U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
[ ] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended _____________________
COMMISSION FILE NUMBER 0-24245
BOC FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
North Carolina 56-6511744
-------------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
107 SOUTH CENTRAL AVENUE, LANDIS, NC 28088
- --------------------------------------------------------------------------------
(Address of principal executive office)
(704) 857-7277
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 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. YES X NO
---------- ---------
As of August 7, 1998, 925,741 shares of the issuer's common stock, $1.00 par
value, were outstanding. The registrant has no other classes of securities
outstanding.
This report contains 11 pages.
-1-
<PAGE>
Page No.
--------
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition
June 30, 1998 and December 31, 1997..................... 3
Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997................. 5
Notes to Consolidated Financial Statements.............. 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................ 8
PART II. OTHER INFORMATION
Item 2: Use of Proceeds From Registered Securities..... 10
Item 6. Exhibits and Reports on Form 8-K............... 10
-2-
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BOC FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
June 30,
1998 December 31,
ASSETS (Unaudited) 1997*
----------- ------------
(In Thousands)
Cash on hand and in banks $ 171 $ 336
Interest-bearing balances in other banks 42 35
Federal funds sold 8,850 1,750
Investment securities available for sale, at fair value 3,482 2,909
Loans receivable, net 17,937 18,826
Accrued interest receivable 54 45
Premises and equipment, net 276 287
Stock in the Federal Home Loan Bank, at cost 187 187
Other assets 90 222
--------- --------
TOTAL ASSETS $ 31,089 $ 24,597
========= ========
LIABILITIES AND NET RETAINED EARNINGS
LIABILITIES
Deposit accounts $ 18,555 $ 19,978
Advance payments from borrowers for property taxes
and insurance 17 17
Accrued expenses and other liabilities 189 178
--------- --------
TOTAL LIABILITIES 18,761 20,173
--------- --------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $1 par value, 9,000,000 shares
authorized, 925,741 shares issued and
outstanding at June 30, 1998 926 -
Additional paid-in capital 7,891 -
ESOP note receivable (1,043) -
Accumulated other comprehensive income:
Unrealized holding gains 4 6
Retained earnings, substantially restricted 4,550 4,418
--------- --------
TOTAL STOCKHOLDERS' EQUITY 12,328 4,424
--------- --------
$ 31,089 $ 24,597
========= ========
</TABLE>
*Derived from audited financial statements.
See accompanying notes.
-3-
<PAGE>
BOC FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------- --------- --------- ------
(In Thousands)
INTEREST INCOME
Loans $ 370 $ 376 $ 744 $ 746
Investments 50 52 93 89
Deposits in other banks and
federal funds sold 127 12 196 28
--------- --------- --------- ---------
TOTAL INTEREST INCOME 547 440 1,033 863
--------- --------- --------- ---------
INTEREST EXPENSE
Deposits 250 248 534 482
--------- --------- --------- ---------
NET INTEREST INCOME 297 192 499 381
PROVISION FOR LOAN LOSSES - 1 - 3
--------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 297 191 499 378
--------- --------- --------- ---------
OTHER INCOME - - 3 1
--------- --------- --------- ---------
OTHER EXPENSES
Personnel costs 82 78 174 158
Occupancy 13 11 25 22
Data processing and outside
service fees 5 6 18 21
Deposit insurance premiums 3 3 6 6
Other 56 23 73 37
--------- --------- --------- ---------
TOTAL OTHER EXPENSES 159 121 296 244
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 138 70 206 135
PROVISION FOR INCOME TAXES 53 21 74 40
--------- --------- --------- ---------
NET INCOME $ 85 $ 49 $ 132 $ 95
========= ========= ========= =========
See Note D for Net Income Per Share Information.
See accompanying notes.
-4-
<PAGE>
BOC FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
Six Months Ended
June 30,
----------------
1998 1997
---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 132 $ 95
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 15 14
Amortization, net - (1)
Gain on sale of assets, net (2) -
Provision for loan losses - 3
Deferred compensation 17 -
Change in assets and liabilities:
Increase in accrued interest receivable (9) (16)
(Increase) decrease in other assets (24) 47
Increase (decrease) in accrued expenses and
other liabilities (6) 11
-------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 123 153
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing
balances in other banks (7) 10
Net increase in federal funds sold (7,100) (600)
Purchases of available for sale investment securities (2,225) (1,249)
Proceeds from maturities of available for sale
securities 1,150 -
Proceeds from sales of available for sale investment
securities 501 346
Purchase of Federal Home Loan Bank Stock - (17)
Proceeds from sales of loans 11 -
Net (increase) decrease in loans 879 (10)
Purchases of premises and equipment (4) (3)
--------- --------
NET CASH USED
BY INVESTING ACTIVITIES (6,795) (1,523)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand accounts 119 953
Net increase (decrease) in certificates of deposit (1,542) 283
Net increase in advance payments from borrowers
for taxes and insurance - 9
Stock conversion proceeds, net of costs incurred 8,973 -
Loan to ESOP for purchase of common stock (1,043) -
--------- --------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 6,507 1,245
-------- -------
NET DECREASE IN CASH
ON HAND AND IN BANKS (165) (125)
CASH ON HAND AND IN BANKS, BEGINNING 336 307
--------- --------
CASH ON HAND AND IN BANKS, ENDING $ 171 $ 182
========= ========
See accompanying notes.
-5-
<PAGE>
BOC FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION
In management's opinion, the financial information, which is unaudited, reflects
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial information as of and for the three and
six month periods ended June 30, 1998 and 1997, in conformity with generally
accepted accounting principles. The financial statements include the accounts of
BOC Financial Corp. (the "Company") and its wholly-owned subsidiary, Bank of the
Carolinas (the "Bank"), formerly Landis Savings Bank, SSB. Operating results for
the three and six month periods ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 1998.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the financial
statements filed as part of BOC Financial Corp.'s registration statement on Form
SB-2. This quarterly report should be read in conjunction with such registration
statement.
NOTE B - PLAN OF CONVERSION
On September 29, 1997, the Board of Directors of the Bank adopted a Plan of
Conversion whereby Landis Savings Bank, SSB converted from a North
Carolina-charted mutual savings bank to a North Carolina-chartered stock
commercial bank, changed its name to Bank of the Carolinas, and became a
wholly-owned subsidiary of BOC Financial Corp. (the "Company" or "Holding
Company"), a holding company formed in connection with the conversion. The
Holding Company issued common stock in the conversion and used a portion of the
net proceeds thereof to purchase the capital stock of the Bank.
At the time of conversion, the Bank established a liquidation account in an
amount equal to its net worth as reflected in its latest statement of financial
condition used in its final conversion prospectus. The liquidation account will
be maintained for the benefit of eligible deposit account holders who continue
to maintain their deposit accounts in the Bank after conversion. Only in the
event of a complete liquidation will each eligible deposit account holder be
entitled to receive a subaccount balance for deposit accounts then held before
any liquidation distribution may be made with respect to common stock. Dividends
paid by the Bank subsequent to the conversion cannot be paid from this
liquidation account.
The Bank may not declare or pay a cash dividend on or repurchase any of its
common stock if its net worth would thereby be reduced below either the
aggregate amount then required for the liquidation account or the minimum
regulatory capital requirements imposed by federal and state regulations.
-6-
<PAGE>
BOC FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE B - PLAN OF CONVERSION (CONTINUED)
On April 28, 1998, the Bank completed its conversion from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered stock
commercial bank. The conversion occurred through the sale of 925,741 shares of
common stock ($1.00 par value) of BOC Financial Corp. Total proceeds of
$9,257,000 were reduced by conversion expenses of approximately $440,000. BOC
Financial Corp. purchased 100% of the common stock of Bank of the Carolinas
issued in the conversion, and retained the balance of the net conversion
proceeds. The transaction was recorded as an "as-if" pooling with assets and
liabilities recorded at historical cost.
NOTE C - EMPLOYEE STOCK OWNERSHIP PLAN
Subsequent to the mutual to stock conversion, the Bank of the Carolinas Employee
Stock Ownership Plan ("ESOP") purchased 74,059 shares of the common stock of the
Holding Company in the open market at a total cost of $1,043,000. Funding for
the purchase of shares by the ESOP was provided by the Holding Company. The ESOP
executed a note payable to the Holding Company for the full price of the shares
purchased.
NOTE D - NET INCOME PER SHARE
Basic net income per share for the period from the closing of the Company's
stock offering (April 28, 1998) through June 30, 1998 was $.07 per share and was
computed based on consolidated net income during that period divided by the
weighted average number of common shares outstanding during that period (861,824
shares). There were no dilutive common equivalent shares outstanding during the
period.
-7-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND DECEMBER 31, 1997
Total assets increased by $6.5 million during the six months ended June 30,
1998, from $24.6 million at December 31, 1997 to $31.1 million at period end.
The growth in assets was attributable to the sale, on April 28, 1998, of 925,741
shares of the Company's common stock, generating net cash proceeds of $8.8
million. Of this amount, $1.0 million was used to fund a loan to the Bank's
Employee Stock Ownership Plan ("ESOP"), while approximately $1.4 million was
used to fund a net reduction in customer deposits from $20.0 million at December
31, 1997 to $18.6 million at June 30, 1997. The reduction in deposits resulted
from the conversion of customer deposit accounts which were used to purchase
shares of the Company's common stock. The remaining net proceeds, combined with
a decrease in loans of $889,000, were used to fund increases of $7.1 million and
$573,000, respectively, in federal funds sold and investment securities
available for sale.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998
AND 1997
Net income for the three months ended June 30, 1998 was $85,000 as compared with
net income of $49,000 for the three months ended June 30, 1997, an increase of
$36,000. The increase in net income was principally attributable to an increase
of $105,000 in net interest income as a result of the infusion of capital and
increased interest-earning liquid assets arising from the sale of the Company's
common stock during the current period. Personnel costs increased $4,000 during
the current period, primarily as a result of costs provided for the deferred
compensation plan which was adopted in 1997, but for which no costs were
provided during the three months ended June 30, 1997. Other expenses increased
by $33,000 principally as a result of additional costs associated with the
Company's operation as a publicly held entity. Income taxes increased $32,000
because of the increased level of income before income taxes.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1997
Net income for the six months ended June 30, 1998 was $132,000 as compared with
net income of $95,000 for the six months ended June 30, 1997, an increase of
$37,000. The increase in net income was principally attributable to an increase
of $118,000 in net interest income as a result of the infusion of capital and
increased interest-earning liquid assets arising from the sale of the Company's
common stock during the current period. Personnel costs increased $16,000 during
the current period, primarily as a result of costs provided for the deferred
compensation plan which was adopted in 1997, but for which no costs were
provided during the six months ended June 30, 1997. Other expenses increased by
$36,000 principally as a result of additional costs associated with the
Company's operation as a publicly held entity. Income taxes increased $34,000
because of the increased level of income before income taxes.
-8-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The objective of the Company's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses the
Bank's ability to meet deposit withdrawals on demand or at contractual maturity,
to repay borrowings as they mature, and to fund new loans and investments as
opportunities arise.
The primary sources of internally generated funds are principal and interest
payments on loans receivable and cash flows generated from operations. External
sources of funds include increases in deposits and advances from the FHLB of
Atlanta.
At June 30, 1998, liquid assets comprise 40% of total assets. Management
believes that it will have sufficient funds available to meet its anticipated
future loan commitments as well as other liquidity needs.
At June 30, 1998, both the Company and the Bank substantially exceed all
applicable regulatory capital requirements.
THE YEAR 2000
At the turn of the century, computer-based information systems will be faced
with the problems potentially affecting hardware, software, networks, processing
platforms, as well as customer and vendor interdependencies. The Bank has
developed a plan for identifying, renovating, testing and implementing its
systems for Year 2000 processing and internal control requirements. Based upon
progress to date in carrying out that plan, management believes that the Bank
will be Year 2000 compliant on a timely basis. The cost for becoming Year 2000
compliant has not been fully determined; however, management believes it will
not be material to the Bank's financial statements.
-9-
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. USE OF PROCEEDS FROM REGISTERED SECURITIES
The Company's initial registration statement on Form SB-2 was declared effective
on February 18, 1998. The offering commenced on February 18, 1998 and expired on
April 28, 1998. The sale in the offering of 925,741 shares of $1 par value
common shares closed on April 28, 1998 for gross proceeds of $9.3 million. Net
of offering costs and expenses of $440,000, the offering generated net proceeds
of $8.8 million. The use of those proceeds is discussed herein in Part 1, Item
2, under the caption "Comparison of Financial Condition at June 30, 1998 and
December 31, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
(27) Financial data schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June 30,
1998.
-10-
<PAGE>
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.
BOC FINANCIAL CORP.
Date: August 10, 1998 By: /s/ Stephen R. Talbert
----------------------
Stephen R. Talbert
Chief Executive Officer
Date: August 10, 1998 By: /s/ Lisa B. Ashley
------------------
Lisa B. Ashley
Chief Financial Officer
-11-
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001050893
<NAME> BOC Financial Corp.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 171
<INT-BEARING-DEPOSITS> 42
<FED-FUNDS-SOLD> 8,850
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,482
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 17,967
<ALLOWANCE> 30
<TOTAL-ASSETS> 31,089
<DEPOSITS> 18,555
<SHORT-TERM> 0
<LIABILITIES-OTHER> 206
<LONG-TERM> 0
0
0
<COMMON> 926
<OTHER-SE> 11,402
<TOTAL-LIABILITIES-AND-EQUITY> 31,089
<INTEREST-LOAN> 744
<INTEREST-INVEST> 93
<INTEREST-OTHER> 196
<INTEREST-TOTAL> 1,033
<INTEREST-DEPOSIT> 534
<INTEREST-EXPENSE> 534
<INTEREST-INCOME-NET> 499
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 499
<EXPENSE-OTHER> 296
<INCOME-PRETAX> 206
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
<YIELD-ACTUAL> 3.39
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 17
<ALLOWANCE-OPEN> 30
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 30
<ALLOWANCE-DOMESTIC> 30
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
