<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996
[_] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended
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Commission File Number 000-21701
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CAROLINA FINCORP, INC.
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(Exact name of small business issuer as specified in its charter)
NORTH CAROLINA 56-1978449
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
115 SOUTH LAWRENCE STREET, ROCKINGHAM, NC 28380
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(Address of principal executive office)
(910) 997-6245
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 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
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As of December 16, 1996, 1,851,500 shares of the issuer's common stock, no par
value, were outstanding. The registrant has no other classes of securities
outstanding.
This report contains 11 pages.
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Page No.
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Part 1. FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
September 30, 1996 and June 30, 1996.............. 3
Consolidated Statements of Operations
Three Months Ended September 30, 1996 and 1995.... 4
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1996 and 1995.... 5
Notes to Consolidated Financial Statements........ 6
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......... 10
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<PAGE>
Part 1. FINANCIAL INFORMATION
Item 1 - Financial Statements
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Richmond Savings Bank, SSB and Subsidiary (See Note B)
Consolidated Statements of Financial Condition
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<TABLE>
<CAPTION>
September 30,
1996 June 30,
ASSETS (Unaudited) 1996 *
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(In Thousands)
<S> <C> <C>
Cash on hand and in banks $ 951 $ 1,207
Interest-bearing balances in other banks 3,602 4,685
Investment securities available for sale, at fair value 8,940 8,387
Investment securities held to maturity, at amortized cost 8,298 7,975
Loans receivable, net 69,968 68,358
Accrued interest receivable 651 577
Premises and equipment, net 1,569 1,356
Real estate acquired in settlement of loans - 29
Stock in the Federal Home Loan Bank, at cost 735 735
Other assets 877 801
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TOTAL ASSETS $95,591 $94,110
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LIABILITIES AND RETAINED EARNINGS
Deposit accounts $85,039 $83,715
Accrued interest payable 194 211
Advance payments by borrowers for property taxes
and insurance 365 469
Accrued expenses and other liabilities 1,508 1,074
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TOTAL LIABILITIES 87,106 85,469
Retained earnings, substantially restricted 8,485 8,641
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TOTAL LIABILITIES AND
RETAINED EARNINGS $95,591 $94,110
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</TABLE>
* Derived from audited financial statements
See accompanying notes.
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<PAGE>
Richmond Savings Bank, SSB and Subsidiary (See Note B)
Consolidated Statements of Operations (Unaudited)
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<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------
1996 1995
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(In Thousands)
<S> <C> <C>
INTEREST INCOME
Loans $1,394 $1,394
Investments and deposits in other banks 338 287
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TOTAL INTEREST INCOME 1,732 1,681
INTEREST EXPENSE ON DEPOSIT ACCOUNTS 998 987
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NET INTEREST INCOME 734 694
PROVISION FOR LOAN LOSSES 9 9
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 725 685
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OTHER INCOME
Transaction and other service fee income 99 91
Gain on sale of loans - 4
Other income 30 27
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TOTAL OTHER INCOME 129 122
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OTHER EXPENSES
Personnel costs 326 299
Occupancy 39 34
Equipment rental and maintenance 41 38
Marketing 12 10
Data processing and outside service fees 69 68
Federal and other insurance premiums 57 53
FDIC special assessment 519 -
Supplies, telephone and postage 30 24
Other 50 65
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TOTAL OTHER EXPENSES 1,143 591
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INCOME (LOSS) BEFORE
INCOME TAX EXPENSE (BENEFIT) (289) 216
INCOME TAX EXPENSE (BENEFIT) (95) 64
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NET INCOME (LOSS) $ (194) $ 152
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</TABLE>
See accompanying notes.
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<PAGE>
Richmond Savings Bank, SSB and Subsidiary (See Note B)
Consolidated Statements of Cash Flows (Unaudited)
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<TABLE>
<CAPTION>
Three Months Ended
September 30,
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1996 1995
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(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ (194) $ 153
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 33 31
Amortization, net 17 2
FHLB stock - (50)
Provision for loan losses 9 9
Deferred income taxes (105) 7
Deferred compensation 21 22
Change in assets and liabilities
Increase in accrued interest receivable (74) (18)
(Increase) decrease in other assets (26) 138
Decrease in accrued interest payable (17) (74)
Increase (decrease) in accrued expenses and other
liabilities 480 (4)
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 144 216
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of:
Available for sale investment securities (500) (500)
Held to maturity investment securities (528) -
Proceeds from maturities and calls of:
Held to maturity investment securities 195 62
Net increase in loans (1,608) (857)
Proceeds from sale of loans - 558
Purchase of property and equipment (234) -
Proceeds from sale of real estate acquired in
settlement of loans 28 -
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NET CASH USED BY
INVESTING ACTIVITIES (2,647) (737)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand accounts 327 (128)
Net increase in certificates of deposit 999 344
Decrease in advance payments by borrowers for taxes
and insurance (104) (147)
Stock conversion costs incurred (58) -
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,164 69
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NET DECREASE IN CASH
AND CASH EQUIVALENTS (1,339) (452)
CASH AND CASH EQUIVALENTS, BEGINNING 5,892 4,867
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CASH AND CASH
EQUIVALENTS, ENDING $ 4,553 $ 4,415
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</TABLE>
See accompanying notes.
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<PAGE>
Richmond Savings Bank, SSB and Subsidiary
Notes to Consolidated Financial Statements
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NOTE A - BASIS OF PRESENTATION
In management's opinion, the financial information, which is unaudited, reflects
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial information as of and for the three
month periods ended September 30, 1996 and 1995, in conformity with generally
accepted accounting principles. The financial statements include the accounts
of Richmond Savings Bank, SSB ("Richmond Savings" or the "Bank") and its wholly
owned subsidiary. Operating results for the three month period ended September
30, 1996 are not necessarily indicative of the results that may be expected for
the fiscal year ending June 30, 1997.
The organization and business of the Bank, accounting policies followed by the
Bank and other information are contained in the notes to the consolidated
financial statements filed as part of the Bank's registration statement on Form
S-1. This quarterly report should be read in conjunction with such registration
statement.
NOTE B - PLAN OF CONVERSION
On May 1, 1996, the Board of Directors of Richmond Savings Bank, SSB unanimously
adopted a Plan of Holding Company Conversion, which was subsequently amended and
restated on September 4, 1996 (the "Plan"), whereby Richmond Savings would
convert from a North Carolina-chartered mutual savings bank to a North Carolina-
chartered stock savings bank and would become a wholly-owned subsidiary of a
holding company (Carolina Fincorp, Inc.) formed in connection with the
conversion. Carolina Fincorp, Inc. would issue common stock to be sold in the
conversion and would use that portion of the net proceeds thereof, which it does
not retain, to purchase the capital stock of Richmond Savings. The Plan was
subject to approval by regulatory authorities and the members of Richmond
Savings at a special meeting. At September 30, 1996, regulatory approval had
not yet been received.
At the time of conversion, Richmond Savings will establish a liquidation account
in an amount equal to its net worth as reflected in its latest balance sheet
used in its final conversion prospectus. The liquidation account will be
maintained for the benefit of eligible deposit account holders who continue to
maintain their deposit accounts in Richmond Savings after conversion. Only in
the event of a complete liquidation will each eligible deposit account holder be
entitled to receive a liquidation distribution from the liquidation account in
the amount of the then current adjusted subaccount balance for deposit accounts
then held before any liquidation distribution may be made with respect to common
stock. Dividends paid subsequent to the conversion cannot be paid from this
liquidation account.
Richmond Savings may not declare or pay a cash dividend on or repurchase any of
its common stock if its net worth would thereby be reduced below either the
aggregate amount then required for the liquidation account or the minimum
regulatory capital requirements imposed by federal and state regulations.
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Richmond Savings Bank, SSB and Subsidiary
Notes to Consolidated Financial Statements
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NOTE B - PLAN OF CONVERSION (Continued)
Conversion costs of approximately $120,000 and $62,000 had been incurred and are
included in prepaid expenses and other assets as of September 30, 1996 and June
30, 1996, respectively. If the conversion is ultimately successful, conversion
costs will be accounted for as a reduction of the stock proceeds. If the
conversion is unsuccessful, conversion costs will be charged to Richmond
Savings' operations.
On November 22, 1996, Richmond Savings completed its conversion from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank. The conversion occurred through the sale of 1,851,500 shares of
common stock (no par value) of Carolina Fincorp, Inc., a newly formed holding
company. Total proceeds of $18,515,000 were reduced by conversion expenses of
$915,284. Carolina Fincorp, Inc. paid $7,750,000 to Richmond Savings in
exchange for the common stock of Richmond Savings issued in the conversion, and
retained the balance of the net conversion proceeds. The transaction was
recorded as an "as-if" pooling with assets and liabilities recorded at
historical cost.
NOTE C - FDIC SPECIAL ASSESSMENT
On September 30, 1996, a comprehensive continuing appropriations bill which
provided for a one-time assessment to recapitalize the SAIF was signed into law
by the President. This special assessment, which was imposed on all SAIF-
insured institutions, amounted to $519,000 for Richmond Savings and was charged
against earnings during the quarter ended September 30, 1996. Net of an income
tax benefit of $176,000, this special assessment decreased earnings by $343,000
during the quarter.
NOTE D - DEFINED CONTRIBUTION RETIREMENT PLAN
In conjunction with the mutual to stock conversion, Richmond Savings' defined
contribution target benefit retirement plan was terminated as of September 19,
1996. Funds were distributed in October 1996. There was no gain or loss upon
the termination of the defined contribution retirement plan.
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<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Comparison of Financial Condition at September 30, 1996 and June 30, 1996
Richmond Savings has experienced moderate asset growth as total assets have
increased from $94.1 million at June 30, 1996 to $95.6 million at September 30,
1996. Loan demand during the quarter has been relatively strong, as net loans
receivable have increased by $1.6 million from $68.4 million to $70.0 million.
The principal source of funding for the increased loans has been from customer
deposits, which increased from $83.7 million at June 30 to $85.0 million at
September 30.
Retained earnings totaled $8.5 million at September 30 as compared with $8.6
million at June 30. Richmond Savings continues to substantially exceed all
regulatory capital requirements.
Comparison of Results of Operations for the Three Months Ended September 30,
1996 and 1995
Net Income (Loss). Richmond Savings incurred a net loss of $194,000 during the
quarter ended September 30, 1996 as compared with net income of $152,000 during
the corresponding quarter of the prior year, a decrease of $346,000. The net
loss for the current quarter resulted from a special insurance assessment
imposed on all SAIF-insured institutions by the FDIC to recapitalize the SAIF
fund. Richmond Savings' assessment was $519,000. Net of an income tax benefit
of $176,000, this special assessment decreased earnings during the quarter by
$343,000. If Richmond Savings had not incurred this special assessment, its net
income during the quarter ended September 30, 1996 would have been $149,000.
Net Interest Income. Net interest income increased to $725,000 during the
quarter ended September 30, 1996 as compared with $685,000 during the first
quarter of the previous year. This increase resulted from a combination of an
increase in average interest-earning assets of $3.2 million, which increase
consisted principally of investment securities, and a reduction in interest paid
on customer deposits, which declined from a weighted average rate of 4.87%
during the quarter ended September 30, 1995 to a weighted average rate of 4.74%
during the quarter ended September 30, 1996, tracking the general levels of
interest rates during the respective quarters.
Provision for Loan Losses. The provision for loan losses was $9,000 for each of
the quarters ended September 30, 1996 and 1995. Richmond Savings' management
believes that the provision for loan losses and the resulting loan loss
allowance at September 30, 1996 will be adequate to absorb losses on existing
loans. There were $23,000 in loan charge-offs during the three months ended
September 30, 1996 as compared with no net charge-offs during the three months
ended September 30, 1995. Nonaccrual loans aggregated $66,000 at September 30,
1996.
Other Income. Other income increased to $129,000 from $122,000, principally as
a result of an increase in transaction and other service fee income.
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<PAGE>
General and Administrative Expenses. Exclusive of the FDIC special insurance
assessment explained under the caption "Net Income (Loss)," general and
administrative expenses remained relatively stable, increasing to $624,000
during the quarter ended September 30, 1996 as compared with $591,000 during the
quarter ended September 30, 1995. This increase generally tracked Richmond
Savings' growth in assets, representing, on an annualized basis, 2.63% and 2.68%
of average total assets during the respective quarters.
Liquidity and Capital Resources
The objective of Richmond Savings' liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses
Richmond Savings' ability to meet deposit withdrawals on demand or at
contractual maturity, to repay borrowings as they mature, and to fund new loans
and investments as opportunities arise.
Richmond Savings' primary sources of internally generated funds are principal
and interest payments on loans receivable, cash flows generated from operations,
and repayments of mortgage-backed securities. External sources of funds include
increases in deposits, advances from the FHLB of Atlanta, and sales of loans.
As a North Carolina-chartered savings bank, Richmond Savings must maintain
liquid assets equal to at least 10% of assets. The computation of liquidity
under North Carolina regulations allows the inclusion of mortgage-backed
securities and investments with readily marketable value, including investments
with maturities in excess of five years. Richmond Savings' liquidity ratio at
September 30, 1996, as computed under North Carolina regulations, was
approximately 23%. Management believes that it will have sufficient funds
available to meet its anticipated future loan commitments as well as other
liquidity needs.
As a North Carolina-chartered savings bank, Richmond Savings is subject to the
capital requirements of the Federal Deposit Insurance Corporation ("FDIC") and
the North Carolina Administrator of Savings Institutions ("N. C.
Administrator"). The FDIC requires state-chartered savings banks to have a
minimum leverage ratio of Tier I capital (principally consisting of common
shareholders' equity, noncumulative perpetual preferred stock, and a limited
amount of cumulative perpetual preferred stock, less certain intangible assets)
to total assets of at least 3%; provided, however, that all institutions, other
than those (i) receiving the highest rating during the examination process and
(ii) not anticipating or experiencing any significant growth, are required to
maintain a ratio of 1% or 2% above the state minimum. The FDIC also requires
Richmond Savings to have a ratio of total capital to risk-weighted assets of at
least 8%, of which at least 4% must be comprised of Tier I capital. The N. C.
Administrator requires a net worth equal to at least 5% of total assets. At
September 30, 1996, Richmond Savings exceeded the capital requirements of both
the FDIC and the N. C. Administrator.
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<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(27) Financial data schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter
ended September 30, 1996.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAROLINA FINCORP, INC.
Date: December 16, 1996 By: /s/ R. Larry Campbell
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R. Larry Campbell
Chief Executive Officer
Date: December 16, 1996 By: /s/ Winston G. Dwyer
--------------------
Winston G. Dwyer
Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 951
<INT-BEARING-DEPOSITS> 3,602
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,940
<INVESTMENTS-CARRYING> 8,298
<INVESTMENTS-MARKET> 8,214
<LOANS> 70,343
<ALLOWANCE> 375
<TOTAL-ASSETS> 95,591
<DEPOSITS> 85,039
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,067
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 8,485
<TOTAL-LIABILITIES-AND-EQUITY> 95,591
<INTEREST-LOAN> 1,394
<INTEREST-INVEST> 338
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,732
<INTEREST-DEPOSIT> 998
<INTEREST-EXPENSE> 998
<INTEREST-INCOME-NET> 734
<LOAN-LOSSES> 9
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,143
<INCOME-PRETAX> (289)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (194)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 66
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 234
<ALLOWANCE-OPEN> 389
<CHARGE-OFFS> 23
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 375
<ALLOWANCE-DOMESTIC> 292
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 83
</TABLE>
