Four Oaks Fincorp, Inc. (OTCBB:FOFN) (the “Company”), the
holding company for Four Oaks Bank & Trust Company (the
“Bank”), today announced the results for the second quarter and six
months ended June 30, 2013. The net loss for the second
quarter and six months ended June 30, 2013 was $104,000 and
$27,000, respectively, compared to net income of $29,000 and
$581,000 for the same periods of 2012, respectively. The provision
for loan losses for the six months ended June 30, 2013 of
$35,000 was greater than the negative provision of $286,000 for the
same period in 2012. The Company had $2.5 million in net
charge-offs recognized during the six months ended June 30,
2013 as compared to $2.4 million in net charge-offs recognized for
the same period in 2012. Nonaccrual loans were $34.0 million at
June 30, 2013, a decrease of $2.0 million from $36.0 million
at December 31, 2012. The allowance for loan losses (ALLL) as
a percentage of gross loans was 2.87% at June 30, 2013
compared to 3.32% at December 31, 2012. The decrease in the
ALLL as a percentage of gross loans occurred primarily due to the
decrease in the specific reserves on impaired loans which decreased
from $5.4 million at December 31, 2012 to $1.4 million at
June 30, 2013. The ALLL percentage for loans not considered
impaired actually increased from 2.54% at December 31, 2012 to
2.86% at June 30, 2013. Management believes the June 30,
2013 allowance for loan losses is adequate to absorb probable
losses inherent in the loan portfolio. We believe the strengthened
internal controls related to the identification and valuation of
impaired loans that we put in place during 2011 and 2012 resulted
in more timely recognition of impaired assets resulting in more
effective resolution of those assets. In 2013 our focus is directed
to moving impaired assets off of our balance sheet.
The Bank was well capitalized at June 30, 2013, with total
risk based capital of 10.95%, tier 1 risk based capital of 9.68%,
and leverage ratio of 5.58%. At June 30, 2012, the Bank had
total risk based capital of 10.95%, tier 1 risk based capital of
9.68%, and leverage ratio of 5.53%. The Company had total risk
based capital of 10.82%, tier 1 risk based capital of 6.38%, and
leverage ratio of 3.68% at June 30, 2013, as compared to
11.49%, 7.92%, and 4.52%, respectively, at June 30, 2012. We
continue actively assessing our alternatives for preserving and
improving capital, which may include increasing tangible common
equity and regulatory capital, reducing our balance sheet, or other
strategies.
Asset Quality:
Total nonperforming assets were $45.8 million or 5.52% of total
assets at June 30, 2013, as compared to $67.4 million or 7.45%
of total assets at June 30, 2012, and $51.1 million or 5.91%
at December 31, 2012. Nonperforming loans declined to $34.0
million at June 30, 2013 from $52.1 million at June 30,
2012 and $36.0 million at December 31, 2012. Foreclosed assets
totaled $11.8 million at June 30, 2013, down from $15.3
million at June 30, 2012, and $15.1 million at
December 31, 2012. Troubled debt restructurings (TDRs) totaled
$28.1 million at June 30, 2013, and are comprised of $15.7
million which were included in nonperforming TDRs and $12.4 million
which were performing TDRs. This compares to total TDRs at
December 31, 2012 of $31.6 million comprised of $18.3 million
non-performing TDRs which were included in nonaccrual loans and
$13.3 million which were performing TDRs. We are in partial
compliance with the written agreement in place with our regulators,
which calls for the Company to reduce problem assets and
concentrations of credit, while also increasing capital.
Net Interest Income and Net Interest Margin:
Net interest income before the provision for loan losses totaled
$5.0 million and $10.3 million for the three and six months ended
June 30, 2013, respectively, as compared to $5.4 million and
$11.4 million for the same periods in 2012. Net interest margin
annualized for the three and six months ended June 30, 2013
was 2.65% and 2.75%, respectively, as compared to 2.47% and 2.59%
for the same periods in 2012. Our net interest margin continues to
suffer due to elevated levels of nonaccrual loans, despite
improvements in cost of funds. Interest expense declined to $2.2
million and $4.5 million for the three and six months ended
June 30, 2013, respectively, as compared to $3.2 million and
$6.4 million for the same periods in 2012, due to maturing deposits
repricing at lower rates and early calls of brokered deposits.
Non-Interest Income:
Non-interest income for the three and six months ended
June 30, 2013, increased $0.3 million and $0.6 million,
respectively, to $1.7 million and $3.8 million from $2.0 million
and $3.2 million for the same periods in 2012. This increase was
the result of the gain from the sale of two branches to First Bank
in the amount of $0.6 million, and non-interest income generated by
the mortgage services division of $0.3 million, offset by a
decrease in the gain on available for sale securities of $0.3
million.
Non-Interest Expense:
Non-interest expense totaled $6.8 million and $14.1 million for
the three and six months ended June 30, 2013, respectively, as
compared to $7.6 million and $14.4 million for the same periods in
2012. The primary decreases in non-interest expenses were due to
decreases in the losses on the sale and write-downs of foreclosed
assets of $153,000, a decrease in FDIC assessment premiums of
$199,000, and a reduction in collection expenses of $307,000,
offset by increases in professional and consulting fees of
$113,000, salaries and benefits of $234,000, and other operating
expenses of $58,000.
Balance Sheet and Capital:
Total assets of $828.9 million at June 30, 2013 declined
4.23% from $865.5 million at December 31, 2012. Net cash, cash
equivalents, and investments of $301.2 million at June 30,
2013 decreased 0.81% compared to $303.7 million at
December 31, 2012. Gross loans of $489.2 million at
June 30, 2013 decreased 1.7% from $497.9 million at
December 31, 2012. Total deposits of $657.5 million at
June 30, 2013 decreased 6.1% from $699.9 million at
December 31, 2012. Total shareholders' equity was $22.3
million at June 30, 2013, a decrease of 1.8%from $22.7 million
at December 31, 2012. Book value per share at June 30,
2013 was $2.80 as compared to $2.90 at December 31, 2012.
At December 31, 2012, we were required to report $19.3 million
of loans and $1.9 million of fixed assets as “held for sale”
related to the sale of our Rockingham and Southern Pines branches
to First Bank which closed on March 22, 2013. Subject to a
one-hundred day settlement period, the final cash settlement of
$39.6 million to First Bank resulted from the assumption of
customer deposits of $57.4 million less a 1% premium of the
deposits balance of $0.6 million, and the sale of $17.2 million of
related assets comprised of $0.2 million in cash on hand, $1.9
million of real property and equipment and $15.1 million of loans
valued at March 19, 2013. We began operating a Loan Production
Office from that location on Monday, March 25, 2013, in order to
service the loans from the area that were not included in the sale.
John Bullard resigned as a member of our Board of Directors
effective March 31, 2013, in order to become the manager of the new
Southern Pines Loan Production Office with the title Senior Vice
President/Commercial Loan Manager.
Chairman, President, and Chief Executive Officer, Ayden R. Lee,
Jr. states, “We have made significant improvements in asset quality
in the past four quarters. As we continue to reduce nonperforming
assets, our earnings are expected to improve due to improved net
interest margins and reductions in the cost of carrying
nonperforming assets. We remain vigilant in looking for
opportunities to cut costs of operations and increase revenues
while providing our customers with the exceptional service that
they expect and deserve from their hometown community bank.”
With $828.9 million in total assets as of June 30, 2013,
the Company, through its wholly owned subsidiary, Four Oaks Bank
& Trust Company, offers a broad range of financial services
through its fourteen offices in Four Oaks, Clayton, Smithfield,
Garner, Benson, Fuquay-Varina, Wallace, Holly Springs, Harrells,
Zebulon, Dunn, Raleigh, and Southern Pines (loan production), North
Carolina. Four Oaks Fincorp, Inc. trades through its market makers
under the symbol of FOFN.
Information in this press release may contain forward-looking
statements. These statements involve risks and uncertainties that
could cause actual results to differ materially, including without
limitation, our ability to comply with the Written Agreement we
entered with the Federal Reserve Bank of Richmond and the North
Carolina Office of the Commissioner of Banks in May 2011, 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, our
ability to raise capital and continue as a going concern, the
failure of assumptions underlying the establishment of the
allowance for loan losses, our ability to maintain an effective
internal control environment, and the low trading volume of the
Company's common stock. Additional factors that could cause actual
results to differ materially are discussed in the Company's filings
with the Securities and Exchange Commission, including without
limitation its Annual Report on Form 10-K, its Quarterly Reports on
Form 10-Q, and its Current Reports on Form 8-K. The Company does
not undertake a duty to update any forward-looking statements in
this press release.