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 June 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's 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, 843,158
par value $1.00 per share (Number of shares outstanding
(Title of Class) as of June 30, 1997)
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(All amounts in thousands) June 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,804 5,047
Interest bearing bank balances 167 1,562
--------- ---------
Total cash and cash equivalents 7,971 6,609
Investment securities (approximate market value of
$32,745 and $37,092 respectively) 32,745 37,092
Loans, net 131,292 108,036
Accrued interest receivable 2,394 2,052
Bank premises and equipment, net 4,986 4,450
Other real estate owned 147 147
Intangible assets 176 183
Prepaid expenses and other assets 790 544
--------- ---------
Total assets $180,501 159,113
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - noninterest bearing $ 24,918 21,073
NOW accounts 13,459 14,707
Savings 16,239 15,727
Time $100,000 and over 32,179 27,339
Other time 66,500 63,997
--------- ---------
Total deposits 153,295 142,843
Accrued interest payable 1,528 1,509
Other borrowed money 10,240 --
Other liabilities 298 398
--------- ---------
Total liabilities 165,361 144,750
--------- ---------
Shareholders' equity:
Capital stock:
Common stock, $1.00 par value, 5,000,000 shares authorized, 843,158 and
837,949 issued and outstanding at June 30, 1997
and December 31, 1996 respectively 843 838
Surplus 5,004 4,872
Retained earnings 9,422 8,604
Net unrealized gain (loss) on marketable equity securities (129) 49
--------- ---------
Total shareholders' equity 15,140 14,363
--------- ---------
Total liabilities and shareholders' equity $180,501 159,113
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
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2
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CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands except per share data) For the three For the six
months ended months ended
June 30, June 30,
1997 1996 1997 1996
----------------- ----------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $3,131 2,502 5,886 4,790
Interest on investment securities:
US Government and agencies 427 373 857 794
Municipalities 71 67 148 132
Other investment securities 27 15 47 31
Interest on overnight investments 8 21 17 43
------ ------ ------ ------
Total interest income 3,664 2,978 6,955 5,790
Interest expense:
Interest on deposits 1,609 1,353 3,145 2,680
Interest on borrowed money 109 43 139 56
------ ------ ------ ------
Total interest expense 1,718 1,396 3,284 2,736
------ ------ ------ ------
Net interest income 1,946 1,582 3,671 3,054
Provision for loan losses 199 94 262 201
------ ------ ------ ------
Net interest income after provision
for loan losses 1,747 1,488 3,409 2,853
------ ------ ------ ------
Other income:
Service charges 249 155 436 302
Credit life commissions 22 16 43 38
Other operating income 88 55 180 119
Securities gains (losses) 12 (6) 10 --
------ ------ ------ ------
Total noninterest income 371 220 669 459
------ ------ ------ ------
Other expenses:
Salaries 590 477 1,098 928
Employee benefits 118 87 202 171
Occupancy expenses 53 39 112 87
Equipment expenses 82 62 161 128
Other operating expenses 449 408 966 784
------ ------ ------ ------
Total noninterest expense 1,292 1,073 2,539 2,098
------ ------ ------ ------
Income before income taxes 826 635 1,539 1,214
Income taxes 280 201 486 362
------ ------ ------ ------
Net income $ 546 434 1,053 852
====== ====== ====== ======
Net income per share $ 0.65 0.53 1.25 1.03
====== ====== ====== ======
Cash dividend paid per share $ 0.14 0.13 .28 0.25
====== ====== ====== ======
Weighted average shares outstanding 841 832 840 830
====== ====== ====== ======
The accompanying notes are an integral part of the consolidated financial statements.
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3
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CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY - UNAUDITED
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............... (207,609)
Net change in
unrealized gain or loss
on securities available
for sale................... (460,172)
Sale of common stock......... 2,651 2,651 47,192
Dividend Reinvestment
Plan....................... 1,499 1,499 31,457
Net income................... 851,709
------- -------- ----------- ----------- ---------
June 30, 1996
Balance................... 832,429 $832,429 $ 4,746,934 $ 7,852,125 $(245,555)
======= ======== =========== =========== =========
December 31, 1996
Balance................... 837,949 $837,949 $ 4,871,624 $ 8,604,139 $ 48,941
Cash dividends............... (235,102)
Net change in
unrealized gain or loss
on securities available
for sale.................. (177,801)
Sale of common stock ........ 1,458 1,458 36,450
Dividend Reinvestment
Plan...................... 3,751 3,751 95,580
Net income................... 1,052,607
------- -------- ----------- ----------- ----------
June 30, 1997
Balance................... 843,158 $843,158 $ 5,003,654 $ 9,421,644 $(128,860)
======= ======== =========== =========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
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4
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<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
For the six months ended
June 30, June 30,
(All amounts in thousands) 1997 1996
-------- --------
<S> <C> <C>
Operating activities
Net income $ 1,053 852
Adjustments to reconcile net income to cash
provided by operations:
Provision for loan losses 262 201
Provision for depreciation 142 101
(Gain) loss on sale of securities (10) --
(Gain) loss on sale of repossessed assets 29 44
Write off of loans, net of recoveries (42) (83)
(Increase) Decrease in prepaid & other assets (72) 35
(Increase) Decrease in interest receivable (342) (271)
Increase (Decrease) in other liabilities (200) (10)
Increase (Decrease) in interest payable 17 15
Net amortization of bond premiums & discounts 4 (4)
-------- --------
Net cash provided from (used by) operating activities 841 880
-------- --------
Investing activities
Proceeds from sales of investment securities 8,080 9,996
Purchase of investment securities (4,012) (6,090)
Net increase in loans outstanding (23,476) (17,171)
Capital expenditures (678) (641)
Proceeds from sale of assets acquired in
settlement of loans 20 65
Acquisition of assets acquired in settlement of loans (6) (218)
-------- --------
Net cash used by investment activities (20,072) (14,059)
-------- --------
Financing activities
Net increase (decrease) in short-term borrowings 10,240 4,800
Net increase in deposit accounts 10,452 6,948
Proceeds from issuance of common stock 137 83
Cash dividends (235) (208)
-------- --------
Net cash provided by financing activities 20,594 11,623
-------- --------
Increase (Decrease) in cash and cash equivalents 1,363 (1,556)
Cash and cash equivalents at beginning of period 6,608 6,045
-------- --------
Cash and cash equivalents at end of period $ 7,971 4,489
======== ========
The accompanying notes are an integral part of the consolidated financial statements.
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5
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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 June
30, 1997 and December 31, 1996 are as follows:
U.S. Treasuries
and Agencies State & Local Other
June 30, 1997:
Book and Market value $25,989,866 $5,423,374 $1,331,549
Unrealized gains(losses) (207,188) 100,833 (64,205)
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:
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June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Total Gross Loans $132,951,841 $109,476,023
Allowance for Possible Loan Losses 1,660,000 1,440,000
------------ ------------
Loans, net $131,291,841 $108,036,023
============ ============
Loan balances by category are as follows:
(in thousands)
Loans secured by real estate:
Construction and land development $ 17,189 15,118
Secured by farmland 6,116 6,914
Secured by 1-4 family residential properties 36,342 29,619
Secured by multifamily residential properties 2,076 1,636
Secured by nonfarm nonresidential properties 12,995 10,781
Agricultural loans 13,215 5,980
Commercial and industrial loans 22,824 19,956
Loans to individuals for household,
family and other personal expenses 21,515 18,698
Loans to State and Local government 88 109
All other loans 594 669
Lease Financing Receivables 139 95
LESS: Any unearned income on loans 141 99
------------ ------------
Total loans $ 132,952 109,476
============ ============
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6
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4. Allowance for Possible Loan Losses are as follows:
(All amounts in thousands)
June 30,
1997 1996
---- ----
Balance, beginning $ 1,440 $ 1,220
Provision charged to operating expense 262 201
Recoveries of amounts charged off 24 16
-------- --------
1,726 1,437
Amounts charged off 66 99
-------- --------
Balance, ending $ 1,660 $ 1,338
======== ========
5. Interest and dividend income on securities by source is as follows:
June 30,
1997 1996
---- ----
U. S. Treasuries and Agencies $857,249 $794,079
States and Political Subdivisions $148,227 $132,022
Other $ 46,528 $ 30,929
6. Interest expense on time certificates of deposit of $100,000 or more was
$880,872 and $690,909 at June 30, 1997 and 1996, respectively. Interest expense
on all other deposits was $2,264,134 and $1,988,667 at June 30, 1997 and 1996
respectively.
7. Standby letters of credit were $1,103,000 and $444,000 at June 30, 1997 and
1996, respectively. Unfunded commitments were $23,382,000 and $13,268,000 at
June 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 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 six month period ended June 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
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10. 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 June 30, 1997,
the following computation would have been presented on the consolidated
statements of income:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
---------------------------
<S> <C>
Basic income per common share:
Net Income 1,053,000
Weighted average common shares outstanding 840,000
Basic income per common share 1.25
Dilutive income per common share:
Net income 1,053,000
Weighted average common shares outstanding 840,000
Dilutive effect of stock options 22,254
Total shares 862,254
Dilutive income per common share 1.22
</TABLE>
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 six month period ended June 30, 1997, interest
bearing bank balances and investment securities combined decreased 14%. These
funds along with funds generated by the 7% increase in deposits and $4.8 million
in short term borrowings were used to fund net loan increases of 22%. 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 expected selling price is higher
than the recorded amount.
Total shareholder's equity increased 5% which reflects a slightly reduced
percentage due to net income being offset by the increase in net unrealized loss
on securities as the Company's securities portfolio repriced downward during the
first six months of 1997.
Results of Operations. Net income increased 26% and 24% for the six months and
three months ended June 30, 1997, respectively, as compared to the same periods
in 1996. The increase results from the effective management of the interest
margin and increases in other income derived from new products and services. The
25% and 23% increase in loan income for the three months and six months ended
June 30, 1997, respectively, is due to loan growth and somewhat higher rates as
fixed rate funds continue to either reprice upward upon maturity or pay out.
Interest earned on investments has increased due to higher portfolio yields.
Interest expense for the three months and six months ended June 30, 1997,
respectively, increased 23% and 20% over the same periods in 1996 due to total
deposit growth of 22%.
Other expenses have increased 20% and 21% for the three months and six months
ended June 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 1.18% is favorable compared to historical
trends. At June 30, 1997, the Company's nonperforming loans were $562,000 or
0.42% of total gross loans as compared to $771,000 or 0.72% at June 30,
1996. The reserve for loan loss of $1,660,000 or 1.25% of total gross loans is
considered adequate to cover future credit losses in the present portfolio.
9
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PART II - OTHER INFORMATION
<S> <C>
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
10.1 Employment Agreement between Four Oaks Bank & Trust
Company and Ayden R. Lee, Jr.
10.2 Severance Agreement between Four Oaks Bank & Trust
Company and Ayden R. Lee, Jr.
27 Financial Data Schedule
(b) Reports on Form 8-K
(i) On July 2, 1997, the Registrant filed a Form 8-K12G3 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.
</TABLE>
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOUR OAKS FINCORP, INC.
Date: August 13, 1997 By: /s/ Clifton L. Painter
--------------- ----------------------------
Clifton L. Painter
Senior Executive Vice President and
Chief Operating Officer
Date: August 13, 1997 By: /s/ Nancy S. Wise
--------------- ----------------------------
Nancy S. Wise
Senior Executive Vice President and
Chief Financial Officer
11
INDEX TO EXHIBITS
Exhibit Description
10.1 Employment Agreement between Four Oaks Bank & Trust Company and
Ayden R. Lee, Jr.
10.2 Severance Agreement between Four Oaks Bank & Trust Company and
Ayden R. Lee, Jr.
27 Financial Data Schedule
BANK OF FOUR OAKS
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of this 1st day of January, 1989 by and
between BANK OF FOUR OAKS, a North Carolina banking corporation (the "Bank"),
and Ayden R. Lee, Jr. ("Employee").
W I T N E S S E T H
WHEREAS, the Bank desires that Employee become an employee of the Bank to
serve as its Chief Executive Officer; and
WHEREAS, Employee desires to become an employee of the Bank and to serve as
the Bank's Chief Executive Officer;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained in this Agreement, the Bank and Employee agree as follows:
1. Employment. Commencing on the date of this Agreement, Employee is
employed by the Bank as its Chief Executive Officer with the duties,
responsibilities and powers of such office as assigned to him as of the date of
this Agreement and as customarily associated with such office.
2. Term. The term of this Agreement shall commence on the date of this
Agreement and shall terminate on December 31, 1991 and shall, unless terminated
otherwise as set forth in this Agreement, be automatically extended on December
31, 1991 and each anniversary of such date for an additional term of one (1)
year unless such automatic extension is declined by either party by notice given
not less than ninety (90) days before the end of the then current term of this
Agreement; provided that the term of this Agreement shall not extend beyond
Employee's normal retirement date at age 65.
<PAGE>
3. Compensation and Benefits.
In consideration of his services during the term of this Agreement,
Employee shall be paid compensation and benefits by the Bank as follows:
(a) Base Salary.
Employee will receive an annual base salary of $81,000, payable in
monthly installments. Commencing January 1, 1989, and annually thereafter,
Employee will be entitled to receive such increases in his annual base
salary as may be approved by the Board of Directors of the Bank, with each
such increase thereafter being included in his annual base salary for all
purposes.
(b) Additional Benefits.
Employee shall be entitled to receive and participate in all benefits
and conditions of employment generally made available to the Bank's
executive officers and also those generally made available to all salaried
employees of the Bank including, but not limited to, insurance benefits,
vacation, sick leave, and reimbursement of expenses incurred on behalf of
the Bank in the course of performing duties under this Agreement.
4. Termination.
Employee's employment under this Agreement shall terminate:
(a) Upon the death of Employee;
(b) Upon written notice from the Bank to Employee in the event of an
illness or other disability incapacitating him from performing his duties
for six (6) consecutive months as determined in good faith by the Board of
Directors of the Bank or a committee of the Board;
2
<PAGE>
(c) For cause upon written notice from the Bank ("Cause" for this
purpose means (i) the willful and continued failure by Employee for a
significant period of time substantially to perform his duties with the
Bank (other than any such failure resulting from his disability) after a
demand for substantial performance is delivered to Employee by the Bank's
Board of Directors or a committee of the Board which specifically
identifies the manner in which the Board of Directors believes that
Employee has not substantially performed his duties, (ii) the willful
engaging by Employee in gross misconduct materially and demonstratively
injurious to the Bank or (iii) the conviction of Employee of any crime
involving fraud or dishonesty); or
(d) Upon thirty (30) days notice from Employee to Bank at any time
within two (2) years following a change in control of the Bank. "Change in
Control" means one or more of the following occurrences:
(i) A corporation, person or group acting in concert as described in
Section 14(d)(2) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), holds or acquires beneficial ownership within the
meaning of Rule 13d-3 promulgated under the Exchange Act of a number of
shares of voting capital stock of the Bank which constitutes either (A)
more than 50 percent of the shares which voted in the election of
directors of the Bank at the shareholders' meeting immediately preceding
such determination, or (B) more than 33 percent of the Bank's then
outstanding shares entitled to vote.
(ii) A merger or consolidation to which the Bank is a party (other
than a pro forma transaction for a purpose such as changing the state of
incorporation or name of the Bank), if either (A) the Bank is not the
surviving corporation, or
3
<PAGE>
(B) the directors of the Bank immediately before the merger or
consolidation constitute less than a majority of the Board of
Directors of the surviving corporation; provided, however, the
occurrence described in clause (A) shall not constitute a change in
control if the holders of the Bank's voting capital stock
immediately before the merger or consolidation have the same
proportional ownership of voting capital stock of the surviving
corporation immediately after the merger or consolidation.
(iii) All or substantially all of the assets of the Bank are sold,
leased or disposed of in one transaction or a series of related
transactions.
(iv) An agreement, plan, contract or other arrangement is entered into
providing for any occurrence which as defined in this Agreement would
constitute a change of control.
The Bank hereby represents, warrants and agrees that it shall give prompt
notice to Employee immediately upon learning of the consummation of any of the
events set forth in paragraph 4(d) of this Agreement. If the Bank fails to give
such notice to Employee, the Bank shall be estopped from contesting, and shall
not contest, the adequacy or timeliness of any notice Employee may be allowed or
required to give following a change in control of the Bank.
5. Non-Assignability.
This Agreement shall not be assignable by Employee. This Agreement shall
not be assignable by the Bank without the prior written consent of Employee
except to a corporation which is the surviving entity in any merger involving
the Bank or to a corporation which acquires all or substantially all of the
stock or assets of the Bank.
4
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6. Modification.
This Agreement sets forth all the terms and conditions of the employment
agreement between Employee and the Bank and can be modified only by a writing
signed by both parties. No waiver by either party to this Agreement at any time
of any breach of the other party of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
7. Counterparts: Construction.
This Agreement may be executed in several identical counterparts, each of
which when so executed shall be deemed an original, but all such counterparts
shall constitute one and the same instrument. This Agreement shall be governed
by, and construed and enforced in accordance with, the laws of the State of
North Carolina.
8. Severability.
Should any provision of this Agreement be declared to be invalid for any
reason or to have ceased to be binding on the parties, such provision shall be
severed, and all other provisions shall be effective and binding.
9. Notice.
All necessary notices, demands and requests required or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given
if delivered in person or mailed by certified mail, postage prepaid, addressed
as follows:
a. If to Employee: Ayden R. Lee, Jr.
4221 Peele Road
Clayton, North Carolina 27520
5
<PAGE>
b. If to Bank: Bank of Four Oaks
503 N. Wellons Street
Four Oaks, North Carolina 27524
or to such other address as shall be furnished by either party.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
BANK OF FOUR OAKS
ATTEST:
By: /s/ M.S. CANADAY
______________________________
/s/ CLIFTON PAINTER Authorized Officer
- ----------------------------
Asst. Secretary
/s/ AYDEN R LEE, JR.
_______________________(SEAL)
(SEAL) Ayden R. Lee, Jr.
Employee
6
BANK OF FOUR OAKS
SEVERANCE COMPENSATION AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of January, 1989
("Effective Date") by and between BANK OF FOUR OAKS, a North Carolina banking
corporation (the "Bank"), and Ayden R. Lee, Jr. ("Employee").
WHEREAS, the Bank considers the maintenance of a vital management group to
be essential to protecting and enhancing the best interests of the Bank and its
shareholders;
WHEREAS, the Bank recognizes that, as is the case with many publicly held
corporations, there is a possibility of a change in control of the Bank, and
that the uncertainty and questions which such a possibility raise may result in
the departure or distraction of management personnel to the detriment of the
Bank and its shareholders;
WHEREAS, the Bank's Board of Directors has determined that appropriate
steps should be taken (1) to reinforce and encourage the continued attention and
dedication of members of the Bank's management to their assigned duties without
distraction arising from the possibility of a change in control of the Bank and
(2) to dispel any concerns that Employee may have about taking an active part in
the defense against an inappropriate attempt to bring about a change in control
of the Bank; and
WHEREAS, the purpose of this Agreement is to assure Employee that in the
event of termination of employment after a change of control (to the extent set
forth in this Agreement) Employee will continue to receive compensation for a
period which should be sufficient for Employee to find other employment.
<PAGE>
NOW, THEREFORE, in consideration of the mutual agreements set forth in this
Agreement, the legal sufficiency and adequacy of which are hereby acknowledged,
the parties agree as follows:
1. Employment. Employee agrees that so long as he is employed by the Bank,
Employee shall devote his full-time efforts during normal business hours to the
business and affairs of the Bank and shall support decisions and determinations
of the Board of Directors and Bank policy including, but not limited to, any
decision or determination with respect to responding to an approach or attempt
to effect a Change in Control (as later defined).
2. Term.
(a) The term of this Agreement shall be for two years from the Effective
Date unless sooner terminated upon:
(i) Employee's written notice to the Bank that he is terminating
this Agreement effective upon a specified date not less than one month
after his notice is given;
(ii) Employee's death;
(iii) Employee's illness or other disability incapacitating Employee
from performing his duties for six (6) consecutive months as determined
in good faith by the Board of Directors of the Bank or a committee of
the Board;
(iv) Employee's retirement; or
(v) A determination by the Board of Directors of the Bank that
Employee is no longer a key executive employee and the delivery of
notice to Employee of such determination and the termination of this
Agreement. Such termination shall be effective upon the delivery of the
notice or at a later date
2
<PAGE>
specified in the notice; provided, however, such determination shall
not be made, and if made, shall have no effect, after a Change in
Control;
(b) Unless this Agreement is terminated in accordance with
subparagraph 2(a), on each anniversary of the Effective Date of this
Agreement, the term of this Agreement automatically shall be extended
for an additional successive period of one year, unless either the
Employee or the Bank shall give written notice to the other at least
three months before such anniversary date that the term of this
Agreement shall not be extended.
(c) In the event of a Change in Control of the Bank at any time
before the termination of this Agreement, the term of this Agreement
shall be automatically extended to the earlier of (i) a date two years
after the date such Change in Control occurred and (ii) the occurrence
of an event of termination described in clause 2(a)(ii), (iii) or (iv).
(d) In the event of a Termination (as later defined) of Employee's
employment during the term of this Agreement, the term of this Agreement
shall be automatically extended until all obligations under the
Agreement are fully performed.
3. Change in Control. For purposes of this Agreement, a "Change in Control"
means one or more of the following occurrences:
(a) A corporation, person or group acting in concert as described in
Section 14 (d) (2) of the Securities Exchange Act of 1934, as amended
("Exchange Act") , holds or acquires beneficial ownership within the
meaning of Rule 13d-3 promulgated under the Exchange Act of a number of
shares of voting capital stock of the Bank which constitutes either (i)
more than 50% of the shares which voted in the election of directors
3
<PAGE>
of the Bank at the shareholders' meeting immediately preceding such
determination, or (ii) more than 33% of the Bank's then outstanding shares
entitled to vote.
(b) A merger or consolidation to which the Bank is a party (other than a
pro forma transaction for a purpose such as changing the state of
incorporation or name of the Bank), if either (i) the Bank is not the
surviving corporation, or (ii) the directors of the Bank immediately before
the merger or consolidation constitute less than a majority of the Board of
Directors of the surviving corporation; provided, however, the occurrence
described in clause (i) shall not constitute a Change in Control if the
holders of the Bank's voting capital stock immediately before the merger or
consolidation have the same proportional ownership of voting capital stock
of the surviving corporation immediately after the merger or consolidation.
(c) All or substantially all of the assets of the Bank are sold, leased,
or disposed of in one transaction or a series of related transactions.
(d) An agreement, plan, contract or other arrangement is entered into
providing for any occurrence which as defined in this Agreement would
constitute a Change of Control.
4. Termination Following Change in Control.
(a) Termination of Employee's employment after the occurrence of a
Change in Control ("Termination") entitles Employee to the benefits
described in paragraphs 5 and 6, unless such Termination is (i) by the Bank
for cause or because of disability or (ii) because of Employee's death or
retirement.
(b) "Cause" means: (i) the willful and continued failure by Employee for
a significant period of time substantially to perform his duties with the
Bank (other than
4
<PAGE>
any such failure resulting from his disability) after a demand for
substantial performance is delivered to Employee by the Bank's Board of
Directors or a committee of the Board which specifically identifies the
manner in which the Board of Directors believes that Employee has not
substantially performed his duties; (ii) the willful engaging by Employee
in gross misconduct materially and demonstrably injurious to the Bank or
(iii) the conviction of Employee of any crime involving fraud or
dishonesty. No act, or failure to act, on Employee's part shall be
considered "willful" unless done, or omitted to be done, by Employee, not
in good faith and without reasonable belief that his action or omission was
in the best interests of the Bank. The burden of establishing the validity
of any Termination for cause shall rest upon the Bank.
5. Benefits. In the event of Employee's Termination for any reason except
those set forth in clauses 4(a)(i) or (ii) the Bank shall pay Employee as
severance pay an amount equal to two (2) times Employee's most recent annual
compensation, including the amount of his most recent annual bonus at the time
of termination ("Severance Pay"). The Severance Pay shall be paid in twenty-four
(24) equal monthly installments without interest, commencing one month after
termination, unless and until the Employee obtains other full-time employment,
at which time the balance of the Severance Pay due shall be paid within thirty
(30) days in a lump sum amount.
6. Other Benefits. In addition, in the event of Employee's Termination, the
Bank shall:
(a) Maintain in full force and effect, for two years after the date of
Termination, or unless and until Employee obtains other full-time
employment, all life insurance, health (medical and dental), accidental
death and dismemberment and
5
<PAGE>
disability plans or programs in which Employee is entitled to
participate immediately prior to the date of Termination and include
Employee as a participant in such plans on the same terms as he
participated before Termination; provided that Employee's continued
participation is possible under the general terms and provisions of such
plans and programs. In the event that Employee's participation in any
such plan or program is barred, the Bank shall arrange upon comparable
terms to provide Employee with benefits substantially similar to those
which he would be entitled to receive under such plans and programs. At
the end of the period of coverage, Employee shall have the option to
have assigned to him, at no cost and with no apportionment of prepaid
premiums, any assignable insurance policy owned by the Bank and relating
specifically to Employee.
(b) To the extent permitted by the applicable plan, pay Employee in a
lump sum (or otherwise as specified by Employee to the extent permitted by
the applicable plan) any and all amounts contributed to a Bank pension or
retirement plan (other than any nonqualified deferred compensation plan) to
which Employee is entitled under the terms of any such plan.
7. No Duty to Mitigate. Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment or benefit as provided for be
reduced by any compensation earned by Employee as the result of employment by
another employer or by retirement benefits after the date of Termination, or
otherwise except as specifically provided in this Agreement.
8. Miscellaneous.
(a) Limitation of Effect. This Agreement shall have no effect on any
termination of Employee's employment before a Change in Control or after
the
6
<PAGE>
termination of this Agreement, or upon any termination of employment at any
time as a result of disability, retirement or death, or as a result of
Employee's voluntary termination of this Agreement and in such event,
Employee shall receive only those benefits to which Employee would have
become entitled before a Change in Control. After a Change in Control and
during its term this Agreement is in lieu of any other Bank severance
policy involving cash payments, but not in lieu of other Bank severance
policies including, but not limited to, those items provided in paragraph
6. This Agreement does not entitle Employee to employment for any term
whatsoever.
(b) Successors.
(i) The Bank will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Bank to assume and
agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform if no such succession
had taken place. Failure of the Bank to obtain such agreement before the
effectiveness of any such succession shall entitle the Employee
immediately to the benefits provided in Paragraphs 5 and 6 hereof.
(ii) Employee may not assign this Agreement, but this Agreement
shall inure to the benefit of and be enforceable by Employee's personal
or legal representatives, executors, administrators, heirs,
distributees, devisees and legatees. If Employee should die while any
amounts would still be payable to Employee under this Agreement if
Employee had continued to live, all such amounts, unless otherwise
provided in this Agreement, shall be paid in
7
<PAGE>
accordance with the terms of this Agreement to Employee's devisee,
legatee or other designee or, if there be no such designee, to his
estate.
(c) Expenses. The Bank agrees that if Employee is entitled to Severance
Pay or other benefits under this Agreement and the Bank or its survivor
disputes the obligation to pay Severance Pay or other benefits and
Employee prevails, in whole or in part, the Bank or its survivor shall then
promptly pay or reimburse Employee for all expenses incurred by Employee in
such dispute, including, but not limited to, attorneys' fees and associated
costs.
(d) Notice. All necessary notices, demands or requests required or
permitted under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered in person or mailed by United States
certified mail, postage prepaid, to the parties at the addresses set forth
below or to such other address as either party may have furnished to the
other.
If to Bank: Bank of Four Oaks
503 N. Wellons Street
Four Oaks, North Carolina 27624
If to Employee: Ayden R. Lee, Jr.
4221 Peele Road
Clayton, North Carolina 27520
(e) Modifications. No provisions of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is
agreed to in writing signed by the Employee and the Bank. No waiver by
either party at any time of any breach by the other party of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
8
<PAGE>
(f) Counterparts: Interpretation. This Agreement may be executed in
several identical counterparts, each of which when so executed shall be
deemed an original, but all such counterparts shall constitute one and the
same instrument. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of North
Carolina. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
BANK OF FOUR OAKS
BY: /s/ M.S. CANADAY
__________________________________
(Corporate Seal)
Attest: /s/ CLIFTON PAINTER
- ---------------------------
Asst. Secretary
/s/ AYDEN R. LEE, JR.
_____________________________(SEAL)
Ayden R. Lee, Jr.
Employee
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,804,000
<INT-BEARING-DEPOSITS> 167,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,745,000
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<LOANS> 132,952,000
<ALLOWANCE> 1,660,000
<TOTAL-ASSETS> 180,501,000
<DEPOSITS> 153,295,000
<SHORT-TERM> 10,240,000
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0
0
<COMMON> 843,000
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<EXPENSE-OTHER> 2,539,000
<INCOME-PRETAX> 1,539,000
<INCOME-PRE-EXTRAORDINARY> 1,539,000
<EXTRAORDINARY> 0
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<NET-INCOME> 1,053,000
<EPS-PRIMARY> 1.25
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<YIELD-ACTUAL> 4.82
<LOANS-NON> 181,000
<LOANS-PAST> 381,000
<LOANS-TROUBLED> 0
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<CHARGE-OFFS> 66,000
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