<PAGE>
As Filed with the Securities and Exchange Commission on September 15, 2000
Registration No. 333-42512
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pre-Effective Amendment
No. 1 to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERICAN COMMUNITY BANCSHARES, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
North Carolina 6712 56-2179531
(State or Jurisdiction of (Primary Standard Industrial Code) (IRS Employer Identification No.)
Organization)
</TABLE>
2593 West Roosevelt Boulevard
Monroe, North Carolina 28111-0418
(704) 225-8444
(Address and telephone number of principal executive offices)
Randy P. Helton, President
2593 West Roosevelt Boulevard
Monroe, North Carolina 28111-0418
(704) 225-8444
(Name, address and telephone number of agent for service)
Copies to:
Anthony Gaeta, Jr., Esq. Brian T. Atkinson, Esq.
Erik Gerhard, Esq. Moore & Van Allen, PLLC
Gaeta & Glesener, P.A. 100 North Tryon Street
808 Salem Woods Drive, Suite 201 Floor 47
Raleigh, NC 27615 Charlotte, NC 28202
(919) 845-2558 (704) 331-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[PROSPECTUS COVER PAGE]
PROSPECTUS
________, 2000
AMERICAN COMMUNITY BANCSHARES, INC.
COMMON STOCK
PURCHASE PRICE $____ PER SHARE
1,000,000 Shares (Maximum)
500,000 Shares (Minimum)
We are the parent company for American Community Bank, a North Carolina
community bank that opened for business in November 1998.
American Community Bancshares, Inc.
American Community Bank
Post Office Box 5035
Monroe, North Carolina 28111-5035
(704) 225-8444
Trading Market
Our common stock is currently traded on the Nasdaq SmallCap Market under the
symbol "ACBA."
The Offering
American Community Bancshares, Inc. ("American Community Bancshares") is
offering a minimum of 500,000 shares and a maximum of 1,000,000 shares of its
common stock for sale at $____ per share. During the first four weeks of the
offering, we will offer the common stock in the communities where we have
existing or proposed banking offices. Afterward, Wachovia Securities, Inc., a
broker-dealer located in Charlotte, North Carolina will offer any remaining
shares of common stock on a "best efforts" basis and receive a commission of 5%
of the offering price for all shares sold by it plus a financial advisory or
standby fee. (See METHOD OF SUBSCRIPTION/ PLAN OF DISTRIBUTION). Funds
collected during the offering will be placed in escrow at First Union National
Bank until the minimum of 500,000 shares is sold. We plan to use the proceeds
from the offering to enhance our capital and liquidity positions, fund our
expansion plans, including the establishment of additional branch offices in and
around Union and Mecklenburg Counties, and for general corporate purposes. If
by, December 31, 2000, unless extended to February 28, 2001, American Community
Bancshares has not received subscriptions for at least 500,000 shares of its
common stock, a refund of the funds paid, with interest, will be returned to the
subscribers.
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<CAPTION>
Total of Total of
Per Share Minimum Maximum
--------- ------- -------
<S> <C> <C> <C>
Public Offering Price $___ $___ $___
Estimated Expenses of the Offering $___ $___ $___
Proceeds to American Community Bancshares $___ $___ $___
</TABLE>
THIS INVESTMENT INVOLVES RISK. IT IS NOT A DEPOSIT OR AN ACCOUNT INSURED BY THE
FDIC OR ANY OTHER GOVERNMENT AGENCY. SOME OF THE RISKS OF THIS INVESTMENT ARE
DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE __.
Neither the SEC nor any state securities commission has approved or disapproved
of these securities or determined if this Prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
<PAGE>
[INSIDE FRONT COVER OF PROSPECTUS]
[MAP]
OFFICE LOCATIONS
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<S> <C> <C>
Main Office Wal-Mart Superstore Office Sunset Office
2593 West Roosevelt Blvd. 2406 West Roosevelt Blvd. 120 Sunset Drive
Monroe, NC Monroe, NC Monroe, NC
Indian Trail Office Marshville Office Matthews-Mint Hill Office
13860 East Independence Blvd. 7001 East Marshville Blvd. 7200 Matthews-Mint Hill Road
Indian Trail, NC Marshville, NC Mint Hill, NC
Mountain Island Office
Mount Holly-Huntersville Road
Charlotte, NC
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed business
information and the financial statements and related notes that appear elsewhere
in this Prospectus. Market and industry data used in this Prospectus are based
on independent industry publications, other publicly available information or
the good faith belief of our management.
AMERICAN COMMUNITY BANCSHARES
AND AMERICAN COMMUNITY BANK
Business
American Community Bancshares is a bank holding company formed in April 2000 to
own all of the common stock of American Community Bank, a North Carolina-
chartered bank that opened for business as a community bank in Monroe, Union
County, North Carolina in November 1998. At this time, American Community
Bancshares does not engage in any business activities on its own. It only owns
American Community Bank which engages in the commercial banking business. At
June 30, 2000, American Community Bancshares had total assets of $105.1 million,
total deposits of $83.3 million and shareholders' equity of $11.2 million.
Since opening in November of 1998, neither American Community Bank nor American
Community Bancshares has yet achieved profitability.
American Community Bank's Market Area
We operate in the Southern Piedmont area of North Carolina, principally in Union
and Mecklenburg Counties. As of June 30, 2000, the most recent date for which
figures were available, these two counties had a combined population of
approximately one million. As of December 31, 1999, the two-county area had an
unemployment rate of 2.3%.
Executive Offices
American Community Bancshares
American Community Bank
2593 West Roosevelt Boulevard
Monroe, North Carolina 28111-0418
(704) 225-8444
Management
Randy P. Helton, 45, is our President and Chief Executive Officer. A lifelong
resident of Charlotte, North Carolina, he has approximately 23 years of banking
experience. He is a graduate of UNCC, the Executive Program at UNC-Chapel Hill
and a graduate of the Corporate Financial Management Program at Harvard Business
School. Until 1998, when he joined the current directors who were the original
organizers of American Community Bank, Mr. Helton
1
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was a Vice President in the Private Banking Group of First Union National Bank
in Charlotte, North Carolina, a position he assumed in 1994. Prior thereto he
was Senior Vice President and City Executive of Charlotte with American
Commercial Savings Bank, Monroe which was acquired by First Union National Bank
in 1994.
Dan R. Ellis, Jr., 44, is our Senior Vice President, Chief Financial Officer and
Secretary, a position he has held since American Community Bank began operating.
He is a long time resident of Union County. Until 1998, Mr. Ellis was a partner
with Accupointe of Charlotte, North Carolina.
Randy Adcock, 44, Senior Vice President and Monroe City Executive, is a life
long resident of Union County and a 23 year banking veteran. He was formerly
with Bank of Union (acquired by First Charter National Bank) in Monroe, North
Carolina as a commercial loan officer.
Farrell Richardson, 59, Senior Vice President and Regional Business Development
Officer, is a life long resident of Union County and a 28 year banking veteran.
He formerly was with Bank of Union (acquired by First Charter National Bank) as
Branch Manager of the Indian Trail Branch.
Mike Cochrane, 48, Senior Vice President and Matthews/Mint Hill City Executive,
is a life long resident of Mint Hill, North Carolina and a 23 year banking
veteran. He formerly was with South Trust Bank of North Carolina as a
commercial loan officer in Mint Hill, North Carolina.
Jeff Coley, 41, Senior Vice President and City Executive of Marshville, is a
life long resident of Marshville and a 20 year banking veteran. He formerly was
a Branch Manager with BB&T in Marshville, North Carolina.
Steve Barnes, 45, Senior Vice President and City Executive of Indian Trail, is a
life long resident of Union County and a 20 year banking veteran. He formerly
was with First Charter National Bank as a loan officer in the Indian Trail
office.
Dwight Henry, 62, Senior Vice President and City Executive of Mountain Island,
is a life long resident of Charlotte and a 28 year banking veteran. He
previously was employed by First Charter National Bank as a commercial loan
officer in the Oakdale community.
Don Singleton, 48, Senior Vice President and senior loan officer, is a 27 year
banking veteran and was previously employed by Wachovia Bank as a senior loan
officer.
Mary Margaret Nance, 48, Senior Vice President and Operations Officer, is a 20
year banking veteran and was previously employed by Bank of Union (acquired by
First Charter National Bank) as Compliance and Loan Review Officer. Prior to
that she was employed by NationsBank (now Bank of America) in a similar
role.
2
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The Offering
Securities Offered for Sale Shares of common stock, $1.00
par value, of American Community
Bancshares.
Number of Shares Being Offered A minimum of 500,000 and a
maximum of 1,000,000.
Offering Price $____ per share.
How to Subscribe Prior to _____, 2000, use only
the Subscription Offer Form
attached to this Prospectus;
thereafter, you may also contact
any office of IJL Wachovia, a
division of Wachovia Securities.
Number of Shares to be Outstanding A minimum of 1,992,062 and a
after the Offering maximum of 2,492,062 shares, not
including an additional 298,410
shares that are reserved for
American Community Bancshares'
stock option plans.
Proposed Purchases by Directors and Due to their current level of
Officers ownership of American Community
Bancshares' common stock and in
order to broaden our shareholder
base in the new communities now
being served by additional
branch offices, the directors
and officers do not intend to
purchase any additional shares
in the offering.
Escrow of Funds All funds will be held in escrow
with First Union National Bank.
If by December 31, 2000 (unless
extended to February 28, 2001)
we do not receive subscriptions
for at least 500,000 shares,
subscribers will receive a
refund of their funds with
interest.
Dividend Policy We do not intend to pay any cash
dividends in the foreseeable
future.
Use of Proceeds We intend to use the net
proceeds from the offering to
provide additional liquidity,
fund our expansion plans and
general corporate purposes.
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Risk Factors You should read the "Risk
Factors" section beginning on
page 5 before deciding to invest
in the offering.
Trading Market/Symbol Nasdaq SmallCap Market/ACBA
Summary Consolidated Financial and Other Data
The summary consolidated financial and other data presented below should be read
in conjunction with, and is qualified in its entirety by, the audited financial
statements and related notes of American Community Bank and the unaudited
financial statements of American Community Bancshares. The audited financial
statements of American Community Bank are for the year ended December 31, 1999
and the period November 16, 1998 to December 31, 1998. The unaudited financial
statements of American Community Bancshares are for the six months ended June
30, 2000 and 1999. The financial statements mentioned above can be found at the
end of this Prospectus and in "MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" contained elsewhere in this
Prospectus.
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<TABLE>
<CAPTION>
At or for the Six Months At or for the Period Ended
Ended June 30, December 31,
2000 1999 1999 1998 (5)
---- ---- ---- --------
(unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA:
Interest income $ 3,705 $ 1,277 $ 3,457 $ 137
Interest expense 1,841 441 1,424 22
-------- ------- ------- --------
Net interest income 1,864 836 2,033 115
Provision for loan losses 401 449 742 71
-------- ------- ------- --------
Net interest income after provision for loan losses 1,463 387 1,291 44
Noninterest income 364 233 493 1
Noninterest expense 2,160 1,272 2,684 174
-------- ------- ------- --------
Loss before income taxes (333) (652) (900) (129)
Income taxes - - - -
-------- ------- ------- --------
Net loss $ (333) $ (652) $ (900) $ (129)
======== ======= ======= ========
CONSOLIDATED BALANCE SHEET DATA:
Total assets $105,051 $43,323 $73,594 $ 20,353
Investments (1) 12,538 6,597 8,718 14,721
Loans, net of allowance for loan losses 87,089 35,092 58,493 4,709
Deposits 83,264 31,345 54,987 7,678
Borrowings (2) 10,201 - 6,700 -
Shareholders' equity 11,219 11,801 11,553 12,453
PER SHARE DATA:
Basic and diluted net loss (3)(4) $ (0.76) $ (3.82) $ (0.60) $ (0.09)
Book Value $ 7.52 $ 7.91(3) $ 7.74 $ 8.35(3)
SELECTED OTHER DATA:
Return on average assets (5) -0.76% -3.82% -1.99% -
Return on average equity (5) -5.82% -10.74% -7.50% -
Average equity to average assets (5) 13.10% 35.53% 26.56% -
Net yield on average interest-earning assets (5) 4.50% 5.19% 4.81% -
Average interest-earnings assets to average interest-bearing 124.14% 172.80% 146.63% -
liabilities (5)
Ratio of non-interest expense to average total assets (5) 4.95% 7.45% 5.94% -
Nonperforming loans to total assets - - - -
Nonperforming loans to total loans - - - -
Allowance for loan losses to total loans 1.34% 1.46% 1.37% 1.49%
Number of full service branches in operation 5 3 3 2
</TABLE>
(1) Consists of interest-earning deposits with banks, investment securities
available for sale, and stock in Federal Home Loan Bank (the "FHLB").
(2) Consists of federal funds purchased, advances from the FHLB 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.
(5) American Community Bank commenced operations on November 16, 1998. Because
of the short period of operations during 1998, certain of the operating
ratios and percentages under the caption "Selected Other Data" are not
considered to be meaningful for 1998 and are therefore not included
above.
5
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RISK FACTORS
In connection with this offering, you should consider carefully all of the
information in this Prospectus and, in particular, the following factors:
We Do Not Plan to Pay Cash Dividends in the Immediate, Foreseeable Future.
We do not expect to pay dividends on our common stock in the immediate,
foreseeable future. You should not buy shares in this offering if you need
dividend income from this investment. Currently and in the immediate future,
American Community Bancshares will have no significant assets other than its
ownership of American Community Bank, and the only source of funds for paying
dividends to shareholders will be dividends American Community Bancshares
receives from American Community Bank. American Community Bank is prohibited
from paying cash dividends until November 2001 unless special permission is
received from the North Carolina Commissioner of Banks. This is a common
prohibition for new banks chartered under North Carolina law. Also, American
Community Bank may not generate sufficient earnings to enable it to continue to
grow and also pay dividends to American Community Bancshares. Even if it does,
American Community Bancshares' board of directors would not be required to pay
dividends to shareholders. Also, there are other regulatory requirements which
may limit our ability to pay cash dividends.
If American Community Bank Experiences Greater Loan Losses Than Anticipated, It
Will Have an Adverse Effect on Our Net Income and Our Ability to Fund Our Growth
Strategy.
The risk of nonpayment of loans is inherent in banking. If we experience greater
nonpayment levels than anticipated, our earnings and overall financial
condition, as well as the value of our common stock, could be adversely
affected.
We continuously strive to manage our credit risk, and we also maintain an
allowance for loan losses to provide for loan defaults and nonperformance.
However, we cannot assure you that our monitoring, procedures and policies will
reduce certain lending risks or that our allowance for loan losses will be
adequate to cover actual losses. In addition, as a result of the rapid growth in
our loan portfolio, loan losses may be greater than management's estimates of
the appropriate level for the allowance. Loan losses can cause insolvency and
failure of a financial institution and, in such an event, our shareholders could
lose their entire investment. In addition, future provisions for loan losses
could materially and adversely affect our results of operations. Any loan
losses will reduce the loan loss reserve. A reduction in the loan loss reserve
will be replaced by earnings. This will cause our earnings to be reduced and
reduced earnings could have an adverse effect on our stock price.
Our Operations and Profitability Will be Affected by the Local Economy.
We operate primarily in the Southern Piedmont area of North Carolina,
principally Union and Mecklenburg Counties. While the economy in this area
generally has been healthy in recent
6
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years, an economic downturn in the area would probably have a significant
negative impact on us.
In Order to be Profitable, We Must Compete Successfully With Other Financial
Institutions Which Have Greater Resources and Capabilities Than We Do.
The banking business is extremely competitive. Most of our competitors are
larger and have greater resources than we do and have been in existence a longer
period of time. We will have to overcome historical bank-customer relationships
to attract customers away from our competition. We compete with the following
types of institutions:
- other commercial banks - securities brokerage firms
- savings banks - mortgage brokers
- thrifts - insurance companies
- credit unions - mutual funds
- consumer finance companies - trust companies
Some of our competitors are not regulated as extensively as we are and,
therefore, may have greater flexibility in competing for business. Some of these
competitors are subject to similar regulation but have the advantages of larger
established customer bases, higher lending limits, extensive branch networks,
numerous automated teller machines, a greater advertising-marketing budget or
other factors.
Our legal lending limit is determined by applicable law. The size of the loans
which we offer to our customers may be less than the size of the loans that most
of our competitors are able to offer. This limit may affect to some degree our
ability to seek relationships with the larger businesses in our market. We
satisfy loan requests in excess of our lending limit ($1.7 million) through the
sale of participations in such loans to other banks. However, we cannot assure
you that we will be successful in attracting or maintaining customers seeking
larger loans or that we will be able to engage in the sale of participations in
such loans on terms we consider favorable.
Our Need to Comply with Extensive and Complex Governmental Regulation Could Have
an Adverse Effect on Our Business, and Our Operations and Profitability Will Be
Affected by Federal Policies Outside of Our Control.
The banking industry is subject to extensive regulation by state and federal
banking authorities. Many of these regulations are intended to protect
depositors, the public or the FDIC insurance funds, not shareholders. Regulatory
requirements will affect our lending practices, capital structure, investment
practices, dividend policy and many other aspects of our business. These
requirements may constrain our rate of growth. Regulations affecting financial
institutions are undergoing continuous change, and such changes could adversely
affect us. Sometimes, these changes are applied retroactively. In addition, the
burden imposed by these federal and state regulations may place banks in
general, and us specifically, at a competitive disadvantage compared to less
regulated competitors.
7
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In addition, various aspects of the banking industry and our operations will be
affected by federal economic and monetary policies, which are outside our
control. Changes in federal economic and monetary policies may adversely affect
our ability to attract deposits, make loans and achieve satisfactory interest
spreads.
You Will Suffer Immediate Dilution in the Net Tangible Book Value of Your
Investment.
If you purchase our common stock in this offering, you will realize an immediate
dilution of approximately $____ in net tangible book value per share of common
stock, based on our June 30, 2000 shareholders' equity and assuming an offering
price of $____ per share and the maximum sales agents' commission.
The Loss of One or More Key Executives Could Seriously Impair Our Ability to
Implement Our Strategy.
For the foreseeable future, we will depend upon the services of Randy P. Helton,
our President and Chief Executive Officer, as well as other senior management we
employ. The loss of services of Mr. Helton may have a material adverse effect on
our operations. To protect against such a loss, we have applied for a key-man
life and disability insurance policy covering Mr. Helton in the amount of $1
million. We cannot assure you that the policy will be issued or that we will be
able to maintain it on satisfactory terms. In an effort to maintain Mr. Helton's
employment, we entered into a five-year employment agreement with Mr. Helton in
April 1998. If Mr. Helton or any other key employee were no longer employed by
us, it could impair our ability to implement our growth strategy. In addition,
if we are unable to hire qualified and experienced personnel to adequately staff
our anticipated growth, our operating results would be adversely affected. To
protect American Community Bank, Mr. Helton and a number of our key executives
have entered into employment agreements with American Community Bank that would,
in most circumstances, prohibit the executive from competing with American
Community Bank in our market areas should they leave American Community Bank's
employ.
Our Management Owns a Substantial Portion of Our Common Stock, and Their
Interests May Conflict With Yours.
As of June 30, 2000, our directors and executive officers beneficially owned
approximately 19.7% of our common stock. The directors and officers do not
intend to purchase any additional shares in this offering to allow for a broader
distribution of shares in our local communities. Upon completion of this
offering, we expect that our directors and executive officers will beneficially
own approximately 15.2% of our common stock assuming the minimum of 500,000
shares is sold and 13.2% assuming the maximum of 1,000,000 shares is sold.
Accordingly, such persons will be in a position to exercise substantial
influence over our affairs and may impede the acquisition of control by a third
party. We cannot assure you that the interests of our directors, executive
officers and key employees will always align precisely with your interest as a
holder of our common stock.
Changes in Interest Rates Could Have an Adverse Effect on Our Net Income.
Our profitability is based in part on the difference or "spread" between the
interest rates we earn on investments and loans and the interest rates we pay on
deposits and other interest-bearing liabilities. Like most banking institutions,
our net interest spread and margin is affected by
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general economic conditions and other factors that influence market interest
rates and by our ability to respond to changes in interest rates. At any given
time, our assets and liabilities are affected differently by a given change in
interest rates, principally because it is impossible to match the maturities of
our loans and investments precisely with our deposits and other funding sources.
As a result, an increase or decrease in interest rates could have a material
adverse effect on our net income, capital and liquidity. As of June 30, 2000, we
had a negative interest rate gap of $3.1 million or 3.1% of total interest
earning assets. In theory this means our annual earnings could decrease
approximately $31,000 the first year for every 1% rise in interest rates.
However, most of the assets repricing in American Community Bank's one year or
less category are variable rate loans and investments whose interest rates can
be adjusted immediately should rates increase. Conversely, the liabilities in
the one year or less category are fixed rate time deposits or borrowings that
reprice all during the year. Due to this asset and liability mix, American
Community Bank is in fact asset sensitive and should benefit from rising rates
even though as of June 30, 2000 the gap analysis indicates a negative gap for
year one. For information regarding our interest rate risk sensitivity and our
negative interest rate gap at June 30, 2000 as computed on various future time
horizons, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -ASSET/LIABILITY MANAGEMENT." While management intends to
take measures to mitigate interest rate risk, we cannot assure you that such
measures will be effective in minimizing our exposure to interest rate
risk.
In addition to affecting interest income and expense, changes in interest rates
also can affect the value of a financial institution's interest-earning assets,
which consist of fixed- and adjustable-rate instruments (such as loans and
investments). Generally, the value of fixed-rate instruments fluctuates
inversely with changes in interest rates. Changes in interest rates also can
affect the average life of, and demand for, loans and mortgage-related
securities. In a declining interest rate environment, for example, a financial
institution is subject to reinvestment risk to the extent that it is not able to
reinvest such prepayments at rates which are comparable to the rates on the
paid-off loans.
We May Be Unsuccessful in Implementing or Managing our Growth Strategy.
American Community Bancshares intends to expand its business through selective
de novo branch openings and possible acquisitions. There can be no assurance
-- ----
that we will be able to consummate, or if consummated, successfully integrate,
any future de novo branch openings or acquisitions, and there can be no
-- ----
assurance that we will not incur disruption and unexpected expenses in
integrating any such transactions. Although we currently have no such agreements
or understandings, either written or oral, in the normal course of business we
evaluate potential transactions that would compliment or expand our banking
business. In doing so, we compete with other potential bidders, many of which
have greater financial and operational resources. There can be no assurance
that we will be able to successfully negotiate, finance or integrate any such
transactions. Furthermore, the process of evaluating, negotiating and
integrating transactions may divert our time and attention as well as our
resources. There can be no assurance that any given de novo branch or whole
-- ----
business opening or acquisition, when and if consummated, will not have a
material adverse effect on our business, results of operations or financial
condition.
9
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If We Are Unable to Make Technological Improvements Necessary to Compete for
Customers, Our Ability to Grow as Anticipated Will Be Adversely Affected.
The banking industry is undergoing rapid technological changes with frequent
introductions of new technology-driven products and services. In addition to
better serving customers, the effective use of technology increases efficiency
and enables financial institutions to reduce costs. Our future success will
depend in part on our ability to address the needs of our customers by using
technology to provide products and services that will satisfy customer demands
for convenience as well as to create additional efficiencies in our operations.
We are preparing to allow customers to perform certain banking transactions over
the Internet, but we have no operating history with Internet banking. In
addition, many of our competitors have substantially greater resources to invest
in technological improvements. Such technology may permit competitors to perform
certain functions at a lower cost than we can perform them. We cannot assure you
that we will be able to implement new technology-driven products and services
effectively or be successful in marketing such products and services to our
customers.
Anti-Takeover Provisions in Our Articles of Incorporation Could Reduce the
Likelihood That You Will Receive a Takeover Premium.
Certain provisions of state and federal law and our articles of incorporation
and by-laws will make it more difficult for anyone to acquire control of us
without our board of directors' approval. The provisions of law that may delay
or block takeover attempts include the North Carolina Shareholder Protection
Act, the North Carolina Control Share Acquisition Act, and the Bank Change in
Control Act of 1978. There are also provisions of the articles of incorporation
and the bylaws that may delay or block takeover attempts. These provisions
include: (i) a bylaws provision requiring staggered terms for the board of
directors if the board consists of nine or more directors; (ii) removal of
directors only for cause as defined in the articles of incorporation; (iii) a
provision in the articles of incorporation that allows the board of directors to
consider other factors and constituents, including the possible effect on the
community, in addition to the shareholders, when considering proposals which
could result in a change in control, and; (iv) a bylaws provision which only
allows the president or the board of directors to call a special meeting of the
shareholders. In many cases, shareholders receive a premium for their shares in
a change in control. These provisions could make it less likely that a change
in control will occur or that you will receive a premium for your shares if a
change in control does occur.
Some Loans May Not Be Seasoned Enough to Have Exhibited Problems That Could
Arise in the Future.
The growth of the loan portfolio has been rapid. As a result, some loans may
not yet be old enough to provide a reliable indicator of future repayment.
10
<PAGE>
FORWARD LOOKING STATEMENTS
Some of the statements in this Prospectus discuss future expectations, contain
projections of results of operations or financial condition or state other
"forward-looking" information. Those statements are subject to known and
unknown risks, uncertainties and other factors that could cause the actual
results to differ materially from those contemplated by the statements. We based
the forward-looking information on various factors and using numerous
assumptions.
Important factors that may cause actual results to differ from those
contemplated by forward-looking statements include, for example:
- the success or failure of our efforts to implement our business
strategy;
- the effect of changing economic conditions;
- changes in government regulations, tax rates and similar matters;
- our ability to attract and retain quality employees; and
- other risks which may be described in our future filings with the SEC.
We do not promise to update forward-looking information to reflect actual
results or changes in assumptions or other factors that could affect those
statements other than material changes to such information.
USE OF PROCEEDS
We estimate the net proceeds from the sale of the minimum of 500,000 shares and
maximum of 1,000,000 shares of common stock we are offering will be a minimum of
approximately $___ million and a maximum of approximately $____ million,
assuming an offering price of $____ per share and after deducting estimated
sales commissions and offering expenses.
We intend to use these net proceeds to: (i) enhance American Community Bank's
liquidity position; (ii) provide funding or capital to American Community Bank
to support additional branch locations and other corporate purposes; (iii)
initiate new businesses or acquire other financially related businesses or
banks; and (iv) general corporate purposes. Fifty percent (50%) of the net
proceeds will be retained at American Community Bancshares for general corporate
purposes and may be loaned to American Community Bank to enhance its liquidity
position. The remaining fifty percent (50%) will be invested in American
Community Bank to enhance its capital position and to fund capital improvements
at its two new branch locations.
At the current time, we do not have any agreements nor are we engaged in any
negotiations to make any acquisitions, but are constantly evaluating
opportunities to do so.
The net proceeds will initially be invested in short-term investment grade
securities until such time as management can deploy the proceeds.
11
<PAGE>
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Market Information
American Community Bancshares' common stock is currently being traded on the
Nasdaq SmallCap Market under the symbol "ACBA." It began trading on this market
on July 17, 2000. Prior thereto, it was traded on the OTC Bulletin Board
System. The prices reflected below are for American Community Bancshares since
April 28, 2000, the date of its organization. For dates prior thereto, the
prices reflect the shares of common stock of American Community Bank. The
following table gives the high and low sales prices for the calendar quarters
indicated and are adjusted to reflect our 20% stock dividend paid in December
1999:
SALE PRICE
High Low
------- -------
1999
----
First Quarter $ 9.20 $ 7.50
Second Quarter 10.41 8.30
Third Quarter 10.80 9.60
Fourth Quarter 12.50 10.00
2000
----
First Quarter $13.00 $ 9.65
Second Quarter 10.87 8.25
Third Quarter (Through ___, 2000)
The over-the-counter quotations prior to July 17, 2000 reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
Holders
There are approximately 1,650 holders of our common stock.
DIVIDEND POLICY
We initially expect that our earnings, if any, will be retained to finance our
growth and that we will pay no cash dividends for the foreseeable future. As a
condition to receipt of its charter from the North Carolina Banking Commission,
American Community Bank is prohibited from paying dividends until November 2001.
This is a standard and common condition which may be waived by the North
Carolina Commissioner of Banks. We may consider payment of dividends after
November 2001. However, the declaration of dividends is at the discretion of
the board of directors, and we cannot assure you that dividends will be declared
at any time. If and when dividends are declared, they will be largely dependent
upon the earnings of American Community Bank.
12
<PAGE>
As a banking corporation organized under North Carolina law, American Community
Bank is restricted as to the maximum amount of dividends it may pay to American
Community Bancshares. North Carolina law prohibits American Community Bank
from declaring or paying dividends unless American Community Bank's capital
surplus is at least 50% of its paid-in capital. In addition, regulatory
authorities may limit payment of dividends by any bank when it is determined
that such a limitation is in the public interest and is necessary to ensure
financial soundness of American Community Bank. The North Carolina Commissioner
of Banks and the FDIC are also authorized to prohibit the payment of dividends
by American Community Bank under certain circumstances. See "SUPERVISION AND
REGULATION - Regulation of American Community Bank -- Miscellaneous." Such
-------------
requirements and policies may limit American Community Bancshares' ability to
obtain dividends from American Community Bank for its cash needs, including
payment of dividends to our shareholders and the payment of operating
expenses.
American Community Bancshares is organized under the North Carolina Business
Corporation Act, which prohibits the payment of a dividend if, after giving it
effect, the corporation would not be able to pay its debts as they become due in
the usual course of business or the corporation's total assets would be less
than the sum of its total liabilities plus the amount that would be needed, if
the corporation were to be dissolved, to satisfy the preferential rights upon
dissolution of any preferred shareholders. In addition, the Federal Reserve
Board may impose restrictions on dividends paid by American Community
Bancshares.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000 on an
actual basis and on a pro forma basis as adjusted to give effect to this
offering, assuming an offering price of $____ per share. You should read this
information together with our consolidated financial statements and related
notes, which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At June 30, 2000
Actual Minimum (1) Maximum (1)
------------ -------------- --------------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY:
Preferred Stock, no par value, 1,000,000 shares authorized,
none issued. -- -- --
Common Stock, $1.00 par value, 9,000,000 shares authorized,
1,492,062, 1,992,062 and 2,492,062 shares issued and $ 1,492,062 $1,992,062 $2,492,062
outstanding.
Additional paid-in capital 11,089,597
Accumulated deficit (1,361,916)
-----------
Total Shareholders' Equity $11,219,134
===========
CAPITAL RATIOS:
Leverage 12.85%
Tier 1 Risk-Based 11.96%
Total Risk-Based 13.21%
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our selected
financial statements and the related notes presented elsewhere in this
Prospectus, as well as our historical financial statements which appear at the
end of this Prospectus.
Certain statements in this section constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 (the "1933 Act")
and Section 21E of the Securities Exchange Act of 1934, as amended ("1934
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of American Community Bancshares to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statement.
14
<PAGE>
OVERVIEW
From our opening, American Community Bank has focused on developing products and
services and a branch network that will enable both sustained growth and the
attainment of profitability over the long term. American Community Bank opened
on November 16, 1998 in a temporary facility adjacent to the permanent
headquarters office at 2593 West Roosevelt Boulevard in Monroe that opened in
December of 1999. Within three weeks of American Community Bank's initial
opening, a second office was opened on Sunset Drive in Monroe. This second
office initially operated as a limited service facility but now provides a full
array of banking services. During 1999, American Community Bank opened an
additional full-service branch located on Highway 74 in Indian Trail, North
Carolina and in January 2000 opened a full service branch on Highway 74 in the
Wal-Mart Superstore in Monroe, North Carolina. (U.S. Highway 74 is one of North
Carolina's most traveled east-west corridors.) In March 2000, American
Community Bank opened another full service branch located on Highway 74 in
Marshville, North Carolina. American Community Bank currently has branch
applications approved for offices in two new markets: the Matthews-Mint Hill
area east of Charlotte and Coulwood-Oakdale-Mountain Island area west of
Charlotte.
While location is a primary factor in building a successful banking location, it
is American Community Bank's philosophy that the individuals who manage and
staff a branch are of the greatest importance. Toward that end, American
Community Bank has seen to it that each of its branches is managed by a veteran
banker with a strong and proven track record in that market area. The resultant
mix of strong banking professionals in strategic locations has enabled American
Community Bank to experience rapid growth.
As is typical of de novo institutions, American Community Bank has incurred net
-- ----
losses during its initial periods of operations, with total net losses
aggregating to an accumulated deficit of less than $1.4 million at June 30,
2000. Within that same period, provisions for additions to American Community
Bank's allowance for loan losses have exceeded $1.2 million.
Most of American Community Bank's income to date has consisted of interest and
fees generated through traditional loan, investment and deposit activities.
However, American Community Bank has also focused efforts on other areas of
revenue generation such as mortgage origination, factoring and deposit-related
charge fees. These fee related income items accounted for approximately 9% of
gross revenue for the six months ended June 30, 2000.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2000
December 31, 1999 and December 31, 1998
American Community Bank commenced operations on November 16, 1998 with total
capital of $12.6 million, consisting principally of liquid assets. During its
initial weeks of operations, American Community Bank generated customer deposits
of $7.7 million and net loans receivable of $4.7 million, ending the year 1998
with total assets of $20.4 million. American Community Bank maintained strong
growth throughout 1999, ending the year with total assets at
15
<PAGE>
$73.6 million, net loans receivable of $58.5 million, customer deposits of $55.0
million, and total shareholders' equity of $11.6 million. Management believes
that the growth in all areas has been of good quality, particularly in lending
where American Community Bank incurred no loan charge-offs during the year, and
where there were no non-accrual or restructured loans at the end of the
year.
American Community Bank has maintained this level of overall growth during the
first six months of 2000. At June 30, total assets have increased by $31.5
million or 42.7% to $105.1 million. Net loans receivable have grown by $28.6
million or 48.9% to $87.1 million while total customer deposits have increased
by $28.3 million or 51.4% to $83.3 million. Asset quality continues to be of
high quality. While American Community Bank did incur net loan charge-offs of
$27,000 during the six months, there were no non-accrual or restructured loans
at the end of the period.
COMPARISON OF RESULTS OF OPERATIONS
For the Six Months Ended June 30, 2000 and 1999
Net Loss. American Community Bank generated a net loss of $333,000 or $.22 per
share for the six months ended June 30, 2000, representing a significant
improvement over the net loss of $652,000 or $.44 per share generated during the
first six months of 1999. The loss is a result of American Community Bank's
aggressive branching strategy. Management believes it is important to build a
strong infrastructure in the early years of its formation, thus providing and
maximizing the efficiencies of its operation. The improvement has resulted
principally from American Community Bank's growth, as both net interest income
and non-interest income have increased substantially during the current
period.
Net Interest Income. Net interest income for the first six months of 2000 was
$1.9 million as compared with $836,000 during the first six months of 1999, with
the increase resulting principally from the higher level of interest-earning
assets during the current period. Interest- earning assets averaged $82.8
million during the six months ended June 30, 2000 as compared with $32.2 million
during the first six months of 1999.
Provision for Loan Losses. The provision for loan losses was $401,000 and
$449,000, respectively, for the six months ended June 30, 2000 and 1999. The
allowance for loans losses at June 30, 2000 represented 1.34% of loans
outstanding with no non-accrual or restructured loans outstanding at that date.
Non-Interest Income. Non-interest income increased from $233,000 for the six
months ended June 30, 1999 to $364,000 for the six months ended June 30, 2000,
an increase of $131,000. Income from mortgage operations totaled $195,000 for
the six months ended 1999, declining to $106,000 for the same period of the
current year principally as a result of higher interest rates and a reduced
demand for mortgage loans. However, this decrease was more than offset by
increased service charges on deposit accounts, which grew from $38,000 to
$214,000, and by other non-interest income of $43,000 earned during the current
period, which included $23,000 of fee income derived from the Bank's fee sharing
arrangement with Factorworks, Inc.
16
<PAGE>
Non-Interest Expense. Total non-interest expense was $2.2 million and $1.3
million, respectively, for the six months ended June 30, 2000 and 1999. This
increase of $888,000 is attributable to American Community Bank's rapid growth,
to the larger numbers of personnel and branches in operation during the current
period, and to increased occupancy costs associated with American Community
Bank's permanent headquarters facility that was occupied during December of 1999
and the opening of the branch at the Wal-Mart Superstore in Monroe and
completion of the Indian Trail Branch on Highway 74.
Provision for Income Taxes. American Community Bank made no provision for
income taxes during the six months ended June 30, 2000 and 1999, as potential
future tax benefits arising from operating losses incurred have been offset by
increases to the valuation allowance associated with deferred tax assets. It is
expected that as American Community 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.
For the Year Ended December 31, 1999 and the Period Ended December 31, 1998
Net Loss. American Community Bank generated a net loss in 1999 of $900,000
compared to a net loss in 1998 (approximately six weeks of operations) of
$129,000. American Community Bank's net loss in 1998 was significantly impacted
by the low level of earning assets and start-up expenses for American Community
Bank. The net loss in 1999 was principally impacted by non-interest expenses of
$2.7 million and the provision for loan losses of $742,000.
Net Interest Income. Net interest income for 1999 was $2.0 million with a
related interest rate spread of 3.23%. American Community 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%. Yield and rate data for 1998 are not
particularly meaningful due to the short period of operations of American
Community Bank.
Provision for Loan Losses. American Community Bank's provision for loan losses
in 1999 was $742,000 and in 1998 was $71,000. At December 31, the allowance for
loan losses was $813,000 for 1999 and $71,000 for 1998, or 1.37% and 1.49%,
respectively, of loans outstanding. At December 31, 1999, American Community
Bank has no non-accrual or restructured loans.
Other Income. Non-interest income in 1999 consists principally of service
charges and other fee income and income from mortgage operations. American
Community Bank has not had any gains or losses on investment security
transactions.
Other Expenses. Total non-interest expense increased from $174,000 in 1998 to
$2.7 million in 1999, principally because American Community Bank was open for
business throughout 1999 as opposed to the six week period of operations in
1998. American Community Bank also opened an additional branch during 1999
resulting in an increase in personnel costs and occupancy.
Provision for Income Taxes. American Community Bank had no income tax expense or
benefit in 1999 or 1998, 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 American
17
<PAGE>
Community 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.
ASSET/LIABILITY MANAGEMENT
American Community 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 American Community Bank's control, such as market
interest rates and competition, may also have an impact on American Community
Bank's interest income and interest expense.
In the absence of other factors, the yield or return associated with American
Community 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, American Community 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 June 30, 2000, which are 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 American Community Bank's assets and liabilities illustrated in
the
18
<PAGE>
following table would vary substantially if different assumptions were used or
if actual experience differs from that indicated by such assumptions.
<TABLE>
<CAPTION>
Terms to Repricing at June 30, 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)
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable:
Loans to individuals $ 2,479 $ 1,742 $ 2,996 $ - $ 7,217
Home equity lines of credit 6,582 - - - 6,582
Commercial and industrial loans 15,902 3,108 11,422 70 30,502
Real estate - mortgage loans 24,657 348 17,289 1,681 43,975
Interest earning deposits with banks 12,139 - - - 12,139
Investment securities available for sale - 149 - - 149
Federal Home Loan Bank stock - - - 250 250
------- -------- ------- ------- --------
Total interest-earning assets $61,759 $ 5,347 $31,707 $ 2,001 $100,814
======= ======== ======= ======= ========
INTEREST-BEARING LIABILITIES:
Deposits:
Interest-bearing demand $ 5,192 $ 10,380 $ 1,355 $ - $ 16,927
Time 51,194 5,912 33 - 57,139
Borrowings/(1)/ 8,500 - - 1,701 10,201
------- -------- ------- ------- --------
Total interest-bearing liabilities $64,886 $ 16,292 $ 1,388 $ 1,701 $ 84,267
======= ======== ======= ======= ========
INTEREST SENSITIVITY GAP PER
PERIOD $(3,127) $(10,945) $30,319 $ 300 $ 16,547
CUMULATIVE INTEREST
SENSITIVITY GAP $(3,127) $(14,072) $16,247 $16,547 $ 16,547
CUMULATIVE GAP AS A
PERCENTAGE OF TOTAL
INTEREST-EARNING ASSETS (3.10%) (13.96%) 16.12% 16.41% 16.41%
CUMULATIVE INTEREST-EARNING
ASSETS AS A PERCENTAGE OF
CUMULATIVE INTEREST-
BEARING LIABILITIES 95.18% 82.67% 119.68% 119.64% 119.64%
</TABLE>
(1) Includes advances from the FHLB, federal funds purchased and capital lease
obligations.
19
<PAGE>
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 American Community Bank's assets and liabilities for the
six months ended June 30, 2000 and 1999 and for the year ended December 31,
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).
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------------------
At June 30, 2000 2000 1999
--------------------- -------------------------- --------------------------
Average Average Average Average Average
Balance Rate Balance Interest(3) Rate Balance Interest(3) Rate
----------- -------- ------- -------- ------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest-earning deposits with
banks $ 12,139 7.10% $10,393 $ 270 5.20% $10,990 $ 242 4.40%
Investments/(1)/ 399 7.38% 320 12 7.50% 50 1 4.00%
Loans 87,089 9.15% 72,069 3,423 9.50% 21,174 1,034 9.77%
-------- ---- ------- ------ ------ ------- ------ ------
Total interest-earning assets 99,627 8.89% 82,782 3,705 8.95% 32,214 1,277 7.93%
---- ------ ------ ------ ------
Other assets 5,424 4,549 1,944
-------- ------- -------
Total assets $105,051 $87,331 $34,158
======== ======= =======
Interest-bearing liabilities:
Deposits $ 74,066 5.69% $59,968 1,612 5.38% $18,642 441 4.73%
Borrowings/(2)/ 10,201 7.40% 6,719 229 6.82% - - -
-------- ---- ------- ------ ------ ------- ------ ------
Total interest-earning liabilities 84,267 5.90% 66,687 1,841 5.52% 18,642 441 4.73%
---- ------ ------ ------ ------
Non-interest-bearing deposits 9,198 8,913 3,233
Other liabilities 367 294 145
Shareholders' equity 11,219 11,437 12,138
-------- ------- -------
Total liabilities and shareholders'
equity $105,051 $87,331 $34,158
======== ======= =======
Net interest income and interest
rate spread 2.99% $1,864 3.43% $ 836 3.20%
==== ====== ====== ====== ======
Net yield on average interest-earning
assets/(3)/ 4.50% 5.19%
====== ======
Ratio of average interest-earning
assets to average interest-bearing
liabilities 124.14% 172.80%
====== ======
</TABLE>
(1) Includes investment securities and FHLB stock.
(2) Includes federal funds purchased, advances from the FHLB, and capital lease
obligation.
(3) Annualized.
20
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-----------------------------
Average Average
Balance Interest Rate
-------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits with banks $ 8,228 $ 366 4.45%
Investments/(1)/ 666 29 4.35%
Loans 33,396 3,062 9.17%
------- ------ ----
Total interest-earning assets 42,290 3,457 8.17%
------ ----
Other assets 2,908
-------
Total assets $45,198
=======
Interest-bearing liabilities:
Deposits $28,413 1,398 4.92%
Borrowings/(2)/ 428 26 6.07%
------- ------ ----
Total interest-bearing liabilities 28,841 1,424 4.94%
------ ----
Non-interest-bearing deposits 4,156
Other liabilities 198
Shareholders' equity 12,003
-------
Total liabilities and shareholders' equity $45,198
=======
Net interest income and interest rate spread $2,033 3.23%
====== ====
Net yield on average interest-earning assets 4.81%
====
Ratio of average interest-earning assets to
average interest-bearing liabilities 146.63%
=======
</TABLE>
(1) includes investment securities and FHLB stock
(2) includes federal funds purchased, advances from the FHLB, and capital lease
obligation
21
<PAGE>
VOLUME/RATE VARIANCE 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) total 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.
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
versus 1999
Increase (Decrease) Due To
-----------------------------------
Volume Rate Total
------------ ---------- ---------
<S> <C> <C> <C>
(Dollars in Thousands)
Interest Income:
Interest-earning Deposits with Banks $ (14) $ 42 $ 28
Investments 8 3 11
Loans 2,451 (62) 2,389
------ ----- ------
Total Interest-earnings Assets $2,445 $ (17) $2,428
------ ----- ------
Interest Expense:
Deposits 1,045 126 1,171
Borrowings 229 - 229
------ ----- ------
Total Interest-bearing Liabilities $1,274 $ 126 $1,400
------ ----- ------
Change in Net Interest Income $1,171 $(143) $1,028
====== ===== ======
</TABLE>
22
<PAGE>
ASSET QUALITY
Management considers American Community Bancshares' asset quality to be of
primary importance. The allowance for loan losses, which is utilized to absorb
actual losses in the loan portfolio, is maintained at a level sufficient to
provide for estimated potential charge-offs of non-collectible loans. The loan
portfolio is analyzed periodically in an effort to identify potential problems
before they actually occur. The allowance for loan losses is evaluated on a
regular basis by management using a methodology that segments the loan portfolio
by loan types. This methodology 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 peer community
banks and the historical experiences encountered by American Community Bank's
management and senior lending officers. The provision for loan losses represents
a charge against income in an amount necessary to maintain the allowance at an
appropriate level. The monthly provision for loan losses may fluctuate based on
the results of this analysis. The following table allocates the allowance for
loan losses by loan category at the dates indicated. The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any
category.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------
At June 30, 2000 1999 1998
--------------------------------- ----------------------------------- ----------------------------------
Percent of Percent Percent of Percent Percent of Percent
allowance of loans allowance of loans allowance of loans
Amount of to total to gross Amount of to total to gross Amount of to total to gross
allowance allowance loans allowance allowance loans allowance allowance loans
--------- ----------- --------- --------- ----------- ----------- --------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TYPE OF LOAN:
Loans to individuals $ 178 15.00% 8.18% $122 15.00% 7.98% $22 30.99% 8.24%
Home equity lines
of credit 59 4.97% 7.46% 41 5.00% 6.52% 3 4.23% 4.69%
Commercial and
industrial loans 570 48.02% 34.55% 407 50.00% 38.33% 42 59.15% 58.07%
Real estate -
mortgage loans 380 32.01% 49.81% 244 30.00% 47.17% 4 5.63% 29.00%
------ ------ ------ ---- ------ ------ --- ------ ------
Total allowance for
loan losses $1,187 100.00% 100.00% $813 100.00% 100.00% $71 100.00% 100.00%
====== ====== ====== ==== ====== ====== === ====== ======
</TABLE>
23
<PAGE>
The following table contains an analysis of the allowance for loan losses,
including the amount of charge-offs and recoveries by loan type, for the six-
months ended June 30, 2000 and 1999 and for the periods ended December 31, 1999
and 1998.
SUMMARY OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
For the six months For the periods ended
ended June 30, December 31,
--------------------------- ---------------------------
2000 1999 1999 1998
--------- -------- ---------- ---------
(In thousands, except ratios)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 813 $ 71 $ 71 $ -
Charge-offs:
Loans to individuals 7 - - -
Home equity lines of credit - - - -
Commercial and industrial loans 20 - - -
Real estate - mortgage loans - - - -
------ ----- ----- -------
27 - - -
------ ----- ----- -------
Recoveries - - - -
------ ----- ----- --------
Net charge-offs 27 - - -
Provision charged to operations 401 449 742 71
------ ----- ----- --------
Balance, end of period $1,187 $ 520 $ 813 $ 71
====== ===== ===== ========
Percentage of net charge-offs
to average loans 0.04% 0.00% 0.00% 0.00%
====== ===== ===== ========
Percentage of allowance to
period-end loans 1.34% 1.46% 1.37% 1.49%
====== ===== ===== ========
</TABLE>
Non-performing assets include non-accrual loans, accruing loans contractually
past due 90 days or more, restructured loans, other real estate, and other real
estate under contract for sale. Loans are placed on non-accrual when management
has concerns relating to the ability to collect the loan principal and interest,
and generally when such loans are 90 days or more past due. Management believes
the allowance for loan losses is sufficient to absorb known risks in the
portfolio. No assurance can be given that economic conditions will not adversely
affect borrowers and result in increased losses. American Community Bank had no
non-performing assets at either June 30, 2000, June 30, 1999, December 31, 1999,
or December 31, 1998. In addition, there were no other loans that (i) represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity or capital resources or
(ii) represent material credits about which management has information that
causes them to have serious doubts as to the ability of such borrowers to comply
with the loan repayment terms.
24
<PAGE>
CAPITAL RESOURCES
Banks and bank holding companies, as regulated institutions, must meet required
levels of capital. The FDIC and the Federal Reserve, the primary regulators of
American Community Bank and American Community 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. As
shown in the following table, American Community Bancshares and American
Community Bank both maintained capital levels exceeding the minimum levels for
"well capitalized" banks and bank holding companies, of 10.0% for Total capital
to risk weighted assets, 6.0% for Tier 1 capital to risk weighted assets, and
5.0% for Tier 1 capital to average assets.
REGULATORY CAPITAL
<TABLE>
<CAPTION>
At June 30, At December 31,
-----------------
2000 1999 1998
---- ---- ----
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- -------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk
weighted assets
Consolidated $12,391 13.21% $ - - $ - -
Bank 12,391 13.21% 12,365 19.53% 12,524 151.69%
Tier 1 capital to risk
weighted assets
Consolidated 11,219 11.96% - - - -
Bank 11,219 11.96% 11,552 18.25% 12,453 150.83%
Tier 1 capital to average
assets
Consolidated 11,219 12.85% - - - -
Bank 11,219 12.85% 11,552 18.52% 12,453 61.18%
</TABLE>
LIQUIDITY
Maintaining adequate liquidity while managing interest rate risk is the primary
goal of American Community Bank's asset and liability management strategy.
Liquidity is the ability to fund the needs of American Community Bank's
borrowers and depositors, pay operating expenses, and meet regulatory liquidity
requirements. Loan repayments, deposit growth, federal funds purchased and
borrowings from the FHLB are presently the main sources of American Community
Bank's liquidity. American Community Bank's primary uses of liquidity are to
fund loans and to make investments.
As of June 30, 2000, liquid assets (cash due from banks and interest-earning
bank deposits) were approximately $13.6 million, which represents 12.9% of total
assets and 14.5% of total deposits
25
<PAGE>
and borrowings. Supplementing this liquidity, American Community Bank has
available lines of credit from a correspondent bank of approximately $3.5
million. At June 30, 2000, outstanding commitments to extend credit were $4.9
million and available line of credit balances totaled $9.4 million. Management
believes that the combined aggregate liquidity position of American Community
Bank is sufficient to meet the funding requirements of loan demand and deposit
maturities and withdrawals in the near term.
Certificates of deposit represented 68.6% of American Community Bank's total
deposits at June 30, 2000. American Community Bank's growth strategy will
include efforts focused on increasing the relative volume of transaction deposit
accounts, as the branch network is expanded, making it more convenient for our
banking customers. Certificates of deposit of $100,000 or more represented 28.6%
of American Community Bank's total deposits at year-end. These deposits are
generally considered rate sensitive, but management believes most of them are
relationship-oriented. While American Community Bank will need to pay
competitive rates to retain these deposits at maturity, there are other
subjective factors that will determine American Community Bank's continued
retention of those deposits.
INVESTMENT ACTIVITIES
At June 30, 2000, the Company's investments consisted of a U.S. Government
agency security and FHLB stock. The agency security, with an amortized cost of
$150,000, is classified as available for sale and is presented in the financial
statements at its market value of $149,391 at June 30, 2000. This security has a
yield of 6.75% and matures on February 15, 2002. The Company's investment in
stock of the FHLB, which is required of every member and is redeemable only by
the FHLB, was $250,000 with a yield of 7.65% at June 30, 2000.
ACCOUNTING AND REGULATORY MATTERS
In June 1998, the Financial Accounting Standards Board ("FASB") issued a
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that the Company recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. The Company will adopt SFAS No. 133 on
January 1, 2001, as required. Given that the Company has no investments in
derivative instruments, management of the Company believes that adoption of SFAS
No. 133 will not have a material impact on the Company's balance sheet or the
related statements of income and changes in shareholders' equity.
26
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
A financial institution has assets and liabilities that are distinctly different
from those 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.
BUSINESS
General
American Community Bancshares is a bank holding company that owns all of the
common stock of American Community Bank, a North Carolina-chartered bank with
deposit accounts insured by the Bank Insurance Fund ("BIF") of the FDIC.
American Community Bancshares was incorporated on February 16, 2000 as a North
Carolina-chartered corporation and became the holding company for American
Community Bank on April 28, 2000. To become American Community Bank's holding
company, American Community Bancshares received approval of the Federal Reserve
Board as well as American Community Bank's shareholders. Upon receiving such
approvals, each share of the common stock of American Community Bank was
exchanged on a one-for-one basis for shares of the common stock of American
Community Bancshares.
American Community Bank was incorporated on November 13, 1998, as a North
Carolina-chartered commercial bank. American Community Bank opened for business
on November 16, 1998, at a temporary location at 2581 West Roosevelt Boulevard,
Monroe, North Carolina. On December 7, 1998, American Community Bank opened a
branch at 120 East Sunset Drive, Monroe, North Carolina, that initially
functioned as a limited service facility, but now provides a full array of
banking services.
In 1999, American Community Bank opened a full service branch in Indian Trail,
North Carolina and in January 2000 opened a full service branch in the Wal-Mart
Superstore in Monroe, North Carolina. American Community Bank also opened a
full service branch in Marshville, North Carolina in March 2000 and has branch
applications pending for offices in two new markets: the Matthews-Mint Hill area
in southeast Charlotte and Coulwood-Oakdale-Mountain Island area in west
Charlotte. American Community Bank's permanent headquarters building in Monroe
was opened in November 1999 at 2593 West Roosevelt Boulevard.
American Community Bank entered into a fee sharing agreement with Factorworks,
Inc., Newnan, Georgia to utilize its factoring software program in providing
factoring services for its commercial customers. American Community Bank also
has mortgage originators at its branches
27
<PAGE>
to provide full service mortgage lending in its market area. All fixed rate and
certain variable rate mortgage loans are sold in the secondary market with
servicing released.
American Community Bank operates for the primary purpose of serving the banking
needs of individuals, and small to medium-sized businesses in its market area.
While numerous banks in our market have chosen to focus on the affluent and high
net worth individuals, we have chosen to focus on middle income households and
the entrepreneurial segment of our market. American Community Bank offers a
range of banking services including checking and savings accounts, commercial,
consumer and personal loans, mortgage and factoring services and other
associated financial services. American Community Bank has also targeted the
growing Hispanic market as a marketing niche they intend to pursue.
Strategy
American Community Bank has expanded aggressively since its opening for business
in November 1998. Because of its strong capital position created during its
incorporation stage, American Community Bank had the requisite capital needed to
permit it to immediately branch and quickly established a second branch in
Monroe. American Community Bank's branching strategy has been opportunistic: it
has sought to establish branch offices in areas where there are opportunities to
hire successful local bankers who have a loyal following of deposit and loan
customers. American Community Bank to date has centered each of its branch
offices around such a successful banker. Management also believes it is
important in the early formation years to build branches that will provide
convenience and efficiencies in its operational infrastructure. American
Community Bank only recently has chosen to compete in the Charlotte market area
by identifying local bankers and establishing branches in the Coulwood-Oakdale-
Mountain Island and Matthews-Mint Hill areas of Charlotte. Charlotte is an
extremely competitive banking market with numerous nation-wide and community
banks in existence. American Community Bank's strategy is to surround Charlotte
and to take advantage of opportunities that present themselves in both new
geographic and new product markets. American Community Bank reorganized itself
into the holding company form of organization to give it the greatest legal
flexibility to take advantage of any opportunities that might arise.
Lending Activities
General. American Community Bank offers a broad array of lending services,
-------
including real estate, commercial and consumer loans, equity lines of credit, to
individuals and small-to-medium size businesses and other organizations that are
located in or conduct a substantial portion of their business in American
Community Bank's market areas. American Community Bank's total loans at June
30, 2000 were $87.1 million or 87.4% of total earning assets. American
Community Bank also makes secured construction loans for owner occupied and to
home builders, which are typically secured by first mortgages. At June 30,
2000, American Community Bank had no large loan concentrations (exceeding 10% of
its portfolio) in any particular industry.
Loan Composition. The following table sets forth, at the dates indicated, the
----------------
composition of American Community Bank's loan portfolio and the related
percentage composition.
28
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------
At June 30, 2000 1999 1998
---------------- ---- ----
Percentage Percentage Percentage
Amount of Total Amount of Total Amount of Total
------ ------------ ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
TYPE OF LOAN
Loans to individuals $ 7,217 8.29% $ 4,735 8.09% $1,386 29.43%
Home equity lines of credit 6,582 7.56% 3,865 6.61% 224 4.76%
Commercial and industrial loans 30,502 35.02% 22,731 38.86% 2,776 58.95%
Real estate - mortgage loans 43,975 50.49% 27,975 47.83% 394 8.37%
------- ------ ------- ------ ------ ------
Total loans 88,276 101.36% 59,306 101.39% 4,780 101.51%
LESS
Allowance for loan losses (1,187) (1.36%) (813) (1.39%) (71) (1.51%)
------- ------ ------- ------ ------ ------
$87,089 100.00% $58,493 100.00% $4,709 100.00%
======= ====== ======= ====== ====== ======
</TABLE>
Loans categorized above as "commercial and industrial" include commercial
building construction such as offices, warehouses and investment properties,
etc. and are secured by various commercial collateral including real estate,
accounts receivable and inventory and equipment. American Community Bank also
provides lines of credit, equipment financing, inventory and working capital
loans that are not secured by real estate. American Community Bank's lending
limit at June 30, 2000 was $1.7 million, and the few loans made in excess of the
legal lending limit are sold as participations with other financial
institutions.
The category under home equity lines of credit includes home equity lines and
overdraft protection and the category under loans to individuals includes cars,
boats, luxury items and unsecured loans.
American Community Bank considers the following criteria in the underwriting of
its loans:
Business Loans: Borrowers of business credit must demonstrate personal and
business integrity as evidenced by satisfactory credit history of the borrower
and any guarantors, have consistent and satisfactory cash flow to service the
loan requested and all other debt owed by the borrower, and provide adequate
collateral to support the loan request, if necessary.
Real Estate Loans: Customers requesting real estate loans must demonstrate
personal integrity as evidenced by a satisfactory credit history, demonstrate
consistent capacity to service the debt requested and all other debt
outstanding, and have adequate equity in the property securing the loan.
Credit Lines: Borrowers requesting unsecured credit lines must demonstrate
strong personal and business integrity as evidenced by a satisfactory credit
history and demonstrate consistent capacity to service the debt requested and
all other debts outstanding. Secured lines of credit
29
<PAGE>
also require satisfactory collateral that provides sufficient value relative to
advances made under a line.
Personal Loans: Customers requesting personal loans must demonstrate strong
personal integrity as evidenced by a satisfactory credit history, have
sufficient personal income and cash flow to service the debt requested and all
other debt outstanding, and provide satisfactory collateral to secure the loan,
if necessary.
American Community Bank is an active home mortgage lender and each of its
offices has trained lending personnel to originate home mortgage loans. All
such residential mortgage loans are made specifically for resale in the
secondary market. American Community Bank has also entered into an arrangement
with Whitley Mortgage Associates, Inc. (see "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS") to enable it to satisfy special lending requests of its borrowing
customers that it is incapable of providing as one of its product lines.
American Community Bank offers a credit card on an agency basis as an
accommodation to its customers. At such time as American Community Bank
believes there will be sufficient volume, it intends to review this product and
may offer credit cards as a principal, thereby underwriting the credit risks
associated with card holders. American Community Bank has three ATM facilities
attached to three of its existing banking offices and intends to expand this to
each of its offices in the near future. American Community Bank's ATM cards are
linked to the nationwide Cirrus(R), Plus(R) and Star(R) systems, allowing
American Community Bank's customers to withdraw funds from any ATM machine
honoring these systems.
Factorworks (R)
American Community Bank has entered into a contract with Factorworks, Inc.,
Newnan, Georgia to utilize its software to provide accounts receivable financing
to its customers. The contract is for two years and contains two additional
two-year automatic renewal clauses. Factorworks receives 30% of all fees
collected as compensation for use of their software. Utilization of the
Factorworks software eliminates significant credit risk and is less labor
intensive than alternative processing methods. Commercial customers are
evaluated to determine their qualification for the Factorworks program. Once a
customer is approved, invoices the customer wants to borrow against are entered
into the Factorworks software program. If desired, money is advanced against
any invoices. This factoring arrangement provides for a 20% holdback of the
factored invoice until payment is received reducing the exposure to the bank.
The bank does not engage in any invoice collection efforts. Once a customer's
invoice is 90 days delinquent, the customer is required to substitute other
acceptable invoices as collateral for money advanced. Customers utilizing this
product and service are normally small businesses whose accounts receivable are
from creditworthy corporations or governmental agencies. This further minimizes
the credit risk to the bank. Personal guarantees are required on all lines.
All loan officers have been trained to offer the Factorworks product with
American Community Bank earning a fee as well as interest on its factoring
portfolio.
30
<PAGE>
Internet Banking
American Community Bank has a web site at "www.americancommunitybank.com".
American Community Bank intends to introduce on line banking during the fourth
quarter 2000. In the spring, 2000, American Community Bank was awarded the OMNI
award by the Kirchman Corporation, the nation's largest provider of banking
software. This award was granted to American Community Bank in honor of its
commitment to technology.
Deposits
American Community Bank offers a variety of deposit programs to individual and
to small-to-medium size businesses and other organizations at interest rates
generally competitive with local market conditions. The following table sets
forth the average balances and rates for each of the deposit categories for the
periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999 Year Ended December 31, 1999
---- ---- ----------------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 22,900 2.24% $ 7,477 1.90% $10,674 2.08%
Demand, NOW, Money market 1,350 2.20% 418 2.28% 614 2.25%
Savings --------- ------- -------
24,250 2.24% 7,895 1.92% 11,288 2.09%
Total Demand Deposits --------- ------- -------
CERTIFICATE ACCOUNTS WITH
ORIGINAL TIME DEPOSITS 21,134 6.11% 3,323 5.37% 8,261 5.56%
Over $100,000 23,497 5.91% 10,656 5.17% 13,020 5.38%
Other --------- ------- -------
44,631 6.00% 13,979 5.22% 21,281 5.45%
Total Time Deposits --------- ------- -------
$ 68,881 4.68% 21,874 4.03% 32,569 4.29%
Total Deposits ========= ======= =======
</TABLE>
31
<PAGE>
The following table indicates the amount of American Community Bank's
certificates of deposit by interest rate and by time remaining until maturity as
of June 30, 2000.
<TABLE>
<CAPTION>
More than three More than six
Three months or less months to six months months toone year More than one year Total
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Certificates of
$100,000 or more $4,116 6.19% $ 5,372 6.42% $10,892 6.38% $3,411 6.92% $23,791 6.43%
Certificates of less
than $100,000 5,222 5.81% 9,593 6.21% 16,015 6.45% 2,518 6.79% 33,348 6.31%
------ ---- ------- ---- ------- ---- ------ ---- ------- ----
$9,338 5.98% $14,965 6.29% $26,907 6.42% $5,929 6.86% $57,139 6.36%
====== ==== ======= ==== ======= ==== ====== ==== ======= ====
</TABLE>
Other Funding Sources
Short-term borrowed funds consist of federal funds purchased and advances from
the FHLB with original maturities of less than one year. Long-term debt consists
solely of obligations under a capitalized lease for American Community Bank's
main office facility. The following table summarizes balance and rate
information for short-term borrowed funds and the capital lease obligation as of
the dates and for the periods indicated.
<TABLE>
<CAPTION>
At or for the Six Months At or for the Year
Ended June 30, Ended December 31,
-------------- ------------------
2000 1999 1999 1998
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
AMOUNTS OUTSTANDING AT END OF PERIOD:
FEDERAL FUNDS PURCHASED:
Amount $ 3,500 $ -- $ -- $ --
Weighted average rate 7.38% -- -- --
CAPITALIZED LEASE OBLIGATION:
Amount $ 1,701 $ -- $ 1,700 $ --
Weighted average rate 8.23% -- 8.23% --
ADVANCES FROM THE FEDERAL HOME LOAN BANK:
Amount $ 5,000 $ -- $ 5,000 $ --
Weighted average rate 7.13% -- 6.07% --
MAXIMUM AMOUNT OUTSTANDING AT ANY MONTH-END:
Federal funds purchased $ 3,500 $ -- $ -- $ --
Capitalized lease obligation 1,701 -- 1,701 --
Advances from the Federal Home Loan Bank 5,000 -- 5,000 --
AVERAGES DURING THE PERIOD:
Federal funds purchased
Average balance $ 19 $ -- $ -- $ --
Weighted average rate 7.38% -- -- --
Capitalized lease obligation
Average balance $ 1,700 $ -- $ 213 $ --
Weighted average rate 8.23% -- 8.23% --
Advances from the Federal Home Loan Bank
Average balance $ 5,000 $ -- $ 428 $ --
Weighted average rate 6.33% -- 6.07% --
</TABLE>
32
<PAGE>
American Community Bank periodically uses brokered deposits as consistent with
asset and liability management policies of American Community Bank.
Competition
Commercial banking in North Carolina is extremely competitive in large part due
to statewide branching. We compete in our market areas with some of the largest
banking organizations in the state and the country and other financial
institutions, such as federally and state-chartered savings and loan
institutions and credit unions, as well as consumer finance companies, mortgage
companies and other lenders engaged in the business of extending credit or
taking investment monies such as mutual funds and brokerage firms. Many of our
competitors have broader geographic markets and higher lending limits than us
and are also able to provide more services and make greater use of media
advertising. In Union County, there are currently 28 offices of 8 different
commercial banks (including the largest banks in North Carolina). As an example,
immediately to the west of Union County is Mecklenburg County and Charlotte,
home of Bank of America, First Union and numerous other banks of varying sizes.
While we typically do not compete directly for loans with these larger, nation-
wide banks, our deposit products are influenced by them. We do compete more
directly with mid-size and small community banks that have offices in our market
areas. There are also a number of new community banks in Mecklenburg and Union
Counties that have a direct competitive effect as borrowers tend to "shop" the
terms of their loans and deposits. As of June 30, 1999, we accounted for 3.8%
of total deposits by commercial banks in Union County.
The enactment of legislation authorizing interstate banking has caused great
increases in the size and financial resources of some of our competitors. In
addition, as a result of interstate banking, out-of-state commercial banks have
acquired North Carolina banks and heightened the competition among banks in
North Carolina. For example, South Trust Bank, Birmingham, Alabama, a large
multi-state financial institution has branches throughout North Carolina,
including Mecklenburg County.
Despite the competition in our market areas, we believe that we have certain
competitive advantages that distinguish us from our competition. We believe that
our primary competitive advantages are our bankers, each of whom is well known
in his or her community with strong personal and business ties to that community
with a loyal customer following. Our bankers each have a strong local identity
and affiliation with their communities. We offer customers modern, high-tech
banking without forsaking community values such as prompt, personal service and
friendliness. We also have established local advisory boards in each of our
communities to help us better understand their needs and to be "ambassadors" of
American Community Bank in those communities. We offer many personalized
services and attract customers by being responsive and sensitive to their
individualized needs. We also rely on goodwill and referrals from shareholders
and satisfied customers, as well as traditional marketing to attract new
customers. To enhance a positive image in the community, we support and
participate in local events and our officers and directors serve on boards of
local civic and charitable organizations. As an example, Special Olympics of
Union County recently honored American Community Bank as the "Business of the
Year" for our sponsorship and volunteer efforts and American Community Bank
received the 1999 United Way Top New Campaign award for Union County.
33
<PAGE>
Union County also is home to a large Hispanic population and American Community
Bank is working with the government of Mexico to provide affordable and safe
wire transfer services from residents living in the United States to their
relatives in Mexico. American Community Bank has signed an agreement with
Telecomm USA Ltd. in conjunction with Telecommunicaciones de Mexico. For a fee
paid to American Community Bank, the service allows Mexican citizens working in
the United States to present U.S. dollars at American Community Bank's branches
for transfer to individuals in Mexico. This transfer uses a "smart card" that
is held by the Mexican national and encoded with the necessary information to
legally effect the transfer. Additionally, to better serve the Hispanic
population, American Community Bank's branch in the Wal-Mart Superstore in
Monroe is staffed with bilingual tellers and targets the fast growing Hispanic
market. Because the Wal-Mart Superstore branch is open seven days a week (the
only Union County bank to offer seven days a week banking), international
transfers and all other banking services can be completed at times other than
traditional banking hours.
As a community service providing a competitive edge, American Community Bank
sponsors small business seminars and features various speakers on topics of
interest to growing small businesses. American Community Bank attempts to bring
together in one place a variety of experts to discuss timely issues of
importance to business owners regarding such matters as e-commerce, investments,
estate and retirement planning. This social setting also provides small
business owners with an opportunity to network with other small business owners
in our communities. Further, through its Kidz Club, American Community Bank
offers savings accounts designed for young savers. Lastly, American Community
Bank has developed a Senior Citizens account for customers 50 years and older.
Named the "Golden Eagle Account" this product offers free travelers checks, free
safe deposit box, interest on daily balances, free wallet-style checks, free
quarterly breakfasts with guest speakers and quarterly day trips. American
Community Bank sponsors the quarterly day trips as a way to attract Senior
Citizens' accounts and to further tie them in their loyalty to American
Community Bank.
Properties
The following table sets forth the location of our main office and branch
offices, as well as certain information relating to these offices to date.
<TABLE>
<CAPTION>
Approximate
Office Location Year Opened Square Footage Owned or Leased
--------------- ----------- -------------- ---------------
<S> <C> <C> <C>
Main Office 1999 11,250 Leased
2593 West Roosevelt Boulevard
Monroe, NC 28110
Indian Trail Branch 1999 3,850 Leased
13860 East Independence Boulevard
Indian Trail, NC 28079
Sunset Branch 1999 450 Leased
120 East Sunset Drive
Monroe, NC 28110
Wal-Mart Superstore Branch 2000 600 Leased
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Approximate
Office Location Year Opened Square Footage Owned or Leased
--------------- ----------- -------------- ---------------
<S> <C> <C> <C>
2406 West Roosevelt Boulevard
Monroe, NC 28110
Marshville Branch 2000 3,000 Leased
7001 East Marshville Boulevard
Marshville, NC 28103
Matthews-Mint Hill 2000 1,300 Leased
7200 Matthews-Mint Hill Road
Mint Hill, NC 28227
Mountain Island Branch 2000 1,400 Leased
Mount Holly-Huntersville Road
Charlotte, NC
</TABLE>
American Community Bank has entered into a Commercial Lease Agreement with TyPar
Realty, Inc. for the lease of a two-story building constructed by L. C. Tyson
Construction, Inc. This building serves as the main office of both American
Community Bancshares and American Community Bank. TyPar Realty, Inc. and L. C.
Tyson Construction, Inc. are related interests of Carlton Tyson, a director of
American Community Bank. The lease is for thirty years commencing in 1999 with
increases every five years plus taxes and other common area expenses. American
Community Bank has a right of first refusal to lease the remainder of the
building as it becomes available and to purchase the building should it be
offered for sale. This lease was entered into at arms-length and at then
current market rates. The lease has been reviewed by an independent third party
real estate appraiser for assurance that the terms of the lease are not more
favorable than would be engaged with any other party. Additionally, after a
sealed bid process, L. C. Tyson Construction, Inc. was awarded as low bidder,
the construction contract for American Community Bank's permanent building in
Marshville. American Community Bank believes the terms of that contract are
favorable to American Community Bank. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS".
Employees
As of June 30, 2000, we had approximately 50 full-time employees and
approximately 2 part-time employees. None of these employees are covered by a
collective bargaining agreement. We consider relations with our employees to be
good.
Litigation
There are no pending legal proceedings to which American Community Bank or
American Community Bancshares is a party, or of which any of their property is
the subject.
35
<PAGE>
MANAGEMENT
Directors
American Community Bancshares' Board of Directors consists of seven directors.
The Bylaws of the Corporation provide that its Board of Directors shall consist
of between seven and twenty members, as determined by the Board of Directors or
the shareholders and if nine or more members, they shall be staggered into terms
of one, two and three years in as equal a number as possible. Certain
information regarding the current directors who serve as both directors of
American Community Bancshares and American Community Bank is set forth
below:
<TABLE>
<CAPTION>
American Community
Bancshares/American
Community Bank Term Principal Occupation and
Name and Age Director Since Expires Business Experience During Past Five Years
------------ -------------- ------- -------------------------------------------
<S> <C> <C> <C>
Thomas J. Hall 2000/1998 2001 President of Hall Group, Inc., Charlotte, NC (real
(53) estate holding company)
Larry S. Helms 2000/1998 2001 Owner, Larry S. Helms and Associates (insurance),
(55) Monroe, North Carolina; former manager, BellSouth
Telecommunications, Charlotte, North Carolina,
1996-1970. (insurance surety bond company)
Randy P. Helton 2000/1998 2001 President and Chief Executive Officer of American
(45) Community Bancshares and American Community Bank;
former Vice President of the Private Banking Group,
First Union National Bank, Charlotte, NC; former
Senior Vice President, American Commercial Savings
Bank, Monroe, NC
Kenneth W. Long 2000/1998 2001 Chief Executive Officer, Click Tactics, Inc.,
(52) Charlotte, NC (internet direct marketing)
L. Steven Phillips 2000/1998 2001 Chief Executive Officer, Charlotte GreenCorp, Inc.,
(48) Charlotte, NC (landscape consultant)
David D. Whitley 2000/1998 2001 President, Whitley Mortgage Associates, Inc., Monroe,
(53) NC (mortgage broker and origination)
Gregory N. Wylie 2000/1998 2001 Chief Executive Officer of Metro Marketing, Inc.,
(45) Charlotte, NC (food brokering)
</TABLE>
In addition to the above mentioned directors, the following individuals serve as
directors of American Community Bank.
<TABLE>
<CAPTION>
American
Community
Bank
Director Term
Name and Age Since Expires Principle Occupation and Business Experience During Past Five Years
------------ ----- ------- -------------------------------------------------------------------
<S> <C> <C> <C>
Zebulon Morris, Jr. 1998 2001 President of Morris Enterprises, Incorporated. (real estate holding company)
(62)
L. Carlton Tyson 1998 2001 President, Tyson Group, Monroe, NC (real estate development)
(58)
H. L. "Ben" Williams 1998 2001 Private Investor; former Chief Executive Officer, Monroe Appearance
(54) Corporation, Monroe, NC
</TABLE>
36
<PAGE>
Director Relationships
No director is a director of any company with a class of securities registered
pursuant to Section 12 of the 1934 Act or subject to the requirements of Section
15(d) of the 1934 Act, or any company registered as an investment company under
the Investment Company Act of 1940.
Director Compensation
Board Fees. As of January 2000, each director (other than directors who also are
----------
salaried employees of American Community Bank) received no compensation.
1999 Nonstatutory Stock Option Plan for Directors. The shareholders of American
-------------------------------------------------
Community Bank ratified the 1999 Nonqualified Stock Option Plan for Directors
(the "Nonstatutory Option Plan") at the 1999 Annual Meeting of Shareholders
pursuant to which options on 149,205 shares of American Community Bank's common
stock are available for issuance to members of American Community Bank's Board
of Directors and the board of any subsidiary of American Community Bank. On
April 14, 1999, all options were granted under the Nonstatutory Option Plan.
Upon it becoming the holding company for American Community Bank, American
Community Bancshares adopted the Nonstatutory Stock Option Plan.
Executive Officers
Set forth below is certain information regarding American Community Bank's and
American Community Bancshares' executive officers as of June 30, 2000.
<TABLE>
<CAPTION>
Name Age Position(s) Held Business Experience
---- --- ---------------- -------------------
<S> <C> <C> <C>
Randy P. Helton 45 President and Chief Former Vice President of the
Executive Officer of Private Banking Group, First Union
American Community National Bank, Charlotte, NC;
Bank and American former Senior Vice President and
Community Bancshares City Executive of Charlotte,
American Commercial Savings Bank,
Monroe, NC
William R. Adcock 44 Senior Vice Former commercial loan officer,
President/Monroe City First Charter National Bank
Executive of American (previously Bank of Union),
Community Bank Monroe, NC
Steve Barnes 45 Senior Vice Former loan officer, First Charter
President/Indian Trail National Bank, Indian Trail, NC
City Executive of
American Community Bank
Richard M. Cochrane 48 Senior Vice Former commercial loan officer,
President/Matthews-Mint Bank, Mint Hill, NC
Hill City Executive
of American Community
Bank
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Name Age Position(s) Held Business Experience
---- --- ---------------- -------------------
<S> <C> <C> <C>
Jeff Coley 41 Senior Vice Former Branch Manager, BB&T,
President/Marshville Marshville, NC
City Executive of
American Community Bank
Dan R. Ellis, Jr. 44 Senior Vice President, Former Partner, Accupointe, Inc.,
Secretary and Chief Monroe, NC; former Vice President
Financial Officer of and Chief Financial Officer,
American Community Coresource, Inc., Charlotte, NC
Bank and American
Community Bancshares
Dwight Henry 62 Senior Vice Former commercial loan officer,
President/Mountain First Charter National Bank at the
Island City Executive Oakdale office in Charlotte, NC
of American Community
Bank
Mary Margaret Nance 48 Senior Vice Former Compliance and Loan Review
President/American Officer , First Charter National
Community Bank Bank (previously Bank of Union)
Operations Officer
Farrell Richardson 59 Senior Vice Former Vice President First
President/Regional Charter National Bank (previously
Business Development Bank of Union), Indian Trail, NC
Officer
of American Community
Bank
Donald A. Singleton 48 Senior Vice Former Vice President, Wachovia
President/Senior Bank, N.A., Greenville, SC
Credit Lender
of American Community
Bank
</TABLE>
Employment Agreement
American Community Bank and its President and CEO, Randy P. Helton, have a
contract that provides for his continued employment with American Community Bank
until September 2003. The contract also establishes his duties to American
Community Bank and the compensation he receives in return. In September 2003,
the Board of Directors of American Community Bank can vote to extend the
contract for an additional year. The contract does not limit the number of one-
year extensions that the board of directors may approve.
The contract sets Mr. Helton's annual base salary at $110,000. His salary must
be reviewed by the board of directors at least once a year, though the board of
directors may choose to review it more often than once a year. The contract
also provides for participation in pension and profit-sharing plans of American
Community Bank, possible bonuses, and other fringe benefits.
38
<PAGE>
Mr. Helton's employment may be terminated with or without cause, by either Mr.
Helton or American Community Bank. If there is a change of control of American
Community Bank, Mr. Helton may have a right to terminate his employment and
receive 299% of his annual base salary. Mr. Helton has this right if (1) he is
assigned any duties that are inconsistent with his position as President and
CEO, or; (2) the amount of his annual base salary is reduced from its amount at
the time of the change in control of American Community Bank, or; (3) Mr. Helton
is transferred outside of Monroe, NC without his express written consent, or;
(4) his life insurance, medical or hospitalization insurance, disability
insurance, stock option plans, deferred compensation plans, management retention
plans, retirement plans, or similar plans or benefits being provided by American
Community Bank to Mr. Helton as of the date of the change of control are reduced
or eliminated. Reduction or elimination of these insurance or compensation
plans will not trigger Mr. Helton's rights if the reduction or elimination
applies proportionately to all salaried employees.
A change in control of American Community Bank will occur (1) if any person or
entity directly or indirectly acquires beneficial ownership of voting securities
or irrevocable proxies or any combination of voting securities and irrevocable
proxies equal to 25% or more of any class of securities; (2) if any person or
entity acquires control over the election of directors in any manner; (3)
American Community Bank is merged or consolidated with another entity where
American Community Bank is not the surviving entity; (4) all or substantially
all of the assets of the bank are sold to, transferred to, or acquired by
another entity.
After a termination of Mr. Helton's employment, except if employment is
terminated by American Community Bank without cause or good reason, or as a
result of death or disability, Mr. Helton will be prohibited from working in a
business in competition with American Community Bank or soliciting customers of
American Community Bank for two years after the termination.
Summary Compensation Table
The following table shows the cash and certain other compensation paid to or
received or deferred by Randy P. Helton for services rendered in all capacities
during the fiscal years 1999 and 1998. No other executive officer of American
Community Bank received compensation for 1999 which exceeded $100,000.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
Awards Payouts
------ -------
Securities
Underlying All Other
Name and Principal Position Year Salary ($) Options (#) Compensation ($) (1)
--------------------------- ---- ---------- ----------- --------------------
<S> <C> <C> <C> <C>
Randy P. Helton, President and 1999 $116,000 65,684 2,146
Chief Executive Officer 1998 $110,000 -- --
</TABLE>
(1) Includes life insurance premiums and an American Community Bank
contribution to 401(k) Plan.
39
<PAGE>
Stock Options
The shareholders approved the 1999 Incentive Stock Option Plan (the "Incentive
Option Plan") at the 1999 Annual Meeting of Shareholders pursuant to which
options on 149,205 shares of American Community Bank's common stock are
available for issuance to employees of American Community Bank and of any
subsidiary of American Community Bank. Upon it becoming the holding company for
American Community Bank, American Community Bancshares adopted the Incentive
Option Plan. The following table contains information with regard to grants of
stock options during 1999 to Randy P. Helton, President and Chief Executive
Officer of American Community Bancshares and American Community Bank.
Stock Option Grants in 1999
Individual Grants
<TABLE>
<CAPTION>
Number of
Securities Percent of
Underlying Options Granted Exercise or
Options to Employees Base Price Expiration
Name Granted (#)(1) in 1999 Per Share ($) Date
---- -------------- ------- ------------- ----
<S> <C> <C> <C> <C>
Randy P. Helton 65,684 36.19% $9.17 2009
</TABLE>
(1) Stock options granted under the Nonstatutory Option Plan vest upon grant.
Options granted under the Incentive Option Plan vest 20% per year commencing in
April, 2000.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 1999 December 31, 1999 (1)
----------------- ---------------------
Shares
Acquired Value
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Randy P. Helton -0- -0- -0- / 65,684 -0- / $210,512
</TABLE>
(1) At December 31, 1999 the common stock was traded at $12.375.
401(K) Savings Plan
In 1999, American Community 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 21. Under the Savings Plan, a 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 Section 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code"). A participant's contributions and
American Community Bank's matching and profit sharing contributions under the
Savings Plan will be held in trust accounts for the benefit of participants. A
participant is at all times 100%
40
<PAGE>
vested with respect to his or her own contributions and American Community
Bank's safe harbor contributions under the Savings Plan, and becomes 100% vested
in discretionary contributions after completing six years of service with
American Community 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
American Community Bank, and any income accrued on such contributions, are not
subject to federal or state taxes until such time as they are withdrawn by the
participant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
American Community Bank 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, TyPar Realty, Inc., leased space to us for
our temporary modular unit and we paid the realty company $3,300 per month in
rental fees from June 1998 to March 1999. Mr. Tyson's construction company, L.C.
Tyson Construction, Inc., performed $51,300 in upfitting and site work for the
modular unit. TyPar Realty, Inc. constructed our headquarters building in
Monroe, North Carolina on property owned by Mr. Tyson. The first floor is leased
to us for 30 years (11,250 square feet) at a rental of $19,237 per month,
subject to 7% increases every five years. We obtained an independent third party
appraisal of the lease and believe its terms are fair and reasonable to us.
Also, as low bidder in a sealed bid process, L. C. Tyson Construction, Inc., was
awarded the construction contract for American Community Bank's permanent
building in Marshville.
We have entered into a referral agreement with Whitley Mortgage Associates, Inc.
("Whitley Mortgage"), an affiliate of David D. Whitley. Under such arrangement,
we will refer to Whitley Mortgage any loan requests for residential construction
or permanent lending that we are not able to provide to our customers because of
the particular nature of the loan request. We will perform all of the loan
origination services, credit and background check and other administrative
services and, if the loan is made by or through Whitley Mortgage, we will obtain
a fee. By entering into this arrangement, we expand the scope of our products
and services without incurring additional overhead, we satisfy customers with
particular financial needs and add to our fee income.
Click Tactics, Inc., a related interest of Kenneth W. Long, a director of
American Community Bancshares and American Community Bank, is an Internet direct
marketing company in its startup phase. Small business customers can access the
direct marketing fulfillment capabilities of Click Tactics, Inc. through
numerous web sites. American Community Bank has agreed to participate in the
Click Tactics, Inc. network. There is no charge to American Community Bank
41
<PAGE>
for this participation and American Community Bank will earn fees for any
customers who access Click Tactics, Inc. through American Community Bank's web
site. This service is in its formative stages and the level of fee income that
may be generated for American Community Bank is unknown at this time.
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.
Beneficial Ownership of Voting Securities
As of December 31, 1999, no shareholder owned more than 5% of American Community
Bancshares' common stock.
As of December 31, 1999, the beneficial ownership of American Community
Bancshares' common stock by directors of American Community Bancshares' and
American Community Bank individually, and by directors and executive officers of
American Community Bancshares and American Community Bank as a group, was as
follows:
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent of
Name of Beneficial Owner Ownership (1)(2) Class (3)
------------------------ ---------------- ---------
<S> <C> <C>
Randy W. Adcock 10,680 0.64
Steven L. Barnes 489 0.03
Richard M. Cochrane 1,980 0.12
Jeff N. Coley 720 0.04
Dan R. Ellis, Jr. 6,600 0.40
Thomas J. Hall 24,790 1.48
Larry S. Helms 24,919 1.49
Randy P. Helton 33,446 2.00
Kenneth W. Long 56,138 3.36
Zebulon Morris, Jr. 24,790 1.48
Mary Margaret Nance 480 0.03
L. Steven Phillips 33,716 2.02
W. Farrell Richardson 7,080 0.42
Donald A. Singleton 1,200 0.07
L. Carlton Tyson 27,022 1.62
David D. Whitley 20,292 1.22
H. L. Williams, Jr. 24,790 1.48
Gregory N. Wylie 29,750 1.78
All Directors and
Executive Officers
as a group (18 persons) 328,882 19.70
</TABLE>
(1) Except as otherwise noted, to the best knowledge of American Community
Bancshares' 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. Tyson --11,040 shares, and Mr. Whitley --
4,327 shares.
42
<PAGE>
(2) Included in the beneficial ownership tabulations are the following options
to purchase shares of common stock of American Community Bancshares:
Mr. Adcock - 4,680 shares, Mr. Barnes - 489 shares, Mr. Cochrane - 1,200 shares,
Mr. Coley -720 shares, Mr. Ellis - 4,200 shares, Mr. Hall --12,790 shares,
Mr. Helms --12,919 shares, Mr. Helton - 22,484 shares, Mr. Long -- 29,106
shares, Mr. Morris --12,790 shares, Ms. Nance - 480 shares, Mr. Phillips --
17,396 shares, Mr. Richardson - 4,680 shares, Mr. Singleton- 1,200 shares,
Mr. Tyson --13,942 shares, Mr. Whitley -- 10,470 shares, Mr. Williams -- 12,790
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 1,492,062
outstanding shares of common stock outstanding as of June 30, 2000, and (ii)
177,686 options exercisable within 60 days of June 30, 2000.
SUPERVISION AND REGULATION
Regulation of American Community Bank
American Community Bank is extensively regulated under both federal and state
law. Generally, these laws and regulations are intended to protect depositors
and borrowers, not shareholders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in applicable law or regulation may have a material effect on the business of
American Community Bancshares and American Community Bank.
State Law. American Community Bank is subject to extensive supervision and
---------
regulation by the North Carolina Commissioner of Banks (the "Commissioner"). The
Commissioner oversees state laws that set specific requirements for bank capital
and regulate deposits in, and loans and investments by, banks, including the
amounts, types, and in some cases, rates. The Commissioner supervises and
performs periodic examinations of North Carolina-chartered banks to assure
compliance with state banking statutes and regulations, and American Community
Bank is required to make regular reports to the Commissioner describing in
detail the resources, assets, liabilities and financial condition of American
Community Bank. Among other things, the Commissioner regulates mergers and
consolidations of state-chartered banks, the payment of dividends, loans to
officers and directors, record keeping, types and amounts of loans and
investments, and the establishment of branches.
Deposit Insurance. As a member institution of the FDIC, American Community
-----------------
Bank's deposits are insured up to a maximum of $100,000 per depositor through
American Community Bank Insurance Fund (the "BIF"), administered by the FDIC,
and each member institution is required to pay semi-annual deposit insurance
premium assessments to the FDIC. The BIF assessment rates have a range of 0
cents to 27 cents for every $100 in assessable deposits. Banks with no premium
are subject to an annual statutory minimum assessment.
43
<PAGE>
Capital Requirements. The federal banking regulators have adopted certain risk-
--------------------
based capital guidelines to assist in the assessment of the capital adequacy of
a banking organization's operations for both transactions reported on the
balance sheet as assets and transactions, such as letters of credit, and
recourse arrangements, which are recorded as off balance sheet items. Under
these guidelines, nominal dollar amounts of assets and credit equivalent amounts
of off balance sheet items are multiplied by one of several risk adjustment
percentages which range from 0% for assets with low credit risk, such as certain
U.S. Treasury securities, to 100% for assets with relatively high credit risk,
such as business loans.
A banking organization's risk-based capital ratios are obtained by dividing its
qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which include off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. "Tier 1," or core capital, includes common equity,
qualifying noncumulative perpetual preferred stock and minority interests in
equity accounts of consolidated subsidiaries, less goodwill and other
intangibles, subject to certain exceptions. "Tier 2," or supplementary capital,
includes among other things, limited-life preferred stock, hybrid capital
instruments, mandatory convertible securities, qualifying subordinated debt, and
the allowance for loan and lease losses, subject to certain limitations and less
required deductions. The inclusion of elements of Tier 2 capital is subject to
certain other requirements and limitations of the federal banking agencies.
Banks and bank holding companies subject to the risk-based capital guidelines
are required to maintain a ratio of Tier 1 capital to risk-weighted assets of at
least 4% and a ratio of total capital to risk-weighted assets of at least 8%.
The appropriate regulatory authority may set higher capital requirements when
particular circumstances warrant. As of December 31, 1999, American Community
Bank was classified as "well-capitalized" with Tier 1 and Total Risk-Based
Capital of 18.25% and 19.53% respectively.
The federal banking agencies have adopted regulations specifying that they will
include, in their evaluations of a bank's capital adequacy, an assessment of the
bank's interest rate risk ("IRR") exposure. The standards for measuring the
adequacy and effectiveness of a banking organization's IRR management include a
measurement of board of director and senior management oversight, and a
determination of whether a banking organization's procedures for comprehensive
risk management are appropriate for the circumstances of the specific banking
organization.
Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority of
a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as the
measures described under the "Federal Deposit Insurance Corporation Improvement
Act of 1991" below, as applicable to undercapitalized institutions. In addition,
future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy. Such a change could affect
the ability of American Community Bank to grow and could restrict the amount of
profits, if any, available for the payment of dividends to the
shareholders.
Federal Deposit Insurance Corporation Improvement Act of 1991. In December
-------------------------------------------------------------
1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"),
44
<PAGE>
which substantially revised the bank regulatory and funding provisions of the
FDIA and made significant revisions to several other federal banking statutes.
FDICIA provides for, among other things:
- publicly available annual financial condition and management reports for
certain financial institutions, including audits by independent
accountants,
- the establishment of uniform accounting standards by federal banking
agencies,
- the establishment of a "prompt corrective action" system of regulatory
supervision and intervention, based on capitalization levels, with
greater scrutiny and restrictions placed on depository institutions with
lower levels of capital,
- additional grounds for the appointment of a conservator or receiver, and
- restrictions or prohibitions on accepting brokered deposits, except for
institutions which significantly exceed minimum capital requirements.
FDICIA also provides for increased funding of the FDIC insurance funds and the
implementation of risk-based premiums.
A central feature of FDICIA is the requirement that the federal banking agencies
take "prompt corrective action" with respect to depository institutions that do
not meet minimum capital requirements. Pursuant to FDICIA, the federal bank
regulatory authorities have adopted regulations setting forth a five-tiered
system for measuring the capital adequacy of the depository institutions that
they supervise. Under these regulations, a depository institution is classified
in one of the following capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." An institution may be deemed by the regulators to
be in a capitalization category that is lower than is indicated by its actual
capital position if, among other things, it receives an unsatisfactory
examination rating with respect to asset quality, management, earnings or
liquidity.
FDICIA provides the federal banking agencies with significantly expanded powers
to take enforcement action against institutions which fail to comply with
capital or other standards. Such action may include the termination of deposit
insurance by the FDIC or the appointment of a receiver or conservator for the
institution. FDICIA also limits the circumstances under which the FDIC is
permitted to provide financial assistance to an insured institution before
appointment of a conservator or receiver.
Miscellaneous. The dividends that may be paid by American Community Bank are
-------------
subject to legal limitations. In accordance with North Carolina banking law,
dividends may not be paid unless American Community Bank's capital surplus is at
least 50% of its paid-in capital.
Shareholders of banks may be compelled by the Commissioner pursuant to North
Carolina law to invest additional capital in the event their bank's capital
shall have become impaired by losses or otherwise. Failure to pay such an
assessment could result in a forced sale of a shareholder's bank stock.
45
<PAGE>
The earnings of American Community Bank will be affected significantly by the
policies of the Federal Reserve Board, which is responsible for regulating the
United States money supply in order to mitigate recessionary and inflationary
pressures. Among the techniques used to implement these objectives are open
market transactions in United States government securities, changes in the rate
paid by banks on bank borrowings, and changes in reserve requirements against
bank deposits. These techniques are used in varying combinations to influence
overall growth and distribution of bank loans, investments, and deposits, and
their use may also affect interest rates charged on loans or paid for
deposits.
The monetary policies of the Federal Reserve Board have had a significant effect
on the operating results of commercial banks in the past and are expected to
continue to do so in the future. In view of changing conditions in the national
economy and money markets, as well as the effect of actions by monetary and
fiscal authorities, no prediction can be made as to possible future changes in
interest rates, deposit levels, loan demand or the business and earnings of
American Community Bank.
American Community Bank cannot predict what legislation might be enacted or what
regulations might be adopted, or if enacted or adopted, the effect thereof on
American Community Bank's operations.
Regulation of American Community Bancshares
Federal Regulation. American Community Bancshares is subject to examination,
------------------
regulation and periodic reporting under the Bank Holding Company Act (the "BHC
Act"), as administered by the Federal Reserve Board. The Federal Reserve Board
has adopted capital adequacy guidelines for bank holding companies on a
consolidated basis.
American Community Bancshares is required to obtain the prior approval of the
Federal Reserve Board to acquire all, or substantially all, of the assets of any
bank or bank holding company. Prior Federal Reserve Board approval is required
for American Community Bancshares to acquire direct or indirect ownership or
control of any voting securities of any bank or bank holding company if, after
giving effect to such acquisition, it would, directly or indirectly, own or
control more than five percent of any class of voting shares of such bank or
bank holding company.
The merger or consolidation of American Community Bancshares with another bank,
or the acquisition by American Community Bancshares of assets of another bank,
or the assumption of liability by American Community Bancshares to pay any
deposits in another bank, will require the prior written approval of the primary
federal bank regulatory agency of the acquiring or surviving bank under the
federal Bank Merger Act. The decision is based upon a consideration of
statutory factors similar to those outlined above with respect to the BHC Act.
In addition, in certain such cases an application to, and the prior approval of,
the Federal Reserve Board under the BHC Act and/or the North Carolina Banking
Commission may be required.
American Community Bancshares is required to give the Federal Reserve Board
prior written notice of any purchase or redemption of its outstanding equity
securities if the gross
46
<PAGE>
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of American Community Bancshares' consolidated
net worth. The Federal Reserve Board may disapprove such a purchase or
redemption if it determines that the proposal would constitute an unsafe and
unsound practice, or would violate any law, regulation, Federal Reserve Board
order or directive, or any condition imposed by, or written agreement with, the
Federal Reserve Board. Such notice and approval is not required for a bank
holding company that would be treated as "well capitalized" under applicable
regulations of the Federal Reserve Board, that has received a composite "1" or
"2" rating at its most recent bank holding company inspection by the Federal
Reserve Board, and that is not the subject of any unresolved supervisory
issues.
The status of American Community Bancshares as a registered bank holding company
under the BHC Act does not exempt it from certain federal and state laws and
regulations applicable to corporations generally, including, without limitation,
certain provisions of the federal securities laws.
In addition, a bank holding company is prohibited generally from engaging in, or
acquiring five percent or more of any class of voting securities of any company
engaged in, non-banking activities. One of the principal exceptions to this
prohibition is for activities found by the Federal Reserve Board to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the principal activities that the Federal Reserve
Board has determined by regulation to be so closely related to banking as to be
a proper incident thereto are:
- making or servicing loans;
- performing certain data processing services;
- providing discount brokerage services;
- acting as fiduciary, investment or financial advisor;
- leasing personal or real property;
- making investments in corporations or projects designed primarily to
promote community welfare; and
- acquiring a savings and loan association.
In evaluating a written notice of such an acquisition, the Federal Reserve Board
will consider various factors, including among others the financial and
managerial resources of the notifying bank holding company and the relative
public benefits and adverse effects which may be expected to result from the
performance of the activity by an affiliate of such company. The Federal Reserve
Board may apply different standards to activities proposed to be commenced de
--
novo and activities commenced by acquisition, in whole or in part, of a going
----
concern. The required notice period may be extended by the Federal Reserve Board
under certain circumstances, including a notice for acquisition of a company
engaged in activities not previously approved by regulation of the Federal
Reserve Board. If such a proposed acquisition is not disapproved or subjected to
conditions by the Federal Reserve Board within the applicable notice period, it
is deemed approved by the Federal Reserve Board.
Capital Requirements. The Federal Reserve Board uses capital adequacy guidelines
--------------------
in its examination and regulation of bank holding companies. If capital falls
below minimum guidelines, a bank holding company may, among other things, be
denied approval to acquire or establish additional banks or non-bank businesses.
47
<PAGE>
The Federal Reserve Board's capital guidelines establish the following minimum
regulatory capital requirements for bank holding companies:
- a leverage capital requirement expressed as a percentage of total
assets;
- a risk-based requirement expressed as a percentage of total risk-
weighted assets; and
- a Tier 1 leverage requirement expressed as a percentage of total
assets.
The leverage capital requirement consists of a minimum ratio of total capital to
total assets of 6%, with an expressed expectation that banking organizations
generally should operate above such minimum level. The risk-based requirement
consists of a minimum ratio of total capital to total risk-weighted assets of
8%, of which at least one-half must be Tier 1 capital (which consists
principally of shareholders' equity). The Tier 1 leverage requirement consists
of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly-
rated companies, with minimum requirements of 4% to 5% for all others.
The risk-based and leverage standards presently used by the Federal Reserve
Board are minimum requirements, and higher capital levels will be required if
warranted by the particular circumstances or risk profiles of individual banking
organizations. Further, any banking organization experiencing or anticipating
significant growth would be expected to maintain capital ratios, including
tangible capital positions (i.e., Tier 1 capital less all intangible assets),
well above the minimum levels.
The Federal Reserve Board's regulations provide that the foregoing capital
requirements will generally be applied on a bank-only (rather than a
consolidated) basis in the case of a bank holding company with less than $150
million in total consolidated assets. On a pro forma basis, assuming the
issuance and sale of 500,000 shares of common stock (the minimum amount offered
in this Prospectus) at $___ per share, our leverage capital ratio, risk-based
capital ratio and Tier 1 leverage ratio immediately after the offering, in each
case as calculated on a consolidated basis and a bank-only basis under the
Federal Reserve Board's capital guidelines, would be ____%, ____% and ____%,
respectively, significantly exceeding the minimum requirements.
FDICIA requires the federal bank regulatory agencies biennially to review risk-
based capital standards to ensure that they adequately address interest rate
risk, concentration of credit risk and risks from non-traditional activities
and, since adoption of the Riegle Community Development and Regulatory
Improvement Act of 1994 (the "Riegle Act"), to do so taking into account the
size and activities of depository institutions and the avoidance of undue
reporting burdens. In 1995, the agencies adopted regulations requiring as part
of the assessment of an institution's capital adequacy the consideration of (a)
identified concentrations of credit risks, (b) the exposure of the institution
to a decline in the value of its capital due to changes in interest rates and
(c) the application of revised conversion factors and netting rules on the
institution's potential future exposure from derivative transactions.
48
<PAGE>
In addition, the agencies in September 1996 adopted amendments to their
respective risk-based capital standards to require banks and bank holding
companies having significant exposure to market risk arising from, among other
things, trading of debt instruments, (1) to measure that risk using an internal
value-at-risk model conforming to the parameters established in the agencies'
standards and (2) to maintain a commensurate amount of additional capital to
reflect such risk. The new rules were adopted effective January 1, 1997, with
compliance mandatory from and after January 1, 1998.
Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"), depository institutions are liable to the FDIC for losses suffered
or anticipated by the FDIC in connection with the default of a commonly
controlled depository institution or any assistance provided by the FDIC to such
an institution in danger of default. This law is applicable to the extent that
American Community Bancshares maintains as a separate subsidiary a depository
institution in addition to American Community Bank.
Subsidiary banks of a bank holding company are subject to certain quantitative
and qualitative restrictions imposed by the Federal Reserve Act on any extension
of credit to, or purchase of assets from, or letter of credit on behalf of, the
bank holding company or its subsidiaries, and on the investment in or acceptance
of stocks or securities of such holding company or its subsidiaries as
collateral for loans. In addition, provisions of the Federal Reserve Act and
Federal Reserve Board regulations limit the amounts of, and establish required
procedures and credit standards with respect to, loans and other extensions of
credit to officers, directors and principal shareholders of American Community
Bank, American Community Bancshares, any subsidiary of American Community
Bancshares and related interests of such persons. Moreover, subsidiaries of bank
holding companies are prohibited from engaging in certain tie-in arrangements
(with the holding company or any of its subsidiaries) in connection with any
extension of credit, lease or sale of property or furnishing of services.
Any loans by a bank holding company to a subsidiary bank are subordinate in
right of payment to deposits and to certain other indebtedness of the subsidiary
bank. In the event of a bank holding company's bankruptcy, any commitment by the
bank holding company to a federal bank regulatory agency to maintain the capital
of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to
a priority of payment. This priority would also apply to guarantees of capital
plans under FDICIA.
Branching
Under the Riegle Act, the Federal Reserve Board may approve bank holding company
acquisitions of banks in other states, subject to certain aging and deposit
concentration limits. As of June 1, 1997, banks in one state may merge with
banks in another state, unless the other state has chosen not to implement this
section of the Riegle Act. These mergers are also subject to similar aging and
deposit concentration limits.
North Carolina "opted-in" to the provisions of the Riegle Act. Since July 1,
1995, an out-of-state bank that did not already maintain a branch in North
Carolina was permitted to establish and maintain a de novo branch in North
-- ----
Carolina, or acquire a branch in North Carolina, if the laws
49
<PAGE>
of the home state of the out-of-state bank permit North Carolina banks to engage
in the same activities in that state under substantially the same terms as
permitted by North Carolina. Also, North Carolina banks may merge with out-of-
state banks, and an out-of-state bank resulting from such an interstate merger
transaction may maintain and operate the branches in North Carolina of a merged
North Carolina bank, if the laws of the home state of the out-of-state bank
involved in the interstate merger transaction permit interstate merger.
Recent Legislative Developments
Effective March 11, 2000, the Gramm-Leach-Bliley Act of 1999, which was signed
into law on November 12, 1999, will allow a bank holding company to qualify as a
"financial holding company" and, as a result, be permitted to engage in a
broader range of activities that are "financial in nature" and in activities
that are determined to be incidental or complementary to activities that are
financial in nature. The Gramm-Leach-Bliley Act amends the BHC Act to include a
list of activities that are financial in nature, and the list includes
activities such as underwriting, dealing in and making a market in securities,
insurance underwriting and agency activities and merchant banking. The Federal
Reserve Board is authorized to determine other activities that are financial in
nature or incidental or complementary to such activities. The Gramm-Leach-Bliley
Act also authorizes banks to engage through financial subsidiaries in certain of
the activities permitted for financial holding companies.
On September 30, 1996, the Economic Growth and Regulatory Paperwork Reduction
Act of 1996 (the "Growth Act"), was enacted which contained a comprehensive
approach to recapitalize the FDIC's Savings Association Insurance Fund (the
"SAIF") and to assure payment of the Financing Corporation (the "FICO")
obligations. All of American Community Bank's deposits are insured by the FDIC's
BIF. Under the Growth Act, banks with deposits that are insured under the BIF
are required to pay a portion of the interest due on bonds that were issued by
FICO to help shore up the ailing Federal Savings and Loan Insurance Corporation
in 1987. The Growth Act stipulates that the BIF assessment rate to contribute
toward the FICO obligations must be equal to one-fifth the SAIF assessment rate
through year-end 2000, or until the insurance funds are merged, whichever occurs
first. The amount of FICO debt service to be paid by all BIF-insured
institutions is approximately $0.0126 per $100 of BIF-insured deposits for each
year from 1997 through 2000 when the obligation of BIF-insured institutions
increases to approximately $0.0240 per $100 of BIF-insured deposits per year
through the year 2019, subject in all cases to adjustments by the FDIC on a
quarterly basis. The Growth Act also contained provisions protecting banks from
liability for environmental clean-up costs; prohibiting credit unions sponsored
by Farm Credit System banks; easing application requirements for most bank
holding companies when they acquire a thrift or a permissible non-bank
operation; easing Fair Credit Reporting Act restrictions between bank holding
company affiliates; and reducing the regulatory burden under the Real Estate
Settlement Procedures Act, the Truth-in-Savings Act, the Truth-in-Lending Act
and the Home Savings Mortgage Disclosure Act.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the material provisions of American Community
Bancshares' Articles of Incorporation and Bylaws.
General
The Articles of Incorporation of American Community Bancshares authorize the
issuance of 10,000,000 shares of capital stock, consisting of 9,000,000 shares
of common stock, par value $1.00 per share, and 1,000,000 shares of preferred
stock at no par value.
Upon completion of the offering, assuming the maximum number of shares are sold,
there will be 2,492,062 shares of common stock outstanding and no shares of
preferred stock issued and outstanding. Up to an additional 298,412 shares of
common stock will be issuable upon exercise of outstanding options granted under
the Incentive Stock Option Plan and Nonstatutory Stock Option Plan. See
"MANAGEMENT - Director Compensation - 1999 Nonstatutory Stock Option Plan for
---------------------------------------
Directors" and "MANAGEMENT - Stock Options".
---------
Common Stock
Dividend Rights. As a North Carolina corporation, American Community Bancshares
---------------
is not directly subject to the restrictions on the payment of dividends
applicable to American Community Bank. Holders of shares of American Community
Bancshares' common stock are entitled to receive such cash dividends as the
Board of Directors of American Community Bancshares may declare out of funds
legally available therefor. However, the payment of dividends by American
Community Bancshares will be subject to the restrictions of North Carolina law
applicable to the declaration of dividends by a business corporation. Under such
provisions, cash dividends may not be paid if a corporation will not be able to
pay its debts as they become due in the usual course of business after making
such cash dividend distribution or the corporation's total assets would be less
than the sum of its total liabilities plus the amount that would be needed to
satisfy certain liquidation preferential rights. The ability of American
Community Bancshares to pay dividends to the holders of shares of American
Community Bancshares' common stock is, at least at the present time, completely
dependent upon the amount of dividends American Community Bank pays to American
Community Bancshares.
Voting Rights. Each share of American Community Bancshares' common stock
-------------
entitles the holder thereof to one vote on all matters upon which shareholders
have the right to vote. In addition, if the Board of Directors of American
Community Bancshares consists of nine or more directors, its members will be
classified so that approximately one-third of the directors will be elected each
year. Shareholders of American Community Bancshares are not entitled to cumulate
their votes for the election of directors.
Liquidation Rights. In the event of any liquidation, dissolution or winding up
------------------
of American Community Bancshares, the holders of shares of American Community
Bancshares' common stock are entitled to receive, after payment of all debts and
liabilities of American Community Bancshares, all remaining assets of American
Community Bancshares available for distribution
51
<PAGE>
in cash or in kind. In the event of any liquidation, dissolution or winding up
of American Community Bank, American Community Bancshares, as the holder of all
shares of American Community Bank common stock, would be entitled to receive
payment of all debts and liabilities of American Community Bank (including all
deposits and accrued interest thereon) and all remaining assets of American
Community Bank available for distribution in cash or in kind.
Preemptive Rights; Redemption. Holders of shares of American Community
-----------------------------
Bancshares' common stock are not entitled to preemptive rights with respect to
any shares that may be issued. American Community Bancshares' common stock is
not subject to call or redemption.
Preferred Stock
The authorized preferred stock is available for issuance from time to time at
the discretion of the Board of Directors without shareholder approval. The Board
of Directors has the authority to prescribe for each series of preferred stock
it establishes the number of shares in that series, the number of votes (if any)
to which the shares in that series are entitled, the consideration for the
shares in that series, and the designations, powers, preferences and other
rights, qualifications, limitations or restrictions of the shares in that
series. Depending upon the rights prescribed for a series of preferred stock,
the issuance of preferred stock could have an adverse effect on the voting power
of the holders of common stock and could adversely affect holders of common
stock by delaying or preventing a change in control, making removal of our
present management more difficult or imposing restrictions upon the payment of
dividends and other distributions to the holders of common stock.
Authorized But Unissued Shares
North Carolina law does not require shareholder approval for any issuance of
authorized shares. Authorized but unissued shares may be used for a variety of
corporate purposes, including future public or private offerings to raise
additional capital or to facilitate corporate acquisitions. One of the effects
of the existence of authorized but unissued shares may be to enable the board of
directors to issue shares to persons friendly to current management, which
issuance could render more difficult or discourage an attempt to obtain control
of us by means of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of our management and possibly deprive the
shareholders of opportunities to sell their shares of common stock at prices
higher than prevailing market prices.
Certain Articles and Bylaw Provisions Having Potential Anti-Takeover Effects
General. The following is a summary of the material provisions of American
-------
Community Bancshares' Articles of Incorporation and Bylaws which address matters
of corporate governance and the rights of shareholders. Certain of these
provisions may delay or prevent takeover attempts not first approved by the
Board of Directors of American Community Bancshares (including takeovers which
certain shareholders may deem to be in their best interests). These provisions
also could delay or frustrate the removal of incumbent directors or the
assumption of control by shareholders. All references to the Articles of
Incorporation and Bylaws are to the American Community Bancshares' Articles of
Incorporation and Bylaws in effect as of the date of this Prospectus.
52
<PAGE>
Classification of the Board of Directors. The Bylaws provide that if the number
----------------------------------------
of directors is nine or more (the number of directors is currently 7), the Board
of Directors of American Community Bancshares shall be divided into three
classes, Class I, Class II and Class III, which shall be as nearly equal in
number as possible. If so classified, each director shall serve for a term
ending on the date of the third annual meeting of shareholders following the
annual meeting at which the director was elected (except for certain initial
directors whose terms may be shorter than three years as necessary to effect the
classification process). A director elected to fill a vacancy shall serve only
until the next meeting of shareholders at which directors are elected. If the
Board of Directors of American Community Bancshares becomes classified,
approximately one-third of the members of the Board of Directors of American
Community Bancshares will be elected each year, and two annual meetings will be
required for American Community Bancshares' shareholders to change a majority
of the members constituting the Board of Directors of American Community
Bancshares.
Removal of Directors; Filling Vacancies. American Community Bancshares' Articles
---------------------------------------
of Incorporation provide that shareholders may remove one or more of the
directors with cause which includes (i) criminal prosecution and conviction
during the course of a director's service as a director of American Community
Bancshares of an act of fraud embezzlement, theft, or personal dishonesty, (ii)
the prosecution and conviction of any criminal offense involving dishonesty or
breach of trust, or (iii) the occurrence of any event resulting in a director
being excluded from coverage, or having coverage limited as to the director when
compared to other covered directors under any of the fidelity bonds or insurance
policies covering its directors, officers or employees. Vacancies occurring in
the Board of Directors of American Community Bancshares may be filled by the
shareholders or a majority of the remaining directors, even though less than a
quorum, or by the sole remaining director.
Amendment of Bylaws. Subject to certain restrictions described below, either a
-------------------
majority of the Board of Directors or the shareholders of American Community
Bancshares may amend or repeal the Bylaws. A bylaw adopted, amended or repealed
by the shareholders may not be readopted, amended or repealed by the Board of
Directors of American Community Bancshares. Generally, the shareholders of
American Community Bancshares may adopt, amend, or repeal the Bylaws in
accordance with the North Carolina Business Corporations Act (the "NCBCA").
The Board of Directors is permitted by American Community Bancshares' Articles
of Incorporation to consider other constituents besides the shareholders if
faced with a proposal that could cause a change in control. Such constituents
are employees, depositors, customers, creditors and the communities in which
American Community Bancshares and its subsidiaries conduct business. Further,
the Board is permitted to evaluate the competence, experience and integrity of
any proposed acquiror as well as the prospects for success of such a takeover
proposal from a regulatory perspective.
Special Meetings of Shareholders. American Community Bancshares' Bylaws provide
--------------------------------
that special meetings of shareholders may be called only by the President or
Board of Directors of American Community Bancshares.
53
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Certain Provisions of North Carolina Law
American Community Bancshares is subject to the North Carolina Shareholder
Protection Act (the "Shareholder Protection Act") and the North Carolina Control
Share Acquisition Act (the "Control Share Act"), each of which, if applicable,
would hinder the ability of a third party to acquire control of either company.
The Shareholder Protection Act generally requires that, unless certain "fair
price" and other conditions are met, the affirmative vote of the holders of 95%
of the voting shares of a corporation is necessary to adopt or authorize a
business combination with any other entity, if that entity is the beneficial
owner, directly or indirectly, of more than 20% of the voting shares of the
corporation. The Control Share Act provides that any person or party who
acquires "control shares" (defined as a number of shares which, when added to
other shares held, gives the holder voting power in the election of directors
equal to 20%, 33 1/3% or a majority of all voting power) may only vote those
shares if the remaining shareholders of the corporation, by resolution, permit
those shares to be voted. If the shareholders of the corporation permit the
"control shares" to be accorded voting rights and the holder of the "control
shares" has a majority of all voting power for the election of directors, the
other shareholders of the corporation have the right to the redemption of their
shares at the fair value of the shares as of the date prior to the date on which
the vote was taken which gave voting rights to the "control shares." The
provisions of the Shareholder Protection Act and the Control Share Act may have
the effect of discouraging a change of control by allowing minority shareholders
to prevent a transaction favored by a majority of the shareholders. The primary
purpose of these provisions is to encourage negotiations with the board of
directors of a company by groups or corporations interested in acquiring control
of the company.
The acquisition of more than ten percent (10%) of the outstanding American
Community Bancshares' common stock may, in certain circumstances, be subject to
the provisions of the Change in Bank Control Act of 1978 (the "Change in Bank
Control Act"). The FDIC has also adopted a regulation pursuant to the Change in
Bank Control Act which generally requires persons who at any time intend to
acquire control of an FDIC-insured state-chartered non-member bank, either
directly or indirectly through an acquisition of control of its holding company,
to provide 60 days prior written notice and certain financial and other
information to the FDIC. Control for the purpose of this Act exists in
situations in which the acquiring party has voting control of at least twenty-
five percent (25%) of any class of voting stock or the power to direct the
management or policies of the bank or the holding company. However, under FDIC
regulations, control is presumed to exist where the acquiring party has voting
control of at least ten percent (10%) of any class of voting securities if (a)
the bank or holding company has a class of voting securities which is registered
under Section 12 of the 1934 Act, or (b) the acquiring party would be the
largest holder of a class of voting shares of the bank or the holding company.
The statute and underlying regulations authorize the FDIC to disapprove a
proposed acquisition on certain specified grounds.
Prior approval of the Federal Reserve Board would be required for any
acquisition of control of American Community Bank or American Community
Bancshares by any bank holding company under the BHC Act. Control for purposes
of the BHC Act would be based on, among other things, a twenty-five percent
(25%) voting stock test or on the ability of the holding company otherwise to
control the election of a majority of the Board of Directors of American
Community
54
<PAGE>
Bancshares. As part of such acquisition, the acquiring company (unless already
so registered) would be required to register as a bank holding company under the
BHC Act.
The 1934 Act requires that a purchaser of any class of a corporation's
securities registered under the 1934 Act notify the SEC and such corporation
within ten days after its purchases exceed five percent of the outstanding
shares of that class of securities. This notice must disclose the background and
identity of the purchaser, the source and amount of funds used for the purchase,
the number of shares owned and, if the purpose of the transaction is to acquire
control of the corporation, any plans to alter materially the corporation's
business or corporate structure. In addition, any tender offer to acquire a
corporation's securities is subject to the limitations and disclosure
requirements of the 1934 Act.
Indemnification of Directors and Officers
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to our directors, officers and controlling persons under the
provisions discussed above or otherwise, we have been advised that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the 1934 Act and is, therefore, unenforceable.
Registrar and Transfer Agent
The registrar and transfer agent for our common stock will be Registrar and
Transfer Company, Cranford, New Jersey.
Shares Eligible for Future Sale
Upon completion of the offering, we expect to have 2,492,062 shares of common
stock outstanding assuming the maximum number of shares are sold, all of which
either will have been registered with the SEC under the 1933 Act or will have
been outstanding for a sufficient period of time so that they will be eligible
for resale without registration under the 1933 Act unless they were acquired by
our directors, executive officers or other affiliates (collectively,
"affiliates"). Our affiliates generally will be able to sell shares of the
common stock only in accordance with the limitations of Rule 144 under the 1933
Act.
In general, under Rule 144 as currently in effect, an affiliate (as defined in
Rule 144) may sell shares of common stock within any three-month period in an
amount limited to the greater of 1% of our outstanding shares of common stock or
the average weekly trading volume in our common stock during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
manner-of-sale provisions, notice requirements and the availability of current
public information about us.
As of June 30, 2000, we had outstanding options under our stock option plans to
purchase an aggregate of 298,412 shares of our common stock at an exercise price
equal to or less than the public offering price of the common stock, as
specified on the cover page of this Prospectus.
55
<PAGE>
Prior to the offering, the common stock has been trading on the Nasdaq SmallCap
Market, and we cannot predict the effect, if any, that sales of shares or the
availability of shares for sale will have on the prevailing market price of the
common stock after completion of the offering. Nevertheless, sales of
substantial amounts of common stock in the public market could have an adverse
effect on prevailing market prices.
METHOD OF SUBSCRIPTION/PLAN OF DISTRIBUTION
American Community Bancshares has engaged Wachovia Securities to sell a portion
of the common stock being offered through this offering on a best efforts basis.
The officers and directors of American Community Bancshares will conduct the
offering during the first four week period, without receipt of any commissions
or other remuneration, primarily in the areas in which our banking offices are
located. During this four week period, purchasers may use the Subscription Offer
Form attached to this Prospectus. Thereafter, Wachovia Securities will commence
its marketing efforts primarily through the offices of its retail brokerage
division, IJL Wachovia. Wachovia Securities can, with our consent, engage other
agents to sell our common stock. Wachovia Securities will receive a commission
of 5% of the offering price for all shares sold by it plus a financial advisory
fee of $50,000 if we successfully reach our 500,000 share minimum with Wachovia
Securities' assistance. If any other agents sell any common stock through an
engagement with Wachovia Securities, they will receive a portion of that
commission. If no shares are sold by IJL Wachovia, it shall receive a $25,000
standby fee.
All subscribers must make checks payable to "First Union National Bank/American
Community Bancshares, Inc.--Escrow Account". All funds received either by
American Community Bancshares or Wachovia Securities will be forwarded to First
Union National Bank by noon of the next business day after receipt. First Union
National Bank will invest all funds received in direct or guaranteed obligations
of the United States, bank savings accounts or money market funds that invest in
the foregoing.
LEGAL OPINIONS
Gaeta & Glesener, P.A., Raleigh, North Carolina, will pass upon the legality of
the securities offered by this Prospectus for us.
EXPERTS
The audited financial statements of American Community Bank as of December 31,
1999 and 1998, included in this Prospectus, have been audited by Dixon Odom
PLLC, independent public accountants, as indicated in their report with respect
thereto and included herein in reliance upon the authority of said firm as
experts in giving said report.
56
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WHERE YOU CAN GET MORE INFORMATION
At your request, we will provide you, without charge, a copy of any exhibits to
our registration statement incorporated by reference in this Prospectus. If you
want more information, write or call us at:
American Community Bancshares
American Community Bank
Post Office Box 5035
Monroe, North Carolina 28111-5035
(704) 225-8444
We are subject to the informational requirements of the 1934 Act and as required
by the 1934 Act we file reports, proxy statements and other information with the
SEC. Reports, proxy statements and other information filed by us may be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, DC 20549 and at
the SEC's regional offices located at 7 World Trade Center, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Our SEC filings are also available to the public on the SEC
Internet site at http://www.sec.gov.
Prior to our formation as the holding company for American Community Bank in
April 2000, American Community Bank was subject to the informational
requirements of the 1934 Act and filed reports, proxy statements and other
information with the FDIC. American Community Bank's filings with the FDIC may
be inspected and copied, after paying a prescribed fee, at the FDIC's public
reference facilities at the Registration, Disclosure and Securities Operations
Unit, 550 17/th/ Street, NW, Room 6043, Washington, DC 20429.
57
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AMERICAN COMMUNITY BANCSHARES, INC.
================================================================================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
AMERICAN COMMUNITY BANK
Independent Auditors' Report......................................................... F-2
Balance Sheets as of December 31, 1999 and 1998...................................... F-3
Statements of Operations for the years ended December 31, 1999 and 1998.............. F-4
Statements of Shareholders' Equity for the years ended December 31, 1999 and 1998.... F-5
Statements of Cash Flows for the years ended December 31, 1999 and 1998.............. F-6
Notes to Financial Statements........................................................ F-7
AMERICAN COMMUNITY BANCSHARES, INC.
Consolidated Balance Sheets at June 30, 2000 and 1999 (Unaudited).................... F-23
Consolidated Statements of Operations for the six months ended June 30, 2000
and 1999 (Unaudited)............................................................... F-24
Consolidated Statements of Shareholders' Equity for the six months
ended June 30, 2000 and 1999 (Unaudited)........................................... F-25
Consolidated Statements of Cash Flows for the six months ended June 30, 2000
and 1999 (Unaudited)............................................................... F-26
Notes to Consolidated Financial Statements (Unaudited)............................... F-27
</TABLE>
F-1
<PAGE>
[LETTERHEAD OF DIXON ODOM PLLC]
INDEPENDENT AUDITORS' REPORT
To the Shareholders and the Board of Directors
American Community Bank
Monroe, North Carolina
We have audited the accompanying balance sheets of American Community Bank as of
December 31, 1999 and 1998, and the related statements of operations,
shareholders' equity and cash flows for the year ended December 31, 1999 and the
period from November 16, 1998 (date of opening) through December 31, 1998. These
financial statements are the responsibility of American Community Bank's
management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of American Community Bank at
December 31, 1999 and 1998 and the results of its operations and its cash flows
for the year ended December 31, 1999 and the period from November 16, 1998 (date
of opening) through December 31, 1998 in conformity with generally accepted
accounting principles.
DIXON ODOM PLLC
Sanford, North Carolina
February 17, 2000
F-2
<PAGE>
AMERICAN COMMUNITY BANK
BALANCE SHEETS
December 31, 1999 and 1998
================================================================================
1999 1998
------------ -----------
ASSETS
Cash and due from banks $ 1,809,053 $ 302,999
Interest-earning deposits with banks 8,468,104 14,683,825
Loans (Note C) 59,306,451 4,779,844
Allowance for loan losses (Note C) (813,000) (71,000)
----------- -----------
NET LOANS 58,493,451 4,708,844
Loans held for sale 1,072,261 -
Accrued interest receivable 299,000 63,975
Bank premises and equipment (Note D) 2,844,358 474,582
Federal Home Loan Bank stock, at cost 250,000 37,400
Other assets 357,880 81,213
----------- -----------
TOTAL ASSETS $73,594,107 $20,352,838
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand $ 7,308,760 $ 1,060,842
Savings 888,949 93,008
Money market and NOW 11,018,250 1,879,968
Time (Note E) 35,771,251 4,644,091
----------- -----------
TOTAL DEPOSITS 54,987,210 7,677,909
Advances from Federal Home Loan Bank (Note F) 5,000,000 -
Capital lease obligation (Note G) 1,700,000 -
Accrued expenses and other liabilities 354,377 222,300
----------- -----------
TOTAL LIABILITIES 62,041,587 7,900,209
----------- -----------
Shareholders' Equity (Notes J and L)
Common stock, $5 par value, 10,000,000
shares authorized; 1,492,062 and
1,243,385 shares issued and outstanding
at December 31, 1999 and 1998, respectively 7,460,315 6,216,925
Additional paid-in capital 5,121,344 6,364,734
Accumulated deficit (1,029,139) (129,030)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 11,552,520 12,452,629
----------- -----------
Commitments (Notes G, H and M)
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $73,594,107 $20,352,838
=========== ===========
F-3
<PAGE>
AMERICAN COMMUNITY BANK
STATEMENTS OF OPERATIONS
Year Ended December 31, 1999 and the Period from November 16, 1998 (Date of
Opening) through December 31, 1998
================================================================================
1999 1998
---------- ----------
INTEREST INCOME
Loans $3,062,029 $ 43,511
Investments 28,690 -
Interest-earning deposits with banks 366,128 93,590
---------- ----------
TOTAL INTEREST INCOME 3,456,847 137,101
---------- ----------
INTEREST EXPENSE
Money market, NOW and savings deposits 237,536 4,527
Time deposits 1,160,029 17,718
Borrowings 26,135 -
---------- ----------
TOTAL INTEREST EXPENSE 1,423,700 22,245
---------- ----------
NET INTEREST INCOME 2,033,147 114,856
PROVISION FOR LOAN LOSSES (Note C) 742,000 71,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,291,147 43,856
---------- ----------
NON-INTEREST INCOME
Service charges on deposit accounts 148,964 1,255
Mortgage operations 340,427 -
Other 3,617 20
---------- ----------
TOTAL NON-INTEREST INCOME 493,008 1,275
---------- ----------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,287,396 74,720
Occupancy and equipment 513,211 44,372
Other (Note K) 883,657 55,069
---------- ----------
TOTAL NON-INTEREST EXPENSE 2,684,264 174,161
---------- ----------
LOSS BEFORE INCOME TAXES (900,109) (129,030)
INCOME TAXES (Note I) - -
---------- ----------
NET LOSS $ (900,109) $ (129,030)
========== ==========
BASIC AND DILUTED NET
LOSS PER COMMON SHARE $ (.60) $ (.09)
========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, BASIC AND DILUTED 1,492,062 1,492,062
========== ==========
F-4
<PAGE>
AMERICAN COMMUNITY BANK
STATEMENTS OF SHAREHOLDERS' EQUITY
Year Ended December 31, 1999 and the Period from November 16, 1998 (Date of
Opening) through December 31, 1998
================================================================================
<TABLE>
<CAPTION>
Additional
Common stock paid-in Accumulated Total
---------------------
Shares Amount capital deficit equity
--------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, November 16, 1998 1,243,385 $6,216,925 $ 6,364,734 $ - $12,581,659
Net loss - - - (129,030) (129,030)
--------- ---------- ----------- ----------- -----------
Balance, December 31, 1998 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 248,677 1,243,390 (1,243,390) - -
--------- ---------- ----------- ----------- -----------
Balance, December 31, 1999 1,492,062 $7,460,315 $ 5,121,344 $(1,029,139) $11,552,520
========= ========== =========== =========== ===========
</TABLE>
F-5
<PAGE>
AMERICAN COMMUNITY BANK
STATEMENTS OF CASH FLOWS
Year Ended December 31, 1999 and the Period from November 16, 1998 (Date of
Opening) through December 31, 1998
================================================================================
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (900,109) $ (129,030)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 159,375 12,678
Provision for loan losses 742,000 71,000
Change in assets and liabilities:
Increase in loans held for sale (1,072,261) -
Increase in accrued interest receivable (235,025) (63,975)
Increase in other assets (276,667) (27,551)
Increase (decrease) in accrued expenses and other
liabilities 132,077 (188,471)
------------ -----------
NET CASH USED BY OPERATING ACTIVITIES (1,450,610) (325,349)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans from originations and repayments (54,526,607) (4,779,844)
Purchases of bank premises and equipment (829,151) (59,624)
Purchase of Federal Home Loan Bank stock (212,600) (37,400)
------------ -----------
NET CASH USED BY INVESTING ACTIVITIES (55,568,358) (4,876,868)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits 16,182,141 3,033,818
Net increase in time deposits 31,127,160 4,644,091
Advances from Federal Home Loan Bank 5,000,000 -
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 52,309,301 7,677,909
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (4,709,667) 2,475,692
CASH AND CASH EQUIVALENTS, BEGINNING 14,986,824 12,511,132
------------ -----------
CASH AND CASH EQUIVALENTS, ENDING $ 10,277,157 $14,986,824
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid $ 1,296,448 $ 4,875
============ ===========
Income taxes paid $ - $ 21,500
============ ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITIES
Acquisition of bank premises and equipment through
obligation under capital lease $ 1,700,000 $ -
============ ===========
</TABLE>
F-6
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
--------------------------------------------------------------------------------
NOTE A - ORGANIZATION AND OPERATIONS
American Community Bank was incorporated on November 13, 1998 and began banking
operations on November 16, 1998. American Community Bank is engaged in general
commercial and retail banking in Union 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.
American Community Bank undergoes periodic examinations by those regulatory
authorities.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 American Community 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. American Community Bank held no such securities at
December 31, 1999 or 1998.
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. American Community Bank held no such securities at December
31, 1999 or 1998.
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. In addition to originating loans for resale, mortgage originators
located at each of American Community Bank's branch locations, process
application requests for loans that are ultimately funded by other institutions
in the secondary market. American Community Bank receives fee income for these
transactions, which is presented as income from mortgage operations in the
statements of operations.
F-7
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
--------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 estimated useful
lives of the assets which are 39.5 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.
F-8
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
--------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 American
Community 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. American
Community 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 (Loss)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income,
which established standards for reporting and displaying comprehensive income
and its components (revenues, expenses, gains and losses) in financial
statements. In addition, SFAS No. 130 requires American Community Bank to
classify items of other comprehensive income by their nature in a separate
financial statement or as a component of the statement of operations or the
statement of shareholders' equity and display the accumulated balance of other
comprehensive income separately in the shareholders' equity section of the
balance sheet. American Community Bank adopted SFAS No. 130 upon commencement of
operations in 1998, as required.
Per Share Results
During 1999, American Community Bank paid a 20% stock dividend. Basic and
diluted net loss per common share has 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.
F-9
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
--------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basic earnings per share represents income available to common shareholders
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 American Community Bank relate
solely to outstanding stock options and are determined using the treasury stock
method. American Community Bank's outstanding stock options did not have a
dilutive effect on the computation of earnings per share; therefore, for 1999
and 1998, basic and diluted earnings per share are the same amounts.
Federal Home Loan Bank Stock
As a requirement for membership, American Community Bank invests in stock of the
Federal Home Loan Bank of Atlanta ("FHLB"). This investment is carried at
cost.
Recent Accounting Pronouncements
FASB Statement on Accounting for Derivative Instruments and Hedging Activities.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. In June 1999, this Statement was amended by
SFAS No. 137 to defer the effective date to fiscal years beginning after June
15, 2000. This Statement establishes accounting and reporting standards for
derivative instruments and hedging activities, including certain derivative
instruments embedded in other contracts, and requires that an entity recognize
all derivatives as assets or liabilities in the balance sheet and measure them
at fair value. If certain conditions are met, an entity may elect to designate a
derivative as follows: (a) a hedge of exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of an unrecognized firm commitment, an
available-for-sale security, a foreign currency denominated forecasted
transaction, or a net investment in a foreign operation. This Statement
generally provides for matching the timing of the recognition of the gain or
loss on derivatives designated as hedging instruments with the recognition of
the changes in the fair value of the item being hedged. Depending on the type of
hedge, such recognition will be in either net income or other comprehensive
income. For a derivative not designated as a hedging instrument, changes in fair
value will be recognized in net income in the period of change. Management
anticipates that this Statement will not materially affect American Community
Bank's financial statements.
Reclassifications
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation. The reclassifications had no effect on net
income or shareholders' equity as previously reported.
F-10
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
--------------------------------------------------------------------------------
NOTE C - LOANS
Following is a summary of loans at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------------- --------------------
Amount Percent Amount Percent
----------- -------- ---------- --------
<S> <C> <C> <C> <C>
Real estate - mortgage loans $27,975,255 47.83% $ 394,600 8.38%
Home equity lines of credit 3,865,430 6.61% 223,771 4.75%
Commercial and industrial
loans 22,730,439 38.86% 2,775,578 58.95%
Loans to individuals 4,735,327 8.09% 1,385,895 29.43%
----------- ------ ---------- ------
Subtotal 59,306,451 101.39% 4,779,844 101.51%
Allowance for loan losses 813,000 1.39% 71,000 1.51%
----------- ------ ---------- ------
Total $58,493,451 100.00% $4,708,844 100.00%
=========== ====== ========== ======
</TABLE>
The following table sets forth the contractual maturity of loans at December 31,
1999:
<TABLE>
<CAPTION>
Greater than
One Year One Year More Than
Or Less Through 5 Years 5 years Total
----------- --------------- ---------- -----------
<S> <C> <C> <C> <C>
Real estate - mortgage loans $13,029,667 $14,921,880 $ 23,708 $27,975,255
Home equity lines of credit - - 3,865,430 3,865,430
Commercial and industrial loans 9,774,659 12,713,662 242,118 22,730,439
Loans to individuals 1,075,949 3,512,187 147,191 4,735,327
----------- ----------- ---------- -----------
Total $23,880,275 $31,147,729 $4,278,447 $59,306,451
=========== =========== ========== ===========
</TABLE>
The following table sets forth loans with fixed and variable rates having
contractual maturities greater than one year at December 31, 1999:
Fixed Rate $26,934,030
Variable Rate 8,492,146
-----------
$35,426,176
===========
Loans are primarily made in Union 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 no nonaccrual, restructured or impaired loans at December 31, 1999
and 1998.
American Community Bank has granted loans to certain directors and executive
officers of American Community 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:
F-11
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Loans to directors and officers as a group at January 1, 1999 $ 100,000
Disbursements during year ended December 31, 1999 6,066,436
Amounts collected during year ended December 31, 1999 (323,225)
----------
Loans to directors and officers as a group at December 31, 1999 $5,843,211
==========
</TABLE>
At December 31, 1999, American Community Bank had pre-approved but unused lines
of credit totaling $638,000 to directors, executive officers and their related
interests.
F-12
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
================================================================================
NOTE C - LOANS (Continued)
An analysis of the allowance for loan losses follows:
1999 1998
---------- ---------
Balance at beginning of period $ 71,000 $ -
---------- ---------
Provision charged to operations 742,000 71,000
---------- ---------
Charge-offs - -
Recoveries - -
---------- ---------
Net charge-offs - -
---------- ---------
Balance at end of period $ 813,000 $ 71,000
========== =========
NOTE D - BANK PREMISES AND EQUIPMENT
Following is a summary of Bank premises and equipment at December 31, 1999 and
1998:
1999 1998
---------- ---------
Buildings and leasehold improvements $1,996,792 $ 31,480
Furniture and equipment 1,019,619 455,780
---------- ---------
3,016,411 487,260
Less accumulated depreciation and amortization (172,053) (12,678)
---------- ---------
Total $2,844,358 $ 474,582
========== =========
Depreciation and amortization amounting to $159,375 for the year ended December
31, 1999 and $12,678 for the period ended December 31, 1998 is included in
occupancy and equipment expense.
NOTE E - DEPOSITS
Time deposits in denominations of $100,000 or more were $17,205,572 at December
31, 1999.
At December 31, 1999, the scheduled maturities of certificates of deposit are as
follows:
Less than $100,000
$100,000 or more Total
------------- ------------- -------------
2000 $ 17,921,592 $ 16,870,707 $ 34,792,299
2001 591,100 100,000 691,100
2002 36,553 234,865 271,418
2003 - - -
2004 16,434 - 16,434
------------- ------------- -------------
Total $ 18,565,679 $ 17,205,572 $ 35,771,251
============= ============= =============
F-13
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
================================================================================
NOTE F - ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the FHLB consisted of the following at December 31, 1999:
6.07% due on May 30, 2000 $ 5,000,000
============
Pursuant to collateral agreements with the FHLB, advances are secured by
specific qualifying first mortgage loans with carrying amounts of $8,560,000 at
December 31, 1999.
American Community Bank also has an available line of credit totaling $3.5
million from a correspondent bank at December 31, 1999.
NOTE G - LEASES
Operating Leases
American Community 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:
2000 $ 98,029
2001 99,129
2002 99,129
2003 98,629
2004 90,629
Thereafter 2,577,118
------------
Total $ 3,062,663
============
Capital Lease Obligation
American Community 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, 1999 is $1.7 million
as the capitalized cost of American Community Bank's main office.
F-14
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
================================================================================
NOTE G - LEASES (Continued)
At December 31, 1999, aggregate future minimum lease payments due under this
capital lease obligation are as follows:
2000 $ 138,372
2001 138,372
2002 138,372
2003 138,372
2004 138,372
Thereafter 4,257,197
------------
Total minimum lease payments 4,949,057
Less amount representing interest (3,249,057)
------------
Present value of net minimum lease payments $ 1,700,000
============
Both the operating and capital leases regarding American Community Bank's main
office discussed above are leased from a director. Prior to the main facility
being completed in November 1999, American Community Bank leased land for its
temporary banking facility from that same director. During 1999 and 1998,
respectively, total lease payments of $55,975 and $16,500 were paid to this
director under these leases.
NOTE H - OTHER COMMITMENTS AND CONTRACTS
American Community 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:
2000 $ 150,000
2001 180,000
2002 198,000
2003 210,000
------------
Total $ 738,000
============
The above future payments are based upon the anticipated future growth of
American Community Bank and can therefore vary from the above estimates in any
year.
F-15
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
================================================================================
NOTE I - INCOME TAXES
No income tax provision is included in operating results for 1999 and 1998
because net deferred tax assets of approximately $266,000 and $358,000,
respectively, generated during the periods have been offset by increases to the
valuation allowance established to fully reserve potential future tax benefits
for which realization is not certain. 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.
Significant components of deferred taxes at December 31, 1999 and 1998:
1999 1998
--------- ---------
Allowance for loan losses $ 266,000 $ 28,000
Pre-opening costs and expenses 221,000 330,000
Net operating loss 160,000 -
--------- ---------
Total deferred tax assets 647,000 358,000
Valuation allowance (624,000) (358,000)
--------- ---------
Net deferred tax assets 23,000 -
Deferred tax liabilities resulting
from depreciation differences (23,000) -
--------- ---------
Net recorded deferred tax assets $ - $ -
========= =========
NOTE J - INITIAL CAPITALIZATION
In accordance with North Carolina banking laws, one dollar ($1.00) per share
subscribed was paid into an organizational expense fund to defray the expenses
of organization of American Community Bank. Upon the granting of American
Community Bank's charter, the unexpended balance of the organizational expense
fund was transferred to the permanent surplus of American Community Bank. A
summary of American Community Bank's initial capitalization, including the
transactions in the organizational expense fund, is as follows:
<TABLE>
<S> <C>
Organizational expense fund established at $1.00 per share subscribed $ 1,243,385
Less brokerage fees and commissions 267,246
Less pre-opening costs and expenses, net of interest income 828,330
-------------
Amount contributed to additional paid-in capital upon chartering of
American Community Bank 147,809
Proceeds from stock sale at $10.00 per share subscribed 12,433,850
-------------
Total initial capitalization $ 12,581,659
=============
</TABLE>
F-16
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
================================================================================
NOTE K - OTHER NON-INTEREST EXPENSE
The major components of other non-interest expense for the year ended December
31, 1999 and the period ended December 31, 1998 are as follows:
1999 1998
---------- ---------
Postage, printing and office supplies $ 165,280 $ 21,330
Advertising and promotion 169,641 13,138
Travel, meals, dues and subscriptions 132,568 5,841
Telephone 37,585 4,441
Other 128,806 4,059
Data processing and technology 110,791 2,892
Professional fees and contracted services 138,986 3,368
---------- ---------
Total $ 883,657 $ 55,069
========== =========
NOTE L - REGULATORY MATTERS
American Community 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 American Community Bank.
American Community 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 American Community Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
American Community Bank must meet specific capital guidelines that involve
quantitative measures of American Community Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. American Community Bank's capital amounts and classifications are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
F-17
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
------------------------------------------------------------------------------
NOTE L - REGULATORY MATTERS (Continued)
Quantitative measures established by regulation to ensure capital adequacy
require American Community 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, 1999 and 1998,
American Community Bank exceeds all capital adequacy requirements to which it is
subject, as set forth below:
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
To be well
For capital capitalized under prompt
Actual adequacy purposes corrective action provisions
----------------- ------------------- ----------------------------
As of December 31, 1998: Amount Ratio Amount Ratio Amount Ratio
--------- ------- ----------- ----- ---------------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk-
Weighted Assets) $12,524 151.69% *$ 661 *8.0% *$ 826 *10.0%
Tier I Capital (to Risk-
Weighted Assets) 12,453 150.83% * 330 *4.0% * 495 * 6.0%
Tier I Capital (to
Average Assets) 12,453 61.18% * 814 *4.0% * 1,018 * 5.0%
</TABLE>
* means greater than or equal to
NOTE M - OFF-BALANCE SHEET RISK
American Community 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 American Community Bank has in particular classes of
financial instruments. American Community Bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance sheet
instruments.
F-18
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
-------------------------------------------------------------------------------
NOTE M - OFF-BALANCE SHEET RISK (Continued)
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. American Community Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by American Community 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.
A summary of the contract amounts of American Community Bank's exposure to off-
balance sheet risk as of December 31, 1999 is as follows:
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $3,591,000
Undisbursed lines of credit 9,376,000
Undisbursed portion of construction loans 6,647,000
NOTE N - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instruments 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
American Community Bank's entire holdings of a particular financial instrument.
Because no active market readily exists for a portion of American Community
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.
Loans Held for Sale
Fair values of loans held for sale are based on commitments on hand from
investors or prevailing market prices.
F-19
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
-------------------------------------------------------------------------------
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 American Community Bank's
financial instruments, none of which are held for trading purposes, are as
follows at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 1,809,053 $ 1,809,053 $ 302,999 $ 302,999
Interest-earning deposits with
banks 8,468,104 8,468,104 14,683,825 14,683,825
Loans 58,493,451 58,238,000 4,708,844 4,708,844
Loans held for sale 1,072,261 1,072,261 - -
Federal Home Loan Bank stock 250,000 250,000 37,400 37,400
Financial liabilities:
Deposits 54,987,210 52,854,000 7,677,909 7,677,909
Advances from Federal Home
Loan Bank 5,000,000 5,010,000 - -
</TABLE>
F-20
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
-------------------------------------------------------------------------------
NOTE O - EMPLOYEE AND DIRECTOR BENEFIT PLANS
401(k) Retirement Plan
American Community Bank has adopted a 401(k) retirement plan that covers all
eligible employees. American Community Bank matches contributions of 3.0% of
each employee's salary. Contributions are funded when accrued. Expenses totaled
approximately $21,776 for the year ended December 31, 1999 and $-0- during the
period ended December 31, 1998.
Stock Option Plans
During 1999 American Community 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 American Community Bank's common stock for an aggregate number
of common shares reserved for options of 298,412. The exercise prices under
these plans range from $9.17 to $10.69. 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. The weighted average remaining
contractual life of all outstanding options at December 31, 1999 was nine years
and three months. All unexercised options expire ten years after the date of
grant. A summary of American Community Bank's option plans as of and for the
year ended December 31, 1999, after retroactively adjusting for the stock
dividend paid in 1999, is as follows:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
----------------------------- ---------------------
Shares Weighted Weighted
available average average
for future Number exercise Number exercise
grants outstanding price outstanding price
----------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
At adoption 298,412 - $ - - $ -
Options granted (298,412) 298,412 9.19 149,206 9.17
Options exercised - - - - -
Options forfeited - - - - -
---------- ----------- --------- ----------- --------
At December 31, 1999 - 298,412 $ 9.19 149,206 $ 9.17
========== =========== ========= =========== ========
</TABLE>
No compensation cost is recognized by American Community Bank when stock options
are granted because the exercise price equals the market price of the underlying
common stock on the date of grant. If American Community Bank had used the fair
value-based method of accounting for stock options for 1999, its pro forma net
loss and net loss per common share would have been $1.3 million and $.87,
respectively. 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.
F-21
<PAGE>
AMERICAN COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
-------------------------------------------------------------------------------
NOTE O - EMPLOYEE AND DIRECTOR BENEFIT PLANS (Continued)
Employment Agreement
American Community 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 contracts and cannot be
terminated by the Board of Directors, except for cause, without prejudicing the
officer's rights to receive certain vested rights, including compensation. In
the event of a change in control of American Community Bank and in certain other
events, as defined in the agreement, American Community Bank or any successor to
American Community Bank will be bound to the terms of the contract.
F-22
<PAGE>
AMERICAN COMMUNITY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, 2000 and 1999
================================================================================
<TABLE>
<CAPTION>
ASSETS 2000 1999
------------ -----------
<S> <C> <C>
Cash and due from banks $ 1,419,185 $ 561,931
Interest-earning deposits with banks 12,139,059 6,536,420
Investment securities available for sale, at fair value 149,391 -
Loans 88,275,821 35,612,002
Allowance for loan losses (1,187,000) (520,000)
------------ -----------
NET LOANS 87,088,821 35,092,002
Accrued interest receivable 522,498 160,712
Bank premises and equipment 3,332,152 741,278
Federal Home Loan Bank stock, at cost 250,000 61,100
Other assets 150,079 169,492
------------ -----------
TOTAL ASSETS $105,051,185 $43,322,935
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand $ 9,198,473 $ 3,743,034
Savings 1,843,967 553,753
Money market and NOW 15,082,768 5,279,714
Time 57,138,945 21,768,275
------------ -----------
TOTAL DEPOSITS 83,264,153 31,344,776
Federal funds purchased 3,500,000 -
Advances from the Federal Home Loan Bank 5,000,000 -
Capital lease obligation 1,700,834 -
Accrued expenses and other liabilities 367,064 177,619
------------ -----------
TOTAL LIABILITIES 93,832,051 31,522,395
------------ -----------
Shareholders' Equity
Preferred stock, 2000, no par value, 1,000,000 shares
authorized; none issued; 1999, none authorized
Common stock, 2000, $1 par value, 9,000,000 shares
authorized, 1,492,062 shares issued and outstanding;
1999, $5 par value, 10,000,000 shares authorized
1,243,385 shares issued and outstanding 1,492,062 6,216,925
Additional paid-in capital 11,089,597 6,364,734
Accumulated deficit (1,361,916) (781,119)
Accumulated other comprehensive loss (609) -
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 11,219,134 11,800,540
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $105,051,185 $43,322,935
============ ===========
</TABLE>
F-23
<PAGE>
AMERICAN COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended June 30, 2000 and 1999
================================================================================
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
INTEREST INCOME
Loans $3,423,039 $1,034,150
Investments 11,966 1,112
Interest-earning deposits with banks 270,370 241,538
---------- ----------
TOTAL INTEREST INCOME 3,705,375 1,276,800
---------- ----------
INTEREST EXPENSE
Money market, NOW and savings deposits 274,154 67,098
Time deposits 1,338,073 374,139
Borrowings 228,885 -
---------- ----------
TOTAL INTEREST EXPENSE 1,841,112 441,237
---------- ----------
NET INTEREST INCOME 1,864,263 835,563
PROVISION FOR LOAN LOSSES 401,129 449,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,463,134 386,563
---------- ----------
NON-INTEREST INCOME
Service charges on deposit accounts 214,415 38,354
Mortgage operations 106,228 195,084
Other 43,038 -
---------- ----------
TOTAL NON-INTEREST INCOME 363,681 233,438
---------- ----------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,020,359 643,284
Occupancy and equipment 318,159 190,496
Other 821,074 438,310
---------- ----------
TOTAL NON-INTEREST EXPENSE 2,159,592 1,272,090
---------- ----------
LOSS BEFORE INCOME TAXES (332,777) (652,089)
INCOME TAXES - -
---------- ----------
NET LOSS $ (332,777) (652,089)
========== ==========
BASIC AND DILUTED NET
LOSS PER COMMON SHARE $(0.22) $(0.44)
========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, BASIC AND DILUTED 1,492,062 1,492,062
========== ==========
</TABLE>
F-24
<PAGE>
AMERICAN COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Six Months Ended June 30, 2000 and 1999
================================================================================
<TABLE>
<CAPTION>
Accumulated
Additional other
Common stock paid-in Accumulated comprehensive Total
-----------------------
Shares Amount capital deficit loss equity
--------- ------------ ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 1,243,385 $ 6,216,925 $ 6,364,734 $ (129,030) $ - $12,452,629
Net loss - - - (652,089) - (652,089)
--------- ----------- ----------- ----------- ------------- -----------
Balance at June 30, 1999 1,243,385 $ 6,216,925 $ 6,364,734 $ (781,119) $ - $11,800,540
========= =========== =========== =========== ============= ===========
Balance at January 1, 2000 1,492,062 $ 7,460,310 $ 5,121,349 $(1,029,139) $ - $11,552,520
-----------
Comprehensive loss
Net loss - - - (332,777) - (332,777)
Unrealized holding losses
on available-for-sale
securities - - - - (609) (609)
----------- ------------- -----------
Total comprehensive loss (332,777) (609) (333,386)
----------- ------------- -----------
Formation of American
Community Bancshares,
Inc. (Note A) - (5,968,248) 5,968,248 - - -
--------- ----------- ----------- ----------- ------------- -----------
Balance at June 30, 2000 1,492,062 $ 1,492,062 $11,089,597 $(1,361,916) $ (609) $11,219,134
========= =========== =========== =========== ============= ===========
</TABLE>
F-25
<PAGE>
AMERICAN COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 2000 and 1999
================================================================================
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (332,777) $ (652,089)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation and amortization 134,660 59,433
Provision for losses on loans 401,129 449,000
Changes in assets and liabilities:
Increase in accrued interest receivable (223,498) (96,737)
Decrease in loans held for sale 1,072,261 -
(Increase) decrease in other assets 207,801 (88,279)
Increase (decrease) in accrued expenses and
other liabilities 13,521 (44,681)
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,273,097 (373,353)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Federal Home Loan Bank stock - (23,700)
Purchase of investment securities available for sale (150,000) -
Net increase in loans (28,996,499) (30,832,158)
Purchase of bank premises and equipment (622,454) (326,129)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (29,768,953) (31,181,987)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in federal funds purchased 3,500,000 -
Net increase in demand deposits 6,909,249 6,542,683
Net increase in time deposits 21,367,694 17,124,184
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 31,776,943 23,666,867
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,281,087 (7,888,473)
CASH AND CASH EQUIVALENTS, BEGINNING 10,277,157 14,986,824
------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 13,558,244 $ 7,098,351
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid $ 1,764,498 $ 378,382
============ ============
</TABLE>
F-26
<PAGE>
AMERICAN COMMUNITY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2000 and 1999
================================================================================
NOTE A - ORGANIZATION AND OPERATIONS
In April 2000, American Community Bancshares, Inc. 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 1,492,062
shares of American Community Bank's $5 par value common stock. American
Community Bancshares currently has no operations and conducts no business on its
own other than owning American Community Bank.
NOTE B - BASIS OF PRESENTATION
All adjustments considered necessary for a fair presentation of the results for
interim periods presented have been included (such adjustments are normal and
recurring in nature). Operating results for the six months ended June 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. The accompanying unaudited interim consolidated
financial statements should be read in conjunction with the audited financial
statements included elsewhere herein.
F-27
<PAGE>
For Company Use (Do Not Fill In) Paid with Subscription $ __________
No. of Shares Requested ___________ Refund (if any) $ __________
No. of Shares Accepted ___________ Balance Due $ __________
SUBSCRIPTION OFFER
American Community Bancshares, Inc.
Monroe, North Carolina
The undersigned, having received and reviewed the Prospectus dated ______, 2000,
of American Community Bancshares, Inc. (the "Company"), a bank holding company
organized under the laws of the State of North Carolina, and in sole reliance on
the information contained therein, hereby subscribes for
_______________________________ shares of the Common Stock (par value $1.00 per
share) of the Company at a price of $____ per share. The minimum subscription
is 100 shares and the maximum is 5% of the aggregate shares subscribed in the
Offering, unless such maximum number is waived by the Board of Directors.
The subscription is paid herewith, in United States dollars either by check,
draft or money order drawn to the order of "First Union National Bank/American
Community Bancshares, Inc. - Escrow Account."
Mail subscriptions and payment to:
American Community Bancshares, Inc.
Attention: Escrow Agent
Post Office Box 5035
Monroe, North Carolina 28111-5035
In connection with this subscription, the undersigned acknowledges and agrees
that:
1. This Subscription Offer may not be canceled, terminated or revoked by
the undersigned before December 31, 2000, unless extended by the Company until
February 28, 2001.
2. The Company reserves the right to accept this Subscription Offer for a
lesser number of shares than the number noted above, or to reject it altogether,
for any reason or no reason, whether or not the subscriptions of other
subscribers are treated differently. Subscriptions may be accepted at any time.
The Company also reserves the right to cancel accepted Subscription Offers for
any reason or no reason until the date the shares purchased through this
Offering are issued. Acceptances must be in writing and are legally effective
and binding when mailed to the address shown on this Subscription Offer, or in
the case of a subscriber whose address has changed and who has provided the new
address to the Company in writing, to the new address. If the subscription is
accepted in part, the undersigned agrees to purchase the accepted number of
shares subject to the terms of this Subscription Offer. A refund, with no
interest or income thereon, will be made of all amounts received for
subscriptions not accepted. This subscription is nonassignable and
nontransferable, except with the written consent of the Company.
3. All funds paid under this Subscription Offer will be held in the Escrow
Account as provided in the Prospectus with First Union National Bank, Charlotte,
North Carolina ("First Union") and will be forwarded directly to First Union by
12:00 noon of the next business day after receipt. If by December 31, 2000
(unless extended to February 28, 2001), the Company has not received
subscriptions for at least 500,000 shares of its Common Stock, a refund of the
funds paid under this Subscription Offer, with interest, will be returned to the
subscribers. (See " METHOD OF SUBSCRIPTION/ PLAN OF DISTRIBUTION" in the
Prospectus.)
4. All terms of the Prospectus of the Company dated _________, 2000 are
incorporated herein by reference. The undersigned acknowledges he/she has
received a copy of the Prospectus.
5. The undersigned will not purchase or otherwise acquire, directly or
indirectly, a beneficial interest in more than 5% of the aggregate shares to be
outstanding after the Offering unless such limit is waived by the Board of
Directors.
6. SUBSTITUTE FORM W-9: Under penalties of perjury, I certify that (1)
the Social Security Number or Taxpayer Identification Number given below is
correct; and (2) I am not subject to backup withholding. (INSTRUCTION:
<PAGE>
YOU MUST CROSS OUT ITEM (2) DIRECTLY ABOVE IF YOU HAVE BEEN NOTIFIED BY THE
INTERNAL REVENUE SERVICE THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING BECAUSE OF
UNDER-REPORTING INTEREST OR DIVIDENDS ON YOUR TAX RETURN.)
7. By his/her initials below, the subscriber acknowledges and agrees
that:
(1) THESE SECURITIES ARE NOT DEPOSITS AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER AGENCY OR PERSON AND ARE
SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL; (2) THESE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, THE FDIC, THE NORTH CAROLINA BANKING COMMISSION, OR ANY OTHER
REGULATORY BODY, NOR HAS ANY REGULATORY BODY PASSED ON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS, AND THAT ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL; AND
(3) SUBSCRIBER HAS RECEIVED AND READ A COPY OF THE PROSPECTUS BEFORE SIGNING
THIS SUBSCRIPTION OFFER.
If this Subscription Offer is being processed through a registered broker-dealer
that by execution hereof such broker-dealer is authorized to transfer sufficient
funds as indicated above from my account with such broker-dealer to First Union
as Escrow Agent.
Instruction: Each subscriber must place initials on the line below to
indicate that he/she has read the above paragraphs.
___________ (Subscriber's Initials) ____________ (Subscriber's Initials)
Subscriber has signed this Subscription Offer on the date indicated beside
his/her signature below, and hereby requests that certificates evidencing shares
of Common Stock purchased pursuant to this Subscription Offer be registered in
the name and form of ownership described below.
_______________________________________(SEAL) ________________________________
(Signature) (Date)
_______________________________________(SEAL) ________________________________
(Additional Signature, if required) (Date)
Complete all blanks on this Subscription Offer Form and make check or money
order in the amount of $_____ for each share subscribed payable to "First Union
National Bank/American Community Bancshares, Inc. - Escrow Account" and mail
subscription and check to:
American Community Bancshares, Inc.
Attn: Escrow Agent
Post Office Box 5035
Monroe, North Carolina 28111-5035
Any questions concerning subscriptions or the Offering may be directed to the
above address or to (704) 225-8444.
<PAGE>
STOCK REGISTRATION INFORMATION
(PLEASE PRINT)
________________________________________________________________________________
Name(s) in which stock is to be registered
________________________________________________________________________________
Address (Street or Post Office Box)
________________________________________________________________________________
City, State, and Zip Code
(___)_____________________________(___)_________________________________________
Daytime Phone Evening PhoneTaxpayer ID (Social Security Number)
Legal form of ownership:
( ) Individual ( ) Joint Tenants with Right of Survivorship
( ) Tenants in Common ( ) Uniform Transfers to Minors
( ) Other _________________
<PAGE>
[OUTSIDE BACK COVER]
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THOSE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE THAT
WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY
SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS OF THE COMPANY
HAVE NOT CHANGED SINCE THE DATE HEREOF.
TABLE OF CONTENTS
Prospectus Summary
Risk Factors
Use of Proceeds
Market for common stock and Related
Shareholder matters
Dividend Policy
Capitalization
Selected Consolidated Financial and Other Data
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Business
Management
Certain Relationships and Related Transactions
Supervision and Regulation
Description of Capital Stock
Method of Subscription/Plan of Distribution
Legal Opinions
Experts
Where You Can Get More Information
Index to Financial Statements
1,000,000 Shares (Maximum)
500,000 Shares (Minimum)
[AMERICAN COMMUNITY
BANCSHARES LOGO]
AMERICAN COMMUNITY
BANCSHARES, INC.
COMMON STOCK
PROSPECTUS
_____________, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 55-8-50 through 55-8-58 of the North Carolina General Statutes permit a
corporation to indemnify its directors, officers, employees or agents under
either or both a statutory or nonstatutory scheme of indemnification. Under the
statutory scheme, a corporation may, with certain exceptions, indemnify a
director, officer, employee or agent of the corporation who was, is, or is
threatened to be made, a party to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative, or
investigative, because of the fact that such person was a director, officer,
agent or employee of the corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. This indemnity may include the obligation to pay any
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan) and reasonable expenses incurred in
connection with a proceeding (including counsel fees), but no such
indemnification may be granted unless such director, officer, agent or employee
(i) conducted himself in good faith, (ii) reasonably believed (a) that any
action taken in his official capacity with the corporation was in the best
interest of the corporation or (b) that in all other cases his conduct at least
was not opposed to the corporation's best interest, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. Whether a director has met the requisite standard of conduct for the
type of indemnification set forth above is determined by the board of directors,
a committee of directors, special legal counsel or the shareholders in
accordance with Section 55-8-55. A corporation may not indemnify a director
under the statutory scheme in connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the corporation or
in connection with a proceeding in which a director was adjudged liable on the
basis of having received an improper personal benefit.
In addition to, and separate and apart from the indemnification described above
under the statutory scheme, Section 55-8-57 of the North Carolina General
Statutes permits a corporation to indemnify or agree to indemnify any of its
directors, officers, employees or agents against liability and expenses
(including attorney's fees) in any proceeding (including proceedings brought by
or on behalf of the corporation) arising out of their status as such or their
activities in such capacities, except for any liabilities or expenses incurred
on account of activities that were, at the time taken, known or believed by the
person to be clearly in conflict with the best interests of the corporation. The
Bylaws of American Community Bancshares provide for indemnification to the
fullest extent permitted under North Carolina law for persons who serve as
directors or officers of American Community Bancshares, or at the request of
American Community Bancshares serve as an officer, director, agent, partner,
trustee, administrator or employee for any other foreign or domestic entity,
except to the extent such activities were at the time taken known or believed by
the potential indemnities to be clearly in conflict with the best interests of
American Community Bancshares. Accordingly, American Community Bancshares may
indemnify its directors, officers or employees in accordance with either the
statutory or non-
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<PAGE>
statutory standards.
Sections 55-8-52 and 55-8-56 of the North Carolina General Statutes require a
corporation, unless its articles of incorporation provide otherwise, to
indemnify a director or officer who has been wholly successful, on the merits or
otherwise, in the defense of any proceeding to which such director or officer
was a party. Unless prohibited by the articles of incorporation, a director or
officer also may make application and obtain court-ordered indemnification if
the court determines that such director or officer is fairly and reasonably
entitled to such indemnification as provided in Sections 55-8-54 and 55-8-56.
[Finally, Section 55-8-57 of the North Carolina General Statutes provides that a
corporation may purchase and maintain insurance on behalf of an individual who
is or was a director, officer, employee or agent of the corporation against
certain liabilities incurred by such persons, whether or not the corporation is
otherwise authorized by the NCBCA to indemnify such party. American Community
Bancshares has purchased a standard directors' and officers liability policy
which will, subject to certain limitations, indemnify American Community
Bancshares and its officers and directors for damages they become legally
obligated to pay as a result of any negligent act, error, or omission committed
by directors or officers while acting in their capacity as such. American
Community Bancshares may also purchase such a policy.]
As permitted by North Carolina law, Article 5 of American Community Bancshares'
Articles of Incorporation limits the personal liability of directors for
monetary damages for breaches of duty as a director arising out of any legal
action whether by or in the right of American Community Bancshares or otherwise,
provided that such limitation will not apply to (i) acts or omissions that the
director at the time of such breach knew or believed were clearly in conflict
with the best interests of American Community Bancshares, (ii) any liability
under Section 55-8-33 of the General Statutes of North Carolina, or (iii) any
transaction from which the director derived an improper personal benefit (which
does not include a director's reasonable compensation or other reasonable
incidental benefit for or on account of his service as a director, officer,
employee, independent contractor, attorney, or consultant of American Community
Bancshares).
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration Fee $ 2,244 *
Sales Agent Commission 300,000**
NASD Fee 1,162 *
Listing Fee 10,000 *
Printing and Engraving Expenses 20,000 *
Legal Fees and Expenses 45,000 *
Accounting Fees and Expenses 15,000 *
Blue Sky Fees and Expenses 5,000 *
Miscellaneous 2,500 *
----------
Total $400,906
</TABLE>
* Estimated
** Estimated sale of 500,000 shares
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<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
American Community Bancshares has sold no unregistered securities since it was
chartered on February 16, 2000.
ITEM 27. INDEX TO EXHIBITS.
The following exhibits are filed with this Registration Statement:
Exhibit
Number Description
------ ------------
1.1 Sales Agency Agreement (filed herewith)
1.2 Selected Dealer Agreement (filed herewith)
1.3 Escrow Agreement (filed herewith)
3.1 Articles of Incorporation of American Community Bancshares, Inc. *
3.2 Bylaws of American Community Bancshares, Inc. *
4 Specimen common stock Certificate *
5 Opinion of Gaeta & Glesener, P.A. regarding the legality of the
securities being registered (filed herewith)
10.1 1999 Incentive Stock Option Plan *
10.2 1999 Nonstatutory Stock Option Plan *
10.3 Employment Agreement of Randy P. Helton dated April 15, 1998 *
10.4 401(k) Savings Plan of American Community Bank *
21 Subsidiaries of American Community Bancshares, Inc. (previously
filed)
23.1 Consent of Dixon Odom PLLC (filed herewith)
23.2 Consent of Gaeta & Glesener, P.A. (contained in Exhibit 5 hereto)
24 Power of Attorney (previously filed)
27 Financial Data Schedule (previously filed)
* Incorporated by reference to the Registration Statement of American
Community Bancshares, Inc. on Form S-4, Registration No. 333-31148 as filed
with the Securities and Exchange Commission on February 25, 2000.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Monroe, State of North
Carolina, on September 15, 2000.
AMERICAN COMMUNITY BANCSHARES, INC.
By: /s/ Randy P. Helton
-------------------
Randy P. Helton
President and Chief Executive Officer
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<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below on September 15, 2000 by the following persons
in the capacities indicated.
/s/ Randy P. Helton
-------------------
Randy P. Helton
President and Chief Executive Officer
/s/ Dan R. Ellis, Jr.
---------------------
Dan R. Ellis, Jr.
Chief Financial Officer and Secretary
/s/ Thomas J. Hall*
-------------------
Thomas J. Hall
Director
/s/ Larry S. Helms*
-------------------
Larry S. Helms
Director
/s/ Kenneth W. Long*
--------------------
Kenneth W. Long
Director
/s/ L. Steven Phillips*
-----------------------
L. Steven Phillips
Director
/s/ David D. Whitley*
---------------------
David D. Whitley
Director
/s/ Gregory N. Wylie*
---------------------
Gregory N. Wylie
Director
* /s/ Randy P. Helton
-------------------
By Randy P. Helton
Attorney-in-Fact
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