U. S. 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 MARCH 31, 1999
[_] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended
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COMMISSION FILE NUMBER 0-24245
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BOC FINANCIAL CORP.
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(Exact name of small business issuer as specified in its charter)
North Carolina 56-6511744
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
107 SOUTH CENTRAL AVENUE, LANDIS, NC 28088
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(Address of principal executive office)
(704) 857-7277
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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 [_]
As of May 5, 1999, 879,741 shares of the issuer's common stock, $1.00 par value,
were outstanding. The registrant has no other classes of securities outstanding.
This report contains 10 pages.
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Page No.
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PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition
March 31, 1999 and December 31, 1998.......................... 3
Consolidated Statements of Operations
Three Months Ended March 31, 1999 and 1998.................... 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998.................... 5
Notes to Consolidated Financial Statements.................... 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................... 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................... 9
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PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
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BOC FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Financial Condition
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March 31, 1999 December 31,
(Unaudited) 1998*
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(In Thousands)
Cash on hand and in banks $ 340 $ 426
Interest-bearing balances in other banks 7,515 7,425
Federal funds sold 2,365 1,285
Investment securities available for sale, at fair value 2,976 3,740
Loans receivable, net 17,684 18,133
Accrued interest receivable 53 54
Premises and equipment, net 907 268
Stock in the Federal Home Loan Bank, at cost 187 187
Other assets 106 67
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TOTAL ASSETS $32,133 $31,585
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts $19,856 $19,382
Advance payments from borrowers for property taxes and insurance 14 7
Accrued expenses and other liabilities 223 219
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TOTAL LIABILITIES 20,093 19,608
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STOCKHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $1 par value, 9,000,000 shares
authorized, 879,741 shares issued and
outstanding 880 880
Additional paid-in capital 7,490 7,490
ESOP note receivable (1,019) (1,019)
Accumulated other comprehensive income:
Unrealized holding gains - 9
Retained earnings, substantially restricted 4,689 4,617
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TOTAL STOCKHOLDERS' EQUITY 12,040 11,977
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$32,133 $31,585
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*Derived from audited financial statements.
See accompanying notes.
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BOC FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended
March 31,
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1999 1998
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(In Thousands,
Except Per Share Data)
INTEREST INCOME
Loans $ 348 $ 374
Investments 55 43
Deposits in other banks and
federal funds sold 108 69
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TOTAL INTEREST INCOME 511 486
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INTEREST EXPENSE
Deposits 233 284
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NET INTEREST INCOME 278 202
PROVISION FOR LOAN LOSSES - -
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 278 202
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OTHER INCOME 4 3
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OTHER EXPENSES
Personnel costs 96 92
Occupancy 14 12
Data processing and outside service fees 14 13
Deposit insurance premiums 3 3
Other 46 17
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TOTAL OTHER EXPENSES 173 137
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INCOME BEFORE INCOME TAXES 109 68
PROVISION FOR INCOME TAXES 37 21
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NET INCOME $ 72 $ 47
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See Note B for Net Income Per Share Information.
See accompanying notes.
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BOC FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Three Months Ended
March 31,
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1999 1998
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(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 72 $ 47
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation 7 8
Amortization, net - (6)
Gain on sale of assets, net - (2)
Deferred compensation 8 8
Deferred income taxes - (2)
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable 1 (12)
Increase in other assets (34) (10)
Increase in accrued expenses and other liabilities (4) (43)
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NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 50 (12)
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CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest-bearing balances in other banks (90) (4)
Net increase in federal funds sold (1,080) (10,050)
Purchases of available for sale investment securities (500) (1,227)
Proceeds from sales and maturities of available for sale securities 1,250 1,151
Proceeds from sales of loans - 10
Net decrease in loans 449 323
Purchases of premises and equipment (646) (3)
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NET CASH USED
BY INVESTING ACTIVITIES (617) (9,800)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand accounts (134) 9,223
Net decrease in certificates of deposit 608 1,021
Net increase (decrease) in advance payments from borrowers
for taxes and insurance 7 (1)
Stock conversion costs incurred - (181)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 481 10,062
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NET INCREASE (DECREASE) IN
CASH ON HAND AND IN BANKS (86) 250
CASH ON HAND AND IN BANKS, BEGINNING 426 336
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CASH ON HAND AND IN BANKS, ENDING $ 340 $ 586
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See accompanying notes.
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BOC FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
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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
month periods ended March 31, 1999 and 1998, in conformity with generally
accepted accounting principles. The financial statements include the accounts of
BOC Financial Corp. (the "Company") and its wholly-owned subsidiary, Bank of the
Carolinas (the "Bank"). Operating results for the three month periods ended
March 31, 1999 and 1998 are not necessarily indicative of the results that may
be expected for the fiscal year ending December 31, 1999.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the financial
statements filed as part of BOC Financial Corp.'s annual report on Form 10-KSB.
This quarterly report should be read in conjunction with such annual report.
NOTE B - NET INCOME PER SHARE
Basic net income per share for the three months ended March 31, 1999 was $.09
based upon the weighted average number of common shares of 809,115 outstanding
during the period. Unreleased shares held by the ESOP are not considered to be
outstanding in determining weighted average shares outstanding. There were no
dilutive common equivalent shares outstanding during the period. The Company
completed its mutual to stock conversion on April 28, 1998. Accordingly, net
income per share data is not presented for the three months ended March 31,
1998.
NOTE C - COMPREHENSIVE INCOME
For the three months ended March 31, 1999 and 1998, total comprehensive income,
consisting of net income and unrealized securities gains and losses, net of
taxes, was $61,000 and $46,000, respectively.
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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 MARCH 31, 1999 AND DECEMBER 31, 1998
During the three months ended March 31, 1999, total assets increased by $548,000
or 1.7%, from $31.6 million to $32.1 million. This growth was generated
principally by an increase in customer deposit accounts of $474,000 or 2.4%,
from $19.4 million to $19.9 million. During the quarter, loans receivable
decreased from $18.1 million to $17.7 million, a reduction of $449,000 or 2.5%.
In addition, the Bank also acquired during the quarter, at a cost of $640,000,
land for future construction of a full service branch office. This land is
located on Speedway Boulevard in Concord, Cabarrus County, North Carolina.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 1998
Net income for the three months ended March 31, 1999 was $72,000 or $.09 per
share as compared with net income of $47,000 for the quarter ended March 31,
1998, an increase of $25,000. Net interest income for the current quarter was
$278,000, an increase of $76,000 over the corresponding amount for the quarter
ended March 31, 1998, with the increase relating principally to the infusion of
capital and liquidity the Company received upon the completion of its stock
offering on April 28, 1998. Non-interest expenses increased from $137,000 for
the quarter ended March 31, 1998 to $173,000 for the quarter ended March 31,
1999 principally as a result of the higher costs of operating as a publicly
owned entity.
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 the
Bank's 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 and cash flows generated from operations. External
sources of funds include increases in deposits and advances from the FHLB of
Atlanta.
At March 31, 1999, liquid assets comprise 41% 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.
At March 31, 1999, both the Company and the Bank substantially exceed all
applicable regulatory capital requirements.
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THE YEAR 2000
All levels of the Company's management and its Board of Directors are aware of
the issues created by the Year 2000 century change and the serious effects it
may have on the Bank and its customers. In May 1997, the Federal Financial
Institutions Examination Council ("FFIEC") issued an Interagency Statement,
"Year 2000 Project Management Awareness," to emphasize the critical issues that
need to be addressed to implement an effective Year 2000 project management
plan. The FFIEC Statement identifies five phases of the Year 2000 project
management process. The Company has formed a Year 2000 project team, consisting
of senior officers within the Bank's operations, information systems, financial
and management areas, to ensure that the Bank will be Year 2000 compliant.
Although the Company relies entirely upon outside vendors and service providers
for its computer hardware and software and its security and communications
equipment, all date sensitive systems are being evaluated for Year 2000
compliance. During 1998, the Company completed upgrading and testing of systems
that have been identified as critical to conducting its banking business.
Testing of systems with lower priorities is presently ongoing. The Company is
also developing contingency plans for its computer processes, including the use
of alternative systems and the manual processing of certain critical operations.
In addition, the Company is undertaking efforts to ensure that significant
vendor and customer relationships are or will be Year 2000 compliant. There can
be no guarantee that the systems of other entities on which the Company either
or indirectly relies will be timely converted, or that a failure to convert by
another entity, or a conversion that is incompatible with the Company's systems,
would not have a material adverse effect on the Company in future periods.
However, the Company's management believes that all of its systems will be
verified Year 2000 compliant. The Company estimates that it will incur Year 2000
compliance costs of approximately $12,000, of which approximately $2,000 will be
capitalized and $10,000 have or will be charged to operations. In addition to
the estimated costs of its Year 2000 compliance, the Company routinely makes
annual investment in technology in its efforts to improve customer service and
to efficiently manage its product and service delivery systems.
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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 during the quarter ended
March 31, 1999.
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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.
BOC FINANCIAL CORP.
Date: May 5, 1999 By: /s/ Stephen R. Talbert
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Stephen R. Talbert
Chief Executive Officer
Date: May 5, 1999 By: /s/ Lisa B. Ashley
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Lisa B. Ashley
Chief Financial Officer
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