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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2004


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

For the transition period from to

Commission file number 0-11448

LSB BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)


North Carolina		56-1348147

(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

LSB BANCSHARES, INC.
ONE LSB PLAZA
LEXINGTON, NORTH CAROLINA 27292

(Address of Principal Executive Offices)

(Zip Code)

(336) 248-6500

(Registrant’s Telephone Number, Including Area 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 x No o

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

LSB Bancshares, Inc. had 8,579,468 shares of common stock outstanding as of November 3, 2004.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LSB Bancshares, Inc.

Consolidated Balance Sheets
(In Thousands)


	(Unaudited)						(Unaudited)
	September 30			December 31			September 30
	2004			2003			2003
Assets
Cash and Due From Banks	$	38,581		$	36,418		$	42,265
Interest-Bearing Bank Balances		1,222			2,267			3,113
Federal Funds Sold		20,206			25,886			15,302
Investment Securities:
Held to Maturity, Market Value $29,957, $30,711 & $38,439		28,541			29,078			36,798
Available for Sale		99,533			92,013			97,132
Loans		701,961			663,446			673,719
Less, Allowance for Loan Losses		(8,006	)		(7,846	)		(7,795	)

Net Loans		693,955			655,600			665,924
Premises and Equipment		17,289			14,951			14,548
Other Assets		12,563			11,693			11,441

Total Assets	$	911,890		$	867,906		$	886,523

Liabilities
Deposits:
Demand	$	92,255		$	82,588		$	89,303
Savings, NOW and Money Market Accounts		426,496			411,322			418,391
Certificates of Deposit of less than $100,000		118,403			126,343			131,751
Certificates of Deposit of $100,000 or more		95,279			82,249			82,409

Total Deposits		732,433			702,502			721,854
Securities Sold Under Agreements to Repurchase		1,307			2,032			1,688
Borrowings from the Federal Home Loan Bank		83,000			70,000			68,000
Other Liabilities		4,955			4,812			5,791

Total Liabilities		821,695			779,346			797,333

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 8,535,255 shares in 2003		42,897			42,745			42,676
Paid-In Capital		10,397			10,205			10,083
Directors’ Deferred Plan		(1,186	)		(1,101	)		(1,095	)
Retained Earnings		37,754			35,702			36,267
Accumulated Other Comprehensive Income		333			1,009			1,259

Total Shareholders’ Equity		90,195			88,560			89,190

Total Liabilities and Shareholders’ Equity	$	911,890		$	867,906		$	886,523

Memorandum: Standby Letters of Credit	$	6,138		$	4,098		$	4,141

Notes to consolidated financial statements are an integral part hereof.

LSB Bancshares, Inc.

Consolidated Statements of Income
(In Thousands except Share Data)
(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2004		2003		2004		2003
Interest Income
Interest and Fees on Loans	$	11,068	$	11,318	$	32,510	$	34,151
Interest on Investment Securities:
Taxable		853		963		2,444		3,026
Tax Exempt		370		426		1,124		1,229
Interest-Bearing Bank Balances		41		35		127		133
Federal Funds Sold		71		46		156		207

Total Interest Income		12,403		12,788		36,361		38,746

Interest Expense
Deposits		1,783		1,853		5,025		6,319
Securities Sold Under Agreements to Repurchase		1		2		6		10
Borrowings from the Federal Home Loan Bank		831		786		2,461		2,330

Total Interest Expense		2,615		2,641		7,492		8,659

Net Interest Income		9,788		10,147		28,869		30,087
Provision for Loan Losses		1,104		839		2,396		1,913

Net Interest Income After Provision for Loan Losses		8,684		9,308		26,473		28,174

Noninterest Income
Service Charges on Deposit Accounts		1,875		1,824		5,381		5,147
Gains on Sales of Mortgages		133		403		390		1,140
Other Operating Income		1,532		1,611		5,014		4,615

Total Noninterest Income		3,540		3,838		10,785		10,902

Noninterest Expense
Personnel Expense		5,026		5,376		15,135		15,691
Occupancy Expense		437		440		1,317		1,218
Equipment Depreciation and Maintenance		615		549		1,708		1,523
Other Operating Expense		3,576		2,995		10,066		8,994

Total Noninterest Expense		9,654		9,360		28,226		27,426

Income Before Income Taxes		2,570		3,786		9,032		11,650
Income Taxes		793		1,261		2,866		3,874

Net Income	$	1,777	$	2,525	$	6,166	$	7,776

Earnings Per Share:
Basic	$	0.21	$	0.30	$	0.72	$	0.91
Diluted		0.21		0.29		0.72		0.91
Weighted Average Shares Outstanding:
Basic		8,579,468		8,534,255		8,573,443		8,506,558
Diluted		8,616,515		8,613,409		8,620,923		8,575,203
Cash Dividends Declared per Share	$	0.16	$	0.16	$	0.48	$	0.48

Notes to consolidated financial statements are an integral part hereof.

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											7,776						7,776
Change in unrealized gain on securities available for sale, net of deferred income taxes														(573	)		(573	)

Comprehensive income																	7,203
Cash dividends declared on common stock											(4,087	)					(4,087	)
Common stock issued for stock options exercised		313			354												667
Common stock acquired								(100	)								(100	)

Balances at September 30, 2003	$	42,676		$	10,083		$	(1,095	)	$	36,267		$	1,259		$	89,190

Balances at December 31, 2003	$	42,745		$	10,205		$	(1,101	)	$	35,702		$	1,009		$	88,560
Net Income											6,166						6,166
Change in unrealized gain on securities available for sale, net of deferred income taxes														(676	)		(676	)

Comprehensive income																	5,490
Cash dividends declared on common stock											(4,114	)					(4,114	)
Common stock issued for stock options exercised		251			394												645
Common stock acquired		(99	)		(202	)		(85	)								(386	)

Balances at September 30, 2004	$	42,897		$	10,397		$	(1,186	)	$	37,754		$	333		$	90,195

Notes to consolidated financial statements are an integral part hereof.

LSB Bancshares, Inc.

Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)


	Nine Months Ended September 30
	2004			2003
Cash Flow from Operating Activities
Net Income	$	6,166		$	7,776
Adjustments to reconcile net income to net cash:
Depreciation and amortization		1,541			1,333
Securities premium amortization and discount accretion, net		88			56
(Increase) decrease in loans held for sale		2,794			(10,892	)
Deferred income taxes		(40	)		(206	)
Increase (decrease) in income taxes payable		(146	)		321
(Increase) decrease in income earned but not received		(188	)		123
Decrease in interest accrued but not paid		(68	)		(243	)
Net (increase) decrease in other assets		(217	)		184
Net increase in other liabilities		357			436
Provision for loan losses		2,395			1,913
(Gain) loss on sale of premises and equipment		50			(31	)

Net cash provided by operating activities		12,732			770

Cash Flow From Investing Activities
Purchases of securities held to maturity		(4,180	)		0
Proceeds from maturities of securities held to maturity		4,713			7,232
Purchases of securities available for sale		(50,266	)		(45,515	)
Proceeds from maturities of securities available for sale		41,562			31,765
Net increase in loans made to customers		(43,545	)		(18,681	)
Purchases of premises and equipment		(3,976	)		(2,413	)
Proceeds from sale of premises and equipment		46			53
Net (increase) decrease in federal funds sold		5,680			(1,918	)

Net cash used by investing activities		(49,966	)		(29,477	)

Cash Flow from Financing Activities
Net increase in demand deposits, NOW, money market and savings accounts		24,842			27,101
Net increase (decrease) in time deposits		5,090			(1,727	)
Net increase (decrease) in securities sold under agreements to repurchase		(726	)		159
Proceeds from long-term debt		99,000			10,000
Payments on long-term debt		(86,000	)		(5,000	)
Dividends paid		(4,114	)		(4,087	)
Proceeds from issuance of common stock		646			667
Common stock acquired		(386	)		(100	)

Net cash provided by financing activities		38,352			27,013

Increase (decrease) in cash and cash equivalents		1,118			(1,694	)
Cash and cash equivalents at the beginning of the period		38,685			47,072

Cash and cash equivalents at the end of the period	$	39,803		$	45,378


	Nine Months Ended September 30
	2004			2003
Supplemental Disclosures of Cash Flow Information
Cash paid during the years for:
Interest	$	7,560		$	8,902
Income Taxes		3,170			4,227
Supplemental Disclosures of Noncash Transactions
Transfer of loans to other real estate owned	$	1,964		$	1,542
Unrealized gains/(losses) on securities available for sale:
Change in securities available for sale		(1,100	)		(933	)
Change in deferred income taxes		424			360
Change in shareholders’ equity		(676	)		(573	)

Notes to consolidated financial statements are an integral part hereof.

LSB Bancshares, Inc.

Notes to Consolidated Financial Statements

Nine Months Ended September 30, 2004 and 2003

Note 1. Basis of Presentation

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 in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. 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 nine-month period ended September 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-five 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 Federal Deposit Insurance Corporation, 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”).

Note 2. Investment Securities

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


	September 30, 2004
							Approximate
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Securities held to maturity:
State, county and municipal securities	$	28,541	$	1,424	$	8	$	29,957

Total securities held to maturity	$	28,541	$	1,424	$	8	$	29,957


							Approximate
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Securities available for sale:
U.S. Treasury and other U.S. government agency obligations	$	91,739	$	940	$	374	$	92,305
State, county and municipal securities		3,101		46		69		3,078
Federal Home Loan Bank stock		4,150		0		0		4,150

Total securities available for sale	$	98,990	$	986	$	443	$	99,533


	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	$	86,597
State, county and municipal securities		1,851		65		0		1,916
Federal Home Loan Bank stock		3,500		0		0		3,500

		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 in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. 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 nine-month period ended September 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-five 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 Federal Deposit Insurance Corporation, 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”).