UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission File No. 000-31877
CAROLINA BANK HOLDINGS, INC.
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(Exact name of small business issuer)
North Carolina 56-2215437
---------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2604 Lawndale Drive, Greensboro, NC 27408
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(Address of principal executive offices)
Issuer's telephone number including area code: (336)-288-1898
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Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $1.00 Par Value
Indicate by check |X| whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: There were 853,208
shares of the Issuer's common stock, $1.00 par value outstanding as of September
30, 2000.
<PAGE>
CAROLINA BANK HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................................................... 2
Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 ................. 2
Consolidated Statements of Operations for the three and
nine months ended September 30, 2000 and 1999........................................... 3
Consolidated Statements of Comprehensive Income for the
nine months ended September 30, 2000 and 1999........................................... 4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999............................................................. 5
Notes to Consolidated Financial Statements.................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................... 7
PART II. OTHER INFORMATION................................................................................ 11
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Carolina Bank Holdings, Inc. and Subsidiary
Consolidated Balance Sheets (unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- -----------
<S> <C> <C>
Assets
------
Cash and due from banks...................................................... $ 5,457,360 $ 5,595,490
Federal funds sold........................................................... 6,340,000 3,110,000
Investment securities available-for-sale, at fair value.................... 13,618,210 5,572,172
Investment securities held-to-maturity, at amortized cost.................... 954,806 994,398
Loans, net................................................................... 75,588,754 64,164,504
Less allowance for loan losses............................................... (1,083,098) (905,200)
------------ ----------
Net loans............................................................... 74,505,656 63,259,304
Premises and equipment, net.................................................. 3,906,380 1,592,820
Other assets................................................................. 1,020,434 647,077
---------- ----------
Total assets.............................................................. $ 105,802,846 $ 80,771,261
============== ============
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Noninterest bearing demand.............................................. 9,604,160 6,429,570
NOW, money market and savings........................................... 27,049,043 22,019,782
Time.................................................................... 54,185,622 38,741,871
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Total deposits...................................................... 90,838,825 67,191,223
Federal Home Loan Bank advances.............................................. 3,000,000 3,000,000
Retail repurchase agreements................................................. 2,236,794 1,448,953
Other liabilities and accrued expenses...................................... 763,053 658,000
---------- ----------
Total liabilities......................................................... 96,838,672 72,298,176
Common stock $1.00 par value; authorized 20,000,000 shares; issued and
outstanding 853,208 at 9/30/00 and 850,337 at 12/31/99................. 853,208 850,337
Additional paid-in capital................................................... 8,145,128 7,443,089
Retained earnings............................................................ 32,636 267,664
Accumulated other comprehensive income(loss)................................. (67,098) (88,005)
----------- -----------
Total stockholders' equity................................................ 8,963,874 8,473,085
---------- ----------
Total liabilities and stockholders' equity................................... $ 105,802,546 $ 80,771,261
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
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Carolina Bank Holdings, Inc. and Subsidiary
Consolidated Statements of Operations (unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
----- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
---------------
Loans....................................................... $ 1,734,648 $ 1,231,837 $ 4,806,146 $ 3,135,727
Investment securities, taxable.............................. 219,531 103,721 447,494 312,389
Federal funds sold.......................................... 91,283 78,252 277,468 208,042
Other .................................................... 48,623 237 142,858 597
-------- ---------- ---------- -----------
Total interest income..................................... 2,094,085 1,414,047 5,673,966 3,656,755
Interest Expense
----------------
NOW, money market and savings............................... 314,020 325,957 841,420 862,454
Time deposits............................................... 817,200 335,918 2,065,814 837,051
Other borrowed funds........................................ 52,314 18,767 169,496 44,762
---------- --------- ---------- -----------
Total interest expense.................................... 1,183,534 680,642 3,076,730 1,744,267
--------- ------------ ------------- -------------
Net interest income......................................... 910,551 733,405 2,597,236 1,912,488
Provision for loan losses................................... 83,500 106,500 190,435 286,600
-------- --------- ---------- -----------
Net interest income after provision for loan losses......... 827,051 626,905 2,406,801 1,625,888
Noninterest Income
------------------
Service charges, fees and commissions....................... 56,005 41,710 163,221 116,911
Mortgage fees............................................... 17,444 14,289 44,894 36,813
-------- --------- ---------- -----------
Total noninterest income.................................. 73,449 55,999 208,115 153,724
Noninterest Expense
-------------------
Compensation and benefits................................... 371,471 245,873 1,008,220 694,205
Occupancy and equipment expense............................. 108,905 89,495 277,002 244,810
Professional fees........................................... 90,516 69,232 247,524 186,805
Advertising and business promotion.......................... 89,822 55,326 190,674 135,453
Stationary, printing and office expenses.................... 46,260 20,466 93,536 57,752
Other expenses.............................................. 26,162 14,488 61,162 54,024
-------- --------- ---------- -----------
Total noninterest expense................................. 733,136 494,880 1,878,118 1,373,049
Income before income taxes.................................. 167,364 188,024 736,798 406,563
Provision for income taxes.................................. 81,913 - 299,931 -
-------- --------- ---------- -----------
Net income.................................................. $ 85,451 $ 188,024 $ 436,867 $ 406,563
========== ========== ========== ===========
Basic earnings per share.................................... $ 0.09 $ 0.20 $ 0.47 $ 0.46
Diluted earnings per share.................................. $ 0.09 $ 0.20 $ 0.47 $ 0.46
</TABLE>
3
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Carolina Bank Holdings, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
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2000 1999
----------- -----------
<S> <C> <C>
Net income........................................................................ $ 436,867 $ 406,563
Other comprehensive income, net of tax:
Unrealized holding gains/(losses) arising during period...................... 20,907 (102,270)
---------- -----------
Comprehensive income.............................................................. $ 457,774 $ 304,293
---------- ----------
</TABLE>
4
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Carolina Bank Holdings, Inc. and Subsidiary
Consolidated Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................ $ 436,867 $ 406,563
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses..................................................... 190,435 287,900
Depreciation.................................................................. 117,948 107,846
(Increase) in other assets.................................................... (373,357) (164,819)
Increase (decrease) in other liabilities...................................... (105,054) 118,831
Other operating activities.................................................... 199,704 58,962
---------- ----------
Net cash provided by (used for) operating activities........................ 466,543 815,283
---------- ----------
Cash flows from investing activities:
Net (increase) in loans receivable................................................ (11,436,787) (19,208,872)
Maturities of investment securities available for sale............................ -- 3,500,000
Maturities of investment securities held to maturity.............................. -- --
Purchases of investment securities available for sale............................. (8,118,808) (3,036,200)
Mortgage-backed securities repayments............................................. 143,972 198,607
Purchases of premises and equipment............................................... (2,431,508) (986,306)
------------ -----------
Net cash provided by (used for) investing activities (21,843,131) (19,532,771)
------------- -------------
Cash flows from financing activities:
Net increase in deposits.......................................................... 23,647,602 11,925,073
Net increase in retail repurchase agreements...................................... 787,841 962,207
Proceeds from exercised stock options and warrants................................ 33,015 2,013,447
---------- ----------
Net cash provided by financing activities................................... 24,468,458 14,900,727
----------- -----------
Net increase (decrease) in cash and cash equivalents................................ 3,091,870 (3,816,761)
Cash and cash equivalents at beginning of period.................................... 8,705,490 10,466,642
---------- -----------
Cash and cash equivalents at end of period $ 11,797,360 $ 6,649,881
============ ===========
</TABLE>
5
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Carolina Bank Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2000
Note A - Reorganization
Effective November 1, 2000, Carolina Bank (the "Bank"), with the
consent of its shareholders, reorganized and became a wholly-owned subsidiary of
Carolina Bank Holdings, Inc. (the " Company"). Under the holding company
reorganization agreement, all of the outstanding shares of the Bank's $5.00 par
value common stock was converted into the right to receive $1.00 par value
shares of the Company's common stock in a one-for-one exchange. This transaction
has been accounted for in a manner similar to a pooling-of-interests. All
periods presented in these interim consolidated financial statements have been
restated for the effects of this transaction.
As a result of this reorganization, the Company files periodic reports
with the Securities and Exchange Commission and is also subject to regulation by
the Federal Reserve Board.
Note B - Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, the Bank. All significant intercompany
transactions and balances are eliminated.
Note C - Basis of Presentation
In management's opinion, the consolidated financial information, which
is unaudited, reflects all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the financial information as
of and for the three and nine month periods ended September 30, 2000 and 1999,
in conformity with generally accepted accounting principles. Operating results
for the three and nine month periods ended September 30, 2000, are not
necessarily indicative of the results that may be expected for future periods.
The organization and business of the Bank, accounting policies
followed, and other information are contained in the notes to the financial
statements of the Bank as of and for the years ended December 31, 1999 and 1998,
filed with the Federal Deposit Insurance Corporation as part of the Bank's
annual report on Form 10-KSB. These financial statements should be read in
conjunction with the annual financial statements.
Note D - Stock Dividend
On September 20, 2000, the Board of Directors declared a 10% stock dividend
payable October 1, 2000 to shareholders of record on September 30, 2000. The
dividend was charged to retained earnings in the amount of $671,895 which was
based on the price of $8.875 per share of common stock which represented the
average trade price on the date closest and prior to the declaration date. The
basic and weighted average number of shares outstanding and net income per share
information for all periods presented have been restated to reflect the effects
of the stock dividend.
6
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
On November 1, 2000, Carolina Bank Holdings, Inc. (the " Company")
became the parent company of Carolina Bank (the "Bank"). Under a plan of
reorganization approved by the shareholders of the Bank, each share of the
Bank's common stock was exchanged for the right to receive one share on the
Company's common stock in a one-for-one exchange. As a result of this
reorganization, the Bank became a wholly-owned subsidiary of the Company. The
Company files periodic reports with the Securities and Exchange Commission and
is regulated by the Federal Reserve Board. The Bank is the only subsidiary of
the Company.
The Bank became a North Carolina, state chartered commercial bank on October 1,
1997. It is regulated by the Federal Deposit Insurance Corporation and the North
Carolina Commissioner of Banks. Prior to October 1, 1997, the Bank was a state
chartered savings bank operating under the name Carolina Savings Bank, Inc. SSB.
It had commenced operations as a savings bank November 25, 1996. The Company and
the Bank hereinafter are collectively referred to as the Company.
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, and similar matters. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements provided that the Company notes that a variety of
factors could cause the Company's actual results to differ materially from the
anticipated results expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance, and results
of the Company's business include, but are not limited to, changes in economic
conditions, changes in interest rates, and changes in laws and regulations.
Accordingly, past results and trends should not be used by investors to
anticipate future results or trends. Statements included in this report should
be read in conjunction with the Company's Annual Report on Form 10-KSB and are
incorporated into this discussion by this reference.
Comparison of Financial Condition
Assets. Total assets of the Company increased by $25.0 million, or
33.9%, from $80.8 million as of December 31, 1999, to $105.8 million as of
September 30, 2000. At September 30, 2000, cash and due from banks and Federal
funds sold had increased by $3.1 million to $11.8 million. Also during the
period, investment and mortgage-backed securities increased by $8.0 million to
$14.6 million. Management attempts to keep sufficient liquidity to meet its loan
demand and other obligations. In addition during the period, net loans increased
by $11.2 million or 17.8% and premises and equipment increased $2.3 million. The
Company, which makes both commercial and retail loans, continues to experience
steady loan demand in its primary lending market, Guilford County, North
Carolina. Management plans to continue to grow the loan portfolio in a safe and
sound manner. The increase in premises and equipment is the result of the
completion of the Company's new main office which also operates as second branch
location. The facility opened in July 2000.
Liabilities. Total liabilities increased by $24.5 million, or 33.9%,
from $72.3 million as of December 31, 1999, to $96.8 million as of September 30,
2000. The primary reason for the change was a $23.6 million increase in deposits
to $90.8 million. Management plans to continue in its efforts to gain deposit
market share through new product development, aggressive marketing, and
competitive pricing. As expected, the opening of the new main office had a
positive effect on deposit gathering activities as total deposits increased $9.4
million from June 30, 2000.
7
<PAGE>
Equity. Total equity increased by approximately $500,000 from $8.5
million as of December 31, 1999, to $9.0 million as of September 30, 2000. The
majority of the increase was due to the increase in retained earnings.
Accumulated other comprehensive loss decreased during the period as moderating
interest rates favorably affected investment securities values resulting in a
decrease, net of deferred tax benefit, in the unrealized loss on the securities
available-for-sale portfolio.
Comparison of Results of Operations for the Three Months Ended September 30,
2000 and 1999
General. Net income for the Company for the three months ended
September 30, 2000, amounted to $85,000, or $0.09 per share, as compared to
$188,000, or $0.20 per share, for the three months ended September 30, 1999. On
a pretax basis, income for 2000 was $167,000 for the three months ended
September 30th compared to $188,000 for the comparable period in 1999. The
Company did not accrue any income taxes during the quarter ended September 30,
1999 because it had net operating losses available to offset taxable income.
Net interest income. Net interest income increased 24.3% to $911,000
for the three months ended September 30, 2000, from $733,000 for the three month
period ended September 30, 1999. Interest income increased by $680,000,
primarily due to a $18.2 million increase in total loans and a $9.3 million
increase in investment securities at September 30, 2000 compared with September
30, 1999. In addition, interest expense increased by $503,000, primarily due to
a $28.8 million increase in total deposits and a $3.0 million increase in
advances from the Federal Home Loan Bank.
Provision for loan losses. The provision for loan losses amounted to
$83,500 for the three months ended September 30, 2000, as compared to $106,500
for the three months ended September 30, 1999. This represents a decrease of
$23,000. The amount of the provision for loan losses was reduced, in part, due
to management's belief that the allowance was adequate, favorable asset quality
indicators and the absence of any significant nonperforming assets. The ratio of
loan loss reserves to gross loans was 1.43%% as of September 30, 2000, and 1.40%
as of September 30, 1999.
Noninterest income. Total noninterest income amounted to $74,000 for
the three months ended September 30, 2000, as compared to $56,000 for the three
months ended September 30, 1999. This increase was primarily due to additional
fee income derived from loan and deposit products. Management plans to continue
in its efforts to increase its outstanding balance of fee-generating demand
deposit accounts through targeted advertising and branch expansion.
Noninterest expense. Total noninterest expense amounted to $733,000 for
the three months ended September 30, 2000, as compared to $495,000 for the three
months ended September 30, 1999. During the September 2000, the Company incurred
higher expense levels as a result of the opening of its new branch and main
office. Increases in compensation and benefits were the result of increased
staffing levels associated with the Company's new main office and selected other
positions to accommodate the Company's growth. Occupancy, promotion and supplies
expense increases were associated ongoing operations of the new location as well
as advertising and other events related to the grand opening.
Income taxes. Income taxes amounted to $82,000, or 49.1% of pretax
income, for the three month period ended September 30, 2000, as compared to $0
for the three month period ended September 30, 1999. In the prior year, the
Company had available net operating loss carryovers which it used to completely
offset
8
<PAGE>
its tax liability for the quarter. These carryovers have been fully utilized
consequently the Company expects to be in a taxable position for fiscal 2000 and
the future.
Comparison of Results of Operations for the Nine Months Ended September 30, 2000
and 1999
General. Net income for the Company for the nine months ended September
30, 2000, amounted to $437,000, or $0.47 per share, as compared to $407,000, or
$0.46 per share, for the nine months ended September 30, 1999.
Net interest income. Net interest income increased to $2.6 million for
the nine months ended September 30, 2000, from $1.9 million for the nine months
ended September 30, 1999. Interest income increased by $2.0 million, or 54.1%,
primarily due to a $18.2 million increase in total loans and a $9.3 million
increase in investment securities. In addition, interest expense increased by
$1.4 million, or 76.4%, primarily due to a $28.8 million increase in total
deposits and a $3.0 million increase in advances from the Federal Home Loan
Company.
Provision for loan losses. The provision for loan losses amounted to
$190,000 for the nine months ended September 30, 2000, as compared to $287,000
for the nine months ended September 30, 1999. This represents a decrease of
$97,000. The amount of the provision for loan losses was reduced, in part, due
to management's belief that the allowance was adequate, favorable asset quality
indicators and the absence of any significant nonperforming assets. The ratio of
loan loss reserves to gross loans was 1.43% as of September 30, 2000, and 1.40%
as of September 30, 1999.
Noninterest income. Total noninterest income amounted to $208,000 for
the nine months ended September 30, 2000, as compared to $154,000 for the nine
months ended September 30, 1999. This increase was due to fee income derived
from loan and deposit products which increased $46,000 from the same period the
prior year. Fees from originating mortgage loans for third parties increased
only $8,000 from the prior year due to competition. Management plans to continue
in its efforts to increase its outstanding balance of fee-generating demand
deposit accounts through targeted advertising and branch expansion.
Noninterest expense. Total noninterest expense amounted to $1.9 million
for the nine months ended September 30, 2000, as compared to $1.4 million for
the nine months ended September 30, 1999. This increase of $505,000 or 36.8%, of
which $314,000 was compensation and benefits, was primarily due to the expenses
associated with the opening of the Company's new main office which occurred in
early July, 2000.
Income taxes. Income taxes amounted to $300,000, or 40.7% of taxable
income, for the nine month period ended September 30, 2000, as compared to $0
for the nine month period ended September 30, 1999. In the prior year, the
Company had available net operating loss carryovers which it used to completely
offset its tax liability for the quarter. These carryovers have been fully
utilized consequently the Company expects to be in a taxable position for fiscal
2000 and the future.
Liquidity and Capital Resources
The objective of the Company's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses the
Company's ability to meet deposit withdrawals on demand or at contractual
maturity, to repay borrowings as they mature, and to fund new loans and
investments as opportunities arise.
The Company's primary sources of internally generated funds are
principal and interest payments on loans receivable and cash flows generated
from operations. External sources of funds include increases in deposits, retail
repurchase agreements and advances from the Federal Home Loan Company of
Atlanta.
9
<PAGE>
The Company is required under applicable federal regulations to
maintain specified levels of liquid investments in qualifying types of
investments. Cash and due from banks, Federal funds sold and the investment
securities portfolio are the primary liquid assets of the Company. Management
regularly monitors the Company's liquidity position to ensure its liquidity is
sufficient to meet its needs.
The Company is subject to various regulatory capital requirements
administered by the banking regulatory agencies and the Federal Reserve Board.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly discretionary actions by the regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Company's and the Bank's capital amounts and classifications are
subject to qualitative judgments by the regulators about components,
risk-weightings, and other factors. As of September 30, 2000, the Company's and
the Bank's levels of capital exceeded all applicable regulatory requirements.
10
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PART II. OTHER INFORMATION
Legal Proceedings
There are various claims and lawsuits in which the Company is
periodically involved incidental to the Company's business. In the opinion of
management, no material loss is expected from any of such pending claims or
lawsuits.
Changes in Securities
Not applicable.
Defaults Upon Senior Securities
Not applicable.
Submission of Matters to a Vote of Security Holders
There were no meetings of the Company's shareholders during the quarter
ended September 30, 2000.
Exhibits and Report on Form 8-K.
(a) Exhibit 27 Financial Data Schedule
(b) No Form 8-K reports were filed during the quarter.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
Carolina Bank
Date: November 13, 2000 By: /s/ Robert T.Braswell
------------------------------------------
Robert T. Braswell
President and Chief Executive Officer
Date: November 13, 2000 By: /s/ Charles Matthews
-----------------------------------------
Charles Matthews
Senior Vice President and Chief
Financial Officer
12
