-----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, EoiPhtJ/3xAmF8aTz5WoecBo4OtCEVtJCcc4KIcncKelm+d6IcRlIVCOjVNA0vNN jAr64PuOlIv5V0TM3CVslg== 0000950168-98-002729.txt : 19980817 0000950168-98-002729.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950168-98-002729 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOUR OAKS FINCORP INC CENTRAL INDEX KEY: 0001040799 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 562028446 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22787 FILM NUMBER: 98691126 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 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, 1998 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 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, 891,617 par value $1.00 per share (Number of shares outstanding (Title of Class) as of June 30, 1998) PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (All amounts in thousands) June 30, December 31, 1998 1997 -------- -------- (unaudited) ASSETS Cash and due from banks ............................ $ 6,232 6,454 Interest bearing bank balances ..................... 946 2,114 -------- -------- Total cash and cash equivalents .................... 7,178 8,568 Investment securities, available for sale .......... 34,940 35,082 Loans, net ......................................... 154,579 138,099 Accrued interest receivable ........................ 2,845 2,007 Bank premises and equipment, net ................... 5,122 5,092 Other real estate owned ............................ 1,071 193 Intangible assets .................................. 162 169 Prepaid expenses and other assets .................. 916 861 -------- -------- Total assets ....................................... 206,813 190,071 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits: Demand - noninterest bearing ................... $ 28,232 24,761 NOW accounts ................................... 14,156 15,132 Savings ........................................ 17,578 17,252 Time $100,000 and over ......................... 43,564 37,833 Other time ..................................... 79,450 73,010 -------- -------- Total deposits ................................. 182,980 167,988 Accrued interest payable ........................... 2,043 1,914 Other borrowed money ............................... 3,000 3,000 Other liabilities .................................. 540 302 -------- -------- Total liabilities .................................. 188,563 173,204 ======== ======== Shareholders' equity: Capital stock: Common stock, $1.00 par value, 5,000,000 shares authorized, 891,617 and 875,648 issued and outstanding at June 30, 1998 and December 31, 1997 respectively .................. 892 876 Surplus ............................................ 5,982 5,602 Retained earnings .................................. 11,223 10,249 Accumulated other comprehensive income ............. 153 140 -------- -------- Total shareholders' equity ......................... 18,250 16,867 -------- -------- Total liabilities and shareholders' equity ......... $206,813 190,071 ======== ========
The accompanying notes are an integral part of the consolidated financial statement. 2 CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(All amounts in thousands, except per share data) For the three For the six months ended months ended June 30, June 30, 1998 1997 1998 1997 ------ ------ ------ ------ Interest income: Interest and fees on loans ........................................... $3,756 3,131 7,214 5,886 Interest on investment securities: US Government and agencies ......................................... 491 427 966 857 Municipalities ..................................................... 53 71 113 148 Other investment securities ........................................ 8 27 29 47 Interest on overnight investments .................................... 48 8 78 17 ------ ------ ------ ------ Total interest income ...................................... 4,356 3,664 8,400 6,955 Interest expense: Interest on deposits ................................................. 2,003 1,609 3,902 3,145 Interest on borrowed money ........................................... 43 109 91 139 ------ ------ ------ ------ Total interest expense ..................................... 2,046 1,718 3,993 3,284 ------ ------ ------ ------ Net interest income .................................................... 2,310 1,946 4,407 3,671 Provision for loan losses .............................................. 272 199 465 262 ------ ------ ------ ------ Net interest income after provision for loan losses ................................................. 2,038 1,747 3,942 3,409 ------ ------ ------ ------ Other income: Service charges ...................................................... 295 249 585 436 Credit life commissions .............................................. 27 22 60 43 Other operating income ............................................... 130 88 216 180 Securities gains (losses) ............................................ 5 12 5 10 ------ ------ ------ ------ Total noninterest income .................................... 457 371 866 669 ------ ------ ------ ------ Other expenses: Salaries ............................................................. 661 590 1,301 1,098 Employee benefits .................................................... 122 118 274 202 Occupancy expenses ................................................... 65 53 121 112 Equipment expenses ................................................... 87 82 172 161 Other operating expenses ............................................. 560 449 1,091 966 ------ ------ ------ ------ Total noninterest expense .................................. 1,495 1,292 2,959 2,539 ------ ------ ------ ------ Income before income taxes ............................................. 1,000 826 1,849 1,539 Income taxes ........................................................... 346 280 609 486 ------ ------ ------ ------ Net income ............................................................. $ 654 546 1,240 1,053 ====== ====== ====== ====== Net income per common share ............................................ $ 0.73 0.65 1.40 1.25 ====== ====== ====== ====== Net income per common share, assuming dilution ................................................ $ 0.73 0.65 1.40 1.23 ====== ====== ====== ====== Cash dividend paid per share ........................................... 0.15 0.14 0.30 0.28 ====== ====== ====== ======
The accompanying notes are an integral part of the consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
For the six months ended June 30, June 30, (All amounts in thousands) 1998 1997 ---- ---- Operating activities Net income ............................................. $ 1,240 1,053 Adjustments to reconcile net income to cash provided by operations: Provision for loan losses ........................... 465 262 Provision for depreciation .......................... 162 142 (Gain) loss on sale of securities ................... (5) (10) (Gain) loss on sale of repossessed/foreclosed assets 5 29 Write off of loans, net of recoveries ............... (230) (42) Gain on sale of fixed assets ........................ (5) -- (Increase) Decrease in prepaid & other assets ....... (52) (72) (Increase) Decrease in interest receivable .......... (838) (342) Increase (Decrease) in other liabilities ............ 238 (200) Increase (Decrease) in interest payable ............. 128 17 Net amortization of bond premiums & discounts ....... 2 4 -------- -------- Net cash provided from (used by) operating activities 1,110 841 -------- -------- Investing activities Proceeds from sales of investment securities ........ 9,797 8,080 Purchase of investment securities ................... (9,630) (4,012) Net increase in loans outstanding ................... (16,715) (23,476) Capital expenditures ................................ (262) (678) Proceeds from sale of capital assets ................ 75 -- Proceeds from sale of assets acquired in settlement of loans ............................ 46 20 Acquisition of assets acquired in settlement of loans (933) (6) -------- -------- Net cash used by investment activities .............. (17,622) (20,072) ======== ======== Financing activities Net increase (decrease) in short-term borrowings .... -- 10,240 Net increase in deposit accounts .................... 14,992 10,452 Proceeds from issuance of common stock .............. 396 137 Cash dividends ...................................... (266) (235) -------- -------- Net cash provided by financing activities ........... 15,122 20,594 -------- -------- Increase (Decrease) in cash and cash equivalents ....... (1,390) 1,363 Cash and cash equivalents at beginning of period ....... 8,568 6,608 -------- -------- Cash and cash equivalents at end of period ............. $ 7,178 7,971 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 FOUR OAKS FINCORP, INC. Notes to Financial Statements 1. The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Four Oaks Bank & Trust Company (the "Bank"). All significant intercompany items have been eliminated. 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 consolidated financial statements and notes thereto in the Company's annual report for the year ended December 31, 1997. 2. Earnings Per Share. The following table provides a reconciliation of income available to common shareholders and the average number of common shares outstanding for the three months ended June 30, 1998 and 1997, respectively: Three Months Ended June 30, 1998 June 30, 1997 ------------- ------------- Net Income (numerator) ................. $1,240,000 $1,053,000 ========== ========== Shares for Basic EPS (denominator) ..... 884,000 840,000 Dilutive effect of stock options ....... 3,700 14,385 ---------- ---------- Adjusted shares for diluted EPS ....... 887,700 854,385 ========== ========== 3. Comprehensive Income. Comprehensive income includes net income and all other changes to the Company's equity, with the exception of transactions with shareholders ("other comprehensive income"). The Company's only components of other comprehensive income relate to unrealized gains and losses on available for sale securities. The Company's total comprehensive income for the six months ended June 30, 1998 and 1997 was $1,253,000 and $875,000, respectively. Information concerning the Company's other comprehensive income for the six months ended June 30, 1998 and 1997, respectively, is as follows (in thousands):
1998 1997 ------ ------ Unrealized gains (losses) on available for sale securities .. $ 21 $(293) Reclassification of gains recognized in net income .......... -- -- Income tax expense (benefit) relating to unrealized gains on available for sale securities ...................... (8) 115 ----- ----- Other comprehensive income (loss) ........................... $ 13 $(178) ===== =====
5 4. On June 15, 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities"(FAS 133). FAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Management of the Company anticipates that, due to its limited use of derivative instruments, the adoption of FAS 133 will not have a significant effect on the Company's results of operations or its financial position. 5. Subsequent Event. On June 24, 1998, the Company declared a three for two stock split effected in the form of a stock dividend for shareholders of record as of July 6, 1998, payable on July 21, 1998. Had the split been retroactively applied, total shares outstanding would have been 1,337,425 and 1,313,472 at June 30, 1998 and December 31, 1997, respectively. Earnings per common share, earnings per common share assuming dilution and cash dividends per share would have been $0.93, $0.93, $0.20 and $0.84, $0.82, $0.19 for the six months ended June 30, 1998 and 1997, respectively. 6 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion provides information about the major components of the financial condition and results of operations of the Company and should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto. Financial Condition. For the six months ended June 30, 1998, interest bearing bank balances and investment securities combined decreased 14%. These funds along with funds generated by the 9% increase in deposits were used to fund net loan increases of 12%. 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. Our local economy remains healthy with unemployment rates low and construction of residential and commercial properties continuing. Accrued interest receivable has increased due to the increased volume of loans and the fact that the farm loans presently being funded should pay both principal and interest in the fall after harvest. During the six months ended June 30, 1998, other real estate owned increased $925,000 due to the foreclosure of three properties and decreased $46,000 due to the sale of one property. The Company presently owns four properties recorded at the lower of loan value or expected selling price (i.e., ended June 30, 1998 fair market value). Total shareholder's equity increased 8% due to net income and proceeds from sales of stock minus dividends paid. Results of Operations. Net income increased 18% and 20% for the six months and three months ended June 30, 1998, respectively, as compared to the same periods in 1997. The increase results from the effective management of the interest margin and increases in other income derived from new products and services. The 23% and 20% increase in loan income for the six months and three months ended June 30, 1998, respectively, is due to loan growth and somewhat higher rates as fixed rate loans continue to either reprice upward upon maturity or pay out. Interest earned on investments has increased 13% due to higher volumes and portfolio yields. Interest expense for the six months and three months ended June 30, 1998, respectively, increased 22% and 19% over the same periods in 1997 due to total deposit growth of 19% from June 30, 1997 to June 30, 1998. Other expenses increased 17% and 16% for the six months and three months ended June 30, 1998, respectively, as compared to the same periods of 1997. This increase is primarily due to higher salaries and operating costs resulting from additional accounts and transactions as the Company continues to grow. In addition, the opening of our Benson office in July 1997 has added expenses which were not present during the six months ended June 30, 1997. 7 The Company's delinquency rate of 1.85% is favorable compared to historical trends. At June 30, 1998, the Company's nonperforming loans were $1,890,000 or 1.21% of our total gross loans as compared to $562,000 or 0.42% at June 30, 1997. Our reserve for loan loss of $1,960,000 or 1.25% of total gross loans is considered adequate to cover future credit losses in the present portfolio. Year 2000 Compliance. As the year 2000 approaches, an important business issue has emerged regarding how existing application software programs and operating systems can accommodate this date value. Many existing application software products, including the Company's, were designed to accommodate a two-digit year. For example, "98" is stored on the system and represents 1998 and "00" represents 1900. The Bank primarily utilizes a third-party vendor for processing its primary banking applications. In addition, the Bank also uses third-party vendor application software for all ancillary computer applications. The third-party vendor for the Company's banking applications is in the process of modifying, upgrading or replacing its computer applications to ensure Year 2000 compliance. In addition, the Company has instituted a Year 2000 compliance program whereby the Bank is reviewing the Year 2000 issues that may be faced by its other third-party vendors. To assist in this effort, the Company has hired the services of a consultant to review the Company's plan and assist it in achieving Year 2000 compliance by December 31, 1998. Under such program, the Company will examine the need for modifications or replacement of all non-Year 2000 compliant pieces of software. The Company does not currently expect that the cost of its Year 2000 compliance program will be material to its financial condition and expects that it will satisfy such compliance program without material disruption of its operations. In the event that the Bank's significant suppliers do not successfully and timely achieve Year 2000 compliance, the Bank's business, results of operations or financial condition could be adversely affected. As a lending institution, the Bank is also exposed to potential risk if borrowers suffer Year 2000-related difficulties and are unable to repay their loans. The Bank is discussing the Year 2000 issue with borrowers as part of the loan granting or renewal process. At this time, the Bank is unable to determine what impact, if any, the Year 2000 will have on the loan payment performance of the Bank's borrowers. Thus far, however, none of the Bank's borrowers have reported the expectation of material adverse impacts as a result of the Year 2000. 8 Forward Looking Information. Information set forth in this Quarterly Report on Form 10-Q, including under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains various "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements represent the Company's judgment concerning the future and are subject to risks and uncertainties that could cause the Company's actual operating results and financial position to differ materially. Such forward looking statements can be identified by the use of the forward looking terminology, such as "may," "will," "expect," "anticipate," "estimate," or "continue" or the negative thereof or other variations thereof or comparable terminology. The Company cautions that any such forward looking statements are further qualified by important factors that could cause the Company's actual operating results to differ materially from those in the forward looking statements, including, without limitation, the effects of future economic conditions, governmental fiscal and monetary policies, legislative and regulatory changes, the risks of changes in interest rates on the level and composition of deposits, the effects of competition from other financial institutions, the failure of assumptions underlying the establishment of the allowance for possible loan losses, the low trading volume of the Common Stock, other considerations described in connection with specific forward looking statements and other cautionary elements specified in documents incorporated by reference in this Quarterly Report on Form 10-Q. 9 PART II - OTHER INFORMATION Item 5. Other Events Shareholder Proposals. As disclosed in more detail in the Company's proxy statement in connection with its 1998 Annual Meeting of Shareholders, as filed with the Securities and Exchange Commission on April 3, 1998, any proposals that shareholders intend to present for a vote of shareholders at the Company's 1999 Annual Meeting of Shareholders, and that such shareholders desire to have included in the Company's proxy statement and form of proxy will be made on a case-by-case basis in accordance with the Company's judgment and the rules and regulations promulgated by the SEC. Proposals received after December 8, 1998 will not be considered for inclusion in the Company's proxy materials for its 1999 Annual Meeting. In addition, if a shareholder intends to present a matter for a vote at the 1999 Annual Meeting of Shareholders, other than by submitting a proposal for inclusion in the Company's proxy statement for that meeting, the shareholder must give timely notice in accordance with SEC rules. To be timely, a shareholder's notice must be received by the Company's Corporate Secretary at its principal office, 6144 U.S. 301 South, Four Oaks, North Carolina 27524, on or before February 17, 1999. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K, dated July 21, 1998, to amend certain effective registration statements of the Company to increase the number of shares registered thereunder to include the additional shares resulting from the application of the Company's three-for-two stock split to the registered shares remaining unsold under such registration statements as of July 21, 1998. 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, 1998 By:/s/ Ayden R. Lee, Jr. --------------- ------------------------ Ayden R. Lee, Jr. President and Chief Executive Officer Date: August 13, 1998 By:/s/ Nancy S. Wise --------------- ------------------------ Nancy S. Wise Senior Executive Vice President and Chief Financial Officer 10 INDEX TO EXHIBITS Exhibit Description 27 Financial Data Schedule 11 EX-27 2 FINANCIAL DATA SCHEDULE
9 6-MOS DEC-31-1998 JUN-30-1998 6,232 946 0 0 34,940 0 0 156,539 1,960 206,813 182,980 0 2,583 3,000 0 0 892 17,358 206,813 7,214 1,108 78 8,400 3,902 3,993 4,407 465 10 2,959 1,849 1,849 0 0 1,240 1.40 1.40 2.31 819 339 0 0 1,725 259 29 1,960 0 0 1,960
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