UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended March 31, 2005
OR
| 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 000-11448
LSB BANCSHARES, INC.
| North Carolina (State or Other Jurisdiction of Incorporation or Organization) |
56-1348147 (I.R.S. Employer Identification No.) |
LSB BANCSHARES, INC.
ONE LSB PLAZA
LEXINGTON, NORTH CAROLINA 27292
(336) 248-6500
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 mark 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 8,568,965 shares of common stock outstanding as of April 29, 2005.
LSB BANCSHARES, INC.
AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
| Page | ||||||
| PART I | ||||||
| Financial Information | ||||||
Item 1
|
Financial Statements | 3 | ||||
| Consolidated Balance Sheets March 31, 2005 and December 31, 2004 | 3 | |||||
| Consolidated Statements of Income Three Months Ended March 31, 2005 and 2004 | 4 | |||||
| Consolidated Statements of Changes in Shareholders’ Equity Three Months Ended March 31, 2005 and 2004 | 5 | |||||
| Consolidated Statements of Cash Flows Three Months Ended March 31, 2005 and 2004 | 6 | |||||
| Notes to Consolidated Financial Statements Three Months Ended March 31, 2005 and 2004 | 8 | |||||
Item 2
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||||
Item 3
|
Quantitative and Qualitative Disclosures About Market Risk | 21 | ||||
Item 4
|
Controls and Procedures | 22 | ||||
| PART II | ||||||
| Other Information | ||||||
Item 1
|
Legal Proceedings | 22 | ||||
Item 2
|
Unregistered Sales of Equity Securities and Use of Proceeds | 22 | ||||
Item 3
|
Defaults Upon Senior Securities | 22 | ||||
Item 4
|
Submission of Matters to a Vote of Security Holders | 22 | ||||
Item 5
|
Other Information | 22 | ||||
Item 6
|
Exhibits | 22 | ||||
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets
| (Unaudited) | ||||||||
| March 31 | December 31 | |||||||
| (In thousands, except shares) | 2005 | 2004 | ||||||
Assets |
||||||||
Cash and Due from Banks |
$ | 37,935 | $ | 35,407 | ||||
Interest -Bearing Bank Balances |
1,358 | 2,115 | ||||||
Federal Funds Sold |
17,489 | 14,246 | ||||||
Investment Securities (Note 3): |
||||||||
Held to Maturity, Market Value $30,092 and $29,642 |
29,300 | 28,539 | ||||||
Available for Sale |
98,958 | 100,655 | ||||||
Loans (Note 4) |
743,956 | 712,185 | ||||||
Less, Allowance for Loan Losses (Note 4) |
(8,145 | ) | (7,962 | ) | ||||
Net Loans |
735,811 | 704,223 | ||||||
Premises and Equipment |
17,577 | 17,390 | ||||||
Other Assets |
13,633 | 12,413 | ||||||
Total Assets |
$ | 952,061 | $ | 914,988 | ||||
Liabilities |
||||||||
Deposits: |
||||||||
Demand |
$ | 103,165 | $ | 88,805 | ||||
Savings, N.O.W. and Money Market Accounts |
414,482 | 417,584 | ||||||
Certificates of Deposit of less than $100,000 |
128,874 | 118,569 | ||||||
Certificates of Deposit of $100,000 or more |
117,179 | 97,317 | ||||||
Total Deposits |
763,700 | 722,275 | ||||||
Securities Sold Under Agreements to Repurchase |
1,395 | 1,536 | ||||||
Borrowings from the Federal Home Loan Bank |
90,000 | 95,000 | ||||||
Other Liabilities |
7,098 | 5,435 | ||||||
Total Liabilities |
862,193 | 824,246 | ||||||
Shareholders’ Equity |
||||||||
Preferred Stock, Par Value $.01 Per Share: |
||||||||
Authorized 10,000,000 Shares; None issued |
— | — | ||||||
Common Stock, Par Value $5 Per Share: |
||||||||
Authorized 50,000,000 Shares; Issued 8,554,860 Shares
in 2005 and 8,560,254 Shares in 2004 |
42,774 | 42,951 | ||||||
Paid-In Capital |
10,022 | 10,482 | ||||||
Directors’ Deferred Plan |
(1,285 | ) | (1,197 | ) | ||||
Retained Earnings |
39,370 | 38,592 | ||||||
Accumulated Other Comprehensive Income (loss) |
(1,013 | ) | (86 | ) | ||||
Total Shareholders’ Equity |
89,868 | 90,742 | ||||||
Total Liabilities and Shareholders’ Equity |
$ | 952,061 | $ | 914,988 | ||||
Memorandum: Standby Letters of Credit |
$ | 5,131 | $ | 4,980 | ||||
Notes to consolidated financial statements are an integral part hereof.
3
Consolidated Statements of Income
(Unaudited)
| Three Months Ended | ||||||||
| March 31 | ||||||||
| (In thousands, except shares and per share amounts) | 2005 | 2004 | ||||||
Interest Income |
||||||||
Interest and Fees on Loans |
$ | 12,290 | $ | 10,594 | ||||
Interest on Investment Securities: |
||||||||
Taxable |
877 | 820 | ||||||
Tax Exempt |
346 | 382 | ||||||
Interest-Bearing Bank Balances |
88 | 49 | ||||||
Federal Funds Sold |
81 | 46 | ||||||
Total Interest Income |
13,682 | 11,891 | ||||||
Interest Expense |
||||||||
Deposits |
2,376 | 1,645 | ||||||
Securities Sold Under Agreements to Repurchase |
4 | 3 | ||||||
Borrowings from the Federal Home Loan Bank |
949 | 809 | ||||||
Total Interest Expense |
3,329 | 2,457 | ||||||
Net Interest Income |
10,353 | 9,434 | ||||||
Provision for Loan Losses (Note 4) |
539 | 511 | ||||||
Net Interest Income after Provision for Loan Losses |
9,814 | 8,923 | ||||||
Noninterest Income |
||||||||
Service Charges on Deposit Accounts |
1,553 | 1,671 | ||||||
Gains on Sales of Mortgages |
132 | 110 | ||||||
Other Operating Expense |
1,577 | 1,575 | ||||||
Total Noninterest Income |
3,262 | 3,356 | ||||||
Noninterest Expense |
||||||||
Personnel Expense |
5,334 | 5,147 | ||||||
Occupancy Expense |
464 | 460 | ||||||
Equipment Depreciation and Maintenance |
591 | 539 | ||||||
Other Operating Expense |
3,374 | 2,958 | ||||||
Total Noninterest Expense |
9,763 | 9,104 | ||||||
Income Before Income Taxes |
3,313 | 3,175 | ||||||
Income Taxes |
1,081 | 1,022 | ||||||
Net Income |
$ | 2,232 | $ | 2,153 | ||||
Earnings Per Share: |
||||||||
Basic |
$ | 0.26 | $ | 0.25 | ||||
Diluted |
$ | 0.26 | $ | 0.25 | ||||
Weighted Average Shares Outstanding: |
||||||||
Basic |
8,578,604 | 8,553,379 | ||||||
Diluted |
8,622,545 | 8,631,926 | ||||||
Notes to consolidated financial statements are an integral part hereof.
4
Consolidated Statements
Of Changes in Shareholders’ Equity
(Unaudited)
| Accumulated | ||||||||||||||||||||||||||||
| Directors’ | Other | Total | ||||||||||||||||||||||||||
| Common Stock | Paid-in | Deferred | Retained | Comprehensive | Shareholders’ | |||||||||||||||||||||||
| (In thousands, except shares) | Shares | Amount | Capital | Plan | Earnings | Income (loss) | Equity | |||||||||||||||||||||
Balances at December 31, 2003 |
8,548,942 | $ | 42,745 | $ | 10,205 | $ | (1,101 | ) | $ | 35,702 | $ | 1,009 | $ | 88,560 | ||||||||||||||
Net Income |
— | — | — | — | 2,153 | — | 2,153 | |||||||||||||||||||||
Change in unrealized gain on securities
available for sale, net of deferred
income taxes |
— | — | — | — | — | 125 | 125 | |||||||||||||||||||||
Comprehensive income |
— | — | — | — | 2,153 | 125 | 2,278 | |||||||||||||||||||||
Cash dividends declared on common stock |
— | — | — | — | (1,368 | ) | — | (1,368 | ) | |||||||||||||||||||
Common stock issued for stock options
exercised |
11,312 | 56 | 89 | — | — | — | 145 | |||||||||||||||||||||
Common stock acquired |
— | — | — | (61 | ) | — | — | (61 | ) | |||||||||||||||||||
Balances at March 31, 2004 |
8,560,254 | $ | 42,801 | $ | 10,294 | $ | (1,162 | ) | $ | 36,487 | $ | 1,134 | $ | 89,554 | ||||||||||||||
Balances at December 31, 2004 |
8,590,184 | $ | 42,951 | $ | 10,482 | $ | (1,197 | ) | $ | 38,592 | $ | (86 | ) | $ | 90,742 | |||||||||||||
Net Income |
— | — | — | — | 2,232 | — | 2,232 | |||||||||||||||||||||
Change in unrealized gain on securities
available for sale, net of deferred
income taxes |
— | — | — | — | — | (927 | ) | (927 | ) | |||||||||||||||||||
Comprehensive income |
— | — | — | — | 2,232 | (927 | ) | 1,305 | ||||||||||||||||||||
Cash dividends declared on common stock |
— | — | — | — | (1,454 | ) | — | (1,454 | ) | |||||||||||||||||||
Common stock issued for stock options
exercised |
4,937 | 24 | 34 | — | — | — | 58 | |||||||||||||||||||||
Common stock acquired |
(40,261 | ) | (201 | ) | (494 | ) | (88 | ) | — | — | (783 | ) | ||||||||||||||||
Balances at March 31, 2005 |
8,554,860 | $ | 42,774 | $ | 10,022 | $ | (1,285 | ) | $ | 39,370 | $ | (1,013 | ) | $ | 89,868 | |||||||||||||
Notes to consolidated financial statements are an integral part hereof.
5
Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended | ||||||||
| March 31 | ||||||||
| (In thousands) | 2005 | 2004 | ||||||
Cash Flow from Operating Activities |
||||||||
Net Income |
$ | 2,232 | $ | 2,153 | ||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
||||||||
Depreciation |
515 | 500 | ||||||
Securities premium amortization and discount
accretion, net |
32 | 25 | ||||||
(Increase) decrease in loans held for sale |
(2,078 | ) | 4,038 | |||||
Deferred income taxes |
111 | (40 | ) | |||||
Increase in income taxes payable |
972 | 1,062 | ||||||
Increase in income earned but not received |
(575 | ) | (18 | ) | ||||
Increase in interest accrued but not paid |
40 | 52 | ||||||
Net (increase) decrease in other assets |
(176 | ) | 60 | |||||
Net increase in other liabilities |
651 | 361 | ||||||
Provision for loan losses |
539 | 511 | ||||||
Gain on sale of premises and equipment |
— | (12 | ) | |||||
Net cash provided by operating activities |
2,263 | 8,692 | ||||||
Cash Flow from Investing Activities |
||||||||
Purchases of securities held to maturity |
(769 | ) | (560 | ) | ||||
Proceeds from maturities of securities held to maturity |
5 | 1,746 | ||||||
Purchases of securities available for sale |
(6,569 | ) | (16,840 | ) | ||||
Proceeds from maturities of securities available for sale |
6,730 | 12,500 | ||||||
Net increase in loans made to customers |
(30,049 | ) | (19,705 | ) | ||||
Purchases of premises and equipment |
(702 | ) | (1,548 | ) | ||||
Proceeds from sale of premises and equipment |
— | 16 | ||||||
Net (increase) decrease in federal funds sold |
(3,243 | ) | 8,428 | |||||
Net cash used for investing activities |
(34,597 | ) | (15,963 | ) | ||||
Cash Flow from Financing Activities |
||||||||
Net increase (decrease) in demand deposits, N.O.W., money
market and savings accounts |
11,258 | (9,743 | ) | |||||
Net increase in time deposits |
30,167 | 7,378 | ||||||
Net decrease in securities sold under agreement to
repurchase |
(141 | ) | (687 | ) | ||||
Proceeds from long -term debt |
10,000 | 20,000 | ||||||
Payments on long -term debt |
(15,000 | ) | (10,000 | ) | ||||
Dividends paid |
(1,454 | ) | (1,368 | ) | ||||
Proceeds from issuance of common stock |
58 | 145 | ||||||
Common stock acquired |
(783 | ) | (61 | ) | ||||
Net cash provided by financing activities |
34,105 | 5,664 | ||||||
Increase (decrease) in cash and cash equivalents |
1,771 | (1,607 | ) | |||||
Cash and cash equivalents at the beginning of the period |
37,522 | 38,685 | ||||||
Cash and cash equivalents at
the end of the period |
$ | 39,293 | $ | 37,078 | ||||
Notes to consolidated financial statements are an integral part hereof.
6
Consolidated Statements of Cash Flows continued
(Unaudited)
| Three Months Ended | ||||||||
| March 31 | ||||||||
| (In thousands) | 2005 | 2004 | ||||||
Supplemental Disclosures of Cash Flow Information |
||||||||
Cash paid during the periods for: |
||||||||
Interest |
$ | 3,289 | $ | 2,406 | ||||
Supplemental Disclosures of Noncash Transactions |
||||||||
Transfer of loans to other real estate owned |
$ | 167 | $ | 213 | ||||
Unrealized gains/(losses) on securities available for sale: |
||||||||
Change in securities available for sale |
(1,508 | ) | 203 | |||||
Change in deferred income taxes |
581 | (78 | ) | |||||
Change in shareholders’ equity |
(927 | ) | 125 | |||||
Notes to consolidated financial statements are an integral part hereof.
7
Notes To Consolidated Financial Statements
As of or for the Periods Ended March 31, 2005 and 2004
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 three-month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.
LSB Bancshares, Inc. (“Bancshares”) 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 (the “Bank”). The Bank has two wholly owned subsidiaries, Peoples Finance Company of Lexington, Inc. (“Peoples Finance”) and LSB Investment Services, Inc. (“LSBIS”). The Bank offers a complete array of services in commercial banking including accepting deposits, corporate cash management, discount brokerage, IRA plans, mortgage production, secured and unsecured loans and trust functions through twenty-six offices in seventeen communities located in Davidson, Forsyth, Stokes, Guilford, Randolph and Wake counties. Peoples Finance offers secured and unsecured loans to individuals up to a maximum of $10,000 as well as dealer originated loans. LSBIS offers products through UVEST Investment Services, an independent broker-dealer. Investments are neither deposits nor obligations of the Bank, nor are they guaranteed or insured by any depository institution, the Federal Deposit Insurance Corporation, or any other government agency.
The organization and business of Bancshares, accounting policies followed by Bancshares and other relevant information are contained in the notes to the consolidated financial statements in Bancshares Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2005 (SEC File No. 000-11448)(the “Form 10-K”). This quarterly report should be read in conjunction with such Form 10-K.
Note 2 — Net Income Per Share
Basic and diluted net income per share is computed based on the weighted average number of shares outstanding during each period. Diluted net income per share reflects the potential dilution that could occur if stock options were exercised, resulting in the issuance of common stock that then shared in the net income of Bancshares.
8
A reconciliation of the basic average common shares outstanding to the diluted average common shares outstanding is as follows (In thousands):
| Three Months Ended | ||||||||
| March 31 | ||||||||
| 2005 | 2004 | |||||||
Weighted average number of common shares used in
computing basic net income per share |
8,578,604 | 8,553,379 | ||||||
Effect of diluted stock options |
43,941 | 78,557 | ||||||
Diluted weighted average common shares outstanding |
8,622,545 | 8,631,936 | ||||||
Note 3 — Investment Securities (In thousands)
| March 31, 2005 – Securities Held to Maturity | ||||||||||||||||
| Amortized | Unrealized | Unrealized | Market | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
State, county and municipal securities |
$ | 29,300 | $ | 884 | $ | (92 | ) | $ | 30,092 | |||||||
| March 31, 2005 – Securities Available for Sale | ||||||||||||||||
| Amortized | Unrealized | Unrealized | Market | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
U.S. government agency obligations |
$ | 91,632 | $ | 227 | $ | (1,801 | ) | $ | 90,058 | |||||||
State, county and municipal securities |
3,095 | 28 | (102 | ) | 3,021 | |||||||||||
Equity securities |
5,879 | — | — | 5,879 | ||||||||||||
Total |
$ | 100,606 | $ | 255 | $ | (1,903 | ) | $ | 98,958 | |||||||
| December 31, 2004 – Securities Held to Maturity | ||||||||||||||||
| Amortized | Unrealized | Unrealized | Market | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
State, county and municipal securities |
$ | 28,539 | $ | 1,121 | $ | (18 | ) | $ | 29,642 | |||||||
| December 31, 2004 – Securities Available for Sale | ||||||||||||||||
| Amortized | Unrealized | Unrealized | Market | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
U.S. government agency obligations |
$ | 91,685 | $ | 593 | $ | (687 | ) | $ | 91,591 | |||||||
State, county and municipal securities |
3,101 | 36 | (82 | ) | 3,055 | |||||||||||
Equity securities |
6,009 | — | — | 6,009 | ||||||||||||
Total |
$ | 100,795 | $ | 629 | $ | (769 | ) | $ | 100,655 | |||||||
The following is a schedule of securities in a loss position as of March 31, 2005 (In thousands):
| Less than 1 year | ||||||||||||||||||||||||