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 March 31, 2002
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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
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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
---------------------------------
(Address of principal executive offices)
(919)-556-5146
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(Issuer's telephone number)
N/A
---
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 May 1, 2002 there were issued
and outstanding 1,155,776 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
PART 1. - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated statements of financial condition at March 31, 2002 (unaudited)
and September 30, 2001 1
Consolidated statements of income for the three months ended March 31, 2002
and March 31, 2001 (unaudited) 2
Consolidated statements of income for the six months ended March 31, 2002
and March 31, 2001 (unaudited) 3
Consolidated statements of comprehensive income for the three and six months ended
March 31, 2002 and March 31, 2001 (unaudited) 4
Consolidated statements of cash flows for the six months ended
March 31, 2002 and March 31, 2001 (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
March 31, 2002 and September 30, 2001
March 31, September 30,
ASSETS 2002 2001
---------------- -----------------
(Unaudited)
Cash and short-term cash investments $ 17,387,800 $ 15,885,100
Investment securities:
Available for sale, at estimated market value 786,050 1,510,100
FHLB stock 310,700 330,400
Loans receivable, net 76,902,900 74,632,400
Accrued interest receivable 69,850 86,100
Foreclosed assets, net 465,150 391,250
Property and equipment, net 411,300 423,650
Prepaid expenses and other assets 73,850 77,500
---------------- -----------------
Total Assets $ 96,407,600 $ 93,336,500
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits 80,273,900 77,220,600
Accrued expenses and other liabilities 535,650 551,400
Dividends payable 138,700 138,600
Note payable- ESOP 58,850 88,300
Deferred income taxes 54,000 176,550
Redeemable common stock held by the ESOP
net of unearned ESOP shares 559,150 612,100
---------------- -----------------
Total liabilities 81,620,250 78,787,550
---------------- -----------------
Stockholders' equity:
Preferred stock, authorized 1,000,000 shares, none issued -- --
Common stock, par value $ .01, authorized 5,000,000 shares,
issued 1,216,612 and 1,215,862 at March 31, 2002 and
September 30, 2001 12,150 12,150
Additional paid-in capital 5,045,950 4,996,900
Accumulated other comprehensive income 479,800 616,850
Retained earnings, substantially restricted 10,060,150 9,733,750
Less: Common stock in treasury, at cost (810,700) (810,700)
---------------- -----------------
Total stockholders' equity 14,787,350 14,548,950
---------------- -----------------
Total liabilities and stockholders' equity $ 96,407,600 $ 93,336,500
================ =================
See Notes to Consolidated Financial Statements.
1
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 2002 and 2001
2002 2001
----------------- ----------------
Interest and dividend income:
Loans $ 1,567,650 $ 1,703,800
Investment securities 8,100 38,850
Short-term cash investments 76,200 197,200
----------------- ----------------
Total interest income 1,651,950 1,939,850
----------------- ----------------
Interest expense:
Interest on deposits 886,400 1,092,400
Interest on ESOP debt 850 2,850
----------------- ----------------
Total interest expense 887,250 1,095,250
----------------- ----------------
Net interest income before provision for loan losses 764,700 844,600
Provision for loan losses (66,000) (10,000)
----------------- ----------------
Net interest income after provision for loan losses 698,700 834,600
----------------- ----------------
Noninterest income:
Service charges and fees 14,450 15,200
Gain on sale of investments 195,600 --
Other 4,800 8,200
----------------- ----------------
214,850 23,400
----------------- ----------------
Noninterest expense:
Compensation and benefits 206,500 265,500
Occupancy 11,000 10,550
Federal insurance and operating assessments 11,050 10,150
Data processing and outside service fees 25,400 31,550
Foreclosed assets, net 144,400 --
Other operating expense 84,250 78,500
----------------- ----------------
482,600 396,250
----------------- ----------------
Income before income taxes 430,950 461,750
Income taxes 165,150 168,950
----------------- ----------------
Net income $ 265,800 $ 292,800
================= ================
Basic earnings per share $ 0.23 $ 0.25
Diluted earnings per share $ 0.23 $ 0.25
Dividends paid per share $ 0.12 $ 0.12
See Notes to Consolidated Financial Statements.
2
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended March 31, 2002 and 2001
2002 2001
----------------- ----------------
Interest and dividend income:
Loans $ 3,213,500 $ 3,426,650
Investment securities 20,400 78,100
Short-term cash investments 161,000 364,950
---------------- ----------------
Total interest income 3,394,900 3,869,700
---------------- ----------------
Interest expense:
Interest on deposits 1,901,200 2,132,600
Interest on ESOP debt 2,000 6,350
---------------- ----------------
Total interest expense 1,903,200 2,138,950
---------------- ----------------
Net interest income before provision for loan losses 1,491,700 1,730,750
Provision for loan losses (81,750) (18,000)
---------------- ----------------
Net interest income after provision for loan losses 1,409,950 1,712,750
---------------- ----------------
Noninterest income:
Service charges and fees 31,400 28,200
Gain on sale of investments 195,600 --
Other 9,550 8,350
---------------- ----------------
236,550 36,550
---------------- ----------------
Noninterest expense:
Compensation and benefits 412,750 515,400
Occupancy 21,100 20,800
Federal insurance and operating assessments 22,000 19,750
Data processing and outside service fees 56,000 60,250
Foreclosed assets, net 146,000 --
Other operating expense 143,600 141,600
---------------- ----------------
801,450 757,800
---------------- ----------------
Income before income taxes
845,050 991,500
Income taxes 325,350 365,400
---------------- ----------------
Net income $ 519,700 $ 626,100
================ ================
Basic earnings per share $ 0.45 $ 0.54
Diluted earnings per share $ 0.45 $ 0.54
Dividends paid per share $ 0.24 $ 0.24
See Notes to Consolidated Financial Statements.
3
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THREE MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2001
------------------ -------------------
Net income $ 265,800 $ 292,800
------------------ -------------------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains (losses) arising during period (31,450) (28,200)
Less: reclassification adjustments for gains included
in net income (195,600) --
------------------ -------------------
Other comprehensive income (227,050) (28,200)
------------------ -------------------
Comprehensive income $ 38,750 $ 264,600
================== ===================
FOR SIX MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2001
------------------ -------------------
Net income $ 519,700 $ 626,100
------------------ -------------------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains (losses) arising during period (25,250) 122,850
Less: reclassification adjustments for gains included
in net income (195,600) --
------------------ -------------------
Other comprehensive income (220,850) 122,850
------------------ -------------------
Comprehensive income $ 298,850 $ 748,950
================== ===================
See Notes to Consolidated Finanical Statements.
4
WAKE FOREST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2001
----------------- -----------------
Net income $ 519,700 $ 626,100
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 16,100 16,850
ESOP contribution expense charged to paid-in capital 20,650 6,950
Provision for loan losses 81,750 18,000
Provision for foreclosed assets 140,000 --
Gain on sale of investments (195,600) --
Gain on sale of foreclosed assets, net (8,900) --
Amortization of unearned ESOP shares 29,400 29,400
Amortization of unearned RRP shares 18,900 28,400
Changes in assets and liabilities:
Prepaid expenses and other assets 3,650 (151,900)
Accrued interest receivable 16,250 24,150
Accrued expenses and other liabilities (15,750) 75,400
Deferred income taxes (38,600) (22,500)
----------------- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 587,550 650,850
----------------- -----------------
Cash Flows From Investing Activities:
Net (increase) decrease in loans receivable (3,020,650) 529,200
Proceeds from sale of foreclosed assets 474,600 157,450
Capital additions to foreclosed assets (11,200) --
Sale of available for sale investment securities 198,650 --
Maturity of available for sale investment securities 500,000 --
Redemption (purchase) of FHLB stock 19,700 (39,700)
Purchase of property and equipment (3,750) (700)
----------------- -----------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,842,650) 646,250
----------------- -----------------
Cash Flows From Financing Activities:
Net increase (decrease) in deposits 3,053,300 9,577,000
Principal payments on ESOP debt (29,450) (29,450)
Repurchase of common stock for the Treasury -- (129,200)
Proceeds from stock options exercised 9,550 --
Dividends paid (275,600) (277,950)
----------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,757,800 9,140,400
----------------- -----------------
Net increase in cash and cash equivalents 1,502,700 10,437,500
Cash and cash equivalents:
Beginning 15,885,100 6,735,850
----------------- -----------------
Ending $ 17,387,800 $ 17,173,350
================= =================
Supplemental Disclosure of Cash Flow Information:
Cash payments of interest $ 1,922,150 $ 2,144,200
================= =================
Cash payment of income taxes $ 341,000 $ 422,000
================= =================
Supplemental Disclosure of Noncash transactions:
Incr. (decr.) in ESOP put option charged to retained earnings $ (52,950) $ 51,550
================= =================
Transfer of loans to foreclosed assets $ 668,400 $ 449,200
================= =================
Incr. (decr.) in unrealized gain on investment securities $ (137,050) $ 122,850
================= =================
See Notes to Consolidated Finanical 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 savings 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, 2001, 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 six month periods ended March 31, 2002 are not
necessarily indicative of the results of operations that may be expected for the
Company's fiscal year ending September 30, 2002. The accounting policies
followed are as set forth in Note 1 of the Notes to Consolidated Financial
Statements in the Company's September 30, 2001 Annual Report to Stockholders.
NOTE 4. DIVIDENDS DECLARED
On March 18, 2002, the Board of Directors of the Company declared a dividend of
$0.12 a share for stockholders of record as of March 29, 2002 and payable on
April 10, 2002. The dividends declared were accrued and reported as dividends
payable in the March 31, 2002 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 six month periods ended March 31, 2002 and 2001 are
presented below.
FOR THE THREE MONTHS ENDED MARCH 31: 2002 2001
----------------- ----------------
Weighted average shares outstanding for Basic EPS 1,148,013 1,144,359
Plus incremental shares from assumed issuances of shares pursuant
to stock option and stock award plans 7,650 --
----------------- ----------------
Weighted average shares outstanding for diluted EPS 1,155,663 1,444,359
================= ================
FOR THE SIX MONTHS ENDED MARCH 31: 2002 2001
----------------- ----------------
Weighted average shares outstanding for Basic EPS 1,146,361 1,147,377
Plus incremental shares from assumed issuances of shares pursuant
to stock option and stock award plans 8,035 --
----------------- ----------------
Weighted average shares outstanding for diluted EPS 1,154,396 1,147,377
================= ================
7
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2001 AND MARCH 31, 2002:
Total assets increased by $3.1 million to $96.4 million at March 31, 2002 from
$93.3 million at September 30, 2001. Total assets increased during the six
months ended March 31, 2002 primarily due to an increase in deposits of
approximately $3.1 million during the period. The deposit increase created an
increase in cash and short term cash investments of approximately $1.5 million
for the six month period.
Net loans receivable increased by $2.3 million to $76.9 million at March 31,
2002 from $74.6 million at September 30, 2001. Assuming interest rates remain
fairly stable and economic conditions improve, 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
materialize.
Investment securities decreased by $743,750 to $1.1 million at March 31, 2002
from $1.8 million at September 30, 2001. The decrease is attributable to
maturing investments, an approximately $200,000 sale of FHLMC stock, and
management's decision not to invest in a market that is at historically low
interest rates. At March 31, 2002, the Company's investment portfolio, which
consisted of FHLB stock and FHLMC stock, had approximately $774,000 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 six month period, the
Company made principal payments totaling $29,450 plus interest on the ESOP note,
reducing the outstanding balance of the note to $58,850 at March 31, 2002. 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 $51,700 during the six month period ended March 31, 2002. The
Company also has recorded a liability of 559,150 at March 31, 2002 for the ESOP
put option.
The Company has an ongoing stock repurchase program authorizing management to
repurchase shares of its outstanding 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 March
31, 2002 the Company had repurchased 60,836 shares of its common stock. The
program continues until completed or terminated by the Board of Directors.
8
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2001 AND MARCH 31, 2002:
Retained earnings increased by $326,400 to $10.1 million at March 31, 2002 from
$9.7 million at September 30, 2001. The increase is attributable to the
Company's earnings during the six month period ended March 31, 2002, a $82,400
credit to retained earnings to reflect the change in the fair value of the ESOP
shares subject to the put option., reduced by $275,600 in dividends declared
during the period. At March 31, 2002, the Company's capital amounted to $14.8
million, which as a percentage of total assets was 15.34%, 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 0.98% at March 31, 2002 and
1.35% at September 30, 2001. The Company's non-performing loans at March 31,
2002 amounted to $754,850 and consisted of four single family residential loans
and one partially completed residential construction loan. Three of the loans
are to the same borrower. The Company believes that it has sufficient allowances
established to cover any loss associated with these loans. There were no loans
charged off during the current six month period. Based on management's analysis
of the adequacy of its allowances, $66,000 and $15,750 in provisions for
additional loan loss allowances were made during the three and six month periods
ended March 31, 2002, respectively. The Company's loan loss allowance was
$400,750 at March 31, 2002.
The Company also has $465,150 net, in foreclosed assets consisting of three
residential properties at March 31, 2002. During the current quarter, the
Company established specific allowances totaling $140,000 on these three
properties. All three properties, which consists of tract of nine lots and two
substantially completed single family homes, were located in the same
subdivision. The Company has a sales contract on the nine lots and believes the
two single-family homes can be sold at no additional loss.
The Company allowance for loan losses is established as losses are estimated to
have occurred through a provision for loan losses charged to earnings. Such
evaluation includes a review of loans for which collectibility appears doubtful
and other factors, including the nature and volume of the portfolio, historical
experience, estimated value of any underlying collateral, and current economic
conditions. While management uses the best information available to make
evaluations, future adjustments may be necessary, if economic or other
conditions differ substantially from the assumptions used.
9
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED MARCH 31,
2002 AND 2001:
GENERAL. Net income for the three month period ended March 31, 2002 was
$265,800, or $27,000 less than the $292,800 earned during the same quarter in
2001. Net income for the six month period ended March 31, 2002 was $519,700, or
$106,400 less than the $626,100 earned during the same period in 2001. As
discussed below, decreases in net interest income between the comparable periods
coupled with increases in non-interest expenses was primarily responsible for
the change in net income during the current quarter and six month period.
INTEREST INCOME. Interest income decreased by $287,900 from $1,939,850 for the
three months ended March 31, 2001 to $1,651,950 for the three months ended March
31, 2002. The decline in interest income resulted primarily from a 1.96%
decrease in the average yield on interest earning assets between the quarters.
Interest income decreased by $474,800 from $3,869,700 for the six months ended
March 31, 2001 to $3,394,900 for the six months ended March 31, 2002. The
decline in interest income resulted primarily from a 1.84% basis point decrease
in the yield on interest-earning assets between the periods. The Company's yield
on interest earning assets was 8.45% and 8.60% for the quarter and six month
period ended March 31, 2001; respectively, and 6.49% and 6.76% for the quarter
and six month period ended March 31, 2002; respectively. The changes in yield
occurred primarily due to fluctuations in market rates outstanding during the
periods.
INTEREST EXPENSE. Interest expense decreased by $208,000 from $1,095,250 for the
three months ended March 31, 2001 to $887,250 for the three months ended March
31, 2002. Interest expense decreased by $235,750 from $2,138,950 for the six
months ended March 31, 2001 to $1,903,200 for the six months ended March 31,
2002. The decreases were primarily the result of a decrease in the Company's
cost of funds between the periods, which decreased by 1.47% and 1.23% for the
three and six month periods ended March 31, 2002 as compared to the same periods
a year earlier. As a result of overall higher market rates, the Company's cost
of funds decreased from 5.96% and 5.95% for the quarter and six month period
ended March 31, 2001; respectively, to 4.49% and 4.73% for the quarter and six
month period ended March 31, 2002, respectively.
NET INTEREST INCOME. Net interest income decreased by $79,900 from $844,600 for
the three months ended March 31, 2001 to $764,700 for the three months ended
March 31, 2002. Net interest income decreased by $239,050 from $1,730,750 for
the six months ended March 31, 2001 to $1,491,700 for the six months ended March
31, 2002. As explained above, the decrease in net interest income resulted
primarily from a larger decrease in the yield on interest earning assets than
the associated decline in the Company's cost of funds between the periods. The
Company's interest rate spread was 2..00% and 2.03% for the current quarter and
six month period ended March 31, 2002; respectively, as compared to 2.49% and
2.65% for the quarter and six month period ended March 31, 2001; respectively.
10
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED MARCH 31,
2002 AND 2001 (CONTINUED):
PROVISION FOR LOAN LOSSES. The Company provided $66,000 and $81,750 in loan loss
provisions during the current quarter and six month period ended March 31, 2002;
respectively, as compared to $10,000 and $18,000 during the three and six month
periods; 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. Although
management uses a systematic method for determining the adequacy of its
allowances, the evaluation is inherently subjective as it requires estimate
NONINTEREST INCOME. During the current quarter, the Company sold 3,100 shares of
FHLMC stock with a cost basis of approximately $3,000 and realized a gain of
approximately $196,000. The Company continues to hold 12,404 shares of FHLMC
stock in its investment portfolio. There were no other investment sales during
the six month period ended March 31, 2002, or during the same period a year
earlier.
NON-INTEREST EXPENSE. Non-interest expense increased by $86,350 to $482,600 for
the three month period ended March 31, 2002 from $396,250 for the comparable
quarter in 2001. Non-interest expense increased by $43,650 to $801,450 for the
six month period ended March 31, 2002 from $757,800 for the same period a year
earlier. The only significant dollar increase in any category of non-interest
expense occurred in area of foreclosed assets, which totaled $144,400 and
$146,000 for the three and six month periods ended March 31, 2002. The largest
portion of that expense occurred when the Company charged earnings for $140,000
of specific allowances established on foreclosed assets during the current
quarter. Compensation and related benefits decreased from $265,500 during the
quarter ended March 31, 2001 to $206,500 in the current quarter, and from
$515,400 during the six month period ended March 31, 2001 to $412,750 in the six
months ended March 31, 2002. The decrease in compensation and benefits occurred
primarily because in 2001, compensation was higher a result of hiring a new
senior lending officer while transitioning a retiring senior loan officer, and
because of an approximately 125% increase in the cost of health insurance
coverage during 2001.
11
WAKE FOREST BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 six month period ended March 31, 2002, cash and cash equivalents, a
significant source of liquidity, increased by approximately $1.5 million.
Proceeds from the Company's operations contributed an $587,550 in cash during
the period. An increase in deposits of approximately $3.1 million, offset by
dividends paid of $275,600 provided the source of approximately $2.8 million of
cash from financing activities. Net loan originations of approximately $3.0
million during the six month period ended March 31, 2002 required the use of
cash while investment maturities and sales of $698,650 also provided cash during
the current period.
Given the Company's 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.
12
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. From time to time, the Company through
its wholly owned 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
On February 19, 2002, the annual meeting of stockholders was held to
consider and vote upon the election of two directors of the Company and
to ratify the appointment of Dixon Odom PLLC as independent auditors for
the Company's fiscal year ending September 30, 2002. All items were
approved by the stockholders as shown below.
Vote concerning the election of directors of the Company:
For Against Withheld Total
------------------------------------------------------------------------
Howard L. Brown 1,016,658 - 400 1,017,058
RW Wilkinson III 1,016,658 - 400 1,017,058
Vote concerning ratification of Dixon Odom PLLC as independent auditors for the
year ending September 30, 2002:
For Against Abstained Total
------------------------------------------------------------------------
1,010,308 6,200 550 1,017,058
The foregoing matters are described in detail in the Company's proxy statement
dated January 18, 2002 for the 2002 Annual Meeting of stockholders.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) 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 May 10, 2002 By: s/s Robert C. White
----------------------------------- ------------------------------
Robert C. White
Chief Executive Officer
14
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 May 10, 2002 By:
---------------------------------- -------------------------
Robert C. White
Chief Executive Officer
March 31, 2002 and September 30, 2001
15