-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D5TlaZf2OTqxu0usYAFOSXpck/skCzCMk+LWxpE8saiZK46ceR9tQ59hkqUbVNOs FDeU9vlM4p7BRGJ68z0UZw== 0000950168-97-002295.txt : 19970815 0000950168-97-002295.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950168-97-002295 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOUR OAKS FINCORP INC CENTRAL INDEX KEY: 0001040799 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22787 FILM NUMBER: 97663700 BUSINESS ADDRESS: STREET 1: 6144 US 301 SOUTH STREET 2: P O BOX 309 CITY: FOUR OAKS STATE: NC ZIP: 27524 BUSINESS PHONE: 9199632177 10-Q 1 FOUR OAKS FINCORP, INC. 10-Q US SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT Pursuant to Section 13 of the Securities Exchange Act of 1934 for the Quarterly Period Ended June 30, 1997 Commission File Number 0-22787 FOUR OAKS FINCORP, INC. (Exact name of registrant as specified in its charter) North Carolina 56-2028446 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 6144 U. S. 301 South Four Oaks, N. C. 27524 (Address of principal executive offices) Registrant's Telephone Number, including area code 919-963-2177 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: X Yes No --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock as of the latest practicable date: Common Stock, 843,158 par value $1.00 per share (Number of shares outstanding (Title of Class) as of June 30, 1997)
PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS - UNAUDITED (All amounts in thousands) June 30, December 31, 1997 1996 --------- --------- ASSETS Cash and due from banks $ 7,804 5,047 Interest bearing bank balances 167 1,562 --------- --------- Total cash and cash equivalents 7,971 6,609 Investment securities (approximate market value of $32,745 and $37,092 respectively) 32,745 37,092 Loans, net 131,292 108,036 Accrued interest receivable 2,394 2,052 Bank premises and equipment, net 4,986 4,450 Other real estate owned 147 147 Intangible assets 176 183 Prepaid expenses and other assets 790 544 --------- --------- Total assets $180,501 159,113 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits: Demand - noninterest bearing $ 24,918 21,073 NOW accounts 13,459 14,707 Savings 16,239 15,727 Time $100,000 and over 32,179 27,339 Other time 66,500 63,997 --------- --------- Total deposits 153,295 142,843 Accrued interest payable 1,528 1,509 Other borrowed money 10,240 -- Other liabilities 298 398 --------- --------- Total liabilities 165,361 144,750 --------- --------- Shareholders' equity: Capital stock: Common stock, $1.00 par value, 5,000,000 shares authorized, 843,158 and 837,949 issued and outstanding at June 30, 1997 and December 31, 1996 respectively 843 838 Surplus 5,004 4,872 Retained earnings 9,422 8,604 Net unrealized gain (loss) on marketable equity securities (129) 49 --------- --------- Total shareholders' equity 15,140 14,363 --------- --------- Total liabilities and shareholders' equity $180,501 159,113 ========= ========= The accompanying notes are an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED (In thousands except per share data) For the three For the six months ended months ended June 30, June 30, 1997 1996 1997 1996 ----------------- ---------------- Interest income: Interest and fees on loans $3,131 2,502 5,886 4,790 Interest on investment securities: US Government and agencies 427 373 857 794 Municipalities 71 67 148 132 Other investment securities 27 15 47 31 Interest on overnight investments 8 21 17 43 ------ ------ ------ ------ Total interest income 3,664 2,978 6,955 5,790 Interest expense: Interest on deposits 1,609 1,353 3,145 2,680 Interest on borrowed money 109 43 139 56 ------ ------ ------ ------ Total interest expense 1,718 1,396 3,284 2,736 ------ ------ ------ ------ Net interest income 1,946 1,582 3,671 3,054 Provision for loan losses 199 94 262 201 ------ ------ ------ ------ Net interest income after provision for loan losses 1,747 1,488 3,409 2,853 ------ ------ ------ ------ Other income: Service charges 249 155 436 302 Credit life commissions 22 16 43 38 Other operating income 88 55 180 119 Securities gains (losses) 12 (6) 10 -- ------ ------ ------ ------ Total noninterest income 371 220 669 459 ------ ------ ------ ------ Other expenses: Salaries 590 477 1,098 928 Employee benefits 118 87 202 171 Occupancy expenses 53 39 112 87 Equipment expenses 82 62 161 128 Other operating expenses 449 408 966 784 ------ ------ ------ ------ Total noninterest expense 1,292 1,073 2,539 2,098 ------ ------ ------ ------ Income before income taxes 826 635 1,539 1,214 Income taxes 280 201 486 362 ------ ------ ------ ------ Net income $ 546 434 1,053 852 ====== ====== ====== ====== Net income per share $ 0.65 0.53 1.25 1.03 ====== ====== ====== ====== Cash dividend paid per share $ 0.14 0.13 .28 0.25 ====== ====== ====== ====== Weighted average shares outstanding 841 832 840 830 ====== ====== ====== ====== The accompanying notes are an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - UNAUDITED Common Stock Capital Retained Valuation Shares Amount Surplus Earnings Allowance December 31, 1995 Balance................... 828,279 $828,279 $ 4,668,285 $ 7,208,025 $ 214,617 Cash dividends............... (207,609) Net change in unrealized gain or loss on securities available for sale................... (460,172) Sale of common stock......... 2,651 2,651 47,192 Dividend Reinvestment Plan....................... 1,499 1,499 31,457 Net income................... 851,709 ------- -------- ----------- ----------- --------- June 30, 1996 Balance................... 832,429 $832,429 $ 4,746,934 $ 7,852,125 $(245,555) ======= ======== =========== =========== ========= December 31, 1996 Balance................... 837,949 $837,949 $ 4,871,624 $ 8,604,139 $ 48,941 Cash dividends............... (235,102) Net change in unrealized gain or loss on securities available for sale.................. (177,801) Sale of common stock ........ 1,458 1,458 36,450 Dividend Reinvestment Plan...................... 3,751 3,751 95,580 Net income................... 1,052,607 ------- -------- ----------- ----------- ---------- June 30, 1997 Balance................... 843,158 $843,158 $ 5,003,654 $ 9,421,644 $(128,860) ======= ======== =========== =========== ========== The accompanying notes are an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED For the six months ended June 30, June 30, (All amounts in thousands) 1997 1996 -------- -------- Operating activities Net income $ 1,053 852 Adjustments to reconcile net income to cash provided by operations: Provision for loan losses 262 201 Provision for depreciation 142 101 (Gain) loss on sale of securities (10) -- (Gain) loss on sale of repossessed assets 29 44 Write off of loans, net of recoveries (42) (83) (Increase) Decrease in prepaid & other assets (72) 35 (Increase) Decrease in interest receivable (342) (271) Increase (Decrease) in other liabilities (200) (10) Increase (Decrease) in interest payable 17 15 Net amortization of bond premiums & discounts 4 (4) -------- -------- Net cash provided from (used by) operating activities 841 880 -------- -------- Investing activities Proceeds from sales of investment securities 8,080 9,996 Purchase of investment securities (4,012) (6,090) Net increase in loans outstanding (23,476) (17,171) Capital expenditures (678) (641) Proceeds from sale of assets acquired in settlement of loans 20 65 Acquisition of assets acquired in settlement of loans (6) (218) -------- -------- Net cash used by investment activities (20,072) (14,059) -------- -------- Financing activities Net increase (decrease) in short-term borrowings 10,240 4,800 Net increase in deposit accounts 10,452 6,948 Proceeds from issuance of common stock 137 83 Cash dividends (235) (208) -------- -------- Net cash provided by financing activities 20,594 11,623 -------- -------- Increase (Decrease) in cash and cash equivalents 1,363 (1,556) Cash and cash equivalents at beginning of period 6,608 6,045 -------- -------- Cash and cash equivalents at end of period $ 7,971 4,489 ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
5 FOUR OAKS FINCORP, INC. Notes to Financial Statements 1. Cash and Due From Banks. Cash and due from banks consists of non-interest bearing balances due from other banks and cash. The Federal Reserve requires Four Oaks Fincorp, Inc. (the "Company") to maintain average reserve balances of $500,000. 2. Investment Securities. The book value and market value of securities at June 30, 1997 and December 31, 1996 are as follows: U.S. Treasuries and Agencies State & Local Other June 30, 1997: Book and Market value $25,989,866 $5,423,374 $1,331,549 Unrealized gains(losses) (207,188) 100,833 (64,205) December 31, 1996: Book and Market value $30,208,120 $5,991,326 $ 892,769 Unrealized gains(losses) 35,104 149,921 (62,084) All of the Company's investments have been categorized Available for Sale under the Mark-to-Market accounting rules and the unrealized gains and losses are recorded in shareholder's equity. 3. Loans Receivable. Loans, net, consist of:
June 30, December 31, 1997 1996 ------------ ------------ Total Gross Loans $132,951,841 $109,476,023 Allowance for Possible Loan Losses 1,660,000 1,440,000 ------------ ------------ Loans, net $131,291,841 $108,036,023 ============ ============ Loan balances by category are as follows: (in thousands) Loans secured by real estate: Construction and land development $ 17,189 15,118 Secured by farmland 6,116 6,914 Secured by 1-4 family residential properties 36,342 29,619 Secured by multifamily residential properties 2,076 1,636 Secured by nonfarm nonresidential properties 12,995 10,781 Agricultural loans 13,215 5,980 Commercial and industrial loans 22,824 19,956 Loans to individuals for household, family and other personal expenses 21,515 18,698 Loans to State and Local government 88 109 All other loans 594 669 Lease Financing Receivables 139 95 LESS: Any unearned income on loans 141 99 ------------ ------------ Total loans $ 132,952 109,476 ============ ============
6 4. Allowance for Possible Loan Losses are as follows: (All amounts in thousands) June 30, 1997 1996 ---- ---- Balance, beginning $ 1,440 $ 1,220 Provision charged to operating expense 262 201 Recoveries of amounts charged off 24 16 -------- -------- 1,726 1,437 Amounts charged off 66 99 -------- -------- Balance, ending $ 1,660 $ 1,338 ======== ======== 5. Interest and dividend income on securities by source is as follows: June 30, 1997 1996 ---- ---- U. S. Treasuries and Agencies $857,249 $794,079 States and Political Subdivisions $148,227 $132,022 Other $ 46,528 $ 30,929 6. Interest expense on time certificates of deposit of $100,000 or more was $880,872 and $690,909 at June 30, 1997 and 1996, respectively. Interest expense on all other deposits was $2,264,134 and $1,988,667 at June 30, 1997 and 1996 respectively. 7. Standby letters of credit were $1,103,000 and $444,000 at June 30, 1997 and 1996, respectively. Unfunded commitments were $23,382,000 and $13,268,000 at June 30, 1997 and 1996, respectively. 8. The significant accounting policies followed by the Company for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. These unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X, and in management's opinion, all adjustments of a normal recurring nature necessary for a fair presentation have been included. The accompanying financial statements do not purport to contain all the necessary financial disclosures that might otherwise be necessary in the circumstances and should be read in conjunction with the financial statements and notes thereto in the Four Oaks Bank & Trust Company annual report for the year ended December 31, 1996. The results of operations for the six month period ended June 30, 1997 are not necessarily indicative of the results to be expected for the full year. 9. The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Four Oaks Bank & Trust Company. All significant intercompany items have been eliminated. 7 10. Earnings per share are calculated by dividing net income by the weighted average number of common and dilutive common equivalent shares outstanding. Common equivalent shares consist of stock options issued and outstanding. In determining the number of equivalent shares outstanding, the treasury stock method was applied. This method assumes that the number of shares issuable upon exercise of the stock options is reduced by the number of common shares assumed purchased at market prices with a portion of the proceeds from the assumed exercise of the common stock options. The Company will adopt Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share" on December 31, 1997. SFAS No. 128 requires the Company to change its method for computing, presenting and disclosing earnings per share information. Upon adoption, all prior period data presented will be restated to conform to the provisions of SFAS No. 128. If the Company had adopted SFAS No. 128 for the period ended June 30, 1997, the following computation would have been presented on the consolidated statements of income:
Six Months Ended June 30, 1997 --------------------------- Basic income per common share: Net Income 1,053,000 Weighted average common shares outstanding 840,000 Basic income per common share 1.25 Dilutive income per common share: Net income 1,053,000 Weighted average common shares outstanding 840,000 Dilutive effect of stock options 22,254 Total shares 862,254 Dilutive income per common share 1.22
11. In June 1997, SFAS 130, "Reporting Comprehensive Income" was issued and is effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. SFAS 130 requires the disclosure of an amount that represents total comprehensive income and the components of comprehensive income in a financial statement. The adoption of SFAS 130 is not expected to have a material impact on the financial statements of the Company. In June 1997, SFAS 131, "Disclosures about Segments of an Enterprise and Related Information' was issued and is effective for financial statements for periods beginning after December 15, 1997. SFAS 131 establishes standards for determining an entity's operating segments and the type and level of financial information to be disclosed in both annual and interim financial statements. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of SFAS 131 is not expected to have a material impact on the financial statements of the Company. 8 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition. For the six month period ended June 30, 1997, interest bearing bank balances and investment securities combined decreased 14%. These funds along with funds generated by the 7% increase in deposits and $4.8 million in short term borrowings were used to fund net loan increases of 22%. The Company's loan volumes are increasing due to seasonal funding of agricultural loans as well as growth in real estate, commercial, and consumer lending. The Company's local economy continues to experience low unemployment rates and increased construction of residential and commercial properties. Accrued interest receivable has increased due to the increased volume of loans and the fact that the farm loans presently being funded are scheduled to pay both principal and interest in the fall after harvest. Other real estate owned remains unchanged from December 31, 1996. The Company presently has one property recorded at the adjusted loan value after reducing the value for amounts previously recovered. The expected selling price is higher than the recorded amount. Total shareholder's equity increased 5% which reflects a slightly reduced percentage due to net income being offset by the increase in net unrealized loss on securities as the Company's securities portfolio repriced downward during the first six months of 1997. Results of Operations. Net income increased 26% and 24% for the six months and three months ended June 30, 1997, respectively, as compared to the same periods in 1996. The increase results from the effective management of the interest margin and increases in other income derived from new products and services. The 25% and 23% increase in loan income for the three months and six months ended June 30, 1997, respectively, is due to loan growth and somewhat higher rates as fixed rate funds continue to either reprice upward upon maturity or pay out. Interest earned on investments has increased due to higher portfolio yields. Interest expense for the three months and six months ended June 30, 1997, respectively, increased 23% and 20% over the same periods in 1996 due to total deposit growth of 22%. Other expenses have increased 20% and 21% for the three months and six months ended June 30, 1997, respectively, over the same periods of 1996. This increase is primarily due to higher salaries and operating costs resulting from additional accounts and transactions as the Company continues to grow. A new branch location in Benson, North Carolina was opened in July 1997. The Company's delinquency rate of 1.18% is favorable compared to historical trends. At June 30, 1997, the Company's nonperforming loans were $562,000 or 0.42% of total gross loans as compared to $771,000 or 0.72% at June 30, 1996. The reserve for loan loss of $1,660,000 or 1.25% of total gross loans is considered adequate to cover future credit losses in the present portfolio. 9
PART II - OTHER INFORMATION Item 1. Legal Proceedings There are no material pending legal proceedings involving the Registrant. Item 2. Changes in Securities Not Applicable. Item 3. Defaults upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders Not Applicable. Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Employment Agreement between Four Oaks Bank & Trust Company and Ayden R. Lee, Jr. 10.2 Severance Agreement between Four Oaks Bank & Trust Company and Ayden R. Lee, Jr. 27 Financial Data Schedule (b) Reports on Form 8-K (i) On July 2, 1997, the Registrant filed a Form 8-K12G3 to report the reorganization of Four Oaks Bank & Trust Company ( the "Bank") into a bank holding company structure (the "Reorganization"). Pursuant to the Reorganization, the Registrant is the holding company and sole shareholder of the Bank. The Registrant has no significant assets other than the Common Stock of the Bank. Pursuant to the Reorganization, the Bank's Common Stock was converted on a share-for-share basis into Common Stock of the Registrant that have rights, privileges and preferences identical to those of the Bank.
10 SIGNATURES Pursuant to the requirements 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. FOUR OAKS FINCORP, INC. Date: August 13, 1997 By: /s/ Clifton L. Painter --------------- ---------------------------- Clifton L. Painter Senior Executive Vice President and Chief Operating Officer Date: August 13, 1997 By: /s/ Nancy S. Wise --------------- ---------------------------- Nancy S. Wise Senior Executive Vice President and Chief Financial Officer 11 INDEX TO EXHIBITS Exhibit Description 10.1 Employment Agreement between Four Oaks Bank & Trust Company and Ayden R. Lee, Jr. 10.2 Severance Agreement between Four Oaks Bank & Trust Company and Ayden R. Lee, Jr. 27 Financial Data Schedule EX-10 2 EXHIBIT 10.1 BANK OF FOUR OAKS EXECUTIVE EMPLOYMENT AGREEMENT THIS AGREEMENT is entered into as of this 1st day of January, 1989 by and between BANK OF FOUR OAKS, a North Carolina banking corporation (the "Bank"), and Ayden R. Lee, Jr. ("Employee"). W I T N E S S E T H WHEREAS, the Bank desires that Employee become an employee of the Bank to serve as its Chief Executive Officer; and WHEREAS, Employee desires to become an employee of the Bank and to serve as the Bank's Chief Executive Officer; NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained in this Agreement, the Bank and Employee agree as follows: 1. Employment. Commencing on the date of this Agreement, Employee is employed by the Bank as its Chief Executive Officer with the duties, responsibilities and powers of such office as assigned to him as of the date of this Agreement and as customarily associated with such office. 2. Term. The term of this Agreement shall commence on the date of this Agreement and shall terminate on December 31, 1991 and shall, unless terminated otherwise as set forth in this Agreement, be automatically extended on December 31, 1991 and each anniversary of such date for an additional term of one (1) year unless such automatic extension is declined by either party by notice given not less than ninety (90) days before the end of the then current term of this Agreement; provided that the term of this Agreement shall not extend beyond Employee's normal retirement date at age 65. 3. Compensation and Benefits. In consideration of his services during the term of this Agreement, Employee shall be paid compensation and benefits by the Bank as follows: (a) Base Salary. Employee will receive an annual base salary of $81,000, payable in monthly installments. Commencing January 1, 1989, and annually thereafter, Employee will be entitled to receive such increases in his annual base salary as may be approved by the Board of Directors of the Bank, with each such increase thereafter being included in his annual base salary for all purposes. (b) Additional Benefits. Employee shall be entitled to receive and participate in all benefits and conditions of employment generally made available to the Bank's executive officers and also those generally made available to all salaried employees of the Bank including, but not limited to, insurance benefits, vacation, sick leave, and reimbursement of expenses incurred on behalf of the Bank in the course of performing duties under this Agreement. 4. Termination. Employee's employment under this Agreement shall terminate: (a) Upon the death of Employee; (b) Upon written notice from the Bank to Employee in the event of an illness or other disability incapacitating him from performing his duties for six (6) consecutive months as determined in good faith by the Board of Directors of the Bank or a committee of the Board; 2 (c) For cause upon written notice from the Bank ("Cause" for this purpose means (i) the willful and continued failure by Employee for a significant period of time substantially to perform his duties with the Bank (other than any such failure resulting from his disability) after a demand for substantial performance is delivered to Employee by the Bank's Board of Directors or a committee of the Board which specifically identifies the manner in which the Board of Directors believes that Employee has not substantially performed his duties, (ii) the willful engaging by Employee in gross misconduct materially and demonstratively injurious to the Bank or (iii) the conviction of Employee of any crime involving fraud or dishonesty); or (d) Upon thirty (30) days notice from Employee to Bank at any time within two (2) years following a change in control of the Bank. "Change in Control" means one or more of the following occurrences: (i) A corporation, person or group acting in concert as described in Section 14(d)(2) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), holds or acquires beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act of a number of shares of voting capital stock of the Bank which constitutes either (A) more than 50 percent of the shares which voted in the election of directors of the Bank at the shareholders' meeting immediately preceding such determination, or (B) more than 33 percent of the Bank's then outstanding shares entitled to vote. (ii) A merger or consolidation to which the Bank is a party (other than a pro forma transaction for a purpose such as changing the state of incorporation or name of the Bank), if either (A) the Bank is not the surviving corporation, or 3 (B) the directors of the Bank immediately before the merger or consolidation constitute less than a majority of the Board of Directors of the surviving corporation; provided, however, the occurrence described in clause (A) shall not constitute a change in control if the holders of the Bank's voting capital stock immediately before the merger or consolidation have the same proportional ownership of voting capital stock of the surviving corporation immediately after the merger or consolidation. (iii) All or substantially all of the assets of the Bank are sold, leased or disposed of in one transaction or a series of related transactions. (iv) An agreement, plan, contract or other arrangement is entered into providing for any occurrence which as defined in this Agreement would constitute a change of control. The Bank hereby represents, warrants and agrees that it shall give prompt notice to Employee immediately upon learning of the consummation of any of the events set forth in paragraph 4(d) of this Agreement. If the Bank fails to give such notice to Employee, the Bank shall be estopped from contesting, and shall not contest, the adequacy or timeliness of any notice Employee may be allowed or required to give following a change in control of the Bank. 5. Non-Assignability. This Agreement shall not be assignable by Employee. This Agreement shall not be assignable by the Bank without the prior written consent of Employee except to a corporation which is the surviving entity in any merger involving the Bank or to a corporation which acquires all or substantially all of the stock or assets of the Bank. 4 6. Modification. This Agreement sets forth all the terms and conditions of the employment agreement between Employee and the Bank and can be modified only by a writing signed by both parties. No waiver by either party to this Agreement at any time of any breach of the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 7. Counterparts: Construction. This Agreement may be executed in several identical counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall constitute one and the same instrument. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of North Carolina. 8. Severability. Should any provision of this Agreement be declared to be invalid for any reason or to have ceased to be binding on the parties, such provision shall be severed, and all other provisions shall be effective and binding. 9. Notice. All necessary notices, demands and requests required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given if delivered in person or mailed by certified mail, postage prepaid, addressed as follows: a. If to Employee: Ayden R. Lee, Jr. 4221 Peele Road Clayton, North Carolina 27520 5 b. If to Bank: Bank of Four Oaks 503 N. Wellons Street Four Oaks, North Carolina 27524 or to such other address as shall be furnished by either party. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. BANK OF FOUR OAKS ATTEST: By: /s/ M.S. CANADAY ______________________________ /s/ CLIFTON PAINTER Authorized Officer - ---------------------------- Asst. Secretary /s/ AYDEN R LEE, JR. _______________________(SEAL) (SEAL) Ayden R. Lee, Jr. Employee 6 EX-10 3 EXHIBIT 10.2 BANK OF FOUR OAKS SEVERANCE COMPENSATION AGREEMENT THIS AGREEMENT is made and entered into this 1st day of January, 1989 ("Effective Date") by and between BANK OF FOUR OAKS, a North Carolina banking corporation (the "Bank"), and Ayden R. Lee, Jr. ("Employee"). WHEREAS, the Bank considers the maintenance of a vital management group to be essential to protecting and enhancing the best interests of the Bank and its shareholders; WHEREAS, the Bank recognizes that, as is the case with many publicly held corporations, there is a possibility of a change in control of the Bank, and that the uncertainty and questions which such a possibility raise may result in the departure or distraction of management personnel to the detriment of the Bank and its shareholders; WHEREAS, the Bank's Board of Directors has determined that appropriate steps should be taken (1) to reinforce and encourage the continued attention and dedication of members of the Bank's management to their assigned duties without distraction arising from the possibility of a change in control of the Bank and (2) to dispel any concerns that Employee may have about taking an active part in the defense against an inappropriate attempt to bring about a change in control of the Bank; and WHEREAS, the purpose of this Agreement is to assure Employee that in the event of termination of employment after a change of control (to the extent set forth in this Agreement) Employee will continue to receive compensation for a period which should be sufficient for Employee to find other employment. NOW, THEREFORE, in consideration of the mutual agreements set forth in this Agreement, the legal sufficiency and adequacy of which are hereby acknowledged, the parties agree as follows: 1. Employment. Employee agrees that so long as he is employed by the Bank, Employee shall devote his full-time efforts during normal business hours to the business and affairs of the Bank and shall support decisions and determinations of the Board of Directors and Bank policy including, but not limited to, any decision or determination with respect to responding to an approach or attempt to effect a Change in Control (as later defined). 2. Term. (a) The term of this Agreement shall be for two years from the Effective Date unless sooner terminated upon: (i) Employee's written notice to the Bank that he is terminating this Agreement effective upon a specified date not less than one month after his notice is given; (ii) Employee's death; (iii) Employee's illness or other disability incapacitating Employee from performing his duties for six (6) consecutive months as determined in good faith by the Board of Directors of the Bank or a committee of the Board; (iv) Employee's retirement; or (v) A determination by the Board of Directors of the Bank that Employee is no longer a key executive employee and the delivery of notice to Employee of such determination and the termination of this Agreement. Such termination shall be effective upon the delivery of the notice or at a later date 2 specified in the notice; provided, however, such determination shall not be made, and if made, shall have no effect, after a Change in Control; (b) Unless this Agreement is terminated in accordance with subparagraph 2(a), on each anniversary of the Effective Date of this Agreement, the term of this Agreement automatically shall be extended for an additional successive period of one year, unless either the Employee or the Bank shall give written notice to the other at least three months before such anniversary date that the term of this Agreement shall not be extended. (c) In the event of a Change in Control of the Bank at any time before the termination of this Agreement, the term of this Agreement shall be automatically extended to the earlier of (i) a date two years after the date such Change in Control occurred and (ii) the occurrence of an event of termination described in clause 2(a)(ii), (iii) or (iv). (d) In the event of a Termination (as later defined) of Employee's employment during the term of this Agreement, the term of this Agreement shall be automatically extended until all obligations under the Agreement are fully performed. 3. Change in Control. For purposes of this Agreement, a "Change in Control" means one or more of the following occurrences: (a) A corporation, person or group acting in concert as described in Section 14 (d) (2) of the Securities Exchange Act of 1934, as amended ("Exchange Act") , holds or acquires beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act of a number of shares of voting capital stock of the Bank which constitutes either (i) more than 50% of the shares which voted in the election of directors 3 of the Bank at the shareholders' meeting immediately preceding such determination, or (ii) more than 33% of the Bank's then outstanding shares entitled to vote. (b) A merger or consolidation to which the Bank is a party (other than a pro forma transaction for a purpose such as changing the state of incorporation or name of the Bank), if either (i) the Bank is not the surviving corporation, or (ii) the directors of the Bank immediately before the merger or consolidation constitute less than a majority of the Board of Directors of the surviving corporation; provided, however, the occurrence described in clause (i) shall not constitute a Change in Control if the holders of the Bank's voting capital stock immediately before the merger or consolidation have the same proportional ownership of voting capital stock of the surviving corporation immediately after the merger or consolidation. (c) All or substantially all of the assets of the Bank are sold, leased, or disposed of in one transaction or a series of related transactions. (d) An agreement, plan, contract or other arrangement is entered into providing for any occurrence which as defined in this Agreement would constitute a Change of Control. 4. Termination Following Change in Control. (a) Termination of Employee's employment after the occurrence of a Change in Control ("Termination") entitles Employee to the benefits described in paragraphs 5 and 6, unless such Termination is (i) by the Bank for cause or because of disability or (ii) because of Employee's death or retirement. (b) "Cause" means: (i) the willful and continued failure by Employee for a significant period of time substantially to perform his duties with the Bank (other than 4 any such failure resulting from his disability) after a demand for substantial performance is delivered to Employee by the Bank's Board of Directors or a committee of the Board which specifically identifies the manner in which the Board of Directors believes that Employee has not substantially performed his duties; (ii) the willful engaging by Employee in gross misconduct materially and demonstrably injurious to the Bank or (iii) the conviction of Employee of any crime involving fraud or dishonesty. No act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by Employee, not in good faith and without reasonable belief that his action or omission was in the best interests of the Bank. The burden of establishing the validity of any Termination for cause shall rest upon the Bank. 5. Benefits. In the event of Employee's Termination for any reason except those set forth in clauses 4(a)(i) or (ii) the Bank shall pay Employee as severance pay an amount equal to two (2) times Employee's most recent annual compensation, including the amount of his most recent annual bonus at the time of termination ("Severance Pay"). The Severance Pay shall be paid in twenty-four (24) equal monthly installments without interest, commencing one month after termination, unless and until the Employee obtains other full-time employment, at which time the balance of the Severance Pay due shall be paid within thirty (30) days in a lump sum amount. 6. Other Benefits. In addition, in the event of Employee's Termination, the Bank shall: (a) Maintain in full force and effect, for two years after the date of Termination, or unless and until Employee obtains other full-time employment, all life insurance, health (medical and dental), accidental death and dismemberment and 5 disability plans or programs in which Employee is entitled to participate immediately prior to the date of Termination and include Employee as a participant in such plans on the same terms as he participated before Termination; provided that Employee's continued participation is possible under the general terms and provisions of such plans and programs. In the event that Employee's participation in any such plan or program is barred, the Bank shall arrange upon comparable terms to provide Employee with benefits substantially similar to those which he would be entitled to receive under such plans and programs. At the end of the period of coverage, Employee shall have the option to have assigned to him, at no cost and with no apportionment of prepaid premiums, any assignable insurance policy owned by the Bank and relating specifically to Employee. (b) To the extent permitted by the applicable plan, pay Employee in a lump sum (or otherwise as specified by Employee to the extent permitted by the applicable plan) any and all amounts contributed to a Bank pension or retirement plan (other than any nonqualified deferred compensation plan) to which Employee is entitled under the terms of any such plan. 7. No Duty to Mitigate. Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit as provided for be reduced by any compensation earned by Employee as the result of employment by another employer or by retirement benefits after the date of Termination, or otherwise except as specifically provided in this Agreement. 8. Miscellaneous. (a) Limitation of Effect. This Agreement shall have no effect on any termination of Employee's employment before a Change in Control or after the 6 termination of this Agreement, or upon any termination of employment at any time as a result of disability, retirement or death, or as a result of Employee's voluntary termination of this Agreement and in such event, Employee shall receive only those benefits to which Employee would have become entitled before a Change in Control. After a Change in Control and during its term this Agreement is in lieu of any other Bank severance policy involving cash payments, but not in lieu of other Bank severance policies including, but not limited to, those items provided in paragraph 6. This Agreement does not entitle Employee to employment for any term whatsoever. (b) Successors. (i) The Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Bank to assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform if no such succession had taken place. Failure of the Bank to obtain such agreement before the effectiveness of any such succession shall entitle the Employee immediately to the benefits provided in Paragraphs 5 and 6 hereof. (ii) Employee may not assign this Agreement, but this Agreement shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. If Employee should die while any amounts would still be payable to Employee under this Agreement if Employee had continued to live, all such amounts, unless otherwise provided in this Agreement, shall be paid in 7 accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or, if there be no such designee, to his estate. (c) Expenses. The Bank agrees that if Employee is entitled to Severance Pay or other benefits under this Agreement and the Bank or its survivor disputes the obligation to pay Severance Pay or other benefits and Employee prevails, in whole or in part, the Bank or its survivor shall then promptly pay or reimburse Employee for all expenses incurred by Employee in such dispute, including, but not limited to, attorneys' fees and associated costs. (d) Notice. All necessary notices, demands or requests required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or mailed by United States certified mail, postage prepaid, to the parties at the addresses set forth below or to such other address as either party may have furnished to the other. If to Bank: Bank of Four Oaks 503 N. Wellons Street Four Oaks, North Carolina 27624 If to Employee: Ayden R. Lee, Jr. 4221 Peele Road Clayton, North Carolina 27520 (e) Modifications. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by the Employee and the Bank. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 8 (f) Counterparts: Interpretation. This Agreement may be executed in several identical counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall constitute one and the same instrument. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of North Carolina. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. BANK OF FOUR OAKS BY: /s/ M.S. CANADAY __________________________________ (Corporate Seal) Attest: /s/ CLIFTON PAINTER - --------------------------- Asst. Secretary /s/ AYDEN R. LEE, JR. _____________________________(SEAL) Ayden R. Lee, Jr. Employee EX-27 4 FDS -- FOUR OAKS
9 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 7,804,000 167,000 0 0 32,745,000 0 0 132,952,000 1,660,000 180,501,000 153,295,000 10,240,000 1,826,000 0 0 0 843,000 5,004,000 180,501,000 5,886,000 1,052,000 17,000 6,955,000 3,145,000 3,284,000 3,671,000 262,000 10,000 2,539,000 1,539,000 1,539,000 0 0 1,053,000 1.25 1.25 4.82 181,000 381,000 0 0 1,440,000 66,000 24,000 1,660,000 0 0 1,660,000
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