<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 29549
FORM 10-K
________________________________________________________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER 0-11448
________________________________________________________________________________
LSB BANCSHARES, INC.
ONE LSB PLAZA
LEXINGTON, NORTH CAROLINA 27292
(704) 246-6500
INCORPORATED IN THE STATE OF NORTH CAROLINA
IRS EMPLOYER IDENTIFICATION NO. 56-1348147
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $5.00 PER SHARE
LSB Bancshares, Inc. 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 has been subject to such filing requirements for the past 90
days.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 is not required herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [ ]
The aggregate market value (average of the high and low prices) of the
voting stock held by nonaffiliates of the registrant as of March 1, 1996 was
$88,815,540 and the number of shares outstanding was 5,382,760.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the year ended
December 31, 1995 are incorporated by reference into Parts I and II of this
report.
Portions of the registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held April 17, 1996 is incorporated by reference in
Part III of this report.
<PAGE> 2
PART I.
DESCRIPTION OF BUSINESS
Item 1. Business
REGISTRANT
LSB Bancshares, Inc. ("Bancshares'") is a bank holding company headquartered in
Lexington, North Carolina and registered under the Bank Holding Company Act of
1956, as amended. Bancshares' principal business is providing banking and
other financial services through its banking subsidiary. It was incorporated
on July 1, 1983. Bancshares is the parent holding company of Lexington State
Bank ("LSB"), a North Carolina-chartered commercial bank. The principal assets
of Bancshares are all of the outstanding shares of common stock of LSB. At
December 31, 1995, Bancshares and its subsidiary had consolidated assets of
$375 million and 250 employees.
SUBSIDIARY BANK
LSB is chartered under the laws of the state of North Carolina to engage in
general banking business. Founded in 1949, LSB offers a complete array of
services in the commercial banking, savings and trust fields through 14 offices
in six communities located in Davidson County, North Carolina. LSB provides a
full range of financial services including the acceptance of deposits,
corporate cash management, discount brokerage, IRA plans, secured and unsecured
loans and trust functions. LSB operates the only independent trust department
in Davidson County, providing estate planning, estate and trust administration,
IRA trusts, personal investment accounts and pension and profit-sharing trusts.
NON-BANK SUBSIDIARIES
LSB has two wholly-owned non-bank subsidiaries: Peoples Finance Company of
Lexington, Inc. ("Peoples Finance") and LSB Financial Services, Inc. ("LSB
Financial Services"). Peoples Finance was acquired by LSB on January 1, 1984
and operates as a finance company licensed under the laws of the State of North
Carolina. Peoples Finance operates from one office located in Lexington, North
Carolina with four employees. As a finance company, Peoples Finance offers
secured and unsecured loans to individuals up to a maximum of $10,000, as well
as dealer originated loans.
LSB Financial Services is incorporated under the laws of the State of North
Carolina and offers a full range of uninsured, nondeposit investment products,
including mutual funds, annuities, stocks and bonds. LSB Financial Services
operates from offices located within LSB's main office with two employees. LSB
Financial Services offers products through Liberty Securities Corporation, an
independent broker-dealer, which is a member of the National Association of
Securities Dealers and the Securities Investor Protection Corporation.
Investments are neither deposits nor obligations of Lexington State Bank, nor
are they guaranteed or insured by any depository institution, the FDIC, or
any other government agency. LSB Financial Services began operation on
December 1, 1994 and during 1995 lost approximately $78,000.
COMPETITION
Commercial banking in LSB's service area of Davidson County, North Carolina is
highly competitive. LSB competes not only with major commercial banks but also
with thrift institutions, credit unions, investment brokers, mortgage and
finance companies. North Carolina permits state-
1
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wide branching, which is widely practiced. In recent years, competition
between large major banks and smaller independent banks has intensified
significantly as a result of deregulation of the financial industry. In
addition to in-state competition, banks such as LSB have a high degree of
competition from out-of-state financial service companies offering mutual
funds.
After several years of exceptional employment growth in North Carolina, the
North Carolina Employment Security Commission projects the State's economy to
remain sound in 1996, with low unemployment and low inflation. North
Carolina's unemployment rate has remained at or near the lowest of the 11 large
states surveyed by the Federal Government. Davidson County, with a labor force
of approximately 75,000, had an unemployment rate in the 3.5% range for 1995.
REGULATION
As a bank holding company, Bancshares is subject to supervision, examination
and regulation by the Board of Governors of the Federal Reserve System. LSB is
chartered by the Sate of North Carolina and as such is subject to supervision,
examination and regulation by the North Carolina State Banking Commission. LSB
is also a member of the Federal Deposit Insurance Corporation and is therefore
subject to supervision and examination by that agency.
Item 2. Properties
PROPERTIES
Bancshares' principal executive offices are located at One LSB Plaza,
Lexington, North Carolina. This five-story office building totals 74,800
square feet and also serves as the home office of LSB. A majority of the
major staff functions are located within this office complex.
In addition, LSB operates thirteen branch offices and four off-premise
automated teller locations. Six of LSB's branch offices are located within
Lexington. The remaining branch offices are located in the communities of
Thomasville, Welcome, Midway, Arcadia and Wallburg, all of which are located
within Davidson County, North Carolina.
Bancshares' principal office and seven branches are owned by LSB, while six
branches and the off-premise ATM locations are leased. LSB's leased properties
are subject to leases which expire on various dates from January 31, 1996 to
June 30, 2004. Peoples Finance operates from an 1,800 square foot, one-story
building located at 203 Center Street in Lexington, which it owns. LSB
Financial Services leases 800 square feet within the principal office building
of LSB. Except as described herein, Bancshares, LSB, Peoples Finance and LSB
Financial Services own all properties free and clear of encumbrances.
Item 3. Legal Proceedings
The information required under this item is contained in Note 9 to the Notes to
Consolidated Financial Statements on page 30 of the 1995 Annual Report and is
incorporated by reference herein.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
Robert F. Lowe (53) Chairman, President and Chief Executive Officer and a
Director of Bancshares and the Bank. Prior to becoming President on January 1,
1984, Mr. Lowe had served as Executive Vice President of Bancshares and of the
Bank. Mr. Lowe joined the Bank in 1970 and was elected Vice President in 1973.
He was elected Senior Vice President in 1980 and Executive Vice President in
1982. In 1983, he was elected a Director. Mr. Lowe is also President of
Peoples Finance Company of Lexington, Inc., which is a subsidiary of the Bank
and President and a director of LSB Financial Services, Inc., a subsidiary of
the Bank.
H. Franklin Sherron, Jr. (40) Vice President and Assistant Secretary of
Bancshares joined the Bank in 1990 as Senior Vice President. Prior to this, he
served as President of J. J. Barnes, Inc., a mechanical contracting firm, from
1981 to 1990. From 1997 to 1981, he served as Assistant Cashier with Peoples
Bank & Trust Company.
Ronald J. Meadley (62) Vice President and Assistant Secretary of Bancshares
joined the Bank as Vice President in 1979, with 24 years of banking experience.
He was elected Senior Vice President in 1986.
Monty J. Oliver (54) Secretary and Treasurer of Bancshares joined the Bank as
Vice President in 1978, with 13 years of banking experience. He was elected
Cashier of the Bank in 1980 and Vice President and Treasurer of Bancshares in
1983. In 1986, he was elected Senior Vice President of the Bank.
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information regarding the market price of the Company's Common Stock and
related stockholder matters is set forth in the 1995 Annual Report under the
heading "Stock and Dividend Information" on page 35 and is incorporated by
reference herein.
Item 6. Selected Financial Data
The information required under this item is contained in the 1995 Annual Report
under the heading "Summary of Selected Financial Data" on page 11 and is
incorporated by reference herein.
2
<PAGE> 4
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The information required under this item is contained in the 1995 Annual Report
under the heading "Management's Discussion and Analysis of Results of
Operations and Financial Condition" on pages 13 through 21 and is incorporated
by reference herein.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and notes as of December 31, 1995 and
1994 and for each of the years in the three-year period ended December 31,
1995, together with the independent auditors' report of Turlington and Company,
L.L.P. dated January 31, 1996, appearing on pages 22 through 32 of the 1995
Annual Report are incorporated by reference herein.
Item 9. Changes in the Disagreements with Accountants on Accounting and
Financial Disclosure
There were no changes in or disagreements with accountants on accounting and
financial disclosures during the two-year period ended December 31, 1995.
PART III.
Item 10. Directors and Executive Officers of the Registrant
The information required for this item is contained in Part I of this Form 10-K
and in the 1996 Proxy Statement under the heading "Election of Directors" and
is incorporated by reference herein.
Item 11. Executive Compensation
The information required under this item is contained in the 1996 Proxy
Statement under the heading "Executive Compensation" and is incorporated by
reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is contained in the 1996 Proxy
Statement under the heading "Management's Ownership of Common Stock" and is
incorporated by reference herein.
Item 13. Certain Relationship and Related Transactions
None
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
<TABLE>
<CAPTION>
Page Numbers
1995 Annual
Report
------------
<S> <C>
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements:
Independent Auditor's Report of Turlington and Company, L.L.P. 32
Consolidated Balance Sheets at December 31, 1995 and 1994 22
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993 23
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1995, 1994 and 1993 24
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 25
Notes to Consolidated Financial Statements 26-32
</TABLE>
3
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* Incorporated by reference from the indicated pages of the 1995 Annual Report.
2. Financial Statement Schedules:
All schedules are omitted because the related information is included in the
Consolidated Financial Statements or notes thereto or because they are not
applicable.
3. Exhibits
3.1 Articles of Incorporation of LSB Bancshares, Inc., as amended, which
are incorporated by reference to Exhibit 4.2 of the Registrant's
Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on November 17, 1992 (file No. 33-54610).
3.2 Bylaws of LSB Bancshares, Inc. as amended.
4 Specimen certificate of common stock, $5.00 par value, which is
incorporated by reference to Exhibit 4 of the registrant's
Registration Statement on Form S-1 (File No. 2-99312).
10.1 1986 Employee Incentive Stock Option Plan of LSB Bancshares, Inc.,
as amended, which is incorporated by reference to the registrant's
Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on November 17, 1992 (File No. 33-54610).
10.2 1996 Omnibus Stock Incentive Plan.
10.3 1996 Management Plan.
Exhibits 10.1, 10.2 and 10.3 set forth above are management contracts
or compensatory plans and arrangements and are required to be filed
as an exhibit to this form pursuant to Item 601 of regulation S-K.
13 Annual Report to Shareholders for the Year Ended December 31, 1995.
21 List of Subsidiaries at December 31, 1995.
23 Consent of Turlington and Company, L.L.P.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the fourth quarter of 1995.
4
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
LSB BANCSHARES, INC.
Date: February 13, 1996 By /s/ Robert F. Lowe
---------------------------
Robert F. Lowe, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ Robert F. Lowe President and Director February 13, 1996
- --------------------------- (Principal Executive Officer)
Robert F. Lowe
/s/ Monty J. Oliver Secretary and Treasurer February 13, 1996
- --------------------------- (Principal Financial Officer
Monty J. Oliver and Principal Accounting
Officer)
/s/ Michael S. Albert Director February 13, 1996
- ---------------------------
Michael S. Albert
/s/ Peggy B. Barnhardt Director February 13, 1996
- ---------------------------
Peggy B. Barnhardt
/s/ Leonard H. Beck Director February 13, 1996
- ---------------------------
Leonard H. Beck
/s/ Margaret Lee W. Crowell Director February 13, 1996
- ---------------------------
Margaret Lee W. Crowell
/s/ Samuel R. Harris Director February 13, 1996
- ---------------------------
Samuel R. Harris
/s/ Walter A. Hill, Sr. Director February 13, 1996
- ---------------------------
Walter A. Hill, Sr.
/s/ David A. Smith Director February 13, 1996
- ---------------------------
David A. Smith
/s/ Robert B. Smith, Jr. Director February 13, 1996
- ---------------------------
Robert B. Smith, Jr.
/s/ Burr W. Sullivan Director February 13, 1996
- ---------------------------
Burr W. Sullivan
Director February 13, 1996
- ---------------------------
Roberts E. Timberlake
/s/ Julius S. Young, Jr. Director February 13, 1996
- ---------------------------
Julius S. Young, Jr.
</TABLE>
5
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EXHIBIT INDEX
3.2 Bylaws of the Registrant, as amended
10.2 1996 Omnibus Stock Incentive Plan
10.3 Management Incentive Plan
13 Annual Report to Shareholders for the Year Ended December 31, 1995
21 List of Subsidiaries of Registrant at December 31, 1995
23 Consent of Turlington and Company, L.L.P.
27 Financial Data Schedule (for SEC use only)
6
<PAGE> 1
Exhibit 3.2
BYLAWS
OF
LSB BANCSHARES, INC.
Effective March 12, 1996
<PAGE> 2
INDEX TO BYLAWS
of
LSB BANCSHARES, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1
Offices . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------
Section 1. Principal and Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-------------------------------
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-------------
ARTICLE 2
Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . 1
------------------------
Section 1. Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
----------------
Section 2. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--------------
Section 3. Substitute Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-------------------------
Section 4. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
----------------
Section 5. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
------------------
Section 6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
------
Section 7. Shareholders' List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
------------------
Section 8. Voting of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
----------------
Section 9. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-------
ARTICLE 3
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . 4
------------------
Section 1. General Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
--------------
Section 2. Number, Term and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
------------------------------
Section 3. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-------
Section 4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
---------
Section 5. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
------------
Section 6. Nomination of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4
Meetings of Directors . . . . . . . . . . . . . . . . . . . . . . 7
---------------------
Section 1. Annual and Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
---------------------------
Section 2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
----------------
Section 3. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
------------------
Section 4. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
------
</TABLE>
-i-
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<TABLE>
<S> <C> <C>
Section 5. Manner of Acting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
----------------
Section 6. Presumption of Assent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
---------------------
Section 7. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
----------------------
Section 8. Meeting by Communications Device . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
--------------------------------
ARTICLE 5
Committees . . . . . . . . . . . . . . . . . . . . . . . . . 8
----------
Section 1. Election and Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-------------------
Section 2. Removal; Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------------------
Section 3. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------
Section 4. Minutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-------
ARTICLE 6
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------
Section 1. Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------
Section 2. Election; Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
---------------------
Section 3. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-------
Section 4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------
Section 5. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
------------
Section 6. Chairman of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
----------------------------------
Section 7. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------
Section 8. Executive Vice Presidents, Senior Vice Presidents and Vice Presidents . . . . . . . . . . . 10
---------------------------------------------------------------------
Section 9. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------
Section 10. Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------------------
Section 11. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
---------
Section 12. Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
--------------------
Section 13. Controller and Assistant Controllers . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
------------------------------------
Section 14. Voting Upon Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
------------------
ARTICLE 7
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1. Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
------------
Section 2. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
------------------
Section 3. Transfer Agent and Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
----------------------------
Section 4. Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-----------
Section 5. Fixing Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
------------------
Section 6. Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------------
ARTICLE 8
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
Indemnification of Directors and Officers . . . . . . . . . . . . . . . . . 13
-----------------------------------------
Section 1. Indemnification Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
--------------------------
Section 2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------
Section 3. Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------
Section 4. Litigation Expense Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
---------------------------
Section 5. Approval of Indemnification Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------------------------------------
Section 6. Suits by Claimant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------------
Section 7. Consideration; Personal Representatives and Other Remedies . . . . . . . . . . . . . . . . 14
----------------------------------------------------------
Section 8. Scope of Indemnification Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-------------------------------
ARTICLE 9
General Provisions . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1. Dividends and other Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
---------------------------------
Section 2. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
----
Section 3. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
----------------
Section 4. Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
------
Section 5. Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
----
Section 6. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-----------
Section 7. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
----------
ARTICLE 10
Antitakeover Statutes . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
-iii-
<PAGE> 5
BYLAWS
OF
LSB BANCSHARES, INC.
ARTICLE 1
Offices
Section 1. Principal and Registered Office. The principal office
of the corporation shall be located at One LSB Plaza, Lexington, North
Carolina, which shall also be the registered office of the corporation
Section 2. Other Offices. The corporation may have offices at
such other places, either within the State of North Carolina, as the board of
directors may from time to time determine.
ARTICLE 2
Meetings of Shareholders
Section 1. Place of Meeting. Meetings of shareholders shall be
held at the principal office of the corporation, or at such other place, either
within or without the State of North Carolina, as shall be designated in the
notice of the meeting.
Section 2. Annual Meeting. The annual meeting of shareholders
shall be held at such time as shall be set by the board of directors on the
third Wednesday in April of each year, if not a legal holiday, but if a legal
holiday, then on the next business day which is not a legal holiday, for the
purpose of electing directors of the corporation and the transaction of such
other business as is properly brought before the meeting in accordance with
these bylaws. To be properly brought before an annual meeting, business must
be (i) specified in the notice of annual meeting (or any supplement thereto)
given by or at the direction of the board of directors, (ii) otherwise properly
brought before the annual meeting by or at the direction of the board of
directors, or (iii) otherwise properly brought before the annual meeting by a
shareholder. In addition to any other applicable requirements for business to
be properly brought before an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the secretary. To be
timely, a shareholder's notice must be in writing and delivered or mailed to
and received by the secretary not less than sixty (60) days before the first
anniversary of the date of the corporation's proxy statement in connection with
the last annual meeting. A shareholder's notice to the secretary shall set
forth as to each matter the shareholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the corporation's books,
of the shareholder
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proposing such business, (iii) the class, series, and number of the
corporation's shares that are owned of record and beneficially by such
shareholder, and (iv) any material interest of such shareholder in such
business. Notwithstanding anything in these bylaws to the contrary, no
business shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2; provided, however, that nothing in this
Section 2 shall be deemed to preclude discussion by any shareholder of any
business properly brought before the annual meeting. In the event that a
shareholder attempts to bring business before an annual meeting without
complying with the provisions of this Section 2, the chairman of the meeting
may, if the facts warrant, determine that the business was not properly brought
before the meeting in accordance with the foregoing procedures, and, if he
shall so determine, he shall so declare to the shareholders present at the
meeting, and the extent permitted by law, any such business shall not be
transacted.
Section 3. Substitute Annual Meeting. If the annual meeting is
not held on the day designated by these bylaws, a substitute annual meeting may
be called in accordance with Section 4 of this Article. A meeting so called
shall be designated and treated for all purposes as the annual meeting.
Section 4. Special Meetings. Special meetings of the shareholders
may be called at any time by the president or the board of directors.
Section 5. Notice of Meetings. At least 10 and no more than 60
days prior to any annual or special meeting of shareholders, the corporation
shall notify shareholders of the date, time and place of the meeting and, in
the case of a special or substitute annual meeting or where otherwise required
by law, shall briefly describe the purpose or purposes of the meeting. Only
business within the purpose or purposes described in the notice may be taken at
a special meeting. Unless otherwise required by the articles of incorporation
or by law (for example, in the event of a meeting to consider the adoption of a
plan of merger or share exchange, a sale of assets other than in the ordinary
course of business or a voluntary dissolution), the corporation shall be
required to give notice only to shareholders entitled to vote at the meeting.
If an annual or special shareholders' meeting is adjourned to a different date,
time or place, notice thereof need not be given if the new date, time or place
is announced at the meeting before adjournment. If a new record date for the
adjourned meeting is fixed pursuant to Article 7, Section 5 hereof, notice of
the adjourned meeting shall be given to persons who are shareholders as of the
new record date. It shall be the primary responsibility of the secretary to
give the notice, but notice may be given by or at the direction of the
president or other person or persons calling the meeting. If mailed, such
notice shall be deemed to be effective when deposited in the United States mail
with postage thereon prepaid, correctly addressed to the shareholder's address
shown in the corporation's current record of shareholders.
Section 6. Quorum. A majority of the votes entitled to be cast by
a voting group on a matter, represented in person or by proxy at a meeting of
shareholders, shall constitute a quorum for that voting group for any action on
that matter, unless quorum requirements are otherwise fixed by a court of
competent jurisdiction acting pursuant to Section 55-7-03 of the
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General Statutes of North Carolina. Once a share is represented for any
purpose at a meeting, it is deemed present for quorum purposes for the
remainder of the meeting and any adjournment thereof, unless a new record date
is or must be set for the adjournment. Action may be taken by a voting group
at any meeting at which a quorum of that voting group is represented,
regardless of whether action is taken at that meeting by any other voting
group. In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to time by a vote of the
majority of the shares voting on the motion to adjourn.
Section 7. Shareholders' List. After fixing a record date for a
meeting, the corporation shall prepare an alphabetical list of the names of all
its shareholders who are entitled to notice of a shareholders' meeting. The
list shall be arranged by voting group, if any (and within each voting group by
class or series of shares), and shall show the address of and number of shares
held by each shareholder. The shareholders' list shall be available for
inspection by any shareholder, beginning two business days after notice of the
meeting is given for which the list was prepared and continuing through the
meeting, at the corporation's principal office or at a place identified in the
meeting notice in the city where the meeting will be held. The corporation
shall make the shareholders' list available at the meeting, and any shareholder
or his agent or attorney is entitled to inspect the list at any time during the
meeting or any adjournment.
Section 8. Voting of Shares.
(a) Except as otherwise provided in the articles of incorporation
or the bylaws, each outstanding share of voting capital stock of the
corporation shall be entitled to one vote on each matter submitted to a vote at
a meeting of the shareholders, except where cumulative voting for directors
occurs as provided by the articles of incorporation or the bylaws. Action on a
matter by a voting group for which a quorum is present is approved if the votes
cast within the voting group favoring the action exceed the votes cast opposing
the action, except that the affirmative vote of three-fourths of the
outstanding shares shall be required for a merger, share exchange of the
corporation or sale of all or substantially all of the corporation's assets,
unless the vote of a greater number is required by law or by the articles of
incorporation. Voting on all matters shall be by voice vote or by a show of
hands, unless the holders of one-tenth of the shares represented at the meeting
shall demand a ballot vote on a particular matter. Absent special
circumstances, the shares of the corporation are not entitled to vote if they
are owned, directly or indirectly, by a second corporation, domestic or
foreign, and the corporation owns, directly or indirectly, a majority of the
shares entitled to vote for directors of the second corporation, except that
this provision shall not limit the power of the corporation to vote shares held
by it in a fiduciary capacity.
(b) Nominees for directors who receive the greatest number of
votes shall be deemed to have been elected as directors. If required by law,
every shareholder entitled to vote at an election of directors shall have the
right to multiply the number of votes they are entitled to cast by the number
of directors for whom they are entitled to vote and cast the product for a
single candidate or distribute the product among two or more candidates.
Shares otherwise entitled to
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vote cumulatively may not be voted cumulatively at a particular meeting unless
the meeting notice or proxy statement accompanying the notice states
conspicuously that cumulative voting is authorized, or unless some shareholder
or proxy holder announces in open meeting, before the voting for the directors
starts, his intention to vote cumulatively. If such announcement is made, the
chair shall declare that all shares entitled to vote have the right to vote
cumulatively and shall thereupon grant a recess of not less than one nor more
than four hours, as he shall determine, or of such other period of time as is
unanimously then agreed upon.
Section 9. Proxies. A shareholder may appoint a proxy to vote or
otherwise act for him by signing an appointment form, either personally or by
his attorney-in-fact. An appointment is valid for 11 months unless a different
period is expressly provided in the appointment form.
ARTICLE 3
Board of Directors
Section 1. General Powers. The business and affairs of the
corporation shall be managed under the direction of the board of directors
except as otherwise provided by the articles of incorporation of the
corporation or by a valid shareholders' agreement.
Section 2. Number, Term and Qualification.
(a) The number of directors of the corporation shall consist of
not less than nine nor more than 24 shareholders, the exact number within such
minimum and maximum limits to be fixed and determined from time to time by
resolution of a majority of the board of directors, which number shall be
stated in the notice of the call of meeting of shareholders, or by resolution
of the shareholders at any meeting thereof; but in the absence of such
resolution, the number of directors elected at the meeting shall constitute the
number of directors of the corporation until the next annual meeting of
shareholders, unless the number is previously changed by action of the
shareholders. Directors need not be residents of the State or North Carolina.
No person will be eligible to stand for election as a director after he shall
have attained the age of 65 years, and all directors shall retire effective
December 31 the year such director attains the age of 70 years. Upon
retirement from the board of directors pursuant to the preceding sentence, the
retiring director may continue as director emeritus and may serve on committees
or advisory boards of the corporation and will receive such compensation as the
board of directors may fix from time to time for actual service rendered.
Honorary or advisory members of the board of directors may be appointed by the
board of directors to act in an advisory capacity without the power of final
decision in matters concerning the business of the corporation.
(b) The board of directors shall be divided into three classes,
class 1, class 2 and class 3, each class being as nearly equal in number as
possible. Each director shall serve for
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a term ending on the date of the third annual meeting of shareholders following
the annual meeting at which such director was elected. In the event of any
increase or decrease in the authorized number of directors, (1) each director
then serving as such shall nevertheless continue as a director of the class of
which he is a member until the expiration of his current term or his earlier
death, resignation, disqualification or removal, and (2) the newly created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the board of directors among the three classes of directors as
nearly equal as possible. In the event of the death, resignation, retirement,
removal or disqualification of a director during his elected term of office,
his successor shall be elected to serve only until the expiration of the term
of his predecessor. Notwithstanding the foregoing, in the event that preferred
stock of the corporation is issued and if the articles of incorporation so
provide, the holders of the preferred stock of the corporation may increase the
board of directors by additional directors to serve as provided in the articles
of incorporation. Should a vacancy occur among such directors elected by the
preferred shareholders, such vacancy shall be filled, until the next election
of directors by such shareholders, by the affirmative vote of the majority of
the remaining directors elected by such shareholders.
Section 3. Removal.
(a) Any director or the entire board of directors may be removed;
however, such removal must be for cause and must be approved as set forth in
this Article. Except as may otherwise be provided by law, cause for removal
shall be construed to exist only if (1) the director whose removal is proposed
has been convicted, or if a director was granted immunity to testify in a case
in which another has been convicted, of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal; (2)
such director has been adjudicated by a court of competent jurisdiction to be
liable for negligence or misconduct in the performance of his duty to the
corporation in a matter of substantial importance to the corporation and such
adjudication is no longer subject to direct appeal; (3) such director has
become mentally incompetent, whether or not so adjudicated, which mental
incompetency directly affects his ability as a director of the corporation; (4)
such director's actions or failure to act is deemed by the board of directors
to be in derogation of the director's duties; or (5) such director ceases to
fulfill the qualification requirements set forth in this Article.
(b) Removal for cause, as cause is defined in (1) or (2) of
subsection (a), must be approved by at least a majority of the total number of
directors or by at least a majority vote of the shares of the corporation then
entitled to be voted at an election for that director, and the action for
removal must be brought within one year of such conviction or adjudication.
Removal for cause, as cause is defined in (3), (4) and (5) of subsection (a),
must be approved by at least two-thirds of the total number of directors. For
purposes of this subsection, the total number of directors will not include the
director who is the subject of the removal determination, nor will such
director be entitled to vote thereon.
Section 4. Vacancies. Except as otherwise provided in the
articles of incorporation, a vacancy occurring in the board of directors,
including, without limitation, a vacancy resulting
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from an increase in the number of directors or from the failure by the
shareholders to elect the full authorized number of directors, may be filled by
a majority of the remaining directors or by the sole director remaining in
office. The shareholders may elect a director at any time to fill a vacancy
not filled by the directors. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office.
Section 5. Compensation. The directors shall not receive
compensation for their services as such, except that by resolution of the board
of directors, the directors may be paid fees, which may include but are not
restricted to fees for attendance at meetings of the board or of a committee,
and they may be reimbursed for expenses of attendance. Any director may serve
the corporation in any other capacity and receive compensation therefor.
Section 6. Nomination of Directors. Subject to any rights of
holders of preferred shares, only persons who are nominated in accordance with
the procedures set forth in this Section 6 shall be eligible for election as
directors. Nomination for election to the board of directors shall be made by
the board of directors or a nominating committee of the board of directors.
Nomination for election of any person to the board of directors may also be
made by a shareholder if such nomination is made in compliance with the
procedure set forth in this Section 6. Notice of nominations made by
shareholders entitled to vote for the election of directors shall be received
in writing by the secretary not less than fifty (50) nor more than seventy-five
(75) days before the first anniversary of the date of the corporation's proxy
statement in connection with the last meeting of shareholders called for the
election of directors. Each notice shall set forth (i) the name, age, business
address and, if known, residence address of each nominee proposed in such
notice, (ii) the principal occupation or employment of each such nominee, (iii)
the nominee's qualifications to serve as director, (iv) a representation that
the nominee has consented to his name being placed in nomination, (v) the
number and class of capital shares of the corporation beneficially owned by
each such nominee, (vi) the name and record address of the shareholder making
the nomination, (vii) the class, series, and number of the corporation's shares
that are owned of record or beneficially by such shareholder, and (viii) any
material interest of the shareholder in the proposed nomination. The secretary
shall deliver all such notices to the corporation's nominating committee, or
such other committee as may be appointed by the board of directors from time to
time for the purpose of recommending to the board of directors candidates to
serve as director or, in the absence of such other committee, to the board of
directors, for review. The nominating committee or such other committee shall
thereafter make its recommendation with respect to nominees to the board of
directors, and the board of directors shall thereafter make its determination
as to whether such candidate should be nominated for election as director. The
chairman of any meeting of shareholders called for election of directors may,
if the facts warrant, determine that a nomination was not made in accordance
with the foregoing procedures, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
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ARTICLE 4
Meetings of Directors
Section 1. Annual and Regular Meetings. The annual meeting of the
board of directors shall be held immediately following the annual meeting of
the shareholders. The board of directors may by resolution provide for the
holding of regular meetings of the board on specified dates and at specified
times. Notice of regular meetings held at the principal office of the
corporation and at the usual scheduled time shall not be required. If any date
for which a regular meeting is scheduled shall be a legal holiday, the meeting
shall be held on a date designated in the notice of the meeting, if any, during
either the same week in which the regularly scheduled date falls or during the
preceding or following week. Regular meetings of the board shall be held at
the principal office of the corporation or at such other place as may be
designated in the notice of the meeting.
Section 2. Special Meetings. Special meetings of the board of
directors may be called by or at the request of the chairman of the board, the
president or any two directors. Such meetings may be held at the time and
place designated in the notice of the meeting.
Section 3. Notice of Meetings. Unless the articles of
incorporation provide otherwise, the annual and regular meetings of the board
of directors may be held without notice of the date, time, place or purpose of
the meeting. The secretary or other person or persons calling a special
meeting shall give notice by any usual means of communication to be sent at
least two days before the meeting if notice is sent by means of telephone,
telecopy or personal delivery and at least five days before the meeting if
notice is sent by mail. A director's attendance at, or participation in, a
meeting for which notice is required shall constitute a waiver of notice,
unless the director at the beginning of the meeting (or promptly upon arrival)
objects to holding the meeting or transacting business at the meeting and does
not thereafter vote for or assent to action taken at the meeting.
Section 4. Quorum. Except as otherwise provided in the articles
of incorporation, a majority of the directors in office shall constitute a
quorum for the transaction of business at a meeting of the board of directors.
Section 5. Manner of Acting. Except as otherwise provided in the
articles of incorporation or these bylaws, the act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors.
Section 6. Presumption of Assent. A director of the corporation
who is present at a meeting of the board of directors at which action on any
corporate matter is taken is deemed to have assented to the action taken unless
he objects at the beginning of the meeting (or promptly upon arrival) to
holding, or transacting business at, the meeting, or unless his dissent or
abstention is entered in the minutes of the meeting or unless he shall file
written notice of his dissent or abstention to such action with the presiding
officer of the meeting before its
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adjournment or with the corporation immediately after adjournment of the
meeting. The right of dissent or abstention shall not apply to a director who
voted in favor of such action.
Section 7. Action Without Meeting. Unless otherwise provided in
the articles of incorporation, action required or permitted to be taken at a
meeting of the board of directors may be taken without a meeting if the action
is taken by all members of the board. The action must be evidenced by one or
more written consents signed by each director before or after such action,
describing the action taken, and included in the minutes or filed with the
corporate records. Action taken without a meeting is effective when the last
director signs the consent, unless the consent specifies a different effective
date.
Section 8. Meeting by Communications Device. Unless otherwise
provided in the articles of incorporation, the board of directors may permit
any or all directors to participate in a regular or special meeting by, or
conduct the meeting through the use of, any means of communication by which all
directors participating may simultaneously hear each other during the meeting.
A director participating in a meeting by this means is deemed to be present in
person at the meeting.
ARTICLE 5
Committees
Section 1. Election and Powers. Unless otherwise provided by the
articles of incorporation, a majority of the board of directors may create one
or more committees and appoint two or more directors to serve at the pleasure
of the board on each such committee. To the extent specified by the board of
directors or in the articles of incorporation, each committee shall have and
may exercise the powers of the board in the management of the business and
affairs of the corporation, except that no committee shall have authority to do
the following:
(a) Authorize distributions.
(b) Approve or propose to shareholders action required to be
approved by shareholders.
(c) Fill vacancies on the board of directors or on any of its
committees.
(d) Amend the articles of incorporation.
(e) Adopt, amend or repeal the bylaws.
(f) Approve a plan of merger not requiring shareholder approval.
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(g) Authorize or approve the reacquisition of shares, except
according to a formula or method prescribed by the board of directors.
(h) Authorize or approve the issuance, sale or contract for sale
of shares, or determine the designation and relative rights, preferences and
limitations of a class or series of shares, except that the board of directors
may authorize the executive committee (or a senior executive officer of the
corporation) to do so within limits specifically prescribed by the board of
directors.
Section 2. Removal; Vacancies. Any member of a committee may be
removed at any time with or without cause, and vacancies in the membership of a
committee by means of death, resignation, disqualification or removal shall be
filled by a majority of the whole board of directors.
Section 3. Meetings. The provisions of Article 4 governing
meetings of the board of directors, action without meeting, notice, waiver of
notice and quorum and voting requirements shall apply to the committees of the
board and its members.
Section 4. Minutes. Each committee shall keep minutes of its
proceedings and shall report thereon to the board of directors at or before the
next meeting of the board.
ARTICLE 6
Officers
Section 1. Titles. The officers of the corporation shall be a
president, a secretary and a treasurer and may include a chairman and vice
chairman of the board of directors, one or more executive vice presidents, one
or more senior vice presidents, one or more vice presidents, a controller, one
or more assistant secretaries, one or more assistant treasurers, one or more
assistant controllers, and such other officers as shall be deemed necessary.
The officers shall have the authority and perform the duties as set forth
herein or as from time to time may be prescribed by the board of directors or
by the president (to the extent that the president is authorized by the board
of directors to prescribe the authority and duties of officers). Any two or
more offices may be held by the same individual, but no officer may act in more
than one capacity where action of two or more officers is required.
Section 2. Election; Appointment. The officers of the corporation
shall be elected from time to time by the board of directors or appointed from
time to time by the president (to the extent that the president is authorized
by the board to appoint officers).
Section 3. Removal. Any officer may be removed by the board at
any time with or without cause whenever in its judgment the best interests of
the corporation will be served, but removal shall not itself affect the
officer's contract rights, if any, with the corporation.
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Section 4. Vacancies. Vacancies among the officers may be filled
and new offices may be created and filled by the board of directors, or by the
president (to the extent authorized by the board).
Section 5. Compensation. The compensation of the officers shall
be fixed by the board of directors.
Section 6. Chairman of the Board of Directors. The chairman of
the board of directors, if such officer is elected, shall preside at the
meetings of the board of directors and shall have such other authority and
perform such other duties as the board of directors shall designate.
Section 7. President. The president shall be in general charge of
the affairs of the corporation in the ordinary course of its business, and
shall preside at meetings of the shareholders. The president may perform such
acts, not inconsistent with applicable law or the provisions of these bylaws,
as may be performed by the president or a corporation and may sign and execute
all authorized notes, bonds, contracts and other obligations in the name of the
corporation. The president shall have such other powers and perform such other
duties as the board of directors shall designate or as may be provided by
applicable law or elsewhere in these bylaws.
Section 8. Executive Vice Presidents, Senior Vice Presidents and
Vice Presidents. The executive vice presidents, senior vice presidents and
vice presidents, if such offices are elected, shall have such powers and
perform such duties as may be assigned by the board of directors or by the
president (to the extent that the president is authorized by the board of
directors to prescribe the authority and duties of other officers).
Section 9. Secretary. The secretary shall keep accurate records
of the acts and proceedings of all meetings of shareholders and of the board of
directors and shall give all notices required by law and by these bylaws. The
secretary shall have general charge of the corporate books and records and
shall have the responsibility and authority to maintain and authenticate such
books and records. The secretary shall have general charge of the corporate
seal and shall affix the corporate seal to any lawfully executed instrument
requiring it. The secretary shall have general charge of the stock transfer
books of the corporation and shall keep at the principal office of the
corporation a record of shareholders, showing the name and address of each
shareholder and the number and class of the shares held by each. The secretary
shall sign such instruments as may require the signature of the secretary, and
in general shall perform the duties incident to the office of secretary and
such other duties as may be assigned from time to time by the board of
directors or the president (to the extent that the president is authorized by
the board of directors to prescribe the authority and duties of other
officers).
Section 10. Assistant Secretaries. Each assistant secretary, if
such officer is elected, shall have such powers and perform such duties as may
be assigned by the board of directors or the president (if authorized by the
board of directors to prescribe the authority and duties of
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other officers), and the assistant Secretaries shall exercise the powers of the
secretary during that officer's absence or inability to act.
Section 11. Treasurer. The treasurer shall have custody of all
funds and securities belonging to the corporation and shall receive, deposit or
disburse the same under the direction of the board of directors. The treasurer
shall keep full and accurate accounts of the finances of the corporation, which
may be consolidated or combined statements of the corporation and one or more
of its subsidiaries as appropriate, that include a balance sheet as of the end
of the fiscal year, an income statement for that year, and a statement of cash
flows for the year unless that information appears elsewhere in the financial
statements. If financial statements are prepared for the corporation on the
basis of generally accepted accounting principles, the annual financial
statements must also be prepared on that basis. The corporation shall mail the
annual financial statements, or a written notice of their availability, to each
shareholder within 120 days of the close of each fiscal year. The treasurer
shall in general perform all duties incident to the office and such other
duties as may be assigned from time to time by the board of directors or the
president (to the extent that the president is authorized by the board of
directors to prescribe the authority and duties of other officers).
Section 12. Assistant Treasurers. Each assistant treasurer, if
such officer is elected, shall have such powers and perform such duties as may
be assigned by the board of directors or the president (to the extent that the
president is authorized by the board of directors to prescribe the authority
and duties of other officers), and the assistant treasurers shall exercise the
powers of the treasurer during the officer's absence or inability to act.
Section 13. Controller and Assistant Controllers. The controller,
if such officer is elected, shall have charge of the accounting affairs of the
corporation and shall have such other powers and perform such other duties as
the board of directors or the president (to the extent that the president is
authorized by the board of directors to prescribe the authority and duties of
other officers) shall designate. Each assistant controller shall have such
powers and perform such duties as may be assigned by the board of directors to
prescribe the authority and duties of other officers), and the assistant
controllers shall exercise the powers of the controller during that officer's
absence or inability to act.
Section 14. Voting Upon Stocks. Unless otherwise ordered by the
board of directors, the president shall have full power and authority in behalf
of the corporation to attend, act and vote at meetings of the shareholders of
any corporation in which this corporation may hold stock, and at such meetings
shall possess and may exercise any and all rights and powers incident to the
ownership of such stock and which, as the owner, the corporation might have
possessed and exercised if present. The board of directors may by resolution
from time to time confer such power and authority upon any other person or
persons.
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ARTICLE 7
Capital Stock
Section 1. Certificates. Shares of the capital stock of the
corporation shall be represented by certificates. The name and address of the
persons to whom shares of capital stock of the corporation are issued, with the
number of shares and date of issue, shall be entered on the stock transfer
records of the corporation. Certificates for shares of the capital stock of
the corporation shall be in such form not inconsistent with the articles of
incorporation of the corporation as shall be approved by the board of
directors. Each certificate shall be signed (either manually or by facsimile)
by the president or any vice president and by the secretary, assistant
secretary, treasurer or assistant treasurer. Each certificate may be sealed
with the seal of the corporation or a facsimile thereof.
Section 2. Transfer of Shares. Transfer of shares shall be made
on the stock transfer records of the corporation, and transfers shall be made
only upon surrender of the certificate for the shares sought to be transferred
by the recordholder or by a duly authorized agent, transferee or legal
representative. All certificates surrendered for transfer shall be cancelled
before new certificates for the transferred shares shall be issued.
Section 3. Transfer Agent and Registrar. The board of directors
may appoint one or more transfer agents and one or more registrars of transfers
and may require all stock certificates to be signed or countersigned by the
transfer agent and registered by the registrar of transfers.
Section 4. Regulations. The board of directors may make rules and
regulations as it deems expedient concerning the issue, transfer and
registration of shares of capital stock of the corporation.
Section 5. Fixing Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders,
or entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other purpose, the board of directors may
fix in advance a date as the record date for the determination of shareholders.
The record date shall be not more than 70 days before the meeting or action
requiring a determination of shareholders. A determination of shareholders
entitled to notice of or to vote at a shareholders' meeting shall be effective
for any adjournment of the meeting unless the board of directors fixes a new
record date, which it shall do if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting. If no record date is
fixed for the determination of shareholders, the record date shall be the day
the notice of the meeting is mailed or the day the action requiring a
determination of shareholders is taken. If no record date is fixed for action
without a meeting, the record date for determining shareholders entitled to
take action without a meeting shall be the date the first shareholder signs a
consent to the action taken.
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<PAGE> 17
Section 6. Lost Certificates. The board of directors must
authorize the issuance of a new certificate in place of a certificate claimed
to have been lost, destroyed or wrongfully taken, upon receipt of (a) an
affidavit from the person explaining the loss, destruction or wrongful taking,
and (b) a bond from the claimant in a sum as the corporation may reasonably
direct to indemnify the corporation against loss from any claim with respect to
the certificate claimed to have been lost, destroyed or wrongfully taken. The
board of directors may, in its discretion, waive the affidavit and bond and
authorize the issuance of a new certificate in place of a certificate claimed
to have been lost, destroyed or wrongfully taken.
ARTICLE 8
Indemnification of Directors and Officers
Section 1. Indemnification Provisions. Any person who at any time
serves or has served as a director or officer of the corporation or of any
wholly owned subsidiary of the corporation, or in such capacity at the request
of the corporation for any other foreign or domestic corporation, partnership,
joint venture, trust or other enterprise, or as a trustee or administrator
under any employee benefit plan of the corporation or of any wholly owned
subsidiary thereof (a "Claimant"), shall have the right to be indemnified and
held harmless by the corporation to the fullest extent from time to time
permitted by law against all liabilities and litigation expenses (as
hereinafter defined) in the event a claim shall be made or threatened against
that person in, or that person is made or threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, and whether or not brought by or on
behalf of the corporation, including all appeals therefrom (a "proceeding"),
arising out of that person's status as such or that person's activities in any
such capacity; provided, that such indemnification shall not be effective with
respect to (a) that portion of any liabilities or litigation expenses with
respect to which the Claimant is entitled to receive payment under any
insurance policy or (b) any liabilities or litigation expenses incurred on
account of any of the Claimant's activities which were at the time taken known
or believed by the Claimant to be clearly in conflict with the best interests
of the corporation.
Section 2. Definitions. As used in this Article, (a)
"liabilities" shall include, without limitation, (1) payments in satisfaction
of any judgment, money decree, excise tax, fine or penalty for which Claimant
had become liable in any proceeding and (2) payments in settlement of any such
proceeding subject, however, to Section 3 of this Article; (b) "litigation
expenses" shall include, without limitation, (1) reasonable costs and expenses
and attorneys' fees and expenses actually incurred by the Claimant in
connection with any proceeding and (2) reasonable costs and expenses and
attorneys' fees and expenses in connection with the enforcement of rights to
the indemnification granted hereby or by applicable law, if such enforcement is
successful in whole or in part; and (c) "disinterested directors" shall mean
directors who are not party to the proceeding in question.
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<PAGE> 18
Section 3. Settlements. The corporation shall not be liable to
indemnify the Claimant for any amounts paid in settlement of any proceeding
effected without the corporation's written consent. The corporation will not
unreasonably withhold its consent to any proposed settlement.
Section 4. Litigation Expense Advances.
(a) Except as provided in subsection (b) below, any litigation
expenses shall be advanced to any Claimant within 30 days of receipt by the
secretary of the corporation of a demand therefor, together with an undertaking
by or on behalf of the Claimant to repay to the corporation such amount unless
it is ultimately determined that Claimant is entitled to be indemnified by the
corporation against such expenses. The secretary shall promptly forward notice
of the demand and undertaking immediately to all directors of the corporation.
(b) Within 10 days after mailing of notice to the directors
pursuant to subsection (a) above, any disinterested director may, if desired,
call a meeting of all disinterested directors to review the reasonableness of
the expenses so requested. No advance shall be made if a majority of the
disinterested directors affirmatively determines that the item of expense is
unreasonable in amount; but if the disinterested directors determine that a
portion of the expense item is reasonable, the corporation shall advance such
portion.
Section 5. Approval of Indemnification Payments. Except as
provided in Section 4 of this Article, the board of directors of the
corporation shall take all such action as may be necessary and appropriate to
authorize the corporation to pay the indemnification required by Section 1 of
this Article, including, without limitation, making a good faith evaluation of
the manner in which the Claimant acted and of the reasonable amount of
indemnity due the Claimant. In taking any such action, any Claimant who is a
director of the corporation shall not be entitled to vote on any matter
concerning such Claimant's right to indemnification.
Section 6. Suits by Claimant. No Claimant shall be entitled to
bring suit against the corporation to enforce his rights under this Article
until sixty days after a written claim has been received by the corporation,
together with any undertaking to repay as required by Section 4 of this
Article. It shall be a defense to any such action that the Claimant's
liabilities or litigation expenses were incurred on account of activities
described in clause (b) of Section 1, but the burden of proving this defense
shall be on the corporation. Neither the failure of the corporation to have
made a determination prior to the commencement of the action or the effect that
indemnification of the Claimant is proper in the circumstances, nor an actual
determination by the corporation that the Claimant had not met the standard of
conduct described in clause (b) of Section 1, shall be a defense to the action
or create a presumption that the Claimant has not met the applicable standard
of conduct.
Section 7. Consideration; Personal Representatives and Other
Remedies. Any person who during such time as this Article or corresponding
provisions of predecessor bylaws is or has been in effect serves or has served
in any of the aforesaid capacities for or on behalf of the corporation shall be
deemed to be doing so or to have done so in reliance upon, and as
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<PAGE> 19
consideration for, the right of indemnification provided herein or therein.
The right of indemnification provided herein or therein shall inure to the
benefit of the legal representatives of any person who qualifies or would
qualify as a Claimant hereunder, and the right shall not be exclusive of any
other rights to which the person or legal representative may be entitled apart
from this Article.
Section 8. Scope of Indemnification Rights. The rights granted
herein shall not be limited by the provisions of Section 55-8-51 of the General
Statutes of North Carolina or any successor statute.
ARTICLE 9
General Provisions
Section 1. Dividends and other Distributions. The board of
directors may from time to time declare, and the corporation may pay or make,
dividends or other distributions with respect to its outstanding shares in the
manner and upon the terms and conditions provided by law.
Section 1. Dividends and other Distributions. The board of
directors may from time to time declare, and the corporation may pay or make,
dividends or other distributions with respect to its outstanding shares in the
manner and upon the terms and conditions provided by law.
Section 2. Seal. The seal of the corporation shall be in the form
approved by the board of directors.
Section 3. Waiver of Notice. Whenever notice is required to be
given to a shareholder, director or other person under the provisions of these
bylaws, the articles of incorporation or by applicable law, a waiver in writing
signed by the person or persons entitled to the notice, whether before or after
the date and time stated in the notice, shall be equivalent to giving the
notice.
Section 4. Checks. All checks, drafts or orders for the payment
of money shall be signed by the officer or officers or other individuals that
the board of directors may from time to time designate.
Section 5. Bond. The board of directors may by resolution require
any or all officers, agents and employees of the corporation to give bond to
the corporation, with sufficient sureties, conditioned on the faithful
performance of the duties of their respective offices or positions, and to
comply with such other conditions as may from time to time be required by the
board.
Section 6. Fiscal Year. The fiscal year of the corporation shall
be the calendar year.
Section 7. Amendments. Unless otherwise provided in the articles
of incorporation or a bylaw adopted by the shareholders or by law, these bylaws
may be amended or repealed by the board of directors, except that a bylaw
adopted, amended or repealed by the shareholders may not be readopted, amended
or repealed by the board of directors if neither the articles of
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<PAGE> 20
incorporation nor a bylaw adopted by the shareholders authorizes the board of
directors to adopt, amend or repeal that particular bylaw or the bylaws
generally. These bylaws may be amended or repealed by the shareholders even
though the bylaws may also be amended or repealed by the board of directors. A
bylaw that fixes a greater quorum or voting requirement for the board of
directors may be amended of repealed (a) if originally adopted by the
shareholders, only by the shareholders, unless such bylaw as originally adopted
by the shareholders provides that such bylaw may be amended or repealed by the
board of directors or (b) if originally adopted by the board of directors,
either by the shareholders or by the board of directors. A bylaw that fixes a
greater quorum or voting requirement may not be adopted by the board of
directors by a vote less than a majority of the directors then in office and
may not itself be amended by a quorum or vote of the directors less than the
quorum or vote prescribed in such bylaw or prescribed by the shareholders.
ARTICLE 10
Antitakeover Statutes
The provisions of Article 9 of the North Carolina Business Corporation
Act shall not be applicable to the corporation.
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<PAGE> 1
EXHIBIT 10.2
LSB BANCSHARES, INC.
1996 OMNIBUS STOCK INCENTIVE PLAN
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
ARTICLE I DEFINITIONS
1.01. Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03. Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.04. Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.05. Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.06. Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.07. Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.08. Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.09. Corresponding SAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.10. Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.11. Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.12. Initial Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13. Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.14. Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.15. Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.16. SAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.17. Stock Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II PURPOSES
ARTICLE III ADMINISTRATION
ARTICLE IV ELIGIBILITY
ARTICLE V STOCK SUBJECT TO PLAN
5.01. Shares Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.02. Aggregate Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.03. Reallocation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VI OPTIONS
6.01. Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.02. Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.03. Maximum Option Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.04. Nontransferability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.05. Transferable Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.06. Employee Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.07. Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.08. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.09. Installment Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.10. Shareholder Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.11. Disposition of Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ARTICLE VII SARS
7.01. Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.02. Maximum SAR Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.03. Nontransferability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.04. Transferable SARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.05. Employee Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.06. Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.07. Settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.08. Shareholder Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VIII STOCK AWARDS
8.01. Award. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.02. Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.03. Performance Objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.04. Employee Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.05. Shareholder Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IX ADJUSTMENT UPON CHANGE IN
COMMON STOCK
ARTICLE X COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES
ARTICLE XI GENERAL PROVISIONS
11.01. Effect on Employment and Service. . . . . . . . . . . . . . . . . . . . . . . 19
11.02. Unfunded Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.03. Rules of Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XII AMENDMENT
ARTICLE XIII DURATION OF PLAN
ARTICLE XIV EFFECTIVE DATE OF PLAN
</TABLE>
<PAGE> 4
ARTICLE I
DEFINITIONS
1.01. Administrator means the Committee and any delegate of the Committee that
is appointed in accordance with Article III.
1.02. Affiliate means any "subsidiary" or "parent" corporation (within the
meaning of Section 424 of the Code) of the Company.
1.03. Agreement means a written agreement (including any amendment or
supplement thereto) between the Company and a Participant specifying the terms
and conditions of a Stock Award or an Option or SAR granted to such Participant.
1.04. Board means the Board of Directors of the Company.
1.05. Code means the Internal Revenue Code of 1986, and any amendments thereto.
1.06. Committee means the Stock Option and Compensation Committee of the Board.
1.07. Common Stock means the common stock, $5.00 par value per share, of the
Company.
1.08. Company means LSB Bancshares, Inc.
1.09. Corresponding SAR means an SAR that is granted in relation to a
particular Option and that can be exercised only upon the surrender to the
Company, unexercised, of that portion of the Option to which the SAR relates.
1.10. Exchange Act means the Securities Exchange Act of 1934, as amended.
1.11. Fair Market Value means, on any given date, the last sales price of a
share of Common Stock as reported on the NASDAQ National Market System. The
<PAGE> 5
preceding sentence to the contrary notwithstanding, if the Common Stock is
listed upon any established stock exchange, the Fair Market Value on any given
day shall be the closing price of the Common Stock on such exchange. If the
Common Stock was not traded on the NASDAQ National Market System or on an
established stock exchange on such day, then the Fair Market Value is
determined with reference to the next preceding day that the Common Stock was
so traded.
1.12. Initial Value means, with respect to an SAR, the Fair Market
Value of one share of Common Stock on the date of grant.
1.13. Option means a stock option that entitles the holder to
purchase from the Company a stated number of shares of Common Stock at the
price set forth in an Agreement.
1.14. Participant means an employee of the Company or an
Affiliate, including an employee who is a member of the Board, who satisfies
the requirements of Article IV and is selected by the Administrator to receive
a Stock Award, an Option, an SAR or a combination thereof.
1.15. Plan means the LSB Bancshares, Inc. 1996 Omnibus Stock
Incentive Plan.
1.16. SAR means a stock appreciation right that in accordance with
the terms of an Agreement entitles the holder to receive, with respect to each
share of Common Stock encompassed by the exercise of such SAR, the amount
determined by the Administrator and specified in an Agreement. In the absence
of such a determination, the holder shall be entitled to receive, with respect
to each share of Common Stock encompassed by the exercise of such SAR, the
excess of the Fair
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<PAGE> 6
Market Value on the date of exercise over the Initial Value. References to
"SARs" include both Corresponding SARs and SARs granted independently of
Options, unless the context requires otherwise.
1.17. Stock Award means Common Stock awarded to a Participant
under Article VIII.
ARTICLE II
PURPOSES
The Plan is intended to assist the Company and each
Affiliate in recruiting and retaining individuals with ability and initiative
by enabling such persons to participate in the future success of the Company
and its Affiliates and to associate their interests with those of the Company
and its shareholders. The Plan is intended to permit the grant of both Options
qualifying under Section 422 of the Code ("incentive stock options") and
Options not so qualifying, and the grant of SARs and Stock Awards. No Option
that is intended to be an incentive stock option shall be invalid for failure
to qualify as an incentive stock option. The proceeds received by the Company
from the sale of Common Stock pursuant to the Plan shall be used for general
corporate purposes.
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<PAGE> 7
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Administrator. The
Administrator shall have authority to grant Stock Awards, Options and SARs upon
such terms (not inconsistent with the provisions of the Plan) as the
Administrator may consider appropriate. Such terms may include conditions (in
addition to those contained in the Plan) on the exercisability of all or any
part of an Option or SAR or on the transferability or forfeitability of a Stock
Award. Notwithstanding any such conditions, the Administrator may, in its
discretion, accelerate the time at which any Option or SAR may be exercised, or
the time at which a Stock Award may become transferable or nonforfeitable. In
addition, the Administrator shall have complete authority to interpret all
provisions of the Plan; to prescribe the form of Agreements; to adopt, amend,
and rescind rules and regulations pertaining to the administration of the Plan;
and to make all other determinations necessary or advisable for the
administration of the Plan. The express grant in the Plan of any specific
power to the Administrator shall not be construed as limiting any power or
authority of the Administrator. Any decision made, or action taken, by the
Administrator or in connection with the administration of the Plan shall be
final and conclusive. Neither the Administrator nor any member of the
Committee shall be liable for any act done in good faith with respect to the
Plan or any Agreement, Option, SAR or Stock Award. All expenses of
administering the Plan shall be borne by the Company.
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<PAGE> 8
The Committee, in its discretion, may delegate to one or
more officers of the Company or the Executive Committee of the Board, all or
part of the Committee's authority and duties with respect to grants and awards
to individuals who are not subject to the reporting and other provisions of
Section 16 of the Exchange Act. The Committee may revoke or amend the terms of
a delegation at any time but such action shall not invalidate any prior actions
of the Committee's delegate or delegates that were consistent with the terms of
the Plan.
ARTICLE IV
ELIGIBILITY
Any employee of the Company or an Affiliate (including a
corporation that becomes an Affiliate after the adoption of the Plan) is
eligible to participate in the Plan if the Administrator, in its sole
discretion, determines that such person has contributed significantly or can be
expected to contribute significantly to the profits or growth of the Company or
an Affiliate. Directors of the Company who are employees of the Company or an
Affiliate may be selected to participate in the Plan. A member of the
Committee may not participate in the Plan during the time that his
participation would prevent the Committee from being "disinterested" for
purposes of Securities and Exchange Commission Rule 16b-3 as in effect from
time to time.
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<PAGE> 9
ARTICLE V
STOCK SUBJECT TO PLAN
5.01. Shares Issued. Upon the award of shares of Common Stock
pursuant to a Stock Award, the Company may issue shares of Common Stock from
its authorized but unissued Common Stock. Upon the exercise of any Option or
SAR, the Company may deliver to the Participant (or the Participant's broker if
the Participant so directs), shares of Common Stock from its authorized but
unissued Common Stock.
5.02. Aggregate Limit. The maximum aggregate number of shares of
Common Stock that may be issued under the Plan pursuant to the exercise of SARs
and Options and the grant of Stock Awards is 250,000 shares. The maximum
aggregate number of shares that may be issued under the Plan as Stock Awards is
125,000 shares. The maximum aggregate number of shares that may be issued
under the Plan and the maximum number of shares that may be issued as Stock
Awards shall be subject to adjustment as provided in Article X.
5.03. Reallocation of Shares. If an Option is terminated, in
whole or in part, for any reason other than its exercise or the exercise of a
Corresponding SAR that is settled with Common Stock, the number of shares of
Common Stock allocated to the Option or portion thereof may be reallocated to
other Options, SARs and Stock Awards to be granted under the Plan. If an SAR
is terminated, in whole or in part, for any reason other than its exercise or
the exercise of a related Option, the number
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<PAGE> 10
of shares of Common Stock allocated to the SAR or portion thereof may be
reallocated to other Options, SARs and Stock Awards to be granted under the
Plan.
ARTICLE VI
OPTIONS
6.01. Award. In accordance with the provisions of Article IV, the
Administrator will designate each individual to whom an Option is to be granted
and will specify the number of shares of Common Stock covered by such awards.
6.02. Option Price. The price per share for Common Stock
purchased on the exercise of an Option shall be determined by the Administrator
on the date of grant; provided, however, that the price per share for Common
Stock purchased on the exercise of any Option shall not be less than
eighty-five percent (85%) of the Fair Market Value on the date the Option is
granted. Notwithstanding the preceding sentence, the price per share for
Common Stock purchased on the exercise of any Option that is an incentive stock
option shall not be less than the Fair Market Value on the date the Option is
granted.
6.03. Maximum Option Period. The maximum period in which an
Option may be exercised shall be determined by the Administrator on the date of
grant, except that no Option that is an incentive stock option shall be
exercisable after the expiration of ten years from the date such Option was
granted. The terms of any Option that is an incentive stock option may provide
that it is exercisable for a period less than such maximum period.
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<PAGE> 11
6.04. Nontransferability. Except as provided in Section 6.05,
each Option granted under the Plan shall be nontransferable except by will or
by the laws of descent and distribution. In the event of any such transfer,
the Option and any Corresponding SAR that relates to such Option must be
transferred to the same person or persons or entity or entities. Except as set
forth in Section 6.05, during the lifetime of the Participant to whom the
Option is granted, the Option may be exercised only by the Participant. No
right or interest of a Participant in any Option shall be liable for, or
subject to, any lien, obligation, or liability of such Participant.
6.05. Transferable Options. Section 6.04 to the contrary
notwithstanding, if the Agreement provides, an Option that is not an incentive
stock option may be transferred by a Participant to the Participant's children,
grandchildren, spouse, one or more trusts for the benefit of such family
members or a partnership in which such family members are the only partners;
provided, however, that Participant may not receive any consideration for the
transfer. In addition to transfers described in the preceding sentence the
Administrator may grant Options that are not incentive stock options that are
transferable on other terms and conditions as may be permitted under Securities
Exchange Commission Rule 16b-3 as in effect from time to time. The holder of
an Option transferred pursuant to this section shall be bound by the same terms
and conditions that governed the Option during the period that it was held by
the Participant. In the event of any such transfer, the Option and any
Corresponding SAR that relates to such Option must be transferred to the same
person or persons or entity or entities.
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<PAGE> 12
6.06. Employee Status. For purposes of determining the
applicability of Section 422 of the Code (relating to incentive stock options),
or in the event that the terms of any Option provide that it may be exercised
only during employment or within a specified period of time after termination
of employment, the Administrator may decide to what extent leaves of absence
for governmental or military service, illness, temporary disability, or other
reasons shall not be deemed interruptions of continuous employment.
6.07. Exercise. Subject to the provisions of the Plan and the
applicable Agreement, an Option may be exercised in whole at any time or in
part from time to time at such times and in compliance with such requirements
as the Administrator shall determine; provided, however, that incentive stock
options (granted under the Plan and all plans of the Company and its
Affiliates) may not be first exercisable in a calendar year for stock having a
Fair Market (determined as of the date an Option is granted) exceeding
$100,000. An Option granted under the Plan may be exercised with respect to
any number of whole shares less than the full number for which the Option could
be exercised. A partial exercise of an Option shall not affect the right to
exercise the Option from time to time in accordance with the Plan and the
applicable Agreement with respect to the remaining shares subject to the
Option. The exercise of an Option shall result in the termination of any
Corresponding SAR to the extent of the number of shares with respect to which
the Option is exercised.
6.08. Payment. Unless otherwise provided by the Agreement, payment
of the Option price shall be made in cash or a cash equivalent acceptable to
the Adminis-
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<PAGE> 13
trator. If the Agreement provides, payment of all or part of the Option price
may be made by surrendering shares of Common Stock to the Company. If Common
Stock is used to pay all or part of the Option price, the sum of the cash and
cash equivalent and the Fair Market Value (determined as of the day preceding
the date of exercise) of the shares surrendered must not be less than the
Option price of the shares for which the Option is being exercised.
6.09. Installment Payment. If the Agreement provides, and if the
Participant is employed by the Company on the date the Option is exercised,
payment of all or part of the Option price may be made in installments. In
that event the Company shall lend the Participant an amount equal to not more
than ninety percent (90%) of the Option price of the shares acquired by the
exercise of the Option. This amount shall be evidenced by the Participant's
promissory note and shall be payable in not more than five equal annual
installments, unless the amount of the loan exceeds the maximum loan value for
the shares purchased, which value shall be established from time to time by
regulations of the Board of Governors of the Federal Reserve System. In that
event, the note shall be payable in equal quarterly installments over a period
of time not to exceed five years. The Administrator, however, may vary such
terms and make such other provisions concerning the unpaid balance of such
purchase price in the case of hardship, subsequent termination of employment,
absence on military or government service, or subsequent death of the
Participant as in its discretion are necessary or advisable in order to protect
the Company,
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promote the purposes of the Plan and comply with regulations of the Board of
Governors of the Federal Reserve System relating to securities credit
transactions.
The Participant shall pay interest on the unpaid balance at
the minimum rate necessary to avoid imputed interest or original issue discount
under the Code. All shares acquired with cash borrowed from the Company shall
be pledged to the Company as security for the repayment thereof. In the
discretion of the Administrator, shares of stock may be released from such
pledge proportionately as payments on the note (together with interest) are
made, provided the release of such shares complies with the regulations of the
Federal Reserve System relating to securities credit transactions then
applicable. While shares are so pledged, and so long as there has been no
default in the installment payments, such shares shall remain registered in the
name of the Participant, and he shall have the right to vote such shares and to
receive all dividends thereon.
6.10. Shareholder Rights. No Participant shall have any rights as
a shareholder with respect to shares subject to his Option until the date of
exercise of such Option.
6.11. Disposition of Stock. A Participant shall notify the
Company of any sale or other disposition of Common Stock acquired pursuant to
an Option that was an incentive stock option if such sale or disposition occurs
(i) within two years of the grant of an Option or (ii) within one year of the
issuance of the Common Stock to the Participant. Such notice shall be in
writing and directed to the Secretary of the Company.
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ARTICLE VII
SARS
7.01. Award. In accordance with the provisions of Article IV, the
Administrator will designate each individual to whom SARs are to be granted and
will specify the number of shares covered by such awards. For purposes of the
preceding sentence, an Option and Corresponding SAR shall be treated as a
single award. In addition no Participant may be granted Corresponding SARs
(under all incentive stock option plans of the Company and its Affiliates) that
are related to incentive stock options which are first exercisable in any
calendar year for stock having an aggregate Fair Market Value (determined as of
the date the related Option is granted) that exceeds $100,000.
7.02. Maximum SAR Period. The maximum period in which an SAR may
be exercised shall be determined by the Administrator on the date of grant,
except that no Corresponding SAR that is related to an incentive stock option
shall be exercisable after the expiration of ten years from the date such
related Option was granted. The terms of any Corresponding SAR that is related
to an incentive stock option may provide that it is exercisable for a period
less than such maximum period.
7.03. Nontransferability. Except as provided in Section 7.04,
each SAR granted under the Plan shall be nontransferable except by will or by
the laws of descent and distribution. In the event of any such transfer, a
Corresponding SAR and the related Option must be transferred to the same person
or persons or entity or entities.
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Except as set forth in Section 7.04, during the lifetime of the Participant to
whom the SAR is granted, the SAR may be exercised only by the Participant. No
right or interest of a Participant in any SAR shall be liable for, or subject
to, any lien, obligation, or liability of such Participant.
7.04. Transferable SARs. Section 7.03 to the contrary
notwithstanding, the Administrator may grant transferable SARs to the extent
that, and on such terms as may be permitted by, Securities Exchange Commission
Rule 16b- 3 as in effect from time to time. In the event of any such transfer,
Corresponding SAR and the related Option must be transferred to the same person
or person or entity or entities. The holder of an SAR transferred pursuant to
this section shall be bound by the same terms and conditions that governed the
SAR during the period that it was held by the Participant.
7.05. Employee Status. If the terms of any SAR provide that it
may be exercised only during employment or within a specified period of time
after termination of employment, the Administrator may decide to what extent
leaves of absence for governmental or military service, illness, temporary
disability or other reasons shall not be deemed interruptions of continuous
employment.
7.06. Exercise. Subject to the provisions of the Plan and the
applicable Agreement, an SAR may be exercised in whole at any time or in part
from time to time at such times and in compliance with such requirements as the
Administrator shall determine; provided, however, that a Corresponding SAR that
is related to an incentive stock option may be exercised only to the extent
that the related Option is
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exercisable and only when the Fair Market Value exceeds the option price of the
related Option. An SAR granted under the Plan may be exercised with respect to
any number of whole shares less than the full number for which the SAR could be
exercised. A partial exercise of an SAR shall not affect the right to exercise
the SAR from time to time in accordance with the Plan and the applicable
Agreement with respect to the remaining shares subject to the SAR. The
exercise of a Corresponding SAR shall result in the termination of the related
Option to the extent of the number of shares with respect to which the SAR is
exercised. 7.07. Settlement. At the Administrator's discretion,
the amount payable as a result of the exercise of an SAR may be settled in
cash, Common Stock, or a combination of cash and Common Stock. No fractional
share will be deliverable upon the exercise of an SAR but a cash payment will
be made in lieu thereof.
7.08. Shareholder Rights. No Participant shall, as a result of
receiving an SAR award, have any rights as a shareholder of the Company or any
Affiliate until the date that the SAR is exercised and then only to the extent
that the SAR is settled by the issuance of Common Stock.
ARTICLE VIII
STOCK AWARDS
8.01. Award. In accordance with the provisions of Article IV, the
Administrator will designate each individual to whom a Stock Award is to be
made and will specify the number of shares of Common Stock covered by such
awards.
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8.02. Vesting. The Administrator, on the date of the award, may
prescribe that a Participant's rights in the Stock Award shall be forfeitable
or otherwise restricted for a period of time or subject to such conditions as
may be set forth in the Agreement. If a Stock Award is forfeitable and
non-transferable upon its grant, the period of restriction shall be at least
three years; provided, however, that the minimum period of restriction shall be
at least one year in the case of a Stock Award that will become transferable
and nonforfeitable on account of the satisfaction of performance objectives
prescribed by the Administrator.
8.03. Performance Objectives. In accordance with Section 8.02,
the Administrator may prescribe that Stock Awards will become vested or
transferable or both based on objectives stated with respect to the Company's
return on equity, earnings per share, total earnings, earnings growth, return
on capital, return on assets, Fair Market Value or other criteria. If the
Administrator, on the date of award, prescribes that a Stock Award shall become
nonforfeitable and transferable only upon the attainment of performance
objectives stated with respect to one or more of the foregoing criteria, the
shares subject to such Stock Award shall become nonforfeitable and transferable
only to the extent that the Administrator certifies that such objectives have
been achieved.
8.04. Employee Status. In the event that the terms of any Stock
Award provide that shares may become transferable and nonforfeitable thereunder
only after completion of a specified period of employment, the Administrator
may decide in each case to what extent leaves of absence for governmental or
military service, illness,
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temporary disability, or other reasons shall not be deemed interruptions of
continuous employment.
8.05. Shareholder Rights. During the time a Stock Award is
forfeitable, (in accordance with the applicable Agreement and while the shares
of Common Stock granted pursuant to the Stock Award may be forfeited or are
nontransferable), a Participant will have all rights of a shareholder with
respect to a Stock Award, including the right to receive dividends and vote the
shares; provided, however, that during such period (i) a Participant may not
sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of shares
of Common Stock granted pursuant to a Stock Award, (ii) the Company shall
retain custody of the certificates evidencing shares of Common Stock granted
pursuant to a Stock Award, and (iii) the Participant will deliver to the
Company a stock power, endorsed in blank, with respect to each Stock Award.
The limitations set forth in the preceding sentence shall not apply after the
shares of Common Stock granted under the Stock Award are transferable and are
no longer forfeitable.
ARTICLE IX
ADJUSTMENT UPON CHANGE IN COMMON STOCK
The maximum number of shares as to which Options, SARs and
Stock Awards may be granted under the Plan, the terms of outstanding Stock
Awards, Options, and SARs, and the per individual limitations on the number of
shares or Units for which Options, SARs, and Stock Awards may be granted, shall
be adjusted
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as the Committee shall determine to be equitably required in the event that (a)
the Company (i) effects one or more stock dividends, stock split-ups,
subdivisions or consolidations of shares or (ii) engages in a transaction to
which Section 424 of the Code applies or (b) there occurs any other event
which, in the judgment of the Committee necessitates such action. Any
determination made under this Article IX by the Committee shall be final and
conclusive.
The issuance by the Company of shares of stock of any class,
or securities convertible into shares of stock of any class, for cash or
property, or for labor or services, either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the maximum number of shares as to which Options, SARs and
Stock Awards may be granted, the per individual limitations on the number of
shares for which Options, SARs and Stock Awards may be granted or the terms of
outstanding Stock Awards, Options or SARs.
The Committee may make Stock Awards and may grant Options
and SARs in substitution for performance shares, phantom shares, stock awards,
stock options, stock appreciation rights, or similar awards held by an
individual who becomes an employee of the Company or an Affiliate in connection
with a transaction described in the first paragraph of this Article IX.
Notwithstanding any provision of the Plan (other than the limitation of Section
5.02), the terms of such substituted Stock
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Awards or Option or SAR grants shall be as the Committee, in its discretion,
determines is appropriate.
ARTICLE X
COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES
No Option or SAR shall be exercisable, no Common Stock shall
be issued, no certificates for shares of Common Stock shall be delivered, and
no payment shall be made under the Plan except in compliance with all
applicable federal and state laws and regulations (including, without
limitation, withholding tax requirements), any listing agreement to which the
Company is a party, and the rules of all domestic stock exchanges on which the
Company's shares may be listed. The Company shall have the right to rely on an
opinion of its counsel as to such compliance. Any share certificate issued to
evidence Common Stock when a Stock Award is granted or for which an Option or
SAR is exercised may bear such legends and statements as the Administrator may
deem advisable to assure compliance with federal and state laws and
regulations. No Option or SAR shall be exercisable, no Stock Award shall be
granted, no Common Stock shall be issued, no certificate for shares shall be
delivered, and no payment shall be made under the Plan until the Company has
obtained such consent or approval as the Administrator may deem advisable from
regulatory bodies having jurisdiction over such matters.
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ARTICLE XI
GENERAL PROVISIONS
11.01. Effect on Employment and Service. Neither the adoption of
the Plan, its operation, nor any documents describing or referring to the Plan
(or any part thereof) shall confer upon any individual any right to continue in
the employ or service of the Company or an Affiliate or in any way affect any
right and power of the Company or an Affiliate to terminate the employment or
service of any individual at any time with or without assigning a reason
therefor.
11.02. Unfunded Plan. The Plan, insofar as it provides for grants,
shall be unfunded, and the Company shall not be required to segregate any
assets that may at any time be represented by grants under the Plan. Any
liability of the Company to any person with respect to any grant under the Plan
shall be based solely upon any contractual obligations that may be created
pursuant to the Plan. No such obligation of the Company shall be deemed to be
secured by any pledge of, or other encumbrance on, any property of the Company.
11.03. Rules of Construction. Headings are given to the articles
and sections of the Plan solely as a convenience to facilitate reference. The
reference to any statute, regulation, or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.
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ARTICLE XII
AMENDMENT
The Board may amend or terminate the Plan from time to time;
provided, however, that no amendment may become effective until shareholder
approval is obtained if (i) the amendment increases the aggregate number of
shares of Common Stock that may be issued under the Plan, (ii) the amendment
changes the class of individuals eligible to become Participants or (iii) the
amendment materially increases the benefits that may be provided under the
Plan. No amendment shall, without a Participant's consent, adversely affect
any rights of such Participant under any outstanding Stock Award, Option, or
SAR outstanding at the time such amendment is made.
ARTICLE XIII
DURATION OF PLAN
No Stock Award, Option or SAR may be granted under the Plan
after January 8, 2006. Stock Awards, Options, and SARs granted before that
date shall remain valid in accordance with their terms.
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ARTICLE XIV
EFFECTIVE DATE OF PLAN
Options and SARs may be granted under the Plan upon its
adoption by the Board, provided that no Option or SAR shall be effective or
exercisable unless the Plan is approved by a majority of the votes of the
Company's shareholders, voting either in person or by proxy, present, or
represented, and entitled to vote, at a duly held shareholders' meeting within
twelve months of such adoption. Stock Awards may be granted under the Plan
upon the later of its adoption by the Board or its approval by shareholders in
accordance with the preceding sentence.
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EXHIBIT 10.3
LSB BANCSHARES, INC.
MANAGEMENT INCENTIVE PLAN
EFFECTIVE JANUARY 1, 1996
Article I
Purpose
The LSB Bancshares, Inc. Management Incentive Plan (the
"Plan") provides an opportunity for selected key employees of LSB Bancshares,
Inc. ("LSB") and its subsidiaries to earn awards for the achievement of
specific corporate and individual performance goals. The specific purposes of
the Plan are:
(a) to attract and retain key employees;
(b) to increase key employees' attention and achievement
of specific goals related to the rate of return on the assets of LSB
thereby enhancing the profitability of LSB; and
(c) to reward key employees for their individual and
combined contributions to the achievement of specific performance
objectives and strategic goals.
Article II
Definitions
The following words or terms used in the Plan and its Exhibits
have the indicated meanings:
2.1 Beneficiary or Beneficiaries means a person or
persons or other entity designated by a Participant to receive the payment of a
Participant's entitlements under the Plan. If there is no valid designation by
the Participant, or if the designated Beneficiary is not living or in existence
at the time of the Participant's death, the Participant's Beneficiary is the
Participant's estate.
2.2 Board means the Board of Directors of LSB.
2.3 Committee means the Stock Option and Compensation
Committee of the Board.
2.4 Earned Incentive Award means the actual award a
Participant is entitled to receive determined in accordance with Section 4.3.
2.5 Effective Date means January 1, 1996.
<PAGE> 2
2.6 Eligible Employee means an individual employed by LSB
or a Subsidiary in a legal and bonafide relationship of employer and employee
and who is a key employee of LSB or a Subsidiary. An individual is a key
employee of LSB or a Subsidiary if such individual is in a position to affect
materially the profitability of LSB or a Subsidiary by reason of the nature and
extent of such employee's duties and responsibilities.
2.7 Individual Performance Objectives means objectives
determined by the Committee for individual performance by a Participant.
2.8 LSB means LSB Bancshares, Inc.
2.9 Maximum Incentive Award means the award a Participant
is entitled to receive determined in accordance with Section 4.1, without
giving effect to the achievement of Individual Performance Objectives.
2.10 Participant means an Eligible Employee designated by
the Committee to participate in the Plan.
2.11 Plan means the LSB Management Incentive Plan.
2.12 Plan Year means the calendar year.
2.13 Subsidiary means any corporation (other than LSB) in
an unbroken chain of corporations beginning with LSB if each of the
corporations in the chain (other than the last corporation) owns stock
processing at least 50% of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
2.14 Termination Event means:
(a) Death of the Participant while employed by
LSB or a Subsidiary.
(b) Retirement of the Participant from LSB or a
Subsidiary with the approval of the Board.
(c) Disability of the Participant while employed
by LSB or a Subsidiary. For this purpose, the term "disability" shall mean the
inability of a Participant, by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of long
continued or of indefinite duration, to perform his duties for LSB or a
Subsidiary. The determination of disability shall be made by the Board based
on medical evidence from an independent physician selected by the Participant
with the approval of the Board.
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<PAGE> 3
Article III
Participation
3.1 Designation.
(a) Prior to the beginning of each Plan Year, the
Committee shall select the Eligible Employees who shall become Participants
with respect to such Plan Year. The Board, in its discretion, may determine
that an Eligible Employee selected by the Committee shall not be a Participant
with respect to a Plan Year.
(b) Within sixty days after the Effective Date or
in the event of the promotion of an employee or the hiring of a new employee
during the Plan Year, the Committee may approve the entry of a Participant into
the Plan during the Plan Year. In such case, the Earned Incentive Award
determined under Article IV with respect to such Participant shall be
multiplied by a fraction, the numerator of which is the number of full calendar
months during the Plan Year in which he is a Participant and the denominator of
which is twelve.
3.2 Terms and Conditions of Participation. Participation
in the Plan shall be subject to the provisions of the Plan and such other terms
and conditions as the Board shall provide. Participation with respect to a
Plan Year shall be evidenced by the delivery to the Participant of an Incentive
Participation Certificate, a specimen of which is attached to the Plan as
Exhibit A. Each Incentive Participation Certificate shall set forth the
applicable Plan Year, the Individual Performance Objectives for the
Participant, if any, and any other conditions (other than as contained in the
Plan) relating to the Maximum Incentive Award and the payment thereof to the
Participant.
Article IV
Incentive Awards
4.1 Determination of Maximum Incentive Awards. Each
Participant for a Plan Year shall be eligible to receive a Maximum Incentive
Award determined by multiplying his Potential Award for the Plan Year by a
fraction, the numerator of which is equal to the Actual ROAA minus the Minimum
ROAA for the Plan Year, and denominator of which is equal to the Maximum ROAA
minus the Minimum ROAA for the Plan Year.
4.2 Definitions. For purposes of this Article IV, the
following definitions shall apply:
(a) "Actual ROAA" means the ROAA actually
achieved by LSB for the Plan Year.
(b) "Maximum ROAA" means the ROAA determined for
each Plan Year by the Committee above which no additional Maximum Incentive
Award shall be paid. The Maximum ROAA with respect to a Plan Year shall be
determined by the Committee prior
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<PAGE> 4
to the first day of such Plan Year or within sixty days after the Effective
Date for the 1996 Plan Year.
(c) "Minimum ROAA" means the ROAA determined for
each Plan Year by the Committee below which no Maximum Incentive Award shall
be paid. The Minimum ROAA with respect to a Plan Year shall be determined by
the Committee prior to the first day of such Plan Year or within sixty days
after the Effective Date for the 1996 Plan Year.
(d) "Potential Award" means with respect to each
Participant for the Plan Year a dollar amount determined by multiplying the
mid-point level for his salary grade as of the first day of the Plan Year by a
percentage designated by the Committee prior to the first day of the Plan Year
or within sixty days after the Effective Date for the 1996 Plan Year. The
Potential Award represents the Maximum Incentive Award payable to the
Participant in the event the Maximum ROAA is achieved for the Plan Year and
shall be reflected on his Incentive Participation Certificate for the Plan
Year.
(e) "ROAA" means a percentage determined by
dividing the net income of LSB for the Plan Year before accruals of Earned
Incentive Awards under the Plan by the average daily total assets of LSB during
the Plan Year. The ROAA for a Plan Year shall be determined by the independent
certified public accountants of LSB in accordance with generally accepted
accounting principles.
An example illustrating the calculation of the Maximum Incentive Award is
attached as Exhibit B.
4.3 Determination of Earned Incentive Awards. Subject to
Section 4.4, in the event the Committee does not establish Individual
Performance Objectives or in the event the Committee, in its sole discretion,
determines that the Individual Performance Objectives have been achieved, the
Earned Incentive Award shall be equal to the Maximum Incentive Award. Subject
to Section 4.4, in the event that the Committee, in its sole discretion,
determines that the Individual Performance Objectives are partially achieved,
the Earned Incentive Award shall be equal to a percentage of the Maximum
Incentive Award determined by the Committee, in its sole discretion.
4.4 Notwithstanding any other provision of the Plan, the
Board may review and approve the determination and payment of the Earned
Incentive Award as determined under Article IV and in its discretion may adjust
the amount of the payment as it deems necessary to meet the purpose of the Plan
and the best interests of LSB. In no event shall an Earned Incentive Award be
paid to a Participant who in the sole determination of the Board has violated
established policies and practices of LSB as reflected in the minutes of the
Board or the Committee.
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Article V
Termination of Employment During Plan Year
5.1 Termination for Reasons Other Than a Termination
Event. The Participant shall not receive an Earned Incentive Award with
respect to a Plan Year if, for reasons other than a Termination Event, the
employment of the Participant by LSB or a Subsidiary is terminated during the
Plan Year or the duties or position of the Participant is changed during the
Plan Year so that he is no longer an Eligible Employee.
5.2 Termination on Account of Termination Event. In the
event of a Termination Event, the Participant or his Beneficiary shall receive
an Earned Incentive Award with respect to such Plan Year equal to the amount
determined under Section 4.3 multiplied by a fraction, the numerator of which
is the number of full calendar months during the Plan Year in which he was a
Participant prior to the Termination Event and the denominator of which is
twelve.
Article VI
Payment of Earned Incentive Awards
Unless otherwise determined by the Committee or the Board, the
Earned Incentive Award for a Plan Year shall be paid by LSB in cash to the
Participant or his Beneficiary by the later of (a) March 15 following the end
of the Plan Year, or (b) thirty days following the determination of the Actual
ROAA for the Plan Year.
Article VII
Death Benefits
7.1 Designation of Beneficiary.
(a) Each Participant may designate a Beneficiary
to receive any benefits due under the Plan upon the Participant's death. The
Beneficiary designation must be made by executing a Beneficiary Designation
Form. A specimen Beneficiary Designation Form is attached as Exhibit C.
(b) A Participant may change an earlier
Beneficiary designation by a later execution of a Beneficiary Designation Form.
The execution of a Beneficiary Designation Form revokes and rescinds any prior
Beneficiary Designation Form. A Beneficiary designation is not binding on the
Company until LSB receives the Beneficiary Designation Form.
7.2 Death Benefits. If a Participant dies before
receiving all payments to which he is entitled under the Plan, payment of the
amounts to which the Participant is entitled shall be made to the Participant's
Beneficiary. Payments to the Beneficiary shall be made in the manner as they
would have been made had the Participant continued to live.
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<PAGE> 6
Article VIII
Guarantees
LSB has only a contractual obligation to pay the benefits
described in Article IV. A Participant shall have no interest in any fund or
specified asset of LSB. No trust fund shall be created in connection with the
Plan or any Earned Incentive Award, and there shall be no required funding of
amounts which may become payable under the Plan. Any amounts which are or may
be set aside under the provisions of the Plan shall continue for all purposes
to be a part of the general assets of LSB, and no person other than LSB shall,
by virtue of the provisions of the Plan, have any interest in such assets. No
right to receive payments from LSB pursuant to the Plan shall be greater than
the right of any unsecured creditor of LSB.
Article IX
Administration of the Plan
The Plan shall be administered by the Committee. Subject to
the provisions of the Plan, the Committee shall have plenary authority in its
discretion, among other things, to designate the Participants to receive Earned
Incentive Awards, to determine (a) the Individual Performance Objectives of
each Participant, (b) the Minimum and Maximum ROAA, (c) the Potential Award of
each Participant, (d) whether the Individual Performance Objectives have been
achieved by a Participant and (e) the amount of the Earned Incentive Awards of
each Participant, to interpret the Plan and to prescribe, amend and rescind
rules and regulations relating to the Plan.
Article X
Amendment and Termination of the Plan
The Plan may be amended or terminated at any time by the
Board, provided that such termination or amendment shall not, without the
consent of the Participant, affect such Participant's rights with respect to
Maximum Incentive Awards previously awarded to him. With the consent of the
Participant affected, the Board may amend outstanding Maximum Incentive Awards
in a manner not inconsistent with the Plan.
Article XI
Restrictions on Transfer of Benefits
No right or benefit under the Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and
any attempt to do so shall be void. No right or benefit hereunder shall in
any manner be liable for or subject to the debts, contracts, liabilities, or
torts of the person entitled to such benefit. If any Participant or
Beneficiary under the Plan should become bankrupt or attempt to anticipate,
alienate, sell, assign, pledge, encumber or charge any right to a benefit
hereunder, then such right or benefit, in the discretion of the Committee,
shall cease and terminate, and, in such event, the Committee may hold or apply
the same or any part thereof for the benefit of such Participant or
Beneficiary, his or her
6
<PAGE> 7
spouse, children, or other dependents, or any of them, in such manner and in
such portion as the Committee may deem proper.
Article XII
General Provisions
12.1 No Right or Obligation of Continued Employment.
Nothing contained in the Plan shall require LSB or a Subsidiary to continue to
employ the Participant, nor shall the Participant be required to remain in the
employment of LSB or a Subsidiary.
12.2 Withholding. There shall be deducted from the
payment of the Earned Incentive Award the amount of any tax or other amount
required by any governmental authority to be withheld and paid over by LSB to
such authority for the account of the person entitled to such payment.
12.3 Retirement Plans. In no event shall any amounts
accrued or payable under the Plan be treated as compensation for the purpose of
determining the amount of contributions or benefits to which a Participant
shall be entitled under any retirement plan to which LSB or a Subsidiary may be
a party.
12.4 Surrender of Certificate. Upon the receipt of an
Earned Incentive Award or forfeiture of a Maximum Incentive Award, the
Participant or other holder of the Incentive Participation Certificate
representing the right to receive such Award shall surrender the Certificate to
LSB.
12.5 Dilution or Other Adjustments. If there is any
change in LSB because of a merger, consolidation or reorganization involving
LSB, the Board shall make such adjustments to any provisions of the Plan as the
Board deems desirable to prevent the dilution or enlargement of rights granted
hereunder.
12.6 Binding on Successors. The obligations of LSB under
the Plan shall be binding upon any organization which shall succeed to all or
substantially all of the assets of LSB, and the term "LSB," whenever used in
the Plan, shall mean and include any such organization after the succession.
12.7 Applicable Law. The Plan shall be governed by and
construed in accordance with the laws of the State of North Carolina.
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<PAGE> 8
EXHIBIT A
LSB BANCSHARES, INC.
MANAGEMENT INCENTIVE PLAN
Pursuant to the LSB Bancshares, Inc. Management Incentive
Plan (the "Plan"), LSB Bancshares, Inc. ("LSB") hereby certifies to
______________________ (the "Participant") that LSB has on ________________,
______, approved the entry of the Participant into the Plan with respect to the
Plan Year commencing on January 1, _____. Through participation in the Plan,
the Participant is eligible to receive a Potential Award in the amount of
$________________ in the event LSB achieves a _____% ROAA for the Plan Year and
the Individual Performance Objectives, if any, specified below are achieved.
No award shall be paid under the Plan in the event the ROAA for the Plan Year
is ______% or less.
The Individual Performance Objectives, if any, for the
Participant for the Plan Year are attached hereto as Annex 1. In the event
that ROAA for the Plan Year is greater than ______% and the Individual
Performance Objectives are achieved, as determined by LSB, the Participant
shall be entitled to receive an incentive award determined in accordance with
the terms of the Plan. In the event that ROAA for the Plan Year is greater
than ______% and the Individual Performance Objectives are partially achieved,
as determined by LSB, the Participant shall be entitled to receive a portion of
the incentive award determined in accordance with the terms of the Plan. The
determination and payment of awards shall be subject to and governed by the
terms and conditions of the Plan.
This the ____ day of ________________, _____.
LSB BANCSHARES, INC.
By:
----------------------------
President
Attest:
- ------------------------------
Secretary
[Corporate Seal]
<PAGE> 9
Annex I
INDIVIDUAL PERFORMANCE OBJECTIVES
<PAGE> 10
EXHIBIT B
EXAMPLE OF MAXIMUM INCENTIVE AWARD CALCULATION
<TABLE>
<S> <C> <C>
Factors
- -------
Salary Mid-Point = $50,000
Incentive % = 10%
Actual ROAA = 1.2%
Minimum ROAA = 0.8%
Maximum ROAA = 1.6%
Calculation
- -----------
Potential Award = Salary Mid-Point x Incentive %
= $50,000 x 10%
= $5,000
Maximum
Incentive Award = Potential Award x (Actual ROAA - Minimum ROAA)
--------------------------
(Maximum ROAA - Minimum ROAA)
= $5,000 x (1.2% - 0.8%)
-----------
(1.6% - 0.8%)
= $5,000 x 0.4%
----
0.8%
= $5,000 x 50%
= $2,500
</TABLE>
<PAGE> 11
EXHIBIT C
BENEFICIARY DESIGNATION
The undersigned Participant, having potential rights to payments following his
death under the LSB Bancshares, Inc. Management Incentive Plan (the "Plan"),
hereby designates the following beneficiary entitled to any such payments under
the plan following his death:
Name Address
In default of said beneficiary, the death benefit shall be payable to the
participant's estate.
This designation supersedes all designations, if any, previously made under the
Plan. It is subject to change by the participant upon delivery of a new
designation to LSB Bancshares, Inc..
This designation is made in duplicate, one executed copy of which shall be
retained by LSB Bancshares, Inc. and one by the participant.
Dated: Participant:
---------------------
----------------------------------
Signature
----------------------------------
Print Name
Dated: LSB Bancshares, Inc.
---------------------
By:
------------------------------
<PAGE> 1
EXHIBIT 13
SUMMARY OF SELECTED FINANCIAL DATA
LSB Bancshares, Inc.
<TABLE>
<CAPTION>
Years Ended December 31
(In Thousands, expect per share data and ratios) 1995 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income.................................. $28,051 $24,393 $22,916 $24,468 $26,917 $28,023
Interest expense................................. 11,448 8,695 8,048 9,931 14,566 16,170
------- ------- ------- ------- ------- -------
Net interest income.............................. 16,603 15,698 14,868 14,537 12,351 11,853
Provision for loan losses........................ 252 219 941 843 1,041 250
------- ------- ------- ------- ------- -------
Net interest income
after provision for loan losses................ 16,351 15,479 13,927 13,694 11,310 11,603
Noninterest income............................... 3,244 2,603 3,214 2,612 2,540 2,044
Noninterest expense.............................. 13,112 12,198 11,436 10,166 9,373 8,347
------- ------- ------- ------- ------- -------
Income from continuing operations before
income taxes................................... 6,483 5,884 5,705 6,140 4,477 5,300
Income taxes..................................... 1,701 1,422 1,349 1,736 947 1,226
------- ------- ------- ------- ------- -------
Net income....................................... $ 4,782 $ 4,462 $ 4,356 $ 4,404 $ 3,530 $ 4,074
======= ======= ======= ======= ======= =======
Cash dividends declared.......................... $ 2,061 $ 1,876 $ 1,766 $ 1,620 $ 1,512 $ 1,377
======= ======= ======= ======= ======= =======
SELECTED YEAR-END ASSETS
AND LIABILITIES
Investment securities............................ $108,968 $109,912 $90,614 $94,451 $93,023 $80,132
Loans, net of unearned income.................... 226,667 205,252 196,172 183,878 171,033 168,876
Assets........................................... 375,026 357,092 342,980 323,490 312,975 305,573
Deposits......................................... 323,289 309,906 296,903 281,291 273,782 266,827
Shareholders' equity............................. 48,110 44,475 42,036 39,289 36,417 34,399
RATIOS (AVERAGES)
Net income to total assets....................... 1.30% 1.27% 1.32% 1.38% 1.14% 1.38%
Net income to shareholders' equity............... 10.34 10.29 10.69 11.62 9.98 12.35
Dividend payout ratio............................ 43.09 42.05 40.52 36.78 42.83 33.80
Shareholders' equity to total assets ratio....... 12.61 12.34 12.32 11.91 11.40 11.15
PER SHARE DATA*
Net income....................................... $ 1.11 $ 1.05 $ 1.03 $ 1.04 $ 0.84 $ 0.97
Cash dividends declared.......................... .48 .44 .42 .38 .36 .33
Book value at year end........................... 11.19 10.42 9.9 9.28 8.62 8.15
</TABLE>
(*) Per share data have been restated in this table to give effect to the
five-for-four stock splits paid March 31, 1994, March 31, 1992 and April 16,
1990.
11
<PAGE> 2
AVERAGE BALANCES AND NET INTEREST INCOME ANALYSIS
Table 1
Fully taxable equivalent basis (1) (In Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
Interest Interest Interest
Average Income Average Average Income Average Average Income Average
Balance Expense Yield/Rate Balance Expense Yield/Rate Balance Expense Yield/Rate
---------------------------------- ---------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans and leases
receivable, net (2)..... $214,380 $20,290 9.46% $202,589 $17,245 8.51% $189,773 $16,080 8.47%
Investment securities:
Taxable................. 76,433 4,767 6.24 69,858 4,263 6.10 63,950 4,330 6.77
Tax exempt.............. 30,295 2,725 8.99 29,617 2,788 9.41 27,582 2,730 9.90
Federal funds sold...... 18,256 1,066 5.84 22,579 943 4.18 20,737 611 2.95
------- ------- ------- ------ ------- ------
Total earning assets.... 339,364 28,848 8.50 324,643 25,239 7.77 302,042 23,751 7.86
Non-earning assets:
Cash and due from banks... 15,618 15,576 17,884
Premises and equipment.... 8,883 9,316 9,191
Other assets.............. 5,660 4,673 4,557
Reserve for loan losses... (2,686) (2,789) (2,935)
------- ------- ------- ------ ------- ------
Total assets............ $366,839 $28,848 $351,419 $25,239 $330,739 $23,751
======== ======= ======== ======= ========= ========
Interest-bearing liabilities:
Savings and time
deposits................ $278,525 $11,402 4.09% $265,716 $ 8,622 3.24% $251,502 $ 7,987 3.18%
Federal funds purchased
and securities sold
under agreements to
repurchase.............. 1,262 46 3.65 2,317 73 3.15 2,009 61 3.04
------- ------- ------- ------ ------- ------
Total interest-
bearing liabilities... 279,787 11,448 4.09 268,033 8,695 3.24 253,511 8,048 3.17
Other liabilities and
shareholders' equity:
Demand deposits........... 38,925 38,203 34,653
Other liabilities......... 1,882 1,830 1,815
Shareholders' equity...... 46,245 43,353 40,760
------- ------- ------- ------ ------- ------
Total liabilities and
shareholders'
equity................ $366,839 $11,448 $351,419 $ 8,695 $330,739 $ 8,048
======== ======= ======== ====== ========= ======
Net interest income and
net interest margin (3)... $17,400 5.13% $16,544 5.10% $15,703 5.20%
======= ====== ======= ====== ======= =====
Interest rate spread (4).. 4.41% 4.53% 4.69%
===== ===== =====
</TABLE>
(1)Income related to securities and loans exempt from federal income taxes is
stated on a fully taxable-equivalent basis, assuming a federal income tax
rate of 34%, and is then reduced by the non-deductible portion of interest
expense.
(2)The average loans and leases receivable balances include non-accruing loans.
Loan fees of $495, $574 and $663 for 1995, 1994 and 1993, respectively, are
included in interest income.
(3)Net interest margin is computed by dividing net interest income by average
earning assets.
(4)Earning assets yield minus interest-bearing liability rate.
12
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
Management's discussion as presented herein provides an overview of the changes
in financial condition and results of operation for LSB Bancshares, Inc.
("Bancshares") and its wholly-owned subsidiary, Lexington State Bank ("LSB")
for the years 1995, 1994 and 1993. The consolidated financial statements also
include the accounts and results of operations of LSB's wholly-owned
subsidiaries, Peoples Finance Company of Lexington, Inc. ("Peoples Finance")
and LSB Financial Services, Inc. ("LSB Financial Services"). This discussion
and analysis is intended to provide pertinent information in the areas of
liquidity, capital resources, results of operation, financial position, asset
quality and interest sensitivity. It should be read in conjunction with the
audited financial statements, footnotes and supplemental tables provided
herein.
SUMMARY
Bancshares had net income for the year ended December 31, 1995 of $4,782,000
compared to $4,462,000 in 1994 and $4,356,000 in 1993. Net income for 1995
increased $320,000 or 7.2% compared to 1994, following an increase of $106,000
or 2.4% in 1994 compared to 1993.
Return on average assets for 1995 was 1.30% compared to 1.27% in 1994 and 1.32%
in 1993. Bancshares' return on average shareholders' equity for 1995 was
10.34% compared to 10.29% for 1994 and 10.69% for 1993.
Earnings per share of $1.11 for 1995 was up 5.7% compared to $1.05 per share
for 1994. Earnings per share increased 1.9% in 1994 from the $1.03 earned in
1993.
Growth in net interest income improved slightly in 1995 compared to 1994,
following a modest gain over 1993. The interest rate environment which caused
interest margins to decline in 1994 continued to apply pressure on interest
margins for much of 1995. Interest rates continued to climb the first half of
1995 and declined only slightly during the last half of the year.
The increase in net interest income in 1995 was $905,000 or 5.8% compared to
$830,000 or 5.6% in 1994. The loan loss provision necessary to maintain an
adequate reserve was increased only marginally in 1995 compared to 1994.
Noninterest income rebounded in 1995 with an increase of $641,000 or 24.6% over
1994, which was down $611,000 or 19.0% over 1993 as the result of losses
experienced in the mortgage loan portfolio LSB carried for sale to the Federal
Home Loan Mortgage Corporation ("Freddie Mac"). On the other hand, the
increase in noninterest expense in 1995 of $914,000 or 7.5% was somewhat larger
than the $762,000 or 6.7% increase experienced in 1994.
Asset growth remained modest in 1995, with a gain of $17,934,000 or 5.0%
compared to an increase of $14,112,000 or 4.1% in 1994. Deposit growth was also
modest in 1995, with an increase of $13,383,000 or 4.3% compared to a gain of
$13,003,000 or 4.4% in 1994 over 1993. Loan growth increased at a good pace in
1995 with gains of $21,415,000 or 10.4% compared to 1994, which was up
$9,080,000 or 4.6% from 1993.
ASSET/LIABILITY
MANAGEMENT
The objectives of asset/liability management are to ensure long-range
profitability performance and minimize risk, adhere to proper liquidity and
maintain sound capital. To meet these goals, the process of asset/liability
management monitors the exposure to interest rate risk, balance sheet trends,
pricing policies and liquidity position.
VOLUME AND RATE VARIANCE ANALYSIS
<TABLE>
<CAPTION>
1995 1994
TABLE 2
Fully Taxable Equivalent Basis(1) (In Thousands) Volume Rate Total Volume Rate Total
Variance(2) Variance(2) Variance Variance(2) Variance(2) Variance
------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable.................................... $1,043 $ 2,002 $ 3,045 $ 994 $ 171 $ 1,165
Taxable............................................. 405 99 504 381 (448) (67)
Tax exempt.......................................... 63 (126) (63) 196 (138) 58
Federal funds sold.................................. (204) 327 123 58 274 332
------ ------- ------- ------ ------ -------
Total interest income........................... 1,307 2,320 3,609 1,629 (141) 1,488
------ ------- ------- ------ ------ -------
Interest expense:
Savings and time deposits........................... 431 2,349 2,780 476 159 635
Federal funds purchased and securities sold under
agreements to repurchase.......................... 37 10 (27) 10 2 12
------ ------- ------- ------ ------ -------
Total interest expense......................... 394 2,359 2,753 486 161 647
------ ------- ------- ------ ------ -------
Increase (decrease) in net interest income.......... $ 913 $ (57) $ 856 $1,143 $ (302) $ 841
====== ======= ======= ====== ====== =======
</TABLE>
(1) Income related to securties and loans exempt from federal income taxes is
stated on a fully taxable-equivalent basis, assuming a federal income tax
rate of 34%, and is then reduced by the non-deductible portion of interest
expense.
(2) The volume/rate variance for each category has been allocated on a
consistent basis between rate and volume variances, based on the
percentage of rate, or volume, variance to the sum of the two absolute
variances.
13
<PAGE> 4
INTEREST SENSITIVITY ANALYSIS(1)
<TABLE>
<CAPTION>
December 31, 1995
TABLE 3 Total
(In Thousands) 1-90 91-180 181-365 Sensitive 1-5 Over
Day Day Day Within Year 5 Year
Sensitive Sensitive Sensitive One Year Sensitive Sensitive Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned income.................... $ 103,603 $ 19,594 $ 39,080 $ 162,277 $ 56,109 $ 8,282 $ 226,668
U.S. Treasury securities......................... 2,725 2,000 5,023 9,748 24,516 34,264
U.S. government agencies obligations............. 248 4,008 4,256 37,494 41,750
Obligations of states and political subdivisions. 505 3,214 503 4,222 7,093 20,568 31,883
Federal Home Loan Bank........................... 1,071 1,071 1,071
Federal funds sold............................... 10,025 10,025 10,025
--------- -------- -------- --------- --------- -------- ---------
Total interest-earning assets............... $ 118,177 $ 24,808 $ 48,614 $ 191,599 $ 125,212 $ 28,850 $ 345,661
========= ======== ======== ========= ========= ======== =========
Interest-bearing liabilities:
N.O.W. account deposits.......................... $ 67,847 $ 67,847 $ 67,847
Money market deposits............................ 58,799 58,799 58,799
Regular savings deposits......................... 33,248 33,248 33,248
Time deposits.................................... 45,321 $ 26,930 $ 16,606 88,857 $ 31,878 120,735
Securities sold under agreements to repurchase
and other borrowed-money....................... 1,494 1,494 1,494
--------- -------- -------- --------- --------- -------- ---------
Total interest-bearing liabilities $ 206,709 $ 26,930 $ 16,606 $ 250,245 $ 31,878 $ 282,123
========= ======== ======== ========= ========= ======== =========
Interest sensitivity gap.........................
$ (88,532) $ (2,122) $ 32,008 $ (58,646)
Ratio of interest-sensitive assets/
interest-sensitive liabilities ............... .57 .92 2.93 .77
</TABLE>
(1) Interest sensitivity is computed using assets and liabilities having
interest rates that can be adjusted during the period indiciated.
Balance sheet composition and interest rate movements produce the biggest
effect on profitability and performance. Asset/liability management evaluates
the impact on corporate goals of interest rate trends, market conditions and
the general economic environment. To meet the objectives of profitability and
performance while minimizing risk, proportionate balances are sought within
earning assets and interest-bearing liabilities. Full discussion of the effects
of these respective portfolios on 1995's performance can be found under the
headings of earning assets and interest-bearing liabilities.
Asset/liability management seeks to minimize the risk of interest rate
movements by matching the maturities and repricing opportunities of
interest-sensitive assets and liabilities. The interest sensitivity schedule
analyzing the interest rate risk as of December 31, 1995 is presented in Table
3. As interest sensitivity is continually changing, the table reflects LSB's
balance sheet position at one point in time and is not necessarily indicative
of its position on other dates. On December 31, 1995, the one-year cumulative
interest sensitivity gap was a negative $58,646,000, for a ratio of
interest-sensitive assets to interest-sensitive liabilities of .77.
Asset/liability management also addresses liquidity positioning. Liquidity
management is required in order to fund current and future extensions of
credit, meet deposit withdrawals, maintain reserve requirements and otherwise
sustain operations. As such, it is related to interest rate sensitivity
management, in that each is affected by maturing assets and liabilities. While
interest sensitivity management is concerned with repricing intervals of assets
and liabilities, liquidity management is concerned with the maturities of those
respective balances. An appropriate liquidity position is further accomplished
through deposit growth and access to sources of funds other than deposits, such
as the federal funds market. Traditionally, LSB has been a seller of excess
investable funds in the federal funds market and uses these funds as a part of
its liquidity management. Net cash provided by operating activities, a primary
source of liquidity, was $4,579,000 in 1995 compared to $4,305,000 in 1994 and
$8,492,000 in 1993. Details of cash flows for the years 1995, 1994 and 1993
are provided in the Consolidated Statements of Cash Flows.
NET INTEREST INCOME
Interest rates, which began to increase in 1994, made one more upward
adjustment in February of 1995 before beginning to decline. The decline in
interest rates in 1995 was gradual, with the prime interest rate adjusting 25
basis points in both July and December. The prime interest rate, which is used
as an interest rate indicator by banks, made three adjustments in 1995,
following five increases in 1994 and remaining unchanged in 1993.
The changing interest rate environment of 1995 resulted in a 12 basis point
decline in LSB's interest rate spread compared to a 16 basis point decline in
1994 and a four basis point gain in 1993. This placed the interest spread at
4.41% for 1995 compared to 4.53% for 1994 and 4.69% for 1993. Table 1 provides
an average
14
<PAGE> 5
SUMMARY OF INVESTMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
TABLE 4 December 31, 1995 December 31, 1994 December 31, 1993
(In Thousands) Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
---------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities....................... $ 34,265 $ 34,394 $ 40,684 $ 39,731 $ 36,559 $ 37,687
U.S. government agencies obligations........... 41,749 41,731 39,176 37,863 26,562 27,066
Obligations of state and political
subdivisions................................. 31,883 33,529
Federal Home Loan Bank......................... 1,071 1,071 30,052 30,112 27,493 30,180
-------- -------- -------- -------- -------- --------
Total securities........................... $108,968 $110,725 $109,912 $107,706 $ 90,614 $ 94,933
======== ======== ======== ======== ======== ========
</TABLE>
(1) As of the latest reported period, the registrant is not aware of any
issuer, and the aggregate book value and aggregate market value of the
securities of such issuer, when the aggregate book value of such securities
exceeds 10% of the registrant's shareholders'equity.
balance and net interest income analysis for the years 1995, 1994 and 1993.
The net interest margin, also shown in Table 1, is computed by dividing net
interest income by average earning assets and provides an indication of LSB's
efficiency in generating income from earning assets. With the moderate
interest rate changes in 1995, LSB's net interest margin increased three basis
points to 5.13% from the 5.10% posted in 1994. Increased loan volume at
improved interest yields produced an improved volume and rate variance compared
to 1994 and thereby significantly contributed to the gain in LSB's net interest
income. The gain in net interest income for 1995 was $856,000 or 5.2% compared
to a gain of $841,000 or 5.4% in 1994. A more detailed discussion of the
volume and rate variance is held under the sections of Earning Assets and
Interest-Bearing Liabilities. An analysis of volume and rate variance is
presented in Table 2.
Interest rates on interest-bearing liabilities in 1995 increased 85 basis
points, while the interest yields on earning assets increased 73 basis points.
Interest expense for the current year increased $2,753,000 or 31.7%, while
interest income increased $3,609,000 or 14.6%.
INVESTMENT SECURITIES
PORTFOLIO MATURITY SCHEDULE
<TABLE>
<CAPTION>
TABLE 5 December 31, 1995
(In Thousands) Carrying Weighted
Value Average Yield(1)
-------------------------
<S> <C> <C>
U.S. Treasury securities:
Within one year...................... $ 9,747 $ 6.76%
One to five years.................... 24,517 6.60
--------
Total.............................. 34,264 6.64
--------
U.S. government agencies obligations:
Within one year...................... 4,255 8.01
One to five years.................... 37,495 6.65
--------
Total.............................. 41,749 6.78
--------
Obligations of states and political
subdivisions:
Within one year...................... 4,221 11.95
One to five years.................... 7,094 10.68
Five to ten years.................... 9,922 10.10
After ten years...................... 10,646 8.69
--------
Total.............................. 31,883 9.99
--------
Federal Home Loan Bank................. 1,071 7.25
Total portfolio........................ $108,968 7.69
========
</TABLE>
(1) Income related to securities and loans from federal income taxes is stated
on a fully taxable-equivalent basis, assuming a federal income tax rate of 34%,
and is then reduced by the non-deductible portion of interest expense.
EARNING ASSETS
As reported in Table 1, the gain in average earning assets for 1995 was
somewhat less than that of the previous year. Total earning assets for 1995
increased $14,721,000 or 4.5% compared to 1994, which posted a gain of
$22,601,000 or 7.5% over 1993. The 1993 gain in earning assets was $9,053,000
or 3.1%.
Growth in the loan portfolio in 1995 was similar to that experienced in 1994.
The average balance of the loan portfolio for 1995 increased $11,791,000 or
5.8% compared to gains of $12,816,000 or 6.8% in 1994 and $12,212,000 or 6.9%
in 1993. As shown in Table 2, the 1995 increase in loan balances accounted for
an income gain related to volume of $1,043,000 compared to 1994's gain of
$994,000. The positive rate variance in 1995 of $2,002,000 resulted from the
significant increase of 95 basis points in average loan yields.
Average volumes of taxable investment securities were increased in 1995. As
shown in Table 2, this produced a positive volume variance of $405,000. Yields
on these investments increased a marginal 14 basis points in 1995, creating a
positive rate variance of $99,000. Average volumes of tax exempt investment
securities were increased $678,000 in 1995. This resulted in a positive volume
variance of $63,000, as shown in Table 2. The yield on tax exempt investment
securities declined 42 basis points, producing a negative rate variance of
$126,000. To fund the growth in the loan portfolio, the average funds invested
in federal funds sold were reduced $4,323,000. This produced a negative volume
variance of $204,000. Yields on these investments increased 66 basis points in
1995, creating a positive rate variance of $327,000. As of the latest reported
period, the registrant is not aware of any issuer, and the aggregate book value
and aggregate market value of the securities of such issuer, when the
aggregate book value of such securities exceeds ten percent of the registrant's
shareholders' equity.
15
<PAGE> 6
AVERAGE TOTAL DEPOSITS
<TABLE>
<CAPTION>
TABLE 6 1995 1994 1993
(In Thousands) Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------------------------- ------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits............... $ 38,925 $ 38,203 $ 34,653
N.O.W. account deposits....... 61,669 2.85% 38,765 2.13% 32,517 2.27%
Money market deposits......... 63,566 3.63 81,815 2.96 80,999 2.74
Regular savings deposits...... 33,897 2.59 32,912 2.67 28,501 2.58
Time deposits................. 119,393 5.41 112,224 4.00 109,485 3.92
--------- -------- --------
Total deposits (1).......... $ 317,450 $303,919 $286,155
========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Over 3 Over 6
3 Months Through Through Over 23
Or Less 6 months 12 months Months Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Time deposit maturity schedule:(2)
Time deposits of $100,000 or more.. $ 13,583 $7,384 $1,756 $255 $22,978
</TABLE>
(1) The bank has no deposits in foreign offices.
(2) The bank has no other time deposits of $100,000 or more issued by domestic
offices.
INTEREST-BEARING LIABILITIES
The gain in average interest-bearing liabilities for 1995 was not quite as large
as that of the previous year. The volume increase in interest-bearing
liabilities for 1995 was $11,754,000 or 4.4% compared to increases of
$14,522,000 or 5.7% in 1994 and $4,283,000 or 1.7% in 1993. Interest rates paid
on liabilities increased 85 basis points in 1995, compared to an increase of
seven basis points in 1994 and a decline of 81 basis points in 1993. The
majority of LSB's interest-bearing liabilities consist of savings and time
deposits. The increase in these deposits for 1995 was $12,809,000 or 4.8%,
compared to gains of $14,214,000 or 5.7% in 1994 and $3,494,000 or 1.4% in
1993. The volume variance, shown in Table 2, produced by 1995's gain in
interest-bearing deposits, was $431,000. The dramatic increase in interest
rates paid in 1995 produced a rate variance of $2,349,000.
Securities sold under agreements to repurchase account for a small proportion
of total interest-bearing liabilities. The average volume of these liabilities
declined $1,055,000 or 45.5% in 1995, while the interest rate paid increased 50
basis points. The total variance in these liabilities for 1995 was a negative
$27,000.
Average deposits are presented in Table 6 by type and rate for the years 1995,
1994 and 1993. Average interest rates paid on interest-bearing deposits
increased from 1994 to 1995, with the exception of regular savings deposits.
The most dramatic increase was in time deposit interest rates which increased
141 basis points in 1995 after a very modest increase of eight basis points in
1994 and a decline of 88 basis points in 1993. N.O.W. account interest rates
increased 72 basis points in 1995 following a decline of 14 basis points in
1994 and a decline of 49 basis points in 1993. The average rate paid on money
market deposits increased 67 basis points in 1995, following an increase of 22
basis points in 1994 and a decline of 65 basis points in 1993. Interest rates
on regular savings deposits dropped eight basis points in 1995 following an
increase of nine basis points in 1994 and a drop of 65 basis points in 1993.
LSB experienced growth in each deposit category in 1995. Time deposits
increased $7,169,000 or 6.4% in 1995 following a modest increase of $2,739,000
or 2.5% in 1994 and a decline of $7,072,000 or 6.1% in 1993. During 1995,
certain large municipal deposit accounts transferred from money market to
N.O.W. accounts, adjusting these two categories by approximately $20 million
dollars. Taking this adjustment into consideration, the growth in money market
accounts in 1995 was 2.1% and the growth in N.O.W. accounts was 7.5%. Money
market deposits gained $816,000 or 1.0% in 1994, compared to a 1993 gain of
$2,005,000 or 2.5%. N.O.W. account deposits gained $6,248,000 or 19.2% in
1994, compared to a 1993 gain of $4,511,000 or 16.1%. Regular savings accounts
posted a modest gain of $985,000 or 3.0% in 1995 compared to an increase of
$4,411,000 or 15.5% in 1994 and an increase of $4,050,000 or 16.6% in 1993.
CAPITAL RESOURCES AND
SHAREHOLDERS' EQUITY
Deregulation continues to place burdens on the banking industry's capital
position. Within this environment of regulatory change, sound capital adequacy
continues to represent a major safety factor for both shareholders and
depositors. A well-capitalized financial institution can withstand the
pressures of an uncertain economy. It is also in an excellent position to
maximize growth opportunities as economic conditions improve. It is primarily
this safety factor that governmental regulators look for.
Regulatory guidelines require minimum levels of capital based on a risk
weighting of each asset category and off balance sheet contingencies. At
December 31, 1995, based on these measures, Bancshares' ratio for Tier 1
capital was 21.09% compared to the regulatory minimum risk-based capital ratio
requirement of 4%. Bancshares' Tier 2 capital ratio at this date was 22.29%
compared to the regulatory requirement of 8%.
16
<PAGE> 7
SUMMARY OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
TABLE 7
(In Thousands) 1995 1994 1993 1992 1991
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans secured by real estate:
Secured by real estate, excluding
loans secured by 1-4 family
residences............................. $ 39,429 $ 42,811 $ 43,144 $ 41,181 $ 36,901
Revolving credit secured by 1-4
family residences...................... 22,066 18,699 17,983 16,832 16,221
Other loans secured by 1-4 family
residences............................. 81,365 68,461 67,384 62,580 55,658
-------- -------- -------- -------- --------
Total loans secured by real estate..... 142,860 129,971 128,511 120,593 108,780
Commercial, financial and agricultural... 28,170 22,952 20,742 23,939 19,370
Installment loans to individuals......... 48,107 44,943 41,949 34,852 39,933
All other loans.......................... 7,531 7,386 4,970 4,494 2,950
-------- -------- -------- -------- --------
Total loans, net of unearned income*... $226,668 $205,252 $196,172 $183,878 $171,033
======== ======== ======== ======== ========
</TABLE>
(*) The bank has no foreign loan activity.
MATURITY SCHEDULE OF LOANS (1)
<TABLE>
<CAPTION>
December 31, 1995
Commercial
and Industrial Mortgage Total
-----------------------------------------------------
<S> <C> <C> <C>
Due in 1 year or less............................. $ 49,836 $ 27,167 $77,003
Due after 1 year through
5 years:
Fixed interest rates.......................... 12,787 15,722 28,509
Floating interest rates....................... 8,163 16,091 24,254
Due after 5 years:
Fixed interest rates.......................... 1,372 6,884 8,256
Floating interest rates....................... 2,823 36,851 39,674
</TABLE>
(1) Excluding installment loans.
In January of 1996, the Board of Directors announced a five-for-four stock
split payable February 15, 1996. This will add approximately one million
shares to Bancshares' outstanding stock. During 1995, capital stock issued
under Bancshares' stock option benefit plan added 31,376 shares to the
company's outstanding capital stock.
In 1995, Bancshares' Board of Directors voted to increase the quarterly cash
dividend to 12 cents per share, an increase of 9.1% over the previously stated
quarterly rate. Total cash dividends declared as a percentage of net income
amounted to 43.09% in 1995 compared to 42.05% in 1994 and 40.52% in 1993. In
1995, shareholders' equity increased 5.8% compared to 7.0% in 1994 and 7.9% in
1993.
The number of shareholders holding Bancshares stock increased slightly to 1,916
at December 31, 1995 compared to 1,911 at December 31, 1994. Participants in
Bancshares' dividend reinvestment plan total 996, representing 52.0% of total
shareholders. The total number of shares that are 100% reinvestment of
dividends are 1,034,154 shares or 24.1% of the outstanding stock.
NONINTEREST INCOME
Noninterest income for 1995 increased $641,000 or 24.6% compared to a decrease
of $611,000 or 19.0% in 1994 and an increase of $602,000 or 23.0% in 1993. A
large part of the 1995 increase results from the absence of the losses
sustained in 1994 from mortgages LSB carried for sale to Freddie Mac in the
secondary market. These mortgages were marked held for sale at the lower of
cost or market value in accordance with the Financial Accounting Standards
Board Statement No. 65 (SFAS 65), "Accounting for Certain Mortgage Banking
Activities".
Service charges on deposit accounts remained virtually unchanged in 1995
compared to 1994. The 1994 increase in service charges on deposit accounts was
$23,000 or 1.3%, while those in 1993 increased $83,000 or 4.9%. The gain in
other operating income for 1995 was $310,000 or 27.9% compared to an increase
of $58,000 or 5.5% in 1994 and an increase of $256,000 or 32.2% in 1993.
Financial statement Note 11 details material items contained in other operating
income. Other items contributing to the 1995 gain in other operating income
were: services fees of $92,000 generated by LSB Financial Services, short term
lease income of $118,000 from other real estate property owned and $35,000 of
dividend income from the Federal Home Loan Bank, which LSB joined in the third
quarter of 1995. Credit card fee income increased $68,000 or 31.1% in 1995
compared to an increase of $54,000 or 32.7% in 1994.
17
<PAGE> 8
NONINTEREST EXPENSE
Total noninterest expense for 1995 increased $914,000 or 7.5% compared to
$762,000 or 6.7% in 1994 and $1,270,000 or 12.5% in 1993.
Personnel expense represented the largest dollar increase of noninterest
expense. Personnel expense, consisting of both employee salaries and benefits,
increased $523,000 or 7.5% in 1995 compared to $385,000 or 5.9% in 1994 and
$648,000 or 11.0% in 1993. In 1995, full-time equivalent employees totaled
250, for a net decrease of five employees in the current year compared to a
gain of two employees in 1994 and a gain of four employees in 1993.
Occupancy expense increased $22,000 or 2.9% in 1995 compared to a decrease of
$12,000 or 1.6% in 1994 and an increase of $120,000 or 18.3% in 1993.
Equipment depreciation and maintenance expense was up $48,000 or 7.8% in 1995
compared to increases of $90,000 or 17.2% in 1994 and $143,000 or 37.7% in
1993.
The gain in other operating expenses in 1995 was $321,000 or 8.3% compared to
gains of $299,000 or 8.4% in 1994 and $359,000 or 11.0% in 1993. Financial
statement Note 11 details the material items contained in other operating
expenses. Automated services expense for 1995 was $761,000 compared to
$765,000 in 1994 and $739,000 in 1993. Stationery, printing and supplies
expense increased $41,000 or 8.3% in 1995 compared to an increase of $89,000 or
22.1% in 1994. This expense remained relatively unchanged in 1993 compared to
1992.
The Federal Deposit Insurance Corporation (FDIC) reduced its insurance premium
assessment in the third quarter of 1995 and also issued a refund for
overpayment of prior insurance premiums paid. Consequently, the FDIC
assessment decreased $306,000 or 46.2% in 1995 compared to an increase of
$32,000 or 5.1% in 1994 and an increase of $6,000 or 1.0% in 1993.
ASSET QUALITY AND PROVISION FOR LOAN LOSSES
The reserve for loan losses was $2,730,000 or 1.20% of loans outstanding at
December 31, 1995 compared to $2,641,000 or 1.29% of loans outstanding at
December 31, 1994. The provision for loan losses was increased $33,000 or
15.1% in 1995 compared to a decrease of $722,000 or 76.7% in 1994. Net charge
offs for 1995 were $163,000 or .08% of average loans outstanding, compared to
1994 net charge offs of $353,000 or .17% of average loans. Additional
information regarding the reserve for loan losses is contained in Table 8,
"Analysis of Reserve for Loan Losses". Nonperforming assets increased at
December 31, 1995, up $429,000 from December 31, 1994, and represented .67% of
total assets. Nonperforming assets include nonaccrual loans, restructured
loans, other real estate acquired through foreclosed properties and accruing
loans ninety days or more past due. Nonaccrual loans totaling $1,040,000 at
December 31, 1995 represented four loans secured by real estate and one
commercial and industrial loan. Restructured loans at December 31, 1995
totaled $289,000. Accruing loans past due 90 days or more were $206,000 at
December 31, 1995, a decrease of 80.1% from the level of $1,035,000 at December
31, 1994. The accrual of interest is generally discontinued on all loans that
become 90 days past due as to principal or interest unless collection of both
principal and interest is assured by way of collateralization, guarantees or
other security and the loan is
ANALYSIS OF RESERVE FOR LOAN LOSSES
<TABLE>
<CAPTION>
TABLE 8 As of Or For the Years Ended
(In Thousands) December 31
1995 1994 1993 1992 1991
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding, net of unearned income................... $214,380 $202,589 $189,723 $177,561 $169,106
Amount of loans outstanding, net of unearned income........................... 226,668 205,252 196,172 183,878 171,033
Reserve for loan losses:
Balance on January 1.......................................................... $ 2,641 $ 2,775 $ 2,704 $ 2,135 $ 2,073
-------- -------- -------- -------- --------
Loans charged off:
Secured by real estate....................................................... 49 0 0 30 0
Commercial and industrial.................................................... 15 284 861 111 840
Installment.................................................................. 143 118 139 203 147
Credit card.................................................................. 56 28 19 26 30
-------- -------- -------- -------- --------
Total charge-offs........................................................... 263 430 1,019 370 1,017
-------- -------- -------- -------- --------
Recoveries of loans previously charged off:
Secured by real estate....................................................... 11 7 0 0 0
Commercial and industrial.................................................... 0 10 62 42 1
Installment.................................................................. 75 45 74 42 31
Credit card.................................................................. 14 15 13 12 6
-------- -------- -------- -------- --------
Total recoveries............................................................ 100 77 149 96 38
-------- -------- -------- -------- --------
Net loans charged off......................................................... 163 353 870 274 979
-------- -------- -------- -------- --------
Provision for loan losses..................................................... 252 219 941 843 1,041
-------- -------- -------- -------- --------
Balance on December 31........................................................ $ 2,730 $ 2,641 $ 2,775 $ 2,704 $ 2,135
======== ======== ======== ======== ========
Ratio of net charge-offs of loans to average loans outstanding during the year. .08% .17% .46% .15% .58%
</TABLE>
18
<PAGE> 9
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
TABLE 9
(In Thousands)
1995 1994 1993
----------------------------
<S> <C> <C> <C>
Nonaccrural loans:
Secured by real estate........................................................ $ 990 $ 0 $1,284
Commercial and industrial..................................................... 50 0 0
Restructured loans............................................................. 289 0 0
Other real estate acquired through foreclosed properties....................... 988 1,059 59
Accruing loans which are contractually past due 90 days or more................ 206 1,035 472
------ ------ ------
Total nonperforming assets..................................................... $2,523 $2,094 $1,815
====== ====== ======
Nonperforming assets to:
Loans outstanding at end of year.............................................. 1.11% 1.02% .93%
Total assets at end of year................................................... .67 .59 .53
The loss of interest income associated with nonperforming loans at December 31:
1995 1994 1993
----------------------------
Interest income that would have been recorded in accordance with
original terms................................................................ $ 17 $ 71 $ 162
Less interest income actually recorded......................................... 3 0 88
------ ------ ------
Loss of interest income........................................................ $ 14 $ 71 $ 74
====== ====== ======
</TABLE>
considered to be in the process of collection. Table 9, "Nonperforming Assets",
discloses the components of nonperforming assets. At December 31, 1995, the
reserve for loan losses was 1.08 times the nonperforming loans, down from 1.26
times the nonperforming loans at December 31, 1994. Based on the current loan
portfolio and levels of current problem assets and potential problem loans,
management believes the provision for loan losses to be adequate.
In management's judgement, the allocation of the reserve for loan losses for
1995 reflected in Table 10 accurately reflects the inherent risks associated
with each of the various lending categories.
As a part of credit administration, management regularly reviews and grades its
loan portfolio for purposes of determining asset quality and the need to make
additional provisions for loan losses. The reserve for loan losses represents
management's estimate of an amount adequate to provide for the risk of future
losses inherent in the loan portfolio. In its on-going analysis of the reserve
for loan losses and its adequacy, management considers LSB's historical loan
loss experience, the economic risks associated with each of the lending
categories, the amount of past due and nonperforming loans, underlying
collateral values securing loans and credit concentrations or other factors
which might affect potential credit losses.
LSB is also subject to regulatory examinations and determinations as to the
adequacy of its reserve for loan losses, which may take into account such
factors as the methodology used to calculate the reserve and the size of the
reserve in comparison to peer banks identified by the regulatory agencies.
During 1995, all credit relationships of $50,000 or more were reviewed as a
part of LSB's credit administration. A review of large credits was conducted
at a regulatory agency examination, and smaller credits were reviewed by an
independent outside consultant. Neither of these latter two reviews revealed
any material problem credits that had not been previously identified by
management.
There are, however, additional risks of future losses which cannot be
quantified precisely or attributed to particular loans or classes of loans.
Because these risks include the state of the economy and factors affecting
particular borrowers, management's judgement as to the adequacy of the reserve
for loan losses is necessarily approximate and imprecise. In its oversight of
the credit review process, management has not identified any undue economic
risks associated with the various lending categories, nor any significant
credit concentrations within these categories.
Loans classified for regulatory purposes as loss, doubtful, substandard or
special mention that have not been disclosed in Table 9, "Nonperforming
Assets", do not represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity, or capital resources, or 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.
INCOME TAXES
Bancshares' effective tax rate increased to 26.2% in 1995 from 24.2% in 1994
compared to 23.7% in 1993. Financial statement Note 7 provides a
reconciliation between the amount of taxes computed using the statutory tax
rate and the actual tax expense. The increase in Bancshares' effective tax rate
for 1995 was primarily the result of higher taxable income.
19
<PAGE> 10
INFLATION
For financial institutions, the effects of inflation and governmental programs
to control it tend to vary from non-bank companies. The impact is more likely
to be felt by banking institutions in the interest rate associated with earning
assets and interest-bearing liabilities. Reduced inflation tends to improve
interest margins associated with interest-bearing assets and liabilities.
Broad-ranged economic conditions, such as inflation, and governmental efforts
to spur economic growth, are difficult for individual companies to respond to
effectively. Consistent long-term management is the key to dealing with such
conditions. The objective of management in such times is to remain positioned
for growth when the economy rebounds. Management seeks to do this through its
long-range budget and profit-planning process.
ACCOUNTING AND REGULATORY ISSUES
In May 1995, the Financial Accounting Standards Board ("FASB") issued Statement
No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of". SFAS 121 establishes accounting
standards for the impairment of long-lived assets (i.e., plant or fixed
assets), to certain identifiable intangibles, to goodwill related to those
assets to be held and used, and to long-lived assets and certain identifiable
intangible assets to be disposed of. Under the Statement, long-lived assets
and certain identifiable intangibles are required to be separated into two
categories for purposes of accounting for an impairment of assets - those to be
held and used and those to be disposed of. Assets to be held and used are to
be reviewed whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. An impairment loss occurs when the sum
of the expected future cash flows, not discounted and without interest charges,
is less than the carrying amount of the assets. Under SFAS 121, an impairment
loss is recognized as the amount by which the carrying amount of the asset
exceeds the fair value of the asset. Assets to be disposed of that are subject
to the reporting requirements of APB-30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions", are
to be measured at the lower of carrying amount or net realizable value.
Long-lived assets to be disposed of that are not subject to APB-30 requirements
are to be accounted for at the lower of carrying amount or fair value less cost
to sell when management has committed to a plan to dispose of the assets. SFAS
121 is effective for financial statements for fiscal years beginning after
December 15, 1995. The effect on Bancshares' financial position and operating
results from the adoption of SFAS 121 is anticipated to be immaterial.
In May 1995, FASB issued Statement No. 122 ("SFAS 122"), "Accounting for
Mortgage Servicing Rights". SFAS 122 is an amendment to SFAS 65, "Accounting
for Certain Mortgage Banking Activities". SFAS 122 amends SFAS 65 to eliminate
the accounting distinction between rights to service mortgage loans that are
acquired through loan origination and those acquired through purchase. Among
other matters, SFAS 122 requires that an entity recognize as separate assets
rights to service mortgage loans for others however those servicing rights are
acquired. This amendment to SFAS 65 eliminates the accounting distinction
between rights to service mortgage loans for others that are acquired through
loan origination activities and those acquired through purchase transactions.
Under SFAS 122, servicing rights would be calculated based on the present value
of the fair market value of the servicing fees, with consideration given to any
prepayment assumptions and amortization over the life of the loan. While this
would be an addition to income at the time of the sale of a mortgage, it would
be a reduction to income over the life of the loan and at the time a sold
mortgage pays off early. SFAS 122 also amends SFAS 65 regarding the evaluation
and measurement of impairment of capitalized mortgage servicing rights. As
amended, mortgage servicing rights are to be stratified based on one or more of
the predominant risk characteristics of the underlying loans - loan type, size,
note rate, date of origination, term and geographic location. The amount
ALLOCATION OF RESERVE FOR LOAN LOSSES*
<TABLE>
<CAPTION>
TABLE 10 1995 1994 1993 1992 1991
(In Thousands) Loans Loans Loans Loans Loans
% % % % %
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
---------------- ---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.................. $1,297 33.1% $1,254 29.7% $1,330 27.3% $1,682 28.2% $1,018 25.4%
Mortgage.................... 642 45.3 620 46.9 625 49.6 635 50.0 407 50.1
Installment................. 675 20.4 652 22.3 682 22.1 287 21.8 610 24.5
Credit card................. 26 1.2 25 1.1 28 1.0
Unallocated................. 90 90 110 100 100
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total............ $2,730 100.0% $2,641 100.0% $2,775 100.0% $2,704 100.0% $2,135 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
(*)The reserve for loan losses has been allocated only on an approximate basis.
The entire amount of the reserve is available to absorb losses occurring in
any category. The allocation is not necessarily indicative of future losses.
20
<PAGE> 11
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
TABLE 11 December 31, 1995 December 31, 1994
(In Thousands except per share data) 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income......................... $6,638 $6,971 $7,230 $7,212 $5,714 $5,968 $6,208 $6,503
Interest expense........................ 2,651 2,874 2,992 2,931 1,899 1,985 2,256 2,555
------ ------ ------ ------ ------ ------ ------ ------
Net interest income..................... 3,987 4,097 4,238 4,281 3,815 3,983 3,952 3,948
Provision for loan losses............... 63 63 63 63 66 26 81 46
------ ------ ------ ------ ------ ------ ------ ------
Net interest income after
provision for loan losses............. 3,924 4,034 4,175 4,218 3,749 3,957 3,871 3,902
------ ------ ------ ------ ------ ------ ------ ------
Noninterest income...................... 736 755 804 949 700 482 685 736
------ ------ ------ ------ ------ ------ ------ ------
Noninterest expense..................... 3,294 3,355 3,208 3,255 3,018 3,008 3,110 3,062
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes.............. 1,366 1,434 1,771 1,912 1,431 1,431 1,446 1,576
Income taxes............................ 328 345 468 565 341 338 342 401
------ ------ ------ ------ ------ ------ ------ ------
Net income.............................. $1,038 $1,089 $1,308 $1,347 $1,090 $1,093 $1,104 $1,175
====== ====== ====== ====== ====== ====== ====== ======
Earnings per share * $ .24 $ .25 $ .30 $ .31 $ .26 $ .26 $ .26 $ .28
</TABLE>
(*) Earnings per share have been restated in this table to give effect to the
five-for-four stock split paid March 31, 1994.
of impairment recognized should be the amount by which the capitalized mortgage
servicing rights exceed their fair value. SFAS 65 as amended by SFAS 122 also
requires additional disclosures pertaining to mortgage servicing rights. Among
them are disclosures of the fair value of capitalized mortgage servicing rights
and the methods used to estimate that fair value - the risk characteristics of
the underlying loans used to stratify capitalized mortgage servicing rights for
purposes of measuring impairment and for each period for which results of
operations are presented, the activity in the valuation allowances for
capitalized mortgage servicing rights, aggregate additions charged and
reductions credited to operations and aggregated direct write-downs charged
against the allowance. SFAS 122 is effective for financial years beginning after
December 15, 1995. While Bancshares originates mortgages for sale in the
secondary market to Freddie Mac, the mortgage servicing rights resulting from
this activity is relatively small. Consequently, the effect on Bancshares'
financial position and operating results from the adoption of SFAS 122 is
anticipated to be minimal.
In October 1995, FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation". SFAS 123 establishes a fair value based method of accounting for
stock options and other equity instruments used in employee compensation plans.
Employee compensation plans covered by SFAS 123 include all arrangements by
which employees receive shares of stock or other equity instruments if the
employer incurs liabilities to employees in amounts based on the price of the
employer's stock. This includes stock options, restricted stock, stock
appreciation rights and stock purchase plans. Under SFAS 123, equity
instruments are recognized at the fair value of the consideration received for
them. The fair value method of accounting for stock options and other
instruments applies this general principle, measuring compensation cost for
employers as the excess of the fair value of the equity instrument over the
amount paid by the employee. SFAS 123 also requires significantly expanded
disclosures, including disclosure of the pro forma amount of net income and
earnings per share as if the fair value based method were used to account for
stock-based compensation, if the intrinsic value method of APB-25 is retained.
The disclosure requirements of SFAS 123 are applicable for financial statements
for fiscal years beginning after December 15, 1995. The anticipated effect of
SFAS 123 on Bancshares' financial position and operating results is expected to
be minimal.
In November 1995, the Federal Reserve Board issued a Supplement to Supervisory
Release ("SR") 95-51, "Rating the Adequacy of Risk Management Processes and
Internal Controls at State Member Bank and Bank Holding Companies". SR 95-51
instructs Federal Reserve System examiners to assign a formal supervisory rating
to the adequacy of an institution's risk management processes, including its
internal controls. The specific rating of risk management and internal controls
will be given significant weight when examiners evaluate management under the
bank (CAMEL) and bank holding company (BOPEC) rating systems. The formal rating
of risk management is intended to highlight and incorporate both the
quantitative and qualitative aspects of an examiner's review of an institution's
overall process of identifying, measuring, monitoring and controlling risk and
to facilitate appropriate follow-up action. SR 95-51 places emphasis on an
active role by senior management and the board of directors, adequate policies
and limits, accurate and independent measurement procedures and assessments of
risk and strong internal controls. Risk management ratings will be assigned for
examinations and inspections commencing on or after January 2, 1996. Adoption
of this examination policy by the regulatory agencies will not affect the
financial position and operating results of Bancshares.
21
<PAGE> 12
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
(In Thousands) 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and Due from Banks, (Note 2)................................................ $ 17,581 $ 17,326
-------- --------
Federal Funds Sold............................................................... 10,025 12,275
Investment Securities (Note 3): -------- --------
Held to Maturity, Market value $84,679 and $84,836............................. 82,922 87,042
-------- --------
Available for Sale, Market value $26,046 and $22,870........................... 26,046 22,870
Loan (Note 10): -------- --------
Commercial..................................................................... 74,980 60,910
Installment.................................................................... 48,972 48,127
Mortgage....................................................................... 102,715 96,215
- ------ --------
Total Loans.................................................................. 226,667 205,252
Less, Reserve for Loan Losses (Note 4)......................................... (2,730) (2,611)
-------- ---------
Net Loans.................................................................... 223,937 202,611
Premises and Equipment (Note 5).................................................. 8,733 9,007
--------- --------
Other Assets..................................................................... 5,782 5,961
-------- --------
Total Assets................................................................. $375,026 $357,092
======== ========
LIABILITIES
Deposits:
Demand....................................................................... $ 42,660 $ 40,230
Savings, N.O.W. and Money Market Accounts.................................... 159,894 160,503
Certificates of Deposit of less than $100,000................................ 97,757 90,615
Certificates of Deposit of $100,000 or more.................................. 22,978 18,558
-------- --------
Total Deposits............................................................ 323,289 309,906
Securities Sold Under Agreements to Repurchase............................... 1,494 707
Other Liabilities............................................................ 2,133 2,004
-------- --------
Total Liabilities......................................................... 326,916 312,617
-------- --------
SHAREHOLDERS' EQUITY
Capital Stock: Common, authorized 10,000,000 shares, Par Value $5,
issued 4,299,074 shares in 1995 and 4,267,698 shares in 1994................... 21,495 21,338
Paid-In Capital.................................................................. 11,255 11,123
Retained Earnings................................................................ 15,048 12,327
Unrealized Gain (Loss) on Securities Available for Sale, Net of Taxes............ 312 (313)
-------- --------
Total Shareholders' Equity................................................ 48,110 44,475
-------- --------
Total Liabilities and Shareholders' Equity................................ $375,026 $357,092
======== ========
</TABLE>
Commitments and Contingencies (Note 9)
Notes to consolidated financial statements are an integral part hereof.
22
<PAGE> 13
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31
(In Thousands, except per share amounts) 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans........................... $20,290 $17,245 $16,080
Interest on Investment Securities:
Taxable.......................................... 4,767 4,263 4,330
Tax Exempt....................................... 1,928 1,942 1,895
Federal Funds Sold.................................. 1,066 943 611
------- ------- -------
Total Interest Income............................ 28,051 24,393 22,916
------- ------- -------
INTEREST EXPENSE
Deposits............................................ 11,402 8,622 7,987
Securities Sold Under Agreements to Repurchase ..... 46 73 61
------- ------- -------
Total Interest Expense.......................... 11,448 8,695 8,048
------- -------- --------
NET INTEREST INCOME...................................... 16,603 15,698 14,868
PROVISION FOR LOAN LOSSES (NOTE 4)....................... 252 219 941
------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...... 16,351 15,479 13,927
------- ------- -------
NONINTEREST INCOME
Service Charges on Deposit Accounts................... 1,816 1,812 1,789
Gains (Losses) on Sales of Mortgages................. 8 (368) 373
Gains on Sales of Investment Securities.............. 49
Other Operating Income (Note 11)..................... 1,420 1,110 1,052
------- ------- -------
Total Noninterest Income.......................... 3,244 2,603 3,214
------- ------- -------
NONINTEREST EXPENSE
Personnel Expense.................................... 7,469 6,946 6,561
Occupancy Expense.................................... 784 762 774
Equipment Depreciation and Maintenance............... 660 612 522
Other Operating Expense (Note 11).................... 4,199 3,878 3,579
------- ------- -------
Total Noninterest Expense......................... 13,112 12,198 11,436
------- ------- -------
INCOME BEFORE INCOME TAXES............................... 6,483 5,884 5,705
Income Taxes (Note 7).................................... 1,701 1,422 1,349
------- ------- -------
NET INCOME............................................... $ 4,782 $ 4,462 $ 4,356
======= ======= =======
Earnings Per Share:
Based on 4,289,536 for 1995, 4,262,584 for 1994 and
4,240,312 for 1993 average shares outstanding
adjusted for five-for-four stock split paid
March 31, 1994..................................... $ 1.11 $ 1.05 $ 1.03
</TABLE>
Notes to consolidated financial statements are an integral part hereof.
23
<PAGE> 14
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION> Net Unrealized Gain Total
Common Stock Paid In Retained (Loss) on Securities Shareholders
(In Thousands except for shares) Shares Amount Capital Earnings Available for Sale Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992........... 3,383,597 $16,918 $10,958 $11,413 $39,289
Net income............................. 4,356 4,356
Cash dividends declared on
common stock......................... (1,766) (1,766)
Common stock issued for stock
options exercised.................... 14,929 75 82 157
--------- ------- ------- ------- ------- -------
Balance at December 31, 1993........... 3,398,526 16,993 11,040 14,003 42,036
Net income............................. 4,462 4,462
Cash dividends declared on
common stock......................... (1,876) (1,876)
Common stock issued in five-for-
four stock split, including cash
for fractional shares................ 850,053 4,250 (4,262) (12)
Common stock issued for stock
options exercised.................... 19,119 95 83 178
Unrealized gain on securities
available for sale, impact of
accounting change at January 1,
1994, net of deferred income
taxes................................ $ 95 95
Unrealized loss on securities
available for sale, net of
deferred income taxes................ (408) (408)
--------- ------- ------- ------- ------- -------
Balance at December 31, 1994........... 4,267,698 21,338 11,123 12,327 (313) 44,475
Net income............................. 4,782 4,782
Cash dividends declared on
common stock......................... (2,061) (2,061)
Common stock issued for stock
options exercised ................... 31,376 157 132 289
Unrealized gain on securities
available for sale, net of
deferred income taxes................ 625 625
--------- ------- ------- ------- ------- -------
Balance at December 31, 1995........... 4,299,074 $21,495 $11,255 $15,048 $ 312 $48,110
========= ======= ======= ======= ======= =======
</TABLE>
Notes to consolidated financial statements are an integral part hereof.
24
<PAGE> 15
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Years Ended December 31
(In Thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income.......................................... $ 4,782 $ 4,462 $ 4,356
Adjustments to reconcile net income to net cash:
Depreciation and amortization..................... 706 685 560
Securities premium amorization and discount
accretion, net.................................. (252) (258) 48
(Increase)decrease in loans held for sale......... (914) (690) 2,234
Deferred Income Tax............................... 453 (1) 70
Income taxes payable.............................. (361) 171 59
(Increase) decrease in interest earned but
not received.................................... (297) (219) 256
(Increase) decrease in interest accrued but
not paid........................................ 212 (9) (30)
Provision for loan losses........................ 252 219 941
Gain on sale of investment securities............ (49)
Gain on sale of premises and equipment........... (2) (6) (2)
-------- -------- --------
Net cash provided by operating activities...... 4,579 4,305 8,492
-------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of securities held to maturity............ (17,324) (26,944) (22,123)
Proceeds from maturities of securities held
to maturity....................................... 21,456 20,122 25,912
Proceeds from sales of securities held to maturity.. 4,026
Purchases of securities available for sale.......... (11,988) (23,216)
Proceeds from maturities of securities available
for sale.......................................... 10,000 2,500
Proceeds from sales of securities available for
sale.............................................. 4,047
Net increase in loans made to customers............. (20,666) (8,742) (15,399)
Purchases of premises and equipment................. (505) (249) (1,195)
Proceeds from sale of premises and equipment........ 75 36 24
Net (increase) decrease in federal funds sold....... 2,250 12,725 (10,525)
Increase in other assets............................ (27) (974) (279)
-------- -------- --------
Net cash used by investing activities............ (16,729) (16,669 (23,585)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, N.O.W.,
money market and savings accounts................. 1,821 11,724 16,630
Net increase (decrease) in time deposits............ 11,562 1,279 (1,017)
Net increase (decrease) in securities sold under
agreements to repurchase.......................... 787 (1,372) 1,106
Dividends and fractional shares paid................ (2,061) (1,888) (1,766)
Net increase (decrease) in other liabilities........ 7 (142) (5)
Common stock issued................................. 289 178 157
-------- -------- --------
Net cash provided by financing activities......... 12,405 9,779 15,105
-------- -------- --------
Increase (decrease) in cash and cash equivalents...... 255 (2,585) 12
Cash and cash equivalents at beginning of years....... 17,326 19,911 19,899
-------- -------- --------
Cash and cash equivalents at end of years............. $ 17,581 $ 17,326 $ 19,911
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the years for:
Interest.......................................... $ 11,236 $ 8,669 $ 8,162
Income taxes...................................... 1,618 1,265 1,386
SUPPLEMENTAL DISCLOSURES OF
NONCASH TRANSACTIONS
Transfers of loans to other real estate owned......... $ 354 $ 1,072 $ 73
Unrealized gain (loss) on securities available
for sale:
Change in securities available for sale............. $ 947 $ (474)
Change in deferred income taxes..................... 322 (161)
Change in shareholder's equity...................... 625 (313)
</TABLE>
Notes to consolidated financial statements are an integral part hereof.
25
<PAGE> 16
N O T E S TO C O N S O L I A T E D
F I N A N C I A L S T A T E M E N T S
As of or for the years ended December 31, 1995, 1994, and 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and financial reporting policies of LSB Bancshares, Inc.
("Bancshares") and its subsidiaries conform to generally accepted accounting
principles and prevailing industry practices. The following is a description
of significant accounting policies.
NATURE OF OPERATIONS
Bancshares is a bank holding company organized under the laws of the State of
North Carolina and registered under the Bank Holding Company Act of 1956, as
amended. Bancshares conducts its domestic financial service business through
Lexington State Bank and two non-bank subsidiaries, Peoples Finance Company of
Lexington, Inc. and LSB Financial Services, Inc. Bancshares serves customers
primarily in Davidson County, North Carolina.
CONSOLIDATION
The consolidated financial statements include the accounts of Bancshares and
its wholly-owned subsidiaries, after eliminating intercompany balances and
transactions. Securities and other property held in a fiduciary or agency
capacity are not included in the consolidated balance sheets since these are
not assets or liabilities of Bancshares.
USE OF ESTIMATES
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 assets and 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.
CASH AND CASH EQUIVALENTS
Bancshares considers cash and due from banks as cash and cash equivalents for
purposes of the consolidated statements of cash flows. Due from bank balances
are maintained in other financial institutions.
INVESTMENT SECURITIES
Effective January 1, 1994, Bancshares adopted Statement of Financial
Accounting Standards Number 115 "Accounting for Certain Investments in Debt
and Equity Securities". Securities that may be sold in response to or in
anticipation of changes in interest rates or other factors are classified as
available for sale and carried at market value. The unrealized gains and
losses on these securities are reported net of applicable taxes in a separate
component of shareholders' equity. Securities that Bancshares has the
positive intent and ability to hold to maturity are carried at amortized cost.
Bancshares does not have any securities held for trading.
Interest income on securities, including amortization of premiums and
accretion of discounts, is recognized using the interest method. Gains
and losses on the sale of securities are recognized on a specific
identification basis.
LOANS
Loans are generally carried at the principal amount outstanding, net of
deferred loan fees. Mortgage loans held for sale are carried at the lower of
cost or market value. Interest income is recognized using the interest
method. Net deferred loan fees are amortized into income over the term of the
loan. The accrual of interest on loans is generally discontinued on all loans
that become 90 days past due as to principal and interest unless collection of
both principal and interest is assured by way of collateralization, guarantees
or other security and the loan is considered to be in the process of
collection.
RESERVE FOR LOAN LOSSES
The reserve for loan losses is that amount which is considered adequate to
provide for potential losses in the portfolio. Management's evaluation of the
adequacy of the reserve is based on several factors, including an analysis of
the loss experience in relation to outstanding amounts, a review of impaired
loans, regular examinations and appraisals of the portfolio and current
conditions.
FORECLOSED REAL ESTATE
Foreclosed real estate only includes formally foreclosed property. At the
time of foreclosure, foreclosed real estate is recorded at the lower of the
Bank's cost or the asset's fair value less costs to sell, which becomes the
property's new basis. Any write downs based on the asset's fair value at date
of acquisition are charged to the reserve for loan losses. After foreclosure,
these assets are carried at the lower of their new cost basis or fair value
less cost to sell. Costs incurred in maintaining foreclosed real estate and
subsequent write downs to reflect declines in the fair value of the property
are charged to operations.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation is computed by use of the straight-line method,
using the following estimated lives: buildings, 20 to 40 years; equipment, 5
to 10 years; vaults, 10 to 40 years.
Leasehold improvements are being amortized by use of the straight-line method
over the lesser of the estimated useful lives of the improvements or the terms
of the respective leases.
INCOME TAXES
The provision for income taxes is based on income and expense and assets and
liabilities for financial statement purposes. Deferred income taxes are
computed under the provisions of Statement of Financial Accounting Standards
Number 109, "Accounting for Income Taxes.
26
<PAGE> 17
NOTE 2 - CASH AND DUE FROM BANKS
The Bank is required to maintain a certain weekly average clearing account
balance with the Federal Reserve Bank of Richmond. The required weekly
average clearing account balance at December 31, 1995 and 1994 was $11,200,000
and $12,600,000, respectively. The amounts are negotiated by the Bank with
the Federal Reserve Bank of Richmond.
NOTE 3 - INVESTMENT SECURITIES
The valuations of investment securities as of December 31, 1995 and 1994,
were as follows (In Thousands):
<TABLE>
<CAPTION>
1995 - SECURITIES HELD TO MATURITY
Amoritized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. Treasury
and other U.S.
government agency
obligations ......... $51,039 $ 130 $ 19 $51,150
State, county and
municipal
securities .......... 31,883 1,646 0 33,529
------- ------ ------ -------
Total ............... $82,922 $1,776 $ 19 $84,679
======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
1995 - SECURITIES AVAILABLE FOR SALE
Amoritized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- --------- -------
<S> <C> <C> <C> <C>
U.S. Treasury
and other U.S.
government agency
obligations ......... $24,502 $ 473 $ 0 $24,975
State, county
and municipal
securities .......... 0 0 0 0
Federal Home Loan
Bank Stock .......... 1,071 0 0 1,071
------- -------- ------- -------
Total ............... $25,573 $ 473 $ 0 $26,046
======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
1994 - SECURITIES HELD TO MATURITY
Amoritized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- --------- -------
<S> <C> <C> <C> <C>
U.S. Treasury
and other U.S.
government agency
obligations ......... $56,990 $ 49 $ 2,315 $54,724
State, county and
municipal
securities .......... 30,052 712 652 30,112
------- ------ ------- -------
Total ............... $87,042 $ 761 $ 2,967 $84,836
======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
1994 - SECURITIES AVAILABLE FOR SALE
Amoritized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- --------- -------
<C> <C> <C> <C> <C>
U.S. Treasury
and other U.S.
government agency
obligations ......... $23,345 $ 0 $ 475 $22,870
State, county and
municipal
securities .......... 0 0 0 0
------- -------- ------ -------
Total ............... $23,345 0 475 $22,870
======= ======== ====== =======
</TABLE>
The following is a maturity schedule of investment securities at December 31,
1995 by contractual maturity (In Thousands):
<TABLE>
<CAPTION>
SECURITIES HELD SECURITIES AVAILABLE
TO MATURITY FOR SALE
Amortized Market Amortized Market
Cost Value Cost Value
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Debt securities:
Due in one
year or less ........ $12,750 $12,847 $ 5,000 $ 5,031
Due after one
year through
five years .......... 49,604 50,059 19,502 19,944
Due after five
years through
ten years ........... 9,922 10,738 - -
Due after ten
years ............... 10,646 11,035 - -
------- -------
Total debt
securities .......... 82,922 84,679 24,502 24,975
Equity securities: 1,071(1) 1,071(1)
------ ------- ------- -------
Total securities ...... $82,922 $84,679 $25,573 $26,046
======= ======= ======= =======
</TABLE>
(1) At December 31, 1995, Lexington State Bank owned stock in the Federal Home
Loan Bank of Atlanta with book and market values of $1,071,000, which is
included in equity securities and classified as available for sale. Member
institutions are required to maintain a minimum investment in the common stock
of the Federal Home Loan Bank of Atlanta based on the asset size of the member
institution and the amount of qualifying one-to-four family residential loans.
A recap of the sales and maturities of held to maturity securities follows (In
Thousands):
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Proceeds from sales and
maturities .............. $21,456 $24,148 $25,912
Gross realized gains ..... 0 24 0
Gross realized losses .... 0 0 0
</TABLE>
Two securities classified as held to maturity were sold during 1994. These
securities, with sales proceeds of $4,026,000 and amortized cost of $4,002,000,
resulted in a realized gain of $24,000.
The specific identification method was the basis on which cost was determined.
The sales helped to fund some of the Bank's growth in its commercial and
installment loan portfolios.
The two securities were within three months of maturity and changes in market
interest rates would not have a material effect on the security's market value.
A recap of the sales and maturities of available for sale securities follows
(In Thousands):
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993
-------- ---------- --------
<S> <C> <C> <C>
Proceeds from sales and
maturities ............ $10,000 $ 6,547 $ 0
Gross realized gains .... 0 25 0
Gross realized losses ... 0 0 0
</TABLE>
Three securities classified as available for sale were sold during 1994. These
securities, with sales proceeds of
27
<PAGE> 18
$4,047,000 and amortized cost of $4,022,000, resulted in a realized gain of
$25,000. The specific identification method was the basis on which cost was
determined.
Investment securities with amortized cost of $49,582,562 and $50,005,014 as of
December 31, 1995 and 1994, respectively, were pledged to secure public
deposits and for other purposes.
Note 4 - RESERVES FOR LOAN LOSSES
An analysis of the changes in the reserve for loan losses follows (In
Thousands):
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Balances at beginning of years .. $2,641 $2,775 42,704
Provision for loan losses ....... 252 219 941
Recoveries of amounts
previously charged off ........ 100 77 149
Loan losses ..................... (263) (430) (1,019)
------ ------ ------
Balancse at end of years ........ $2,730 $2,641 $2,775
====== ====== ======
</TABLE>
Effective January 1, 1995, Bancshares adopted Statement of Financial Accounting
Standards Number 114 "Accounting by Creditors for Impairment of a Loan" and
amended by Statement of Financial Accounting Standards Number 118 "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures".
These standards require creditors to establish a valuation allowance when it is
probable that all principal and interest due under the contractual terms of a
loan will not be collected. Impairment is measured based on the present value
of expected future cash flows discounted at the loan's effective interest rate,
the observable market value of a loan or the fair value of collateral if the
loan is collateral dependent. The creditor continues to use existing methods
for recognizing interest income on impaired loans.
Bancshares' policy for impaired loan accounting subjects all loans to
impairment recognition except for large groups of smaller balance homogeneous
loans such as credit card, residential mortgage and consumer loans. Bancshares
generally considers most loans 90 days or more past due and all nonaccrual
loans to be impaired. The adoption of these standards did not have a material
effect on Bancshares' financial position or results of operations and required
no increase to the reserve for loan losses.
At December 31, 1995, Bancshares had loans amounting to approximately
$3,809,985 that were specifically classified as impaired. The average balance
of these loans amounted to approximately $3,514,912 for the year ended December
31, 1995. The reserve for loan losses related to impaired loans amounted to
approximately $488,649 at December 31, 1995.
Bancshares has no commitments to loan additional funds to the borrowers of
impaired loans.
Note 5 - PREMISES AND EQUIPMENT
Following is a summary of premises and equipment (In Thousands):
<TABLE>
<CAPTION>
December 31
1995 1994
------- -------
<S> <C> <C>
Land .................................. $ 1,435 $ 1,357
Buildings ............................. 7,198 7,272
Equipment ............................. 4,855 4,614
Other ................................. 13 13
Leasehold improvements ................ 389 414
------- -------
Total cost ......................... 13,890 13,670
Less, accumulated depreciation
and amortization ................... 5,157 4,663
------ -------
Total .............................. $ 8,733 $ 9,007
======= =======
</TABLE>
Note 6 - PENSION AND EMPLOYEE BENEFIT PLANS
The Bank and its subsidiaries have a noncontributory defined benefit pension
plan which covers substantially all employees. The benefits are based on
years of service and the average highest five consecutive years of
compensation paid during the ten years preceding normal retirement.
Contributions are made on an annual basis, with the total amount of such
contributions being between the minimum required for funding standard account
purposes and the maximum deductible for federal income tax purposes.
Net pension cost consisted of the following components (In Thousands):
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993
----- ------ -----
<S> <C> <C> <C>
Service cost for benefits
earned during the periods............ $ 150 $ 127 $ 127
Interest cost on projected
benefit obligation................... 126 184 170
Return on plan assets................... (199) (179) (140)
Amortization of
unrecognized net assets............... (8) (8) (8)
Amortization of prior
service cost.......................... (37) (37) (16)
Amortization of
unrecognized loss 24 3 0
---- ------ -----
Net pension cost........................ $ 156 $ 90 $ 133
===== ===== =====
</TABLE>
The following table sets forth the funded status and amounts recognized for the
defined benefit pension plan in the Consolidated Balance Sheets (In
Thousands):
<TABLE>
<CAPTION>
December 31
1995 1994
------ -------
<S> <S> <S>
Actuarial present value of accumulated
benefit obligation, including vested
benefits of $2,124 in 1995 and $2,031
in 1994.................................... $ 2,194 $2,103
======= ======
Actuarial present value of projected
benefit obligation for services
rendered to date........................... $(3,162) $(2,755)
Plan assets at fair market value, primarily
U.S. government securities, listed
securities and deposits in banks........... 3,241 2,499
------- ------
Projected benefit obligation in excess of
plan assets................................ 79 (256)
Unrecognized net assets......................... (46) (53)
Unrecognized prior service cost................. (283) (320)
Unrecognized net loss........................... 391 521
------- ------
Prepaid (accrued) pension cost.................. $ 141 $ (108)
======= ======
</TABLE>
28
<PAGE> 19
To determine the actuarial present value of the projected benefit obligation,
a discount rate of 8% was used for 1995, 7.5% for 1994 and 8% for 1993. A
rate of increase in future compensation levels of 5.5% was used for 1995,
1994 and 1993. The expected long-range rate of return on plan assets was
7.5% for each of the three years.
The Bank and its subsidiaries have an Employees' Savings Plus Plan covering
substantially all employees with one year's service. Participating employees
may contribute a percentage of their compensation to the Plan, with the Bank
and its subsidiaries matching a portion of the employee contribution. Total
expense under this Plan was $108,039, $84,497 and $49,960 for 1995, 1994 and
1993, respectively.
During 1994, the Bank and its subsidiaries implemented a plan to provide some
health care benefits for employees for the period between early retirement and
normal retirement. Only those employees who retire after age 55 and have
completed 10 years of service will be eligible for these benefits. The
benefits are provided through a self-insured plan administered by an insurance
company whose premiums are based on claims paid during the year. Statement of
Financial Accounting Standards Number 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" requires the accrual of
nonpension benefits as employees render service. The liability for
postretirement benefits is unfunded.
Net postretirement benefit cost consisted of the following components (In
Thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1995 1994
---- ----
<S> <C> <C>
Service cost............................. $ 17 $ 14
Interest cost............................ 35 29
Amortization of transition
obligation over 20 years............... 19 19
----- -----
Net postretirement benefit cost.......... $ 71 $ 62
===== =====
The following table sets forth the status of the plan and amounts recognized
for postretirement benefits in the Consolidated Balance Sheets (In Thousands):
DECEMBER 31
1995 1994
Accumulated postretirement benefit obligation: ----- -----
Retirees............................................ $(202) $(157)
Currently eligible active plan participants......... (66) (58)
Other active plan participants...................... (196) (183)
----- -----
Total............................................... (464) (398)
Unrecognized net (gain) loss........................ 41
Unrecognized net transition obligation.............. 341 360
----- -----
Accrued postretirement benefits cost................ $ (82) $ (38)
===== =====
</TABLE>
The annual assumed rate of increase in health care costs for the plan is 12.0%
and 12.5% for 1995 and 1994, respectively, and is assumed to decrease gradually
to 6% in 2007 and remain at that level thereafter. The health care cost trend
rate assumption has a significant effect on the amounts reported. Increasing
the assumed health care cost trend rates by one percentage point would increase
the accumulated postretirement benefit obligation for the plan by $41,672 and
$38,000 as of December 31, 1995 and 1994, respectively, and the aggregate of
the service and interest cost of the net periodic postretirement benefit cost
by $6,750 and $6,000, respectively. The discount rate used in determining the
accumulated postretirement benefit obligation was 8.0% for 1995 and 7.5% for
1994.
NOTE 7 - INCOME TAXES
The components of income tax expense (benefits) are as follows (In Thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current...................................... $1,570 $1,262 $1,279
Deferred:
Reserve for loan losses................. (26) 45 (14)
Depreciation............................ (3) 33 60
Pension................................. 84 86 55
Deferred compensation................... 6 (35) (12)
Fee and servicing income................ 63 25 21
Self insurance.......................... 1 11 (47)
Other................................... 6 (5) 7
------ ------ ------
Total................................... $1,701 $1,422 $1,349
====== ====== ======
</TABLE>
A reconciliation of the federal statutory tax rates to the effective federal
tax rate follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Federal statutory tax rates.................. 34.0% 34.0% 34.0%
Tax-exempt interest income................... (10.4) (11.4) (11.5)
Disallowed interest expense.................. 1.0 .9 .9
Other........................................ 1.6 .7 .3
----- ---- ----
Effective federal tax rates.................. 26.2% 24.2% 23.7%
===== ==== ====
</TABLE>
The components of the net deferred tax asset follows (In Thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
---- ----
<S> <C> <C>
Investment securities............................ $(225) $ 105
Reserve for loan losses.......................... 653 627
Depreciation..................................... (344) (348)
Pension.......................................... (48) 37
Deferred compensation............................ 150 155
Other............................................ 112 175
----- -----
298 751
Valuation allowance.............................. 0 0
----- -----
Total............................................ $ 298 $ 751
===== =====
</TABLE>
NOTE 8 - LEASES
The Bank is obligated under several lease agreements which expire in 1995
through 2004. The leased property is for land and building use. Rental
payments under these leases amounted to $75,570, $71,287 and $69,421 for the
years ended December 31, 1995, 1994 and 1993, respectively.
A summary of noncancelable lease commitments for the Bank follows (In
Thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 LEASE COMMITMENTS
<S> <C>
1996...................... $ 74
1997...................... 44
1998...................... 38
1999...................... 40
2000 and later............ 107
----
$303
====
</TABLE>
29
<PAGE> 20
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank is a party to financial
instruments with off balance sheet risk. These financial instruments include
commitments to extend credit and standby letters of credit, both of which
involve elements of credit and interest rate risk not reflected in the
Consolidated Balance Sheets. The Bank uses the same credit policies in making
commitments and issuing standby letters of credit as it does for on balance
sheet instruments. The Bank's exposure to credit loss in the event of
nonperformance by the party to whom commitments and standby letters of credit
have been extended is represented by the contractual amount of the financial
instrument.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates and may require payment of
a fee. Since many of the commitments are expected to expire without being
drawn upon or fully utilized, the total commitment amounts do not necessarily
represent future cash requirements. Collateral, if deemed necessary, is
determined on a case-by-case basis and is based on management's credit
evaluation. Unfunded commitments to extend credit were $56,004,395 at
December 31, 1995.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit
risk involved is essentially the same as that involved in extending loan
commitments to customers. Standby letters of credit were $1,482,410 at
December 31, 1995.
Lexington State Bank has an unused $12,022,403 line of credit from the
Federal Home Loan Bank of Atlanta at December 31, 1995. Any borrowings under
this line of credit would be secured by the Bank's stock in the Federal Home
Loan Bank of Atlanta as well as one-to-four family mortgage loans.
The Bank and Peoples together grant commercial, installment and
mortgage loans to customers throughout their service area. The Bank and
Peoples have a diversified loan portfolio with no specific concentration of
credit risk. The Bank does have a concentration of credit risk by
maintaining cash balances with other banks which are $10,293,884 in excess of
Federal Deposit Insurance limits and has federal funds sold of $10,025,000.
Neither Bancshares nor any of its subsidiaries is involved in any legal
proceedings that would have a material adverse effect on their financial
condition or results of operations.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Bank had loans outstanding to executive officers and Directors and
their affiliated companies of approximately $5,227,883 and $9,608,067 at
December 31, 1995 and 1994, respectively. Such loans were made substantially
on the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other borrowers and
do not involve more than the normal risk of collectibility.
An analysis of the activity with respect to such aggregate loans to related
parties is as follows (In Thousands):
<TABLE>
<S> <C>
Balance at January 1, 1995.................. $ 9,608
New loans during the year................... 1,630
Repayments during the year.................. (6,010)
-------
Balance at December 31, 1995................ $ 5,228
=======
</TABLE>
NOTE 11 - SUPPLEMENTARY INCOME STATEMENT
INFORMATION
The following is an analysis of material items in other operating income and
other operating expenses as shown on the Consolidated Statements of Income (In
Thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1995 1994 1993
--- ---- ----
<S> <C> <C> <C>
Other operating income:
Insurance commissions.......... $221 $256 $246
Trust income................... 315 314 313
Credit cards................... 287 219 165
Other operating expenses:
Automated services............. 761 765 739
Stationery, printing and
supplies....................... 533 492 403
FDIC assessment................ 357 663 631
</TABLE>
NOTE 12 - LSB BANCSHARES, INC. (PARENT COMPANY)
The parent company's principal asset is its investment in its subsidiary, the
Bank. The significant source of income of the parent company is dividends
received from its subsidiary, the Bank.
Certain regulatory requirements restrict the lending of funds by and between
the parent company and the Bank and the amount of dividends which can be paid
to the parent company. On December 31, 1995, the Bank had available retained
earnings of $34,441,989 for the payment of dividends without obtaining prior
regulatory approval.
The parent company's condensed balance sheets as of December 31, 1995 and
1994, and the related condensed statements of income and cash flows for the
years ended December 31, 1995, 1994 and 1993, are as follows (In Thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
------- -------
<S> <C> <C>
Assets:
Cash................................... $ 54 $ 152
Investment in wholly-owned
subsidiary............................. 47,518 44,458
637 506
Other assets........................... ------- -------
Total assets........................... $48,209 $45,116
======= =======
Liabilities and shareholders' equity:
Due to wholly-owned subsidiary......... $ 76 $ 0
Other liabilities...................... 335 405
Shareholders' equity................... 47,798 44,788
------- -------
Total liabilities and
shareholders' equity................... $48,209 $45,116
======= =======
</TABLE>
30
<PAGE> 21
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Dividends from subsidiary................. $2,060 $1,906 $2,059
------ ------ ------
Professional fees......................... 174 110 108
Other operating expense................... 164 147 121
------ ------ ------
338 257 229
------ ------ ------
Income before equity in
earnings of subsidiary............... 1,722 1,649 1,830
Equity in earnings
of subsidiary........................ 3,060 2,813 2,526
------ ------ ------
Net income................................ $4,782 $4,462 $4,356
====== ====== ======
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOW FROM OPERATING
ACTIVITIES:
Net income................................ $ 4,872 $ 4,462 $ 4,356
Adjustments to reconcile net
income to net cash:
Increase in investment in
wholly-owned subsidiary.............. (3,060) (2,812) $(2,526)
------- ------- -------
Net cash provided by
operating activities................. 1,722 1,650 1,830
------- ------- -------
CASH FLOW FROM INVESTING
ACTIVITIES:
(Increase) decrease in other assets....... (131) 3 (80)
------- ------- -------
CASH FLOW FROM FINANCING
ACTIVITIES:
Sale of capital stock..................... 289 178 157
Dividends and fractional
shares paid.......................... (2,060) (1,888) (1,766)
Increase (decrease) in other
liabilities.......................... 82 13 (41)
------- ------- -------
Net cash used by
financing activities................. (1,689) (1,697) (1,650)
------- ------- -------
Increase (decrease) in cash............... (98) (44) 100
Cash at beginning of years................ 152 196 96
------- ------- -------
Cash at end of years...................... $ 54 $ 152 $ 196
======= ======= =======
</TABLE>
NOTE 13 - STOCK OPTIONS
Bancshares has stock option plans for certain employees and directors and has
reserved 317,807 shares of common stock to be available for options granted.
Under the plans, options are granted at fair market value and are exercisable
over a five to ten year period.
The options granted, options exercisable and option prices have been adjusted
for stock splits paid which have occurred during the option period.
Activity in the option plans during 1994 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
Options Options Price
Outstanding Per Share
----------- -------------
<S> <C> <C>
Balance at January 1, 1994.......... 162,990 $ 7.68-15.20
Granted............................. 50,650 19.50-20.00
Exercised........................... (20,264) 8.83- 9.44
-------
Balance at December 31, 1994........ 193,376 7.68-20.00
Granted............................. 45,650 18.00-19.00
Exercised........................... (31,376) 7.68-11.20
-------
Balance at December 31, 1995........ 207,650 8.96-20.00
=======
</TABLE>
Of the options outstanding at December 31, 1995, options for 48,855 shares of
common stock were exercisable at option prices ranging from $8.96 to $20.00
per share.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards Number 107 "Disclosures about Fair
Value of Financial Instruments" requires that Bancshares disclose estimated
fair values for its financial instruments. Fair value estimates, methods and
assumptions are set forth below for Bancshares' financial instruments:
CASH AND SHORT-TERM INVESTMENTS
For cash and short-term investments, including federal funds sold, the
carrying amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES
For securities held as investments, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
LOANS RECEIVABLE
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand at December 31, 1995. The fair value
of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties.
The estimated fair values of Bancshares' financial instruments are as follows
(In Thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term
investments.......................... $ 27,606 $ 27,606 $ 29,601 $ 29,601
-------- -------- -------- --------
Investment securities................ 108,968 108,257 109,912 107,706
-------- -------- -------- --------
Loans................................ 226,667 224,503 205,252 172,098
Less reserve for loan
losses............................... (2,730) - (2,641) -
-------- -------- -------- --------
Net loans............................ 223,937 224,503 202,611 172,098
Financial liabilities:
Deposits............................. 323,289 323,167 309,906 303,289
Securities sold under
agreements to
repurchase........................... 1,494 1,492 707 706
</TABLE>
31
<PAGE> 22
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Unrecognized financial instruments:
Commitments to
extend credit........................ $0 $0 $ 1 $ 1
Standby letters of
credit............................... 7 7 13 13
(1) The amounts shown under "Carrying Amount" represent fees arising from these
unrecognized financial instruments.
</TABLE>
NOTE 15 - SUBSEQUENT EVENTS
On January 9, 1996, LSB Bancshares, Inc. declared a five-for-four stock split
to be paid on February 15, 1996 to shareholders of record on February 1, 1996.
On January 9, 1996, Lexington State Bank approved a temporary amendment to the
Lexington State Bank Employees' Pension Plan which would allow eligible
employees to elect a special early retirement incentive benefit. This change
had no impact on the 1995 financial statements. The cost of the change, which
is unknown at this time, will be recorded in the first quarter of 1996.
STATEMENT OF MANAGEMENT RESPONSIBILITY
Management is responsible for the financial statements included in the annual
report. The financial statements are prepared in accordance with generally
accepted accounting principles. Other information in the annual report is
consistent with the financial statements.
In fulfilling its responsibility, management relies on a system of internal
controls designed to safeguard Bancshares' assets from material loss or misuse.
The system has been designed to ensure that transactions are properly
authorized and recorded in Bancshares' financial records.
Through its Audit Committee, which is comprised of outside directors, the Board
of Directors fulfills its oversight responsibility for determining that the
accounting policies employed by management are reasonable and that the system
of internal controls is adequately reviewed and maintained. Bancshares'
independent certified public accountants meet periodically with and have full
and free access to the Committee, privately or with management, to discuss
financial reporting matters. The Committee reports periodically to the full
Board.
LSB Bancshares, Inc.
January 31, 1996
INDEPENDENT AUDITORS REPORT
To The Board of Directors and Shareholders
LSB Bancshares, Inc.
Lexington, North Carolina
We have audited the accompanying consolidated balance sheets of LSB Bancshares,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LSB Bancshares,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the consolidated
results of their operations, and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As described in Notes One and Three to the consolidated financial statements,
during the year ended December 31, 1994, the Corporation changed its method of
accounting for certain investment securities.
Turlington and Company, L.L.P.
Lexington, North Carolina
January 31, 1996
32
<PAGE> 23
STOCK AND DIVIDEND INFORMATION*
LSB Bancshares, Inc.'s common stock is traded on the NASDAQ National Market
under the symbol LXBK. The following table shows the high, low and closing
sales prices reported on the NASDAQ National Market and cash dividends declared
per share for the indicated periods.
<TABLE>
<CAPTION>
Prices Cash
---------------------- Dividends
1995 High Low Close Declared
========================================================
<S> <C> <C> <C> <C>
First Quarter........ $20.00 $18.00 $18.50 .12
Second Quarter....... 20.00 18.00 19.50 .12
Third Quarter........ 20.50 18.25 19.50 .12
Fourth Quarter....... 21.00 18.50 19.75 .12
1994
========================================================
First Quarter........ $16.50 15.00 21.50 .11
Second Quarter....... 21.50 16.50 21.50 .11
Third Quarter........ 21.50 19.00 19.88 .11
Fourth Quarter....... 20.75 17.50 18.00 .11
</TABLE>
*Stock and dividend amounts have been adjusted for the five-for-four stock
split paid March 31, 1994.
33
<PAGE> 1
EXHIBIT 21
LSB Bancshares, Inc. P.O. Box 667, Lexington, North Carolina 27293-0867
SUBSIDIARIES
State of
Name Incorporation
- ---- -------------
Lexington State Bank North Carolina
(100% owned by LSB
Bancshares, Inc.)
LSB Financial Services, Inc. North Carolina
(100% owned by Lexington
State Bank)
Peoples Finance Company North Carolina
of Lexington, Inc.
(100% owned by Lexington
State Bank)
<PAGE> 1
EXHIBIT 23
Turlington and Company, L.L.P. 609 East Center Street
Certified Public Accountants Post Office Box 1697
Lexington, North Carolina 27293-1697
Office 704-249-6856
Facsimile 704-246-8697
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
LSB Bancshares, Inc.
Lexington, North Carolina
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of LSB Bancshares, Inc. and subsidiaries of our report dated January 31, 1996,
included in the 1995 Annual Report to Shareholders of LSB Bancshares, Inc. and
subsidiaries.
Our audit also included the financial statement schedules of LSB Bancshares,
Inc. and subsidiaries listed in Item 14(a). These schedules are the
responsibility of the Bank's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-54610) pertaining to the LSB Bancshares, Inc. and subsidiaries
1986 Employee Incentive Stock Option Plan of our report dated January 31, 1996,
with respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedules included in this Annual Report (Form 10-K) of
LSB Bancshares, Inc. and subsidiaires.
TURLINGTON AND COMPANY, L.L.P.
Lexington, North Carolina
January 31, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 17,463
<INT-BEARING-DEPOSITS> 118
<FED-FUNDS-SOLD> 10,025
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,046
<INVESTMENTS-CARRYING> 108,968
<INVESTMENTS-MARKET> 110,725
<LOANS> 226,667
<ALLOWANCE> 2,730
<TOTAL-ASSETS> 375,026
<DEPOSITS> 323,289
<SHORT-TERM> 1,494
<LIABILITIES-OTHER> 2,133
<LONG-TERM> 0
0
0
<COMMON> 21,495
<OTHER-SE> 26,615
<TOTAL-LIABILITIES-AND-EQUITY> 375,026
<INTEREST-LOAN> 20,290
<INTEREST-INVEST> 6,695
<INTEREST-OTHER> 1,066
<INTEREST-TOTAL> 28,051
<INTEREST-DEPOSIT> 11,402
<INTEREST-EXPENSE> 11,448
<INTEREST-INCOME-NET> 16,603
<LOAN-LOSSES> 252
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 13,112
<INCOME-PRETAX> 6,483
<INCOME-PRE-EXTRAORDINARY> 6,483
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,782
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.50
<LOANS-NON> 1,040
<LOANS-PAST> 206
<LOANS-TROUBLED> 289
<LOANS-PROBLEM> 2,275
<ALLOWANCE-OPEN> 2,641
<CHARGE-OFFS> 263
<RECOVERIES> 100
<ALLOWANCE-CLOSE> 2,730
<ALLOWANCE-DOMESTIC> 2,730
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
