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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 29549
FORM 10-K
================================================================================
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
Commission File Number 0-11448
================================================================================
LSB BANCSHARES, INC.
One LSB Plaza
Lexington, North Carolina 27292
(336) 248-6500
Incorporated in the State of North Carolina
IRS Employer Identification No. 56-1348147
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, Par Value $5.00 Per Share
LSB Bancshares, Inc. 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 has been subject to such filing requirements for the past 90
days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein and will not be contained, to the best of the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value (average of the bid and asked prices) of the
voting stock held by nonaffiliates of the registrant as of January 31, 2001 was
$122,275,948 and the number of shares outstanding was 8,432,824.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the year ended
December 31, 2000 are incorporated by reference into Parts I and II of this
report. Portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held April 18, 2001 are incorporated by reference into Part
III of this report.
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FORM 10-K CROSS-REFERENCE INDEX
This 2000 Annual Report and Form 10-K of the registrant incorporates into a
single document the 2000 Annual Report to Shareholders and the Annual Report on
Form 10-K for the year ended December 31, 2000 filed by the registrant with the
Securities and Exchange Commission. This Form 10-K Annual Report incorporates by
reference certain information contained in the Annual Report to Shareholders and
portions of the registrant's Proxy Statement relating to the 2001 Annual Meeting
of Shareholders as is reflected in the following Cross-Reference Index.
INCORPORATED BY REFERENCE INTO THE FOLLOWING ITEMS INFORMATION APPEARING ON
OF FORM 10-K THE FOLLOWING PAGES OF THE:
- ------------------------------------------------------------------------------- ----------------------------------
ANNUAL REPORT PROXY STATEMENT
PART I
Item 1. Business............................................................. 12, 15-24.......................
Item 2. Properties........................................................... 12, 31, 34 (Notes 5 and 15).....
Item 3. Legal Proceedings.................................................... 32 (Note 8).....................
Item 4. Submission of Matters to a Vote of Security Holders (None)...........
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters.................................................. 45..............................
Item 6. Selected Financial Data.............................................. 13..............................
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 15-24...........................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........... 16-20, 33 (Note 13).............
Item 8. Financial Statements and Supplementary Data.......................... 25-36
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure (None)......................................
PART III
Item 10. Directors and Executive Officers of the Registrant................... 41, 42..........................
Item 11. Executive Compensation............................................... .............................6-8
Item 12. Security Ownership of Certain Beneficial Owners and Management....... .............................3-5
Item 13. Certain Relationships and Related Transactions....................... ...........................17-18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K:
(a) The following documents to be filed as part of the Form 10-K:
(1) Financial Statements:
Independent Accountants' Audit Report........................ 37..............................
Consolidated Balance Sheets - December 31, 2000 and 1999..... 25..............................
Consolidated Statements of Income - Years Ended
December 31, 2000, 1999 and 1998........................... 26..............................
Consolidated Statements of Changes in Shareholders' Equity
Years Ended December 31, 2000, 1999 and 1998............... 27..............................
Consolidated Statements of Cash Flows - Years Ended
December 31, 2000, 1999 and 1998........................... 28..............................
Notes to Consolidated Financial Statements................... 29-36...........................
(2) Financial Statement Schedules (None).........................
(3) Exhibits:
3.1 Articles of Incorporation of LSB Bancshares, Inc., as amended,
which are incorporated by reference to Exhibit 4.2 of the registrant's
Registration Statement on Form S-8 filed with the Securities and Exchange
Commission on November 17, 1992 (File No. 33-54610).
3.2 Bylaws of LSB Bancshares, Inc., as amended, which are incorporated by
reference to Exhibit 3.2 of the registrant's Annual Report on Form 10-K for
the year ended December 31, 1995.
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FORM 10-K CROSS-REFERENCE INDEX (CONT'D)
INCORPORATED BY REFERENCE INTO THE FOLLOWING ITEMS
OF FORM 10-K
PART IV
Item 14. 4.1 Specimen certificate of common stock, $5.00 par
(cont'd) value, which is incorporated by reference to
Exhibit 4 of the registrant's Registration Statement
on Form S-1 (File No. 2-99312).
4.2 Rights Agreement dated as of February 10, 1998 by and
between LSB Bancshares, Inc. and Wachovia Bank, N.A.,
as Rights Agent, which is incorporated by reference
to Exhibit 1 of the Registrant's Registration
Statement on Form 8-A filed with the Securities and
Exchange Commission on March 6, 1998.
10.1 1996 Omnibus Stock Incentive Plan, which is
incorporated by reference to Exhibit 10.2 of the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995.
10.2 1996 Management Plan, which is incorporated by
reference to Exhibit 10.3 of the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1995.
10.3 1994 Director Stock Option Plan of LSB Bancshares,
Inc., which is incorporated by reference to Exhibit 4
of the registrant's Registration Statement on Form
S-8 filed with the Securities and Exchange Commission
on July 15, 1994 (File No. 33-81664).
10.4 Employment Continuity Agreement effective as of
December 24, 1997 between LSB Bancshares, Inc. and
Nicholas A. Daves, which is incorporated by reference
to Exhibit 10.7 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997.
10.5 Employment Continuity Agreement effective as of June
9, 1998 between LSB Bancshares, Inc. and Robert F.
Lowe, which is incorporated by reference to Exhibit
10.8 of the Registrant's Annual Report on form 10-K
for the year ended December 31, 1998.
10.6 Employment Continuity Agreement effective as of June
9, 1998 between LSB Bancshares, Inc. and H. Franklin
Sherron, which is incorporated by reference to
Exhibit 10.9 of the Registrant's Annual Report on
form 10-K for the year ended December 31, 1998.
10.7 Employment Continuity Agreement effective as of June
9, 1998 between LSB Bancshares, Inc. and Monty J.
Oliver, which is incorporated by reference to Exhibit
10.10 of the Registrant's Annual Report on form 10-K
for the year ended December 31, 1998.
10.8 Employment Continuity Agreement effective as of June
9, 1998 between LSB Bancshares, Inc. and Robin A.
Huneycutt, which is incorporated by reference to
Exhibit 10.11 of the Registrant's Annual Report on
form 10-K for the year ended December 31, 1998.
10.9 Employment Continuity Agreement effective as of June
9, 1998 between LSB Bancshares, Inc. and Ronald W.
Sink, which is incorporated by reference to Exhibit
10.12 of the Registrant's Annual Report on form 10-K
for the year ended December 31, 1998.
10.10 Employment Continuity Agreement effective as of June
9, 1998 between LSB Bancshares, Inc. and Ronald E.
Coleman, which is incorporated by reference to
Exhibit 10.13 of the Registrant's Annual Report on
form 10-K for the year ended December 31, 1998.
10.11 Employment Continuity Agreement effective as of June
9, 1998 between LSB Bancshares, Inc. and D. Gerald
Sink, which is incorporated by reference to Exhibit
10.14 of the Registrant's Annual Report on form 10-K
for the year ended December 31, 1998.
10.12 Employment Continuity Agreement effective as of June
9, 1998 between LSB Bancshares, Inc. and Joe W.
Carroll, which is incorporated by reference to
Exhibit 10.15 of the Registrant's Annual Report on
form 10-K for the year ended December 31, 1998.
10.13 Employment Continuity Agreement effective as of June
9, 1998 between LSB Bancshares, Inc. and Suzanne J.
Bullotta, which is incorporated by reference to
Exhibit 10.16 of the Registrant's Annual Report on
form 10-K for the year ended December 31, 1998.
13 2000 Annual Report to Shareholders.
21. List of Subsidiaries at December 31, 2000.
23. Consent of Turlington and Company, L.L.P.
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the
registrant during the last quarter covered by this
report.
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DESCRIPTION OF BUSINESS
REGISTRANT
LSB Bancshares, Inc. ("Bancshares") is a bank holding company headquartered in
Lexington, North Carolina and registered under the Bank Holding Company Act of
1956, as amended. Bancshares' principal business is providing banking and other
financial services through its banking subsidiary. Incorporated on July 1, 1983,
Bancshares is the parent holding company of Lexington State Bank ("LSB"), a
North Carolina-chartered commercial bank. The principal assets of Bancshares are
all outstanding shares of LSB common stock. At December 31, 2000, Bancshares and
its subsidiary had consolidated assets of $796 million and 352 employees.
SUBSIDIARY BANK
LSB is chartered under the laws of the state of North Carolina to engage in the
business of general banking. Founded in 1949, 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-two offices in thirteen communities located in
Davidson, Forsyth and Stokes counties in North Carolina. LSB operates the only
independent trust department in Davidson County, providing estate planning,
estate and trust administration, IRA trusts, personal investment accounts and
pension and profit-sharing trusts.
NON-BANK SUBSIDIARIES
LSB has two wholly-owned non-bank subsidiaries: Peoples Finance Company of
Lexington, Inc. ("Peoples Finance") and LSB Investment Services, Inc. ("LSB
Investment Services"). Peoples Finance was acquired by LSB on January 1, 1984
and operates as a finance company licensed under the laws of the State of North
Carolina. Peoples Finance operates from two offices located in Lexington and
King, North Carolina with seven employees. As a finance company, 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 was incorporated under the laws of the State of North
Carolina in 1994 and began operations on December 1, 1994. It offers a full
range of uninsured, nondeposit investment products, including mutual funds,
annuities, stocks and bonds. LSB Investment Services operates from offices
located within LSB's home office, the National Highway office and the Stratford
Road office with five employees. LSB Investment Services offers products through
Uvest Investment Services, an independent broker-dealer, which is a member of
the National Association of Securities Dealers and the Securities Investor
Protection Corporation. Investments are neither deposits nor obligations of
Lexington State Bank, nor are they guaranteed or insured by any depository
institution, the FDIC, or any other government agency.
COMPETITION
Commercial banking in LSB's service area is highly competitive. LSB actively
competes with national and state banks, thrift institutions, credit unions,
investment brokers, mortgage and finance companies. Competition of community
banks with regional and national banks has intensified significantly as a result
of deregulation of the financial industry.
REGULATION
As a bank holding company, Bancshares is subject to supervision, examination and
regulation by the Board of Governors of the Federal Reserve System. LSB is
chartered by the State of North Carolina and as such is subject to supervision,
examination and regulation by the North Carolina State Banking Commission. LSB
is also a member of the Federal Deposit Insurance Corporation and is therefore
subject to supervision and examination by that agency.
PROPERTIES
Bancshares' principal executive offices are located at One LSB Plaza, Lexington,
North Carolina. This five-story office building totals 74,800 square feet and
also serves as the home office of LSB. A majority of the major staff functions
are located within this office complex, which is owned by LSB.
In addition, LSB operates twenty-two branch offices and seven off-premise
automated teller locations. Eleven branches are owned by LSB, while eleven
branches and the off-premise ATM locations are leased. LSB's leased properties
are subject to leases that expire on various dates from February 1, 2001 to
February 28, 2010. Peoples Finance operates from a 1,800 square foot, one-story
building located at 203 East Center Street in Lexington, which it owns and a 500
square foot, one-story building located at 607 South Main Street in King, which
it leases. LSB Investment Services leases 800 square feet within the principal
office building of LSB. Except as described herein, Bancshares, LSB, Peoples
Finance and LSB Investment Services own all properties free and clear of
encumbrances.
1
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SUMMARY OF
SELECTED FINANCIAL DATA
Years Ended December 31
(In thousands, except per share data and ratios) 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Interest income .................................. $ 60,943 $ 52,441 $ 49,657 $ 45,467 $ 40,192
Interest expense ................................. 29,202 22,373 21,682 19,547 16,536
-------- -------- -------- -------- --------
Net interest income .............................. 31,741 30,068 27,975 25,920 23,656
Provision for loan losses ........................ 2,550 780 770 785 805
-------- -------- -------- -------- --------
Net interest income
after provision for loan losses ................ 29,191 29,288 27,205 25,135 22,851
Noninterest income ............................... 8,063 7,187 6,585 5,389 4,639
Noninterest expense .............................. 24,540 23,068 21,151 20,426 17,907
-------- -------- -------- -------- --------
Income before income taxes ....................... 12,714 13,407 12,639 10,098 9,583
Income taxes ..................................... 3,919 3,927 3,959 3,336 2,718
-------- -------- -------- -------- --------
Net income ....................................... $ 8,795 $ 9,480 $ 8,680 $ 6,762 $ 6,865
======== ======== ======== ======== ========
Cash dividends declared .......................... $ 4,729 $ 4,775 $ 3,658 $ 2,712 $ 2,158
======== ======== ======== ======== ========
SELECTED YEAR-END ASSETS
AND LIABILITIES
Investment securities ............................ $125,332 $128,819 $143,843 $105,616 $128,101
Loans, net of unearned income .................... 549,065 506,078 436,014 396,991 355,893
Assets ........................................... 795,570 727,759 679,006 616,265 551,845
Deposits ......................................... 671,976 605,422 567,327 503,025 464,921
Shareholders' equity ............................. 74,243 70,724 73,430 67,527 62,862
RATIOS (AVERAGES)
Net income to total assets ....................... 1.13% 1.35% 1.35% 1.16% 1.32%
Net income to shareholders' equity ............... 12.04 13.14 12.30 10.31 11.36
Dividend payout .................................. 53.78 50.36 42.14 40.11 31.43
Shareholders' equity to total assets ............. 9.41 10.28 10.96 11.21 11.62
PER SHARE DATA*
Earnings Per Share:
Basic ......................................... $ 1.04 $ 1.11 $ 1.00 $ .78 $ .80
Diluted ....................................... 1.03 1.09 .98 .77 .79
Cash dividends declared .......................... .56 .56 .42 .35 .25
Book value at end of year ........................ 8.80 8.38 8.42 7.79 7.29
*Per share data has been restated in this table to give effect to the five
for four stock splits paid February 16, 1998 and February 15, 1996.
2
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AVERAGE BALANCES AND
NET INTEREST INCOME ANALYSIS
Table 1
Fully taxable equivalent basis(1) (In thousands)
2000 1999 1998
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Yield/Rate Balance Expense Yield/Rate Balance Expense Yield/Rate
--------------------------------------------------------------------------------------------------
Earning assets:
Loans and leases
receivable, net(2) .......... $ 535,631 $ 49,440 9.23% $473,675 $ 42,520 8.98% $415,463 $ 39,112 9.41%
Taxable securities ........... 108,069 6,358 5.88 95,490 5,455 5.71 96,486 5,544 5.75
Tax exempt securities ........ 33,995 2,358 6.94 35,317 2,579 7.30 33,116 2,550 7.70
Federal Home Loan
Bank ........................ 2,411 188 7.80 2,096 157 7.49 2,228 165 7.41
Interest-Bearing Bank
Balances .................... 6,869 424 6.17 9,714 459 4.73 21,876 1,087 4.97
Federal funds sold and
securities purchased under
resale agreements ........... 43,820 2,775 6.33 39,120 1,975 5.05 33,956 1,903 5.60
--------- -------- -------- -------- -------- --------
Total earning assets ........ 730,795 61,543 8.42 655,412 53,145 8.11 603,125 50,361 8.35
Non-earning assets:
Cash and due from banks ...... 30,560 32,446 25,322
Premises and equipment ....... 11,452 11,461 11,516
Other assets ................. 8,517 7,706 9,103
Reserve for loan losses ...... (5,538) (5,211) (4,799)
--------- -------- -------- -------- -------- --------
Total assets ................ $ 775,786 $ 61,543 $701,814 $ 53,145 $644,267 $ 50,361
========= ======== ======== ======== ======== ========
Interest-bearing liabilities:
Savings and time
deposits .................... $ 569,038 $ 25,664 4.51% $516,346 $ 20,314 3.93% $466,874 $ 19,727 4.23%
Securities sold under
agreements to
repurchase ................. 17,367 1,008 5.80 3,852 154 4.00 6,027 234 3.88
Borrowings from Federal
Home Loan Bank ............. 40,650 2,530 6.22 34,790 1,905 5.48 30,731 1,721 5.60
--------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities ................ 627,055 29,202 4.66 554,988 22,373 4.03 503,632 21,682 4.31
Other liabilities and
shareholders' equity:
Demand deposits ............. 70,937 70,904 65,271
Other liabilities ........... 4,767 3,749 4,779
Shareholders' equity ........ 73,027 72,173 70,585
--------- -------- -------- -------- -------- --------
Total liabilities and
shareholders'
equity .................... $ 775,786 $ 29,202 $701,814 $ 22,373 $644,267 $ 21,682
========= ======== ======== ======== ======== ========
Net interest income and
net interest margin(3) ....... $ 32,341 4.43% $ 30,772 4.70% $ 28,679 4.76%
======== ==== ======== ==== ======== ====
Interest rate spread(4) ...... 3.76% 4.08% 4.04%
==== ==== ====
(1) Income related to securities and loans exempt from federal income taxes is
stated on a fully taxable-equivalent basis, assuming a federal income tax
rate of 34%, and is then reduced by the non-deductible portion of interest
expense.
(2) The average loans and leases receivable balances include non-accruing loans.
Loan fees of $1,395, $1,619 and $1,606 for 2000, 1999 and 1998,
respectively, are included in interest income.
(3) Net interest margin is computed by dividing net interest income by average
earning assets.
(4) Earning assets yield minus interest-bearing liability rate.
3
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF OPERATIONS AND
FINANCIAL CONDITION
Management's discussion as presented herein is intended to provide an overview
of the changes in financial condition and results of operation for LSB
Bancshares, Inc. ("Bancshares") and its wholly-owned subsidiary, Lexington State
Bank ("LSB") for the years 2000, 1999 and 1998. The consolidated financial
statements also include the accounts and results of operations of LSB's wholly
owned subsidiaries, Peoples Finance Company of Lexington, Inc. ("Peoples
Finance") and LSB Investment Services, Inc. ("LSB Investment Services"). This
discussion and analysis is intended to provide pertinent information in the
areas of liquidity, capital resources, results of operation, financial position,
asset quality and interest sensitivity. It should be read in conjunction with
the audited financial statements, notes and supplemental tables provided herein.
Management's discussion contains certain forward-looking statements related to
anticipated future operating and financial performance. These forward-looking
statements are based on estimates, beliefs and assumptions made by management
and are not guarantees of future performance. Actual results may differ from
those expressed or implied as the result of various factors, among which are
movements in interest rates, competitive product pressures, changes in economic
conditions, and changes in regulatory policies.
SUMMARY
Consolidated net income for 2000 totaled $8.795 million, which generated diluted
earnings per share of $1.03, compared to net income for 1999 of $9.480 million
or $1.09 diluted earnings per share. Net income for 1998 was $8.680 million or
diluted earnings per share of $.98. Higher provision for loan losses, as well as
an increased provision for employee health insurance affected earnings for the
year 2000. The loan loss provision for 2000 was increased $1.770 million over
1999 while the provision for employee health insurance was increased $355,000.
Excluding the effects of these charges, Bancshares' net income for 2000 would
have been $10.081 million or $1.19 per diluted share.
Bancshares' operating results for the year reflected strong revenue growth with
increases in net interest income of 5.6% and noninterest income of 12.2%, while
noninterest expenses were held to a 6.4% increase. Bancshares expects expense
growth to moderate going forward as it continues to initiate technology
enhancements.
Interest rates rose steadily during the first half of 2000, following increases
during the second half of 1999. In February 2000, the prime interest rate
increased 25 basis points to 8.75%, followed by an increase of 25 basis points
in March and a 50 basis point increase in May. The prime interest rate at
year-end was 9.50% compared to 8.50% and 7.75% in 1999 and 1998, respectively.
VOLUME AND RATE VARIANCE ANALYSIS
2000 1999
Table 2
Volume Rate Total Volume Rate Total
Fully taxable equivalent basis(1) (In thousands) Variance(2) Variance(2) Variance Variance(2) Variance(2) Variance
----------------------------------- -------------------------------------
Interest income:
Loans receivable ................................. $ 5,706 $ 1,214 $ 6,920 $ 5,264 $(1,856) $ 3,408
Taxable investment securities .................... 737 166 903 (53) (36) (89)
Tax exempt investment securities ................. (95) (126) (221) 165 (136) 29
Federal Home Loan Bank ........................... 24 7 31 (10) 2 (8)
Interest-Bearing Bank Balances ................... (154) 119 (35) (578) (50) (628)
Federal funds sold ............................... 257 543 800 271 (199) 72
------- ------- ------- ------- ------- -------
Total interest income ......................... 6,475 1,923 8,398 5,059 (2,275) 2,784
------- ------- ------- ------- ------- -------
Interest expense:
Savings and time deposits ........................ 2,187 3,163 5,350 2,030 (1,443) 587
Securities sold under agreements to repurchase ... 757 97 854 (87) 7 (80)
Borrowings from Federal Home Loan Bank ........... 347 278 625 222 (38) 184
------- ------- ------- ------- ------- -------
Total interest expense ........................ 3,291 3,538 6,829 2,165 (1,474) 691
------- ------- ------- ------- ------- -------
Increase (decrease) in net interest income ....... $ 3,184 $(1,615) $ 1,569 $ 2,894 $ (801) $ 2,093
======= ======= ======= ======= ======= =======
(1) Income related to securities and loans exempt from federal income taxes is
stated on a fully taxable-equivalent basis, assuming a federal income tax
rate of 34%, and is then reduced by the non-deductible portion of interest
expense.
(2) The volume/rate variance for each category has been allocated on a
consistent basis between rate and volume variances, based on the percentage
of rate, or volume, variance to the sum of the two absolute variances.
4
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Return on average assets for 2000 was 1.13%, compared to 1.35% for 1999 and
1998. Return on average shareholders' equity was 12.04% for 2000 compared to
13.14% for 1999 and 12.30% for 1998.
For 2000, net interest income increased $1.673 million or 5.6% compared to
$2.093 million or 7.5% in 1999 and $2.055 million or 7.9% in 1998. Noninterest
income in 2000 increased $876,000 or 12.2% compared to $602,000 or 9.1% in 1999
and $1.196 million or 22.2% in 1998. Noninterest expense for 2000 increased
$1.472 million or 6.4% while increasing $1.917 million or 9.1% in 1999 and
$725,000 or 3.5% in 1998.
Total assets grew $67.811 million or 9.3% in 2000 compared to 1999, which was up
$48.753 million or 7.2% from 1998. Asset growth for 1998 was $62.741 million or
10.2%. Loan growth for 2000 was $42.987 million or 8.5% compared to $70.064
million or 16.1% for 1999 and $39.023 million or 9.8% for 1998. Deposit growth
in 2000 posted a gain of $66.554 million or 11.0% compared to gains of $38.095
million or 6.7% in 1999 and $64.302 million or 12.8% in 1998.
MARKET RISK MANAGEMENT
The objectives of market risk management are to ensure long-range profitability
performance and minimize risk, adhere to proper liquidity and maintain sound
capital. To meet these goals, the process of asset/liability management monitors
the exposure to interest rate risk, balance sheet trends, pricing policies and
liquidity position.
Profitability and performance are affected by balance sheet composition and
interest rate movements. Management's responsibility for both liquidity and
interest sensitivity reside with a designated Asset/Liability Management
Committee ("ALCO"). The ALCO Committee as a part of its asset/liability
management decision-making process evaluates all market conditions, interest
rate trends and the economic environment. Based upon its view of existing and
expected market conditions, the ALCO Committee adopts balance sheet strategies
intended to optimize net interest income to the extent possible while minimizing
the risk associated with unanticipated changes in interest rates.
Cash and cash equivalents, maturing investments and loans, and securities
available for sale are principal sources of liquidity for LSB. Correspondent
relationships are also maintained with several large banks in order to have
access to federal funds purchases as a secondary source of liquidity. LSB also
has available lines of credit maintained with the Federal Home Loan Bank of
Atlanta which can be used for funding and/or liquidity needs. This credit is
collateralized by a blanket lien on qualifying loans
INTEREST SENSITIVITY ANALYSIS(1)
December 31, 2000
TABLE 3
Total
(In thousands) 1 - 90 91 - 180 181-365 Sensitive 1 - 5 Over
Day Day Day Within Year 5-Year
Sensitive Sensitive Sensitive One Year Sensitive Sensitive Total
-------------------------------------------------------------------------------
Interest-earning assets:
Loans, net of unearned income ..................... $ 150,899 $ 37,777 $ 73,241 $ 261,917 $234,395 $ 52,753 $549,065
U.S. Treasury securities .......................... 999 2,005 4,022 7,026 14,156 21,182
U.S. government agencies obligations .............. 1,999 1,498 9,569 13,066 53,422 2,000 68,488
Obligations of states and political subdivisions .. 707 2,370 3,077 5,830 24,278 33,185
Federal Home Loan Bank ............................ 2,477 2,477 2,477
Interest-Bearing Bank Balances .................... 7,757 7,757 7,757
Federal funds sold ................................ 69,555 69,555 69,555
--------- --------- -------- --------- -------- -------- --------
Total interest-earning assets .................. $ 234,393 $ 43,650 $ 86,832 $ 364,875 $307,803 $ 79,031 $751,709
========= ========= ======== ========= ======== ======== ========
Interest-bearing liabilities:
N.O.W. account deposits ........................... $ 110,987 $ 110,987 $110,987
Money market deposits(2) .......................... 52,573 52,573 $122,234 174,807
Regular savings deposits(2) ....................... 5,086 5,086 27,746 32,832
Time deposits ..................................... 83,024 $ 90,400 $ 74,623 248,047 29,715 277,762
Securities sold under agreements to repurchase .... 3,002 3,002 3,002
Borrowing from Federal Home Loan Bank ............. 2,150 2,150 20,300 $ 18,000 40,450
--------- --------- -------- --------- -------- -------- --------
Total interest-bearing liabilities ............. $ 256,822 $ 90,400 $ 74,623 $ 421,845 $199,995 $ 18,000 $639,840
========= ========= ======== ========= ======== ======== ========
Interest sensitivity gap .......................... $ (22,429) $ (46,750) $ 12,209 $ (56,970)
Ratio of interest-sensitive assets/
interest-sensitive liabilities .................. .91 .48 1.16 .86
(1) Interest sensitivity is computed using assets and liabilities having
interest rates that can be adjusted during the period indicated.
(2) Maturity of deposits without a contractual maturity date was computed using
an asset/liability simulation model.
5
9
SUMMARY OF INVESTMENT SECURITIES PORTFOLIO
Table 4 December 31, 2000 December 31, 1999 December 31, 1998
(In thousands) Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
--------------------- -------------------- ---------------------
U.S. Treasury securities......................... $ 21,076 $ 21,188 $ 27,622 $ 27,405 $ 36,668 $ 37,510
U.S. government agencies obligations............. 68,592 68,440 64,630 62,577 66,558 66,683
Mortgage-backed obligations...................... 0 0 436 430 716 713
Obligations of state and political subdivisions.. 33,154 33,956 34,848 34,482 36,642 38,247
Federal Home Loan Bank........................... 2,477 2,477 2,258 2,258 2,169 2,169
-------- -------- -------- -------- -------- --------
Total securities............................... $125,299 $126,061 $129,794 $127,152 $142,753 $145,322
======== ======== ======== ======== ======== ========
As of the latest reported period, the registrant is not aware of any issuer, and
the aggregate book value and aggregate market value of the securities of such
issuer, when the aggregate book value of such securities exceeds 10% of the
registrant's shareholders' equity.
secured by first mortgages on 1-4 family residences. LSB has also executed a
retail CD brokerage agreement, which provides an additional source of liquidity
for funding needs.
Asset/Liability management includes analyzing interest sensitivity, which
pertains to possible changes in the rates of certain assets and liabilities
before their scheduled maturities. The asset/liability management process also
seeks to match maturities and repricing opportunities of interest-sensitive
assets and liabilities to minimize risk of interest rate movements. Full
discussion of the effects of these respective portfolios on LSB's performance
for 2000 can be found under the headings of Earning Assets and Interest-Bearing
Liabilities. The interest sensitivity schedule analyzing the interest rate risk
as of December 31, 2000 is presented in Table 3. Within this analysis, projected
runoff of deposits that do not have a contractual maturity date was computed
using the bank's asset/liability simulation model. As interest sensitivity is
continually changing, Table 3 reflects LSB's balance sheet position at one point
in time and is not necessarily indicative of its position on other dates. On
December 31, 2000 the one-year cumulative interest sensitivity gap was a
negative $56.970 million for a ratio of interest-sensitive assets to
interest-sensitive liabilities of .86.
Asset/liability management also addresses liquidity positioning. Liquidity
management is required in order to fund current and future extensions of credit,
meet deposit withdrawals, maintain reserve requirements and otherwise sustain
operations. As such, it is related to interest rate sensitivity management, in
that each is affected by maturing assets and liabilities. While interest
sensitivity management is concerned with repricing intervals of assets and
liabilities, liquidity management is concerned with the maturities of those
respective balances. An appropriate liquidity position is further accomplished
through deposit growth and access to sources of funds other than deposits, such
as the federal funds market. Traditionally, LSB has been a seller of excess
investable funds in the federal funds market and uses these funds as a part of
its liquidity management. Net cash provided by operating activities, a primary
source of liquidity, was $13.961 million in 2000 compared to $13.658 million in
1999 and $3.462 million in 1998. Details of cash flows for the years 2000, 1999
and 1998 are provided in the Consolidated Statements of Cash Flows.
NET INTEREST INCOME
Net interest income represents the dollar amount by which interest generated
from earning assets exceeds the cost of funds and is the primary source of
revenue for LSB. Earning assets for LSB consist primarily of loans and
investment securities while its cost of funds is the interest paid on
interest-bearing deposits and borrowed funds. Net interest income is affected by
various factors, among which are the volume of interest-earning assets and
interest-bearing liabilities and the interest rates earned and paid on those
assets and liabilities. Table 1 provides an analysis of average volumes, yields
and rates and net interest income on a tax-equivalent basis for the three years
ended December 31, 2000, 1999 and 1998. Tax-exempt income has been adjusted so
that it will be comparable to taxable income.
For 2000, tax-equivalent net interest income totaled $32.341 million compared to
$30.772 million for 1999 and $28.679 million for 1998. The increase in net
interest income during 2000 resulted from increased interest income on loans,
which was up $6.920 million; taxable securities were up $903,000 and Federal
funds sold which were up $800,000. During the same period, higher interest rates
on deposits and borrowed funds, along with increased volumes, resulted in an
increase of $6.829 million in total cost of funds.
The net interest margin is calculated on a tax-equivalent basis by dividing net
interest income by average earning assets. For 2000, the tax-equivalent net
interest margin was 4.43% compared to 4.70% for 1999 and 4.76% for 1998.
Interest rates began to increase the second half of 1999 as the Federal Reserve
attempted to slow the economy. These increases continued through the first half
of 2000. While this interest rate environment increased the overall yield on
earning assets, it dramatically
6
10
affected LSB's cost of funds. The average yield on earning assets increased 31
basis points in 2000 while the average rate on interest-bearing liabilities
increased 63 basis points. This placed the interest rate spread at 3.76% for
2000 compared to 4.08% for 1999 and 4.04% for 1998.
Average loan volume and yield increased in 2000 producing favorable results for
LSB's net interest income. Total average earning assets in 2000 increased
$75.383 million or 11.5% compared to $52.287 million or 8.7% in 1999. Total
average interest-bearing liabilities increased $72.067 million or 13.0% compared
to $51.356 million or 10.2% in 1999. The decrease in the net interest margin in
2000 was principally due to a more rapid increase in the average rate paid on
interest-bearing liabilities than that experienced on average yield on earning
assets. A more detailed discussion of the volume and rate variance is held under
the sections of Earning Assets and Interest-Bearing Liabilities. An analysis of
volume and rate changes is presented in Table 2.
EARNING ASSETS
Average earning assets gained $75.383 million or 11.5% in 2000 compared to
$52.287 million or 8.7% in 1999 and $56.615 million or 10.4% in 1998. The loan
portfolio accounted for the majority of this gain with an increase of $61.956
million or 13.1% in 2000 compared to increases of $58.212 million or 14.0% in
1999 and $35.791 million or 9.4% in 1998.
INVESTMENT SECURITIES
PORTFOLIO MATURITY SCHEDULE
December 31, 2000
Table 5
Weighted
(In thousands) Carrying Average
Value Yield(1)
----------------------
U.S. Treasury securities:
Within one year .................................... $ 6,999 6.78%
One to five years .................................. 14,077 6.20
--------
Total ............................................. 21,076 6.39
--------
U.S. government agencies obligations:
Within one year .................................... 13,109 5.79
One to five years .................................. 53,483 6.38
Five to ten years .................................. 2,000 7.61
--------
Total ............................................. 68,592 6.31
--------
Obligations of states and political subdivisions:
Within one year .................................... 3,078 10.32
One to five years .................................. 5,821 8.71
Five to ten years .................................. 12,871 8.35
After ten years .................................... 11,384 7.65
--------
Total ............................................. 33,154 8.35
--------
Federal Home Loan Bank .............................. 2,477 7.75
--------
Total securities .................................... $125,299 6.87
========
(1)Income related to securities and loans exempt from federal income taxes is
stated on a fully taxable-equivalent basis, assuming a federal income tax
rate of 34%, and is then reduced by the non-deductible portion of interest
expense.
Table 2, Volume and Rate Variance Analysis, distinguishes between the changes in
average outstanding balances of interest-earning assets and interest-bearing
liabilities (volume variance) and changes in average interest rates (rate
variance). Any changes attributable to both volume and rate have been allocated
proportionately.
Increasing interest rates and continued loan demand in 2000 resulted in a
positive variance for loans receivable in both volume and rate. With a 13.1%
increase in average loans outstanding in 2000 compared to 1999, the variance
related to volume was $5.706 million. The average yield on loans receivable
increased 25 basis points in 2000 creating a rate variance of $1.214 million.
The total average balance of the investment securities portfolio in 2000 was
$142.064 million, up $11.257 million or 8.6% from 1999. Investment securities
held-to-maturity at December 31, 2000 was $72.828 million compared to $68.551
million at December 31, 1999. The investment portfolio of available-for-sale
securities at December 31, 2000 was $52.504 million compared to $60.268 million
at December 31, 1999.
The average balance of the taxable investment securities portfolio in 2000
increased $12.579 million or 13.2% over 1999 and resulted in a positive volume
variance of $737,000. Yields on the portfolio increased 17 basis points in 2000
producing a rate variance of $166,000. The total earnings variance for taxable
securities was $903,000. The average balance of the tax-exempt securities
portfolio declined $1.322 million or 3.7% from 1999 levels, while yields dropped
36 basis points in 2000 producing a negative total variance of $221,000.
Funds maintained with the Federal Home Loan Bank, on average, increased slightly
in 2000 producing a positive volume variance of $24,000, while an increase of 31
basis points in the yield resulted in a positive $7,000 rate variance.
Balances of short-term investments in interest bearing accounts with bank
approved institutions were reduced during 2000 creating a negative volume
variance of $154,000. Average yields on these investments increased 144 basis
points in 2000 producing a positive rate variance of $119,000.
Overnight investments in federal funds sold and securities purchased under
resale agreements increased in average balances during 2000 by $4.700 million or
12.0% compared to 1999. This resulted in a positive volume variance of $257,000.
Yields on these overnight investments increased 128 basis points in 2000
resulting in a positive rate variance of $543,000.
As of the latest reported period, LSB is not aware of any issuer (and the
aggregate book value and aggregate market value of the securities of such
issuer), where the aggregate book value
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11
AVERAGE TOTAL DEPOSITS
Table 6 2000 1999 1998
(In thousands) Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
--------------------- --------------------- ----------------------
Demand deposits .............. $ 70,937 $ 70,904 $ 65,271
N.O.W. account deposits ...... 110,556 2.02% 103,411 2.09% 96,809 2.44%
Money market deposits ........ 168,160 4.65 156,144 4.00 113,798 4.05
Regular savings deposits ..... 34,307 1.83 36,592 1.66 44,285 1.77
Time deposits ................ 256,015 5.86 220,199 5.07 211,982 5.65
-------- -------- --------
Total deposits(1) ........... $639,975 $587,250 $532,145
======== ======== ========
December 31, 2000
Over 3 Over 6
3 Months Through Through Over 12
Or Less 6 months 12 months Months Total
---------------------------------------------------------------
Time deposit maturity schedule:(2)
Time deposits of $100,000 or more ........... $35,900 $27,134 $16,378 $311 $79,723
(1) The bank has no deposits in foreign offices.
(2) The bank has no other time deposits of $100,000 or more issued by
domestic offices.
of such securities exceeds ten percent of the registrant's shareholders' equity.
INTEREST BEARING LIABILITIES
Average interest-bearing liabilities gained $72.067 million or 13.0% in 2000
compared to $51.356 million or 10.2% in 1999 and $49.203 million or 10.8% in
1998. The average rate paid on interest-bearing liabilities increased 63 basis
points in 2000 following a decline of 28 basis points in 1999.
The majority of LSB's interest-bearing liabilities consist of savings and time
deposits. In 2000, average deposits increased $52.692 million or 10.2% compared
to $49.472 million or 10.6% in 1999 and $41.385 million or 9.7% in 1998. The
average interest rate paid on these deposits increased 58 basis points in 2000
following a 30 basis point decrease in 1999. The total variance for 2000 for
savings and time deposits was $5.350 million with $2.187 million attributable to
volume variance and $3.163 million attributable to rate variance.
The schedule for average deposits is presented in Table 6 for years 2000, 1999
and 1998. Time deposits had the largest increase in average balances for 2000
with a gain of $35.816 million or 16.3% over 1999. The average rate paid on
these deposits increased 79 basis points compared to 1999. Money market deposits
increased $12.016 million in 2000 with the average rate paid increasing 65 basis
points. In 2000, N.O.W. account deposits gained $7.145 million or 6.9% over
1999. The average rate paid on these deposits dropped seven basis points in
2000. Regular savings deposits decreased in average balances in 2000 by $2.285
million or 6.2% while the average rate paid these depositors increased 17 basis
points.
Securities sold under agreements to repurchase account for a relatively small
portion of total interest-bearing liabilities for LSB. In 2000, however, the
average balance of securities sold under agreements to repurchase increased
$13.515 million with the influx of short-term funds. The interest rates paid on
these short-term funds also rose in 2000 to be 180 basis points over those paid
in 1999. Total variance for 2000 for these liabilities was $854,000, with
$757,000 attributable to volume variance and $97,000 attributable to rate
variance.
Average borrowed funds from the Federal Home Loan Bank in 2000 were $40.650
million, an increase of $5.860 million or 16.8% over 1999. As shown in the
Volume and Rate Variance Analysis, Table 2, this produced a volume variance of
$347,000, while the 74 basis point increase in the 2000 rate paid on these
borrowings created a $278,000 rate variance.
CAPITAL RESOURCES AND SHAREHOLDERS' EQUITY
The Board of Directors ("Board") of Bancshares approved a stock repurchase
program in November of 1998 for up to 300,000 shares of its common stock. This
represented approximately 3.4% of its outstanding shares at that time. The
Board authorized the repurchase of shares of common stock in the open market or
privately negotiated transactions on a time-to-time and ongoing basis,
depending upon market conditions and subject to compliance with all applicable
securities laws and regulations. The repurchase plan assisted in the goal of
building shareholder value and maintaining appropriate capital levels. In August
1999, the Board approved an extension of the stock repurchase program for up to
an additional 300,000 shares of Bancshares' common stock, or approximately 3.5%
of the out-
8
12
standing shares. In calendar year 2000, Bancshares repurchased 57,283 shares
under the Plan at an average cost of $13.15. Total repurchase of shares under
the Plan, as of December 31, 2000 has been 423,781 shares at an average cost of
$18.43 per share. Shareholders' equity at December 31, 2000, was $74.243
million, an increase of 5.0% compared to December 31, 1999. Average
shareholders' equity as a percentage of average total assets at December 31 was
9.41% in 2000 compared to 10.28% in 1999 and 10.96% in 1998.
Regulatory guidelines require minimum levels of capital based on a risk
weighting of each asset category and off balance sheet contingencies. Regulatory
agencies divide capital into Tier 1 or core capital and total capital. Tier 1
capital, as defined by regulatory agencies, consists primarily of common
shareholders' equity less goodwill and certain other intangible assets. Total
capital consists of Tier 1 capital plus the allowable portion of the reserve for
loan losses and certain long-term debt. At December 31, 2000, based on these
measures, Bancshares' had a Tier 1 capital ratio of 13.98% compared to the
regulatory requirement of 4% and a total capital ratio of 15.11% compared to an
8% regulatory requirement.
Additional regulatory capital measures include the Tier 1 leverage ratio. Tier 1
leverage ratio is defined as Tier 1 capital divided by average total assets less
goodwill and certain other intangibles and has a regulatory minimum of 3.0%,
with most institutions required to maintain a ratio of at least 4.0% to 5.0%,
depending primarily upon risk profiles. At December 31, 2000, Bancshares' Tier 1
leverage ratio was 9.21%.
The number of shareholders holding Bancshares stock totaled approximately 6,100
at December 31, 2000. Participants in Bancshares' dividend reinvestment plan
total 1,572 representing 25.8% of total shareholders and held a total of 721,509
shares.
NONINTEREST INCOME
Noninterest income for 2000 increased $876,000 or 12.2% compared to an increase
of $602,000 or 9.1% in 1999 and an increase of $1.196 million or 22.2% in 1998.
Service charges on deposit accounts for 2000 increased $445,000 or 14.0%
compared to increases of $455,000 or 16.8% in 1999 and $166,000 or 6.5% in 1998.
The realized gains from the sale of mortgage loans in 2000 totaled $145,000
compared to $273,000 in 1999 and $328,000 in 1998. Other operating income
increased $372,000 or 9.9% in 2000 compared to increases of $202,000 or 5.7% in
1999 and $856,000 or 31.9% in 1998. Financial statement Note 9 details material
items contained in other operating income. Bankcard income generated
SUMMARY OF LOAN PORTFOLIO
Table 7
(In thousands)
2000 1999 1998 1997 1996
----------------------------------------------------------------
Commercial, financial and agricultural ...... $172,058 $153,252 $144,955 $132,181 $131,235
Real estate - construction .................. 36,058 28,130 19,131 12,978 10,493
Real estate - mortgage ...................... 267,735 250,173 206,068 185,384 145,845
Installment loans to individuals ............ 64,161 65,882 62,747 62,909 60,181
Lease financing ............................. 168 820 978 792 678
Other ....................................... 8,885 7,821 2,135 2,747 7,461
-------- -------- -------- -------- --------
Total loans, net of unearned income ......... $549,065 $506,078 $436,014 $396,991 $355,893
======== ======== ======== ======== ========
(*) The bank has no foreign loan activity.
MATURITIES AND SENSITIVITIES OF
LOANS TO CHANGES IN INTEREST RATES
December 31, 2000
Commercial,
financial Real estate -
and agricultural construction Total
--------------------------------------------------
Due in 1 year or less ........ $ 67,528 $36,058 $103,586
Due after 1 year through
5 years:
Fixed interest rates ....... 73,436 73,436
Floating interest rates .... 8,095 8,095
Due after 5 years:
Fixed interest rates ....... 19,162 19,162
Floating interest rates .... 3,837 3,837
-------- ------- --------
Total ..................... $172,058 $36,058 $208,116
======== ======= ========
9
13
ANALYSIS OF RESERVE FOR LOAN LOSSES
Table 8 As of Or For the Years Ended
December 31
(In thousands)
2000 1999 1998 1997 1996
------------------------------------------------------------
Average amount of loans outstanding, net of unearned income .. $535,631 $473,675 $415,463 $379,672 $ 324,195
Amount of loans outstanding, net of unearned income .......... 549,065 506,078 436,014 396,991 355,893
Reserve for loan losses:
BALANCE ON JANUARY 1 ......................................... $ 5,246 $ 5,048 $ 4,601 $ 4,075 $ 3,711
-------- -------- -------- -------- ---------
Loans charged off:
Secured by real estate ....................................... 0 0 0 0 57
Commercial and industrial .................................... 1,403 259 65 382 225
Installment .................................................. 343 291 285 330 197
Credit card .................................................. 300 198 101 139 93
-------- -------- -------- -------- ---------
Total charge-offs .......................................... 2,046 748 451 851 572
-------- -------- -------- -------- ---------
Recoveries of loans previously charged off:
Secured by real estate ....................................... 0 6 0 0 0
Commercial and industrial .................................... 21 16 9 486 20
Installment .................................................. 128 108 91 89 86
Credit card .................................................. 60 36 28 17 25
-------- -------- -------- -------- ---------
Total recoveries ........................................... 209 166 128 592 131
-------- -------- -------- -------- ---------
Net loans charged off .......................................... 1,837 582 323 259 441
-------- -------- -------- -------- ---------
Provision for loan losses ...................................... 2,550 780 770 785 805
-------- -------- -------- -------- ---------
BALANCE ON DECEMBER 31 ....................................... $ 5,959 $ 5,246 $ 5,048 $ 4,601 $ 4,075
======== ======== ======== ======== =========
Ratio of net charge-offs of loans to average loans
outstanding during the year ................................ .34% .12% .08% .07% .14%
in 2000 increased $313,000 or 26.1% compared to $319,000 or 36.3% in 1999 and
$319,000 or 57.1% in 1998. Fee income generated from the servicing of mortgage
loans sold and customer related service fees increased $126,000 or 15.7% in
2000, $78,000 or 10.8% in 1999 and $148,000 or 25.7% in 1998. Financial services
commissions generated by LSB's subsidiary, LSB Investment Services, increased in
2000 by $291,000 or 48.1% following 1999's decline due to staff attrition.
Proper staffing was accomplished during 1999 and an expansion of the Investment
Services' market began. Commissions from the subsidiary had decreased in 1999 by
$216,000 or 26.3% compared to 1998's increase of $364,000 or 79.6%. Trust income
for 2000 increased $6,000 or 1.1% compared to $33,000 or 6.6% in 1999 and
$56,000 or 12.6% in 1998.
NONINTEREST EXPENSE
Total noninterest expense, excluding merger-related costs and restructuring
charges, was $24.540 million in 2000 compared to $23.068 million in 1999 and
$20.991 million in 1998. These amounts represent increases of $1.472 million or
6.4% for 2000 compared to $2.077 million or 9.9% for 1999 and $2.059 or 10.9%
for 1998.
Personnel expense, which consists of employee salaries and benefits,
represented the majority of the total noninterest expense increase for 2000. The
provision for employee health insurance was increased $355,000 in 2000 to
maintain adequate reserves. Personnel expense increased a total of $1.291
million or 10.5% in 2000 compared to increases of $1.153 million or 10.3% for
1999 and $785,000 or 7.6% for 1998. With the exception of the additional
provision for employee health insurance, these increases are attributable to
normal increases in compensation and increases in the number of full-time
equivalent employees. In 2000, full-time equivalent employees totaled 352
compared to 340 in 1999.
Occupancy expense increased a modest $13,000 or 1.0% in 2000 compared to
increases of $23,000 or 1.8% in 1999 and $36,000 or 2.9% in 1998. Equipment
depreciation and maintenance expense for 2000 was up $132,000 or 10.1% from
1999, which increased $76,000, or 6.2% over 1998. Other operating expenses in
2000 increased a modest $36,000 or 0.4% compared to a 1999 increase of $825,000
or 11.3%. Financial statement Note 9 details the material items contained in
other operating expenses. In 2000, renewed emphasis was placed on LSB's
automation program resulting in an increase in automated services expense of
$190,000 or 13.1% compared to 1999. LSB's expanded automation program is
designed to enhance customer service and improve operating efficiencies.
Bankcard expense for 2000 increased $157,000 or 16.1% compared to $272,000 or
38.7% in 1999. The increase is attributable to increased volume and growth in
the bankcard portfolio. Legal and professional expense for 2000 decreased
$236,000 or 20.7% compared to an increase in 1999 of $104,000 or 10.1%.
10
14
Other expenses were also down in 2000 by $100,000 or 3.5% following increases of
$293,000 or 11.3% in 1999 and $465,000 or 22.6% in 1998.
ASSET QUALITY AND PROVISION FOR LOAN LOSSES
Increased interest rates over the last half of 1999 and the first half of 2000
resulted in a slowing of the economy during the last half of 2000. While LSB's
overall credit quality and underwriting standards remain sound, specific
credit concerns were identified and addressed in the third and fourth quarters
of 2000. During this period the reserve for loan losses was raised to $5.959
million at December 31, 2000 compared to $5.246 million at December 31 1999.
The slowing economy also had an effect on nonperforming assets, and in
particular accruing loans ninety days or more past due. Nonperforming assets are
defined as nonaccrual loans, restructured loans, other real estate acquired
through foreclosed properties and accruing loans ninety days or more past due.
At December 31, 2000 nonperforming assets were $2.984 million, compared to
$2.090 million at December 31, 1999 and $1.912 million at December 31, 1998.
Accruing loans past due ninety days or more increased to $1.316 million at
December 31, 2000 from $821,000 at December 31, 1999. Nonaccrual loans at
December 31, 2000 decreased to $57,000 from $96,000 at December 31, 1999. The
accrual of interest is generally discontinued on all loans that become ninety
days past due as to principal or interest unless collection of both principal
and interest is assured by way of collateralization, guarantees or other
security and the loan is considered to be in the process of collection. Total
nonperforming assets as a percentage of loans outstanding at the end of the year
amounted to 0.54% in 2000, 0.41% in 1999 and 0.44% in 1998.
Adequate provisions and allowances for loan loss reserves are based on numerous
factors including the growth of the loan portfolio, delinquencies, net
charge-offs, non-performing loans and collateral values. At December 31, 2000,
the reserve for loan losses of $5.959 million was 1.09% of loans outstanding
compared to $5.246 million or 1.04% of loans outstanding at December 31, 1999.
Net charge offs for 2000 were $1.837 million or .34% of average loans
outstanding, compared to 1999 net charge offs of $582,000 or .12%.
The provision for loan losses charged to operations was increased to $2.550
million during 2000 to address specific third and fourth quarter credit
concerns, compared to a 1999 provision of $780,000. The reserve for loan losses
was at 2.00 times nonperforming loans at December 31, 2000 compared to 2.51
times nonperforming loans at December 31, 1999. Based on the current loan
portfolio and levels of current problem assets and potential problem loans,
management believes the provision for loan losses to be adequate. In
management's judgment, the allocation of the reserve for loan losses for 2000
reflected in Table 10 accurately reflects the inherent risks associated with
each of the various lending categories.
As a part of credit administration, management regularly reviews and grades its
loan portfolio for purposes of determining asset quality and the need to make
additional provisions for
NONPERFORMING ASSETS
Table 9
(In thousands) December 31
2000 1999 1998 1997 1996
----------------------------------------------------------
Nonaccrual loans:
Secured by real estate ........................................... $ 0 $ 0 $ 0 $ 0 $ 424
Commercial and industrial ........................................ 57 96 0 127 187
Restructured loans ................................................ 338 137 232 502 259
Other real estate acquired through foreclosed properties .......... 1,273 1,036 921 1,192 1,151
Accruing loans which are contractually past due 90 days or more ... 1,316 821 759 334 369
------ ------ ------ ------ ------
Total nonperforming assets ........................................ $2,984 $2,090 $1,912 $2,155 $2,390
====== ====== ====== ====== ======
Nonperforming assets to:
Loans outstanding at end of year ................................. .54% .41% .44% .54% .67%
Total assets at end of year ...................................... .38 .29 .28 .35 .43
Years Ended December 31
2000 1999 1998 1997 1996
----------------------------------------------------------
Loss of interest income associated with nonperforming loans at
December 31:
Interest income that would have been recorded in accordance
with original terms .............................................. $ 11 $ 15 $ 0 $ 1 $ 52
Less interest income actually recorded ............................ 0 0 0 0 3
------ ------ ------ ------ ------
Loss of interest income ........................................... $ 11 $ 15 $ 0 $ 1 $ 49
====== ====== ====== ====== ======
11
15
ALLOCATION OF RESERVE FOR LOAN LOSSES (*)
Table 10 2000 1999 1998 1997 1996
Loans Loans Loans Loans Loans
(In thousands) % % % % %
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------------------------------------------------------------------------------------------------
Commercial, financial
and agricultural ...... $1,680 31.3% $1,420 30.3% $1,330 33.2% $1,212 33.3% $1,075 36.9%
Real estate -
construction .......... 643 6.6 566 5.6 555 4.4 506 3.3 450 2.9
Real estate -
mortgage .............. 2,385 48.8 2,100 49.4 2,000 47.4 1,815 46.7 1,529 41.0
Installment loans to
individuals ........... 1,000 11.7 908 13.0 913 14.3 828 15.8 766 16.9
Lease financing ........ 41 .0 60 .2 60 .2 55 .2 55 .2
Other .................. 110 1.6 92 1.5 90 .5 85 .7 110 2.1
Unallocated ............ 100 .0 100 .0 100 .0 100 .0 90 .0
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total ................. $5,959 100.0% $5,246 100.0% $5,048 100.0% $4,601 100.0% $4,075 100.0%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
(*) The reserve for loan losses has been allocated only on an approximate
basis. The entire amount of the reserve is available to absorb losses
occurring in any category. The allocation is not necessarily indicative
of future losses.
loan losses. The review process is performed both internally and externally,
through the employment of independent credit review professionals. As a part of
the external credit review for 2000, samples were reviewed of consumer loans,
small-business loans and commercial loans with balances of $200,000 and over.
All loans on the bank's watch list were reviewed as well. A review of large
credits was conducted by a regulatory agency examination revealing that there
were no material problem credits that had not been previously identified by
management.
The reserve for loan losses represents management's estimate of an amount
adequate to provide for the risk of future losses inherent in the loan
portfolio. In its on-going analysis of the reserve for loan losses and its
adequacy, management considers historic loan loss experience, economic risks
associated with each of the lending categories, amount of past due and
non-performing loans, underlying collateral values securing loans and credit
concentrations and other factors which might affect potential credit losses. LSB
is also subject to regulatory examinations and determinations as to the adequacy
of its reserve for loan losses, which may take into account such factors as the
methodology used to calculate the reserve and the size of the reserve in
comparison to peer banks identified by the regulatory agencies.
There are, however, additional risks of future losses that cannot be quantified
precisely or attributed to particular loans or classes of loans. Because these
risks include the state of the economy and factors affecting particular
borrowers, management's judgment as to the adequacy of the reserve for loan
losses is necessarily approximate and imprecise. In its oversight of the credit
review process, management has not identified any undue economic risks
associated with the various lending categories, nor any significant credit
concentrations within these categories.
Loans classified for regulatory purposes as loss, doubtful, sub-standard or
special mention that have not been disclosed in Table 9, "Nonperforming Assets",
do not represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or represent material credits about which management is
aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
INCOME TAXES
Income tax expense is recorded based on amounts currently payable. Income tax
expense was $3.919 million in 2000 compared to $3.927 million in 1999 and
$3.959 million in 1998. Bancshares' effective tax rate increased to 30.8% in
2000 from 29.3% in 1999 compared to 31.3% in 1998. Financial statement Note 10
provides a reconciliation between the amount of taxes computed using the
statutory tax rate and the actual tax expense.
INFLATION
For financial institutions, the effects of inflation and governmental programs
to control it tend to vary from non-bank companies. The impact is more likely
to be felt by banking institutions in interest rates associated with earning
assets and interest bearing liabilities. Reduced inflation tends to improve
interest margins associated with interest-bearing assets and liabilities.
Broad-ranged economic conditions such as inflation, and governmental efforts
to spur economic growth, are difficult for individual companies to respond to
effectively. Consistent long-term management is the key to dealing with such
conditions. The objective of management in such times is to remain
12
16
QUARTERLY FINANCIAL DATA
Table 11
(In thousands except per share data) 2000 1999
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
-------------------------------------------------------------------------------------
Interest income .................. $16,111 $15,647 $15,057 $14,128 $13,578 $13,338 $12,993 $12,532
Interest expense ................. 7,974 7,751 7,042 6,435 5,962 5,668 5,422 5,321
------- ------- ------- ------- ------- ------- ------- -------
Net interest income .............. 8,137 7,896 8,015 7,693 7,616 7,670 7,571 7,211
Provision for loan losses ........ 1,155 815 385 195 165 215 235 165
------- ------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses ...... 6,982 7,081 7,630 7,498 7,451 7,455 7,336 7,046
------- ------- ------- ------- ------- ------- ------- -------
Noninterest income ............... 2,096 2,060 1,945 1,962 1,890 1,704 1,862 1,731
------- ------- ------- ------- ------- ------- ------- -------
Noninterest expense .............. 6,107 6,202 6,201 6,030 5,914 5,874 5,773 5,507
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes ....... 2,971 2,939 3,374 3,430 3,427 3,285 3,425 3,270
Income taxes ..................... 935 913 1,044 1,027 1,080 884 951 1,012
------- ------- ------- ------- ------- ------- ------- -------
Net income ....................... $ 2,036 $ 2,026 $ 2,330 $ 2,403 $ 2,347 $ 2,401 $ 2,474 $ 2,258
======= ======= ======= ======= ======= ======= ======= =======
Earnings per share:
Basic ........................... $ .24 $ .24 $ .28 $ .28 $ .28 $ .28 $ .29 $ .26
Diluted ......................... .24 .24 .27 .28 .27 .28 .28 .26
positioned for growth when the economy rebounds. Management seeks to do this
through its long-range budget and profit-planning process.
ACCOUNTING AND REGULATORY ISSUES
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities". SFAS 133 establishes accounting and reporting standards for
derivative instruments, including derivative instruments that are embedded in
other contracts and for hedging activities. SFAS 133 requires that all
derivatives be recognized as either assets or liabilities on the balance sheet
at their fair value. Requirements of SFAS 133 could affect the amount of an
institution's recorded assets, liabilities, equity as well as its regulatory
capital levels. As defined under SFAS 133, derivatives carry a designation of
(a) no hedge designation, (b) fair value hedge, (c) cash flow hedge, or (d)
foreign currency hedge. SFAS 133 was originally effective for fiscal periods,
both years and quarters, beginning after June 15, 1999, but has now been
extended by SFAS 137 to June 15, 2000. SFAS 133 has also been amended by SFAS
138, which provides additional guidance in implementing the original
pronouncement. The effective date of SFAS 138 is the same as SFAS 133 for
entities that have not adopted SFAS 133 before June 15, 2000. Bancshares does
not presently have any derivative instruments within the definition of SFAS
133 and, as such, does not anticipate any material effect on its financial
position and operating results from adoption of the standard.
Statement No. 125 ("SFAS 125"), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" was issued by FASB in June
1996 with an effective date of January 1, 1997. Bancshares adopted SFAS 125 with
no affect on its financial position and operation results. In October 2000, FASB
issued Statement No. 140 ("SFAS 140"), "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" as a replacement of SFAS
125. SFAS 140 contains all of the main provisions of SFAS 125 but also covers
issues not previously addressed in Statement 125 concerning transfers and
servicing of financial assets. With certain exceptions, SFAS 140 is effective
for transfers and servicing of financial assets occurring after March 31, 2001.
Bancshares does not anticipate any material effect on its financial position and
operating results from adoption of the standard.
13
17
CONSOLIDATED BALANCE SHEETS
December 31
(In thousands, except for shares) 2000 1999
- ------------------------------------------------------------------------------------------------------------
ASSETS
Cash and Due from Banks (Note 2) ............................... $ 26,916 $ 33,971
Interest-Bearing Bank Balances ................................. 7,757 14,527
Federal Funds Sold and Securities Purchased
Under Resale Agreements ....................................... 69,555 27,270
Investment Securities (Note 3):
Held to Maturity, Market Value $73,557 and $66,884 ............ 72,828 68,551
Available for Sale ............................................ 52,504 60,268
Loans (Notes 4 and 11) ......................................... 549,065 506,078
Less, Reserve for Loan Losses (Note 4) ......................... (5,959) (5,246)
--------- ---------
Net Loans ................................................... 543,106 500,832
Premises and Equipment (Note 5) ................................ 11,609 11,215
Other Assets ................................................... 11,295 11,125
--------- ---------
Total Assets ................................................ $ 795,570 $ 727,759
========= =========
LIABILITIES
Deposits:
Demand ......................................................... $ 75,588 $ 73,916
Savings, N.O.W. and Money Market Accounts ...................... 318,626 297,966
Certificates of Deposit of less than $100,000 (Note 6) ......... 198,039 172,453
Certificates of Deposit of $100,000 or more (Note 6) ........... 79,723 61,087
--------- ---------
Total Deposits .............................................. 671,976 605,422
Securities Sold Under Agreements to Repurchase (Note 6) ........ 3,002 1,299
Borrowings from the Federal Home Loan Bank (Note 7) ............ 40,450 45,150
Other Liabilities .............................................. 5,899 5,164
--------- ---------
Total Liabilities ........................................... 721,327 657,035
========= =========
SHAREHOLDERS' EQUITY
Preferred Stock, Par Value $.01 Per Share:
Authorized 10,000,000 shares; none issued ................... 0 0
Common Stock, Par Value $5 Per Share:
Authorized 50,000,000 Shares; Issued 8,432,824
Shares in 2000 and 8,442,918 Shares in 1999 ................. 42,164 42,215
Paid-In Capital ................................................ 9,837 10,151
Directors' Deferred Plan ....................................... (797) 0
Retained Earnings .............................................. 23,019 18,953
Accumulated Other Comprehensive Income ......................... 20 (595)
--------- ---------
Total Shareholders' Equity .................................... 74,243 70,724
--------- ---------
Total Liabilities and Shareholders' Equity ................. $ 795,570 $ 727,759
========= =========
Commitments and Contingencies (Note 8)
Notes to consolidated financial statements are an integral part hereof.
14
18
CONSOLIDATED STATEMENTS
OF INCOME
Years Ended December 31
(In thousands, except for shares and per share amounts) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and Fees on Loans ..................................... $ 49,440 $ 42,520 $ 39,112
Interest on Investment Securities:
Taxable ....................................................... 6,358 5,455 5,544
Tax Exempt .................................................... 1,758 1,875 1,846
Interest-Bearing Bank Balances ................................. 612 616 1,252
Federal Funds Sold and Securities Purchased Under
Resale Agreements ............................................. 2,775 1,975 1,903
---------- ---------- ----------
Total Interest Income ........................................ 60,943 52,441 49,657
---------- ---------- ----------
INTEREST EXPENSE
Deposits ....................................................... 25,664 20,314 19,727
Securities Sold Under Agreements to Repurchase ................. 1,008 154 234
Borrowings from the Federal Home Loan Bank ..................... 2,530 1,905 1,721
---------- ---------- ----------
Total Interest Expense ....................................... 29,202 22,373 21,682
---------- ---------- ----------
Net Interest Income .............................................. 31,741 30,068 27,975
Provision for Loan Losses (Note 4) ............................... 2,550 780 770
---------- ---------- ----------
Net Interest Income after Provision for Loan Losses .............. 29,191 29,288 27,205
---------- ---------- ----------
NONINTEREST INCOME
Service Charges on Deposit Accounts .............................. 3,616 3,171 2,716
Gains on Sales of Mortgages .................................... 145 273 328
Gains on Sales of Investment Securities ........................ 187 0 0
Other Operating Income (Note 9) ................................ 4,115 3,743 3,541
---------- ---------- ----------
Total Noninterest Income ..................................... 8,063 7,187 6,585
---------- ---------- ----------
NONINTEREST EXPENSE
Personnel Expense .............................................. 13,616 12,325 11,172
Occupancy Expense .............................................. 1,295 1,282 1,259
Equipment Depreciation and Maintenance ......................... 1,434 1,302 1,226
Other Operating Expense (Note 9) ............................... 8,195 8,159 7,334
Merger Related Costs ........................................... 0 0 160
---------- ---------- ----------
Total Noninterest Expense .................................... 24,540 23,068 21,151
---------- ---------- ----------
Income Before Income Taxes ....................................... 12,714 13,407 12,639
Income Taxes (Note 10) ........................................... 3,919 3,927 3,959
---------- ---------- ----------
Net Income ....................................................... $ 8,795 $ 9,480 $ 8,680
========== ========== ==========
Earnings Per Share:
Basic .......................................................... $ 1.04 $ 1.11 $ 1.00
Diluted ........................................................ 1.03 1.09 .98
Weighted Average Shares Outstanding:
Basic ......................................................... 8,448,433 8,547,905 8,703,274
Diluted ....................................................... 8,501,523 8,693,801 8,887,631
Notes to consolidated financial statements are an integral part hereof.
15
19
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Common Stock Directors' Other Total
---------------------- Paid-In Deferred Retained Comprehensive Shareholders'
(In thousands, except for shares) Shares Amount Capital Plan Earnings Income Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997 ............ 6,933,035 $34,665 $14,772 $17,916 $ 174 $ 67,527
Net income ............................... 8,680 8,680
Change in unrealized gain on securities
available for sale, net of deferred
income taxes .......................... 491 491
-------
Comprehensive income .............. 9,171
Cash dividends declared on common
stock ................................. (3,658) (3,658)
Common stock issued for stock
options exercised ..................... 60,468 302 199 501
Common stock issued in five-for-four
stock split, including cash for
fractional shares ..................... 1,734,392 8,672 (8,690) (18)
Common stock acquired .................... (5,000) (25) (68) (93)
--------------------------------------------------------------------------------
Balances at December 31, 1998 ............ 8,722,895 43,614 14,903 14,248 665 73,430
Net income ............................... 9,480 9,480
Change in unrealized loss on securities
available for sale, net of deferred
income taxes (1,260) (1,260)
-------
Comprehensive income 8,220
Cash dividends declared on common
stock ................................. (4,775) (4,775)
Common stock issued for stock
options exercised ..................... 81,521 408 307 715
Common stock acquired .................... (361,498) (1,807) (5,059) (6,866)
--------------------------------------------------------------------------------
Balances at December 31, 1999 ............ 8,442,918 42,215 10,151 18,953 (595) 70,724
NET INCOME ............................... 8,795 8,795
CHANGE IN UNREALIZED GAIN ON SECURITIES
AVAILABLE FOR SALE, NET OF DEFERRED
INCOME TAXES .......................... 615 615
-------
COMPREHENSIVE INCOME 9,410
CASH DIVIDENDS DECLARED ON COMMON
STOCK ................................. (4,729) (4,729)
COMMON STOCK ISSUED FOR STOCK
OPTIONS EXERCISED ..................... 47,189 236 152 388
COMMON STOCK ACQUIRED .................... (57,283) (287) (466) $(797) (1,550)
--------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2000 ............ 8,432,824 $42,164 $ 9,837 $(797) $23,019 $ 20 $ 74,243
================================================================================
Notes to consolidated financial statements are an integral part hereof.
16
20
CONSOLIDATED STATEMENTS
OF CASH FLOWS
Years Ended December 31
(In thousands) 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net Income .......................................................................... $ 8,795 $ 9,480 $ 8,680
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization .................................................... 1,371 1,319 1,241
Securities premium amortization and discount accretion, net ...................... (282) 58 (104)
(Increase) decrease in loans held for sale ....................................... 1,546 2,191 (7,276)
Deferred income taxes ............................................................ (255) 14 180
Income taxes payable ............................................................. (65) 127 81
Increase in income earned but not received ....................................... (447) (99) (463)
Increase (decrease) in interest accrued but not paid ............................. 883 253 (16)
Net (increase) decrease in other assets .......................................... (141) (544) 280
Net increase in other liabilities ................................................ 196 143 45
Provision for loan losses ........................................................ 2,550 780 770
Gain on sale of investment securities ............................................ (187) 0 0
(Gain) loss on sale of premises and equipment .................................... (3) (64) 44
-------- -------- --------
Net cash provided by operating activities ...................................... 13,961 13,658 3,462
-------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of securities held to maturity ......................................... (15,132) (15,520) (24,983)
Proceeds from maturities of securities held to maturity .......................... 10,879 6,869 20,005
Purchases of securities available for sale ....................................... (90,375) (223) (64,650)
Proceeds from maturities of securities available for sale ........................ 99,403 21,776 32,311
Proceeds from sales of securities available for sale ............................. 189 0 0
Net increase in loans made to customers .......................................... (46,369) (72,838) (32,071)
Purchases of premises and equipment .............................................. (1,780) (1,057) (1,604)
Proceeds from sale of premises and equipment ..................................... 18 115 52
Net (increase) decrease in federal funds sold .................................... (42,285) 13,325 19,745
-------- -------- --------
Net cash used by investing activities .......................................... (85,452) (47,553) (51,195)
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in demand deposits, N.O.W.,
money market and savings accounts .............................................. 22,332 12,700 64,687
Net increase (decrease) in time deposits ......................................... 44,222 25,395 (385)
Net increase (decrease) in securities sold under agreements to repurchase ........ 1,703 (4,238) (2,726)
Proceeds from long-term debt ..................................................... 8,000 30,000 0
Payments on long-term debt ....................................................... (12,700) (13,692) (4,916)
Dividends paid ................................................................... (4,729) (4,775) (3,658)
Proceeds from issuance of common stock ........................................... 388 715 501
Common stock acquired ............................................................ (1,550) (6,866) (93)
Fractional shares purchased ...................................................... 0 0 (18)
-------- -------- --------
Net cash provided by financing activities ...................................... 57,666 39,239 53,392
-------- -------- --------
Increase (decrease) in cash and cash equivalents ................................. (13,825) 5,344 5,659
Cash and cash equivalents at the beginning of the years .......................... 48,498 43,154 37,495
-------- -------- --------
Cash and cash equivalents at the end of the years ................................ $ 34,673 $ 48,498 $ 43,154
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the years for:
Interest ....................................................................... $ 28,319 $ 22,121 $ 21,712
Income taxes ................................................................... 4,248 4,214 3,803
SUPPLEMENTAL DISCLOSURE OF
NONCASH TRANSACTIONS
Transfer of loans to other real estate owned ..................................... $ 644 $ 412 $ 100
Unrealized gain (loss) on securities available for sale:
Change in securities available for sale ........................................ 1,008 (2,064) 805
Change in deferred income taxes ................................................ (393) 804 (314)
Change in shareholders' equity ................................................. 615 (1,260) 491
Notes to consolidated financial statements are an integral part hereof.
17
21
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
AS OF OR FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and financial reporting policies of LSB Bancshares, Inc.
("Bancshares") and its subsidiaries conform to generally accepted accounting
principles and prevailing industry practices. The following is a description of
significant accounting policies.
Nature of Operations
Bancshares is a bank holding company organized under the laws of the
State of North Carolina and registered under the Bank Holding Company
Act of 1956, as amended. Bancshares conducts its domestic financial
services business through Lexington State Bank ("Bank") and two
non-bank subsidiaries, Peoples Finance Company of Lexington, Inc.
("Peoples") and LSB Investment Services, Inc. Bancshares serves
customers primarily in Davidson, Forsyth, and Stokes Counties, North
Carolina.
Consolidation
The consolidated financial statements include the accounts of
Bancshares and its wholly-owned subsidiaries, after eliminating
intercompany balances and transactions. Securities and other property
held in a fiduciary or agency capacity are not included in the
consolidated balance sheets since these are not assets or liabilities
of Bancshares. Certain prior year amounts have been reclassified to
conform to current year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
Bancshares considers cash and due from banks and interest-bearing bank
balances as cash and cash equivalents for purposes of the consolidated
statements of cash flows. Due from bank balances and interest-bearing
bank balances are maintained in other financial institutions.
Securities Purchased Under Resale Agreements
Bancshares' policy is that securities purchased under resale agreements
will be collateralized by U.S. Treasury and other U.S. Government
agency obligations.
Investment Securities
Management determines the appropriate classification of investment
securities at the time of purchase. Securities that may be sold in
response to or in anticipation of changes in interest rates or other
factors are classified as available for sale and carried at market
value. The unrealized gains and losses on these securities are reported
net of applicable taxes as a separate component of shareholders'
equity. Securities that Bancshares has the positive intent and ability
to hold to maturity are carried at amortized cost. Bancshares does not
have any securities held for trading. Interest income on securities,
including amortization of premiums and accretion of discounts, is
recognized using the interest method. Gains and losses on the sale of
securities are recognized on a specific identification basis.
Loans
Loans are generally carried at the principal amount outstanding, net of
deferred loan fees and certain direct origination costs on originated
loans and unamortized discounts and premiums on purchased loans.
Mortgage loans held for sale are carried at the lower of cost or market
value, as determined by outstanding commitments from investors. Loan
origination fees are capitalized and recognized as an adjustment of the
yield of the related loan. Discounts and premiums on any purchased
residential real estate loans are amortized to income using the
interest method over the remaining period to contractual maturity,
adjusted for anticipated prepayments. Discounts and premiums on any
purchased consumer loans are recognized over the expected lives of the
loans using methods that approximate the interest method. Interest is
accrued and credited to income based on the principal amount
outstanding. The accrual of interest on impaired loans is discontinued
when, in management's opinion, the borrower may be unable to meet
payments of principal and interest as they become due.
Reserve for Loan Losses
The reserve for loan losses is that amount which is considered adequate
to provide for potential losses in the portfolio. Management's
evaluation of the adequacy of the reserve is based on several factors,
including an analysis of the loss experience in relation to outstanding
amounts, a review of impaired loans, regular examinations and
appraisals of the portfolio, and current conditions.
Foreclosed Real Estate
Foreclosed real estate only includes formally foreclosed property. At
the time of foreclosure, foreclosed real estate is recorded at the
lower of the Bank's cost or the asset's fair value less costs to sell,
which becomes the property's new basis. Any write-downs based on the
asset's fair value at the date of acquisition are charged to the
reserve for loan losses. After foreclosure, these assets are carried at
the lower of their new cost basis or fair value less cost to sell.
Costs incurred in maintaining foreclosed real estate and subsequent
write-downs to reflect declines in the fair value of the property are
charged to operations.
Premises and Equipment
Premises and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation is computed by use of the
straight-line method, using the following estimated lives: buildings,
20 to 40 years; equipment, 3 to 10 years; vaults, 10 to 40 years.
Leasehold improvements are amortized by use of the straight-line method
over the lesser of the estimated useful lives of the improvements or
the terms of the respective leases.
Stock-Based Compensation
Bancshares accounts for its stock-based compensation plans using the
accounting prescribed by Accounting Principles Board Opinion Number 25,
"Accounting for Stock Issued to Employees". In October 1995, Statement
of Financial Accounting Standards Number 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," was issued and encourages, but does not
require adoption of a fair value method of accounting for employee
stock-based compensation plans. As permitted by SFAS 123, Bancshares
has elected to disclose the pro forma net income and earnings per share
as if the fair value method had been applied in measuring compensation
cost.
Intangible Assets
The excess of cost over net assets and identifiable intangible assets,
including deposit based intangibles of acquired businesses, is
amortized on a straight-line basis over the estimated periods
benefitted.
Income Taxes
The provision for income taxes is based on income and expenses and
assets and liabilities for financial statement purposes. Deferred
income taxes are computed under the provisions of Statement of
Financial Accounting Standards Number 109, "Accounting for Income
Taxes".
Earnings Per Share
Earnings per share is computed by dividing net income by the weighted
average shares outstanding and diluted share equivalents outstanding.
The difference between basic and diluted earnings per share is the
result of dilutive options exercisable. All references to shares
outstanding have been adjusted to give effect to stock splits that
occurred during the periods.
18
22
NOTE 2 - REGULATORY RESTRICTIONS
Bancshares and its subsidiary bank are subject to certain requirements imposed
by state and federal banking statutes and regulations.
The Bank is required to maintain a certain weekly average clearing account
balance with the Federal Reserve Bank of Richmond. The required weekly average
clearing account balance for the years ended December 31, 2000 and 1999 was
$10,500,000 and $17,500,000, respectively. The amounts are negotiated by the
Bank with the Federal Reserve Bank of Richmond.
Certain regulatory requirements restrict the lending of funds by and between
Bancshares and the Bank and the amount of dividends which can be paid to
Bancshares by the Bank. The Bank had available retained earnings of $49,813,181
for the payment of dividends without obtaining prior regulatory approval on
December 31, 2000.
The Bank is a member of the Federal Home Loan Bank of Atlanta (FHLB). Member
institutions are required to maintain an investment in the common stock of the
FHLB based on the asset size of the member institution and the amount of
qualifying one-to-four family residential loans. The Bank owned $2,477,000 of
FHLB common stock at December 31, 2000.
Bancshares and the Bank are subject to certain regulatory capital requirements
administered by federal and state banking agencies. Under the capital adequacy
guidelines and the regulatory framework for prompt corrective action, Bancshares
and the Bank must meet specific capital guidelines that involve quantitative
measures of their assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. Failure to meet minimum
capital requirements can initiate certain mandatory and possible discretionary
actions by regulators that, if undertaken, could have a direct material effect
on Bancshares' financial statements.
The most recent notifications from regulatory authorities categorized Bancshares
and the Bank as well capitalized under the regulatory framework for prompt
corrective action at December 31, 2000. There are no conditions or events since
that notification that management believes has changed Bancshares' or the Bank's
well capitalized status. Management believes that Bancshares and the Bank meet
all capital adequacy requirements to which they are subject.
The Bank's capital amounts and ratios approximate Bancshares' capital amounts
and ratios that are summarized as follows (In thousands):
MINIMUM RATIOS
-----------------------
FOR
CAPITAL AMOUNT RATIO CAPITAL TO BE
------------------ ---------------- ADEQUACY WELL
2000 1999 2000 1999 PURPOSES CAPITALIZED*
----- ----- ----- ---- --------- ------------
Total capital
To risk-weighted
assets ............. $79,374 $75,637 15.11% 15.90% 8.00% 10.00%
Tier 1 capital
To risk-weighted
assets ............. 73,415 70,391 13.98 14.80 4.00 6.00
Tier 1 capital
To average
assets ............. 73,415 70,391 9.21 9.76 3.00 5.00
*under Prompt Corrective Action provisions
NOTE 3 - INVESTMENT SECURITIES
The valuations of investment securities as of December 31, 2000 and 1999 were as
follows (In thousands):
2000 - SECURITIES HELD TO MATURITY
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
US Treasury and
other US government
agency obligations ...... $40,526 $ 218 $259 $40,485
State, county and
municipal securities .... 32,302 913 143 33,072
------- ------ ---- -------
Total ................... $72,828 $1,131 $402 $73,557
======= ====== ==== =======
2000 - SECURITIES AVAILABLE FOR SALE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
US Treasury and
other US government
agency obligations ...... $49,142 $117 $116 $49,143
State, county and
municipal securities .... 852 32 0 884
Equity securities ........ 2,477 0 0 2,477
------- ---- ---- -------
Total ................... $52,471 $149 $116 $52,504
======= ==== ==== =======
1999 - SECURITIES HELD TO MATURITY
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
US Treasury and
other US government
agency obligations ...... $34,556 $ 4 $1,306 $33,254
State, county and
municipal securities .... 33,995 429 794 33,630
------- ---- ------ -------
Total ................... $68,551 $433 $2,100 $66,884
======= ==== ====== =======
1999 - SECURITIES AVAILABLE FOR SALE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
US Treasury and
other US government
agency obligations ...... $57,696 $27 $ 995 $56,728
State, county and
municipal securities .... 853 3 4 852
Mortgage backed
securities .............. 436 0 6 430
Equity securities ........ 2,258 0 0 2,258
------- --- ------ -------
Total ................... $61,243 $30 $1,005 $60,268
======= === ====== =======
The following is a maturity schedule of investment securities at December 31,
2000 by contractual maturity, except for certain county and municipal securities
which are recorded at the pre-refunded date (In thousands):
SECURITIES HELD SECURITIES AVAILABLE
TO MATURITY FOR SALE
------------------------ ------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- ------- --------- -------
Debt securities:
Due in one year
or less ................. $ 5,077 $ 5,084 $18,107 $18,092
Due after one year
through five years ...... 41,940 42,021 31,442 31,468
Due after five years
through ten years ....... 14,871 15,418 0 0
Due after ten years ...... 10,940 11,034 445 467
------- ------- ------- -------
Total debt securities ... 72,828 73,557 49,994 50,027
Equity securities ........ 0 0 2,477 2,477
------- ------- ------- -------
Total securities ........ $72,828 $73,557 $52,471 $52,504
======= ======= ======= =======
Lexington State Bank owned stock in the Federal Home Loan Bank of Atlanta with
book and market values of $2,477,000 and $2,257,500 at December 31, 2000 and
1999, respectively. This stock is included in equity securities and classified
as available for sale.
A recap of the sales and maturities of held to maturity securities follows (In
thousands):
YEARS ENDED DECEMBER 31
2000 1999 1998
------- ------ -------
Proceeds from sales and
maturities............... $10,879 $6,869 $20,005
Gross realized gains....... 0 0 0
Gross realized losses...... 0 0 0
19
23
A recap of the sales and maturities of available for sale securities follows (In
thousands):
YEARS ENDED DECEMBER 31
2000 1999 1998
-------- -------- --------
Proceeds from sales and maturities................. $99,592 $21,776 $32,311
Gross realized gains............................... 187 0 0
Gross realized losses.............................. 0 0 0
Investment securities with amortized costs of $90,640,673 and $112,938,193 and
market values of $91,028,150 and $110,432,006 as of December 31, 2000 and 1999,
respectively, were pledged to secure public deposits and for other purposes.
NOTE 4 - LOANS AND RESERVE FOR LOAN LOSSES
Loans are summarized as follows (In thousands):
DECEMBER 31
2000 1999
-------- --------
Commercial, financial, and agricultural ...................... $172,058 $153,252
Real estate-construction ..................................... 36,058 28,130
Real estate-mortgage ......................................... 267,735 250,173
Installment loans to individuals ............................. 64,161 65,882
Lease financing .............................................. 168 820
Other ........................................................ 8,885 7,821
-------- --------
Total loans, net of unearned income .......................... $549,065 $506,078
======== ========
Nonperforming assets are summarized as follows (In thousands):
DECEMBER 31
2000 1999
-------- --------
Nonaccrual loans ............................................. $ 57 $ 96
Restructured loans ........................................... 338 137
Loans past due 90 days or more ............................... 1,316 821
-------- --------
Total nonperforming loans .................................. 1,711 1,054
Foreclosed real estate ....................................... 1,273 1,036
-------- --------
Total nonperforming assets ................................. $ 2,984 $ 2,090
======== ========
Impaired loans and related information are summarized in the following tables
(In thousands):
DECEMBER 31
2000 1999 1998
------ ------ ------
Loans specifically identified as impaired ............. $5,199 $3,740 $4,174
====== ====== ======
Allowance for loan losses associated with impaired
loans .............................................. $ 893 $ 586 $ 620
====== ====== ======
YEARS ENDED DECEMBER 31
2000 1999 1998
------ ------ ------
Average balances of impaired
loans for the years ................................. $5,716 $3,839 $3,644
====== ====== ======
Interest income recorded for
impaired loans....................................... $ 432 $ 356 $ 362
====== ====== ======
An analysis of the changes in the reserve for loan losses follows (In
thousands):
YEARS ENDED DECEMBER 31
2000 1999 1998
------ ------ ------
Balances at beginning of years ........................ $5,246 $5,048 $4,601
Provision for loan losses ............................. 2,550 780 770
Recoveries of amounts previously charged off .......... 209 166 128
Loans charged off ..................................... (2,046) (748) (451)
------ ------ ------
Balances at end of years .............................. $5,959 $5,246 $5,048
====== ====== ======
Bancshares' policy for impaired loan accounting subjects all loans to impairment
recognition except for large groups of smaller balance homogeneous loans such as
credit card, residential mortgage and consumer loans. Bancshares generally
considers loans 90 days or more past due and all nonaccrual loans to be
impaired.
Bancshares had no significant commitments to loan additional funds to the
borrowers of impaired loans at December 31, 2000.
NOTE 5 - PREMISES AND EQUIPMENT
Following is a summary of premises and equipment (In thousands):
DECEMBER 31
2000 1999
-------- --------
Land ......................................................... $ 2,574 $ 2,193
Buildings .................................................... 8,687 8,330
Equipment .................................................... 9,963 9,351
Other ........................................................ 14 14
Leasehold improvements ....................................... 704 696
-------- --------
Total costs .................................................. 21,942 20,584
Less, accumulated depreciation and amortization .............. 10,333 9,369
-------- --------
Total ...................................................... $ 11,609 $ 11,215
======== ========
NOTE 6 - TIME DEPOSITS AND SHORT-TERM BORROWED FUNDS
The scheduled maturities of time deposits at December 31, 2000 were as follows
(In thousands):
YEAR AMOUNT
-------- --------
2001 $248,047
2002 19,611
2003 10,104
--------
$277,762
========
Short-term borrowed funds outstanding consisted of securities sold under
agreements to repurchase. These short-term borrowings by the Bank are
collateralized by U.S. Treasury and other U.S. Government agency obligations
with amortized cost of $10,012,974 and market value of $10,030,314 at December
31, 2000. The securities collateralizing the short-term borrowings have been
delivered to a third party custodian for safekeeping. The following table
presents certain information for securities sold under agreements to repurchase
(In thousands):
2000 1999 1998
-------- -------- --------
Balances at December 31 ................ $ 3,002 $ 1,299 $ 5,537
======== ======== ========
Average daily balances outstanding
during the years ..................... $ 17,367 $ 3,852 $ 6,027
======== ======== ========
Average interest rates paid during
the years ............................ 5.81% 4.01% 3.88%
======== ======== ========
Note 7 - BORROWINGS
The Bank has established a secured credit availability with the Federal Home
Loan Bank at fourteen percent of Lexington State Bank's total assets. The credit
availability at year end was approximately $111,323,708. At December 31, 2000
and 1999 the outstanding balances under this arrangement were $40,450,000 and
$45,150,000, respectively. For 2000 and 1999, the effective interest rates
incurred were 6.09% and 5.66%, respectively.
Maturities are as follows (In thousands):
YEAR AMOUNT
---------- --------
2001 $ 2,150
2002 300
2003 5,000
2004 5,000
2005 10,000
Thereafter 18,000
-------
$40,450
=======
Borrowings under this line of credit are secured by the Bank's stock in the
Federal Home Loan Bank of Atlanta and a blanket floating lien on certain
qualifying one-to-four family mortgage loans.
20
24
The bank has obtained a $10,000,000 irrevocable letter of credit which expires
on August 8, 2001. This letter of credit was issued by the Federal Home Loan
Bank of Atlanta in favor of the State of North Carolina to secure public
deposits.
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank is a party to financial instruments
with off balance sheet risk. These financial instruments include commitments to
extend credit and standby letters of credit, both of which involve elements of
credit and interest rate risk not reflected in the Consolidated Balance Sheets.
The Bank uses the same credit policies in making commitments and issuing standby
letters of credit as it does for on balance sheet instruments. The Bank's
exposure to credit loss in the event of nonperformance by the party to whom
commitments and standby letters of credit have been extended is represented by
the contractual amount of the financial instrument.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn upon or fully
utilized, the total commitment amounts do not necessarily represent future cash
requirements. Collateral, if deemed necessary, is determined on a case-by-case
basis and is based on management's credit evaluation. Collateral held varies but
may include accounts receivable, inventory, property and equipment, and
income-producing commercial properties. Unfunded commitments to extend credit
were $62,861,000 at December 31, 2000.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Standby letters of
credit generally have fixed expiration dates and may require payment of a fee.
The credit risk involved is essentially the same as that involved in extending
loan commitments to customers. The Bank's policy for obtaining collateral, and
the nature of such collateral, is essentially the same as that involved in
making commitments to extend credit. Standby letters of credit totalled
$3,360,000 at December 31, 2000.
The Bank and Peoples together grant commercial, installment and mortgage loans
to customers throughout their service area. The Bank and Peoples have a
diversified loan portfolio with no specific concentration of credit risk. The
Bank has a concentration of credit risk by maintaining cash balances with other
banks which are $24,030,501 in excess of Federal Deposit Insurance limits and
has federal funds sold of $69,555,000 at December 31, 2000.
Neither Bancshares nor any of its subsidiaries are involved in any legal
proceedings that would have a material adverse effect on their financial
condition or results of operations.
NOTE 9 - SUPPLEMENTARY INCOME STATEMENT INFORMATION
The following is an analysis of items in other operating income and other
operating expenses as shown on the Consolidated Statements of Income (In
thousands):
YEARS ENDED DECEMBER 31
2000 1999 1998
------ ------ ------
Other operating income:
Bankcard income ..................................... $1,510 $1,197 $ 878
Fee income .......................................... 928 802 724
Financial services commissions ...................... 896 605 821
Insurance commissions ............................... 149 214 286
Trust income ........................................ 538 532 499
Other income ........................................ 94 393 333
------ ------ ------
$4,115 $3,743 $3,541
====== ====== ======
Other operating expenses:
Advertising ......................................... $ 385 $ 410 $ 358
Automated services .................................. 1,639 1,449 1,459
Bankcard expense .................................... 1,132 975 703
Legal and professional fees ......................... 902 1,138 1,034
Postage ............................................. 544 547 496
Stationery, printing and supplies ................... 815 762 699
Other expenses ...................................... 2,778 2,878 2,585
------ ------ ------
$8,195 $8,159 $7,334
====== ====== ======
NOTE 10 - INCOME TAXES
The components of income tax expense (benefits) are as follows (In thousands):
YEARS ENDED DECEMBER 31
2000 1999 1998
------ ------ ------
Current ............................................... $3,664 $3,941 $4,139
------ ------ ------
Deferred:
Reserve for loan losses ............................. 427 224 209
Depreciation ........................................ 49 (24) (21)
Pension ............................................. (92) (120) (106)
Deferred compensation ............................... (90) 88 15
Net operating loss carry forwards ................... 0 0 (59)
Deferred income ..................................... (54) (200) (240)
Other ............................................... 15 18 22
------ ------ ------
Subtotal ............................................ 255 (14) (180)
------ ------ ------
Total .............................................. $3,919 $3,927 $3,959
====== ====== ======
A reconciliation of the federal statutory tax rate to the effective tax rate
follows:
YEARS ENDED DECEMBER 31
2000 1999 1998
---- ---- ----
Federal statutory tax rate ............................ 34.0% 34.0% 34.0%
Tax exempt interest income ............................ (5.2) (5.6) (5.8)
Nonqualified options exercised ........................ (.8) (1.9) .0
Disallowed interest expense ........................... .8 .7 .6
State taxes, net of federal tax benefit ............... 1.6 1.9 1.9
Other ................................................. .4 .2 .6
---- ---- ----
Effective tax rate .................................... 30.8% 29.3% 31.3%
==== ==== ====
The components of the net deferred tax asset follow (In thousands):
DECEMBER 31
2000 1999
-------- --------
Unrealized (gain) loss on securities available for sale ...... $ (12) $ 379
Reserve for loan losses ...................................... 2,297 1,870
Depreciation ................................................. (439) (488)
Pension ...................................................... (404) (312)
Deferred compensation ........................................ 455 545
Deferred income .............................................. (996) (942)
Other ........................................................ 149 135
-------- --------
Subtotal ..................................................... 1,050 1,187
Valuation allowance .......................................... 0 0
-------- --------
Total ....................................................... $ 1,050 $ 1,187
======== ========
NOTE 11 - RELATED PARTY TRANSACTIONS
An analysis of the activity with loans outstanding to executive officers and
Directors and their affiliated companies follows (In thousands):
Balance at January 1, 2000............ $4,315
New loans during the year............. 2,932
Repayments during the year............ (929)
------
Balance at December 31, 2000.......... $6,318
======
NOTE 12 - MORTGAGE SERVICING RIGHTS
Bancshares accounts for mortgage servicing rights under Statement of Financial
Accounting Standards Number 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". When Bancshares acquires
mortgage servicing rights through the origination of mortgage loans and sells
those loans with servicing rights retained, the total cost of the mortgage loans
is allocated to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values.
21
25
Mortgage servicing fees are recorded on an accrual basis. Mortgage servicing
rights are amortized over the life of the related mortgages, in proportion to
estimated net servicing income. An appropriate carrying value of the unamortized
balance of such mortgage servicing rights is based principally on a
disaggregated, discounted cash flow method. The loans and associated servicing
rights are segmented by risk characteristic to include loan type, investor and
interest rate. An appropriate carrying value of the unamortized deferred excess
servicing fee balance is based principally on an aggregated discounted method.
If the carrying values exceed fair values, the differences are treated as a loss
on sale of mortgages.
The following table summarizes information about mortgage servicing rights (In
thousands):
YEARS ENDED DECEMBER 31
2000 1999 1998
-------- -------- --------
Balances at beginning of years $ 367 $ 305 $ 195
Mortgage servicing rights originated 100 191 196
Amortization of rights (119) (129) (86)
-------- -------- --------
Balances at end of years $ 348 $ 367 $ 305
======== ======== ========
Total loans serviced at end of years $ 81,430 $ 79,414 $ 73,955
======== ======== ========
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards Number 107, "Disclosures about Fair
Value of Financial Instruments", requires that Bancshares disclose estimated
fair values for its financial instruments. Fair value estimates, methods and
assumptions are set forth below for Bancshares' financial instruments:
Cash and Short-Term Investments
For cash and short-term investments, including federal funds sold, the
carrying amount is a reasonable estimate of fair value.
Investment Securities
For securities held as investments, fair value equals quoted market price,
if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans Receivable
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
Deposit Liabilities
The fair value of demand deposits, savings accounts and certain money
market deposits is the amount payable on demand at December 31, 2000. The
fair value of fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties.
The estimated fair values of Bancshares' financial instruments are as follows
(In thousands):
DECEMBER 31
2000 1999
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- ---------- --------- ----------
Financial assets:
Cash and short term
investments ................... $ 104,228 $104,228 $ 75,768 $ 75,768
Investment securities ........... 125,332 126,061 128,819 127,152
Loans ........................... 549,065 538,085 506,078 497,490
Less reserve for loan losses .. (5,959) (5,246)
--------- ---------
Net loans ..................... 543,106 538,085 500,832 497,490
Financial liabilities:
Deposits ...................... 671,976 673,406 605,422 607,313
Securities sold under
agreements to repurchase ..... 3,002 3,002 1,299 1,299
Borrowings from
Federal Home Loan Bank ....... 40,450 40,781 45,150 45,314
Unrecognized financial
instruments:
Commitments to extend credit .. 0 0 0 0
Standby letters of credit ..... 10 10 8 8
NOTE 14 - PENSION AND EMPLOYEE BENEFIT PLANS
The Bank and its subsidiaries have a noncontributory defined benefit pension
plan which covers substantially all employees. The benefits are based on years
of service and the average highest five consecutive years of compensation paid
during the ten years preceding normal retirement. Contributions are made on an
annual basis, with the total amount of such contributions being between the
minimum required for funding standard account purposes and the maximum
deductible for federal income tax purposes.
The Bank and its subsidiaries have a plan to provide some health care benefits
and life insurance for employees for the period between early retirement and
normal retirement. Only those employees who retire after age 55 and have
completed 10 years of service will be eligible for these benefits. The benefits
are provided through a self-insured plan administered by an insurance company
whose premiums are based on claims paid during the year. Statement of Financial
Accounting Standards Number 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", requires the accrual of nonpension benefits as
employees render service. The liability for postretirement benefits is unfunded.
The following tables set forth the changes in the projected benefit obligations
and the fair value of plan assets for the Bank's defined benefit pension plan
and postretirement benefits provided for certain retired employees and the
amounts recognized in the consolidated statements of condition at December 31:
PENSION POSTRETIREMENT
BENEFITS BENEFITS
--------------------- -------------------
2000 1999 2000 1999
------- ------- ------- -------
Benefit Obligations
Balances, beginning of years ....... $ 5,603 $ 5,008 $ 625 $ 614
Service cost ....................... 321 291 21 18
Interest cost ...................... 428 471 39 42
Actuarial gain (loss) .............. 0 0 (114) 7
Participant contributions .......... 0 0 1 0
Benefits paid to participants ...... (190) (167) (32) (56)
------- ------- ------- -------
Balances, end of years ............. $ 6,162 $ 5,603 $ 540 $ 625
======= ======= ======= =======
Plan Assets
Fair value, beginning of years ..... $ 6,007 $ 5,117 $ 0 $ 0
Actual return on assets ............ 138 527 0 0
Participant contributions .......... 0 0 1 0
Company contributions .............. 576 530 31 56
Benefits paid to participants ...... (190) (167) (32) (56)
------- ------- ------- -------
Fair value, end of years ........... $ 6,531 $ 6,007 $ 0 $ 0
======= ======= ======= =======
(Prepaid) Accrued Benefit Cost
Funded status ...................... $ (369) $ (404) $ 540 $ 625
Unrecognized net loss .............. (1,000) (410) (82) (239)
Unrecognized prior cost ............ 98 135 0 0
Unrecognized transition liability
(asset) ....................... 8 15 (179) (265)
------- ------- ------- -------
(Prepaid) accrued benefit cost ..... $(1,263) $ (664) $ 279 $ 121
======= ======= ======= =======
Plan expenses for 2000, 1999 and 1998 were comprised of the following (In
thousands):
PENSION BENEFITS
2000 1999 1998
------ ------ ------
Components of net periodic benefit cost:
Service Cost ..................................... $ 330 $ 291 $ 277
Interest Cost .................................... 428 376 340
Return on plan assets ............................ (469) (405) (346)
Amortization of unrecognized amounts:
Transition asset ................................. (8) (8) (8)
Prior service cost ............................... (37) (37) (37)
Net actuarial loss ............................... 3 21 30
------ ------ ------
Plan expense .......................................... $ 247 $ 238 $ 256
====== ====== ======
22
26
POSTRETIREMENT BENEFITS
2000 1999 1998
------ ------ ------
Components of net periodic benefit cost:
Service Cost ..................................... $ 21 $ 18 $ 24
Interest Cost .................................... 39 42 48
Return on plan assets ............................ 0 0 0
Amortization of unrecognized amounts:
Transition liability ............................. 14 17 19
Prior service cost ............................... 0 0 0
Net actuarial loss ............................... 2 6 6
------ ------ ------
Plan expense .......................................... $ 76 $ 83 $ 97
====== ====== ======
For 2000, 1999 and 1998 the following weighted-average rates were used:
PENSION BENEFITS
2000 1999 1998
------ ------ ------
Discount rate on the benefit obligation 7.75% 7.50% 7.50%
Rate of expected return on plan assets 7.50 7.50 7.50
Rate of employee compensation increase 5.50 5.50 5.50
POSTRETIREMENT BENEFITS
2000 1999 1998
------ ------ ------
Discount rate on the benefit obligation 8.00% 8.00% 8.00%
For the postretirement benefit plan, the annual assumed rate of increase in
health care cost for the plan is 8.0% and 9.0% for 2000 and 1999, respectively,
and is assumed to decrease gradually to 4.5% in 2005 and remain at that level
thereafter.
Assumed health care cost trend rates significantly impact reported amounts. The
effect of a one-percentage-point change in assumed rates would alter the amounts
of the benefits obligation and the sum of the service cost and interest cost
components of postretirement benefit expense as follows for 2000 (In thousands):
ONE-PERCENTAGE-POINT
----------------------------
INCREASE DECREASE
-------- --------
Effect on the postretirement benefit obligation .............. $ 130 $ (111)
===== ======
Effect on the sum of the service cost and
interest cost components ................................. $ 7 $ (6)
===== ======
The Bank and its subsidiaries have a defined contribution retirement plan
covering substantially all employees with one year's service. Participating
employees may contribute a percentage of their compensation to the plan, with
the Bank and its subsidiaries matching a portion of the employee contribution.
The Bank's matching contribution is invested in Bancshares common stock.
Bancshares' stock held by the plan as of December 31, 2000 and 1999 were 75,028
shares and 60,048 shares, respectively. Total expense under this plan was
$213,713, $182,370 and $173,661 for 2000, 1999 and 1998, respectively.
NOTE 15 - LEASES
The Bank is obligated under several lease agreements which expire in 2001
through 2010. The leased property is for land and building use. Rental payments
under these leases amounted to $359,624, $336,723 and $333,650 for the years
ended December 31, 2000, 1999 and 1998, respectively.
A summary of noncancelable lease commitments for the Bank follows (In
thousands):
YEARS ENDED DECEMBER 31 LEASE COMMITMENTS
----------------------- -----------------
2001 $ 351
2002 292
2003 279
2004 267
2005 221
Thereafter 857
------
$2,267
======
NOTE 16 - CAPITAL STOCK
The preferred stock may be issued by the Board of Directors in one or more
classes or series. The Board of Directors has the authority to determine and
vary the voting rights, designations, preferences, qualifications, privileges,
limitations, options, conversion rights and other special rights of each series,
including, but not limited to, dividend rates and manner of payment,
preferential amounts payable upon voluntary or involuntary liquidation, voting
rights, conversion rights, redemption prices, terms and conditions and sinking
fund and stock purchase prices, terms and conditions.
The common stock represents voting shares, and dividends on the common stock are
paid at the discretion of the Board of Directors.
During 2000 and 1999, the corporation repurchased 57,283 shares and 361,498
shares, respectively, of common stock pursuant to share repurchase
authorizations by the Board of Directors for up to 600,000 shares of common
stock.
A Shareholder Rights Plan was adopted by the corporation on February 10, 1998.
Under this Plan, one right was issued for each share of common stock to
shareholders of record on March 10, 1998. As long as the rights are attached to
the common stock, each new share of common stock issued after this date will
also have attached to it one right. Currently, the Rights are not exercisable
but do trade automatically with the common stock shares. The rights will become
exercisable (i) ten business days after a person or group acquires 20% or more
of the corporation's shares; (ii) ten business days after a person or group
announces an offer, the consummation of which would result in such person or
group owning 20% or more of the shares; or (iii) ten business days after the
Board of Directors declares a person or group to be an adverse person (which
may occur when a person or group owns 10% or more of the shares and the Board of
Directors determines that such ownership may have a detrimental effect on the
corporation). Any person who is a part of either of these three events will be
known as an adverse person and all rights that are, or were, beneficially owned
by the adverse person shall be null and void. After the rights become
exercisable, each right may then be exercised to purchase .01 of a share of
common stock at a purchase price per full share of $100. If an adverse person
acquires 25% or more of the corporation's stock or the Board declares a person
to be an adverse person, the rights holder will have the right to receive common
stock having a value equal to two times the exercise price. If the corporation
is acquired by another company at any time after a person or group has acquired
20% or more of the corporation's shares, the rights holder will have the right
to buy a number of shares of common stock of the acquiring company having a
market value of twice the exercise price of each right. The rights will expire
on December 31, 2007 and may be redeemed by the corporation at any time prior to
the acquisition by a person or group of 20% or more of the common stock at a
price of $.01 per right.
Bancshares has a deferred compensation plan for its active directors. The
directors could elect at January 1, 2000, to defer past and current compensation
to a trust, which would then invest the deferred compensation in common stock of
Bancshares. The trust owned 49,073 shares of common stock with a cost of
$796,646 at December 31, 2000, and is presented as a reduction of shareholders'
equity.
23
27
Bancshares had five stock based compensation plans at December 31, 2000,
accounted for under Accounting Principles Board Opinion Number 25, under which
no compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with Statement of Financial Accounting Standards
Number 123, Bancshares' net income and earnings per share would have been
reduced to the following pro forma amounts:
YEARS ENDED DECEMBER 31
2000 1999 1998
------ ------ ------
Net income As reported $8,795 $9,480 $8,680
(In thousands) Pro forma 8,499 9,249 8,190
Basic earnings As reported 1.04 1.11 1.00
per share Pro forma 1.01 1.08 .94
Diluted earnings As reported 1.03 1.09 .98
per share Pro forma 1.00 1.06 .92
To determine the above pro forma amounts, the fair value of each option grant is
estimated on the date of the grant using the Black-Scholes option-pricing model
and the following weighted-average assumptions:
YEARS ENDED DECEMBER 31
2000 1999 1998
------ ------ ------
Dividend yield 4.72% 3.00% 2.54%
Risk-free interest rate 5.75% 6.38% 4.55%
Expected stock volatility 41.18% 13.11% 56.60%
Expected years until exercise 6.37 5.72 4.66
Bancshares has a 1986 Qualified Incentive Stock Option Plan which could have
granted 468,750 shares of common stock to its key employees. The exercise price
of each option was the market price of Bancshares' common stock on the date of
the grant. Options vest in equal annual installments on each of the next five
anniversaries of the date of grant and expire ten years from date of grant. No
additional options were available for grant under the plan at December 31, 2000.
Bancshares has a 1989 Nonqualified Employee Stock Option Plan which could have
granted 96,731 shares of common stock to key employees of a corporation acquired
by Bancshares. The exercise price of each option was $7.75. All of the options
are fully vested and expire ten years from the date of grant. No additional
options were available for grant under the plan at December 31, 2000.
Bancshares has a 1990 Qualified Incentive Stock Option Plan which could have
granted 79,287 shares of common stock to key employees of a corporation acquired
by Bancshares. The exercise price of each option was $4.65. All of the options
are fully vested and expire ten years from the date of grant. No additional
options were available for grant under the plan at December 31, 2000.
Bancshares has a 1994 Nonqualified Stock Option Plan which may grant 156,250
shares of common stock to the Directors of Bancshares. The exercise price of
each option is the market price of Bancshares' common stock on the date of
grant. Options vest immediately and expire five years from the date of grant.
Bancshares has a 1996 Qualified Incentive Stock Option Plan which may grant
312,500 shares of common stock to its key employees. The exercise price of each
option is the market price of Bancshares' common stock on the date of grant.
Options vest in equal annual installments on each of the next five anniversaries
of the date of grant and expire ten years from the date of grant.
Bancshares had warrants outstanding to purchase 27,159 shares of its common
stock at December 31, 1999. These warrants were issued to organizers and
founders of a corporation acquired by Bancshares, were immediately exercisable
at $7.75 per share, and were all exercised during 2000.
The following table summarizes information about outstanding and exercisable
stock options and warrants at December 31, 2000:
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICES EXERCISABLE PRICES
------------------ ----------- --------- --------- ----------- --------
$ 7.168 - $ 7.752 43,786 1.19 $ 7.256 43,786 $ 7.256
9.728 - 9.728 56,779 2.36 9.728 56,779 9.728
11.063 - 11.520 57,107 6.42 11.292 55,857 11.520
12.800 - 12.800 59,997 3.36 12.800 59,997 12.800
13.000 - 14.563 56,186 4.70 13.226 47,434 13.268
15.063 - 15.063 53,750 9.35 15.063 0 N/A
15.200 - 15.400 50,310 5.69 15.227 32,806 15.242
20.000 - 20.000 62,375 7.70 20.000 19,375 20.000
20.750 - 22.500 59,875 6.74 20.987 29,125 21.238
------- -------
500,165 345,159
======= =======
A summary of the status of Bancshares' stock based compensation plans and
warrants as of December 31, 2000 and 1999 and changes during the years then
ended is presented below:
2000 1999
------------------------ ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- --------- -------- ---------
Outstanding at beginning of years ........ 488,543 $ 14 505,689 $ 12
Granted .................................. 65,625 15 64,375 20
Exercised ................................ (47,189) 8 (81,521) 9
Cancelled ................................ (6,814) 17 0 N/A
------- -------
Outstanding at end of years .............. 500,165 14 488,543 14
======= =======
Options exercisable at end of years ...... 345,159 $ 13 332,467 $ 12
======= =======
NOTE 17 - LSB BANCSHARES, INC. (PARENT COMPANY)
The parent company's condensed balance sheets as of December 31, 2000 and 1999,
and the related condensed statements of income and cash flows for the years
ended December 31, 2000, 1999 and 1998, are as follows (In thousands):
CONDENSED BALANCE SHEETS
DECEMBER 31
2000 1999
-------- --------
Assets:
Cash ....................................................... $ 422 $ 525
Investment in wholly-owned subsidiary ...................... 73,775 70,348
Other assets ............................................... 823 1,055
-------- --------
Total assets ............................................. $ 75,020 $ 71,928
======== ========
Liabilities and Shareholders' equity:
Other liabilities .......................................... $ 797 $ 609
Shareholders' equity ....................................... 74,223 71,319
-------- --------
Total liabilities and Shareholders' equity ............... $ 75,020 $ 71,928
======== ========
24
28
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31
2000 1999 1998
------ ------ ------
Dividends from subsidiary ............................. $5,482 $11,229 $3,672
------ ------- ------
Operating expense ..................................... 114 185 169
------ ------- ------
Income before equity in earnings of subsidiary ........ 5,368 11,044 3,503
Equity in earnings of subsidiary ...................... 3,427 (1,564) 5,177
------ ------- -----
Net income ............................................ $8,795 $9,480 $8,680
====== ======= ======
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
2000 1999 1998
------- ------- -------
Cash Flow From Operating Activities:
Net income ............................................ $ 8,795 $ 9,480 $ 8,680
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in investment in wholly-owned subsidiary ..... (3,427) 1,564 (5,177)
------- -------- -------
Net cash provided by operating activities ............. 5,368 11,044 3,503
------- -------- -------
Cash Flow From Investing Activities:
(Increase) decrease in other assets ................... 232 (123) (126)
------- -------- -------
Cash Flow From Financing Activities:
Sale of capital stock ................................. 388 715 501
Dividends paid ........................................ (4,729) (4,775) (3,676)
Common stock acquired ................................. (1,550) (6,866) (93)
Increase in other liabilities ......................... 188 87 96
------- -------- -------
Net cash used by financing activities ................. (5,703) (10,839) (3,172)
------- -------- -------
Increase (decrease) in cash ........................... (103) 82 205
Cash at beginning of years ............................ 525 443 238
------- -------- -------
Cash at end of years................................... $ 422 $ 525 $ 443
======= ======== =======
25
29
STATEMENT OF MANAGEMENT RESPONSIBILITY
The management of LSB Bancshares, Inc. and subsidiaries is responsible for the
preparation of the financial statements, related financial data and other
information in this annual report. The financial statements are prepared in
accordance with generally accepted accounting principles and include amounts
that are based on management's estimates and judgment where appropriate. Other
information in the annual report is consistent with that contained in the
financial statements. In fulfilling its responsibility for the integrity and
fairness of these statements and information, management relies on the
accounting system and related internal controls that are designed to provide
reasonable assurances that transactions are authorized and recorded in
accordance with established procedures, assets are safeguarded, and proper and
reliable records are maintained.
The Corporation maintains a professional staff of internal auditors who
independently assess the effectiveness of the internal controls and recommend
possible improvements thereto. The Audit Committee of the Board of Directors is
composed solely of outside directors who are responsible for overseeing the
accounting policies employed by management and that the system of internal
controls is adequately reviewed and maintained. The independent auditors,
internal auditors and banking regulators have direct access to the Audit
Committee with or without management present.
The financial statements have been audited by Turlington and Company, L.L.P.,
independent auditors, who render an independent, professional opinion on
management's financial statements. Their report expresses an opinion as to the
fairness of the financial position and results of operations of LSB Bancshares,
Inc. and subsidiaries based on their audit conducted in accordance with
generally accepted auditing standards.
LSB Bancshares, Inc.
January 31, 2001
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders
LSB Bancshares, Inc.
Lexington, North Carolina
We have audited the accompanying consolidated balance sheets of LSB Bancshares,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2000. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LSB Bancshares, Inc.
and subsidiaries as of December 31, 2000 and 1999, and the consolidated results
of their operations, and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with generally accepted accounting
principles.
Turlington and Company, L.L.P.
Lexington, North Carolina
January 31, 2001
26
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 13th day of
February, 2001.
LSB BANCSHARES, INC.
Registrant
Robert F. Lowe
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on February 13, 2001 by the following persons in the capacities
indicated:
Robert F. Lowe
Chairman, President and Chief Executive Officer
Monty J. Oliver
Secretary and Treasurer
Chief Financial Officer
A majority of the Directors of the registrant, whose names appear on page 42.
EXECUTIVE OFFICERS OF THE REGISTRANT
Robert F. Lowe (58) Chairman, President and Chief Executive Officer and a
Director of Bancshares and the Bank, joined the Bank in 1970 and was elected
Vice President in 1973. He was elected Senior Vice President in 1980 and
Executive Vice President of the Bank and Bancshares in 1982. In 1983, Mr. Lowe
was elected a Director of Bancshares and the Bank. On January 1, 1984, he was
elected President and Chief Executive Officer of Bancshares and the Bank, and on
January 1, 1990, Mr. Lowe was elected Chairman of both Bancshares and the Bank.
Mr. Lowe also serves as Chairman, President and a Director of Peoples Finance
Company of Lexington, Inc., a subsidiary of the Bank and President and a
Director of LSB Investment Services, Inc., a subsidiary of the Bank.
H. Franklin Sherron, Jr. (45), Vice President of Bancshares, joined the Bank in
1990 as Senior Vice President. He was elected Executive Vice President of the
Bank in 1996. Mr. Sherron is also Vice President and a Director of Peoples
Finance Company of Lexington, Inc., a subsidiary of the Bank, and Senior Vice
President of LSB Investment Services, Inc., a subsidiary of the Bank.
Monty J. Oliver (59), Secretary and Treasurer of Bancshares, joined the Bank as
Vice President in 1978. He was elected Cashier of the Bank in 1980; and in 1986,
he was elected Senior Vice President of the Bank and in 1996 elected Executive
Vice President. Mr. Oliver is also Secretary and a Director of Peoples Finance
Company of Lexington, Inc., a subsidiary of the Bank, and Secretary and
Assistant Treasurer of LSB Investment Services, Inc., a subsidiary of the Bank.
30
31
DIRECTORS OF LSB BANCSHARES, INC. AND LEXINGTON STATE BANK
[PHOTO]
Executive Committee, seated, left to right: Robert B. Smith, Jr.; Burr
W. Sullivan; Robert F. Lowe, Chairman of the Board, President & Chief Executive
Officer; David A. Smith and; Julius S. Young, Jr. Directors, standing, left to
right: Margaret Lee W. Crowell, Emeritus; Walter A. Hill, Sr.; Roberts E.
Timberlake; Clifford A. Erickson, Emeritus; Dothan D. Reece, Emeritus; Samuel R.
Harris; L. Klynt Ripple, Emeritus; Archie M. Sink, Emeritus; Lloyd G. Walter,
Jr.; Marvin D. Gentry; Michael S. Albert; L. Ardell Lanier, Emeritus; Leonard H.
Beck; Archie L. Hodges, Emeritus; Peggy B. Barnhardt; A. Lonnie Davis, Emeritus
and; Sue H. Hunter (Not present; Russell J. Gabrielson, Emeritus and; J. Smith
Young, Emeritus)
MICHAEL S. ALBERT
President, CEO and Director of Billings Freight Systems, Inc.; Treasurer of
Cargo Carriers, Inc.; Vice President of Metro Motor Express, Inc.
PEGGY B. BARNHARDT
Retired since 1996; former Deputy Superintendent, Davidson County Schools
LEONARD H. BECK
President, Green Printing Company
MARVIN D. GENTRY
Retired; former President and CEO of The New Fortis Corporation, a wholly-owned
subsidiary of K. Hovnanian Enterprises
SAMUEL R. HARRIS, M.D.
Physician
WALTER A. HILL, SR.
President, Hill Oil Company, Inc.; Vice President and Secretary, NorthCo, Inc.
(construction development)
SUE H. HUNTER
President and co-owner of Thomasville Emporium; Vice President of Side Street
Cafe; former Davidson County Commissioner & Vice Chairperson
ROBERT F. LOWE
Chairman, President and CEO of Bancshares, the Bank and Peoples Finance Company
of Lexington, Inc., a subsidiary of the Bank; President and a director of LSB
Investment Services, Inc., a subsidiary of the Bank
DAVID A. SMITH
Owner, Red Acres Dairy Farm
ROBERT B. SMITH, JR.
Attorney
BURR W. SULLIVAN
President, Dorsett Printing and Lithograph Corporation
ROBERTS E. TIMBERLAKE
Artist/Designer; Chairman, President and CEO of Bob Timberlake, Inc.
LLOYD G. WALTER, JR., FAIA
Architect; sole proprietor d/b/a LGW Consulting; former CEO and Principal of
Walter, Robbs, Callahan & Pierce Architects, P.C.
JULIUS S. YOUNG, JR.
President, Jay Young Management, Inc.
DIRECTORS EMERITI
MARGARET LEE W. CROWELL
A. LONNIE DAVIS
CLIFFORD A. ERICKSON
RUSSELL J. GABRIELSON
ARCHIE L. HODGES
L. ARDELL LANIER
DOTHAN D. REECE
L. KLYNT RIPPLE
ARCHIE M. SINK
J. SMITH YOUNG
31
32
ADVISORY BOARD MEMBERS OF LEXINGTON STATE BANK
CLEMMONS
OLLIE H. CHERRY
Owner, Cherrie's Cafe
C. FRANK GAMBLE
Retired Mortgage Banker
JACK H. HIGGINS
Retired General Partner, Bingham Lumber Company
GEORGE E. WILSON
Real Estate Agent, Vision Properties
FORSYTH COUNTY
ANN B. ADAMS
President, The Golden Apple, Inc.
J. DAVID BRANCH, M.D.
Ophthalmologist
ROBERT C. CLARK
President, Fiber & Textile Services, Inc.
NICHOLAS A. DAVES
Senior Vice President & Area Executive-Forsyth
& Stokes Counties, Lexington State Bank
EUNICE M. DUDLEY
Chief Financial Officer, Dudley
Products, Inc.
DAVID W. GOOGE
Owner, Googe Financial Services
GLEN D. HART
Owner, Hart Properties
DONALD G. HAVER
Retired Vice President-Community Affairs,
R. J. Reynolds Tobacco Company
LEWIS E. HUBBARD, SR.
President, Hubbard Realty of
Winston-Salem, Inc.
CALVERT B. JEFFERS, JR., DVM
Veterinarian, Boulevard Animal Hospital
SANDRA K. MITCHELL
President, Utility Auditing, Inc.
DALE R. PINILIS
President, Winston-Salem Speedway, Inc.
ROBERT S. SIMON
President, Windsor Jewelers, Inc.
B. H. WILLIAMS
President, Mari-Lu Enterprises, Inc.
NORTH DAVIDSON
JUDY Z. BUTLER
Manager & Hygienist, Wallace B. Butler, DDS
Director, Lexington Memorial Hospital Foundation
JUDY H. HARTMAN
Developer; Corporate Secretary, Forsyth Water
and Sewer Construction, Inc.
THOM C. HEGE
Owner, Robana Farms
BARBARA B. LEONARD, ED.D
Associate Professor, High Point University
Vice Chairman of Trustees, Davidson County
Community College
PATRICIA S. PATTERSON
Secretary-Treasurer, Patterson Textiles
A. N. SMITH
Owner, A. N. Smith and Sons Building Company
HERBERT A. SNYDER
Owner, Snyder's Fuel Oil Service; Part-Owner, Snyder, Snyder and Associates
GREGORY S. THEILER
President, DCH Construction Company, Inc.
STOKES COUNTY
JAMES R. BURROW
Owner, James R. Burrow Surveying and
Mapping Company
LEWIS N. CARROLL
Owner, Carroll Signs & Advertising
W. FRANK FOWLER, DDS
Retired Dentist
EUGENE A. LYONS
Retired Principal, North Stokes H.S.;
Stokes County Commissioner
PATSY R. MABE
Former Danbury Banker
HERSCHEL A. REDDING
President, Redding Construction Services, LLC
RICHARD E. STOVER
Attorney, Stover Cromer & Bennett
JOHN F. WATTS
Owner, Watts Realty, Inc.
JOHN H. WATTS
Retired General Superintendent,
A. Watts, Inc. (general contractor)
THOMASVILLE
RICK T. BATTEN
President, Black Lumber Company
HOLLIS S. BLAIR
President, Elliot Florist & Greenhouse, Inc.
JOE W. CARROLL
Senior Vice President & City Executive-Thomasville,
Lexington State Bank
JOSEPH R. HEDGPETH, M.D.
Physician, Thomasville Ob-Gyn
Associates, P. A.
JAMES E. HUNTER, M.D.
Physician, Thomasville Medical
Associates, Inc.
HUBERT M. LEONARD
Mayor of Thomasville
ROBERT C. LEONARD
President & Owner, Cranford Silk Screen
Process, Inc.
KEVIN C. YATES
President, Carolina Veneer of
Thomasville, Inc.
OFFICERS OF LSB BANCSHARES, INC.
ROBERT F. LOWE
Chairman, President & Chief
Executive Officer
H. FRANKLIN SHERRON, JR.
Vice President
MONTY J. OLIVER
Secretary & Treasurer
ROBIN A. HUNEYCUTT
Assistant Secretary
OFFICERS OF LEXINGTON STATE BANK
ROBERT F. LOWE
Chairman, President & Chief Executive Officer
H. FRANKLIN SHERRON, JR.
Executive Vice President & Chief Operating Officer
MONTY J. OLIVER
Executive Vice President & Cashier
[PHOTO]
Monty J. Oliver, Robert F. Lowe, H. Franklin Sherron
32
33
OFFICERS OF LEXINGTON STATE BANK, CONTINUED
CORETTA J. BIGELOW
Senior Vice President, Credit Administration
CRAIG L. CALL
Senior Vice President, Corporate Accounting
RONALD E. COLEMAN
Senior Vice President, Credit Administration
R. CLARK DILLON
Senior Vice President & Trust Officer
PHILIP G. GIBSON
Senior Vice President, Mortgage Loans
ROBIN A. HUNEYCUTT
Senior Vice President & Secretary
CHARLES N. REYNOLDS
Senior Vice President, Credit Administration
KATHY V. RICHARDSON
Senior Vice President, Branch Administration
D. GERALD SINK
Senior Vice President, Operations
RONALD W. SINK
Senior Vice President, Human Resources
KEARNEY H. ANDREWS
Vice President, Marketing
H. KENT BECK
Vice President, Mortgage Loans
LYNN B. COLLINS
Vice President, Operations
JOHN R. CRANOR
Vice President, Information Systems
DONNA G. HENCH
Vice President & Auditor
BRENDA M. HOUSER
Vice President & Trust Officer
P. WAYNE KIMBRELL, JR.
Vice President, Revolving & Consumer Credit
PAMELA S. LAWSON
Vice President & Assistant Auditor
E. WARREN MACKINSTRY
Vice President, Commercial Loans
KATHRYN C. OAKLEY
Vice President, Human Resources
REBECCA J. PEOPLES
Vice President, Administration
W. EARL SNIPES
Vice President, Commercial Loans
JOSEPH T. WALLACE
Vice President & Security, Compliance & CRA Officer
STEPHEN V. WEEKS
Vice President, Consumer Loans
JACQUES S. YOUNGBLOOD
Vice President, Information Systems
JACQUELINE K. AURICH
Assistant Vice President, Marketing
THOMAS J. BEIGHLEY
Assistant Vice President, & Assistant Auditor
DEBBIE C. FANARY
Assistant Vice President, Mortgage Loans
JEAN P. GOOCH
Assistant Vice President, Corporate Accounting
C. MARK HALL
Assistant Vice President, Commercial Loans
GERALDINE J. HAND
Assistant Vice President, Operations
R. CARLTON JONES, JR.
Assistant Vice President, Commercial Loans
SHERRILL B. JONES
Assistant Vice President, Operations
SHIRLEY V. PUTNAM
Assistant Vice President, Mortgage Operations
LEWIS N. TERRELL
Assistant Vice President, Consumer Loans
KIMBERLY M. WEHRLE
Assistant Vice President & Assistant Secretary
CATHY F. WILKERSON
Assistant Vice President, Branch Operations
TENA C. YOUNTZ
Assistant Vice President
ALICE C. CARTRETTE
Banking Officer
ROBIN B. CECIL
Banking Officer
TERESA A. GREGG
Banking Officer
DORIS M. GRIFFIN
Banking Officer
B. EUGENE KLUMP
Banking Officer
MARTHA Y. LEONARD
Banking Officer
TRACY M. LEONARD
Banking Officer
SALLY C. THOMASON
Banking Officer
RODNEY E. WALSER
Banking Officer
KATHY L. JOHNSON
Loan Operations Officer & Assistant Secretary
TEDDY L. JONES
Assistant Secretary
TAMMY L. LEMLY
Bank Card Officer
CATHY B. MARION
Assistant Compliance Officer & Assistant Security Officer
LISA H. SINK
Assistant Security
OFFICES OF LEXINGTON STATE BANK AND SUBSIDIARIES
DAVIDSON COUNTY
ARCADIA OFFICE
JANET B. YATES
Assistant Vice President
SHARON C. PIERCE
Branch Officer
LEXINGTON LOAN CENTER
JIM D. THOMASON
Vice President
TAMARA M. HUNT
Assistant Secretary
MIDWAY OFFICE
WENDY L. NORRIS
Assistant Vice President
DEBBIE W. OVERBY
Assistant Branch Officer, Mortgage Loans
PENNY S. EVERHART
Banking Officer
NORTH LEXINGTON OFFICE
PATTIE S. BAYLIFF
Banking Officer
SOUTH LEXINGTON OFFICE
NANCY S. SEAFORD
Assistant Vice President
RANDALL C. BULLIN
Assistant Branch Officer, Mortgage Loans
SOUTH MAIN STREET OFFICE
JOANN C. ORRELL
Office Manager
TALBERT BOULEVARD OFFICE
REBEKAH C. TUCKER
Assistant Vice President
THOMASVILLE NATIONAL HIGHWAY OFFICE
JOE W. CARROLL
Senior Vice President & City Executive,
Thomasville Offices
ROY A. HYDE
Vice President
JOYCE A. OVERSTREET
Assistant Vice President, Mortgage Loans
THOMASVILLE PIEDMONT RETIREMENT CENTER OFFICE
DAVIDA L. BECK
Office Manager
THOMASVILLE RANDOLPH STREET OFFICE
DEREK L. CHURCH
Vice President, Commercial Loans
DAREN C. FULLER
Assistant Vice President
WALLBURG OFFICE
THOMAS B. PHELPS
Assistant Vice President
ANN B. WARREN
Assistant Branch Officer
WELCOME OFFICE
MARY SUE STALLINGS
Vice President
RUBY D. MORRIS
Consumer Loan Officer
WEST SIDE OFFICE
SHEILA A. SLAYDON
Assistant Vice President
AMY J. NANCE
Assistant Branch Officer
FORSYTH COUNTY
CLEMMONS OFFICE
REVETA J. GUNNELL
Vice President & City Executive
JAMES J. TOBIN
Vice President, Commercial Loans
SHERRI B. BOWMAN
Banking Officer
KERNERSVILLE OFFICE
GINGER R. FRITTS
Assistant Vice President & City Executive
RURAL HALL OFFICE
LOLA R. FRY
Assistant Vice President
ROBIN S. HORN
Assistant Branch Officer
WALKERTOWN OFFICE
PAMELA B. TUTTLE
Assistant Vice President
WYTHENE C. PALMER
Banking Officer
WINSTON-SALEM SHERWOOD PLAZA OFFICE
LINDA H. MAYNARD
Assistant Vice President
WINSTON-SALEM STRATFORD ROAD OFFICE
NICHOLAS A. DAVES
Senior Vice President & Area Executive,
Forsyth & Stokes Counties
SUZANNE J. BULLOTTA
Senior Vice President, Commercial Loans
E. HILDRETH CASSELL
Vice President, Commercial Loans
WANDA S. MERSCHEL
Vice President & Assistant Secretary
EDWARD A. POTTS, JR.
Vice President, Mortgage Loans
BETTY R. HARTMAN
Assistant Vice President & Assistant Secretary
ALLISON W. THOMASON
Banking Officer & Assistant Secretary
STOKES COUNTY
DANBURY OFFICE
BRENDA O. MCDANIEL
Banking Officer
KING OFFICE
R. STANLEY SOUTHERN
Vice President & City Executive
KENT L. TEAGUE
Vice President, Commercial Loans
CARLA W. HOOKER
Assistant Vice President
ARTHUR A. SMITH
Assistant Vice President
JAMES DEREK EDWARDS
Mortgage Loan Officer
LSB INVESTMENT SERVICES, INC.
PATRICIA A. ROZANSKI
Vice President & Program Manager,
Winston-Salem Office
KAREN M. HOLLAND
Investment Consultant
Lexington Office
DEBRA A. PITTS
Investment Consultant,
Thomasville Office
PEOPLES FINANCE COMPANY
OF LEXINGTON, INC.
KEITH O. FRAZIER
Vice President, Lexington Office
DANNY G. SPURRIER
Branch Officer, Lexington Office
CHRISTOPHER L. MICKEY
Branch Officer, King Office
33
34
DIVIDEND REINVESTMENT
Registered holders of LSB Bancshares, Inc. common stock are eligible to
participate in the Corporation's Dividend Reinvestment and Stock Purchase Plan,
a convenient and economical way to acquire additional shares of Bancshares
common stock by reinvesting dividends without the payment of service charges or
brokerage fees. For further information, contact Bancshares' Corporate Office.
STOCK LISTING (LXBK)
The common stock of LSB Bancshares, Inc. is traded on the Nasdaq National
Market(R) and is quoted electronically through the National Association of
Securities Dealers Automated Quotations System (NASDAQ/NMS) under the symbol
LXBK.
TRANSFER AGENT AND REGISTRAR
EquiServe Trust Company, N.A.
P.O.Box 8218
Boston, MA 02266-8218
800/633-4236
FINANCIAL INQUIRIES
Analysts and investors seeking financial information about LSB Bancshares, Inc.
should contact Monty J. Oliver, Executive Vice President, at the address or
telephone number listed on the back cover.
Shareholders needing information concerning transfer requirements, lost
certificates and changes of address should contact Bancshares' transfer agent or
Bancshares' Corporate Office.
EQUAL OPPORTUNITY EMPLOYER
LSB Banchshares, Inc. is an equal opportunity employer. All matters regarding
recruiting, hiring, training, compensation, benefits, promotions, transfers and
all other personnel policies will remain free from discriminatory
practices.
STOCK AND DIVIDEND INFORMATION
LSB Bancshares, Inc.'s common stock is traded on the NASDAQ National Market
under the symbol LXBK. The following table shows the high, low and closing sales
prices reported on the NASDAQ National Market and cash dividends declared per
share for the indicated periods.
Prices Cash
------------------------------------- Dividends
2000 High Low Close Declared
- --------------------------------------------------------------------------------------------
First Quarter ................ $ 16.63 $ 12.75 $ 14.00 .14
Second Quarter ............... 15.75 12.06 12.25 .14
Third Quarter ................ 14.00 11.88 11.88 .14
Fourth Quarter ............... 13.64 10.38 11.13 .14
1999
First Quarter ................ $ 20.00 $ 18.25 $ 19.25 .14
Second Quarter ............... 20.00 18.50 19.00 .14
Third Quarter ................ 19.63 17.50 18.00 .14
Fourth Quarter ............... 19.25 15.75 15.75 .14
The following firms make a market in LSB Bancshares' common stock:
Robinson Humphrey Co., Inc.
Wachovia Securities
Spear, Leeds & Kellogg
Scott & Stringfellow, Inc.
Morgan Keegan & Co., Inc.
Moors & Cabot, Inc.
Knight Securities L.P.
First Tennessee Securities
Legg Mason Wood Walker, Inc.
Sherwood Securities Corp.
ANNUAL MEETING
The Annual Meeting of Shareholders of LSB Bancshares, Inc. will be held at 10:00
a.m., Wednesday, April 18, 2001 at One LSB Plaza, 5th floor, Lexington. There
will be a luncheon following the meeting at 12:30 p.m. at the J. Smith Young
YMCA located at 119 West Third Avenue, Lexington. All shareholders are cordially
invited to attend.
ANNUAL DISCLOSURE STATEMENT
This statement has not been reviewed for accuracy or relevance by the Federal
Deposit Insurance Corporation.
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[PUZZLE PIECE GRAPHIC]
LSB BANCSHARES, INC. &
LSB CORPORATE OFFICE:
One LSB Plaza/38 West First Avenue
P.O. Box 867 Lexington, NC 27293-0867
336/248-6500 www.lsbnc.com
LSB OFFICES & SUBSIDIARIES:
Davidson County...
Arcadia*
3500 Old Salisbury Road
Main Office Drive-up*
27 West Center
Lexington Loan Center
300 East Center Street
Midway*
11492 Old U.S. Highway 52
National Highway*
724 National Highway, Thomasville
North Lexington
1109 Winston Road
Piedmont Retirement Center
100 Hedrick Drive, Thomasville
Randolph Street*
941 Randolph STreet, Thomasville
South Lexington*
926 Cotton Grove Road
South Main Street
701 South Main Street
Talbert Boulevard*
285 Talbert Boulevard
Wallburg*
10335 North N.C. Highway 109
Welcome*
6123 Old U.S. Highway 52
West Side*
60 New Highway 64 West
Forsyth County...
Clemmons*
2386 Lewisville-Clemmons Road
Kernersville*
131 East Mountain Street
Rural Hall*
8055 Broad Street
Sherwood Plaza*
3384 Robinhood Road, Winston-Salem
Stratford Road*
161 S. Stratford Road, Winston-Salem
Walkertown*
3000 Old Hollow Road
Stokes County...
Danbury*
Highway 8 & 89, Old Walnut Cove Road
King*
647 S. Main Street
LSB Investment Services
Lexington Office
29 West Center Street
Thomasville Office
724 National Highway
Winston-Salem Office
161 S. Stratford Road
Peoples Finance Company
Lexington Office
203 E. Center Street
King Office
607 South Main Street
*ATM available at this location.
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Pursuant to the requirements of Section 13 or 15(d) 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.
LSB BANCSHARES, INC.
Date: February 13, 2001 By /s/ ROBERT F. LOWE
---------------------------
Robert F. Lowe, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
/s/ ROBERT F. LOWE
- -------------------------, President and Director February 13, 2001
Robert F. Lowe (Principal Executive Officer)
/s/ MONTY J. OLIVER
- -------------------------, Secretary and Treasurer February 13, 2001
Monty J. Oliver (Principal Financial Officer)
/s/ MICHAEL S. ALBERT
- -------------------------, Director February 13, 2001
Michael S. Albert
/s/ PEGGY B. BARNHARDT
- -------------------------, Director February 13, 2001
Peggy B. Barnhardt
/s/ LEONARD H. BECK
- -------------------------, Director February 13, 2001
Leonard H. Beck
/s/ MARVIN D. GENTRY
- -------------------------, Director February 13, 2001
Marvin D. Gentry
/s/ SAMUEL R. HARRIS
- -------------------------, Director February 13, 2001
Samuel R. Harris
/s/ WALTER A. HILL, SR.
- -------------------------, Director February 13, 2001
Walter A. Hill, Sr.
/s/ SUE H. HUNTER
- -------------------------, Director February 13, 2001
Sue H. Hunter
/s/ DAVID A. SMITH
- -------------------------, Director February 13, 2001
David A. Smith
/s/ ROBERT B. SMITH, JR.
- -------------------------, Director February 13, 2001
Robert B. Smith, Jr.
/s/ BURR W. SULLIVAN
- -------------------------, Director February 13, 2001
Burr W. Sullivan
/s/ ROBERTS E. TIMBERLAKE
- -------------------------, Director February 13, 2001
Roberts E. Timberlake
/s/ LLOYD G. WALTER, JR.
- -------------------------, Director February 13, 2001
Lloyd G. Walter, Jr.
/s/ JULIUS S. YOUNG, JR.
- -------------------------, Director February 13, 2001
Julius S. Young, Jr.