<PAGE> 1
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 March 31, 1998
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 March 31, 1998 was 8,692,580.
<PAGE> 2
LSB BANCSHARES, INC.
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998 and 1997, December 31, 1997
Consolidated Statements of Income
Three Months Ended March 31,1998 and 1997
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1998 and 1997
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Item 10. Material Contracts
Signatures
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LSB Bancshares, Inc.
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
March 31 December 31 March 31
1998 1997 1997
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 26,782 $ 25,368 $ 21,010
Interest-Bearing Bank Balances 13,053 12,127 480
Federal Funds Sold 48,905 60,340 37,925
Investment Securities:
Held to Maturity, M/V $53,104, $56,209 and $61,840 51,717 54,891 65,422
Available for Sale, at M/V 81,291 50,725 57,920
Loans 401,639 396,991 369,306
Less, Reserve for Loan Losses (4,679) (4,601) (4,112)
--------- --------- ---------
Net Loans 396,960 392,390 365,194
Premises and Equipment 11,269 11,261 11,166
Other Assets 9,650 9,163 9,844
--------- --------- ---------
TOTAL ASSETS $ 639,627 $ 616,265 $ 568,961
========= ========= =========
LIABILITIES
Deposits:
Demand $ 64,448 $ 67,256 $ 56,360
Savings, NOW and Money Market Accounts 235,346 227,239 198,346
Certificates of Deposit of less than $100,000 160,630 154,566 152,841
Certificates of Deposit of $100,000 or more 65,221 53,964 66,871
--------- --------- ---------
Total Deposits 525,645 503,025 474,418
Securities Sold Under Agreements to Repurchase 6,307 8,263 5,463
Borrowings from the Federal Home Loan Bank 32,633 33,758 20,350
Other Liabilities 6,598 3,692 4,599
--------- --------- ---------
Total Liabilities 571,183 548,738 504,830
--------- --------- ---------
SHAREHOLDERS' EQUITY
Capital Stock: Common, authorized 10,000,000
shares, Par Value $5, issued 8,692,580 shares
in 1998 and 8,667,426 and 8,622,481 shares
in 1997 43,463 34,665 34,443
Paid-In Capital 14,840 14,772 14,673
Retained Earnings 10,097 17,916 15,416
Accumulated Other Comprehensive Income 44 174 (401)
--------- --------- ---------
Total Shareholders' Equity 68,444 67,527 64,131
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 639,627 $ 616,265 $ 568,961
========= ========= =========
Memorandum: Standby Letters of Credit $ 2,221 $ 2,221 $ 2,299
</TABLE>
<PAGE> 4
LSB Bancshares, Inc.
Consolidated Statements of Income
(In Thousands Except Share Data and Note)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
---------- -----------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 9,317 $ 8,406
Interest on Investment Securities:
Taxable 1,268 1,350
Tax Exempt 466 463
Federal Home Loan Bank 145 57
Federal Funds Sold 721 485
---------- -----------
Total Interest Income 11,917 10,761
---------- -----------
INTEREST EXPENSE
Deposits 4,766 4,212
Securities Sold Under Agreements to 57 49
Repurchase Borrowings from the Federal Home Loan Bank 467 282
---------- -----------
Total Interest Expense 5,290 4,543
---------- -----------
NET INTEREST INCOME 6,627 6,218
Provision for Loan Losses 165 118
---------- -----------
Net Interest Income After Provision
for Loan Losses 6,462 6,100
---------- -----------
NONINTEREST INCOME
Service Charges on Deposit Accounts 606 636
Gains on Sales of Mortgages 52 44
Losses on Sales of Investment Securities 0 (29)
Other Operating Income 838 655
---------- -----------
Total Noninterest Income 1,496 1,306
---------- -----------
NONINTEREST EXPENSE
Personnel Expense 2,873 2,569
Occupancy Expense 321 329
Equipment Depreciation and Maintenance 297 265
Other Operating Expense 1,794 1,330
Merger-Related Costs 160 0
---------- -----------
Total Noninterest Expense 5,445 4,493
---------- -----------
Income Before Income Taxes 2,513 2,913
Income Taxes 776 901
---------- -----------
NET INCOME $ 1,737 $ 2,012
========== ===========
Earnings Per Share:
Basic $ .20 $ .23
Diluted $ .20 $ .23
Weighted Average Shares Outstanding:
Basic 8,681,462 8,622,481
Diluted 8,904,273 8,830,042
</TABLE>
Note: On January 13, 1998, LSB Bancshares, Inc. declared a five-for-four
stock split to be paid on February 16, 1998 to shareholders of record
on February 2, 1998.
<PAGE> 5
LSB Bancshares, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 1,737 $ 2,012
Adjustments to reconcile net income to net cash:
Depreciation and amortization 304 278
Securities premium amortization and
discount accretion, net (48) (4)
(Increase) decrease in loans held for sale (1,322) 633
Deferred income taxes 83 (163)
Income taxes payable 661 947
(Increase) decrease in income earned
but not received (485) (291)
Increase (decrease)in interest accrued
but not paid 245 (29)
Provision for loan losses 165 118
Gain on sale of investment securities 0 29
Gain on sale of premise and equipment (8) (5)
Net cash provided by operating activities 1,332 3,525
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of securities held to maturity (1,911) 0
Proceeds from maturities of securities held to maturity 5,102 5,720
Proceeds from sales of securities held to maturity 0 0
Purchases of securities available for sale (32,028) (6,385)
Proceeds from maturities of securities available for sale 1,280 3,023
Proceeds from sales of securities available for sale 0 1,891
Net (increase) decrease in loans made to customers (3,414) (14,051)
Purchases of premises and equipment (325) (192)
Proceeds from sale of premises and equipment 22 16
Net (increase) decrease in Federal Funds sold 11,435 (11,205)
(Increase) decrease in other assets (3) (473)
Net cash used by investing activities (19,842) (21,656)
CASH FLOW FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW, money market and savings accounts 5,300 (2,748)
Net increase (decrease) in time deposits 17,321 12,071
Net increase (decrease) in securities
sold under agreements to repurchase (1,956) (647)
Proceeds from issuance of long-term debt 0 7200
Payments on long-term debt (1,125) (925)
Dividends paid (884) (594)
Net increase (decrease) in other liabilities 2,000 22
Common stock Issued 193 9
Net cash provided by financing activities 20,849 14,344
Increase (decrease) in cash 2,339 (3,787)
Cash at the beginning of the period 37,496 25,020
Cash at end of period $ 38,835 $ 21,233
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for:
Interest $ 5,408 $ 4,572
Income Taxes 1 122
SUPPLEMENTAL DISCLOSURES
Transfer of loans to other real estate owned $ 63 $ 56
Unrealized losses on securities available for sale:
Increase (decrease) in securities available for sale $ 213 $ 462
Increase (decrease) in deferred taxes 83 168
Increase (decrease) in shareholders' equity 130 294
</TABLE>
<PAGE> 6
LSB Bancshares, Inc.
Notes to Consolidated Financial Statements
Three Months Ended March 31, 1998 and 1997
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 March 31,
1998 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1998.
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, 1997.
Note 2. Investment Securities
Investment securities totaling $88,745,000 and $66,442,000 as of March
31, 1998 and 1997, were pledged to secure public deposits as required
by law. The following is a summary of the securities portfolios by
major classifications:
<TABLE>
<CAPTION>
March 31, 1998
Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury and other U.S. government
agency obligations $19,005 $ 137 $103 $19,039
State, county and municipal securities 32,712 1,381 11 34,082
Federal Home Loan Bank stock
Total securities available for sale $51,717 $1,518 $114 $53,121
<CAPTION>
Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and other U.S. government
agency obligations $78,195 $ 217 $177 $78,235
State, county and municipal securities 855 32 0 887
Federal Home Loan Bank stock 2,169 0 0 2,169
Total securities available for sale $81,219 $ 249 $177 $81,291
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
December 31, 1997
Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury and other U.S. government
agency obligations $24,004 $ 0 $ 5 $23,999
State, county and municipal securities 30,887 1,323 0 32,210
Federal Home Loan Bank stock
Total securities available for sale $54,891 $1,323 $ 5 $56,209
<CAPTION>
Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(in thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and other U.S. government
agency obligations $47,172 $ 284 $26 $47,430
State, county and municipal securities 856 26 0 882
Federal Home Loan Bank stock 2,413 0 0 2,413
Total securities available for sale $50,441 $ 310 $26 $50,725
</TABLE>
Note 3. Loans (Table In Thousands)
A summary of consolidated loans follows:
<TABLE>
<CAPTION>
March 31
1998 1997
-------- --------
<S> <C> <C>
Commercial,financial, & agricultural $ 92,078 $ 98,975
Real estate - construction 13,624 11,341
Real estate - mortgage 219,562 187,239
Installment loans to individuals 61,600 60,741
Lease financing 767 660
Other 14,008 10,350
-------- --------
Total loans, net of unearned income $401,639 $369,306
</TABLE>
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, residential
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 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.
<PAGE> 8
At March 31, 1998, the total investment in loans that are considered
impaired under SFAS 14 was $2,468,000. There were no nonaccrual loans.
A related valuation allowance of $276,000 was determined for the total
amount of impaired loans. The average recorded investment in impaired
loans for the quarter ended March 31, 1997 was approximately
$2,446,000.
Note 4. Reserve for Loan Losses
(In Thousands)
The following sets forth the analysis of the consolidated reserve for
loan losses:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
------- -------
<S> <C> <C>
Balances at beginning of periods $ 4,601 $ 4,075
Provision for loan losses 165 118
Recoveries of amounts previously
charged off 44 56
Loan losses (131) (137)
------- -------
Balances at end of periods $ 4,679 $ 4,112
</TABLE>
Note 5. Stock Split
In January of 1998, the Board of Directors of Bancshares declared a
five-for-four stock split payable February 16, 1998. All previously
reported per share amounts have been restated to reflect this stock
split.
Note 6. Other Accounting Changes
As of January, 1998, Bancshares adopted Financial Accounting Standards
No. 128 ("SFAS 128"), "Earnings per Share". SFAS 128 established
standards for computing and presenting earnings per share ("EPS"). SFAS
128 requires a presentation of both basic earnings per share and
diluted earnings per share on the face of income statements. After the
effective date of the Statement, all prior-period EPS data presented
must be restated to conform with the provisions of SFAS 128. Adoption
of SFAS 128 by Bancshares has no material effect on its financial
position and operating results.
As of January, 1998, Bancshares adopted Financial Accounting Standards
No. 129("SFAS 129"), "Disclosure of Information about Capital
Structure". SFAS 129 requires that information about an entity's
capital structure be disclosed in three separate categories of
securities, liquidation preference of preferred stock and redeemable
stock. Further, SFAS 129 specifies that the entity shall provide within
its financial statements a summary explanation of the pertinent rights
and privileges of the various securities that are outstanding. All
shares of Bancshares' capital stock represent voting shares and
dividends on the capital stock are paid at the discretion of the Board
of Directors. At its Annual Meeting, shareholders of Bancshares
approved the issuance of up to ten million shares of preferred stock,
par value of $.01 per share, in one or more series, on terms and
conditions to be established by the Board of Directors from time to
time. None of these shares have been issued, nor have conditions been
established under which the shares would be issued.
<PAGE> 9
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting of
Comprehensive Income", is effective for fiscal years beginning after
December 15, 1997. SFAS 130 requires entities to report comprehensive
income in their basic financial statements. SFAS 130 must be adopted as
of the beginning of the fiscal year with any prior period financial
statements presented for comparative purposes to be reclassified to
reflect the provisions of the Statement. Bancshares adopted SFAS 130 as
of January 1, 1998 and presents it in the statement of changes in
equity. No material effect on its financial position and operating
results is anticipated.
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information" was issued in June
1997. SFAS 131 requires entities to report certain information about
their operating segments in a complete set of financial statements to
shareholders and further requires that certain entity-wide information
about products and services, activities in different geographic areas,
and reliance on major customers to be disclosed. Bancshares operates in
a single-industry segment and does not meet any of the threshold
requirements of SFAS 131.
In May 1997, the Federal Financial Institutions Examination Council
(FFIEC) issued an Interagency Statement "Year 2000 Project Management
Awareness" to emphasize the critical issues that need to be addressed
to implement an effective Year 2000 project management plan. The FFIEC
Statement identifies five phases of the Year 2000 project management
process. Bancshares has acknowledged the importance of this issue and
established a Year 2000 Project Team (Y2K) to ensure that it will be
Year 2000 compliant. The Y2K Team consists of senior officers within
the company's operations area, information systems area, audit
department, corporate area and senior management of Bancshares. Senior
management, with Board of Directors' approval and oversight,
establishes the commitment of resources and prioritization. Software
programs from the National Software Testing Laboratories (NSTL) are
utilized to test all personal computers and computer servers for
compliance. Data processing of Bancshares is through FiServ in an RJE
environment. As such, the bank will participate with FiServ in Year
2000 testing. Third party audits will be requested from all major
vendors and suppliers to assist in determining their ability to be Year
2000 compliant. The Y2K Team will also conduct due diligence inquiries
concerning Y2K readiness and implement appropriate internal testing and
verification of vendor's products and services. Bancshares' Y2K Plan
incorporates the development of contingency plans for all mission
critical vendor applications should the vendor not complete its
conversion efforts on time. The timetable for completing the Y2K
project plan is the fourth quarter of 1998. Bancshares estimates the
cost to remedy its Year 2000 issues at $100,000 to $150,000 and that it
will not have a material effect of its financial position or operating
results.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Three Months Ended March 31, 1998 Compared to Three Months Ended March
31. 1997
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 and borrowed funds.
<PAGE> 10
Total interest income of $11,917,000 for the first quarter of 1998 was
up $1,156,000 or 10.7% compared to $10,761,000 for the first quarter of
1997. Total interest expense for the same period increased $747,000 or
16.4%. These results produced net interest income of $6,627,000 for the
first quarter of 1998, for a gain of $409,000 or 6.6% compared to
$6,218,000 for the first quarter of 1997. Gain in net interest income
during the first quarter of 1998 slowed in part due to a slowing in the
growth in Bancshares' loan portfolio. Loans constitute the largest
group of earning assets and therefore generate the majority of
Bancshares' interest income. Loan demand has remained strong during the
first quarter of 1998 with more loans being sold directly into the
secondary market. For the period ended March 31, 1998, loans increased
$32,333,000 or 8.8% over March 31, 1997 and $4,648,000 or 1.2% over
December 31, 1997. Deposits for the same period were up $51,227,000 or
10.8% compared to March 31, 1997 and $22,620,000 or 4.5% compared to
December 31, 1997.
Noninterest Income and Expense
Noninterest income for the first quarter of 1998 was up $190,000 or
14.5% compared to the first quarter of 1997. Fee income related to
service charges on deposit accounts for the first quarter of 1998
decreased $30,000 or 4.7% compared to the first quarter of 1997. This
is primarily due to lower fee income from return check charges during
the first quarter of 1998 and a loss of fee income following product
consolidation resulting from the recent merger of Old North State Bank.
Other operating income for the first quarter of 1998 was up $183,000 or
27.9% compared to the first quarter of 1997. This increase is primarily
attributable to fee income generated from Bancshares' financial
services subsidiary. Commissions generated from the sale of mutual
funds, annuities and equities increased $100,000 or 110.5% during the
first quarter of 1998 compared to the first quarter of 1997.
Noninterest expense for the first quarter of 1998 increased $952,000 or
21.2% compared to the first quarter of 1997. Personnel expense for the
first quarter of 1998, comprised of salaries and fringe benefits, was
up $304,000 or 11.8% over the first quarter of 1997. To a great extent
this is due to the consolidation of staff and benefits resulting from
the merger of Old North State Bank during the fourth quarter of 1997.
Occupancy expense for the first quarter of 1998 actually dropped $8,000
compared to the same period a year ago. Equipment depreciation and
maintenance expense for the same period increased $32,000 or 12.1%.
Other operating expense for the first quarter of 1998 increased
$464,000 or 34.9% compared to the first quarter of 1997. Of this
amount, increases in bank operating expenses produced the largest gain
of $397,000, with the bank's two subsidiaries experiencing a total
increase of $60,000. The final merger costs of $160,000 related to the
Old North State Bank acquisition were expensed during the first quarter
of 1998.
Asset Quality and Provision for Loan Losses
The reserve for loan losses was $4,679,000 or 1.16% of loans
outstanding at March 31, 1998 compared to $4,601,000 or 1.16% of loans
outstanding at December 31, 1997 and $4,112,000 or 1.11% at March 31,
1997. Nonperforming loans totaled $1,689,000 or .42% of loans
outstanding at March 31, 1998 compared to $2,155,000 or .54% of loans
outstanding at December 31, 1997, and $2,123,000 or .57% of loans
outstanding at March 31, 1997. Nonperforming loans include nonaccrual
loans, restructured loans, other real estate acquired through
foreclosed properties and accruing loans ninety days or more past due.
At March 31, 1998, the Bank had $226,000 in restructured loans,
$1,129,000 in other real estate and no nonaccrual loans. Accruing loans
past due 90 days or more were $334,000 at March 31, 1998 compared to
$334,000 at December 31, 1997 and $393,000 at March 31, 1997. 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 March 31, 1998, the reserve for loan losses
was 2.77 times the nonperforming loans, compared to 2.14 times at
December 31, 1997 and 1.94 times nonperforming loans at March 31, 1997.
<PAGE> 11
In the opinion of management, all loans where serious doubts exist as
to the ability of borrowers to comply with the present repayment terms
have been included in the schedule presented.
Responsibility for market risk management resides with the
Asset/Liability Management Committee ("ALCO"). The ALCO Committee
monitors market conditions, interest rate trends and the economic
environment in its decision-making process. Based upon its view of
existing and expected market conditions, balance sheet strategies will
be adopted to optimize net interest income while minimizing the risk
associated with unanticipated changes in interest rates.
The provision for loan and lease losses for the first quarter of 1998
was $165,000 compared to $118,000 in 1997. Net charge-offs amounted to
$87,000, or .02% or average loans outstanding, on an annualized basis,
during the first three months of 1998 compared to $81,000, or .02% of
average loans outstanding, on an annualized basis, for the comparable
period of 1997. The increase in the provision is more reflective of
increased loans outstanding than charge-offs which were nearly the same
in the quarters being compared.
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.
ASSET QUALITY ANALYSIS
<TABLE>
<CAPTION>
3/31/98 12/31/97 3/31/97
<S> <C> <C> <C>
RESERVE FOR LOAN LOSSES
Beginning balance $ 4,601 $ 4,075 $ 4,075
Provision for loan losses 165 785 118
Net charge-offs (87) (259) (81)
Ending balance 4,679 4,601 4,112
RISK ASSETS
Nonaccrual loans $ 0 $ 127 $ 572
Foreclosed real estate 1,129 1,192 902
Restructured loans 226 502 256
Loans 90 days or more past due and
still accruing 334 334 393
Total risk assets 1,689 2,155 2,123
Nonaccrual loans as a percentage of total loans 0% .03% .15%
Nonperforming assets as a percentage of:
Total assets .26 .35 .37
Loans plus foreclosed property .42 .54 .57
Net charge-offs as a percentage of average loans .02 .07 .02
Reserve for loan losses as a percentage of loans 1.16 1.16 1.11
Ratio of reserve for loan losses to:
Net charge-offs 13.45X 17.76 12.69X
Nonaccrual loans 0 36.23 7.19
</TABLE>
<PAGE> 12
Income Taxes
Accrued taxes applicable to income for the three-month period ended
March 31, 1998 was down $125,000 compared to the three-month period
ended March 31, 1997. Pretax income for the first three months of 1998
of $2,513,000 was down $400,000 compared to $2,913,000 for the first
three months of 1997. The decrease in accrued taxes for the first three
months of 1998 is attributable to the lower operating income.
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.
Regulatory agencies divide capital into Tier 1 or core capital and
total capital. Tier 1 capital, as defined by regulatory agencies,
consists primarily of common shareholders' equity less goodwill and
certain other intangible assets. Total capital consists of Tier 1
capital plus the allowable portion of the reserve for loan losses and
certain long-term debt. At March 31, 1998, based on these measures,
Bancshares' had a Tier 1 capital ratio of 17.95% compared to the
regulatory requirement of 4% and total capital ratio of 19.20% compared
to an 8% regulatory requirement.
Additional regulatory capital measures include the Tier 1 leverage
ratio. The Tier 1 leverage ratio is defined as Tier 1 capital divided
by average total assets less goodwill and certain other intangibles and
has a regulatory minimum of 3.0%, with most institutions required to
maintain a ratio of at least 4.0% to 5.0%, depending primarily upon
risk profiles. At March 31, 1998, Bancshares' Tier 1 leverage ratio was
10.81%.
Interest Rate Sensitivity and Liquidity
Asset/liability management is the process used to monitor exposure to
interest rate risk, balance sheet trends and pricing policies. It also
addresses proper liquidity positioning and sound capital. 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. Management responsibility for both
liquidity and interest sensitivity reside with a designated
Asset/Liability Management Committee ("ALCO"). Market conditions,
interest rate trends and the economic environment are all evaluated by
the ALCO as a part of its asset/liability management decision-making
process. Based upon its view of existing and expected market
conditions, the ALCO adopts balance sheet strategies intended to
optimize net interest income to the extent possible while minimizing
the risk associated with unanticipated changes in interest rates. Core
deposits have historically been the primary funding sources for asset
growth. Correspondent relationships have also been maintained with
several large banks in order to have access to federal funds purchases
when needed. The Bank also has available lines of credit maintained
with the Federal Home Loan Bank (the "FHLB") which can be used for
funding and/or liquidity needs.
<PAGE> 13
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. On March
31, 1998 the gap between interest-sensitive assets and
interest-sensitive liabilities was a negative $114,224,000 or .74.
Under current economic conditions, management believes that is an
acceptable level.
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.
Details of cash flows for the three months ended March 31, 1998 and
1997 are provided in the Consolidated Statements of Cash Flows.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on April 15, 1998.
Proxies were solicited in connection with the Annual Meeting in
accordance with Regulation 14 under the Securities Exchange Act of
1934, as amended, pursuant to a Proxy Statement dated March 16, 1998,
in the form as filed by the Company with the Securities and Exchange
Commission on March 16, 1998.
At the Annual Meeting, the shareholders of the Company (i) elected six
members to the Company's Board of Directors, (ii) approved an amendment
to the Articles of Incorporation of LSB Bancshares, Inc. to increase
from 10,000,000 to 50,000,000 the number of shares of common stock that
LSB Bancshares, Inc. shall have the authority to issue, (iii) approved
an amendment to the Articles of Incorporation of LSB Bancshares, Inc.
to authorize the issuance of up to 10,000,000 shares of preferred
stock, par value $.01 per share, in one or more series, on terms and
conditions to be established by the Board of Directors from time to
time, (iv) ratified the appointment of Turlington and Company LLP to
conduct the independent audit for the year 1998 and (v) voted against a
shareholder proposal relating to minimum share ownership requirements
for members of the Board of Directors of the Company, each as more
fully described in the Proxy Statement. Of the 8,677,305 shares of the
Company's common stock represented and entitled to vote at the Annual
Meeting, the number of shares cast for, against and withheld, and the
number of abstentions and broker non-votes, as to each proposal are set
forth below:
1. Elections of Directors.
For (Proxy) Withheld
----------- --------
Michael S. Albert 6,000,413 34,755
Peggy B. Barnhardt 5,984,585 50,583
Marvin D. Gentry 6,006,089 29,079
Walter A. Hill, Sr. 5,988,185 46,983
Robert B. Smith, Jr. 6,006,084 29,084
Lloyd G. Walter, Jr. 6,002,439 32,729
<PAGE> 14
2. Amendment to the Articles of Incorporation of LSB Bancshares, Inc.
to increase from 10,000,000 to 50,000,000 the number of shares of
common stock that LSB Bancshares, Inc. shall have the authority to
issue.
For Against Abstaining
--- ------- ----------
5,569,989 444,791 20,388
3. Amendment to the Articles of Incorporation of LSB Bancshares, Inc.
to authorize the issuance of up to 10,000,000 shares of preferred
stock, par value $.01 per share, in one or more series, on terms
and conditions to be established by the Board of Directors from
time to time.
For Against Abstaining Non-Vote
--- ------- ---------- --------
4,122,241 674,661 25,687 1,212,579
4. Ratification of appointment of Turlington and Company LLP,
CPA's, to conduct the independent audit for the year 1998.
For Against Abstaining
--- ------- ----------
5,922,186 83,488 29,494
5. Shareholder proposal by W. Robert Koontz relating to minimum share
ownership requirements for Directors.
For Against Abstaining Non-Vote
--- ------- ---------- --------
1,458,911 2,929,892 433,785 1,212,579
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule (for SEC use only).
Item 10. Material Contracts
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 May 11, 1998 LSB BANCSHARES. INC.
--------------------
(Registrant)
/s/ Monty J. Oliver
------------------------------
Monty J. Oliver
Chief Financial Officer
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LSB BANCSHARES INC FOR THE 3 MONTH PERIOD ENDED MARCH
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 26,782
<INT-BEARING-DEPOSITS> 13,053
<FED-FUNDS-SOLD> 48,905
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 81,291
<INVESTMENTS-CARRYING> 51,717
<INVESTMENTS-MARKET> 53,103
<LOANS> 401,639
<ALLOWANCE> 4,679
<TOTAL-ASSETS> 639,627
<DEPOSITS> 525,645
<SHORT-TERM> 6,307
<LIABILITIES-OTHER> 6,598
<LONG-TERM> 32,633
0
0
<COMMON> 43,463
<OTHER-SE> 24,981
<TOTAL-LIABILITIES-AND-EQUITY> 639,627
<INTEREST-LOAN> 9,317
<INTEREST-INVEST> 2,600
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11,917
<INTEREST-DEPOSIT> 4,766
<INTEREST-EXPENSE> 5,290
<INTEREST-INCOME-NET> 6,627
<LOAN-LOSSES> 165
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,445
<INCOME-PRETAX> 2,513
<INCOME-PRE-EXTRAORDINARY> 2,513
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,737
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<YIELD-ACTUAL> 8.40
<LOANS-NON> 0
<LOANS-PAST> 334
<LOANS-TROUBLED> 223
<LOANS-PROBLEM> 1,686
<ALLOWANCE-OPEN> 4,601
<CHARGE-OFFS> 132
<RECOVERIES> 44
<ALLOWANCE-CLOSE> 4,679
<ALLOWANCE-DOMESTIC> 4,679
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
