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 September 30, 1999
[ ] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended ______________________________________
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
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As of November 5, 1999, 805,000 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 12 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
September 30, 1999 and December 31, 1998........................ 3
Consolidated Statements of Operations Three Months and
Nine Months Ended September 30, 1999 and 1998................... 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998................... 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 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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September 30,
1999 December 31,
(Unaudited) 1998*
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(In Thousands)
ASSETS
Cash on hand and in banks $ 458 $ 426
Interest-bearing balances in other banks 5,504 7,425
Federal funds sold 830 1,285
Investment securities available for sale, at fair value 5,424 3,740
Loans receivable, net 19,076 18,133
Accrued interest receivable 89 54
Premises and equipment, net 919 268
Stock in the Federal Home Loan Bank, at cost 175 187
Other assets 171 67
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TOTAL ASSETS $32,646 $31,585
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts $21,586 $19,382
Advance payments from borrowers for property taxes and insurance 18 7
Dividends payable 2,818 -
Accrued expenses and other liabilities 99 219
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TOTAL LIABILITIES 24,521 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, 805,000 and 879,741 shares,
respectively, issued and outstanding 805 880
Additional paid-in capital 4,287 7,490
Unearned compensation (1,595) (1,019)
Accumulated other comprehensive income:
Unrealized holding gains (losses) (30) 9
Retained earnings, substantially restricted 4,658 4,617
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TOTAL STOCKHOLDERS' EQUITY 8,125 11,977
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$32,646 $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 Nine Months Ended
September 30, September 30,
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1999 1998 1999 1998
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(In Thousands)
INTEREST INCOME
Loans $ 362 $ 365 $1,064 $1,109
Investments 77 61 180 154
Deposits in other banks and
federal funds sold 101 122 330 318
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TOTAL INTEREST INCOME 540 548 1,574 1,581
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INTEREST EXPENSE
Deposits 266 237 748 771
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NET INTEREST INCOME 274 311 826 810
PROVISION FOR LOAN LOSSES - - - -
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 274 311 826 810
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OTHER INCOME 1 2 9 5
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OTHER EXPENSES
Personnel costs 122 90 325 264
Occupancy 22 11 59 36
Data processing and outside service fees 11 13 36 31
Deposit insurance premiums 3 5 9 11
Other 83 46 205 119
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TOTAL OTHER EXPENSES 241 165 634 461
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INCOME BEFORE INCOME TAXES 34 148 201 354
PROVISION FOR INCOME TAXES 9 54 65 128
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NET INCOME $ 25 $ 94 $ 136 $ 226
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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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Nine Months Ended
September 30,
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1999 1998
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(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 136 $ 226
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation 22 22
Gain on sale of assets, net - (2)
Amortization of unearned compensation 30 -
Deferred compensation 18 25
Change in assets and liabilities:
Increase in accrued interest receivable (35) (14)
Increase in other assets (77) (3)
Increase (decrease) in accrued expenses and other liabilities (138) 33
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NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (44) 287
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CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing balances in other banks 1,921 (11)
Net (increase) decrease in federal funds sold 455 (7,241)
Purchases of available for sale investment securities (4,000) (2,725)
Proceeds from maturities and sale of available for sale securities 2,250 1,651
Redemption of Federal Home Loan Bank Stock 12 -
Proceeds from sales of loans - 11
Net (increase) decrease in loans (943) 1,024
Purchases of premises and equipment (673) (5)
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NET CASH USED BY
INVESTING ACTIVITIES (978) (7,296)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand accounts 120 (204)
Net increase (decrease) in certificates of deposit 2,084 (726)
Net increase (decrease) in advance payments from borrowers
for taxes and insurance 11 (1)
Cash dividends paid (77) -
Repurchase of common shares (1,084) -
Stock conversion proceeds, net of costs incurred - 8,966
Loan to ESOP for purchase of common stock - (1,043)
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,054 6,992
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NET INCREASE (DECREASE) IN
CASH ON HAND AND IN BANKS 32 (17)
CASH ON HAND AND IN BANKS, BEGINNING 426 336
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CASH ON HAND AND IN BANKS, ENDING $ 458 $ 319
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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 and
nine month periods ended September 30, 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 and nine
month periods ended September 30, 1999 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 and nine months ended September 30,
1999 was $.03 and $.18, respectively, based upon the weighted average number of
common shares of 719,042 and 772,996, respectively, outstanding during the
periods. 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 periods. The Company completed
its mutual to stock conversion on April 28, 1998. Basic net income per share
from that date through September 30, 1998 was $.18 per share and was computed
based on consolidated net income during that period divided by the weighted
average number of common shares outstanding during that period (855,843). Basic
net income per share for the three months ended September 30, 1998 was $.11 per
share based upon the weighted average number of common shares of 851,682
outstanding during the period.
NOTE C - MANAGEMENT RECOGNITION PLAN
At the annual meeting of shareholders held on May 4, 1999, the Company's
shareholders approved the BOC Financial Corp. 1999 Management Recognition Plan
("MRP"). The MRP provides for the award of up to 37,029 shares of the Company's
common stock to directors, officers and employees of the Bank, with all such
shares issued vesting ratably over a five-year period. During September 1999,
the Company granted all shares available under the plan. Shares issued had
previously been acquired during the current quarter through purchase in the open
market. The total value of the shares granted was $356,000 on the grant date. It
is expected that this amount will be amortized straight-line over sixty months.
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NOTE D - SPECIAL DIVIDEND
On September 9, 1999, the Company's Board of Directors declared a special
dividend of $3.50 per share payable October 8, 1999 to shareholders of record on
September 24, 1999. This includes $250,000 to be paid on unallocated ESOP shares
that is expected to be used to purchase additional shares for the ESOP.
Accordingly, such amount is included as additional unearned compensation on the
accompanying September 30, 1999 statement of financial condition. In the
aggregate, this dividend will total $2.8 million. It is expected that all, or
substantially all, of this dividend will represent a non-taxable return of
capital.
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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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This Quarterly Report on Form 10-QSB may contain certain forward-looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to, general economic
conditions, changes in interest rates, deposit flows, loan demand, real estate
values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, pricing, products and services.
Comparison of Financial Condition at September 30, 1999 and December 31, 1998
During the nine months ended September 30, 1999, total assets increased by $1.0
million or 3.4%, from $31.6 million to $32.6 million. This growth was generated
principally by an increase in customer deposit accounts of $2.2 million or
11.4%, from $19.4 million to $21.6 million. During the period, loans receivable
increased from $18.1 million to $19.1 million, an increase of $943,000 or 5.2%,
while total interest-earning liquid assets decreased by $692,000. In addition,
the Bank also acquired during the period, 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 September 30,
1999 and 1998
Net income for the three months ended September 30, 1999 was $25,000 or $.03 per
share as compared with net income of $94,000 or $.11 per share for the quarter
ended September 30, 1998, a decrease of $69,000 or $.08 per share. Net interest
income for the current quarter was $274,000, a decrease of $37,000 from the
corresponding amount for the quarter ended September 30, 1998. This decrease
relates principally to a reduction in interest earning assets that resulted from
the Company's stock repurchase activities after September 30, 1998 and to the
acquisition of real property for a future branch addition. Non-interest expenses
increased from $165,000 for the quarter ended September 30, 1998 to $241,000 for
the quarter ended September 30, 1999. Personnel costs have risen as a result of
the Company's ESOP, the addition of an additional loan officer for the Company's
new loan origination office and the deferred directors' compensation plan.
Occupancy costs have increased primarily because of the new loan origination
office, and other expenses have increased principally as a result of the higher
costs of operating as a publicly owned entity and the costs of operating the new
loan origination office.
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Comparison of Results of Operations for the Nine Months Ended September 30, 1999
and 1998
Net income for the nine months ended September 30, 1999 was $136,000 or $.18 per
share as compared with net income of $226,000 for the nine months ended
September 30, 1998, a decrease of $90,000. Net interest income for the current
period was $826,000, an increase of $16,000 from the corresponding amount for
the nine months ended September 30, 1998. This increase relates 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
$461,000 for the nine months ended September 30, 1998 to $634,000 for the nine
months ended September 30, 1999. Personnel costs have risen as a result of the
Company's ESOP, the addition of an additional loan officer for the Company's new
loan origination office and the deferred directors' compensation plan. Occupancy
costs have increased primarily because of the new loan origination office, and
other expenses have increased principally as a result of the higher costs of
operating as a publicly owned entity and the costs of operating the new loan
origination office.
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 September 30, 1999, liquid assets comprise 37% 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 September 30, 1999, both the Company and the Bank substantially exceed all
applicable regulatory capital requirements.
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
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been identified as critical to conducting its banking business. Testing of
systems with lower priorities has been completed in 1999. The Company has also
developed contingency plans for its computer processes, including the use of
alternative systems and the manual processing of certain critical operations. In
addition, the Company has undertaken 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
September 30, 1999. On October 6, 1999, a report on Form 8-K was
filed to report the grantor of MRP shares and the special
dividend described in Notes C and D, respectively, to the
consolidated financial statements included herein.
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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: November 9, 1999 By: /s/ Stephen R. Talbert
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Stephen R. Talbert
Chief Executive Officer
Date: November 9, 1999 By: /s/ Lisa B. Ashley
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Lisa B. Ashley
Chief Financial Officer
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