<PAGE>
FORM 10-K. ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1995.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission file number 0-14620
------------------------------
COMMUNITY BANKSHARES, INC.
--------------------------
(Exact name of registrant as specified in its charter)
New Hampshire 02-0394439
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
43 North Main Street, Concord, New Hampshire 03301
-------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (603) 224-1100
--------------
Securities registered pursuant to Section 12(b) of the Act:
None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
-----------------------------
Indicate by check mark 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of August 31, 1995: $26,610,285 (excludes shares held by all
directors and officers and by certain relatives of all such individuals).
Number of shares of Common Stock outstanding as of August 31, 1995: 1,735,295
Documents incorporated by reference: None
1
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PART I
Item 1. Description of Business
(a) General development of business.
Community Bankshares, Inc. (the "Company") is a bank holding company
organized in 1985 under New Hampshire statutes to acquire Concord Savings Bank
(the "Bank") upon the Bank's conversion from a mutual savings bank to a guaranty
stock savings bank (the "Conversion"). The Conversion was effected on May 8,
1986. The holding company is regulated by the Federal Reserve Board, and the
Bank by the Bank Commissioner of the State of New Hampshire and by the Federal
Deposit Insurance Corporation (FDIC). The Bank is also a member of the Federal
Home Loan Bank of Boston (FHLB). The Bank operates with four branches in
Concord, New Hampshire and a fifth branch located in Weare, New Hampshire. The
Bank is scheduled to open a sixth branch to be located to the north of Concord
in Tilton, New Hampshire during the Fall of 1995.
On August 29, 1995, the Company entered into a definitive merger agreement
to acquire Centerpoint Bank by exchanging 1.073 of the Company's common shares
for each Centerpoint common share outstanding. The merger, anticipated to be
accounted for as a pooling-of-interests, is subject to stockholder and
regulatory approval. For further information, see Note 17 of Notes to
Consolidated Financial Statements.
(b) Financial information about industry segments.
The Company operates in only one industry segment and only within the
United States. Currently, the Company's sole operations are those of the Bank
and its subsidiaries.
(c) Description of business.
The following description of the business of the Company relates to the
consolidated operations of the Bank and its subsidiaries unless the context
otherwise requires.
General
The principal business of the Bank consists of originating residential
mortgage loans on property located primarily in New Hampshire, commercial loans
and consumer loans, and attracting deposits to fund these assets. The Bank also
maintains a portion of its assets in investment securities, which are primarily
comprised of U.S. Government, federal agency, mortgage-backed securities and
other bonds and obligations. As of June 30, 1995, the Company had total assets
of $425,714,000 with a loan portfolio of $271,461,000, representing 63.8% of
total assets. The Bank's operations are conducted through five full-service
banking offices, four in Concord and a fifth located in Weare, New Hampshire,
and through its consumer finance subsidiary, Bancredit Corporation
("Bancredit"), also located in Concord. The Bank also plans to open a new full-
service branch facility, to be located in Tilton, New Hampshire, during the Fall
of 1995. The Bank's principal market area encompasses Merrimack County in
central New Hampshire. Residential mortgage loans are originated in much of the
state, and Bancredit originates indirect automobile and recreational vehicle
loans through dealers located throughout the state.
Funds for the Bank's lending and investment activities are provided
primarily from deposits, amortization and repayment of outstanding loans and
mortgage-backed securities, sales of mortgage loans into the secondary market
and from borrowings, principally from the Federal Home Loan Bank of Boston.
The Bank is primarily a provider of deposit and loan products to
individuals, households, small businesses and municipalities located within its
market area. Approximately 76% of the Bank's loans are to individuals and 24% to
businesses.
Mortgage Loans
The Bank's principal lending activities have historically consisted of the
origination of long-term loans collateralized by first or second mortgage liens
on residential and commercial real estate. The Bank's mortgage loans are
generally collateralized by real estate located in New Hampshire, although it is
authorized to make loans on real estate located outside of the state.
At June 30, 1995, approximately 61% of the Bank's long-term mortgage loans
were collateralized by one-to-four family residential properties. The remaining
39% were collateralized by commercial and industrial properties and multi-family
dwellings. At June 30, 1995, long-term fixed-rate mortgage loans totaled
$6,889,000, or 1.6% of total assets. Shorter-term fixed, balloon and variable-
rate mortgage loans at June 30, 1995 totaled $134,659,000, or 31.6% of total
assets.
The Bank originates fixed-rate residential mortgages primarily for sale to
investors in the secondary mortgage market. Variable-rate mortgages may be sold
to investors or retained in the Bank's loan portfolio. The Bank continues to
service the majority of the loans that it sells into the secondary market in
order to maintain customer relationships and generate non-interest income
through mortgage servicing fees. At June 30, 1995, the residential loans
serviced for others amounted to $351,512,000, as compared to $160,994,000 at
June 30, 1994. The increase in residential loans serviced for others was
primarily the result of the Company purchasing the rights to service
approximately $180,000,000 in mortgage loans secured by residential properties
located primarily in New Hampshire during the last quarter of fiscal 1995.
2
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The Bank is a certified Small Business Administration (SBA) lender. At June
30, 1995, SBA loans outstanding totaled $8,178,000 of which the majority were
secured by commercial real estate.
Occasionally, the Bank participates with other lenders in commercial loans
collateralized by real estate. At June 30, 1995, the Bank held $7,959,000 in
such loan participations.
Other Loans
The Bank has been an active originator of consumer loans for many years.
The majority of the Bank's consumer loans are fixed-rate loans collateralized by
automobiles and are written as installment sales contracts for terms ranging
from three to five years. Although it is not actively originating mobile home
loans at this time, the Bank has in the past written variable-rate mobile home
loans. At June 30, 1995, the balance outstanding in variable-rate mobile home
loans was $11,976,000, compared to $13,702,000 at June 30, 1994. Other consumer
loans are collateralized by recreational vehicles, boats, passbooks or bank
certificates of deposit or are unsecured.
Indirect consumer loans are originated through the Bank's wholly-owned
subsidiary, Bancredit. Bancredit acts as agent for the Bank in the purchase of
indirect automobile and recreational vehicle loans for the portfolio of the Bank
from dealers throughout the state of New Hampshire. With the addition of
experienced, high level personnel the Bank has substantially increased its
number of active dealer relationships during fiscal 1995 resulting in
significant loan growth in indirect loans. Indirect loans at June 30, 1995
amounted to $101,744,000 as compared to $66,699,000 at June 30, 1994.
In order to continue serving the market for indirect automobile loans in
New Hampshire, generate fee income from servicing these types of loans and
manage the Company's balance sheet the Bank sold approximately $10,000,000 of
automobile loans while retaining the right to service these loans. At June 30,
1995, the Bank serviced $11,536,000 of indirect automobile loans for others. The
Bank did not service any of these types of loans for others during the fiscal
year ended June 30, 1994. At June 30, 1995, the Bank had an agreement to sell up
to an additional $48,000,000 of new automobile loans on a best efforts basis.
The Bank offers home equity lines of credit, a revolving credit line
secured by a first or second mortgage lien on residential real estate generally
located within New Hampshire. At June 30, 1995, home equity lines of credit
totaled $31,968,000, with an outstanding balance of $17,070,000.
Commercial loans, other than those secured by real estate, amounted to
$12,414,000 at June 30, 1995 compared to $8,071,000 at June 30, 1994. The
increase in non-real estate commercial loans was primarily in loan products
designed for small businesses. Such products included SBA loans, Business
Manager, an accounts receivable financing vehicle, and Business Express
CreditLine.
For further information on loans, see Section III of "Guide 3 Statistical
Data," "Risk Characteristics of the Loan Portfolio" in "Management's Discussion
and Analysis" and Notes 1 and 3 of Notes to Consolidated Financial Statements.
Delinquent Loans and Real Estate Acquired by Foreclosure or Substantively
Repossessed
Loans are considered delinquent when any payment of principal and/or
interest is 30 days or more past due. Non-accrual loans are those on which the
accrual of interest is discontinued when collectibility of principal or interest
is uncertain or payments of principal or interest have become contractually past
due 90 days. Upon such discontinuance, all unpaid accrued interest is reversed
against the current period's earnings. A loan which has principal or interest
payments contractually past due 90 days may remain on accrual status, however,
if value of the collateral securing the loan is sufficient to cover principal
and accrued interest, and the loan is in the process of collection. The Bank
uses a formal procedure for notifying borrowers of payments contractually past
due and for the assessment of late charges. The Bank works with delinquent
borrowers to seek a satisfactory repayment schedule, but will undertake
foreclosure or repossession proceedings as appropriate to recover the amount
owed. At June 30, 1995, real estate acquired by foreclosure or substantively
repossessed totaled $1,134,000. Such properties are carried at the lower of cost
or fair value minus costs to sell.
For additional analysis, see Section III (c.) of "Guide 3 Statistical
Data," "Asset Quality," "Non-Performing Asset Analysis," "Non-Performing Loan
Summary" and "Assets Acquired to Satisfy Debt and Loans Substantively
Repossessed" in "Management's Discussion and Analysis," and Notes 1, 3 and 6 of
Notes to Consolidated Financial Statements.
Investment Activities
The Bank maintains a portion of its assets in short-term interest bearing
deposits in other banks and in investment securities, which consist primarily of
U.S. Government and Agency obligations and mortgage-backed securities of which
the majority are guaranteed by the Federal Home Loan Mortgage Corporation
(FHLMC) or the Federal National Mortgage Association (FNMA). Other investments
include corporate bonds and obligations, municipal investments, marketable
equity securities and stock in the FHLB.
At June 30, 1995, investment securities classified as "available for sale"
amounted to $58,754,000 and investment securities classified as "held to
maturity" amounted to $53,408,000. The Company did not have any securities
classified as "trading securities". At June 30, 1995, the unrealized net gains
on securities "available for sale", net of related taxes, was $328,000 and is
carried as a component of stockholders' equity.
At June 30, 1995, the Company owned mortgage-backed securities having a
carrying value of $39,221,000 and an unrealized net gain of $111,000.
Substantially all of the Company's mortgage-backed securities are guaranteed by
FHLMC, FNMA or GNMA. Of the total mortgage-backed securities at June 30, 1995,
$21,374,000 bear a fixed interest rate and $17,847,000 bear either an adjustable
or variable interest rate. The market values of mortgage-backed securities
change with market and economic conditions. The most significant factors
affecting market value are prepayments of the underlying loans and interest
rates. As interest rates increase, prepayments generally decline, causing an
extension of the
3
<PAGE>
expected maturity and a decline in market value. The converse is generally true
when interest rates decrease. The market value of fixed-rate mortgage-backed
securities is generally more sensitive to market interest rate changes than
variable or adjustable rate mortgage-backed securities.
The Bank's investment portfolio is managed by the Bank's officers in
accordance with the investment policy established by the Finance Committee of
the Bank's Board of Directors and with the advice of professional investment
advisors. The objectives of the Bank's investment policy are to provide
liquidity, diversification of assets and earnings.
For additional information on investment securities, see Section II of
"Guide 3 Statistical Data," "Investments Securities" in "Management's Discussion
and Analysis", and Notes 1 and 2 of Notes to Consolidated Financial Statements.
Sources of Funds
Deposits
The majority of the Bank's deposits are derived from customers who reside
or work in Concord, New Hampshire, or surrounding communities in Merrimack
County. The Bank receives a smaller volume of deposits from customers residing
in a number of communities across New Hampshire and from outside of the state.
By choice, the Bank currently accepts no brokered deposits.
Because convenience is an important factor in attracting deposits, the Bank
operates four branches located in the City of Concord, each with ample parking
and "drive-up" bays. The Bank also operates a branch located to the west of
Concord in Weare, New Hampshire. The Bank's expansion continues with the
scheduled opening of a new branch located to the north of Concord in Tilton, New
Hampshire. The Bank operates Automatic Teller Machines (ATM's) at all of its
locations and at four off-site locations in Concord, Contoocook, Epsom, and
Tilton, New Hampshire. The Bank is a member of an electronic funds transfer
network that allows customers to access cash from their Concord Savings Bank
accounts through ATM's located throughout the State of New Hampshire and
throughout the United States.
The Bank's deposits are derived from savings accounts, NOW accounts, demand
deposit accounts, money market deposit accounts, club accounts, variable-rate
term certificates of deposit and fixed-rate term certificates of deposit
offering maturities of up to five years. The flow of deposits is influenced
significantly by general economic conditions, changes in money markets and
prevailing interest rates. The Bank has maintained a competitive deposit pricing
structure within its market to achieve controlled growth and increase its market
share. Deposits have grown by a total of $81,650,000, or an average of 7.2% per
year, during the five years ended June 30, 1995. The cumulative growth in
deposits, since June 30, 1990, has been primarily in savings deposits with
growth of $48,261,000. Growth in time certificates of deposit and non-interest
bearing deposits amounted to $21,087,000 and $12,302,000, respectively, over the
past five years.
For additional information on deposits, see Section V of "Guide 3
Statistical Data," "Deposits" in "Management's Discussion and Analysis", and
Note 7 of Notes to Consolidated Financial Statements.
Borrowings
The Bank may obtain advances from the FHLB upon pledging as collateral the
common stock of the FHLB that it owns and certain of its investment securities
and residential mortgage loans, provided certain standards related to credit
worthiness are met. Such advances are made under several different credit
programs, each of which has its own interest rate and range of maturities. FHLB
borrowings have been utilized for loan portfolio growth, asset/liability
management, liquidity and/or operational needs. At June 30, 1995, the Bank had
outstanding advances and available unused lines of credit with the FHLB of
$76,050,000 and approximately $63,000,000, respectively.
Total borrowings from the FHLB increased during the fiscal year ended June
30, 1995 by $52,978,000, which funded the major portion of the Bank's earning
asset growth.
During fiscal 1995, the Bank also used repurchase agreements as a source of
funds. Repurchase agreements outstanding at June 30, 1995 amounted to $6,348,000
and carried maturities of three months or less. U.S. Government and Agency
securities with a book value of $6,949,000 and a fair value of $6,916,000 were
pledged as collateral and held by custodians to secure the agreements at June
30, 1995.
For additional information on borrowings, see "Borrowed Funds" in
"Management's Discussion and Analysis", and Notes 8 and 9 of Notes to
Consolidated Financial Statements.
Competition
The Bank experiences substantial competition in attracting and retaining
deposit accounts and in making mortgage and other loans. Including the Bank,
there are approximately 41 banking offices of federally-insured depository
institutions within the Bank's principal market area of Merrimack County which
does not include the non-bank financial service providers which also operate in
the Bank's market area.
The primary factors in competing for deposit accounts are interest rates,
convenience of office locations, quality of service and banking hours. The
primary factors in competing for loans are interest rates, loan origination fees
and the quality and range of lending services offered. Competition for
origination of first mortgage loans comes primarily from other savings
institutions, mortgage banking firms, and commercial banks. In attracting
deposits, the Bank's primary competitors are savings institutions, commercial
banks, money market funds and the capital markets.
4
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Regulation and Supervision
The holding company is subject to regulation by the Federal Reserve Board
and to periodic reporting and examination requirements of the Bank Commissioner
of the State of New Hampshire. The Bank is subject to regulation, supervision
and examination by the Bank Commissioner and by the Federal Deposit Insurance
Corporation (FDIC), which insures the Bank's deposit accounts up to the maximum
allowed by law. The Bank derives its lending and investment powers from New
Hampshire law, under which the Bank Commissioner has specific statutory
jurisdiction over certain banking activities such as mergers and the creation of
new powers. In addition, the establishment of branches is subject to approval of
the New Hampshire Board of Trust Company Incorporation and the FDIC. Both New
Hampshire and federal law contain restrictions on, and require regulatory
approvals of, acquisitions by the Company and on the conduct of certain non-
banking activities by the Company or the Bank. State and federal regulations
further require that the Bank maintain various reserves and that it meet certain
capital and liquidity requirements. The Bank is in compliance with all such
requirements.
Federal regulations prohibit banking companies from paying dividends on
their stock if the effect would cause stockholders' equity to be reduced below
applicable regulatory capital requirements or if such declaration and payment
would otherwise violate regulatory requirements. At June 30, 1995, the Company
and Bank were in compliance with the regulatory capital requirements.
For additional information on the Company's and the Bank's regulatory
capital ratios, see "Liquidity and Capital Resources" in "Management's
Discussion and Analysis."
Personnel
As of June 30, 1995, the Company and its subsidiaries had a total of 139
full-time and 36 part-time employees.
Guide 3 Statistical Data
I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY, INTEREST RATES
AND INTEREST DIFFERENTIAL
"Rate Volume Analysis" and "Average Balance Sheets and Net Interest and
Dividend Income" are included in "Management's Discussion and Analysis."
Asset/Liability Management
It is the Company's policy to manage its assets and liabilities in a manner
that minimizes interest rate risk exposure while meeting the needs of the Bank's
customers. The following provides insight into the sensitivity of the Company's
earnings to changes in interest rates as of June 30, 1995.
5
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<TABLE>
<CAPTION>
0-1 1-3 3-5 Over 5
(Dollars in Thousands) Year Years Years Years Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets Subject to Interest Rate Adjustment:
Interest-bearing deposits in other banks $ 10,870 $ -- $ -- $ -- $ 10,870
Investment securities available for sale 3,202 13,961 10,122 6,032 33,317
Investment securities held to maturity 10,716 19,911 8,997 -- 39,624
Mortgage-backed securities available for sale 9,210 15,428 799 -- 25,437
Mortgage-backed securities held to maturity 1,247 3,972 8,565 -- 13,784
Federal Home Loan Bank stock 3,803 -- -- -- 3,803
Mortgage loans held for sale 4,392 -- -- -- 4,392
Mortgage loans:
Home equity 16,733 314 -- -- 17,047
Residential 30,677 21,196 10,131 5,234 67,238
Commercial and construction 28,404 19,192 4,048 1,065 52,709
Other loans:
Indirect automobile and recreational vehicle 39,267 35,884 23,215 3,289 101,655
Mobile home 10,676 1,198 -- 65 11,939
Other consumer 4,771 1,258 584 156 6,769
Commercial 11,658 619 97 -- 12,374
-------- -------- ------- ------- --------
Total $185,626 $132,933 $66,558 $15,841 $400,958
======== ======== ======= ======= ========
Liabilities Subject to Interest Rate Adjustment:
Deposits:
Savings, escrow and club accounts $ 26,960 $ 54,696 $ -- $ -- $ 81,656
Interest-bearing NOW accounts 4,844 19,280 -- -- 24,124
Money market accounts 2,818 6,576 -- -- 9,394
Time certificates of deposit 103,183 67,987 5,792 -- 176,962
Borrowed funds 80,849 1,369 75 475 82,768
-------- -------- ------- ------- --------
Total $218,654 $149,908 $ 5,867 $ 475 $374,904
-------- -------- ------- ------- --------
Excess (deficiency) of rate sensitive assets over
rate sensitive liabilities $(33,028) $(16,975) $60,691 $15,366 $ 26,054
-------- -------- ------- ------- --------
Cumulative excess (deficiency) $(33,028) $(50,003) $10,688 $26,054
======== ======== ======= =======
Cumulative rate sensitive assets as a percent of
cumulative rate sensitive liabilities 84.89% 86.43% 102.85% 106.95%
======== ======== ======= =======
Cumulative excess (deficiency) as a percent of
total rate sensitive assets (8.24)% (12.47)% 2.67% 6.50%
======== ======== ======= =======
</TABLE>
The effect of interest rate changes on the assets and liabilities of a
financial institution such as the Bank may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
"gap" is defined as the difference between interest-earning assets and interest-
bearing liabilities maturing or repricing within a given time period. A gap is
considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities. A gap is considered negative
when the amount of interest rate sensitive liabilities exceeds interest rate
sensitive assets. During a period of falling interest rates, a positive gap
would tend to adversely affect net interest income, while a negative gap would
tend to result in an increase in net interest income. During a period of rising
interest rates, a positive gap would tend to result in an increase in net
interest income while a negative gap would tend to affect net interest income
adversely.
Management uses its judgment in classifying assets and liabilities into the
various interest sensitivity time periods, taking into consideration certain
assumptions based on the Company's historical experience and other relevant
data. Non-accruing loans amounting to $1,730,000 have been excluded from this
analysis. The analysis takes into consideration next repricing dates on
variable-rate instruments. Amortization on some of the Bank's loans and
mortgage-backed securities has been estimated, based on historical trends, and
included in shorter time periods even though the contractual maturity of such
loans and securities may be further out. While savings, NOW and MMDA accounts
allow for immediate withdrawal and interest rate adjustment, based on the
Company's historical experience they are generally considered more stable and
are classified proportionately according to their established sensitivities in
the "0-1 Year" and "1-3 Year" categories.
The Company had a negative gap of approximately 8% of total rate sensitive
assets at June 30, 1995 as compared to a positive gap of approximately 4% of
total rate sensitive assets at June 30, 1994 in the comparative "0-1 Year"
categories.
6
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II. INVESTMENT PORTFOLIO
A. and B. Carrying Values and Maturities
The following tables set forth certain information as to investment
securities available for sale and held to maturity. Securities available for
sale are carried at fair value and securities held to maturity are carried at
amortized cost. In fiscal 1993, securities held for sale were carried at the
lower of aggregate amortized cost or fair value.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
-------------------------------------------------------
Amortized Fair Amortized Fair
(in Thousands) Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1995:
Investment securities:
U.S. Government and Agency obligations $31,814 $32,101 $32,930 $32,902
Other debt securities -- -- 3,944 3,998
Municipal investments 987 987 2,750 2,750
Marketable equity securities 182 229 -- --
------- ------- ------- -------
32,983 33,317 39,624 39,650
------- ------- ------- -------
Mortgage-backed securities:
FHLMC 4,815 4,734 10,657 10,552
FNMA 11,951 12,202 2,006 2,026
Other 8,476 8,501 1,121 1,122
------- ------- ------- -------
25,242 25,437 13,784 13,700
------- ------- ------- -------
Total investment securities $58,225 $58,754 $53,408 $53,350
======= ======= ======= =======
<CAPTION>
Available for Sale Held to Maturity
-------------------------------------------------------
Amortized Fair Amortized Fair
(in Thousands) Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1994:
Investment securities:
U.S. Government and Agency obligations $36,135 $35,940 $16,931 $16,585
Other debt securities 1,000 1,000 977 968
Marketable equity securities 127 155 -- --
------- ------- ------- -------
37,262 37,095 17,908 17,553
------- ------- ------- -------
Mortgage-backed securities:
FHLMC 12,176 11,922 12,253 11,836
FNMA 14,116 14,103 2,448 2,365
Other 1,698 1,675 1,251 1,243
------- ------- ------- -------
27,990 27,700 15,952 15,444
------- ------- ------- -------
Total investment securities $65,252 $64,795 $33,860 $32,997
======= ======= ======= =======
<CAPTION>
Held for Sale Held to Maturity
-------------------------------------------------------
Amortized Fair Amortized Fair
(in Thousands) Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1993:
Investment securities:
U.S. Government and Agency obligations $ -- $ -- $31,325 $32,615
Other debt securities -- -- 499 495
Marketable equity securities -- -- 211 247
------- ------- ------- -------
-- -- 32,035 33,357
------- ------- ------- -------
Mortgage-backed securities:
FHLMC 4,744 4,848 12,725 13,048
FNMA 1,878 1,987 7,812 8,096
Other -- -- 3,456 3,643
------- ------- ------- -------
6,622 6,835 23,993 24,787
------- ------- ------- -------
Total investment securities $ 6,622 $ 6,835 $56,028 $58,144
======= ======= ======= =======
</TABLE>
7
<PAGE>
A breakdown of yields (based on amortized cost) and contractual maturities
for investment securities (excluding marketable equity securities) at June 30,
1995 is presented below.
<TABLE>
<CAPTION>
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years Total
---------------------------------------------------------------------------------------------------------
Carrying Weighted Carrying Weighted Carrying Weighted Carrying Weighted Carrying Weighted
(Dollars in Thousands) Value Avg Yld Value Avg Yld Value Avg Yld Value Avg Yld Value Avg Yld
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale:
U.S. Government and
Agency obligations $ 1,987 4.17% $24,083 6.22% $6,031 7.49% $ -- --% $32,101 6.33%
Municipal investments 987 5.38 -- -- -- -- -- -- 987 5.38
Mortgage-backed
securities -- -- 2,858 5.90 3,735 5.47 18,844 6.82 25,437 6.52
------- ------- ------ ------- -------
$ 2,974 4.57 $26,941 6.19 $9,766 6.72 $18,844 6.82 $58,525 6.40
======= ======= ====== ======= =======
Held to Maturity:
U.S. Government and
Agency obligations $ 6,970 5.90% $25,960 6.57% $ -- --% $ -- --% $32,930 6.43%
Other debt securities 996 6.28 2,948 6.97 -- -- -- -- 3,944 6.80
Municipal investments 2,750 5.12 -- -- -- -- -- -- 2,750 5.12
Mortgage-backed
securities -- -- 12,663 6.00 -- -- 1,121 7.12 13,784 6.09
------- ------- ------ ------- -------
$10,716 5.74 $41,571 6.42 $ -- -- $ 1,121 7.12 $53,408 6.30
------- ------- ------ ------- -------
</TABLE>
Mortgage-backed securities are expected to have shorter average lives than
their contractual maturities because borrowers may repay obligations without
prepayment penalties.
For additional information, reference is made to "Investments Securities"
in "Management's Discussion and Analysis", and Notes 1 and 2 of Notes to
Consolidated Financial Statements.
C. Aggregate value of securities exceeding 10% of stockholders' equity: none
III. LOAN PORTFOLIO
A. Types of Loans
The net loan portfolio of $271,461,000 (before allowance for possible loan
losses) at June 30, 1995 represented 63.8% of consolidated assets. The following
table shows the composition of the Bank's portfolio by type of loan.
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------------------------------------------------------------
(Dollars in Thousands) Amount % Amount % Amount % Amount % Amount %
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential:
Conventional $ 67,048 24.8% $ 65,566 29.5% $ 73,773 33.7% $ 61,772 29.7% $ 83,987 37.3%
FHA and VA 595 0.2 814 0.4 857 0.4 837 0.4 1,080 0.5
Home equity 17,053 6.3 18,969 8.5 21,426 9.7 22,187 10.6 18,989 8.4
Construction 489 0.2 -- -- 1,312 0.6 1,227 0.6 5,553 2.5
Commercial 53,716 19.8 40,078 18.0 35,288 16.1 35,651 17.1 33,247 14.7
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans 138,901 51.3 125,427 56.4 132,656 60.5 121,674 58.4 142,856 63.4
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Other loans:
Installment:
Indirect automobile
and recreational
vehicle 100,666 37.2 66,528 30.0 60,707 27.7 62,320 29.9 56,815 25.2
Mobile home 11,976 4.4 13,702 6.2 15,036 6.9 15,884 7.6 16,878 7.5
Other 3,168 1.2 2,574 1.2 1,968 0.9 1,766 0.9 2,179 1.0
Other consumer 3,611 1.3 5,778 2.6 5,739 2.6 3,415 1.6 2,370 1.0
Commercial 12,409 4.6 8,060 3.6 2,989 1.4 3,406 1.6 4,208 1.9
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total other loans 131,830 48.7 96,642 43.6 86,439 39.5 86,791 41.6 82,450 36.6
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
270,731 100.0% 222,069 100.0% 219,095 100.0% 208,465 100.0% 225,306 100.0%
====== ====== ====== ====== ======
Deferred loan
origination (fees) costs 730 40 (135) (143) (379)
Unearned discount -- -- -- -- --
-------- -------- -------- -------- --------
$271,461 $222,109 $218,960 $208,322 $224,927
======== ======== ======== ======== ========
</TABLE>
For additional information on loans, see Note 3 of Notes to Consolidated
Financial Statements.
8
<PAGE>
B. Maturities and Sensitivity to Changes in Interest Rates
The following table sets forth the June 30, 1995 contractual loan
maturities for the Bank and amounts due after one year classified according to
the sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
Within From 1 to After
(in Thousands) 1 Year 5 Years 5 Years Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage loans:
Residential $ 402 $ 11,706 $ 72,463 $ 84,571
Construction 249 224 -- 473
Commercial 1,111 16,733 35,660 53,504
------- -------- -------- --------
Total mortgage loans 1,762 28,663 108,123 138,548
Other loans:
Installment and consumer 7,805 93,834 18,860 120,499
Commercial 6,653 2,738 3,023 12,414
------- -------- -------- --------
Total other loans 14,458 96,572 21,883 132,913
------- -------- -------- --------
Total loans, gross $16,220 $125,235 $130,006 $271,461
======= ======== ======== ========
Loan maturing after one year with:
Construction $ 39 $ -- $ 39
Commercial 10,976 3,529 14,505
All other 93,928 13,365 107,293
-------- -------- --------
Total 104,943 16,894 121,837
Variable interest rates:
Construction $ 185 $ -- $ 185
Commercial 8,495 35,154 43,649
All other 11,612 77,958 89,570
-------- -------- --------
Total 20,292 113,112 133,404
-------- -------- --------
Total $125,235 $130,006 $255,241
======== ======== ========
</TABLE>
C. Risk Elements
Risk elements consist of non-accrual, past due and restructured loans;
potential problem loans; and loan concentrations.
Non-accrual loans are those on which the accrual of interest is
discontinued when collectibility of principal or interest is uncertain or
payments of principal or interest have become contractually past due 90 days.
Upon such discontinuance, all unpaid accrued interest is reversed against the
current period's earnings. A loan which has principal or interest payments
contractually past due 90 days may remain on accrual status, however, if value
of the collateral securing the loan is sufficient to cover principal and accrued
interest, and the loan is in the process of collection.
The table below shows loans on non-accrual status, restructured loans, real
estate acquired by foreclosure or substantively repossessed and other
repossessed assets.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------
(Dollars in Thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $1,730 $ 730 $3,117 $ 3,681 $ 7,395
Restructured Loans -- 174 162 2,084 577
------ ------ ------ ------- -------
Total non-performing loans 1,730 904 3,279 5,765 7,972
------ ------ ------ ------- -------
Real estate acquired by foreclosure or substantively repossessed 1,134 836 2,568 6,725 6,613
Other assets acquired 368 242 258 420 1,132
------ ------ ------ ------- -------
Total assets acquired toward satisfaction
of debt or substantively repossessed 1,502 1,078 2,826 7,145 7,745
------ ------ ------ ------- -------
Total non-performing assets 3,232 1,982 6,105 12,910 15,717
Loans delinquent 90 days or more and still accruing -- -- 16 1 10
------ ------ ------ ------- -------
Total non-performing assets and loans delinquent
90 days or more and still accruing $3,232 $1,982 $6,121 $12,911 $15,727
====== ====== ====== ======= =======
Total non-performing assets as a percent of total loans
and assets acquired toward satisfaction of debt or
substantively repossessed 1.18% 0.89% 2.75% 5.99% 6.76%
====== ====== ====== ======= =======
</TABLE>
9
<PAGE>
Since June 30, 1990, the Company has made progress toward resolving its
non-performing assets. The Company made substantial reductions in non-performing
assets during fiscal 1994 resulting in a decline from $6,105,000 at June 30,
1993 to $1,982,000 at June 30, 1994, a decrease of 67.5%. At June 30, 1995, non-
performing assets had increased to $3,232,000. Of this net increase of
$1,250,000, $1,231,000 was related to two commercial loans, which were
originated prior to 1990 and which were previously performing, being placed on
non-accruing status by the Bank during the third quarter of fiscal 1995. The
decrease in restructured loans during fiscal 1993 was primarily due to one
commercial credit that returned to a performing status after complying with its
restructured terms for more than one year. For further analysis, reference is
made to "Asset Quality", "Non-Performing Asset Analysis", "Non-Performing Loan
Summary," "Assets Acquired to Satisfy Debt and Loans Substantively Repossessed"
and "Risk Characteristics of the Loan Portfolio" sections in "Management's
Discussion and Analysis."
Management is not aware of any potential problem loans, which have not
already been identified and disclosed above which would have a material effect
on the Company. In addition there are no known loan concentrations in excess of
10.00% of total loans.
D. Other Interest Bearing Assets: Not Applicable
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The Bank maintains an allowance for possible losses on loans. The provision
for possible loan losses is based on management's assessment of the adequacy of
the allowance for possible loan losses after considering known and inherent
risks in the loan portfolio, existing and expected economic conditions, the
level of non-performing loans, past loan loss experience and loan growth.
The following table analyzes movements in the allowance during the past
five years:
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------------
(Dollars in Thousands) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance of allowance at beginning of period $ 3,351 $ 3,822 $ 3,958 $ 3,982 $ 6,264
Provision for possible loan losses 475 625 2,150 2,950 2,500
------- ------- ------- ------- -------
Recoveries of loans previously charged-off:
Mortgage loans 273 417 261 152 212
Indirect consumer loans 75 61 59 43 52
Mobile home loans 73 42 9 7 20
Commercial loans 27 69 21 136 11
Other loans 18 23 28 21 43
------- ------- ------- ------- -------
466 612 378 359 338
------- ------- ------- ------- -------
4,292 5,059 6,486 7,291 9,102
------- ------- ------- ------- -------
Charge-offs:
Mortgage loans (522) (915) (1,900) (1,724) (3,970)
Indirect consumer loans (175) (185) (172) (356) (353)
Mobile home loans (601) (558) (482) (924) (476)
Commercial loans -- (12) (53) (206) (243)
Other loans (24) (38) (57) (123) (78)
------- ------- ------- ------- -------
(1,322) (1,708) (2,664) (3,333) (5,120)
------- ------- ------- ------- -------
Balance of allowance at end of period $ 2,970 $ 3,351 $ 3,822 $ 3,958 $ 3,982
======= ======= ======= ======= =======
Allowance for possible loan losses expressed as a percent
of total loans at end of year 1.09% 1.51% 1.75% 1.90% 1.77%
======= ======= ======= ======= =======
Loan charge-offs, net of recoveries, during each year expressed
as a percentage of average total loans during the period 0.34% 0.48% 1.03% 1.38% 2.13%
======= ======= ======= ======= =======
</TABLE>
The provision for possible loan losses for the past five years has been
less than the actual level of net charge-offs each year. This was primarily due
to a portion of the losses being provided for in prior fiscal years as well as
the improvement in asset quality and lower net charge-offs experienced since
1990.
The following table sets forth the breakdown of the allowance for possible
loan losses by loan category and the percentage of loans in each category to
total loans 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.
10
<PAGE>
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------------------------------------------------------------------------------------------
(Dollars in Thousands) Amount % Amount % Amount % Amount % Amount %
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance of allowance at end
of period applicable to:
Mortgage loans $1,124 51.3% $1,074 56.4% $1,602 60.5% $1,697 58.4% $1,914 63.4%
Indirect consumer loans 763 37.2 667 30.0 607 27.7 779 29.9 852 25.2
Mobile home loans 638 4.4 632 6.2 486 6.9 471 7.6 337 7.5
Commercial loans 150 4.6 103 3.6 33 1.4 105 1.6 197 1.9
Other loans 51 2.5 125 3.8 116 3.5 78 2.5 125 2.0
Unallocated 244 n/a 750 n/a 978 n/a 828 n/a 557 n/a
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$2,970 100.0% $3,351 100.0% $3,822 100.0% $3,958 100.0% $3,982 100.0%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
For further information, reference is made to "Provision for Possible Loan
Losses" and "Risk Characteristics of the Loan Portfolio" sections in
"Management's Discussion and Analysis."
V. DEPOSITS
The following table presents the distribution of the Bank's average
deposits outstanding and the average interest rates paid on such deposits during
the years ended June 30, as indicated.
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------------
(Dollars in Thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing deposits $ 13,581 --% $ 10,112 --% $ 6,705 --%
-------- -------- --------
Savings deposits:
Savings, club and escrow accounts 91,423 2.97 97,262 2.92 87,082 3.33
Interest bearing NOW accounts 21,668 1.91 19,429 1.98 15,921 2.39
Money market accounts 11,515 2.70 13,741 2.64 16,840 3.22
-------- -------- --------
Total savings deposits 124,606 2.76 130,432 2.75 119,843 3.19
Time certificates of deposit 162,066 4.97 146,364 4.58 150,461 5.12
-------- -------- --------
Total deposits $300,253 3.83 $286,908 3.59 $277,009 4.16
======== ======== ========
</TABLE>
The average interest rates paid on total deposits, excluding non-interest
bearing deposits, at June 30, 1995, 1994 and 1993, was 4.01%, 3.72% and 4.26%,
respectively.
On June 30, 1995, the Bank had $19,010,000 outstanding in time certificates
of deposit in amounts of $100,000 or more, maturing as follows:
<TABLE>
<CAPTION>
Period Ending Amount
--------------------------------------------------------------
(In Thousands)
<S> <C>
Within 3 months $5,338
Over 3 through 6 months 2,516
Over 6 through 12 months 4,324
Over 12 months 6,832
-------
Total $19,010
=======
</TABLE>
Item 2. Properties
The Bank's main office, which is owned by the Bank, is located at 43 North
Main Street, Concord, New Hampshire, in the center of the downtown business
district. At present, the Bank does not require all of the space available in
this building and has leased approximately one half of it to retail businesses.
The Bank owns two of its branch offices in Concord, each of which is
located in a modern, one-story building. The other Concord branch office is a
leased facility located on the Steeplegate Mall property and was opened during
September 1994. The Bank's branch office located in Weare, New Hampshire is also
leased. The Bank owns a three-story building in downtown Concord of which two
stories are currently serving as its operations center and the other floor is
leased to another local business. The Bank is also scheduled to open a new
branch to the north of Concord located in Tilton, New Hampshire during the Fall
of 1995. The Bank plans to lease the new Tilton facility. With the completion of
this project the Bank believes its facilities will be sufficient for its current
operations.
Item 3. Legal Proceedings
There are no material legal proceedings pending against the Company or any
of its subsidiaries.
11
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
Item 5. Market for the Company's Common Stock and Related Security Holder
Matters
Common Stock Information
At July 14, 1995, there were 938 holders of record of common stock. The
common stock of Community Bankshares, Inc. is traded and quoted on the National
Association of Securities Dealers, Inc. (NASDAQ) National Market System under
the symbol "CBNH." The following table represents common stock information as
reported by NASDAQ.
<TABLE>
<CAPTION>
Dividends per Share Share Volume Traded High Low
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1995
Fourth Quarter $0.13 230,175 $17.25 $15.250
Third Quarter 0.13 227,201 16.25 12.875
Second Quarter 0.13 178,655 16.25 12.875
First Quarter 0.12 292,397 16.25 14.500
Fiscal 1994
Fourth Quarter $0.11 120,150 $15.50 $13.250
Third Quarter 0.08 213,806 14.50 11.000
Second Quarter 0.05 172,855 14.50 11.000
First Quarter -- 218,865 12.75 8.250
</TABLE>
The declaration of future dividends will depend, subject to the discretion
of the Board of Directors, on a number of factors including operating results,
financial condition, capital adequacy, regulatory and tax considerations and
other factors. For further information see "Liquidity and Capital Resources" in
"Management's Discussion and Analysis."
Item 6. Selected Financial Data
Selected Financial Information
<TABLE>
<CAPTION>
At or for the Years Ended June 30,
(Dollars in Thousands Except Share Data) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets $425,714 $346,136 $320,567 $312,019 $293,674
Loans 271,461 222,109 218,960 208,322 224,927
Allowance for Possible Loan Losses 2,970 3,351 3,822 3,958 3,982
Real Estate Acquired by Foreclosure or Substantively Repossessed 1,134 836 2,568 6,725 6,613
Investment Securities 115,965 100,515 64,958 74,693 44,765
Deposits 308,556 292,925 285,609 272,068 238,369
Borrowed Funds 82,768 23,507 4,810 8,529 29,584
Stockholders' Equity 29,398 26,625 23,849 21,406 20,995
Total Interest and Dividend Income $ 28,241 $ 23,218 $ 24,636 $ 26,671 $ 28,996
Net Interest and Dividend Income 13,997 12,482 12,662 10,735 9,000
Provision for Possible Loan Losses 475 625 2,150 2,950 2,500
Gains on Sales of Investment Securities, net 148 411 967 1,295 828
Foreclosed Property Expense 146 67 1,875 1,766 1,587
Net Income 3,287 3,090 2,221 259 487
Earnings Per Common and Common Equivalent Share $ 1.84 $ 1.73 $ 1.28 $ .15 $ .29
Dividends Paid Per Share .51 .24 -- -- --
Book Value Per Share 16.94 15.27 13.93 12.70 12.48
Tangible Book Value Per Share 16.94 15.27 13.93 12.70 12.48
Return on Average Assets .87% .94% .71% .09% .17%
Return on Average Equity 11.90 11.68 9.73 1.19 2.26
Net Interest Margin 3.89 4.02 4.27 3.83 3.29
Stockholders' Equity to Assets at Year-End 6.91 7.69 7.43 6.86 7.15
Average Stockholders' Equity to Average Assets 7.31 8.04 7.30 7.29 7.38
Dividend Payout Ratio 27.72 13.87 -- -- --
</TABLE>
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Highlights
The market area in which the Company operates has experienced slow economic
growth over the past year. The economy had previously stabilized after reaching
its low point in the early 1990s. The economic strength of the market area in
which the Company operates continues to be dependent on the relative strength of
the regional and national economies.
The Company earned net income of $3,287,000, or $1.84 per share, for the
fiscal year ended June 30, 1995. Earnings for the years ended June 30, 1994, and
1993 were $3,090,000, or $1.73 per share, and $2,221,000, or $1.28 per share,
respectively.
Pretax earnings improved by 22.5% during fiscal 1995 over fiscal 1994
primarily from an increase in net interest income of $1,515,000. Pretax earnings
increased by 77.8% during fiscal 1994 over fiscal 1993 primarily due to
reductions in loan loss provision and expenses related to non-performing assets.
The Company achieved a 23.0% growth in total assets during fiscal 1995 with
total assets amounting to $425,714,000 at June 30, 1995 as compared to
$346,136,000 at June 30, 1994. Loans, primarily in indirect auto lending through
dealers, provided the majority of the asset growth for fiscal 1995.
At June 30, 1995, the Company's equity to asset ratio was 6.91%, its tier 1
leverage ratio was 7.07% and its total risk-based capital ratio was 11 .31%, all
of which exceeded published regulatory minimums. The capital ratios for June 30,
1994 were 7.69%, 7.94% and 13.39%, respectively. For further information on the
Company's and the Bank's capital ratios, see "Liquidity and Capital Resources"
in "Management's Discussion and Analysis."
On August 30, 1995, the Company announced the signing of a definitive
merger agreement to acquire Centerpoint Bank. For further information, see Note
17 of Notes to Consolidated Financial Statements.
Rate Volume Analysis
The following table presents changes in interest and dividend income,
interest expense and net interest and dividend income which are attributable to
changes in the average amounts of interest-earning assets and interest-bearing
liabilities outstanding and/or to changes in rates earned or paid thereon. The
net changes attributable to both volume and rate have been allocated
proportionately:
<TABLE>
<CAPTION>
Years Ended June 30 (In Thousands) 1995 vs. 1994 1994 vs. 1993
- -------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
Due To Due To
Volume Rate Total Volume Rate Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Mortgage loans $ (27) $1,051 $1,024 $ 153 $ (500) $ (347)
Other loans 2,373 (135) 2,238 232 (1,231) (999)
Investments 1,212 549 1,761 740 (812) (72)
------ ------ ------ ------ ------- -------
Total interest and dividend income 3,558 1,465 5,023 1,125 (2,543) (1,418)
------ ------ ------ ------ ------- -------
Interest expense:
Deposits 376 817 1,193 271 (1,499) (1,228)
Borrowed funds 2,216 99 2,315 58 (68) (10)
------ ------ ------ ------ ------- -------
Total interest expense 2,592 916 3,508 329 (1,567) (1,238)
------ ------ ------ ------ ------- -------
Net interest and dividend income $ 966 $ 549 $1,515 $ 796 $ (976) $ (180)
====== ====== ====== ====== ======= =======
</TABLE>
13
<PAGE>
Average Balance Sheets and Net Interest and Dividend Income
The following table sets forth certain information relating to the Company's
average balance sheets, including interest-earning assets, interest-bearing
liabilities and net interest income on a fully tax-equivalent basis for the
periods indicated:
<TABLE>
<CAPTION>
Years Ended June 30,
(Dollars in Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans $136,100 $11,666 8.57% $136,442 $10,642 7.80% $134,552 $10,989 8.17%
Other loans 118,231 9,933 8.40 90,011 7,695 8.55 87,620 8,694 9.92
-------- ------- ---- -------- ------- ---- -------- -------
Total loans(1) 254,331 21,599 8.49 226,453 18,337 8.10 222,172 19,683 8.86
Investment and
mortgage-backed securities(2) 104,732 6,603 6.30 79,406 4,768 6.00 71,933 4,895 6.80
Interest-bearing deposits in other banks 1,395 66 4.73 5,246 134 2.55 2,212 58 2.62
-------- ------- -------- ------- -------- -------
Total interest-earning assets 360,458 28,268 7.84 311,105 23,239 7.47 296,317 24,636 8.31
------- ------- -------
Non interest-earning assets 20,211 21,444 20,448
Allowance for possible loan losses (3,148) (3,642) (4,034)
-------- -------- --------
Total assets $377,521 $328,907 $312,731
======== ======== ========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits:
Savings $124,606 $3,441 2.76% $130,432 $3,588 2.75% $119,843 $ 3,822 3.19%
Time certificates 162,066 8,047 4.97 146,364 6,707 4.58 150,461 7,701 5.12
-------- ------- -------- ------- -------- -------
Total deposits 286,672 11,488 4.01 276,796 10,295 3.72 270,304 11,523 4.26
Borrowed funds 47,009 2,756 5.86 8,955 441 4.92 7,865 451 5.73
-------- ------- -------- ------- -------- -------
Total interest-bearing liabilities 333,681 14,244 4.27 285,751 10,736 3.76 278,169 11,974 4.30
------- ------- -------
Non interest-bearing demand deposits 13,581 10,112 6,705
Other liabilities 2,648 6,594 5,027
-------- -------- --------
Total liabilities 349,910 302,457 289,901
Stockholders' equity 27,611 26,450 22,830
Total liabilities and
stockholders' equity $377,521 $328,907 $312,731
======== ======== ========
Net interest income/interest rate spread(3) $14,024 3.57% $12,503 3.71% $12,662 4.01%
======= ======= =======
Net interest margin(4) 3.89% 4.02% 4.27%
</TABLE>
(1) Includes nonaccrual loans.
(2) Investment and mortgage-backed securities are shown at average amortized
cost.
(3) Interest rate spread is the average yield earned on total earning assets
less the average cost paid for interest-bearing liabilities.
(4) The net interest margin during the period equals net interest income divided
by average interest-earning assets for the period.
14
<PAGE>
Net Interest and Dividend Income
Net interest and dividend income, which is the difference between income from
earning assets and what is paid for interest-bearing liabilities, is the primary
source of income for the Company. Net interest income increased to $13,997,000
in fiscal 1995 from $12,482,000 in fiscal 1994 mostly due to the Company's
growth in earning assets during fiscal 1995. Net interest income for fiscal 1993
was $12,662,000. The decline in net interest income from fiscal 1993 to 1994 was
primarily due to reduced market interest rates on earning assets. The Company's
net interest margin for fiscal 1995, 1994 and 1993 was 3.89%, 4.02% and 4.27%,
respectively, on a fully tax-equivalent basis.
Yields Earned and Rates Paid
Interest rate spread represents the difference between the weighted average
yield earned on loans and investments and the weighted average rate paid on
interest-bearing deposits and borrowed funds.
The fully tax-equivalent yield on earning assets was 7.84% in fiscal 1995
compared to 7.47% in fiscal 1994 and 8.31% in fiscal 1993. The cost of average
interest-bearing liabilities in fiscal 1995, 1994 and 1993 was 4.27%, 3.76% and
4.30%, respectively. The changes in these yields and costs reflect the trends in
market interest rates over the past three years as well as the shift in the
composition of deposits from higher rate time certificates to lower costing
savings accounts which occurred during fiscal years 1993 and 1994. This shift
subsequently reversed during fiscal year 1995.
Average Balances
During fiscal 1995, the Company increased its average earning assets by
$49,353,000, or 15.9%, over fiscal 1994. Earning asset growth was mostly in
indirect auto loans through dealers. In order to fund this growth in average
earning assets the Company utilized an increase in average borrowed funds of
$38,054,000 and growth in average interest-bearing deposits of $9,876,000 over
fiscal 1994. The Company also experienced growth of $3,469,000, or 34.3%, in
average non-interest bearing demand deposits for fiscal 1995 over 1994.
During fiscal 1994, average earnings assets increased by $14,788,000 over
fiscal 1993 primarily in investment securities which were funded by increases of
$9,899,000 and $1,090,000, respectively, in average deposits and borrowed funds.
Provision for Possible Loan Losses
The provision for possible loan losses is based on management's assessment of
the adequacy of the allowance for possible loan losses after considering known
and inherent risks in the loan portfolio, existing and expected economic
conditions, the level of non-performing loans, charge-offs, past loan loss
experience and loan growth.
During fiscal 1995, $475,000 was provided for possible loan losses versus
$625,000 in 1994 and $2,150,000 in 1993. During the fourth quarter of fiscal
1995, $150,000 was provided into the allowance for possible loan losses as
compared to $100,000, $100,000 and $125,000, respectively, during the first
three quarters of the fiscal year. The allowance for possible loan losses as a
percent of non-performing loans was 171.7% at June 30, 1995 as compared to
370.7% at June 30, 1994 and 116.6% at June 30, 1993. At June 30, 1995, the
allowance for possible loan losses stood at $2,970,000, or 1.1% of total loans.
At June 30, 1994 and 1993 the allowance for possible loan losses stood at
$3,351,000 and $3,822,000, respectively, and equaled 1.5% and 1.8% of total
loans. Improved asset quality and lower net charge-offs have enabled the Company
to reduce its loan loss provisions. Net charge-offs for fiscal years 1995, 1994
and 1993 were $856,000, $1,096,000 and $2,286,000, respectively.
A summary of net charge-offs (recoveries) in fiscal years 1995, 1994 and
1993 is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loan Type:
Construction $ (11) $ (153) $ 179
Commercial real estate (108) 44 1,304
Commercial (27) (57) 32
Residential mortgage 262 530 103
Home equity 106 77 54
Mobile home 528 516 473
Indirect and other consumer 106 139 141
----- ------ ------
$ 856 $1,096 $2,286
===== ====== ======
</TABLE>
15
<PAGE>
While management believes that additions to, and the year-end balance of, the
allowance for possible loan losses are adequate, further provisions to the
allowance for possible loan losses may be necessary if the market in which the
Company operates deteriorates.
Asset Quality
The Company's non-performing assets (which consist of non-performing loans and
assets acquired to satisfy debt, including loan collateral substantively
repossessed) amounted to $3,232,000 at the end of fiscal 1995 versus $1,982,000
at June 30, 1994 and $6,105,000 at June 30, 1993.
At June 30, 1995, non-performing loans totaled $1,730,000. Non-performing
loans amounted to $904,000 and $3,279,000, respectively, at June 30, 1994 and
1993.
Non-Performing Asset Analysis
Non-performing assets consist of nonaccrual loans, real estate acquired through
foreclosure or substantively repossessed and other assets acquired to satisfy
debt.
The Company's non-performing assets increased in fiscal 1995 by $1,250,000
from the end of fiscal 1994. At June 30, 1995, non-performing assets totaled
$3,232,000, or 0.8% of total assets, compared to $1,982,000, or 0.6% of total
assets, at June 30, 1994 and $6,105,000 or 1.9% of total assets, at June 30,
1993.
The increase in non-performing assets from June 30, 1994 to June 30, 1995
was the result of $5,290,000 in additions which were partially offset by
$2,742,000 in deletions from amortization, payoffs or sales of non-performing
assets and $1,298,000 in charge-offs.
Of the net increase of $1,250,000 in non-performing assets, $1,231,000 was
related to two commercial loans, which were originated prior to 1990 and which
were previously performing, being placed onto non-accruing status by the Bank
during the third quarter of fiscal 1995.
Non-Performing Loan Summary
<TABLE>
<CAPTION>
(Dollars in Thousands) At June 30, 1995
- -------------------------------------------------------------------------------------------------------------------------------
Share of Share of Percent of
Total Loans Total Loans Non-performing Non-performing Non-performing/
Loan Type Outstanding Outstanding Loans Loans Total Loans in Type
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential mortgage loans $67,501 24.8% $263 15.2% 0.4%
Commercial loans:
Construction 473 0.2 -- -- --
Real estate 53,504 19.7 1,268 73.3 2.4
Other 12,414 4.6 40 2.3 0.3
Home equity 17,070 6.3 23 1.3 0.1
Mobile home loans 11,976 4.4 37 2.1 0.3
Indirect consumer loans 101,744 37.5 89 5.2 0.1
Other consumer loans 6,779 2.5 10 0.6 0.1
-------- ------ ------ ------
Total $271,461 100.0% $1,730 100.0% 0.6
======== ====== ====== ======
</TABLE>
Management is not aware of any potential problem loans, which have not
already been identified and disclosed above, which would have a material effect
on the Company. For further information on non-performing loans, see Note 3 of
Notes to Consolidated Financial Statements.
Assets Acquired to Satisfy Debt and Loans Substantively Repossessed
Assets acquired to satisfy debt and loans substantively repossessed totaled
$1,502,000 at June 30, 1995 compared to $1,078,000 at June 30, 1994. Of the
total at June 30, 1995, $261,000 was in commercial real estate, $873,000 in
primary residential properties, $277,000 in mobile homes and $91,000 in
repossessed vehicles. For further information, see Note 6 of Notes to
Consolidated Financial Statements.
16
<PAGE>
Risk Characteristics of the Loan Portfolio
The majority of the asset growth was in the loan portfolio. Total loans
increased by $49,352,000, or 22.2%, from $222,109,000 at June 30, 1994 to
$271,461,000 at June 30, 1995. With the consolidation that has been taking place
over the past few years in the New Hampshire banking industry, the Company has
taken advantage of market opportunities to expand and develop new lending
relationships.
The Bank, through its subsidiary Bancredit, has serviced a large number of
auto and recreational vehicle dealers throughout New Hampshire for more than ten
years and understands the challenges and risks associated with this business.
With the addition of experienced, high level personnel the Bank has
substantially increased its number of active dealer relationships during fiscal
1995 resulting in significant loan growth in indirect loans. At June 30,1995,
the balance of indirect automobile and recreational vehicle loans through
dealers was $101,744,000, or 37.5% of total loans as compared to $66,699,000, or
30.0% of total loans at June 30, 1994.
In order to continue serving the market for indirect automobile loans in
New Hampshire, generate fee income from servicing these types of loans and
manage the Company's balance sheet, the Bank has developed the ability to sell
automobile loans while retaining the right to service these loans. During fiscal
1995, the Bank sold three separate pools of automobile loans, to two different
buyers, totaling $11,591,000. As part of the sales agreement relating to the
sale of $9,777,000 of these loans, the Bank is obligated to assume a certain
portion of credit losses should they occur and has accrued $51,000 to absorb
such possible losses. The remainder of these loans were sold without credit
enhancement. In addition, an agreement was reached to sell up to an additional
$48,000,000 of new loan production with credit enhancement on a best efforts
basis.
The Company also used similar market opportunities in the commercial
lending area to grow commercial loans by $18,333,000 during fiscal 1995. Of the
Bank's commercial loan portfolio, which represents 24.5% of total loans,
$8,178,000, or 12.3% of commercial loans, are loans enrolled with Small Business
Administration (SBA) programs. For further information on loans, see Note 7 of
Notes to Consolidated Financial Statements.
Commercial and consumer (indirect auto and recreational vehicle) lending
may entail additional risks compared to residential mortgage lending. Commercial
loans may involve large loan balances to single or groups of related borrowers.
In addition, the payment experience on loans secured by income producing
properties is typically dependent on the successful operation of the properties
and thus may be subject to a greater extent to adverse conditions in the local
real estate market or in the economy in general. Money lent for consumer loans
may be expensive and time consuming to recover in the event of default.
The Bank continues to use the same loan underwriting criteria and loan
review process that has reduced non-performing assets to the lower levels that
have been maintained over the past few years. This, in addition to an
experienced collections department, has kept loan delinquencies and loan charge-
offs at low levels, particularly in the consumer loan portfolio. Based on
management's analysis, the Bank's indirect auto lending delinquency levels have
been consistently below industry standards over the past few years.
Investment Securities
At June 30, 1995, the Company's securities classified as available for sale
amounted to $58,754,000, or 52.4% of total investment securities with the
remaining securities of $53,408,000, or 47.6%, classified as held to maturity.
At June 30, 1994, securities available for sale and held to maturity amounted to
$64,795,000 and $33,860,000, respectively, which represented 65.7% and 34.3%,
respectively, of total investment securities. The Bank, as a member, owned
Federal Home Loan Bank stock of $3,803,000 at June 30, 1995 compared to
$1,860,000 at June 30, 1994.
Unrealized net gains on securities available for sale, net of applicable
taxes, amounted to $328,000 at June 30, 1995 compared to unrealized net losses
of $262,000 at June 30, 1994.
Also, during the last quarter of fiscal 1995, the Bank securitized
$5,551,000 of residential mortgage loans with Fannie Mae and transferred them
from loans to securities available for sale on the balance sheet.
17
<PAGE>
Deposits
Deposits provided funding for 76.6% of total earning assets at June 30, 1995
compared to 89.4% at June 30, 1994 and 94.5% at June 30, 1993. Average deposits
amounted to $300,253,000, $286,908,000 and $277,009,000 for the years ended June
30, 1995, 1994 and 1993, respectively.
The average cost of interest-bearing deposits increased to 4.01% during
fiscal 1995 as compared to 3.72% in 1994 and 4.26% in 1993. The decline during
fiscal 1993 and 1994 and subsequent increase in 1995 in the cost of deposits was
primarily the result of trends in open market interest rates. By choice, the
Company currently accepts no brokered deposits. For further information, see
Note 7 of Notes to Consolidated Financial Statements.
Borrowed Funds
The Company, in order to fund its earning asset growth, increased borrowed funds
by $59,261,000 during fiscal 1995 and by $18,697,000 during fiscal 1994. For
further information, see Notes 8 and 9 of Notes to Consolidated Financial
Statements.
Non-Interest Income
Total non-interest income amounted to $2,036,000 for fiscal 1995 compared to
$2,558,000 in fiscal 1994 and $2,879,000 in fiscal 1993.
Exclusive of loan and security gains, non-interest income has steadily
increased from $985,000 in fiscal 1993 to $1,058,000 in fiscal 1994 to
$1,387,000 in fiscal 1995. This represents a 40.8% increase in 1995 versus the
level earned in fiscal 1993. The increases have resulted primarily from steady
growth in deposit fee and loan servicing income. Growth in service chargeable
deposit accounts and increases in selected service fees, implemented during
fiscal 1994, are the reasons for the increases in deposit fee income. Continued
growth in mortgage loans serviced for others over the past three years has
resulted in a corresponding increase in fee income.
The Company's recent purchase, during the last quarter of fiscal 1995, of
approximately $180,000,000 of residential mortgage servicing rights is expected
to provide further momentum to continued improvement in the Company's loan
servicing income. Revenues from these rights will be earned commencing in August
of 1995, the first quarter of fiscal 1996. It is expected that the Company will
be able to service these additional loans utilizing existing capacity without
significantly adding to staffing or equipment.
Loan sale gains decreased to $501,000 in fiscal 1995 compared to the higher
levels of $1,089,000 and $927,000 earned during fiscal 1994 and 1993,
respectively, due to reduced residential mortgage origination volume caused by
the decline in demand for refinancings as market rates have risen. Offsetting a
portion of this decline experienced in fiscal 1995 was the adoption of SFAS No.
122 "Accounting for Mortgage Servicing Rights, an Amendment of FASB Statement
No. 65." This was effective July 1, 1994 and resulted in an increase of $170,000
in gains on the sale of loans for fiscal 1995.
Also, the Company's opportunities to realize security gains has diminished
over the past two years as market rates rose. Gains on the sale of securities
has declined from $967,000 in fiscal 1993 to $411,000 in fiscal 1994 to
$148,000 in fiscal 1995.
Non-Interest Expense
Total non-interest expense increased by 2.4% to $10,720,000 in fiscal 1995 from
$10,467,000 experienced during fiscal 1994 primarily due to major investments
made by the Company to expand its business lines and product distribution
system. Total non-interest expense for fiscal 1994 represented a decrease of
6.3% from $11,170,000 in fiscal 1993. This reduction was primarily the result of
lower expenses related to non-performing assets.
During the fiscal year ended June 30, 1995, the Company experienced
increases in salaries and benefits and occupancy and equipment expenses
primarily due to expanding major business lines and product distribution system.
During fiscal 1995, the Bank opened a new full-service branch office at the
Steeplegate Mall located in Concord, New Hampshire, opened a remote automated
teller machine in Tilton, New Hampshire, expanded its indirect auto dealer
financing programs and established a municipal services department. Also
impacting salaries and benefits during fiscal 1995 were additional benefits
expense related to pension and the establishment and funding of a 401K benefit
plan.
Offsetting a portion of the increased non-interest expense was a reduction
in other non-interest expense during fiscal 1995 which was primarily due to
reduced legal and other expenses related to the resolution of problem loans.
18
<PAGE>
Income Taxes
There was no income tax expense in 1993 as a result of the decrease in the
deferred income tax asset valuation reserve established on July 1, 1992. In
1994, and to a lesser extent in 1995, income tax expense was partially offset by
further decreases in the valuation reserve. At June 30, 1995, the Company had a
net deferred tax asset of approximately $172,000, which includes a valuation
reserve of approximately $136,000 which primarily relates to certain state tax
temporary differences. The realization of the net deferred tax asset may be
based on utilization of carrybacks to prior taxable periods, anticipation of
future taxable income, and the utilization of tax planning strategies.
Management has determined that it is more likely than not that the net deferred
tax asset can be realized by carrybacks to federal taxable income in the three-
year carryback period and by expected future taxable income. For further
information on income taxes, see Note 11 of Notes to Consolidated Financial
Statements.
Liquidity and Capital Resources
Liquidity is a measure of the Company's ability to meet its cash needs at a
reasonable cost. Cash needs arise primarily as a result of funding lending
opportunities, the maturity of liabilities such as borrowings and the withdrawal
of deposits. Asset liquidity is achieved through the management of earning asset
maturities, loan amortization, deposit growth and access to borrowed funds.
Management believes that funding sources are adequate to meet commitments and
ongoing obligations.
The Holding Company's funding requirements are limited and are adequately
satisfied by dividends from the Bank and by its interest-bearing cash deposit
with the Bank. Dividends paid from the Bank to the Holding Company are limited
to the extent necessary for the Bank to comply with regulatory capital
guidelines.
The Bank is a member of the Federal Home Loan Bank of Boston which makes
substantial borrowings available to its members. Borrowed funds at June 30,
1995 totaled $82,768,000 compared to $23,507,000 at the end of fiscal 1994. At
June 30, 1995, the Bank had approximately $63,000,000 available in unused
borrowing capacity remaining at the Federal Home Loan Bank of Boston to meet
future large deposit fluctuations or increased loan demands should either occur.
Total cash and cash equivalents at June 30, 1995 were $19,097,000 versus
$8,012,000 at the end of fiscal 1994. This increase was in the interest-bearing
deposits in other banks which resulted primarily from the sale of approximately
$10,000,000 in automobile loans on June 30, 1995.
The investment portfolio at June 30, 1995 totaled $115,965,000 of which
$58,754,000 was designated as "available for sale" to enhance the liquidity
position, and $53,408,000 was designated as "held to maturity." The Company has
not historically had, and does not anticipate having, a need to use the
remainder of the investment portfolio for liquidity purposes given its unused
borrowing capacity and other liquidity resources.
At June 30, 1995, the Company had equity capital of $29,398,000, resulting
in an equity-to-assets ratio of 6.91%.
The Company is regulated by the Federal Reserve Board which requires the
Company to maintain a minimum risk-based capital ratio. At June 30, 1995 the
minimum risk-based capital ratio required was 8.00%. The Company's risk-based
capital ratio at June 30, 1995 was 11.31% compared to 13.39% at June 30, 1994.
To complement the risk-based guidelines, the Federal Reserve Board requires
a leverage ratio of 3% to 4% which represents the minimum capital to total asset
standard for bank holding companies. Federal banking agencies, including the
FDIC, require similar leverage ratios for banks. These leverage ratios are
expected to be used in tandem with the risk-based capital ratio. The Company's
leverage ratio was 7.07% at June 30, 1995.
The following table summarizes the Company's required and actual regulatory
capital ratios and amounts at June 30, 1995:
<TABLE>
<CAPTION>
Required Actual
Regulatory Regulatory
(Dollars in Thousands) Capital Capital
- ----------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio
--------------- --------- ------- -----
<S> <C> <C> <C> <C>
Leverage $12,268-$16,358 3.00-4.00% $28,827 7.07%
Risk-based:
Tier 1 11,244 4.00 28,827 10.25
Total risk-based 22,489 8.00 31,797 11.31
</TABLE>
19
<PAGE>
The following table summarizes the Bank's required and actual regulatory capital
ratios and amounts at June 30, 1995:
<TABLE>
<CAPTION>
Required Actual
Regulatory Regulatory
(Dollars in Thousands) Capital Capital
- --------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio
------ --------- ------- -----
<S> <C> <C> <C> <C>
Leverage $12,268-$16,358 3.00-4.00% $27,149 6.64%
Risk-based:
Tier 1 11,240 4.00 27,149 9.66
Total risk-based 22,480 8.00 30,119 10.72
</TABLE>
Management believes that the proposed acquisition of Centerpoint Bank will
not have a material impact on the Company's liquidity or capital resources.
Recent Accounting Developments
On July 1, 1995, the Company adopted SFAS No. 114 "Accounting by Creditors
for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosure." These statements
generally require all creditors to account for impaired loans, except those
loans accounted for at fair value or at the lower of cost or fair value, at the
present value of the expected future cash flows discounted at the loan's
effective interest rate or, alternatively, at the fair value of the loan's
collateral. In addition, criteria for classification of a loan as in-substance
foreclosure has been modified so that such classification need be made only when
the lender is in possession of the collateral. These statements also require
impairment of troubled debt restructuring to be measured using the pre-
modification rate of interest. Adoption of these statements had no material
impact on the Company's financial position or results of operations.
Item 8. Financial Statements and Supplementary Data
Independent Auditor's Report
The Stockholders and Board of Directors
Community Bankshares, Inc.:
We have audited the accompanying consolidated balance sheets of Community
Bankshares, Inc. and subsidiaries as of June 30, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended June 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Community
Bankshares, Inc. and subsidiaries at June 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1995 in conformity with generally accepted accounting
principles.
As explained in Note 1 of Notes to Consolidated Financial Statements,
effective July 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 122 "Accounting for Mortgage Servicing Rights, an Amendment to
FASB Statement No. 65."
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
July 21, 1995, except Note 17,
as to which the date is August 30, 1995
20
<PAGE>
Consolidated Statements of Income
Community Bankshares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended June 30,
(Dollars in Thousands Except Share Data) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Loans (Note 3) $21,599 $18,337 $19,683
Securities available for sale 3,823 4,171 --
Securities held for sale -- -- 761
Securities held to maturity 2,565 422 3,963
Dividends on Federal Home Loan Bank stock 188 154 171
Deposits in other banks 66 134 58
------- ------- -------
Total interest and dividend income 28,241 23,218 24,636
------- ------- -------
Interest expense:
Deposits 11,488 10,295 11,523
Borrowed funds 2,756 441 451
------- ------- -------
Total interest expense 14,244 10,736 11,974
------- ------- -------
Net interest and dividend income 13,997 12,482 12,662
Provision for possible loan losses (Note 4) 475 625 2,150
------- ------- -------
Net interest and dividend income after provision
for possible loan losses 13,522 11,857 10,512
------- ------- -------
Non-interest income:
Deposit account fees 506 366 318
Gains on sales of investment securities, net (Note 2) 148 411 967
Gains on sales of loans, net (Note 1) 501 1,089 927
Mortgage servicing income 522 476 341
Other 359 216 326
------- ------- -------
Total non-interest income 2,036 2,558 2,879
------- ------- -------
Non-interest expense:
Salaries and employee benefits (Note 12) 5,430 4,989 4,370
Occupancy and equipment 1,466 1,297 1,255
Foreclosed property (Note 6) 146 67 1,875
FDIC deposit insurance premiums 678 697 668
Marketing 301 315 229
Other 2,699 3,102 2,773
------- ------- -------
Total non-interest expense 10,720 10,467 11,170
------- ------- -------
Income before income taxes 4,838 3,948 2,221
Income tax expense (Note 11) 1,551 858 --
------- ------- -------
Net income $ 3,287 $ 3,090 $ 2,221
======= ======= =======
Earnings per common and common equivalent share $ 1.84 $ 1.73 $ 1.28
Average number of common and common equivalent
shares outstanding 1,788,792 1,786,436 1,736,775
Dividends paid per share $ 0.51 $ 0.24 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
Consolidated Balance Sheets
Community Bankshares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
June 30,
(Dollars in Thousands Except Share Data) 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks (Note 13) $ 8,227 $ 7,503
Interest-bearing deposits in other banks 10,870 509
-------- --------
Total cash and cash equivalents 19,097 8,012
-------- --------
Securities available for sale--amortized cost $58,225 in 1995 and
$65,252 in 1994 (Notes 2, 8 and 9) 58,754 64,795
Securities held to maturity--fair value $53,350 in 1995 and
$32,997 in 1994 (Notes 2, 8 and 9) 53,408 33,860
Federal Home Loan Bank stock (Notes 2 and 9) 3,803 1,860
Mortgage loans held for sale (Note 3) 4,392 4,942
Loans (Notes 3 and 9) 271,461 222,109
Allowance for possible loan losses (Note 4) (2,970) (3,351)
-------- --------
Net loans 268,491 218,758
-------- --------
Premises and equipment (Note 5) 7,422 7,150
Real estate acquired by foreclosure or substantively repossessed (Note 6) 1,134 836
Accrued interest receivable 3,100 2,526
Other assets (Notes 6 and 11) 6,113 3,397
-------- --------
Total assets $425,714 $346,136
======== ========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (Note 7):
Non-interest bearing demand $ 16,420 $ 15,067
Savings 115,174 131,877
Time certificates 176,962 145,981
-------- --------
Total deposits 308,556 292,925
Borrowed funds (Notes 8 and 9) 82,768 23,507
Liability relating to ESOP (Note 12) 197 355
Accrued interest payable 1,177 693
Other liabilities 3,618 2,031
-------- --------
Total liabilities 396,316 319,511
-------- --------
Commitments and contingencies (Notes 5, 12 and 13)
Stockholders' equity (Notes 10, 11 and 12):
Preferred stock, $1.00 par value per share; 1,000,000 shares
authorized, none issued -- --
Common stock, $1.00 par value per share; 3,000,000 shares authorized;
issued and outstanding 1,747,032 in 1995 and 1,743,532 in 1994 1,747 1,744
Additional paid-in capital 17,146 17,343
Retained earnings 10,567 8,155
-------- --------
29,460 27,242
Unrealized net gains (losses) on securities available for sale, net (Note 3) 328 (262)
Unearned compensation expense--ESOP (197) (355)
Treasury stock--11,810 shares at cost (193) --
-------- --------
Total stockholders' equity 29,398 26,625
-------- --------
Total liabilities and stockholders' equity $425,714 $346,136
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
Consolidated Statements
of Changes in
Stockholders' Equity
Community Bankshares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended June 30,
1995, 1994, 1993
(Dollars in Thousands Except Share Data)
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized Net
Gains (Losses) Unearned
Additional on Securities Compensation
Common Paid-in Retained Available for Expense Treasury
Stock Capital Earnings Sale, Net ESOP Stock Total
------- --------- --------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1992 $1,705 $17,293 $ 3,252 $ -- $(670) $(174) $21,406
Net income -- -- 2,221 -- -- -- 2,221
Amortization of unearned compensation--ESOP -- -- -- -- 157 -- 157
Issuance of common stock through stock
option plans (Note 12) 3 (124) -- -- -- 174 53
Issuance of common stock through employee
stock purchase plan (Note 12) 4 8 -- -- -- -- 12
------- -------- -------- ------- ------ ------ --------
Balances at June 30, 1993 1,712 17,177 5,473 -- (513) -- 23,849
Net income -- -- 3,090 -- -- -- 3,090
Amortization of unearned compensation--ESOP -- -- -- -- 158 -- 158
Issuance of common stock through stock
option plans (Note 12) 28 141 -- -- -- -- 169
Issuance of common stock through employee
stock purchase plan (Note 12) 4 25 -- -- -- -- 29
Cash dividends ($0.24 per share) -- -- (408) -- -- -- (408)
Change in unrealized net gains (losses)
on securities available for sale, net -- -- -- (262) -- -- (262)
------- -------- -------- ------- ------ ------ --------
Balances at June 30, 1994 1,744 17,343 8,155 (262) (355) -- 26,625
Net income -- -- 3,287 -- -- -- 3,287
Amortization of unearned compensation--ESOP -- -- -- -- 158 -- 158
Issuance of common stock through stock
option plans (Note 12) 3 (193) -- -- -- 407 217
Issuance of common stock through employee
stock purchase plan (Note 12) -- (4) -- -- -- 27 23
Purchase of 42,500 shares of treasury stock -- -- -- -- -- (627) (627)
Cash dividends ($0.51 per share) -- -- (875) -- -- -- (875)
Change in unrealized net gains (losses)
on securities available for sale, net -- -- -- 590 -- -- 590
------- -------- -------- ------- ------ ------ --------
Balances at June 30, 1995 $1,747 $17,146 $10,567 $328 $(197) $(193) $29,398
------- -------- -------- ------- ------ ------ --------
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
Consolidated Statements of Cash Flows
Community Bankshares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended June 30,
(in Thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,287 $ 3,090 $ 2,221
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for possible loan losses 475 625 2,150
Depreciation and amortization 1,191 1,038 1,037
Gains on sales of investment securities, net (148) (411) (967)
(Gain) loss on sales of premises and equipment -- 26 (61)
Net (gains) losses on sales and loss provisions on real estate
acquired by foreclosure or substantively repossessed (51) (130) 1,323
Mortgage loans originated for sale (28,655) (112,813) (78,863)
Mortgage loans sold 29,205 114,617 75,959
(Increase) decrease in other assets (3,205) 1,869 (2,390)
Increase (decrease) in other liabilities 2,152 (3,027) (3,560)
--------- --------- ---------
Net cash provided by (used in) operating activities 4,251 4,884 (3,151)
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sales of investment securities -- -- 1,958
Proceeds from sales of securities available for sale and held for sale 20,925 11,407 17,854
Proceeds from maturities and principal payments of securities
held to maturity 5,538 1,922 5,999
Proceeds from maturities and principal payments of securities
available for sale and held for sale 12,657 35,939 1,165
Purchase of securities held to maturity (25,094) (24,807) (9,607)
Purchase of securities available for sale (20,904) (41,041) --
Net (increase) decrease in FHLB stock (1,943) 448 --
Net increase in loans (57,012) (24,354) (21,732)
Capitalized expenses on real estate acquired by foreclosure or
substantively repossessed (232) (65) (101)
Proceeds from disposition of real estate acquired by foreclosure
or substantively repossessed 984 2,404 4,219
Proceeds from sales of premises and equipment -- 28 249
Additions to premises and equipment (1,023) (827) (1,792)
Cash paid for mortgage servicing rights (453) -- --
--------- --------- ---------
Net cash used in investing activities (66,557) (38,946) (1,788)
--------- --------- ---------
Cash flows from financing activities:
Net increase (decrease) in time certificates of deposit 30,981 (3,588) (4,537)
Net increase (decrease) in demand, NOW, savings and money market
deposit accounts (15,350) 10,904 18,078
Proceeds from borrowings 158,113 30,782 12,303
Repayments of borrowings (98,852) (12,085) (16,022)
Repayments of liability relating to ESOP (158) (158) (157)
Proceeds from issuance of common stock 175 171 65
Purchase of treasury stock (627) -- --
Dividends paid on common stock (891) (416) --
--------- --------- ---------
Net cash provided by financing activities 73,391 25,610 9,730
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 11,085 (8,452) 4,791
Cash and cash equivalents at beginning of year 8,012 16,464 11,673
--------- --------- ---------
Cash and cash equivalents at end of year $ 19,097 $8,012 $ 16,464
========= ========= =========
Supplemental cash flow information:
Cash paid for:
Income taxes, net $ 1,235 $ 1,186 $ 135
Interest 13,760 10,696 12,147
Supplemental schedule of non-cash activities:
Transfer of securities to available for sale $ -- $ 56,028 $ --
Transfer of securities from available for sale to held to maturity -- 10,957 --
Mortgage loans securitized during the period 5,551 19,625 6,827
Additions to real estate acquired by foreclosure or substantively
repossessed 999 477 1,994
Transfer of real estate acquired by foreclosure to premises
and equipment -- -- 609
Change in net unrealized gains (losses) on securities
available for sale, net 590 (262) --
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Community
Bankshares, Inc. and its wholly-owned subsidiaries ("the Company"), Concord
Savings Bank ("the Bank") and its wholly owned subsidiary, Bancredit Corporation
("Bancredit"). Bancredit originates automobile, recreational vehicle and boat
loans through dealers throughout New Hampshire. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain amounts
in prior years have been reclassified to conform with the current year's
presentation.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and general practices
within the banking industry. In preparing the financial statements, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the dates of the balance sheets and revenues and
expenses for the periods. Actual results could differ from these estimates.
Material estimates that are susceptible to change because of changing
forces in the real estate market relate to the determination of the allowance
for possible loan losses and valuation of real estate acquired by foreclosure or
substantively repossessed.
Investment and Mortgage-Backed Securities
Debt securities that management has the positive intent and ability to hold to
maturity are classified as "held to maturity" and carried at amortized cost.
Investments that are purchased and held principally for the purpose of selling
them in the near term are classified as "trading" and carried at fair value,
with unrealized gains and losses included in earnings. Investments not
classified as either "held to maturity" or "trading" are classified as
"available for sale" and carried at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of stockholders'
equity. When a debt security is transferred into the "held to maturity" category
from the "available for sale" category, the unrealized gain or loss at the
transfer date continues to be reported as a separate component of stockholders'
equity and is amortized over the remaining life of the related security as a
yield adjustment. If a decline in fair value below the amortized cost basis of
an investment is judged by management to be other than temporary, the cost basis
of the investment is written down to fair value and the amount of the writedown
is included in earnings.
Premiums and discounts on investment and mortgage-backed securities are
recognized in the statements of income using a method that approximates the
level-yield method over the lives of the securities. Gains and losses on
securities are recognized when realized with the cost basis of investments sold
determined on a specific identification basis.
Loans
Interest income on loans is recognized on the accrual method. Nonaccrual loans
are those on which the accrual of interest is discontinued when collectibility
of principal or interest is uncertain or payments of principal or interest have
become contractually past due 90 days. Upon such discontinuance, all unpaid
accrued interest is reversed against the current period's earnings. A loan which
has principal or interest payments contractually past due 90 days may remain on
accrual status, however, if value of the collateral securing the loan is
sufficient to cover principal and accrued interest, and the loan is in the
process of collection.
Interest received on nonaccrual loans is either applied against principal
or reported as income according to management's judgment as to the
collectibility of principal. Loan origination fees and certain direct
origination costs are capitalized and recognized in income as an adjustment of
the yield on the related loan.
Loan Sale Activity
Loans held for sale are carried at the lower of aggregate cost or market value,
based upon commitments from investors to purchase such loans and upon prevailing
market conditions. Deferred origination fees collected for such loans, net of
sale commitment fees paid, are included in the lower of cost or market
determination. Such fees are recognized as part of gains on sales of loans when
the loans are sold.
Gains and losses on loans sold with servicing rights retained are adjusted
to recognize the difference between the present value of future service fee
income and a normal service fee. The resulting excess loan servicing rights are
amortized as a reduction of service fee income using the level yield method over
the remaining lives of the loans adjusted by expected prepayments. Actual loan
prepayment experience is reviewed periodically and the carrying value of excess
loan servicing rights is reduced when actual prepayment experience exceeds that
originally estimated.
Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights,
an Amendment of FASB Statement No. 65." As a result of adoption, gains on sales
of loans increased by approximately $170,000 for the year ended June 30, 1995.
This statement requires the Company to recognize as separate assets rights to
service mortgage loans for others, however those servicing rights are acquired.
When the Company acquires mortgage servicing rights either through the purchase
or origination of mortgage loans (originated mortgage loan servicing rights) and
sells or securitizes those loans with servicing rights retained it allocates the
total cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values.
When the Company purchases mortgage loan servicing rights (purchased mortgage
loan servicing rights) separately, the initial purchase cost is recognized as an
asset.
Originated and purchased mortgage loan servicing rights are amortized as a
reduction of service fee income in proportion to, and over the period of,
estimated net servicing income by use of the level yield method.
25
<PAGE>
On a quarterly basis, the Company assesses the carrying values of
originated and purchased mortgage servicing rights for impairment based on the
fair value of such rights. A valuation model that calculates the present value
of future cash flows is used to estimate such fair value. This valuation model
incorporates assumptions that market participants would use in estimating future
net servicing income including estimates of the cost of servicing loans,
discount rate, float value, ancillary income, prepayment speeds, and default
rates. Any impairment is recognized as a charge to earnings through a valuation
allowance.
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained at a level believed by
management to be adequate to meet reasonably foreseeable loan losses on the
basis of many factors including the risk characteristics of the portfolio,
underlying collateral, current and anticipated economic conditions that may
affect the borrower's ability to pay, specific problem loans, and trends in loan
delinquencies and charge-offs. Possible losses on loans are provided for under
the allowance method of accounting. The allowance is increased by provisions
charged to earnings and reduced by loan charge-offs, net of recoveries. Loans
are charged off in whole or in part when, in management's opinion,
collectibility is not probable.
While management uses available information to establish the allowance for
possible loan losses, future additions to the allowance may be necessary if
economic developments differ substantially from the assumptions used in making
the evaluation. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for possible
loan losses. Such agencies may require the Bank to recognize additions to the
allowance based on judgments different from those of management.
On July 1, 1995, the Company adopted SFAS No. 114 "Accounting by Creditors
for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosure." These statements
generally require all creditors to account for impaired loans, except those
loans accounted for at fair value or at the lower of cost or fair value, at the
present value of the expected future cash flows discounted at the loan's
effective interest rate or, alternatively, at the fair value of the loan's
collateral. In addition, criteria for classification of a loan as in-substance
foreclosure has been modified so that such classification need be made only when
the lender is in possession of the collateral. These statements also require
impairment of troubled debt restructurings to be measured using the pre-
modification rate of interest. Adoption of these statements had no material
impact on the Company's financial position or results of operations.
Premises and Equipment
Land is stated at cost. Bank buildings, improvements and equipment are carried
at cost less accumulated depreciation. Depreciation is computed over the
estimated useful lives of the respective assets on the straight-line method for
buildings and improvements and on the straight-line and double-declining balance
methods for equipment.
Real Estate Acquired by Foreclosure or Substantively Repossessed
Real estate acquired by foreclosure includes foreclosed properties where the
Bank has actually received title. When there is indication that a borrower no
longer has equity in property collateralizing a loan and it is doubtful that
equity will be rebuilt in the foreseeable future, the property is considered to
be repossessed in substance. Both in-substance foreclosures and real estate
formally acquired in settlement of loans are recorded at the lower of the
carrying value of the loan or the fair value of the property constructively or
actually received minus costs to sell. Losses arising from the acquisition of
such properties or from the writedowns to fair values of loans substantively
repossessed are charged against the allowance for possible loan losses.
Operating expenses and any subsequent provisions to reduce the carrying value to
net fair value are charged to current period earnings. Gains upon disposition
are reflected in earnings as realized. Realized losses are charged to an
allowance for losses on real estate acquired by foreclosure.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
the respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Earnings Per Share
Earnings per share is based on the weighted average number of common and common
stock equivalents outstanding during the period.
26
<PAGE>
(2) Investment and Mortgage-Backed Securities
The amortized cost and estimated market values of investment and mortgage-
backed securities were as follows:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(in Thousands) Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1995:
Investment securities:
U.S. Government and
Agency obligations $31,814 $364 $ 77 $32,101 $32,930 $146 $174 $32,902
Other debt securities -- -- -- -- 3,944 54 -- 3,998
Municipal investments 987 -- -- 987 2,750 -- -- 2,750
Marketable equity securities 182 87 40 229 -- -- -- --
------- ---- ---- ------- ------- ---- ---- -------
32,983 451 117 33,317 39,624 200 174 39,650
------- ---- ---- ------- ------- ---- ---- -------
Mortgage-backed securities:
FHLMC 4,815 -- 81 4,734 10,657 18 123 10,552
FNMA 11,951 251 -- 12,202 2,006 20 -- 2,026
Other 8,476 89 64 8,501 1,121 3 2 1,122
------- ---- ---- ------- ------- ---- ---- -------
25,242 340 145 25,437 13,784 41 125 13,700
------- ---- ---- ------- ------- ---- ---- -------
Total investment securities $58,225 $791 $262 $58,754 $53,408 $241 $299 $53,350
======= ==== ==== ======= ======= ==== ==== =======
<CAPTION>
Available for Sale Held to Maturity
------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(in Thousands) Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1994:
Investment securities:
U.S. Government and
Agency obligations $36,135 $148 $343 $35,940 $16,931 $ -- $346 $16,585
Other debt securities 1,000 -- -- 1,000 977 -- 9 968
Marketable equity securities 127 72 44 155 -- -- -- --
------- ---- ---- ------- ------- ---- ---- -------
37,262 220 387 37,095 17,908 -- 355 17,553
------- ---- ---- ------- ------- ---- ---- -------
Mortgage-backed securities:
FHLMC 12,176 53 307 11,922 12,253 -- 417 11,836
FNMA 14,116 135 148 14,103 2,448 5 88 2,365
Other 1,698 -- 23 1,675 1,251 -- 8 1,243
------- ---- ---- ------- ------- ---- ---- -------
27,990 188 478 27,700 15,952 5 513 15,444
------- ---- ---- ------- ------- ---- ---- -------
Total investment securities $65,252 $408 $865 $64,795 $33,860 $ 5 $868 $32,997
======= ==== ==== ======= ======= ==== ==== =======
</TABLE>
As a member of the Federal Home Loan Bank (FHLB) of Boston, the Bank is
required to invest in $100 par value stock of the FHLB of Boston in the amount
of 1% of its outstanding loans secured by residential housing, or 1% of 30% of
total assets, or 5% of its outstanding advances from the FHLB of Boston,
whichever is higher. When such stock is redeemed, the Bank would receive from
the FHLB of Boston an amount equal to the par value of the stock. As of June 30,
1995, the Bank was required to have an investment of at least $3,803,000.
27
<PAGE>
An analysis of realized gains and losses on investment and mortgage-backed
securities and investments, available and held for sale, for the years ended
June 30 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------------------------
Realized Realized Realized Realized Realized Realized
Gains Losses Gains Losses Gains Losses
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Debt securities $ -- $ -- $ -- $ -- $ 85 $ --
Marketable equity securities -- -- -- -- -- --
Mortgage-backed securities -- -- -- -- 45 --
Investments, available and held for sale 171 23 411 -- 837 --
---- ---- ---- ---- ---- ----
$171 $ 23 $411 $ -- $967 $ --
==== ==== ==== ==== ==== ====
</TABLE>
Proceeds from sales of investment and mortgage-backed securities, including
investments held for sale, during fiscal 1995, 1994 and 1993 amounted to
$20,925,000, $11,407,000 and $19,812,000, respectively.
The following table sets forth the maturity distribution of investment
securities (excluding marketable equity securities) at June 30, 1995.
<TABLE>
<CAPTION>
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years Total
--------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair Amortized Fair
(in Thousands) Cost Value Cost Value Cost Value Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale:
U.S. Government and
Agency obligations $ 2,001 $ 1,987 $23,818 $24,083 $ 5,995 $ 6,031 $ -- $ -- $31,814 $32,101
Municipal investments 987 987 -- -- -- -- -- -- 987 987
Mortgage-backed
securities -- -- 2,898 2,858 3,815 3,735 18,529 18,844 25,242 25,437
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total investment
securities $ 2,988 $ 2,974 $26,716 $26,941 $ 9,810 $ 9,766 $18,529 $18,844 $58,043 $58,525
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Held to Maturity:
U.S. Government and
Agency obligations $ 6,970 $ 6,982 $25,960 $25,919 $ -- $ -- $ -- $ -- $32,930 $32,901
Other debt securities 996 998 2,948 3,001 -- -- -- -- 3,944 3,999
Municipal investments 2,750 2,750 -- -- -- -- -- -- 2,750 2,750
Mortgage-backed
securities -- -- 12,663 12,580 -- -- 1,121 1,120 13,784 13,700
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total investment
securities $10,716 $10,730 $41,571 $41,500 $ -- $ -- $ 1,121 $ 1,120 $53,408 $53,350
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Mortgage-backed securities are expected to have shorter average lives than
their contractual maturities because borrowers may repay obligations without
prepayment penalties. In a declining interest rate environment, prepayments on
mortgage-backed securities are likely to accelerate. In a rising rate scenario,
prepayments on mortgage-backed securities are likely to slow.
28
<PAGE>
(3) Loans
The Bank's lending activities are concentrated primarily in central and southern
New Hampshire. The Bank grants single family residential loans, commercial real
estate loans, commercial loans, indirect automobile and recreational vehicle
loans through dealers and a variety of other consumer loans. In addition, the
Bank grants loans for the construction of residential homes and commercial real
estate properties, and for the development of land. The ability and willingness
of residential mortgage and consumer loan borrowers to honor their repayment
commitments is generally dependent on the level of overall economic activity
within the borrower's geographic areas and real estate values. The ability and
willingness of commercial real estate, construction loan and commercial
borrowers to honor their repayment commitments is generally dependent on the
health of the real estate economic sector in the borrower's geographic areas and
the general economy.
<TABLE>
<CAPTION>
At June 30, (in Thousands) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans:
Residential $ 67,643 $ 66,380
Home equity 17,053 18,969
Construction 489 --
Commercial 53,716 40,078
-------- --------
138,901 125,427
Deferred loan origination fees, net (353) (142)
-------- --------
Mortgage loans, net 138,548 125,285
-------- --------
Other loans:
Indirect automobile and recreational vehicle 100,666 66,528
Mobile home 11,976 13,702
Other consumer 6,779 8,352
Commercial 12,409 8,060
-------- --------
131,830 96,642
Deferred loan origination costs 1,083 182
-------- --------
Other loans 132,913 96,824
-------- --------
Total loans $271,461 $222,109
======== ========
</TABLE>
In the ordinary course of business, the Bank has granted loans to executive
officers and directors, and their related interests, on substantially the same
terms, including interest and collateral, as those prevailing at the time for
comparable transactions with unrelated borrowers. The aggregate amount of these
loans at June 30, 1995 was $222,000. Activity in these loans during the year
ended June 30, 1995 included loan additions of $45,000 and loan repayments of
$13,000. The balance of these loans at June 30, 1994 was $190,000.
The Company from time to time purchases automobile consumer finance
contracts from an automobile dealership owned and operated by one of its
Directors, subject to the Bank's credit approval, on terms comparable to those
accorded other dealers. The Company purchased contracts amounting to $1,003,000
and $960,000, respectively, which were originated by this dealership during the
fiscal years ended June 30, 1995 and 1994.
29
<PAGE>
Loans on nonaccrual at June 30, 1995 and 1994 totaled $1,730,000 and
$730,000, respectively. At June 30, 1995 and 1994, there were no loans that were
90 days or more past due and still accruing. At June 30, 1995 there were no
restructured loans classified as non-performing as compared to $174,000 at June
30, 1994. The Bank has no additional funding commitments to these borrowers. The
reduction in interest income for the years ended June 30 associated with
nonaccrual and restructured loans held at the end of such years is as follows:
<TABLE>
<CAPTION>
(in Thousands) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income in accordance with original terms $ 148 $ 62 $ 258
Income recognized (70) (42) (199)
----- ----- -----
Foregone income $ 78 $ 20 $ 59
===== ===== =====
</TABLE>
At June 30, 1995 and 1994, the principal balance of residential mortgage
loans serviced by the Bank for others amounted to $351,512,000 and $160,994,000,
respectively. At June 30, 1995, the principal balance of indirect automobile
loans serviced by the Bank for others amounted to $11,536,000. The Bank did not
service any indirect automobile loans for others during fiscal 1994.
Following is an analysis of activity concerning loan servicing rights
during the year ended June 30, 1995:
<TABLE>
<CAPTION>
Originated Purchased
Excess Loan Mortgage Loan Mortgage Loan
(in Thousands) Servicing Rights Servicing Rights Servicing Rights
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ -- $ -- $ --
Originations and acquisitions during the period 138 187 2,257
Amortization charged to service fee income (1) (8) --
------ ------ ------
Balance at end of period 137 179 2,257
Valuation allowance -- (9) --
------ ------ ------
Carrying value at end of period $ 137 $ 170 $2,257
====== ====== ======
</TABLE>
The June 30, 1995 carrying values of originated and purchased mortgage loan
servicing rights are reasonable approximations of their fair value at that date.
The risk characteristics of the underlying loans used to measure impairment
of originated and purchased mortgage loan servicing rights include loan type,
interest rate, loan origination date, term to maturity, and geographic location.
(4) Allowance for Possible Loan Losses
<TABLE>
<CAPTION>
Year Ended June 30, (in Thousands) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $3,351 $3,822 $3,958
Provision for possible loan losses 475 625 2,150
Recoveries on loans previously charged off 466 612 378
------ ------ ------
4,292 5,059 6,486
Less loans charged off 1,322 1,708 2,664
------ ------ ------
Balance at end of year $2,970 $3,351 $3,822
====== ====== ======
</TABLE>
30
<PAGE>
(5) Premises and Equipment
The major categories of bank premises and equipment are as follows:
<TABLE>
<CAPTION>
Estimated
Useful
Life in
At June 30, (Dollars in Thousands) 1995 1994 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 1,014 $ 1,014
Buildings 7,178 6,861 15 to 40
Construction in process 303 196
Furniture and equipment 3,626 3,395 3 to 20
Furniture and equipment under capital leases 552 513 5
------- -------
12,673 11,979
Less accumulated depreciation 5,251 4,829
------- -------
$ 7,422 $ 7,150
======= =======
</TABLE>
Depreciation and amortization of Bank premises and equipment included in
operating expenses for the years ended June 30, 1995, 1994 and 1993 was
$751,000, $685,000 and $632,000, respectively.
The Bank is obligated under various non-cancellable operating leases as
well as the capital leases included above, some of which provide for periodic
adjustments. At June 30, 1995, minimum lease payments for capital and operating
leases were as follows:
<TABLE>
<CAPTION>
Operating Capital
(in Thousands) Leases Leases
- --------------------------------------------------------------------------------
<S> <C> <C>
Payable in
1996 $ 78 $129
1997 79 129
1998 69 105
1999 64 42
2000 57 4
Later years 380 --
---- ----
Total minimum lease payments 727 409
Less amount representing interest -- 48
---- ----
$727 $361
==== ====
</TABLE>
Total operating lease expense for the years ended June 30, 1995, 1994 and
1993 amounted to $71,000, $18,000 and $11,000, respectively.
31
<PAGE>
(6) Real Estate Acquired by Foreclosure or Substantively Repossessed
<TABLE>
<CAPTION>
At June 30, (in Thousands) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Single family housing projects $ 14 $ 85
Retail and office 247 234
Non-retail commercial -- 28
Residential 873 489
------ ----
$1,134 $836
====== ====
</TABLE>
Included in the above are properties considered to be repossessed in substance
totaling $215,000 and $172,000 at June 30, 1995 and 1994, respectively.
The above summary excludes $277,000 and $204,000 of repossessed mobile
homes and $91,000 and $38,000 of repossessed automobiles for the years ended
June 30, 1995 and 1994, respectively, which are included in other assets in the
accompanying balance sheets.
An analysis of real estate acquired by foreclosure or substantively
repossessed for the years ended June 30 is as follows:
<TABLE>
<CAPTION>
(in Thousands) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 836 $ 2,568
Foreclosures and properties substantively repossessed 1,231 542
Sales proceeds (984) (2,404)
Gains on sales, net 27 130
Recoveries subsequent to foreclosure, net 24 --
------ -------
Balance at end of year $1,134 $ 836
====== =======
</TABLE>
An analysis of foreclosed property expense for the years ended June 30,
is as follows:
<TABLE>
<CAPTION>
(in Thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreclosure and holding costs, net $197 $ 197 $ 552
Recoveries and loss provisions during the year, net (24) -- 1,029
(Gains) losses on sales, net (27) (130) 294
---- ----- ------
$146 $ 67 $1,875
==== ===== ======
</TABLE>
(7) Deposits
<TABLE>
<CAPTION>
At June 30, (in Thousands) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Non-interest bearing demand deposits $ 16,420 $ 15,067
-------- --------
Savings deposits:
Savings, club and escrow accounts 81,656 97,794
Interest-bearing NOW accounts 24,124 20,675
Money market accounts 9,394 13,408
-------- --------
Total savings deposits 115,174 131,877
-------- --------
Time certificates of deposit 176,962 145,981
-------- --------
Total deposits $308,556 $292,925
======== ========
</TABLE>
At June 30, 1995 and 1994, time certificate of deposit accounts with balances of
$100,000 or more amounted to $19,010,000 and $13,741,000, respectively.
The average annual interest rates on time certificates of deposit
outstanding at June 30, 1995 by periods to maturity are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Years Ended June 30, (Dollars in Thousands) Amount Rate
- --------------------------------------------------------------------------------
<S> <C> <C>
1996 $103,134 5.25%
1997 41,134 5.88
1998 26,853 6.06
1999 and beyond 5,841 6.49
--------
$176,962 5.56
========
</TABLE>
At June 30, 1995 and 1994, time certificates of deposit issued at rates
which may be adjusted periodically during the term of the certificate amounted
to $33,098,000 and $40,806,000 respectively.
32
<PAGE>
(8) Securities Sold Under Agreements to Repurchase
<TABLE>
<CAPTION>
Maximum
Daily Average Outstanding
End of Year During Year at any
(Dollars in Thousands) Balance Rate Balance Rate Month-end
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
June 30, 1995 $6,348 5.82% $1,161 5.94% $6,348
</TABLE>
Repurchase agreements outstanding at June 30, 1995 carried maturity dates of
three months or less. U.S. Government and Agency securities with a book value of
$6,949,000 and a fair value of $6,916,000 were pledged as collateral and held by
custodians to secure the agreements at June 30, 1995. The Company had no
repurchase agreement activity during the fiscal years ended June 30, 1994 and
1993.
(9) Other Borrowed Funds
<TABLE>
<CAPTION>
At June 30, (Dollars in Thousands) 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Advances from the Federal Home Loan Bank of Boston $76,050 $23,072
Capitalized leases 361 419
Note payable due in monthly installments including interest at 7% 9 16
------- -------
$76,420 $23,507
======= =======
</TABLE>
At June 30, 1995, mortgage loans on residential property of approximately
$72,000,000, investment securities of $33,000,000 and all stock in the Federal
Home Loan Bank of Boston are pledged as collateral to secure the above advances
and a line of credit with the Federal Home Loan Bank of Boston of $8,000,000.
The average annual interest rates on advances from the Federal Home Loan Bank of
Boston outstanding at June 30, 1995 by periods to maturity are summarized as
follows:
<TABLE>
<CAPTION>
Weighted
Average
Years Ended June 30, (Dollars in Thousands) Amount Rate
- --------------------------------------------------------------------------------
<S> <C> <C>
1996 $30,500 6.14%
1997 45,000 6.13
2000 75 8.13
2004 475 7.38
-------
$76,050 6.14
=======
</TABLE>
The daily average outstanding balance of other borrowed funds (with a
maximum month-end balance of $76,420,000, $23,072,000 and $12,999,000 during the
years ended June 30, 1995, 1994 and 1993, respectively) were $45,848,000,
$8,955,000 and $7,865,000 during the years ended June 30, 1995, 1994 and 1993
with a weighted average interest rate of 5.86%, 4.92% and 5.73%, respectively.
(10) Stockholders' Equity
Federal regulations prohibit banking companies from paying dividends on their
stock if the effect would cause stockholders' equity to be reduced below
applicable regulatory capital requirements or if such declaration and payment
would otherwise violate regulatory requirements. At June 30, 1995, the Company
and the Bank were in compliance with all regulatory capital requirements.
On October 17, 1989, the Board of Directors adopted a Shareholder Rights
Plan and declared a dividend distribution of one Right for each outstanding
share of common stock. The distribution was payable on November 15, 1989 to the
stockholders of record on October 31, 1989. Such Rights only become exercisable
upon the earliest to occur of (i) 10 days following a public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding Common Shares, or (ii) 10 days following the commencement of
a tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person of 25% or more of such outstanding Common
Shares, or (iii) the declaration by the Board of Directors that any person is an
"Adverse Person" (the earliest of such dates being called the "Distribution
Date"). Each Right entitles the registered holder to purchase from the Company
one one-hundredth of one share (a "Unit") of Series A Preferred Stock, $1.00 par
value, at a price of $40 per Unit, subject to adjustment. If the Company is
acquired in a merger or other business combination transaction or more than 50%
of its assets or earning power are sold, the Rights entitle holders to acquire
common stock of the Acquiring Person having a value twice the exercise price of
the Rights. The Rights may be redeemed in whole, but not in part, at a price of
$.01 per Right at any time prior to the Distribution Date. The Rights will
expire on October 30, 1999.
33
<PAGE>
(11) Income Taxes
At June 30, 1995 and 1994, the Company's accrued Federal income tax payable was
$140,000 and $81,000, respectively.
During fiscal 1993, the Company was subject to an annual franchise tax
imposed by the State of New Hampshire at the rate of 1% of the total amount of
interest paid on its deposits each year. The Company was also subject to an
additional franchise tax in an amount equal to 1% of its outstanding capital
stock account. This additional franchise tax could be utilized as a credit
against the franchise tax imposed on interest paid on deposits. The Company was
also subject to a state business profits tax equal to 8% of taxable income, net
of permissible deductions under New Hampshire law for interest earned on United
States Government securities and a tax credit for franchise taxes paid.
On July 1, 1993, the State of New Hampshire modified many of its corporate
income tax laws. These changes resulted in the Company being subject to a state
business profits tax equal to 7.5% for fiscal year 1994 and 7.0% for years
thereafter. In addition, the Company is no longer subject to an annual franchise
tax but instead is subject to a business enterprise tax. This tax is imposed at
the rate of 0.25% of the sum of the Company's interest expense, compensation
expense and dividends paid. This additional enterprise tax may be utilized as a
credit against the business profits tax. No provision for state income taxes is
reflected in the Company's consolidated statements of income for the years ended
June 30, 1995, 1994 and 1993 because the amount of annual business enterprise
tax or franchise tax exceeded the Company's liability under the business profits
tax law.
The difference between the total expected income tax expense computed by
applying the federal income tax rate of 34% to income before income taxes and
the reported income tax expense is as follows:
<TABLE>
<CAPTION>
Years Ended June 30, (In Thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" federal income tax expense at statutory rate $1,645 $1,342 $ 755
Increase (decrease) resulting from:
State taxes (net of federal benefit, before change in valuation reserve) 75 54 (12)
Dividend received deduction (6) (21) (2)
Change in valuation reserve (150) (510) (742)
Other (13) (7) 1
------ ------ -----
$1,551 $ 858 $ --
====== ====== =====
<CAPTION>
Years Ended June 30, (In Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense:
Federal $1,424 $ 922 $ 441
State -- -- --
------ ------ -----
1,424 922 441
------ ------ -----
Deferred tax expense (benefit):
Federal 162 365 319
State 115 81 (18)
Change in valuation reserve (150) (510) (742)
------ ------ -----
127 (64) (441)
------ ------ -----
$1,551 $ 858 $ --
====== ====== =====
</TABLE>
34
<PAGE>
(11) Income Taxes Continued
The tax effects of temporary differences (the difference between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases) that give rise to significant portions of the
deferred tax asset and deferred tax liability are as follows:
<TABLE>
<CAPTION>
June 30, (in Thousands) 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax asset:
Allowance for possible loan losses $ 922 $ 919
Deferred loan fees 156 67
Valuation allowance on repossessed assets 22 32
State net operating loss carryforward 20 73
Unrealized loss on securities available for sale -- 161
Pension 37 27
Other 19 10
------ ------
Gross deferred tax asset 1,176 1,289
Valuation reserve (136) (286)
------ ------
1,040 1,003
------ ------
Deferred tax liability:
Valuation allowance on loans held for sale -- 38
Pension 77 115
Depreciation 156 101
Deferred loan costs 425 78
Unrealized gain on securities available for sale 206 --
Other 4 5
------ ------
868 337
------ ------
Deferred income tax asset, net $ 172 $ 666
====== ======
</TABLE>
Retained earnings include approximately $3,720,000 of bad debt reserves for
Federal income tax purposes which may be subject to tax if not used to absorb
loan losses. Related deferred taxes on such reserves of approximately $1,210,000
have not been provided because it is not expected that such reserves will be
utilized for other than loan losses.
The realization of the net deferred tax asset may be based on utilization
of carrybacks to prior taxable periods, anticipation of future taxable income
and the utilization of tax planning strategies. Management has determined that
it is more likely than not that the net deferred tax asset can be realized by
carrybacks to federal taxable income in the three-year carryback period and by
expected future taxable income. The valuation reserve primarily relates to
certain state tax temporary differences.
35
<PAGE>
(12) Employee Benefits
Stock Option Plans
In 1985, 1988 and 1992 the stockholders of the Company approved stock option
plans for the benefit of certain officers and other employees. Outside directors
may elect to receive options under the 1992 plan in lieu of a portion of
director fees. The total number of shares covered by the plans is 240,000.
Employee options granted under the plans vest over four years at 25% per year.
Options are granted at not less than the fair market value of the shares at the
date of the grant, and expire ten years from the date of the grant. Activity in
the plans during the years ended June 30 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Option of Option of Option
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 130,505 $ 7.33 157,880 $ 6.92 146,130 $ 6.57
Granted 2,233 15.42 1,000 9.00 35,000 5.40
Cancelled (3,000) 11.38 (375) 2.83 (1,000) 2.25
Exercised (32,161) 4.71 (28,000) 5.09 (22,250) 2.34
------- ------- -------
Outstanding at end of year 97,577 8.26 130,505 7.33 157,880 6.92
======= ======= =======
</TABLE>
Stock Purchase Plan
Under the Stock Purchase Plan approved by the Company's stockholders,
participating employees may purchase shares through accumulated payroll
deductions. During the years ended June 30, 1995, 1994 and 1993, 2,029, 3,412
and 4,207 shares were purchased at $11.375, $8.125 and $2.75 per share,
respectively. At June 30, 1995, 40,352 shares were available for issuance under
the Plan.
Employee Stock Ownership Plan
In May of 1986, the Company adopted an Employee Stock Ownership Plan ("ESOP").
The Plan is designed to provide retirement benefits for eligible employees of
the Bank. Because the Plan invests primarily in the stock of the Company, it
will also give eligible employees an opportunity to acquire an ownership
interest in the Company. Employees are eligible to participate in the Plan after
reaching age twenty-one, completing one year of service and working at least one
thousand hours of consecutive service during the previous year. Contributions
are allocated to eligible participants on the basis of compensation and years of
credited service.
During May 1986, the Company issued a total of 59,775 shares under the ESOP
at a total purchase price of $975,000. The purchase was made from the proceeds
of a $975,000 loan from an unrelated third party lender bearing interest at a
rate of 75% of floating prime. Repayment of the loan is secured by contributions
the Bank is obliged to make under a contribution agreement with the ESOP. In
1988, the ESOP purchased 24,696 additional shares at an average price of $11.80
per share which was funded by additional borrowings of approximately $291,000
under the same loan agreement. In 1991, the ESOP purchased 20,000 additional
shares at an average price of $4.81 per share funded by available cash in the
ESOP. In 1995, 1994 and 1993, the Bank made contributions to the ESOP totaling
$167,000, $179,000 and $187,000, respectively, to enable the ESOP to make
principal and interest payments on the loan. The amount contributed was charged
to salary and employee benefit expenses. The balance of the loan will be repaid
over a period of approximately one year with funds from the Bank's future
contributions to the ESOP and the earnings on the ESOP's assets.
Shares used as collateral to secure the loan are released and available for
allocation to eligible employees as the principal balance of the loan is repaid.
Dividends on released shares are credited to the participants' ESOP accounts.
Dividends on unreleased shares may be allocated to participants or applied
towards payment of the loan.
At June 30, 1995, the shares held by the ESOP amounted to 90,094 of which
75,691 were released and allocated to participants of the ESOP. Shares held in
suspense at June 30, 1995, to be released annually as the loan is paid down,
amounted to 14,403. Dividends on ESOP shares are charged to retained earnings
and all ESOP shares are considered outstanding in determining earnings per
share.
36
<PAGE>
(12) Employee Benefits Continued
Pension Plan
The Bank provides a noncontributory pension plan for its employees. The funded
status of the plan as of June 30 is as follows:
<TABLE>
<CAPTION>
(in Thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Vested benefits $1,663 $1,397 $1,290
Nonvested benefits 46 39 88
------ ------ ------
Accumulated benefit obligation 1,709 1,436 1,378
Additional benefits related to future compensation levels 602 564 766
------ ------ ------
Projected benefit obligation 2,311 2,000 2,144
Plan assets at fair value invested primarily in equity and fixed-income securities 3,390 3,117 3,178
------ ------ ------
Plan assets in excess of projected benefit obligation 1,079 1,117 1,034
Unrecognized transition asset (781) (850) (919)
Unrecognized experience (gain) loss (113) 29 191
------ ------ ------
Prepaid pension cost included in other assets $ 185 $ 296 $ 306
====== ====== ======
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in calculating the actuarial present value of the
projected benefit obligations shown above were 8.0% and 6.0%, respectively. For
all periods presented, the expected long-term rate of return on assets was 8.0%.
Net pension expense for the years ended June 30 includes the following
components:
<TABLE>
<CAPTION>
(in Thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost--benefits earned $ 258 $ 211 $ 176
Interest cost on projected benefit obligation 155 129 167
Actual return on plan assets (127) (25) (121)
Net amortization and deferral (186) (305) (198)
----- ----- -----
Net pension expense $ 100 $ 10 $ 24
===== ===== =====
</TABLE>
401(K) Savings Plan
On July 1, 1994, the Bank established a 401(k) Savings Plan covering all
employees who have reached the age of twenty-one, completed one year of service
and worked at least one thousand hours during the previous year. Participants
may contribute from 1% to 10% of their pre-tax compensation. The Bank makes
quarterly matching contributions equal to 33% of the participants' contributions
up to 6% of their pre-tax compensation. Employer matching contributions vest at
25% per year. Expense under the Plan amounted to $53,000 during the fiscal year
ended June 30, 1995.
Employee Agreements
The Bank has a supplemental retirement agreement for its chief executive
officer. This plan provides retirement benefits designed to supplement benefits
available through the Bank's retirement plan for employees. Total expense for
these benefits amounted to $26,000, $17,000 and $13,000 in 1995, 1994 and 1993,
respectively.
The Bank has entered into employment agreements with its senior officers
(10 individuals) which provide for a lump sum payment under certain
circumstances to the officer amounting to that officer's annual compensation for
a period of three years in the case of the chief executive officer, two years in
the case of the executive vice president and senior vice president (2
individuals) and one year in the case of each other officer, after the officer's
termination, if such termination follows a "change of control" as defined in the
agreements.
Incentive Compensation Plans
The Company has two incentive compensation plans designed to provide an annual
incentive to improve financial performance, under which annual incentive awards
are paid if the Company achieves specified objectives. All personnel employed at
the beginning of the fiscal year are eligible to participate in the General
Profit Sharing Plan. Certain members of senior management are eligible to
participate in the Management Incentive Plan. The Board of Directors may provide
these incentive awards in the form of cash or stock, or in the case of the
General Profit Sharing Plan, a contribution to the Company's 401(k) Plan. Based
on financial results achieved during the past three fiscal years, the Company
paid total cash incentive awards, as defined in the two plans, of $96,000,
$111,000 and $29,000, respectively, for the fiscals years ended June 30, 1995,
1994 and 1993.
37
<PAGE>
(13) Financial Instruments with Off-Balance Sheet Risk and Other Commitments and
Contingencies
The Bank is 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 unused lines of credit, unadvanced portions of
construction loans, commitments to originate loans, and standby letters of
credit. The instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheet. The
amounts of those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to its financial instruments (for unused lines of credit, loan
commitments and standby letters of credit) is represented by the contractual
amount of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments. The Bank evaluates each customer's credit worthiness on a case-by-
case basis. The amount of collateral obtained, if deemed necessary by the Bank
upon extension of credit, is based on management's credit evaluation of the
borrower.
Financial instruments with off-balance sheet risk at June 30, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
(in Thousands) 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
Unused home equity lines of credit $14,898 $18,008
Unused commercial lines of credit 4,016 3,023
Unadvanced portions of construction loans 325 --
Commitments to originate residential mortgage loans 4,094 5,192
Commitments to originate commercial, construction
and commercial real estate loans 8,340 7,373
Standby letters of credit 416 72
Unused consumer overdraft protection credit 652 620
Commitments to sell residential mortgage loans 7,589 5,494
Best efforts commitment to sell automobile loans 48,000 --
Loans sold with credit enhancement 9,777 --
</TABLE>
Commitments to originate loans, unused lines of credit and unadvanced
portions of construction loans are agreements to lend to a customer provided
there is no violation of any condition 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 may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements.
Commitments to sell residential mortgage loans for a fixed price are
generally entered into between the date lending commitments are issued to
borrowers and the date the loans are sold into the secondary market. Risks arise
from the possible inability of counter-parties to meet the terms of commitments
and movement in interest rates and related prices.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
In June of 1995, the Company sold $9,777,000 of automobile loans with
credit enhancement that obligates the Bank to assume a certain portion of credit
losses should they occur. The Bank has accrued $51,000 to absorb such possible
losses. The Bank has an agreement to sell up to an additional $48,000,000 of new
loan production to the same buyer on a best efforts basis.
The Bank is required to maintain a portion of its cash and due from banks
as a reserve balance under the Federal Reserve Act. Such reserve is calculated
based upon deposit levels and amounted to $1,000,000 at June 30, 1995.
The Company is involved in various legal proceedings in the normal course
of business, none of which is believed by management to be material to the
financial condition of the Company.
(14) Fair Values of Financial Instruments
The estimates of fair value of financial instruments are based on information
available at June 30, 1995 and June 30, 1994, and are not indicative of the fair
market value of those instruments at the date this report is published. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular class of
financial instruments. Because no market exists for a significant portion of the
Company'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.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include loans serviced for others,
premises and equipment and foreclosed real estate. In addition, the tax
ramifications related to the realization of the unrealized gains and losses can
have a significant effect on fair value estimates and have not been considered
in any of the estimates. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company.
38
<PAGE>
(14) Fair Values of Financial Instruments Continued
The following methods and assumptions were used by the Bank in estimating
fair values of its financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values.
Securities available for sale, securities held to maturity, and mortgage
loans held for sale: Fair values for these instruments are based on market
prices, where available. If quoted market prices are not available, fair values
are based on market prices of comparable instruments.
FHLB stock: The carrying amount reported in the balance sheet for Federal
Home Loan Bank ("FHLB") stock approximates fair value. If redeemed, the Bank
will receive an amount equal to the par value of the stock.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair value of other loans are estimated using discounted cash flow analyses
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The fair value of nonaccrual loans was
estimated using the estimated fair values of the underlying collateral. The
carrying amount of accrued interest approximates fair value.
Loan servicing rights: The carrying values of loan servicing rights are
reasonable approximations of their fair value at that date.
Deposits and other borrowed funds: The fair values of non-interest bearing
demand and savings deposits are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). Fair values for
time certificates of deposit and borrowed funds are estimated using a discounted
cash flow technique that applies interest rates currently being offered to a
schedule of aggregated expected monthly maturities on time deposits and other
borrowed funds.
Repurchase agreements: Due to the short term nature of repurchase
agreements, carrying value is a reasonable estimation of fair value.
Liability relating to ESOP: The carrying amount reported in the balance
sheet approximates the liability relating to the ESOP's fair value. The
liability reprices quarterly.
Off-balance sheet instruments: The fair value of commitments to extend
credit was based on fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the
counterparties' credit standing. The estimated fair value of the commitments to
sell residential mortgage loans was based on the cost to terminate such
commitments.
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1994
----------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
(in Thousands) Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 19,097 $ 19,097 $ 8,012 $ 8,012
Securities available for sale 58,754 58,754 64,795 64,795
Securities held to maturity 53,408 53,350 33,860 32,997
Federal Home Loan Bank stock 3,803 3,803 1,860 1,860
Mortgage loans held for sale 4,392 4,508 4,942 4,963
Loans, net 268,491 267,180 218,758 220,434
Accrued interest receivable 3,100 3,100 2,526 2,526
Loan servicing rights 2,564 2,564 -- --
Financial liabilities:
Non-interest bearing demand deposits $ 16,420 $ 16,420 $ 15,067 $ 15,067
Savings deposits 115,174 115,174 131,877 131,877
Time certificates of deposit 176,962 177,119 145,981 146,382
Repurchase agreements 6,348 6,348 -- --
Other borrowed funds 76,420 76,449 23,507 23,385
Liability related to ESOP 197 197 355 355
Accrued interest payable 1,177 1,177 693 693
Credit enhancement liability 51 51 -- --
Off-balance sheet instruments:
Commitments to extend credit $ -- $ 94 $ -- $ 168
Commitments to sell loans -- 1 -- 3
</TABLE>
39
<PAGE>
(15) Condensed Parent Company Financial Information
Condensed financial statements of Community Bankshares, Inc. (the "Parent
Company") as of June 30, 1995 and 1994 and for the years ended June 30, 1995,
1994 and 1993 follow:
Community Bankshares, Inc. Condensed Balance Sheets
<TABLE>
<CAPTION>
June 30, (Dollars in Thousands Except Share Data) 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $ 1,601 $ 2,048
Securities available for sale--amortized cost $80 in 1995
and $25 in 1994 97 35
Investment in subsidiary, at equity 27,841 24,860
Other assets 95 84
------- -------
Total assets $29,634 $27,027
======= =======
Liabilities and Stockholders' Equity
Liabilities:
Liability relating to ESOP $ 197 $ 355
Other liabilities 39 47
------- -------
Total liabilities 236 402
Stockholders' equity:
Preferred stock, $1.00 par value per share; 1,000,000
shares authorized, none issued -- --
Common stock, $1.00 par value per share; 3,000,000 shares authorized;
issued and outstanding, 1,747,032 shares in 1995 and 1,743,532 in 1994 1,747 1,744
Additional paid-in capital 17,146 17,343
Retained earnings 10,567 8,155
------- -------
29,460 27,242
Unrealized net gains (losses) on securities available for sale, net 328 (262)
Unearned compensation--ESOP (197) (355)
Treasury stock--11,810 shares at cost (193) --
------- -------
Total stockholders' equity 29,398 26,625
------- -------
Total liabilities and stockholders' equity $29,634 $27,027
======= =======
</TABLE>
40
<PAGE>
(15) Condensed Parent Company Financial Information Continued
Community Bankshares, Inc. Condensed Statements of Income
<TABLE>
<CAPTION>
Years Ended June 30, (in Thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Interest and dividend income $ 61 $ 54 $ 64
Dividends from subsidiary 891 330 --
Management fees from subsidiary 131 145 110
Equity in undistributed income of subsidiary 2,396 2,760 2,221
------ ------ ------
Total revenues 3,479 3,289 2,395
Operating expenses 192 199 174
------ ------ ------
Net income $3,287 $3,090 $2,221
====== ====== ======
</TABLE>
The Parent Company's statements of changes in stockholders' equity are identical
to the consolidated statements of changes in stockholders' equity and therefore
are not reprinted here.
Community Bankshares, Inc. Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended June 30, (in Thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operations:
Net income $ 3,287 $ 3,090 $ 2,221
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Equity in undistributed income of subsidiary (2,396) (2,760) (2,221)
(Increase) decrease in other assets 68 (33) (4)
Increase (decrease) in other liabilities (8) 34 (17)
------- ------- -------
Net cash provided by (used in) operating activities 951 331 (21)
------- ------- -------
Cash flows from investing activities:
Purchases of investment securities (55) -- (17)
------- ------- -------
Net cash used in investing activities (55) -- (17)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 175 171 65
Purchase of treasury stock (627) -- --
Dividends paid on common stock (891) (416) --
------- ------- -------
Net cash provided by (used in) financing activities (1,343) (245) 65
------- ------- -------
Net increase (decrease) in cash (447) 86 27
Cash at beginning of year 2,048 1,962 1,935
------- ------- -------
Cash at end of year $ 1,601 $ 2,048 $ 1,962
======= ======= =======
</TABLE>
41
<PAGE>
(16) Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------
September December March June
(in Thousands Except Share Data) 30 31 31 30
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1995
Interest and dividend income $ 6,304 $ 6,700 $ 7,357 $ 7,880
Interest expense 2,957 3,223 3,756 4,308
------- ------- ------- -------
Net interest and dividend income 3,347 3,477 3,601 3,572
Provision for possible loan losses 100 100 125 150
------- ------- ------- -------
Net interest and dividend income after provision
for possible loan losses 3,247 3,377 3,476 3,422
Non-interest income 512 427 484 613
Non-interest expense (2,583) (2,707) (2,689) (2,741)
------- ------- ------- -------
Income before income taxes 1,176 1,097 1,271 1,294
Income taxes 379 349 407 416
------- ------- ------- -------
Net income $ 797 $ 748 $ 864 $ 878
======= ======= ======= =======
Earnings per common and common equivalent share $ .45 $ .42 $ .48 $ .49
======= ======= ======= =======
Fiscal 1994
Interest and dividend income $ 5,815 $ 5,765 $ 5,682 $ 5,956
Interest expense 2,748 2,672 2,612 2,704
------- ------- ------- -------
Net interest and dividend income 3,067 3,093 3,070 3,252
Provision for possible loan losses 400 75 75 75
------- ------- ------- -------
Net interest and dividend income after provision
for possible loan losses 2,667 3,018 2,995 3,177
Non-interest income 848 584 622 504
Non-interest expense (2,586) (2,594) (2,610) (2,677)
------- ------- ------- -------
Income before income taxes 929 1,008 1,007 1,004
Income taxes 218 229 232 179
------- ------- ------- -------
Net income $ 711 $ 779 $ 775 $ 825
======= ======= ======= =======
Earnings per common and common equivalent share $ .40 $ .44 $ .43 $ .46
======= ======= ======= =======
</TABLE>
Aggregate quarterly earnings per share may not equal earnings per share for the
full year due to rounding.
As indicated in Note 1, the Company adopted SFAS No. 122 effective July 1,
1994 with the effect of increasing gains on sale of loans by approximately
$170,000 for fiscal 1995. In so doing, the Company has herein revised the
previously reported quarterly operating results for the first three quarters of
fiscal 1995. As a result of such revisions, gains on sale of loans, net income,
and earnings per common and common equivalent share were increased as follows:
<TABLE>
<CAPTION>
Gains on Net Earnings
Fiscal 1995 Quarter Ended (in Thousands Except Share Data) Sale of Loans Income per Share
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
September 30, 1994 $58 $39 $0.02
December 31, 1994 46 31 0.02
March 31, 1995 47 32 0.02
</TABLE>
(17) Subsequent Event--Acquisition Agreement
On August 29, 1995, the Company entered into a definitive merger agreement to
acquire Centerpoint Bank by exchanging 1.073 of the Company's common shares for
each Centerpoint common share outstanding. At that time, Centerpoint Bank had
590,349 common shares outstanding. In addition, options outstanding under
Centerpoint's employee stock option plan will convert into options to purchase
common shares of the Company. The merger, anticipated to be accounted for as a
pooling-of-interests, is subject to stockholder and regulatory approval. At June
30, 1995, Centerpoint had $81,000,000 (unaudited) in total assets, $65,000,000
(unaudited) in total deposits and $6,000,000 (unaudited) in stockholders'
equity.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
42
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors
<TABLE>
<CAPTION>
Name Age Director Since Expiration of Term* Other Offices Held
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas M. Hardiman 65 1985 1996 Annual Meeting Chairman of the Board
John N. Buxton 48 1992 1997 Annual Meeting --
Douglas Crichfield 52 1990 1997 Annual Meeting President and
Chief Executive Officer
William S. Fenollosa 55 1985 1996 Annual Meeting --
Oliver R. Fifield 68 1985 1996 Annual Meeting --
Robert A. Hill 47 1992 1997 Annual Meeting --
Russell A. Holden 70 1986 1995 Annual Meeting --
Lucia P. Kittredge 47 1986 1995 Annual Meeting --
Seth A. Resnicoff 58 1986 1995 Annual Meeting --
Eleanor H. Stark 61 1985 1997 Annual Meeting --
James R. Stewart 56 1985 1996 Annual Meeting --
Katherine F. Tsouros 57 1985 1995 Annual Meeting --
</TABLE>
*In all cases directors are elected to serve for three year terms and until
their successors are elected and qualify.
(b) Executive Officers
<TABLE>
<CAPTION>
Name Age Offices Held Date of Election to Such Office
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Douglas Crichfield 52 President and Chief Executive Officer 1990
of the Company and the Bank
Paul M. Ferguson 42 Vice President--Credit Administration of the Company; 1995
Executive Vice President of the Bank
Gerald R. Emery 49 Treasurer and Chief Financial Officer of the Company; 1990
Senior Vice President--Finance and Operations of the Bank
Richard E. Kamp 46 Vice President and Secretary of the Company; 1990
Vice President--Communications of the Bank 1995
</TABLE>
(c) Identification of certain significant employees: Not applicable
(d) Family relationships: None
(e) Business experience
Thomas M. Hardiman has been a Director or Trustee of the Bank and its
predecessor since 1968. He was a Consultant to Chubb Securities Corporation from
1987 through 1989, a Senior Vice President of Chubb Securities Corporation from
1982 to 1987, and Vice President of Chubb Life Insurance Company from 1980 to
1981. He served as Vice President and Treasurer of United Life and Accident
Insurance Co., from 1965 to 1980. He is a Director of Concord Electric Co., a
subsidiary of UNITIL Corp.
John N. Buxton has been Vice Rector for Administration, St. Paul's School,
Concord, New Hampshire, from 1984 to the present, with responsibility for
operations and administrative functions. He is a member of trustee committees on
investments, risk management, pensions and benefits, and buildings and grounds.
Douglas Crichfield has been a Director, President and Chief Executive
Officer of the Company and the Bank since 1990. Previously, he served as
Executive Vice President and Treasurer of the Bank and Treasurer and Chief
Financial Officer of the Company from 1988 to 1990. He was Vice President of
Corporate Finance at the Bank of New England Corporation from 1986 to 1988, and
held various positions, including Senior Vice President, Treasurer and Trust
Officer of Hancock Bank and Trust Co. from 1976 to 1986.
William S. Fenollosa has served as a Director or Trustee of the Bank and
its predecessor since 1980. He has been President and owner of Granite State
Volkswagen, Inc., an automobile sales and service dealership in Concord, New
Hampshire, since 1967.
43
<PAGE>
Oliver R. Fifield has served as a Director or Trustee of the Bank and its
predecessor since 1972. He was President of Northeast Consolidated Services,
Inc., a corporation providing various administrative office support to The New
Hampshire and Vermont Blue Cross Blue Shield corporations from 1981 until his
retirement in 1985, and President of Northeast Equity Corp., a business
equipment leasing corporation owned by Blue Cross Blue Shield, from 1983 to
1985.
Robert A. Hill has been President and Chief Operating Officer of Capitol
Plumbing and Heating Supply Co., Inc., a distributor of plumbing and heating
products, from 1985 to the present, with experience in management, sales, and
credit and collections over a 15 year period.
Russell A. Holden served as President of Granite State Electric Co. from
1973 to 1990. He was Vice President of New England Power Company from 1967 to
1990, Chairman and Director of New England Electric Transmission Corporation
from 1981 to 1991, and Chairman and Director of New England Hydro Transmission
Corporation from 1981 to 1991 (all subsidiaries of the New England Electric
System). He is a Director of Concord General Mutual Insurance Co., Green
Mountain Insurance Co. and Vermont Accident Insurance Co.
Lucia P. Kittredge has been a principal of Kapala Kittredge Associates,
Inc., an environmental and land use planning firm, from 1989 to the present. She
was President of Matarazzo Design, Inc., a design firm of landscape architects,
architects and land planning from 1984 to 1988, and Vice President of the firm
from 1981 to 1984.
Dr. Seth A. Resnicoff has been engaged in the private practice of surgery
in Concord, New Hampshire, since 1975. He is Chief of Surgical Section at the
Concord Hospital, a member of the Board of Governors of the United Way of
Merrimack County, Concord, New Hampshire, and Chairman of the Board of Strategic
Healthcare, Concord, New Hampshire, a company providing management and marketing
services to independent physicians and surgeons.
Eleanor H. Stark has been a Director or Trustee of the Bank and its
predecessor since 1978. She served as elected representative to the New
Hampshire House of Representatives from 1981 to 1985.
James R. Stewart has been a Director or Trustee of the Bank and its
predecessor since 1976. He has been President, Treasurer and a principal owner
of Capital Offset, Inc., a printing firm, since 1975.
Katherine F. Tsouros has been a Director or Trustee of the Bank and its
predecessor since 1978. For several years she has served as an officer and
active member of the Boards of various non-profit organizations in the Concord,
New Hampshire area.
Gerald R. Emery joined the Bank in 1988 as Vice President, Finance. He was
elected Treasurer of the Company and the Bank and Senior Vice President Finance
and Operations of the Bank in 1990. From 1986 until joining the Company, he was
Vice President, Finance with United Savers Bancorp, Inc. in Manchester, New
Hampshire. From 1982 until 1986, he held the same position with The Savers Bank
in Littleton, New Hampshire, a subsidiary of United Savers Bancorp, Inc. Prior
to 1982, Mr. Emery had 18 years experience in community banking with commercial
banks both in New Hampshire and in Vermont.
Paul M. Ferguson joined the Bank in 1991 as Senior Vice President Credit
Administration, and was elected Executive Vice President in 1995. From 1985
through 1991 he was a senior executive of First NH Bank, N.A., most recently
serving as its Senior Vice President, Corporate Services and previously as
Regional Lending Officer. His prior experience included two years as Vice
President-Manager Commercial Services Division for Merchants Savings Bank, of
Manchester, New Hampshire, and four years in commercial and consumer lending for
Indian Head National Bank, of Concord, New Hampshire.
Richard E. Kamp was elected Vice President of Retail Services, Marketing
and Investor Relations in 1990 and Vice President--Communications in 1995. Mr.
Kamp joined the Bank in 1989 as Vice President, Marketing and Investor
Relations. Since 1984 he had served in that same capacity at First Federal Bank,
which through merger became New Hampshire Savings Bank South, in Nashua, New
Hampshire. From 1978 to 1984, Mr. Kamp served at First Agricultural Bank in
Pittsfield, Massachusetts.
(f) Involvement in certain legal proceedings: not applicable
(g) Promoters and control persons: not applicable
Compliance with Section 16(a) of the Exchange Act.
The following directors and officer of the Company were late in filing a
Form 5 report for the year ended June 30, 1995 to report shares acquired under
the Company's dividend reinvestment plan: directors John N. Buxton, Oliver R.
Fifield, Robert A. Hill, Lucia Kittredge, Eleanor Stark and Katherine Tsouros,
and Vice President Paul M. Ferguson. Director William Fenollosa was late in
filing a Form 5 for the year ended June 30, 1995 to report exercise of a stock
option under the Company's 1992 Stock Option Plan, and director Oliver Fifield
amended his Form 5 report to reflect an open market purchase of 100 shares of
Common Stock which should have been reported on a Form 4 Report for the month of
January, 1995.
44
<PAGE>
Item 11. Executive Compensation
Summary Compensation Table
The following table provides information concerning the annual and long term
compensation of the two executive officers whose total annual salary and bonus
exceeded $100,000 for the fiscal years ended June 30, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------
Annual Compensation Awards(1) Payouts
---------------------------------------- ------------------------- -------
Other Annual Restricted Number of LTIP All Other
Name and Principal Position Year Salary Bonus Compensation (2) Stock Award Options/SARS Payouts Compensation (3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Douglas Crichfield 1995 $156,843 $19,443 -- -- -- -- $29,867
President and Chief Executive Officer 1994 150,417 14,395 -- -- -- -- 17,245
1993 121,630 1,215 -- -- 10,000 -- 13,000
Paul M. Ferguson 1995 118,721 7,043 -- -- -- -- 2,624
Executive Vice President 1994 104,622 8,561 -- -- -- -- --
1993 86,451 853 -- -- 5,000 -- --
</TABLE>
(1) The Company has not granted any restricted stock awards or SARS.
(2) Omitted since amounts are below threshold required to be disclosed.
(3) Consists of amounts accrued as an expense with respect to a supplemental
retirement agreement with the Chief Executive Officer ($26,112 in 1995) and
matching contributions made in fiscal 1995 under the Company's 401(k) plan.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End
Options Values
The following table shows options exercised during fiscal 1995 and the
value of unexercised options (whether or not vested) at June 30, 1995. The
Company has not granted any SARs.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
Fiscal Year-End Fiscal Year-End (1)
Shares Acquired Value ------------------------------------------------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Douglas Crichfield 12,750 $134,625 18,819 2,500 $310,514 $41,250
Paul M. Ferguson 1,500 18,563 6,750 1,250 111,375 20,625
</TABLE>
(1) Based on June 30, 1995 market price of $16.50.
Pension Plan Table
The following table shows the estimated annual benefits payable under the Bank's
defined benefit retirement plan.
<TABLE>
<CAPTION>
Years of Credited Service
----------------------------------------------------------------------------
Average Annual Salary 5 10 15 20 25 30
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $ 9,856 $19,712 $29,568 $39,424 $49,280 $59,136
125,000 12,356 24,712 37,068 49,424 61,780 74,136
150,000 14,856 29,712 44,568 59,424 74,280 89,136
</TABLE>
Benefits under the plan are based on the five highest years' base salary
and will be offset by benefits provided under the Employee Stock Ownership Plan
described below. Mr. Crichfield has six years, and Mr. Ferguson four years, of
credited service under the plan.
The Bank and Mr. Crichfield are parties to an Executive Supplemental
Retirement Agreement ("Supplemental Agreement"), under which, if he works for
the Bank until reaching age 65, Mr. Crichfield will be entitled to receive an
annual benefit payable for life equal to (a) 60% of the average of his three
highest annualized salaries paid during the 5 year period ending on termination
of employment, less (b) the benefit payable in life annuity form under the
Bank's retirement plan discussed above and under the Bank's Employee Stock
Ownership Plan discussed below. Mr. Crichfield accrues a retirement benefit
under the Supplemental Agreement at the rate of 3% per year commencing at age
46, vesting at the rate of 10% per year commencing at age 49. The Supplemental
Agreement provides for faster accrual of benefits than the retirement plan, and
for benefits based upon the full amount of salary earned, whereas under 1993
amendments to the Internal Revenue Code, salary in excess of $150,000 can not be
taken into account in computing benefits under the retirement plan. In addition,
the Supplemental Agreement provides for a death benefit payable monthly for 15
years to his beneficiaries in an annual amount equal to 40% of his salary at
death.
Employee Stock Ownership Plan
The Bank has established an Employee Stock Ownership Plan (the "ESOP"), for
employees age 21 or older who have at least one year of credited service. The
ESOP is funded by the Bank's contributions made in cash (which generally will be
invested in Common Stock) or Common Stock.
45
<PAGE>
The ESOP has purchased shares of Common Stock with funds borrowed from an
unrelated third party lender. The loan, which the Company guaranteed, is being
repaid with funds from the Bank's contributions to the ESOP, forfeitures and
earnings on plan assets. Shares purchased with such loan proceeds are held in a
suspense account for allocation among members as the loan is paid. The number of
shares allocated to Mr. Crichfield's account as of December 31, 1994, December
31, 1993, and December 31, 1992 were 2,617 shares, 2,195 shares, and 1,819
shares, respectively. The number of shares allocated to Mr. Ferguson's account
as of such dates were 903 shares, 602 shares, and 350 shares, respectively.
Contributions to the ESOP and shares released from the suspense account are
allocated among members on the basis of compensation and years of service.
Benefits become 100% vested after five years of service. Forfeitures are
reallocated among remaining participating employees and may reduce any amount
the Bank might otherwise have contributed to the ESOP. Benefits may be payable
upon retirement, early retirement, disability or separation from service. The
Bank's contributions to the ESOP are not fixed, so benefits payable under the
ESOP cannot be estimated. ESOP benefits offset benefits under the retirement
plan discussed above.
Severance Benefits Agreements
In April, 1989 the Company and the Bank entered into a severance benefits
agreement with Douglas Crichfield, then Executive Vice President and Treasurer
of the Bank. Under the agreement, under certain circumstances, Mr. Crichfield
(1) will be paid an amount equal to three times his then annual base salary, (2)
will become fully vested in stock options previously granted to him and in any
supplemental retirement benefits, (3) will be entitled to receive retirement
benefits in an amount equal to any difference between the benefits that would be
payable to him under the Bank's tax qualified employee benefit plans if Mr.
Crichfield were fully vested thereunder and the benefits actually payable and
(4) will be reimbursed for executive outplacement fees up to $10,000, all
relocation expenses, all legal expenses incurred in enforcing the severance
benefits agreement, the cost of maintaining his group insurance coverage for two
years and taxes on such reimbursed amounts. Such payments will be made and such
rights will vest if Mr. Crichfield terminates his employment within two years
following a "Change of Control" (as defined below), either involuntarily (other
than for specified causes) or voluntarily with good reason, as defined. Mr.
Crichfield's annual base salary is presently $160,000. Similar agreements have
been entered into with the Executive Vice President, the Senior Vice President,
and 7 Vice Presidents of the Bank, providing for severance benefits equal to two
years', two years', and one year's base salary, respectively, and certain other
benefits.
A Change of Control is generally defined in the agreements to include the
acquisition by any person other than the Company of the beneficial ownership of
shares representing 25% or more of the total number of votes that may be cast
for election of Directors of the Company or the Bank, the merger or
consolidation of the Company or the Bank or the Company or the Bank selling a
majority of its assets or entering into any transaction in which another entity
(other than an insurer of the Bank's deposit liabilities) assumes a majority of
the deposit liabilities of the Bank.
Transactions With Certain Related Persons
In the ordinary course of business, the Bank makes loans to its and the
Company's directors and officers and parties related to them. Such transactions
are on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons, and
do not involve more than normal risk of collectibility or present other
unfavorable features. For further information on loans to directors and
officers, see Note 3 of Notes to Consolidated Financial Statements.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8K
(a) (1) The following Financial Statements are included in item 8:
Independent Auditors' Report
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) All schedules are omitted because they are not applicable, the data
is not significant, or the required information is shown in the
consolidated financial statements.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1995.
(c) See Index to Exhibits included elsewhere herein.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused by this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
COMMUNITY BANKSHARES, INC.
By: /s/ Douglas Crichfield
----------------------------------------
Douglas Crichfield, President
Dated: September 25, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Douglas Crichfield
- ---------------------------------------------- President and Director September 25, 1995
Douglas Crichfield (Principal Executive Officer)
/s/ Gerald R. Emery
- ---------------------------------------------- Treasurer September 25, 1995
Gerald R. Emery (Principal Financial and Accounting Officer)
/s/ Thomas M. Hardiman
- ---------------------------------------------- Director September 26, 1995
Thomas M. Hardiman
/s/ William S. Fenollosa
- ---------------------------------------------- Director September 26, 1995
William S. Fenollosa
/s/ Oliver R. Fifield
- ---------------------------------------------- Director September 25, 1995
Oliver R. Fifield
/s/ Eleanor H. Stark
- ---------------------------------------------- Director September 25, 1995
Eleanor H. Stark
/s/ Katherine F. Tsouros
- ---------------------------------------------- Director September 25, 1995
Katherine F. Tsouros
/s/ James R. Stewart
- ---------------------------------------------- Director September 25, 1995
James R. Stewart
/s/ Lucia P. Kittredge
- ---------------------------------------------- Director September 25, 1995
Lucia P. Kittredge
/s/ Seth A. Resnicoff, M.D.
- ---------------------------------------------- Director September 25, 1995
Seth A. Resnicoff, M.D.
/s/ Russell A. Holden
- ---------------------------------------------- Director September 25, 1995
Russell A. Holden
- ---------------------------------------------- Director September , 1995
John N. Buxton
/s/ Robert A. Hill
- ---------------------------------------------- Director September 25, 1995
Robert A. Hill
</TABLE>
47
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Method of Filing
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Restated Articles of Incorporation of Community Bankshares, Inc. Incorporated by reference to Exhibit 3.1B to
as currently in effect. Amendment No. 1 to Registration Statement on
Form S-1 (File No. 33-00125 (the "Registration
Statement")
3.1(a) Statement of Resolution establishing series of shares Incorporated by reference to Exhibit 3.1(a)
of Community Bankshares, Inc. dated October 27, 1989 to Annual Report on Form 10-K
for year ended June 30, 1991
3.2 By-laws of Community Bankshares, Inc. as currently in effect Incorporated by reference to Exhibit 3.2
to Registration Statement
4.1 Loan Agreement dated September 22, 1986 between the Savers Bank Incorporated by reference to Exhibit 4 to Annual
and the Trustee of the Concord Savings Bank Employees Stock Report on Form 10-K for year ended June 30, 1986
Ownership Plan, with related Note and Pledge Agreement
4.2 Amendment to Loan Agreement between the Savers Bank and the Incorporated by reference to Exhibit 4.2 to
Trustee of the Concord Savings Bank Employee Stock Ownership Quarterly report on Form 10-Q for quarter ended
Plan, dated January 25, 1988 March 31, 1988
10.2(a) Concord Savings Bank 1985 Stock Option Plan, as amended* Incorporated by reference to Exhibit 10.2 to
Amendment No. 3 to Registration Statement
10.2(b) Amendment to said Stock Option Plan adopted August 18, 1987* Incorporated by reference to Exhibit 10.2(b) to
Annual Report on Form 10-K for year ended
June 30, 1987
10.3 Concord Savings Bank 1988 Stock Option Plan* Incorporated by reference to Exhibit A to Proxy
Statement for Annual Meeting of Stockholders held
on October 20, 1988
10.4 Executive Supplemental Retirement Agreement Incorporated by reference to Exhibit 10.8 to the
with Douglas Crichfield* Quarterly Report on Form 10-Q for the quarter
ended September 30, 1988.
10.5 Form of Severance Benefits Agreement with Douglas Crichfield Incorporated by reference to Exhibit 10.9 to
dated August 1, 1988* Annual Report on Form 10-K for year ended
June 30, 1989
10.5(a) Amendment of Form of Severance Benefits Agreement Incorporated by reference to Exhibit 10.9(a) to
with Douglas Crichfield dated April 19, 1989* Annual Report on Form 10-K for year ended
June 30, 1989
10.6 Form of Severance Benefits Agreement with Donna L. Bean* Incorporated by reference to Exhibit 10.10 to
Annual Report on Form 10-K for year ended
June 30, 1989
10.7 Form of Severance Benefits Agreement with Gerald R. Emery* Incorporated by reference to Exhibit 10.11 to
Annual Report on Form 10-K for year ended
June 30, 1989
10.7(a) Amendment of Form of Severance Benefits Agreement with Incorporated by reference to Exhibit 10.7(a) to
Gerald R. Emery dated 12/30/92* Annual Report on Form 10-K for year ended
June 30, 1993
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Method of Filing
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.8 Form of Severance Benefits Agreement with David E. Fuller* Incorporated by reference to Exhibit 10.12 to
Annual Report on Form 10-K for year ended
June 30, 1989
10.9 Form of Severance Benefits Agreement with Robert F. Howe* Incorporated by reference to Exhibit 10.13 to
Annual Report on Form 10-K for year ended
June 30, 1989
10.10 Form of Severance Benefits Agreement with Richard E. Kamp* Incorporated by reference to Exhibit 10.14 to
Annual Report on Form 10-K for year ended
June 30, 1989
10.11 Form of Severance Benefits Agreement with Paul M. Ferguson* Incorporated by reference to Exhibit 10.11 to
Annual Report on Form 10-K for year ended
June 30, 1991
10.11(a) Amendment of Form of Severance Agreement with Paul M. Ferguson Incorporated by reference to Exhibit 10.11(a) to
dated 12/30/92* Annual Report on Form 10-K for year ended
June 30, 1993
10.12 Form of Severance Benefits Agreement with Charles E. Gorhan* Incorporated by reference to Exhibit 10.12 to
Annual Report on Form 10-K for year ended
June 30, 1991
10.13 Form of Severance Benefits Agreement with Irving S. Felladore* Incorporated by reference to Exhibit 10.13 to
Annual Report on Form 10-K for year ended
June 30, 1991
10.14 Form of Severance Benefits Agreement with Margaret A. Flint* Incorporated by reference to Exhibit 10.14 to
Annual Report on Form 10-K for year ended
June 30, 1991
10.15 Community Bankshares, Inc. 1992 Stock Option Plan* Incorporated by reference to Exhibit A to proxy
statement for Annual Meeting of Stockholders held
on October 15, 1992
10.16 Agreement and Plan of Merger between Community Bankshares, Inc. Incorporated by reference to Current Report on
and Centerpoint Bank dated 8/29/95 Form 8-K dated September 19, 1995.
10.17 Stock Option Agreement between Community Bankshares, Inc. Incorporated by reference to Current Report on
and Centerpoint Bank dated 8/29/95. Form 8-K dated September 19, 1995.
11 Statement re-computation of Income per share Filed herewith
21 Subsidiaries of Community Bankshares, Inc. Incorporated by reference to Exhibit 22 to
1986 10-K
23 Consent of KPMG Peat Marwick LLP to incorporation by reference of Filed herewith
opinion in Registration Statements on Form S-8 (File Nos. 33-53678,
33-18853 and 33-44264) and Form S-3 (File No. 33-87956)
</TABLE>
* indicates management contract or compensatory plan
<PAGE>
EXHIBIT 11
The following table sets forth in detail the computation of earnings per
share for the years ended June 30 as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $3,287,000 $3,090,000 $2,221,000 $ 259,000 $ 487,000
Average primary common and common equivalent shares 1,788,792 1,786,436 1,736,775 1,707,541 1,693,128
Primary earnings per common and common equivalent share $1.84 $1.73 $1.28 $0.15 $0.29
Fully diluted common and common equivalent shares 1,793,725 1,799,367 1,743,019 1,715,773 1,693,128
Fully diluted earnings per common and common
equivalent shares $1.83 $1.72 $1.27 $0.15 $0.29
</TABLE>
<PAGE>
EXHIBIT 23
Consent of Independent Certified Public Accountants
The Board of Directors
Community Bankshares, Inc.:
We consent to incorporation by reference in the registration statements
(Nos. 33-53678, 33-18853, and 33-44264) on Forms S-8 and in the registration
statement (No. 33-87956) on Form S-3 of Community Bankshares, Inc. of our report
dated July 21, 1995, relating to the consolidated financial statements of
Community Bankshares, Inc. and its subsidiaries as of June 30, 1995 and 1994,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended June
30, 1995, which report appears in the June 30, 1995, annual report on Form 10-K
of Community Bankshares, Inc. Our report refers to the adoption of Statement of
Financial Accounting Standards No. 122 "Accounting for Mortgage Servicing
Rights, an Amendment to FASB Statement No. 65."
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
September 27, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
10-K and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 8,227
<INT-BEARING-DEPOSITS> 10,870
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 62,557
<INVESTMENTS-CARRYING> 53,408
<INVESTMENTS-MARKET> 53,350
<LOANS> 275,853
<ALLOWANCE> 2,970
<TOTAL-ASSETS> 425,714
<DEPOSITS> 308,556
<SHORT-TERM> 82,768
<LIABILITIES-OTHER> 4,992
<LONG-TERM> 0
<COMMON> 29,398
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 425,714
<INTEREST-LOAN> 21,599
<INTEREST-INVEST> 6,576
<INTEREST-OTHER> 66
<INTEREST-TOTAL> 28,241
<INTEREST-DEPOSIT> 11,488
<INTEREST-EXPENSE> 2,756
<INTEREST-INCOME-NET> 13,997
<LOAN-LOSSES> 475
<SECURITIES-GAINS> 148
<EXPENSE-OTHER> 10,720
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</TABLE>
