FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1996
Commission File Number 0-11448
LSB BANCSHARES, INC.
One LSB Plaza
Lexington, North Carolina 27292
(910) 248-6500
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.
The number of shares outstanding as of June 30, 1996 was
5,390,727.
<PAGE>
LSB BANCSHARES, INC.
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
Consolidated Statements of Income
Three Months Ended June 30, 1996 and 1995
Six Months Ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements
Six Months Ended June 30, 1996 and 1995
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LSB Bancshares, Inc.
Consolidated Balance Sheets
<CAPTION>
(In Thousands) June 30 December 31
1996 1995
<S>
Assets <C> <C>
Cash and Due from Banks $ 20,916 $ 17,581
Federal Funds Sold 2,125 10,025
Investment Securities:
Held to Maturity, Market Value $75,463 and $84,679 75,481 82,922
Available for Sale, at Market Value $25,326 and $26,046 25,326 26,046
Loans:
Commercial 83,640 74,980
Installment 51,252 48,972
Mortgage 111,625 102,715
Total Loans 246,517 226,667
Less, Reserve for Loan Losses (2,798) (2,730)
Net Loans 243,719 223,937
Premises and Equipment 8,761 8,733
Other Assets 5,982 5,782
Total Assets $ 382,310 $ 375,026
LIABILITIES
Deposits:
Demand $ 42,285 $ 42,660
Savings, NOW and Money Market Accounts 156,876 159,894
Certificates of Deposit of less than $100,000 100,803 97,757
Certificates of Deposit of $100,000 or more 27,525 22,978
Total Deposits 327,489 323,289
Securities Sold Under Agreements to Repurchase 3,335 1,494
Other Liabilities 2,262 2,133
Total Liabilities 333,086 326,916
SHAREHOLDERS' EQUITY
Capital Stock: Common, authorized 10,000,000
shares, Par Value $5, issued 5,390,727 shares
in 1996 and 5,375,035 shares in 1995 26,954 21,495
Paid-In Capital 11,303 11,255
Retained Earnings 11,154 15,048
Net Unrealized Gain (Loss) on Securities Available
for Sale, Net of taxes (187) 312
Total Shareholders' Equity 49,224 48,110
Total Liabilities and Shareholders' Equity $ 382,310 $ 375,026
</TABLE>
<PAGE>
<TABLE>
LSB Bancshares, Inc.
Consolidated Statements of Income
<CAPTION>
(In Thousands Except Share Data) Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest Income
Interest and Fees on Loans $5,464 $5,004 $10,809 $9,730
Interest on Investment Securities:
Taxable 1,118 1,186 2,280 2,411
Tax Exempt 485 480 971 974
Federal Funds Sold 74 301 222 494
Total Interest Income 7,141 6,971 14,282 13,609
Interest Expense
Deposits 2,770 2,863 5,605 5,501
Securities Sold Under Agreements to Repurchase 20 11 36 24
Total Interest Expense 2,790 2,874 5,641 5,525
Net Interest Income 4,351 4,097 8,641 8,084
Provision for Loan Losses 143 63 216 126
Net Interest Income After Provision
for Loan Losses 4,208 4,034 8,425 7,958
Noninterest Income
Service Charges on Deposit Accounts 506 442 999 889
Gains (Losses) on Sales of Mortgages 77 2 70 8
Other Operating Income 545 311 1,014 594
Total Noninterest Income 1,128 755 2,083 1,491
Noninterest Expense
Personnel Expense 1,930 1,857 3,872 3,710
Occupancy Expense 199 191 391 399
Equipment Depreciation and Maintenance 168 158 335 322
Other Operating Expense 982 1,149 1,917 2,218
Restructuring Charges 0 0 517 0
Total Noninterest Expense 3,279 3,355 7,032 6,649
Income Before Income Taxes 2,057 1,434 3,476 2,800
Income Taxes 555 345 900 673
Net Income $1,502 $1,089 $2,576 $2,127
Net Income Per Share $0.28 $0.20 $0.48 $0.40
Weighted Average Shares Outstanding 5,385,416 5,364,770 5,384,088 5,357,510
</TABLE>
<PAGE>
<TABLE>
LSB Bancshares, Inc
Consolidated Statements of Cash Flows
<CAPTION>
(In Thousands) Six Months Ended June 30
1996 1995
<S>
Cash Flow From Operating Activities <C> <C>
Net income $ 2,576 $ 2,127
Adjustments to reconcile net income to net cash:
Depreciation and amortization 351 347
Securities premium amortization and
discount accretion, net 20 (272)
(Increase) decrease in loans held for sale (2,575) 754
Deferred income taxes 132 183
Income taxes payable (301) (128)
(Increase) decrease in income earned
but not received 79 (122)
Increase (decrease)in interest accrued
but not paid (62) 213
Provision for loan losses 216 63
Gain on sale of investment securities 0 0
Gain on sale of premise and equipment 0 (1)
Net cash provided by operating activities 436 3,164
Cash Flow From Investing Activites
Purchases of securities held to maturity (3,000) (7,720)
Proceeds from maturities of securities held to maturity 0 12,549
Proceeds from sales of securities held to maturity 10,422 0
Purchases of securities available for sale (6,038) (4,912)
Proceeds from maturities of securities available for sale 6,001 7,000
Proceeds from sales of securities available for sale 0 0
Net (increase) decrease in loans made to customers (17,422) (11,679)
Purchases of premises and equipment (378) (185)
Proceeds from sale of premises and equipment 0 24
Net (increase)decrease in Federal Funds sold 7,900 (4,550)
(Increase) decrease in other assets (156) (98)
Net cash used by investing activities (2,671) (9,571)
Cash Flow From Financing Activities
Net increase (decrease) in demand deposits,
NOW, money market and savings accounts (3,393) (7,950)
Net increase (decrease) in time deposits 7,593 15,145
Net increase (decrease) in securities
sold under agreements to repurchase 1,840 264
Dividends paid (1,089) (1,029)
Net increase (decrease) in other liabilities 493 (178)
Common stock Issued 126 251
Net cash provided by financing activities 5,570 6,503
Increase (decrease) in cash 3,335 96
Cash at the beginning of the period 17,581 17,326
Cash at end of period $ 20,916 $ 17,422
Supplemental Disclosures Of Cash Flow Information
Cash paid during the years for:
Interest $ 5,703 $ 5,313
Income Taxes 1,179 618
Supplemental Disclosures
Transfer of loans to other real estate owned $ 277 $ 354
Unrealized losses on securities available for sale:
Increase (decrease) in securities available for sale $ (756) $ 862
Increase (decrease) in deferred taxes (257) 293
Increase (decrease) in shareholders' equity (499) 569
</TABLE>
<PAGE>
LSB Bancshares, Inc.
Notes to Consolidated Financial Statements
Six Months Ended June 30, 1996 and 1996
Note 1. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
three-month period ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1996.
The accompanying unaudited Consolidated Financial Statements
include the accounts of LSB Bancshares, Inc., (the
Corporation) and its wholly-owned subsidiary Lexington State
Bank (the Bank) and the Bank's wholly-owned subsidiaries
Peoples Finance Company of Lexington, Inc. and LSB Financial
Services, Inc.
For further information, refer to the Consolidated Financial
Statements and footnotes thereto included in the Corporation's
annual report on Form 10-K for the year ended December 31,
1995.
Note 2. Investment Securities
Investment securities totaling $49,073,000 and $44,879,000 as
of June 30, 1996 and 1995, were pledged to secure public
deposits as required by law.
Note 3. Loans (Table In Thousands)
A summary of consolidated loans follows:
June 30
1996 1995
Commercial $ 83,640 $ 67,534
Installment 48,512 46,755
Mortgage 111,625 99,480
Credit Cards 2,740 2,420
Total $246,517 $216,189
<PAGE>
Bancshares' policy under SFAS 114 for impaired loan accounting
subjects all loans to impairment recognition except for large
groups of smaller-balance homogeneous loans such as credit
card, residental mortgage and consumer loans. Bancshares
generally considers most loans 90 days or more past due and
all nonaccrual loans to be impaired. Interest income on
LSB Banchsares, Inc.
Notes to Consolidated Financial Statements (cont.)
Six Months Ended June 30, 1996 and 1996
impaired loans is recognized consistent with Bancshares'
income recognition policies. For all impaired loans other
than nonaccrual loans, interest income is recorded on an
accrual basis. Interest income on nonaccrual loans is
recognized on a cash basis. The adoption of SFAS 114 and SFAS
118 did not have a material effect on Bancshares' financial
position or results of operations and required no increase to
the reserve for loan and lease losses.
At June 30, 1996, the total investment in loans that are
considered impaired under SFAS 114 was $3,166,614, of which
$1,155,000 were nonaccrual loans. A related valuation
allowance of $441,093 was determined for the total amount of
impaired loans. The average recorded investment in impaired
loans for the quarter ended June 30, 1996, was approximately
$3,435,380.
Note 4. Reserve for Loan Losses
(In Thousands)
The following set forth the analysis of the consolidated
reserve for loan losses:
Six Months Ended
June 30
1996 1995
Balances at beginning of periods $ 2,730 $ 2,641
Provision for loan losses 216 126
Recoveries of amounts previously
charged off 55 43
Loan losses (203) (94)
Balances at end of periods $ 2,798 $ 2,716
Note 5. Restructuring Charges
In January 1996, the Board of Directors of Bancshares approved
a strategic plan to improve operating efficiencies. The major
element of the plan was the reduction in staff through an
offer of early retirement to all employees 55 years of age or
older with ten years or more of service. Of the employees
offered this opportunity, 68% opted for early retirement,
which was effective March 31, 1996. The costs associated with
increases in the actuarially determined pension and
postretirement medical expenses totaled $490,000, severance
costs associated with the early retirement package totaled
$27,000 and professional fees for administration of the early
retirement totaled $5,000.
<PAGE>
Note 6. Stock Split
In January of 1996, the Board of Directors of Bancshares
declared a five-for-four stock split payable February 15,
1996. All previously reported per share amounts have been
restated to reflect this stock split.
Note 7. Other Accounting Changes
As of January, 1996, Bancshares adopted Financial Accounting
Standards No. 122 (SFAS 122), "Accounting for Mortgage
Servicing Rights". SFAS 122 requires that an entity recognize
as separate assets rights to service mortgage loans for others
however those rights are acquired. This statement amends
certain provisions of SFAS 65 to eliminate the distinction
between rights to service mortgage loans for others that are
acquired through loan origination activities and rights to
service mortgage loans for others that are acquired through
purchase transactions. All of Bancshares' mortgage servicing
rights were acquired through loan origination activities.
Under SFAS 122, servicing rights are to be calculated based on
the present value of the fair market value of the servicing
fees at the time the loan is sold, with consideration given to
any prepayment assumptions. The value of the servicing rights
are then amortized over the life of the loan. SFAS 122 also
requires that all capitalized servicing rights be evaluated
periodically for impairment based on the excess of the
carrying amount of such rights over their fair value. For
purposes of measuring impairment, capitalized mortgage
servicing rights are stratified on the basis of one or more of
the predominant risk characteristics of the underlying loans.
The application of SFAS 122 to originated mortgage servicing
rights acquired through loan origination activities for the
six months ended June 30, 1996 was not material and resulted
in no impairment adjustments.
Disclosure requirements of Financial Accounting Standards No.
123 (SFAS 123) "Accounting for Stock-Based Compensation" are
applicable for financial statements for fiscal years beginning
after December 15, 1995. SFAS 123 establishes a fair value
based method of accounting for stock options and other equity
instruments used in employee compensation plans. 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. Bancshares intends to retain
APB-25 in its pro forma disclosure for fiscal year 1996.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Three Months Ended June 30, 1996 Compared to Three Months
Ended June 30, 1995
<PAGE>
Net Interest Income
The primary source of earnings for the Corporation is net
interest income, which represents the dollar amount by which
interest generated by earning assets exceeds the cost of
funds. Earning assets consist primarily of loans and
investment securities and cost of funds is the interest paid
on interest-bearing deposits.
Total interest income of $7,141,000 for the second quarter of
1996 was up $170,000 or 2.4% compared to $6,971,000 for the
second quarter of 1995. Total interest expense, on the other
hand, decreased $84,000 or 2.9% during the same period. The
moderate interest rate environment of the first quarter of
1996 continued into the second quarter of the year. The prime
interest rate which drop 25 basis points to 8.25% on February
1, 1996 remained unchanged during the second quarter. The
prime interest rate is used as an interest rate indicator by
banks. Stable interest rates, coupled with good growth in the
bank's loan portfolio and relatively flat deposit growth,
contributed to the gain in net interest income experienced in
the second quarter of 1996. Net interest income of $4,351,000
for the second quarter of 1996 was up $254,000 or 6.2%
compared to $4,097,000 for the second quarter of 1995.
Noninterest Income and Expense
Noninterest income for the second quarter of 1996 was up
$373,000 or 49.4% compared to the second quarter of 1995. Fee
income from service charges on deposit accounts for the second
quarter of 1996 was up $64,000 or 14.5% compared to the second
quarter of 1995. The Bank announced an increase in service
charge fees in September 1995 which became effective November
1, 1995. Management believes this adjustment in service
charge fees will significantly benefit noninterest income for
1996. Gains on sales of mortgages increased $75,000 in the
second quarter of 1996 due in part to the value of servicing
rights of mortgages sold in the secondary market. Bancshares
adopted Financial Accounting Standards No. 122 (SFAS 122),
"Accounting for Mortgage Servicing Rights", as of January,
1996. The majority of the activity under SFAS 122 occurred
during the second quarter. Other operating income for the
second quarter of 1996 was up $234,000 or 75.2% compared to
the second quarter of 1995. The majority of this gain is from
increased fee income from the Bank's trust department,
increased fee income related to mortgage lending and increased
fee income from the servicing of mortgage loans sold.
<PAGE>
Noninterest expense for the second quarter of 1996 decreased
$76,000 or 2.3% compared to the second quarter of 1995. The
decrease was the result of a decline in other operating
expense of $167,000 or 14.5% and smaller than normal increases
in personnel expense and occupancy expense. The major
contributing factor to the decrease in other operating expense
for the second quarter of 1996 was a reduction in the Federal
Deposit Insurance Corporation (FDIC) insurance premium. This
line-item expense for the second quarter of 1996 was down
$173,000 from the corresponding period in 1995. Personnel
expense, comprised of salaries and fringe benefits, increased
$73,000 or 3.9% in the second quarter of 1996 compared to the
second quarter of 1995. This smaller than normal increase was
due primarily to reorganization in the first quarter of 1996
through an early retirement window for employees 55 years of
age with ten years of service. This reorganization was a part
of the Bank's strategic plan for improving operation
efficiencies. Occupancy expense for the second quarter of
1996 increased $8,000 or 4.2% compared to the second quarter
of 1995. Equipment depreciation and maintenance expense
increased $10,000 or 6.3% during the same period.
Six Months Ended June 30, 1996 Compared to Six Months Ended
June 30, 1995
Net Interest Income
Net interest income of $8,641,000 for the first six months of
1996 was up $557,000 or 6.9% compared to $8,084,000 for the
first six months of 1995. Stable interest rates for the first
half of the year along with strong loan growth were major
factors contributing to this increase. The total loan
portfolio at June 30, 1996 was up $19,850,000 or 8.8% compared
to December 31, 1995 and $30,328,000 or 14.0% compared to June
30, 1995. Growth in the loan portfolio was equally split
between commercial loans and mortgage loans. Deposit growth
in the first half of 1996 was much slower. The total deposit
portfolio at June 30, 1996 was up $4,200,000 or 1.3% compared
to December 31, 1995 and $10,388,000 or 3.3% compared to June
30, 1995.
<PAGE>
Noninterest Income and Expense
Noninterest income for the first six months of 1996 was up
$592,000 or 39.7% compared to the first six months of 1995.
As with the three-month comparison, the majority of the
increase came from other operating income, which was up
$420,000 or 70.7% over the same period in 1995. This gain in
other operating income came primarily from increased fee
income from the Bank's trust department, increased fee income
related to mortgage lending and increased fees from the
servicing of sold mortgage loans. Fee income from service
charges on deposit accounts for the first half of 1996 was up
$110,000 or 12.4% compared to the same period in 1995. The
Bank increased service charge fees in November, 1995,
resulting in a positive effect on fee income. Gains on sales
of mortgages increased $62,000 the first half of 1996 compared
to the first half of 1995. This gain was due in part to fair
value of mortgage servicing rights, as accounted for under
SFAS 122, "Accounting for Mortgage Servicing Rights".
Noninterest expense for the first six months of 1996 increased
$383,000 or 5.8% compared to the first six months of 1995.
Restructuring charges of $522,000 were incurred in the first
quarter of 1996 as a part of the Bank's strategic plan for
improving operating efficiencies. The restructure plan
included an offer for early retirement to all employees 55
years of age with ten years of service. Of this group, 68%
opted for early retirement,which was effective March 31, 1996.
Personnel expense, comprised of salaries and fringe benefits,
increased $162,000 or 4.4% in the first six months of 1996
compared to the first six months of 1995. Occupancy expense
for the first half of 1996 decreased $8,000 or 2.0% compared
to the first half of 1995, while equipment depreciation and
maintenance increased $13,000 or 4.0% during the same period.
Other operating expense decreased $301,000 or 13.6% the first
six months of 1996 compared to the first six months of 1995.
A reduction in the FDIC insurance premium at the beginning of
the current year reduced this line item expense by $344,000
for the first half of 1996 compared to the same period in
1995.
<PAGE>
Asset Quality and Provision for Loan Losses
The reserve for loan losses was $2,798,000 or 1.14% of loans
outstanding at June 30, 1996 compared to $2,730,000 or 1.20%
of loans outstanding at December 31, 1995 and $2,716,000 or
1.26% at June 30, 1995. Nonperforming loans totaled
$2,848,000 or 1.16% of loans outstanding at June 30, 1996
compared to $2,470,000 or .91% of loans outstanding at June
30, 1995. Nonperforming loans include nonaccrual loans,
restructured loans, other real estate acquired through
foreclosed properties and accruing loans ninety days or more
past due. At June 30, 1996, the Bank had $262,000 in
restructured loans, $1,155,000 in nonaccrual loans and
$1,174,000 in other real estate. Accruing loans past due 90
days or more were $257,000 at June 30, 1996 compared to
$361,000 at June 30, 1995. The accrual of interest generally
discontinues on any loan that becomes 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 considered to be in the process
of collection. At June 30, 1996, the reserve for loan losses
was .98 times the nonperforming loans, compared to 1.08 times
at December 31, 1995 and 1.10 times nonperforming loans at
June 30, 1995.
Loans classified for regulatory purposes as loss, doubtful,
substandard or special mention that have not been disclosed as
nonperforming 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
Accrued taxes applicable to income for the six-month period
ended June 30, 1996 was up $227,000 compared to the six-month
period ended June 30, 1995. Pretax income for the first six
months of 1996 of $3,476,000 was up $676,000 or 24.1% compared
to $2,800,000 for the six-month period of 1995. The increase
in accrued taxes for the first six months of 1996 is
attributable to this increase in pretax income.
<PAGE>
Capital Resources and Shareholders' Equity
Regulatory guidelines require minimum levels of capital, based
on a risk weighting of each asset category and off-balance
sheet contingencies. At June 30, 1996, based on these
measures, the Bank's ratio for Tier 1 capital was 20.86%
compared to the regulatory minimum risk-based capital ratio
requirement of 4%. The Bank's Tier 2 capital ratio at this
date was 22.05% compared to the regulatory requirement of 8%.
Tier 1 or core capital, as defined by federal bank regulators,
equals common shareholders' equity capital less goodwill and
other disallowed intangible assets. Tier 2 capital is the
allowable portion, as defined by the federal regulators, of
the allowance for loan losses and 100% of Tier 1 capital.
Federal banking guidelines for risk-based capital limit the
amount of the allowance for loan losses allowable in Tier 2 or
total capital to 1.25% of risk-weighted assets.
In January of 1996, the Board of Directors of Bancshares
announced a five-for-four stock split payable February 15,
1996. This increased the outstanding shares of capital stock
to 5,382,760. In June of 1996, capital stock issued under the
stock option benefit plan added 7,967 shares to outstanding
capital stock placing total shares outstanding at 5,390,727.
Interest Rate Sensitivity and Liquidity
Asset/liability management is the process used to monitor
exposure to interest rate risk, balance sheet trends, pricing
policies and the Bank's liquidity position. The goals of
asset/liability management are to ensure profitability and
performance, minimize risk, adhere to proper liquidity and
maintain sound capital.
Profitability and performance are affected by balance sheet
composition and interest rate movements. Market conditions,
interest rate trends and the economic environment are all
evaluated in the asset/liability management decision-making
process. As core deposits are the primary funding sources for
assets, proportionate balances are maintained within earning
assets and interest-bearing liabilities.
To minimize risk of interest rate movements, the
asset/liability management process seeks to match maturities
and repricing opportunities of interest-sensitive assets and
liabilities. This interest rate risk is monitored by way of
an interest sensitivity analysis. On June 30, 1996, the gap
between interest-sensitive assets and interest-sensitive
liabilities was a negative $84,340,000 or .67. Management
believes that is an acceptable level under current economic
conditions.
<PAGE>
Asset/liability management also addresses proper liquidity
positioning and sound capital. To a great extent, adequate
liquidity and a strong capital base are by-products of
profitability and performance. The Bank requires liquidity in
order to fund current and future extensions of credit, meet
deposit withdrawals and otherwise sustain operations. As an
integral part of the asset/liability management process, the
liquidity position is closely monitored and evaluated
regularly.
Accounting and Regulatory Issues
As of January, 1996, Bancshares adopted Financial Accounting
Standards No. 121 (SFAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". SFAS 121 requires long-lived assets and certain
identifiable intangibles to be separated into two categories
for purposes of accounting for an impairment of assets.
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. 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.
Bancshares' policy is to review all assets to be held and used
and long-lived assets to be disposed of in accordance to SFAS
121 and to recognize any impairment loss at the time of
occurrence. As of March 31, 1996, Bancshares had no assets to
be held and used requiring impairment recognition and no long-
lived assets to be disposed of.
As of January, 1996, Bancshares adopted Financial Accounting
Standards No. 122 (SFAS 122), "Accounting for Mortgage
Servicing Rights". SFAS 122 requires that an entity recognize
as separate assets rights to service mortgage loans for others
however those rights are acquired. This statement amends
certain provisions of SFAS 65 to eliminate the distinction
between rights to service mortgage loans for others that are
acquired through loan origination activities and rights to
service mortgage loans for others that are acquired through
purchase transactions. While Bancshares has originated
mortgage servicing rights acquired through loan origination
activities, it does not have purchased mortgage servicing
rights acquired through purchase transactions.
<PAGE>
Under SFAS 122, servicing rights are to 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. SFAS 122 also
requires that all capitalized servicing rights be evaluated
for impairment based on the excess of the carrying amount of
such rights over their fair value. For purposes of measuring
impairment, capitalized mortgage servicing rights are
stratified on the basis of one or more of the predominant risk
characteristics of the underlying loans. The application of
SFAS 122 to originated mortgage servicing rights acquired
through loan origination activities for the six months ended
June 30, 1996 was not material and resulted in no impairment
adjustments to capitalized mortgage servicing rights.
Disclosure requirements of Financial Accounting Standards No.
123 (SFAS 123) "Accounting for Stock-Based Compensation" are
applicable for financial statements for fiscal years beginning
after December 15, 1995. SFAS 123 establishes a fair value
based method of accounting for stock options and other equity
instruments used in employee compensation plans. 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. Bancshares intends to retain
APB-25 in its pro forma disclosure for fiscal year 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Date August 13, 1996 LSB BANCSHARES. INC.
(Registrant)
MONTY J. OLIVER
Monty J. Oliver
Chief Financial Officer
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000714530
<NAME> LSB BANCSHARES INC /NC/
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