<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 March 31, 1997
[ ] 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
------------------------------------------------------
(Address of Principal Executive Offices)
(919) 946-4178
--------------------------------------------------
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 requirement for the past 90 days.
Yes XX No
----- -----
As of April 30, 1997, the issuer had 2,909,500 shares of Common Stock
issued and outstanding.
<PAGE>
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 1997 (unaudited) and September 30, 1996.................. 1
Consolidated Statements of Operations for the Three and Six Months
Ended March 31, 1997 and 1996 (unaudited).......................... 2
Consolidated Statements of Cash Flows for the Six Months Ended
March 31, 1997 and 1996 (unaudited)................................ 3
Notes to Consolidated Financial Statements......................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 5
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings.................................................. 7
Item 2. Changes in Securities.............................................. 7
Item 3. Defaults Upon Senior Securities.................................... 8
Item 4. Submission of Matters to a Vote of Security Holders................ 8
Item 5. Other Information.................................................. 8
Item 6. Exhibits and Reports on Form 8-K................................... 8
SIGNATURES.................................................................. 9
<PAGE>
NEWSOUTH BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
<TABLE>
<CAPTION>
March 31 September 30
1997 1996
------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,332,175 $ 2,811,326
Interest-bearing deposits in banks 38,014,912 5,765,251
Investment securities:
Available for sale 5,045,625 8,106,581
Mortgage backed securities:
Available for sale 17,945,562 14,797,424
Loans receivable, net:
Held for sale 29,628,854 21,627,590
Held for investment 152,794,233 134,053,705
Premises and equipment, net 2,845,906 2,900,421
Income taxes refundable 233,324 385,373
Deferred income taxes 261,700 223,983
Real estate owned 935,680 178,509
Federal Home Loan Bank stock, at cost 1,287,500 1,287,500
Accrued interest receivable 1,531,826 1,382,569
Prepaid expenses and other assets 1,005,404 618,921
------------- -------------
Total assets $ 254,862,701 $ 194,139,153
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Demand $ 39,062,488 $ 27,334,469
Savings 62,466,831 7,019,797
Time 130,251,919 136,859,020
------------- -------------
Total deposits 231,781,238 171,213,286
Borrowed money 1,222,724 1,039,608
Accrued interest payable 129,218 67,939
Advance payments by borrowers for property
taxes and insurance 193,157 383,517
Other liabilities 2,381,562 3,088,232
------------- -------------
235,707,899 175,792,582
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 19,154,802 18,346,571
------------- -------------
Total stockholders' equity 19,154,802 18,346,571
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 254,862,701 $ 194,139,153
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
NEWSOUTH BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
------------------------------- --------------------------
1997 1996 1997 1996
------------------------------- --------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 3,844,526 $ 3,313,583 $ 7,417,160 $ 6,655,572
Interest and dividends in investments and deposits 511,278 468,970 1,021,558 940,995
------------- ------------- ----------- -----------
Total interest income 4,355,804 3,782,553 8,438,718 7,596,567
Interest expense:
Interest on deposits 2,050,120 1,935,390 4,121,898 3,964,412
Interest on borrowings 73,787 73,178 88,995 113,089
------------- ------------- ----------- -----------
Total interest expense 2,123,907 2,008,568 4,210,893 4,077,501
Net interest income before provision for possible
losses 2,231,897 1,773,984 4,227,826 3,519,066
Provision for possible loan losses 100,000 180,000 206,578 268,000
------------- ------------- ----------- -----------
Net interest income 2,131,897 1,593,984 4,021,248 3,251,066
Other income:
Loan fees and service charges 168,917 141,113 326,331 263,669
Loan servicing fees 150,174 154,761 311,752 310,770
Gain on sale of real estate, net 2,091 - 2,091 14,170
Gain on sale of mortgage loans and mortgage-
backed securities - 128,656 8,140 322,735
Other income 45,368 65,053 88,444 95,914
------------- ------------- ----------- -----------
Total other income 366,550 489,583 736,758 1,007,258
General and administrative expenses:
Compensation and fringe benefits 973,633 979,548 1,901,371 1,796,951
Federal insurance premiums 27,707 88,513 27,707 176,929
Premises and equipment 105,871 127,780 201,074 241,468
Advertising 67,305 16,472 92,454 43,265
Payroll and other taxes 82,566 70,098 153,227 137,803
Other 607,228 314,456 956,542 615,907
------------- ------------- ----------- -----------
Total general and administrative expenses 1,864,310 1,596,867 3,332,375 3,012,323
Income before income taxes and cumulative effect of
change in method of accounting for income taxes 634,137 486,700 1,425,631 1,246,001
Income taxes 248,600 314,600 558,900 569,880
------------- ------------- ----------- -----------
NET INCOME $ 385,537 $ 172,100 $ 866,731 $ 676,121
============= ============= =========== ===========
Primary earnings per share n/a n/a n/a n/a
Dividends declared per share n/a n/a n/a n/a
Average number of common shares outstanding 1 n/a 1 n/a
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
NEWSOUTH BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31
------------------------------
1997 1996
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 866,731 $ 676,121
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 206,578 268,000
Depreciation 72,765 126,196
Accretion of discounts on securities 13,217 (36,736)
Provision for deferred income taxes (37,717) (49,752)
Gain on disposal of premises and equipment and real estate
acquired in settlement of loans (2,091) (14,829)
Gain on sale of mortgage loans and mortgage-backed securities 6,763 29,289
Loan originations, net of principal repayments, of loans held for sale (20,421,852) (39,870,146)
Proceeds from sale of loans 4,102,921 37,365,136
Changes in assets and liabilities:
Accrued interest receivable (149,257) 7,598
Income taxes refundable 152,049 (880)
Prepaid expenses and other assets (386,483) (114,805)
Accrued interest payable 61,279 (5,949)
Income taxes payable - (75,720)
Other (859,313) (47,624)
------------ ------------
Net cash provided by (used in) operating activities (16,374,410) (1,744,101)
------------ ------------
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 104,840 84,726
Proceeds from principal repayments and sales of mortgage-backed
securities available-for-sale 5,114,288 7,283,241
Purchases of investment securities (2,000,000) (3,000,000)
Purchases of premises and equipment (18,250) (319,925)
Loan originations, net of principal repayments of loans held
for investment (19,807,026) (599,379)
------------ ------------
Net cash used in investing (11,606,148) 3,448,663
------------ ------------
FINANCING ACTIVITIES:
Net increase in deposit accounts 60,567,952 90,434
Proceeds from borrowings 30,652,568 25,339,317
Repayments of borrowings (30,469,452) (23,535,336)
------------ ------------
Net cash provided by financing activities 60,751,068 1,894,415
------------ ------------
Increase (decrease) in cash and cash equivalents 32,770,510 3,598,977
Cash and cash equivalents, beginning of period 8,576,577 1,785,686
------------ ------------
Cash and cash equivalents, ending of period $ 41,347,087 $ 5,384,663
============ ============
Supplemental disclosures:
Exchange of loans for mortgage-backed securities $ 8,310,216 $ 1,545,859
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
NEWSOUTH BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
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
converted from a North Carolina chartered stock savings bank to a North Carolina
commercial bank (the "Bank Conversion"), known as NewSouth Bank (the "Commercial
Bank") and the Commercial Bank succeeded to all of the assets and liabilities of
the Converted Bank. The Stock Conversion and the Bank Conversion were
consummated on April 7, 1997. The Company issued 2,909,500 shares of its common
stock, par value $.01 per share, for $15.00 per share, raising net proceeds of
approximately $42.5 million. NewSouth Bank, opened for business the first day
under that name on April 8, 1997. The common stock of the Company began trading
on the Nasdaq National Market System under the symbol "NSBC" on April 8, 1997.
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 March 31, 1997. Therefore, although certain
financial statements presented in this Form 10-Q include periods prior to March
31, 1997, such statements include only the accounts and operations of the Bank.
The results of operations for the three and six month periods ended March 31,
1997 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.
NOTE 3. EARNINGS PER SHARE
Earnings per share for the three and six month periods ended March 31, 1997 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.
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1997 AND SEPTEMBER 30, 1996
The Bank's total assets increased by $60.7 million, to $254.9 million at
March 31, 1997 from $194.1 million at September 30, 1996. Asset growth during
the period was supported by an increase of $60.6 million in deposits, as
deposits increased to $231.8 million at March 31, 1997 from $171.2 million at
September 30, 1996. The subscription offering of the Company's common stock
commenced on February 24, 1997 and concluded on March 24, 1997. During this
period, stock subscriptions paid by check, cash or money order totaling $52.6
million were received by the Bank were being held in separate savings accounts
until the stock conversion was completed.
Cash, investments and mortgage-backed securities increased by $32.9
million to $64.3 million at March 31, 1997 from $31.4 million at September 30,
1996. Loans receivable increased by $26.7 million to $182.4 million at March
31, 1997 from $155.7 million at September 30, 1996. The increases in cash,
investments and loans receivable, in conjunction with the above referenced
deposit growth, were supported by funds received from stock conversion
subscriptions. Retained earnings increased by $808,000, or 4.4%, to $19.2
million at March 31, 1997 from $18.3 million at September 30, 1996, as a result
of the $867,000 net income for the period, less a $59,000 decline in net
unrealized gains on securities available for sale.
COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED MARCH 31,
1997 AND 1996
Net income for the three and six months ended March 31, 1997 was $386,000
and $867,000, compared to net income of $172,000 and $676,000 for the three and
six months ended March 31, 1996. Net interest income before provision for
possible loan losses increased by $458,000 and $709,000 for the three and six
months ended March 31, 1997 to $2.2 million and $4.2 million, respectively, from
$1.8 million and $3.5 million for the comparative 1996 periods. The increase in
net interest income resulted from an increase in the net interest spread (the
difference between the average yield on interest-earning assets and the average
cost of interest-bearing liabilities) to 3.83% for the six months ended March
31, 1997 from 3.69% for the six months ended March 31, 1996.
Noninterest income decreased by $123,000 and $271,000 for the three and
six months ended March 31, 1997 as compared to the respective 1996 periods.
Gains from sales of mortgage loans and mortgage-backed securities declined to
none for the three months and $8,000 for the six months ended March 31, 1997
from $129,000 and $323,000 for the comparative 1996 periods. Due to a rising
trend in mortgage interest rates combined with the proceeds received from the
stock conversion, the Bank curtailed the sale of loans during the six months
ended March 31, 1997. Proceeds from loan sales declined to $4.1 million for the
six months ended March 31, 1997 from $37.4 million for the comparative 1996
period. In addition, loans held-for-sale increased to $29.6 million at March
31, 1997 from $21.6 million at September 30, 1996.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Noninterest expense increased to $1.9 million and $3.3 million for the
three and six months ended March 31, 1997 from $1.6 million and $3.0 million for
the comparative 1996 periods. Compensation and fringe benefits decreased by
$6,000 for the three months and increased by $104,000 for the six months ended
March 31, 1997 as compared to the respective 1996 periods. Federal deposit
insurance premiums declined by $61,000 and $149,000 for the three and six months
ended March 31, 1997 as compared to 1996. Pursuant to the Deposit Insurance
Funds Act of 1996, the Bank's deposit insurance premium rate declined to 6.4
cents per $100 of deposits for the 1997 periods from 23 cents per $100 of
deposits for 1996. This revised deposit insurance rate structure has provided a
significant reduction in deposit insurance premiums. Advertising expense
increased by $51,000 and $49,000 for the three and six months ended March 31,
1997, compared to the 1996 periods, as marketing and promotional materials
relating to the name change to NewSouth Bank were procured.
Other expenses were adjusted pursuant to Statement of Financial Accounting
Standards No. 65, Accounting for Certain Mortgage Banking Activities, as the
Bank recorded a valuation allowance of $210,000 on mortgage loans held for sale
during the three and six months ended March 31, 1997, compared to no required
allowance for the respective 1996 periods.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Bank's liquidity and capital resources at March 31, 1997 continue to
remain in excess of all regulatory requirements. 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 regulatory capital requirements to which it is currently
subject.
<TABLE>
<CAPTION>
March 31, 1997
----------------------
Percent of
Amount Assets(1)
-------- -----------
(Dollars in thousands)
<S> <C> <C>
Tier 1/leverage capital ............................................. $19,155 8.53%
Tier 1/leverage capital requirement ................................. 8,980 4.00
------- -----
Excess ............................................................. $10,175 4.53%
======= =====
Tier 1 risk-based capital ........................................... $19,155 11.86%
Tier 1 risk-based capital requirement ............................... 6,462 4.00
------- -----
Excess ............................................................. $12,693 7.86%
======= =====
Total risk-based capital ............................................ $21,174 13.10%
Total risk-based capital requirement ................................ 12,932 8.00
------- -----
Excess ............................................................. $ 8,242 5.10%
======= =====
North Carolina regulatory capital ................................... $21,174 8.31%
North Carolina regulatory capital requirement ....................... 12,743 5.00
------- -----
Excess ............................................................. $ 8,431 3.31%
======= =====
</TABLE>
(1) The ratio of leverage capital is based on quarterly average assets for the
quarter ended March 31, 1997.
Tier 1 risk-based capital and total risk-based capital is based on risk-
weighted assets at March 31, 1997.
The North Carolina regulatory capital requirement is based on total assets
at March 31, 1997.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
7
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS OF A VOTE OF SECURITY-HOLDERS
None.
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 March 31,
1997
8
<PAGE>
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: May 12, 1997 /s/ Thomas A. Vann
---------------------------------------
Thomas A. Vann
President
(Principal Executive Officer)
Date: May 12, 1997 /s/ William L. Wall
---------------------------------------
William L. Wall
Executive Vice President
Chief Operating Officer
(Principal Financial Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,332,175
<INT-BEARING-DEPOSITS> 38,014,912
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,991,187
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 184,954,930
<ALLOWANCE> 2,531,843
<TOTAL-ASSETS> 254,862,701
<DEPOSITS> 231,781,238
<SHORT-TERM> 1,222,724
<LIABILITIES-OTHER> 2,703,937
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 19,154,802
<TOTAL-LIABILITIES-AND-EQUITY> 254,862,701
<INTEREST-LOAN> 7,417,160
<INTEREST-INVEST> 1,021,558
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,438,718
<INTEREST-DEPOSIT> 4,121,898
<INTEREST-EXPENSE> 88,995
<INTEREST-INCOME-NET> 4,210,893
<LOAN-LOSSES> 206,578
<SECURITIES-GAINS> 8,140
<EXPENSE-OTHER> 3,332,375
<INCOME-PRETAX> 1,425,631
<INCOME-PRE-EXTRAORDINARY> 1,425,631
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 866,731
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.09
<LOANS-NON> 446,465
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 20,262
<ALLOWANCE-OPEN> 2,351,309
<CHARGE-OFFS> 27,854
<RECOVERIES> 1,810
<ALLOWANCE-CLOSE> 2,531,843
<ALLOWANCE-DOMESTIC> 2,531,843
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
