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 March 31, 1997
( ) 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 March 31, 1997
- ------------------- -----------------------------
Common stock, par value $1.25 per share 2,170,964 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
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PAGE
PART 1 FINANCIAL INFORMATION
<S> <C> <C>
Item 1 Financial Statements
Consolidated Balance Sheets, March 31, 1997 and 1996 (Unaudited) 3
Consolidated Statements of Income for the Three Months Ended
March 31, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Changes in Shareholders' Equity for the
Three Months Ended March 31, 1997 and 1996 (Unaudited) 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1996 (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 Three Months
Ended March 31, 1997 13
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STANLY CAPITAL CORP AND SUBSIDIARY
Consolidated Balance Sheets (Unaudited)
- -----------------------------------------------------------------------------------------------------------------
(In Thousands) March 31,
1997 1996
--------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,043 $ 3,703
Securities available for sale:
U.S. Treasury securities 4,963 6,993
U.S. Government Agency/Mortgage-backed securities 14,320 11,125
Municipal securities 5,938 6,123
Other securities 1,284 1,090
--------------- --------------
Total securities 26,505 25,331
--------------- --------------
Loans 103,908 93,053
Less: Allowance for loan losses 1,057 1,005
--------------- --------------
Loans, net 102,851 92,048
--------------- --------------
Premises and equipment, net 2,197 2,107
Interest receivable 877 904
Other assets 1,198 1,222
--------------- --------------
Total assets $ 138,671 $ 125,315
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand deposits $ 12,720 $ 10,985
Money market and NOW accounts 30,027 22,755
Savings deposits 28,812 26,259
Time deposits $100,000 and over 7,736 7,449
Other time deposits 33,171 33,068
--------------- --------------
Total deposits 112,466 100,516
--------------- --------------
Federal funds purchased 2,200 185
Securities sold under repurchase agreements 4,331 5,787
Other borrowings 7,725 7,299
Interest payable 186 199
Other liabilities 380 329
--------------- --------------
Total liabilities 127,288 114,315
--------------- --------------
Shareholders' equity:
Common stock, par value $1.25 per share;
authorized 6,000,000; issued and outstanding:
2,170,964 shares at March 31, 1997
2,123,431 shares at March 31, 1996 2,713 2,654
Surplus 4,569 4,374
Undivided profits 4,046 3,652
Unrealized gain (loss) on securities available for sale, net
of related tax effect 55 320
--------------- --------------
Total shareho1ders' equity 11,383 11,000
=============== ==============
Total liabilities and shareholders' equity $ 138,671 $ 125,315
=============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
Consolidated Statements of Income (Unaudited)
- --------------------------------------------------------------------------------
(In Thousands) Three Months Ended
March 31,
1997 1996
------------ -----------
INTEREST INCOME:
Interest on loans $ 2,203 $ 2,019
Interest on securities:
U.S. Treasury securities 64 102
U.S. Government agencies and
mortgage-backed securities 232 168
Other securities 113 106
Interest on federal funds sold - 21
------------ -----------
Total interest income 2,612 2,416
INTEREST EXPENSE:
Interest on deposits and borrowed funds 1,166 1,108
------------ -----------
NET INTEREST INCOME 1,446 1,308
Provision for Loan Losses 38 35
------------ -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,408 1,273
------------ -----------
NONINTEREST INCOME:
Service charges on deposit accounts 216 224
Other service fees and commissions 127 99
Gain (loss) on sale of securities - 19
Other income 12 11
------------ -----------
Total noninterest income 355 353
------------ -----------
NONINTEREST EXPENSE:
Salaries, wages and employee benefits 662 591
Occupancy expenses 55 54
Equipment expense 100 94
Data processing 122 127
Other expenses 384 352
------------ -----------
Total noninterest expense 1,323 1,218
------------ -----------
INCOME BEFORE INCOME TAXES 440 408
Provision for Income Taxes 132 124
------------ -----------
NET INCOME $ 308 $ 284
============ ===========
Earnings Per Share $ .14 $ .13
Shares used in computing net income per share 2,170,964 2,123,431
See Notes to Consolidated Financial Statements.
4
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
For The Three Months Ended March 31, 1997 and 1996 (Unaudited)
- --------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Unrealized Gain
(In Thousands) Common Undivided (Loss) on Securities
Stock Surplus Profits Available for Sale
--------------- -------------- ------------- -------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ 2,654 $ 4,376 $ 3,368 $ 513
Repurchase of common stock - (2) - -
Net income - - 284 -
Net decrease in market value of
securities available for sale - - - (193)
--------------- -------------- -------------- -----------------
Balance, March 31, 1996 $ 2,654 $ 4,374 $ 3,652 $ 320
=============== ============== ============== =================
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 2,719 $ 4,594 $ 3,738 $ 253
Repurchase of common stock (6) (25) - -
Net income - - 308 -
Net decrease in market value of
securities available for sale - - - (198)
=============== ============== ============== =================
Balance, March 31, 1997 $ 2,713 $ 4,569 $ 4,046 $ 55
=============== ============== ============== =================
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
(In Thousands)
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 308 $ 284
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation 63 56
Amortization (accretion) of security premiums and discounts, net (1) (3)
Provision for loan losses 38 35
Deferred income taxes (7) -
Gain on sale of securities - (19)
Changes in assets and liabilities:
Interest receivable (19) (38)
Other assets (69) (72)
Interest payable 9 35
Other liabilities 13 6
-------------- --------------
Net cash provided by operating activities 335 284
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of securities available for sale 2,421 1,736
Purchase of securities available for sale (4,030) (4,248)
Additions to foreclosed properties - (51)
Net increase in loans (3,086) (2,110)
Capital expenditures (143) (66)
-------------- --------------
Net cash used in investing activitities (4,838) (4,739)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW and savings accounts 6,888 2,048
Net increase in time deposits 979 2,673
Net increase (decrease) in securities sold under repurchase agreements (3,824) 1,325
Net increase (decrease) in federal funds 2,200 (2,665)
Net increase (decrease) in other borrowings/note payable (1,549) 1,326
Repurchases of common stock (31) (3)
-------------- --------------
Net cash provided by financing activities 4,663 4,704
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 160 249
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,883 3,454
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,043 $ 3,703
============== ==============
Supplemental disclosures of cash flow information:
Interest paid $ 1,156 $ 1,073
Income taxes paid $ 92 $ 96
Transfers from loans to OREO $ - $ 51
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
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:
<TABLE>
<CAPTION>
March 31,
(In Thousands) 1997 1996
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Real estate loans $ 78,659 $ 69,925
Commercial and industrial 14,275 14,057
Loans to individuals for household, family and other
consumer expenditures 10,949 9,025
All other loans 25 46
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Total $ 103,908 $ 93,053
============= ============
Summary of transactions in the allowance for loan losses for the three-month periods ended:
March 31,
(In Thousands) 1997 1996
------------- ------------
Beginning balance $ 1,050 $ 975
Charge-offs:
Commercial loans 12 -
Consumer loans 24 10
Real estate loans - -
------------- ------------
Gross charge-offs 36 10
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Recoveries:
Commercial loans - -
Consumer loans 5 5
Real estate loans - -
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Gross recoveries 5 5
------------- ------------
Net charge-offs 31 5
Provision for loan losses 38 35
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Ending balance $ 1,057 $ 1,005
============= ============
Percentage of gross loans 1.02% 1.08%
Ratio of net charge-offs to average loans during the period .03% .00%
</TABLE>
7
<PAGE>
Note 3 - Standby Letters of Credit
At March 31, 1997 and 1996 the Company had outstanding letters of credit
totaling $283 thousand and $488 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 continued growth and good operating
results. Net income of $308 thousand for the first quarter of 1997, represents
earnings per share of $.14 and reflects an 8.5% increase over earnings for the
same period of 1996, which totaled $284 thousand or $.13 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 a relatively
stable net interest margin.
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 $138
thousand or 10.6% for the three months ended March 31, 1997 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 $2.2 million for the three month period, reflected an
improvement of 9.1% over the earnings of $2.0 million during the same period in
1996. Investment securities provided an additional $33 thousand in earnings in
1997 compared to 1996.
Sources of funds composed of deposits, securities sold under repurchase
agreements, federal funds purchased and borrowed funds expanded $12.9 million
comparing these periods provided funding for the interest-earning asset growth,
primarily loans. Associated interest expense rose $58 thousand, or 5.2%, when
comparing the three months due mainly to the higher levels of interest-bearing
liabilities.
8
<PAGE>
The following chart reflects average interest-earning assets and
interest-bearing liabilities, associated income or expense, related rates and
the net interest spread for the nine month periods ended March 31, 1997 and
1996.
Rate/Yield Spread Table on Tax Equivalent Basis *
<TABLE>
<CAPTION>
Average Level Income/Expense Rate/Yield
($ in thousands) 1997 1996 1997 1996 1997 1996
------------ ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 103,104 $ 90,095 $ 2,203 $ 2,019 8.67% 9.01%
Securities * 25,868 23,861 455 424 7.13% 7.15%
Federal funds sold 24 1,649 - 21 - 5.12%
------------ ----------- ----------- ------------ ----------- -----------
Total interest-earning
assets 128,996 115,605 2,658 2,464 8.36% 8.57%
------------ ----------- ----------- ------------ ----------- -----------
Interest-bearing liabilities:
Interest-bearing deposits 94,632 88,773 936 931 4.01% 4.22%
Short-term borrowings 9,941 5,343 118 60 4.81% 4.52%
Long-term borrowings 7,202 7,311 112 117 6.31% 6.44%
------------ ----------- ----------- ------------ ----------- -----------
Total interest-bearing
liabilities 111,775 101,427 1,166 1,108 4.23% 4.39%
------------ ----------- ----------- ------------ ----------- -----------
Net interest spread $ 17,221 $ 14,178 $ 1,492 $ 1,356 4.13% 4.18%
============ =========== =========== ============ =========== ===========
</TABLE>
* An effective tax rate of 35% for 1997 and 1996 was used to adjust to a
fully tax-equivalent basis.
Nonperforming Assets
Nonperforming assets were $463 thousand at March 31, 1997, reflecting an
increase of 10.2% increase compared to 1996. Detail of nonperforming assets is
presented below:
(In Thousands) March 31,
1997 1996
---- ----
Nonaccrual loans:
Commercial $ 23 $ --
Real estate 348 277
Consumer installment 7 7
---- ----
Total nonaccrual loans 378 284
Other real estate owned, net 85 136
---- ----
Total nonperforming assets $463 $420
==== ====
Nonperforming assets as a percentage
Total assets .33% .34%
Total loans .45% .45%
9
<PAGE>
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 three months of 1997 totaled $31
thousand, reflecting a low ratio to average loans of .03%.
Due to substantial loan growth, the allowance for loan loss has increased.
During the three month period $38 thousand in loan loss provision expense was
recognized, compared to $35 thousand in this period in 1996. 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 from service charges and other fees produced earnings
of $355 thousand for this quarter compared to $334 thousand in the prior period,
excluding securities gains of $19 thousand posted in the first quarter of 1996,
an increase of 6.3%.
For this same period, noninterest expenses increased by $105 thousand or 8.6%.
Salaries and benefits, the largest component of noninterest expense, increased
by $71 thousand due to the cost of additional personnel, normal salary
adjustments and associated higher benefit costs. All other expenses as a group
increased by $34 thousand when comparing results of the first quarter of 1997 to
the same three month period of 1996.
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 1997 totals $132 thousand, an effective tax rate
of 30.0% compared to $124 thousand in 1996, reflecting an effective rate of
30.4% of pretax income.
Financial Condition and Capital Ratios
As of March 31, 1997 total assets were $138.7 million an improvement of 10.7%
over March 31, 1996. The Company has experienced outstanding growth of 11.7% in
loans which increased from $93.0 million at March 31, 1996 to $103.9 million on
March 31, 1997. 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 March 31, 1997, the leverage ratio calculated
with regulatory Tier I capital as a percentage of average for the quarter assets
was 8.33%, which compares favorably to the regulatory capital requirement. Total
capital to risk weighted assets was 14.01% at March 31, 1997.
10
<PAGE>
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 $9.9 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
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
1.2%. The effect of a falling rate scenario was positive by approximately
2.0%.
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
There were no Form 8-K's filed with the Securities and Exchange Commission
during the first quarter of 1997.
11
<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 who is thereunto duly authorized.
STANLY CAPITAL CORP
(Registrant)
Date May 6, 1997 By:
-----------
Roger L. Dick
President and Chief Executive Officer
Barbara S. Williams
Vice President-Finance
12
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,043
<INT-BEARING-DEPOSITS> 99,746
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,505
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 103,908
<ALLOWANCE> 1,057
<TOTAL-ASSETS> 138,671
<DEPOSITS> 112,466
<SHORT-TERM> 6,531
<LIABILITIES-OTHER> 380
<LONG-TERM> 7,725
0
0
<COMMON> 2,713
<OTHER-SE> 8,670
<TOTAL-LIABILITIES-AND-EQUITY> 138,671
<INTEREST-LOAN> 2,203
<INTEREST-INVEST> 409
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,612
<INTEREST-DEPOSIT> 935
<INTEREST-EXPENSE> 1,166
<INTEREST-INCOME-NET> 1,446
<LOAN-LOSSES> 38
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,323
<INCOME-PRETAX> 440
<INCOME-PRE-EXTRAORDINARY> 308
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 308
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
<YIELD-ACTUAL> 4.69
<LOANS-NON> 378
<LOANS-PAST> 184
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,050
<CHARGE-OFFS> 36
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 1,057
<ALLOWANCE-DOMESTIC> 1,057
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
