US SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT
Under Section 13 of the Securities Exchange Act of 1934
for the Quarterly Period Ended March 31, 2000
Commission File Number 0-22787
FOUR OAKS FINCORP, INC.
(Exact name of small business issuer 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)
Issuer's Telephone Number, including area code 919-963-2177
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
Common Stock, 2,055,000
par value $1.00 per share (Number of shares outstanding
(Title of Class) as of March 31, 2000)
Transitional Small Business Disclosure Format (check one): Yes [ ] No [x]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS - UNAUDITED
<TABLE>
<CAPTION>
(All amounts in thousands, except share data) March 31, December 31,
2000 1999
--------- -------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,352 10,416
Interest bearing bank balances 1,057 3,934
--------- -------
Total cash and cash equivalents 8,409 14,350
Investment securities, available for sale 43,252 43,880
Loans, net 172,601 164,226
Accrued interest receivable 2,616 2,271
Bank premises and equipment, net 5,158 4,775
Other real estate owned 610 501
Intangible assets 137 140
Prepaid expenses and other assets 1,512 1,322
--------- -------
Total assets $ 234,295 231,465
========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - noninterest bearing $ 32,340 31,059
NOW accounts 16,058 16,895
Savings 19,273 19,345
Time $100,000 and over 49,813 51,370
Other time 75,866 76,042
--------- -------
Total deposits 193,350 194,711
Accrued interest payable 1,811 2,024
Other borrowed money 15,870 12,200
Other liabilities 792 633
--------- -------
Total liabilities 211,823 209,568
--------- -------
Shareholders' equity:
Capital stock:
Common stock, $1.00 par value, 5,000,000 shares authorized,
2,055,000 and 2,050,000 issued and outstanding
at March 31, 2000 and December 31, 1999, respectively 2,055 2,050
Surplus 5,701 5,599
Retained earnings 15,459 14,793
Accumulated other comprehensive income (loss) (743) (545)
--------- -------
Total shareholders' equity 22,472 21,897
--------- -------
Total liabilities and shareholders' equity $ 234,295 231,465
========= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
<TABLE>
<CAPTION>
(All amounts in thousands, except per share data) For the three
months ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $4,114 3,816
Interest on investment securities:
US Government and agencies 603 500
Municipalities 52 49
Other investment securities 15 3
Interest on overnight investments 9 44
------ -----
Total interest income 4,793 4,412
Interest expense:
Interest on deposits 1,909 1,833
Interest on borrowed money 169 46
------ -----
Total interest expense 2,078 1,879
------ -----
Net interest income 2,715 2,533
Provision for loan losses 70 155
------ -----
Net interest income after provision
for loan losses 2,645 2,378
------ -----
Other income:
Service charges 230 223
Credit life commissions 15 12
Other operating income 162 147
Securities gains (losses) - (14)
------ -----
Total noninterest income 407 368
------ -----
Other expenses:
Salaries 770 735
Employee benefits 158 145
Occupancy expenses 66 64
Equipment expenses 111 90
Other operating expenses 699 602
------ -----
Total noninterest expense 1,804 1,636
------ -----
Income before income taxes 1,248 1,110
Income taxes 419 377
------ -----
Net income $ 829 733
====== =====
Net income per common share 0.40 0.36
====== =====
Net income per common share,
assuming dilution 0.40 0.36
====== =====
Cash dividend paid per share 0.08 0.07
====== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
For the three months ended
March 31, March 31,
(All amounts in thousands) 2000 1999
------- -------
<S> <C> <C>
Operating activities
Net income $ 829 733
Adjustments to reconcile net income to cash
provided by operations:
Provision for loan losses 70 155
Provision for depreciation 96 65
(Gain) loss on sale of securities - 14
Loss on repossessed\foreclosed assets 24 4
Increase in prepaid & other assets (186) (435)
Increase in interest receivable (345) (147)
Increase in other liabilities 159 108
Increase (Decrease) in interest payable (213) (260)
Net amortization of bond premiums & discounts (1) (15)
------- -------
Net cash provided by operating activities 433 222
------- -------
Investing activities
Proceeds from sales of investment securities 588 17,237
Purchase of investment securities (291) (13,143)
Net increase in loans outstanding (8,445) (5,107)
Sale of land - 137
Capital expenditures (479) (44)
------- -------
Net cash used by investment activities (8,627) (920)
------- -------
Financing activities
Net increase (decrease) in borrowings 3,670 (770)
Net increase (decrease) in deposit accounts (1,360) 2,045
Proceeds from issuance of common stock 107 241
Cash dividends (164) (148)
------- -------
Net cash provided by financing activities 2,253 1,368
------- -------
Increase (Decrease) in cash and cash equivalents (5,941) 670
Cash and cash equivalents at beginning of period 14,350 8,620
------- -------
Cash and cash equivalents at end of period $ 8,409 9,290
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
FOUR OAKS FINCORP, INC.
Notes to Financial Statements
1. The accompanying unaudited consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary Four Oaks Bank & Trust
Company (the "Bank"). All significant intercompany items have been eliminated.
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 Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999.
2. Earnings Per Share.
The following table provides a reconciliation of income available to
common shareholders and the average number of common shares outstanding for the
three month periods ended March 31, 2000 and 1999, respectively:
Three Months Ended
March 31,
2000 1999
---- ----
Net Income (numerator) $ 829,000 $ 733,000
========== ==========
Shares for Basic EPS (denom.) 2,055,000 2,028,000
Dilutive effect of stock options 10,391 9,366
--------- ---------
Adjusted shares for diluted EPS $2,065,391 $2,037,366
========== ==========
3. Comprehensive Income.
Comprehensive income includes net income and all other changes to the
Company's equity, with the exception of transactions with shareholders ("other
comprehensive income"). The Company's only component of other comprehensive
income relates to unrealized gains and losses on available for sale securities.
Information concerning the Company's total comprehensive income and other
comprehensive income for the three month periods ended March 31, 2000 and 1999,
respectively, is as follows (in thousands):
5
<PAGE>
For Three
Months ended
March 31,
2000 1999
----- -----
Net Income $ 829 $ 733
----- -----
Unrealized gains (losses) on available for sale securities (330) (284)
Reclassification of gains (losses) recognized in net income - 14
Income tax (expense) benefit relating to unrealized gains
(losses) on available for sale securities 132 108
----- -----
Other comprehensive income (loss) (198) (162)
----- -----
Comprehensive Income $ 631 $ 571
===== =====
4. New Accounting Pronouncement: The Company will adopt the provisions of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", as
amended, effective with the fiscal quarter beginning July 1, 2000. This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that derivatives be
recognized as either assets or liabilities in the balance sheet and be measured
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and whether or not the derivative
is designated as a hedging instrument. SFAS No. 133 is not expected to have a
material effect on the Company's financial statements.
5. Subsequent Event. On March 20, 2000, the Company declared a three for two
stock split effected in the form of a stock dividend for shareholders of record
as of March 31, 2000, payable on April 7, 2000. Total shares outstanding at
December 31, 1999 in the Balance Sheet, earnings per common share, earnings per
common share assuming dilution and cash dividends per share for the three months
ended March 31, 1999 in the Consolidated Statements of Income, and the shares
for basic EPS for the three months ended March 31, 1999 in note 2 herein have
been adjusted to reflect the March 31, 2000 three for two stock split.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides information about the major components of the
financial condition and results of operations of the Company and should be read
in conjunction with our Consolidated Financial Statements and Notes thereto.
6
<PAGE>
Financial Condition. For the three months ended March 31, 2000, interest bearing
bank balances and investment securities combined decreased 7%. Borrowings
increased $3,670,000. These funds, less the $1,361,000 decrease in deposits,
were used to fund net loan increases of 5%. Our loan volumes are increasing due
to seasonal funding of agricultural loans as well as growth in real estate,
commercial, and consumer lending. Our local economy remains healthy with
unemployment rates low and construction of residential and commercial properties
continuing. Accrued interest receivable increased 15% due to loan growth, rising
interest rates, and the seasonal nature of our agricultural loans which fund
during the spring and summer and pay out in the fall and winter.
During the three months ended March 31, 2000, other real estate owned increased
to $610,000 due to improvements to one property. We presently own two properties
recorded at the lower of adjusted loan value or expected selling price (i.e,
March 31, 2000 fair market value). The properties anticipated values equal or
exceed the recorded amount.
Total shareholder's equity increased 3%, primarily due to net income and
dividend reinvestment plan purchases.
Results of Operations. Net income increased 13% for the three months ended March
31, 2000 as compared to the same period in 1999. The increase resulted from the
effective management of the interest margin, minimizing operating costs,
enhancing other noninterest income and maintaining good asset quality. The 10%
increase in loan income for the three months ended March 31, 2000 reflects loan
growth and rate increases. Interest earned on investments has increased 14% due
to a 9% increase in the investment accounts and higher interest rates during the
three months ended March 31, 2000 as compared to the three month period ended
March 31, 1999. Interest expense for the three months ended March 31, 2000
increased 11% over the same period in 1999 due to deposit growth and higher
deposit rates.
Other expenses have increased 10% for the three months ended March 31, 2000 over
the same period of 1999. This increase is primarily due to higher salaries and
operating costs resulting from additional accounts and transactions as we
continue to grow.
Our delinquency rate of 1.47% is favorable compared to historical trends. At
March 31, 2000, our nonperforming loans were $1,298,000 or 0.74% of our total
gross loans as compared to $871,000 or 0.54% at March 31, 1999 and 847,000 or
0.51% at December 31, 1999. Our reserve for loan loss of $2,379,000 or 1.36% of
total gross loans is considered adequate to cover future credit losses in the
present portfolio at March 31, 2000.
Forward Looking Information. Information set forth in this Quarterly Report on
Form 10-QSB, including under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations," contains various "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which statements represent our judgment concerning the future and are
subject to risks and uncertainties that could cause our actual operating results
and financial position to differ materially. Such forward looking statements can
be identified by the use of the forward looking terminology, such as "may,"
"will," "expect," "anticipate," "estimate," or "continue" or the negative
thereof or other variations thereof or comparable terminology.
7
<PAGE>
We caution that any such forward looking statements are further qualified by
important factors that could cause our actual operating results to differ
materially from those in the forward looking statements, including, without
limitation, the effects of future economic conditions, governmental fiscal and
monetary policies, legislative and regulatory changes, the risks of changes in
interest rates on the level and composition of deposits, the effects of
competition from other financial institutions, the failure of assumptions
underlying the establishment of the allowance for possible loan losses, the low
trading volume of our Common Stock, other considerations described in connection
with specific forward looking statements and other cautionary elements specified
in documents incorporated by reference in this Quarterly Report on Form 10-QSB.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K, dated March 28, 2000,
to amend certain of the Company's effective registration statements to
increase the number of shares registered thereunder to include the
additional shares resulting from the application of the Company's
three-for-two stock split to the registered shares remaining unsold
under such registration statements as of April 7, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOUR OAKS FINCORP, INC.
Date: May 12, 2000 By: /s/ Ayden R. Lee, Jr.
--------------------------------
Ayden R. Lee, Jr.
President and Chief Executive Officer
Date: May 12, 2000 By: /s/ Nancy S. Wise
--------------------------------
Nancy S. Wise
Senior Executive Vice President and
Chief Financial Officer
8
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
27 Financial Data Schedule
9
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,352
<INT-BEARING-DEPOSITS> 1,057
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,252
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 174,980
<ALLOWANCE> 2,379
<TOTAL-ASSETS> 234,295
<DEPOSITS> 193,350
<SHORT-TERM> 13,870
<LIABILITIES-OTHER> 2,602
<LONG-TERM> 2,000
0
0
<COMMON> 2,055
<OTHER-SE> 20,418
<TOTAL-LIABILITIES-AND-EQUITY> 234,295
<INTEREST-LOAN> 4,114
<INTEREST-INVEST> 670
<INTEREST-OTHER> 9
<INTEREST-TOTAL> 4,793
<INTEREST-DEPOSIT> 1,909
<INTEREST-EXPENSE> 2,078
<INTEREST-INCOME-NET> 2,715
<LOAN-LOSSES> 70
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,804
<INCOME-PRETAX> 1,249
<INCOME-PRE-EXTRAORDINARY> 1,249
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 829
<EPS-BASIC> 0.40
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 1.24
<LOANS-NON> 688
<LOANS-PAST> 798
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,350
<CHARGE-OFFS> 135
<RECOVERIES> 94
<ALLOWANCE-CLOSE> 2,379
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,379
</TABLE>
