<PAGE>
U.S. 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 December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Exchange Act
For the transition period from ______ to ______
Commission File Number: 0-22219
NEWSOUTH BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 56-1999749
--------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1311 CAROLINA AVENUE, WASHINGTON, NORTH CAROLINA 27889
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(Address of Principal Executive Offices)
(919) 946-4178
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Registrant's Telephone Number, Including Area Code
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 No X
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As of March 24, 1997, the issuer had one share of Common Stock issued and
outstanding.
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CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
December 31, 1996 (unaudited) and September 30, 1996............. 1
Consolidated Statement of Operations for the Three Months Ended
December 31, 1996 and 1995 (unaudited)............................ 2
Consolidated Statement of Cash Flows for the Three Months Ended
December 31, 1996 and 1995 (unaudited)............................ 3
Notes to Consolidated Financial Statements......................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 7
Item 2. Changes in Securities.............................................. 7
Item 3. Defaults Upon Senior Securities.................................... 7
Item 4. Submission of Matters to a Vote of Security Holders................ 7
Item 5. Other Information.................................................. 8
Item 6. Exhibits and Reports on Form 8-K................................... 8
SIGNATURES.................................................................. 9
</TABLE>
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NEWSOUTH BANCORP, INC.
CONSOLIDATED STATEMENT OF CONDITION
(Unaudited)
<TABLE>
<CAPTION>
December 31 September 30
1996 1996
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<S> <C> <C>
ASSETS
Cash and due from banks $ 2,618,731 $ 2,811,326
Interest-bearing deposits in banks 3,273,393 5,765,251
Investment securities:
Available for sale 5,118,220 8,106,581
Mortgage backed securities:
Available for sale 18,669,133 14,797,424
Loans receivable, net:
Held for sale 24,735,581 21,627,590
Held for investment 137,033,553 134,053,705
Premises and equipment, net 2,882,503 2,900,421
Income taxes refundable 247,010 385,373
Deferred income taxes 150,000 223,983
Real estate owned 672,193 178,509
Federal Home Loan Bank stock, at cost 1,287,500 1,287,500
Accrued interest receivable 1,461,928 1,382,569
Prepaid expenses and other assets 906,171 618,921
-------------- --------------
Total assets $ 199,055,916 $ 194,139,153
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Demand $ 32,427,671 $ 27,334,469
Savings 7,270,547 7,019,797
Time 136,611,950 136,859,020
-------------- --------------
Total deposits 176,310,168 171,213,286
Borrowed money 705,414 1,039,608
Accrued interest payable 75,275 67,939
Income taxes payable 390,858 -
Deferred income taxes
Advance payments by borrowers for property 399,853 383,517
taxes and insurance 2,231,597 3,088,232
-------------- --------------
Other liabilities 180,113,165 175,792,582
Stockholders' equity:
Preferred stock, $.01 par value, authorized
1 ,000,000 shares; none issued - -
Common stock, $.01 par value, authorized
8,000,000 shares; 1 issued and outstanding - -
Retained income, substantially restricted 18,942,751 18,346,571
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Total stockholders' equity 18,942,751 18,346,571
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 199,055,916 $ 194,139,153
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
1
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NEWSOUTH BANCORP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31
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1996 1995
------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $3,572,633 $3,341,989
Interest and dividends in investments and deposits 510,280 472,026
----------- -----------
Total interest income 4,082,913 3,814,015
Interest expense:
Interest on deposits 2,071,778 2,029,022
Interest on borrowings 15,207 39,911
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Total interest expense 2,086,985 2,068,933
Net interest income before provision for possible
losses 1,995,928 1,745,082
Provision for possible loan losses 106,578 88,000
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Net interest income 1,889,350 1,657,082
Other income:
Loan fees and service charges 157,414 122,555
Loan servicing fees 161,578 156,009
Gain on sale of real estate, net - 14,171
Gain on sale of mortgage loans and mortgage-
backed securities 8,140 194,078
Other income 43,077 30,862
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Total other income 370,209 517,675
General and administrative expenses:
Compensation and fringe benefits 927,738 817,403
Federal insurance premiums - 88,416
Premises and equipment 95,204 113,688
Advertising 25,149 26,793
Payroll and other taxes 70,661 67,704
Other 349,314 301,451
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Total general and administrative expenses 1,468,066 1,415,455
Income before income taxes and cumulative effect of
change in method of accounting for income taxes 791,493 759,302
Income taxes 310,300 255,280
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NET INCOME $ 481,193 $ 504,022
=========== ===========
Primary earnings per share n/a n/a
Dividends declared per share n/a n/a
Average number of common shares outstanding 1 n/a
</TABLE>
See Notes to Consolidated Financial Statements.
2
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NEWSOUTH BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31
--------------------------------
1996 1995
--------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 481,193 $ 504,022
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 106,578 88,000
Depreciation 36,168 63,141
Accretion of discounts on securities 6,608 92
Provision for deferred income taxes 464,842 -
Gain on disposal of premises and equipment and real
estate acquired in settlement of loans - (16,952)
Gain on sale of mortgage loans and mortgage-backed
securities (8,139) (29,284)
Loan originations, net of principal repayments, of
loans held for sale (12,414,310) (15,945,788)
Proceeds from principal repayments and sales of
mortgage-backed securities available-for-sale 4,610,074 3,863,088
Proceeds from sale of loans 1,003,554 16,401,377
Changes in assets and liabilities:
Accrued interest receivable (79,359) (127,172)
Income taxes refundable 138,363 -
Prepaid expenses and other assets (287,250) 14,090
Accrued interest payable 7,336 (3,644)
Income taxes payable - 228,800
Other (914,439) (325,936)
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Net cash provided by (used in) operating
activities (6,848,781) 4,713,834
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INVESTING ACTIVITIES:
Proceeds from maturities and sale of securities
available-for-sale 5,000,000 -
Proceeds from disposal of premises and equipment and
real estate acquired in settlement of loans - 85,507
Purchases of investment securities (2,000,000) (1,000,000)
Redemption (purchases) of Federal Home Loan Bank Stock - -
Purchases of premises and equipment (18,250) (319,925)
Loan originations, net of principal repayments of
loans held for investment (3,580,110) (1,329,503)
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Net cash used in investing (598,360) (2,563,921)
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FINANCING ACTIVITIES:
Net increase in deposit accounts 5,096,882 957,730
Proceeds from borrowings 8,120,228 7,218,057
Repayments of borrowings (8,454,422) (9,004,636)
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Net cash provided by financing activities 4,762,688 (828,849)
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Increase (decrease) in cash and cash equivalents (2,684,453) 1,321,064
Cash and cash equivalents, beginning of period 8,576,577 1,785,686
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Cash and cash equivalents, ending of period $ 5,892,124 $ 3,106,750
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
3
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NEWSOUTH BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 1. NATURE OF BUSINESS
NewSouth Bancorp, Inc. (the "Company") was incorporated under the laws of the
State of Delaware for the purpose of becoming the holding company for Home
Savings Bank, SSB (the "Bank") in connection with the Bank's conversion from a
North Carolina chartered mutual savings bank to a North Carolina chartered stock
savings bank (the "Converted Bank") pursuant to its Plan of Conversion (the
"Stock Conversion"). Upon completion of the Stock Conversion, the Bank intends
to convert from a North Carolina chartered stock savings bank to a North
Carolina commercial bank (the "Bank Conversion") to be known as NewSouth Bank
(the "Commercial Bank") and the Commercial Bank will succeed to all of the
assets and liabilities of the Converted Bank. A subscription offering of the
Company's common stock commenced on February 24, 1997 and the expiration date
for submitting stock order forms is March 24, 1997 at 12:00 noon, eastern time.
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements (except for the
statement of financial condition at September 30, 1996, which is audited) have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (none of
which were other than normal recurring accruals) necessary for a fair
presentation of the financial position and results of operations for the periods
presented have been included. The financial statements of the Company are
presented on a consolidated basis with those of the Bank, although the Company
did not own any shares of the Bank and had no assets, liabilities, equity or
operations at any date prior to December 31, 1996. Therefore, although certain
financial statements presented in this Form 10-Q include periods prior to
December 31, 1996, such statements include only the accounts and operations of
the Bank. The results of operations for the three month period ended December
31, 1996 are not necessarily indicative of the results of operations that may be
expected for the year ended September 30, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Prospectus of the Company, dated February 11, 1997.
4
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NEWSOUTH BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 3. PLAN OF CONVERSION
On September 19, 1996, the Board of Directors of the Bank adopted a Plan of
Conversion (the "Plan"), which provides for both the Stock Conversion and the
Bank Conversion. Pursuant to the Stock Conversion, the Bank will convert from a
North Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank, and the Converted Bank will operate as a wholly owned subsidiary
of a newly organized holding company formed by the Bank. Upon consummation of
the Stock Conversion, the Converted Bank will issue all of its outstanding
capital stock to the Company in exchange for a portion of the net proceeds from
the sale of the Common Stock in the Stock Conversion. Thereafter, pursuant to
the Bank Conversion, the Converted Bank will convert to a North Carolina
commercial bank.
The Conversion is subject to certain conditions, including the prior approval of
the Plan at a special meeting of members to be held on March 24, 1997 (the
"Special Meeting").
The portion of the net proceeds from the sale of Common Stock in the Stock
Conversion to be distributed to the Converted Bank by the Company will
substantially increase the Converted Bank's and the Commercial Bank's capital
position, which will in turn increase the amount of funds available for lending
and investment and provide greater resources to support the Bank's operations.
The holding company structure will provide greater flexibility than the Bank
alone would have for diversification of business activities and expansion.
Management believes that this increased capital will enable the Converted Bank
and the Commercial Bank to compete more effectively with other types of
financial services organizations. In addition, the Conversion will enhance the
future access of the Company and the Converted Bank and the Commercial Bank to
the capital markets and will afford depositors and others the opportunity to
become stockholders of the Company and thereby participate in any future growth
of the Converted Bank and the Commercial Bank.
NOTE 4. EARNINGS PER SHARE
Earnings per share for the three month periods ended December 31, 1996 have not
been presented in the consolidated statements of income because the Bank had not
converted to stock form and the Company had not completed its stock offering at
any time during these periods.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND SEPTEMBER 30, 1996
The Bank's total assets increased by $5.0 million, or 2.5%, to $199.1
million at December 31, 1996 from $194.1 million at September 30, 1996. Asset
growth during the period was funded by an increase of $5.1 million in deposits,
as deposits increased to $176.3 million at December 31, 1996 from $171.2 million
at September 30, 1996.
Cash, investment and mortgage-backed securities decreased by $1.8 million
to $29.7 million at December 31, 1996 from $31.5 million at September 30, 1996.
This decrease was used to fund the growth in total loans receivable, in
conjunction with the above referenced deposit growth, and to fund daily
operations in the ordinary course of business. Loans receivable increased by
$6.1 million, or 3.9%, to $161.8 million at December 31, 1996 from $155.7
million at September 30, 1996. Retained earnings increased by $596,000, or 3.2%
, to $18.9 million at December 31, 1996 from $18.3 million at September 30,
1996, as a result of the $481,000 net income for the period and a $115,000
increase in net unrealized gains on securities available for sale.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND
1995
Net income for the three months ended December 31, 1996 was $481,000,
compared to $504,000 for the three months ended December 31, 1995, representing
a decrease of $23,000, or 4.6%. The decrease in net income for the three months
ended December 31, 1996 is partially attributable to a $19,000 increase in the
provision for loan losses, which provision totalled $107,000 in the 1996 period
compared to $88,000 in the 1995 period. Net interest income before provision
for loan losses increased by $251,000 during the three months ended December 31,
1996 to $2.0 million from $1.7 million for the three months ended December 31,
1995.
Noninterest income decreased by $147,000 to $370,000 for the three months
ended December 31, 1996 from $517,000 for the three months ended December 31,
1995. Gains from the sales of mortgage loans and mortgage-backed securities
declined to $8,000 for the 1996 period from $194,000 for the 1995 period.
Noninterest expense increased by $53,000, or 3.7%, for the three months
ended December 31, 1996 as compared to the three months ended December 31, 1995.
While compensation and employee benefits increased by $110,000, or 11.8%, for
the 1996 period as compared to the 1995 period, Federal deposit insurance
premiums declined by $88,000 in 1996 compared to 1995. Subject to the Deposit
Insurance Funds Act of 1996 (DIFA), the Bank received a full refund of its
Federal deposit insurance premium assessment for the three months ended December
31, 1996. The Bank's deposit insurance premium rate was 23 cents per $100 of
deposits for the 1995 period. Under the recently enacted legislation, both BIF
and SAIF members will be assessed an amount for the Financing Corporation Bond
payments. BIF members will be assessed approximately 1.3 basis points while the
SAIF rate will be approximately 6.4 basis points until January 1, 2000. At that
time, BIF and SAIF members will begin pro rata sharing of the payment at an
expected rate of 2.43 basis points. This revised deposit insurance rate
structure will enable the Bank to recognize a substantial reduction in deposit
insurance premiums going forward. Other noninterest expenses, including
premises and equipment, advertising, and office supplies, remained relatively
constant from period to period.
6
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LIQUIDITY AND CAPITAL RESOURCES
The Bank's liquidity and capital resources at December 31, 1996 remained
relatively unchanged from September 30, 1996. The Bank anticipates that it will
have sufficient funds available to meet its current commitments. The following
table sets forth the Bank's capital position relative to the various minimum
Administrator, Savings Institutions Division, North Carolina Department of
Commerce and FDIC capital regulatory requirements to which it is currently
subject.
<TABLE>
<CAPTION>
December 31, 1996
----------------------
Percent of
Amount Assets(1)
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(Dollars in thousands)
<S> <C> <C>
Tier 1/leverage capital........................ $18,943 9.64%
Tier 1/leverage capital requirement............ 7,864 4.00
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Excess....................................... $11,079 5.64%
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Tier 1 risk-based capital...................... $18,943 13.82%
Tier 1 risk-based capital requirement.......... 5,481 4.00
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Excess....................................... $13,462 9.82%
======= =====
Total risk-based capital....................... $20,665 15.08%
Total risk-based capital requirement........... 10,963 8.00
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Excess....................................... $ 9,702 7.08%
======= =====
North Carolina regulatory capital.............. $20,665 10.38%
North Carolina regulatory capital requirement.. 9,953 5.00
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Excess....................................... $10,712 5.38%
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</TABLE>
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(1) The ratio of leverage capital is based on quarterly average assets for the
quarter ended December 31, 1996. Tier 1 risk-based capital and total risk-
based capital is based on risk-weighted assets at December 31, 1996. The
North Carolina regulatory capital requirement is based on total assets at
December 31, 1996.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
7
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1996.
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEWSOUTH BANCORP, INC.
Date: March 25, 1997 /s/ Thomas A. Vann
--------------------------
Thomas A. Vann
President
(Principal Executive Officer)
Date: March 25, 1997 /s/ William L. Wall
-------------------------
William L. Wall
Executive Vice President
(Principal Financial Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,618,731
<INT-BEARING-DEPOSITS> 3,273,393
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,787,353
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 164,215,069
<ALLOWANCE> 2,445,935
<TOTAL-ASSETS> 199,055,916
<DEPOSITS> 176,310,168
<SHORT-TERM> 705,414
<LIABILITIES-OTHER> 3,097,583
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 18,942,751
<TOTAL-LIABILITIES-AND-EQUITY> 18,942,751
<INTEREST-LOAN> 3,572,633
<INTEREST-INVEST> 510,280
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,082,913
<INTEREST-DEPOSIT> 2,071,778
<INTEREST-EXPENSE> 2,086,985
<INTEREST-INCOME-NET> 1,995,298
<LOAN-LOSSES> 106,578
<SECURITIES-GAINS> 8,140
<EXPENSE-OTHER> 1,468,066
<INCOME-PRETAX> 791,493
<INCOME-PRE-EXTRAORDINARY> 791,493
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 481,193
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.25
<LOANS-NON> 806,778
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 15,250
<ALLOWANCE-OPEN> 2,351,309
<CHARGE-OFFS> 12,578
<RECOVERIES> 626
<ALLOWANCE-CLOSE> 2,445,935
<ALLOWANCE-DOMESTIC> 2,445,935
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
