<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number
September 30, 1996 33-97778
CAROLINA COMMUNITY BANCSHARES, INC.
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
SOUTH CAROLINA 57-1024331
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 EAST LEITNER STREET, LATTA, SOUTH CAROLINA 29565
------------------------------------------------------
(Address of Principle Executive Offices)
(803) 752-7139
-----------------------------------------------
(Issuer's Telephone Number, Including Area Code)
NOT APPLICABLE
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common Stock, $1.00 Par Value 416,110
- ----------------------------- ----------------------------------
Class Outstanding as of November 1, 1996
Transitional Small Business Disclosure Format (check one):
YES NO X
---- ----
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CAROLINA COMMUNITY BANCSHARES, INC.
LATTA, SOUTH CAROLINA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
ASSETS (UNAUDITED) (AUDITED)
----------- -----------
<S> <C> <C>
Cash and due from banks $ 1,662,106 $ 1,095,219
Investment securities:
Securities available-for-sale, at market value 4,650,635 6,807,740
Securities held-to-maturity, at market value 768,403 1,005,475
Federal funds sold 2,825,000
Loans, net 17,746,779 10,381,406
Property and equipment, net 526,042 171,360
Goodwill 1,386,108 1,459,924
Other assets 304,891 258,219
----------- -----------
Total assets $29,869,964 $21,179,343
=========== ===========
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing deposits $ 4,184,611 $ 3,501,360
Interest bearing deposits 21,327,731 12,834,924
----------- -----------
Total deposits $25,512,343 $16,336,284
----------- -----------
Accounts payable $ 162,448 $ 154,152
Federal funds purchased 650,000
Note payable 1,100,000
----------- -----------
Total payables $ 162,448 $ 1,904,152
----------- -----------
Total liabilities $25,674,791 $18,240,436
----------- -----------
Shareholders' Equity:
Common stock, $1.00 par value, 10,000,000 shares
authorized, 416,110 and 300,957 shares issued and
outstanding as of 9/30/96 and 12/31/95,
respectively $ 416,110 $ 300,957
Paid-in-capital 3,714,731 2,678,353
Retained earnings (deficit) 90,129 (20,089)
Unrealized gain (loss)
Securities available-for-sale (25,796) (20,314)
----------- -----------
Total shareholders' equity $ 4,195,174 $ 2,938,907
----------- -----------
Total liabilities and shareholder's equity $29,869,964 $21,179,343
=========== ===========
</TABLE>
Refer to notes to the consolidated financial statements.
<PAGE> 3
CAROLINA COMMUNITY BANCSHARES, INC.
LATTA, SOUTH CAROLINA
CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the Nine From Inception
Three Months Ended Months Ended Thru
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income $527,223 $ 467 $1,372,669 $ 467
Interest expense 210,592 562,503
-------- -------- ---------- --------
Net interest income $316,631 $ 810,166 $ 467
Provision for possible loan losses 28,000 74,000 $ 467
Net interest income after
provision for possible loan
losses $288,631 $ 736,166 $ 467
-------- -------- ---------- --------
Other income
Service charges $ 64,611 $ 171,492
Miscellaneous income 14,267 42,725
-------- -------- ---------- --------
Total other income $ 78,878 $ 214,217
-------- -------- ---------- --------
Salaries and benefits $148,390 $ 11,297 $ 443,243 $ 45,427
Depreciation 8,429 43,542
Amortization 26,368 78,808
Data processing 3,010 6,033
Regulatory fees and assessments (389) 6,757
Other operating expenses 74,141 176,970
-------- -------- ---------- --------
Total operating expenses $259,949 11,297 $ 755,353 $ 45,427
-------- -------- ---------- --------
Net income before taxes $107,560 ($11,297) $ 195,031 ($44,960)
Income taxes 44,784 84,812
-------- -------- ---------- --------
Net income (loss) $ 62,776 ($11,297) $ 110,219 ($44,960)
======== ======== ========== ========
Income per share $ 0.151 $ 0.265
======== ========= ========== ========
</TABLE>
Refer to notes to the consolidated financial statements.
<PAGE> 4
CAROLINA COMMUNITY BANCSHARES, INC.
LATTA, SOUTH CAROLINA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the
Nine Months From Inception
Ended Thru
September 30, September 30,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities $ 264,651 ($103,617)
Cash flows from investing activities
Purchase of securities (250,000)
Maturity and paydowns 2,644,176
(Increase) in loans (7,439,373)
Purchase of property and equipment (405,157) 5,000
---------- ---------
Net cash used in investing activities ($5,450,354) $ 5,000
---------- ---------
Cash flows from financing activities:
Issuance of common stock, net $ 1,151,531 $ 1,000
Note payable (1,100,000) 115,000
Purchase (sale) of federal funds (650,000)
Increase in deposits 9,176,059
Cash (used by) financing activities $ 8,577,590 $ 116,000
----------- ---------
Net increase in cash and cash equivalents 3,391,887 17,383
Cash and cash equivalents, beginning of period 1,095,219
----------- ---------
Cash and cash equivalents, end of period $ 4,487,106 $ 17,383
=========== =========
</TABLE>
<PAGE> 5
CAROLINA COMMUNITY BANCSHARES, INC.
Latta, South Carolina
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1996
Note 1 - Summary of Organization
Carolina Community Bancshares, Inc., Latta, South Carolina (the "Company")
was incorporated under the laws of the State of South Carolina on May 26, 1995,
for the purpose of operating as a bank holding company pursuant to the Bank
Holding Company Act of 1956, as amended. A group of organizers initiated
several financial transactions on behalf of the Company prior to the date of
incorporation and as early as March 27, 1995, the date of inception.
Pursuant to a Stock Purchase Agreement entered into with SouthTrust
Corporation, Birmingham, Alabama ("SouthTrust"), the Company consummated the
purchase of SouthTrust Bank of Dillon County on November 1, 1995. Immediately
thereafter, the acquired bank was renamed Carolina Community Bank, N.A. (the
"Bank").
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation and Reclassification. The consolidated financial
statements include the accounts of the Company and the Bank. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Because the acquisition of the Bank was not consummated until November 1, 1995,
however, the financial statements for the three month period ended September
30, 1995 and the period from inception through September 30, 1995 have not been
consolidated. The financial data for such periods primarily represents
expenses incurred in organizing the Company.
Basis of Accounting. The accounting and reporting policies of the Company
conform to generally accepted accounting principles for interim financial
information, the instructions for Form 10-QSB and to general practices in the
banking industry. Accordingly they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statement presentation. The Company uses the accrual basis of
accounting by recognizing revenues when earned and expenses when incurred,
without regarding the time of receipt or payment of cash.
Investment Securities. The Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investment in Debt and
Equity Securities" ("SFAS 115"). SFAS 115 requires investments in equity and
debt securities to be classified into three categories:
1. Held-to-maturity securities: These are securities which
the Company has the ability and intent to hold until maturity.
These securities are stated at cost, adjusted for amortization of
premiums and the accretion of discounts.
2. Trading securities: These are securities which are
bought and held principally for the purpose of selling in the near
future. Trading securities are reported at fair market value, and
related unrealized gains and losses are recognized in the income
statement.
3. Available-for-sale securities: These are securities
which are not classified as either or as trading securities.
These securities are reported at fair market value.
4
<PAGE> 6
Unrealized gains and losses are reported, net of tax, as separate
components of shareholders' equity. Unrealized gains and losses
are excluded from the income statement.
Loans, Interest and Fee Income on Loans. Loans are stated at the
principal balance outstanding. Unearned discount, unamortized loan fees and
the allowance for possible loan losses are deducted from total loans in the
statement of condition. Interest income is recognized over the term of the
loan based on the principal amount outstanding. Points on real estate loans
are taken into income to the extent they represent the direct cost of
initiating a loan. The amount in excess of direct costs is deferred and
amortized over the expected life of the loan.
Loans are generally placed on non-accrual status when principal or
interest becomes ninety days past due, or when payment in full is not
anticipated. When a loan is placed on non-accrual status, interest accrued but
not received is generally reversed against interest income. If collectibility
is in doubt, cash receipts on non-accrual loans are not recorded as interest
income, but are used to reduce principal.
Allowance for Possible Loan Losses. The provisions for loan losses
charged to operating expense reflect the amount deemed appropriate by
management to establish an adequate reserve to meet the present and foreseeable
risk characteristics of the current loan portfolio. Management's judgment is
based on periodic and regular evaluation of individual loans, the overall risk
characteristics of the various portfolio segments, past experience with losses
and prevailing and anticipated economic conditions. Loans which are determined
to be uncollectible are charged against the allowance. Provisions for loan
losses and recoveries on loans previously charged off are added to the
allowance.
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan"("SFAS 114"). Under the new
standard, a loan is considered impaired, based on current information and
events, if it is probable that the company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. The measurement of impaired loans is
generally based on the present value of expected future cash flows discounted
at the historical effective interest rate, except that all collateral-dependent
loans are measured for impairment based on the fair value of the collateral.
In October 1994, FASB issued Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure"("SFAS 118"). SFAS 118 amends SFAS 114 to allow a creditor to
use existing methods for recognizing interest income on an impaired loan,
rather than the methods prescribed in SFAS 114.
Property and Equipment. Building, furniture and equipment are stated at
cost, net of accumulated depreciation. Depreciation is computed using the
straight line method over the estimated useful lives of the related assets.
Maintenance and repairs are charged to operations, while major improvements are
capitalized. Upon retirement, sale or other disposition of property and
equipment, the cost and accumulated depreciation are eliminated from the
accounts, and gain or loss is included in income from operations.
Income Taxes. The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109,
deferred tax assets and liabilities are recognized for the expected future tax
consequences of the events that have been recognized in the financial
statements or tax return. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be realized or settled.
5
<PAGE> 7
Statement of Cash Flows. For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks and federal funds
sold. Generally, federal funds are purchased or sold for one day periods.
Net Income Per Share. Net income per share was computed by dividing the
net income by the average number of shares outstanding for the three month and
nine month periods ended September 30, 1996 (416,110 shares). Income per share
of $.265 for the nine month period ended September 30, 1996 and $.151 for the
three month period ended September 30, 1996 may not be indicative of projected
earnings/losses for the year ending December 31, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company was incorporated in South Carolina on May 26, 1995 to become a
bank holding company and to own and control all of the outstanding shares of an
existing bank, SouthTrust Bank of Dillon County, Latta, South Carolina.
Pursuant to a Stock Purchase Agreement entered into with SouthTrust
Corporation, Birmingham, Alabama, the Company consummated the purchase of
SouthTrust Bank of Dillon County on November 1, 1995. Immediately thereafter,
the acquired bank was renamed Carolina Community Bank, N.A. (the "Bank"). To
fund the purchase price of $4.0 million, the Company (i) sold, through a
Private Placement Memorandum, 300,957 shares of its common stock for $2,979,310
(net of $30,260 in selling expenses) and (ii) borrowed $1.1 million from an
unrelated financial institution.
The Company filed a Registration Statement on Form SB-2 with the
Securities and Exchange Commission to sell a maximum of 250,000 shares of its
common stock through a public offering at $10 per share. On September 13,
1996, the Company terminated the public offering after having sold an aggregate
of 116,110 shares of common stock. The Company received net proceeds of
$1,161,100 in connection with the public offering, which proceeds were used for
working capital and to repay the $1.1 million loan obtained to fund the
purchase of the Bank.
Liquidity and Sources of Capital
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customers. The
September 30, 1996 financial statements evidence a satisfactory liquidity
position as total cash, cash equivalents, and federal funds amounted to $4.487
million, representing 15.0% of total assets. Investment securities amounted to
$5.4 million, representing 18.1% of total assets. Investment securities provide
a secondary source of liquidity since they can be converted into cash in a
timely manner. In addition, the Company's ability to maintain and expand its
deposit base and borrowing capabilities are a source of liquidity. For the
nine month period ended September 30, 1996, total deposits increased from $16.3
million at December 31, 1995 to $25.5 million, representing an annualized
increase of 75.3%. The Company, however, does not expect to maintain or
duplicate this growth rate. The Company's management closely monitors and
maintains appropriate levels of interest earning assets and interest bearing
liabilities so that maturities of assets are such that adequate funds are
provided to meet customer withdrawals and loan demand. There are no trends,
demand, commitments, events or uncertainties that will result in or are
reasonably likely to result in the Company's liquidity increasing or decreasing
in any material way.
6
<PAGE> 8
The Bank maintains an adequate level of capitalization as measured by the
following capital ratios and the respective minimum capital requirements by the
Bank's primary regulator, the Office of the Comptroller of the Currency (the
"OCC").
Minimum required
September 30, 1996 by OCC
------------------ ----------------
Leverage ratio 9.29% 4.0%
Risk weighted ratio 16.05% 8.0%
Note that with respect to the leverage ratio, the OCC requires a minimum
of 5.0% to 6.0% ratio for banks that are not rated CAMEL 1. Although the Bank
is not rated CAMEL 1, its leverage ratio of 9.29% is well above the required
minimum.
Financial Condition and Results of Operations
Because the acquisition of the Bank and principle banking operations were
not consummated until November 1, 1995, the Company's financial statement for
the periods ended September 30, 1995 are not consolidated and consequently, a
comparison of the September 30, 1995 results is not meaningful. This
discussion will therefore concentrate on the September 30, 1996 results.
Net income for the three month and nine month periods ended September 30,
1996 amounted to $62,776 and $110,219, or $.151 and $.265 per share
respectively. The following is a brief discussion of the more significant
components of net income:
a. Net interest income represents the difference between interest received
on interest earning assets and interest paid on interest bearing liabilities.
The following presents, in a tabular form, the main components of interest
earning assets and interest bearing liabilities for the nine month period ended
September 30, 1996.
<TABLE>
<CAPTION>
Interest Earning Assets/ Average Interest/Income Yield/
Bearing Liabilities Balance Cost Cost
- ------------------- -------- ---- ----
<S> <C> <C> <C>
Federal funds sold $ 845,573 $ 30,944 4.88%
Securities 5,510,692 284,993 6.90%
Loans 13,998,955 1,056,733 10.06%
----------- ---------- -----
Total $20,355,220 $1,372,670 8.99%
----------- ---------- -----
Deposits $19,293,835 $ 528,520 3.65%
Federal funds purchased 252,190 14,648 7.74%
----------- ---------- -----
Total $19,546,025 $ 543,168 3.71%
----------- ---------- -----
Net Interest Income $ 829,502
==========
Net Yield on Earning Assets 5.43%
=====
</TABLE>
7
<PAGE> 9
The following presents, in a tabular form, the main components of interest
earning assets and interest bearing liabilities for the three month period
ended September 30, 1996.
<TABLE>
<CAPTION>
Interest Earning Assets/ Average Interest/Income Yield/
Bearing Liabilities Balance Cost Cost
- ------------------ ------- ---- ----
<S> <C> <C> <C>
Federal funds sold $ 1,606,000 $ 20,220 5.04%
Securities 5,697,000 87,399 6.14%
Loans 18,030,000 418,605 9.29%
----------- -------- ----
Total $25,333,000 $526,224 8.31%
----------- -------- ----
Deposits $24,153,000 $207,816 3.44%
Federal funds purchased 294,000 3,867 5.26%
----------- -------- ----
Total $24,447,000 $211,683 3.46%
----------- -------- ----
Net interest income $314,541
========
Net yield on earning assets 4.97%
====
</TABLE>
b. Other income for the three month and the nine month periods ended
September 30, 1996 amounted to $78,878 and $214,217, respectively. On an
annualized basis, this represents 1.0% and 0.9% of total assets for the three
month and nine month periods, respectively.
c. Operating expenses for the three-month period and the nine month
periods ended September 30, 1996 amounted to $259,949 and $755,353,
respectively. On an annualized basis, this represents 3.5% of total assets for
the for the three-month period and 3.4% for the nine month periods ended
September 30, 1996.
At December 31, 1995, the allowance for loan losses amounted to $157,420.
By September 30, 1996, the allowance had grown to $225,686. Despite the
increase, however, the allowance for loan losses, as a percentage of gross
loans, declined from 1.49% at December 31, 1995 to 1.25% during the three month
and nine month periods ended September 30, 1996. Management considers the
allowance for loan losses to be adequate and sufficient to absorb possible
future losses; however, there can be no assurance that charge-offs in future
periods will not exceed the allowance for loan losses or that additional
provisions to the allowance will not be required.
The Company is not aware of any current recommendation by the regulatory
authorities which, if they were to be implemented, would have a material effect
on the Company's liquidity, capital resources, or results of operations.
8
<PAGE> 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed with this report:
Exhibit No. DESCRIPTION OF EXHIBIT
27 Financial Data Schedule
(b) The following reports on Form 8-K were filed during the quarter ended
September 30, 1996:
(i) Current Report on Form 8-K dated July 24, 1996,
relating to the Company's change in accountants.
(ii) Amendment No. 1 on Form 8-K/A dated July 29, 1996
to its Current Report on Form 8-K dated July 24, 1996.
9
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAROLINA COMMUNITY BANCSHARES, INC.
Dated: November 4, 1996 By:/s/ R. Walton Brown
----------------------------------------
R. Walton Brown
President and Chief Executive Officer
(Principle Executive, Financial
and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CAROLINA
COMMUNITY BANCSHARES, INC. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,640,617
<INT-BEARING-DEPOSITS> 21,337,731
<FED-FUNDS-SOLD> 2,825,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,770,000
<INVESTMENTS-CARRYING> 649,100
<INVESTMENTS-MARKET> 673,310
<LOANS> 17,982,000
<ALLOWANCE> 225,687
<TOTAL-ASSETS> 29,816,612
<DEPOSITS> 25,512,343
<SHORT-TERM> 0
<LIABILITIES-OTHER> 174,000
<LONG-TERM> 0
0
0
<COMMON> 416,110
<OTHER-SE> 3,714,731
<TOTAL-LIABILITIES-AND-EQUITY> 29,816,612
<INTEREST-LOAN> 1,057,732
<INTEREST-INVEST> 284,993
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,372,664
<INTEREST-DEPOSIT> 528,520
<INTEREST-EXPENSE> 543,168
<INTEREST-INCOME-NET> 844,149
<LOAN-LOSSES> 74,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,371,151
<INCOME-PRETAX> 195,031
<INCOME-PRE-EXTRAORDINARY> 110,219
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 110,219
<EPS-PRIMARY> .265
<EPS-DILUTED> .265
<YIELD-ACTUAL> 5.43
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 213,420
<CHARGE-OFFS> 7,056
<RECOVERIES> 1,322
<ALLOWANCE-CLOSE> 225,686
<ALLOWANCE-DOMESTIC> 225,686
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,000
</TABLE>
