<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 March 31, 1998
-------------------------------------------
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 1-14230
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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)
(336) 751-5936
------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
----- -----
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. 1,864,752 of common stock as
----------------------------
of May 12, 1998.
- ----------------
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STONE STREET BANCORP, INC.
INDEX
- --------------------------------------------------------------------------------
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial Statements:
Consolidated Statements of Financial Condition -
March 31, 1998 (Unaudited) and December 31, 1997 1-2
Consolidated Statements of Operations -
Three Months Ended March 31, 1998 and 1997
(Unaudited) 3
Consolidated Statement of Stockholders' Equity
for the Three Months Ended March 31, 1998
(Unaudited) 4
Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1998 and 1997 (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 10
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------------- -------------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CASH AND DUE FROM BANKS $ 2,126,995 $ 968,571
INTEREST-BEARING DEPOSITS 3,279,484 2,701,326
FEDERAL FUNDS SOLD 697,799 1,034,174
INVESTMENT SECURITIES
Securities held-to-maturity
(market value-March 31, 1998$4,863,715,
December 31, 1997 $5,939,928) 4,722,529 5,889,605
Securities available for sale,
at market value 1,636,918 1,858,886
------------------- -------------------
Total 6,359,447 7,748,491
LOANS RECEIVABLE-Net 95,721,657 92,966,627
FEDERAL HOME LOAN BANK STOCK 830,200 741,000
OFFICE PROPERTIES AND EQUIPMENT-Net 801,452 823,565
ACCRUED INTEREST RECEIVABLE 323,346 284,291
DEFERRED INCOME TAXES 408,987 412,360
REFUNDABLE INCOME TAXES - 125,460
PREPAID EXPENSES AND OTHER ASSETS 202,689 140,444
CASH SURRENDER VALUE OF LIFE INSURANCE 145,516 145,516
------------------- ------------------
TOTAL $ 110,897,572 $ 108,091,825
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
DEPOSITS:
Savings Accounts $ 9,585,170 $ 9,189,559
Money Market and NOW Accounts 4,929,449 4,704,414
Time, $100,000 and over 5,517,077 4,530,714
Other Time 47,724,750 48,548,135
------------------- ------------------
Total deposits 67,756,446 66,972,822
ADVANCES FROM FHLB 9,950,000 7,800,000
AMOUNTS PAYABLE UNDER REMITTANCE
SERVICE AGREEMENT 856,658 1,174,961
ADVANCE PAYMENTS BY BORROWERS FOR
TAXES AND INSURANCE 62,039 25,369
ACCRUED INTEREST PAYABLE 218,045 144,485
ACCRUED TAXES PAYABLE 108,743 -
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 883,618 898,618
------------------- ------------------
TOTAL LIABILITIES $ 79,835,549 $ 77,016,255
=================== ==================
</TABLE>
See notes to consolidated financial statements
1
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STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONT'D)
MARCH 31, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(Unaudited)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value
5,000,000 shares authorized, no shares
issued and outstanding
Common Stock, no par value,
20,000,000 authorized; March 31, 1998 -
1,898,052 issued and 1,880,752 outstanding;
December 31, 1997 - 1,898,052
issued and outstanding $ 20,610,883 $ 20,610,883
Unearned ESOP shares (1,859,376) (1,947,573)
Unamortized deferred compensation (1,517,896) (1,517,896)
Retained Earnings 14,174,625 13,927,634
Unrealized gain on securities
available-for-sale net of
applicable deferred taxes 7,180 2,522
------------ ------------
Total 31,415,416 31,075,570
Less cost of treasury stock (17,300 shares) (353,393) -
------------ ------------
Total stockholders' equity 31,062,023 31,075,570
------------ ------------
TOTAL $110,897,572 $108,091,825
============ ============
See notes to consolidated financial statements
2
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STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
INTEREST INCOME:
Interest and fees on loans $ 1,984,593 $ 1,754,882
Interest on investments:
U.S. Treasury and
Government Agency 49,230 70,231
Mortgage backed securities 41,948 51,464
Municipal Securities 19,161 12,640
Other interest 94,801 221,147
----------- -----------
Total interest income 2,189,733 2,110,364
----------- -----------
COST OF FUNDS:
Interest on time deposits 740,243 743,196
Interest on interest bearing
demand deposits 18,485 17,761
Interest on savings deposits 70,277 65,347
Interest on FHLB advances 122,411 -
----------- -----------
Total interest expense 951,416 826,304
----------- -----------
NET INTEREST INCOME 1,238,317 1,284,060
PROVISION FOR LOAN LOSSES 30,000 15,000
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,208,317 1,269,060
----------- -----------
OTHER OPERATING INCOME:
Loan fees and charges 12,389 12,109
Other fees and commissions 17,171 18,889
Other - net 4,299 3,187
----------- -----------
Total other income 33,859 34,185
----------- -----------
OTHER OPERATING EXPENSES:
Compensation and related benefits 339,279 286,160
Insurance 12,943 20,088
Occupancy and equipment 69,609 81,586
Other 70,909 62,654
----------- -----------
Total 492,740 450,488
----------- -----------
INCOME BEFORE INCOME TAXES 749,436 852,757
INCOME TAXES 286,158 326,766
----------- -----------
NET INCOME $ 463,278 $ 525,991
=========== ===========
NET INCOME PER SHARE - BASIC $ .25 $ .29
=========== ===========
NET INCOME PER SHARE - DILUTED $ .25 $ .29
=========== ===========
See notes to consolidated financial statements
3
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unearned Unamortized Unrealized Total
Shares Common Treasury ESOP Deferred Retained Holding Stockholders'
Outstanding Shares Stock Shares Compensation Earnings Gain/Losses Equity
----------- ----------- --------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1,898,052 $20,610,883 $(1,947,573) $(1,517,896) $13,927,634 $ 2,522 $ 31,075,570
Net income 463,278 463,278
Cash dividends (216,287) (216,287)
Release of ESOP shares 88,197 88,197
Treasury Stock purchased (17,300) $(353,393) (353,393)
Unrealized gain on securities
available -for-sale net of
applicable deferred taxes
of $3,373 4,658 4,658
----------- ----------- --------- ----------- ----------- ----------- ---------- ------------
Balance at March 31, 1998 1,880,752 $20,610,883 $(353,393) $(1,859,376) $(1,517,896) $14,174,625 $ 7,180 $ 31,062,023
=========== =========== ========= =========== =========== =========== ========== ============
</TABLE>
See notes to financial statements.
4
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
--------------- ---------------
(Unaudited) (Unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 463,278 $ 525,991
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 22,113 21,485
Provision for loan loss 30,000 15,000
Decrease (increase) in accrued interest
receivable (39,055) (14,311)
Decrease (increase) in other assets (62,245) (12,816)
Decrease (increase) in refundable income taxes 125,460 77,102
Increase (decrease) in accounts payable under
remittance service agreement (318,303) (180,971)
Increase (decrease) in accrued interest
payable 73,560 9,188
Increase (decrease) in accounts payable and
accrued liabilities (15,000) (110,618)
Increase (decrease) in cash dividends payable (401,511)
Increase (decrease) in accrued income taxes 108,743 192,153
(Increase) decrease in deferred income taxes 3,373 (961)
----------- -----------
Net cash provided by operating
activities 391,924 119,731
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (2,785,030) (2,101,468)
Proceeds from maturities of held to maturity
securities 1,082,534 58,109
Proceeds from maturities of
available-for-sale securities 221,968 715,997
----------- -----------
Net cash provided by (used in) investing
activities (1,480,528) (1,327,362)
----------- -----------
See notes to consolidated financial statements
5
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CON'T)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits 783,624 (287,492)
Increase (decrease) in advance payments
by borrowers for taxes and insurance 36,670 25,141
Increase (decrease) in Federal Home Loan
Bank Advances 2,150,000 -
Purchase of Treasury Stock at cost (353,393) -
Decrease in note receivable - ESOP 88,197 120,103
Payment of cash dividends (216,287) (205,320)
---------- -----------
Net cash provided by financing activities 2,488,811 (347,568)
---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,400,207 (1,555,199)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 4,704,071 9,804,531
---------- -----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $6,104,278 $ 8,249,332
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the periods for:
Interest $ 755,445 $ 817,116
========== ===========
Income taxes $ 229,075 $ 441,817
========== ===========
See notes to consolidated 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 March 31, 1998 and December 31,
1997, the results of operations for the three months ended March 31, 1998 and
1997 and the consolidated cash flows for the three months ended March 31,
1998 and 1997.
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., its wholly-owned subsidiary, Mocksville Savings Bank,
Inc., SSB and Stone Street Financial Services, Inc., a subsidiary of the
Bank.
3. The results of operations for the three month period ended March 31, 1998,
are not necessarily indicative of the results expected for the full year.
4. Results of operations for the three month periods ended March 31, 1997 and
1998 includes operations for both Mocksville Savings Bank, Inc. SSB and the
Holding Company, Stone Street Bancorp, Inc. The weighted average shares
outstanding for the quarter ended March 31, 1998 and 1997 were 1,889,185 and
1,825,050, respectively and was used in calculating earnings per share for
the three month periods.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-----------------------------------------------------------------------
FINANCIAL CONDITION
For the three months ended March 31, 1998, total assets increased
$2,805,747 or 2.60%. Cash balances and interest bearing deposits
increased $1,736,582 or 47.32% while federal funds decreased by
$336,375 compared to December, 1997. Investment securities decreased
$1,389,044 or 17.93%. Net loans increased to $95,721,657 an increase of
$2,755,030 or 2.96% over the December 1997 balance of $92,966,627.
Deposits increased $783,624 during the first quarter of 1998. Advances
from the Federal Home Loan Bank of Atlanta totaled $9,950,000 at March
31, 1998, an increase of $2,150,000 or 27.56% over the December, 1997
level. These increased borrowings were used to fund the $2,755,030 of
loan originations during the first quarter of 1998. Stockholders'
equity decreased $13,547 from December, 1997 which is comprised of an
increase due to net income of $463,278 during the first quarter reduced
by cash dividends declared and paid of $216,287 during the first
quarter and an increase of $88,197 due to the release of ESOP shares
and a reduction in equity of $353,393 due to the Bank acquiring
treasury stock during this period.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 and 1997
Net income for the three months ended March 31, 1998 was $463,278
compared to $525,991 for the comparable period in 1997. Total interest
income increased $79,369 or 3.76% while total interest expense
increased $125,112 or 15.14% due to the increased FHLB borrowings
during the first quarter of 1998. Net interest income decreased $45,743
or 3.56% and was further reduced by an increase of 15,000 in the loan
loss provision. Other operating income remained constant at $33,859 in
1998 compared to $34,185 in 1997 for the three month periods. Other
operating expenses increased from $450,488 in 1997 to $492,740 in 1998,
an increase of $42,252 or 9.38%. Income tax expense decreased $40,608
due to the reduction in net income during the three month period in
1998 compared to 1997.
8
<PAGE>
PART II - OTHER INFORMATION
Item 6b. Reports on Form 8-K
There were no Form 8-K's filed during the First Quarter of 1998
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: 5/13/98 By: /s/ J. Charles Dunn
------------------------ -------------------------------------
J. Charles Dunn
President and Chief Executive Officer
Date: 5/13/98 By: /s/ Marjorie D. Foster
------------------------ -------------------------------------
Marjorie D. Foster
Controller
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,126,995
<INT-BEARING-DEPOSITS> 3,279,484
<FED-FUNDS-SOLD> 697,799
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,636,918
<INVESTMENTS-CARRYING> 4,722,529
<INVESTMENTS-MARKET> 4,863,715
<LOANS> 95,721,657
<ALLOWANCE> 600,417
<TOTAL-ASSETS> 110,897,572
<DEPOSITS> 67,756,446
<SHORT-TERM> 9,950,000
<LIABILITIES-OTHER> 2,129,103
<LONG-TERM> 0
0
0
<COMMON> 20,610,883
<OTHER-SE> 10,451,140
<TOTAL-LIABILITIES-AND-EQUITY> 110,897,572
<INTEREST-LOAN> 1,984,593
<INTEREST-INVEST> 110,339
<INTEREST-OTHER> 94,801
<INTEREST-TOTAL> 2,189,733
<INTEREST-DEPOSIT> 829,005
<INTEREST-EXPENSE> 951,416
<INTEREST-INCOME-NET> 1,238,317
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 492,740
<INCOME-PRETAX> 749,436
<INCOME-PRE-EXTRAORDINARY> 749,436
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 463,278
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<YIELD-ACTUAL> 4.68
<LOANS-NON> 0
<LOANS-PAST> 312,828
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 570,417
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 600,417
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 600,417
</TABLE>
