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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number
MARCH 31, 1996 33-97778
CAROLINA COMMUNITY BANCSHARES, INC.
- - -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
SOUTH CAROLINA 57-1024331
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 EAST LEITNER STREET, LATTA, SOUTH CAROLINA 29565
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(Address of Principal Executive Offices)
(803) 752-7139
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(Issuer's Telephone Number, Including Area Code)
Not Applicable
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Common Stock, $1.00 Par Value 381,757
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Class Outstanding as of May 10, 1996
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAROLINA COMMUNITY BANCSHARES, INC.
LATTA, SOUTH CAROLINA
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
ASSETS (Unaudited) (Audited)
----------- ------------
Cash and due from banks $ 1,024,004 $ 1,095,219
Investment securities:
Securities available-for-sale,
at market value 5,867,772 6,807,740
Investment securities:
Securities held-to-maturity,
at market value 862,507 1,005,475
Loans, net 13,180,818 10,381,406
Property & equipment, net 556,903 171,360
Goodwill 1,457,347 1,459,924
Other assets 232,968 258,219
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Total Assets $23,182,319 $21,179,343
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 3,316,839 $ 3,501,360
Interest bearing deposits 15,599,175 12,834,924
----------- -----------
Total deposits $18,916,014 $16,336,284
Accounts payable 131,704 154,152
Federal funds purchased -- 650,000
Note payable 400,000 1,100,000
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Total Liabilities $19,447,718 $18,240,436
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Commitments and contingencies
Shareholders' Equity:
Common stock, $1.00 par value,
10,000,000 shares authorized,
381,300 (3-31-96)
& 300,957 (12-31-95)
shares issued & outstanding $ 381,300 $ 300,957
Paid-in capital 3,401,441 2,678,353
Retained deficit (31,709) (20,089)
Unrealized gain/(loss) on
securities available-for-sale (16,431) (20,314)
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Total Shareholders' Equity $ 3,734,601 $ 2,938,907
----------- -----------
Total Liabilities and
Shareholders' Equity $23,182,319 $21,179,343
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Refer to notes to the consolidated financial statements.
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CAROLINA COMMUNITY BANCSHARES, INC.
LATTA, SOUTH CAROLINA
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the three months
ended March 31,
------------------------
1996 1995
------------------------
Interest income $386,097 Company
Interest expense 170,751
--------
was
Net interest income $215,346
not
Provision for possible loan losses 36,000
--------
operational
Net interest income after provision
for possible loan losses $179,346
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Other income
Service charges $ 49,095
Miscellaneous income 14,760
--------
Total other income $ 63,855
--------
Salaries and benefits $149,361
Depreciation 14,103
Amortization 26,071
Data processing 1,676
Regulatory fees and assessments 3,447
Other operating expenses 50,390
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Total operating expenses $245,048
--------
Net (loss) before taxes $ (1,847)
Income taxes 9,773
--------
Net (loss) $(11,620)
========
(Loss) per share $ (.03)
========
Refer to notes to the consolidated financial statements.
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CAROLINA COMMUNITY BANCSHARES, INC.
LATTA, SOUTH CAROLINA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
---------------------------
March 31,
---------------------------
1996 1995
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Cash flows from operating activities: $ 128,008 Company
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Cash flows from Investing Activities: was
Securities, available-for-sale
Purchase of securities $(1,502,812) not
Maturity and paydowns 2,379,486
Securities, held-to-maturity operational
Maturity and paydowns 126,000
(Increase) in loans (2,835,412)
Purchase of property and equipment (399,646)
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Net cash used in investing activities $(2,232,384)
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Cash flows from Financing Activities:
Issuance of common stock, net $ 803,431
Note payable (700,000)
Purchase of federal funds (650,000)
Increase in deposits 2,579,730
-----------
Cash (used by) financing activities $ 2,033,161
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Net decrease in cash
and cash equivalents $ (71,215)
Cash and cash equivalents,
beginning of period 1,095,219
-----------
Cash and cash equivalents,
end of period $ 1,024,004
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Refer to notes to the consolidated financial statements.
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CAROLINA COMMUNITY BANCSHARES, INC.
LATTA, SOUTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
NOTE 1 - SUMMARY OF ORGANIZATION
Carolina Community Bancshares, Inc., Latta, South Carolina (the "Company")
was incorporated under the laws of the State of South Carolina on May 26, 1995,
for the purpose of operating as a bank holding company pursuant to the Bank
Holding Company Act of 1956, as amended.
Pursuant to a Stock Purchase Agreement entered into with SouthTrust
Corporation, Birmingham, Alabama ("SouthTrust"), the Company consummated the
purchase of SouthTrust Bank of Dillon County on November 1, 1995. Immediately
thereafter, the acquired bank was renamed Carolina Community Bank, N.A. (the
"Bank").
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Reclassification. The consolidated financial
statements include the accounts of the Company and the Bank. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Basis of Accounting. The accounting and reporting policies of the Company
conform to generally accepted accounting principles and to general practices in
the banking industry. The Company uses the accrual basis of accounting by
recognizing revenues when earned and expenses when incurred, without regarding
the time of receipt or payment of cash.
Investment Securities. The Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investment in Debt and
Equity Securities" ("SFAS 115"). SFAS 115 requires investments in equity and
debt securities to be classified into three categories:
1. Held-to-maturity securities: These are securities which the
Company has the ability and intent to hold until maturity. These
securities are stated at cost, adjusted for amortization of premiums
and the accretion of discounts.
2. Trading securities: These are securities which are bought
and held principally for the purpose of selling in the near future.
Trading securities are reported at fair market value, and related
unrealized gains and losses are recognized in the income statement.
3. Available-for-sale securities: These are securities which
are not classified as either held-to-maturity or as trading
securities. These securities are reported at fair market value.
Unrealized gains and losses are reported, net of tax, as separate
components of shareholders' equity. Unrealized gains and losses are
excluded from the income statement.
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CAROLINA COMMUNITY BANCSHARES, INC.
LATTA, SOUTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
Loans, Interest and Fee Income on Loans. Loans are stated at the
principal balance outstanding. Unearned discounts, unamortized loan fees and
the allowance for possible loan losses are deducted from total loans in the
statement of condition. Interest income is recognized over the term of the
loan based on the principal amount outstanding. Points on real estate loans
are taken into income to the extent they represent the direct cost of
initiating a loan. The amount in excess of direct costs is deferred and
amortized over the expected life of the loan.
Loans are generally placed on non-accrual status when principal or
interest becomes ninety days past due, or when payment in full is not
anticipated. When a loan is placed on non-accrual status, interest accrued but
not received is generally reversed against interest income. If collectibility
is in doubt, cash receipts on non-accrual loans are not recorded as interest
income, but are used to reduce principal.
Allowance for Possible Loan Losses. The provisions for loan losses
charged to operating expense reflect the amount deemed appropriate by
management to establish an adequate reserve to meet the present and foreseeable
risk characteristics of the current loan portfolio. Management's judgement is
based on periodic and regular evaluation of individual loans, the overall risk
characteristics of the various portfolio segments, past experience with losses
and prevailing and anticipated economic conditions. Loans which are determined
to be uncollectible are charged against the allowance. Provisions for loan
losses and recoveries on loans previously charged off are added to the
allowance.
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). Under the new
standard, a loan is considered impaired, based on current information and
events, if it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. The measurement of impaired loans is
generally based on the present value of expected future cash flows discounted
at the historical effective interest rate, except that all collateral-dependent
loans are measured for impairment based on the fair value of the collateral.
In October 1994, FASB issued Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition
and Disclosure" ("SFAS 118"). SFAS 118 amends SFAS 114 to allow a creditor to
use existing methods for recognizing interest income on an impaired loan,
rather than the methods prescribed in SFAS 114.
Property and Equipment. Building, furniture and equipment are stated at
cost, net of accumulated depreciation. Depreciation is computed using the
straight line method over the estimated useful lives of the related assets.
Maintenance and repairs are charged to operations, while major improvements are
capitalized. Upon retirement, sale or other disposition of property and
equipment, the cost and accumulated depreciation are eliminated from the
accounts, and gain or loss is included in income from operations.
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CAROLINA COMMUNITY BANCSHARES, INC.
LATTA, SOUTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
Income Taxes. The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109,
deferred tax assets and liabilities are recognized for the expected future tax
consequences of events that have been recognized in the financial statements or
tax return. Deferred tax assets and liabilities are measured using the enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be realized or settled.
Statement of Cash Flows. For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks and federal funds
sold. Generally, federal funds are purchased or sold for one day periods.
Net Loss Per Share. Net loss per share was computed by dividing the net
loss by the weighted average number of shares outstanding for the period ended
March 31, 1996 (341,129 shares). Loss per share of $.03 for the three-month
period ended March 31, 1996 may not be indicative of projected earnings/losses
for the year ending December 31, 1996.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company was incorporated in South Carolina on May 26, 1995 to become a
bank holding company and to own and control all of the outstanding shares of an
existing bank, SouthTrust Bank of Dillon County, Latta, South Carolina.
Pursuant to a Stock Purchase Agreement entered into with SouthTrust
Corporation, Birmingham, Alabama, the Company consummated the purchase of
SouthTrust Bank of Dillon County on November 1, 1995. Immediately thereafter,
the acquired bank was renamed Carolina Community Bank, N.A. To fund the
purchase price of $4.0 million, the Company (i) sold, through a Private
Placement Memorandum, 300,957 shares of its common stock for $2,979,310 (net of
$30,260 in selling expenses) and (ii) borrowed $1.1 million from an unrelated
financial institution.
Liquidity and Sources of Capital
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customers. The March
31, 1996 financial statements evidence a satisfactory liquidity position as
total cash and cash equivalents amounted to $1.0 million, representing 4.3% of
total assets. Investment securities amounted to $6.7 million, representing
28.9% of total assets; these securities provide a secondary source of liquidity
since they can be converted into cash in a timely manner. Note that the
Company's ability to maintain and expand its deposit base and borrowing
capabilities are a source of liquidity. For the three-month period ended March
31, 1996, total deposits increased from $16.3 million to $18.9 million,
representing an annualized increase of 63.8%. Note, however, that the Company
does not expect to maintain or duplicate this growth rate. The Company's
management closely monitors and maintains appropriate levels of interest
earning assets and interest bearing liabilities so that maturities of assets
are such that adequate funds are provided to meet customer withdrawals and loan
demand. There are no trends, demands, commitments, events or uncertainties
that will result in or are reasonably likely to result in the Company's
liquidity increasing or decreasing in any material way.
The Bank maintains an adequate level of capitalization as measured by the
following capital ratios and the respective minimum capital requirements by the
Bank's primary regulator, the OCC.
Minimum
Bank's required
March 31, 1996 by regulator
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Leverage ratio 11.1% 4.0%
Risk weighted ratio 19.9% 8.0%
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Note that with respect to the leverage ratio, the OCC expects a minimum of
5.0% to 6.0% ratio for banks that are not rated CAMEL 1. Although the Bank is
not rated CAMEL 1, its leverage ratio of 11.1% is well above the required
minimum.
Results of Operations
Since principal banking operations only commenced on November 1, 1995, a
comparison of the March 31, 1996 results (when banking operations were in
progress) to those of March 31, 1995 are not meaningful. This discussion will
therefore concentrate on the March 31, 1996 results.
Net loss for the three-month period ended March 31, 1996 amounted to
$11,620, or $.03 per share. The following is a brief discussion of the more
significant components of net income:
a. Net interest income represents the difference between
interest received on interest earning assets and interest paid on
interest bearing liabilities. The following presents, in a tabular
form, the main components of interest earning assets and interest
bearing liabilities.
Interest Interest
Earning Assets/ Average Income/ Yield/
Bearing Liabilities Balance Cost Cost
------------------- ------- -------- ------
Federal funds sold $ 89,010 $ 93 .01%
Securities 6,507,000 102,515 6.30%
Loans 13,101,000 283,489 8.66%
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Total $19,697,010 $386,097 7.84%
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Deposits $18,112,000 $160,428 3.54%
Federal fund purchased 761,000 10,323 5.43%
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Total $18,873,000 $170,751 3.62%
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Net interest income $215,346
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Net yield on earning assets 4.37%
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b. Other income for the three-month period ended March 31,
1996 amounted to $63,855. On an annualized basis, this represents
11.0% of total assets.
c. Operating expenses for the three-month period ended March
31, 1996 amounted to $245,048. On an annualized basis, this
represents 4.22% of total assets.
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At December 31, 1995, the allowance for loan losses amounted to $157,420.
By March 31, 1996, the allowance had grown to $193,193. Despite the increase,
however, the allowance for loan losses, as a percentage of gross loans,
declined from 1.49% to 1.44% during the three-month period ended March 31,
1996. Management considers the allowance for loan losses to be adequate and
sufficient to absorb possible future losses; however, there can be no assurance
that charge-offs in future periods will not exceed the allowance for loan
losses or that additional provisions to the allowance will not be required.
The Company is not aware of any current recommendation by the regulatory
authorities which, if they were to be implemented, would have a material effect
on the Company's liquidity, capital resources, or results of operations.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed with this report.
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter ended March 31, 1996.
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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.
CAROLINA COMMUNITY BANCSHARES, INC.
Dated: May 13, 1996 By: /s/ R. Walton Brown
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R. Walton Brown
President and Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)