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 December 31, 1999
------------------------------
[ ] 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
WAKE FOREST BANCSHARES, INC.
----------------------------
(Exact name of small business issuer as specified in its charter)
United States of America 56-2131079
------------------------ ----------
(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
---
(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 February 1, 2000 there were
issued and outstanding 1,182,962 shares of the Issuer's common stock, $.01 par
value
Transitional Small Business Disclosure Format: Yes No X
----- -----
<PAGE>
WAKE FOREST BANCSHARES, INC.
CONTENTS
PART I - FINANCIAL INFORMATION Pages
-----
Item 1. Financial Statements
Consolidated statements of financial condition at December 31,
1999 (unaudited) and September 30, 1999 1
Consolidated statements of income for the three months ended
December 31, 1999 and December 31, 1998 (unaudited) 2
Consolidated statements of comprehensive income for the three
months ended December 31, 1999 and December 31, 1998
(unaudited) 3
Consolidated statements of cash flows for the three months
ended December 31, 1999 and December 31, 1998 (unaudited) 4
Notes to consolidated financial statements (unaudited) 5 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1999 1999
- ---------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash and short-term cash investments $ 7,161,500 $ 6,501,050
Investment securities:
Available for sale, at estimated market value 3,439,050 3,527,750
FHLB stock 280,400 280,400
Loans receivable, net 62,623,450 61,467,300
Accrued interest receivable 99,400 101,850
Property and equipment, net 450,400 452,000
Prepaid expenses and other assets 57,200 65,200
--------------------------------
TOTAL ASSETS $ 74,111,400 $ 72,395,550
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 59,177,150 $ 57,653,900
Accrued expenses and other liabilities 354,950 387,350
Dividends payable 142,250 143,700
Note payable- ESOP 191,300 206,000
Income taxes payable 187,900 -
Deferred income taxes 125,500 160,800
Redeemable common stock held by the ESOP
net of unearned ESOP shares 354,600 375,950
--------------------------------
TOTAL LIABILITIES 60,533,650 58,927,700
--------------------------------
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 12,150 12,150
Additional paid-in capital 4,863,200 4,843,600
Accumulated other comprehensive income 417,800 472,900
Retained earnings, substantially restricted 8,705,300 8,490,850
Less: Treasury stock acquired (420,700) (351,650)
--------------------------------
TOTAL STOCKHOLDERS' EQUITY 13,577,750 13,467,850
--------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 74,111,400 $ 72,395,550
================================
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and dividend income:
Loans $ 1,443,100 $ 1,321,400
Investment securities 45,700 36,450
Short-term cash investments 64,850 193,950
-----------------------------------
TOTAL INTEREST INCOME 1,553,650 1,551,800
-----------------------------------
Interest expense:
Interest on deposits 734,300 805,950
Interest on ESOP debt 4,350 5,300
-----------------------------------
738,650 811,250
-----------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 815,000 740,550
Provision for loan losses (7,500) -
-----------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 807,500 740,550
-----------------------------------
Noninterest income:
Service charges and fees 12,200 8,550
Other 350 1,800
-----------------------------------
12,550 10,350
-----------------------------------
Noninterest expense:
Compensation and benefits 191,250 160,550
Occupancy 13,000 7,500
Federal insurance and operating assessments 14,700 14,650
Data processing and outside service fees 26,200 28,500
Other operating expense 76,900 82,550
-----------------------------------
322,050 293,750
-----------------------------------
INCOME BEFORE INCOME TAXES 498,000 457,150
Income taxes 179,700 171,350
-----------------------------------
NET INCOME $ 318,300 $ 285,800
===================================
Basic earnings per share $ 0.27 $ 0.24
===================================
Diluted earnings per share $ 0.27 $ 0.24
===================================
Dividends paid per share $ 0.12 $ 0.12
===================================
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 318,300 $ 285,800
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Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains (losses) arising during the period (55,100) 139,400
Less: reclassification adjustment for gains included in
net income - -
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OTHER COMPREHENSIVE INCOME (55,100) 139,400
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COMPREHENSIVE INCOME $ 263,200 $ 425,200
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 318,300 $ 285,800
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 8,550 7,750
ESOP contribution expense charged to paid-in capital 5,400 3,700
Provision for loan losses 7,500 -
Amortization of discounts/premiums on investment securities (50) (2,350)
Amortization of unearned ESOP shares 14,700 14,700
Amortization of unearned RRP shares 14,200 14,150
Changes in assets and liabilities:
Prepaid expenses and other assets 8,000 5,350
Accrued interest receivable 2,450 (13,500)
Accrued expenses and other liabilities (35,450) (7,200)
Income taxes payable 187,900 159,750
-----------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 531,500 468,150
-----------------------------
Cash Flows From Investing Activities
Net (increase) decrease in loans receivable (1,163,650) (132,900)
Maturity of available for sale investment securities - 500,000
Purchase of property and equipment (6,950) (3,500)
-------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES (1,170,600) 363,600
-------------------------------
Cash Flows From Financing Activities
Net increase (decrease) in deposits 1,523,250 1,024,700
Principal payments on ESOP debt (14,700) (14,700)
Repurchase of common stock for the Treasury (69,050) -
Dividends paid (139,950) (142,900)
-------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,299,550 867,100
-------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 660,450 1,698,850
Cash and cash equivalents:
Beginning 6,501,050 15,311,350
-------------------------------
Ending $ 7,161,500 $ 17,010,200
===============================
Supplemental Disclosure of Cash Flow Information:
Cash payments of interest $ 737,200 $ 790,500
===============================
Supplemental Disclosure of Noncash transactions:
Incr. (decr.) in ESOP put option charged to retained earnings $ (21,350) $ 41,200
Incr. (decr.) in unrealized gain on investment securities (88,900) 224,850
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
WAKE FOREST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. 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"), 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, Franklin and Granville, 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).
NOTE 2. 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.
5
<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 53.6% 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 month period ended December 31, 1999 is 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.
NOTE 4. DIVIDENDS DECLARED
On December 20, 1999, the Board of Directors of the Company declared a dividend
of $0.12 a share for stockholders of record as of December 31, 1999 and payable
on January 10, 2000. The dividends declared were accrued and reported as
dividends payable on the December 31, 1999 Consolidated Statement of Financial
Condition. Wake Forest Bancorp, Inc., the mutual holding company, did not waive
the receipt of dividends declared by the Company.
6
<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 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. The weighted average shares used to compute EPS were
1,158,475 and 1,162,671 for basic and diluted EPS, respectively, for the three
months ended December 31, 1999 and 1,175,410 and 1,176,816 for basic and diluted
EPS, respectively, for the three months ended December 31, 1998. There were no
adjustments required to net income for either quarter 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
quarters ended December 31, 1999 and 1998 is presented below.
<TABLE>
<CAPTION>
1999 1998
-----------------------
<S> <C> <C>
Weighted average shares outstanding for Basic EPS 1,158,475 1,175,410
Plus incremental shares from assumed issuances of shares
pursuant to stock option and stock award plans 4,196 1,406
-----------------------
Weighted average shares outstanding for diluted EPS 1,162,671 1,176,816
=======================
</TABLE>
7
<PAGE>
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1999 AND DECEMBER 31, 1999:
Total assets increased by $1.7 million to $74.1 million at December 31, 1999
from $72.4 million at September 30, 1999. Total assets increased during the
three months ended December 31, 1999 primarily due to an increase in deposits of
approximately $1.5 million during the quarter. The deposit increase created an
increase in cash and short term cash investments of approximately $660,000 for
the quarter.
Net loans receivable increased by $1.2 million to $62.6 million at December 31,
1999 from $61.4 million at September 30, 1999. The increase was caused primarily
by an increase in residential and commercial real estate lending. Assuming
interest rates remain fairly stable, management believes that its loan portfolio
has potential for continued growth because the Company operates in lending
markets that have had sustained strong loan demand over the past several years.
However, there can be no assurances that such loan demand can or will continue.
Investment securities decreased by $88,700 to $3.7 million at December 31, 1999
from $3.8 million at September 30, 1999. The decrease is attributable to
unrealized quarterly losses in the fair value of Company's portfolio of
investment securities. At December 31, 1999, the Company's investment portfolio
had approximately $675,000 in net unrealized gains.
The Company had no borrowings outstanding during the quarter other than the loan
incurred by the ESOP for 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 current quarter, the Company
made principal payments totaling $14,700 plus interest on the ESOP note,
reducing the outstanding balance of the note to $191,300 at December 31, 1999.
The Company 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. The Company recorded retirement plan contributions of
approximately $19,000 during the three month period ended December 31, 1999 for
principal and interest payments on the debt. The Company also reported $5,400 in
additional retirement plan expense and credited paid-in capital equal to the
increase in the fair value of its common stock on ESOP shares allocated to
participants in the Plan during the current quarter. The Company has recorded a
liability of $354,600 at December 31, 1999 for the ESOP put option.
8
<PAGE>
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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
December 31, 1999 the Company had repurchased 30,400 shares of its common stock.
The program continues until terminated by the Board of Directors. Retained
earnings increased by $214,450 to $8.7 million at December 31, 1999 from $8.5
million at September 30, 1999. The increase is attributable to the Company's
earnings during the three month period ended December 31, 1999, reduced by
$139,950 in dividends declared during the three month period ended December 31,
1999 and a $36,050 credit to retained earnings to reflect the change in the fair
value of the ESOP shares subject to the put option. At December 31, 1999, the
Company's regulatory capital amounted to $13.2 million, which as a percentage of
adjusted total assets was 17.92%, and was considerably in excess of the
regulatory capital requirements at such date.
ASSET QUALITY:
The Company's level of non-performing loans, defined as loans past due 90 days
or more, as a percentage of loans outstanding, was .11% at December 31, 1999 and
.48% at September 30, 1999. The Company's level of non-performing loans has
remained consistently low in relation to prior periods and total loans
outstanding. The Company charged off $17,273 during the current quarter in
connection with a non-performing loan that was also paid off during the quarter.
No further exposure to the Company exists relating to this loan. There were no
foreclosed properties outstanding at any time during the current quarter. Based
on management's analysis of the adequacy of its allowances, a $7,500 provision
for additional loan loss allowances was made during the three month period ended
December 31, 1999. The Company's loan loss allowance was $253,000 at December
31, 1999, which was 372.74% of total nonperforming loans outstanding on such
date.
9
<PAGE>
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND
1998:
GENERAL. Net income for the three month period ended December 31, 1999 was
$318,300, or $32,500 more than the $285,800 earned during the same period in
1998. As discussed below, increases in net interest income between the
comparable periods coupled with increases in noninterest expenses was primarily
responsible for the change in net income.
INTEREST INCOME. Interest income increased by $1,850 from $1,551,800 for the
three months ended December 31, 1998 to $1,553,650 for the three months ended
December 31, 1999. The insignificant change in interest income resulted from a
40 basis point increase in the overall yield on interest earning assets offset
by a $2.3 million decrease in the average balance of outstanding interest
earning assets between the quarters. The Company's yield on interest earning
assets increased from 7.92% for the quarter ending December 31, 1998 to 8.32%
for the current quarter. The increase in yield occurred primarily due to a
higher level of outstanding loans receivable as a percentage of overall interest
earning assets during the current quarter as compared to the same quarter a year
earlier. The average balance of outstanding loans receivable was $63.5 million
during the current quarter as compared with $56.0 million for the quarter a year
earlier. The decrease in the average balance of interest earning assets was the
result of a decline in the average balance of deposits outstanding between the
quarters.
INTEREST EXPENSE. Interest expense decreased by $72,600 from $811,250 for the
three months ended December 31, 1998 to $738,650 for the three months ended
December 31, 1999. The decrease was primarily the result of both a decrease in
volume of interest bearing deposits outstanding and a decline in the Company's
cost of funds between the quarters. The Company's outstanding interest bearing
deposits decreased by approximately $2.7 million during the three months ended
December 31, 1999 as compared with the three months ended December 31, 1998. The
decline in the volume of interest bearing deposits occurred due to an allowed
run-off in certain higher costing customer certificates of deposits which had
matured and were not renewed. As a result, the Company's cost of funds decreased
from 5.23% for the quarter ended December 31, 1998 to 5.00% for the current
quarter.
NET INTEREST INCOME. Net interest income increased by $74,450 from $740,550 for
the three months ended December 31, 1998 to $815,000 for the three months ended
December 31, 1999. As explained above, the increase resulted primarily from an
decrease in the volume of interest bearing liabilities coupled with a decline in
the Company's cost of funds. The Company's interest rate spread was 3.32% for
the current quarter as compared to 2.69% for the quarter ended December 31,
1998.
10
<PAGE>
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND
1998 (CONTINUED):
PROVISION FOR LOAN LOSSES. No provisions for loan losses was made during the
three month period ended December 31, 1998. The Company made a $7,500 provision
during the current quarter. Provisions, which are charged to operations, and the
resulting loan loss allowances are amounts the Company'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.
The Company's level of non-performing loans remained consistently low in
relation to prior periods and total loans outstanding during the three month
period ended December 31, 1999. At December 31, 1999, the Company's level of
general valuation allowances for loan losses amounted to $253,000, which
management believes is adequate to absorb any existing inherent losses in its
loan portfolio.
NONINTEREST EXPENSE. Noninterest expense increased by $28,300 to $322,050 for
the three month period ended December 31, 1999 from $293,750 for the comparable
quarter in 1998. The only significant dollar increase in any category of
noninterest expense occurred in area of compensation and related benefits, which
increased from $161,550 during the quarter ended December 31, 1998 to $191,250
during the current quarter. The increase in compensation and benefits occurred
due to the addition of two full time employees during the current quarter as
compared to the quarter ended December 31, 1998, 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.
11
<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 three month period ended December 31, 1999, cash and cash
equivalents, a significant source of liquidity, increased by approximately
$660,000. Proceeds from the Company's operations contributed an $531,500 in cash
during the period. An increase in deposits of approximately $1.5 million, offset
by dividends paid of $139,950 and stock repurchases of $69,050 provided the
source of approximately $1.3 million of cash from financing activities. Net loan
disbursements of approximately $1.2 million was the principal source of cash
utilization during the current quarter.
As a federally chartered savings association, Wake Forest Federal Savings and
Loan Association must maintain a daily average balance of liquid assets equal to
at least 4% of withdrawable deposits and short-term borrowings. The
Association's liquidity ratio at December 31, 1999, as computed under OTS
regulations, was considerably in excess of such requirements. Given its excess
liquidity and its ability to borrow from the Federal Home Loan Bank of Atlanta,
the Company 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.
12
<PAGE>
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
YEAR 2000 ISSUE (CONTINUED):
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 several date sensitive
time periods which will still require monitoring, such as February 29, 2000 and
December 31, 2000, management does not expect significant problems to occur.
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 expense levels and other
operational matters may constitute forward-looking statements under the federal
securities laws. Such statements are subject to certain risks and uncertainties.
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.
13
<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. From time to time, the Company through its
wholly owned Association is a party to legal proceedings
within the normal course of business wherein it enforces its
security interest in loans made by it, and other matters of a
similar nature.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27.1
b) No reports on Form 8-K were filed for the period
covered by this report
14
<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 February 10, 2000 By: /s/ Anna O. Sumerlin
--------------------- --------------------------------
Anna O. Sumerlin
President and CEO
Dated February 10, 2000 By: /s/ Robert C. White
--------------------- --------------------------------
Robert C. White
Chief Financial Officer and VP
15
<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.
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0
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