UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2007
Commission File Number 0-22787
| FOUR OAKS FINCORP, INC. |
|
| (Exact name of registrant as specified in its charter) |
|
NORTH CAROLINA |
| 56-2028446 |
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification Number) |
| 6114 U.S. 301 SOUTH, FOUR OAKS, NC 27524 |
|
| (Address of principal executive office, including zip code) |
|
| (919) 963-2177 |
|
| (Registrant’s telephone number, including area code) |
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. SYES £NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer £
Accelerated filerS
Non-accelerated filer £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): £YES SNO
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common Stock, par value $1.00 per share |
| 5,604,687 |
(Title of Class) |
| (Number of shares outstanding as of May 3, 2007) |
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOUR OAKS FINCORP, INC.
CONSOLIDATED BALANCE SHEETS
| March 31, 2007 |
| December 31, | ||
| (Unaudited) |
| 2006* | ||
| (In thousands) | ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks | $ | 12,411 |
| $ | 13,960 |
Interest-earning deposits |
| 3,155 |
|
| 3,751 |
Investment securities available for sale |
| 117,639 |
|
| 101,393 |
Loans |
| 475,736 |
|
| 461,763 |
Allowance for loan losses |
| (5,756) |
|
| (5,566) |
Net loans |
| 469,980 |
|
| 456,197 |
Accrued interest receivable |
| 3,798 |
|
| 3,614 |
Bank premises and equipment, net |
| 11,970 |
|
| 11,630 |
FHLB stock |
| 4,243 |
|
| 4,194 |
Investment in life insurance |
| 8,459 |
|
| 8,424 |
Other assets |
| 5,243 |
|
| 4,974 |
Total assets | $ | 636,898 |
| $ | 608,137 |
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
Noninterest-bearing demand | $ | 78,497 |
| $ | 72,087 |
Money market and NOW accounts |
| 97,105 |
|
| 89,615 |
Savings |
| 31,564 |
|
| 31,424 |
Time deposits, $100,000 and over |
| 165,314 |
|
| 164,497 |
Other time deposits |
| 122,795 |
|
| 109,245 |
Total deposits |
| 495,275 |
|
| 466,868 |
Short-term borrowings |
| 1,800 |
|
| 3,400 |
Long-term borrowings |
| 70,000 |
|
| 70,000 |
Subordinated debentures |
| 12,372 |
|
| 12,372 |
Accrued interest payable |
| 3,666 |
|
| 3,258 |
Other liabilities |
| 3,076 |
|
| 2,916 |
Total liabilities |
| 586,189 |
|
| 558,814 |
Shareholders' equity: |
|
|
|
|
|
Common stock; $1.00 par value, 10,000,000 shares authorized; 5,596,133 and 5,577,862 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively |
| 5,596 |
|
| 5,578 |
Additional paid-in capital |
| 10,735 |
|
| 10,016 |
Retained earnings |
| 34,642 |
|
| 34,141 |
Accumulated other comprehensive loss |
| (264) |
|
| (412) |
Total shareholders' equity |
| 50,709 |
|
| 49,323 |
Total liabilities and shareholders' equity | $ | 636,898 |
| $ | 608,137 |
* Derived from audited consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
3
FOUR OAKS FINCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
The accompanying notes are an integral part of the consolidated financial statements.
4
FOUR OAKS FINCORP, INC..
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
The accompanying notes are an integral part of the consolidated financial statements.
5
FOUR OAKS FINCORP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY ( UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |
|
|
|
|
|
| Additional |
|
|
|
| other |
| Total | |||
| Common Stock |
| paid-in |
| Retained |
| comprehensive |
| shareholders' | |||||||
| Shares |
| Amount |
| capital |
| earnings |
| loss |
| equity | |||||
| (Amounts in thousands, except share and per share data) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006 | 5,577,862 |
| $ | 5,578 |
| $ | 10,016 |
| $ | 34,141 |
| $ | (412) |
| $ | 49,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | - |
|
| - |
|
| - |
|
| 1,450 |
|
| - |
|
| 1,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income | - |
|
| - |
|
| - |
|
| - |
|
| 148 |
|
| 148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock | 39,771 |
|
| 40 |
|
| 508 |
|
| - |
|
| - |
|
| 548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax benefit | - |
|
| - |
|
| 158 |
|
| - |
|
| - |
|
| 158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based comprehensive | - |
|
| - |
|
| 53 |
|
| - |
|
| - |
|
| 53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and retirement of common stock | (21,500) |
|
| (22) |
|
| - |
|
| (557) |
|
|
|
|
| (579) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends of $.07 per share | - |
|
| - |
|
| - |
|
| (392) |
|
| - |
|
| (392) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2007 | 5,596,133 |
| $ | 5,596 |
| $ | 10,735 |
| $ | 34,642 |
| $ | (264) |
| $ | 50,709 |
The accompanying notes are an integral part of the consolidated financial statements.
6
FOUR OAKS FINCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Three Months Ended | ||||
| March 31, | ||||
| 2007 |
| 2006 | ||
| (In thousands) | ||||
Cash flows from operating activities: |
|
|
|
|
|
Net income | $ | 1,450 |
| $ | 1,840 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
Provision for loan losses |
| 262 |
|
| 186 |
Provision for depreciation and amortization |
| 243 |
|
| 258 |
Net amortization of bond premiums and discounts |
| 6 |
|
| (2) |
Stock based compensation |
| 53 |
|
| 24 |
(Gain) loss on sale of securities |
| (1) |
|
| 20 |
Gain on sale of loans |
| (26) |
|
| (70) |
Loss on disposition of premises and equipment |
| - |
|
| 1 |
Loss on sale of foreclosed assets |
| - |
|
| (14) |
Increase in cash surrender value of life insurance |
| (35) |
|
| (134) |
Net change in hedge activity |
| 26 |
|
| (198) |
Changes in assets and liabilities: |
|
|
|
|
|
Other assets |
| 289 |
|
| (547) |
Interest receivable |
| (184) |
|
| 155 |
Other liabilities |
| 261 |
|
| (1,868) |
Interest payable |
| 408 |
|
| 338 |
Net cash provided by operating activities |
| 2,752 |
|
| (11) |
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
Proceeds from sales and calls of securities available for sale |
| 10,520 |
|
| 2,332 |
Purchase of securities available for sale |
| (26,652) |
|
| (6,375) |
Purchase of FHLB stock |
| (49) |
|
| 226 |
Net increase in loans |
| (14,803) |
|
| (12,610) |
Additions to premises and equipment |
| (579) |
|
| (743) |
Proceeds from sale of foreclosed assets |
| 115 |
|
| 124 |
Expenditures on foreclosed assets |
| 10 |
|
| (5) |
Net cash used in investment activities |
| (31,438) |
|
| (17,051) |
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
Net proceeds from borrowings |
| (1,600) |
|
| (8,608) |
Net increase in deposit accounts |
| 28,406 |
|
| 23,222 |
Proceeds from issuance of common stock |
| 548 |
|
| 506 |
Excess benefits from stock options |
| 158 |
|
| 99 |
Purchase and retirement of common stock |
| (579) |
|
| (55) |
Cash dividends paid |
| (392) |
|
| (352) |
Net cash provided by financing activities |
| 26,541 |
|
| 14,812 |
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
| (2,145) |
|
| (2,250) |
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
| 17,711 |
|
| 22,915 |
|
|
|
|
|
|
Cash and cash equivalents at end of period | $ | 15,566 |
| $ | 20,665 |
The accompanying notes are an integral part of the consolidated financial statements.
7
FOUR OAKS FINCORP, INC.
Notes to Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
In management’s opinion, the financial information contained in the accompanying unaudited consolidated financial statements reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three-month periods ended March 31, 2007 and 2006, in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of Four Oaks Fincorp, Inc. (the "Company") and its wholly-owned subsidiaries, Four Oaks Bank & Trust Company (the “Bank”) and Four Oaks Mortgage Services, LLC, a mortgage origination subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation. Operating results for the three-month period ended March 31, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ending Decem ber 31, 2007.
The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the consolidated financial statements filed as part of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. This Quarterly Report should be read in conjunction with such Annual Report.
NOTE 2 - NET INCOME PER SHARE
Basic and diluted net income per common share are computed based on the weighted average number of shares outstanding during each period after retroactively adjusting for 5-for-4 stock splits paid on November 10, 2006 and November 25, 2005. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the net income of the Company.
Basic and diluted net income per common share have been computed based upon net income as presented in the accompanying consolidated statements of income divided by the weighted average number of common shares outstanding or assumed to be outstanding as summarized below:
| Three Months Ended | ||
| March 31, | ||
| 2007 |
| 2006 |
Weighted average number of common shares used in computing basic net income per share | 5,589,815 |
| 5,492,616 |
|
|
|
|
Effect of dilutive stock options | 36,503 |
| 35,890 |
|
|
|
|
Weighted average number of common shares and dilutive potential common shares used in computing diluted net income per share | 5,626,318 |
| 5,528,506 |
As of March 31, 2007 and 2006, there were no antidilutive options outstanding.
8
FOUR OAKS FINCORP, INC.
Notes to Consolidated Financial Statements
NOTE 3 - STOCK COMPENSATION PLANS
The Company has a Nonqualified Stock Option Plan (“the Plan”) for certain key employees under which it is authorized to issue options for up to 1,220,703 shares of common stock. Options are granted at the discretion of the Company’s Board of Directors at a price approximating market, as determined by a committee of Board members. All options granted subsequent to a 1997 amendment will be 100% vested one year from the grant date and will expire after such a period as is determined by the Board at the time of grant. Options granted prior to the amendment have ten year lives and a five year vesting provision.
The Company granted 37,400 and 41,750 of nonqualified stock options for the three month periods ended March 31, 2007 and March 31, 2006, respectively, with a weighted-average fair value of $6.33 and $4.77 per option, respectively.
The compensation cost that has been charged against income for the Plan was approximately $53,000 for the three month period ended March 31, 2007. The Company recorded a deferred tax benefit in the amount of $20,000 related to share-based compensation during the quarter ended March 31, 2007.
The fair market value of each option award is estimated on the date of grant using the Black-Scholes option pricing model using the assumptions noted in the table below. The risk-free interest rate is based on a U.S. Treasury instrument with a life that is similar to the expected life of the option grant. Expected volatility is based on the historical volatility of shares of the Company’s common stock based on the prior three years trading history. The expected term of the options is based on the average life of previously issued stock options. The expected dividend yield is based on current yield on date of grant. The options are not subject to any post-vesting restrictions.
The following table illustrates the assumptions that the Company used in the Black-Scholes option pricing model for determining the fair value of options granted to employees in the three month periods ended March 31, 2007 and 2006 under the Plan.
| Three Months Ended | ||
| March 31, | ||
| 2007 |
| 2006 |
|
|
|
|
Dividend yield | 1.20% |
| 1.53% |
Expected volatility | 23.76% |
| 20.72% |
Risk free interest rate | 4.65% |
| 4.73% |
Expected life | 4 years |
| 4 years |
The following is a summary of the status of the Company’s outstanding stock options under the Plan for the three months ended March 31, 2007:
| Options |
| Option Price | |
| Outstanding |
| Per Share | |
Balance December 31, 2006 | 161,190 |
| $ | 4.73-18.40 |
|
|
|
|
|
Granted | 37,400 |
| $ | 26.85 |
Exercised | (29,791) |
| $ | 9.41 |
Forfeited | (2,344) |
| $ | 14.56 |
Expired | (6,914) |
| $ | 7.43 |
|
|
|
|
|
Balance March 31, 2007 | 159,541 |
| $ | 17.39 |
9
FOUR OAKS FINCORP, INC.
Notes to Consolidated Financial Statements
NOTE 3 - STOCK COMPENSATION PLANS (CONTINUED)
Additional information concerning the Company’s outstanding stock options under the Plan as of March 31, 2007 is as follows:
|
|
|
|
| Remaining |
|
|
Exercise |
| Number |
| Contractual |
| Number | |
Price |
| Outstanding |
| Life |
| Exercisable | |
|
|
|
|
|
|
|
|
$ | 4.73 |
| 3,295 |
| .08 years |
| 3,295 |
$ | 11.26 |
| 41,116 |
| .90 years |
| 41,116 |
$ | 14.56 |
| 35,980 |
| 1.90 years |
| 35,980 |
$ | 18.40 |
| 41,750 |
| 2.90 years |
| 41,750 |
$ | 26.85 |
| 37,400 |
| 3.91 years |
| - |
|
|
|
|
|
|
|
|
Balance, March 31, 2007 | 159,541 |
|
|
| 122,141 |
NOTE 4 - COMMITMENTS
At March 31, 2007, loan commitments were as follows (in thousands):
Commitments to extend credit | $ | 97,071 |
Undisbursed lines of credit |
| 30,741 |
Letters of credit |
| 3,232 |
NOTE 5 – INCOME TAXES
Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48,Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48). FIN 48 provides guidance on financial statement recognition and measurements of tax positions taken, or expected to be taken, in tax returns. The initial adoption of FIN 48 had no impact on the Company’s consolidated financial statements. As of January 1, 2007, there were no unrecognized tax benefits. The amount of unrecognized tax benefits may increase or decrease for various reasons including adding amounts for current year tax positions, expiration of open income tax returns due to statue of limitations, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions.
The Company’s policy is to report interest and penalties, if any, related to unrecognized tax benefits in other non-interest expense in the Statement of Operations.
The Company’s federal and state income tax returns are open and subject to examination from the 2003 tax return year and forward.
10
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the major components of the financial condition and results of operations of the Company and its subsidiaries and should be read in conjunction with our Consolidated Financial Statements and Notes thereto in Part I, Item 1 of this Quarterly Report.
Comparison of Financial Condition at
March 31, 2007 and December 31, 2006
The Company’s total assets grew from $608.1 million at December 31, 2006 to $636.9 million at March 31, 2007, an increase of $28.8 million or 4.73%. The Company’s liquid assets, consisting of cash and cash equivalents and investment securities available for sale, experienced a net increase of $14.1 million in the first quarter of 2007 over the fourth quarter of 2006, primarily from increases in investment securities of $16.2 million, offsetting a decrease in cash and due from banks and interest-earning deposits in bank of $2.1 million. Additional funds available from deposit growth provided us with an opportunity to increase investment securities available for sale during the first quarter of 2007. Net loans grew from $456.2 million at December 31, 2006 to $470.0 million at March 31, 2007, primarily due to a $12.2 million growth in loans secured by real estate. The Company’s loan portfolio continues to reflect a trend towards growth in commercial real estate lending and construction loans. Deposits from the Company’s local market continued to be its primary funding source, increasing by $37.7 million in the first quarter of 2007 over the fourth quarter of 2006, while wholesale deposits decreased by $9.2 million. Deposits grew from $466.9 million at December 31, 2006 to $495.3 million at March 31, 2007. This increase occurred due to growth in the Company’s time deposit accounts of $14.4 million, in its non-interest bearing deposits of $6.4 million and in its interest checking deposits of $7.0 million during the first quarter of 2007. Deposit growth continued to increase although the national prime rate has remained at 8.25% since June 29, 2006.
Total shareholders’ equity increased approximately $1.4 million from $49.3 million at December 31, 2006 to $50.7 million at March 31, 2007. This increase in shareholders’ equity resulted principally from income from operations during the period of $1.5 million, net proceeds from the issuance of common stock from stock option exercises of $280,000, dividend reinvestment in the amount of $268,000 by a stock compensation expense of $53,000, and other comprehensive income of $148,000. Offsetting these increases were dividends paid to our shareholders of $392,000, and the repurchase of common stock of $557,000. At March 31, 2007, both the Company and the Bank were considered to be well capitalized as such term is defined in applicable federal regulations.
Results of Operations for the Three Months Ended
March 31, 2007 and 2006
Net Income. Net income for the three months ended March 31, 2007 was $1.5 million, or $.26 basic net income per share, as compared with net income of $1.8 million or $.34 basic net income per share for the three months ended March 31, 2006, a decrease of $390,000 or $.08 per share. The decrease in net income resulted primarily from an increase in the Company’s salaries and other employee benefits expenses for the three months ended March 31, 2007 of $625,000, due to additional staff positions created by overall growth and accrual adjustments.
Net Interest Income. Like most financial institutions, the primary component of earnings for the Bank is net interest income. Net interest income is the difference between interest income, principally from loan and investment securities portfolios, and interest expense, principally on customer deposits and borrowings. Changes in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities and margin refers to net interest income divided by average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities, as well as by levels of non-interest-bearing liabilities and capital.
11
Net interest income was $5.6 million for the three month periods ended March 31, 2007 and March 31, 2006. Interest and dividend income was $11.1 million and $9.2 million for the three months ended March 31, 2007 and 2006, respectively. This increase in interest and dividend income was offset by an increase in interest expense of $1.9 million to $5.5 million for the three months ended March 31, 2007 from $3.6 million for the three months ended March 31, 2006. This increase in interest expense was primarily due to rising deposit rates in response to increases in the prime rate during 2006. The accelerated repricing rate on deposits resulted in a decrease in our net interest margin by 71 basis points from 4.63% in the first quarter of 2006 to 3.92% in the first quarter of 2007.
Provision for Loan Losses. The provision for loan losses was $262,000 and $186,000 for the three months ended March 31, 2007 and 2006, respectively, an increase of $76,000. This increase was primarily due to loan growth. Net charge-offs of $72,000 were recorded during the first quarter of 2007, compared to $34,000 for the first quarter of 2006. Non-performing loans aggregated $2.1 million at March 31, 2007, increasing $1.1 million from the $974,000 at March 31, 2006, while the allowance for loan losses, expressed as a percentage of gross loans, was 1.21% at March 31, 2007 and 1.25% at March 31, 2006. This increase was primarily due to one foreclosure of a commercial property in the first quarter of 2007. Management believes that the allowance is adequate to absorb probable losses inherent in the loan portfolio.
Non-Interest Income. Non-interest income increased $144,000 for the three months ended March 31, 2007 to $1.1 million as compared to $923,000 for the same period in 2006. The increase of $144,000 was primarily due to a gain in hedge activity of $98,000 compared to a loss in the three month period ended March 31, 2006 of $198,000, and an increase in commissions from the Company’s financial services department of $43,000. Offsetting the increase were decreases in revenue from the bank owned life insurance of $99,000, merchant fees of $24,000 and a decrease in the gains on the sale of loans of $44,000. There were no other significant changes in any of the categories of income that comprise our total non-interest income.
Non-Interest Expense. Non-interest expense increased $753,000 to $4.3 million for the three months ended March 31, 2007 compared to $3.5 million for the three months ended March 31, 2006. This increase was due in part to an increase in salaries and employee benefits of $625,000, which resulted from adjustments relating to accruals, new hires for offices that opened during 2006, administrative positions filled due to the Company’s growth, and normal increases in wages and benefits costs. For the first quarter 2007, other operating expenses increased $174,000. The primary increases in other non-interest expense for the first quarter 2007 included donations and charities expenses of $61,000, ATM operating fees of $33,000, FDIC insurance expense of $17,000, losses on sales of repossessions of $21,000, and printing and office supply expenses of $14,000. There were no other significant increases in any of the remaining non-interes t expenses which grew due to the Company’s overall asset growth.
Provision for Income Taxes. The Company’s provision for income taxes, as a percentage of income before income taxes, was 34.1% and 35.9% for the three months ended March 31, 2007 and 2006, respectively.
Liquidity and Capital Resources
The Company’s liquidity position is primarily dependent upon the Bank’s need to respond to loan demand, the short-term demand for funds caused by withdrawals from deposit accounts (other than time deposits) and the liquidity of its assets. The Bank’s primary liquidity sources include cash and amounts due from other banks, federal funds sold, and U.S. Government Agency and other short-term investment securities. In addition, during March 2006, the net proceeds from the offering of the Trust Preferred Securities increased the regulatory capital of the Bank and are being used to provide funding for continued growth of the Bank. The Bank also has the ability to borrow funds from the Federal Reserve Bank and the Federal Home Loan Bank of Atlanta and to purchase federal funds from other financial institutions. Management believes that the Company’s liquidity sources are adequate to meet our operating needs and the operating needs of th e Bank for the next eighteen months. Total shareholders’ equity was $50.7 million or 8.0% of total assets at March 31, 2007 and $49.3 million or 8.1% of total assets at December 31, 2006.
12
Forward-looking Information
Information set forth in this Quarterly Report on Form 10-Q, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains various “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements represent the Company’s judgment concerning the future and are subject to risks and uncertainties that could cause our actual operating results and financial position to differ materially. Such forward looking statements can be identified by the use of forward looking terminology, such as “may,” “will,” “expect,” “anticipate,” “estimate,” or “continue” or the negative thereof, or other variations thereof, or comparable terminology.
The Company cautions that any such forward-looking statements are further qualified by important factors that could cause its actual operating results to differ materially from those anticipated in the forward-looking statements, including, without limitation, the effects of future economic conditions, governmental fiscal and monetary policies, legislative and regulatory changes, the risks of changes in interest rates on the level and composition of deposits, the effects of competition from other financial institutions, the failure of assumptions underlying the establishment of the allowance for loan losses, the low trading volume of the Company’s common stock, other considerations described in connection with specific forward-looking statements and other cautionary elements specified in the Company’s periodic filings with the Securities and Exchange Commission (the “Commission”), including without limitation, its Annual Report on Form 10-K, Quarterly R eports on Form 10-Q, and Current Reports on Form 8-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes there has not been any material change in information or in the overall analysis of financial instruments considered market risk sensitive, as measured by the factors of contractual maturities, average interest rates and the difference between estimated fair values and book values, since the analysis prepared and presented in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
ITEM 4. CONTROLS AND PROCEDURES
As required by paragraph (b) of Rule 13a-15 under the Exchange Act, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. As defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s (the “SEC’s”) rules and forms. Disclosure controls and proc edures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this Quarterly Report, the Company’s disclosure controls and procedures are effective, in that they provide reasonable assurances that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods required by the SEC’s rules and forms.
There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report that the Company believes have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
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Part II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
There have been no material changes in the Company’s risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2006.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of the Company’s common stock during the three months ended March 31, 2007:
|
|
|
|
|
|
| Total Number |
|
|
|
|
|
|
|
|
| of Shares |
| Maximum Number |
|
|
|
|
|
|
| Purchased as |
| of Shares That |
|
| Total Number |
| Average Price |
| Part of Publicly |
| May Yet Be | |
|
| of Shares |
| Paid per |
| Announced |
| Purchased Under | |
Period |
| Purchased (1) |
| Share |
| Program |
| the Program (2) | |
|
|
|
|
|
|
|
|
|
|
January 1, 2007 to January 31, 2007 |
| - |
| $ | - |
| - |
| - |
February 1, 2007 to February 28, 2007 |
| 9,285 |
| $ | 26.81 |
| - |
| - |
March 1, 2007 to March 31, 2007 |
| - |
| $ | - |
| 21,500 |
| 105,276 |
|
|
|
|
|
|
|
|
|
|
Total |
| 9,285 |
| $ | 26.81 |
| 21,500 |
| 105,276 |
(1)
This represents purchases of stock by the Company on behalf of the Employee Stock Ownership Plan.
(2)
On December 10, 2001, the Company announced the authorization by its Board of Directors of a program to repurchase up to 100,000 shares of the Company’s outstanding common stock, which was set to expire on December 31, 2006. On December 20, 2006, the Board of Directors announced that it authorized an extension of the repurchase program, which will now expire on December 31, 2007, and that it further authorized an increase of the authorized number of shares to be repurchased from 100,000 to 200,000 shares. The Company repurchased 21,500 shares of stock under the program during the three months ended March 31, 2007. As of March 31, 2007, of the 200,000 authorized shares of the Company’s common stock designated for repurchase an aggregate of 94,724 shares have already been repurchased and 105,276 shares remained authorized for repurchase under the program.
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ITEM 6.
EXHIBITS
15
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 9, 2007 |
| FOUR OAKS FINCORP, INC. |
|
|
|
|
|
|
| By: | /s/ Ayden R. Lee, Jr. |
|
| Ayden R. Lee, Jr. |
|
| President and Chief Executive Officer |
Date: May 9, 2007 | By: | /s/ Nancy S. Wise |
|
| Nancy S. Wise |
|
| Executive Vice President and Chief Financial Officer |
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EXHIBIT INDEX
Exhibit No. |
| Description |
|
|
|
10.1 |
| Amended and Restated Severance Compensation Agreement dated as of March 26, 2007, between the Bank and W. Leon Hiatt, III (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 1, 2007) |
|
|
|
10.2 |
| Summary of the Material Terms of the Company’s 2007 Bonus Plan |
|
|
|
31.1 |
| Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2 |
| Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1 |
| Certification by the Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.2 |
| Certification by the Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
17