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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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, 1997. Commission File No. 0-10852
SOUTHERN BANCSHARES (N.C.), INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1538087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
121 East Main Street 28365
Mount Olive, North Carolina (Zip Code)
(Address of Principal Executive offices)
Registrant's Telephone Number,
including Area Code: (919) 658-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Series B non-cumulative preferred stock, no par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X__ No ___
Indicate by check mark if 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 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.
[ X ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 20, 1998: The Registrant's voting stock has no readily
ascertainable market value as of any date within the last sixty days or
otherwise for the reason that such stock is not regularly traded and has no
quoted prices. Therefore, the aggregate market value of the voting stock held
by non-affiliates is not determinable.
The number of shares outstanding of the Registrant's common stock as of March
20, 1998: Common Stock, $5.00 par value - 119,918 shares
Documents Incorporated by Reference
1. Part II Registrant's Annual Report to Shareholders
PART I
ITEM 1 - BUSINESS:
General
Southern BancShares (N.C.), Inc., a Delaware corporation (hereinafter,
with all of its subsidiaries, referred to as the "Registrant" or BancShares"),
is a bank holding company pursuant to the provisions of the Bank Holding
Company Act of 1956, as amended. BancShares is the successor to Southern
BancShares (N.C.), Inc., a North Carolina corporation ("SBS") which was formed
in 1982 to become the parent company of Southern Bank and Trust Company
("Southern"), its principal operating subsidiary, which it acquired in late
1982. BancShares was formed in 1986 in order to affect the reincorporation in
Delaware of the holding company of Southern Bank by the merger of SBS into
BancShares, which was effective on December 28, 1986. All significant
activities of the Registrant and its subsidiary are banking related so that the
Registrant operates within one industry segment. Neither BancShares nor its
subsidiary has any foreign operations.
The operating subsidiary of BancShares is Southern Bank and Trust Company
("Southern"), which is engaged in commercial banking primarily in eastern North
Carolina. Southern's predecessor bank was organized on January 29, 1901, as
the Bank of Mount Olive. In 1913, it became the First National Bank and
remained so until 1936 when it rechartered as the Bank of Mount Olive. In
1967, Southern acquired its present name. Over the years, Southern's growth
has been generated principally through branching and by merging with four other
banks: Roanoke Chowan Bank, Roxobel, North Carolina in 1969, Merchants' and
Farmers' Bank, Macclesfield, North Carolina in 1973, Tarheel Bank & Trust Co.,
Gatesville, North Carolina in 1986 and Citizens Savings Bank, Rocky Mount,
North Carolina in 1993. Also in 1993, Southern acquired deposits in four
branches of two savings institutions and an office of NationsBank in
Pollocksville, North Carolina. In 1994 Southern acquired deposits in branches
in Scotland Neck, North Carolina and Turkey, North Carolina from First Citizens
Bank. In 1995 Southern acquired deposits in branches in Farmville, North
Carolina; Garland, North Carolina; Kill Devil Hills, North Carolina and
Salemburg, North Carolina from First Union National Bank. In 1995 Southern
also acquired the deposits of a branch in Kill Devil Hills, North Carolina
from First Citizens Bank. In 1996 Southern acquired deposits in a branch in
Windsor, North Carolina from First Citizens Bank, acquired deposits in a branch
in Edenton, North Carolina from United Carolina Bank and sold the deposits of
its branch in Scotland Neck, North Carolina to Triangle Bank. In 1997 Southern
acquired deposits in branches in Aulander, North Carolina, Aurora, North
Carolina and Hamilton, North Carolina from Wachovia Bank of North Carolina,
N.A. Refer to "Related Parties" in Note 15 on page 37 of the 1997 Annual
Report of Southern BancShares (N.C.), Inc. in Exhibit number 13 for additional
information regarding First Citizens Bank. In terms of total assets, at
December 31, 1997, Southern was the eleventh largest bank in North Carolina.
Business
Southern conducts a general banking business designed to meet the needs of
the people of its market area. These services, all of which are offered at its
42 offices, include, among other items: taking deposits; cashing checks and
providing for individual and commercial cash needs; and providing numerous
checking and savings plans, including automatic transfer services, direct
deposit, and banking by mail.
Southern also makes commercial, consumer and mortgage loans at its 32 full
service offices and provides individual retirement account service, safe
deposit box rental, travelers' check service, and Master Card and Visa credit
card programs.
The Bank has twenty automatic teller machines; one each in Ahoskie, Ayden,
Belhaven, Bethel, Edenton, Farmville, LaGrange, Mount Olive, Murfreesboro,
Nashville, Plymouth, Roanoke Rapids, Warsaw, Whitakers and Windsor, North
Carolina and two in Kill Devil Hills and Rocky Mount North Carolina. Southern
has one satellite automatic teller machine at Duplin General Hospital in
Kenansville, North Carolina.
Southern does not operate in the international financing market.
Southern has a wholly-owned subsidiary: Goshen, Inc., which acts as agent
for credit life and credit accident and health insurance written in connection
with loans made by Southern.
Statistical Information
Certain statistical information with respect to BancShares' business is
included in the information incorporated herein under "Item 7" below.
Supervision and Regulation
The business and operations of BancShares and Southern are subject to
extensive federal and state governmental regulation and supervision.
BancShares is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the Bank
Holding Company Act of 1956 as amended (the "BHCA"), and is subject to
supervision and examination by and the regulations and reporting requirements
of the Federal Reserve. Under the BHCA, the activities of BancShares are
limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries or engaging in any other activity
which the Federal Reserve determines to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto.
The BHCA prohibits BancShares from acquiring direct or indirect control of
more than 5 percent of the outstanding voting stock or substantially all of the
assets of any financial institution, or merging or consolidating with another
bank holding company or savings bank holding company, without prior approval of
the Federal Reserve. Additionally, the BHCA prohibits BancShares from engaging
in, or acquiring ownership or control of more than 5 percent of the outstanding
voting stock of any company engaged in, a nonbanking activity unless such
activity is determined by the Federal Reserve to be so closely related to
banking as to be properly incident thereto. In approving an application by
BancShares to engage in a non-banking activity, the Federal Reserve must
consider whether that activity can reasonably be expected to produce benefits
to the public, such as greater convenience, increased competition or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest or unsound
banking practices.
There are a number of obligations and restrictions imposed by law on a
bank holding company and its insured depository institution subsidiaries that
are designed to minimize potential loss to depositors and the FDIC insurance
funds. For example, if a bank holding company's insured depository institution
subsidiary becomes "undercapitalized," the bank holding company is required to
guarantee (subject to certain limits) the subsidiary's compliance with the
terms of any capital restoration plan filed with its appropriate federal
banking agency. Also, a bank holding company is required to serve as a source
of financial strength to its depository institution subsidiaries and to commit
resources to support such institutions in circumstances where it might not do
so, absent such policy. Under the BHCA, the Federal Reserve has the authority
to require a bank holding company to terminate any activity or to relinquish
control of a nonbank subsidiary upon the Federal Reserve's determination that
such activity or control constitutes a serious risk to the financial soundness
and stability of a depository institution subsidiary of the bank holding
company.
As a result of its ownership of a North Carolina-chartered commercial
bank, BancShares also is registered with and subject to examination and
regulation by the North Carolina Commissioner of Banks under the state's bank
holding company laws.
Southern is a North Carolina commercial bank and its deposits are insured
by the FDIC. It is subject to supervision and examination by and the
regulations and reporting requirements of the North Carolina Commissioner of
Banks (the "Commissioner") and the FDIC.
Southern is subject to legal limitations on the amounts of dividends it is
permitted to pay. Prior approval of the Commissioner is required if the total
of all dividends declared by Southern in any calendar year exceeds its net
profits (as defined by statute) for that year combined with its retained net
profits (as defined by statute) for the preceding two calendar years, less any
required transfers to surplus. As an insured depository institution, Southern
also is prohibited from making capital distributions, including the payment of
dividends, if, after making such distribution, it would become
"undercapitalized" (as such term is defined in the Federal Deposit Insurance
Act).
Under current federal law, certain transactions between a depository
institution and its affiliates are governed by Section 23A and 23B of the
Federal Reserve Act. An affiliate of a depository institution is any company
or entity that controls, is controlled by or is under common control with the
institution, and, in a holding company context, the parent holding company of a
depository institution and any companies which are controlled by such parent
holding company are affiliates of the depository institution. Generally,
Sections 23A and 23B (i) limit the extent to which a depository institution or
its subsidiaries may engage in covered transactions with any one affiliate, and
(ii) require that such transactions be on terms and under circumstances
substantially the same, or at least as favorable, to the institution or the
subsidiary as those provided to a nonaffiliate.
Southern is subject to various other state and federal laws and
regulations, including state usury laws, laws relating to fiduciaries, consumer
credit and equal credit, fair credit reporting laws and laws relating to branch
banking. As an insured institution, Southern is prohibited from engaging as a
principal in activities that are not permitted for national banks unless (i)
the FDIC determines that the activity would pose no significant risk to the
appropriate deposit insurance fund and (ii) the institution is, and continues
to be, in compliance with all applicable capital standards. Insured
institutions also are prohibited from directly acquiring or retaining any
equity investment of a type or in an amount not permitted for national banks.
The Federal Reserve, the FDIC and the Commissioner all have broad powers
to enforce laws and regulations applicable to BancShares and Southern and to
require corrective action of conditions affecting the safety and soundness of
Southern. Among others, these powers include cease and desist orders, the
imposition of civil penalties and the removal of officers and directors.
Capital Requirements
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines which require a minimum ratio of total capital to
risk-weighted assets of 8 percent. At least half of the total capital is
required to be Tier I capital. In addition to the risk-based capital
guidelines, the Federal Reserve has adopted a minimum leverage capital ratio
under which a bank holding company must maintain a level of Tier I capital to
average total consolidated assets of at least 3 percent in the case of a bank
holding company which has the highest regulatory examination rating and is not
contemplating significant growth or expansion. All other bank holding
companies are expected to maintain a leverage capital ratio of a least 1
percent to 2 percent above the stated minimum.
Southern is also subject to capital requirements imposed by the FDIC.
Under the FDIC's regulations, insured institutions that receive the highest
rating during the examination process and are not anticipating or experiencing
any significant growth are required to maintain a minimum leverage ratio of 3
percent of Tier I capital to average total consolidated assets. All other
insured institutions are required to maintain a minimum ratio of 1 percent or 2
percent above the stated minimum, with a minimum leverage ratio of not less
than 4 percent. The FDIC also requires Southern to have a ratio of total
capital to risk-weighted assets of at least 8 percent.
Insurance Assessments
Southern is subject to insurance assessments imposed by the FDIC.
During 1995 the FDIC reduced the Bank Insurance Fund ("BIF") assessment rates
for the highest rated banks to .04 percent, but left unchanged the .31 percent
rate for the weakest banks; and, effective January 1, 1996, the FDIC again
reduced BIF assessments to a range of 0 percent to .27 percent. These recent
premium reductions do not affect the deposit premiums paid on Savings
Association Insurance Fund ("SAIF") insured deposits. The actual assessment to
be paid by each insured institution is based on the institution's assessment
risk classification, which is determined based on whether the institution is
considered "well capitalized", "adequately capitalized" or "under capitalized",
as such terms have been defined in applicable federal regulations, and whether
the institution is considered by its supervisory agency to be financially sound
or to have supervisory concerns. The FDIC also is authorized to impose one or
more special assessments in any amount deemed necessary to enable repayment of
amounts borrowed by the FDIC from the United States Treasury Department.
The Deposit Insurance Funds Act of 1996 ("DIFA96") required the FDIC to
impose a one-time special assessment on SAIF-assessable deposits, including
those held by BIF-member OAKAR ("OAKAR") institutions such as Southern to
capitalize the SAIF to its target Designated Reserve Ratio. Southern was
accordingly assessed $569 thousand in September 1996.
The DIFA96 also required that, beginning January 1, 1997, BIF banks and
OAKAR institutions would begin to be charged a separate assessment for the
Financing Corporation ("FICO") funding requirements. The FICO rate is not tied
to the FDIC risk classification and is subject to change by the FDIC within
certain limitations.
The FICO rate for the first quarter of 1998 is set at an annual rate of
6.28 basis points of OAKAR adjusted deposits as defined by the FDIC and 1.256
basis points of BIF adjusted deposits. At September 30, 1997 the FICO
assessable OAKAR deposit base for Southern was $99 million and the BIF deposit
base was $398 million. If Southern's deposits remained at these levels and the
FDIC maintained the same rates, the expense for the FICO obligation for
Southern would be approximately $112 thousand for 1998.
Change in Control
State and federal law restricts the amount of voting stock of a bank
holding company, or a bank, that a person may acquire without the prior
approval of banking regulators.
Pursuant to North Carolina law, no person may, directly or indirectly,
purchase or acquire voting stock of any bank holding company or bank which
would result in the change of control of that entity unless the Commissioner
first shall have approved that proposed transaction. A person will be deemed
to have acquired "control" of a bank holding company or bank if that person,
directly or indirectly, (i) owns, controls or has the power to vote 10 percent
or more of the voting stock of the bank holding company or bank, or (ii)
possesses the power to direct or cause the direction of its management and
policy. Federal law imposes additional restrictions on acquisitions of stock
in bank holding companies and insured banks. Under the federal Change in Bank
Control Act and regulations thereunder, a person or group acting in concert
must give advance notice to the Federal Reserve or the FDIC before directly or
indirectly acquiring the power to direct the management or policies of, or to
vote 25 percent or more of any class of voting securities of, any bank holding
company or insured bank. Upon receipt of such notice, the federal regulator
either may approve or disapprove the acquisition.
Under the Act, a change in control is presumed to occur if, among other
things, a person or group acquires more than 10 percent of any class of voting
stock of a holding company or insured bank and, after such acquisition, the
acquirer will be the largest shareholder.
Interstate Banking and Branching
Federal law permits adequately capitalized and managed bank holding
companies to acquire control of the assets of banks in any state (the
"Interstate Banking Law"). Acquisitions will be subject to anti-trust
provisions that cap at 10 percent the portion of the total deposits of insured
depository institutions in the United States that a single bank holding company
may control, and generally cap at 30 percent the portion of the total deposits
of insured depository institutions in a state that a single bank holding
company may control. Under certain circumstances, states have the authority
to increase or decrease the 30 percent cap, and states may set minimum age
requirements of up to five years on target banks within their borders.
Beginning June 1, 1997, and subject to certain conditions, the Interstate
Banking Law permited interstate branching by allowing a bank to merge with a
bank located in a different state. The Interstate Banking Law also permits
banks to establish branches in other states, by opening new branches or
acquiring existing branches of other banks, if the laws of those other states
specifically permit that form of interstate branching. North Carolina has
adopted statutes which, subject to conditions contained therein, specifically
authorize out-of-state bank holding companies and banks to acquire or merge
with North Carolina banks and to establish or acquire branches in North
Carolina.
Economic Considerations
As a bank holding company whose primary asset is the capital stock of a
commercial bank, BancShares is directly affected by regulatory measures
affecting the banking industry in general. Additionally, since BancShares'
banking business is centered in eastern North Carolina, the general state of
the economy of eastern North Carolina, especially the agricultural sector, has
a direct effect on its business and profitability.
Among governmental regulators of primary importance is the Federal Reserve
which acts as the nation's central bank and can directly affect money supply
and thereby affect Southern's lending ability by increasing or decreasing its
interest costs and availability of funds. An important function of the Federal
Reserve is to regulate the national supply of bank credit in order to combat
recession and curb inflationary pressures. Among the instruments of monetary
policy used by the Federal Reserve to implement these objectives are open
market operations in U. S. Government securities, changes in the discount rate
and surcharge, if any, on member bank borrowings, and changes in reserve
requirements against bank deposits. These means are used in varying
combinations to influence overall growth of bank loans, investments and
deposits and may also affect interest rates charged on loans or paid for
deposits.
Southern is not a member of the Federal Reserve System, but is subject to
reserve requirements imposed on non-member banks by the Federal Reserve. The
monetary policies of the Federal Reserve have had a significant effect on the
operating results of commercial banks in the past and are expected to continue
to do so in the future.
Competition
The banking laws of North Carolina allow statewide branching; therefore,
commercial banking in the state is highly competitive. Southern competes
directly in many of its markets with one or more of the largest banking
organizations in North Carolina. Such competitors range in size to over $200
billion in consolidated resources (including resources represented by banking
organizations in other states owned by or which control certain of such
competitors), have broader geographic markets and higher lending limits and
offer more services than Southern, and can, therefore, make more effective use
of media advertising, support services and electronic technology than can
BancShares or Southern.
Year 2000
In 1997 BancShares developed a plan to deal with the "Year 2000 issue".
Refer to "Accounting and Other Matters" on pages 14 through 15 of the 1997
Annual Report of Southern BancShares (N.C.), Inc. in Exhibit number 13 for
additional information regarding the Year 2000 issue.
Employees
At December 31, 1997, Southern employed 295 full-time employees and 14
part-time employees. It is not a party to any collective bargaining agreements
and considers relations with its employees to be good. BancShares and Goshen
do not have any separate employees.
Statistical Information
I. AVERAGE BALANCE SHEET ITEMS AND NET INTEREST DIFFERENTIAL
AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID
(Dollars in thousands, taxable-equivalent)
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
ASSETS BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
Interest earning assets:
Loans (1) (2) $340,195 $29,225 8.59% $310,389 $26,878 8.66% $270,563 $24,338 9.00%
Taxable investment securities 126,829 7,532 5.94% 125,068 7,899 6.32% 107,279 6,292 5.87%
Nontaxable investment securities (3) 24,581 2,130 8.67% 25,914 2,290 8.84% 23,760 2,202 9.27%
Federal funds sold 11,526 623 5.41% 6,895 402 5.83% 14,378 810 5.63%
Other 4,840 269 5.56% 1,526 62 4.06% - - -
_______ ______ ____ _______ _______ ____ _______ ______ _____
Total interest earning assets 507,971 39,779 7.83% 469,792 37,531 7.99% 415,980 33,642 8.01%
______ ______ ______
Non-interest earning assets:
Cash and due from banks 17,730 15,726 15,381
Premises and equipment, net 17,457 13,498 10,974
Other 24,078 20,525 14,164
______ ______ _____
Total assets $567,236 $519,541 $456,499
======= ======= =======
LIABILITIES & EQUITY
Interest bearing liabilities:
Demand deposits $76,080 1,234 1.62% $70,443 1,227 1.74% $59,926 1,262 2.11%
Savings deposits 87,577 2,259 2.58% 83,761 2,202 2.63% 79,486 2,238 2.82%
Time deposits 270,863 14,736 5.44% 247,575 13,504 5.45% 217,752 11,910 5.47%
Short-term borrowings 6,295 303 4.81% 8,160 400 4.90% 6,280 336 5.35%
Long-term obligations 4,539 295 6.50% 2,021 117 5.79% 3,153 309 9.80%
_______ ______ ____ _______ ______ ____ _______ _____ ____
Total interest bearing liabilities 445,354 18,827 4.23% 411,960 17,450 4.24% 366,597 16,055 4.38%
______ ______ ______
Non-interest bearing liabilities:
Demand deposits 63,783 57,773 50,088
Other 12,396 9,574 5,157
Shareholders' equity 45,703 40,234 34,657
_______ _______ _______
Total liabilities and equity $567,236 $519,541 $456,499
======= ======= =======
Interest rate spread (4) 3.60% 3.75% 3.63%
Net interest income and
Net interest margin (5) $20,952 4.12% $20,081 4.28% $17,587 3.85%
(1) Includes non-accrual loans
(2) Interest income includes related loan fee amounts which were immaterial.
(3) The average rate on nontaxable investment securities has been adjusted to a
tax equivalent yield using a 34% tax rate.
(4) Interest rate spread is the difference between earning asset yield and
interest bearing liability rate.
(5) Net interest margin is net interest income divided by average earning
assets.
II. AVERAGE BALANCE SHEET ITEMS AND NET INTEREST DIFFERENTIAL
ANALYSIS OF CHANGES IN INTEREST DIFFERENTIAL
(Dollars in thousands) December 31,1997 Increase(Decrease)
AMOUNT AMOUNT AMOUNT
TOTAL ATTRIBUTABLE ATTRIBUTABLE ATTRIBUTABLE
CHANGE TO CHANGE TO CHANGE TO CHANGE
1996-1997 IN VOLUME IN RATE RATE/VOLUME
ASSETS
Interest earning assets:
Loans, net $2,347 $2,581 ($217) ($17)
Taxable investment securities (183) 339 (506) (16)
Non-taxable investment securities (161) (144) (18) 1
Federal funds sold 221 270 (29) (20)
_____ _____ _____ ____
Total interest income 2,224 3,046 (770) (52)
LIABILITIES & EQUITY
Interest bearing liabilities:
Demand deposits (479) 98 (535) (42)
Savings deposits 57 100 (42) (1)
Time deposits 1,718 1,269 421 28
Short-term borrowings (97) (91) (7) 1
Long-term obligations 178 146 14 18
_____ _____ ____ ___
Total interest expense 1,377 1,522 (149) 4
Net interest income $847 $1,524 ($621) ($56)
December 31, 1996 Increase(Decrease)
AMOUNT AMOUNT AMOUNT
TOTAL ATTRIBUTABLE ATTRIBUTABLE ATTRIBUTABLE
CHANGE TO CHANGE TO CHANGE TO CHANGE
1995-1996 IN VOLUME IN RATE RATE/VOLUME
ASSETS
Interest earning assets:
Loans, net $2,540 $3,584 $(920) $(124)
Taxable investment securities 2,602 1,075 1,277 250
Non-taxable investment securities (1,291) 56 (1,327) (20)
Federal funds sold (408) (421) 29 (16)
_____ _____ _____ ____
Total interest income 3,443 4,294 (941) 90
LIABILITIES & EQUITY
Interest bearing liabilities:
Demand deposits (35) 222 (222) (35)
Savings deposits (36) 121 (151) (6)
Time deposits 1,594 1,631 (44) 7
Short-term borrowed funds 64 101 (28) (9)
Long-term obligations (192) (111) (126) 45
_____ _____ _____ ____
Total interest expense 1,395 1,964 (571) 2
Net interest income $2,048 $2,330 ($370) $88
==== ===== ===== ====
Average loan balances include nonaccrual loans. BancShares earns
tax-exempt interest on certain loans and investment securities due to the
borrower or issuer being either a governmental agency or a quasi-governmental
agency. Yields related to loans and securities exempt from both federal and
state income taxes, federal income taxes only, or state income taxes only, are
stated on a taxable-equivalent basis assuming a statutory federal income tax
rate of 34 percent for all periods. The taxable equivalent adjustment was
$2,024, $740 and $477 for the years 1997, 1996 and 1995, respectively.
III. INVESTMENT PORTFOLIO
The following table sets forth the carrying amount of investment securities
(dollars in thousands):
December 31,
1997 1996 1995
U.S. Treasury and U.S. Government agencies and corporations $118,589 $108,592 $97,831
States and political subdivisions 31,150 35,086 33,999
Other 30,394 25,011 16,976
______ ______ ______
Total $180,133 $168,689 $148,806
======= ======= =======
The following table sets forth the maturities of investment securities at
December 31, 1997 (dollars in thousands) and the weighted average yields of
such securities. (Note that nontaxable investment securities have not been
adjusted to a tax equivalent basis and unrealized gain (loss) on available for
sale is not included.)
Maturing
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
U.S. Treasury and other
U.S. Government agencies (1) $46,484 5.74% $69,956 5.90% - - $1,977 6.66%
States and political subdivisions 5,709 6.93% 7,973 6.98% 9,036 6.25% 7,906 5.41%
Other (2) 8,119 4.41% - - - - 100 6.75%
______ ____ ______ ____ ______ _____ _____ ____
$60,312 5.68% $77,929 6.01% $9,036 6.25% $9,983 5.67%
====== ====== ===== ======
(1) Mortgage-backed securities are included in the obligations of U.S.
Government agencies and spread within the columns according to their
anticipated repayment schedules.
(2) The "Within One Year" column of the "Other" category includes marketable
equity securities held by BancShares. Accordingly, the yield on these
securities represents anticipated dividend income rather than interest
income.
IV. LOAN PORTFOLIO
Analysis of loans by type and maturity
The table below classifies loans by major category (dollars in thousands):
December 31,
1997 1996 1995 1994 1993
Commercial, financial, and agricultural $84,281 $70,881 $57,398 $36,343 $23,672
Real Estate:
Construction 5,209 2,470 1,533 3,221 1,851
Mortgage:
One to four family residential 106,444 113,915 111,372 108,804 110,258
Commercial 58,056 52,686 43,580 41,090 45,470
Equityline 27,759 18,654 13,828 10,858 8,868
Other 27,868 21,615 20,535 17,261 16,464
Consumer 35,780 35,512 37,548 33,762 30,149
Lease Financing 5,385 2,370 2,410 1,447 -
_______ _______ ______ ______ ______
350,782 318,103 288,204 252,786 236,732
Less: unearned income (1,429) (348) (244) (175) -
_______ _______ _______ _______ _______
$349,353 $317,755 $287,960 $252,611 $236,732
======= ======= ======= ======= =======
The following table identifies the maturities of all loans as of December 31,
1997 and addresses the sensitivity of these loans to changes in interest
rates.
Within After One Year But After Five Total
One Year Within Five Years Years
_________ ________________ _________ _________
Commercial and financial $ 28,593 $ 43,692 $ 11,996 $ 84,281
Real estate:
Construction 2,228 2,500 481 5,209
One to four family residential 25,547 60,241 20,656 106,444
Commercial 12,772 32,594 12,690 58,056
Equityline 1,164 5,751 20,844 27,759
Other 9,407 14,303 4,158 27,868
Consumer 24,091 11,069 620 35,780
Lease Financing 783 3,280 1,322 5,385
_________ _________ _________ _________
Total $104,585 $ 173,430 $ 72,767 $ 350,782
========= ========= ========= =========
Fixed rate $ 49,436 $ 129,593 $32,216 $211,245
Variable rate 55,149 43,837 40,551 139,537
_________ _________ _________ _________
Total $104,585 $ 173,430 $ 72,767 $ 350,782
========= ========= ========= =========
Non-accrual, past-due, and restructured loans
The following analysis identifies other real estate owned and loans that were
either non-accruing, past-due or restructured. Loans are placed on a
non-accrual basis when they become 90 days past due and the ability of the
borrower to comply with the present terms is doubtful.
December 31,
1997 1996 1995 1994 1993
Non-accrual loans $ 230 $ 147 $ 50 $ 77 $ 44
Restructured loans - 8 - 204 221
Accruing loans past-due 90 days or more 466 343 508 234 183
_____ _____ _____ _____ _____
Total non-performing loans $ 696 $ 498 $ 558 $ 515 $ 448
Other real estate owned 48 - 86 1,339 1,020
_____ _____ _____ _____ _____
Total non-performing loans and assets $ 744 $ 498 $ 644 $ 1,854 $ 1,468
===== ===== ===== ===== =====
The amount of interest which would have been recorded in 1997 on
non-accrual loans had they been in accordance with the original terms
throughout the period was immaterial.
V. SUMMARY OF LOAN LOSS EXPERIENCE
Analysis of the allowance for loan losses:
The table presented below summarizes activity in the allowance for loan
losses for the five years ended (dollars in thousands):
December 31,
1997 1996 1995 1994 1993
Allowance for loan losses - beginning of year $ 6,163 $ 6,321 $ 6,653 $ 6,717 $ 3,553
Charge-offs:
Commercial, financial, and agricultural 47 5 - 26 10
Real estate:
Construction - - - - -
Mortgage:
One to four residential 86 106 34 89 141
Commercial - - - - -
Equityline - - - - -
Other 23 - 209 - 240
Consumer 307 428 220 181 358
Lease Financing - - - - -
_____ _____ _____ _____ _____
Total charge-offs 463 539 463 296 749
_____ _____ _____ _____ _____
Recoveries:
Commercial, financial, and agricultural 13 - 54 29 74
Real estate:
Construction - 19 - - -
Mortgage:
One to four residential 59 131 19 27 48
Commercial - - - - -
Equityline - - - 15 -
Other - - - 20 8
Consumer 139 91 58 141 126
Lease Financing - - - - -
_____ _____ _____ _____ _____
Total recoveries 211 241 131 232 256
Net charge-offs (recoveries) 252 298 332 64 493
Additions charged to operations 60 140 - - 300
Addition from Citizens Savings Bank - - - - 3,357
_____ _____ _____ _____ _____
Allowance for loan losses - end of year $ 5,971 $ 6,163 $ 6,321 $ 6,653 $ 6,717
======= ======= ======= ======= =======
Average loans outstanding during the year $340,195 $310,389 $270,563 $242,217 $191,360
======= ======= ======= ======= =======
Ratio of net charge-offs (recoveries) to average loans outstanding 0.07% 0.10% 0.12% 0.03% 0.26%
The allowances for loan losses is increased by charges to the provision
for loan losses and reduced by loans charged off net of recoveries. Southern's
provision is the amount necessary to maintain the allowance at a level
considered adequate to provide for possible loan losses based on management's
internal evaluation of the loan portfolio, as well as prevailing and
anticipated economic conditions.
Allocation of the allowance for loan losses:
The composition of the allowance by loan category shown in the table below
is based upon management's evaluation of the loan portfolio, past history, and
prevailing economic conditions:
December 31,
1997 1996 1995 1994 1993
% of loans % of loans % of loans % of loans % of loans
in each in each in each in each in each
category to category to category to category to category to
Amount total loans Amount total loans Amount total loans Amount total loans Amount total loans
Commercial, financial
and agricultural $2,149 24% $2,214 22% $1,264 20% $774 14% $672 10%
Real estate:
Construction 60 1% 76 1% 63 1% 247 1% 53 1%
Mortgage:
1 to 4 residential 1,194 30% 1,245 36% 2,188 39% 2,813 43% 3,134 47%
Commercial 537 17% 566 17% 853 15% 1,061 16% 1,284 19%
Equityline 239 8% 204 6% 260 5% 277 4% 257 4%
Other 239 8% 248 6% 408 7% 460 8% 462 6%
Consumer 1,493 10% 1,537 11% 1,222 13% 1,021 13% 855 13%
Lease Financing 60 2% 73 1% 63 - - 1% - -
_____ ___ _____ ___ _____ ___ _____ ___ _____ ___
$5,971 100% $6,163 100% $6,321 100% $6,653 100% $6,717 100%
===== === ===== === ===== === ===== === ===== ===
VI. DEPOSITS
The average monthly volume of deposits, which is considered representative
of BancShares' operations, and the average rates paid on such deposits are
presented below (dollars in thousands):
1997 1996 1995
Average Average Average Average Average Average
Balances Rates Balances Rates Balances Rates
Non-interest bearing demand $63,783 - $57,773 - $50,088 -
Interest bearing demand 76,080 0.98% 70,443 1.74% 59,926 2.11%
Savings 87,577 2.58% 83,761 2.63% 79,486 2.82%
Time deposits 270,863 5.62% 247,575 5.45% 217,752 5.47%
_______ _______ ______
Total deposits $498,303 $459,552 $407,252
======= ======= ======
Maturities of $100,000 or more time certificates of deposit at December
31, 1997 are summarized as follows (dollars in thousands):
Maturity Category
Three months or less $20,339
Over three through six months 10,430
Over six months through twelve months 14,720
Over one year through five years 7,269
Over five years 246
_______
$53,004
=======
VII. RETURN ON EQUITY AND ASSETS
The following table presents certain ratios of the Company:
December 31,
1997 1996 1995
Return on assets (net income divided by average total assets) 1.17% 0.84% 0.86%
Return on equity - including Series B and C preferred
(net income divided by average total equity) 14.47% 10.85% 11.29%
Dividend payout ratio
(Dividends paid divided by net income) 8.85% 13.45% 13.57%
Equity to assets ratio - including Series B and C preferred
(Average equity divided by average total assets) 8.06% 7.74% 7.59%
VIII. CAPITAL ADEQUACY
The following table presents certain calculations of BancShares' capital and
related ratios:
December 31,
(Dollars in thousands)
1997 1996 1995
Total Shareholders' Equity $54,984 $44,778 $37,163
Leverage Capital 34,380 27,891 23,369
Tier I Capital 34,380 27,891 23,369
Total Capital 38,449 31,861 26,831
Leverage Capital Ratio (1) 6.07% 5.46% 5.60%
Tier I Capital Ratio 11.43% 9.33% 8.87%
Total Capital Ratio (2) 12.78% 10.66% 10.19%
(1) Bank holding companies operating at the 3% minimum are expected to have
well diversified risk profiles, including no undue interest rate risk,
excellent asset quality, high liquidity and strong earnings. Bank holding
companies not meeting these requirements are expected to maintain a
leverage ratio somewhat higher than the 3% minimum applicable to the
highest rated companies.
(2) The minimum ratio of qualifying total capital to risk weighted assets is
8%, of which 4% must be Tier 1 capital, which is common equity, retained
earnings, and a limited amount of perpetual preferred stock, less certain
intangibles.
IX. RATE OF INTERNAL CAPITAL GENERATION
December 31,
1997 1996 1995
Return on average assets (based on net income) 1.17% 0.84% 0.86%
Average equity as a percentage of total average assets 8.06% 7.74% 7.59%
Return on average equity 14.47% 10.85% 11.29%
Dividend payout ratio 8.85% 13.45% 13.57%
(Dividends paid divided by net income)
Earnings retention 91.15% 86.55% 86.43%
(Net income less dividends divided by net income)
Rate of internal capital generation 13.19% 9.39% 9.76%
(Return on average equity ratio times earnings
retention ratio)
X. INTEREST RATE SENSITIVITY ANALYSIS
(Dollars in Thousands)
December 31, 1997
Non-Rate
1-30 31-90 91-180 181-365 Sensitive
Days Days Days Days & Over
Sensitive Sensitive Sensitive Sensitive 1 Year Total
Earning Assets:
Loans, net of unearned income $82,232 $68,584 $16,151 $28,290 $154,096 $349,353
Investment Securities 38,654 16,178 5,249 26,869 93,183 180,133
Temporary Investments 10,240 - - - - 10,240
Other - 5,200 - - - 5,200
_______ ______ ______ ______ _______ _______
Total interest earning assets $131,126 $89,962 $21,400 $55,159 $247,279 $544,926
======= ====== ====== ====== ======= =======
Interest-Bearing Liabilities:
Savings and core time deposits $200,515 $39,330 $50,300 $60,382 $43,232 $393,759
Time deposits of $100,000 and more 9,579 10,760 10,430 14,720 7,515 53,004
Short-term borrowing 6,826 - - - - 6,826
Long-term obligations - 4,750 - - - 4,750
_______ ______ ______ ______ _______ _______
Total interest bearing liabilites $216,920 $54,840 $60,730 $75,102 $50,747 $458,339
======= ====== ====== ====== ======= =======
Interest sensitive Gap $(85,794) $35,122 $(39,330) $(19,943) $196,532 $ 86,587
======= ====== ====== ====== ======= =======
Interest sensitivity is continually changing. The table above reflects
Bancshares' gap position at December 31, 1997 and does not necessarily
represent its position on any other dates.
XI. SHORT-TERM BORROWINGS
(Dollars in Thousands)
1997 1996
Amount Rate Amount Rate
Repurchase Agreements
At December 31 $4,761 5.62% $3,838 6.71%
Average during year 4,819 4.18% 2,934 4.04%
Maximum month-end balance during year 5,929 4,507
U.S. Treasury tax and loan accounts
At December 31 $2,065 5.25% $1,226 5.15%
Average during year 997 5.85% 1,052 5.09%
Maximum month-end balance during year 2,215 1,300
ITEM 2 - PROPERTIES
BancShares does not own or lease any real property. Except for four
tracts of land that are leased and upon which are constructed leasehold
improvements for the conduct of its banking business, Southern owns all of the
real property utilized in its operations.
Southern's home office is located at 121 East Main Street, Mount Olive,
North Carolina. At December 31, 1997 there were 42 Southern offices in North
Carolina. These offices are listed in BancShares' 1997 Annual Report.
ITEM 3 - LEGAL PROCEEDINGS:
There are no material legal proceedings to which BancShares or its
subsidiaries are a party or to which any of their property is subject, other
than ordinary, routine litigation incidental to the business of commercial
banking.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS:
None.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS:
Information is included on page 15 of the Registrant's 1997 Annual
Report in Exhibit 13 incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA:
Information is included in table 1, Five-Year Financial Summary,
Selected Balances and Ratios, on page 4 of Registrant's 1997 Annual Report in
Exhibit number 13 incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Information is included on pages 4 through 16 of Registrant's 1997
Annual Report in Exhibit number 13 incorporated herein by reference.
Item 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
Information is included under the section "Market Risk" on pages 11
and 12 of the Registrant's 1997 Annual Report in Exhibit number 13 incorporated
herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The following financial statements and independent auditors' report
are incorporated herein by reference, on the page numbers indicated, in the
1997 Annual Report of Southern BancShares (N.C.), Inc. included in exhibit
number 13 herein.
Independent Auditors' Report 17
Consolidated Balance Sheets as of December 31, 1997 and 1996 18
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 19
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 20
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1997, 1996 and 1995 21
Notes To Consolidated Financial Statements 22-38
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES:
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
The information under the captions "PROPOSAL 1: ELECTION OF DIRECTORS"
and "Executive Officers" on pages 5 through 7 and page 9 of Registrant's
definitive Proxy Statement dated March 20, 1998, is incorporated herein by
reference.
ITEM 11 - EXECUTIVE COMPENSATION:
The information under the captions "Compensation of Directors",
"Compensation Committee Interlocks and Insider Participation", "Committee
Report on Executive Compensation", "Pension Plan", and "Employment Contracts,
Termination of Employment and Change-in-Control Arrangements" on pages 7
through 9 and page 11 of the Registrant's definitive Proxy Statement dated
March 20, 1998, is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The information under the captions "PRINCIPAL HOLDERS OF VOTING
SECURITIES" and "OWNERSHIP OF VOTING SECURITIES BY MANAGEMENT" on pages 2
through 5 of the Registrant's definitive Proxy Statement dated March 20,
1998, is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The information contained in "Transactions with Management" on pages 12
through 13 of the Registrant's definitive Proxy Statement dated March 20, 1998,
is incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K:
(a) 1. Financial Statements
The following consolidated financial statements of Southern
BancShares (N.C.), Inc. and subsidiary, and Independent Auditors'
Report thereon, are incorporated herein by reference from
Registrant's 1997 Annual Report to Shareholders.
. Independent Auditors' Report
. Consolidated Balance Sheets at December 31, 1997 and 1996
. Consolidated Statements of Income for the years ended December
31, 1997, 1996 and 1995
. Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
. Consolidated Statements of Changes in Shareholders' equity for
the years ended December 31, 1997, 1996 and 1995
. Notes to Consolidated Financial Statements
2. Financial statement schedules are omitted because of the absence
of conditions under which they are required or because the
required information is contained in the consolidated financial
statements or related notes thereto which are incorporated herein
by reference from Registrant's 1997 Annual Report to Shareholders.
3. Exhibits
The following exhibits are filed or incorporated herewith as part
of this report on Form 10-K:
Exhibit Description of Exhibits
Number
3.1 Certificate of Incorporation and Certificate of
Amendment to the Certificate of Incorporation of the
Registrant (filed as exhibits 3.1, and 3.2 respectively,
to Amendment No. 1 to the Registrant's Registration
Statement on Form S-4 (No. 33-8581) filed October 20,
1986 and incorporated herein by reference)
3.2 Registrant's Bylaws (filed as Exhibit 3. to the
Registrant's 1992 Annual Report on Form 10-K and
incorporated herein by reference)
4 Southern Bank and Trust Company Indenture dated February
27, 1971 (filed as exhibit 4 to the Registrant's
Registration Statement on Form S-14 (No. 2-78327) filed
July 7, 1982 and incorporated herein by reference)
10.1* Non-Competition and Consulting Agreement between R. S.
Williams and Southern Bank and Trust Company (filed as
exhibit 10.1 to the Registrant's 1989 Annual Report on
Form 10-K and incorporated herein by reference)
10.2* Eighth Amendment to Noncompetition and Consulting
Agreement between R. S. Williams and Southern Bank and
Trust Company (filed herewith)
10.3* Assignment and Assumption Agreement and First Amendment
of Noncompetition and Consultation Agreement between
First-Citizens Bank & Trust Company, Southern Bank and
Trust Company and M. J. McSorley (filed as exhibit 10.3
to the Registrant's 1989 Annual Report on Form 10-K and
incorporated herein by reference)
13 Registrant's 1997 Annual Report to Shareholders (filed
herewith)
22 Subsidiaries of the Registrant (filed herewith)
99.1** Registrant's definitive Proxy Statement dated March 20,
1998 for the 1998 Annual Shareholders' Meeting
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the fourth quarter of the
year ended December 31, 1997.
* Denotes a Management Contract or compensatory plan or arrangement in
which an executive officer or director of the Company participates
** Not being refiled
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.
DATED: MARCH 19, 1998 SOUTHERN BANCSHARES (N.C.), INC.
/s/ R. S. Williams
By: ____________________________________________________
R. S. Williams, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/R. S. Williams Chairman of the Board of March 20, 1998
R. S. Williams Directors
/s/David A. Bean Treasurer (principal March 19, 1998
David A. Bean financial and accounting
officer)
/s/Bynum R. Brown Director March 23, 1998
Bynum R. Brown
/s/William H. Bryan Director March 25, 1998
William H. Bryan
/s/D. Hugh Carlton Director March 23, 1998
D. Hugh Carlton
/s/Robert J. Carroll Director March 20, 1998
Robert J. Carroll
/s/Hope H. Connell Director March 20, 1998
Hope H. Connell
/s/J. Edwin Drew Director March 23, 1998
J. Edwin Drew
/s/Moses B. Gillam, Jr Director March 26, 1998
Moses B. Gillam, Jr.
/s/Leroy C. Hand, Jr. Director March 23, 1998
LeRoy C. Hand, Jr.
/s/Frank B. Holding Director March 19, 1998
Frank B. Holding
/s/M. J. McSorley Director March 23, 1998
M. J. McSorley
/s/W. B. Midyette, Jr. Director March 23, 1998
W. B. Midyette, Jr.
/s/W. Hunter Morgan Director March 23, 1998
W. Hunter Morgan
/s/Charles I. Pierce Director March 26, 1998
Charles I. Pierce, Sr.
/s/W. A. Potts Director March 24, 1998
W. A. Potts
/s/Charles L. Revelle, Jr. Director March 23, 1998
Charles L. Revelle, Jr.
/s/ Charles O. Sykes Director March 25, 1998
Charles O. Sykes
/s/John N. Walker Director March 23, 1998
John N. Walker