PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
CHECK THE APPROPRIATE BOX:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (under Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to SS. 240.14a-11(c) or SS. 240.14a-12
STANLY CAPITAL CORP
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEES (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed: 3/31/97
-1-
<PAGE>
STANLY CAPITAL CORP
167 NORTH SECOND STREET
ALBEMARLE, NORTH CAROLINA 28001
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE is hereby given that the Annual Meeting of Shareholders of
Stanly Capital Corp (the "Company") will be held as follows:
PLACE: Stanly County Agri-Civic Center
26032 Newt Road
Albemarle, North Carolina
DATE: Tuesday, April 22, 1997
TIME: 6:00 p.m. - Dinner
7:30 p.m. - Business Meeting
The purposes of the meeting are:
1. To amend Article I of the Articles of Incorporation of Stanly
Capital Corp in order to change the name of the Company from
Stanly Capital Corp to "Uwharrie Capital Corp";
2. To elect seven directors of the Company;
3. To ratify the appointment of Dixon, Odom & Co., L.L.P. as the
Company's independent public accountants for 1997; and
4. To transact such other business as may properly be presented for
action at the meeting.
YOU ARE INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. HOWEVER, EVEN
IF YOU PLAN TO ATTEND, YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED
APPOINTMENT OF PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT
PURPOSE TO ENSURE THAT A QUORUM IS PRESENT AT THE MEETING. THE GIVING OF AN
APPOINTMENT OF PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE IT OR TO ATTEND THE
MEETING AND VOTE IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Roger L. Dick
ROGER L. DICK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MARCH 25, 1997
<PAGE>
STANLY CAPITAL CORP
167 NORTH SECOND STREET
ALBEMARLE, NORTH CAROLINA 28001
(704) 983-6181
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is being furnished in connection with the
solicitation by the Board of Directors of Stanly Capital Corp (the "Company") of
appointments of proxy for use at the annual meeting of the Company's
shareholders (the "Annual Meeting") to be held on Tuesday, April 22, 1997, at
7:30 p.m., in the Stanly County Agri-Civic Center, 26032 Newt Road, Albemarle,
North Carolina, and at any adjournments thereof. The Company's proxy
solicitation materials are first being mailed to shareholders on or about March
31, 1997. In this Proxy Statement, the Company's subsidiary bank, Bank of
Stanly, is referred to as the "Bank".
VOTING OF PROXIES
Persons named in the enclosed appointment of proxy as proxies (the
"Proxies") to represent shareholders at the Annual Meeting are Roger L. Dick,
Dawn L. Melton and Tamara M. Singletary. Shares represented by each appointment
of proxy which is properly executed, returned and not revoked, will be voted in
accordance with the directions contained therein. If no directions are given,
such shares will be voted "FOR" the election of each of the seven nominees for
director named in Proposal 2, and "FOR" Proposals 1 and 3. If, at or before the
time of the Annual Meeting, any nominee named in Proposal 2 has become
unavailable for any reason, the proxies will be authorized to vote for a
substitute nominee. On such other matters as may come before the meeting, the
proxies will be authorized to vote in accordance with their best judgment.
RECORD DATE
The close of business on March 7, 1997, has been fixed as the record
date (the "Record Date") for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting. Only those shareholders of record
on that date will be eligible to vote on the proposals described herein.
VOTING SECURITIES
The Company's voting securities are the shares of its common stock, par
value $1.25 per share, of which 2,170,964 shares were issued and outstanding on
February 28, 1997.
VOTING PROCEDURES; VOTES REQUIRED FOR APPROVAL
At the Annual Meeting, each shareholder will be entitled to one vote
for each share held of record on the Record Date on each matter submitted for
voting and, in the election of directors, for each director to be elected. In
accordance with North Carolina law, shareholders will not be entitled to vote
cumulatively in the election of directors.
<PAGE>
In the election of directors, the seven nominees receiving the highest
number of votes will be elected. For Proposals 1 and 3 to be approved, a
majority of the shares represented in person and by proxy and entitled to vote
at the Annual Meeting must be voted in favor of approval. Abstentions and broker
nonvotes will have no effect in the voting at the Annual Meeting.
REVOCATION OF APPOINTMENT OF PROXY
Any shareholder who executes an appointment of proxy has the right to
revoke it at any time before it is exercised by filing with the Secretary of the
Company either an instrument revoking it or a duly executed appointment of proxy
bearing a later date, or by attending the Annual Meeting and announcing his or
her intention to vote in person.
EXPENSES OF SOLICITATION
The Company will pay the cost of preparing, assembling and mailing this
Proxy Statement. Appointments of proxy also may be solicited personally or by
telephone by the Company's and the Bank's directors, officers and employees
without additional compensation.
BENEFICIAL OWNERSHIP OF SECURITIES BY MANAGEMENT AND NOMINEES
As of February 28, 1997, there were no persons who were known to
management of the Company to beneficially own more than 5% of the Company's
common stock. The following table lists the individual beneficial ownership of
the Company's common stock as of February 28, 1997, by the Company's current
directors and nominees for director, by the Company's executive officer named in
the Summary Compensation Table below, and by all current directors, nominees and
executive officers of the Company as a group.
NAME OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1,2) PERCENT OF CLASS (1)
---------------- -------------------------- --------------------
William S. Aldridge, Jr. 3,217 .15
Cynthia H. Beane 9,803 .45
Joe S. Brooks 3,738 .17
Ronald T. Burleson 7,493 .35
Barton D. Burpeau, Jr. 1,575 .07
William F. Clayton 2,180 .10
John J. Earnhardt, Jr. 1,150 .05
G. Chad Efird 8,607 .40
W. Kermit Efird 27,428 1.26
James L. Harris 286 .01
Eric M. Johnsen, M.D. 14,558 .67
James F. Link, D.V.M. 200 .01
Jerry J. Long 3,812 .18
W. Chester Lowder 786 .04
James R. Mauney, Sr. 8,557 .39
Pamela S. Morton 336 .02
John P. Murray, M.D. 6,346 .29
Kent E. Newport 429 .02
Catherine A. Pickler 1,074 .05
George T. Reaves 2,881 1.33
A. James Russell 574 .03
B. A. Smith 1,546 .07
2
<PAGE>
NAME OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1,2) PERCENT OF CLASS (1)
---------------- -------------------------- --------------------
Boyce E. Thompson 4,471 .20
Douglas V. Waddell 384 .02
Roger L. Dick 13,122 .60
All current directors,
nominees for director and
executive officers as a group
(29 persons) 169,686 (3) 7.69
(1) Except as otherwise noted, to the best knowledge of management of the
Company, the individuals named or included in the group above exercise
sole voting and investment power with respect to all shares shown as
beneficially owned. The calculations of the percentage of class
beneficially owned by each individual and by the group as a whole are
based on a total of 2,205,923 shares which equal to the shares
currently outstanding plus the number of shares capable of being issued
to that individual (if any) and to the group as a whole within 60 days
upon the exercise of stock options held by that individual (if any) and
by the group, respectively.
(2) Includes shares over which the named individual shares voting and
investment power as follows: Mr. Aldridge - 2,881 shares; Ms. Beane -
9,546 shares; Mr. Brooks - 3,538 shares; Mr. Burleson - 1,138 shares;
Mr. Burpeau - 1,223 shares; Mr. C. Efird - 8,271 shares; Mr. K. Efird -
27,076 shares; Dr. Johnsen - 14,206 shares; Mr. Long - 3,363 shares; Mr.
Lowder - 574 shares; Mr. Mauney - 6,829 shares; Dr. Murray - 5,563
shares; Mr. Newport - 224 shares; Mr. Russell - 174 shares; Mr. Thompson
- 2,877 shares.
(3) Includes a total of 29,626 shares as to which the persons included in
the group exercise sole voting and investment power, and 105,101 shares
as to which such power is shared. Also includes an aggregate of 34,959
shares which executive officers included in the group could purchase
under currently exercisable stock options.
REPORTS OF CHANGES IN BENEFICIAL OWNERSHIP
Directors and executive officers of the Company are required by federal
law to file reports with the Securities and Exchange Commission regarding the
amount of and changes in their beneficial ownership of the Company's common
stock. In November 1996, Richard E. Clayton, Sr., former Executive Vice
President of the Bank, exercised stock options covering 26,324 shares of common
stock following his resignation from the Bank and sold those shares on the same
day, for which the required report was not filed by its due date. A report has
been filed to cover such transaction.
PROPOSAL 1: AMENDMENT OF ARTICLES OF INCORPORATION
To better reflect the geographical area beyond Stanly County which
the Company serves and to signify the Company's commitment to the vision and
business opportunities within the new emerging economy of the Uwharrie Lakes
region, the Board of Directors of the Company recommends to shareholders that
Article I of the Articles of Incorporation of Stanly Capital Corp be amended in
order to change the name of the Company from Stanly Capital Corp to "Uwharrie
Capital Corp".
The text of Article I as proposed to be amended is as follows:
"The name of the corporation is Uwharrie Capital Corp
(herein referred to as the "Corporation")."
3
<PAGE>
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE AMENDMENT OF THE ARTICLES OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY
FROM STANLY CAPITAL CORP TO "UWHARRIE CAPITAL CORP".
PROPOSAL 2: ELECTION OF DIRECTORS
NOMINEES
The Company's Bylaws provide for a Board of Directors composed of 18
members divided into three classes, each consisting of six directors who are
elected to terms of three years. Each year the terms of six directors expire and
six persons are elected as directors for new three-year terms. Due to the death
of Director Paul J. Cox, Cynthia H. Beane was appointed to serve on the Board of
Directors in 1996 to fill the unexpired one-year term of Mr. Cox. The Board of
Directors intends to nominate the seven persons named below for election by
shareholders at the Annual Meeting as directors of the Company for the terms
specified below or until their respective successors are duly elected and
qualified. With the exception of Cynthia H. Beane who currently serves as a
director of the Company, all of the nominees are new nominees. In order to
continue to evenly stagger the terms of the directors on the Board of Directors,
Ms. Beane has been nominated to serve a two-year term.
<TABLE>
<CAPTION>
POSITIONS YEAR IN WHICH
WITH FIRST ELECTED/ PRINCIPAL OCCUPATION
NAME AND AGE COMPANY PROPOSED TERM EXPIRES AND BUSINESS EXPERIENCE
FOR PAST 5 YEARS
<S> <C> <C> <C>
Cynthia H. Beane Director 1996/1999 Cynthia H. Beane, CPA, Albemarle, NC
(48) (certified public accountant)
Joe S. Brooks Nominee ---/2000 Partner, Brothers Precision Tool Company,
(47) Albemarle, NC (tool and die shop)
Ronald T. Burleson Nominee ---/2000 Partner, Thurman Burleson & Sons Farm,
(47) Richfield, NC (farming operation)
James F. Link, D.V.M. Nominee ---/2000 Veterinarian and Owner, North Stanly Animal
(44) Clinic, New London, NC
Kent E. Newport Nominee ---/2000 President, KDC, Inc. DBA Coy's Laundromat,
(35) Albemarle, NC (coin laundry and self-service
carwash)
George T. Reaves Nominee ---/2000 Retired, previously Vice President Traffic
(69) and Transportation, Collins & Aikman
Corporation, Albemarle, NC (manufacturer of
automotive fabrics, upholstery, yarns)
A. James Russell Nominee ---/2000 Construction Manager, J.T. Russell & Sons,
(42) Inc., Albemarle, NC (highway heavy utility
construction)
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH OF THE
NOMINEES NAMED ABOVE.
4
<PAGE>
INCUMBENT DIRECTORS
The Company's current Board of Directors includes 11 directors whose
terms will continue after the Annual Meeting. The following table contains
information about those 11 incumbent directors.
<TABLE>
<CAPTION>
YEAR IN WHICH
POSITIONS FIRST ELECTED/ PRINCIPAL OCCUPATION
WITH CURRENT TERM AND BUSINESS EXPERIENCE
NAME AND AGE COMPANY EXPIRES (1) FOR PAST 5 YEARS
- ----------------------- ------- ------------ -----------------------------
<S> <C> <C> <C>
William S. Aldridge, Jr. Director 1993/1999 Manager, Secretary-Treasurer and co-
(69) owner, Stanly Funeral Home, Inc.
Albemarle, NC
William F. Clayton Director 1992/1998 Cost office supervisor for Aluminum
(49) Company of America (ALCOA), Badin, NC
(aluminum products manufacturer)
G. Chad Efird Director 1993/1999 Retired; previously, Technical
(74) Supervisor, Aluminum Company of
America (ALCOA), Badin, NC (aluminum
products manufacturer)
Jerry J. Long Director 1992/1998 President, Secretary and co-owner, Long's
(65) Diamond Broker, Albemarle, NC (diamond
broker)
W. Chester Lowder Director 1995/1999 Director of Field Services, North Carolina
(48) Farm Bureau Federation, Raleigh, NC
(agricultural service agency); President,
Fork "L" Farm, Inc., Norwood, NC (farming
operation)
Pamela S. Morton Director 1992/1998 Principal, Endy Elementary
(44) School, Albemarle, NC,
previously Personnel Director,
Stanly County Schools, Albemarle, NC
John P. Murray, M.D. Director 1996/1998 Retired; previously, physician and owner,
(55) Albemarle Ear, Nose and Throat, Albemarle,
NC
Catherine A. Pickler Director 1995/1998 Homemaker and community volunteer,
(62) New London, NC
B. A. Smith Director 1996/1999 Retired, Stanfield, NC; previously, pilot
(63) and Base Commander, United States Air Force
Boyce E. Thompson Director 1992/1998 Treasurer, Stanly Fixtures Co.,
(46) Inc., Norwood, NC (store
fixtures manufacturer)
Douglas V. Waddell Director 1995/1999 Retired; previously, Manager, Sears
(68) & Roebuck - Automotive Department,
Albemarle, NC (retail store)
</TABLE>
(1) The year first elected indicates the year in which each individual was
first elected a director of the Bank or the Company, as applicable, and
does not reflect breaks in certain of the named individuals' tenures as
directors of the Bank or the Company, as applicable.
5
<PAGE>
DIRECTOR COMPENSATION
For service during 1997, each director will be paid a fee of $200 for
each Board of Directors meeting attended and $100 for attendance at each meeting
of a committee.
During 1994, the Company adopted a plan under which individual
directors may elect each year to defer receipt of all or a designated portion of
their fees for that year. Amounts so deferred earn interest at rates tied to
market indices selected quarterly by the plan administrators, and such amounts
become payable in the future (in a lump sum or annual installments) as specified
by the director at the time of his or her deferral election. During 1996,
Directors Lowder, K. Efird, Long and Thompson deferred compensation pursuant to
such plan.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held 12 regular meetings and 3
special meetings during 1996. Each incumbent director attended 75% or more of
the aggregate number of meetings of the Board of Directors and of any committees
on which he or she served with the exception of Directors Johnsen, Lowder and
Morton whose absences were due to prior business commitments.
The Company's Board of Directors has several standing committees,
including an Examining Committee, a Personnel Committee, a Compensation
Committee and a Nominating Committee.
The current members of the Examining Committee are Boyce E. Thompson -
Chairman, William F. Clayton, James L. Harris, Jerry J. Long and John P. Murray,
M. D. The Examining Committee reviews the annual audit reports of the Company's
independent auditors and the examination reports issued by bank regulatory
agencies, and oversees the work of the Company's internal auditor. The Examining
Committee met 11 times during 1996.
The current members of the Personnel Committee are G. Chad Efird -
Chairman, Pamela S. Morton, B.A. Smith and Douglas V. Waddell. The Personnel
Committee is authorized to consider and make recommendations to the Board of
Directors for action on matters pertaining to the compensation of employees
(other than executive officers) of the Company and the Bank and to establish
personnel policies for the Company and the Bank. The Personnel Committee did not
meet during 1996. The Board of Directors has voted that, beginning in 1997, the
Compensation Committee will also function as the Personnel Committee.
The current members of the Compensation Committee are G. Chad Efird -
Chairman, William F. Clayton, W. Chester Lowder, James R. Mauney, Pamela S.
Morton, B.A. Smith, Jr. and Douglas V. Waddell. The Compensation Committee is
authorized to consider and make recommendations to the Board of Directors for
action on matters pertaining to the compensation of executive officers of the
Company and the Bank. The Compensation Committee met two times during 1996.
The current members of the Nominating Committee are Jerry J. Long -
Chairman, William S. Aldridge, Jr., W. Kermit Efird, Eric M. Johnsen, M.D. and
Pamela S. Morton. The Nominating Committee recommends candidates to the
Company's Board of Directors for selection as nominees
6
<PAGE>
for election as directors of the Company. The Nominating Committee met two times
during 1996. In making its recommendations, the Nominating Committee will
consider candidates recommended by shareholders. Recommendations of nominee
candidates by shareholders for the 1998 Annual Meeting should be submitted in
writing to the Chief Executive Officer of the Company by September 30, 1997, and
should be accompanied by a statement of each candidate's qualifications to serve
as a director.
EXECUTIVE OFFICERS
The following table contains information about the current executive
officers of the Company and the Bank.
<TABLE>
<CAPTION>
EMPLOYED
CURRENT POSITIONS BY BANK
NAME AND AGE WITH COMPANY AND/OR BANK SINCE
- -------------------- -------------------------------- --------
<S> <C> <C>
Roger L. Dick (45) President and Chief Executive Officer of Company and Bank 1983
Jackie S. Jernigan (42) Executive Vice President of Bank (retail banking) 1983
Dawn L. Melton (36) Executive Vice President of Company (technology) 1983
Tamara M. Singletary (37) Executive Vice President of Company (investor relations) 1983
Thomas H. Swaringen (53) Executive Vice President of Bank (credit administration) 1990
</TABLE>
Effective April 14, 1997, Ron B. Davis will begin employment with the
Bank as President. Roger Dick, President and Chief Executive Officer of the
Company and the Bank, will remain President and Chief Executive Officer of the
Company and Chief Executive Officer of the Bank.
EXECUTIVE COMPENSATION
The following table shows, for 1996, 1995 and 1994, the compensation
paid to or received or deferred by the Company's chief executive officer. No
other current executive officer of the Company or the Bank received compensation
for 1996 which exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUTS
OTHER ALL
ANNUAL RESTRICTED OTHER
NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL SALARY BONUS SATION AWARDS SARS PAYOUTS SATION
POSITION YEAR ($)(1) ($)(2) ($)(3) ($) (#) ($) ($)(4)
- ----------------------- ---- ---------- ------------ ---------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Roger L. Dick, President 1996 $107,966 $5,398 -0- -0- 63,703(5) -0- $6,802
and Chief Executive
Officer of the Company
and the Bank
1995 95,865 3,607 -0- -0- -0- -0- 5,968
1994 95,104 3,571 -0- -0- -0- -0- 6,028
</TABLE>
(1) Includes amounts deferred at Mr. Dick's election pursuant to the
Company's Section 401(k) savings plan.
(2) Includes all cash bonuses received for each year by Mr. Dick. At the
end of each year the Company's Board of Directors may approve the
payment of annual cash bonuses to individual officers based on the
Company's results of operations and their individual performance during
the year. The payment and amounts of any such bonuses are determined
solely by the Company's Board of Directors. In addition to
discretionary cash
7
<PAGE>
bonuses, during 1996 the Company maintained an incentive plan under
which, at the end of each calendar quarter, each of certain officers
and employees could receive a cash bonus (equal to 5.0% of their
quarterly salary) if the Company's financial performance for that
quarter equaled or exceeded budgeted amounts.
(3) In addition to compensation paid in cash, the Company's executive
officers receive certain personal benefits. However, the aggregate
value of non-cash benefits received by Mr. Dick during each year did
not exceed 10% of cash compensation paid to him.
(4) Consists entirely of the Company's contributions on behalf of Mr. Dick
to the Company's Section 401(k)savings plan.
(5) The number of shares covered by options increased to 65,614 as a
result of a 3% stock dividend declared in December 1996.
STOCK OPTIONS
The following table contains information with regard to grants of stock
options during 1996 to Roger L. Dick, President and Chief Executive Officer of
the Company and the Bank.
<TABLE>
<CAPTION>
STOCK OPTION GRANTS IN 1996
INDIVIDUAL GRANTS
Number of
Securities
Underlying % of Options Granted
Options to Employees in Exercise or Base
Name Granted (#)(1) Fiscal Year Price ($) Per Share Expiration Date
- ---- -------------- ------------------- ------------------- --------------
<S> <C> <C> <C> <C>
Roger L. Dick 63,703(2) 47% $6.00 (2) 4/15/06
</TABLE>
(1) One-fifth of the options vest and become exercisable in each of the five
years beginning April 15, 1997, assuming Mr. Dick remains employed by the
Company. If Mr. Dick's employment terminates before the end of the vesting
period, Mr. Dick may exercise vested options for varying periods after
termination (depending on the manner of termination) in accordance with the
plan.
(2) The number of shares covered by options increased to 65,614 and the exercise
price decreased to $5.825 as a result of a 3% stock dividend declared in
December 1996.
The following table contains information with respect to stock options
exercised during 1996, and held at December 31, 1996, by Roger L. Dick,
President and Chief Executive Officer of the Company and the Bank.
8
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT FY-END AT FY-END
(#) ($)(2)
SHARES
ACQUIRED ON VALUE
EXERCISE REALIZED
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------- ---------------- ----------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roger L. Dick 13,726 $33,313 -0- 65,614 -0- $109,903
</TABLE>
(1) Represents the aggregate fair market value on the date of exercise
(based on an estimated market value of $6.00 per share) of shares
acquired upon such exercise, minus the aggregate exercise or purchase
price of those shares.
(2) Represents the aggregate fair market value at December 31, 1996 (based
on an estimated market value of $7.50 per share) of shares underlying
unexercised options held on that date, minus the aggregate exercise or
purchase price of those shares.
TRANSACTIONS WITH MANAGEMENT
The Bank has had, and expects to have in the future, banking
transactions in the ordinary course of business with certain of the Company's
and the Bank's directors and executive officers and their associates. All loans
included in such transactions were made on substantially the same terms,
including interest rates, repayment terms and collateral, as those prevailing at
the time for comparable transactions with other persons, and do not involve more
than the normal risk of collectibility or present other unfavorable features.
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
The Board of Directors has appointed the firm of Dixon, Odom & Co.,
L.L.P., Certified Public Accountants, as the Company's independent accountants
for 1997, and a proposal to ratify that appointment will be submitted for
shareholder approval at the Annual Meeting.
A representative of Dixon, Odom & Co., L.L.P. is expected to be present
at the Annual Meeting and available to respond to appropriate questions, and
will have the opportunity to make a statement if he desires to do so.
On August 31, 1996, the Company discontinued the services of McGladry &
Pullen, L.L.P. and engaged Dixon, Odom & Co., L.L.P. as the Company's
independent certified public accountants. In connection with McGladry & Pullen's
audits of the financial statements of the Company for the prior three fiscal
years, there were no disagreements with the Company on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to the satisfaction of McGladry & Pullen,
L.L.P., would have caused them to make reference to the subject of the
disagreement in connection with their report. In addition, during these periods
there was no adverse opinion or disclaimer of opinion or any modification of
opinion as to uncertainty, audit scope or accounting principles. The decision to
change accountants was approved by the Company's Board of Directors.
9
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" RATIFICATION OF
THE APPOINTMENT OF DIXON, ODOM & CO., L.L.P. AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR 1997.
OTHER MATTERS
The Board of Directors knows of no other business that will be brought
before the Annual Meeting. Should other matters properly be presented for action
at the Annual Meeting, the Proxies, or their substitutes, will be authorized to
vote shares represented by appointments of proxy according to their best
judgment.
PROPOSALS OF SHAREHOLDERS
Any proposal of a shareholder which is intended to be presented at the
Company's 1998 Annual Meeting must be received by the Company at its main office
in Albemarle, North Carolina, no later than November 28, 1997, to be considered
timely received for inclusion in the proxy statement and appointment of proxy to
be distributed in connection with that meeting.
ADDITIONAL INFORMATION
A COPY OF THE COMPANY'S 1996 ANNUAL REPORT ON FORM 10-K WILL BE
PROVIDED WITHOUT CHARGE TO ANY SHAREHOLDER ENTITLED TO VOTE AT THE ANNUAL
MEETING UPON THAT SHAREHOLDER'S WRITTEN REQUEST. REQUESTS FOR COPIES SHOULD BE
DIRECTED TO JUDY H. MILLER SECRETARY, STANLY CAPITAL CORP, 167 NORTH SECOND
STREET, ALBEMARLE, NORTH CAROLINA 28001.
9
<PAGE>
STANLY CAPITAL CORP
1996
ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
This page left blank intentionally.
<PAGE>
DESCRIPTION OF BUSINESS
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").
The Company commenced operations on July 1, 1993. Bank of Stanly was
incorporated under the laws of the State of North Carolina on September 28,
1983. It commenced operations on January 26, 1984.
Since commencement of operations, the Bank has engaged in retail and commercial
banking business. The Bank has three banking offices in the city of Albemarle,
one office in the town of Norwood, and one office in the town of Oakboro, Stanly
County, North Carolina. The Bank conducts a general banking business through its
five offices.
Its depository services include personal and commercial checking, savings, money
market, certificates of deposit accounts and individual retirement accounts
tailored to meet customers' needs. In addition to other commercial related
products, a program called Business Manager(R) is offered to better serve our
business community. Business Manager(R) is an accounts receivable billing system
where commercial accounts receivable are purchased and serviced by the Bank. The
Bank provides fixed and variable rate loans which include mortgage, home equity
lines of credit, consumer and commercial loans, and other lines of credit for
both consumer and commercial customers. The Bank also offers MasterCard(R)
credit cards.
Another service offered through the Bank is a Visa(R) Check Card which functions
as a point-of-sale (POS) and automated teller machine (ATM) card. Customers can
use the Check Card for purchases at any merchant accepting Visa and at any ATM
displaying the HONOR(R) and CIRRUS(R) networks regionally and worldwide,
respectively. Other services include rental of safe deposit boxes, night
depository, wire transfers, incoming and outgoing collection items, notary
service, check safekeeping, and direct deposit.
The Bank has two wholly-owned subsidiaries. The Strategic Alliance Corporation
is a broker-dealer through the National Association of Securities Dealers
offering a full range of financial and investment planning services to Stanly
County customers through its marketing division, BOS Financial. In addition, The
Strategic Alliance Corporation offers services to clients outside Stanly County.
BOS Agency, Inc. is a corporate entity that recognizes the risk management needs
of customers and brings life insurance, long-term health care, medicare
supplement and other insurance industry products to customers' financial
portfolios.
At December 31, 1996, the Bank, through a joint venture agreement with another
community bank, had a 50 percent ownership interest in Corporate Data Services,
Inc., a company that provides operations and data processing services.
(Products offered through BOS Financial and The Strategic Alliance Corporation
are not FDIC insured, are not obligations of Bank of Stanly, are not guaranteed
by the Bank, and may involve investment risk, including the possible loss of
principal.)
The Strategic Alliance Corporation
Member NASD/SIPC
3
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Percent
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1996 1995 Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR:
Net Income $ 1,025 $ 781 31.2
Per share (1) .47 .36 30.6
Cash dividends paid 216 190 13.7
Per share .10 .09 11.1
Average shares outstanding (1) 2,183,342 2,199,550 (.7)
- -------------------------------------------------------------------------------------------------------------------
AT YEAR-END:
Total assets $ 133,876 $ 120,839 10.8
Total earning assets 126,371 114,208 10.7
Loans, net of unearned income 100,852 90,948 10.9
Total interest-bearing liabilities 109,169 98,885 10.4
Shareholders' equity 11,303 10,913 3.6
Book value per share (1) 5.20 4.99 4.2
- -------------------------------------------------------------------------------------------------------------------
AVERAGES FOR THE YEAR:
Total assets $ 128,193 $ 113,535 12.9
Total earning assets 121,548 106,817 13.8
Loans, net of unearned income 97,201 82,630 17.6
Total interest-bearing liabilities 104,919 92,859 13.0
Shareholders' equity 11,123 10,445 6.5
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS (IN PERCENTAGE):
Return on average assets .80 .69
Return on average shareholders' equity 9.22 7.48
Average equity to average assets 8.68 9.20
Net interest margin (fully tax equivalent 4.70 4.73
basis)
Allowance as % of loans 1.04 1.07
Allowance as % of nonperforming loans 316 542
Allowance as % of nonperforming assets 252 368
Nonperforming assets to loans .41 .29
Net charge-offs to average loans .06 .03
Dividend payout ratio 21.10 24.28
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
1) Net income per share, book value per share, weighted average shares
outstanding and shares outstanding at year-end have been adjusted to reflect
the 3% stock dividend issued in 1996.
* * * *
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
It is the philosophy of the Company to promote a strong local shareholder base;
therefore, the Company's common stock is neither listed nor traded on a
broker-dealer market. Management of the Company makes every reasonable effort to
match willing buyers with willing sellers as they become known for the purpose
of private negotiations for the purchase or sale of the Company's common stock.
In addition, Stanly Capital Corp has adopted a program of on-going open market
purchases of shares of the Company's stock. The combination of private trades
and Company purchases has provided adequate liquidity for the investors of
Stanly Capital Corp stock without the cost of brokerage fees.
Approximately 84,356 shares of stock were traded during 1996. During December of
1996 and 1995, the Company paid cash dividends of $.10 and $.09 per share,
respectively, and issued a 3% stock dividend each year. As of December 31, 1996,
Stanly Capital Corp had 1,612 shareholders of record.
4
<PAGE>
(Logo of Dixon, Odom & Co., L.L.P.
appears here)
DIXON, ODOM & CO., LLP
Certified Public Accountants
To the Shareholders and Board of Directors
Stanly Capital Corp
We have audited the accompanying consolidated balance sheet of Stanly Capital
Corp and subsidiary (the "Company") as of December 31, 1996, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Stanly Capital Corp
and subsidiary as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Dixon, Odom & Co., L.L.P.
High Point, North Carolina
January 20, 1997
<PAGE>
(Logo of McGladrey & Pullen, LLP
appears here)
McGLADREY & PULLEN, LLP
-----------------------
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Stanly Capital Corp
Albemarle, North Carolina
We have audited the consolidated balance sheet of Stanly Capital Corp and
Subsidiary as of December 31, 1995 and the related statements of income,
shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Stanly
Capital Corp and Subsidiary as of December 31, 1995, and the result
of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Charlotte, North Carolina
January 17, 1996
5
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $4,583,678 $ 3,307,786
Due from banks, interest-bearing 299,494 145,746
Investment securities available for sale,
at fair value 25,220,437 23,113,769
Loans 100,852,450 90,948,068
Less allowance for loan losses 1,049,833 975,475
--------------- ---------------
Net loans 99,802,617 89,972,593
Premises and equipment, net 2,117,249 2,097,302
Interest receivable 857,794 865,806
Other assets 994,318 1,335,908
-------------- ---------------
Total assets $ 133,875,587 $ 120,838,910
=============== ===============
LIABILITIES
Deposits
Demand, noninterest-bearing $ 12,852,376 $ 10,182,794
Money market and NOW accounts 24,112,851 23,273,775
Savings accounts 27,706,578 24,493,506
Time deposits, $100,000 and over 6,502,755 5,190,183
Other time deposits 33,424,904 32,653,680
--------------- ----------------
Total deposits 104,599,464 95,793,938
Federal funds purchased and securities sold under
repurchase agreements 8,156,145 7,312,340
Other short-term borrowed funds 3,000,000 -
Long-term debt 6,265,660 5,962,212
Interest payable 176,042 164,565
Other liabilities 374,871 693,174
--------------- ----------------
Total liabilities 122,572,182 109,926,229
Off balance sheet items, commitments and contingencies - Note 10
SHAREHOLDERS' EQUITY
Common stock, $1.25 par value
6,000,000 shares authorized; shares issued and
outstanding of 2,174,982 and 2,123,999, respectively 2,718,728 2,654,999
Additional paid-in capital 4,593,661 4,376,560
Undivided profits 3,738,055 3,367,929
Net unrealized gain on securities available
for sale, net of related tax effect 252,961 513,193
--------------- ----------------
Total shareholders' equity 11,303,405 10,912,681
---------------
================
Total liabilities and shareholders' equity $ 133,875,587 $ 120,838,910
=============== ================
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
6
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 8,551,597 $ 7,421,870
Investment securities
U. S. Treasury 342,402 440,340
U. S. Government agencies and corporations 700,636 633,859
State and political subdivisions 349,680 354,157
Other 52,633 46,600
Short-term investments 43,371 16,592
------------- -------------
Total interest income 10,040,319 8,913,418
------------- -------------
INTEREST EXPENSE
Time deposits, $100,000 and over 314,446 288,461
Other interest-bearing deposits 3,371,130 3,036,683
Federal funds purchased and securities sold under
repurchase agreements 345,622 290,027
Other short-term borrowed funds 49,047 24,978
Long-term debt 431,176 411,186
-------------
-------------
Total interest expense 4,511,421 4,051,335
------------- -------------
NET INTEREST INCOME 5,528,898 4,862,083
Provision for loan losses 136,845 77,346
------------- -------------
Net interest income after provision for loan losses 5,392,053 4,784,737
------------- -------------
NONINTEREST INCOME
Service charges on deposit accounts 901,360 774,783
Other service fees and commissions 390,854 354,063
Gains on securities sold 29,367 57,985
Other income (expense) 39,626 ( 4,141)
------------- -------------
Total noninterest income 1,361,207 1,182,690
------------- -------------
NONINTEREST EXPENSE
Salaries and employee benefits 2,542,272 2,266,308
Net occupancy expense 221,036 211,870
Equipment expense 432,837 411,023
Data processing costs 493,139 481,348
Other operating expense 1,587,867 1,617,462
------------- -------------
Total noninterest expenses 5,277,151 4,988,011
------------- -------------
Income before income taxes 1,476,109 979,416
Income taxes 450,720 198,357
============= =============
NET INCOME $ 1,025,389 $ 781,059
============= =============
Net income per common share $ .47 $ .36
Average shares outstanding 2,183,342 2,199,550
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
7
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Additional Net Unrealized
Common Stock Paid-in Undivided Gain (Loss) on
Shares Amount Capital Profits Securities
------ ------ ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Balance at beginning of year 2,144,134 $ 2,642,668 $ 4,376,183 $ 3,130,525 $ (425,634)
Net income - - - 781,059 -
Common stock issued pursuant to:
3% stock dividend 61,465 76,831 277,207 (354,038) -
Stock options exercised 32,123 40,154 49,338 - -
Repurchases of common stock (83,723) (104,654) (374,968) - -
Dividends paid - $.09 per share - - - (189,617) -
Increase in investment in
unconsolidated subsidiary - - 48,800 -
- -
Net increase in fair value of
securities available for sale - - - - 938,827
============= ============= ============ ============= =============
Balance at end of year 2,123,999 $ 2,654,999 $ 4,376,560 $ 3,367,929 $ 513,193
============= ============= ============ ============= =============
YEAR ENDED DECEMBER 31, 1996
Balance at beginning of year 2,123,999 $ 2,654,999 $ 4,376,560 $ 3,367,929 $ 513,193
Net income - - - 1,025,389 -
Common stock issued pursuant to:
3% stock dividend 62,698 78,372 360,514 (438,886) -
Stock options exercised 42,850 53,563 140,270 - -
Repurchases of common stock (54,565) (68,206) (283,683)
Dividends paid - $.10 per share - - - (216,377) -
Net decrease in fair value of
securities available for sale - - - - (260,232)
------------- ------------- ------------ ------------- -------------
Balance at end of year 2,174,982 $ 2,718,728 $ 4,593,661 $ 3,738,055 $ 252,961
============= ============= ============ ============= =============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
8
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,025,389 $ 781,059
Adjustments to reconcile net income to net cash provided by operations:
Depreciation 235,280 212,378
Accretion of security premiums (17,959) (39,471)
Provision for loan losses 136,845 77,346
Deferred income tax expense 158,716 96,686
Gain on sale of securities available for sale, net (29,367) (57,985)
Loss on disposals of premises and equipment 14,752 4,098
(Gain) loss on sale of foreclosed properties (6,779) 31,393
Net change in interest receivable 8,012 (54,395)
Net change in other assets 20,327 743,057
Net change in interest payable 11,477 17,044
Net change in accrued and other liabilities 11,463 232,372
--------------- ---------------
Net cash provided by operating activities 1,568,156 2,043,582
--------------- ---------------
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 7,198,862 7,652,006
Proceeds from maturities of securities available for sale 317,821 2,150,000
Purchase of securities available for sale (10,003,476) (7,895,654)
Net increase in loans made to customers (10,090,781) (10,734,869)
Purchase of premises and equipment (269,979) (229,779)
Proceeds from sale of foreclosed properties 130,691 24,900
--------------- ---------------
Net cash used by investing activities (12,716,862) (9,033,396)
--------------- ---------------
FINANCING ACTIVITIES
Net increase in deposit accounts 8,805,526 2,558,931
Net increase (decrease) in federal funds purchased (2,850,000) 550,000
Net increase in securities sold under repurchase agreements 3,693,805 4,462,339
Proceeds from long-term advances from Federal Home Loan Bank 2,000,000 -
Repayment of long-term advances from Federal Home Loan Bank (1,696,552) (624,138)
Net proceeds from short-term advances from Federal Home Loan Bank 3,000,000 -
Repurchases of common stock (351,889) (479,622)
Proceeds from issuance of common stock 193,833 89,492
Dividends paid (216,377) (189,617)
---------------
---------------
Net cash provided by financing activities 12,578,346 6,367,385
--------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,429,640 (622,429)
Cash and cash equivalents at beginning of year 3,453,532 4,075,961
=============== ===============
Cash and cash equivalents at end of year $ 4,883,172 $ 3,453,532
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 4,499,944 $ 4,034,292
Income taxes paid 457,000 6,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Foreclosure of collateral in partial satisfaction of debt 123,912 -
Increase (decrease) in fair value of securities available for sale, net of
deferred taxes (benefit); 1996 - $(167,219), 1995 - $603,268 (260,232) 938,827
Increase in investment accounted for using the equity method, net of
deferred tax of $31,200 - 48,000
Stock dividends 1996 - 62,698 shares; 1995 - 61,465 shares 438,886 354,038
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
9
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Stanly Capital Corp ("the Company") was incorporated under North Carolina law
for the purpose of becoming the holding company for Bank of Stanly ("the Bank").
Regulatory approval was initially sought in March 1993, and was subsequently
received. On July 1,1993, the Bank became a wholly-owned subsidiary of the
Company whereby the common stock of the Bank was deemed shares of the Company.
Bank of Stanly was incorporated on September 28, 1983, under the laws of the
State of North Carolina and began operations on January 26, 1984, in Albemarle,
North Carolina. Deposits with the Bank are insured by the Federal Deposit
Insurance Corporation ("FDIC"); thus, the Bank is under regulation of both the
FDIC and the North Carolina State Banking Commission. Through its five branch
locations in Stanly County, the Bank provides a wide range of deposit accounts,
commercial, consumer, home equity and residential mortgage loans, safe deposit
boxes and automated banking.
In 1987, the Bank established a wholly-owned subsidiary, BOS Agency, Inc. ("BOS
Agency"), which engages in investment and insurance product sales. In 1989, the
Bank established a second wholly-owned subsidiary, BOS Financial Corporation,
for the purpose of conducting business as a broker/dealer in securities. During
1993, BOS Financial Corporation changed its name to The Strategic Alliance
Corporation ("Strategic Alliance") and was licensed as a broker/dealer by the
National Association of Securities Dealers.
Basis of Financial Statement Presentation
The accounting and reporting policies of the Bank conform to generally accepted
accounting principles and general practices within the financial services
industry. In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
as of the date of the balance sheet and revenues and expenses for the period.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the
Bank and its wholly-owned subsidiaries, BOS Agency and Strategic Alliance. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, due from banks and federal funds sold. Generally, federal funds are
purchased and sold for one-day periods. The Bank has available lines of credit
for federal funds in the amount of $9,000,000. From time to time, the Bank may
have deposits in excess of insurance coverage at other institutions.
Securities Held To Maturity
Securities classified as held to maturity are debt securities the Company has
both the intent and ability to hold to maturity regardless of changes in market
conditions, liquidity needs or changes in general economic conditions. These
securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed by the interest method over their contractual
lives. Based on the Company's financial position and liquidity, management
believes the Company has the ability to hold these securities for the
foreseeable future.
10
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities Available For Sale
Securities classified as available for sale are those debt and equity securities
that the Company intends to hold for an indefinite period of time but not
necessarily to maturity. Any decision to sell a security classified as available
for sale would be based on various factors, including significant movements in
interest rates, changes in the maturity mix of the Company's assets and
liabilities, liquidity needs, regulatory capital consideration, and other
similar factors. Securities available for sale are carried at fair value.
Unrealized gains or losses are reported as increases or decreases in
shareholders' equity, net of the related deferred tax effect. Realized gains or
losses, determined on the basis of the cost of specific securities sold, are
included in earnings.
Loans
Loans are stated at the amount of unpaid principal, reduced by unearned fees and
an allowance for loan losses. Interest on loans is calculated by using the
simple interest method on daily balances of the principal amount outstanding.
The accrual of interest is discontinued on loans (1) which are past due ninety
days or more if collateral is inadequate to cover principal and interest, or (2)
immediately if management believes, after considering economic and business
conditions and collection efforts, that the borrower's financial condition is
such that collection is doubtful. Upon such discontinuance, all unpaid accrued
interest is reversed.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield on the related loan.
The allowance for loan losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated. The allowance is
increased by provisions charged to operations and reduced by net charge-offs.
The Company makes continuous credit reviews of the loan portfolio and considers
current economic conditions, historical loss experience, review of specific
problem loans and other factors in determining the adequacy of the allowance
balance.
The Company adopted FASB Statement No. 114, "Accounting by Creditors for
Impairment of a Loan," and FASB Statement No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," during the
three-month period ended September 30, 1995. FASB Statements No. 114 and No. 118
were effective as of January 1, 1995 for the Company. FASB Statement No. 114
requires all creditors to measure the impairment of a loan based upon the
present value of the loan's future cash flows discounted using the loan's
effective interest rate. The loan can also be valued at its fair value or the
market price of its underlying collateral if the loan is primarily collateral
dependent. FASB Statement No. 118 amended FASB Statement No. 114 by adding
disclosure requirements for impaired loans and it permits greater latitude in
the manner in which income on impaired loans may be recognized as long as the
creditor's policies are disclosed.
FASB Statement No. 114 does not apply to large groups of smaller balance
homogeneous loans that are collectively evaluated for impairment and, therefore,
did not have an effect on the Company's reporting for impaired loans since the
majority of the Company's loans, consisting of residential first mortgages,
residential construction loans, home equity loans, and consumer loans, are
collectively assessed, and the Company's possible impaired loans, all of which
have the primary risk characteristic of being delinquent 90 days or more, are
collateral dependent, and the fair value of such collateral has been assessed to
be in excess of the carrying basis in such loans. Loans are charged off when
management determines collectibility of principal and accrued interest unlikely.
No loans were deemed impaired at December 31, 1996, and there is no specific
FASB Statement No. 114 allowance associated with the portfolio.
11
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreclosed Property
Property acquired through foreclosure or other proceedings is initially recorded
at fair value upon foreclosure establishing a new cost basis. After foreclosure,
valuations are performed and the foreclosed property is adjusted to the lower of
cost or fair market value of the properties less costs to sell. Any write-down
at the time of transfer to foreclosed properties is charged to the allowance for
loan losses. Subsequent write-downs are charged to other expenses. Property is
evaluated regularly to ensure that the recorded amount is supported by its
current fair market value.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Land is
carried at cost. Additions and major replacements or betterments which extend
the useful lives of premises and equipment are capitalized. Maintenance, repairs
and minor improvements are expensed as incurred. Depreciation is computed
principally by the straight-line method over estimated useful lives, except in
the case of leasehold improvements, which are amortized over the term of the
leases, if shorter. Useful lives range from five years for furniture and
fixtures to ten to thirty years for leasehold improvements and buildings,
respectively. Upon retirement or other disposition of the assets, the cost and
the related accumulated depreciation are removed from the accounts and any gains
or losses are reflected in income.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". The Company currently accounts for its stock-based compensation
plans using the accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (see Note 13). Since the Company
is not required to adopt the fair value based recognition provisions prescribed
under SFAS No. 123, it has elected only to comply with the disclosure
requirements set forth in the Statement, which includes disclosing pro forma net
income as if the fair value based method of accounting had been applied. (See
Note 13.)
Income Taxes
The Company and its subsidiaries file a consolidated Federal income tax return
and separate North Carolina income tax returns. The provision for income taxes
in the accompanying financial statements is provided on a liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized in the consolidated
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In
12
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
that regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. Statement No. 107 excludes
certainfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying market
value nor liquidation value of the Company.
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:
CARRYING AMOUNTS APPROXIMATE FAIR VALUES for the following instruments:
Cash and cash equivalents
Accrued interest receivable and payable
Variable rate loans that reprice frequently where no significant change
in credit risk has occurred
Variable rate money market, demand, NOW and savings accounts
Variable rate time deposits
Federal funds purchased and securities sold under repurchase agreements
Short-term borrowed funds
QUOTED MARKET PRICES, where available, or if not available, based on quoted
market prices of comparable instruments for the following:
Securities available for sale
DISCOUNTED CASH FLOWS using interest rates currently being offered on
instruments with similar terms and with similar credit quality:
Long-term debt
All loans, except variable rate loans described above
Fixed rate time deposits
Earnings per Common Share
Earnings per common share is calculated on the basis of the weighted average
number of common shares outstanding retroactively restated to reflect the 3%
stock dividend effective in December 1996 and 1995. Common stock equivalents in
the form of outstanding stock options have not been included in the computation
of earnings per common share since the dilutive effect is insignificant. As a
result of the reorganization and merger, all of the shares of the Bank were
deemed to be shares of the Company. All common stock transactions subsequent to
the reorganization and merger have resulted in Stanly Capital Corp shares being
issued.
Investment in Joint Venture
During 1992, the Company entered into a joint venture agreement to form
Corporate Data Services, Inc. ("CDS"), a company that provides operations and
data processing services for community banks. The Company had a 50% ownership
interest at December 31, 1996 and 1995. The Company utilizes the equity method
to account for its ownership in the joint venture.
- --------------------------------------------------------------------------------
13
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
NOTE 2 - SECURITIES
Carrying amounts and fair values of securities available for sale are summarized
below:
<TABLE>
<CAPTION>
--------------- -- -------------- -- --------------- -- ----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1996 Cost Gains Losses Value
- ----------------- --------------- -- -------------- -- --------------- -- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 3,980,298 18,860 - 3,999,158
U.S. Government agencies and
corporations 2,005,132 - 18,412 1,986,720
State and political subdivisions 5,490,780 328,619 - 5,819,399
Mortgage-backed securities 12,025,046 78,766 - 12,103,812
--------------- -------------- --------------- ----------------
Total debt securities 23,501,256 426,245 18,412 23,909,089
FHLB and other stock 1,303,673 7,675 - 1,311,348
--------------- -------------- --------------- ----------------
Total securities available for sale $ 24,804,929 $ 433,920 $ 18,412 $ 25,220,437
=============== ============== =============== ================
</TABLE>
<TABLE>
<CAPTION>
--------------- -- -------------- -- --------------- -- ----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1995 Cost Gains Losses Value
- ----------------- --------------- -- -------------- -- --------------- -- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 7,009,344 $ 94,396 $ - $ 7,103,740
U.S. Government agencies and
corporations 2,008,229 8,801 - 2,017,030
State and political subdivisions 5,749,305 445,545 - 6,194,850
Mortgage-backed securities 7,018,807 290,367 - 7,309,174
--------------- -------------- --------------- ----------------
Total debt securities 21,785,685 839,109 - 22,624,794
FHLB and other stock 485,125 3,850 - 488,975
--------------- -------------- --------------- ----------------
Total securities available for sale $ 22,270,810 $ 842,959 $ - $ 23,113,769
=============== ============== =============== ================
</TABLE>
At December 31, 1996 and 1995, there were no debt securities being held to
maturity.
An analysis of the unrealized holding gain (loss) and the related income tax
effect for the years ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Net Increase
Unrealized Deferred Income Tax (Decrease) in
Holding Gain (Loss) Asset (Liability) Stockholders' Equity
------------------- -------------------- --------------------
<S> <C> <C> <C>
Balance, December 31, 1994 $ (699,136) $ 273,502 $ (425,634)
Increase in valuation allowance 1,542,095 (603,268) 938,827
----------------- ----------------- ----------------
Balance, December 31, 1995 842,959 (329,766) 513,193
Decrease in valuation allowance (427,451) 167,219 (260,232)
================= ================= ================
Balance, December 31, 1996 $ 415,508 $ (162,547) $ 252,961
================= ================= ================
</TABLE>
14
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
NOTE 2 - SECURITIES (CONTINUED)
The amortized cost and fair value of debt securities available for sale at
December 31, 1996, by contractual maturities, are as follows:
<TABLE>
<CAPTION>
After After
In One One Year Five Years After
Year Through Through Ten
Amortized Cost or Less Five Years Ten Years Years Total
- -------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury $ - $ - $ 3,980,298 $ - $ 3,980,298
U.S. Agency 1,000,274 1,004,858 - 2,005,132
State and political 50,289 250,202 883,755 4,306,657 5,490,780
Mortgage-backed securities 146,314 452,435 1,006,987 10,419,310 12,025,046
-------------- ------------- -------------- -------------- --------------
Total $ 1,196,754 $ 702,637 $ 6,875,898 $ 14,725,967 $ 23,501,256
============== ============= ============== ============== ==============
Fair Value
U.S. Treasury $ - $ - $ 3,999,158 $ - $ 3,999,158
U.S. Agency 1,002,500 - 984,220 - 1,986,720
State and political 50,289 252,272 941,921 4,574,917 5,819,399
Mortgage-backed securities 146,969 451,950 1,051,777 10,453,116 12,103,812
-------------- ------------- -------------- -------------- --------------
Total $ 1,199,758 $ 704,222 $ 6,977,076 $ 15,028,033 $ 23,909,089
============== ============= ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
After After
Weighted In One One Year Five Years After
Average Year Through Through Ten
Percentage Yields or Less Five Years Ten Years Years Total
- ----------------- -------------- ------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury - % - % 6.40% - % 6.40%
U.S. Agency 7.49 - 5.85 - 6.68
State and political 7.69 10.18 9.45 9.27 9.32
Mortgage-backed securities 6.70 6.00 6.28 6.70 6.67
---------------- ---------------- ---------------- ---------------- ----------------
Total 7.40% 7.50% 6.72% 7.48% 7.26%
================ ================ ================ ================ ================
</TABLE>
(1) Yield on tax exempt bonds computed on a tax-equivalent basis.
Results from sales of securities available for sale for the years ended December
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Gross proceeds from sales $ 7,198,862 $ 7,652,006
=============== ===============
Realized gains from sales $ 41,098 $ 60,656
Realized losses from sales (11,731) (2,671)
--------------- ---------------
Net realized gains $ 29,367 $ 57,985
=============== ===============
</TABLE>
At December 31, 1996 and 1995, securities available for sale with a carrying
amount of $10,863,459 and $14,310,840, respectively, were pledged as collateral
on public deposits and for other purposes as required or permitted by law.
- --------------------------------------------------------------------------------
15
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
NOTE 3 - LOANS
The composition of net loans as of December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Commercial $ 13,647,142 $ 11,976,105
Real estate - construction 3,716,121 3,096,589
Real estate - consumer and commercial mortgage 72,522,068 65,588,457
Consumer 10,889,647 10,251,675
Other 112,378 50,995
--------------- ---------------
100,887,356 90,963,821
Deduct:
Allowance for loan losses (1,049,833) (975,475)
Unearned net loan fees
(34,906) (15,753)
--------------- ---------------
Loans, net $ 99,802,617 $ 89,972,593
=============== ===============
</TABLE>
Although the Bank's loan portfolio is diversified, there is a concentration of
mortgage real estate loans, primarily one to four family residential mortgage
loans, which represent about one-half of the total loan portfolio. Commercial
loans, secured primarily by real estate, to finance manufacturing buildings,
shopping center locations, commercial buildings and equipment comprise about
one-fifth of total loan dollars. There is not a concentration of a particular
type of credit in this group of commercial loans.
An analysis of fixed-rate loan maturities and repricing frequencies of
variable-rate loans as of December 31, 1996 follows:
<TABLE>
<S> <C>
Fixed-rate loans with a maturity of:
Three months or less $ 2,012,814
Over three months through twelve months 4,336,642
Over one year through five years 16,357,497
Over five years 18,124,674
----------------
Total fixed-rate loans 40,831,627
----------------
Variable-rate loans with a repricing frequency of:
Quarterly or more frequently 57,261,736
Annually or more frequently, but less frequently than quarterly 1,954,164
Every five years or more frequently, but less frequently than annually 804,923
Less frequently than every five years -
----------------
Total variable-rate loans 60,020,823
----------------
Total loans $ 100,852,450
================
</TABLE>
Nonaccruing loans totaled $331,738 and $180,070 at December 31, 1996 and 1995,
respectively, which had the effect of reducing net income $14,815 in 1996 and
$12,457 in 1995. When loans exceed 90 days past due, they are placed in
nonaccrual status. At December 31, 1996 and 1995, loans past due 90 days totaled
$57,000 and $63,000, respectively.
The Company's loan policies are written to address each lending category,
specifically related to loan-to-value ratios and collateralization methods. This
takes into consideration economic and credit risk of lending areas and customers
associated with each category.
- --------------------------------------------------------------------------------
16
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31, 1996
and 1995 are listed below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Balance, beginning of year $ 975,475 $ 922,409
--------------- ---------------
Charge offs:
Commercial 2,200 -
Real estate 13,000 -
Consumer 60,425 60,063
--------------- ---------------
Total charge-offs 75,625 60,063
--------------- ---------------
Recoveries:
Commercial - 1,000
Real estate - 6,000
Consumer 13,138 28,783
--------------- ---------------
Total recoveries 13,138 35,783
--------------- ---------------
Net charge-offs 62,487 24,280
Provision charged against income 136,845 77,346
--------------- ---------------
Balance, end of year $ 1,049,833 $ 975,475
=============== ===============
</TABLE>
Ratios relative to the allowance for loan losses, nonperforming loans and net
charge-offs for the years ended December 31, 1996 and 1995 are reflected below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Allowance for loan losses to total loans 1.04% 1.07%
Allowance for loan losses to non-performing loans 316.5 541.7
Nonperforming loans to average loans .34 .22
Net charge-offs to gross loans outstanding .06 .03
</TABLE>
The method used for rating the loan portfolio provides for early detection of
problem loans and an adequate loan loss provision is established quarterly for
loans considered to be loss, doubtful and substandard. This identification
process begins with loans previously identified by examiners and also includes
loans from management's assessment of credit reviews, payment history, loan to
value ratio and weakness in credit. Changes in the ratio of the allowance for
loans losses to total loans and nonperforming loans reflects this assessment.
The allocation of the allowance for loan losses applicable to each category of
loans at December 31, 1996 and 1995 is presented below:
<TABLE>
<CAPTION>
1996 1995
----------------------------------- --------------------------------------
Percent of Percent of
Each Category Each Category
Amount to Total Loans Amount to Total Loans
----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
Commercial $ 44,932 14% $ 26,764 13%
Real estate - construction - 4% - 3%
Real estate - mortgage 212,780 72% 262,288 72%
Consumer 6,002 10% 14,715 12%
Unallocated 786,119 N/A 671,708 N/A
------------- ----------- ------------- ----------
Total $ 1,049,833 100% $ 975,475 100%
============= =========== ============= ==========
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
NOTE 5 - PREMISES AND EQUIPMENT
The major classes of premises and equipment and the total accumulated
depreciation at December 31, 1996 and 1995 are listed below:
1996 1995
---- ----
Land $ 341,686 $ 341,686
Buildings and improvements 1,865,538 1,798,120
Furniture and equipment 1,616,309 1,575,032
--------------- --------------
3,823,533 3,714,838
Less accumulated depreciation 1,706,284 1,617,536
--------------- --------------
$ 2,117,249 $ 2,097,302
=============== ==============
- --------------------------------------------------------------------------------
NOTE 6 - DEPOSITS
The composition of deposits at December 31, 1996 and 1995 is as follows:
1996 1995
---- ----
Demand deposits $ 12,852,376 12% $ 10,182,794 11%
Money market and NOW accounts 24,112,851 23 23,273,775 24
Savings 27,706,578 27 24,493,506 26
Time deposits, $100,000 and over 6,502,755 6 5,190,183 5
Other time deposits 33,424,904 32 32,653,680 34
--------------- ----------------
$ 104,599,464 100% $ 95,793,938 100%
=============== ================
The maturities of fixed-rate time deposits at December 31, 1996 are reflected in
the table below.
Time Deposits Other
$100,000 and Over Time Deposits
---------------------- ---------------
Remaining Maturities
Three months or less $ 2,370,846 $ 11,915,959
Three through twelve months 3,442,978 16,128,431
Over twelve months 688,931 5,380,514
---------------- ----------------
Total $ 6,502,755 $ 33,424,904
================ ================
- --------------------------------------------------------------------------------
NOTE 7 - SHORT-TERM BORROWED FUNDS
1996 1995
Amount Rate Amount Rate
-------------------- ---------------------
At year-end
Federal funds purchased $ - - $ 2,850,000 6.00%
Securities sold under agreement
to repurchase 8,156,145 4.16% 4,462,340 4.45
Short-term advances from FHLB 3,000,000 5.45 - -
------------- -------------
$11,156,145 4.51% $ 7,312,340 5.05%
============= =============
18
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
NOTE 7 - SHORT-TERM BORROWINGS (CONTINUED)
1996 1995
Amount Rate Amount Rate
-----------------------------------------
Average for the year
Federal funds purchased $ 1,556,126 5.68% $ 1,656,616 6.08%
Securities sold under agreement
to repurchase 5,763,748 4.46 3,672,203 5.16
Short-term advances from FHLB 866,667 5.66 404,932 6.17
-------------- ------------
$ 8,186,541 4.82% $ 5,733,751 5.49%
============== ============
Maximum month-end balance
Federal funds purchased $ 4,675,000 $ 4,225,000
Securities sold under agreement
to repurchase 8,156,145 4,462,340
Short-term advances from FHLB 3,000,000 -
Federal funds purchased represent unsecured overnight borrowings from other
financial institutions. Securities sold under agreement to repurchase represent
short-term borrowings collateralized by securities of the United States
government or its agencies.
- --------------------------------------------------------------------------------
NOTE 8 - LONG-TERM DEBT
Advances from the Federal Home Loan Bank of Atlanta ("FHLB") with original
maturities of one year or more consist of the following at December 31, 1996 and
1995:
Maturing
Year Ending Interest
December 31 Rate (%) 1996 1995
----------- -------- ---- ----
1996 6.41 - 6.94 $ - $ 1,696,552
1997 6.41 - 6.94 621,552 621,552
1998 6.41 - 6.94 1,596,552 596,552
1999 6.41 - 6.94 571,552 571,552
2000 6.41 - 6.94 471,552 471,552
Thereafter 6.41 - 7.53 3,004,452 2,004,452
-------------- -------------
$ 6,265,660 $ 5,962,212
============== =============
Pursuant to collateral agreements with the FHLB, advances are collateralized by
all the Company's stock in FHLB and its qualifying first mortgage loans with
principal balances of $43,456,511 and $40,309,515 at December 31, 1996 and 1995,
respectively. Total credit available from the FHLB for short- or long-term
borrowing at December 31, 1996 was $21,000,000.
- --------------------------------------------------------------------------------
19
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
NOTE 9 - INCOME TAX MATTERS
The components of income tax expense for the years ended December 31 are
summarized as follows:
1996 1995
---- ----
Current tax expense $ 292,004 $ 101,671
Deferred tax expense 158,716 96,686
--------------- --------------
$ 450,720 $ 198,357
================ ===============
The effective income tax rates for 1996 and 1995 were 30.5% and 20.3%,
respectively. The reasons for the differences between the effective rates and
income taxes computed at the statutory federal income tax rate of 34% for each
of those years are as follows:
1996 1995
---- ----
Income taxes at statutory federal rate $ 501,876 $ 333,002
Increases (decreases) resulting from:
Tax exempt interest, net (114,380) (106,748)
State income taxes, net of federal benefit 38,085 -
Other 25,139 (27,897)
------------- ---------------
$ 450,720 $ 198,357
============= ===============
Deferred tax assets and liabilities arising from temporary differences and
carryforwards at December 31, 1996 and 1995 are summarized as follows:
1996 1995
---- ----
Deferred tax assets relating to:
Bad debt reserves $ 311,784 $ 259,176
Income tax credit carryforwards - 111,693
Charitable contributions carryforward - 20,995
Deferred compensation 16,112 9,326
Other 3,589 7,487
-------------- ------------
Total deferred tax asset 331,485 408,677
-------------- ------------
Deferred tax liabilities relating to:
Net unrealized gain on securities
available for sale (162,547) (329,766)
Depreciation (46,618) (52,607)
Deferred loans fees and costs (87,513) -
Basis difference in equity investment (31,200) (31,200)
-------------- ------------
Total deferred tax liability (327,878) (413,573)
-------------- ------------
Net deferred tax asset (liability) $ 3,607 $ (4,896)
============= =============
The net deferred tax asset of $3,607 at December 31, 1996 is included in other
assets on the accompanying consolidated balance sheet. The 1995 consolidated
balance sheet reflects deferred tax assets of $324,870 in other assets and
deferred tax liabilities of $329,766 in other liabilities.
- --------------------------------------------------------------------------------
20
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Financial instruments with off-balance-sheet risk
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, lines of
credit and standby letters of credit. These instruments involve elements of
credit risk in excess of amounts recognized in the accompanying financial
statements.
The Company's risk of loss with the unfunded loans and lines of credit or
standby letters of credit is represented by the contractual amount of these
instruments. The Company uses the same credit policies in making commitments
under such instruments as it does for on-balance sheet instruments. The amount
of collateral obtained, if any, is based on management's credit evaluation of
the borrower. Collateral held varies, but may include accounts receivable,
inventory, real estate and time deposits with financial institutions. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. Credit
card commitments are unsecured. As of December 31, 1996 and 1995, outstanding
financial instruments whose contract amounts represent credit risk were as
follows:
1996 1995
---- ----
Commitments to extend credit $ 13,108,188 $ 11,321,987
Credit card commitments 1,913,015 1,579,140
Standby letters of credit 348,388 532,760
------------- --------------
$15,369,591 $13,433,887
============= ==============
Contingencies
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the financial
statements.
Financial instruments with concentration of credit risk
The Bank makes commercial, agricultural, real estate mortgage, home equity and
consumer loans primarily in Stanly County. A substantial portion of the Bank's
customers' abilities to honor their contracts is dependent on the business
economy in Albemarle, North Carolina and surrounding areas. Although the Bank's
loan portfolio is diversified, there is a concentration of mortgage loans in the
portfolio. The Bank's policies for real estate lending require collateralization
with 20% equity or that the loan be underwritten to conform to Fannie-Mae
guidelines that would allow securitization and/or sale of the loans. Lending
policy for all loans requires that they be supported by sufficient cash flows.
Credit losses related to this real estate concentration are consistent with
credit losses experienced in the portfolio as a whole.
- --------------------------------------------------------------------------------
NOTE 11 - RELATED PARTY TRANSACTIONS
In the normal course of business, certain directors and executive officers of
the Company, including their immediate families and companies in which they have
a 10% or more beneficial interest, were loan customers. Loans to such groups
totaled $2,727,314 and $4,234,445 at December 31, 1996 and 1995 as summarized
below.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Balance, beginning $ 4,234,445 $ 2,882,749
Loans made 7,771,662 2,907,724
Payments received (7,976,645) (2,140,410)
Changes in composition (1,302,148) 584,382
--------------- ---------------
Balance, ending $ 2,727,314 $ 4,234,445
=============== ===============
- -------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
NOTE 12 - REGULATORY RESTRICTIONS
The Company and its subsidiary, Bank of Stanly, are subject to certain
requirements imposed by state and federal banking statutes and regulations.
These requirements, among other things, establish minimum levels of capital,
restrict the amount of dividends that may be distributed, and require that
reserves on deposit liabilities be maintained in the form of vault cash or
noninterest-bearing deposits with the Federal Reserve Bank.
North Carolina law prohibits Stanly Capital Corp from making any distributions
to shareholders, including the payment of cash dividends, which would render it
insolvent or unable to meet its obligations as they become due in the ordinary
course of business. At December 31, 1996, Stanly Capital Corp had consolidated
shareholders' equity of $11,303,405.
As a North Carolina banking corporation, the subsidiary bank may pay dividends
only out of undivided profits as determined pursuant to North Carolina General
Statutes Section 53-87. As of December 31, 1996, the bank had undivided profits
of $4,605,721 and total capital of $11,179,363.
The Company and its subsidiary bank are subject to federal regulatory risk-based
capital guidelines for banks and bank holding companies. Both must meet specific
capital guidelines that involve quantitative measure of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices which measure Total and Tier 1 Capital to risk- weighted assets and
Tier 1 Capital to average assets. Quantitative measures established by
regulation to ensure capital adequacy and the Company's consolidated capital
ratios are set forth in the table below. The Company expects to meet or exceed
these minimums without altering current operations or strategy.
Adequately Well
Actual Capitalized Capitalized
---------------------------------------------------------------------------
As of December 31, 1996:
Total Capital (to risk weighted assets) 14.0% 8% 10%
Tier 1 Capital (to risk weighted assets) 12.8 4 6
Tier 1 Capital (to average assets) 8.2 4 5
As of December 31, 1995:
Total Capital (to risk weighted assets) 14.7% 8% 10%
Tier 1 Capital (to risk weighted assets) 13.5 4 6
Tier 1 Capital (to average assets) 9.4 4 5
---------------------------------------------------------------------------
As of December 31, 1996, the most recent notification from the FDIC categorized
the bank subsidiary as adequately capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events since that
notification that management believes have changed the Bank's category.
For the reserve maintenance period in effect at December 31, 1996, the
subsidiary bank was required to maintain reserve balances in cash or on deposit
with the Federal Reserve Bank in the aggregate amount of $763,000 as reserves on
deposit liabilities.
- --------------------------------------------------------------------------------
22
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
NOTE 13 - STOCK MATTERS
On December 5, 1996, the Company issued a 3% stock dividend to shareholders of
record on November 15, 1996. Based on the number of common shares outstanding on
the record date, the Company issued 62,698 new shares and paid $4,883
cash-in-lieu of fractional shares resulting from the stock dividend. On December
6, 1995 the Company issued a 3% stock dividend to shareholders of record on
November 21, 1995. Based on the number of common shares outstanding on the
record date, the Company issued 61,465 new shares and paid $3,434 cash-in-lieu
of fractional shares resulting from the stock dividend. All references to number
of shares and price per share in the information presented below regarding stock
options have been adjusted to reflect the above-described stock dividends.
During 1996 the Company adopted the 1996 Employee Stock Option Plan, under which
options to purchase an aggregate of 212,400 shares of the Company's common stock
may be granted to officers and other full-time key employees of the Company and
its subsidiaries. Employees may exercise their options in established increments
according to vesting schedules, and the options will expire if not exercised
within ten years of the date of grant. Option prices under the plan shall not be
less than the fair market value of the stock at the date of grant. During 1996
the Company granted options for the purchase of 144,687 shares under this plan.
The fair value of each option grant is estimated on the grant date using an
option-pricing model with the following assumptions for grants in 1996: dividend
yield of 2%, risk-free interest rate of 6%, and expected lives of seven years
for the options.
Under a prior Incentive Stock Option Plan, various grants were awarded during
the period from October 1985 through January 1990. All options granted under
that plan have been exercised except for options to purchase 1,442 shares which
are exercisable in 1997. No additional options may be granted under this plan.
Summaries of the status of the Company's stock option plans as of December 31,
1996 and the changes during 1996 and 1995 are presented below:
Outstanding Options Exercisable Options
------------------------------ -----------------------------
Per Share Total Per Share Total
Year of Year of Number Exercise Exercise Number Exercise Exercise
Grant Expiration Outstanding Price Price Outstanding Price Price
----- ---------- ----------- ----- ----- ----------- ----- -----
1987 1997 1,442 $ 3.469 $ 5,002 1,442 $ 3.469 $ 5,002
1996 2006 139,378 5.825 811,877 19,663 5.825 114,537
------------ ---------- ----------- ---------
140,820 $ 816,879 21,105 $ 119,539
============ ========== =========== =========
1996 1995
--------------------- ----------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
---------- ---------- -------- --------------
Balance at the beginning of
the year 38,983 $4.283 71,106 $3.607
Options granted 144,687 5.832 - -
Options exercised (42,850) 4.524 (32,123) 2.786
----------- ---------
Balance at the end of the year 140,820 $5.801 38,983 $4.283
=========== =========
Total options exercisable at
end of year 21,105 38,983
=========== =========
Weighted average fair value
of options granted during
the year $1.20
===========
23
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
NOTE 13 - STOCK MATTERS (CONTINUED)
- --------------------------------------------------------------------------------
If the Company had used the fair value based method of accounting for its
employee stock options, as prescribed by Statement of Financial Accounting
Standards No. 123, compensation cost included in determining net income for the
year ended December 31, 1996 would have increased by approximately $54,000,
resulting in net income and net income per common share for the year of $971,389
and $.45, respectively.
- --------------------------------------------------------------------------------
NOTE 14 - ASSOCIATE BENEFIT/ DIRECTORS DEFERRED COMPENSATION PLANS
1996 Employee Stock Purchase Plan
On April 23, 1996, the Company adopted an employee stock purchase plan under
Section 423 of the Internal Revenue Code which provides for the periodic grant
of options to purchase shares of the Company's common stock to eligible
employees of the Company and its subsidiaries. The purchase price for each
separate grant will be a percentage of the fair market value of a share of
common stock on the date of grant as set by a committee designated by the Board
of Directors. Under this plan, the Company may grant up to an aggregate of
63,720 shares. The plan was implemented January 1, 1997 for a term of two years.
Employees' Savings Plus and Profit Sharing Plan
The Company has established an associate tax deferred savings plan under Section
401(k) of the Internal Revenue Code of 1986. All associates are eligible to
participate upon completion of one year of employment.
The Company's annual contribution to the plan was $104,876 in 1996 and $93,905
in 1995, determined as follows:
o One percent of each participant's compensation.
o A matching contribution equivalent to 100% of the first 5% of each
associate's compensation contributed to the plan.
o A discretionary contribution, subject to approval by the Board of
Directors, limited to an amount not to exceed the maximum amount
deductible for income tax purposes.
Directors' Deferred Compensation Plan
The Company has established a Directors Deferred Compensation Plan in accordance
with the laws of the State of North Carolina. Each Director may elect to defer
receipt for services rendered to the Corporation as a Director during the term
of his or her service by entering into a written deferred compensation election.
The balance in deferred directors compensation was $41,312 and $23,912 at
December 31, 1996 and 1995, respectively.
- --------------------------------------------------------------------------------
NOTE 15 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," which provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities. Those standards are based on consistent application of a financial
components approach that focuses on control. Under the financial components
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. This statement supercedes SFAS No.
122 and is effective, as originally issued, for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996. In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125," which defers for one year
the application of SFAS No. 125 to certain transactions. SFAS No. 125, as
amended, is not expected to have a material impact on the Company's financial
statements.
- --------------------------------------------------------------------------------
24
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS AND INTEREST RATE RISK
The following table reflects a comparison of carrying amounts and the estimated
fair value of the financial instruments as of December 31.
1996 1995
--------------------- -----------------
Carrying Estimated Carrying Estimated
(In thousands) Amount Fair Value Amount Fair Value
------------------------------------------ ------------------------------
FINANCIAL ASSETS
Cash and cash equivalents 4,883 $ 4,883$ 3,454$ 3,454
Securities available for sale 25,220 25,220 23,114 23,114
Variable rate loans 59,860 59,860 52,521 52,521
Other loans 40,992 40,908 38,427 38,833
--------- ------------ -----------------
Total loans 100,852 100,768 90,948 91,354
--------- ------------ ------------------
Accrued interest receivable 858 858 866 866
------------------------------------------ ------------ ------------------
FINANCIAL LIABILITIES
Deposits
Variable rate, payable
on demand $ 64,672 $ 64,672 $ 57,950 $ 57,950
Fixed-rate time certificates
of deposit 39,927 39,969 37,844 38,186
--------- ------------ ------------------
Total deposits 104,599 104,641 95,794 96,136
--------- ------------ ------------------
Short-term borrowing 11,156 11,156 7,312 7,312
Long-term debt 6,266 6,349 5,962 6,218
Accrued interest payable 176 176 165 165
------------------------------------------ ------------- -----------------
At December 31, 1996 the Bank had outstanding standby letters of credit and
commitments to extend credit. These off-balance sheet financial instruments are
generally exercisable at the market rate prevailing at the date the underlying
transaction will be completed, and, therefore, they were deemed to have no
current fair market value. See Note 10.
It should be noted that the estimated fair values disclosed in this table do not
represent market values of all assets and liabilities of the Company and should
not be interpreted to represent the underlying value of the Company.
Interest Rate Risk
The Company assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, fair
values of the Company's financial instruments will change when interest rate
levels change and that change may be either favorable or unfavorable to the
Company. Management attempts to match maturities of assets and liabilities to
the extent believed necessary to minimize interest rate risk. However, borrowers
with fixed rate obligations are more likely to prepay in a rising rate
environment and less likely to prepay in a falling rate environment. Conversely,
depositors who are receiving fixed rates are more likely to withdraw funds
before maturity in a rising rate environment and less likely to do so in a
falling rate environment. Management monitors rates and maturities of assets and
liabilities and attempts to minimize interest rate risk by adjusting terms of
new loans and deposits and by investing in securities with terms that mitigate
the Company's overall interest rate risk.
- --------------------------------------------------------------------------------
25
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
SELECTED FINANCIAL DATA
In Thousands Except Per Share And Shares Outstanding Information
- --------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Summary of Operations
Interest Income $ 10,040 $ 8,913 $ 7,692 $ 7,025 $ 7,467
Interest Expense 4,511 4,051 3,008 2,589 3,105
---------- ---------- --------- --------- --------
Net Interest Income 5,529 4,862 4,684 4,436 4,362
Provision for Loan Losses 137 77 181 185 375
Noninterest Income 1,361 1,183 270 1,183 1,284
Noninterest Expense 5,277 4,988 4,551 4,116 3,949
Income taxes 451 199 (38) 303 355
---------- ---------- --------- --------- --------
Net Income $ 1,025 $ 781 $ 260 $ 1,015 $ 967
========== ========== ========== ========== =========
Per Common Share
Net Income (1) $ .47 $ .36 $ .12 $ .46 $ .44
Cash dividends .10 .09 .09 .08 -
Book Value (1) 5.20 4.99 4.34 4.71 4.14
Weighted Average Shares
Outstanding (1) 2,183,342 2,199,550 2,217,308 2,212,846 2,198,619
- --------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Selected year-end balances
Assets $133,876 $120,839 $112,124 $102,383 $94,506
Loans 100,852 90,948 80,074 69,171 63,680
Securities 25,220 23,114 23,543 26,596 24,770
Deposits 104,599 95,794 93,235 84,469 82,729
Borrowed funds 17,421 13,275 8,886 7,161 2,225
Shareholders' equity 11,303 10,913 9,724 10,413 9,147
Selected average balances
Assets $128,193 $113,535 $108,972 $ 97,905 $92,866
Loans 97,201 82,630 75,657 65,880 58,908
Securities 23,594 23,916 25,833 25,398 26,339
Deposits 90,026 80,968 80,068 75,674 75,673
Borrowed funds 14,893 11,891 8,451 3,664 1,053
Shareholders' equity 11,123 10,445 10,278 9,789 8,551
- --------------------------------------------------------------------------------
1) Net income per share, book value per share, weighted average shares
outstanding and shares outstanding at year-end for 1992 through 1995 have
been adjusted to reflect 3% stock dividends issued in 1996, 1995, 1994 and
1993.
26
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
----------
OPERATING RESULTS AND THE COMPANY'S FINANCIAL CONDITION ARE PRESENTED IN THE
FOLLOWING NARRATIVE AND FINANCIAL TABLES. THE COMMENTS ARE INTENDED TO
SUPPLEMENT AND SHOULD BE REVIEWED IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED FOOTNOTES APPEARING ON PAGES 5 - 24. REFERENCES TO
CHANGES IN ASSETS AND LIABILITIES REPRESENT END OF PERIOD BALANCES UNLESS
OTHERWISE NOTED.
EARNINGS OVERVIEW
Stanly Capital Corp (the "Company") produced record earnings exceeding $1.0
million in 1996 and generated another year of continued growth and development.
The Company's growth is particularly strong when compared to the slow economic
development in its service area, which is relatively flat. Assets at December
31, 1996 were $133.9 million, an increase of 10.8% compared to $120.8 million
one year ago.
Net income in 1996 reflected an increase of 31.2% compared to 1995 earnings and
produced per share earnings of $.47 compared to $.36 in the prior year. Growth
in net interest income, supported by an increase in non-interest revenues
accounted for the earnings increase.
Net income for the years ended 1996 and 1995 and certain key financial
performance ratios are reflected below:
1996 1995
------------------------------------------------------------------------
Net Income $ 1,025,389 $ 781,059
Return on average assets .80% .69%
Return on average equity 9.22% 7.48%
Average equity to average assets 8.68% 9.20%
Dividend payout ratio 21.10% 24.28%
------------------------------------------------------------------------
The Company has managed to achieve good performance while developing its
strategy to remain a strong, viable financial institution. At a time when other
banks were showing record earnings, the Company strategically moved to invest in
technology in order to develop new and enhanced services. This development,
which began in 1993, has provided the capacity to grow the organization and
leverage the high cost of delivering competitive services. Management believes
this strategy will enable the Company to remain competitive with larger
institutions and allow its service area to enjoy the benefits of a local
financial institution and the strength its capital investment provides to the
community.
NET INTEREST INCOME
The Company's major source of revenue is net interest income, which is the
excess of interest income earned on loans and securities over interest expense
paid on deposits and borrowings. Net interest income, as reflected on the
consolidated income statement, increased $667 thousand or 13.7% for the year
ended December 31, 1996, as compared with the prior year. This improvement can
be attributed primarily to the increase in interest income generated by growth
in the loan portfolio. Yield on loans during 1996 was 8.80% compared to 8.98% in
1995, resulting from a small market rate decline in early 1996 and slightly
higher rates in 1995 compared to 1996.
Securities available for sale produced income of $1.4 million, which reflected a
yield of 6.92% on a tax equivalent basis, during the twelve months of 1996
compared to $1.5 million, a tax equivalent yield of 6.96%, during the same
period of 1995.
Interest expense on deposits increased by $360 thousand or 10.8% due to higher
balances. The weighted average rate paid on all interest-bearing deposits was
4.09% in 1996 compared to 4.11% in 1995.
27
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
----------
The cost of short-term borrowed funds increased $79 thousand or 25.1%, due to an
increase of $2.5 million in the average outstanding balance in federal funds
purchased, securities sold under repurchase agreements and short-term borrowings
from the Federal Home Loan Bank. Interest expense paid on long-term debt
increased $20 thousand, due to increase in average balances outstanding.
After experiencing several periods of small net interest margin declines, the
Company's net interest margin, the difference between the tax-equivalent yield
on earning assets and the rate paid on funds to support those assets, remained
stable during 1996 and 1995. Other financial institutions have also experienced
past and present declines in net interest margin due to the competitive nature
of the financial services industry and periods of interest rate changes. The
Company has been pleased with its ability to manage the mix and pricing of its
interest-bearing assets and liabilities to minimize the effect of interest rate
changes on its balance sheet and the resulting net interest income. There were
no wide swings in interest rates during 1996 or 1995 and rate changes in these
periods did not significantly impact the margin.
Financial Table 1 presents a detailed analysis of the components of the
Company's net interest income. The exhibit discloses the dollar change in
average assets and liabilities along with the associated changes in yields and
interest income and expense. Net interest margin on a tax equivalent basis was
4.70% and 4.73% in 1996 and 1995, respectively, as reflected in the table.
BALANCE SHEET ANALYSIS
With a continued moderate interest rate environment, loan demand remained strong
in 1996, primarily in mortgage and commercial loans. Gross outstanding loans at
December 31, 1996 totaled $100.9 million, $9.9 million greater than at December
31, 1995 representing an increase of 10.9%. During December 1996 the Bank
securitized a $4.9 million pool of mortgage loans with FannieMae and these
previous loans balances moved into investments on the balance sheet. When this
transaction is considered, loan production in 1996 totaled $14.8 million, an
increase of 16.3%.
Investment securities, including net unrealized gains, totaled $25.2 million at
December 31, 1996 compared to $23.1 million at this period end in 1995, an
increase of $2.1 million.
Although deposit and economic growth has been relatively flat in its service
area, the Company attracted local funds totaling $12.5 million, composed of an
increase in deposits of $8.8 million and increase in securities sold to
customers under repurchase agreement in the amount of $3.7 million during 1996
compared 1995, reflecting percentage growth of 12.5%.
Other sources of funds consisting of federal funds purchased and advances from
Federal Home Loan Bank increased $454 thousand during this period, providing
additional funding for the interest-earning asset growth. loans.
NONPERFORMING ASSETS
Nonperforming assets, composed of nonaccrual loans and foreclosed real estate,
remain at a level below the peer group averages, reflective of the Company's
ongoing commitment to maintaining asset quality. Nonaccrual loans at December
31, 1996 were $332 thousand and represented .33% of outstanding loans compared
with $180 thousand reflecting a ratio of .20% at December 31, 1995. Foreclosed
real estate totaled $85 thousand at year end 1996 and year end 1995.
28
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
----------
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.
The transactions in the allowance for loan losses are summarized in the Note 4
to the consolidated financial statements. The ratio of net charge-offs to
average loans is currently an excellent ratio compared to bank peers reflecting
.06% in 1996 and .03% in 1995.
The amount of provision expensed during 1996 was $137 thousand compared to $77
thousand for the same period in 1995. This increase is due mainly to the growth
experienced in the loan portfolio.
NONINTEREST INCOME
Total noninterest income, exclusive of securities gains (losses), increased by
$179 thousand in the twelve months ended December 31, 1996 compared to this
period in 1995, an increase of 15.1%.
The main component, service charges on deposit accounts, amounted to $901
thousand in 1996 compared to $775 thousand in 1995. This represents an increase
of $126 thousand or 16.3% resulting from new products, growth in deposit
accounts and increased fees.
Another factor with some significant influence to this category is the Bank's
brokerage and insurance subsidiaries, which contributed commission and fee
income of $244 thousand in 1996 and $223 thousand in 1995, and also the sale of
foreclosed property, which resulted in a gain of $7 thousand and a loss of $31
thousand in these periods, respectively.
NONINTEREST EXPENSE
For the twelve months ended December 31, 1996 compared to the same period of
1995, noninterest expenses increased by $289 thousand, reflecting a moderate
percentage increase of 5.8%. The increase is due primarily to increased
personnel expense and normal increases in operating expenses.
Total personnel expense grew $276 thousand or 12.2%. Salaries expense increased
$252 thousand, due largely to higher base salaries, additional staff, and
increase in incentive pay plans. Employee benefits were up $24 thousand or 5.9%
associated to the growth in salaries.
Data processing costs increased by $12 thousand or 2.4% in 1996 compared to
1995. Occupancy expenses have been relatively stable reflecting expenses of $221
thousand and $212 thousand in the two periods, respectively. Equipment expense,
which includes the cost of depreciation and maintenance associated with
furniture, network computers and other equipment and amortization of software,
reflected an increase of $22 thousand or 5.3%.
Remaining combined categories of noninterest expense declined by $30 thousand or
1.8%. Expenses for professional fees, which includes accounting, consulting and
legal expenses, decreased by $46 thousand or 14.8%. The cost of FDIC insurance
premiums declined from $102 in 1995 to $2 in 1996 contributing to the overall
decline for this group of expenses. Marketing, including the cost of
advertising, sales promotion, public relations, donations and business
development, totaled $205 thousand in 1996 compared to $178 thousand in 1995, an
increase of $27 thousand. Other expenses, not individually itemized, increased a
total of $91 thousand when comparing the two periods.
29
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
----------
CAPITAL RESOURCES
The Company continues to maintain strong capital ratios that will support
additional asset growth. As of December 31, 1996 and 1995, capital as a
percentage of total assets was 8.4%, which exceeds the Company's strategic goal
of maintaining this ratio at 8%. The capital position, which is maintained
through the retention of earnings and controlled growth, remains strong.
Regulatory agencies divide capital into Tier I (consisting of shareholders'
equity less ineligible intangible assets) and Tier II (consisting of the
allowable portion of the reserve for loan losses and certain long-term debt) and
measure capital adequacy by applying both capital levels to a banking company's
risk-adjusted assets and off-balance sheet items. Regulatory requirements
presently specify that Tier I capital should exclude the market appreciation or
depreciation of securities available-for-sale arising from valuation adjustments
under FASB 115. In addition to these capital ratios, regulatory agencies have
established a Tier I leverage ratio which measures Tier I capital to average
assets less ineligible intangible assets.
Regulatory guidelines require a minimum of total capital to risk-adjusted assets
ratio of 8 percent with one-half consisting of tangible common shareholders'
equity and a minimum Tier I leverage ratio of 3 percent. Banks which meet or
exceed a Tier I ratio of 6 percent, a total capital ratio of 10 percent and a
Tier I leverage ratio of 5 percent are considered well capitalized by regulatory
standards.
At December 31, 1996, the Company's Tier I to risk-adjusted assets ratio was
12.92% with total capital at 14.1% of risk-adjusted assets and Tier I leverage
ratio at 8.33%. The Company expects to continue to exceed these minimums without
altering current operations or strategy.
DIVIDENDS
During 1996 the Board of Directors of Stanly Capital Corp declared a cash
dividend of $.10 per share compared to the cash dividend of $.09 in 1995. A 3%
stock dividend, which increases each shareholder's investment in the Company,
was declared in both years.
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 for 1996 totaled $451 thousand, an effective tax rate of
30.5%. During 1995 the Company experienced some tax benefit from the completion
of bond sales transactions recognized as securities losses in December 1994. The
effective tax rate in 1995 was 20.3%.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and accompany footnotes have been prepared
in accordance with generally accepted accounting principles (`GAAP"), which
require the measurement of financial position and operating results in terms of
historical dollars without consideration for changes in the relative purchasing
power of money over time due to inflation. The assets and liabilities of the
Company are primarily monetary in nature and changes in interest rates have a
greater impact on the Company's performance than do the effects of inflation.
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 fluctuations. Maturities
in the securities portfolio, presented in Note 2, are supported by cash flows
from mortgage-backed securities that have longer-term contractual maturities.
30
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
----------
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. The Company can also borrow from the Federal Reserve
Bank discount window. Growth in deposits is typically the primary source of
funding for loans, supported by long-term credit available from the Federal Home
Loan Bank.
At December 31, 1996 none of the Company's federal funds lines were being used.
Advances from the Federal Home Loan Bank at that date were $3.0 million in
short-term borrowings and $6.3 million in long-term debt.
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. Gap analysis at December 31, 1996 is reflected in
Financial Table 3. 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. The model reflects that a fluctuation in rates of 2.00% would
impact margin by less than 2%.
The principal goals of the Company's asset liability management are the
maintenance of adequate liquidity and the management of interest rate risk.
Interest rate risk management attempts to balance the effects of interest rate
changes on interest-sensitive assets and liabilities to protect net interest
income from wide fluctuations that could result from changes in interest rates.
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.
31
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
FINANCIAL TABLES
FINANCIAL TABLE 1
<TABLE>
<CAPTION>
AVERAGE BALANCE AND
YIELD INFORMATION 1996 1995
(in thousands)
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate (1) Balance Expense Rate (1)
-----------------------------------------------------------------------------------------
INTEREST EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C>
Taxable securities $ 17,679 $ 1,095 6.19% $ 18,034 $ 1,120 6.21%
Non-taxable securities 5,915 350 9.10% 5,882 354 9.26%
Short-term investments 753 43 5.71% 271 17 6.27%
Loans, gross (2) 97,201 8,552 8.80% 82,630 7,422 8.98%
-----------------------------------------------------------------------------------------
Total interest-earning assets 121,548 10,040 8.41% 106,817 8,913 8.52%
-----------------------------------------------------------------------------------------
NON-EARNING ASSETS
Cash and due from banks 3,761 3,472
Premises and equipment, net 2,069 2,050
Interest receivable and other 815 1,196
------------ ------------
Total non-earning assets 6,645 6,718
------------ ------------
Total assets $ 128,193 $ 113,535
============ ============
INTEREST-BEARING LIABILITIES
Savings deposits $ 27,050 $ 1,100 4.07% $ 19,831 $ 836 4.22%
Transaction and MMDA deposits 23,153 462 2.00% 23,041 510 2.21%
Other time deposits 39,823 2,124 5.33% 38,096 1,979 5.19%
-----------------------------------------------------------------------------------------
Total deposits 90,026 3,686 4.09% 80,968 3,325 4.11%
Short-term borrowed funds 8,187 394 4.82% 5,734 315 5.49%
Long-term debt 6,706 431 6.43% 6,157 411 6.68%
-----------------------------------------------------------------------------------------
Total interest-bearing 104,919 4,511 4.30% 92,859 4,051 4.36%
liabilities
-----------------------------------------------------------------------------------------
NONINTEREST LIABILITIES
Transaction deposits, interest
payable and other 12,151 10,231
------------ ------------
Total liabilities 117,070 103,090
------------ ------------
SHAREHOLDERS' EQUITY 11,123 10,445
------------ ------------
Total liabilities and
shareholders' equity $ 128,193 $ 113,535
============ ============
INTEREST RATE SPREAD 4.11% 4.16%
NET INTEREST INCOME AND
NET INTEREST MARGIN $ 5,529 4.70% $ 4,862 4.73%
========= ==========
</TABLE>
1) Yields related to securities and loans exempt from federal and/or state
income taxes are stated on a fully tax-equivalent basis, assuming a 35% tax
rate.
2) Nonaccrual loans are included in loans, net of unearned income.
32
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
FINANCIAL TABLES
FINANCIAL TABLE 2
AVERAGE BALANCE SHEETS
AND YIELD INFORMATION
(In thousands)
1996 Compared to 1995
- -------------------------------------------------------------------------
Income/ Variance
Expense Attributable to
Variance Volume Rate
------------------------------------------
EARNING ASSETS
Taxable securities $ (25) $ (22) $ (3)
Non-taxable securities (4) 2 (6)
Short-term investments 26 29
Loans, gross 1,130 1,295 (165)
----------- ------------ -----------
Total earning assets 1,127 1,304 (177)
----------- ------------ -----------
INTEREST-BEARING LIABILITIES
Savings deposits 264 299 (35)
Transaction and MMDA deposits (48) 2 (50)
Other time deposits 145 91 54
Short-term borrowed funds 79 126 (47)
Long-term debt 20 37 (17)
----------- ------------ -----------
Total interest-bearing
liabilities 460 555 (95)
----------- ------------ -----------
NET INTEREST INCOME $ 667 $ 749 $ (82)
=========== ============ ===========
- -------------------------------------------------------------------------
The above table analyzes the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (I) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume), and (iii) net change (the sum of the previous columns).
The change attributable to both rate and volume (changes in rate multiplied by
changes in volume) has been allocated equally to both the changes attributable
to volume and the changes attributable to rate.
33
<PAGE>
STANLY CAPITAL CORP AND SUBSIDIARY
FINANCIAL TABLES
FINANCIAL TABLE 3
INTEREST RATE GAP
(In thousands)
<TABLE>
<CAPTION>
1 - 90 3 - 6 6 - 12 1 - 5 Non-sensitive
days months months years and over 5 yrs. Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Due from banks 299 - - - - 299
Investment securities 1,200 252 452 6,977 15,028 23,909
FHLB and other stock - - - - 1,311 1,311
Variable rate loans 56,547 917 900 812 - 59,176
Fixed rate loans 2,910 1,432 2,896 16,388 18,050 41,676
-------------- -------------- --------------- --------------- --------------- ---------------
Total earning assets 60,956 2,601 4,248 24,177 34,389 126,371
-------------- -------------- --------------- --------------- --------------- ---------------
INTEREST-BEARING
LIABILITIES
Deposits 58,672 10,731 8,750 6,062 7,532 91,747
Short-term borrowed funds 11,156 - - - - 11,156
Long-term debt 474 24 123 4,063 1,582 6,266
-------------- -------------- --------------- --------------- --------------- ---------------
Ttal interest bearing
liabilities 70,302 10,755 8,873 10,125 9,114 109,169
-------------- -------------- --------------- --------------- --------------- ---------------
Interest rate gap (9,346) (8,154) (4,625) 14,052 25,275
Cumulative gap (9,346) (17,500) (22,125) (8,073) 17,202
RATIOS
Cumulative gap to
total earning assets (.07) (.14) (.18) (.06) .14
Cumulative rate
sensitive assets to rate
sensitive liabilities .87 .78 .75 .92 1.16
- ----------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
STANLY CAPITAL CORP
BOARD OF DIRECTORS
<TABLE>
<S> <C> <C>
WILLIAM S. ALDRIDGE, JR. W. KERMIT EFIRD PAMELA S. MORTON
Manager, Secretary-Treasurer & President Principal - Endy Elementary
Co-owner Rocky River Springs Fish House, Inc. School
Stanly Funeral Home, Inc. (Restaurant)
CYNTHIA H. BEANE JAMES L. HARRIS JOHN P. MURRAY, M.D.
Certified Public Accountant Retired-Specialty Sales Manager Physician - Albemarle Ear,
Cynthia H. Beane, Proprietor Southwire Company Nose and Throat
(Electrical wire and cable
manufacturer)
BARTON D. BURPEAU, JR. ERIC M. JOHNSEN, M.D. CATHERINE A. PICKLER
Special Agent President Homemaker & Community
North Carolina State Bureau of Stanly Family Care Clinic Volunteer
Investigation (Physician)
WILLIAM F. CLAYTON JERRY J. LONG B. A. SMITH
Cost Office Supervisor President, Secretary & Co-owner Retired - Pilot and Base
Aluminum Company of America Long's Diamond Broker Commander, United States
(Aluminum products manufacturer) Previously Long's Jewelers, Inc. Air Force
(Retail jewelry company)
JOHN J. EARNHARDT, JR. W. CHESTER LOWDER BOYCE E. THOMPSON
President Director of Field Services - Treasurer
C.K. Earnhardt & Son, Inc. N.C. Farm Bureau Federation Stanly Fixtures Company, Inc.
(Asphalt paving) President (Store fixtures manufacturer)
Fork L Farm Inc.
G. CHAD EFIRD JAMES R. MAUNEY, SR. DOUGLAS V. WADDELL
Retired-Technical Supervisor Retired-President and Owner Retired-Automotive Department
Aluminum Company of America Mauney Feed Mill Manager
(Aluminum products manufacturer) (Feed, fertilizer and grain sales) Sears Roebuck and Co
- ---------------------------------------- ----------------------------------------- ------------------------------------
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<S> <C>
ROGER L. DICK TAMARA M. SINGLETARY
President/Chief Executive Officer Executive Vice President-Investor Relations
Stanly Capital Corp and Bank of Stanly Stanly Capital Corp
JACQUELINE S. JERNIGAN THOMAS H. SWARINGEN
Executive Vice President-Retail Banking Executive Vice President-Credit Administration
Bank of Stanly Bank of Stanly
DAWN L. MELTON
Executive Vice President-Technology
Stanly Capital Corp
</TABLE
35
<PAGE>
<PAGE>
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APPENDIX
STANLY CAPITAL CORP
167 NORTH SECOND STREET
ALBEMARLE, NORTH CAROLINA 28001
APPOINTMENT OF PROXY
SOLICITED BY BOARD OF DIRECTORS
The undersigned hereby appoints Roger L. Dick, Dawn L. Melton and
Tamara M. Singletary (the "Proxies"), or any of them, as attorneys and proxies,
with power of substitution, to vote all outstanding shares of the common stock
of Stanly Capital Corp (the "Company") held of record by the undersigned on
March 7, 1997, at the Annual Meeting of Shareholders of the Company to be held
at the Stanly County Agri-Civic Center at 26032 Newt Road, Albemarle, North
Carolina, at 7:30 p.m. on April 22, 1997, and at any adjournments thereof:
1. AMENDMENT OF ARTICLE I OF ARTICLES OF INCORPORATION: Proposal to change
the name of the company from Stanly Capital Corp to "Uwharrie Capital
Corp".
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. ELECTION OF DIRECTORS: Proposal to elect seven directors of the
Company for the terms as indicated or until their successors are
duly elected and qualified.
[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY
(EXCEPT AS INDICATED OTHERWISE TO VOTE FOR ALL NOMINEES
BELOW) LISTED BELOW
NOMINEES: Two year term: CYNTHIA H. BEANE
Three year term: JOE S. BROOKS, RONALD T.
BURLESON, JAMES F. LINK, D.V.M.,
KENT E. NEWPORT, GEORGE T.
REAVES, A. JAMES RUSSELL
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the line provided.)
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS:
Proposal to ratify the appointment of Dixon, Odom & Co., L.L.P. as
the Company's independent accountants for 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. OTHER BUSINESS: The Proxies are authorized to vote the shares
represented by this Appointment of Proxy according to their best
judgment on such other matters as may be presented for action at the
Annual Meeting.
<PAGE>
THE SHARES REPRESENTED BY THIS APPOINTMENT OF PROXY WILL BE VOTED BY
THE PROXIES IN ACCORDANCE WITH THE SPECIFIC INSTRUCTIONS ABOVE. IN THE ABSENCE
OF INSTRUCTIONS, THE PROXIES WILL VOTE SUCH SHARES "FOR" THE ELECTION OF EACH OF
THE NOMINEES LISTED IN PROPOSAL 2 ABOVE AND "FOR" PROPOSALS 1 AND 3 ABOVE. IF,
AT OR BEFORE THE TIME OF THE MEETING, ANY OF THE NOMINEES LISTED IN PROPOSAL 2
FOR ANY REASON HAVE BECOME UNAVAILABLE FOR ELECTION OR UNABLE TO SERVE AS
DIRECTORS, THE PROXIES HAVE THE DISCRETION TO VOTE FOR A SUBSTITUTE NOMINEE OR
NOMINEES. THIS APPOINTMENT OF PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS
EXERCISED BY FILING WITH THE SECRETARY OF THE COMPANY AN INSTRUMENT REVOKING IT
OR A DULY EXECUTED APPOINTMENT OF PROXY BEARING A LATER DATE, OR BY ATTENDING
THE ANNUAL MEETING AND REQUESTING THE RIGHT TO VOTE IN PERSON.
Date: , 1997
(SEAL)
(Signature)
(SEAL)
(Signature, if shares held jointly)
INSTRUCTION: PLEASE SIGN ABOVE
EXACTLY AS YOUR NAME APPEARS ON THIS
APPOINTMENT OF PROXY. JOINT OWNERS
OF SHARES SHOULD BOTH SIGN.
FIDUCIARIES OR OTHER PERSONS SIGNING
IN A REPRESENTATIVE CAPACITY SHOULD
INDICATE THE CAPACITY IN WHICH THEY
ARE SIGNING.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS
PROXY CARD IN THE ENCLOSED ENVELOPE.
</TABLE>
