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 December 31, 1997.
[ ] 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: 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)
(Zip Code)
(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 requirements for the past 90 days. Yes [X] No [ ]
Number of shares of common stock outstanding as of January 30, 1998: 2,909,500
<PAGE>
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
December 31, 1997 (unaudited) and September 30, 1997 1
Consolidated Statements of Operations for the Three
Months Ended December 31, 1997 and 1996 (unaudited) 2
Consolidated Statements of Stockholders' Equity for
the Three Months Ended December 31, 1997 (unaudited) 3
Consolidated Statements of Cash Flows for the Three
Months Ended December 31, 1997 and 1996 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
NewSouth Bancorp, Inc.
Consolidated Statements of Financial Condition
(unaudited)
<TABLE>
<CAPTION>
December 31 September 30
Assets 1997 1997
---- ----
<S> <C> <C>
Cash and due from banks $ 4,183,847 $ 3,027,271
Interest-bearing deposits in financial institutions 646,263 12,744,980
Investment securities - available for sale 3,087,078 3,083,422
Mortgage-backed securities - available for sale 40,910,328 24,818,412
Loans receivable, net:
Held for sale 15,229,177 25,055,845
Held for investment 176,837,798 172,729,060
Premises and equipment, net 2,807,985 2,818,167
Deferred income taxes 656,199 821,863
Real estate owned 292,490 357,503
Federal Home Loan Bank stock, at cost 1,287,500 1,287,500
Accrued interest receivable 1,887,307 1,847,346
Prepaid expenses and other assets 1,045,949 689,828
------------- -------------
TOTAL ASSETS $ 248,871,921 $ 249,281,197
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Deposits
Demand $ 39,557,981 $ 37,500,216
Savings 6,366,953 6,455,357
Time 138,076,046 131,160,215
------------- -------------
Total deposits 184,000,980 175,115,788
Borrowed money 2,907,143 12,621,120
Accrued interest payable 68,778 91,915
Income taxes payable 716,197 457,498
Advance payments by borrowers for property taxes and
insurance 193,576 182,731
Other liabilities 3,577,552 2,956,558
------------- -------------
191,464,226 191,425,610
Stockholders' equity:
Preferred stock, $.01 par value, authorized
1,000,000 shares; none issued
Common stock, $.01 par value, authorized
8,000,000 shares; 2,909,500 issued and outstanding 29,095 29,095
Additonal paid in capital 42,654,054 42,654,054
Unearned ESOP shares, 207,932 shares (3,098,191) (3,118,984)
Unawarded MRP shares, at cost (3,275,299) (2,050,531)
Unrealized gain(loss) securities-AFS, net 557,263 300,318
Retained income, substantially restricted 20,540,773 20,041,635
------------- -------------
Total stockholders' equity 57,407,695 57,855,587
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 248,871,921 $ 249,281,197
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
NewSouth Bancorp, Inc.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31
-------------------------
1997 1996
-------------------------
Interest income:
<S> <C> <C>
Interest and fees on loans $4,440,002 $3,572,633
Interest and dividends in investments and deposits 799,581 510,280
---------- ----------
Total interest income 5,239,583 4,082,913
---------- ----------
Interest expense:
Interest on deposits 2,160,124 2,071,778
Interest on borrowings 43,562 15,207
---------- ----------
Total interest expense 2,203,686 2,086,985
---------- ----------
Net interest income before provision for possible
losses 3,035,897 1,995,928
Provision for possible loan losses 100,000 106,578
---------- ----------
Net interest income 2,935,897 1,889,350
---------- ----------
Other income:
Loan fees and service charges 232,854 157,414
Loan servicing fees 146,178 161,578
Gain on sale of real estate, net 39,940 --
Gain on sale of mortgage loans and mortgage-
backed securities 130,164 8,140
Other income 39,567 43,077
---------- ----------
Total other income 588,703 370,209
---------- ----------
General and administrative expenses:
Compensation and fringe benefits 1,720,609 927,738
Federal insurance premiums 26,695 --
Premises and equipment 80,260 95,204
Advertising 30,202 25,149
Payroll and other taxes 83,877 70,661
Other 352,399 349,314
---------- ----------
Total general and administrative expenses 2,294,042 1,468,066
---------- ----------
Income before income taxes 1,230,558 791,493
Income taxes 473,700 310,300
---------- ----------
Net income $ 756,858 $ 481,193
========== ==========
Diluted earnings per share $ 0.29 $ n/a
==========
Dividends per share $ 0.10 $ n/a
==========
Average number of common shares outstanding 2,595,565 n/a
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
NewSouth Bancorp, Inc.
Consolidated Statements of Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Unrealized
gain on
Retained Available
Additional Earnings Unearned Unawarded For Sale
Common Paid-in Substantially ESOP MRP Securities,
Stock Capital Restricted Shares Shares Net Total
--------- ----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1997 $ 29,095 $42,654,054 $20,041,635 $(3,118,984) $(2,050,531) $ 300,318 $57,855,587
Net income 756,858 756,858
Change in unrealized gains on
securities available-for-sale,
net of taxes 256,945 256,945
Acquisition of shares for MRP (1,224,768) (1,224,768)
Dividends ($.10 per share) (257,720) (257,720)
Release of ESOP shares 20,793 20,793
Balance December 31, 1997 $ 29,095 $42,654,054 $20,540,773 $(3,098,191) $(3,275,299) $ 557,263 $57,407,695
========= =========== =========== =========== =========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
NewSouth Bancorp, Inc.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31
------------------------------
1997 1996
------------------------------
Operating activities:
<S> <C> <C>
Net Income $ 756,858 $ 481,193
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for loan losses 100,000 106,578
Depreciation 39,207 36,168
ESOP compensation 20,793 --
Accretion of discounts on securities 93 6,608
Gain on disposal of premises and equipment and real estate
acquired in settlement of loans (40,840) --
Gain on sale of mortgage loans and mortgage-backed
securities (130,164) (8,139)
Originations of loans held for sale, net (13,550,873) (12,414,310)
Proceeds from sale of loans held for sale 5,544,111 1,003,554
Other operating activities 470,814 (670,507)
------------ ------------
Net cash used in operating activities (6,790,001) (11,458,855)
Investing activities:
Proceeds from maturities of securities available for sale -- 5,000,000
Purchases of investment securities -- (2,000,000)
Proceeds from principal repayments and sales of
mortgage-backed securities available for sale 2,291,043 4,610,074
Loan originations, net of principal repayments of loans
held for investment (4,268,577) (3,580,110)
Proceeds from disposal of premises and equipment and
real estate acquired in settlement of loans 165,692 --
Purchases of premises and equipment (29,025) (18,250)
------------ ------------
Net cash provided by (used in) investing activities (1,840,867) 4,011,714
Financing activities:
Net increase in deposit accounts 8,885,192 5,096,882
Proceeds from FHLB borrowings 4,500,000 6,000,000
Repayments of FHLB borrowings (14,500,000) (6,000,000)
MRP funding (1,224,768) --
Cash dividends paid (257,720) --
Net change in repurchase agreements 286,023 (334,194)
------------ ------------
Net cash provided by (used in) financing activities (2,311,273) 4,762,688
Increase (decrease) in cash and cash equivalents (10,942,141) (2,684,453)
Cash and cash equivalents, beginning of period 15,772,251 8,576,577
------------ ------------
Cash and cash equivalents, end of period $ 4,830,110 $ 5,892,124
============ ============
Supplemental disclosures:
Real estate acquired in settlement of loans $ 59,839 $ 493,684
Exchange of loans for mortgage-backed securities $ 17,958,559 $ 8,310,216
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
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 NewSouth
Bank (the "Bank") in connection with the Bank's conversion from a North Carolina
chartered mutual savings bank to a North Carolina chartered commercial bank on
April 7, 1997, pursuant to its Plan of Conversion. 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 on April 8, 1997
under the symbol "NSBC".
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements (except for the
Statement of Financial Condition at September 30, 1997, 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 April 7, 1997. Therefore, although certain
financial statements presented in this Form 10-Q include periods prior to April
7, 1997, such statements include only the accounts and operations of the Bank.
The results of operations for the three month period ended December 31, 1997 are
not necessarily indicative of the results of operations that may be expected for
the year ended September 30, 1998.
NOTE 3. EARNINGS PER SHARE
The Company's earnings per share for the three month period ended December 31,
1997 is based on 2,595,565 weighted average shares of common stock outstanding,
which excludes ESOP and MRP benefit plan shares not committed to be released or
granted. Earnings per share have been calculated in accordance with Statement of
Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans" and
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". The Company adopted SFAS No. 128 on October 1, 1997 and it has had no
effect on earnings per share, as the Company had no common stock equivalents or
convertible securities outstanding during the three month period ended December
31, 1997.
NOTE 4. DIVIDENDS DECLARED
On December 18, 1997, the Board of Directors declared a cash dividend of $0.10
per share to stockholders of record as of January 2, 1998 and payable on January
23, 1998.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Prior to April 7, 1997 the Company had no assets or liabilities and engaged in
no business activities. Subsequent to the stock conversion the Company has
engaged in no significant activity other than holding the stock of the Bank, and
operating through the Bank a commercial banking business. Therefore, the
discussion below focuses primarily on the Bank's results of operations.
The earnings of the Bank depend primarily on its level of net interest income.
Net interest income is the difference between interest earned on
interest-earning assets and the interest paid on interest-bearing liabilities.
Net interest income is also a function of the Bank's interest rate spread, which
is the difference between the yield received on average interest-earning assets
and the cost paid on average interest-bearing liabilities. The Bank's earnings
are also affected by its levels of noninterest income and noninterest expenses.
Earnings are also affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities, events beyond control of the Bank.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
Total consolidated assets were $248.9 million at December 31, 1997 compared to
$249.3 million at September 30, 1997. Total interest-earning assets declined by
$1.7 million to $238.0 million at December 31, 1997 from $239.7 million at
September 30, 1997.
Interest-bearing deposits in financial institutions declined to $646,000 at
December 31, 1997 from $12.7 million at September 30, 1997, as these deposits
were used to repay borrowed money. During the quarter ended December 31, 1997
the Bank implemented various investment strategies as a newly-converted
commercial bank in order to increase its regulatory liquidity levels. The Bank
securitized certain mortgage loans previously held for sale into mortgage-backed
securities, resulting in a mortgage-backed securities portfolio of $40.9 million
at December 31, 1997 compared to $25.1 million at September 30, 1997.
Consequently, loans held for sale declined to $15.2 million at December 31, 1997
from $25.1 million at September 30, 1997. The Bank continued to experience
favorable consumer and commercial loan demand as loans held for investment
increased to $176.8 million at December 31, 1997 from $172.7 million at
September 30, 1997. To support the risk associated with these types of loans,
the Bank increased its allowance for loan losses to $3.3 million, or 1.71% of
loans outstanding at December 31, 1997. Earning assets were 95.6% of total
assets at December 31, 1997 compared to 96.2% at September 30, 1997.
Total interest-bearing liabilities declined to $186.9 million at December 31,
1997 from $187.7 million at September 30, 1997. Total deposits increased by $8.9
million, or 5.1%, to $184.0 million at December 31, 1997 from $175.1 million at
September 30, 1997. Borrowed money declined to $2.9 million at December 31, 1997
from $12.6 million, reflecting the repayment discussed above.
Stockholders' equity was $57.4 million at December 31, 1997 compared to $57.9
million at September 30, 1997. See "Consolidated Statements of Stockholders'
Equity". At December 31, 1997, the Company's stockholders' equity to total
assets ratio was 23.1% compared to 23.2% at
6
<PAGE>
September 30, 1997. As a North Carolina chartered commercial bank, the Bank must
meet various capital standards required by federal and state banking regulatory
agencies. The Bank's stand-alone equity was $40.6 million at December 31, 1997,
which is substantially in excess of all such regulatory capital requirements.
See "Liquidity and Capital Resources" below.
During the three months ended December 31, 1997, the Management Recognition Plan
Trust ("MRP") established for the future benefit of directors and officers of
the Company and the Bank, purchased 38,680 shares of the Company's common stock
in the open market at an average cost of $31.66 per share, totaling
approximately $1.2 million. These shares are being held in trust for future
awards, subject to stockholder approval, and are reported as a reduction in
stockholders' equity. The MRP has purchased a total of 116,380 shares of the
Company's common stock in the open market, 4% of the issued and outstanding
shares.
On December 18, 1997 the board of directors of the Company declared a quarterly
cash dividend of $0.10 per share, payable January 23, 1998 to stockholders of
record of January 2, 1998. This dividend payment represents the Company's third
consecutive quarterly cash dividend.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND
1996
GENERAL. Net income for the three months ended December 31, 1997 was $757,000,
compared to $481,000 for the three months ended December 31, 1996, an increase
of 57.3%. Earnings per share have only been presented for the three months ended
December 31, 1997. Prior to the completion of its stock conversion on April 7,
1997, the Company had no assets and engaged in no business activities.
Accordingly, prior period comparative financial information relates to the Bank
only, as the Company had not completed its stock offering.
INTEREST INCOME. Interest income increased to $5.2 million for the three months
ended December 31, 1997 from $4.1 million for the three months ended December
31, 1996. This increase is attributable to the increase in the volume of
interest-earning assets, due primarily from the infusion of the proceeds
received from the stock conversion. Average interest-earning assets increased to
$238.6 million for the three months ended December 31, 1997 from $187.9 million
for the three months ended December 31, 1996. The yield on average
interest-earning assets was 8.8% for the three months ended December 31, 1997
compared to 8.7% for the three months ended December 31, 1996.
INTEREST EXPENSE. Interest expense on deposits and borrowings had a marginal
increase to $2.2 million for the three months ended December 31, 1997 from $2.1
million for the three months ended December 31, 1996, while average
interest-bearing liabilities increased to $187.3 million for the three months
ended December 31, 1997 from $174.6 million for the three months ended December
31, 1996. The effective cost of average interest-bearing liabilities had a
marginal decrease to 4.7% for the three months ended December 31, 1997 from 4.8%
for the three months ended December 31, 1996. As a result of the net proceeds
received from the stock conversion, the Bank has been able to manage the cost it
pays on deposits. In addition, the Bank has increased its checking account base
to $39.6 million at December 31, 1997 from $27.3 million at December 31, 1996,
reflecting its efforts of attracting lower costing core deposits.
7
<PAGE>
NET INTEREST INCOME. Net interest income increased to $3.0 million for the three
months ended December 31, 1997 from $2.0 million for the three months ended
December 31, 1996. This increase resulted from the combination of the increase
in the volume of interest-earning assets and the management of the cost of
interest-bearing liabilities. The Bank's interest rate spread (the difference
between the effective yield on average interest-earning assets and the effective
cost of average interest-bearing liabilities) increased to 4.1% for the three
months ended December 31, 1997 from 3.9% for the three months ended December 31,
1996. The Bank's net yield on interest-earning assets (net interest income
divided by average interest-earning assets) also increased, to 5.1% for the
three months ended December 31, 1997 from 4.3% for the three months ended
December 31, 1996.
PROVISION FOR LOAN LOSSES. During the three months ended December 31, 1997 the
Bank recorded provisions for loan losses of $100,000 compared to $107,000 for
the three months ended December 31, 1996. Provisions, which are charged to
operations, and the resulting loan loss allowances are amounts the Bank believes
will be adequate to absorb potential losses on existing loans that may become
uncollectible. Increases or decreases in the provision and resulting allowances
is based upon a review and classification of the Bank's loan portfolio and other
factors, such as past collection experience, changes in the nature and volume of
the loan portfolio, risk characteristics of individual loans or groups of
similar loans and underlying collateral, overall portfolio quality and current
and prospective economic conditions. The Bank believes the current level of loan
loss allowances discussed above is adequate to provide for possible future
losses, although there are no assurances that possible future losses, if any,
will not exceed estimated amounts.
NONINTEREST INCOME. Noninterest income increased to $589,000 for the three
months ended December 31, 1997 from $370,000 for the three months ended December
31, 1996. Noninterest income consists of fees and service charges earned on
loans, service charges on deposit accounts, gains from loan sales and other
miscellaneous income. During the three months ended December 31, 1997, the Bank
recorded gains from sales of loans of $130,000 compared to $8,000 for the three
months ended December 31, 1996, as the volume of loans sold during the 1997
period was $5.5 million compared to $1.0 million for the 1996 period.
NONINTEREST EXPENSE. Noninterest expenses totaled $2.3 million for the three
months ended December 31, 1997 compared to $1.5 million for the three months
ended December 31, 1996. The largest single component of these expenses,
compensation and fringe benefits, increased to $1.7 million for the three months
ended December 31, 1997 from $928,000 for the three months ended December 31,
1996. During the three months ended December 31, 1997, the Bank accrued
approximately $482,000 of estimated bonuses under a performance based bonus plan
and also recorded $208,000 in benefits expense for the Employee Stock Ownership
Plan ("ESOP"). As part of the stock conversion, the Company formed an ESOP that
acquired 232,760 shares of the Company's common stock (8% of the issued and
outstanding shares). The compensation expense associated with the ESOP is
reported in accordance with SOP 93-6, "Employers' Accounting for Employee Stock
Ownership Plans". Other noninterest expenses including premises and equipment,
advertising, and office supplies remained relatively constant from period to
period.
8
<PAGE>
INCOME TAXES. Income tax expense was $474,000 for the three months ended
December 31, 1997, compared to $310,000 for the three months ended December 31,
1996. The changes in the amounts of income tax provisions reflect the changes in
income before income taxes and are generally reflective of the effective income
tax rates in effect during the respective periods.
LIQUIDITY AND CAPITAL RESOURCES
As a state chartered commercial bank, NewSouth Bank must meet certain liquidity
requirements established by the State of North Carolina Office of the
Commissioner of Banks (the "Commissioner"). The Bank's liquidity ratio at
December 31, 1997, as calculated under such requirements, exceeded the
requirements. "Liquidity" generally refers to the Bank's ability to generate
adequate amounts of funds to meet its cash needs. Adequate liquidity guarantees
that sufficient funds are available to meet deposit withdrawals, fund future
loan commitments, maintain adequate reserve requirements, pay operating
expenses, provide funds for debt service, pay dividends to stockholders, and
meet other general commitments.
The Bank's primary source of funds are deposits, amortization and prepayment of
loans and mortgage-backed securities, maturities of investment securities,
earnings and funds provided from operations, the ability to borrow from the
Federal Home Loan Bank of Atlanta and the availability of loans held for sale.
While scheduled repayments of loans and mortgage-backed securities are
relatively predictable sources of funds, deposit flows and loan prepayments are
substantially influenced by general market interest rates, economic conditions
and competition. The Bank attempts to manage the pricing of its deposits in
order to maintain a desired deposit mix. At December 31, 1997, the Bank has
cash, deposits in banks, investment securities, mortgage-backed securities and
loans held for sale totaling $64.1 million, or 25.7% of total assets.
The FDIC requires the Bank to meet a minimum leverage capital requirement of
Tier I capital (consisting of retained earnings and common stockholders's
equity, less any intangible assets) to assets ratio of 4%. The FDIC also
requires the Bank to meet a ratio of total capital to risk-weighted assets of
8%, of which at least 4% must be in the form of Tier I capital. The Commissioner
requires the Bank at all times to maintain a capital surplus of not less than
50% of common capital stock. The Bank was in compliance with all capital
requirements of the FDIC and the Commissioner at December 31, 1997.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in relative purchasing power of money
over time and due to inflation. Unlike most industrial companies, nearly all
assets and liabilities of the Company are monetary. As a result, interest rates
have greater impact on the Company's performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services. The impact
of inflation upon the Company is reflected in the cost and prices it pays for
goods and services.
9
<PAGE>
YEAR 2000 COMPLIANCE
The year 2000 poses many challenges for the banking industry. Many automated
applications may cease to properly function as a result of how date fields have
historically been programmed. Many programs were designed and developed without
considering the impact of the upcoming change in the century. Failure to address
this issue in a timely manner may cause banking institutions to experience
operational problems and could cause disruption of financial markets. Many
experts believe that even the most prepared organizations may encounter some
implementation problems. As a result, NewSouth Bank has developed a Year 2000
Strategic Plan (the "Plan") to take the necessary steps to insure that problems
and disruptions are minuscule.
Most of the Bank's data processing systems are outsourced to service bureaus,
who are addressing Year 2000 program changes. The Bank's Plan includes
independent verification of Year 2000 compliance with its data processing
service bureau, vendors, suppliers, customers and others as may be identified.
The plan also includes analyzing, testing, and documenting that its service
bureau, inhouse computer systems, and equipment the Bank owns are Year 2000
compliant (including each PC, printer, modem, ATM, etc.). The Bank believes the
cost of addressing the Year 2000 issue will have no material impact on earnings
or would cause reported financial information not to be necessarily indicative
of future operating results or financial condition.
In a related matter, during the three months ended December 31, 1997, the Bank
entered into a services agreement with a new data processing vendor, Bisys, Inc.
Bisys is a leading national provider of integrated, growth-enabling outsourcing
solutions capable of providing customer responsive technology and improved
operating efficiencies. The Bank anticipates completing the conversion to the
new Bisys system during the June 1998 quarter.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not engaged in any legal proceedings at the present time. From
time to time, the Bank is a party to legal proceedings within the ordinary
course of business wherein it enforces its security interest in loans, and other
matters of similar nature.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit 27 - Financial Data Schedule
B. Reports on Form 8-K
Not applicable
11
<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: February 9, 1998 /s/ William L. Wall
-----------------------------
William L. Wall
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
Date: February 9, 1998 /s/ Kristie W. Hawkins
-----------------------------
Kristie W. Hawkins
Controller
Treasurer
(Principal Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,183,847
<INT-BEARING-DEPOSITS> 646,263
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,997,406
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 195,399,198
<ALLOWANCE> 3,332,223
<TOTAL-ASSETS> 248,871,921
<DEPOSITS> 184,000,980
<SHORT-TERM> 2,907,143
<LIABILITIES-OTHER> 4,556,103
<LONG-TERM> 0
29,095
0
<COMMON> 0
<OTHER-SE> 57,378,600
<TOTAL-LIABILITIES-AND-EQUITY> 248,871,921
<INTEREST-LOAN> 4,440,002
<INTEREST-INVEST> 799,581
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,239,583
<INTEREST-DEPOSIT> 2,160,124
<INTEREST-EXPENSE> 2,203,686
<INTEREST-INCOME-NET> 3,035,897
<LOAN-LOSSES> 100,000
<SECURITIES-GAINS> 5,539
<EXPENSE-OTHER> 2,294,042
<INCOME-PRETAX> 1,230,558
<INCOME-PRE-EXTRAORDINARY> 1,230,558
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 756,858
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
<YIELD-ACTUAL> 5.09
<LOANS-NON> 1,183,422
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 21,922
<ALLOWANCE-OPEN> 3,249,352
<CHARGE-OFFS> 18,537
<RECOVERIES> 1,408
<ALLOWANCE-CLOSE> 3,332,223
<ALLOWANCE-DOMESTIC> 3,332,223
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
