter ended June 30, 1999 and
5.55% for the quarter ended June 30, 2000.
Interest income on federal funds sold increased $148,000, or 96.73%, from
$153,000 for the quarter ended June 30, 1999 to $301,000 for the quarter ended
June 30, 2000. This increase in income resulted from both an increase in rates
and an increase in volume. The volume increase resulted primarily from the
acquisitions discussed above. The average federal funds sold was $19.9 million
for the quarter ended June 30, 2000 compared to an average of $12.9 million for
the quarter ended June 30, 1999. Average federal funds sold yields were 5.97%
for the quarter ended June 30, 2000 up from 4.69% for the quarter ended June 30,
1999.
Total interest income increased $1.9 million, or 18.64%, from $10.3 million for
the quarter ended June 30, 1999 to $12.2 million for the quarter ended June 30,
2000. This increase was the result of both an increase in average earning asset
yields and an increase in the average earning assets resulting from the
acquisitions discussed above.
Average earning asset yields for the quarter ended June 30, 2000 increased to
7.57% from the 7.02% yield on average earning assets for the quarter ended June
30, 1999. Average earning assets increased from $581.8 million in the quarter
ended June 30, 1999 to $642.1 million in the quarter ended June 30, 2000. This
$60.3 million increase in the average earning assets resulted primarily from the
acquisitions discussed above.
INTEREST EXPENSE
Total interest expense increased $1.1 million or 21.51%, from $4.9 million in
the three months ended June 30, 1999 to $5.9 million for the second quarter
ended June 30, 2000. The principal reason for this increase was both increased
balances resulting from the acquisitions discussed above and higher costs of
deposits and short-term borrowings.
NET INTEREST INCOME
Net interest income was $6.3 million for the three months ended June 30, 2000
and $5.4 million for the three months ended June 30, 1999.
The interest rate spread for the quarter ended June 30, 2000 was 3.26%, an
increase of 12 basis points from the 3.14% interest rate spread for the quarter
ended June 30, 1999.
12
<PAGE>
ASSET QUALITY AND PROVISION FOR LOAN LOSSES
For the three months ended June 30, 2000 management recorded $75,000 as a
provision for loan losses. Management made a $60,000 provision for loan losses
for the quarter ended June 30, 1999.
During the three months ended June 30, 2000 management charged-off loans
totaling $54,000 and received recoveries of $146,000, resulting in net
recoveries for the three months ended June 30, 2000 of $92,000. During the three
months ended June 30, 1999, $237,000 in loans were charged-off and recoveries of
$25,000 were received, resulting in net charge-offs of $212,000 for the three
months ended June 30, 1999.
NONINTEREST INCOME
During the three months ended June 30, 2000, BancShares' noninterest income
increased $313,000 principally as a result of the acquisitions discussed above.
Service charges on deposit accounts for the three months ended June 30, 2000
increased $77,000 and other service charges and fees for the three months ended
June 30, 2000 increased $129,000 over the three months ended June 30, 1999
primarily as a result of the acquisitions discussed above. Losses on the sale of
mortgage loans for the three months ended June 30, 2000 decreased $113,000 from
the three months ended June 30, 1999 primarily as a result of increasing
mortgage interest rates resulting in decreased loan production in the three
months ended June 30, 2000.
NONINTEREST EXPENSE
Noninterest expense including personnel, occupancy, furniture and equipment,
data processing, FDIC insurance, state assessments, printing, supplies and other
expenses, increased $852,000 or 15.96%, from $5.3 million in the three months
ended June 30, 1999 to $6.2 million in the three months ended June 30, 2000.
This increase was primarily due to an increase in personnel expense of $228,000,
or 8.53%, from $2.7 million for the quarter ended June 30, 1999 to $2.9 million
for the quarter ended June 30, 2000 and increased occupancy, furniture and
equipment expense and other expenses resulting principally from the branch
acquisitions discussed above.
INCOME TAXES
In the three months ended June 30, 2000, BancShares had income tax expense of
$330,000, an increase of $60,000 from $270,000 in the prior year quarter. The
majority of this increase is due to increased earnings that more than offset a
reduction in the estimated effective tax rate of 21.47% for the quarter ended
June 30, 2000. The estimated effective tax rate for the quarter ended June 30,
1999 was 22.00%. The effective tax rate for the quarter ended June 30, 2000 of
21.47%
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<PAGE>
differs from the federal statutory rate of 35.00% primarily due to tax exempt
income.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
Sufficient levels of capital are necessary to sustain growth and absorb losses.
In June 1998, the Trust issued $23.0 million of 8.25% Capital Securities
maturing in 2028. The Trust invested the $23.0 million proceeds in Junior
Subordinated Debentures issued by BancShares (the "Junior Debentures"), which
upon consolidation of BancShares are eliminated. The Junior Debentures, with a
maturity of 2028, are the primary assets of the Trust. BancShares irrevocably
and unconditionally guarantees the Trust's obligations.
BancShares contributed Capital Securities proceeds of $12.0 million to Southern
which are included in Tier I capital for Southern's regulatory capital adequacy
requirements. BancShares has similar regulatory capital adequacy requirements as
Southern and is in compliance with those capital adequacy requirements at June
30, 2000.
The Federal Reserve Board, which regulates BancShares, and the Federal Deposit
Insurance Corporation, which regulates Southern, have established minimum
capital guidelines for the institutions they supervise.
Regulatory guidelines define minimum requirements for Southern's leverage
capital ratio. Leverage capital equals total equity less goodwill and certain
other intangibles and is measured relative to total adjusted assets as defined
by regulatory guidelines. According to these guidelines, Southern's leverage
capital ratio at June 30, 2000 was 8.04%. At December 31, 1999, Southern's
leverage capital ratio was 8.47%. Both of these ratios are greater than the
level designated as "well capitalized" by the FDIC.
Southern is also required to meet minimum requirements for Risk Based Capital
("RBC"). Southern'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, 2000, Southern's Total RBC ratio
was 15.55%. At December 31, 1999 the RBC ratio was 16.28%. Both of these ratios
are greater than the level designated as "well capitalized" by the FDIC.
The regulatory capital ratios above reflect increases in assets and liabilities
from the acquisitions Southern has made. Each of the acquisitions required the
payment of a premium for the deposits received. Each of these premiums resulted
in increased intangible assets on BancShares' financial statements, which is
deducted from total equity in the ratio calculations.
The accumulated other comprehensive income was $5.6 million at June 30, 2000,
and $7.3 million at December 31, 1999. Comprehensive income consists entirely of
unrealized gains on securities available-for-sale, net of taxes. Although a part
of total shareholders' equity, comprehensive income is not included in the
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<PAGE>
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 Southern:
(Unaudited)
June 30, December 31,
2000 1999
---------------- -----------------
(Dollars in thousands)
Risk-based capital:
Tier 1 capital $ 55,452 $ 55,398
Total capital 62,614 62,967
Risk-adjusted assets 402,604 386,761
Average tangible assets 689,377 654,268
Tier 1 capital ratio (1) 13.77% 14.32%
Total capital ratio (1) 15.55% 16.28%
Leverage capital ratio (1) 8.04% 8.47%
(1) These ratios exceed the minimum ratios required for a bank to be classified
as "well capitalized" as defined by the FDIC.
LIQUIDITY
Liquidity refers to the ability of Southern 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 BancShares' overall financial
condition. BancShares' liquid assets include cash and due from banks, federal
funds sold and investment securities available-for-sale. The liquidity ratio,
which is defined as cash plus short term available-for-sale securities divided
by deposits plus short term liabilities, was 29.60% at June 30, 2000 and 29.34%
at December 31, 1999.
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, 2000 and for the six months ended June 30, 1999. Southern has no brokered
deposits. Jumbo time deposits are considered to include all time deposits of
$100,000 or more. Southern has never aggressively bid on these deposits. Almost
all jumbo time deposit customers have other relationships with Southern,
including savings, demand and other time deposits, and in some cases, loans. At
June 30, 2000 jumbo time deposits represented 10.49% of total deposits. At
December 31, 1999 jumbo time deposits represented 10.44% of total deposits.
Management believes that BancShares 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.
15
<PAGE>
ACCOUNTING AND OTHER MATTERS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative depends on the intended use of the derivative and the resulting
designation. This statement, as amended by Statements 137 and 138, is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. Earlier
application of all provisions of this statement is encouraged. BancShares plans
to adopt this statement on January 1, 2001 and does not anticipate any material
effect on its consolidated financial statements.
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 BancShares and
monitors the status of changes to issued exposure drafts and to proposed
effective dates.
Other matters
Southern plans to open its first Greenville, North Carolina branch in the third
quarter of 2000, in a banking facility purchased in the second quarter of 2000,
at 2310 South Charles Street. Southern has also announced, subject to regulatory
approval, the planned fourth quarter 2000 acquisitions of one Nashville, North
Carolina and two Rocky Mount, North Carolina offices of First-Citizens Bank &
Trust Company, a related party. In connection with these acquisitions, Southern
expects to assume total deposit liabilities of approximately $66.0 million, to
purchase approximately $64.0 million of loans and to record approximately $5.9
million of intangible assets.
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.
16
<PAGE>
Item 3 - Quantitative and Qualitative Disclosures About Market Risk:
Market risk reflects the risk of economic loss resulting from adverse changes in
market price and interest rates. This risk of loss can be reflected in either
diminished current market values or reduced potential net interest income in
future periods. BancShares' market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. The structure of
BancShares' loan and deposit portfolios is such that a significant increase in
the prime rate may adversely impact net interest income. Historical prepayment
experience is considered as well as management's expectations based on the
interest rate environment and the core deposits without contractual maturity
level as of June 30, 2000. Management seeks to manage this risk through the use
of shorter term maturities. The composition and size of the investment portfolio
is managed so as to reduce the interest rate risk in the deposit and loan
portfolios while at the same time maximizing the yield generated from the loan
portfolio.
The table below presents in tabular form the contractual balances and the
estimated fair value of financial instruments at their expected maturity dates
as of June 30, 2000. The expected maturity categories take into consideration
historical prepayment experience as well as management's expectations based on
the interest rate environment as of June 30, 2000. For core deposits without
contractual maturity (i.e., interest bearing checking, savings and money market
accounts), the table presents principal cash flows as maturing in 2001 since
they are subject to immediate repricing. Weighted average variable rates in
future periods are based on the implied forward rates in the yield curve as of
June 30, 2000.
<TABLE>
<CAPTION>
(Dollars in thousands, unaudited)
Maturing in the years ended June 30
2001 2002 2003 2004 2005 Thereafter Total Fair Value
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans
Fixed rate $ 53,640 $ 30,865 $ 44,808 $ 32,621 $ 20,608 $ 74,654 $ 257,196 $ 248,979
Average rate (%) 8.48% 8.74% 8.43% 8.58% 8.62% 6.94% 8.08%
Variable rate $ 97,023 $ 12,595 $ 6,870 $ 6,010 $ 6,019 $ 38,537 $ 167,054 $ 167,054
Average rate (%) 9.81% 9.59% 9.78% 9.85% 9.65% 8.85% 9.57%
Investment securities
Fixed rate $ 91,822 $ 82,907 $ 7,325 $ 2,424 $ 1,775 $ 22,087 $ 208,340 $ 216,571
Average rate (%) 5.26% 6.24% 7.68% 8.34% 8.36% 6.89% 5.97%
Variable rate - - - - - $ 974 $ 974 $ 974
Average rate (%) - - - - - 6.43% 6.43%
Liabilities
Savings and interest
bearing checking
Fixed rate $ 193,999 - - - - - $ 193,999 $ 193,999
Average rate (%) 1.88% - - - - - 1.88%
Certificates of deposit
Fixed rate $ 267,012 $ 31,965 $ 14,348 $ 6,116 - - $ 319,441 $ 318,890
Average rate (%) 5.58% 6.20% 6.23% 5.35% - - 5.67%
Variable rate $ 5,597 $ 2,042 - - - - $ 7,639 $ 7,639
Average rate (%) 5.11% 5.33% - - - - 5.17%
Long-term debt
Fixed rate - - - - - 23,000 $ 23,000 $ 19,550
Average rate (%) - - - - - 8.25% 8.25%
</TABLE>
17
<PAGE>
Part ii - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 19, 2000 the annual meeting of shareholders was held. Twenty-three
Directors of BancShares were elected for terms of one year or until their
respective successors are duly elected and qualified and KPMG LLP was ratified
as BancShares' independent public accountants for 2000.
<TABLE>
<CAPTION>
Matter For Against Withheld Abstentions Broker Non-Votes
ELECTION OF DIRECTORS:
<S> <C> <C> <C> <C> <C>
Bynum R. Brown 91,196 0 83 0 0
William H. Bryan 91,196 0 83 0 0
D. Hugh Carlton 91,196 0 83 0 0
Robert J. Carroll 91,196 0 83 0 0
Hope H. Connell 91,196 0 83 0 0
J. Edwin Drew 91,196 0 83 0 0
Samuel E. Ewell, Jr. 91,196 0 83 0 0
Moses B. Gilliam, Jr. 91,196 0 83 0 0
LeRoy C. Hand, Jr. 91,196 0 83 0 0
Joseph D. Hines 91,196 0 83 0 0
Frank B. Holding 91,196 0 83 0 0
George A. Hux 91,196 0 83 0 0
M. J. McSorley 91,196 0 83 0 0
W. Hunter Morgan 91,196 0 83 0 0
John C. Pegram, Jr. 91,196 0 83 0 0
Charles I. Pierce, Sr. 91,196 0 83 0 0
W. A. Potts 91,196 0 83 0 0
Charles L. Revelle, Jr. 91,196 0 83 0 0
Watson N. Sherrod, Jr. 91,196 0 83 0 0
Charles O. Sykes 91,196 0 83 0 0
Raymond M. Sykes 91,196 0 83 0 0
John N. Walker 91,196 0 83 0 0
R. S. Williams 91,196 0 83 0 0
RATIFICATION OF INDEPENDENT ACCOUNTANTS:
Matter For Against Withheld Abstentions Broker Non-Votes
KPMG LLP 91,093 28 0 176 0
</TABLE>
18
<PAGE>
Item 5. Other Information.
Forward-looking statements
The foregoing discussion may contain statements that could be deemed
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 and the Private Securities Litigation Reform Act, which
statements are inherently subject to risks and uncertainties. Forward-looking
statements are statements that include projections, predictions, expectations or
beliefs about future events or results or otherwise are not statements of
historical fact. Such statements are often characterized by the use of
qualifiers such as "expect," "believe," "estimate," "plan," "project" or other
statements concerning opinions or judgments of BancShares and its management
about future events. Factors that could influence the accuracy of such
forward-looking statements include, but are not limited to, the financial
success or changing strategies of BancShares' customers, actions of government
regulators, the level of market interest rates, and general economic conditions.
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.
August 10, 2000 /s/ John C. Pegram, Jr.
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Date John C. Pegram, Jr.,
President and Chief Executive Officer
August 10, 2000 /s/ David A. Bean
--------------- --------------------------------------------------
Date David A. Bean,
Secretary, Treasurer and Chief Financial Officer
