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 MARCH 31, 1999
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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. 1,638,452 OF COMMON STOCK AS
----------------------------
OF MAY 7, 1999.
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STONE STREET BANCORP, INC.
INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial Statements:
Consolidated Statements of Financial Condition -
March 31, 1999 (Unaudited) and December 31, 1998 1-2
Consolidated Statements of Operations -
Three Months Ended March 31, 1999 and 1998 (Unaudited) 3
Consolidated Statement of Stockholders' Equity
for the Three Months Ended March 31, 1999 (Unaudited) 4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1999 and 1998 (Unaudited) 5-6
Notes to Consolidated Financial Statements 7
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 9
Signatures 10
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1999 1998
-------------- -------------
(Unaudited)
ASSETS
- ------
CASH AND DUE FROM BANKS $ 2,815,138 $ 2,404,062
INTEREST-BEARING DEPOSITS 4,833,926 4,405,831
FEDERAL FUNDS SOLD 1,621,856 877,977
INVESTMENT SECURITIES
Securities held-to-maturity
(market value-March 31, 1999 - $1,625,168;
December 31, 1998 - $2,491,031) 1,625,441 2,492,681
Securities available for sale,
at market value 9,902,244 10,357,716
------------ ------------
Total 11,527,685 12,850,397
LOANS RECEIVABLE-Net 103,143,822 102,549,417
FEDERAL HOME LOAN BANK STOCK 1,569,800 1,569,800
OFFICE PROPERTIES AND EQUIPMENT-Net 1,056,682 909,129
ACCRUED INTEREST RECEIVABLE 503,397 670,091
DEFERRED INCOME TAXES 637,157 627,341
REFUNDABLE INCOME TAXES 116,139
PREPAID EXPENSES AND OTHER ASSETS 167,319 102,027
CASH SURRENDER VALUE OF LIFE INSURANCE 190,580 190,580
------------ ------------
TOTAL $128,067,362 $127,272,791
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
DEPOSITS:
Savings Accounts $ 9,036,402 $ 8,696,463
Money Market and NOW Accounts 4,854,937 5,208,259
Time, $100,000 and over 8,988,387 8,273,195
Other Time 50,111,234 50,998,371
------------ ------------
Total deposits 72,990,960 73,176,288
ADVANCES FROM FHLB 24,933,333 23,966,667
AMOUNTS PAYABLE UNDER REMITTANCE
SERVICE AGREEMENT 642,103 358,310
ACCRUED INCOME TAXES 193,069
ACCRUED INTEREST PAYABLE 356,532 296,057
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 923,853 986,925
------------ ------------
TOTAL LIABILITIES $100,039,850 $ 98,784,247
============ ============
See notes to consolidated financial statements
1
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONT'D)
MARCH 31, 1999 AND DECEMBER 31, 1998
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MARCH 31, DECEMBER 31,
1999 1998
-------------- --------------
(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; March 31, 1999 -
1,638,452 issued and outstanding;
December 31, 1998 - 1,692,352
issued and outstanding $ 17,971,281 $ 18,432,340
Unearned ESOP shares (1,746,634) (1,859,376)
Unamortized deferred compensation (1,244,734) (1,244,734)
Retained Earnings 13,100,472 13,199,631
Accumulated other comprehensive income, net (52,873) (39,317)
------------ ------------
Total stockholders' equity 28,027,512 28,488,544
------------ ------------
TOTAL $128,067,362 $127,272,791
============ ============
See notes to consolidated financial statements
2
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1999 1998
------------ ------------
(Unaudited) (Unaudited)
INTEREST INCOME:
Interest and fees on loans $ 2,142,568 $ 1,984,593
Interest on investments:
U.S. Treasury and
Government Agency 7,259 49,230
Mortgage backed securities 146,173 41,948
Municipal securities 881 19,161
Other interest 141,297 94,801
------------ ------------
Total interest income 2,438,178 2,189,733
------------ ------------
COST OF FUNDS:
Interest on time deposits 794,052 740,243
Interest on interest bearing
demand deposits 11,338 18,485
Interest on savings deposits 61,111 70,277
Interest on FHLB advances 325,872 122,411
------------ ------------
Total interest expense 1,192,373 951,416
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NET INTEREST INCOME 1,245,805 1,238,317
PROVISION FOR LOAN LOSSES 45,000 30,000
------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,200,805 1,208,317
------------ ------------
OTHER OPERATING INCOME:
Loan fees and charges 15,077 12,389
Other fees and commissions 26,877 17,171
Other - net 5,643 4,299
------------ ------------
Total other income 47,597 33,859
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OTHER OPERATING EXPENSES:
Compensation and related benefits 376,951 339,279
Insurance 10,675 12,943
Occupancy and equipment 79,427 69,609
Other 88,736 70,909
------------ ------------
Total 555,789 492,740
------------ ------------
INCOME BEFORE INCOME TAXES 692,613 749,436
INCOME TAXES 265,383 286,158
------------ ------------
NET INCOME $ 427,230 463,278
============ ============
NET INCOME PER SHARE - BASIC $ .26 $ .25
============ ============
NET INCOME PER SHARE - DILUTED $ .26 $ .25
============ ============
See notes to consolidated financial statements
3
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
- --------------------------------------------------------------------------------
Accumulated
Unearned Unamortized Compre- Other
Shares Common ESOP Deferred Retained hensive Comprehensive
Outstanding Shares Shares Compensation Earnings Income Income
------------- ----------- ------------ ------------- ------------ ------------ --------------
Balance at December 31, 1998 1,692,352 $18,432,340 $ (1,859,376) $ (1,244,734) $ 13,199,631 $ (39,317)
Net income 427,230 427,230
Purchase of Treasury Stock (53,900) (461,059) (333,870)
Release of ESOP Shares 112,742
Cash dividends
($.1175 per share) (192,519)
Change in unrealized
holding gains (losses)
net of income taxes of $9,816 (13,556) (13,556)
------------
Total comprehensive income $ 413,674
============
------------- ----------- ------------ ------------- ------------ --------------
Balance at March 31, 1999 1,638,452 $17,971,281 $(1,746,634) $ (1,244,734) $ 13,100,472 $ (52,873)
============= =========== ============ ============= ============ ==============
Total
Stockholders'
Equity
--------------
Balance at December 31, 1998 $ 28,488,544
Net income 427,230
Purchase of Treasury Stock (794,929)
Release of ESOP Shares 112,742
Cash dividends
($.1175 per share) (192,519)
Change in unrealized
holding gains (losses)
net of income taxes of $9,816 (13,556)
Total comprehensive income
-------------
Balance at March 31, 1999 $ 28,027,512
=============
See notes to consolidated financial statements.
4
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
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THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
--------------- ---------------
(Unaudited) (Unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 427,230 $ 463,278
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 25,537 22,113
Provision for loan loss 45,000 30,000
Decrease (increase) in accrued interest receivable 166,694 (39,055)
Decrease (increase) in other assets (65,292) (62,245)
Decrease (increase) in refundable income taxes 116,139 125,460
Increase (decrease) in accounts payable under
remittance service agreement 283,793 (318,303)
Increase (decrease) in accrued interest payable 60,475 73,560
Increase (decrease) in accounts payable and
accrued liabilities (97,737) (15,000)
Increase (decrease) in cash dividends payable
Increase (decrease) in accrued income taxes 193,069 108,743
(Increase) decrease in deferred income taxes (9,816) 3,373
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Net cash provided by operating
activities 1,145,092 391,924
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (639,405) (2,785,030)
Proceeds from maturities of held to maturity securities 867,240 1,082,534
Proceeds from maturities of available-for-sale securities 441,916 221,968
Purchase of premises and equipment (173,090) 0
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Net cash provided by (used in) investing
activities 496,661 (1,480,528)
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See notes to consolidated financial statements
5
STONE STREET BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CON'T)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits (185,328) 783,624
Increase (decrease) in advance payments
by borrowers for taxes and insurance 34,665 36,670
Increase (decrease) in Federal Home Loan Bank Advances 966,666 2,150,000
Purchase of Treasury Stock at cost (794,929) (353,393)
Decrease in note receivable - ESOP 112,742 88,197
Payment of cash dividends (192,519) (216,287)
-------------- --------------
Net cash provided by financing activities (58,703) 2,488,811
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,583,050 1,400,207
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 7,687,870 4,704,071
-------------- --------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 9,270,920 $ 6,104,278
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the periods for:
Interest $ 346,332 $ 755,445
============== ==============
Income taxes $ 0 $ 229,075
============== ==============
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 March 31, 1999 and December
31, 1998, the results of operations for the three months ended March 31,
1999 and 1998 and the consolidated cash flows for the three months ended
March 31, 1999 and 1998.
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, Stone Street Bank
and Trust and Stone Street Financial Services, Inc., a subsidiary of
the Bank.
3. The results of operations for the three month period ended March 31, 1999,
are not necessarily indicative of the results expected for the full year.
4. Results of operations for the three month periods ended March 31, 1999 and
1998 includes operations for both Stone Street Bank and Trust and the
Holding Company, Stone Street Bancorp, Inc. The weighted average shares
outstanding for the quarter ended March 31, 1999 and 1998 were 1,650,378
and 1,889,185, respectively and was used in calculating earnings per share
for the three month periods.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
----------------------------------------------------------------------
FINANCIAL CONDITION
For the three months ended March 31, 1999, total assets increased
$795,000 or .62%. Cash balances and interest bearing deposits
increased $839,200 or 12.32% while federal funds increased by $744,000
compared to December, 1998. Investment securities decreased $1,323,000
or 10.29%. Net loans increased to $103,144,000 an increase of $594,000
or .58% over the December 1998 balance of $102,549,417. Deposits
decreased $185,000 during the first quarter of 1999. Advances from the
Federal Home Loan Bank of Atlanta totaled $24,933,333 at March 31,
1999, an increase of $967,000 or 4.03% over the December, 1998 level.
These increased borrowings were used to fund the $594,000 of loan
originations during the first quarter of 1999. Stockholders' equity
decreased $461,000 from December, 1998 which is comprised of an
increase due to net income of $427,230 during the first quarter a
reduction due to cash dividends declared and paid of $192,519 during
the first quarter, an increase of $112,742 due to the release of ESOP
shares and a reduction in equity of $794,929 due to the Bank acquiring
treasury stock during this period.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 and 1998
Net income for the three months ended March 31, 1999 was $427,230
compared to $463,278 for the comparable period in 1998. Total interest
income increased $248,445 or 11.35% while total interest expense
increased $240,957 or 25.33% due to the increased FHLB borrowings
during the year ended December 31, 1998 and the first quarter of 1999.
Net interest income increased $7,488 or .60% and was further reduced
by an increase of $15,000 in the loan loss provision. Other operating
income increased to $47,597 in 1999 compared to $33,859 in 1998 for
the three month periods. Other operating expenses increased from
$492,740 in 1998 to $555,789 in 1999, an increase of $63,049 or
12.80%. Income tax expense decreased $20,775 due to the reduction in
net income during the three month period in 1999 compared to 1998.
8
PART II - OTHER INFORMATION
Item 6b. Reports on Form 8-K
There were no Form 8-K's filed during the First Quarter of 1999
9
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: May 13, 1999 By: /s/ J. Charles Dunn
------------------------------- ---------------------------------
J. Charles Dunn
President and Chief Executive
Officer
Date: May 13, 1999 By: /s/ Marjorie D. Foster
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Marjorie D. Foster
Controller
10