U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file Number 0-22062
STANLY CAPITAL CORP
(Exact name of small business issuer as specified in its charter)
NORTH CAROLINA 56-1814206
(State of incorporation) (I.R.S Employer Identification No.)
167 North Second Street
Albemarle, North Carolina 28001
(Address of principal executive offices)
Issuer's telephone number, including area code: (704) 983-6181
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 of 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
stock, as of the latest practicable date:
Title of Each Class Outstanding at October 23, 1996
Common stock, par value $1.25 per share 2,114,940 shares
Transitional Small Business Disclosure Format (check one):
Yes No X
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STANLY CAPITAL CORP AND SUBSIDIARY
FORM 10-QSB
TABLE OF CONTENTS
PAGE
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PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets, September 30, 1996 and 1995 (Unaudited) 3
Consolidated Statements of Income for the Three and the Nine Months
Ended September 30, 1996 and 1995 (Unaudited) 4
Consolidated Statements of Changes in Shareholders' Equity for the
Nine Months Ended September 30, 1996 and 1995 (Unaudited) 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II OTHER INFORMATION
Item 4 Submission of Matters to Vote of Security Holders 11
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT 27 Financial Data Schedule for the Nine Months
Ended September 30, 1996 13
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PART I
FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
STANLY CAPITAL CORP AND SUBSIDIARY
Consolidated Balance Sheets (Unaudited)
(In Thousands)
September 30,
1996 1995
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ASSETS
Cash and cash equivalents $ 4,968 $ 3,690
Securities available for sale:
U.S. Treasury securities 4,974 8,007
U.S. Government Agency/Mortgage-backed securities 9,934 9,640
Municipal securities 5,787 6,126
Other securities 1,338 489
--------------- --------------
Total securities 22,033 24,262
--------------- --------------
Loans 102,479 87,152
Less: Allowance for loan losses 1,074 950
--------------- --------------
Loans, net 101,405 86,202
-------------- --------------
Premises and equipment, net 2,073 2,095
Interest receivable 832 856
Other assets 1,136 1,357
--------------- --------------
Total assets $ 132,447 $ 118,462
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand deposits $ 12,192 $ 10,718
Money market and NOW accounts 22,171 22,080
Savings deposits 28,930 22,486
Time deposits $100,000 and over 6,650 5,338
Other time deposits 33,946 32,829
--------------- --------------
Total deposits 103,889 93,451
--------------- --------------
Federal funds purchased 1,140 4,225
Securities sold under repurchase agreements 5,107 3,530
Other borrowings 10,298 5,997
Interest payable 166 153
Other liabilities 502 464
--------------- --------------
Total liabilities 121,102 107,820
--------------- --------------
Shareholders' equity:
Common stock, par value $1.25 per share;
authorized 6,000,000; issued and outstanding:
2,115,137 shares at September 30, 1996
2,043,633 shares at September 30, 1995 2,644 2,555
Surplus 4,301 4,046
Undivided profits 4,130 3,705
Unrealized gain (loss) on securities available for sale, net
of related tax effect 270 336
--------------- --------------
Total shareholders' equity 11,345 10,642
--------------- --------------
Total liabilities and shareholders' equity $ 132,447 $ 118,462
=============== ==============
.
See Notes to Consolidated Financial Statements
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3
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STANLY CAPITAL CORP AND SUBSIDIARY
Consolidated Statements of Income (Unaudited)
(In Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
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INTEREST INCOME:
Interest on loans $ 2,197 $ 1,900 $ 6,311 $ 5,413
Interest on securities:
U.S. Treasury securities 71 107 271 333
U.S. Government agencies and
mortgage-backed securities 168 156 518 474
Other securities 112 103 317 308
Interest on federal funds sold - - 22 6
----------- ----------- ----------- -----------
Total interest income 2,548 2,266 7,439 6,534
INTEREST EXPENSE:
Interest on deposits and borrowed funds 1,132 1,058 3,356 2,962
----------- ----------- ----------- -----------
NET INTEREST INCOME 1,416 1,208 4,083 3,572
Provision for Loan Losses 59 36 146 53
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,357 1,172 3,937 3,519
----------- ----------- ----------- -----------
NONINTEREST INCOME:
Service charges on deposit accounts 230 201 677 551
Other service fees and commissions 98 78 302 277
Gain (loss) on sale of securities - - 18 58
Gain (loss) on foreclosed real estate 6 - 6 (31)
Other income 4 3 25 26
----------- ----------- ----------- -----------
Total noninterest income 338 282 1,028 881
----------- ----------- ----------- -----------
NONINTEREST EXPENSE:
Salaries, wages and employee benefits 678 574 1,897 1,654
Occupancy expenses 56 56 163 146
Equipment expense 99 65 290 183
Professional fees 100 104 225 222
FDIC insurance 1 (6) 2 93
Data processing 114 153 365 430
Stationery, printing and supplies 35 37 102 109
Advertising and business promotion 54 36 153 116
Other expenses 209 225 654 725
----------- ----------- ----------- -----------
Total noninterest expense 1,346 1,244 3,851 3,678
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 349 210 1,114 722
Provision for Income Taxes 109 50 352 147
----------- ----------- ----------- -----------
NET INCOME $ 240 $ 160 $ 762 $ 575
=========== =========== =========== ===========
Earnings Per Share $ .11 $ .08 $ .36 $ .28
Shares used in computing net income per share 2,115,137 2 ,043,633 2,115,137 2,043,633
See Notes to Consolidated Financial Statements.
4
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STANLY CAPITAL CORP AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
For The Nine Months Ended September 30, 1996 and 1995 (Unaudited)
Net
Unrealized Gain
(In Thousands) Common Undivided (Loss) on Securities
Stock Surplus Profits Available for Sale
--------------- -------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 $ 2,644 $ 4,376 $ 3,130 $ (426)
Repurchase of common stock (89) (330) - -
Net income - - 575 -
Net increase in market value of
securities available for sale - - - 762
--------------- -------------- -------------- -----------------
Balance, September 30, 1995 $ 2,555 $ 4,046 $ 3,705 $ 336
=============== ============== ============== =================
Balance, December 31, 1995 $ 2,654 $ 4,376 $ 3,368 $
513
Repurchase of common stock (27) (106) - -
Stock options exercised 17 31 - -
Net income - - 762 -
Net decrease in market value of
securities available for sale - - - (243)
=============== ============== ============== =================
Balance, September 30, 1996 $ 2,644 $ 4,301 $ 4,130 $ 270
=============== ============== ============== =================
See Notes to Consolidated Financial Statements.
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5
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STANLY CAPITAL CORP AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
(In Thousands)
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 762 $ 575
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation 177 159
Amortization (accretion) of security premiums and discounts, net (19) (24)
Provision for loan losses 146 53
Deferred income taxes - 108
Gain on sale of securities (18) (58)
Loss on disposal of fixed assets 12 -
Loss (Gain) on foreclosed properties (6) 31
Changes in assets and liabilities:
Interest receivable 34 (45)
Other assets 23 663
Interest payable 2 6
Other liabilities 180 130
--------------- ---------------
Net cash provided by operating activities 1,293 1,598
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of securities available for sale 5,217 8,348
Purchase of securities available for sale (4,499) (7,896)
Proceeds from sales of (additions to) foreclosed properties (22) 25
Net (increase) decrease in loans (11,578) (6,941)
Capital expenditures (165) (170)
--------------- ---------------
Net cash provided by (used in) investing activities (11,047) (6,634)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, NOW and savings accounts 5,342 3,174
Net increase (decrease) in time deposits 2,752 (2,958)
Net increase in securities sold under repurchase agreements 644 3,530
Net increase (decrease) in federal funds (1,710) 1,925
Net increase (decrease) in other borrowings/note payable 4,325 (603)
Proceeds from issuance of common stock 48 -
Repurchases of common stock (133) (418)
--------------- ---------------
Net cash provided by (used in) financing activities 11,268 4,650
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,514 (386)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,454 4,076
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,968 $ 3,690
=============== ===============
Supplemental disclosures of cash flow information:
Interest paid $ 3,355 $ 2,956
Income taxes paid $ 362 $ -
Transfers from loans to OREO $ 124 $ -
See Notes to Consolidated Financial Statements.
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STANLY CAPITAL CORP AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Accounting Policies
The financial statements and accompanying notes are presented on a consolidated
basis including Stanly Capital Corp (the "Company"), it's Subsidiary, Bank of
Stanly ("the Bank") and the Bank's subsidiaries. Bank of Stanly consolidates the
Strategic Alliance Corporation and BOS Agency, Inc. each of which are
wholly-owned by the Bank.
The information contained in the consolidated financial statements is unaudited.
In the opinion of management, the consolidated financial statements have been
prepared in conformity with generally accepted accounting principles and all
material adjustments necessary for a fair presentation of results of interim
periods have been made. The results of operations for the interim periods are
not necessarily indicative of the results which may be expected for an entire
year. Management is not aware of economic events, outside influences or changes
in concentrations of business that would require additional clarification or
disclosure in the consolidated financial statements. Certain prior period
amounts have been reclassified to conform to current period classifications.
Note 2 - Loans
Loans outstanding at period end:
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September 30,
(In Thousands) 1996 1995
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Real estate loans $ 78,324 $ 65,504
Commercial and industrial 12,668 11,753
Loans to individuals for household, family and other
consumer expenditures 11,451 9,838
All other loans 36 57
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Total $102,479 $ 87,152
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Summary of transactions in the allowance for loan losses for the nine-month periods ended:
September 30,
(In Thousands) 1996 1995
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Beginning balance $ 975 $ 922
Charge-offs:
Commercial loans -- --
Consumer loans 44 56
Real estate loans 13 --
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Gross charge-offs 57 56
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Recoveries:
Commercial loans -- 1
Consumer loans 10 24
Real estate loans -- 6
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Gross recoveries 10 31
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Net charge-offs 47 25
Provision for loan losses 146 53
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Ending balance $ 1,074 $ 950
========== ==========
Percentage of gross loans 1.05% 1.09%
Ratio of net charge-offs to average loans during the period .05% .03%
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Note 3 - Standby Letters of Credit
At September 30, 1996 and 1995 the Company had outstanding letters of credit
totaling $373 thousand and $418 thousand, respectively.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Stanly Capital Corp, (the Company) was incorporated under the laws of the State
of North Carolina as a one bank holding company for Bank of Stanly (the Bank) in
July 1993. The Bank was incorporated in 1983 and since commencement of its
operations in January 1984, has engaged in the retail and commercial banking
business through its five offices located in Stanly County, North Carolina.
The Bank competes with five other commercial banks, a savings bank and a credit
union in its service area, primarily for lending activities and deposit
customers. The Bank enjoys a good reputation as a community focused financial
institution, and has been successful in achieving substantial growth in a market
that has not displayed a significant amount of growth potential.
Stanly Capital Corp reported a quarter of strong growth and good operating
results. Net income of $240 thousand for the third quarter of 1996, represents
earnings per share of $.11 and reflects a 50.0% increase over earnings for the
same period of 1995, which totaled $160 thousand or $.08 per share. Key factors
affecting the improved earnings experienced this period were increases in net
interest income due primarily to growth in the loan portfolio and higher
revenues from non interest income.
Results of operations and the Company's financial condition are presented in the
following narrative and incorporated tables. References to changes in assets and
liabilities represent end of period balances unless otherwise noted.
Net Interest Income
The largest contributor to earnings, net interest income, increased by $208
thousand or 17.2% for the three months ended September 30, 1996 compared to the
same period a year earlier, due primarily to the growth in the loan portfolio.
The major components of net interest income are income earned on investments and
loans less interest expense on deposits and borrowings.
Income on loans of $2.1 million for the three month period, reflected an
improvement of 15.6% over the earnings of $1.9 million during the same period in
1995. Investment securities produced essentially the same level of earnings in
1996 and 1995.
Sources of funds composed of deposits, securities sold under repurchase
agreements, federal funds purchased and borrowed funds expanded $13.2 million
comparing these periods providing funding for the interest-earning asset growth,
primarily loans. Associated interest expense rose $74 thousand, or 7.0%, when
comparing the three months due mainly to the higher levels of interest-bearing
liabilities.
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The following chart reflects average interest-earning assets and
interest-bearing liabilities, associated income or expense, related rates and
the net interest spread for the nine month periods ended September 30, 1996 and
1995.
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Rate/Yield Spread Table on Tax Equivalent Basis *
Average Level Income/Expense Rate/Yield
($ in thousands) 1996 1995 1996 1995 1996 1995
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Interest-earning assets:
Loans $ 95,551 $ 80,581 $ 6,311 $ 5,413 8.82% 8.98%
Securities 23,628 24,202 1,242 1,257 7.02% 6.94%
Federal funds sold 578 137 22 6 5.08% 5.86%
------------ ----------- ----------- ------------ ----------- -----------
Total interest-earning assets 119,757 104,920 7,575 6,676 8.45% 8.51%
------------ ----------- ----------- ------------ ----------- -----------
Interest-bearing liabilities:
Interest-bearing deposits 89,343 79,728 2,756 2,415 4.12% 4.05%
Short-term borrowings 7,596 5,556 272 236 4.78% 5.68%
Long-term borrowings 6,847 6,216 331 311 6.46% 6.69%
------------ ----------- ----------- ------------ ----------- -----------
Total interest-bearing
liabilities 103,786 91,500 3,359 2,962 4.32% 4.33%
------------ ----------- ----------- ------------ ----------- -----------
Net interest spread $ 15,971 $ 13,420 $ 4,216 $ 3,714 4.13% 4.18%
============ =========== =========== ============ =========== ===========
* An effective tax rate of 35% for 1996 and 1995 was used to adjust to a fully
tax-equivalent basis.
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Nonperforming Assets
Nonperforming assets were $195 thousand at September 30, 1996, 61.8% improvement
over 1995. This is reflective of the Company's ongoing commitment to maintaining
asset quality.
Detail of nonperforming assets is presented below:
(In Thousands) September 30,
1996 1995
----------- ------------
Nonaccrual loans:
Commercial $ - $ -
Real estate 74 198
Consumer installment 8 16
----------- ------------
Total nonaccrual loans 82 214
Other real estate owned, net 113 296
----------- ------------
Total nonperfomring assets $ 195 $ 510
=========== ============
Nonperforming assets as a percentage
Total assets .15% .43%
Total loans .19% .59%
9
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Provision and Allowance for Loan Losses
The Company uses a rating method to determine an adequate level of provision for
loan losses which additionally provides early detection of problem loans. This
identification process begins with management's assessment of credit reviews,
payment histories of borrowers, loan-to-value ratio, and identified weakness in
the credit. The loans are graded and management establishes a standard
percentage to reserve for each rating. Included in the calculation are loans
previously identified by examiners as loss, doubtful or substandard.
Charge-offs, net of recoveries, for the first nine months of 1996 totaled $47
thousand, reflecting a very low ratio to average loans of .05%.
Due to substantial loan growth, the allowance for loan loss has increased.
During the nine month period $146 thousand in loan loss provision expense was
recognized, compared to $53 thousand in this period in 1995. The transactions in
the allowance for loan losses are summarized in Note 2 to the consolidated
financial statements.
Noninterest Income and Expense
Total noninterest income for the three months ended September 30, 1996 and 1995
was $338 thousand and $282 thousand, respectively, reflecting an increase of $56
thousand or 19.9%. This improvement can be primarily attributed to an increase
in service charges on deposit accounts and other service fees and commissions
which contributed an additional $49 thousand in earnings, an increase of 17.6%
due to new products, repricing of fees and growth in deposit accounts.
For this same period, noninterest expenses increased by $102 thousand or 8.2%.
Salaries and benefits, the largest component of noninterest expense, increased
by $104 thousand due to the cost of additional personnel, normal salary
adjustments and associated higher benefit costs. All other expenses as a group
decreased by $2 thousand when comparing results of the third quarter of 1996 to
the same three month period of 1995.
Income Tax Expense
Income taxes computed at the statutory rate are reduced primarily by the
eligible amount of interest earned on state and municipal securities. Income tax
expense calculated to date in 1996 totals $352 thousand, an effective tax rate
of 31.6% compared to $147 thousand in 1995, reflecting an effective rate of
20.4% of pretax income. The Company experienced some tax benefit in 1995 from
the recognition of securities losses posted in the fourth quarter of 1994.
Financial Condition and Capital Ratios
As of September 30, 1996 total assets exceeded $132 million an improvement of
11.8% over September 30, 1995. The Company has experienced outstanding growth of
17.6% in loans which increased from $87.2 million at September 30, 1995 to
$102.5 million on September 30, 1996. Asset quality remains good as evidenced by
current past due loan percentages, loan loss experience and management rating of
the loan portfolio.
The Company continues to maintain strong capital ratios that will support
additional asset growth. As of September 30, 1996, the leverage ratio calculated
with regulatory Tier I capital as a percentage of total assets plus the loan
loss reserve was 8.29%, which compares favorably to the regulatory capital
requirement. Total capital to risk weighted assets was 13.9% at September 30,
1996.
10
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Liquidity
Liquidity, the ability to raise cash when needed without adversely impacting
profits, is managed primarily by the selection of asset mix and the maturity mix
of liabilities. Maturities and the marketability of securities and other funding
sources provide a source of liquidity to meet deposit withdrawals.
Other funding sources currently include $9 million in federal funds lines of
credit from correspondent banks and a $21 million line of credit from the
Federal Home Loan Bank, less current advance levels of borrowing from these
sources of $11.4 million. Growth in deposits is typically the primary source of
funding for loans, supported by long-term credit available from the Federal Home
Loan Bank.
Interest Rate Sensitivity
The major component of income for Stanly Capital Corp is net interest income,
the difference between yield earned on assets and interest paid on liabilities.
This differential (or margin) can vary over time as changes in interest rates
occur. The volatility of changes in this differential can be measured by the
timing (or repricing) difference between maturing assets and liabilities.
To identify interest rate sensitivity, a common measure is a gap analysis which
reflects the difference or gap between rate sensitive assets and liabilities
over various time periods. While Management reviews this information, it has
implemented the use of a simulation model which calculates expected net interest
income based on projected interest-earning assets, interest-bearing liabilities
and interest rates and provides a more relevant view of interest rate risk than
traditional gap tables. The simulation allows comparison of flat, rising and
falling rate scenarios to determine sensitivity of earnings to changes in
interest rates. Currently the model reflects that a fluctuation in rates of 100
and 200 basis points over a twelve-month period would have a potential negative
effect on net interest income in a rising rate environment of approximately
1.4%, and 2.8%, respectively. The effect of a falling rate scenario was positive
by .3%, and .9%.
The Asset Liability Management Committee monitors market changes in interest
rates and assists with pricing loans and deposit products consistent with
funding source needs and asset growth projections.
PART II
OTHER INFORMATION
Item 4 Submission of Matters to Vote of Security Holders
None
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits - Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
A Form 8-K was filed with the Securities and Exchange Commission during
the third quarter of 1996 to report a change in accounting firms.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned who is thereunto duly authorized.
STANLY CAPITAL CORP
(Registrant)
Date: 10/24/96 By:/s/Roger L. Dick
Roger L. Dick
President and Chief Executive Officer
/s/Barbara S. Williams
Barbara S. Williams
Vice President-Finance
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<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,968
<INT-BEARING-DEPOSITS> 91,697
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,033
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 102,479
<ALLOWANCE> 1,074
<TOTAL-ASSETS> 132,447
<DEPOSITS> 103,889
<SHORT-TERM> 10,247
<LIABILITIES-OTHER> 668
<LONG-TERM> 6,298
0
0
<COMMON> 2,644
<OTHER-SE> 8,701
<TOTAL-LIABILITIES-AND-EQUITY> 132,447
<INTEREST-LOAN> 6,311
<INTEREST-INVEST> 1,106
<INTEREST-OTHER> 22
<INTEREST-TOTAL> 7,439
<INTEREST-DEPOSIT> 2,756
<INTEREST-EXPENSE> 3,356
<INTEREST-INCOME-NET> 4,083
<LOAN-LOSSES> 146
<SECURITIES-GAINS> 18
<EXPENSE-OTHER> 3,851
<INCOME-PRETAX> 1,114
<INCOME-PRE-EXTRAORDINARY> 762
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 762
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
<YIELD-ACTUAL> 4.70
<LOANS-NON> 82
<LOANS-PAST> 212
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 975
<CHARGE-OFFS> 57
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 1,074
<ALLOWANCE-DOMESTIC> 1,074
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
