UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
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OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _________________________
Commission file number 1-14230
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STONE STREET BANCORP, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1949352
- -------------------------------------------- ------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
232 SOUTH MAIN STREET, MOCKSVILLE, NORTH CAROLINA
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(Address of principal executive offices)
(Zip Code)
27028
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(Registrant's telephone number, including area code)
(336) 751-5936
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(Former name, former address and former fiscal year, if changed since last
report)
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.
Yes X No _____
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes _____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 1,803,352 OF COMMON STOCK AS
-----------------------------
OF AUGUST 10, 1998.
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STONE STREET BANCORP, INC.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial Statements:
Consolidated Statements of Financial Condition -
June 30, 1998 (Unaudited) and December 31, 1997 1-2
Consolidated Statements of Operations -
Three Months and Six Months Ended June 30, 1998
and 1997 (Unaudited) 3
Consolidated Statement of Stockholders' Equity
for the Six Months Ended June 30, 1998 (Unaudited) 4
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1998 and 1997 (Unaudited) 5-6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 10
Signatures 11
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1998 1997
-------------- ------------
(Unaudited)
ASSETS
- ------
CASH AND DUE FROM BANKS $ 2,184,165 $ 968,571
INTEREST-BEARING DEPOSITS 4,762,653 2,701,326
FEDERAL FUNDS SOLD 732,877 1,034,174
INVESTMENT SECURITIES
Securities held-to-maturity
(market value-June 30, 1998 $2,766,567,
December 31, 1997 $5,939,928) 2,737,599 5,889,605
Securities available for sale,
at market value 777,809 1,858,886
------------ ------------
Total 3,515,408 7,748,491
LOANS RECEIVABLE-Net 98,141,140 92,966,627
FEDERAL HOME LOAN BANK STOCK 830,200 741,000
OFFICE PROPERTIES AND EQUIPMENT-Net 789,390 823,565
ACCRUED INTEREST RECEIVABLE 326,125 284,291
DEFERRED INCOME TAXES 408,727 412,360
REFUNDABLE INCOME TAXES 274,169 125,460
PREPAID EXPENSES AND OTHER ASSETS 142,925 140,444
CASH SURRENDER VALUE OF LIFE INSURANCE 145,516 145,516
------------ ------------
TOTAL $112,253,295 $108,091,825
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
DEPOSITS:
Savings Accounts $ 9,360,537 $ 9,189,559
Money Market and NOW Accounts 4,858,250 4,704,414
Time, $100,000 and over 6,323,991 4,530,714
Other Time 48,282,299 48,548,135
------------ ------------
Total deposits 68,825,077 66,972,822
ADVANCES FROM FHLB 11,200,000 7,800,000
AMOUNTS PAYABLE UNDER REMITTANCE
SERVICE AGREEMENT 405,749 1,174,961
ADVANCE PAYMENTS BY BORROWERS FOR
TAXES AND INSURANCE 102,487 25,369
ACCRUED INTEREST PAYABLE 208,182 144,485
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 836,813 898,618
------------ ------------
TOTAL LIABILITIES $ 81,578,308 $ 77,016,255
============ ============
See notes to consolidated financial statements
1
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONT'D)
JUNE 30, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1998 1997
---------------- -------------
(Unaudited)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value
5,000,000 shares authorized, no shares
issued and outstanding
Common Stock, no par value,
20,000,000 authorized; June 30, 1998 -
1,898,052 issued and 1,843,452 outstanding;
December 31, 1997 - 1,898,052
issued and outstanding $ 20,610,883 $ 20,610,883
Unearned ESOP shares (1,859,376) (1,947,573)
Unamortized deferred compensation (1,244,734) (1,517,896)
Retained Earnings 14,262,002 13,927,634
Unrealized gain on securities
available-for-sale net of
applicable deferred taxes of $5,789 7,993 2,522
------------- ------------
Total 31,776,768 31,075,570
Less cost of treasury stock (54,600 shares) (1,101,781) -
------------- ------------
Total stockholders' equity 30,674,987 31,075,570
------------- ------------
TOTAL $ 112,253,295 $108,091,825
============= ============
See notes to consolidated financial statements
2
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE, 1998 AND 1997
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
------------ ------------ ------------ -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INTEREST INCOME:
Interest and fees on loans $2,049,649 $1,803,585 $4,034,242 $3,558,467
Interest on investments:
U. S. Treasury and
Government Agency 23,342 76,292 72,572 146,523
Mortgage backed securities 38,527 47,593 80,475 99,057
Municipal Securities 14,512 12,113 33,673 24,753
Other interest 126,600 110,610 221,401 331,757
---------- ---------- ---------- ----------
Total interest income 2,252,630 2,050,193 4,442,363 4,160,557
---------- ---------- ---------- ----------
COST OF FUNDS:
Interest on time deposits 750,530 756,351 1,490,773 1,499,547
Interest on interest bearing
demand deposits 19,344 19,306 37,829 37,067
Interest on savings deposits 76,011 64,819 146,288 130,166
Interest on FHLB advances 128,783 - 251,194 -
---------- ---------- ---------- ----------
Total interest expense 974,668 840,476 1,926,084 1,666,780
---------- ---------- ---------- ----------
NET INTEREST INCOME 1,277,962 1,209,717 2,516,279 2,493,777
PROVISION FOR LOAN LOSSES 30,000 15,000 60,000 30,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,247,962 1,194,717 2,456,279 2,463,777
---------- ---------- ---------- ----------
OTHER OPERATING INCOME:
Loan fees and charges 14,212 11,337 26,601 23,446
Other fees and commissions 19,136 21,252 36,307 40,141
Other - net 2,298 19,427 6,597 22,614
---------- ---------- ---------- ----------
Total other income 35,646 52,016 69,505 86,201
---------- ---------- ---------- ----------
OTHER OPERATING EXPENSES:
Compensation and related benefits 627,979 662,671 967,258 948,831
Insurance 13,917 15,181 26,860 35,269
Occupancy and equipment 69,123 50,174 138,732 131,760
Other 86,483 116,493 157,392 179,147
---------- ---------- ---------- ----------
Total 797,502 844,519 1,290,242 1,295,007
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 486,106 402,214 1,235,542 1,254,971
INCOME TAXES 185,409 144,144 471,567 470,910
---------- ---------- ---------- ----------
NET INCOME $ 300,697 $ 258,070 $ 763,975 $ 784,061
========== ========== ========== ==========
NET INCOME PER SHARE - BASIC $ .16 $ .14 $ .41 $ .43
========== ========== ========== ==========
NET INCOME PER SHARE - DILUTED $ .16 $ .14 $ .41 $ .43
========== ========== ========== ==========
See notes to consolidated financial statements
3
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
Unearned Unamortized
Shares Common Treasury ESOP Deferred Retained
Outstanding Shares Stock Shares Compensation Earnings
------------- ------------- ------------ ------------ ------------- ------------
Balance at December 31, 1997 1,898,052 $ 20,610,883 $ (1,947,573) $ (1,517,896) $ 13,927,634
Net income 763,975
Cash dividends (429,607)
Amortization of unearned
compensation 273,162
Release on ESOP shares 88,197
Treasury Stock purchased (54,600) (1,101,781)
Unrealized gain on securities
available-for-sale net of
applicable deferred taxes
of $3,373
------------- ------------- ------------- ------------- ------------- ------------
Balance at June 30, 1998 1,843,452 $ 20,610,883 $ (1,101,781) $(1,859,376) $ (1,244,734) $ 14,262,002
============= ============= ============= ============= ============= ============
Unrealized Total
Holding Stockholders'
Gain/Losses Equity
--------------- --------------
Balance at December 31, 1997 $ 2,522 $ 31,075,570
Net income 763,975
Cash dividends (429,607)
Amortization of unearned
compensation 273,162
Release on ESOP shares 88,197
Treasury Stock purchased (1,101,781)
Unrealized gain on securities
available-for-sale net of
applicable deferred taxes
of $3,373 5,471 5,471
--------------- --------------
Balance at June 30, 1998 $ 7,993 $ 30,674,987
=============== ==============
See notes to financial statements.
4
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
- --------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
-------------- --------------
(Unaudited) (Unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 763,975 $ 784,061
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 43,344 42,919
Provision for loan loss 60,000 30,000
Deferred income tax 3,633 1,938
Contributions allowing the release of ESOP shares 88,197 -
Compensation earned under the Management
Recognition Plan 273,162 -
Decrease (increase) in accrued interest receivable (41,834) (6,962)
Decrease (increase) in other assets (2,481) (116,008)
Decrease (increase) in refundable income taxes (148,709) (116,600)
Increase (decrease) in notes receivable-ESOP - 120,103
Increase (decrease) in cash dividends payable - (401,511)
Increase (decrease) in accounts payable under
remittance service agreement (769,212) (322,648)
Increase in return of capital dividends 7,592,208
Increase (decrease) in accrued interest payable 63,697 (14,096)
Increase (decrease) in accounts payable and
accrued liabilities (61,805) (72,165)
------------ ------------
Net cash provided by operating
activities 271,967 7,521,239
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (5,234,513) (3,040,359)
Purchase of held-to-maturity securities (735,000)
Proceeds from maturities of held-to-maturity 3,152,006 780,504
Proceeds from sale of available-for-sale maturities 1,086,548 879,259
Purchase of FHLB stock (89,200) -
Purchase of premises and equipment (9,169) -
------------ ------------
Net cash provided by (used in) investing
activities $(1,094,328) $(2,115,596)
------------ ------------
See notes to consolidated financial statements
5
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CON'T)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
- --------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
-------------- --------------
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits $1,852,255 $ 210,076
Increase (decrease) in advance payments
by borrowers for taxes and insurance 77,118 65,576
Increase (decrease) in Federal Home Loan Bank Advances 3,400,000 -
Issuance of common stock - 352,780
Purchase of treasury stock (1,101,781) -
Return of capital dividends - (7,592,208)
Cash dividends paid (429,607) (418,851)
----------- ------------
Net cash provided by financing activities 3,797,985 (7,382,627)
----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,975,624 (1,976,984)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 4,704,071 9,804,531
----------- ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $7,679,695 $ 7,827,547
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the periods for:
Interest $1,862,387 $ 1,680,876
=========== ============
Income taxes $ 620,276 $ 587,510
=========== ============
See notes to consolidated financial statements
6
STONE STREET BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. In the opinion of management, the accompanying financial statements contain
all adjustments necessary to present fairly the consolidated financial
position of Stone Street Bancorp, Inc. as of June 30, 1998 and December 31,
1997, the results of operations for the three months and six months ended
June 30, 1998 and 1997 and the consolidated cash flows for the six months
ended June 30, 1998 and 1997.
The accounting policies followed by the Holding Company are set forth in Note
1 to the Company's financial statements included in Form 10-K on file with
the Securities and Exchange Commission.
2. The consolidated financial statements include the financial results of Stone
Street Bancorp, Inc., its wholly-owned subsidiary, Mocksville Savings Bank,
Inc., SSB and Stone Street Financial Services, Inc., a subsidiary of the
Bank.
3. The results of operations for the three and six month periods ended June 30,
1998, are not necessarily indicative of the results expected for the full
year.
4. Results of operations for the three and six month periods ended June 30, 1998
and 1997 includes operations for both Mocksville Savings Bank, Inc., SSB and
the Holding Company, Stone Street Bancorp, Inc. The weighted average shares
outstanding for the quarter ended June 30, 1998 and 1997 were 1,865,778 and
1,825,050, respectively and for the six months ended June 30, 1998 and 1997
were 1,877,513 and 1,825,050, respectively and was used in calculating
earnings per share for the presented.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
----------------------------------------------------------------------
FINANCIAL CONDITION
For the six months ended June 30, 1998, total assets increased
$4,161,470 or 3.85%. Cash balances and interest bearing deposits
increased $3,276,921 or 89.29% while federal funds decreased by
$301,297 compared to December, 1997. Investment securities decreased
$4,233,083 or 54.63%. Net loans increased to $98,141,140, an increase
of $5,174,513 or 5.57% over the December 1997 balance of $92,966,627.
Deposits increased $1,852,255 during the six month period in 1998.
Advances from the Federal Home Loan Bank of Atlanta totaled $11,200,000
at June 30, 1998, an increase of $3,400,000 or 43.59% over the
December, 1997 level. These increased borrowings were used to fund the
$5,234,513 of loan originations during the six month period of 1998.
Stockholders' equity decreased $400,583 from December, 1997 which is
comprised of an increase due to net income of $763,975 during the six
months and reduced by cash dividends declared and paid of $429,607
during the period, and an increase of $88,197 due to the release of
ESOP shares and $273,162 due to the amortization of unearned
compensation under the Bank's Management Recognition Plan net of a
decrease in equity due to the Bank acquiring treasury stock of
$1,101,781 during the six months in 1998.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 and 1997
Net income for the six months ended June 30, 1998 was $300,697 compared
to $258,070 for the comparable period in 1997. Total interest income
increased $202,437 or 9.87% while total interest expense increased
$134,192 or 15.97% due to the increased FHLB borrowings during the six
month period in 1998. Net interest income increased $68,245 or 5.64%
and was further reduced by an increase of $15,000 in the loan loss
provision. Other operating expenses decreased from $844,519 in 1997 to
$797,502 in 1998, a decrease of $47,017 or 5.57%. Other operating
expenses for the three month period is comprised primarily of
compensation and related benefits of $627,979 in 1998 compared to
$662,671 in 1997. Income tax expense increased $41,265 due to the
increase in net income during the three month period in 1998 compared
to 1997.
Six Months Ended June 30, 1998 and 1997
Net income for the six months ended June 30, 1998 was $763,975 compared
to $784,061 in 1997. Interest income increased $281,806 or 6.77%
primarily due to the $12,138,430 increase in loan balances since June,
1997. Interest expense increased from $1,666,780 in 1997 to $1,926,084
in 1998, a $259,304 or 15.56%. This increase is a result of increased
deposits of $2,050,735 and the new borrowings from the FHLB of
$11,200,000 since June, 1997. Net interest income during the comparable
six month periods increased $22,502 but was decreased by the additional
provision for loan losses of $30,000 during the six month period in
1998.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D)
-----------------------------------------------------------------------
Other operating expenses in 1998 remained relatively constant compared
to 1997 with only a $4,765 net reduction in these expenses in 1998. The
primary component of other operating expenses is compensation and
related benefits which totaled $967,258 for the six month period in
1998 compared to $948,831 for the comparable period in 1997. The Bank
recognized additional compensation expense during the second quarter of
1998 and 1997 of $273,162 and $352,780, respectively, related to its
employee benefit program under the Bank's Management Recognition Plan.
Income tax expense remained relatively constant due to the immaterial
change in net income for the six month comparable periods.
9
PART II - OTHER INFORMATION
Item 6b. Reports on Form 8-K
There were no Form 8-K's filed during the Second Quarter of 1998
10
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Holding
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STONE STREET BANCORP, INC.
Date: 8/13/98 By: /s/ J. Charles Dunn
-------------------- --------------------------
J. Charles Dunn
President and Chief Executive Officer
Date: 8/13/98 By: /s/ Marjorie D. Foster
-------------------- --------------------------
Marjorie D. Foster
Controller
11