LSB BANCSHARES INC /NC/ - 10-Q Quarterly Report

LSB BANCSHARES, INC.
ONE LSB PLAZA
LEXINGTON, NORTH CAROLINA 27292
(Address of Principal Executive Offices)
(Zip Code)

Indicate by check mark whether the registrant: (1) 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 (2) has been subject to such filing requirements for the past 90 days Yes þ No o

Indicate by check þ whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

LSB Bancshares, Inc. had 8,579,468 shares of common stock outstanding as of July 30, 2004.


Part I.		Financial Information

Item 1.		Financial Statements.

		Consolidated Balance Sheets June 30, 2004 and 2003, and December 31, 2003

		Consolidated Statements of Income Six Months and Three Months Ended June 30, 2004 and 2003

		Consolidated Statements of Changes in Shareholders’ Equity Six Months Ended June 30, 2004 and 2003

		Consolidated Statements of Cash Flows Six Months Ended June 30, 2004 and 2003

		Notes to Consolidated Financial Statements Six Months Ended June 30, 2004 and 2003

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.		Quantitative and Qualitative Disclosures about Market Risk

Item 4.		Controls and Procedures

Part II.		Other Information

Item 1.		Legal Proceedings

Item 2.		Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Item 3.		Defaults Upon Senior Securities

Item 4.		Submission of Matters to a Vote of Security Holders

Item 5.		Other Information

Item 6.		Exhibits and Reports on Form 8-K

Signatures


	(Unaudited)						(Unaudited)
	June 30			December 31			June 30
	2004			2003			2003
Assets
Cash and Due From Banks	$	46,522		$	36,418		$	49,895
Interest-Bearing Bank Balances		1,723			2,267			4,430
Federal Funds Sold		18,768			25,886			15,050
Investment Securities:
Held to Maturity, Market Value $31,542, $30,711 & $42,807		30,740			29,078			40,426
Available for Sale		93,422			92,013			92,582
Loans		687,736			663,446			674,391
Less, Allowance for Loan Losses		(8,112	)		(7,846	)		(7,724	)

Net Loans		679,624			655,600			666,667
Premises and Equipment		16,884			14,951			14,250
Other Assets		12,392			11,693			11,361

Total Assets	$	900,075		$	867,906		$	894,661

Liabilities
Deposits:
Demand	$	89,699		$	82,588		$	101,798
Savings, NOW and Money Market Accounts		414,263			411,322			401,573
Certificates of Deposit of less than $100,000		119,549			126,343			136,711
Certificates of Deposit of $100,000 or more		91,519			82,249			101,742

Total Deposits		715,030			702,502			741,824
Securities Sold Under Agreements to Repurchase		1,134			2,032			1,068
Borrowings from the Federal Home Loan Bank		90,000			70,000			58,000
Other Liabilities		4,642			4,812			5,337

Total Liabilities		810,806			779,346			806,229

Shareholders’ Equity
Preferred Stock, Par Value $.01 Per Share:
Authorized 10,000,000 shares; none issued		0			0			0
Common Stock, Par Value $5 Per Share:
Authorized 50,000,000 Shares; Issued 8,579,468 Shares in 2004 and 8,548,942 and 8,522,590 shares in 2003		42,897			42,745			42,613
Paid-In Capital		10,397			10,205			9,974
Directors’ Deferred Plan		(1,174	)		(1,101	)		(1,085	)
Retained Earnings		37,349			35,702			35,109
Accumulated Other Comprehensive Income		(200	)		1,009			1,821

Total Shareholders’ Equity		89,269			88,560			88,432

Total Liabilities and Shareholders’ Equity	$	900,075		$	867,906		$	894,661


Memorandum: Standby Letters of Credit	$	5,366		$	4,098		$	3,628

LSB Bancshares, Inc.
Consolidated Statements of Income
(In Thousands except Share Data)
(Unaudited)


	Three Months Ended				Six Months Ended
	June 30				June 30
	2004		2003		2004		2003
Interest Income
Interest and Fees on Loans	$	10,848	$	11,522	$	21,442	$	22,833
Interest on Investment Securities:
Taxable		771		1,021		1,591		2,063
Tax Exempt		372		398		754		803
Interest-Bearing Bank Balances		37		44		86		98
Federal Funds Sold		39		64		85		161

Total Interest Income		12,067		13,049		23,958		25,958

Interest Expense
Deposits		1,597		2,167		3,242		4,466
Securities Sold Under Agreements to Repurchase		2		3		5		8
Borrowings from the Federal Home Loan Bank		821		769		1,630		1,544

Total Interest Expense		2,420		2,939		4,877		6,018

Net Interest Income		9,647		10,110		19,081		19,940
Provision for Loan Losses		781		487		1,292		1,074

Net Interest Income After Provision for Loan Losses		8,866		9,623		17,789		18,866

Noninterest Income
Service Charges on Deposit Accounts		1,835		1,716		3,506		3,323
Gains on Sales of Mortgages		147		379		257		737
Other Operating Income		1,907		1,620		3,482		3,004

Total Noninterest Income		3,889		3,715		7,245		7,064

Noninterest Expense
Personnel Expense		4,962		5,299		10,109		10,315
Occupancy Expense		420		394		880		778
Equipment Depreciation and Maintenance		554		499		1,093		974
Other Operating Expense		3,532		3,117		6,490		5,999

Total Noninterest Expense		9,468		9,309		18,572		18,066

Income Before Income Taxes		3,287		4,029		6,462		7,864
Income Taxes		1,051		1,332		2,073		2,613

Net Income	$	2,236	$	2,697	$	4,389	$	5,251

Earnings Per Share:
Basic	$	0.26	$	0.32	$	0.51	$	0.62
Diluted		0.26		0.31		0.51		0.61
Weighted Average Shares Outstanding:
Basic		8,587,482		8,510,088		8,570,431		8,492,709
Diluted		8,623,383		8,571,002		8,624,437		8,556,098
Cash Dividends Declared per Share	$	0.16	$	0.16	$	0.32	$	0.32

LSB Bancshares, Inc.
Consolidated Statements of
Changes in Shareholders’ Equity
(In Thousands)
(Unaudited)


													Accumulated
							Directors'						Other			Total
	Common			Paid-In			Deferred			Retained			Comprehensive			Shareholders'
	Stock			Capital			Plan			Earnings			Income			Equity
Balances at December 31, 2002	$	42,363		$	9,729		$	(995	)	$	32,578		$	1,832		$	85,507
Net Income											5,251						5,251
Change in unrealized gain on securities available for sale, net of deferred income taxes														(11	)		(11	)

Comprehensive income																	5,240
Cash dividends declared on common stock											(2,720	)					(2,720	)
Common stock issued for stock options exercised		250			245												495
Common stock acquired								(90	)								(90	)

Balances at June 30, 2003	$	42,613		$	9,974		$	(1,085	)	$	35,109		$	1,821		$	88,432


Balances at December 31, 2003	$	42,745		$	10,205		$	(1,101	)	$	35,702		$	1,009		$	88,560
Net Income											4,389						4,389
Change in unrealized gain on securities available for sale, net of deferred income taxes														(1,209	)		(1,209	)

Comprehensive income																	3,180
Cash dividends declared on common stock											(2,742	)					(2,742	)
Common stock issued for stock options exercised		251			394												645
Common stock acquired		(99	)		(202	)		(73	)								(374	)

Balances at June 30, 2004	$	42,897		$	10,397		$	(1,174	)	$	37,349		$	(200	)	$	89,269

LSB Bancshares, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)


	Six Months Ended June 30
	2004			2003
Cash Flow from Operating Activities
Net Income	$	4,389		$	5,251
Adjustments to reconcile net income to net cash:
Depreciation and amortization		1,007			877
Securities premium amortization and discount accretion, net		55			38
(Increase) decrease in loans held for sale		3,742			(4,901	)
Deferred income taxes		(40	)		(13	)
Increase in income taxes payable		(200	)		196
Increase in income earned but not received		65			186
Increase (decrease) in interest accrued but not paid		(26	)		(18	)
Net decrease in other assets		35			(346	)
Net increase in other liabilities		56			(117	)
Provision for loan losses		1,292			1,074
Gain on sale of premises and equipment		(12	)		(31	)

Net cash provided by operating activities		10,363			2,196

Cash Flow From Investing Activities
Purchases of securities held to maturity		(4,180	)		0
Proceeds from maturities of securities held to maturity		2,517			3,603
Purchases of securities available for sale		(37,746	)		(35,030	)
Proceeds from maturities of securities available for sale		34,315			26,765
Net increase in loans made to customers		(29,059	)		(24,576	)
Purchases of premises and equipment		(2,954	)		(1,653	)
Proceeds from sale of premises and equipment		26			47
Net (increase) decrease in federal funds sold		7,118			(1,666	)

Net cash used by investing activities		(29,963	)		(32,510	)

Cash Flow from Financing Activities
Net increase (decrease) in demand deposits, NOW, money market and savings accounts		10,054			22,778
Net increase in time deposits		2,475			22,565
Net increase (decrease) in securities sold under agreements to repurchase		(898	)		(461	)
Proceeds from long-term debt		54,000			0
Payments on long-term debt		(34,000	)		(5,000	)
Dividends paid		(2,742	)		(2,720	)
Proceeds from issuance of common stock		645			495
Common stock acquired		(374	)		(90	)

Net cash provided by financing activities		29,160			37,567


Increase (decrease) in cash and cash equivalents		9,560			7,253
Cash and cash equivalents at the beginning of the period		38,685			47,072

Cash and cash equivalents at the end of the period	$	48,245		$	54,325


Supplemental Disclosures of Cash Flow Information
Cash paid during the years for:
Interest	$	4,903		$	6,036
Income Taxes		2,435			2,900

Supplemental Disclosures of Noncash Transactions
Transfer of loans to other real estate owned	$	1,419		$	1,040
Unrealized gains/(losses) on securities available for sale:
Change in securities available for sale		(1,968	)		(18	)
Change in deferred income taxes		759			7
Change in shareholders’ equity		(1,209	)		(11	)

LSB Bancshares, Inc.
Notes to Consolidated Financial Statements
Six Months Ended June 30, 2004 and 2003

		The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States 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 in the United States 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 six-month period ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

		LSB Bancshares, Inc. (sometimes referred to herein as “Bancshares” or the “Corporation”)is a bank holding company headquartered in Lexington, North Carolina. Bancshares principal business is providing banking and other financial services through its banking subsidiary, Lexington State Bank (“LSB or the Bank”). LSB has two wholly owned subsidiaries, Peoples Finance Company of Lexington, Inc. and LSB Investment Services, Inc. LSB offers a complete array of services in commercial banking including accepting deposits, corporate cash management, discount brokerage, IRA plans, secured and unsecured loans and trust functions through twenty-seven offices in seventeen communities located in Davidson, Forsyth, Stokes, Guilford and Randolph counties. LSB also operates a mortgage production office in Wake County. Peoples Finance offers secured and unsecured loans to individuals up to a maximum of $10,000 as well as dealer originated loans. LSB Investment Services offers products through UVEST Investment Services, an independent broker-dealer. Investments are neither deposits nor obligations of LSB, nor are they guaranteed or insured by any depository institution, the FDIC, or any other government agency.

		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 fiscal year ended December 31, 2003 filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2004 (SEC File No. 000-11448)(the “Form 10-K”).

The valuations of investment securities as of June 30, 2004 and December 31, 2003 were as follows (in thousands):


	June 30, 2004
							Approximate
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Securities held to maturity:
U.S. Treasury and other U.S. government agency obligations	$	1,000	$	6	$	0	$	1,006
State, county and municipal securities		29,740		1,038		242		30,536

Total securities held to maturity	$	30,740	$	1,044	$	242	$	31,542


							Approximate
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Securities available for sale:
U.S. Treasury and other U.S. government agency obligations	$	86,136	$	799	$	1,049	$	85,886
State, county and municipal securities		3,111		34		109		3,036
Federal Home Loan Bank stock		4,500		0		0		4,500

Total securities available for sale	$	93,747	$	833	$	1,158	$	93,422


	December 31, 2003
							Approximate
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Securities held to maturity:
U.S. Treasury and other U.S. government agency obligations	$	1,000	$	31	$	0	$	1,031
State, county and municipal securities		28,078		1,604		2		29,680

Total securities held to maturity	$	29,078	$	1,635	$	2	$	30,711


							Approximate
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Securities available for sale:
U.S. Treasury and other U.S. government agency obligations	$	85,020	$	1,622	$	45	$


(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2004

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from ______________ to _______________


North Carolina		56-1348147
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)