Four Oaks Banks posted the largest quarterly net income in its 103-year-history thanks to a $16.5 million one-time gain.
That gain is rooted in the Johnston County-based bank's improved confidence in its future performance.
Four Oaks, a community bank with 16 branches, reported Friday that its second-quarter net income totaled $17.5 million. Excluding the one-time gain, Four Oaks posted net income of more than $900,000.
A year ago the bank reported net income of $2.4 million, but that result also was bolstered by a one-time gain. Minus that gain, its net income in the first quarter of 2014 was $700,000.
The bank's latest one-time gain stems from its decision in the midst of the recession to set aside a reserve, called a "valuation allowance," against tax loss carryforwards it had accumulated in money-losing quarters. Accounting rules require such reserves if, in management's opinion, there is less than a 50 percent chance that it will be able to make enough money in future quarters to take advantage of the tax loss carryforwards.
But the bank, which last year raised $24 million from investors to shore up its finances, now anticipates that it will be able to benefit.
“It does, at its core ... reflect the belief of the bank – as well as our advisors, tax, auditors, etc. – that our performance has improved fairly dramatically,” said CEO David Rupp. “It’s a representation of the fact that we believe will will have years of taxable earnings going forward.”
The bank still has $5 million remaining in its valuation allowance.
“We’re just being a little conservative,” Rupp said.
The $16.5 million gain also boosts the bank’s capital.
“More equity generally means a more sound institution,” Rupp said.
Rupp said that releasing most of the money in its valuation reserve has been in the works since last year, when the bank adopted a new strategic plan.
Rupp took over as CEO at the beginning of July. He succeeded Ayden R. Lee Jr., who was at the helm of the bank for more than three decades and is now executive chairman.
Four Oaks shares were trading at $1.65, up 8 cents, Friday morning. The company’s shares have risen 9 percent this year.