SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_]Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AMERICAN COMMUNITY BANCSHARES, Inc.
(Name of Registrant as Specified In Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3)Filing Party:
(4) Date Filed:
AMERICAN COMMUNITY BANCSHARES, INC.
2593 West Roosevelt Boulevard
Monroe, North Carolina 28110
(704) 225-8444
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------------------------------
To Be Held
April 17, 2001
NOTICE is hereby given that the Annual Meeting of Shareholders of American
Community Bancshares, Inc. (the "Company") will be held as follows:
Place: American Community Bank
2593 West Roosevelt Boulevard
Monroe, North Carolina
Date: April 17, 2001
Time: 10:00 a.m.
The purposes of the meeting are:
1. To elect eight members of the Board of Directors for one year terms.
2. To approve the American Community Bancshares, Inc. 2001 Incentive
Stock Option Plan.
3. To ratify the appointment of Dixon Odom PLLC as the Company's
independent public accountants for 2001.
4. To transact any other business that may properly come before the
meeting.
You are cordially invited to attend the meeting in person. However, even if you
expect to attend the meeting, you are requested to complete, sign and date the
enclosed appointment of proxy and return it in the envelope provided for that
purpose to ensure that a quorum is present at the meeting. The giving of an
appointment of proxy will not affect your right to revoke it or to attend the
meeting and vote in person.
By Order of the Board of Directors
/s/ Randy P. Helton
Randy P. Helton
President and Chief Executive Officer
March 9, 2001
AMERICAN COMMUNITY BANCSHARES, INC.
2593 West Roosevelt Boulevard
Monroe, North Carolina 28110
(704) 225-8444
PROXY STATEMENT
Mailing Date: On or about March 9, 2001
ANNUAL MEETING OF SHAREHOLDERS
------------------------------
To Be Held
April 17, 2001
General
This Proxy Statement is furnished in connection with the solicitation
of the enclosed appointment of proxy by the Board of Directors of American
Community Bancshares, Inc. (the "Company") for the 2001 Annual Meeting of
Shareholders of the Company (the "Annual Meeting") to be held at American
Community Bank, 2593 West Roosevelt Boulevard, Monroe, North Carolina, at 10:00
a.m. on Tuesday, April 17, 2001, and any adjournments thereof.
Solicitation and Voting of Appointments of Proxy; Revocation
Persons named in the appointment of proxy as proxies to represent
shareholders at the Annual Meeting are William R. Adcock, Richard M. Cochrane,
and W. Farrell Richardson. Shares represented by each appointment of proxy which
is properly executed and returned, and not revoked, will be voted in accordance
with the directions contained in the appointment of proxy. If no directions are
given, each such appointment of proxy will be voted FOR the election of each of
---
the eight nominees for director named in Proposal 1 below and FOR Proposals 2
---
and 3. If, at or before the time of the Annual Meeting, any nominee named in
Proposal 1 has become unavailable for any reason, the proxies will have the
discretion to vote for a substitute nominee. On such other matters as may come
before the meeting, the proxies will be authorized to vote shares represented by
each appointment of proxy in accordance with their best judgment on such
matters. An appointment of proxy may be revoked by the shareholder giving it at
any time before it is exercised by filing with Dan R. Ellis, Jr., Secretary of
the Company, a written instrument revoking it or a duly executed appointment of
proxy bearing a later date, or by attending the Annual Meeting and announcing
his or her intention to vote in person.
Expenses of Solicitation
The Company will pay the cost of preparing, assembling and mailing this
Proxy Statement and other proxy solicitation expenses. In addition to the use of
the mails, appointments of proxy may be solicited in person or by telephone by
the Company's officers, directors and employees
without additional compensation. The Company will reimburse banks, brokers and
other custodians, nominees and fiduciaries for their costs in sending the proxy
materials to the beneficial owners of the Company's common stock.
Record Date
The close of business on February 21, 2001, has been fixed as the
record date (the "Record Date") for the determination of shareholders entitled
to notice of and to vote at the Annual Meeting. Only those shareholders of
record on that date will be eligible to vote on the proposals described herein.
Voting Securities
The voting securities of the Company are the shares of its common
stock, par value $1.00 per share, of which 9,000,000 shares are authorized and
preferred stock, no par value, of which 1,000,000 shares are authorized. At
December 31, 2000, there were 1,492,063 shares of common stock and no shares of
preferred stock outstanding. There are approximately 1,650 holders of record of
the Company's common stock.
Voting Procedures; Votes Required for Approval
Each shareholder is entitled to one vote for each share held of record
on the Record Date on each director to be elected and on each other matter
submitted for voting. In accordance with North Carolina law, shareholders will
not be entitled to vote cumulatively in the election of directors at the Annual
Meeting.
In the case of Proposal 1 below, the eight directors receiving the
greatest number of votes shall be elected.
In the case of Proposals 2 and 3 below, for such proposals to be
approved, the number of votes cast for approval must exceed the number of votes
cast against the proposals. Abstentions and broker non-votes will have no
effect.
Ownership of Voting Securities
As of December 31, 2000, no shareholder known to management owned more
than 5% of the Company's common stock.
2
As of December 31, 2000, the beneficial ownership of the Company's
common stock, by directors individually, and by directors and executive officers
as a group, was as follows:
NAME AND ADDRESS
OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP /(1)(2)/ CLASS /(3)/
---------------- -------------------- -----
Thomas J. Hall 24,790 1.49
Charlotte, NC
Larry S. Helms 24,919 1.50
Monroe, NC
Randy P. Helton 33,446 / 1,000/(4)/ 2.01
Charlotte, NC
Kenneth W. Long 56,138 3.37
Monroe, NC
L. Steven Phillips 33,716 / 2,000/(4)/ 2.02
Charlotte, NC
Alison J. Smith 240 / 10,500/(4)/ 0.01
Charlotte, NC
David D. Whitley 20,292 1.22
Monroe, NC
Gregory N. Wylie 29,750 / 12,318/(4)/ 1.79
Monroe, NC
All Directors and Executive
Officers as a Group (17
persons) 250,020/(4)/ 15.37
(1) Except as otherwise noted, to the best knowledge of the Company's
management, the above individuals and group exercise sole voting and investment
power with respect to all shares shown as beneficially owned other than the
following shares as to which such powers are shared: Mr. Helton--720 shares; Mr.
Long--240 shares; Mr. Whitley--4,327 shares.
(2) Included in the beneficial ownership tabulations are the following
options to purchase shares of common stock of the Company: Mr. Hall- 12,790
shares, Mr. Helms - 12, 919 shares, Mr. Helton - 22,484 shares, Mr. Long -
29,106 shares, Mr. Phillips - 17,396 shares, Mr. Whitley - 10,470 shares, and
Mr. Wylie - 15,350 shares.
(3) The calculation of the percentage of class beneficially owned by each
individual and the group is based on the sum of (i) a total of 1,492,063 shares
of common stock outstanding as of December 31, 2000, and (ii) 134,464 options
exercisable within 60 days of December 31, 2000.
(4) The individual director and total beneficial ownership totals do not
include the following shares purchased through the Company's stock offering
which closed on February 28,
3
2001: Mr. Helton - 1,000 shares, Mr. Phillips -2,000 shares, Ms. Smith -10,500
shares, Mr. Wylie - 12,318 shares and 6,264 shares purchased by executive
officers or 32,082 shares in aggregate.
PROPOSAL 1: ELECTION OF DIRECTORS
---------------------------------
The Board of Directors has set the number of directors of the Company at
eight and recommends that shareholders vote for each of the directors listed
below for the term of one year:
Position(s) Director Principal Occupation and Business
Name and Age Held Since Experience During Past 5 Years
- ------------- ---- ----- ------------------------------
Thomas J. Hall Director 2000 President, Hall Group, Inc., Charlotte, NC (real estate
(53) holding company).
Larry S. Helms Director 2000 Owner, Larry S. Helms and Associates, Monroe, NC (insurance).
(55)
Randy P. Helton Director, 2000 President and Chief Executive Officer of the Company; former
(45) President and Vice President of the Private Banking Group, First Union
Chief Executive National Bank, Charlotte, NC.
Officer
Kenneth W. Long Chairman of the 2000 Chief Executive Officer, Click Tactics, Inc., Duluth, GA
(52) Board of Directors (Internet direct marketing).
L. Steven Phillips Director 2000 Chief Executive Officer, Charlotte GreenCorp, Inc.,
(50) Charlotte, NC (landscape consultant).
Alison J. Smith Director 2000 President, Smith Capital, Inc., Charlotte, NC (financial
(46) advisory, investment banking).
David D. Whitley Director 2000 President, Whitley Mortgage Associates, Inc., Monroe, NC
(54) (mortgage broker and origination).
Gregory N. Wylie Director 2000 Chief Executive Officer, Metro Marketing, Inc., Charlotte,
(46) NC (specialty food brokerage).
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH OF
---
THE EIGHT NOMINEES FOR DIRECTOR OF THE COMPANY FOR THE TERMS AS INDICATED.
4
In addition to the above-mentioned directors, the following individuals
serve as directors of American Community Bank (the "Bank").
American
Community
Bank
Director Term Principal Occupation and
Name and Age Since Expires Business Experience During Past Five Years
- ------------ ----- ------- ------------------------------------------
Zebulon Morris, Jr. 1998 2003 President, Morris Enterprises, Incorporated, Charlotte, NC
(62) (real estate holding company).
L. Carlton Tyson 1998 2003 President, Tyson Group, Monroe, NC (real estate
(58) development).
H.L. "Ben" Williams 1998 2001 Private Investor; former Chief Executive Officer, Monroe
(55) Appearance Corporation, Monroe, NC.
Director Relationships
No director is a director of any company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934 or
subject to the requirements of Section 15(d) thereof, or any company registered
as an investment company under the Investment Company Act of 1940.
Meetings and Committees of the Board of Directors
The Company's Board of Directors held 11 regular meetings in 2000. The
Company does not have a Nominating Committee. Functions typically performed by
the Nominating Committee are performed by the full Board.
The Boards of the Company and the Bank have several standing
committees. The Bank has a Compensation Committee. The Company and its Bank have
a combined Audit Committee.
Compensation Committee. The members of the compensation committee
include Larry S. Helms, Gregory W. Wylie, L. Steven Phillips, Kenneth W. Long,
and Randy P. Helton (non-voting member). The Compensation Committee reviews and
approves all salaries and benefits of Bank personnel. The Compensation Committee
met four (4) times in 2000.
Report of the Audit Committee
The Audit Committee is responsible for receiving and reviewing the
annual audit report of the Company's independent auditors and reports of
examinations by bank regulatory agencies, and helps formulate, implement, and
review the Company's and its subsidiary's internal audit programs.
5
During the course of its examination of the Company's audit process in
2000, the Audit Committee reviewed and discussed the audited financial
statements with management. The Audit Committee also discussed with the
independent auditors, Dixon Odom PLLC, all matters required to be discussed by
the Statement of Auditing Standards No. 61, as amended. Furthermore, the Audit
Committee received from Dixon Odom PLLC disclosures regarding their independence
required by the Independence Standards Board Standard No. 1, as amended and
discussed with Dixon Odom PLLC their independence.
Based on the review and discussions above, the Audit Committee
recommended to the Board that the audited financial statements be included in
the Company's annual report on Form 10-KSB for the year ended December 31, 2000
for filing with the SEC.
The Audit Committee has written a charter which is attached as Exhibit
A. The Audit Committee members are "independent" as defined by the NASDAQ
listing standards. The Company's common stock is listed for trading on the
NASDAQ SmallCap Market.
The Audit Committee has considered whether the principal accountant's
provision of the information technology services and other non-audit services to
the Company is compatible with maintaining independence of Dixon Odom PLLC. The
Audit Committee has determined that it is compatible with maintaining the
independence of Dixon Odom PLLC.
This report is submitted by the Audit Committee:
L. Steven Phillips, Chairman
H.L. "Ben" Williams, Secretary
Thomas J. Hall
Zebulon Morris, Jr.
L. Carlton Tyson
Director Compensation
Board Fees. Directors received $300 for each Board meeting attended
and $100 for each committee meeting attended.
1999 Nonstatutory Stock Option Plan for Directors. The shareholders of
the Bank at the 1999 annual meeting approved the 1999 Nonstatutory Stock Option
Plan for Directors (the "Nonstatutory Option Plan") pursuant to which options
covering 124,338 shares of the Bank's Common Stock were available for issuance
to members of the Board of Directors and the board of any subsidiary. In
connection with the reorganization of the Bank into the holding company form
which resulted in the creation of the Company, the Nonstatutory Option Plan was
adopted by the Company and options under such plan are now options of the
Company. On April 14, 1999, all 124,338 options were granted under the
Nonstatutory Option Plan at the exercise price of $11.00 per share which was the
fair market value on the date of grant. The exercise price is currently $9.17 as
a result of a 20% stock dividend effected in the fourth quarter of 1999.
6
Executive Officers
Set forth below is certain information regarding the Company's
executive officers.
POSITION
WITH
NAME AGE COMPANY BUSINESS EXPERIENCE
- ---- --- ------- -------------------
Randy P. Helton 45 Director, Former Vice President of the Private Banking Group, First
President and Union National Bank, Charlotte, NC. Mr. Helton has 22
Chief years of banking experience.
Executive
Officer
Dan R. Ellis, Jr. 45 Chief Certified Public Accountant; former Partner, AccuPointe,
Financial Inc., Monroe, NC; former Vice President and Chief
Officer and Financial Officer, Coresource, Inc., Charlotte, NC; former
Senior Vice Senior Auditor, McGladrey Pullen, Charlotte, NC.
President
W. R. "Randy" Adcock 44 Senior Vice Former Vice President and Commercial Loan Officer, Bank of
President and Union (now First Charter National Bank), Monroe, NC. Mr.
Monroe City Adcock has 22 years of banking experience.
Executive
Steven L. Barnes 45 Senior Vice Former Vice President and Loan Officer, First Charter
President and National Bank, Indian Trail, NC. Mr. Barnes has 18 years
Indian Trail of banking experience.
City Executive
Richard M. Cochrane 48 Senior Vice Former Commercial Loan Officer, SouthTrust Bank of North
President and Carolina, Mint Hill, NC. Mr. Cochrane has 22 years of
Matthews/Mint banking experience.
Hill City
Executive
Jeff N. Coley 41 Senior Vice Former Branch Manager, BB&T, Marshville, NC. Mr. Coley
President and has 22 years of banking experience.
Marshville
City Executive
Dwight Henry 62 Senior Vice Former Commercial Loan Officer, First Charter National
President and Bank, Oakdale, NC. Mr. Henry has 29 years of banking
Mountain experience.
Island City
Executive
Mary Margaret Nance 48 Senior Vice Former Compliance and Loan Review Officer, Bank of Union
President and (now First Charter National Bank), Monroe, NC. Ms. Nance
Operations has 18 years of banking experience.
Officer
W. Farrell Richardson 60 Senior Vice Former Vice President and Branch Manager, Bank of Union
President and (now First Charter National Bank), Indian Trail, NC. Mr.
Regional Richardson has 31 years of banking experience.
7
POSITION
WITH
NAME AGE COMPANY BUSINESS EXPERIENCE
- ---- --- ------- -------------------
Business
Development
Officer
Donald A. Singleton 48 Senior Credit Former Vice President, Wachovia Mortgage Company; former
Lender and Vice President, Real Estate Loan Officer and Assistant
Senior Vice Credit Administrator, United Carolina Bank. Mr. Singleton
President has 28 years of banking experience.
Executive Compensation. The Bank has entered into an employment
agreement with Randy P. Helton, President and Chief Executive Officer (dated
April 15, 1998), to establish his duties and compensation and to provide for his
continued employment with the Bank. The employment agreement provides for an
initial term of employment of five years. The employment agreement provides for
an annual base salary of $110,000 to be reviewed by the Board of Directors not
less often than annually. In addition, the employment agreement provides for
discretionary bonuses, participation in other pension and profit-sharing
retirement plans maintained by the Bank on behalf of its employees, as well as
fringe benefits normally associated with the officer's office or made available
to all other employees. The employment agreement provides that the officer may
be terminated for cause, as defined in the employment agreement, by the Bank,
and otherwise be terminated by the Bank (subject to vested rights) or by the
officer. The employment agreement provides that in the event of a "termination
event" following a change in control of the Bank (i) the employee shall be able
to terminate the agreement and receive 299% of his base amount of compensation
and (ii) the term of the agreement shall be not less than 36 months from the
employee's notice of termination of the agreement. A "termination event" will
occur if (i) the employee is assigned any duties or responsibilities that are
inconsistent with his position, duties, responsibilities or status at the time
of the change in control or with his reporting responsibilities or title with
the Bank in effect at the time of the change in control; (ii) the employee's
annual base salary rate is reduced below the annual amount in effect as of the
change in control; (iii) the employee's life insurance, medical or
hospitalization insurance, disability insurance, disability insurance, stock
option plans, stock purchase plans, deferred compensation plans, management
retention plans, retirement plans or similar plans or benefits being provided by
the Bank to the employee as of the date of the change in control are reduced in
their level, scope or coverage, or any such insurance, plans or benefits are
eliminated, unless such reduction or elimination applies proportionately to all
salaried employees of the Bank who participated in such benefits prior to the
change in control; or (iv) the employee is transferred to a location outside of
Monroe, North Carolina without the employee's express written consent. A change
in control of the Bank will occur if (i) any individual or entity, directly or
indirectly, acquires beneficial ownership of voting securities or acquires
irrevocable proxies or any combination of voting securities and irrevocable
proxies, representing 25% or more of any class of voting securities or the Bank,
or acquires control in any manner of the election of a majority of the directors
of the Bank; (ii) the Bank is consolidated or merged with or into another
corporation, association or entity where the Bank is not the surviving
corporation; or (iii) all or substantially all of the assets of the Bank are
sold or otherwise transferred to or are acquired by any other corporation,
association or other person, entity or group.
8
The following table shows the cash and certain other compensation paid
to or received or deferred by Randy P. Helton for services in all capacities
during 2000, 1999, 1998. No other current executive officer of the Bank received
compensation for 2000 which exceeded $100,000. Mr. Helton does not receive any
additional compensation as President and Chief Executive Officer of the Company.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
All
Other Other
Annual Restricted Compen-
Compensation Stock LTIP sation
Name and Principal Position Year Salary Bonus (1) Awards Options Payouts (2)
- ----------------------------- ---- ------ ----- --- ------ ------- ------- ---
Randy P. Helton, President and 2000 $150,000 -0- -0- -0- -0- -0- $3,947
Chief Executive Officer of the 1999 $116,000 -0- -0- -0- 65,684 -0- $2,146
Company and the Bank 1998 $110,000 -0- -0- -0- -0- -0- -0-
(1) Perquisites and other personal benefits paid to Mr. Helton did not
exceed 10% of his total salary paid in 2000, 1999, or 1998.
(2) Includes life insurance premiums and Bank contributions to 401(k)
Plan.
Stock Options
The following table sets forth information with regard to stock options
granted under the Bank's 1999 Incentive Stock Option Plan which, upon the
organization of the Company, was adopted as the Incentive Stock Option Plan of
the Company. No options were granted during the fiscal year ended December 31,
2000.
Aggregated Option Exercises in Fiscal Year 2000
And Fiscal Year End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options at December 31, Options at December 31,
Acquired 2000 2000/(1)/
on Value ---------------------------- -----------------------------
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- --------
---------------------------- -----------------------------
Randy P. Helton -0- -0- 22,484 / 43,200 -- / --
(1) The Company's stock price on December 31, 2000 was $8.00 per share.
401(k) Savings Plan
In 1999, the Bank adopted a tax-qualified savings plan (the "Savings
Plan") which covers all current full-time employees and any new full-time
employees who have been employed for twelve months and who have attained the age
of twenty-one. Under the Savings Plan, a
9
participating employee may contribute up to 20% of his or her base salary (not
to exceed $10,000) on a tax-deferred basis through salary reduction as permitted
under the Section 401(k) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Bank is required to make a safe harbor contribution of 3% of the
employee's compensation under the Savings Plan. A participant's contributions
and the Bank's safe harbor contribution under the Savings Plan will be held in
trust accounts for the benefit of participants. A participant is at all times
100% vested with respect to his or her own contributions and the Bank's safe
harbor contributions under the Savings Plan. The Bank may make additional
discretionary contributions that vest completely after completing six years of
service with the Bank. The value of a participant's accounts under the Savings
Plan becomes payable to him or her in full upon retirement, total or permanent
disability or termination of employment for any other reason, or becomes payable
to a designated beneficiary upon a participant's death. The Savings Plan also
will contain provisions for withdrawals in the event of certain hardships. A
participant's contributions, safe harbor and discretionary contributions of the
Bank, and any income accrued on such contributions, are not subject to federal
or state taxes until such time as the participant withdraws them.
Indebtedness of and Transactions with Management
The Company has had, and expects to have in the future, banking
transactions in the ordinary course of business with certain of its current
directors, nominees for director, executive officers and their associates. All
loans included in such transactions were made on substantially the same terms,
including interest rates, repayment terms and collateral, as those prevailing at
the time such loans were made for comparable transactions with other persons,
and do not involve more than the normal risk of collectibility or present other
unfavorable features.
L. Carlton Tyson's realty company, L.C. Tyson Construction, Inc.,
constructed the Company's headquarters building in Monroe, North Carolina on
property owned by Mr. Tyson. The first floor is leased to the Bank from TyPar
Realty, Inc. for 30 years (11,250 square feet) at a rental of $19,237 per month,
subject to 7% increases every five years. The Bank obtained an independent third
party appraisal of the lease and believes its terms are fair and reasonable. The
Bank also leases from TyPar Realty, Inc. 3,494 square feet on the second floor
of the headquarters building for an initial term of 5 years at a rental of
$5,206 per month. The lease includes two five-year extension options subject to
14% increases upon exercise of each option. The Bank believes the terms of this
lease are fair and reasonable. Also, as low bidder in a sealed bid process, L.C.
Tyson Construction, Inc. was awarded the construction contract for the Bank's
permanent building in Marshville.
All such transactions have been negotiated on an arms-length basis at
terms no more favorable than would otherwise be obtained from an independent
third party.
PROPOSAL 2: APPROVAL OF 2001 INCENTIVE STOCK OPTION PLAN
---------------------------------------------------------
During February 2001, the Board approved the American Community
Bancshares, Inc. 2001 Incentive Stock Option Plan (the "Incentive Option Plan")
which provides for the issuance of options to purchase shares of the Company's
common stock ("Incentive Options") to officers and
10
other full-time employees of the Company and its subsidiaries, if any (the
"Optionees"), including the Company's executive officer(s), who are also
directors of the Company. The purpose of the Incentive Option Plan generally is
to assist the Company in attracting and retaining employees whose interests are
the same as those of shareholders, and to provide an additional incentive for
employees to whom Incentive Options are granted to perform at levels that will
enhance the Company's financial performance and shareholder value. The Board's
approval of the Incentive Option Plan is subject to approval by the Company's
shareholders.
The Incentive Option Plan will be administered by the Compensation
Committee of the Board (the "Committee") and generally provides for the issuance
and sale of an aggregate of 82,000 shares of the Company's common stock (subject
to adjustment as described below) upon the exercise of Incentive Options. The
Committee is authorized to determine the persons to whom and numbers of shares
for which Incentive Options will be granted, to interpret and construe the terms
and provisions of the Incentive Option Plan and to make rules and other
determinations relating to and reasonable or advisable in administering the
Incentive Option Plan. The Incentive Option Plan provides that, to the extent
permitted by applicable law, members of the Committee will be indemnified by the
Company for certain legal expenses and liability incurred in connection with the
administration of the Incentive Option Plan.
The price per share (the "Exercise Price") of common stock covered by
each Incentive Option granted shall be set by the Committee at the time the
Incentive Option is granted, but shall not be less than 100% of the fair market
value (as determined by the Committee) of a share of common stock at the time
the Incentive Option is granted (or 110% in the case of an Incentive Option
granted to an Optionee who owns more than 10% of the voting power of the
Company's common stock). The fair market value of a share of common stock at the
date of grant shall be determined according to the Incentive Option Plan in the
following manner: (1) if on the date of grant the common stock of the Company is
traded on a securities exchange, the fair market value will be equal to the mean
of the closing sales price as reported on each of the five trading days
immediately preceding the date of grant, provided that if a closing sales price
is not reported for each of the five trading days immediately preceding the date
of grant, the fair market value shall be equal to the mean of the closing sales
prices on those trading days for which such price is available; (2) if the
common stock of the Company is not listed on any exchange or no closing sales
prices are reported on an exchange, but quotations for the common stock are
regularly listed on the NASDAQ or another comparable system, the fair market
value shall be equal to the mean of the average of the closing bid and asked
prices as quoted on such system for each of the five trading days preceding the
date of grant, provided that if closing bid and asked prices are not available
for each of the five trading days, the fair market value shall be equal to the
mean of the average of the closing bid and asked prices on those trading days
during the five-day period for which such prices are available; or (3) if the
common stock is not quoted on NASDAQ or another comparable system, or no such
quotations are available on NASDAQ, the fair market value shall be the average
of the closing bid and asked prices furnished by a professional securities
dealer making a market in the shares of common stock, as selected by the
Committee, for the trading date first preceding the date of grant. If the
Committee determines that the price as determined above does not represent the
fair market value of the shares of common stock on the date of grant, the
Committee may then consider such other factors as it deems appropriate in
determining the fair market value.
11
Each Incentive Option will become exercisable as specified by the
Committee at the time of grant and will expire and may not thereafter be
exercised after the earlier of: (i) the expiration date set by the Committee at
the time of grant (which in any event may be no more than five years in the case
of an Incentive Option granted to an Optionee who owns more than 10% of the
voting power of the Company's common stock or, in the case of all other
Optionees, no more than 10 years after the date of grant); (ii) the date the
Optionee resigns or on which his or her employment is terminated for "cause" (as
defined in the Incentive Option Plan); (iii) three months following the
termination of the Optionee's employment as a result of retirement or following
a "change in control"; (iv) 12 months following termination of the Optionee's
employment as a result of his or her disability; or (v) 12 months after
Optionee's death: (1) while employed; (2) during the three months after
Optionee's termination as a result of Optionee's retirement or following a
"change in control"; or (3) during the 12 months after Optionee's termination as
a result of disability; but in any event, no later than the end of the option
period provided in the Optionee's option agreement. The aggregate fair market
value (determined as of the date of grant) of common stock for which such
Incentive Options may be exercised for the first time in any calendar year may
not exceed $100,000, and in connection with any Incentive Option granted, the
Committee may impose such other restrictions or conditions as it may deem
appropriate. Incentive Options are subject to a five year vesting schedule
whereby 20% of the options granted vest each year following the date of grant.
No monetary consideration will be received by the Company upon the
grant of an Incentive Option. In order to exercise an Incentive Option, the
Optionee must give the Company written notice of exercise and pay the aggregate
exercise price for shares being purchased. Such payment may be made in cash or
in shares of the common stock of the Company. Optionees will have no rights as
shareholders of the Company with respect to any shares covered by Incentive
Options granted to them until those Incentive Options have been exercised and
the exercise price of such shares has been paid to the Company. The market value
of the 82,000 shares of common stock reserved for issuance under the Incentive
Option Plan, had they been outstanding on December 31, 2000 would have been
$656,000.
In the event of increases, decreases or changes in the Company's
outstanding common stock resulting from a stock dividend, recapitalization,
reclassification, stock split, combination or similar event, or resulting from
an exchange of shares or merger or other reorganization in which the Company is
the surviving entity, then the Committee shall make equitable proportionate
adjustments in the aggregate number and kind of shares under the Incentive
Option Plan, the number and kind of shares covered by each then outstanding
Incentive Option, and in the Exercise Price of each unexercised Incentive
Option. Unless amended by the Committee, the standard Incentive Option Agreement
(the "Agreement") shall be binding upon any successor to the Company. However,
except upon a "change in control" (as defined in the Agreement), the Incentive
Option Plan and any options granted thereunder shall terminate upon the
effective date of the Company's dissolution or liquidation.
The Board may, from time to time, amend, modify, suspend, terminate or
discontinue the Incentive Option Plan without notice. However, no such action
will adversely affect any Optionee's rights under any then outstanding Incentive
Option without such Optionee's prior written consent, and, except as shall be
required to comport with changes in the Code. Any modification or
12
amendment of the Incentive Option Plan that (a) increases the aggregate number
of shares of common stock covered by the Incentive Option Plan, (b) changes the
provisions of the Incentive Option Plan with respect to the determination of
persons to whom Incentive Options may be granted, or (c) otherwise materially
increases the benefits accruing to Optionee's under the Incentive Option Plan,
shall be subject to the approval of Company's shareholders. Consistent with the
terms of the Incentive Option Plan, the Board may modify any outstanding
Incentive Option pursuant to a written agreement with the Optionee.
Incentive Options granted under the Incentive Option Plan are intended
to qualify for certain favorable income tax treatment. Under the Internal
Revenue Code, an Optionee is not taxed in the year in which an Incentive Option
is exercised. If an Optionee holds stock purchased upon the exercise of an
Incentive Option for a period of at least two years following the date of grant
and at least one year from the date the Incentive Option is exercised (or dies
while owning the stock) then, upon disposition of the stock (or upon death while
owning the stock), he or she will realize capital gain equal to the excess of
the sale price of the stock over the exercise price. If the Optionee disposes of
the stock before the holding periods have expired, the excess of the fair market
value of the stock at the time the Incentive Option was exercised over the
exercise price will be treated as ordinary income. The Company will not be
permitted to take a tax deduction at any time in connection with Incentive
Options unless stock purchased upon exercise is disposed of prior to expiration
of the two holding periods. At its discretion, the Board may withhold from an
Optionee's salary or any other amount due to such Optionee (or from shares being
purchased upon the exercise of an Incentive Option) the amount of any required
tax withholdings for which the Company is responsible.
No options will be granted to employees under the Incentive Option Plan
until approval of the Incentive Option Plan by the Company's shareholders.
A copy of the Incentive Option Plan is on file and may be inspected by
any shareholder at the Company's office in Monroe, North Carolina, and a copy
will be available for inspection by any shareholder at the Annual Meeting.
Additionally, any shareholder wishing to receive a copy of the Incentive Option
Plan free of charge should contact Dan R. Ellis, Jr., Secretary of the Company,
at P.O. Box 5035, Monroe, North Carolina 28111.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" PROPOSAL
---
2 APPROVING OF THE AMERICAN COMMUNITY BANCSHARES, INC. 2001 INCENTIVE STOCK
OPTION PLAN.
13
PROPOSAL 3: RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------------------------
The Board of Directors has appointed the firm of Dixon Odom PLLC,
Certified Public Accountants, as the Company's independent public accountants
for 2001. A representative of Dixon Odom PLLC is expected to be present at the
Annual Meeting and available to respond to appropriate questions, and will have
the opportunity to make a statement if he desires to do so.
The Bank has paid Dixon Odom PLLC fees in connection with its
assistance in the Company's annual audit and review of the Company's financial
statements. Sometimes the Bank engages Dixon Odom PLLC to assist in other areas
of financial planning. The following table sets forth the fees paid to Dixon
Odom PLLC in various categories in 2000.
Category Amount Paid
-------- -----------
Audit Fees: $27,000
Financial Information System Design and Implementation Fees: --
All Other Fees: 10,000
-------
Total Fees Paid: $37,000
=======
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
---
RATIFICATION OF DIXON ODOM PLLC AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
OTHER MATTERS
-------------
The Board of Directors knows of no other business that will be brought
before the Annual Meeting. Should other matters properly come before the
meeting, the proxies will be authorized to vote shares represented by each
appointment of proxy in accordance with their best judgment on such matters.
PROPOSALS FOR 2002 ANNUAL MEETING
---------------------------------
It is anticipated that the 2002 Annual Meeting will be held on a date
during April 2002. Any proposal of a shareholder which is intended to be
presented at the 2002 Annual Meeting must be received by the Company at its main
office in Monroe, North Carolina no later than November 15, 2001, in order that
any such proposal be timely received for inclusion in the proxy statement and
appointment of proxy to be issued in connection with that meeting. If a proposal
for the 2002 Annual Meeting is not expected to be included in the proxy
statement for that meeting, the proposal must be received by the Company by
February 15, 2002 for it to be timely received for consideration. The Company
will use its discretionary authority for any proposals received thereafter.
14
Exhibit A
---------
AMERICAN COMMUNITY BANCSHARES, INC.
AMERICAN COMMUNITY BANK
AUDIT COMMITTEE CHARTER
Organization
There shall be a committee of the Board of Directors to be known as the Audit
Committee. The Audit Committee shall be composed of directors who are
independent of the management of the Company and are free of any relationship
that, in the opinion of the Board of Directors, would interfere with their
exercise of independent judgment as a committee member. Members of the Audit
Committee shall be financially literate or become financially literate within a
reasonable period of time after appointment to the Audit Committee and at least
one member shall have accounting, related financial management expertise, or
other comparable experience or background that results in the individual's
financial sophistication.
Statement of Policy
The Audit Committee shall provide assistance to the corporate directors in
fulfilling their responsibility to the shareholders, potential shareholders, and
investment community relating to corporate accounting, reporting practices of
the Company, and the quality and integrity of the financial reports and other
operating controls of the Company. In so doing, it is the responsibility of the
Audit Committee to maintain free and open means of communication between the
directors, the independent auditors, the internal auditors, the financial
management and other employees of the Company.
Responsibilities
In carrying out its responsibilities, the Audit Committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to ensure to the directors and shareholders that the corporate
accounting and reporting practices and other operating controls of the Company
are of high quality and are in accordance with all requirements.
In carrying out these responsibilities, the Audit Committee will:
. Select, evaluate, and where appropriate, replace the independent auditors
to audit the financial statements of the Company and its subsidiaries. In
doing so, obtain disclosures regarding the auditors' independence required
by Independence Standards Board Standard No. 1, as may be modified or
supplemented, and discuss with the auditors the auditors' independence. The
independent auditors are to be accountable to the Board of Directors and
the Audit Committee, as representatives of the shareholders.
. Review the scope of the audit and the audit procedures utilized.
15
. Review with the independent auditors, the internal auditor and the
Company's financial and accounting personnel the adequacy and effectiveness
of the accounting and financial controls of the Company. Emphasis should be
given to the adequacy of such internal controls to expose any payments,
transactions, or procedures that might be deemed illegal or otherwise
improper.
. Provide sufficient opportunity for the independent auditors to meet with
the members of the Audit Committee without members of management present.
Among the items to be discussed in these meetings are the independent
auditors' evaluation of the Company's financial, accounting, and auditing
personnel, and the cooperation that the independent auditors received
during the course of the audit.
. Be available to the independent auditors during the year for consultation
purposes.
. Discuss with the independent auditors the matters required to be discussed
by Statement on Auditing Standards No. 61, as may be modified or
supplemented.
. Review with management and the independent accountants the Company's
financial disclosure documents, including all annual and quarterly
financial statements and reports filed with the Federal Deposit Insurance
Corporation or sent to stockholders. Following the satisfactory completion
of each year-end review, recommend to the Board the inclusion of the
audited financial statements in the Company's filing on Form 10-KSB. The
year-end review shall include any significant problems and material
disputes between management and the independent accountants and a
discussion with the independent accountants out of management's presence of
the quality of the Company's accounting principles as applied in its
financial reporting, the clarity of the Company's financial disclosures and
degree of aggressiveness or conservatism of the Company's accounting
principles and underlying estimates, and a frank and open discussion of
other significant decisions made by management in, preparing the financial
disclosure. With respect to the independent accountants' reviews of
quarterly reports on Form 10-QSB, communication from the independent
accountants may be received on behalf of the Audit Committee by the
Committee Chair, who will report thereon to the full Audit Committee at its
next meeting.
. Review the internal audit function of the Company including the
independence and authority of its reporting obligations, the proposed audit
plans for the coming year, and the coordination of such plans with the
independent auditors.
. Receive reports or summaries of findings from completed internal audits,
together with management responses, and monitor progress of the proposed
internal audit plan, with explanations for any deviations from the original
plan.
. Prepare the reports required by the rules of the applicable regulatory
authorities to be included in the Company's annual proxy statement.
16
. Submit the minutes of all meetings of the Audit Committee to, or discuss
the matters discussed at each committee meeting with, the Board of
Directors.
. Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in
its judgment, that is appropriate.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditor. Nor is it the duty of
the Audit Committee to conduct investigations, to resolve disagreements, if any,
between management and the independent auditor or to assure compliance with laws
and regulations.
17
REVOCABLE PROXY
AMERICAN COMMUNITY BANCSHARES, INC.
2593 West Roosevelt Boulevard
Monroe, North Carolina 28110
APPOINTMENT OF PROXY
SOLICITED BY BOARD OF DIRECTORS
The undersigned hereby appoints William R. Adcock, Richard M. Cochrane, and W.
Farrell Richardson (the "Proxies"), or any of them, as attorneys and proxies,
with full power of substitution, to vote all shares of the common stock of
American Community Bancshares, Inc. (the "Company") held of record by the
undersigned on February 21, 2001, at the Annual Meeting of Shareholders of the
Company to be held at American Community Bank, 2593 West Roosevelt Boulevard,
Monroe, North Carolina, at 10:00 a.m. on April 17, 2001, and at any adjournments
thereof. The undersigned hereby directs that the shares represented by this
Appointment of Proxy be voted as follows on the proposals listed below:
1. ELECTION OF DIRECTORS: Proposal to elect eight directors of the Company
for one- year terms or until their successors are duly elected and qualified.
____ FOR all nominees listed below ____ WITHHOLD AUTHORITY
(except as indicated otherwise below). to vote for all nominees listed below
Nominees:
Thomas J. Hall Larry S. Helms
Randy P. Helton Kenneth W. Long
L. Steven Phillips Alison J. Smith
David D. Whitley Gregory N. Wylie
Instruction: To withhold authority to vote for one or more nominees, write
that nominee's name on the line below.
___________________________________________________________________________
2. APPROVAL OF INCENTIVE STOCK OPTION PLAN: Proposal to approve the Company's
2001 Incentive Stock Option Plan.
____ FOR ____ AGAINST ____ ABSTAIN
3. RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS: Proposal to ratify the
appointment of Dixon Odom PLLC as the Company's independent accountants for
2001.
____ FOR ____ AGAINST ____ ABSTAIN
4. OTHER BUSINESS: On such other matters as may properly come before the
Annual Meeting, the proxies are authorized to vote the shares represented by
this Appointment of Proxy in accordance with their best judgment.
PLEASE DATE AND SIGN THIS APPOINTMENT OF PROXY ON THE REVERSE SIDE AND
RETURN TO AMERICAN COMMUNITY BANCSHARES, INC.
THE SHARES REPRESENTED BY THIS APPOINTMENT OF PROXY WILL BE VOTED AS
DIRECTED ABOVE. IN THE ABSENCE OF ANY DIRECTION, SUCH SHARES WILL BE VOTED FOR
THE ELECTION OF EACH OF THE NOMINEES LISTED IN PROPOSAL 1 BY CASTING AN EQUAL
NUMBER OF VOTES FOR EACH SUCH NOMINEE, AND FOR PROPOSALS 2 AND 3. IF, AT OR
BEFORE THE TIME OF THE MEETING, ANY NOMINEE LISTED IN PROPOSAL 1 HAS BECOME
UNAVAILABLE FOR ANY REASON, THE PROXIES ARE AUTHORIZED TO VOTE FOR A SUBSTITUTE
NOMINEE. THIS APPOINTMENT OF PROXY MAY BE REVOKED BY THE HOLDER OF THE SHARES
TO WHICH IT RELATES AT ANY TIME BEFORE IT IS EXERCISED BY FILING WITH THE
SECRETARY OF THE COMPANY A WRITTEN INSTRUMENT REVOKING IT OR DULY EXECUTED
APPOINTMENT OF PROXY BEARING A LATER DATE OR BY ATTENDING THE ANNUAL MEETING AND
ANNOUNCING HIS OR HER INTENTION TO VOTE IN PERSON.
Date: _________________________________, 2001
_______________________________________(SEAL)
(Signature)
_______________________________________(SEAL)
(Signature, if shares held jointly)
Instruction: Please sign above exactly as your
-------
name appears on this appointment of proxy. Joint
owners of shares should both sign. Fiduciaries or
----
other persons signing in a representative capacity
should indicate the capacity in which they are
signing.
IMPORTANT: TO INSURE THAT A QUORUM IS PRESENT, PLEASE SEND IN YOUR APPOINTMENT
OF PROXY WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. EVEN IF YOU SEND
IN YOUR APPOINTMENT OF PROXY YOU WILL BE ABLE TO VOTE IN PERSON AT THE MEETING
IF YOU SO DESIRE.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD
-----------------------------------------------------------
IN THE ENCLOSED ENVELOPE
------------------------
AMERICAN COMMUNITY BANCSHARES, INC.
AMERICAN COMMUNITY BANK
2000 ANNUAL REPORT
AMERICAN COMMUNITY BANCSHARES, INC.
================================================================================
TABLE OF CONTENTS
Page No.
--------
President's Letter....................................................................................... 1
Selected Financial and Other Data........................................................................ 3
Management's Discussion and Analysis..................................................................... 4
Independent Auditors' Report............................................................................. 11
Consolidated Balance Sheets.............................................................................. 12
Consolidated Statements of Operations.................................................................... 13
Consolidated Statements of Stockholders' Equity.......................................................... 14
Consolidated Statements of Cash Flows.................................................................... 15
Notes to Consolidated Financial Statements............................................................... 16
Management and Bank Personnel............................................................................ 32
Market for the Common Stock.............................................................................. 33
General Corporate Information............................................................................ 34
-1-
President's Letter
We are proud to look back upon the year 2000 as a year of great accomplishments
for our Bank. We accomplished many of the goals that we had set for ourselves
and look to 2001 with great anticipation. We recently returned from our 2001
planning conference, and I am more excited than ever about our great employees
and our shared vision to make American Community Bank the most successful bank
in Union and Mecklenburg Counties.
Looking back over the year, it is difficult to believe we achieved so much in
one year. Outlined below are some of the many accomplishments and new
initiatives for the year.
. We opened three new branch offices - the Monroe SuperWalmart, Marshville,
and Mint Hill area of Charlotte.
. Formed a Bank Holding Company- American Community Bancshares and qualified
for a NASDAQ Small Cap listing- ACBA.
. Introduced Next Day Net, a factoring program for small businesses.
. Initiated the Giro Paisano Program (Hispanic Money Transfer Service) at our
Wal-Mart location.
. Reached $145 Million in Assets and initiated a secondary stock offering of
American Community Bancshares' common stock.
We were also active in our communities sponsoring the Blooming Arts Festival,
Union County Special Olympics, Second Annual Southern Gospel Singing Reunion,
Marshville Boll Weevil Festival, and the Mint Hill Madness Festival.
Since the beginning of the year, we have opened our seventh office in west
Charlotte in the Mountain Island area, moved into our permanent building in
Marshville and formed a strategic alliance to open an investment center in our
Monroe main office with Salomon Smith Barney. As you can see, we continue to
move forward by providing convenient locations, innovative products, and more
importantly initiating events that we believe enhance shareholder value.
Our mortgage and factoring unit continued to enhance our income in 2000 with a
total non-interest income of $493,000, which represents 10% of total income. We
will continue to focus on non-interest income as a way to supplement interest
income.
Our last quarter of 2000 produced a profit of $169,749 compared to a ($154,342)
net loss for the period ending December 31, 1999. Profit per share for the
fourth quarter was $.11 compared to a ($.10) loss for the prior year period.
-1-
For the year ended December 31, 2000, American Community Bank had a net loss of
($108,006) compared to a net loss of ($900,109) for the year ended December 31,
1999. The loss per share for the twelve-month periods was ($.07) and ($.60),
respectively. Per share data for the 1999 period has been adjusted to reflect
the 20% stock dividend paid during the fourth quarter of 1999.
Total assets as of December 31, 2000 were $140.8 million, an increase of $67.2
million or 91% compared to December 31, 1999. Total loans at the end of the year
were $108.0 million and total deposits were $122.0 million, reflecting increases
of 85% and 122%, respectively when compared to December 31, 1999.
Our credit quality, which is of utmost importance, continues to be exemplary
with a past due percentage of less than one-quarter of one percent. We credit
this to our professional and qualified lending staff that takes a personal
interest in every loan they make.
American Community Bancshares also completed a secondary stock offering on
February 28, 2001 that raised approximately $1,400,000 in additional capital. We
will use this capital to continue to expand our operations and seek
opportunities to enhance our franchise. We also believe that in the next several
years there will be a continuous consolidation of mid-tier banks and small
community banks in our markets. Our goal is to be able to capitalize on the
right opportunities at the right time.
We appreciate your continued support and appreciate your comments and
suggestions. Thank you for your trust! I pledge that we will continue to work
hard to earn that trust.
Very truly yours,
/s/ Randy P. Helton
Randy P. Helton
President & CEO
-2-
American Community Bancshares, Inc.
Selected Financial and Other Data
===================================================================================================================
At or for the Year
Ended December 31,
------------------------------
2000 1999
------------- -------------
(In thousands, except
per share data)
Summary of Operations
Interest income $ 9,247 $ 3,457
Interest expense 4,995 1,424
------------- --------------
Net interest income 4,252 2,033
Provision for loan losses 636 742
------------- --------------
Net interest income after provision for loan losses 3,616 1,291
Non-interest income 914 493
Non-interest expense 4,638 2,684
------------- --------------
Loss before income taxes (108) (900)
Income taxes - -
------------- --------------
Net loss $ (108) $ (900)
============= ==============
Balance Sheet Information
Total assets $ 141,836 $ 73,594
Investments/(1)/ 24,501 8,718
Loans, net of allowance for loan losses 108,059 58,493
Deposits 122,048 54,987
Borrowings/(2)/ 6,702 6,700
Stockholders' equity 12,490 11,553
Per Share Data
Basic and diluted net loss/(3)(4)/ $ (.07) $ (.60)
============= ==============
Book value $ 7.74 $ 7.74
============= ==============
Selected Other Data
Return on average assets (.10%) (1.99%)
Return on average equity (.95%) (7.50%)
Average equity to average assets 10.69% 26.56%
Net yield on average interest-earning assets 4.28% 4.81%
Average interest-earning assets to average interest-
bearing liabilities 117.42% 146.63%
Ratio of non-interest expense to average total assets 4.35% 5.94%
Nonperforming assets to total assets .11% -
Nonperforming loans to total loans .15% -
Allowance for loan losses to total loans 1.28% 1.37%
Number of full service branches in operation 6 3
/(1)/ Consists of interest-earning deposits with banks, investment securities
available for sale, and FHLB stock.
/(2)/ Consists of advances from the Federal Home Loan Bank and capital lease
obligations.
/(3)/ Adjusted to reflect the dilutive effect of the 20% stock dividend in 1999.
/(4)/ Computed based on the weighted average number of shares outstanding during
each period.
-3-
American Community Bancshares, Inc.
Management's Discussion and Analysis
================================================================================
Management's discussion and analysis is intended to assist readers in the
understanding and evaluation of the financial condition and results of
operations of American Community Bancshares, Inc. It should be read in
conjunction with the audited financial statements and accompanying notes
included in this report and the supplemental financial data appearing throughout
this discussion and analysis.
DESCRIPTION OF BUSINESS
In April 2000, American Community Bancshares, Inc. ("Bancshares") was formed as
a holding company for American Community Bank ("the Bank"). Upon formation, one
share of Bancshares' $1 par value common stock was exchanged for each of the
then outstanding 1,492,063 shares of the Bank's $5 par value common stock.
Bancshares currently has no operations and conducts no business on its own other
than owning the Bank.
The Bank was opened for business as a North Carolina-chartered commercial bank
on November 16, 1998. It completed its first full fiscal year on December 31,
1999. The Bank operates out of its main office at 2593 West Roosevelt Boulevard,
Monroe, North Carolina. It also operates four other full service branches in
Union County and two full service branches in Mecklenburg County for a total of
seven offices.
The Bank is a North Carolina-chartered banking corporation. The Bank's lending
activities are oriented to the consumer/retail customer as well as the small-to-
medium sized business located in the Union and Mecklenburg County areas. The
Bank offers commercial, consumer, and mortgage lending products, as well as the
ability to structure credit arrangements to fit specialized needs through
factoring and other products. The deposit services offered by the Bank include
small business and personal checking and savings accounts and certificates of
deposit. The Bank concentrates on customer relationships in building its
customer deposit base and competes aggressively in the area of transaction
accounts. The Bank also offers investment services through a partnership
agreement with Salomon Smith Barney investment brokers.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2000 AND 1999
At December 31, 2000, the Bank's total assets of $141.8 million included $108.1
million of net loans and $24.3 million of interest-earning deposits and
investments. Of the loan portfolio, 8% were personal loans, 9% were credit lines
including home equity lines, 32% were commercial loans, and the remaining 51%
were collateralized by real estate. The composition of the loan portfolio at
December 31, 1999 was 8%, 7%, 38% and 47%, respectively.
The Bank's investments at December 31, 2000 were comprised of interest-earning
deposits with the Federal Home Loan Bank of Atlanta with a yield of 6.05%,
investment securities with a weighted average yield of 6.75%, and an investment
of $250,000 in Federal Home Loan Bank stock.
Total deposits of the Bank at December 31, 2000 were $122.0 million, up from
$55.0 million at December 31, 1999. At December 31, 2000, approximately 27% of
total deposits were demand accounts, while 73% were time deposits. At December
31, 1999, 35% of the Bank's total deposits were demand deposits while 65%
consisted of time deposits.
-4-
American Community Bancshares, Inc.
Management's Discussion and Analysis
================================================================================
During 2000, the Bank maintained the $5.0 million advance from the Federal Home
Loan Bank of Atlanta at an average rate of 6.66%. This advance, which matures
March 30, 2001, is secured by 1-4 family real estate loans and certain
commercial real property. The Bank also maintained the capital lease for its
main office. The recorded obligation under this capital lease at December 31,
2000 was $1.7 million.
The Bank began 2000 with total stockholders' equity of $11.6 million. Total
equity increased to $12.5 million at December 31, 2000. This increase was due to
the net comprehensive loss for 2000 of $108,000 combined with the sale of stock
through December 31, 2000 of $1,044,000 under a secondary stock offering which
concluded on February 28, 2001.
COMPARISON OF RESULTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 2000 AND 1999
Net Loss. The Bank generated a net loss in 2000 of $108,000 compared to a net
loss in 1999 of $900,000. Non-interest expenses of $2.7 million and the
provision for loan losses of $742,000 principally impacted the net loss in 1999.
Non-interest expenses of $4.6 million and the provision for loan losses of
$636,000 principally impacted the net loss in 2000.
Net Interest Income. Net interest income for 2000 was $4.3 million with a
related interest rate spread of 3.40%. The Bank's average yield on interest
earning assets during the year was 9.30% while the average rate on interest-
bearing liabilities was 5.90%. Net interest income for 1999 was $2.0 million
with a related interest rate spread of 3.23%. The Bank's average yield on
interest earning assets during the year was 8.17% while the average rate on
interest-bearing liabilities was 4.94%.
Provision for Loan Losses. The Bank's provision for loan losses in 2000 was
$636,000 and in 1999 was $742,000. At December 31, the allowance for loan losses
was $1,385,000 for 2000 and $813,000 for 1999, or 1.27% and 1.37%, respectively,
of loans outstanding. Management believes the level of the allowance for loan
losses is adequate. At December 31, 2000, the Bank had $158,000 of non-accrual
loans.
Other Income. Non-interest income in 2000 consists principally of service
charges and other fee income including income from mortgage and factoring
operations. The Bank has not had any gains or losses on investment security
transactions.
Other Expenses. Total non-interest expense increased from $2.7 million in 1999
to $4.6 million in 2000, principally due to operating 6 branches for most of
2000 compared with 3 branches for most of 1999. The increase in branches
resulted in an increase in personnel costs, occupancy, and general operating
expenses.
Provision for Income Taxes. The Bank had no income tax expense or benefit in
2000 or 1999, principally due to the incurrence of net operating losses and
adjustments to the valuation allowance associated with deferred tax assets. It
is expected that as the Bank becomes profitable and begins to demonstrate a
sustained pattern of profitability, the valuation allowance will be adjusted
accordingly with the benefit reflected in net income.
-5-
American Community Bancshares, Inc.
Management's Discussion and Analysis
================================================================================
ASSET/LIABILITY MANAGEMENT
The Bank's asset/liability management, or interest rate risk management, program
is focused primarily on evaluating and managing the composition of its assets
and liabilities in view of various interest rate scenarios. Factors beyond the
Bank's control, such as market interest rates and competition, may also have an
impact on the Bank's interest income and interest expense.
In the absence of other factors, the yield or return associated with the Bank's
earning assets generally will increase from existing levels when interest rates
rise over an extended period of time and, conversely, interest income will
decrease when interest rates decline. In general, interest expense will increase
when interest rates rise over an extended period of time and, conversely,
interest expense will decrease when interest rates decline.
Interest Rate Gap Analysis. As a part of its interest rate risk management
policy, the Bank calculates an interest rate "gap." Interest rate "gap analysis"
is a common, though imperfect, measure of interest rate risk, which measures the
relative dollar amounts of interest-earning assets and interest-bearing
liabilities which reprice within a specific time period, either through maturity
or rate adjustment. The "gap" is the difference between the amounts of such
assets and liabilities that are subject to repricing. A "positive gap" for a
given period means that the amount of interest-earning assets maturing or
otherwise repricing within that period exceeds the amount of interest-bearing
liabilities maturing or otherwise repricing within the same period. Accordingly,
in a declining interest rate environment, an institution with a "positive gap"
would generally be expected, absent the effects of other factors, to experience
a decrease in the yield on its assets greater than the decrease in the cost of
its liabilities and its income should be negatively affected. Conversely, the
cost of funds for an institution with a "positive gap" would generally be
expected to increase more slowly than the yield on its assets in a rising
interest rate environment, and such institution's net interest income generally
would be expected to be positively affected by rising interest rates. Changes in
interest rates generally have the opposite effect on an institution with a
"negative gap."
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2000, which is
projected to reprice or mature in each of the future time periods shown. Except
as stated below, the amounts of assets and liabilities shown which reprice or
mature within a particular period were determined in accordance with the
contractual terms of the assets or liabilities. Loans with adjustable rates are
shown as being due at the end of the next upcoming adjustment period. Money
market deposit accounts and negotiable order of withdrawal or other transaction
accounts are assumed to pay out over a five-year decay schedule. In making the
"gap" computations, standard assumptions regarding prepayment rates and deposit
decay rates have been used for interest-earning assets and interest-bearing
liabilities. In addition, the table reflects scheduled principal payments, which
will be received throughout the lives of the loans. The interest rate
sensitivity of the Bank's assets and liabilities illustrated in the following
table would vary substantially if different assumptions were used or if actual
experience differs from that indicated by such assumptions.
-6-
American Community Bancshares, Inc.
Management's Discussion and Analysis
================================================================================
Terms to Repricing at December 31, 2000
----------------------------------------------------------------------------
More Than More Than
1 Year 1 Year to 3 Years to More Than
or Less 3 Years 5 Years 5 Years Total
------------- --------------- ------------- ------------- --------------
(Dollars in thousands)
INTEREST-EARNING ASSETS:
Loans receivable:
Personal loans $ 3,912 $ 3,004 $ 1,413 $ 19 $ 8,348
Credit lines 9,544 150 - - 9,694
Commercial loans 20,387 5,711 9,571 4 35,673
Real estate loans 31,002 3,657 19,299 1,771 55,729
Interest earning deposits 24,099 - - - 24,099
Investment securities with banks - 152 - - 152
Stock in FHLB of Atlanta - - - 250 250
------------- --------------- ------------- ------------- --------------
Total interest-earning assets $ 88,944 $ 12,674 $ 30,283 $ 2,044 $ 133,945
============= =============== ============= ============= ==============
INTEREST-BEARING LIABILITIES:
Deposits:
Interest-bearing demand $ 14,796 $ 4,147 $ 2,153 $ - $ 21,096
Time 81,189 7,517 74 - 88,780
Borrowings/(1)/ 5,000 - - 1,702 6,702
------------- --------------- ------------- ------------- --------------
Total interest-bearing liabilities $ 100,985 $ 11,664 $ 2,227 $ 1,702 $ 116,578
============= =============== ============= ============= ==============
INTEREST SENSITIVITY GAP PER
PERIOD $ (12,041) $ 1,010 $ 28,056 $ 342 $ 17,367
CUMULATIVE INTEREST
SENSITIVITY GAP $ (12,041) $ (11,031) $ 17,025 $ 17,367 $ 17,367
CUMULATIVE GAP AS A
PERCENTAGE OF TOTAL
INTEREST-EARNING ASSETS (8.99%) (8.24%) 12.71% 12.97% 12.97%
CUMULATIVE INTEREST-EARNING
ASSETS AS A PERCENTAGE OF
CUMULATIVE INTEREST
BEARING LIABILITIES 88.08% 90.21% 114.82% 114.90% 114.90%
/(1)/ Includes advances from the Federal Home Loan Bank and capital lease
obligations
-7-
American Community Bancshares, Inc.
Management's Discussion and Analysis
================================================================================
NET INTEREST INCOME
Net interest income represents the difference between income derived from
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is affected by both (i) the difference between
the rates of interest earned on interest-earning assets and the rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities ("net
interest-earning balance"). The following table sets forth information relating
to average balances of the Bank's assets and liabilities for the years ended
December 31, 2000 and 1999. The table reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities
(derived by dividing income or expense by the daily average balance of
interest-earning assets or interest-bearing liabilities, respectively) as well
as the net yield on interest-earning assets (which reflects the impact of the
net interest-earning balance).
Year Ended December 31, 2000 Year Ended December 31, 1999
-------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------------------
(Dollars in thousands)
Interest-earning assets:
Loans $ 83,730 $ 8,314 9.93% $ 33,396 $ 3,062 9.17%
Investments 360 22 6.11% 666 29 4.35%
Interest-earning deposits 15,311 911 5.95% 8,228 366 4.45%
---------- -------- ---- ---------- ------- ----
Total interest-earning assets 99,401 9,247 9.30% 42,290 3,457 8.17%
-------- ---- ------- ----
Other assets 7,154 2,908
---------- ----------
Total assets $ 106,555 $ 45,198
========== ==========
Interest-bearing liabilities:
Deposits $ 77,924 4,512 5.79% $ 28,413 1,398 4.92%
Borrowings 6,730 482 7.16% 428 26 6.07%
---------- -------- ---- ---------- ------- ----
Total interest-bearing liabilities 84,654 4,994 5.90% 28,841 1,424 4.94%
-------- ---- ------- ----
Non-interest-bearing deposits 10,104 4,156
Other liabilities 408 198
Stockholders' equity 11,389 12,003
---------- ----------
Total liabilities and
stockholders' equity $ 106,555 $ 45,198
========== ==========
Net interest income
and interest rate spread $ 4,253 3.40% $ 2,033 3.23%
======== ==== ======= ====
Net yield on average
interest-earning assets 4.28% 4.81%
==== ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities 117.42% 146.63%
========== ==========
-8-
American Community Bancshares, Inc.
Management's Discussion and Analysis
================================================================================
RATE/VOLUME ANALYSIS
The following table analyzes the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume), and (iii) net change (the sum of the previous columns).
The change attributable to both rate and volume (changes in rate multiplied by
changes in volume) has been allocated equally to both the changes attributable
to volume and the changes attributable to rate.
2000 vs. 1999
----------------------------------------------------
Increase (Decrease) Due To
----------------------------------------------------
Volume Rate Total
-------------- -------------- --------------
(Dollars in Thousands)
Interest income:
Loans $ 4,806 $ 446 $ 5,252
Investment securities (16) 9 (7)
Interest earning deposits with banks 368 177 545
-------------- -------------- --------------
Total interest income 5,158 632 5,790
-------------- -------------- --------------
Interest expense:
Deposits 2,651 463 3,114
Borrowings 417 39 456
-------------- -------------- --------------
Total interest expense 3,068 502 3,570
-------------- -------------- --------------
Net interest income $ 2,090 $ 130 $ 2,220
============== ============== ==============
LIQUIDITY AND CAPITAL RESOURCES
Maintaining adequate liquidity while managing interest rate risk is the primary
goal of the Bank's asset and liability management strategy. Liquidity is the
ability to fund the needs of the Bank's borrowers and depositors, pay operating
expenses, and meet regulatory liquidity requirements. Maturing investments, loan
and mortgage-backed security principal repayments, deposit growth and borrowings
from the Federal Home Loan Bank are presently the main sources of the Bank's
liquidity. The Bank's primary uses of liquidity are to fund loans and to make
investments.
As of December 31, 2000, liquid assets (cash due from banks, interest-earning
bank deposits, and investment securities available for sale) were approximately
$28.0 million, which represents 19.8% of total assets and 21.8% of total
deposits and borrowings. Supplementing this liquidity, the Bank has available
lines of credit from a correspondent bank of approximately $3.5 million. At
December 31, 2000, outstanding commitments to extend credit were $6.1 million
and available line of credit balances totaled $20.8 million. Management believes
that the combined aggregate liquidity position of the Bank is sufficient to meet
the funding requirements of loan demand and deposit maturities and withdrawals
in the near term.
-9-
American Community Bancshares, Inc.
Management's Discussion and Analysis
================================================================================
Certificates of deposit represented 72.7% of the Bank's total deposits at
December 31, 2000. The Bank's growth strategy will include efforts focused at
increasing the relative volume of transaction deposit accounts. Certificates of
deposit of $100,000 or more represented 34.4% of the Bank's total deposits at
year-end. These deposits are generally considered rate sensitive, but management
believes most of them are relationship-oriented. While the Bank will need to pay
competitive rates to retain these deposits at maturity, there are other
subjective factors that will determine the Bank's continued retention of those
deposits.
Banks and bank holding companies, as regulated institutions, must meet required
levels of capital. The FDIC and the Federal Reserve, the primary regulators of
the Bank and Bancshares, respectively, have adopted minimum capital regulations
or guidelines that categorize components and the level of risk associated with
various types of assets. Financial institutions are expected to maintain a level
of capital commensurate with the risk profile assigned to its assets in
accordance with these guidelines. At December 31, 2000, both Bancshares and the
Bank maintained capital levels exceeding the minimum levels for "well
capitalized" bank holding companies and banks.
IMPACT OF INFLATION AND CHANGING PRICES
A commercial bank has an asset and liability composition that is distinctly
different from that of a company with substantial investments in plant and
inventory because the major portion of its assets are monetary in nature. As a
result, a bank's performance may be significantly influenced by changes in
interest rates. Although the banking industry is more affected by changes in
interest rates than by inflation in the prices of goods and services, inflation
is a factor, which may influence interest rates. However, the frequency and
magnitude of interest rate fluctuations do not necessarily coincide with changes
in the general inflation rate. Inflation does affect operating expenses in that
personnel expenses and the cost of supplies and outside services tend to
increase more during periods of high inflation.
FORWARD-LOOKING INFORMATION
This annual report to stockholders contains certain forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and other business of Bancshares that are subject to various factors,
which could cause actual results to differ materially from those estimates.
Factors, which could influence the estimates, include changes in national,
regional and local market conditions, legislative and regulatory conditions, and
the interest rate environment.
-10-
[LETTERHEAD OF DIXON ODOM PLLC]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
American Community Bancshares, Inc. and Subsidiary
Monroe, North Carolina
We have audited the accompanying consolidated balance sheets of American
Community Bancshares, Inc. and Subsidiary as of December 31, 2000 and 1999, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Community
Bancshares, Inc. and Subsidiary at December 31, 2000 and 1999 and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Sanford, North Carolina
February 9, 2001
-11-
AMERICAN COMMUNITY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
================================================================================
ASSETS 2000 1999
-------------- --------------
Cash and due from banks $ 3,769,082 $ 1,809,053
Interest-earning deposits with banks 24,098,989 8,468,104
Investment securities available for sale at fair value 151,547 -
Loans (Note D) 109,444,184 59,306,451
Allowance for loan losses (Note D) (1,385,000) (813,000)
--------------- --------------
NET LOANS 108,059,184 58,493,451
Loans held for sale - 1,072,261
Accrued interest receivable 663,381 299,000
Bank premises and equipment (Note E) 4,585,252 2,844,358
Federal Home Loan Bank stock, at cost 250,000 250,000
Other assets 258,612 357,880
-------------- --------------
TOTAL ASSETS $ 141,836,047 $ 73,594,107
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand $ 12,171,605 $ 7,308,760
Savings 1,764,546 888,949
Money market and NOW 19,331,451 11,018,250
Time (Note F) 88,780,108 35,771,251
-------------- --------------
TOTAL DEPOSITS 122,047,710 54,987,210
Advances from Federal Home Loan Bank (Note G) 5,000,000 5,000,000
Capital lease obligation (Note H) 1,701,668 1,700,000
Accrued expenses and other liabilities 596,715 354,377
-------------- --------------
TOTAL LIABILITIES 129,346,093 62,041,587
-------------- --------------
Stockholders' Equity (Notes L and O)
Common stock, 2000, $1 par value, 10,000,000
shares authorized, 1,613,133 issued and in
the process of issuance; 1999, $5 par value,
10,000,000 shares authorized; 1,492,063 shares
issued and outstanding 1,613,133 7,460,315
Additional paid-in capital 12,012,419 5,121,344
Accumulated deficit (1,137,145) (1,029,139)
Accumulated other comprehensive income 1,547 -
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 12,489,954 11,552,520
-------------- --------------
Commitments (Notes H, I and M)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 141,836,047 $ 73,594,107
============== ==============
See accompanying notes.
-12-
AMERICAN COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2000 and 1999
================================================================================
2000 1999
------------------ ------------------
INTEREST INCOME
Loans $ 8,313,909 $ 3,062,029
Investments 21,874 28,690
Interest-earning deposits with banks 911,139 366,128
----------------- ------------------
TOTAL INTEREST INCOME 9,246,922 3,456,847
----------------- ------------------
INTEREST EXPENSE
Money market, NOW and savings deposits 604,368 237,536
Time deposits 3,907,665 1,160,029
Borrowings 482,414 26,135
----------------- ------------------
TOTAL INTEREST EXPENSE 4,994,447 1,423,700
----------------- ------------------
NET INTEREST INCOME 4,252,475 2,033,147
PROVISION FOR LOAN LOSSES (Note D) 636,339 742,000
----------------- ------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,616,136 1,291,147
----------------- ------------------
NON-INTEREST INCOME
Service charges on deposit accounts 538,688 148,964
Mortgage operations 190,220 340,427
Factoring operations 126,952 1,199
Other 57,735 2,418
----------------- ------------------
TOTAL NON-INTEREST INCOME 913,595 493,008
----------------- ------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 2,242,707 1,287,396
Occupancy and equipment 850,806 513,211
Other (Note K) 1,544,224 883,657
----------------- ------------------
TOTAL NON-INTEREST EXPENSE 4,637,737 2,684,264
----------------- ------------------
LOSS BEFORE INCOME TAXES (108,006) (900,109)
INCOME TAXES (Note J) - -
----------------- ------------------
NET LOSS $ (108,006) $ (900,109)
================= ==================
BASIC AND DILUTED NET
LOSS PER COMMON SHARE $ (.07) $ (.60)
================= ==================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, BASIC AND DILUTED 1,492,063 1,492,063
================= ==================
See accompanying notes.
-13-
AMERICAN COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2000 and 1999
================================================================================
Accumulated
Additional other
Common stock paid-in Accumulated comprehensive Total
-------------------------
Shares Amount capital (deficit) income equity
----------- ------------ ------------ -------------- ---------- --------------
Balance, January 1, 1999 1,243,385 $ 6,216,925 $ 6,364,734 $ (129,030) $ - $ 12,452,629
Net loss - - - (900,109) - (900,109)
Common stock issued
pursuant to 20% stock
dividend 248,678 1,243,390 (1,243,390) - - -
----------- ------------ ------------ ------------ ---------- ------------
Balance, December 31, 1999 1,492,063 7,460,315 5,121,344 (1,029,139) - 11,552,520
Comprehensive loss:
Net loss - - - (108,006) - (108,006)
Unrealized holding gains on
available-for-sale securities - - - - 1,547 1,547
------------
Total comprehensive loss - (106,459)
------------
Formation of American
Community Bancshares, Inc.
(Note A) - (5,968,252) 5,968,252 - - -
Common stock in the process
of issuance 121,070 121,070 922,823 - - 1,043,893
----------- ------------ ------------ ------------ ------------- ------------
Balance, December 31, 2000 1,613,133 $ 1,613,133 $ 12,012,419 $ (1,137,145) $ 1,547 $ 12,489,954
=========== ============ ============ ============ ============= ==============
See accompanying notes.
-14-
AMERICAN COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000 and 1999
===================================================================================================================
2000 1999
------------------ -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (108,006) $ (900,109)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 325,294 159,375
Provision for loan losses 636,339 742,000
(Increase) decrease in loans held for sale 1,072,261 (1,072,261)
Interest added to capital lease obligation 1,668 -
Change in assets and liabilities:
Increase in accrued interest receivable (364,381) (235,025)
(Increase) decrease in other assets 99,268 (276,667)
Increase in accrued expenses and other liabilities 242,338 132,077
------------------ -----------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,904,781 (1,450,610)
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities (150,000) -
Net increase in loans from originations and repayments (50,202,072) (54,526,607)
Purchases of bank premises and equipment (2,066,188) (829,151)
Purchase of Federal Home Loan Bank stock - (212,600)
------------------ -----------------
NET CASH USED BY INVESTING ACTIVITIES (52,418,260) (55,568,358)
------------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits 14,051,643 16,182,141
Net increase in time deposits 53,008,857 31,127,160
Advances from Federal Home Loan Bank - 5,000,000
Proceeds from common stock subscribed, net 1,043,893 -
------------------ -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 68,104,393 52,309,301
------------------ -----------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 17,590,914 (4,709,667)
CASH AND CASH EQUIVALENTS, BEGINNING 10,277,157 14,986,824
------------------ -----------------
CASH AND CASH EQUIVALENTS, ENDING $ 27,868,071 $ 10,277,157
================== =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid $ 4,637,053 $ 1,296,448
================== =================
Income taxes paid $ - $ -
================== =================
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Acquisition of bank premises and equipment through
obligation under capital lease $ - $ 1,700,000
================== =================
See accompanying notes.
-15-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
===============================================================================
NOTE A - ORGANIZATION AND OPERATIONS
In April 2000, American Community Bancshares, Inc. ("Bancshares") was formed as
a holding company for American Community Bank. Upon formation, one share of
Bancshares' $1 par value common stock was exchanged for each of the then
outstanding 1,492,063 shares of American Community Bank's $5 par value common
stock. Bancshares currently has no operations and conducts no business on its
own other than owning American Community Bank.
American Community Bank (the "Bank") was incorporated on November 13, 1998 and
began banking operations on November 16, 1998. The Bank is engaged in general
commercial and retail banking in Union and Mecklenburg County, North Carolina,
operating under the banking laws of North Carolina and the rules and regulations
of the Federal Deposit Insurance Corporation and the North Carolina Commissioner
of Banks. The Bank undergoes periodic examinations by those regulatory
authorities.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
American Community Bancshares, Inc. and American Community Bank, together
referred to as the "Bank." All significant inter-company transactions and
balances are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates that are
particularly susceptible to significant change relate to the determination of
the allowance for losses on loans.
Cash Equivalents
For the purpose of presentation in the statements of cash flows, cash and cash
equivalents are defined as those amounts included in the balance sheet captions
"cash and due from banks" and "interest-earning deposits with banks."
Securities Held to Maturity
Bonds and notes for which the Bank has the positive intent and ability to hold
to maturity are reported at cost, adjusted for premiums and discounts that are
recognized in interest income using the interest method over the period to
maturity.
-16-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
===============================================================================
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities Available for Sale
Available-for-sale securities are reported at fair value and consist of bonds
and notes not classified as trading securities nor as held-to-maturity
securities. Unrealized holding gains and losses on available-for-sale securities
are reported as a net amount in other comprehensive income. Gains and losses on
the sale of available-for-sale securities are determined using the specific-
identification method. Declines in the fair value of individual held-to-maturity
and available-for-sale securities below their cost that are other than temporary
would result in write- downs of the individual securities to their fair value.
Such write-downs would be included in earnings as realized losses. Premiums and
discounts are recognized in interest income using the interest method over the
period to maturity.
Loans Held for Sale
Loans originated and intended for sale in the secondary market are carried at
the lower of cost or estimated fair value in the aggregate. Net unrealized
losses, if any, are recognized through a valuation allowance by charges to
income.
Loans
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity are reported at their outstanding principal adjusted
for any charge-offs, the allowance for loan losses, and any deferred fees or
costs on originated loans and unamortized premiums or discounts on purchased
loans. Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. The provision
for loan losses is based upon management's best estimate of the amount needed to
maintain the allowance for loan losses at an adequate level. Loan losses are
charged against the allowance when management believes the uncollectibility of a
loan balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance.
-17-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
===============================================================================
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (Continued)
The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of the current status of the portfolio, historical experience, the nature
and volume of the loan portfolio, adverse situations that may affect the
borrower's ability to repay, estimated value of any underlying collateral, and
prevailing economic conditions. Because American Community Bank has been in
existence for a relatively short time, and therefore has a limited history,
management has also considered in applying its analytical methodology the loss
experience and allowance levels of other community banks. Management segments
the loan portfolio by loan type in considering each of the aforementioned
factors and their impact upon the level of the allowance for loan losses.
Loans are considered impaired when it is probable that all amounts due under the
contractual terms of the loan will not be collected. The measurement of impaired
loans that are collateral dependent is generally based on the present value of
expected future cash flows discounted at the historical effective interest rate,
or upon the fair value of the collateral if readily determinable. If the
recorded investment in the loan exceeds the measure of fair value, a valuation
allowance is established as a component of the allowance for loan losses. While
management uses the best information available to make evaluations, future
adjustments to the allowance may be necessary if conditions differ substantially
from the assumptions used in making the evaluations. In addition, regulatory
examiners may require American Community Bank to recognize changes to the
allowance for loan losses based on their judgments about information available
to them at the time of their examination.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated on the straight-line method over the shorter of the
estimated useful lives of the assets or, for those assets leased under capital
leases, the lease term which is 30 years for buildings and 3 to 7 years for
furniture and equipment. Leasehold improvements are amortized over the terms of
the respective leases or the estimated useful lives of the improvements,
whichever is shorter. Repairs and maintenance costs are charged to operations as
incurred, and additions and improvements to premises and equipment are
capitalized. Upon sale or retirement, the cost and related accumulated
depreciation are removed from the accounts and any gains or losses are reflected
in current operations.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred tax assets are also recognized for operating loss carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which the temporary differences are expected to be
recovered or settled. Deferred tax assets are reduced by a valuation allowance
if it is more likely than not that the tax benefits will not be realized.
-18-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
===============================================================================
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Compensation Plans
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, encourages all entities to adopt a fair value based
method of accounting for employee stock compensation plans, whereby compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, whereby compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date (or other measurement date) over the amount
an employee must pay to acquire the stock. Stock options issued under the Bank's
stock option plans have no intrinsic value at the grant date and, under Opinion
No. 25, no compensation cost is recognized for them. The Bank has elected to
continue with the accounting methodology in Opinion No. 25 and, as a result, has
provided pro forma disclosures of net income and earnings per share and other
disclosures as if the fair value based method of accounting had been applied.
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.
Per Share Results
During 1999, the Bank paid a 20% stock dividend. Basic and diluted net loss per
common share have been computed by dividing net loss for the period by the
weighted average number of shares of common stock outstanding during the period
after retroactively adjusting for the stock dividend.
Basic earnings per share represents income available to common stockholders
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflect additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
Potential common shares that may be issued by the Bank relate solely to
outstanding stock options and are determined using the treasury stock method.
The Bank's outstanding stock options did not have a dilutive effect on the
computation of earnings per share; therefore, for 2000 and 1999, basic and
diluted earnings per share are the same amounts.
Federal Home Loan Bank Stock
As a requirement for membership, the Bank invests in stock of the Federal Home
Loan Bank of Atlanta ("FHLB"). This investment is carried at cost.
-19-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
===============================================================================
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
In July 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards requiring balance sheet recognition of all derivative instruments at
fair value. SFAS No. 133, was subsequently amended by SFAS No. 137 in June 1999
and by SFAS No. 138 in June 2000. The statement, as amended, specifies that
changes in the fair value of derivative instruments be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows derivative gains and losses to offset related
results on hedged items in the income statement. The statement is effective for
fiscal years beginning after June 15, 2000. The adoption of this statement did
not materially affect the Company's financial statements.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 140
is a replacement of SFAS No. 125, although SFAS No. 140 carried forward most of
the provisions of SFAS No. 125 without change. SFAS No. 140 is effective for
transfers occurring after March 31, 2001 and for disclosures relating to
securitizations, retained interests and collateral received and pledged in
reverse repurchase agreements for fiscal years ending after December 15, 2000.
The new statement eliminates the prior requirement to record collateral received
under certain securities financing transactions and requires reclassification in
the balance sheet of assets pledged under certain conditions. Management
anticipates that this statement will not materially affect the Company's
financial statements.
Reclassifications
Certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 presentation. The reclassifications had no effect on net
loss or stockholders' equity as previously reported.
NOTE C - INVESTMENT SECURITIES
Investment securities consist of the following at December 31, 2000:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- --------------- -------------- --------------
Available for sale:
Debt security:
Federal agency securities $ 150,000 $ 1,547 $ - $ 151,547
============== =============== ============== ==============
The above debt security bears interest at 6.75% and matures in 2002.
-20-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
================================================================================
NOTE D - LOANS
Following is a summary of loans at December 31, 2000 and 1999:
2000 1999
--------------------------------- ----------------------------------
Amount Percent Amount Percent
-------------- --------------- --------------- ---------------
Real estate - mortgage loans $ 55,728,808 51.57% $ 27,975,255 47.83%
Home equity lines of credit 9,693,846 8.97% 3,865,430 6.61%
Commercial and industrial
loans 35,673,375 33.01% 22,730,439 38.86%
Loans to individuals 8,348,155 7.73% 4,735,327 8.09%
-------------- ------------- --------------- ------------
Subtotal 109,444,184 101.28% 59,306,451 101.39%
Allowance for loan losses 1,385,000 1.28% 813,000 1.39%
-------------- ------------- --------------- ------------
Total $ 108,059,184 100.00% $ 58,493,451 100.00%
============== ============= =============== ============
The following table sets forth the contractual maturity of loans at December 31,
2000:
Greater than
One Year One Year More Than
Or Less Through 5 Years 5 Years Total
-------------- --------------- --------------- ---------------
Real estate - mortgage loans $ 23,394,580 $ 30,321,844 $ 2,012,384 $ 55,728,808
Home equity lines of credit - 20,941,220 9,693,846 9,693,846
Commercial and industrial
loans 14,293,715 5,797,510 438,440 35,673,375
Loans to individuals 2,459,385 91,260 8,348,155
-------------- -------------- --------------- ---------------
Total $ 40,147,680 $ 57,060,574 $ 12,235,930 $ 109,444,184
============== ============== =============== ===============
The following table sets forth loans with fixed and variable rates having
contractual maturities greater than one year at December 31, 2000:
Fixed rate $ 41,725,788
Variable rate 27,570,716
--------------
$ 69,296,504
==============
Loans are primarily made in Union and Mecklenburg County, North Carolina. Real
estate loans can be affected by the condition of the local real estate market.
Commercial and installment loans can be affected by the local economic
conditions.
There were $158,075 and $0 of nonaccrual, restructured or impaired loans at
December 31, 2000 and 1999, respectively.
-21-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
================================================================================
NOTE D - LOANS (Continued)
The Bank has granted loans to certain directors and executive officers of the
Bank and their related interests. Such loans are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other borrowers and, in management's opinion,
do not involve more than the normal risk of collectibility. All loans to
directors and executive officers or their interests are submitted to the Board
of Directors for approval. A summary of loans to directors, executive officers
and their related interests follows:
Loans to directors and officers as a group at January 1, 2000 $ 5,843,211
Disbursements during year ended December 31, 2000 4,025,801
Amounts collected during year ended December 31, 2000 5,163,706
---------------
Loans to directors and officers as a group at December 31, 2000 $ 4,705,306
===============
At December 31, 2000, the Bank had pre-approved but unused lines of credit
totaling $270,626 to directors, executive officers and their related interests.
An analysis of the allowance for loan losses follows:
2000 1999
-------------- ---------------
Balance at beginning of period $ 813,000 $ 71,000
-------------- ---------------
Provision charged to operations 636,339 742,000
-------------- ---------------
Charge-offs 64,339 -
Recoveries - -
-------------- ---------------
Net charge-offs 64,339 -
-------------- ---------------
Balance at end of period $ 1,385,000 $ 813,000
============== ===============
NOTE E - BANK PREMISES AND EQUIPMENT
Following is a summary of bank premises and equipment at December 31, 2000 and
1999:
Buildings and leasehold improvements $ 3,542,419 $ 1,996,792
Furniture and equipment 1,540,180 1,019,619
-------------- ---------------
5,082,599 3,016,411
Less accumulated depreciation and amortization (497,347) (172,053)
--------------- ---------------
Total $ 4,585,252 $ 2,844,358
============== ===============
Depreciation and amortization amounting to $325,294 for the year ended December
31, 2000 and $159,375 for the year ended December 31, 1999 is included in
occupancy and equipment expense.
-22-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
================================================================================
NOTE F - DEPOSITS
Time deposits in denominations of $100,000 or more were $41,992,074 and
$17,205,572 at December 31, 2000 and 1999, respectively.
At December 31, 2000, the scheduled maturities of certificates of deposit are as
follows:
Less than $100,000
$100,000 or more Total
------------ ------------ ------------
2001 $ 44,209,692 $ 39,366,694 $ 83,576,386
2002 2,388,126 1,927,323 4,315,449
2003 115,918 698,057 813,975
2004 74,298 - 74,298
------------ ------------ ------------
Total $ 46,788,034 $ 41,992,074 $ 88,780,108
============ ============= ============
NOTE G - ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank of Atlanta consisted of the following
at December 31, 2000:
6.76% due on March 30, 2001 $ 5,000,000
============
Pursuant to collateral agreements with the Federal Home Loan Bank, advances are
secured by specific qualifying first mortgage loans with carrying amounts of
$8,600,188 at December 31, 2000.
The Bank also has an available line of credit totaling $3.5 million from a
correspondent bank at December 31, 2000.
NOTE H - LEASES
Operating Leases
The Bank has entered into operating leases for the land on which its main office
is located and for other branch facilities. These leases have terms from five to
thirty years. Future rentals under these leases are as follows:
2001 $ 257,935
2002 247,847
2003 241,775
2004 245,500
2005 192,294
Thereafter 2,787,689
------------
Total $ 3,973,040
============
-23-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
================================================================================
NOTE H - LEASES (Continued)
Capital Lease Obligation
The Bank leases its main office facility under a capitalized lease. Leases that
meet the criteria for capitalization under generally accepted accounting
principles are recorded as assets and the related obligations are reflected as
obligations under capital leases on the accompanying balance sheets.
Amortization of property under capital lease is included in depreciation
expense. Included in premises and equipment at December 31, 2000 is $1.7 million
as the capitalized cost of the Bank's main office.
At December 31, 2000, aggregate future minimum lease payments due under this
capital lease obligation are as follows:
2001 $ 138,372
2002 138,372
2003 138,372
2004 138,372
2005 148,057
Thereafter 4,109,140
-----------
Total minimum lease payments 4,810,685
Less amount representing interest (3,109,017)
-----------
Present value of net minimum lease payments $ 1,701,668
===========
Both the operating and capital leases regarding the Bank's main office discussed
above are leased from a director. Prior to the main facility being completed in
November 1999, the Bank leased land for its temporary banking facility from that
same director. During 1999, total lease payments of $55,975 were paid to this
director under this lease.
NOTE I - OTHER COMMITMENTS AND CONTRACTS
The Bank has entered into a non-cancelable contract with a third party for data
processing services. The estimated future minimum payments required under this
contract for the years ending December 31 are as follows:
2001 $ 221,000
2002 238,000
2003 264,000
----------
Total $ 723,000
==========
The above future payments are based upon the anticipated future growth of the
Bank and can therefore vary from the above estimates in any year.
-24-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
================================================================================
NOTE J - INCOME TAXES
No income tax provision is included in operating results for 2000 and 1999
because net deferred tax assets have been offset by increases to the valuation
allowance established to fully reserve future tax benefits for which realization
is not likely. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Income tax expense is reconciled to the amount computed by applying the federal
statutory tax rate of 34% to loss before income taxes as follows:
2000 1999
------------ ------------
Benefit computed at statutory rate of 34% $ (37,000) $ (306,000)
Effect of state income taxes (5,000) (44,000)
Other 10,000 8,000
Increase in deferred tax asset valuation allowance 32,000 342,000
----------- ------------
Total deferred tax assets $ - $ -
=========== ============
Significant components of deferred taxes at December 31, 2000 and 1999:
2000 1999
---------- -----------
Deferred tax assets:
Allowance for loan losses $ 421,000 $ 251,000
Pre-opening costs and expenses 186,000 251,000
Net operating loss carryforwards 170,000 225,000
Capital lease 19,000 -
Other 4,000 -
---------- -----------
Total deferred tax assets 800,000 727,000
Valuation allowance (732,000) (700,000)
---------- -----------
Net deferred tax assets 68,000 27,000
Deferred tax liabilities:
Premises and equipment (68,000) (27,000)
---------- -----------
Net recorded deferred tax assets $ - $ -
========== ===========
-25-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
================================================================================
NOTE K - OTHER NON-INTEREST EXPENSE
The major components of other non-interest expense for the years ended December
31, 2000 and 1999 are as follows:
2000 1999
-------------- ---------------
Postage, printing and office supplies $ 293,221 $ 165,280
Advertising and promotion 237,974 169,641
Travel, meals, dues and subscriptions 165,431 132,568
Telephone 60,720 37,585
Other 329,561 128,806
Data processing and technology 228,592 110,791
Professional fees and contracted services 228,725 138,986
-------------- ---------------
Total $ 1,544,224 $ 883,657
============== ===============
NOTE L - REGULATORY MATTERS
The Bank, as a North Carolina banking corporation, may pay cash dividends only
out of undivided profits as determined pursuant to North Carolina General
Statutes. However, regulatory authorities may limit payment of dividends by any
bank when it is determined that such limitation is in the public interest and is
necessary to ensure financial soundness of the Bank.
The Bank is subject to various regulatory capital requirements administered by
federal and state banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios, as prescribed by
regulations, of total and Tier I capital to risk-weighted assets and of Tier I
capital to average assets. As of December 31, 2000 and 1999, the Bank exceeds
all capital adequacy requirements to which it is subject, as set forth below:
-26-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
================================================================================
NOTE L - REGULATORY MATTERS (Continued)
To be well
For capital capitalized under prompt
Actual adequacy purposes corrective action provisions
--------------------------- --------------------------- ----------------------------
As of December 31, 2000: Amount Ratio Amount Ratio Amount Ratio
------------ ------------ ------------ ------------ ------------- ------------
(Dollars in thousands)
Total Capital (to Risk-
Weighted Assets) $ 12,830 10.83% * $ 9,480 * 8.0% * $ 11,850 * 10.0%
Tier I Capital (to Risk-
Weighted Assets) 11,445 9.66% * 4,740 * 4.0% * 7,110 * 6.0%
Tier I Capital (to
Average Assets) 11,445 13.10% * 3,493 * 4.0% * 4,366 * 5.0%
To be well
For capital capitalized under prompt
Actual adequacy purposes corrective action provisions
--------------------------- --------------------------- ----------------------------
As of December 31, 1999: Amount Ratio Amount Ratio Amount Ratio
------------ ------------ ------------ ------------ ------------- ------------
(Dollars in thousands)
Total Capital (to Risk-
Weighted Assets) $ 12,365 19.53% * $ 5,065 * 8.0% * $ 6,331 * 10.0%
Tier I Capital (to Risk-
Weighted Assets) 11,552 18.25% * 2,532 * 4.0% * 3,798 * 6.0%
Tier I Capital (to
Average Assets) 11,552 18.52% * 2,495 * 4.0% * 3,118 * 5.0%
* More than or Equal to
NOTE M - OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheet. The
contract or notional amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of conditions established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank, upon extension of credit is based on management's
credit evaluation of the borrower. Collateral obtained varies but may include
real estate, stocks, bonds, and certificates of deposit.
-27-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
================================================================================
NOTE M - OFF-BALANCE SHEET RISK (Continued)
A summary of the contract amounts of the Bank's exposure to off-balance sheet
risk as of December 31, 2000 is as follows:
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $ 6,120,000
Undisbursed lines of credit 13,236,000
Undisbursed portion of construction loans 7,523,000
NOTE N - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instruments for which fair value disclosures are required include cash
and due from banks, interest-earning deposits with banks, loans held for sale,
loans, Federal Home Loan bank stock, deposit accounts, and advances from Federal
Home Loan Bank. Fair value estimates are made at a specific moment in time,
based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Bank's entire holdings of a
particular financial instrument. Because no active market readily exists for a
portion of the Bank's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Due from Banks and Interest-earning Deposits with Banks
The carrying amounts for cash and due from banks and interest-earning
deposits with banks approximate fair value because of the short maturities
of those instruments.
Investment Securities
Fair values for investment securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Loans Held for Sale
Fair values of loans held for sale are based on commitments on hand from
investors or prevailing market prices.
-28-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
================================================================================
NOTE N - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
Loans
For certain homogenous categories of loans, such as residential mortgages,
fair value is estimated using the quoted market prices for securities
backed by similar loans, adjusted for differences in loan characteristics.
The fair value of other types of loans is estimated by discounting the
future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities.
Federal Home Loan Bank Stock
The carrying value of Federal Home Loan Bank stock approximates fair value
based on the redemption provisions of the Federal Home Loan Bank.
Deposits
The fair value of demand deposits is the amount payable on demand at the
reporting date. The fair value of time deposits is estimated using the
rates currently offered for instruments of similar remaining maturities.
Advances from Federal Home Loan Bank
The fair value of advances from the Federal Home Loan Bank is based upon
the discounted value when using current rates at which borrowings of
similar maturity could be obtained.
Financial Instruments with Off-Balance Sheet Risk
With regard to financial instruments with off-balance sheet risk discussed
in Note M, it is not practicable to estimate the fair value of future
financing commitments.
The carrying amounts and estimated fair values of the Bank's financial
instruments, none of which are held for trading purposes, are as follows at
December 31, 2000 and 1999:
2000 1999
--------------------------- ---------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------------- ------------ ------------ ------------
Financial assets:
Cash and due from banks $ 3,769,082 $ 3,769,082 $ 1,809,053 $ 1,809,053
Interest-earning deposits with
banks 24,098,989 24,098,989 8,468,104 8,468,104
Investment securities 151,547 151,547 -- --
Loans 108,059,184 107,942,417 58,493,451 58,238,000
Loans held for sale -- -- 1,072,261 1,072,261
Federal Home Loan Bank stock 250,000 250,000 250,000 250,000
Financial liabilities:
Deposits 122,047,710 119,161,993 54,987,210 52,854,000
Advances from Federal Home
Loan Bank 5,000,000 4,999,000 5,000,000 5,010,000
-29-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
================================================================================
NOTE O - EMPLOYEE AND DIRECTOR BENEFIT PLANS
401(k) Retirement Plan
The Bank has adopted a 401(k) retirement plan that covers all eligible
employees. The Bank matches contributions of 3.0% of each employee's salary.
Contributions are funded when accrued. Expenses totaled $35,351 for the year
ended December 31, 2000 and $21,776 during the year ended December 31, 1999.
Stock Option Plans
During 1999 the Bank adopted, with shareholder approval, an Employee Stock
Option Plan (the "Employee Plan") and a Director Stock Option Plan (the
"Director Plan"). Each plan makes available options to purchase 149,206 shares
of the Bank's common stock for an aggregate number of common shares reserved for
options of 298,412. The weighted-average exercise price of all options granted
to date is $9.19. The options granted under the Director Plan vested immediately
at the time of grant, while the options granted under the Employee Plan vest
over a five-year period. All unexercised options expire ten years after the date
of grant. A summary of the Bank's option plans as of and for the years ended
December 31, 2000 and 1999, after retroactively adjusting for the stock dividend
paid in 1999, is as follows:
Outstanding Options
------------------------------
Shares Weighted
available average
for future Number exercise
grants outstanding price
------------- -------------- -------------
At adoption 298,412 - $ -
Options granted (298,412) 298,412 9.19
Options exercised - - -
Options forfeited - - -
-------------- -------------- --------------
At December 31, 1999 - 298,412 9.19
Options granted - - -
Options exercised - - -
Options forfeited - - -
-------------- -------------- --------------
At December 31, 2000 - 298,412 $ 9.19
============== ============== ==============
At December 31, 2000, there were 179,047 exercisable options with a weighted
average exercise price of $9.18. At December 31, 1999, there were 149,206
exercisable options with a weighted average exercise price of $9.17.
No compensation cost is recognized by the Company when stock options are granted
because the exercise price equals the market price of the underlying common
stock on the date of grant. If the Bank had used the fair value-based method of
accounting for stock options for 2000 and 1999, its pro forma net loss and net
loss per common share would have been $177,000 and $.12, respectively, in 2000
and $1.3 million and $.87, respectively, in 1999. Fair values were estimated on
the date of grant using the Black-Scholes option pricing model, assuming a risk-
free interest rate of 4.75%, a dividend yield of 0%, volatility of 5.0%, and an
expected life of five years.
-30-
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
================================================================================
NOTE O - EMPLOYEE AND DIRECTOR BENEFIT PLANS (Continued)
Employment Agreement
The Bank has entered into an employment agreement with its chief executive
officer to ensure a stable and competent management base. The agreement provides
for a five-year term, but the agreement may be extended for an additional year
at the end of the initial term and annually thereafter. The agreement provides
for benefits as spelled out in the contract and cannot be terminated by the
Board of Directors, except for cause, without prejudicing the officer's right to
receive certain vested rights, including compensation. In the event of a change
in control of the Bank and in certain other events, as defined in the agreement,
the Bank or any successor to the Bank will be bound to the terms of the
contract.
NOTE P - SECONDARY STOCK OFFERING
The Company began a secondary offering of its common stock on October 2, 2000.
The offering is for a minimum of 131,575 shares and a maximum of 1,000,000
shares at a price of $9.50 per share. At December 31, 2000, 121,070 shares of
the Company's common stock had been sold in the offering. The offering will
continue through February 28, 2001.
NOTE Q - PARENT COMPANY FINANCIAL DATA
Following are condensed financial statements of American Community Bancshares,
Inc. as of and for the year ended December 31, 2000:
Condensed Statement of Financial Condition
Assets:
Cash $ 1,150,165
Investment in American Community Bank 11,446,061
-----------------
$ 12,596,226
=================
Liabilities and Stockholders' Equity:
Liabilities:
Due to American Community Bank $ 106,272
-----------------
Stockholders' Equity:
Common stock 1,613,133
Additional paid-in capital 12,012,419
Retained deficit (1,137,145)
Accumulated other comprehensive income 1,547
-----------------
Total stockholders' equity 12,489,954
-----------------
$ 12,596,226
=================
Condensed Statement of Operations
Equity in earnings (loss) of subsidiary $ (108,006)
=================
-31-
AMERICAN COMMUNITY BANCSHARES, INC.
MANAGEMENT AND BANK PERSONNEL
================================================================================
Directors
THOMAS J. HALL ZEBULON MORRIS, JR. ** DAVID D. WHITLEY
President Chief Executive Officer President
The Hall Group Morris Properties, Inc. Whitley Mortgage Associates, Inc.
Charlotte, NC Mint Hill, NC Monroe, NC
LARRY S. HELMS L. STEVEN PHILLIPS H. L. "BEN" WILLIAMS, JR. **
Owner Chief Executive Officer Private Investor
Larry S. Helms & Associates Charlotte Greencorp, Inc. Monroe, NC
Monroe, NC Charlotte, NC
RANDY P. HELTON ALISON J. SMITH * GREGORY N. WYLIE
President and Chief Executive Officer President Chairman - American Community Bank
American Community Bank Smith Capital, Inc. Chief Executive Officer
Monroe, NC Charlotte, NC Metro Marketing, Inc.
Matthews, NC
KENNETH W. LONG CARLTON TYSON **
Chairman - American Community Chief Executive Officer
Bancshares, Inc. Tyson Group Companies
President - Click Tactics, Inc. Monroe, NC
Duluth, GA
* Director of American Community Bancshares, Inc. only
** Director of American Community Bank only
Officers
RANDY P. HELTON DAN R. ELLIS, JR. W. RANDY ADCOCK
President and Senior Vice President and Senior Vice President
Chief Executive Officer Secretary Monroe City Executive
Chief Financial Officer
W. FARRELL RICHARDSON RICHARD M. COCHRANE DONALD A. SINGLETON
Senior Vice President Senior Vice President Senior Vice President and
Regional Business Development Officer Matthews-Mint Hill City Executive Chief Credit Officer
JEFF N. COLEY STEVEN L. BARNES MARY MARGARET NANCE
Senior Vice President Senior Vice President Senior Vice President
Marshville City Executive Indian Trail City Executive Bank Operations & Compliance Officer
ANN A. WILLIAMS ANGELA S. HELMS R. DWIGHT HENRY
Vice President - Operations Vice President - Branch Manager Senior Vice President
Monroe Main Office Monroe Main Office Mt. Island City Executive
-32-
AMERICAN COMMUNITY BANCSHARES, INC.
MARKET FOR THE COMMON STOCK
================================================================================
The Common Stock of American Community Bancshares, Inc. is listed for trading on
the NASDAQ Small Cap Market under the symbol "ACBA". Wachovia Securities, Scott
and Stringfellow and Trident Securities are market makers. The table below lists
the high and low prices at which trades were completed during each quarter. The
Company's Common Stock is considered to be a thinly traded stock with only a few
thousand shares traded each quarter.
Low/(1)/ High/(1)/
------- --------
1999
----
First Quarter $ 7.50 $ 9.20
Second Quarter 8.30 10.41
Third Quarter 9.60 10.80
Fourth Quarter 10.00 12.50
2000
----
First Quarter $ 9.65 $ 13.00
Second Quarter 8.25 10.87
Third Quarter 7.00 9.44
Fourth Quarter 8.00 10.125
/(1)/ The prices quoted above have been adjusted to reflect a 20% stock dividend
paid in December 1999.
As a newly chartered bank, the Bank is prohibited from paying cash dividends for
its first three years of operation without the permission of the North Carolina
Commissioner of Banks.
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AMERICAN COMMUNITY BANCSHARES, INC.
AMERICAN COMMUNITY BANK
GENERAL CORPORATE INFORMATION
================================================================================
OFFICE LOCATIONS
Main Office: Wal-Mart Superstore Office: Indian Trail Office:
2593 West Roosevelt Blvd. 2406 West Roosevelt Blvd. 13860 E. Independence Blvd.
Post Office Box 5035 Monroe, NC 28110 Post Office Box 1470
Monroe, NC 28111-5035 (704) 226-0696 Telephone Indian Trail, NC 28079
(704) 225-8444 Telephone (704) 226-9716 Facsimile (704) 821-1014 Telephone
(704) 225-8445 Facsimile (704) 821-1021 Facsimile
Marshville Office: Mortgage & Factoring Office: Sunset Office:
7001 East Marshville Blvd. 2593 W. Roosevelt Blvd. 120 East Sunset Drive
Marshville, NC 28103 Post Office Box 5035 Monroe, NC 28110
(704) 624-4800 Telephone Monroe, NC 28111-5035 (704) 225-1967 Telephone
(704) 624-1964 Facsimile (704) 225-8444 Telephone (704) 225-9767 Facsimile
(704) 225-8445 Facsimile
Matthews-Mint Hill Office: Mt. Island Office:
7200 Matthews-Mint Hill Road 3500 Mt. Holly-Huntersville Rd
Charlotte, NC 28227 Charlotte, NC 28216
(704) 573-6547 Telephone (704) 395-9900 Telephone
(704) 573-6553 Facsimile (704) 395-9800 Facsimile
Regulatory and Securities Counsel
Gaeta & Glesener, P.A.
808 Salem Woods Drive
Suite 201
Raleigh, NC 27615
(919) 845-2558 Telephone
(919) 518-2146 Facsimile
Stock Transfer Agent Independent Auditors
Registrar and Transfer Company Dixon Odom PLLC
10 Commerce Drive Post Office Box 70
Cranford, NJ 07016 Sanford, NC 27331-0070
(800) 456-0596
Annual Shareholders' Meeting
The Annual Meeting of the shareholders of American Community Bancshares, Inc.
will be held at 10:00 a.m., Tuesday, April 17, 2001, at the American Community
Bank, 2593 West Roosevelt Boulevard, Monroe, NC 28110.
Form 10-KSB
Copies of American Community Bancshares' Annual Report filed on Form 10-KSB with
the Securities and Exchange Commission may be obtained by shareholders at no
charge by writing: Dan R. Ellis, Jr., Secretary, American Community Bancshares,
Inc., Post Office Box 5035, Monroe, North Carolina 28111-5035.
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