US SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 of the Securities Exchange Act of 1934
for the Quarterly Period Ended September 30, 1997
Commission File Number 0-22787
FOUR OAKS FINCORP, INC.
-----------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-2028446
-------------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
6144 U. S. 301 South
Four Oaks, N. C. 27524
----------------------
(Address of principal executive offices)
Registrant Telephone Number, including area code 919-963-2177
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: |X| Yes |_| No
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date:
Common Stock,
par value $1.00 per share 851,072
- ------------------------- -----------------------------
(Title of Class) (Number of shares outstanding
as of September 30, 1997)
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS - UNAUDITED
<TABLE>
<CAPTION>
(All amounts in thousands) September 30, December 31,
1997 1996
-------- -------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,897 5,047
Interest bearing bank balances 4,460 1,562
-------- -------
Total cash and cash equivalents 10,357 6,609
Investment securities (approximate market value of
$32,239 and $37,092 respectively) 32,239 37,092
Loans, net 135,142 108,036
Accrued interest receivable 2,597 2,052
Bank premises and equipment, net 5,131 4,450
Other real estate owned 147 147
Intangible assets 173 183
Prepaid expenses and other assets 797 544
-------- -------
Total assets $186,583 159,113
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - noninterest bearing $ 27,028 21,073
NOW accounts 13,850 14,707
Savings 16,834 15,727
Time $100,000 and over 35,731 27,339
Other time 70,112 63,997
-------- -------
Total deposits 163,555 142,843
Accrued interest payable 1,672 1,509
Other borrowed money 5,000 --
Other liabilities 411 398
-------- -------
Total liabilities 170,638 144,750
-------- -------
Shareholders' equity:
Capital stock:
Common stock, $1.00 par value, 5,000,000 shares authorized, 851,072 and
837,949 issued and outstanding at September 30, 1997
and December 31, 1996 respectively 851 838
Surplus 5,155 4,872
Retained earnings 9,910 8,604
Net unrealized gain (loss) on marketable equity securities 29 49
-------- -------
Total shareholders' equity 15,945 14,363
-------- -------
Total liabilities and shareholders' equity $186,583 159,113
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
<TABLE>
<CAPTION>
(In thousands except per share data)
For the three For the nine
months ended months ended
September 30, September 30,
1997 1996 1997 1996
--------------- ---------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $3,396 2,705 9,282 7,495
Interest on investment securities:
US Government and agencies 412 348 1,269 1,142
Municipalities 71 66 219 198
Other investment securities 24 16 71 47
Interest on overnight investments 6 24 23 67
------ ----- ------ -----
Total interest income 3,909 3,159 10,864 8,949
Interest expense:
Interest on deposits 1,743 1,397 4,888 4,077
Interest on borrowed money 120 53 259 109
------ ----- ------ -----
Total interest expense 1,863 1,450 5,147 4,186
------ ----- ------ -----
Net interest income 2,046 1,709 5,717 4,763
Provision for loan losses 126 101 388 302
------ ----- ------ ------
Net interest income after provision
for loan losses 1,920 1,608 5,329 4,461
------ ----- ------ -----
Other income:
Service charges 267 157 703 459
Credit life commissions 21 16 64 54
Other operating income 76 72 256 191
Securities gains (losses) 6 2 16 2
------ ----- ------ -----
Total noninterest income 370 247 1,039 706
------ ----- ------ -----
Other expenses:
Salaries 598 498 1,696 1,426
Employee benefits 109 76 311 247
Occupancy expenses 63 45 175 132
Equipment expenses 69 64 230 192
Other operating expenses 548 452 1,514 1,236
------ ----- ------ -----
Total noninterest expense 1,387 1,135 3,926 3,233
------ ----- ------ -----
Income before income taxes 903 720 2,442 1,934
Income taxes 291 229 777 591
------ ----- ------ -----
Net income $ 612 491 1,665 1,343
====== ===== ====== =====
Net income per share $ 0.72 0.59 1.98 1.62
====== ===== ====== =====
Cash dividend paid per share $ 0.14 0.13 0.42 0.38
====== ===== ====== =====
Weighted average shares outstanding 845 834 842 831
====== ===== ====== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY - UNAUDITED
<TABLE>
<CAPTION>
Common Stock Capital Retained Valuation
Shares Amount Surplus Earnings Allowance
<S> <C> <C> <C> <C> <C>
December 31, 1995
Balance ............... 828,279 $828,279 $4,668,285 $7,208,025 $ 214,617
Cash dividends ........... (316,049)
Net change in
unrealized gain or loss
on securities available
for sale ............... (329,084)
Sale of common stock ..... 2,651 2,651 47,654
Dividend Reinvestment
Plan ................... 5,128 5,128 111,300
Net income ............... 1,343,377
---------- -------- ---------- ---------- ---------
September 30, 1996
Balance ............... 836,058 $836,058 $4,827,239 $8,235,353 $(114,467)
========== ======== ========== ========== =========
December 31, 1996
Balance ............... 837,949 $837,949 $4,871,624 $8,604,139 $ 48,941
Cash dividends ........... (359,498)
Net change in
unrealized gain or loss
on securities available
for sale .............. (20,163)
Sale of common stock ..... 7,458 7,458 138,090
Dividend Reinvestment
Plan .................. 5,665 5,665 145,344
Net income ............... 1,664,985
---------- -------- ---------- ---------- ---------
September 30, 1997
Balance ............... 851,072 $851,072 $5,155,058 $9,909,626 $ 28,778
========== ======== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
For the nine months ended
September 30, September 30,
(All amounts in thousands) 1997 1996
---- ----
<S> <C> <C>
Operating activities
Net income $ 1,665 1,343
Adjustments to reconcile net income to cash
provided by operations:
Provision for loan losses 390 302
Provision for depreciation 212 152
(Gain) loss on sale of securities (16) (2)
(Gain) loss on sale of repossessed\foreclosed assets 28 54
Write off of loans, net of recoveries (85) (112)
(Increase) Decrease in prepaid & other assets (376) 2
(Increase) Decrease in interest receivable (545) (539)
Increase (Decrease) in other liabilities 43 153
Increase (Decrease) in interest payable 174 45
Net amortization of bond premiums & discounts (5) 1
-------- -------
Net cash provided from (used by) operating activities 1,485 1,399
-------- -------
Investing activities
Proceeds from sales of investment securities 13,534 11,033
Purchase of investment securities (8,660) (7,181)
Net increase in loans outstanding (27,411) (18,379)
Capital expenditures (859) (1,252)
Proceeds from sale of assets acquired in
settlement of loans 76 282
Acquisition of assets acquired in settlement of loans (66) (433)
-------- -------
Net cash used by investment activities (23,386) (15,930)
-------- -------
Financing activities
Net increase (decrease) in short-term borrowings 5,000 --
Net increase in deposit accounts 20,712 20,329
Proceeds from issuance of common stock 297 166
Cash dividends (359) (316)
-------- -------
Net cash provided by financing activities 25,650 20,179
-------- -------
Increase (Decrease) in cash and cash equivalents 3,749 5,648
Cash and cash equivalents at beginning of period 6,608 6,045
-------- -------
Cash and cash equivalents at end of period $ 10,357 11,693
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
FOUR OAKS FINCORP, INC.
Notes to Financial Statements
1. Cash and Due From Banks. Cash and due from banks consists of non-interest
bearing balances due from other banks and cash. The Federal Reserve requires
Four Oaks Fincorp, Inc. (the "Company") to maintain average reserve balances of
$500,000.
2. Investment Securities. The book value and market value of securities at
September 30, 1997 and December 31, 1996 are as follows:
U. S. Treasuries
and Agencies State & Local Other
September 30, 1997:
Book and Market value $ 25,250,843 $5,516,097 $ 1,471,686
Unrealized gains(losses) (6,849) 155,195 (60,267)
December 31, 1996:
Book and Market value $ 30,208,120 $5,991,326 $ 892,769
Unrealized gains(losses) 35,104 149,921 (62,084)
All of the Company's investments have been categorized Available for Sale
under the Mark-to-Market accounting rules and the unrealized gains and losses
are recorded in shareholder's equity.
3. Loans Receivable. Loans, net, consist of:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Total Gross Loans $136,886,786 $109,476,023
Allowance for Possible Loan Losses 1,745,000 1,440,000
------------ ------------
Loans, net $135,141,786 $108,036,023
============ ============
Loan balances by category are as follows:
(in thousands)
Loans secured by real estate:
Construction and land development $ 17,832 15,118
Secured by farmland 6,181 6,914
Secured by 1-4 family residential properties 40,492 29,619
Secured by multifamily residential properties 2,193 1,636
Secured by nonfarm nonresidential properties 12,852 10,781
Agricultural loans 10,934 5,980
Commercial and industrial loans 22,691 19,956
Loans to individuals for household,
family and other personal expenses 22,804 18,698
Loans to State and Local government 173 109
All other loans 657 669
Lease Financing Receivables 203 95
LESS: Any unearned income on loans 125 99
------------ ------------
Total loans $ 136,887 109,476
============ ============
</TABLE>
6
<PAGE>
4. Allowance for Possible Loan Losses are as follows:
(All amounts in thousands)
September 30,
1997 1996
---- ----
Balance, beginning $1,440 $1,220
Provision charged to operating expense 388 302
Recoveries of amounts charged off 26 19
------ ------
1,854 1,541
Amounts charged off 109 131
------ ------
Balance, ending $1,745 $1,410
====== ======
5. Interest and dividend income on securities by source is as follows:
September 30,
1997 1996
---- ----
U. S. Treasuries and Agencies $1,269,085 $1,142,233
States and Political Subdivisions $ 219,369 $ 198,423
Other $ 71,145 $ 46,645
6. Interest expense on time certificates of deposit of $100,000 or more was
$1,397,467 and $1,060,978 at September 30, 1997 and 1996, respectively. Interest
expense on all other deposits was $3,491,030 and $3,016,610 at September 30,
1997 and 1996 respectively.
7. Standby letters of credit were $1,382,000 and $652,000 at September 30, 1997
and 1996, respectively. Unfunded commitments were $25,889,000 and $18,755,000 at
September 30, 1997 and 1996, respectively.
8. The significant accounting policies followed by the Company for interim
financial reporting are consistent with the accounting policies followed for
annual financial reporting. These unaudited consolidated financial statements
have been prepared in accordance with Rule 10-01 of Regulation S-X, and in
management's opinion, all adjustments of a normal recurring nature necessary for
a fair presentation have been included. The accompanying financial statements do
not purport to contain all the necessary financial disclosures that might
otherwise be necessary in the circumstances and should be read in conjunction
with the consolidated financial statements and notes thereto in the Four Oaks
Bank & Trust Company annual report for the year ended December 31, 1996. The
results of operations for the nine month period ended September 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
9. The accompanying unaudited consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary Four Oaks Bank & Trust
Company. All significant intercompany items have been eliminated.
7
<PAGE>
10. Earnings Per Share: Earnings per share are calculated by dividing net income
by the weighted average number of common and dilutive common equivalent shares
outstanding. Common equivalent shares consist of stock options issued and
outstanding. In determining the number of equivalent shares outstanding, the
treasury stock method was applied. This method assumes that the number of shares
issuable upon exercise of the stock options is reduced by the number of common
shares assumed purchased at market prices with a portion of the proceeds from
the assumed exercise of the common stock options.
The Company will adopt Statement of Financial Accounting Standards (SFAS)
No. 128 "Earnings Per Share" on December 31, 1997. SFAS No. 128 requires the
Company to change its method for computing, presenting and disclosing earnings
per share information. Upon adoption, all prior period data presented will be
restated to conform to the provisions of SFAS No. 128.
If the Company had adopted SFAS No. 128 for the period ended September 30,
1997, the following computation would have been presented on the consolidated
statements of income:
Nine Months Ended
September 30, 1997
------------------
Basic income per common share:
Net Income 1,665,000
Weighted average common shares outstanding 845,000
Basic income per common share 1.98
Dilutive income per common share:
Net income 1,665,000
Weighted average common shares outstanding 845,000
Dilutive effect of stock options 21,110
Total shares 866,110
Dilutive income per common share 1.93
11. In June 1997, SFAS 130, "Reporting Comprehensive Income" was issued and is
effective for fiscal years beginning after December 15, 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS 130 requires the disclosure of an
amount that represents total comprehensive income and the components of
comprehensive income in a financial statement. The adoption of SFAS 130 is not
expected to have a material impact on the financial statements of the Company.
In June 1997, SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information" was issued and is effective for financial statements for
periods beginning after December 15, 1997. SFAS 131 establishes standards for
determining an entity's operating segments and the type and level of financial
information to be disclosed in both annual and interim financial statements. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131 is not expected
to have a material impact on the financial statements of the Company.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition. For the nine month period ended September 30, 1997,
interest bearing bank balances and investment securities combined decreased 5%.
These funds along with funds generated by the 15% increase in deposits and $5
million in borrowings were used to fund net loan increases of 25%. The Company's
loan volumes are increasing due to seasonal funding of agricultural loans as
well as growth in real estate, commercial, and consumer lending. The Company's
local economy continues to experience low unemployment rates and increased
construction of residential and commercial properties. Accrued interest
receivable has increased due to the increased volume of loans and the fact that
the farm loans presently being funded are scheduled to pay both principal and
interest in the fall after harvest.
Other real estate owned remains unchanged from December 31, 1996. The Company
presently has one property recorded at the adjusted loan value after reducing
the value for amounts previously recovered. The properties anticipated value is
higher than the recorded amount.
Total shareholder's equity increased 11%, primarily attributable to the increase
in retained earnings.
Results of Operations. Net income increased 24% and 25% for the nine months and
three months ended September 30, 1997, respectively, as compared to the same
periods in 1996. The increases results from the effective management of the
interest margin and increases in other income derived from new products and
services. The 26% and 24% increase in loan income for the three months and nine
months ended September 30, 1997, respectively, is due to loan growth. Interest
earned on investments has increased due to higher portfolio yields. Interest
expense for the three months and nine months ended September 30, 1997,
respectively, increased 28% and 23% over the same periods in 1996 due to total
deposit growth of 15% and increased borrowings.
Other expenses have increased 22% and 21% for the three months and nine months
ended September 30, 1997, respectively, over the same periods of 1996. This
increase is primarily due to higher salaries and operating costs resulting from
additional accounts and transactions as the Company continues to grow. A new
branch location in Benson, North Carolina was opened in July 1997.
The Company's delinquency rate of .98% is favorable compared to historical
trends. At September 30, 1997, the Company's nonperforming loans were $577,000
or 0.42% of total gross loans. The reserve for loan loss of $1,745,000 or 1.27%
of total gross loans is considered adequate to cover future credit losses in the
present portfolio.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings involving the Registrant.
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
3(i) Articles of Incorportaion of Registrant filed as Exhibit 3.1
to the Registrant's Current Report on Form 8-K (12G3), dated
July 1, 1997.
3(ii) Bylaws of Registrant filed as Exhibit 3.2 to the Registrant's
Current Report on Form 8-K (12G3), dated July 1, 1997.
4 Specimen of Certificate for Registrant's Common Stock filed as
Exhibit 4 to the Registrant's Current Report on Form 8-K
(12G3), dated July 1, 1997.
10.1 Dividend Reinvestment and Stock Purchase Plan
27 Financial Data Schedule
10
<PAGE>
(b) Reports on Form 8-K
(i) On July 2, 1997, the Registrant filed a Form 8-K(12G3) to report
the reorganization of Four Oaks Bank & Trust Company ( the "Bank")
into a bank holding company structure (the "Reorganization").
Pursuant to the Reorganization, the Registrant is the holding
company and sole shareholder of the Bank. The Registrant has no
significant assets other than the Common Stock of the Bank. Pursuant
to the Reorganization, the Bank's Common Stock was converted on a
share-for-share basis into Common Stock of the Registrant that have
rights, privileges and preferences identical to those of the Bank.
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.
FOUR OAKS FINCORP, INC.
Date: November 12, 1997 By: /s Ayden R. Lee, Jr.
----------------- --------------------------------
Ayden R. Lee, Jr.
President and Chief Executive Officer
Date: November 12, 1997 By: /s Nancy S. Wise
----------------- --------------------------------
Nancy S. Wise
Senior Executive Vice President and
Chief Financial Officer
12
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
10.1 Dividend Reinvestment and Stock Purchase Plan
27 Financial Data Schedule
13
Exhibit 10.1
FOUR OAKS FINCORP, INC.
DIVIDEND REINVESTMENT AND
STOCK PURCHASE PLAN
1. PURPOSE
The purpose of the Plan is to provide the shareholders of record of the
Company's Common Stock with a simple and convenient method of investing cash
dividends and optional cash payment in shares of Common Stock. To the extent
that new shares of Common Stock will be purchased from the Company, the Company
will receive additional funds to finance the continuing operations of the
Company.
2. FEATURES
Participants in the Plan:
(bullet) Will have cash dividends on their shares of Common Stock
automatically reinvested in additional shares of Common Stock;
(bullet) May elect to make optional cash payments from $20.00 to $500.00 per
quarter for additional Common Stock purchases;
(bullet) Will receive full investment use of funds because the Plan provides
for crediting of fractional shares (calculated to three decimal
places) and reinvestment in additional shares;
(bullet) Will pay no accountant fees for the reinvestment of dividends or
optional cash payments;
(bullet) Will receive quarterly statements from the Agent reflecting total
dividends and optional cash payments, the price paid for shares
purchased, and the total shares held in the participant's account;
and
(bullet) Will enjoy safekeeping of shares purchased pursuant to the Plan,
including protection against loss, theft, or inadvertent
destruction of certificates.
3. ADMINISTRATION
Branch Banking and Trust Company will Administer the Plan and serve as
agent (the "Agent") for Plan participants. The Agent keeps records, sends
statements of account to each participant, and performs other duties related to
the Plan. Shares purchased under the Plan are registered in the name of the
Agent or in the name of its nominee, and credited to the accounts of the
participants in the Plan. Questions and communications regarding the Plan should
include your account number and should be directed to:
<PAGE>
Branch Banking and Trust Company
Trust Operations
Post Office Box 2887
Wilson, North Carolina 27894
919-246-4316
4. PARTICIPATION
A. ELIGIBILITY
Any holder of record of the Company's Common Stock is eligible
to participate in the Plan at any time. Beneficial owners of shares of Common
Stock whose shares are registered in names other than their own (for example, in
the name of a broker, bank, or other nominee) and who wish to participate in the
Plan must become owners of record by having the number of shares they wish to
enroll in the Plan transferred into their names. Tentatively, they must make
arrangements for the nominees or other holders of record to participate in the
Plan on behalf of such beneficial owners.
B. ENROLLMENT IN THE PLAN
An eligible shareholder may join the Plan at any time by
completing an Authorization Card and returning it to the Agent at the above
address. Authorization Cards may be obtained at any time by contacting the
Agent.
For new enrollees, participation will commence with the next dividend
payable after receipt of authorization provided it is received by the Agent by
the fifth business day prior to the record date for the dividend. If an
Authorization Card is received after the fifth business day prior to the record
date established for a particular dividend, the reinvestment of dividends under
the Plan will begin with the next succeeding dividend. The Company expects to
set quarterly dividend and record payment dates for Common Stock on or about the
following dates:
Approximate Record Date Approximate Payment Date
February 28 March 8
May 3 June 8
August 31 September 8
November 30 December 8
To participate in the optional cash payment feature, a check or money
order payable to Branch Banking and Trust Company should be sent together with
the payment form which is attached to the quarterly statement participants
receive after their initial dividend has been invested. Cash payments can only
be made for participants who have had at least one dividend reinvested pursuant
to the Plan.
Shareholders enrolled in the Plan will remain enrolled unless they
terminate their participation by giving written notice to the Agent as described
below.
2
<PAGE>
5. NUMBER OF SHARES SUBJECT TO THE PLAN
Shareholders of record may participate in the Plan with respect to all
or any portion of the shares of Common Stock registered in their name. If a
shareholder wishes to participate in the Plan with less than all of such
shareholder's shares, the shareholder must notify the Agent in writing to that
effect. Otherwise, it will be assumed that the shareholder intends to
participate in the Plan with respect to all shares owned. Also, if a participant
wishes to change the number of shares of Common Stock subject to the Plan, the
participant must notify the Agent in writing to that effect. Any such
notification received by the Agent after the fifth business day prior to a
dividend payment date will not be effective until the next quarter.
6. COSTS
The Agent will provide the service of reinvesting a participant's
dividends paid on the Company's Common Stock or optional cash payments at no
cost to the shareholder. All administrative costs of the Plan will be paid by
the Company. No brokerage cornmissions or fees will be charged for purchases of
shares made under the Plan by the Agent directly from the Company, out of
authorized but unissued shares of the Company. The Company presently intends to
bear the costs of brokerage commissions or fees incurred as a result of any
purchases made under the Plan on the open market. The Company may change or
eliminate this policy entirely upon written notice to participants. The
reinvestment of dividends does not relieve the participant of any income tax
that may be payable on the dividends or on any brokerage commissions or fees
paid by the Company.
7. PURCHASES UNDER THE PLAN
A. METHOD OF PURCHASE
The Agent automatically will receive the full amount of
dividends paid on both the shares held by participants and any additional full
or fractional shares acquired under the Plan, as well as any optional cash
payments made by participants. The Agent will use these funds to purchase shares
of the Company's Common Stock for Plan participants from the Company's
authorized but unissued shares. Purchases also may be made on any securities
exchange where such shares are traded, in the over-the-counter market, or in
negotiated transactions.
B. NUMBER OF SHARES PURCHASED
The number of shares purchased under the Plan for each
participant will depend on the amount of dividends reinvested and optional cash
payments made to the participant's account, and the purchase price of the Common
Stock. Therefore, each participant's account will be credited with the number of
shares, including a fractional share computed to three decimal places, equal to
the total amount invested under the Plan by the participant (dividends and
optional cash payment), divided by the applicable purchase price per share of
the Common Stock.
C. TIMING OF PURCHASES
The Agent will purchase shares as soon as practicable after
cash dividends are paid in the quarters when such payments are made. In other
quarters, the Agent generally will purchase shares on the first business day of
the quarter. Purchases will include dividends to be reinvested and optional cash
payments as of the date of purchase, as applicable. The Agent will use every
reasonable effort to reinvest all dividends promptly after receipt and in no
event later than 30 days after receipt unless such investments are restricted by
any applicable state or federal securities laws. No interest will be paid on
dividends or optional cash payments pending reinvestment.
3
<PAGE>
If for any reason the Agent is precluded from acquiring shares
for 90 consecutive days, the Agent will promptly remit all cash dividends and
optional cash payments held in the participant's Plan account to the participant
after such 90th day.
D. PURCHASE PRICE
The purchase price of original issue shares of Common Stock
purchased directly from the Company will be determined once each quarter by the
Board of Directors of the Company based on an annual appraisal and trading
activity. The appraisal will be conducted by an independent appraisal firm
selected by the Board of Directors. The purchase price for the first quarter
shall be based on the first such appraisal. Each quarter thereafter, the Board
of Directors of the Company shall set the purchase price based on a review of
the most recent annual appraisal and trading activity during the preceding
quarter. No brokerage commissions or fees will be charged for purchases made
through the Plan directly from the Company. Shares purchased on the open market
under the Plan will be purchased at the price per share payable to the
broker-dealer(s) involved. The Company presently intends to bear any brokerage
commission or fees incurred in connection with open market purchases.
8. OPTIONAL CASH PAYMENTS
A. METHOD OF PAYMENTS
Once a participant has received the first Dividend
Reinvestment Statement (described below) for dividends reinvested the
participant may elect to make optional cash payments to his account for
additional Common Stock purchases. Each optional cash payment must be
accompanied by a payment form, which is furnished by the Agent with each
Dividend Reinvestment Statement. The Agent will commingle all optional cash
payments credited to a participant's account with cash dividends and optional
cash payment credited to all accounts under the Plan and all such funds will be
applied to the purchase of Common Stock as provided above. Optional cash
payments received by the fifth business day before a dividend payment date will
be combined with and invested by the Agent at the time cash dividends are
reinvested and in any event will be invested with funds received by the fifth
business day before purchases are made in other quarters, as provided above. Any
optional cash payments received by the Agent after the fifth day prior to a
dividend payment date will be invested in the next quarter.
The Agent will hold the participant's optional cash payments
in non-interest bearing accounts. No interest will be paid on any optional cash
payments for the period following receipt by the Agent but prior to investment.
Participants are encouraged to transmit optional cash payments so as to be
received by the Agent as close as possible to the fifth day prior to a dividend
payment date to avoid unnecessary accumulations of funds.
A participant may obtain a refund of his or her uninvested
optional cash payments upon written request to the Agent received not less than
two business days prior to the investment of such payments.
A participant is under no obligation to make an optional cash
payment in any quarter, and the same amount of money does not need to be sent
each quarter.
4
<PAGE>
B. LIMITATIONS
Any optional cash payment must not be less than $20, and
payments may not exceed $500 per quarter in the aggregate for any participant or
for each beneficial owner on whose behalf a participant may be investing.
Optional cash payments may be made at any time; however, only one optional cash
payment may be made in each calendar month by any participant, or by each
beneficial owner on whose behalf a participant may be investing, and optional
cash payments are only invested quarterly, as provided above. The Company may
change the minimum and maximum allowable optional cash payment amounts or
eliminate cash payments entirely upon written notice to participants.
Participants may not draw checks or drafts against their Plan
accounts in respect of any shares or cash held therein and may not sell, assign,
or transfer their account.
9. CERTIFICATES FOR SHARES
Normally, certificates for shares of Common Stock purchased under the
Plan will not be issued directly to participants. Shares will be held by or
through the Agent, providing protection against loss, theft, or inadvertent
destruction. The number of shares credited to a participant's account will be
shown on the next statement of account sent to the participant. The participant,
however, may obtain from the Agent certificates for full shares upon receipt by
the Agent of a written request from the participant. Any request for issuance of
a certificate received by the Agent less than five days prior to the record date
for a dividend payment shall become effective only after dividends paid for such
record date have been reinvested. Also, the Agent generally processes requests
for certificates only once each month on or about the l5th day of each month. No
certificate will be issued for a fractional share, although dividends on a
fractional interest in a share will be credited to the participant's account.
10. REPORTS TO PARTICIPANTS
As soon as practicable after the end of each quarterly period, the
Agent will send a statement of account (the "Dividend Reinvestment Statement")
to the participant. The Dividend Reinvestment Statement will include information
regarding each purchase and other information regarding the status of the
participant's account as of the date of such statement. The Dividend
Reinvestment Statements will provide a record of the cost basis of shares
purchased under the Plan and should be retained for tax purposes.
11. WITHDRAWALS OF SHARES PURCHASED UNDER THE PLAN
A participant may withdraw all or any portion of the full shares of
Common Stock held in the participant's account under the Plan by notifying the
Agent in writing to that effect. A certificate for the full shares withdravn
will be issued in the name of the participant and mailed to him. No certificate
will be issued for a fractional share interest.
Withdrawals of some or all of the full shares in a participant's
account will not terminate the participant's enrollment in the Plan.
5
<PAGE>
12. TERMINATION OF PARTICIPATION
A participant may terminate his account by notifying the Agent in
writing to that effect. Any notice of termination received by the Agent less
than five days prior to the record date for a dividend payment shall become
effective only after dividends paid for such record date have been reinvested.
Upon termination, the Agent will issue to the participant a certificate for the
number of full shares of Common Stock and a check for any fractional share in
the participant's account. The Agent generally issues such certificates and
checks only once each month, on or about the 15th day of each month.
13. OTHER FEATURES
A. STOCK SPLITS, STOCK DIVIDENDS, AND RIGHTS OFFERINGS
Stock splits or stock dividends on shares held in a participant's
account will be credited to the account based on the number of shares (including
fractional share interests) held in the account on the record date for such
dividend or split. The Agent will report the amount of dividends received on
shares or fractional shares held in each account.
In the event the Company offers rights or warrants to purchase
additional shares of Common Stock or other securities to the holders of Common
Stock, such rights or warrants will be made available to participants based on
the number of shares, including fractional share interests to the extent
feasible held in their accounts on the record date established for determining
the holders of Common Stock entitled to such rights or warrants.
B. VOTING OF SHARES PURCHASED UNDER THE PLAN
All full and fractional shares credited to a participant's
account under the Plan will be added to the shares registered in the
participant's name on the shareholder records of the Company. The participant
will receive one proxy covering the total of such shares, which proxy shall be
voted as the participant directs; or, if the participant so elects, the
participant may vote all of such shares in person at the shareholders' meeting.
14. FEDERAL INCOME TAX CONSEQUENCES
Dividends and other distributions by the Company to shareholders
generally will be taxed as ordinary dividend income. Participants who acquire
additional shares of Common Stock through the Plan directly from the Company
with reinvested cash dividends will be treated for federal income tax purposes
as having received a taxable stock distribution. As a result, an amount equal
to the fair market value on the investment date of the shares acquired directly
from the Company with reinvested cash dividends will be treated as a dividend
paid to participants. The tax basis of the shares acquired directly from the
Company with such reinvested dividends also will equal the fair market value of
the shares on the investment date.
Participants who acquire additional shares of Common Stock through the
Plan through open market purchases made with reinvested cash dividends will be
deemed to have received a taxable dividend equal to the amount of the cash
dividend reinvested plus the amount of any brokerage fees paid by the Company
with respect to such additional shares. The participant's tax basis in these
shares acquired on the open market will equal the purchase price of the shares
plus any brokerage fees paid with respect to the shares.
6
<PAGE>
Participants in the Plan will not realize any taxable income at the
time of investment of optional cash payments in additional shares of Common
Stock acquired directly from the Company. The tax basis of shares purchased
directly from the Company with an optional cash payment will be the fair market
value of the shares on the investment date.
Participants who acquire additional shares of Common Stock through open
market purchases made with optional cash payments will be treated as receiving a
cash dividend equal to the amount of any brokerage fees paid by the Company with
respect to such shares. The tax basis of shares purchased on the open market
with an optional cash payment will equal the purchase price of the shares, plus
any brokerage fees paid by the Company with respect to such shares.
The holding period of shares of Common Stock acquired through the Plan,
whether purchased with reinvested dividends or optional cash payments, will
begin on the day following the investment date.
Participants in the Plan will not realize any taxable income when they
receive certificates for full shares credited to their accounts, whether upon
their written requests for such certificates, upon full shares credited to their
account, or upon withdrawal from or termination of participation in the Plan.
Participants, however, will realize taxable gain or loss (which for most
participants, will be capital gain or loss) when full shares acquired under the
Plan are sold or exchanged by the participant and when participants receive a
cash payment for a fractional share credited to their account. The amount of
such gain or loss will be the difference between the amount that the participant
receives for his shares or fractional share (net of brokerage commissions and
other costs of sale) and the tax basis thereof.
For foreign participants who elect to have their cash dividends
reinvested and whose dividends are subject to United States income tax
withholding, and any other participant for whom federal income tax withholding
on dividends is required, an amount equal to the cash dividends payable to such
participants, less the amount of tax required to be withheld, will be applied to
the purchase of Common Stock through the Plan.
The foregoing is intended only as a general discussion of the current
federal income tax consequences of participation in the Plan. It does not
include a discussion of state and local income tax consequences of participation
in the Plan. For specific information on the tax consequences of participation
in the Plan, including any future changes in applicable law or interpretation
thereof, participants should consult their own tax advisors.
15. CHANGE AND TERMINATION OF THE PLAN; INTERPRETATION OF THE PLAN
The Company reserves the right to change, suspend, or terminate the
Plan at any time. Participants shall be notified of any such change, suspension,
or termination. Any question of interpretation arising under the Plan will be
determined by the Company. The Plan and all transactions in connection with the
Plan will be governed by and construed in accordance with the laws of the State
of North Carolina.
This Plan was adopted by the Board of Directors of Four Oaks Fincorp,
Inc. effective as of July 1, 1997.
/s/ Wanda C. Jones
-------------------
Secretary
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<PERIOD-END> SEP-30-1997
<CASH> 5,897,000
<INT-BEARING-DEPOSITS> 4,460,000
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<INCOME-PRETAX> 2,442,000
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<NET-INCOME> 1,665,000
<EPS-PRIMARY> 1.98
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