<PAGE>
FORM 10-QSB
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 quarterly period ended December 31, 1996
Commission File Number: 1-13964
The Southern Banc Company, Inc.
_________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Delaware 63-1146351
____________________ -------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
221 S. 6th Street, Gadsden, Alabama 35901-4102
________________________________________ __________________
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (205) 543-3860
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past ninety days:
X
Yes ___ No ___
As of December 31, 1996, there were 1,230,313 shares of the registrant's
Common Stock, par value $0.01 per share, issued and outstanding.
X
Transitional small business disclosure format (check one): Yes__ No ___
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
THE SOUTHERN BANC COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar Amounts in Thousands)
December 31, June 30,
1996 1996
------------ --------
(Unaudited)
ASSETS
CASH AND CASH EQUIVALENTS $ 4,730 $ 4,535
SECURITIES AVAILABLE FOR SALE 16,534 13,504
SECURITIES HELD TO MATURITY,
fair values of $4,014 and $4,488,
respectively 4,020 4,514
LOANS RECEIVABLE, net 33,913 33,145
MORTGAGE-BACKED SECURITIES HELD TO
MATURITY, fair values of $44,425 and
and $48,370, respectively 44,016 48,308
PREMISES AND EQUIPMENT, net 277 279
OTHER ASSETS 1,755 2,744
-------- --------
$105,245 $107,029
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $ 87,006 $ 85,847
OTHER LIABILITIES 529 1,047
-------- --------
TOTAL LIABILITIES 87,535 86,894
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per
share, 500,000 shares authorized;
shares issued and outstanding--none 0 0
Common stock, par $.01 per share;
3,500,000 authorized; 1,454,750
shares issued 15 15
Treasury Stock at cost, 224,437 and
72,737 shares (3,000) (958)
Additional paid-in capital 13,589 13,573
Unearned ESOP compensation (2,035) (2,117)
Retained Earnings 9,186 9,702
Unrealized gain on securities
available for sale, net (45) (80)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 17,710 20,135
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $105,245 $107,029
======== ========
The accompanying notes are an integral part of these
condensed consolidated statements.
<PAGE>
THE SOUTHERN BANC COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS PERIODS ENDED
December 31, 1996 and 1995
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
_____________ __________ __________ __________
1996 1995 1996 1995
_____________ __________ __________ __________
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fee on loans $674 $580 $1,349 $1,143
Interest on mortgage-backed securities
held to maturity 814 856 1,674 1,717
Interest and dividends on securities 337 398 643 732
Other interest income 70 121 152 204
____________ __________ __________ __________
Total interest income 1,895 1,955 3,818 3,795
INTEREST EXPENSE:
Interest on deposits 1,132 1,172 2,289 2,394
___________ __________ __________ ___________
Net interest income 763 783 1,529 1,402
Provision for loan losses 0 0 0 0
___________ __________ __________ ___________
Net interest income after provision
for loan losses 763 783 1,529 1,402
___________ ___________ __________ ____________
NON-INTEREST INCOME:
Fees & other non-interest income 16 19 32 31
___________ ___________ __________ ____________
NON-INTEREST EXPENSE:
Salaries and employee benefits 363 393 702 651
Office building and equipment expenses 66 74 141 153
Deposit insurance expense 52 52 695 136
Other operating expense 124 59 197 85
___________ ___________ __________ ____________
Total non-interest expense 605 578 1,735 1,025
___________ ___________ __________ ____________
Income (loss) before income taxes 174 224 (174) 408
PROVISION (BENEFIT) FOR INCOME TAXES 65 104 (69) 167
___________ ___________ ___________ ____________
Net income (loss) $109 $120 ($105) $241
=========== =========== =========== ============
EARNINGS/(LOSS) PER SHARE $0.09 $0.08 ($0.09) $0.17
AVERAGE NUMBER OF COMMON STOCK AND COMMON
STOCK EQUIVALENTS 1,212,367 1,338,370 1,231,561 1,338,370
DIVIDENDS DECLARED PER SHARE $0.0875 $0.0875 $0.3500 $0.0875
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated statements.
<PAGE>
THE SOUTHERN BANC COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Six Months Ended
December 31, 1996 and 1995
(Dollar Amounts in Thousands)
1996 1995
----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (105) $ 241
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation 24 34
Amortization (accretion), net 5 34
Amortization of unearned compensation 141 0
Provision for loan losses 0 0
Change in assets and liabilities:
(Increase) decrease in other assets 989 (136)
Increase (decrease) in other liabilities (565) 6
------- ------
Total adjustments 594 (62)
------- ------
Net cash provided by (used in) operating
activities 489 179
------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Proceeds from maturities of securities available
for sale 1,000 0
Proceeds from maturities of securities held to
maturity 500 4,300
Principal payments received on mortgage-backed
securities held to maturity and available
for sale 4,559 3,915
Purchase of available for sale securities (2,950) (6,000)
Purchase of securities held to maturity 0 0
Purchase of mortgage-backed securities held to
maturity 0 (5,091)
Purchase of mortgage-backed securities available
for sale (1,333) 0
Purchase of loans (291) 0
Net loan (originations) repayments (477) (5,398)
Capital expenditures (22) (6)
------- ------
Net cash provided by (used in) investing
activities 986 (8,280)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase/(decrease) in deposits, net 1,159 (3,991)
Increase/(decrease) in advance payments by
borrowers for taxes and insurance 47 (27)
Dividends paid (401) 0
Contributions to plan trusts (43) 0
Net Proceeds from issuances of common stock 0 12,505
Purchase of treasury stock (2,042) 0
------- ------
Net cash provided by financing activities (1,279) 8,487
------- ------
Net increase (decrease) in cash and cash
equivalents 195 366
CASH AND CASH EQUIVALENTS, beginning of period 4,535 8,991
------- ------
CASH AND CASH EQUIVALENTS, end of period $ 4,730 $9,377
======= ======
The accompanying notes are an integral part of these
condensed consolidated statements.
<PAGE>
THE SOUTHERN BANC COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Southern Banc Company, Inc. (the "Company") was incorporated in the State of
Delaware in May 1995, for the purposes of becoming a holding company to own all
of the outstanding capital stock of First Federal Savings & Loan Association of
Gadsden (the "Association") upon the Association's conversion from a federally
chartered mutual savings association to a federally chartered stock association
(the "Conversion"). The accounting for the conversion is in a manner similar to
that utilized in a pooling of interest.
The accompanying unaudited condensed consolidated financial statements as of
December 31, 1996 and June 30, 1996, and for the three and six month periods
ended December 31, 1996 and 1995, include the accounts of the Company, the
Association, and the Association's wholly owned subsidiary, First Service
Corporation of Gadsden. All significant intercompany transactions and accounts
have been eliminated in consolidation.
The condensed consolidated financial statements were prepared by the Company
without an audit, but in the opinion of management, reflect all adjustments
necessary for the fair presentation of financial position and results of
operations for the three and six months ended December 31, 1996 and 1995.
Results of operations for the current interim period are not necessarily
indicative of results expected for the entire fiscal year.
While certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission, management believes that the
disclosures herein are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended June 30,
1996. The accounting policies followed by the Company are set forth in the
summary of significant accounting policies in the Company's June 30, 1996
consolidated financial statements.
2. STOCK CONVERSION
On October 5, 1995, the Conversion of the Association from a Federally chartered
mutual institution to a Federally chartered stock savings association through
amendment of its charter and issuance of common stock to the Company was
completed. Related thereto, the Company sold 1,454,750 shares of common stock,
par value $.01 per share, at an initial price of $10 per share in subscription
and community offerings. Costs associated with the Conversion were approximately
$880,000, including underwriting fees. The conversion costs were deducted from
the gross proceeds of the sale of the common stock.
3. RETIREMENT AND SAVINGS PLANS
Employee Stock Ownership Plan
In connection with the Conversion, the Association established an employee stock
ownership plan (the "ESOP") for eligible employees. The ESOP purchased 116,380
shares of the Company's common stock with the proceeds of a $1,163,800 note
payable from the Association and secured by the Common Stock owned by the ESOP.
Unearned compensation for the ESOP was charged to stockholders' equity and is
<PAGE>
reduced ratably in connection with principal payments under the terms of the
plan. Unearned compensation is amortized into compensation expense based on
employee services rendered in relation to shares which are committed to be
released.
Management Recognition Plan
During fiscal 1996, the Association established a management recognition plan
(the "MRP") which purchased 58,190 shares of the Company's common stock on the
open market subsequent to the Conversion. The MRP provides for awards of common
stock to directors and officers of the Association. The aggregate fair market
value of the shares purchased by the MRP is considered unearned compensation at
the time of purchase and compensation is earned ratably over the stipulated
vesting period. Unearned compensation related to the MRP is shown as a reduction
to shareholders' equity in the accompanying consolidated statements of
condition.
Stock Option and Incentive Plan
The Company has a stockholder approved Option and Incentive Plan (the "Option
Plan"). The Option Plan provides for the grant of incentive stock options
(ISO's) to employees and non-incentive stock options (non-ISO's) to non-employee
directors. The exercise price is based on the market price of the common stock
on the date of grant. A trust was formed by the Company for the purpose of
purchasing shares of stock in the open market for issuance upon future exercises
of stock options under the Option Plan. The Plan held 36,366 issued and
outstanding shares at December 31,1996.
Simplified Employee Pension Plan
The Company established a Simplified Employee Pension Plan ("SEP") for all
employees who have completed one year of service, pursuant to Section 408(k) of
the Internal Revenue Code of 1986. The Company makes a discretionary
contribution to the SEP on an annual basis.
4. EARNINGS PER SHARE
Earnings per share has been computed based on the earnings during the three and
six month periods ended December 31, 1996 and on the weighted average number of
shares of common stock and common stock equivalents outstanding during that
period. Common stock outstanding is comprised of issued shares less treasury
stock, unallocated ESOP shares, and shares repurchased for the MRP and Option
Plan. Common stock equivalents include the number of shares issuable on exercise
of the outstanding stock options and MRP options less the number of shares that
could have been purchased with the proceeds from the exercise of the options
based on the average price of the common stock during the period. Earnings per
share for the three and six month periods ended December 31, 1995 is presented
on a retroactive basis as if the 1,454,750 shares, less any unallocated ESOP
shares, had been outstanding during the entire periods.
5. FDIC ASSESSMENT
The Association's deposits are insured by the Savings Association Insurance
Fund("SAIF"), which is administered by the Federal Deposit Insurance Corporation
("FDIC"). Congress recently passed legislation requiring a one-time special
assessment of 65.7 basis points to be applied against SAIF-assessable deposits
as of March 31, 1995. The Association recognized an expense at September 30,
1996 in the amount of $591,000 to record the one-time special assessment.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Financial Condition at December 31 and June 30, 1996.
Total assets decreased approximately $1.8 million or 1.7% from $107.0 million at
June 30, 1996 to $105.2 million at December 31, 1996. During the period ended
December 31, 1996, net loans increased approximately $768,000 or 2.3% and
mortgage-backed securities held to maturity decreased approximately $4.3 million
or 8.9%. The decrease in mortgage-backed securities was primarily attributable
to principal payments received during the period ended December 31, 1996.
Cash and cash equivalents increased $195,000 or 4.3% from $4.5 million to $4.7
million at December 31, 1996. The increase in cash was primarily attributable to
the maturity of investment securities. During the period ended December 31, 1996
securities available for sale increased by $3.0 million or 22.4% from $13.5
million to $16.5 million.
Prepaid expenses and other assets decreased $989,000 or 36.0% from $2.7 million
at June 30, 1996 to $1.8 million at December 31, 1996. Other assets at June 30,
1996 included a receivable of approximately $1.5 million which represented two
securities that matured on June 30, 1996.
Total deposits increased $1.2 million or 1.4% from $85.8 million at June 30,
1996 to $87.0 million at December 31, 1996. Other liabilities during the period
ended December 31, 1996 decreased approximately $518,000 or 49.5% from $1.0
million to $529,000. This decrease was primarily attributable to the payment of
approximately $591,000 which represented the one-time special assessment by the
Federal Deposit Insurance Corporation ("FDIC") for purposes of recapitalizing
the Savings Association Insurance Fund ("SAIF").
Total equity decreased $2.4 million or 12.0% from $20.1 million at June 30, 1996
to $17.7 million at December 31, 1996. This decrease was attributable to the
payment of dividends, the year-to-date loss which resulted from the one-time
special assessment by the FDIC and the repurchase of 151,700 shares of
outstanding common stock. Treasury stock increased by $2.0 million or 213.2%
from $958,000 at June 30, 1996 to $3.0 million at December 31, 1996.
Comparison of Results of Operations for the Three Months and Six Months Ended
December 31, 1996 and 1995.
The Association reported net income for the three months ended December 31, 1996
of $109,000 compared with net income of $120,000 for the three months ended
December 31, 1995. The Association reported a net loss for the six month period
ended December 31, 1996 of ($105,000) compared with net income of $241,000 for
the six month period ended December 31, 1995. The net loss during the period was
primarily attributable to the recognition of the one-time special assessment of
approximately $591,000 by the FDIC, offset in part by a $69,000 reduction in
income tax expense.
Net Interest Income. Net interest income for the three and six months ended
December 31, 1996 was $763,000 and $1.5 million, respectively. Net interest
income for the three and six months ended December 31, 1995 was $783,000 and
$1.4 million, respectively. Total interest income decreased $60,000 or 3.1% from
$2.0 million to $1.9 million for the three months ended December 31, 1995 and
1996, respectively. Total interest income increased $22,000 or 0.6% for the six
month period ended December 31, 1996. Total interest expense decreased $40,000
or 3.4% from $1.2 million to $1.1 million for the three months ended December
31, 1996 compared with the three month period ended December 31, 1995. Total
interest expense decreased $105,000 or 4.4% from $2.4 million to $2.3 million
for the six months ended December 31, 1996 compared with the six months ended
December 31, 1995. The increase in net interest income during the six month
period was primarily attributable to additional funds received during the
initial public offering.
<PAGE>
Provision for Loan Losses. No provision for loan losses was deemed necessary in
either of the three month or six month periods ended December 31, 1996 or 1995.
The allowance for loan losses is based on management's evaluation of possible
loan losses inherent in the Association's loan portfolio. Management considers,
among other factors, past loss experience, current economic conditions, volume,
growth and composition of the loan portfolio, and other relevant factors.
Non-interest Income. Non-interest income for the three month period ended
December 31, 1996 was $16,000 as compared to $19,000 for the three month period
ended December 31, 1995. For the six month period ended December 31, 1996 and
1995, non-interest income was $32,000 and $31,000, respectively.
Non-interest Expense. Non-interest expense increased $27,000 or 4.7% for the
three month period ended December 31, 1996 from $578,000 to $608,000 at December
31, 1995 and 1996, respectively. For the six month period ended December 31,
1995 and 1996, non-interest expense increased $710,000 or 69.3% from $1.0
million to $1.7 million. This increase was primarily attributable to the
recognition of the one-time special assessment by the FDIC in the amount of
$591,000. Salaries and employee benefits decreased $30,000 or 7.6% for the three
month period ended December 31, 1996 compared with the three month period ended
December 31, 1995. For the six month period ended December 31, 1996, salaries
and benefits increased $51,000 or 7.8% compared with the six month period ended
December 31, 1995. This increase was primarily attributable to salary and
benefit expenses related to the establishment of certain employee benefit plans,
subsequent to the conversion. Other operating expenses increased $65,000 or
110.2% and $112,000 or 131.8% for the three and six month periods ended December
31, 1996 as compared to the three and six month periods ended December 31, 1995.
This increase was primarily attributable to operating expenses relating to the
operation of the holding company and professional fees associated with back-
office operational improvements.
Provision for Income Taxes. For the three and six month periods ended December
31, 1996, provision for income tax expense decreased $39,000 and $236,000,
respectively, as compared to the three and six month periods ended December 31,
1995. This decrease was primarily attributable to reduced income related to the
recognition of the one-time special assessment by the FDIC in the amount of
$591,000. As a result, income before income taxes decreased $50,000 and $582,000
for the three and six month periods ended December 31, 1996 as compared to the
three and six month periods ended December 31, 1995.
Liquidity and Capital Resources. As a holding company, the Company conducts its
business through its subsidiary, the Association. The Association is required to
maintain minimum levels of liquid assets as defined by regulations of the Office
of Thrift Supervision. This requirement, which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required ratio currently is 5.0%. The
Association's average liquidity ratio well exceeded the required maximums at and
during the three and six month periods ended December 31, 1996. The Association
adjusts its liquidity levels in order to meet funding needs of deposit outflows,
repayment of borrowings and loan commitments. The Association also adjusts
liquidity as appropriate to meet its asset and liability management objectives.
The Association's primary sources of funds are deposits, payment of loans and
mortgage-backed securities, maturities of investment securities and other
investments. While scheduled principal repayments on loans and mortgage-backed
securities are a relatively predictable source of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions, and competition. The Association invests in short-term interest-
earning assets which provide liquidity to meet lending requirements.
The Association is required to maintain certain levels of regulatory capital. At
December 31, 1996, the Association exceeded all minimum regulatory capital
requirements.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company and any subsidiaries may be a party to
various legal proceedings incident to its or their business. At December
31, 1996, there were no legal proceedings to which the Company or any
subsidiary was a party, or to which any of their property was subject,
which were expected by management to result in a material loss.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On November 13, 1996, the registrant held its annual meeting of
stockholders. At the meeting, the following directors were elected by the
stockholders to serve for three year terms:
Votes
________________ Broker
For Withheld Abstentions Non-Votes
------- -------- ----------- ---------
Thomas F. Dowling, III 1,145,061 6,150 0 0
Gene B. Rutenberg 1,145,061 6,150 0 0
Fred Taylor 1,145,061 6,150 0 0
Item 5. Other Information
On January 16, 1997, The Southern Banc Company, Inc. announced a dividend in
the amount of $.0875 per share on or about March 14, 1997 to stockholders of
record at the close of business on February 21, 1997.
On November 1, 1996, The Southern Banc Company, Inc. announced that it was
commencing a stock repurchase program to acquire up to fifteen percent of
its currently outstanding common stock, or 207,301 shares. These stock
repurchases are independent from, and would be in addition to, stock
repurchases on behalf of the company's stock benefit plans, if any. This
program will be dependent upon market conditions, and there is no guarantee
as to the exact number of shares to be repurchased by the company.
During the three month period ended December 31, 1996, The Southern Banc
Company, Inc. repurchased a total of 151,700 shares of its currently
outstanding common stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
<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.
THE SOUTHERN BANC COMPANY
February 7, 1997 /s/ James B. Little, Jr.
Date: _________________________ By: ___________________________
James B. Little, Jr.
(Principal Executive and
Financial Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 237
<INT-BEARING-DEPOSITS> 4,493
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,534
<INVESTMENTS-CARRYING> 48,036
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<LOANS> 33,989
<ALLOWANCE> 76
<TOTAL-ASSETS> 105,245
<DEPOSITS> 87,006
<SHORT-TERM> 0
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