UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2009
Commission File Number 000-22787
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FOUR OAKS FINCORP, INC.
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(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-2028446
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
6114 U.S. 301 SOUTH, FOUR OAKS, NC 27524
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(Address of principal executive office, including zip code)
(919) 963-2177
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(Registrant's telephone number, including area code)
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. [X] YES [ ] NO
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). [ ] YES [ ] NO
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definition of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X]
Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): [ ] YES [X] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, 6,988,961
par value $1.00 per share (Number of shares outstanding
(Title of Class) as of May 5, 2009)
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TABLE OF CONTENTS Page No.
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Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets
March 31, 2009 (Unaudited) and December 31, 2008................................. 3
Consolidated Statements of Income (Unaudited)
Three Months Ended March 31, 2009 and 2008....................................... 4
Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Ended March 31, 2009 and 2008....................................... 5
Consolidated Statement of Shareholders' Equity (Unaudited)
Three Months Ended March 31, 2009................................................ 6
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2009 and 2008....................................... 7
Notes to Consolidated Financial Statements (Unaudited)........................... 8
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3 - Quantitative and Qualitative Disclosures About Market Risk........................... 20
Item 4 - Controls and Procedures.............................................................. 20
Item 4T - Controls and Procedures.............................................................. 20
Part II. OTHER INFORMATION
Item 1A - Risk Factors......................................................................... 20
Item 6 - Exhibits............................................................................. 22
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Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements
FOUR OAKS FINCORP, INC.
CONSOLIDATED BALANCE SHEETS
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March 31, 2009 December 31,
(Unaudited) 2008*
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ASSETS (Amounts in thousands)
Cash and due from banks $ 11,080 $ 19,449
Interest-earning deposits 11,057 9,303
Federal funds sold - 123
Investment securities available for sale 186,070 171,991
Loans 706,737 681,500
Allowance for loan losses (10,450) (9,542)
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Net loans 696,287 671,958
Accrued interest receivable 3,926 4,216
Bank premises and equipment, net 16,932 17,156
FHLB stock 6,808 6,529
Investment in life insurance 10,692 10,566
Goodwill 6,083 6,083
Other assets 8,306 7,409
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Total assets $ 957,241 $ 924,783
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LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing demand $ 75,295 $ 73,971
Money market and NOW accounts 157,031 155,737
Savings 28,146 28,412
Time deposits, $100,000 and over 280,246 278,535
Other time deposits 214,247 186,039
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Total deposits 754,965 722,694
Borrowings 112,814 114,314
Subordinated debentures 12,372 12,372
Accrued interest payable 3,018 3,282
Other liabilities 6,872 5,471
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Total liabilities 890,041 858,133
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Shareholders' equity:
Common stock; $1.00 par value, 20,000,000 shares authorized; 6,965,358 and
6,921,909 shares issued and outstanding at March 31, 2009 and December 31,
2008, respectively
6,965 6,922
Additional paid-in capital 31,149 30,862
Retained earnings 28,775 28,456
Accumulated other comprehensive income 311 410
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Total shareholders' equity 67,200 66,650
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Total liabilities and shareholders' equity $ 957,241 $ 924,783
===================== ===============
* Derived from audited consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
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FOUR OAKS FINCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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Three Months Ended
March 31,
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2009 2008
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(In thousands, except per share data)
Interest and dividend income:
Loans, including fees $ 9,753 $ 10,386
Investment securities:
Taxable 1,430 1,513
Tax-exempt 613 57
Dividends 68 158
Interest-earning deposits 6 17
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Total interest and dividend income 11,870 12,131
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Interest expense:
Deposits 4,036 4,698
Borrowings 1,109 1,267
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Total interest expense 5,145 5,965
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Net interest income 6,725 6,166
Provision for loan losses 1,642 288
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Net interest income after provision for loan losses 5,083 5,878
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Non-interest income:
Service charges on deposit accounts 550 531
Other service charges, commissions and fees 355 381
Gain on sale of investment securities 691 133
Impairment loss on investment securities (154) -
Gain on sale of loans - 5
Gain on hedges - 97
Merchant fees 105 110
Income from investment in bank-owned life insurance 126 131
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Total non-interest income 1,673 1,388
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Non-interest expenses:
Salaries 2,527 2,332
Employee benefits 618 517
Occupancy expense 272 222
Equipment expense 389 379
Professional and consulting fees 554 381
Other taxes and licenses 86 75
Merchant processing expense 88 91
Loss on sale of foreclosed assets 115 36
Other operating expense 1,062 932
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Total non-interest expenses 5,711 4,965
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Income before income taxes 1,045 2,301
Provision for income taxes 138 804
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Net income $ 907 $ 1,497
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Basic net income per common share $ 0.13 $ 0.24
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Diluted net income per common share $ 0.13 $ 0.24
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The accompanying notes are an integral part of the consolidated financial statements.
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FOUR OAKS FINCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
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Three Months Ended
March 31,
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2009 2008
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(Amounts in thousands)
Net income $ 907 $ 1,497
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Other comprehensive income (loss):
Securities available for sale:
Unrealized holding gains on available for sale securities 375 764
Tax effect (144) (392)
Reclassification of net gains recognized in net income (537) (133)
Tax effect 207 53
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Total other comprehensive income (loss) (99) 292
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Comprehensive income $ 808 $ 1,789
================ =================
The accompanying notes are an integral part of the consolidated financial statements.
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FOUR OAKS FINCORP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
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Accumulated
Common stock Additional other Total
--------------------- paid-in Retained comprehensive shareholders'
Shares Amount capital earnings income (loss) equity
----------- --------- ----------- ----------- --------------- --------------
(Amounts in thousands, except share and per share data)
BALANCE AT DECEMBER 31, 2008 6,921,909 $ 6,922 $ 30,862 $ 28,456 $ 410 $ 66,650
Net income - - - 907 - 907
Other comprehensive loss - - - - (99) (99)
Issuance of common stock 43,449 43 263 - - 306
Stock based compensation - - 24 - - 24
Cash dividends of $ .085 per
share - - - (588) - (588)
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BALANCE AT MARCH 31, 2009 6,965,358 $ 6,965 $ 31,149 $ 28,775 $ 311 $ 67,200
=========== ========= =========== =========== =============== ==============
The accompanying notes are an integral part of the consolidated financial statements.
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FOUR OAKS FINCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Three Months Ended
March 31,
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2009 2008
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(Amounts in
thousands)
Cash flows from operating activities:
Net income $ 907 $ 1,497
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 1,642 288
Provision for depreciation and amortization 278 269
Net amortization of bond premiums and discounts 5 3
Stock based compensation 24 48
Gain on sale of investment securities (691) (133)
Gain on sale of loans - (5)
Loss on disposition of premises and equipment - 4
Loss on sale of foreclosed assets 115 36
Income from investment in life insurance (126) (131)
Gain on hedges - (97)
Loss on impairment of investment securities 154 -
Changes in assets and liabilities:
Other assets 92 228
Interest receivable 290 (76)
Other liabilities 1,401 360
Interest payable (264) 5
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Net cash provided by operating activities 3,827 2,296
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Cash flows from investing activities:
Proceeds from sales and calls of investment securities
available for sale 90,866 54,046
Purchases of investment securities available for sale (104,575) (76,425)
Purchase of FHLB stock (279) (1,302)
Net increase in loans (27,168) (21,310)
Purchase of bank premises and equipment (67) (242)
Acquistion costs - (422)
Proceeds from sales of foreclosed assets 169 45
Net expenditures on foreclosed assets - (32)
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Net cash used by investing activities (41,054) (45,642)
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Cash flow from financing activities:
Net (repayments) proceeds from borrowings (1,500) 40,600
Net increase in deposit accounts 32,271 19,565
Proceeds from issuance of common stock 306 743
Excess tax benefits from stock options - 102
Cash dividends paid (588) (497)
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Net cash provided by financing activities 30,489 60,513
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Net (decrease) increase in cash and cash equivalents (6,738) 17,167
Cash and cash equivalents at beginning of period 28,875 18,275
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Cash and cash equivalents at end of the period $ 22,137 $ 35,442
========== =========
The accompanying notes are an integral part of the consolidated financial
statements.
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FOUR OAKS FINCORP, INC.
Notes to Consolidated Financial Statements
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NOTE 1 - BASIS OF PRESENTATION
In management's opinion, the financial information contained in the accompanying
unaudited consolidated financial statements reflects all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of the
financial information as of and for the three month periods ended March 31, 2009
and 2008, in conformity with accounting principles generally accepted in the
United States of America. The consolidated financial statements include the
accounts of Four Oaks Fincorp, Inc. (the "Company") and its wholly-owned
subsidiaries, Four Oaks Bank & Trust Company (the "Bank") and Four Oaks Mortgage
Services, LLC, a mortgage origination subsidiary. All significant intercompany
transactions and balances have been eliminated in consolidation. Operating
results for the three month period ended March 31, 2009 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2009.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the consolidated
financial statements filed as part of the Company's Annual Report on Form 10-K
for the year ended December 31, 2008. This Quarterly Report should be read in
conjunction with such Annual Report.
NOTE 2 - NET INCOME PER SHARE
Basic and diluted net income per common share are computed based on the weighted
average number of shares outstanding during each period. Diluted net income per
common share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that would then share in the
net income of the Company.
Basic and diluted net income per common share have been computed based upon net
income as presented in the accompanying consolidated statements of income
divided by the weighted average number of common shares outstanding or assumed
to be outstanding as summarized below:
Three Months Ended
March 31,
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2009 2008
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Weighted average number of common shares used in
computing basic net income per share 6,932,493 6,193,428
Effect of dilutive stock options - 7,768
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Weighted average number of common shares and
dilutive potential common shares used in computing
diluted net income per share 6,932,493 6,201,196
=========== ============
As of March 31, 2009 and March 31, 2008, there were 311,403 and 137,328
antidilutive stock options outstanding, respectively.
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FOUR OAKS FINCORP, INC.
Notes to Consolidated Financial Statements
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NOTE 3 - COMMITMENTS
At March 31, 2009 loan commitments were as follows (in thousands):
Commitments to extend credit $ 52,811
Undisbursed lines of credit 64,269
Letters of credit 3,103
NOTE 4- FAIR VALUE MEASUREMENT
On January 1, 2008 the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 157, "Fair Value Measurements" and SFAS No. 159, "The
Fair Value Option for Financial Assets and Financial Liabilities." SFAS No. 157
defines fair value, establishes a framework for measuring fair value under GAAP
and expands disclosures about fair value measurements. SFAS No. 157 applies
whenever other accounting pronouncements require or permit assets or liabilities
to be measured at fair value. Accordingly, SFAS No. 157 does not expand the use
of fair value in any new circumstances. SFAS No. 159 provides companies with an
option to report selected financial assets and liabilities at fair value. As of
March 31, 2009, the Company had not elected to measure any financial assets or
liabilities using the fair value option under SFAS No. 159; therefore the
adoption of SFAS No. 159 had no effect on the Company's financial condition or
results of operations.
The Company records securities available for sale and derivative assets at fair
value on a recurring basis. Fair value is a market-based measurement and is
defined as the price that would be received to sell an asset, or paid to
transfer a liability, in an orderly transaction between market participants at
the measurement date. The transaction to sell the asset or transfer the
liability is a hypothetical transaction at the measurement date, considered from
the perspective of a market participant that holds the assets or owes the
liability. In general, the transaction price will equal the exit price and,
therefore, represent the fair value of the asset or liability at initial
recognition. In determining whether a transaction price represents the fair
value of the asset or liability at initial recognition, each reporting entity is
required to consider factors specific to the transaction and the asset or
liability, the principal or most advantageous market for the asset or liability,
and market participants with whom the entity would transact in the market.
SFAS No. 157 establishes a fair value hierarchy to prioritize the inputs of
valuation techniques used to measure fair value. The inputs are evaluated and an
overall level for the fair value measurement is determined. This overall level
is an indication of how market-observable the fair value measurement is and
defines the level of disclosure. SFAS No. 157 clarifies fair value in terms of
the price in an orderly transaction between market participants to sell an asset
or transfer a liability in the principal (or most advantageous) market for the
asset or liability at the measurement date (an exit price). In order to
determine the fair value or the exit price, entities must determine the unit of
account, highest and best use, principal market, and market participants. These
determinations allow the reporting entity to define the inputs for fair value
and level of hierarchy.
Outlined below is the application of the fair value hierarchy established by
SFAS No. 157 to the Company's financial assets that are carried at fair value.
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FOUR OAKS FINCORP, INC.
Notes to Consolidated Financial Statements
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NOTE 4 - FAIR VALUE MEASUREMENT (Continued)
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets. An active market for the
asset or liability is a market in which the transactions for the asset or
liability occur with sufficient frequency and volume to provide pricing
information on an ongoing basis.
Level 2 - inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for the
asset or liability, either directly or indirectly, for substantially the full
term of the financial instrument. As of March 31, 2009 and December 31, 2008,
the types of financial assets and liabilities the Company carried at fair value
hierarchy Level 2 included securities available for sale.
Level 3 - inputs to the valuation methodology are unobservable and significant
to the fair value measurement. Unobservable inputs are supported by little or no
market activity or by the entity's own assumptions. As of March 31, 2009 and
December 31, 2008, while the Company did not carry any financial assets or
liabilities, measured on a recurring basis, at fair value hierarchy Level 3, the
Company did value certain financial assets, measured on a non-recurring basis,
at fair value hierarchy Level 3.
Fair Value on a Recurring Basis. The Company measures certain assets at fair
value on a recurring basis, as described below.
Investment Securities Available for Sale
Investment securities available-for-sale are recorded at fair value on a
recurring basis. Fair value measurement is based upon quoted prices, if
available. If quoted prices are not available, fair values are measured using
independent pricing models or other model-based valuation techniques such as the
present value of future cash flows, adjusted for the security's credit rating,
prepayment assumptions and other factors such as credit loss assumptions. Level
1 securities include those traded on an active exchange, such as the New York
Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers
in active over-the-counter markets and money market funds. Level 2 securities
include mortgage-backed securities issued by government sponsored entities,
municipal bonds and corporate debt securities. Securities classified as Level 3
include asset-backed securities in less liquid markets.
The Company utilizes valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs.
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FOUR OAKS FINCORP, INC.
Notes to Consolidated Financial Statements
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NOTE 4 - FAIR VALUE MEASUREMENT (Continued)
Fair Value on a Recurring Basis. Below is a table that presents information
about assets measured at fair value on a recurring basis at March 31, 2009 and
December 31, 2008:
Fair Value Measurements at
March 31, 2009, Using
-------------------------------------------
Quoted Prices
Total Carrying in Active Significant
Amount in The Markets for Other Significant
Consolidated Assets Measured Identical Observable Unobservable
Balance Sheet at Fair Value Assets Inputs Inputs
Description 3/31/2009 3/31/2009 (Level 1) (Level 2) (Level 3)
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Available-for-sale
securities $ 186,070 $ 186,070 $ 4,822 $ 181,248 $ -
Fair Value Measurements at
December 31, 2008, Using
-------------------------------------------
Quoted Prices
Total Carrying in Active Significant
Amount in The Markets for Other Significant
Consolidated Assets Measured Identical Observable Unobservable
Balance Sheet at Fair Value Assets Inputs Inputs
Description 12/31/2008 12/31/2008 (Level 1) (Level 2) (Level 3)
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Available-for-sale
securities $ 171,991 $ 171,991 $ 4,256 $ 167,735 $ -
Fair Value on a Nonrecurring Basis. The Company measures certain assets at fair
value on a nonrecurring basis, as described below.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or market value. The fair
value of loans held for sale is based on what secondary markets are currently
offering for portfolios with similar characteristics. As such, the Company
classifies loans subjected to nonrecurring fair value adjustments as Level 2.
There were no loans held for sale and no fair value adjustments related to loans
held for sale as of or for the periods ended March 31, 2009 or December 31,
2008.
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FOUR OAKS FINCORP, INC.
Notes to Consolidated Financial Statements
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NOTE 4 - FAIR VALUE MEASUREMENT (Continued)
Loans
The Company does not record loans at fair value on a recurring basis. However,
from time to time, a loan is considered impaired and an allowance for loan
losses is established. Loans for which it is probable that payment of interest
and principal will not be made in accordance with the contractual terms of the
loan agreement are considered impaired. Once a loan is identified as
individually impaired, management measures impairment in accordance with SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan." The fair value of
impaired loans is estimated using one of several methods, including collateral
value, market value of similar debt, enterprise value, liquidation value and
discounted cash flows. Those impaired loans not requiring an allowance represent
loans for which the fair value of the expected repayments or collateral exceed
the recorded investments in such loans. At March 31, 2009, substantially all of
the total impaired loans were evaluated based on the fair value of the
collateral. In accordance with SFAS No. 157, impaired loans where an allowance
is established based on the fair value of collateral require classification in
the fair value hierarchy. When the fair value of the collateral is based on an
observable market price or a current appraised value, the Company records the
impaired loan as nonrecurring Level 2. When current appraised value is not
available or management determines the fair value of the collateral is further
impaired below the appraised value and there is no observable market price, the
Company records the impaired loan as nonrecurring Level 3. Impaired loans
totaled $24.4 million and $20.8 million at March 31, 2009 and December 31, 2008,
respectively. Of such loans, $18.4 million and $17.0 million had specific loss
allowances aggregating $3.1 million and $2.9 million at March 31, 2009 and
December 31, 2008, respectively. Of those specific allowances, all were
determined using Level 3 inputs.
Goodwill and Other Intangible Assets
Goodwill and identified intangible assets are subject to impairment testing.
When appropriate, a projected cash flow valuation method is used in the
completion of impairment testing. This valuation method requires a significant
degree of management judgment. In the event the projected undiscounted net
operating cash flows are less than the carrying value, the asset is recorded at
fair value as determined by the valuation model. As such, the Company classifies
goodwill and other intangible assets subjected to nonrecurring fair value
adjustments as Level 3. At March 31, 2009 and December 31, 2008, there were no
fair value adjustments related to goodwill of $6.1 million and other intangible
assets of $434,000 and $449,000, respectively.
Foreclosed Assets
Foreclosed assets are adjusted to fair value upon transfer of the loans to
foreclosed assets. Subsequently, foreclosed assets are carried at the lower of
carrying value or fair value. Fair value is based upon independent market
prices, appraised values of the collateral or management's estimation of the
value of the collateral. When the fair value of the collateral is based on an
observable market price or a current appraised value, the Company records the
foreclosed asset as nonrecurring Level 2. When an appraised value is not
available or management determines the fair value of the collateral is further
impaired below the appraised value and there is no observable market price, the
Company records the foreclosed asset as nonrecurring Level 3. At March 31, 2009,
and December 31, 2008, the Company recorded foreclosed real estate of $2.1
million and $1.2 million, respectively. All foreclosed asset values were
determined using Level 3 inputs.
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FOUR OAKS FINCORP, INC.
Notes to Consolidated Financial Statements
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NOTE 5 - OTHER RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("SFAS No. 141(R)"), which replaces SFAS No. 141, "Business
Combinations." SFAS No. 141(R) establishes principles and requirements for
recognition and measurement of assets, liabilities and any noncontrolling
interest acquired due to a business combination. SFAS No. 141(R) expands the
definitions of a business and a business combination, resulting in an increased
number of transactions or other events that will qualify as business
combinations. Under SFAS No. 141(R) the entity that acquires the business will
record 100 percent of all assets and liabilities of the acquired business,
including goodwill, generally at their fair values. As such, an acquirer will
not be permitted to recognize the allowance for loan losses of the acquiree.
SFAS No. 141(R) requires the acquirer to recognize goodwill as of the
acquisition date, measured as a residual. In most business combinations,
goodwill will be recognized to the extent that the consideration transferred
plus the fair value of any noncontrolling interests in the acquiree at the
acquisition date exceeds the fair values of the identifiable net assets
acquired. Under SFAS No. 141(R), acquisition-related transaction and
restructuring costs will be expensed as incurred rather than treated as part of
the cost of the acquisition and included in the amount recorded for assets
acquired. SFAS No. 141(R) is effective for fiscal years beginning after December
15, 2008. Accordingly, for acquisitions completed after December 31, 2008, the
Company will apply the provisions of SFAS No. 141(R).
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133."
SFAS No. 161 applies to all derivative instruments and related hedged items
accounted for under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 161 requires entities to provide greater
transparency about (a) how and why an entity uses derivative instruments, (b)
how derivative instruments and related hedged items are accounted for under SFAS
No. 133 and its related interpretations, and (c) how derivative instruments and
related hedged items affect an entity's financial position, results of
operations and cash flows. To meet those objectives, SFAS No. 161 requires (1)
qualitative disclosures about objectives for using derivatives by primary
underlying risk exposure (e.g., interest rate, credit or foreign exchange rate)
and by purpose or strategy (fair value hedge, cash flow hedge, net investment
hedge, and non-hedges), (2) information about the volume of derivative activity
in a flexible format that the preparer believes is the most relevant and
practicable, (3) tabular disclosures about balance sheet location and gross fair
value amounts of derivative instruments, income statement and other
comprehensive income location of gain and loss amounts on derivative instruments
by type of contract, and (4) disclosures about credit-risk related contingent
features in derivative agreements. SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. The adoption of SFAS No. 161 on January 1, 2009 did not have a
material effect on the Company's financial condition and results of operations.
In October 2008, the FASB issued FSP FAS 157-3, "Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active." The FSP clarifies
the application of SFAS No. 157 in a market that is not active and provides an
example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. This FSP
was effective upon issuance, including prior periods for which financial
statements had not been issued. The adoption of this FSP did not have a material
impact on the Company's consolidated financial condition or results of
operations.
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FOUR OAKS FINCORP, INC.
Notes to Consolidated Financial Statements
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NOTE 5 - OTHER RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In April 2009, the FASB issued three related FSPs to (1) clarify the application
of SFAS No. 157 to fair value measurements in the current economic environment,
(2) modify the recognition of other-than-temporary impairments of debt
securities, and (3) require companies to disclose the fair values of financial
instruments in interim periods. The final FSPs are effective for interim and
annual periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009, if all three FSPs or both the fair value
measurements and other-than-temporary impairment FSPs are adopted
simultaneously. The Company will adopt these FSPs effective for the quarterly
period ending June 30, 2009. None of the FSPs are expected to have a significant
impact on financial condition or results of operations, but each is described in
more detail below.
FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for
the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly," provides additional guidance for estimating fair value in
accordance with SFAS No. 157 when the volume and level of activity for the asset
or liability have significantly decreased and also provides guidance on
identifying circumstances that indicate a transaction is not orderly. The FSP
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique used, the objective of a fair value measurement remains the same. Fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction (that is, not a forced liquidation or
distressed sale), between market participations at the measurement date under
current market conditions.
FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-
Temporary Impairments," amends the other-than-temporary impairment guidance in
accounting principles generally accepted in the United States of America for
debt securities to make the guidance more operational and to improve the
presentation and disclosure of other-than-temporary impairments on debt and
equity securities in the financial statements. The FSP does not amend existing
recognition and measurement guidance related to other-than-temporary impairments
of equity securities.
FSP FAS 107-1 and Accounting Principles Board ("APB") 28-1, "Interim Disclosures
about Fair Value of Financial Instruments," amends SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments," to require disclosures about fair
value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. The FSP also amends APB
Opinion No. 28, "Interim Financial Reporting," to require those disclosures in
summarized information in interim reporting periods.
Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies are not expected to have a material impact on the
Company's financial position, results of operations and cash flows.
NOTE 6 - RECENT DEVELOPMENTS WITH THE U.S. TREASURY
The United States Treasury has announced that it will make funds available to
certain banks under the Troubled Asset Relief Program's Capital Purchase Program
(the "Program"). The Emergency Economic Stabilization Act of 2008 authorized the
Treasury to establish the Program under which certain United States financial
institutions may sell senior preferred stock and issue warrants to purchase an
institution's common stock to the Treasury in exchange for a capital infusion.
Under the Program, eligible institutions can generally apply to issue preferred
stock to the Treasury in aggregate amounts between 1% and 3% of the
institution's risk-weighted assets. In November 2008, the Company's board of
directors (the "Board") authorized and approved the Company's participation in
the Program, and the Company filed its application with the Treasury in November
2008 to participate in the Program. In order to participate in the Program, the
Company's shareholders approved an amendment to the Company's Articles of
Incorporation to authorize preferred stock and the Board authorized the Company
to sell up to 20,000 shares of senior preferred stock to the Treasury for $1,000
per share.
- 14 -
FOUR OAKS FINCORP, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 6 - RECENT DEVELOPMENTS WITH THE U.S. TREASURY (Continued)
As of the filing date of this report, the Company has not heard from the
Treasury on the final status of its application to participate in the Program.
Accordingly, there is no binding agreement or commitment with respect to the
Company's participation in the Program. The Company and the Treasury must still
negotiate the terms and conditions of the Company's participation in the
Program, which means that closing of the transaction is not guaranteed. Although
the Company has no reason to believe that the Company will not be able to
ultimately participate in the Program, no assurances can be given that the
Company will be able to ultimately participate in the Program, and the
approximate number of shares of preferred stock that the Company may issue
pursuant to the Program or the approximate amount of consideration the Company
will receive as compensation from the Treasury for any such shares that may be
issued by the Company under the Program cannot be determined at this time.
NOTE 7 - PROPOSED MERGER WITH NUESTRO BANCO
On April 29, 2009, the Company and the Bank entered into a definitive agreement
(the "Agreement") with Nuestro Banco ("Nuestro") pursuant to which Nuestro will
merge with and into the Bank. Under the terms of the Agreement, the Company has
agreed to acquire all outstanding shares of Nuestro's capital stock in exchange
for approximately 357,099 shares of the Company's common stock. At the effective
time of the merger, each share of Nuestro common stock will be cancelled in
exchange for the right to receive 1.0 share of Company common stock multiplied
by an exchange ratio of 0.2697 on and subject to the terms and conditions
contained in the Agreement. The Company will also assume each option to purchase
Nuestro capital stock that is outstanding and unexercised immediately prior to
the effective time of the merger. Subject to each holder of a warrant to
purchase Nuestro capital stock providing a written termination of his or her
warrant prior to the effective time of the merger, each issued and outstanding
warrant to purchase Nuestro capital stock will be cancelled in exchange for the
right to receive a warrant to purchase that number of shares of the Company's
common stock equal to the number of Nuestro shares underlying the cancelled
warrant immediately prior to the effective time of the merger multiplied by an
exchange ratio of 0.2697.
NOTE 8 - SUBSEQUENT EVENTS
On May 1, 2009, the Federal Deposit Insurance Corporation ("FDIC") created a
bridge bank to takeover the operations of Silverton Bank, National Association
("Silverton") after the bank was closed on the same day by the Office of the
Comptroller of the Currency ("OCC"). Given this recent information, the Company
recognized an impairment loss of $154,000 on its investment in Silverton during
the quarter ended March 31, 2009.
- 15 -
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides information about the major components of the
financial condition and results of operations of Four Oaks Fincorp, Inc. (the
"Company") and its subsidiaries and should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto in Part I, Item 1
of this Quarterly Report.
Impact of Recent Developments on the Banking Industry
The banking industry, including the Company, is operating in a challenging and
volatile economic environment. The effects of the downturn in the housing market
have adversely impacted credit markets, consumer confidence, and the broader
economy. Along with other financial institutions, the Company's stock price has
suffered as a result. Management cannot predict when these market difficulties
will subside. While the current economic downturn and the difficulties it
presents for the Company and others in the banking industry are unprecedented,
management believes that the business is cyclical and must be viewed and
measured over time. The Company's primary focus at this time is to manage the
business safely during the economic downturn and be poised to take advantage of
any market opportunities that may arise.
Because of the current economic situation, U.S. and foreign governments have
acted in attempts to stabilize the financial system. For example, the U.S.
government has adopted the Emergency Economic Stabilization Act, which, among
other things, authorized the U.S. Treasury to establish the Troubled Asset
Relief Program's Capital Purchase Program under which certain United States
financial institutions may sell senior preferred stock and issue warrants to
purchase an institution's common stock to the Treasury in exchange for a capital
infusion. See "Liquidity and Capital Resources" below for a more detailed
discussion of the Company's potential participation in this program. It is not
clear at this time what impact these measures will have on the Company or the
financial markets as a whole. Management will continue to monitor the effects of
these programs as they relate to the Company and its financial operations.
On February 27, 2009, the FDIC proposed amendments to the restoration plan for
the Deposit Insurance Fund. This amendment proposes the imposition of a 20 basis
point emergency special assessment on insured depository institutions as of June
30, 2009. The assessment is proposed to be collected on September 30, 2009. The
interim rule would also permit the FDIC to impose an emergency special
assessment after June 30, 2009, of up to 10 basis points if necessary to
maintain public confidence in federal deposit insurance. Based on average
deposits for the first quarter, this special assessment, if implemented as
proposed, would equal approximately $1.5 million for the additional 20 basis
points, and a maximum of approximately $731,000 for the possible additional
assessment of up to 10 basis points. This special assessment if implemented as
proposed will have a significant impact on the results of operations of the
Company for fiscal 2009.
On March 5, 2009, the FDIC Chairman indicated that the FDIC intended to lower
the special assessment to 10 basis points contingent upon Congress increasing
the FDIC's line of credit with the U.S. Treasury to $100 billion. On May 6,
2009, the U.S. Senate passed legislation that would increase the FDIC's line of
credit with the U.S. Treasury to $100 billion. The U.S. House of Representatives
passed similar legislation in March 2009. The legislation has not yet been
reconciled and enacted into law. Even though both the U.S. Senate and the U.S.
House of Representatives have approved the increase in the FDIC's line of
credit, the assessment rates, including the special assessment, are subject to
change at the discretion of the Board of Directors of the FDIC.
- 16 -
Comparison of Financial Condition at
March 31, 2009 and December 31, 2008
The Company's total assets grew from $924.8 million at December 31, 2008 to
$957.2 million at March 31, 2009, an increase of $32.5 million, or 3.5%. The
Company's liquid assets, consisting of cash and cash equivalents and investment
securities available for sale, increased $7.3 million during the three months
ended March 31, 2009 compared to liquid assets as of December 31, 2008,
primarily from increases in investment securities of $14.1 million offset by
decreases in cash and cash equivalents. Additional funds available from deposit
growth provided the Company with an opportunity to increase investment
securities available for sale during the first three months of 2009. Gross loans
increased by $25.2 million or 3.7% from $681.5 million at December 31, 2008 to
$706.7 million at March 31, 2009. The Company's loan portfolio increase is due
mainly to growth in the residential sector. Deposits grew $32.3 million or 4.5%
from $722.7 million at December 31, 2008 to $755.0 million at March 31, 2009.
Deposits from the Company's local market continued to be its primary funding
source, accounting for 71.6% of overall deposits, while wholesale deposits
increased by $42.0 million or 24.8% for the same period.
Total shareholders' equity increased approximately $550,000 from $66.7 million
at December 31, 2008 to $67.2 million at March 31, 2009. This increase in
shareholders' equity resulted principally from our net income of $907,000,
issuance of shares of common stock valued at $306,000 and stock compensation
expense of $24,000. Offsetting these increases were dividends paid to the
Company's shareholders of $588,000 and other comprehensive losses of $99,000
during the first three months of 2009. At March 31, 2009, both the Company and
its wholly-owned subsidiary, Four Oaks Bank & Trust Company ("the Bank") were
considered to be well capitalized as such term is defined in applicable federal
regulations.
Results of Operations for the Three Months Ended
March 31, 2009 and 2008
Net Income. Net income for the three months ended March 31, 2009 was $907,000,
or $.13 basic net income per share, as compared with net income of $1.5 million,
or $.24 basic net income per share, for the three months ended March 31, 2008, a
decrease of $590,000, or $.11 basic net income per share. Net income declined
primarily due to an increase of $1.3 million in the provision for loan losses
due to the deterioration of the local economy.
Net Interest Income. Like most financial institutions, the primary component of
earnings for the Bank is net interest income. Net interest income is the
difference between interest income, principally from loan and investment
securities portfolios, and interest expense, principally on customer deposits
and borrowings. Changes in net interest income result from changes in volume,
spread and margin. For this purpose, volume refers to the average dollar level
of interest-earning assets and interest-bearing liabilities, spread refers to
the difference between the average yield on interest-earning assets and the
average cost of interest-bearing liabilities, and margin refers to net interest
income divided by average interest-earning assets. Margin is influenced by the
level and relative mix of interest-earning assets and interest-bearing
liabilities, as well as by levels of non-interest-bearing liabilities and
capital.
Net interest income for the three months ended March 31, 2009 was $6.7 million,
an increase of $559,000 compared to the three months ended March 31, 2008, which
was primarily due to a decrease in the cost of deposits. Average
interest-earning assets increased $193.6 million for the quarter and average
interest-bearing liabilities increased $195.5 million for the same period.
Margins decreased as yields on assets fell faster than the cost of liabilities
resulting in a decrease in the Company's net interest margin by 51 basis points
from 3.61% during the three months ended March 31, 2008 to 3.10% during the
three months ended March 31, 2009.
- 17 -
Provision for Loan Losses. The provision for loan losses was $1.6 million and
$288,000 for the three months ended March 31, 2009 and 2008, respectively, an
increase of $1.3 million. Net charge-offs of $734,000 were recorded for the
three months ended March 31, 2009 compared to net charge offs of $141,000 during
the three months ended March 31, 2008. Non-accrual loans increased from $2.6
million as of March 31, 2008 to $24.4 million as of March 31, 2009. Of this
increase, $14.8 million relates to new home construction contractors whose loans
were placed in non-accrual status. The balance of the increase in non-accrual
loans relates to loans acquired in the merger with LongLeaf Community Bank
("LongLeaf") and other consumer loans. The Company has evaluated these loans in
determining its allowance for loan losses as of March 31, 2009, and has
determined that its exposure to loss on these loans is largely mitigated by the
values of the underlying collateral. At March 31, 2009, all non-accrual loans
were considered impaired. Of these loans, $18.4 million have specific loss
allowances that aggregate to $3.1 million. Management believes that the
allowance is adequate to absorb probable losses inherent in the loan portfolio.
Non-Interest Income. Non-interest income increased $285,000 for the three months
ended March 31, 2009 to $1.7 million as compared to $1.4 million for the same
period in 2008. The increase is primarily due to realized gains on the sale of
investment securities of $691,000, net of impairment loss of $154,000.
Non-Interest Expense. Non-interest expense increased $746,000 to $5.7 million
for the three months ended March 31, 2009 compared to $5.0 million for the three
months ended March 31, 2008. This increase was due in part to increases in
salaries and employee benefits of $296,000, which resulted from normal salary
adjustments, rising benefits costs, additional staffing and the merger with
LongLeaf. For the three months ended March 31, 2009, net occupancy and equipment
expenses increased $60,000, professional and consulting fees increased $173,000
and other operating expenses increased $209,000. The primary increases in other
non-interest expense for the three months ended March 31, 2009 included an
increase in the FDIC insurance premium of $124,000, a rise in the loss on
repossessed assets of $66,000 and an increase in related collection expenses of
$38,000. These increased costs primarily related to adding three branches,
exploring capital expansion and changes in the banking environment brought on by
the recession. There were no other significant increases in any of the remaining
non-interest expenses.
Provision for Income Taxes. The Company's provision for income taxes, as a
percentage of income before income taxes, was 13.2% and 34.9% for the three
months ended March 31, 2009 and 2008, respectively. The decrease resulted
because non-taxable income from investment securities comprised a larger portion
of income before taxes in the current quarter.
Liquidity and Capital Resources
The Company's liquidity position is primarily dependent upon the Bank's need to
respond to loan demand, the short-term demand for funds caused by withdrawals
from deposit accounts (other than time deposits) and the liquidity of its
assets. The Bank's primary liquidity sources include cash and amounts due from
other banks, federal funds sold, and U.S. Government agency and other marketable
investment securities. The Bank also has the ability to borrow funds from the
Federal Reserve Bank and the Federal Home Loan Bank of Atlanta and to purchase
federal funds from other financial institutions. Management believes that the
Bank's liquidity sources are adequate to meet its operating needs and the
operating needs of the Bank for the next eighteen months. Total shareholders'
equity was $67.2 million or 7.0% of total assets at March 31, 2009 and $66.7
million or 7.2% of total assets at December 31, 2008. Additionally, we have
available lines of credit from various correspondent banks to purchase federal
funds on a short-term basis of approximately $38.2 million. As of March 31,
2009, the Bank has the credit capacity to borrow up to $185.0 million, from the
Federal Home Loan Bank of Atlanta ("FHLB"), with $112.8 million outstanding as
of that date. At December 31, 2008 we had FHLB borrowings outstanding of $114.3
million.
- 18 -
The United States Treasury has announced that it will make funds available to
certain banks under the Troubled Asset Relief Program's Capital Purchase Program
(the "Program"). The Emergency Economic Stabilization Act of 2008 authorized the
Treasury to establish the Program under which certain United States financial
institutions may sell senior preferred stock and issue warrants to purchase an
institution's common stock to the Treasury in exchange for a capital infusion.
Under the Program, eligible institutions can generally apply to issue preferred
stock to the Treasury in aggregate amounts between 1% and 3% of the
institution's risk-weighted assets. In November 2008, the Company's board of
directors (the "Board") authorized and approved the Company's participation in
the Program, and the Company filed its application with the Treasury in November
2008 to participate in the Program. In order to participate in the Program, the
Company's shareholders approved an amendment to the Company's Articles of
Incorporation to authorize preferred stock and the Board authorized the Company
to sell up to 20,000 shares of senior preferred stock to the Treasury for $1,000
per share.
As of the filing date of this report, the Company has not heard from the
Treasury on the final status of its application to participate in the Program.
Accordingly, there is no binding agreement or commitment with respect to the
Company's participation in the Program. The Company and the Treasury must still
negotiate the terms and conditions of the Company's participation in the
Program, which means that closing of the transaction is not guaranteed. Although
the Company has no reason to believe that the Company will not be able to
ultimately participate in the Program, no assurances can be given that the
Company will be able to ultimately participate in the Program, and the
approximate number of shares of preferred stock that the Company may issue
pursuant to the Program or the approximate amount of consideration the Company
will receive as compensation from the Treasury for any such shares that may be
issued by the Company under the Program cannot be determined at this time.
Forward-looking Information
Information set forth in this Quarterly Report on Form 10-Q, under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains various "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which
statements represent the Company's judgment concerning the future and are
subject to risks and uncertainties that could cause its actual operating results
and financial position to differ materially. Such forward-looking statements can
be identified by the use of forward-looking terminology, such as "may," "will,"
"expect," "anticipate," "estimate," or "continue" or the negative thereof, or
other variations thereof, or comparable terminology.
The Company cautions that any such forward-looking statements are further
qualified by important factors that could cause its actual operating results to
differ materially from those anticipated in the forward-looking statements,
including, without limitation, the effects of future economic conditions,
governmental fiscal and monetary policies, legislative and regulatory changes,
the risks of changes in interest rates on the level and composition of deposits,
the effects of competition from other financial institutions, the failure of
assumptions underlying the establishment of the allowance for loan losses, the
low trading volume of the Company's common stock, other considerations described
in connection with specific forward-looking statements and other cautionary
elements specified in the Company's periodic filings with the Securities and
Exchange Commission (the "Commission"), including without limitation, its Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form
8-K.
- 19 -
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes there has not been any material change in information or in
the overall analysis of financial instruments considered market risk sensitive,
as measured by the factors of contractual maturities, average interest rates and
the difference between estimated fair values and book values, since the analysis
prepared and presented in conjunction with its Annual Report on Form 10-K for
the fiscal year ended December 31, 2008.
ITEM 4 - CONTROLS AND PROCEDURES
As required by paragraph (b) of Rule 13a-15 under the Exchange Act, an
evaluation was carried out under the supervision and with the participation of
the Company's management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Company's disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act)
as of the end of the period covered by this Quarterly Report. As defined in Rule
13a-15(e) and 15d-15(e) under the Exchange Act, the term disclosure controls and
procedures means controls and other procedures of an issuer that are designed to
ensure that information required to be disclosed by the issuer in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission's
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuer's management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure. Based on their evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that as of the end of the period covered
by this Quarterly Report, the Company's disclosure controls and procedures are
effective, in that they provide reasonable assurances that information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized, and reported within the time
periods required by the Commission's rules and forms.
There have been no changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the period covered by this Quarterly Report that the
Company believes have materially affected, or are reasonably likely to
materially affect, its internal control over financial reporting.
Item 4T - CONTROLS AND PROCEDURES
Not applicable.
Part II. OTHER INFORMATION
ITEM 1A - RISK FACTORS
Other than as set forth below, there have been no material changes in the
Company's risk factors from those disclosed in its Annual Report on Form 10-K
for the year ended December 31, 2008.
Our Proposed Transaction with Nuestro Banco is Subject to Uncertainties.
Our proposed transaction with Nuestro Banco ("Nuestro") is subject to customary
closing conditions, including shareholder approval by Nuestro shareholders. If
any of the conditions to closing are not satisfied or waived, the proposed
transaction would not be completed. In addition, the merger agreement relating
to the proposed transaction can be terminated prior to completion of the
transaction under certain circumstances, including where Nuestro receives an
acquisition proposal from a third party that its board believes is more
favorable to its shareholders than the proposed transaction (after following
specific procedures described in our merger agreement with Nuestro). If the
merger agreement is terminated, the proposed transaction would not be completed,
and, in certain circumstances, Nuestro could be required to pay us a termination
fee of $175,000. If the merger is not completed, the value of our common stock
could decline. We are currently targeting to close the proposed transaction,
assuming the satisfaction or waiver of all conditions, in the third quarter of
2009. The closing of the proposed transaction could be delayed beyond the third
quarter of 2009 due to many factors, including factors beyond the control of
either party.
- 20 -
We May Not Be Able To Successfully Integrate Bank Mergers and Acquisitions,
Including the Merger of Nuestro into the Bank.
Our proposed merger of the bank with Nuestro involves the combination of two
banks that previously have operated independently. Difficulties may arise in the
integration of the business and operations of any banks that we acquire and, as
a result, we may not be able to achieve the cost savings and synergies that we
expect will result from such transactions. Achieving cost savings is dependent
on consolidating certain operational and functional areas, eliminating
duplicative positions and terminating certain agreements for outside services.
Additional operational savings are dependent upon the integration of the
acquired or merged entity's businesses with ours, the conversion of core
operating systems, data systems and products and the standardization of business
practices. Complications or difficulties in the conversion of the core operating
systems, data systems and products may result in the loss of customers, damage
to our reputation within the financial services industry, operational problems,
one-time costs currently not anticipated or reduced cost savings resulting from
such mergers or acquisitions. Annual cost savings in each such transaction may
be materially less than anticipated if the merger or acquisition is delayed
unexpectedly, the integration of operations is delayed beyond what is
anticipated or the conversion to a single data system is not accomplished on a
timely basis. Difficulty in integrating an acquired company may cause us not to
realize expected revenue increases, cost savings, increases in geographic or
product presence and/or other projected benefits from the acquisition. The
integration could result in higher than expected deposit attrition, loss of key
employees, disruption of our businesses or the businesses of the acquired
company, or otherwise adversely affect our ability to maintain relationships
with customers and employees or achieve the anticipated benefits of the
acquisition.
- 21 -
ITEM 6 - EXHIBITS
The following exhibits are filed as part of this Quarterly Report on Form 10-Q.
Exhibit No. Description
- ----------- -----------
2.1 Merger Agreement, dated April 29, 2009, by and among Four
Oaks Fincorp, Inc., Four Oaks Bank & Trust Company and
Nuestro Banco (incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K filed with the
Commission on May 1, 2009)
2.2 List of Schedules Omitted from Merger Agreement included as
Exhibit 2.1 above (incorporated by reference to Exhibit 2.2
to the Company's Current Report on Form 8-K filed with the
Commission on May 1, 2009)
10.1 Summary of Non-Employee Director Compensation
31.1 Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a) or Rule 15d-4(a) as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer pursuant to 18
U.S.C. 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of the Chief Financial Officer pursuant to 18
U.S.C. 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
- 22 -
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.
FOUR OAKS FINCORP, INC.
Date: May 11, 2009 By: /s/ Ayden R. Lee, Jr.
------------------------------
Ayden R. Lee, Jr.
Chairman, President and
Chief Executive Officer
Date: May 11, 2009 By: /s/ Nancy S. Wise
------------------------------
Nancy S. Wise
Executive Vice President and
Chief Financial Officer
- 23 -
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
2.1 Merger Agreement, dated April 29, 2009, by and among Four
Oaks Fincorp, Inc., Four Oaks Bank & Trust Company and
Nuestro Banco (incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K filed with the
Commission on May 1, 2009)
2.2 List of Schedules Omitted from Merger Agreement included as
Exhibit 2.1 above (incorporated by reference to Exhibit 2.2
to the Company's Current Report on Form 8-K filed with the
Commission on May 1, 2009)
10.1 Summary of Non-Employee Director Compensation
31.1 Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a) or Rule 15d-4(a) as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer pursuant to 18
U.S.C. 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of the Chief Financial Officer pursuant to 18
U.S.C. 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002