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 September 30, 2000
Commission File Number: 1-13964
The Southern Banc Company, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 63-1146351
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(State of incorporation) (I.R.S. Employer
Identification No.)
221 S. 6th Street, Gadsden, Alabama 35901-4102
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (256) 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: Yes X No
___
As of November 13, 2000, there were 1,006,498 shares of the registrant's Common
Stock, par value $0.01 per share, issued and outstanding.
Transitional small business disclosure format (check one): Yes No X
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE SOUTHERN BANC COMPANY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar Amounts in Thousands)
September 30, June 30,
2000 2000
---- ----
ASSETS
CASH AND CASH EQUIVALENTS $ 5,744 $ 5,746
SECURITIES AVAILABLE FOR SALE, at fair value 29,859 27,109
SECURITIES HELD TO MATURITY, at amortized cost
fair value of $22,398 and $23,640, respectively 22,615 23,886
LOANS RECEIVABLE, net 38,638 39,840
PREMISES AND EQUIPMENT, net 472 473
ACCRUED INTEREST AND DIVIDENDS RECEIVABLE 736 677
PREPAID EXPENSES AND OTHER ASSETS 197 356
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TOTAL ASSETS $ 98,261 $ 98,087
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LIABILITIES
DEPOSITS $ 81,394 $ 81,436
OTHER LIABILITIES 352 331
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TOTAL LIABILITIES 81,746 81,767
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 value $.01 per share,
3,500,000 authorized, 1,454,750 shares issued 15 15
Treasury stock, at cost, 448,252 and 446,252 shares,
respectively (5,642) (5,624)
Additional paid-in capital 13,720 13,745
Unearned compensation (458) (536)
Shares held in trust,
65,275 and 65,275 shares, respectively (846) (846)
Retained Earnings 10,056 10,035
Accumulated other comprehensive loss (330) (469)
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TOTAL STOCKHOLDERS' EQUITY 16,515 16,320
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 98,261 $ 98,087
======== ========
The accompanying notes are an integral part of these condensed consolidated
statements.
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THE SOUTHERN BANC COMPANY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollar Amounts in Thousands, except per share data)
Three Months Ended
September 30,
2000 1999
---- ----
INTEREST INCOME:
Interest and fees on loans $ 749 $ 786
Interest and dividends on securities available for sale 474 362
Interest and dividends on securities held to maturity 432 446
Other interest income 80 117
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Total interest income 1,735 1,711
INTEREST EXPENSE:
Interest on deposits 1,105 973
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Net interest income 630 738
Provision for loan losses 30 0
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Net interest income after provision
for loan losses 600 738
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NON-INTEREST INCOME:
Fees and other non-interest income 33 30
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NON-INTEREST EXPENSE:
Salaries and employee benefits 301 340
Office building and equipment expenses 80 69
Other operating expense 80 118
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Total non-interest expense 461 527
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Income before income taxes 172 241
PROVISION FOR INCOME TAXES 63 85
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Net Income $ 109 $ 156
======== ========
EARNINGS PER SHARE:
Basic $ 0.12 $ 0.17
Diluted $ 0.12 $ 0.17
DIVIDENDS DECLARED PER SHARE $ 0.0875 $ 0.0875
AVERAGE SHARES OUTSTANDING:
Basic 883,097 910,032
Diluted 890,829 926,341
The accompanying notes are an integral part of these condensed consolidated
statements.
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THE SOUTHERN BANC COMPANY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
For The Three Months Ended
September 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 109 $ 156
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 12 10
Amortization (accretion), net (36) (7)
Amortization of unearned compensation 78 91
Provision for loan losses 30 0
Change in assets and liabilities:
Increase in accrued interest & dividends receivable (59) (78)
(Increase) decrease in other assets 159 (19)
(Increase) decrease in other liabilities (59) 35
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Total adjustments 125 32
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Net cash provided by operating activities 234 188
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (2,550) (6,169)
Proceeds from maturities and principal payments on
securities available for sale 451 1,364
Purchases of securities held to maturity (441) (4,500)
Proceeds from maturities and principal payments on
securities held to maturity 1,282 1,584
Net loan (originations) repayments 1,172 (62)
Capital expenditures (11) (4)
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Net cash used in investing activities (97) (7,787)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net (42) 949
Increase in advance payments by borrowers
for taxes and insurance 9 12
Dividends paid (72) (77)
Purchases of shares held in trust (16) (17)
Purchase of treasury stock (18) (232)
Increase in FHLB Advances 0 5,000
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Net cash provided by financing activities (139) 5,635
Net decrease in cash and cash equivalents (2) (1,964)
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CASH AND CASH EQUIVALENTS, beginning of period 5,746 8,681
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CASH AND CASH EQUIVALENTS, end of period $ 5,744 $ 6,717
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SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 90 $ 85
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Interest $ 1,231 $ 921
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Non-cash transactions:
Change in unrealized net gain/ (loss) on securities available for sale,
net $ 139 $ (14)
======= =======
</TABLE>
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THE SOUTHERN BANC COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements as of
September 30, 2000 and June 30, 2000, and for the three month periods ended
September 30, 2000 and 1999, include the accounts of the Company, the Bank, and
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 months ended September 30, 2000 and 1999. 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-KSB for the year ended June
30, 2000. The accounting policies followed by the Company are set forth in the
summary of significant accounting policies in the Company's June 30, 2000
consolidated financial statements.
2. RETIREMENT AND SAVINGS PLANS
Employee Stock Ownership Plan
The Bank has 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 Bank and secured by the
Common Stock owned by the ESOP. Unearned compensation for the ESOP was charged
to stockholders' equity and is reduced ratably in connection with principal
payments under the terms of the plan. Unearned compensation is reduced when
compensation expense is recognized based on employee services rendered in
relation to shares which are committed to be released. At September 30, 2000,
the Employee Stock Ownership Plan had 58,477 shares allocated and 51,808 shares
unallocated.
Management Recognition Plan ("MRP")
The Bank's MRP provides for awards of common stock to directors and officers of
the Bank. A trust was formed for the purpose of purchasing shares of stock in
the open market for future awards of stock options under the MRP Plan. 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. The Plan held 21,699 shares at September 30, 2000 of
which 7,732 shares have been granted but not vested.
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 for the purpose of purchasing shares of
stock in
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the open market for issuance upon future exercises of stock options under the
Option Plan. The Plan held 51,308 shares at September 30, 2000.
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.
3. EARNINGS PER SHARE
Basic earnings per share were computed by dividing net income by the weighted
average number of shares of common stock outstanding during the three-month
periods ended September 30, 2000 and 1999. Common stock outstanding consists of
issued shares less treasury stock, unallocated ESOP shares, and shares owned by
the MRP and Stock Option plan trusts. Diluted earnings per share for the three
month periods ended September 30, 2000 and 1999, were computed by dividing net
income by the weighted average number of shares of common stock and the dilutive
effects of the shares awarded under the MRP and the Stock Option plans, based on
the treasury stock method using an average fair market value of the stock during
the respective periods.
For the three month period ended September 30, 2000, there were approximately
123,000 shares under option that were excluded from the earnings per share
calculation because these shares would have been antidilutive. The following
table represents the earnings per share calculations for the three months ended
September 30, 2000 and 1999:
<TABLE>
<CAPTION>
For the Three Months Ended Net Earnings
September 30, 2000: Income Shares Per Share
------------------- ------ ------ ---------
Basic earnings per share:
<S> <C> <C> <C>
Income available to common shareholders $ 109,000 883,097 $ 0.12
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Dilutive Securities:
Management recognition plan shares 7,732
Stock option plan shares 0
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Dilutive earnings per share:
Income available to common shareholders
plus assumed conversions $ 109,000 890,829 $ 0.12
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For the Three Months Ended
September 30, 1999:
-------------------
Basic earnings per share:
Income available to common shareholders $ 156,000 910,221 $ 0.17
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Dilutive Securities:
Management recognition plan shares 16,309
Stock option plan shares 0
-------
Dilutive earnings per share:
Income available to common shareholders
plus assumed conversions $ 156,000 926,530 $ 0.17
---------- ------- ------
</TABLE>
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4. COMPREHENSIVE INCOME
The Company has classified certain securities as available for sale in
accordance with Financial Accounting Standards Board Statement No. 115. For the
three month period ended September 30, 2000 the net unrealized loss on these
securities decreased by approximately $139,000 or 29.64% from $469,000 to
$330,000. For the three month period ended September 30, 1999 the net unrealized
loss on these securities increased by $14,000. Pursuant to Statement No.115, any
unrealized gain or loss activity of available for sale securities is to be
recorded as an adjustment to a separate component of shareholders' equity, net
of income tax effect. Accordingly, for the three-month periods ended September
30, 2000 and 1999, the Company recognized a corresponding adjustment in the
accumulated other comprehensive income component of equity.
Since comprehensive income is a measure of all nonowner changes in equity of an
enterprise that result from transactions and other economic events of the
period, this change in unrealized gain/loss serves to increase or decrease
comprehensive income. The following table represents comprehensive income for
the three-month periods ended September 30, 2000 and 1999:
Three Months Ended
September 30,
2000 1999
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Net income $ 109 $ 156
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities 139 (14)
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Comprehensive income $ 248 $ 142
=========== ===========
5. LITIGATION
The Company is a party to litigation and claims arising in the normal course of
business. Management, after consulting with legal counsel, believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the consolidated financial statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Southern Banc Company, Inc. (the "Company") was incorporated in the State of
Delaware in May 1995 for the purpose of becoming a holding company to own all of
the outstanding capital stock of The Southern Bank Company ("Bank"), formerly
the First Federal Savings & Loan Association of Gadsden.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30 AND JUNE 30, 2000.
Total assets increased approximately $174,000 or 0.18% from $98.1 million at
June 30, 2000 to $98.3 million at September 30, 2000. During the period ended
September 30, 2000, net loans decreased approximately $1.2 million or 3.02%,
securities available for sale increased approximately $2.8 million or 10.14% and
securities held to maturity decreased approximately $1.3 million or 5.32%.
Purchases of securities available for sale and securities held to maturity are
based on management's assessment of market conditions.
Cash and cash equivalents were $5.7 million and $5.8 million at September 30,
2000 and June 30, 2000, respectively. The decrease in cash was primarily
attributable to purchases of investment securities during the period ended
September 30, 2000.
Allowance for loan losses increased by approximately $26,000 or 22.61% from
$115,000 at June 30, 2000 to $141,000 at September 30, 2000. The allowance for
loan losses is based on management's evaluation of possible loan losses inherent
in the Bank'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.
Accrued interest and dividends receivable increased approximately $59,000 or
8.71% from $677,000 at June 30, 2000 to $736,000 at September 30, 2000. Prepaid
expenses and other assets decreased approximately $159,000 or 44.66% from
$356,000 at June 30, 2000 to $197,000 at September 30, 2000. This change was
primarily attributable to a decrease in prepaid federal income taxes.
Total deposits decreased approximately $42,000 or 0.05% during the period ending
September 30, 2000. At September 30, 2000, total deposits were $81.4 million.
Other liabilities during the period ended September 30, 2000 increased
approximately $21,000 from $331,000 to $352,000. The change in other liabilities
was primarily attributable to a decrease in the reserve for taxes on securities
available for sale.
Total equity increased approximately $195,000 or 1.19% from $16.3 million at
June 30, 2000 to $16.5 million at September 30, 2000. This change was primarily
attributable to an increase in retained earnings, additional paid-in capital,
amortization of unearned compensation and unrealized gain on securities
available for sale, offset in part by the payment of common stock dividends and
treasury stock repurchases. Treasury stock at September 30, 2000 was $5.6
million.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2000 AND 1999.
The Company reported net income for the three months ended September 30, 2000 of
$109,000 compared with net income of $156,000 for the three months ended
September 30, 1999.
Net Interest Income. Net interest income for the three months ended September
30, 2000 was $630,000 as compared to $738,000 for the three months ended
September 30, 1999. Total interest income increased approximately $24,000 or
1.40% for the three months ended September 30, 2000. This change was primarily
attributable to an increase in interest and dividends on securities available
for sale during the three-month period. Total interest expense increased
approximately $132,000 or 13.57% for the three months ended September 30, 2000
compared with the three months ended September 30, 1999.
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Provision for Loan Losses. The provision for loan losses increased approximately
$30,000 for the three months ended September 30, 2000 as compared to the three
months ended September 30, 1999. During the three month period ended September
30, 2000, the provision for loan losses was approximately $30,000. No provision
for loan losses was deemed necessary for the three month period ended September
30, 1999.
Non-interest Income. Non-interest income increased approximately $3,000 or
10.00% from $30,000 to $33,000 for the three month period ended September 30,
2000 compared to the three month period ended September 30, 1999.
Non-interest Expense. Total non-interest expense decreased approximately $66,000
or 12.52% for the three month period ended September 30, 2000 from $527,000 at
September 30, 1999 to $461,000 at September 30, 2000. During the three-month
period ended September 30, 2000, salaries and employee benefits decreased by
approximately $39,000 or 11.47%. This change was primarily attributable to a
decrease in salary and benefit expenses related to certain employee benefit
plans. Other operating expenses decreased by approximately $38,000 or 32.20% as
compared to the three-month period ended September 30, 1999. The change in other
operating expenses was primarily attributable to a reduction in advertising,
professional, and forms and supplies expenses.
Provision for Income Taxes. For the three month period ended September 30, 2000,
provision for income tax expense decreased $22,000 or 25.88% as compared to the
three-month period ended September 30, 1999.
Liquidity and Capital Resources. As a holding company, the Company conducts its
business through its subsidiary, the Bank. The Bank 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 4.0%. The
Bank's average liquidity ratio well exceeded the required maximums at and during
the three month period ended September 30, 2000. The Bank adjusts its liquidity
levels in order to meet funding needs of deposit outflows, repayment of
borrowings and loan commitments. The Bank also adjusts liquidity as appropriate
to meet its asset and liability management objectives.
The Bank'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 Bank invests in short-term interest-earning
assets which provide liquidity to meet lending requirements.
The Bank is required to maintain certain levels of regulatory capital. At
September 30, 2000, the Bank exceeded all minimum regulatory capital
requirements.
MARKET AREA
The Bank considers its primary market area to consist of Etowah, Cherokee and
Marshall Counties in which the Bank has its four offices. The city of Gadsden,
in which the Bank's main office is located, is in Etowah County, approximately
65 miles northeast of Birmingham, Alabama. Based upon the 1990 population
census, the combined population of Etowah, Cherokee and Marshall Counties was
approximately 190,000.
The economy in the Bank's market area includes a mixture of manufacturing and
agriculture. For years the two major industrial employers were Goodyear Tire and
Rubber Company ("Goodyear") and Gulf States Steel Corporation ("Gulf States").
At present Goodyear employs 1,205 workers which is a decline from 1,600 workers
as of January 1999. Negotiations are currently underway between Goodyear and
state and local government for assistance in modernizing the Gadsden plant. If
successful, the modernization would increase production and create approximately
300 jobs. Gulf States, which
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previously employed 1,850 workers, ceased production on August 21, 2000 after
operating under Chapter 11 Bankruptcy since July 1999. Currently, Honda Motor
Company is constructing a manufacturing plant in Talladega County only 17 miles
from Etowah County. According to projections, the Honda Plant, suppliers, and
additional economic opportunities for local businesses could produce
approximately 900 jobs for Etowah County residents. According to the Alabama
Department of Industrial Relations, the unemployment rates for September 2000 in
Etowah, Cherokee and Marshall Counties were 10.5%, 4.5% and 5.3%, respectively,
as compared to 4.4% for the state of Alabama.
FORWARD-LOOKING STATEMENTS
Management's discussion and analysis includes certain forward-looking statements
addressing, among other things, the Company's prospects for earnings, asset
growth and net interest margin. Forward-looking statements are accompanied by,
and identified with, such terms as "anticipates," "believes," "expects,"
"intends," and similar phrases. Management's expectations for the Company's
future involve a number of assumptions and estimates. Factors that could cause
actual results to differ from the expectations expressed herein include:
substantial changes in interest rates, and changes in the general economy;
changes in the Bank's strategies for credit-risk management, interest-rate risk
management and investment activities. Accordingly, any forward-looking
statements included herein do not purport to be predictions of future events or
circumstances and may not be realized.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Bank is a party to various legal proceedings
incident to its business. At June 30, 2000, the Company was a party to
litigation and claims in the normal course of business. Management,
after consultation with legal counsel, believes that the liabilities,
if any, arising from such litigation and claims will not be material to
the consolidated financial statements.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On October 19, 2000, The Southern Banc Company, Inc. announced a
dividend in the amount of $.0875 per share on or about December 18,
2000 to stockholders of record at the close of business on November
17, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (SEC use only)
(b) Form 8-K
None
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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
Date: November 9, 2000 By: /s/ James B. Little Jr.
---------------- ---------------------------------
James B. Little Jr.
(Principal Executive and
Financial Officer)
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