FORM 10-QSB - QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2000
---------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-25999
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WAKE FOREST BANCSHARES, INC.
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(Exact name of small business issuer as specified in its charter)
United States of America 56-2131079
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
302 South Brooks Street
Wake Forest, North Carolina 27587
---------------------------------
(Address of principal executive offices)
(919)-556-5146
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year, if changed since
last report)
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. Yes X No
---- ----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 1, 2000 there were issued
and outstanding 1,174,062 shares of the Issuer's common stock, $.01 par value
Transitional Small Business Disclosure Format: Yes No X
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<PAGE>
WAKE FOREST BANCSHARES, INC.
CONTENTS
<TABLE>
<CAPTION>
Pages
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated statements of financial condition at March 31, 2000
(unaudited) and September 30, 1999 1
Consolidated statements of income for the three months ended March 31,
2000 and March 31, 1999 (unaudited) 2
Consolidated statements of income for the six months ended March 31,
2000 and March 31, 1999 (unaudited) 3
Consolidated statements of comprehensive income for the three and six
months ended March 31, 2000 and March 31, 1999 (unaudited) 4
Consolidated statements of cash flows for the six months ended March 31,
2000 and March 31, 1999 (unaudited) 5-6
Notes to consolidated financial statements (unaudited) 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
<PAGE>
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 2000 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 2000 1999
- ---------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash and short-term cash investments $ 3348700.00 $ 6501050.00
Investment securities:
Available for sale, at estimated market value 2890400.00 3527750.00
FHLB stock 290700.00 280400.00
Loans receivable, net 68705800.00 61467300.00
Accrued interest receivable 101050.00 101850.00
Property and equipment, net 442100.00 452000.00
Prepaid expenses and other assets 76700.00 65200.00
----------------------------------
TOTAL ASSETS $ 75855450.00 $ 72395550.00
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 60926500.00 $ 57653900.00
Accrued expenses and other liabilities 440100.00 387350.00
Dividends payable 141650.00 143700.00
Note payable - ESOP 176550.00 206000.00
Income taxes payable 7550.00 --
Deferred income taxes 102100.00 160800.00
Redeemable common stock held by the ESOP
net of unearned ESOP shares 348750.00 375950.00
----------------------------------
TOTAL LIABILITIES 62143200.00 58927700.00
----------------------------------
Stockholders' equity:
Preferred stock, authorized 1,000,000 shares, none issued
Common stock, par value $ .01, authorized 5,000,000 shares,
issued 1,215,862 shares 12150.00 12150.00
Additional paid-in capital 4881800.00 4843600.00
Accumulated other comprehensive income 387650.00 472900.00
Retained earnings, substantially restricted 8917400.00 8490850.00
Less: Treasury stock acquired -486750.00 -351650.00
----------------------------------
TOTAL STOCKHOLDERS' EQUITY 13712250.00 13467850.00
----------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 75855450.00 $ 72395550.00
==================================
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and dividend income:
Loans $ 1537550.00 $ 1369100.00
Investment securities 42500.00 37600.00
Short-term cash investments 49850.00 152500.00
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TOTAL INTEREST INCOME 1629900.00 1559200.00
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Interest expense:
Interest on deposits 744250.00 754300.00
Interest on ESOP debt 4200.00 4850.00
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748450.00 759150.00
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NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 881450.00 800050.00
Provision for loan losses -8000.00 --
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 873450.00 800050.00
-------------------------------------
Noninterest income:
Service charges and fees 9500.00 7650.00
Other 2450.00 1300.00
-------------------------------------
11950.00 8950.00
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Noninterest expense:
Compensation and benefits 217900.00 180350.00
Occupancy 11200.00 8800.00
Federal insurance and operating assessments 9100.00 15250.00
Data processing and outside service fees 27800.00 23400.00
Other operating expense 86650.00 97850.00
-------------------------------------
352650.00 325650.00
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INCOME BEFORE INCOME TAXES 532750.00 483350.00
Income taxes 201700.00 184850.00
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NET INCOME $ 331050.00 $ 298500.00
======================================
Basic earnings per share $ 0.29 $ 0.26
======================================
Diluted earnings per share $ 0.29 $ 0.26
======================================
Dividends paid per share $ 0.12 $ 0.12
======================================
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and dividend income:
Loans $ 2980650.00 $ 2690500.00
Investment securities 88200.00 74050.00
Short-term cash investments 114700.00 346450.00
-------------------------------------
TOTAL INTEREST INCOME 3183550.00 3111000.00
-------------------------------------
Interest expense:
Interest on deposits 1478600.00 1560250.00
Interest on ESOP debt 8500.00 10150.00
-------------------------------------
1487100.00 1570400.00
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NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 1696450.00 1540600.00
Provision for loan losses -15500.00 --
-------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1680950.00 1540600.00
-------------------------------------
Noninterest income:
Service charges and fees 21700.00 16200.00
Other 2800.00 3100.00
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24500.00 19300.00
-------------------------------------
Noninterest expense:
Compensation and benefits 409150.00 340900.00
Occupancy 24200.00 16300.00
Federal insurance and operating assessments 23800.00 29900.00
Data processing and outside service fees 54000.00 51900.00
Other operating expense 163550.00 180400.00
-------------------------------------
674700.00 619400.00
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INCOME BEFORE INCOME TAXES 1030750.00 940500.00
Income taxes 381350.00 356200.00
-------------------------------------
NET INCOME $ 649400.00 $ 584300.00
=====================================
Basic earnings per share $ 0.56 $ 0.50
=====================================
Diluted earnings per share $ 0.56 $ 0.50
=====================================
Dividends paid per share $ 0.24 $ 0.24
=====================================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
WAKE FOREST BANCSHARES, INC.
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Net income $ 331,050 $298,500
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Other comprehensive income, net of tax:
Unrealized losses on securities:
Unrealized holding losses arising during the period (30,150) (74,500)
Less: reclassification adjustment for gains included in
net income -- --
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OTHER COMPREHENSIVE INCOME (LOSS) (30,150) (74,500)
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COMPREHENSIVE INCOME $ 300,900 $224,000
======== =======
SIX MONTHS ENDED MARCH 31, 2000 AND 1999
Net income $ 649,400 $584,300
-------- -------
Other comprehensive income, net of tax:
Unrealized losses on securities:
Unrealized holding losses arising during the period (85,250) 64,900
Less: reclassification adjustment for gains included in
net income -- --
-------- -------
OTHER COMPREHENSIVE INCOME (LOSS) (85,250) 64,900
-------- -------
COMPREHENSIVE INCOME $ 564,150 $649,200
======== =======
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 649400.00 $ 584300.00
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 17100.00 15550.00
Provision for loan losses 15500.00 --
Amortization of discounts/premiums on investment securities -100.00 -750.00
Deferred income taxes -6500.00 -5100.00
ESOP contribution expense charged to paid-in capital 9850.00 6600.00
Amortization of unearned ESOP shares and deferred stock
awards 57800.00 57800.00
Changes in assets and liabilities:
Prepaid expenses and other assets -11500.00 -2200.00
Accrued interest receivable 800.00 -53350.00
Income taxes payable 7550.00
Accrued dividends payable -2050.00 --
Accrued expenses and other liabilities 52750.00 55800.00
---------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 790600.00 658650.00
---------------------------------
Cash Flows From Investing Activities
Net decrease in loans receivable -7254000.00 -3366300.00
Purchase of available for sale investment securities -10300.00 -1500000.00
Maturity of available for sale investment securities 500000.00 1000000.00
Purchase of property and equipment -7200.00 -8000.00
---------------------------------
NET CASH USED IN INVESTING ACTIVITIES -6771500.00 -3874300.00
---------------------------------
Cash Flows From Financing Activities
Net increase in deposits 3272600.00 230850.00
Principal payments on ESOP debt -29450.00 -29450.00
Purchase of treasury stock -135100.00 --
Dividends paid -279500.00 -286000.00
---------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2828550.00 -84600.00
---------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS -3152350.00 -3300250.00
Cash and cash equivalents:
Beginning 6501050.00 15311350.00
---------------------------------
Ending $ 3348700.00 $ 12011100.00
=================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash payments of interest $ 1499400.00 $ 1562900.00
==================================
Cash payments of taxes $ 389100.00 $ 349300.00
==================================
Supplemental Disclosure of Noncash transactions:
Fair value of ESOP shares in excess of unearned
ESOP shares (charged) credited to retained earnings $ 56650.00 $ -11750.00
==================================
Change in unrealized gain (loss) on available for sale
securities, net of tax effect $ -85250.00 $ 64900.00
==================================
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
WAKE FOREST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF BUSINESS
Wake Forest Bancshares, Inc. (the "Company") is located in Wake Forest, North
Carolina and is the parent stock holding company of Wake Forest Federal Savings
and Loan Association (the "Association" or "Wake Forest Federal"), it's only
subsidiary. The Company conducts no business other than holding stock in the
Association, investing dividends received from the Association, repurchasing its
common stock from time to time, and distributing dividends on its common stock
to its shareholders. The Association's principal activities consist of obtaining
savings deposits and providing mortgage credit to customers in its primary
market area, the counties of Wake and Franklin, North Carolina. The Company and
the Association's primary regulator is the Office of Thrift Supervision and its
deposits are insured by the Savings Association Insurance Fund (SAIF) of the
Federal Deposit Insurance Corporation (FDIC).
REORGANIZATION
On November 16, 1998, the Board of Directors of the Association approved an
Agreement and Plan of Reorganization (the Plan of Reorganization). The Plan of
Reorganization provided for the establishment of Wake Forest Bancshares, Inc. as
a stock holding company parent of the Association. The Company is majority owned
by the Wake Forest Bancorp, M.H.C., (the "MHC") a mutual holding company. The
reorganization into the "two-tier" mutual holding company structure (the
Reorganization) under the Plan of Reorganization was approved by the
Association's stockholders at their annual meeting held on February 23, 1999 and
by regulatory authorities on April 9, 1999. The formation of the Company was
consummated pursuant to the Plan of Reorganization on May 7, 1999.
As a part of the Reorganization, each outstanding share of Association's common
stock was converted into one share of common stock, par value $.01 per share, of
the Company, and the holders of the Association's common stock became the
holders of all of the outstanding shares of the Company's common stock.
Accordingly, as a result of the Reorganization, the Association's minority
shareholders became minority shareholders of the Company. The Company was formed
solely for the purpose of becoming a savings and loan holding company and had no
prior operating history. The Reorganization had no impact on the operations of
the Association or the MHC. The Association continues to operate at the same
location, with the same management, and subject to all the rights, obligations
and liabilities of the Association existing immediately prior to the
Reorganization.
The Board of Directors of the Association capitalized the Company with $100,000.
Future capitalization of the Company will depend upon dividends declared by the
Association based on future earnings, or the raising of additional capital by
the Company through a future issuance of securities, debt or by other means. The
Board of Directors of the Company has no present plans or intentions with
respect to any future issuance of securities or debt at this time. Furthermore,
as long as it is in existence, the MHC must own at least a majority of the
Company's outstanding voting stock.
7
<PAGE>
WAKE FOREST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. THE REORGANIZATION (CONTINUED)
The Reorganization was treated similar to a pooling of interests for accounting
purposes. Therefore, the consolidated capitalization, assets, liabilities,
income and expenses of the Company immediately following the Reorganization will
be substantially the same as those of the Association immediately prior to
consummation of the Reorganization, all of which will be shown on the Company's
books at their historical recorded values.
Members of the mutual holding company consist of depositors and certain
borrowers of the Association, who have the sole authority to elect the board of
directors of the mutual holding company for as long as it remains in mutual
form. Initially, the mutual holding company's principal assets consisted of
635,000 shares of the Association's common stock (now converted to the Company's
common stock) and $100,000 in cash received from the Association as initial
capital. The mutual holding company has since received its proportional share of
dividends declared and paid by the Association (now the Company), and such funds
are invested in deposits with the Association. The mutual holding company, which
by law must own in excess of 50% of the stock of the Company, currently has an
ownership interest of 54.1% of the Company. The mutual holding company is
registered as a savings and loan holding company and is subject to regulation,
examination, and supervision by the Office of Thrift Supervision (the "OTS").
NOTE 3. BASIS OF PRESENTATION
The accompanying unaudited financial statements (except for the statement of
financial condition at September 30, 1999, which is audited) have been prepared
in accordance with generally accepted accounting principles for interim
financial information and Regulation S-B. Accordingly, they do not include all
of the information required by generally accepted accounting principles for
complete financial statements. Because the Company was incorporated on May 7,
1999, the Company's financial results on or after that date are reported on a
consolidated basis with the operating results of the Association, its
wholly-owned subsidiary. Financial results reported prior to May 7, 1999 include
only the activities of the Association. In the opinion of management, all
adjustments (none of which were other than normal recurring accruals) necessary
for a fair presentation of the financial position and results of operations for
the periods presented have been included. The results of operations for the
three and six month periods ended March 31, 2000 are not necessarily indicative
of the results of operations that may be expected for the Company's fiscal year
ending September 30, 2000.
The accounting policies followed are as set forth in Note 1 of the Notes to
Consolidated Financial Statements in the Company's September 30, 1999 Annual
Report to Shareholders.
8
<PAGE>
NOTE 4. DIVIDENDS DECLARED
On March 20, 2000, the Board of Directors of the Company declared a dividend of
$0.12 a share for stockholders of record as of March 31, 2000 and payable on
April 10, 2000. The dividends declared were accrued and reported as dividends
payable in the March 31, 2000 Consolidated Statement of Financial Condition.
Wake Forest Bancorp, Inc., the mutual holding company, did not waive the receipt
of dividends declared by the Company.
9
<PAGE>
WAKE FOREST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. EARNINGS PER SHARE
Statement of Financial Accounting Standard No. 128 requires dual presentation of
basic and diluted earnings per share ("EPS") with a reconciliation of the
numerator and denominator of the EPS computations. Basic earnings per share
amounts are based on the weighted average shares of common stock outstanding.
Diluted earnings per share assume the conversion, exercise or issuance of all
potential common stock instruments such as options, warrants and convertible
securities, unless the effect is to reduce a loss or increase earnings per
share. This presentation has been adopted for all periods presented. There were
no adjustments required to net income for any period in the computation of
diluted earnings per share. The reconciliation of weighted average shares
outstanding for the computation of basic and diluted earnings per share for the
three and six month periods ended March 31, 2000 and 1999 is presented below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31: 2000 1999
------------------------------
<S> <C> <C>
Weighted average shares outstanding for Basic EPS 1154357.00 1178013.00
Plus incremental shares from assumed issuances of shares
pursuant to stock option and stock award plans 1715.00 --
-----------------------------
Weighted average shares outstanding for diluted EPS 1156072.00 1178013.00
=============================
SIX MONTHS ENDED MARCH 31:
Weighted average shares outstanding for Basic EPS 1156428.00 1176697.00
Plus incremental shares from assumed issuances of shares
pursuant to stock option and stock award plans 2880.00 368.00
-----------------------------
Weighted average shares outstanding for diluted EPS 1159308.00 1177065.00
=============================
</TABLE>
10
<PAGE>
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2000 AND SEPTEMBER 30, 1999:
Total assets increased by $3.5 million to $75.9 million at March 31, 2000 from
$72.4 million at September 30, 1999. Total assets increased during the six
months ended March 31, 2000 primarily due to an increase in deposits of
approximately $3.3 million and internally generated earnings. An increase in net
loans receivable of $7.2 million during the period from October 1, 1999 to March
31, 2000 was funded by utilizing the deposit growth as well as cash and cash
equivalents, which decreased by $3.2 million during the six months ended March
31, 2000.
Net loans receivable increased by $7.2 million to $68.7 million at March 31,
2000 from $61.5 million at September 30, 1999. The increase occurred primarily
due to continued strong demand for residential loans in and around Wake Forest.
Assuming interest rates remain fairly stable or decline, management believes
that its loan portfolio has potential for continued growth because the
Association operates in lending markets that have had sustained consistent loan
demand over the past several years. Wake Forest Federal is located in the town
of Wake Forest, which is approximately 20 miles from Raleigh and the Research
Triangle Park (the "Triangle"), areas which have grown substantially over the
last decade. The current trend is for increased residential development in and
around Wake Forest for individuals and families which work in the Triangle.
However, there can be no assurances that such trends and loan demand can or will
continue.
Investment securities decreased by $627,050 to $3.2 million at March 31, 2000
from $3.8 million at September 30, 1999. During the six months ended March 31,
2000, the Association received $500,000 in funds from maturing investments and
purchased $10,300 in additional FHLB of Atlanta stock. The remaining decrease is
attributable to a decrease in the unrealized appreciation of the Association's
available for sale investment securities portfolio. Growth within the
Association's investment portfolio has been limited due to consistent loan
demand. The Association's investment portfolio consists of U.S. Agency
securities, FHLMC common stock, and stock in the Federal Home Loan Bank of
Atlanta.
11
<PAGE>
Deposits increased by $3.3 million to $60.9 million at March 31, 2000 from $57.6
million at September 30, 1999. The increase is part of a relatively steady trend
in deposit growth over the last few years caused primarily by economic growth in
the area and competitive pricing. The Association's current policy of
aggressively pricing certificates of deposit will likely result in continued
deposit growth.
The Company had no borrowings outstanding during the quarter other than the loan
incurred by its Employee Stock Ownership Plan (the "ESOP") for the purchase of
41,200 shares of the Company's common stock. The ESOP borrowed $412,000 for its
purchase of stock from an outside financial institution on April 3, 1996. During
the first six months of its fiscal year, the Association made principal payments
totaling $29,450 plus interest on the ESOP note, reducing the outstanding
balance of the note to $176,550 at March 31, 2000. The Association is committed
to making retirement plan contributions sufficient to amortize the debt over its
seven year term, and as such, has reported the debt on its balance sheet.
12
<PAGE>
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2000 AND SEPTEMBER 30, 1999
(CONTINUED):
The ESOP has a put option which requires that the Company repurchase its common
stock from participants in the ESOP who are eligible to receive benefits under
the terms of the plan and elect to receive cash in exchange for their common
stock. The Company is required to reflect as a liability the maximum possible
cash obligation to redeem the shares, which is the fair value of such shares,
whether allocated or unallocated to the participants. The put option liability
can be reduced by the unearned ESOP shares, the cost of shares not currently
eligible for allocation to plan participants. The Company has recorded a net
liability of $348,750 at March 31, 2000 for the ESOP put option.
On June 21, 1999, the Board of Directors of the Company approved the adoption of
a stock repurchase program authorizing the Company to repurchase up to 60,793
shares or 5.00% of its outstanding common stock. The repurchases are to be made
through registered broker-dealers from shareholders in open market purchases at
the discretion of management. The Company intends to hold the shares repurchased
as treasury shares, and may utilize such shares to fund stock benefit plans or
for any other general corporate purposes permitted by applicable law. At March
31, 2000 the Company had repurchased 35,400 shares of its common stock. The
program continues until terminated by the Board of Directors. Retained earnings
increased by $426,550 to $8.9 million at March 31, 2000 from $8.5 million at
September 30, 1999. The increase is attributable to the Company's earnings
during the six month period ended March 31, 2000, reduced by $279,500 in
dividends declared during the same period, and a $56,650 credit to retained
earnings to reflect the change in the fair value of the ESOP shares subject to
the put option. At March 31, 2000, the Company's regulatory capital amounted to
$13.3 million, which as a percentage of adjusted total assets was 17.71%, and
considerably in excess of the regulatory capital requirements at such date.
ASSET QUALITY:
The Association's level of non-performing loans, defined as loans past due 90
days or more, as a percentage of loans outstanding, was 0.00% and 0.48% at March
31, 2000 and September 30, 1999, respectively. At March 31, 2000, the
Association had no other non-performing assets, such as foreclosed real estate
or impaired investments. During the three and six month periods ended March 31,
2000 and 1999, the Association's level of non-performing loans remained
consistently low in relation to prior periods and total loans outstanding.
However, during the six months ended March 31, 2000, the Association charged off
$26,182 against its loan loss allowance for a non-performing loan which was
subsequently paid off during the period. Management believes that its general
valuation loan loss allowance of $252,300 at March 31, 2000 is adequate to
absorb inherent losses on existing loans that may become uncollectible.
13
<PAGE>
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED MARCH 31,
2000 AND 1999:
GENERAL. Net income for the three month period ended March 31, 2000 was $331,050
($0.29 per share), or $32,550 more than the $298,500 ($0.26 per share) earned
during the same period in 1999. Net income for the six month period ended March
31, 2000 of $649,400 ($0.56 per share) exceeded net income for the same period
in 1999 of $584,300 ($0.50 per share) by $65,100. As discussed below, changes in
net interest income between the comparable periods was primarily responsible for
the increase in net income.
INTEREST INCOME. Interest income increased by $70,700 from $1,559,200 for the
three months ended March 31, 1999 to $1,629,900 for the three months ended March
31, 2000. Interest income increased by $72,550 from $3,111,000 for the six
months ended March 31, 1999 to $3,183,550 for the six months ended March 31,
2000. The increase was attributable primarily to an overall increase in the
yield on interest-earning assets, which was 0.40% and 0.46% higher during the
three and six month periods ended March 31, 2000, respectively, than the
comparable periods in 1999. The increase in yield occurred because the
Association had a higher percentage of outstanding loans in the overall mix of
interest earning assets during the current six month period as compared to the
same period in 1999. The Association's loan portfolio yield is considerably
higher than the yield on its investment portfolio and other shorter-term liquid
assets. The overall yield on interest earning assets was 8.32% and 8.41% for the
three and six months ended March 31, 2000, respectively, as compared to 7.92%
and 7.95% for the comparable periods in 1999.
INTEREST EXPENSE. Interest expense decreased by $10,700 from $759,150 for the
three months ended March 31, 1999 to $748,450 for the three months ended March
31, 2000. Interest expense decreased by $83,300 from $1,570,400 for the six
months ended March 31, 1999 to $1,487,100 for the six months ended March 31,
2000. The decrease in interest expense for the current quarter was primarily due
to a slight decrease in the volume of interest bearing liabilities outstanding
during the three months ended March 31, 2000 as compared to the same period in
1999. The decrease in interest expense for the six months ended March 31, 2000
as compared with the same period in 1999 was due to 0.10% decrease in the
Association's cost of funds between the periods. The Association's cost of funds
was 5.13% and 5.11% for the three months ended March 31, 2000 and 1999,
respectively. The Association's cost of funds was 5.07% and 5.17% for the six
months ended March 31, 2000 and 1999, respectively.
NET INTEREST INCOME. Net interest income increased by $81,400 from $800,050 for
the three months ended March 31, 1999 to $881,450 for the three months ended
March 31, 2000. Net interest income increased by $155,850 from $1,540,600 for
the six months ended March 31, 1999 to $1,696,450 for the six months ended March
31, 2000. The increase in net interest income during the current periods as
compared to prior periods resulted primarily from an increase in the volume of
loans within the mix of interest earning assets coupled with a decline in the
Association's cost of funds during the six months ended March 31, 2000 as
compared to the same period last year.
14
<PAGE>
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PROVISION FOR LOAN LOSSES. The Association provided loan loss provisions of
$8,000 and $15,500 for the current quarter and six month period ended March 31,
2000, respectively. No provisions for loan losses were made during the three and
six month periods ended March 31, 1999. Provisions, which are charged to
operations, and the resulting loan loss allowances are amounts the Association's
management believes will be adequate to absorb potential losses on existing
loans that may become uncollectible. Loans are charged off against the allowance
when management believes that collectibility is unlikely. The evaluation to
increase or decrease the provision and resulting allowances is based both on
prior loan loss experience and other factors, such as changes in the nature and
volume of the loan portfolio, overall portfolio quality, and current economic
conditions. While Management uses the best information available to make the
evaluations, future adjustments to the allowance may be necessary, if economic
or other conditions differ substantially from the assumptions used.
The Association did not have any non-performing loans at March 31, 2000. At
March 31, 1999, the Association had $131,219 in non-performing loans, or 0.22%
of its total loans outstanding at such time. The Association charged off $8,909
and $26,182 against its loan loss allowance during the three and six month
periods ended March 31, 2000, respectively, in connection with a non-performing
loan that was subsequently paid off prior to March 31, 2000. The Association did
not charge-off any loans during the three or six month periods ended March 31,
1999.
NONINTEREST EXPENSE. Noninterest expense increased by $27,000 to $352,650 for
the three month period ended March 31, 2000 from $325,650 for the comparable
quarter in 1999. Noninterest expense increased by $55,300 to $674,700 for the
six month period ended March 31, 2000 from $619,400 for the six month period
ended March 31, 1999. The only significant dollar increase in any category of
noninterest expense occurred in area of compensation and related benefits, which
increased from $180,350 and $340,900 during the three and six month periods
ended March 31, 1999, respectively, to $217,900 and $409,150 for the three and
six month periods ended March 31, 2000, respectively. The increase in
compensation and benefits occurred due to the addition of two full time
employees who were not employed for the entire six month period in 1999, and
because of increases in the cost of health insurance coverage for the Company's
employees. One of the additional employees was as a result of hiring a Chief
Financial Officer who added depth and expertise to the Company's management
structure.
15
<PAGE>
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY:
The term "liquidity" generally refers to an organization's ability to generate
adequate amounts of funds to meet its needs for cash. More specifically for
financial institutions, liquidity ensures that adequate funds are available to
meet deposit withdrawals, fund loan and capital expenditure commitments,
maintain reserve requirements, pay operating expenses, and provide funds for
debt service, dividends to stockholders, and other institutional commitments.
Funds are primarily provided through financial resources from operating
activities, expansion of the deposit base, borrowings, through the sale or
maturity of investments, the ability to raise equity capital, or maintenance of
shorter term interest-earning deposits.
During the six month period ended March 31, 2000, cash and cash equivalents, a
significant source of liquidity, decreased by approximately $3.2 million. An
increase in deposits of $3.3 million during the six month period ended March 31,
2000 provided a significant source of cash. In addition, proceeds from the
Association's operations contributed $790,600 in cash during the period. Cash
was utilized to fund loan originations, which net of repayments, increased by
$7.2 during the six month period ended March 31, 2000. Net proceeds from
maturing investments also amounted to $489,700 during the current six month
period, and thus provided cash. Dividends paid to stockholders of $279,500 and
repurchases of stock amounting to $135,100 represented additional uses of cash.
As a federally chartered savings association, Wake Forest Federal must maintain
minimum liquidity requirements. The Association's liquidity ratio at March 31,
2000 was in excess of such requirements. Given its excess liquidity and its
ability to borrow from the Federal Home Loan Bank, the Association believes that
it will have sufficient funds available to meet anticipated future loan
commitments, unexpected deposit withdrawals, and other cash requirements.
YEAR 2000 ISSUE:
The "Year 2000 Problem" centers on the inability of computer systems to
recognize the Year 2000. Many existing computer programs and systems were
originally programmed with six digit dates that provided only two digits to
identify the calendar year in the date field, without considering the change in
the century. Like most financial service providers, the Company through it
wholly owned Association could have been significantly affected by the Year
2000. Software, hardware, and equipment both within and outside the
Association's direct control and with whom the Association electronically or
operationally interfaces (e.g. third party vendors providing data processing,
information system management, maintenance of computer systems, and credit
bureau information) were subject to be affected.
The Company did not experience any Year 2000 related problems as a result of the
changeover to the new millennium. Based upon testing and the occurrence of
subsequent daily operations in January, 2000, the Company's systems reacted and
continue to function in a normal fashion. While there are a few date sensitive
time periods which will still require monitoring, such as December 31, 2000,
management does not expect significant problems to occur.
16
<PAGE>
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
YEAR 2000 ISSUE (CONTINUED):
Monitoring and managing the Year 2000 project resulted in additional direct and
indirect costs to the Company. Direct costs include charges by third party
software vendors for product enhancements, costs involved in testing software
products for Year 2000 compliance, and costs for developing and implementing
contingency plans for critical software products which are not enhanced.
Indirect costs principally consist of the time devoted by existing employees to
monitor software vendor progress, test enhanced software products and implement
any necessary contingency plans. The Company has incurred approximately $100,000
on Year 2000 related costs to date and estimates that any future costs will be
immaterial. Both direct and indirect costs of addressing the Year 2000 problem
were charged to earnings as incurred.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS:
Statements herein regarding estimated future revenue and expense levels and
other matters may constitute forward-looking statements under the federal
securities laws. Such statements are subject to certain risks and uncertainties
including changes in general and local market conditions, legislative and
regulatory conditions and an adverse interest rate environment. Undue reliance
should not be placed on this information. These estimates are based on the
current expectations of management, which may change in the future due to a
large number of potential events, including unanticipated future developments.
17
<PAGE>
WAKE FOREST BANCSHARES, INC.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not engaged in any legal proceedings at the
present time other than legal proceedings within the normal
course of business to enforce its security interest in a loan.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On February 22, 2000, the annual meeting of stockholders was held to
consider and vote upon the election of three directors of the Company
and to ratify the appointment of McGladrey & Pullen, LLP as independent
auditors for the Company for the fiscal year ending September 30, 2000.
All items were approved by the stockholders as shown below:
Vote concerning the election of directors of the Company:
<TABLE>
<CAPTION>
For Against Withheld Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Anna Sumerlin 1082420.00 0.00 1388.00 1083808.00
Paul Brixhoff 1069320.00 0.00 14488.00 1083808.00
Harold Washington 1069320.00 0.00 14488.00 1083808.00
Vote concerning ratification of McGladrey & Pullen, LLP as independent auditors for the year ended
September 30, 2000:
For Against Abstained Total
--------------------------------------------------------------------------
1082458.00 0.00 1350.00 1083808.00
</TABLE>
18
<PAGE>
The foregoing matters are described in detail in the Company's proxy
statement dated January 20, 2000 for the 2000 Annual Meeting of
Stockholders.
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27.01 - Financial Data Schedule
b) No reports on Form 8-K were filed for the period covered
by this report
19
<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.
WAKE FOREST BANCSHARES, INC.
Dated May 5, 2000 By: Anna O. Sumerlin
------------------ ----------------
Anna O. Sumerlin
President and CEO
Dated May 5, 2000 By: Robert C. White
------------------ ---------------
Robert C. White
Vice President and CFO
20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and the statements of income of Wake Forest
Bancshares, Inc. and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0001085175
<NAME> Wake Forest Bancshares, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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<CASH> 933
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<INVESTMENTS-HELD-FOR-SALE> 2,890
<INVESTMENTS-CARRYING> 291
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<LOANS> 68,706
<ALLOWANCE> 252
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0
0
<COMMON> 12
<OTHER-SE> 13,700
<TOTAL-LIABILITIES-AND-EQUITY> 75,855
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<YIELD-ACTUAL> 4.78
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</TABLE>
