<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
-------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- -------------------------
Commission file number
----------------------------------------------------------
STONE STREET BANCORP, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1949352
- ---------------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization Identification No.)
232 SOUTH MAIN STREET, MOCKSVILLE, NORTH CAROLINA
-------------------------------------------------
(Address of principal executive offices)
(Zip Code)
27028
--------------------------------------
(Registrant's telephone number, including area code)
(704) 634-5936
------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (2) 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
------- ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
------- ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 1,825,050 of common stock as
----------------------------
of November 8, 1996.
- ---------------------
<PAGE>
STONE STREET BANCORP, INC.
INDEX
- --------------------------------------------------------------------------------
PAGE
-----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial Statements:
Consolidated Statements of Financial Condition -
September 30, 1996 (Unaudited) and December 31,
1995 1-2
Consolidated Statements of Operations -
Nine Months Ended September 30, 1996 and 1995
(Unaudited) 3
Consolidated Statement of Stockholder's Equity
for the Nine Months Ended September 30, 1996
(Unaudited) 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1996 and 1995 (Unaudited) 5-6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 9
Signatures
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
- ------
CASH AND DUE FROM BANKS $ 2,999,926 $ 2,161,597
INTEREST-BEARING DEPOSITS 9,985,989 2,736,699
FEDERAL FUNDS SOLD 922,856
INVESTMENT SECURITIES
Securities held-to-maturity
(market value-September 30, 1996-$8,522,556;
December 31, 1995-$3,865,725) 8,529,985 3,844,977
Securities available for sale,
at market value 1,835,852 2,302,344
------------ -----------
Total 10,365,837 6,147,321
LOANS RECEIVABLE-Net 80,302,534 75,096,569
OFFICE PROPERTIES AND EQUIPMENT-Net 909,680 948,886
ACCRUED INTEREST RECEIVABLE:
Investment securities 108,496 64,867
Loans 122,260 38,963
DEFERRED INCOME TAXES 341,583 333,900
REFUNDABLE INCOME TAXES 219,355 20,912
PREPAID EXPENSES AND OTHER ASSETS 29,891 136,936
CASH SURRENDER VALUE OF LIFE INSURANCE 64,246 64,246
------------ -----------
TOTAL $106,372,653 $87,750,896
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
DEPOSITS:
Savings Accounts $ 8,595,078 $ 9,309,033
Money Market and NOW Accounts 4,028,550 4,348,464
Time, $100,000 and over 4,840,654 5,033,864
Other Time 49,353,146 54,343,861
------------ -----------
Total deposits 66,817,428 73,035,222
FEDERAL HOME LOAN BANK ADVANCES 1,000,000
AMOUNTS PAYABLE UNDER REMITTANCE
SERVICE AGREEMENT 864,035 594,572
ADVANCE PAYMENTS BY BORROWERS FOR
TAXES AND INSURANCE 147,097 43,273
ACCRUED INTEREST PAYABLE 174,968 146,578
CASH DIVIDENDS PAYABLE 200,756
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 787,363 369,654
------------ -----------
$ 68,991,647 $75,189,299
============ ===========
</TABLE>
See notes to financial statements
1
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONT'D)
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- -------------
<S> <C> <C>
STOCKHOLDERS' EQUITY:
Common Stock, no par value,
20,000,000 authorized;
1,825,050 issued and outstanding $ 38,895,444
Unearned ESOP shares (2,107,764)
Preferred stock, no par value
5,000,000 shares authorized, no shares
issued and outstanding
Retained Earnings 610,542 12,563,030
Unrealized loss on securities
on securities available-for-sale
net of applicable deferred taxes (17,216) (1,433)
------------ -----------
Total stockholders' equity 37,381,006 12,561,597
------------ -----------
TOTAL $106,372,653 $87,750,896
============ ===========
</TABLE>
See notes to financial statements
2
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $1,672,828 $1,538,739 $4,946,638 $4,402,627
Interest on investment:
U.S. Treasury and
Government Agency 70,253 53,791 190,757 175,305
Mortgage backed securities 51,798 7,157 87,272 22,874
Municipal Securities 12,636 20,430 44,517 68,694
Other interest 278,704 63,567 673,236 210,248
---------- ---------- ---------- ----------
Total interest income 2,086,219 1,683,684 5,942,420 4,879,748
---------- ---------- ---------- ----------
COST OF FUNDS:
Interest on time deposits 775,237 838,672 2,455,840 2,354,655
Interest on interest bearing
demand deposits 18,260 20,664 54,450 62,003
Interest on savings deposits 66,696 68,438 241,364 218,940
Interest of FHLB advances 75 - 8,469 -
---------- ---------- ---------- ----------
Total interest expense 860,268 927,774 2,760,123 2,635,598
---------- ---------- ---------- ----------
NET INTEREST INCOME 1,225,951 755,910 3,182,297 2,244,150
PROVISION FOR LOAN LOSSES 15,000 334,920 30,000 334,920
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,210,951 420,990 3,152,297 1,909,230
---------- ---------- ---------- ----------
OTHER OPERATING INCOME:
Loan fees and charges 14,232 11,598 37,305 41,501
Other fees and commissions 14,313 15,397 40,926 44,177
Other - net 2,872 6,130 8,659 14,020
---------- ---------- ---------- ----------
Total other income 31,417 33,125 86,890 99,698
---------- ---------- ---------- ----------
OTHER OPERATING EXPENSES:
Compensation and related benefits 214,924 239,771 717,698 713,426
Insurance 503,429 41,932 586,517 125,038
Occupancy and equipment 63,941 58,238 202,338 172,731
Other 64,606 41,807 147,610 142,578
---------- ---------- ---------- ----------
Total 846,900 381,748 1,654,163 1,153,773
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 395,468 72,367 1,585,024 855,155
INCOME TAXES 126,674 20,149 572,972 313,864
---------- ---------- ---------- ----------
NET INCOME $ 268,794 $ 52,218 $1,012,052 $ 541,291
========== ========== ========== ==========
NET INCOME PER SHARE $ .15 $ N/A $ .55 $ N/A
========== ========== ========== ===========
</TABLE>
See notes to financial statements
3
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- UNEARNED RETAINED
SHARES AMOUNT ESOP SHARES EARNINGS TOTAL
------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1 $ 15 $ 15
Common stock issuance, net of
conversion expenses of
$1,043,336 1,825,049 26,332,399 26,332,399
Purchase of ESOP shares $(2,107,764) (2,107,764)
Capital of Mocksville Savings
Bank, SSB 12,563,030 12,563,030
Net income for nine months
ended September 30, 1996 $1,012,052 1,012,052
Cash dividends (401,510) (401,510)
Unrealized gain (loss) on
securities available-for-sale,
net of applicable deferred income
tax of $6,695 (17,216) (17,216)
---------- ----------- ----------- ----------- -----------
Balance at September 30, 1996 1,825,050 $38,895,444 $(2,107,764) $ 593,326 $37,381,006
========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
4
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 1,012,052 $ 541,291
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 39,206 64,639
Provision for loan loss 30,000 334,920
Decrease (increase) in accrued interest receivable (126,926) (10,716)
Decrease (increase) in other assets 107,045 (59,387)
Decrease (increase) in refundable income taxes (198,443) 59,832
Increase in cash dividends payable 200,756
Increase (decrease) in accounts payable under
remittance service agreement 269,463 (131,874)
Increase (decrease) in accrued interest payable 28,390 18,147
Increase (decrease) in accounts payable and
accrued liabilities 417,709 90,530
(Increase) decrease in deferred income taxes (7,683) (96,284)
----------- -----------
Net cash provided by (used in) operating
activities 1,771,569 811,098
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (5,235,965) (6,922,095)
Purchase of held-to-maturity securities (4,685,008) -
Proceeds from sale of available for sale securities 450,709 -
Proceeds from maturates of held-to-
maturity securities - 1,763,305
Purchase of property and equipment (27,038)
----------- -----------
Net cash provided by (used in) investing
activities (9,470,264) (5,185,828)
----------- -----------
</TABLE>
See notes to financial statements
5
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CON'T)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits (6,217,794) 2,736,495
Increase (decrease) in advance payments
by borrowers for taxes and insurance 103,824 97,954
Purchase of ESOP shares (2,107,764) -
Cash dividends paid (401,510) -
Increase (decrease) in Federal Home Loan Bank
Advances (1,000,000)
Issuance of common stock 26,332,414 -
----------- -----------
Net cash provided by financing activities 16,709,170 2,834,449
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 9,010,475 (1,540,281)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 4,898,296 5,385,188
----------- -----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $13,908,771 $ 3,844,907
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the periods for:
Interest $ 2,731,733 $ 2,100,142
=========== ===========
Income taxes $ 771,415 $ 388,000
=========== ===========
</TABLE>
See notes to financial statements
6
<PAGE>
STONE STREET BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. In the opinion of management, the accompanying financial statements contain
all adjustments necessary to present fairly the consolidated financial
position of Stone Street Bancorp, Inc. as of September 30, 1996 and 1995,
and the results of operations for the nine months ended September 30, 1996
and 1995, and the consolidated cash flows for the nine months ended
September 30, 1996 and 1995.
The accounting policies, followed by the Holding Company are set forth in
Note 1 to the Company's financial statements included in Form 10-K on file
with the Securities and Exchange Commission.
2. The consolidated financial statements include the financial results of Stone
Street Bancorp Inc. and its wholly-owned subsidiary, Mocksville Savings
Bank, Inc., SSB.
3. The results of operations for the three and nine month periods ended
September 30, 1996, are not necessarily indicative of the results expected
for the full year.
4. Earnings per share of common stock has been determined based on the weighted
average number of common shares 1,825,050 for the three month period ended
September 30, 1996 and 1,825,050 shares (pro forma basis) for the nine month
period ended September 30, 1996.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
FINANCIAL CONDITION
At September 30, 1996, total assets were $106,372,653, an increase of
approximately $18,621,757 or 21.22% over December 31, 1995. This increase is
primarily the result of the stock conversion of Mocksville Savings Bank, SSB
which provided $26,332,399 of capital to the Holding Company. Interest bearing
deposits increased $7,249,290 while investment securities increased $4,218,516.
The remaining funds generated from the stock conversion were used to fund the
$5,205,965 increase in loans for the nine months ended September 30, 1996.
Deposits decreased $6,217,794 or 8.51% from the December, 1995 level due to
customers using deposit funds to purchase stock of the Holding Company. The
FHLB advance of $1,000,000 was repaid during this period with proceeds from the
stock conversion. Stockholders' equity increased $24,819,409 as a result of the
$26,332,399 of funds provided from the stock issuance and the net income of
$1,012,052 for the nine months ended September 30, 1996, net of a reduction in
stockholders' equity due to the payment of cash dividends of $401,510 and
purchase of ESOP shares of $2,107,764.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
Net income for the three months ended September 30, 1996 was $286,794 compared
to $52,218 for the comparable period in 1995. The reduced net income in 1995
compared to 1996 was primarily the result of the significant increase in the
provision for loan loss of $334,920 during the third quarter of 1995. Total
interest income in 1996 increased $402,535 or 23.91% while total interest
expense decreased $67,506 or 7.28%. Other operating income remained at
relatively the same level as 1995 while operating expenses increased $465,152
over the comparable period in 1995. This increase is attributable to the
special assessment imposed on financial thrifts for deposit insurance premiums
under the Omnibus Appropriations Bill signed into law by the President on
September 30, 1996. The Bank was required to recognize this one time charge in
the third quarter of 1996. The amount of the special assessment was $456,003.
The Bank should experience lower deposit insurance premiums beginning in 1997 as
a result of this large assessment. Income tax expense increased by $106,525 in
1996 compared to 1995 due to the increase in income before tax as a result of
the increase in net interest income during the period.
Nine Months Ended September 30, 1996 and 1995
Net income for the nine months ended September 30, 1996 was $1,012,052 compared
to $541,291 for the comparable period in 1995. Interest income increased
$1,062,672 or 21.78% while interest expense increased $124,525 or 4.72%. Net
interest income increased $1,243,067 after recognizing loan loss provisions for
the periods. Other income decreased $12,808 or 12.85% from 1995 while operating
expenses increased $500,390 or 43.37%. The large increase in operating expenses
resulted from the FDIC special assessment for deposit insurance premiums signed
into law on September 30, 1996. This special assessment totaled $456,003 for
this Bank and should provide for lower deposit insurance premiums in the future.
Income tax expense increased $259,108 as a result of the improved profitability
during the nine months ended September 30, 1996 compared to 1995.
8
<PAGE>
PART II- OTHER INFORMATION
Item 6b. Reports on Form 8-K
There were no Form 8-K's filed during the Third Quarter of 1996.
9
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Holding
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STONE STREET BANCORP, INC.
Date: By:
--------------- ----------------------------
J. Charles Dunn
President and Chief Executive Officer
Date: By:
--------------- ----------------------------
Marjorie D. Foster
Controller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JAN-01-1996
<CASH> 2,999,926
<INT-BEARING-DEPOSITS> 9,985,989
<FED-FUNDS-SOLD> 922,856
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,855,852
<INVESTMENTS-CARRYING> 8,529,985
<INVESTMENTS-MARKET> 8,522,556
<LOANS> 80,794,023
<ALLOWANCE> 491,489
<TOTAL-ASSETS> 106,372,653
<DEPOSITS> 66,817,428
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,174,219
<LONG-TERM> 0
0
0
<COMMON> 38,895,444
<OTHER-SE> (1,514,438)
<TOTAL-LIABILITIES-AND-EQUITY> 106,372,653
<INTEREST-LOAN> 4,946,638
<INTEREST-INVEST> 995,782
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,942,420
<INTEREST-DEPOSIT> 2,760,123
<INTEREST-EXPENSE> 2,760,123
<INTEREST-INCOME-NET> 3,182,297
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,654,163
<INCOME-PRETAX> 1,585,024
<INCOME-PRE-EXTRAORDINARY> 1,585,024
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,012,052
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
<YIELD-ACTUAL> 4.58
<LOANS-NON> 0
<LOANS-PAST> 76,260
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 461,983
<CHARGE-OFFS> 494
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 491,489
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 491,489
</TABLE>
