<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 June 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 August 12, 1999.
- ------------------
<PAGE>
STONE STREET BANCORP, INC.
INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial Statements:
Consolidated Statements of Financial Condition -
June 30, 1999 (Unaudited) and December 31, 1998 1-2
Consolidated Statements of Operations -
Six Months Ended June 30, 1999 and 1998 (Unaudited) 3
Consolidated Statement of Stockholders' Equity
for the Six Months Ended June 30, 1999 (Unaudited) 4
Consolidated Statements of Cash Flows - Six Months
Ended June 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
</TABLE>
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CASH AND DUE FROM BANKS $ 2,267,885 $ 2,404,062
INTEREST-BEARING DEPOSITS 3,020,900 4,405,831
FEDERAL FUNDS SOLD 2,000,392 877,977
INVESTMENT SECURITIES
Securities held-to-maturity
(market value-June 30, 1999 - $1,508,442;
December 31, 1998 - $2,491,031) 1,506,291 2,492,681
Securities available for sale,
at market value 9,377,500 10,357,716
--------------- --------------
Total 10,883,791 12,850,397
LOANS RECEIVABLE-Net 105,505,198 102,549,417
FEDERAL HOME LOAN BANK STOCK 1,426,700 1,569,800
OFFICE PROPERTIES AND EQUIPMENT-Net 1,457,293 909,129
ACCRUED INTEREST RECEIVABLE 556,166 670,091
DEFERRED INCOME TAXES 644,515 627,341
REFUNDABLE INCOME TAXES 261,294 116,139
PREPAID EXPENSES AND OTHER ASSETS 166,728 102,027
CASH SURRENDER VALUE OF LIFE INSURANCE 238,408 190,580
--------------- --------------
TOTAL $ 128,429,270 $ 127,272,791
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
DEPOSITS:
Savings Accounts $ 9,390,680 $ 8,696,463
Money Market and NOW Accounts 5,153,286 5,208,259
Time, $100,000 and over 7,504,289 8,273,195
Other Time 47,493,281 50,998,371
--------------- --------------
Total deposits 69,541,536 73,176,288
ADVANCES FROM FHLB 28,533,333 23,966,667
AMOUNTS PAYABLE UNDER REMITTANCE
SERVICE AGREEMENT 780,255 358,310
ACCRUED INTEREST PAYABLE 277,981 296,057
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 1,001,422 986,925
--------------- --------------
TOTAL LIABILITIES $ 100,134,527 $ 98,784,247
=============== ==============
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONT'D)
JUNE 30, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
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; June 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 (1,746,634) (1,859,376)
Unamortized deferred compensation (976,559) (1,244,734)
Retained Earnings 13,111,836 13,199,631
Accumulated other comprehensive income, net (63,035) (39,317)
------------- -------------
Total stockholders' equity 28,294,743 28,488,544
------------- -------------
TOTAL $ 128,429,270 $ 127,272,791
------------- -------------
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
----------------- ------------------ ------------------ -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 2,090,069 $ 2,049,649 $ 4,232,637 $ 4,034,242
Interest on investments:
U. S. Treasury and
Government Agency - 23,342 7,259 72,572
Mortgage backed securities 114,381 38,527 260,554 80,475
Municipal Securities 8,556 14,512 17,154 33,673
Other interest 135,998 126,600 269,578 221,401
----------------- ------------------ ------------------ -----------------
Total interest income 2,349,004 2,252,630 4,787,182 4,442,363
----------------- ------------------ ------------------ -----------------
COST OF FUNDS:
Interest on time deposits 743,168 750,530 1,537,220 1,490,773
Interest on interest bearing
demand deposits 12,565 19,344 23,903 37,829
Interest on savings deposits 67,658 76,011 128,769 146,288
Interest on FHLB advances 340,098 128,783 665,970 251,194
----------------- ------------------ ------------------ -----------------
Total interest expense 1,163,489 974,668 2,355,862 1,926,084
----------------- ------------------ ------------------ -----------------
NET INTEREST INCOME 1,185,515 1,277,962 2,431,320 2,516,279
PROVISION FOR LOAN LOSSES 45,000 30,000 90,000 60,000
----------------- ------------------ ------------------ -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,140,515 1,247,962 2,341,320 2,456,279
----------------- ------------------ ------------------ -----------------
OTHER OPERATING INCOME:
Loan fees and charges 12,980 14,212 28,057 26,601
Other fees and commissions 31,453 19,136 58,330 36,307
Other - net 4,387 2,298 10,030 6,597
----------------- ------------------ ------------------ -----------------
Total other income 48,820 35,646 96,417 69,505
----------------- ------------------ ------------------ -----------------
OTHER OPERATING EXPENSES:
Compensation and related benefits 648,462 627,979 1,025,413 967,258
Insurance 10,834 13,917 21,509 26,860
Occupancy and equipment 77,777 69,123 157,204 138,732
Other 127,483 86,483 216,219 157,392
----------------- ------------------ ------------------ -----------------
Total 864,556 797,502 1,420,345 1,290,242
----------------- ------------------ ------------------ -----------------
INCOME BEFORE INCOME TAXES 324,779 486,106 1,017,392 1,235,542
INCOME TAXES 123,042 185,409 388,425 471,567
----------------- ------------------ ------------------ -----------------
NET INCOME $ 201,737 $ 300,697 $ 628,967 $ 763,975
================= ================== ================== =================
NET INCOME PER SHARE - BASIC $ .12 $ .16 $ .38 $ .41
================= ================== ================== =================
NET INCOME PER SHARE - DILUTED $ .12 $ .16 $ .38 $ .41
================= ================== ================== =================
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unearned Unamortized
Shares Common ESOP Deferred Retained
Outstanding Shares Shares Compensation Earnings
------------ ------------- ------------ ------------- -------------
<S> <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 628,967
Purchase of Treasury Stock (53,900) (463,205) (331,724)
Release of ESOP Shares 112,742
Amortization of unearned
compensation 268,175
Cash dividend (385,038)
Change in unrealized
holding gains (losses)
net of income taxes of $17,174
Total comprehensive income
----------- ------------- ------------ -------------- -------------
Balance at June 30, 1999 1,638,452 $ 17,969,135 $ (1,746,634) $ (976,559) $ 13,111,836
=========== ============= ============ ============== =============
<CAPTION>
Accumulated
Compre- Other Total
hensive Comprehensive Stockholders'
Income Income Equity
------------- -------------- ------------
<S> <C> <C> <C>
Balance at December 31, 1998 $ (39,317) $ 28,488,544
Net income 628,967 628,967
Purchase of Treasury Stock (794,929)
Release of ESOP Shares 112,742
Amortization of unearned
compensation 268,175
Cash dividend (385,038)
Change in unrealized
holding gains (losses)
net of income taxes of $17,174 (23,718) (23,718) (23,718)
-------------
Total comprehensive income $ 605,249
=============
-------------- -------------
Balance at June 30, 1999 $ (63,035) $ 28,294,743
============== =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 628,967 $ 763,975
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 51,306 43,344
Provision for loan loss 90,000 60,000
Deferred income tax (17,174) 3,633
Contributions allowing the release of
ESOP shares 112,742 88,197
Compensation earned under the Management
Recognition Plan 268,175 273,162
Decrease (increase) in accrued interest receivable 113,925 (41,834)
Decrease (increase) in other assets (112,529) (2,481)
Decrease (increase) in refundable income taxes (145,155) (148,709)
Increase (decrease) in accounts payable under
remittance service agreement 421,945 (769,212)
Increase (decrease) in accrued interest payable (18,076) 63,697
Increase (decrease) in accounts payable and
accrued liabilities (57,217) (61,805)
----------- -----------
Net cash provided by operating
activities 1,336,909 271,967
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (3,045,781) (5,234,513)
Proceeds from maturities of held-to-maturity 986,390 3,152,006
Proceeds from maturities of available-for-sale securities 956,498 1,086,548
Redemption (Purchase) of FHLB stock 143,100 (89,200)
Purchase of premises and equipment (599,470) (9,169)
----------- -----------
Net cash provided by (used in) investing
activities (1,559,263) $(1,094,328)
----------- -----------
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CON'T)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits $(3,634,752) $ 1,852,255
Increase (decrease) in advance payments
by borrowers for taxes and insurance 71,714 77,118
Increase (decrease) in Federal Home Loan Bank Advances, net 4,566,666 3,400,000
Purchase of Treasury Stock (794,929) (1,101,781)
Cash dividends paid (385,038) (429,607)
----------- -----------
Net cash provided by financing activities (176,339) 3,797,985
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (398,693) 2,975,624
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 7,687,870 4,704,071
----------- -----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 7,289,177 $ 7,679,695
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the periods for:
Interest $ 2,373,938 $ 1,862,387
=========== ===========
Income taxes $ 533,580 $ 620,276
=========== ===========
</TABLE>
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 June 30, 1999 and December 31,
1998, the results of operations for the six months ended June 30, 1999 and
1998 and the consolidated cash flows for the six months ended June 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 six month period ended June 30, 1999, are
not necessarily indicative of the results expected for the full year.
4. Results of operations for the six month periods ended June 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 June 30, 1999 and 1998 were 1,644,680 and 1,865,778,
respectively and for the six months ended June 30, 1999 and 1998 were
1,650,378 and 1,877,513 respectively and was used in calculating earnings per
share for the periods presented.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
------------------------------------------------------------------------
FINANCIAL CONDITION
For the six months ended June 30, 1999, total assets increased
$1,156,479 or .91%. Cash balances and interest bearing deposits
decreased $1,521,108 or 22.34% while federal funds increased by
$1,122,415 compared to December, 1998. Investment securities decreased
$1,966,606 or 15.30%. Net loans increased to $105,505,198, an increase
of $2,955,781 or 2.88% over the December 1998 balance of $102,549,417.
Deposits decreased $3,634,752 during the first six months period.
Advances from the Federal Home Loan Bank of Atlanta totaled $28,533,333
at June 30, 1999, an increase of $4,566,666 or 19.05% over the December,
1998 level. These increased borrowings were used to fund the $2,955,781
of loan originations during the first six months of 1999. Stockholders'
equity decreased $193,801 from December, 1998 which is comprised of an
increase due to net income of $628,967 during the first six months, a
reduction due to cash dividends declared and paid of $385,038 during the
first six months, an increase of $112,742 due to the release of ESOP
shares and a reduction in equity of $794,929 due to the Bank acquiring
treasury stock during this period.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 and 1998
Net income for the three months ended June 30, 1999 was $201,737
compared to $300,697 for the comparable period in 1998. Total interest
income increased $96,374 or 4.28% while total interest expense increased
$188,821 or 19.37% due to the increased FHLB borrowings during the year
ended December 31, 1998 and the first six months of 1999. Net interest
income decreased $92,447 or 7.23% and was further reduced by an increase
of $15,000 in the loan loss provision. Other operating income increased
to $48,820 in 1999 compared to $35,646 in 1998 for the three month
periods. Other operating expenses increased from $797,502 in 1998 to
$864,556 in 1999, an increase of $67,054 or 8.41%. Included in other
operating expense is the vesting of the MRP plan for the third year. The
compensation expense recognized due to this transaction totaled $268,175
in 1999 compared to $273,162 in 1998. Income tax expense decreased
$62,367 due to the reduction in net income during the three month period
in 1999 compared to 1998.
Six Months Ended June 30, 1999 and 1998
Net income for the six months ended June 30, 1999 was $628,967 compared
to $763,975 for the comparable period in 1998. Total interest income
increased $344,819 or 7.76% while total interest expense increased
$429,778 or 22.31% due to increased borrowings from the FHLB. Net
interest income decreased $84,959 or 3.38% and was further reduced by an
increase in the loan loss provision of $30,000 during the six month
period in 1999. Other operating income increased to $96,417 in 1999
compared to $69,505 in 1998 for the six month period. Other operating
expenses increased from $1,290,242 in 1998 to $1,420,345 in 1999, an
increase of $130,103 or 10.08% This increase primarily includes a
$58,155 increase in compensation expense, and $18,472 increase in
occupancy and equipment expense and a $58,827 increase in other
operating costs. Income tax expense decreased $83,142 due to the
reduction in net income during the six month period in 1999 compared to
1998.
8
<PAGE>
PART II - OTHER INFORMATION
Item 6b. Reports on Form 8-K
A Form 8-K was filed during the Second Quarter of 1999 which announced
on April 14, 1999 that Stone Street Bank & Trust has entered into a
definitive Agreement of Combination with CCB Financial Corporation.
The Agreement is contingent upon approval from the Corporation's
Shareholders and regulatory authorities.
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: August 12, 1999 By: /s/ J. Charles Dunn
----------------------- -------------------------------------
J. Charles Dunn
President and Chief Executive Officer
Date: August 12, 1999 By: /s/ Marjorie D. Foster
----------------------- ------------------------------------
Marjorie D. Foster
Controller
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,267,885
<INT-BEARING-DEPOSITS> 3,020,900
<FED-FUNDS-SOLD> 2,000,392
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,377,500
<INVESTMENTS-CARRYING> 1,506,291
<INVESTMENTS-MARKET> 1,508,442
<LOANS> 105,505,198
<ALLOWANCE> 840,245
<TOTAL-ASSETS> 128,429,270
<DEPOSITS> 69,541,536
<SHORT-TERM> 8,600,000
<LIABILITIES-OTHER> 2,059,658
<LONG-TERM> 19,933,333
0
0
<COMMON> 17,969,135
<OTHER-SE> 10,325,608
<TOTAL-LIABILITIES-AND-EQUITY> 128,429,270
<INTEREST-LOAN> 4,232,637
<INTEREST-INVEST> 284,967
<INTEREST-OTHER> 269,578
<INTEREST-TOTAL> 4,787,182
<INTEREST-DEPOSIT> 1,537,220
<INTEREST-EXPENSE> 2,355,862
<INTEREST-INCOME-NET> 2,431,320
<LOAN-LOSSES> 90,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,420,345
<INCOME-PRETAX> 1,017,392
<INCOME-PRE-EXTRAORDINARY> 1,017,392
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 628,967
<EPS-BASIC> .38
<EPS-DILUTED> .38
<YIELD-ACTUAL> 3.97
<LOANS-NON> 0
<LOANS-PAST> 201,158
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 750,417
<CHARGE-OFFS> 172
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 840,245
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 840,245
</TABLE>
