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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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
June 30, 1996 33-97778
CAROLINA COMMUNITY BANCSHARES, INC.
-----------------------------------
(Exact name of small business issuer as specified in its charter)
South Carolina 57-1024331
- --------------------------------------------------------------------------------
(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 Principle 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
--- ---
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 414,710
- ----------------------------- ---------------------------------
Class Outstanding as of August 10, 1996
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CAROLINA COMMUNITY BANCSHARES, INC.
Latta, South Carolina
Consolidated Balance Sheets
June 30, Dec 31,
1996 1995
ASSETS (UNAUDITED) (AUDITED)
----------- -----------
Cash and due from banks $ 1,385,630 $ 1,095,219
Investment securities:
Securities available-for-sale, at market value 5,132,999 6,807,740
Investment securities:
Securities held-to-maturity, at market value 838,515 1,005,475
Federal funds sold 1,600,000
Loans, net 16,118,836 10,381,406
Property & equipment, net 541,404 171,360
Goodwill 1,428,354 1,459,924
Other assets 293,297 258,219
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Total Assets $27,339,035 $21,179,343
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LIABILITIES and SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 4,439,823 $ 3,501,360
Interest bearing deposits 18,686,790 12,834,924
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Total Deposits $23,126,613 $16,336,284
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Accounts Payable $ 105,036 $ 154,152
Federal funds purchased 0 650,000
Note payable 0 1,100,000
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Total Payables $ 105,036 $ 1,904,152
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Total Liabilities $23,231,649 $18,240,436
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Commitments and contingencies
Shareholders' Equity:
Common stock, $1.00 par value, 10,000,000 shares
authorized 414,710 (6-30-96) & 300,957
(12-31-96) shares issued & outstanding $ 414,710 $ 300,957
Paid-in-capital 3,702,131 2,678,353
Retained Earnings (deficit) 27,353 (20,089)
Unrealized gain (loss)
Securities available-for-sale (36,808) (20,314)
Total Shareholders' Equity $ 4,107,386 $ 2,938,907
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Total Liabilities and Shareholder's Equity $27,339,035 $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 Income Statement
(Unaudited)
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
Jun 30 Jun 30 Jun 30, Jun 30,
1996 1995 1996 1995
---- ---- ---- ----
Interest income $459,349 $845,446
Interest expense 181,160 COMPANY 351,911 COMPANY
-------- --------
Net interest income $278,189 WAS $493,535 WAS
Provision for possible loan losses 10,000 NOT 46,000 NOT
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OPERATIONAL OPERATIONAL
Net interest income after provision
for possible loan losses $268,189 $447,535
Other income
Service charges 57,786 106,881
Miscellaneous income 13,698 28,458
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Total Other Income $ 71,484 $135,339
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Salaries and benefits 145,492 $294,853
Depreciation 21,010 35,113
Amortization 26,369 52,440
Data Processing 1,347 3,023
Regulatory fees and assessments 3,699 7,146
Other operating expenses 52,438 102,828
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Total operating expenses $250,355 $495,403
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Net income before taxes $ 89,318 $ 87,471
Income Taxes (30,255) (40,028)
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Net income $ 59,063 $ 47,443
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Income (Loss) per share $ 0.15 $ 0.12
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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 Cash Flows
(Unaudited)
For the six months
ended June 30,
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1996 1995
---- ----
Cash flows from operating activities: $ 169,117 COMPANY
WAS
Cash flows from investing activities:
Securities, available-for-sale NOT
Purchase of securities $(2,000,781)
Maturity and paydowns 3,675,522 OPERATIONAL
Securities, held-to-maturity
Maturity and paydowns 166,960
(Increase) in loans (5,893,009)
Purchase of property and equipment (405,157)
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Net cash used in investing activities $(4,456,465)
Cash flows from financing activities:
Issuance of common stock, net $ 1,137,430
Note payable (1,100,000)
Purchase of federal funds (650,000)
Increase in deposits 6,790,329
Cash (used by) financing activities $ 6,177,759
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Net Increase in cash and cash equivalents 1,890,411
Cash and cash equivalents, beginning of
period 1,095,219
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Cash and cash equivalents, end of
period $2,985,630
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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)
June 30, 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 for interim
financial information, the instructions for Form 10-QSB and to general practices
in the banking industry. Accordingly they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statement presentation. 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 shareholder's equity. Unrealized gains
and losses are excluded from the income statement.
Loans, Interest and Fee Income on Loans. Loans are stated at the
principal balance outstanding. Unearned discount, 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.
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CAROLINA COMMUNITY BANCSHARES, INC.
Latta, South Carolina
Notes to consolidated Financial Statements (Unaudited)
June 30, 1996
Loans are generally placed on non-accrual status when principal or
interest becomes 90 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 judgment 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.
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 the 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 Income Per Share. Net income per share was computed by dividing
the net income by the average number of shares outstanding for the three months
and six months ended, June 30, 1996 (404,667 shares). Income per share of $.12
for the six month period ended June 30, 1996 and $.15 for the three month period
ended June 30, 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 June
30, 1996 financial statements evidence a satisfactory liquidity position as
total cash, cash equivalents, and federal funds amounted to $2,985,630
representing 10.9% of total assets. Investment securities amounted to
$5,971,514 representing 21.8% 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 six month period
ended June 30, 1996, total deposits increased from $16,336,284 at December 31,
1995 to $23,126,613, representing an annualized increase of 83.0%. The Company,
however, 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, demand, 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 Office of the Comptroller of the Currency
(the "OCC").
Minimum
Bank's required
June 30, 1996 by regulator
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Leverage ratio 9.81% 4.0%
Risk weighted ratio 16.43% 8.0%
Note that with respect to the leverage ratio, the OCC requires a
minimum of 5.0% to 6.0% ratio for the banks that are not rated CAMEL 1. Although
the Bank is not rated CAMEL 1, its leverage ratio of 9.81% is well above the
required minimum.
Financial Condition and Results of Operations
Since principle banking operations only commenced on November 1, 1995,
a comparison of the June 30, 1995 results are not meaningful. This discussion
will therefore concentrate on the June 30, 1996 results.
Net income for the three month and six month periods ended June 30,
1996 amounted to $59,063 and $47,443, or $.15 and $.12 per share respectively.
The following is a brief discussion of the more significant components of net
income:
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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 for the six month
period ended June 30, 1996.
Interest Earning Assets/ Average Interest/ Income
Bearing Liabilities Balance Cost Yield/Cost
------------------- ------- ----- ----------
Federal Funds Sold $ 465,193 $ 10,725 4.61%
Securities 5,509,139 197,593 7.17%
Loans 13,929,927 637,128 9.15%
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Total $19,904,259 $845,446 8.50%
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Deposits $19,175,514 $341,131 3.34%
Federal Fund Purchased 235,359 10,780 9.16%
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Total $19,410,873 $351,911 3.63%
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Net Interest Income $493,535
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Net Yield on Earning Assets 5.16%
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The following presents, in a tabular form, the main components of interest
earning assets and interest bearing liabilities for the three month period ended
June 30, 1996.
Interest Earning Assets/ Average Interest/ Income
Bearing Liabilities Balance Cost Yield/Cost
------------------- ------- ----- ----------
Federal Funds Sold $ 858,218 $ 10,632 4.96%
Securities 6,282,710 95,078 6.05%
Loans 14,978,431 353,639 9.44%
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Total $22,119,359 $459,349 8.31%
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Deposits $21,337,699 $180,703 3.31%
Federal Fund Purchased 32,222 457 5.67%
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Total $22,369,921 $181,160 3.24%
----------- -------- ----
Net Interest Income $278,189
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Net Yield on Earning Assets 5.03%
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b. Other income for the three month and the six month periods
ended June 30, 1996 amounted to $71,484 and $135,339,
respectively. On an annualized basis, this represents 1.0% and
0.9% of total assets for the three month and six month periods
ended June 30, 1996, respectively.
c. Operating expenses, for the three-month period and the six
month periods ended June 30, 1996 amounted to $250,355 and
$495,403, respectively. On an annualized basis, this represents
3.6% of total assets for the three month period and the six
month periods ended June 30, 1996.
At December 31, 1995, the allowance for loan losses amounted to
$157,420. By June 30, 1996, the allowance had grown to $203,160. Despite the
increase, however, the allowance for loan losses, as a percentage of gross
loans, declined from 1.49% at December 31, 1995 to 1.44% and 1.25% during the
three month and six month periods ended June 30, 1996, respectively. Management
considers the allowance for
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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 recommendations 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.
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 June 30, 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: August 10, 1996 By: /s/ R. Walton Brown
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R. Walton Brown
President and Chief Executive Officer
(Principle Executive, Financial and
Accounting Officer)
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