FORM 10-QSB - QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-25999
WAKE FOREST BANCSHARES, INC.
----------------------------
(Exact name of small business issuer as specified in its charter)
United States of America 56-2131079
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
302 South Brooks Street
Wake Forest, North Carolina 27587
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(Address of principal executive offices)
(919)-556-5146
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 1, 2001 there were
issued and outstanding 1,155,526 shares of the Issuer's common stock, $.01 par
value
Transitional Small Business Disclosure Format: Yes_____ No X
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WAKE FOREST BANCSHARES, INC.
CONTENTS
Item 1. Financial Statements
Consolidated statements of financial condition at June 30, 2001 (unaudited)
and September 30, 2000 1
Consolidated statements of income for the three months ended June 30, 2001
and June 30, 2000 (unaudited) 2
Consolidated statements of income for the nine months ended June 30, 2001
and June 30, 2000 (unaudited) 3
Consolidated statements of comprehensive income for the three and nine months ended
June 30, 2001 and June 30, 2000 (unaudited) 4 Consolidated statements of
cash flows for the nine months ended
June 30, 2001 and June 30, 2000 (unaudited) 5
Notes to consolidated financial statements (unaudited) 6 - 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 -12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 2001 AND SEPTEMBER 30, 2000
JUNE 30, SEPTEMBER 30,
ASSETS 2001 2000
-------------------- -------------------
(Unaudited)
Cash and short-term cash investments $ 15,490,400 $ 6,735,850
Investment securities:
Available for sale, at estimated market value 3,091,400 3,065,550
FHLB stock 330,400 290,700
Loans receivable, net 74,306,850 72,564,150
Accrued interest receivable 110,300 126,800
Foreclosed assets, net 490,550 -
Property and equipment, net 408,200 432,900
Prepaid expenses and other assets 60,650 52,400
-------------------- -------------------
Total Assets $ 94,288,750 $ 83,268,350
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 78,115,600 $ 67,874,400
Accrued expenses and other liabilities 599,500 434,500
Dividends payable 138,650 140,550
Note payable- ESOP 103,000 147,150
Deferred income taxes 222,700 152,950
Redeemable common stock held by the ESOP
net of unearned ESOP shares 566,500 347,250
-------------------- -------------------
Total liabilities 79,745,950 69,096,800
-------------------- -------------------
Stockholders' equity:
Preferred stock, authorized 1,000,000 shares, none issued
Common stock, par value $ .01, authorized 5,000,000 shares,
issued 1,215,862 12,150 12,150
Additional paid-in capital 4,972,950 4,916,450
Accumulated other comprehensive income 667,250 496,250
Retained earnings, substantially restricted 9,693,650 9,352,150
Less: Common stock in treasury, at cost (803,200) (605,450)
-------------------- -------------------
Total stockholders' equity 14,542,800 14,171,550
-------------------- -------------------
Total liabilities and stockholders' equity $ 94,288,750 $ 83,268,350
==================== ===================
See Notes to Consolidated Financial Statements.
1
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
2001 2000
----------------- -----------------
Interest and dividend income:
Loans $ 1,757,600 $ 1,655,650
Investment securities 38,200 38,950
Short-term cash investments 163,200 84,100
----------------- -----------------
Total interest income 1,959,000 1,778,700
----------------- -----------------
Interest expense:
Interest on deposits 1,124,050 867,500
Interest on ESOP debt 2,150 4,200
----------------- -----------------
Total interest expense 1,126,200 871,700
----------------- -----------------
Net interest income before provision for loan losses 832,800 907,000
Provision for loan losses (10,500) (9,500)
----------------- -----------------
Net interest income after provision for loan losses 822,300 897,500
----------------- -----------------
Noninterest income:
Service charges and fees 18,600 11,700
Other 450 100
----------------- -----------------
19,050 11,800
----------------- -----------------
Noninterest expense:
Compensation and benefits 241,350 237,000
Occupancy 10,250 11,050
Federal insurance and operating assessments 10,300 9,200
Data processing and outside service fees 27,000 24,750
Other operating expense 67,150 78,850
----------------- -----------------
356,050 360,850
----------------- -----------------
Income before income taxes 485,300 548,450
Income taxes 180,650 207,700
----------------- -----------------
Net income $ 304,650 $ 340,750
================= =================
Basic earnings per share $ 0.27 $ 0.30
Diluted earnings per share $ 0.27 $ 0.30
Dividends paid per share $ 0.12 $ 0.12
See Notes to Consolidated Financial Statements.
2
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2001 AND 2000
2001 2000
----------------- -----------------
Interest and dividend income:
Loans $ 5,184,250 $ 4,636,300
Investment securities 116,250 127,150
Short-term cash investments 528,200 198,800
----------------- -----------------
Total interest income 5,828,700 4,962,250
----------------- -----------------
Interest expense:
Interest on deposits 3,256,700 2,346,100
Interest on ESOP debt 8,500 12,700
----------------- -----------------
Total interest expense 3,265,200 2,358,800
----------------- -----------------
Net interest income before provision for loan losses 2,563,500 2,603,450
Provision for loan losses (28,500) (25,000)
----------------- -----------------
Net interest income after provision for loan losses 2,535,000 2,578,450
----------------- -----------------
Noninterest income:
Service charges and fees 46,800 33,400
Other 8,850 2,900
----------------- -----------------
55,650 36,300
----------------- -----------------
Noninterest expense:
Compensation and benefits 756,750 646,150
Occupancy 31,100 35,250
Federal insurance and operating assessments 30,000 33,000
Data processing and outside service fees 87,300 78,700
Other operating expense 208,700 242,450
----------------- -----------------
1,113,850 1,035,550
----------------- -----------------
Income before income taxes 1,476,800 1,579,200
Income taxes 546,100 589,050
----------------- -----------------
Net income $ 930,700 $ 990,150
================= =================
Basic earnings per share $ 0.81 $ 0.86
Diluted earnings per share $ 0.81 $ 0.86
Dividends paid per share $ 0.36 $ 0.36
See Notes to Consolidated Financial Statements.
3
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THREE MONTHS ENDED JUNE 30: 2001 2000
----------------- -----------------
Net income $ 304,650 $ 340,750
----------------- -----------------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains (losses) arising during period 48,150 (31,150)
Less: reclassification adjustments for gains included
in net income - -
----------------- -----------------
Other comprehensive income 48,150 (31,150)
----------------- -----------------
Comprehensive income $ 352,800 $ 309,600
================= =================
FOR NINE MONTHS ENDED JUNE 30: 2001 2000
----------------- -----------------
Net income $ 930,700 $ 990,150
----------------- -----------------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains (losses) arising during period 171,000 (116,400)
Less: reclassification adjustments for gains included
in net income - -
----------------- -----------------
Other comprehensive income 171,000 (116,400)
----------------- -----------------
Comprehensive income $ 1,101,700 $ 873,750
================= =================
See Notes to Consolidated Financial Statements.
4
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2001 AND 2000
2001 2000
------------------- ------------------
Net income $ 930,700 $ 990,150
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 25,400 25,800
ESOP contribution expense charged to paid-in capital 14,000 13,100
Provision for loan losses 28,500 25,000
Deferred income taxes (35,050) (18,700)
Amortization of unearned ESOP shares 44,150 44,150
Amortization of unearned RRP shares 42,550 42,550
Changes in assets and liabilities:
Prepaid expenses and other assets (8,250) 1,000
Accrued interest receivable 16,500 (31,750)
Accrued expenses and other liabilities 165,000 191,000
------------------- ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,223,500 1,282,300
------------------- ------------------
Cash Flows From Investing Activities:
Net (increase) decrease in loans receivable (2,533,850) (7,817,550)
Proceeds from sale of foreclosed assets 272,100 -
Purchase of available for sale investment securities (39,700) (10,300)
Maturity of available for sale investment securities 250,000 500,000
Purchase of property and equipment (700) (14,500)
------------------- ------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,052,150) (7,342,350)
------------------- ------------------
Cash Flows From Financing Activities:
Net increase (decrease) in deposits 10,241,200 8,370,500
Principal payments on ESOP debt (44,150) (44,150)
Repurchase of common stock for the Treasury (197,750) (216,350)
Dividends paid (416,100) (421,200)
------------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,583,200 7,688,800
------------------- ------------------
Net increase in cash and cash equivalents 8,754,550 1,628,750
Cash and cash equivalents:
Beginning 6,735,850 6,501,050
------------------- ------------------
Ending $ 15,490,400 $ 8,129,800
=================== ==================
Supplemental Disclosure of Cash Flow Information:
Cash payments of interest $ 3,277,000 $ 2,362,850
=================== ==================
Cash payment of income taxes $ 587,000 $ 605,100
=================== ==================
Supplemental Disclosure of Noncash transactions:
Incr. (decr.) in ESOP put option charged to retained earnings $ 175,100 $ 92,700
=================== ==================
Transfer of loans to foreclosed assets $ 762,650 $ -
=================== ==================
Incr. (decr.) in unrealized gain on investment securities $ 171,000 $ (116,400)
=================== ==================
See Notes to Consolidated Financial Statements.
5
WAKE FOREST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS
Wake Forest Bancshares, Inc. (the "Company") is located in Wake Forest, North
Carolina and is the parent stock holding company of Wake Forest Federal Savings
and Loan Association (the "Association" or "Wake Forest Federal"), it's only
subsidiary. The Company conducts no business other than holding all of the stock
in the Association, investing dividends received from the Association,
repurchasing its common stock from time to time, and distributing dividends on
its common stock to its shareholders. The Association's principal activities
consist of obtaining deposits and providing mortgage credit to customers in its
primary market area, the counties of Wake and Franklin, North Carolina. The
Company's and the Association's primary regulator is the Office of Thrift
Supervision (OTS) and its deposits are insured by the Savings Association
Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC).
NOTE 2. ORGANIZATIONAL STRUCTURE
The Company is majority owned by the Wake Forest Bancorp, M.H.C., (the "MHC") a
mutual holding company. Members of the MHC consist of depositors and certain
borrowers of the Association, who have the sole authority to elect the board of
directors of the MHC for as long as it remains in mutual form. Initially, the
MHC's principal assets consisted of 635,000 shares of the Association's common
stock (now converted to the Company's common stock) and $100,000 in cash
received from the Association as initial capital. The MHC has since received its
proportional share of dividends declared and paid by the Association (now the
Company), and such funds are invested in deposits with the Association. The MHC,
which by law must own in excess of 50% of the stock of the Company, currently
has an ownership interest of 55.0% of the Company. The mutual holding company is
registered as a savings and loan holding company and is subject to regulation,
examination, and supervision by the OTS.
The Company was formed on May 7, 1999 solely for the purpose of becoming a
savings and loan holding company and had no prior operating history. The
formation of the Company had no impact on the operations of the Association or
the MHC. The Association continues to operate at the same location, with the
same management, and subject to all the rights, obligations and liabilities of
the Association which existed immediately prior to the formation of the Company.
The Board of Directors of the Association capitalized the Company with $100,000.
Future capitalization of the Company will depend upon dividends declared by the
Association based on future earnings, or the raising of additional capital by
the Company through a future issuance of securities, debt or by other means. The
Board of Directors of the Company has no present plans or intentions with
respect to any future issuance of securities or debt at this time.
The establishment of the Company was treated similar to a pooling of interests
for accounting purposes. Therefore, the consolidated capitalization, assets,
liabilities, income and expenses of the Company immediately following its
formation were substantially the same as those of the Association immediately
prior to the formation, all of which are shown on the Company's books at their
historical recorded values.
6
WAKE FOREST BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements (except for the
consolidated statement of financial condition at September 30, 2000, which is
audited) have been prepared in accordance with generally accepted accounting
principles for interim financial information and Regulation S-B. Accordingly,
they do not include all of the information required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (none of which were other than normal recurring
accruals) necessary for a fair presentation of the financial position and
results of operations for the periods presented have been included. The results
of operations for the three and nine month periods ended June 30, 2001 are not
necessarily indicative of the results of operations that may be expected for the
Company's fiscal year ending September 30, 2001. The accounting policies
followed are as set forth in Note 1 of the Notes to Consolidated Financial
Statements in the Company's September 30, 2000 Annual Report to Stockholders.
NOTE 4. DIVIDENDS DECLARED
On June 18, 2001, the Board of Directors of the Company declared a dividend of
$0.12 a share for stockholders of record as of June 29, 2001 and payable on July
10, 2001. The dividends declared were accrued and reported as dividends payable
in the June 30, 2001 Consolidated Statement of Financial Condition. Wake Forest
Bancorp, Inc., the mutual holding company, did not waive the receipt of
dividends declared by the Company.
NOTE 5. EARNINGS PER SHARE
Basic earnings per share amounts are based on the weighted average shares of
common stock outstanding. Diluted earnings per share assumes the conversion,
exercise or issuance of all potential common stock instruments such as options,
warrants and convertible securities, unless the effect is to reduce a loss or
increase earnings per share. This presentation has been adopted for all periods
presented. There were no adjustments required to net income for any period in
the computation of diluted earnings per share. The reconciliation of weighted
average shares outstanding for the computation of basic and diluted earnings per
share for the three and nine month periods ended June 30, 2001 and 2000 is
presented below.
FOR THE THREE MONTHS ENDED JUNE 30: 2001 2000
----------------- -----------------
Weighted average shares outstanding for Basic EPS 1,140,692 1,149,946
Plus incremental shares from assumed issuances of shares
pursuant to stock option and stock award plans 3,456 -
----------------- -----------------
Weighted average shares outstanding for diluted EPS 1,144,148 1,149,946
================= =================
FOR THE NINE MONTHS ENDED JUNE 30: 2001 2000
----------------- -----------------
Weighted average shares outstanding for Basic EPS 1,145,148 1,154,275
Plus incremental shares from assumed issuances of shares
pursuant to stock option and stock award plans 656 524
----------------- -----------------
Weighted average shares outstanding for diluted EPS 1,145,804 1,154,799
================= =================
7
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2000 AND JUNE 30, 2001:
Total assets increased by $11.0 million to $94.3 million at June 30, 2001 from
$83.3 million at September 30, 2000. Total assets increased during the nine
months ended June 30, 2001 primarily due to an increase in deposits of
approximately $10.2 million during the period. The rise in deposits created an
increase in cash and short term cash investments of approximately $8.8 million
for the nine month period.
Net loans receivable increased by $1.7 million to $74.3 million at June 30, 2001
from $72.6 million at September 30, 2000. The increase was attributable to
continued growth in the Association's permanent commercial mortgage portfolio.
Assuming interest rates remain fairly stable or decline, management believes
that its loan portfolio has potential for future growth because the Company
operates in lending markets that have had sustained strong loan demand over the
past several years. However, there can be no assurances that such loan demand
can or will continue.
Investment securities increased by $66,000 to $3.4 million at June 30, 2001 from
$3.3 million at September 30, 2000. The increase is attributable to an
unrealized gain in the fair value of Company's portfolio of investment
securities and an additional $39,700 purchase of FHLB of Atlanta stock. During
June, 2001, $250,000 in bonds were called. At June 30, 2001, the Company's
investment portfolio had approximately $1.1 million in net unrealized gains.
The Company had no borrowings outstanding during the period other than the loan
incurred by the ESOP for purchase of 41,200 shares of the Company's common
stock. The ESOP borrowed $412,000 for its purchase of stock from an outside
financial institution on April 3, 1996. During the current nine month period,
the Company made principal payments totaling $44,150 plus interest on the ESOP
note, reducing the outstanding balance of the note to $103,000 at June 30, 2001.
The Company is committed to making retirement plan contributions sufficient to
amortize the debt over its seven year term, and as such, has reported the debt
on its balance sheet. The Company recorded retirement plan expense of
approximately $58,800 during the nine month period ended June 30, 2001. The
Company also has recorded a liability of 566,500 at June 30, 2001 for the ESOP
put option.
On June 21, 1999, the Board of Directors of the Company approved the adoption of
a stock repurchase program authorizing the Company to repurchase up to 60,793
shares or 5.00% of its outstanding common stock. In May 2001, the Board approved
the repurchase of an additional $250,000 of its common stock. The repurchases
are made through registered broker-dealers from shareholders in open market
purchases at the discretion of management. The Company intends to hold the
shares repurchased as treasury shares, and may utilize such shares to fund stock
benefit plans or for any other general corporate purposes permitted by
applicable law. At June 30, 2001 the Company had repurchased 60,336 shares of
its common stock. The program continues until completed or terminated by the
Board of Directors.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2000 AND JUNE 30, 2001
(CONTINUED):
Retained earnings increased by $341,500 to $9.7 million at June 30, 2001 from
$9.4 million at September 30, 2000. The increase is attributable to the
Company's earnings during the nine month period ended June 30, 2001, reduced by
$414,100 in dividends declared during the period and a $175,100 charge to
retained earnings to reflect the change in the fair value of the ESOP shares
subject to the put option. At June 30, 2001, the Company's capital amounted to
$14.5 million, which as a percentage of total assets was 15.42%, and was
considerably in excess of the regulatory capital requirements at such date.
ASSET QUALITY:
The Company's level of non-performing loans, defined as loans past due 90 days
or more, as a percentage of loans outstanding, was 0.63% at June 30, 2001 and
0.00% at September 30, 2000. The Company's non-performing loans at June 30, 2001
amounted to $468,931 and consisted of one single family residential mortgage
loan. No loss is expected because the borrower has contracted to sell the home
and the closing is scheduled for early August, 2001. The Company also has
reported foreclosed assets of $490,550 at June 30, 2001, which consisted of four
recently completed single family residential construction loans from the same
builder. The Company currently believes that any loss associated with these
foreclosures will be minimal. There were no loans charged off during the current
quarter or nine month period ended June 30, 2001. Based on management's analysis
of the adequacy of its allowances, a $28,500 provision for additional loan loss
allowances was made during the nine month period ended June 30, 2001. The
Company's loan loss allowance was $308,500 at June 30, 2001.
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED JUNE 30,
2001 AND 2000:
GENERAL. Net income for the three month period ended June 30, 2001 was $304,650,
or $36,100 less than the $340,750 earned during the same quarter in 2000. Net
income for the nine month period ended June 30, 2001 was $930,700, or $59,450
less than the $990,150 earned during the same period in 2000. As discussed
below, decreases in net interest income between the comparable periods was
primarily responsible for the change in net income during the current quarter.
Increases in certain non-interest expenses coupled with a decrease in net
interest income were primary responsible for the change in net income during the
current nine month period as compared to the same period a year earlier.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED JUNE 30,
2001 AND 2000 (CONTINUED):
INTEREST INCOME. Interest income increased by $180,300 from $1,778,700 for the
three months ended June 30, 2000 to $1,959,000 for the three months ended June
30, 2001. The change in interest income resulted from a $13.3 million increase
in the average balance of outstanding interest-earning assets between the
quarters. Interest income increased by $866,450 from $4,962,250 for the nine
months ended June 30, 2000 to $5,828,700 for the nine months ended June 30,
2001. The change in interest income resulted from a $14.3 million increase in
the average balance of outstanding interest earning assets. The Company's yield
on interest earning assets was 8.65% and 8.50% for the quarter and nine month
period ended June 30, 2000; respectively, and 8.08% and 8.42% for the quarter
and nine month period ended June 30, 2001; respectively. The changes in yield
occurred primarily due to fluctuations in market rates outstanding during the
periods. The increase in customer deposits during the current quarter and nine
month period was the primary cause for the rise in interest earning assets
between the periods.
INTEREST EXPENSE. Interest expense increased by $254,500 from $871,700 for the
three months ended June 30, 2000 to $1,126,200 for the three months ended June
30, 2001. Interest expense increased by $906,400 from $2,358,800 for the nine
months ended June 30, 2000 to $3,265,200 for the nine months ended June 30,
2001. The increases were primarily the result of both an increase in volume of
interest bearing deposits outstanding and a rise in the Company's cost of funds
between the periods. The Company's outstanding interest bearing deposits
increased by approximately $12.6 million during the three months ended June 30,
2001 as compared with the three months ended June 30, 2000 and by approximately
$13.7 million during the nine months ended June 30, 2001 as compared with the
same period a year earlier. The growth in the volume of interest bearing
deposits occurred due to an aggressive marketing campaign to increase customer
deposits. As a result of the campaign and overall higher market rates, the
Company's cost of funds increased from 5.52% and 5.22% for the quarter and nine
month period ended June 30, 2000; respectively, to 5.81% and 5.90% for the
quarter and nine month period ended June 30, 2001, respectively.
NET INTEREST INCOME. Net interest income decreased by $74,200 from $907,000 for
the three months ended June 30, 2000 to $832,800 for the three months ended June
30, 2001. Net interest income decreased by $39,950 from $2,603,450 for the nine
months ended June 30, 2000 to $2,563,500 for the nine months ended June 30,
2001. As explained above, the changes in net interest income resulted primarily
from an increase in the volume of interest earning assets, coupled with a
significant rise in the Company's cost of funds. The Company's interest rate
spread was 2.27% and 2.52% for the current quarter and nine month period ended
June 30, 2001; respectively, as compared to 3.13% and 3.28% for the quarter and
nine month period ended June 30, 2000; respectively.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PROVISION FOR LOAN LOSSES. The Company provided $10,500 and $28,500 in loan loss
provisions during the current quarter and nine month period ended June 30, 2001;
respectively, as compared to $9,500 and $25,000 during the three and nine month
period; respectively, a year earlier. Provisions, which are charged to
operations, and the resulting loan loss allowances are amounts the Company's
management believes will be adequate to absorb losses that are estimated to have
occurred. Loans are charged off against the allowance when management believes
that uncollectibility is confirmed. Subsequent recoveries, if any, are credited
to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of the underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revisions as more information becomes available.
NON-INTEREST EXPENSE. Non-interest expense decreased by $4,800 to $356,050 for
the three month period ended June 30, 2001 from $360,850 for the comparable
quarter in 2000. Non-interest expense increased by $78,300 to $1,113,850 for the
nine month period ended June 30, 2001 from $1,035,550 for the same period a year
earlier. There was no significant change in any category of non-interest expense
during the current quarter when compared to the same quarter a year earlier. The
only significant dollar increase in any category of non-interest expense during
the nine months ended June 30, 2001 when compared to the same period a year
earlier occurred in area of compensation and related benefits, which increased
from $646,150 during the nine month period ended June 30, 2000 to $756,750 in
the nine months ended June 30, 2001. The increase in compensation and benefits
occurred primarily due to the addition of a full time senior lending officer at
the start of the current year, and because of an approximately 73% increase in
the cost of health insurance coverage between the periods for the Company's
employees.
CAPITAL RESOURCES AND LIQUIDITY:
The term "liquidity" generally refers to an organization's ability to generate
adequate amounts of funds to meet its needs for cash. More specifically for
financial institutions, liquidity ensures that adequate funds are available to
meet deposit withdrawals, fund loan and capital expenditure commitments,
maintain reserve requirements, pay operating expenses, and provide funds for
debt service, dividends to stockholders, and other institutional commitments.
Funds are primarily provided through financial resources from operating
activities, expansion of the deposit base, borrowings, through the sale or
maturity of investments, the ability to raise equity capital, or maintenance of
shorter term interest-earning deposits.
During the nine month period ended June 30, 2001, cash and cash equivalents, a
significant source of liquidity, increased by approximately $8.8 million.
Proceeds from the Company's operations contributed $1,223,500 in cash during the
period. An increase in deposits of approximately $10.2 million, offset by
dividends paid of $416,100 and treasury stock purchases of $197,750 provided the
source of approximately $9.6 million of cash from financing activities. Net loan
originations of approximately $2.5 million, reduced by matured investments and
proceeds from the sale of foreclosed assets also utilized cash.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED):
Given its excess liquidity and its ability to borrow from the Federal Home Loan
Bank of Atlanta, the Company believes that it will have sufficient funds
available to meet anticipated future loan commitments, unexpected deposit
withdrawals, and other cash requirements.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS:
Statements herein regarding estimated future expense levels and other
operational matters may constitute forward-looking statements under the federal
securities laws. Such statements are subject to certain risks and uncertainties.
Undue reliance should not be placed on this information. These estimates are
based on the current expectations of management, which may change in the future
due to a large number of potential events, including unanticipated future
developments.
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WAKE FOREST BANCSHARES, INC.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not engaged in any material legal proceedings
at the present time. Occasionally, the Association is a party
to legal proceedings within the normal course of business
wherein it enforces its security interest in loans made by it,
and other matters of a similar nature.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed for the period covered by
this report
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WAKE FOREST BANCSHARES, INC.
Dated August 10, 2001 By: s/s Anna O. Sumerlin
-------------------------------- -----------------------------------
Anna O. Sumerlin
President and CEO
Dated August 10, 2001 By: s/s Robert C. White
-------------------------------- ------------------------------------
Robert C. White
Chief Financial Officer & VP
14