SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended
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COMMISSION FILE NUMBER 000-21701
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CAROLINA FINCORP, INC.
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(Exact name of small business issuer as specified in its charter)
NORTH CAROLINA 56-1978449
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(State or other jurisdiction of (IRS EMPLOYER
incorporation or organization) IDENTIFICATION NUMBER)
115 SOUTH LAWRENCE STREET, ROCKINGHAM, NC 28380
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(Address of principal executive office)
(910) 997-6245
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
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As of November 6, 1997, 1,851,500 shares of the issuer's common stock, no par
value, were outstanding. The registrant has no other classes of securities
outstanding.
This report contains 12 pages.
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Page No.
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PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition
September 30, 1997 and June 30, 1997............................ 3
Consolidated Statements of Operations
Three Months Ended September 30, 1997 and 1996.................. 4
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1997 and 1996.................. 5
Notes to Consolidated Financial Statements...................... 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 11
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PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
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CAROLINA FINCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30,
1997 June 30,
ASSETS (Unaudited) 1997 *
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(In Thousands)
Cash on hand and in banks $ 1,802 $ 1,790
Interest-bearing balances in other banks 3,004 1,863
Investment securities available for sale, at fair value 16,339 17,714
Investment securities held to maturity, at amortized cost 7,380 6,948
Loans receivable, net 80,873 78,674
Accrued interest receivable 776 703
Premises and equipment, net 2,135 2,118
Stock in the Federal Home Loan Bank, at cost 735 735
Other assets 1,025 958
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TOTAL ASSETS $114,069 $111,503
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts $ 86,490 $ 83,760
Advances from the Federal Home Loan Bank - 500
Accrued interest payable 156 179
Advance payments by borrowers for property taxes
and insurance 339 456
Accrued expenses and other liabilities 1,320 1,160
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TOTAL LIABILITIES 88,305 86,055
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STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, 20,000,000 shares authorized; 1,851,500
shares issued and outstanding 17,590 17,586
ESOP loan receivable (1,469) (1,491)
Retained earnings, substantially restricted 9,647 9,396
Unrealized holding losses (4) (43)
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TOTAL STOCKHOLDERS' EQUITY 25,764 25,448
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $114,069 $111,503
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* Derived from audited financial statements
See accompanying notes.
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CAROLINA FINCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
September 30,
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1997 1996
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(In Thousands)
INTEREST INCOME
Loans $1,671 $1,394
Investments and deposits in other banks 454 338
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TOTAL INTEREST INCOME 2,125 1,732
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INTEREST EXPENSE
Deposit accounts 1,004 998
Borrowings 4 -
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TOTAL INTEREST EXPENSE 1,008 998
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NET INTEREST INCOME 1,117 734
PROVISION FOR LOAN LOSSES 23 9
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,094 725
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OTHER INCOME
Transaction and other service fee income 78 99
Gain on sale of loans 12 -
Other income 64 30
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TOTAL OTHER INCOME 154 129
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OTHER EXPENSES
Personnel costs 382 326
Occupancy 36 39
Equipment rental and maintenance 52 41
Marketing 16 12
Data processing and outside service fees 76 69
Federal and other insurance premiums 23 57
FDIC special assessment - 519
Supplies, telephone and postage 30 30
Other 76 50
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TOTAL OTHER EXPENSES 691 1,143
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INCOME (LOSS) BEFORE
INCOME TAX EXPENSE (BENEFIT) 557 (289)
INCOME TAX EXPENSE (BENEFIT) 202 (95)
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NET INCOME (LOSS) $ 355 $ (194)
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NET INCOME PER COMMON SHARE $ .20 $ -
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DIVIDEND PER SHARE $ .06 $ -
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See accompanying notes.
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CAROLINA FINCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
September 30,
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1997 1996
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(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 355 $ (194)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 44 33
Amortization, net (10) 17
Origination of mortgage loans held for sale (764) -
Proceeds from sale of loans held for sale 776 -
Release of ESOP shares 26 -
Provision for loan losses 23 9
Deferred income taxes (20) (105)
Deferred compensation 15 21
Change in assets and liabilities
Increase in accrued interest receivable (73) (74)
Increase in other assets (57) (26)
Decrease in accrued interest payable (23) (17)
Increase in accrued expenses and other liabilities 135 480
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 427 144
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CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-earning balances in other banks (1,141) 1,083
Purchases of:
Available for sale investment securities (3,544) (500)
Held to maturity investment securities (503) (528)
Proceeds from sales, maturities and calls of:
Available for sale investment securities 4,987 -
Held to maturity investment securities 73 195
Net increase in loans (2,235) (1,608)
Purchase of property and equipment (61) (234)
Proceeds from sale of real estate acquired in settlement of loans - 28
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NET CASH USED BY
INVESTING ACTIVITIES (2,424) (1,564)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand accounts 1,355 327
Net increase in certificates of deposit 1,375 999
Decrease in borrowed funds (500) -
Decrease in advance payments by borrowers for taxes and insurance (117) (104)
Stock conversion costs incurred - (58)
Cash dividends paid (104) -
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,009 1,164
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NET INCREASE (DECREASE) IN
CASH ON HAND AND IN BANKS 12 (256)
CASH ON HAND AND IN BANKS, BEGINNING 1,790 1,207
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CASH ON HAND AND IN BANKS, ENDING $ 1,802 $ 951
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See accompanying notes.
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CAROLINA FINCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
In management's opinion, the financial information, which is unaudited, reflects
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial information as of and for the three
months ended September 30, 1997 and 1996, in conformity with generally accepted
accounting principles. The financial statements include the accounts of
Carolina Fincorp, Inc. (the "Company") and its wholly owned subsidiary, Richmond
Savings Bank, Inc., SSB ("Richmond Savings" or the "Bank"), and the Bank's
wholly-owned subsidiary, Richmond Investment Services, Inc. Operating results
for the three months ended September 30, 1997 are not necessarily indicative of
the results that may be expected for the fiscal year ending June 30, 1998.
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-
KSB. This quarterly report should be read in conjunction with such annual
report.
NOTE B - PLAN OF CONVERSION
On May 1, 1996, the Board of Directors of Richmond Savings unanimously adopted a
Plan of Holding Company Conversion whereby Richmond Savings converted from a
North Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank and became a wholly-owned subsidiary of Carolina Fincorp, Inc.,
which was formed in connection with the conversion. Carolina Fincorp, Inc.
issued common stock in the conversion and used a portion of the net proceeds
thereof to purchase the capital stock of Richmond Savings.
On November 22, 1996, Richmond Savings completed its conversion from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank. The conversion occurred through the sale of 1,851,500 shares of
common stock (no par value) of Carolina Fincorp, Inc. Total proceeds of
$18,515,000 were reduced by conversion expenses of $929,389. Carolina Fincorp,
Inc. purchased all of the Richmond Savings common stock issued in the
conversion, and retained the balance of the net conversion proceeds. The
transaction was recorded as an "as-if" pooling with assets and liabilities
recorded at historical cost.
NOTE C - FDIC SPECIAL ASSESSMENT
On September 30, 1996, a comprehensive continuing appropriations bill which
provided for a one-time assessment to recapitalize the SAIF was signed into law
by the President. This special assessment, which was imposed on all SAIF-
insured institutions, amounted to $519,000 for Richmond Savings and was charged
against earnings during the quarter ended September 30, 1996. Net of an income
tax benefit of $176,000, this special assessment decreased earnings by $343,000
during the quarter.
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CAROLINA FINCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - NET INCOME PER SHARE
Net income per share for the three months ended September 30, 1997 was computed
based on the weighted average number of shares outstanding during that period
(1,754,332 shares).
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997 AND JUNE 30, 1997
Total assets increased by $2.6 million during the quarter ended September 30,
1997, from $111.5 million at June 30, 1997 to $114.1 million at quarter's end.
Substantially all of the asset growth was in loans receivable which increased by
$2.2 million from $78.7 million to $80.9 million during the quarter. The
Company's holding company conversion was completed in November of 1996 with the
issuance of common stock generating net proceeds of $17.6 million. Since that
time, the Company has attempted to generate growth in higher yielding loans
receivable. The Company also attracted good deposit growth during the quarter
with demand deposits and certificate of deposit accounts increasing by $1.4
million and $1.4 million, respectively. This deposit growth funded the growth
in loans while also enabling the Company to repay an advance of $500,000 from
the Federal Home Loan Bank which had been outstanding at the beginning of the
quarter.
Total stockholders' equity was $25.8 million at September 30, 1997 as compared
with $25.4 million at June 30, 1997. The Company and its bank subsidiary
substantially exceeded all regulatory capital requirements.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1997 AND 1996
Net Income. Consolidated net income during the quarter ended September 30, 1997
was $355,000, or $.20 per share, as compared with a net loss of $194,000 during
the three months ended September 30, 1996, an increase of $549,000. The increase
is attributable to the higher level of interest-earning assets during the
current quarter as a result of investment of proceeds from the November 1996
issuance of the Company's common stock, and to a special insurance assessment
imposed in September 1996 on all SAIF-insured institutions by the FDIC to
recapitalize the SAIF fund. Richmond Savings' assessment was $519,000. Net of an
income tax benefit of $176,000, this special assessment decreased earnings
during the quarter ended September 30, 1996 by $343,000.
Net Interest Income. Net interest income was $1.1 million during the quarter
ended September 30, 1997 as compared with $725,000 during the first quarter of
the previous fiscal year, an increase of $369,000. The increase resulted
primarily from an increase in average interest-earning assets attributable to
investment of proceeds from the sale in November of 1996 of the Company's common
stock. Average investment and loan balances were $5.1 million and $10.9
million, respectively, higher during the current quarter than during the
corresponding quarter of the previous fiscal year.
Provision for Loan Losses. The provision for loan losses was $23,000 and $9,000
for the quarters ended September 30, 1997 and 1996, respectively. There were
net loan charge-offs of $15,000 during the quarter ended September 30, 1997 as
compared with net charge-offs of $23,000 during the quarter ended September 30,
1996. At September 30, 1997, nonaccrual loans aggregated $118,000, while the
allowance for loan losses stood at $408,000.
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Other Income. Other income was $154,000 during the quarter ended September 30,
1997 as compared with $129,000 during the quarter ended September 30, 1996, an
increase of $25,000. During the current quarter, the Company realized gains of
$12,000 from the sale of loans.
Other Expenses. Other expenses decreased to $691,000 during the quarter ended
September 30, 1997 as compared with $1.1 million during the quarter ended
September 30, 1996, a decrease of $452,000. An overall decrease of $553,000 in
deposit and other insurance costs was offset by increases of $56,000 and $26,000
in personnel costs and other expenses, respectively. The increase in personnel
costs relates to growth, normal compensation adjustments, and the higher costs
of benefits associated with the Company's Employee Stock Ownership Plan. The
increase in other expenses relates largely to growth and to the additional costs
arising from operation as a publicly held holding company.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income or loss before income taxes, was 36.3% and 32.9% for the three months
ended September 30, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The objective of the Company's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses
Richmond Savings' ability to meet deposit withdrawals on demand or at
contractual maturity, to repay borrowings as they mature, and to fund new loans
and investments as opportunities arise.
The primary sources of internally generated funds are principal and interest
payments on loans receivable, cash flows generated from operations, and
repayments of mortgage-backed securities. External sources of funds include
increases in deposits, advances from the FHLB of Atlanta, and sales of loans.
As a North Carolina-chartered savings bank, Richmond Savings must maintain
liquid assets equal to at least 10% of assets. The computation of liquidity
under North Carolina regulations allows the inclusion of mortgage-backed
securities and investments with readily marketable value, including investments
with maturities in excess of five years. Richmond Savings' liquidity ratio at
September 30, 1997, as computed under North Carolina regulations, was
approximately 18%. On a consolidated basis, liquid assets represent
approximately 25% of total assets. Management believes that it will have
sufficient funds available to meet its anticipated future loan commitments as
well as other liquidity needs.
As a North Carolina-chartered savings bank, Richmond Savings is subject to the
capital requirements of the Federal Deposit Insurance Corporation ("FDIC") and
the North Carolina Administrator of Savings Institutions ("N. C.
Administrator"). The FDIC requires state-chartered savings banks to have a
minimum leverage ratio of Tier I capital (principally consisting of common
shareholders' equity, noncumulative perpetual preferred stock, and a limited
amount of cumulative perpetual preferred stock, less certain intangible assets)
to total assets of at least 3%; provided, however, that all institutions, other
than those (i) receiving the highest rating during the
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examination process and (ii) not anticipating or experiencing any significant
growth, are required to maintain a ratio of 1% or 2% above the state minimum.
The FDIC also requires Richmond Savings to have a ratio of total capital to
risk-weighted assets of at least 8%, of which at least 4% must be comprised of
Tier I capital. The N. C. Administrator requires a net worth equal to at least
5% of total assets. At September 30, 1997, Richmond Savings exceeded the
capital requirements of both the FDIC and the N. C. Administrator.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
(27) Financial data schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1997.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAROLINA FINCORP, INC.
Date: November 7, 1997 By: /s/ R. Larry Campbell
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R. Larry Campbell
Chief Executive Officer
Date: November 7, 1997 By: /s/ Winston G. Dwyer
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Winston G. Dwyer
Chief Financial Officer
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