<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, 1999
-------------------------------------------------
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
----------------------------------------------------------
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. 1,638,452 of common stock as
----------------------------
of October 1, 1999.
- -------------------
<PAGE>
STONE STREET BANCORP, INC.
INDEX
- --------------------------------------------------------------------------------
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial Statements:
Consolidated Statements of Financial Condition -
September 30, 1999 (Unaudited) and December 31, 1998 1-2
Consolidated Statements of Operations -
Three Months and Nine Months Ended September 30, 1999
and 1998 (Unaudited) 3
Consolidated Statement of Stockholders' Equity
for the Nine Months Ended September 30, 1999 (Unaudited) 4
Consolidated Statements of Cash Flows -Nine Months
Ended September 30, 1999 and 1998 (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
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- -------------
(Unaudited)
ASSETS
- ------
CASH AND DUE FROM BANKS $ 1,643,013 $ 2,404,062
INTEREST-BEARING DEPOSITS 3,380,496 4,405,831
FEDERAL FUNDS SOLD 529,619 877,977
INVESTMENT SECURITIES
Securities held-to-maturity
(market value-September 30, 1999 - $1,405,853;
December 31, 1998 - $2,491,031) 1,409,602 2,492,681
Securities available for sale,
at market value 8,672,505 10,357,716
------------ ------------
Total 10,082,107 12,850,397
LOANS RECEIVABLE-Net 108,299,722 102,549,417
FEDERAL HOME LOAN BANK STOCK 1,636,700 1,569,800
OFFICE PROPERTIES AND EQUIPMENT-Net 1,838,038 909,129
ACCRUED INTEREST RECEIVABLE 548,489 670,091
DEFERRED INCOME TAXES 663,366 627,341
REFUNDABLE INCOME TAXES 177,190 116,139
PREPAID EXPENSES AND OTHER ASSETS 153,666 102,027
CASH SURRENDER VALUE OF LIFE INSURANCE 239,887 190,580
------------ ------------
TOTAL $129,192,293 $127,272,791
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
DEPOSITS:
Savings Accounts $ 8,697,373 $ 8,696,463
Money Market and NOW Accounts 4,855,425 5,208,259
Time, $100,000 and over 7,131,312 8,273,195
Other Time 45,254,580 50,998,371
------------ ------------
Total deposits 65,938,690 73,176,288
ADVANCES FROM FHLB 32,700,000 23,966,667
AMOUNTS PAYABLE UNDER REMITTANCE
SERVICE AGREEMENT 358,645 358,310
ACCRUED INTEREST PAYABLE 331,779 296,057
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 1,062,166 986,925
------------ ------------
TOTAL LIABILITIES $100,391,280 $ 98,784,247
============ ============
See notes to consolidated financial statements
1
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONT'D)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- --------------
(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; September 30, 1999 -
1,638,452 issued and outstanding;
December 31, 1998 - 1,692,352
issued and outstanding $ 17,969,135 $ 18,432,340
Unearned ESOP shares (1,650,668) (1,859,376)
Unamortized deferred compensation (805,559) (1,244,734)
Retained Earnings 13,377,170 13,199,631
Accumulated other comprehensive income, net (89,065) (39,317)
------------ ------------
Total stockholders' equity 28,801,013 28,488,544
------------ ------------
TOTAL $129,192,293 $127,272,791
============ ============
See notes to consolidated financial statements
2
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $2,245,046 $2,121,418 $6,477,683 $6,155,660
Interest on investments:
U. S. Treasury and
Government Agency - 11,760 7,259 84,332
Mortgage backed securities 29,764 82,377 290,318 162,852
Municipal Securities 8,594 8,601 25,748 42,274
Other interest 125,016 136,172 394,594 357,573
---------- ---------- ---------- ----------
Total interest income 2,408,420 2,360,328 7,195,602 6,802,691
---------- ---------- ---------- ----------
COST OF FUNDS:
Interest on time deposits 685,849 771,116 2,223,069 2,261,889
Interest on interest
bearing demand deposits 12,911 18,007 36,814 55,836
Interest on savings
deposits 70,292 74,096 199,061 220,384
Interest on FHLB advances 419,467 258,059 1,085,437 509,253
---------- ---------- ---------- ----------
Total interest expense 1,188,519 1,121,278 3,544,381 3,047,362
---------- ---------- ---------- ----------
NET INTEREST INCOME 1,219,901 1,239,050 3,651,221 3,755,329
PROVISION FOR LOAN LOSSES 45,000 30,000 135,000 90,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,174,901 1,209,050 3,516,221 3,665,329
---------- ---------- ---------- ----------
OTHER OPERATING INCOME:
Loan fees and charges 17,787 12,971 45,844 39,572
Other fees and commissions 80,139 15,123 138,469 51,430
Other - net 870 3,439 10,900 10,036
---------- ---------- ---------- ----------
Total other income 98,796 31,533 195,213 101,038
---------- ---------- ---------- ----------
OTHER OPERATING EXPENSES:
Compensation and related
benefits 365,611 458,010 1,391,024 1,425,268
Insurance 10,657 6,195 32,166 33,055
Occupancy and equipment 65,106 50,853 222,310 189,585
Other 81,866 36,386 298,085 193,778
---------- ---------- ---------- ----------
Total 523,240 551,444 1,943,585 1,841,686
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 750,457 689,139 1,767,849 1,924,681
INCOME TAXES 292,604 262,847 681,029 734,414
---------- ---------- ---------- ----------
NET INCOME $ 457,853 $ 426,292 $1,086,820 $1,190,267
========== ========== ========== ==========
NET INCOME PER SHARE -
BASIC $ .28 $ .24 $ .66 $ .64
========== ========== ========== ==========
NET INCOME PER SHARE -
DILUTED $ .28 $ .24 $ .66 $ .64
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Unearned Unamortized Compre-
Shares Common ESOP Deferred Retained hensive
Outstanding Shares Shares Compensation Earnings Income
----------- ------------ ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 1,692,352 $18,432,340 $(1,859,376) $(1,244,734) $13,199,631
Net income 1,086,820 1,086,820
Purchase of Treasury Stock (53,900) (463,205) (331,724)
Release of ESOP Shares 208,708
Amortization of unearned
compensation 439,175
Cash dividends (577,557)
Change in unrealized
holding gains (losses)
net of income taxes of $36,025 (49,748)
----------
Total comprehensive income $1,037,072
==========
---------- ----------- ----------- ----------- -----------
Balance at September 30, 1999 1,638,452 $17,969,135 $(1,650,668) $ (805,559) $13,377,170
========== =========== =========== =========== ===========
<CAPTION>
Accumulated
Other Total
Comprehensive Stockholders'
Income Equity
-------------- -------------
<S> <C> <C>
Balance at December 31, 1998 $ (39,317) $28,488,544
Net income 1,086,820
Purchase of Treasury Stock (794,929)
Release of ESOP Shares 208,708
Amortization of unearned
compensation 439,175
Cash dividends (577,557)
Change in unrealized
holding gains (losses)
net of income taxes of $36,025 (49,748) (49,748)
Total comprehensive income
------------- ------------
Balance at September 30, 1999 $ (89,065) $28,801,013
============= =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- -------------------------------------------------------------------------------
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------- -------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 1,086,820 $ 1,190,267
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 77,076 66,897
Provision for loan loss 135,000 90,000
Deferred income tax (36,025) (22,478)
Compensation earned under the Management
Recognition Plan 439,175 273,162
Decrease (increase) in accrued interest
receivable 121,602 (258,877)
Decrease (increase) in other assets (100,946) (9,143)
Decrease (increase) in refundable income taxes (61,051) (140,503)
Increase (decrease) in accounts payable under
remittance service agreement 335 (853,948)
Increase (decrease) in accrued interest payable 35,722 104,394
Increase (decrease) in accounts payable and
accrued liabilities (20,484) 48,767
----------- ------------
Net cash provided by operating
activities 1,677,224 488,538
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (5,885,305) (8,117,327)
Proceeds from maturities of held-to-maturity 1,083,079
Proceeds from maturities of
available-for-sale securities 1,635,463 (8,702,054)
Purchase of held-to-maturity securities 3,160,614
Purchase of FHLB stock (66,900) (459,000)
Purchase of premises and equipment (1,005,985) (55,058)
----------- ------------
Net cash provided by (used in) investing
activities (4,239,648) $(14,172,825)
----------- ------------
See notes to consolidated financial statements
5
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CON'T)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------- -------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits $(7,237,598) $ 1,856,188
Increase (decrease) in advance payments
by borrowers for taxes and insurance 95,725 101,907
Increase (decrease) in Federal Home
Loan Bank Advances 8,733,333 17,166,667
Payment of ESOP note receivable, net 208,708 88,197
Purchase of Treasury Stock (794,929) (3,313,868)
Cash dividends paid (577,557) (627,195)
----------- -----------
Net cash provided by financing activities 427,682 15,271,896
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,134,742) 1,587,609
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 7,687,870 4,704,071
----------- -----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 5,553,128 $ 6,291,680
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the periods for:
Interest $ 3,520,616 $ 2,942,968
=========== ===========
Income taxes $ 742,080 $ 874,917
=========== ===========
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 September 30, 1999 and December
31, 1998, the results of operations for the three months and nine months
ended September 30, 1999 and 1998 and the consolidated cash flows for the
nine months ended September 30, 1999 and 1998.
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, Stone Street Bank and
Trust and Stone Street Financial Services, Inc., a subsidiary of the Bank.
3. The results of operations for the three and nine month periods ended
September 30, 1999, are not necessarily indicative of the results expected
for the full year.
4. Results of operations for the three and nine month periods ended September
30, 1999 and 1998 includes operations for both Stone Street Bank and Trust
and the Holding Company, Stone Street Bancorp, Inc. The weighted average
shares outstanding for the quarter ended September 30, 1999 and 1998 were
1,638,452 and 1,786,254, respectively and for the nine months ended September
30, 1999 and 1998 was 1,642,194 and 1,846,759, respectively and was used in
calculating earnings per share for the periods presented.
5. Effective at the end of the business day of October 1, 1999, Stone Street
Bancorp, Inc. was merged with CCB Financial Corporation under a purchase
agreement approved by the Company's shareholders and regulatory authorities.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
------------------------------------------------------------------------
FINANCIAL CONDITION
For the nine months ended September 30, 1999, total assets increased
$1,919,502 or 1.51%. Cash balances and interest bearing deposits
decreased $1,786,384 or 26.23% and federal funds also decreased by
$348,358 compared to December, 1998. Investment securities decreased
$2,768,290 or 21.54%. Amounts previously in cash and investments were
used to fund the net loan increase of $5,750,305. Office properties and
equipment increased by $928,909 over December 1998 as the Bank continued
construction for an additional office location in Mocksville, North
Carolina. Deposits decreased $7,237,598 during the nine month period in
1999. Advances from the Federal Home Loan Bank of Atlanta totaled
$32,700,000 at September 30, 1999, an increase of $8,733,333 or 36.44%
over the December, 1998 level. These increased borrowings were obtained
to assist with loan funding during the nine month period of 1999.
Stockholders' equity increased $312,469 over December, 1998 which is
comprised of an increase due to net income of $1,086,820 during the nine
months, a reduction due to cash dividends declared and paid of $577,557
during the period, an increase of $647,883 due to the release of ESOP
shares and amortization of MRP expense and a reduction in equity of
$794,929 due to the Bank acquiring treasury stock during this period.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 and 1998
Net income for the three months ended September 30, 1999 was $457,853
compared to $426,292 for the comparable period in 1998. Total interest
income increased $48,092 or 2.04% while total interest expense increased
$67,241 or 6.00% due to the increased FHLB borrowings during the year
ended December 31, 1998 and the first three quarters of 1999. Net
interest income decreased $19,149 or 1.55% and was further reduced by an
increase of $15,000 in the loan loss provision. Other operating income
increased to $98,796 in 1999 compared to $31,533 in 1998 for the three
month periods primarily due to an increase in other fees and
commissions. Other operating expenses decreased to $523,240 in 1999 from
$551,444 in 1998, a decrease of $28,204 or 5.11%. Income tax expense
increased $29,757 due to the increase in net income during the three
month period in 1999 compared to 1998.
Nine Months Ended September 30, 1999 and 1998
Net income for the nine months ended September 30, 1999 was $1,086,820
compared to $1,190,267 for the comparable period in 1998. Total interest
income increased $392,911 or 5.78% while total interest expense also
increased $497,019 or 16.31%, therefore resulting in a decrease of
$104,108 in net interest income. This provision for loan loss increased
$45,000 over the comparable nine month period in 1998, therefore further
reducing the net interest income after the loan loss provision. Other
operating income increased $94,175 of 93.21% over 1998 due to increased
fees and commissions while other operating expenses increased $101,899
or 5.53%, increasing from $1,841,686 in 1998 to $1,943,585 for the
comparable nine month period in 1999. These expenses increased due to
merger related costs and occupancy and equipment expenses. Income tax
expense decreased for the nine month period in 1999 from $734,414 in
1998 to $681,029 due to the decrease in net income.
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 1999
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: November 12, 1999 By: /s/ J.Charles Dunn
------------------------------- -------------------------------------
J. Charles Dunn
President and Chief Executive Officer
Date: November 12, 1999 By: /s/ Marjorie D. Foster
------------------------------- ------------------------------------
Marjorie D. Foster
Controller
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,643,013
<INT-BEARING-DEPOSITS> 3,380,496
<FED-FUNDS-SOLD> 529,619
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,672,505
<INVESTMENTS-CARRYING> 1,409,602
<INVESTMENTS-MARKET> 1,405,853
<LOANS> 108,299,722
<ALLOWANCE> 885,245
<TOTAL-ASSETS> 129,192,293
<DEPOSITS> 65,938,690
<SHORT-TERM> 12,800,000
<LIABILITIES-OTHER> 1,752,590
<LONG-TERM> 19,900,000
0
0
<COMMON> 17,969,135
<OTHER-SE> 10,831,878
<TOTAL-LIABILITIES-AND-EQUITY> 129,192,293
<INTEREST-LOAN> 6,477,683
<INTEREST-INVEST> 323,325
<INTEREST-OTHER> 394,594
<INTEREST-TOTAL> 7,195,602
<INTEREST-DEPOSIT> 2,458,944
<INTEREST-EXPENSE> 3,544,381
<INTEREST-INCOME-NET> 3,651,221
<LOAN-LOSSES> 135,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,943,585
<INCOME-PRETAX> 1,767,849
<INCOME-PRE-EXTRAORDINARY> 1,767,849
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,086,820
<EPS-BASIC> 0.66
<EPS-DILUTED> 0.66
<YIELD-ACTUAL> 3.96
<LOANS-NON> 0
<LOANS-PAST> 191,055
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 750,417
<CHARGE-OFFS> 172
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 885,245
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 885,245
</TABLE>
