<PAGE>
ANNUAL REPORT PURSUANT TO SECTIONS 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 YEAR ENDED DECEMBER 31, 1996.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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
-----------------------------
(Title of Class)
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. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1997: $53,159,298
Number of shares of Common Stock outstanding as of February 28, 1997: 2,465,237
1
<PAGE>
Part I
ITEM 1. DESCRIPTION OF BUSINESS
(a) General development of business
Community Bankshares, Inc. ("Community") is a bank holding company organized in
1985 under New Hampshire statutes to acquire Concord Savings Bank ("Concord")
upon Concord's conversion from a mutual savings bank to a guaranty stock savings
bank (the "Conversion"). The Conversion was effected on May 8, 1986. Community
is regulated by the Federal Reserve Board, and Concord and Centerpoint Bank
("Centerpoint") by the New Hampshire Commissioner of Banks and by the FDIC.
Concord and Centerpoint are also members of the Federal Home Loan Bank of Boston
("FHLB").
Effective March 20, 1996, Community acquired Centerpoint in a merger accounted
for as a pooling of interests and pursuant to which Community exchanged 657,587
shares of its common shares for 612,849 shares of Centerpoint's outstanding
common shares, a ratio of 1.073 shares for 1 share.
On March 24, 1997, Community entered into a definitive agreement with CFX
Corporation ("CFX") pursuant to which CFX will acquire Community and its
subsidiaries, Concord and Centerpoint. The agreement provides for the merger of
Community with CFX, followed by the merger of Concord and Centerpoint with CFX
Bank, a wholly owned banking subsidiary of CFX. Under the terms of the
agreement, each share of Community Common Stock will be exchanged for 2.2 shares
of CFX Common Stock, subject to adjustment in certain circumstances. In
connection with the transaction, Community has granted to CFX an option to
acquire up to 19.9% of the outstanding shares of Community Common Stock under
certain circumstances. The transaction, which is subject to regulatory and
shareholder approval by both CFX and Community, is expected to be consummated in
the third quarter of 1997.
(b) Financial information about industry segments
Community operates in only one industry segment and only within the United
States. During 1996, Community's sole operations were those of Concord and its
subsidiaries and Centerpoint.
(c) Description of business
The following description of the business of Community relates to the
consolidated operations of Concord and its subsidiaries and Centerpoint unless
the context otherwise requires.
General
Effective December 31, 1995, Community changed its fiscal year end from June 30
to December 31. The periods for which the tables are presented reflect this
change.
The principal business of Community consists of originating commercial loans,
consumer loans and residential mortgage loans on property located primarily in
New Hampshire, and attracting deposits to fund these assets. Community 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 December 31, 1996, Community had total assets
of $550,596,000 with a loan portfolio of $388,484,000, representing 70.6% of
total assets.
Community's operations are conducted in Merrimack, Belknap, Rockingham and
Hillsborough counties through four offices in Concord, New Hampshire and offices
located in Weare, Hooksett, Tilton, Bedford, Manchester, Nashua and Portsmouth,
New Hampshire. Residential mortgage loans are originated in many parts of the
state as well as the Burlington, Vermont area and York county, Maine and
indirect automobile and recreational vehicle loans are originated through
dealers located throughout the state.
Funds for Community'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 FHLB.
Community is primarily a provider of deposit and loan products to individuals,
households and small businesses located within its market area. At December 31,
1996, approximately 65% of Community's loans were to individuals and 35% to
businesses.
2
<PAGE>
Loan Portfolio
At December 31, 1996, Community's net loan portfolio amounted to $388,484,000
(before allowance for loan losses), representing 70.6% of consolidated assets.
The following table shows the composition of Community's portfolio by type of
loan.
<TABLE>
<CAPTION>
At December 31, At June 30,
------------------------------- ----------------------------------------------------------------
1996 1995 1995 1994 1993 1992
-------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- ----
(dollars in thousands) Amount % Amount % Amount % Amount % Amount % Amount %
- --------------------------------------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential:
Conventional............... $ 75,363 19.5 $ 72,516 22.2 $ 68,332 21.3 $ 66,117 25.4 $ 74,025 30.2 $ 61,996 27.1
FHA and VA................. 490 0.1 535 0.2 595 0.2 814 0.3 857 0.3 837 0.4
Home equity................ 21,325 5.5 17,586 5.4 18,489 5.8 19,925 7.6 22,173 9.0 22,674 9.9
Construction................ 10,452 2.7 7,570 2.3 4,578 1.4 2,557 1.0 3,392 1.4 2,218 1.0
Commercial.................. 87,408 22.6 78,673 24.1 73,368 22.8 56,805 21.8 46,040 18.8 43,958 19.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total mortgage loans.......... 195,038 50.4 176,880 54.2 165,362 51.5 146,218 56.1 146,487 59.7 131,683 57.7
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Other loans:
Installment:
Indirect auto
& recreational vehicle.... 121,151 31.3 92,845 28.4 102,867 32.0 66,748 25.5 60,717 24.8 62,320 27.3
Mobile home................ 10,226 2.6 11,677 3.6 12,427 3.9 14,156 5.4 15,036 6.1 15,884 7.0
Other...................... 6,101 1.6 5,461 1.7 4,760 1.5 3,567 1.4 2,633 1.1 2,224 1.0
Other consumer.............. 5,175 1.3 4,881 1.5 4,631 1.4 6,475 2.5 6,693 2.7 4,363 1.9
Commercial.................. 49,282 12.8 34,447 10.6 31,193 9.7 23,684 9.1 13,737 5.6 11,667 5.1
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total other loans............. 191,935 49.6 149,311 45.8 155,878 48.5 114,630 43.9 98,816 40.3 96,458 42.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
386,973 100.0 326,191 100.0 321,240 100.0 260,848 100.0 245,303 100.0 228,141 100.0
===== ===== ===== ===== ===== =====
Deferred loan origination
(fees) costs, net........... 1,511 823 693 7 (158) (175)
-------- -------- -------- -------- -------- --------
$388,484 $327,014 $321,933 $260,855 $245,145 $227,966
======== ======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For additional information on loans, see Note 3 of Notes to the Consolidated
Financial Statements.
Loan Composition. Community's principal lending activities have historically
consisted of the origination of commercial real estate loans and first or second
mortgage liens collateralized by residential real estate. Community'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 December 31, 1996, approximately 50% of Community's long-term mortgage loans
were collateralized by commercial and industrial properties and multi-family
dwellings. The remaining 50% were collateralized by one-to-four family
residential properties. At December 31, 1996, long-term fixed-rate mortgage
loans totaled $16,549,000, or 3% of total assets. Shorter-term fixed, balloon
and variable-rate mortgage loans at December 31, 1996 totaled $178,489,000, or
32% of total assets.
Concord and Centerpoint are certified Small Business Administration ("SBA")
lenders. At December 31, 1996, SBA loans outstanding totaled $11,713,000, of
which the majority were secured by commercial real estate.
Occasionally, Community participates with other lenders in commercial loans
collateralized by real estate. At December 31, 1996, Community held $8,731,000
in such loan participations.
Commercial loans, other than those secured by real estate, amounted to
$49,282,000 at December 31, 1996. These non-real estate commercial loans
primarily consist of loan products designed for small businesses. Such products
include SBA loans, Business Manager (an accounts receivable financing vehicle)
and Business Express Credit Line.
Community has been an active originator of consumer loans for many years. The
majority of Community'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, Community has in the past written variable-rate mobile home
loans. At December 31, 1996, the balance outstanding in variable-rate mobile
home loans was $10,226,000. Other consumer loans are collateralized by
recreational vehicles, boats, passbooks or bank certificates of deposit or are
unsecured.
Community originates indirect automobile and recreational vehicle loans through
dealers throughout the state of New Hampshire. Indirect loans at December 31,
1996 amounted to $121,151,000. 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 Community's balance sheet, Community
periodically sells automobile loans while retaining the right to service these
loans. At December 31, 1996, Community serviced $17,152,000 of indirect
automobile loans for others.
Community 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 December 31, 1996, home equity lines of credit totaled
$44,059,000, with an outstanding balance of $21,325,000.
3
<PAGE>
Community 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 Community's loan portfolio. Community continues to
service a large portion 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 December 31, 1996, residential mortgage
loans serviced for others amounted to $350,958,000.
Contractual Loan Maturities. The following table sets forth the December 31,
1996 contractual loan maturities for Community 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.......................... $ 961 $ 8,622 $ 87,595 $ 97,178
Construction......................... 7,296 2,944 212 10,452
Commercial........................... 11,426 19,417 56,565 87,408
-------- -------- -------- --------
Total mortgage loans............... 19,683 30,983 144,372 195,038
Other loans:
Installment and consumer............. 6,539 116,867 19,247 142,653
Commercial........................... 16,866 19,927 12,489 49,282
-------- -------- -------- --------
Total other loans.................. 23,405 136,794 31,736 191,935
-------- -------- -------- --------
Total loans, excluding deferred
loan origination costs, net....... $ 43,088 $167,777 $176,108 $386,973
======== ======== ======== ========
Loans maturing after one year with:
Fixed interest rates:
Commercial........................... $ 2,892 $ 1,918 $ 4,810
All other............................ 116,968 21,828 138,796
-------- -------- --------
Total.............................. 119,860 23,746 143,606
Variable interest rates:
Construction......................... 2,944 212 3,156
Commercial........................... 36,452 67,137 103,589
All other............................ 8,521 85,013 93,534
-------- -------- --------
Total.............................. 47,917 152,362 200,279
-------- -------- --------
Total loans maturing after one year $167,777 $176,108 $343,885
======== ======== ========
- --------------------------------------------------------------------------------
</TABLE>
Delinquent Loans and Real Estate Acquired by Foreclosure. Accrual of interest
income on loans and amortization of net deferred fees are discontinued when loan
payments are 90 days or more past due or earlier when concern exists as to the
ultimate collection of principal or interest. When loans are placed on non-
accrual status, the interest receivable on the loan is reversed against interest
income of the current period. Non-performing loans are generally not returned to
performing status until the obligation is brought current, the loan becomes
well-secured and in the process of collection and, in either case, when concern
no longer exists as to the collectibility of principal or interest. Interest
received on non-accruing loans is either applied against principal or reported
as income according to management's judgment as to the collectibility of
principal. Income received on impaired loans is recognized in income similar to
non-accrual loans. Community uses a formal procedure for notifying borrowers of
payments contractually past due and for the assessment of late charges.
Community 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 December 31, 1996, real estate
acquired by foreclosure totaled $738,000. Such properties are carried at the
lower of cost or fair value minus costs to sell. For further information, see
Note 1 of Notes to Consolidated Financial Statements.
4
<PAGE>
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>
December 31, June 30,
----------------- ---------------------------------------
(dollars in thousands) 1996 1995 1995 1994 1993 1992
- ----------------------------------------------------------------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans......................................... $1,392 $1,630 $1,926 $ 816 $3,117 $ 3,681
Restructured loans........................................ -- -- -- 228 202 2,084
------ ------ ------ ------ ------ -------
Total non-performing loans............................. 1,392 1,630 1,926 1,044 3,319 5,765
------ ------ ------ ------ ------ -------
Real estate acquired by foreclosure....................... 738 566 1,134 836 2,568 6,725
Other assets acquired..................................... 288 333 368 242 258 420
------ ------ ------ ------ ------ -------
Total assets acquired toward
satisfaction of debt.................................. 1,026 899 1,502 1,078 2,826 7,145
------ ------ ------ ------ ------ -------
Total non-performing assets............................... 2,418 2,529 3,428 2,122 6,145 12,910
Loans delinquent 90 days or
more and still accruing................................. 169 69 -- 187 16 1
------ ------ ------ ------ ------ -------
Total non-performing assets and loans
delinquent 90 days or more and still
accruing.............................................. $2,587 $2,598 $3,428 $2,309 $6,161 $12,911
====== ====== ====== ====== ====== =======
Total non-performing assets as a percent
of total loans and assets acquired toward
satisfaction of debt.................................. 0.62% 0.77% 1.06% 0.81% 2.48% 5.49%
====== ====== ====== ====== ====== =======
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995, total impaired loans were $505,000 and $819,000,
respectively. For additional information on impaired loans, see Note 3 of Notes
to the Consolidated Financial Statements.
Since June 30, 1992, Community has made progress toward resolving its non-
performing assets. Community made substantial reductions in non-performing
assets during fiscal years 1993 and 1994. At June 30, 1993, non-performing
assets totaled $6,145,000 as compared to $12,910,000 at June 30, 1992, a
decrease of 52.4%. 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 a year. In addition,
real estate acquired by foreclosure decreased by $4,157,000. At June 30, 1994
non-performing assets totaled $2,122,000 as compared to $6,145,000 at June 30,
1993, a decrease of 65.5%. This reduction was the result of amortization,
payoffs, sales and charge-offs exceeding additions to non-performing assets.
At December 31, 1996, Community had two residential mortgage loans that were
delinquent 90 days or more and still accruing. Management has reviewed the
circumstances of these loans and concluded that non-accrual status is
unwarranted because the loans' collateral is sufficient to cover principal and
accrued interest and the loans are in process of collection.
Excluded from the above table are $778,000 in substandard loans which were on
accrual status at December 31, 1996. In addition, there are no known loan
concentrations in excess of 10% of total loans.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS--Asset Quality," "--Risk
Characteristics of the Loan Portfolio" and Notes 1, 3 and 6 of Notes to the
Consolidated Financial Statements.
Summary of Loan Loss Experience. Community maintains an allowance for losses on
loans. The provision for loan losses is based on management's assessment of the
adequacy of the allowance for 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.
5
<PAGE>
The following table analyzes movements in the allowance during the periods
indicated:
<TABLE>
<CAPTION>
Year Six Months
Ended Ended Years Ended June 30,
December 31, December 31, -------------------------------------
(dollars in thousands) 1996 1995 1995 1994 1993 1992
- ------------------------------------------ ----------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance at
beginning of period......... $ 3,667 $ 3,524 $ 3,772 $ 4,105 $ 4,105 $ 4,051
Provision for loan losses.... 1,350 498 777 925 2,351 3,021
------- ----------- ------- ------- ------- -------
Recoveries of loans
previously charged-off:
Mortgage loans............... 46 211 273 417 261 152
Indirect consumer loans...... 97 51 75 61 59 43
Mobile home loans............ 22 35 73 42 9 7
Commercial loans............. 95 53 31 123 24 143
Other loans.................. 43 11 30 29 28 21
------- ----------- ------- ------- ------- -------
303 361 482 672 381 366
------- ----------- ------- ------- ------- -------
5,320 4,383 5,031 5,702 6,837 7,438
------- ----------- ------- ------- ------- -------
Charge-offs:
Mortgage loans............... (104) (181) (522) (915) (1,900) (1,724)
Indirect consumer loans...... (405) (154) (175) (185) (173) (356)
Mobile home loans............ (304) (265) (601) (558) (482) (924)
Commercial loans............. (453) (68) (142) (171) (56) (206)
Other loans.................. (149) (48) (67) (101) (121) (123)
------- ----------- ------- ------- ------- -------
(1,415) (716) (1,507) (1,930) (2,732) (3,333)
------- ----------- ------- ------- ------- -------
Balance of allowance at
end of period............... $ 3,905 $ 3,667 $ 3,524 $ 3,772 $ 4,105 $ 4,105
======= =========== ======= ======= ======= =======
Allowance for loan losses
expressed as a percentage
of total loans at end of
period...................... 1.01% 1.12% 1.09% 1.45% 1.67% 1.80%
Loan charge-offs, net of
recoveries, during each
period expressed as an
annualized percentage of
average total loans
during the period........... 0.31% 0.21% 0.34% 0.48% 0.95% 1.28%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Lower levels of net charge-offs and improved asset quality over the past five
years has allowed Community to bring down its allowance for loan losses as a
percentage of total loans to 1.01% at December 31, 1996 as compared to 1.80% at
June 30, 1992.
The following table sets forth the breakdown of the allowance for 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.
<TABLE>
<CAPTION>
At December 31, At June 30,
-------------------------------- --------------------------------------------------------------------
1996 1995 1995 1994 1993 1992
--------------- -------------- --------------- --------------- --------------- --------------
(dollars in thousands) Amount % Amount % Amount % Amount % Amount % Amount %
- ------------------------------------- ----- ------- ----- -------- ----- -------- ----- -------- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance of allowance at end
of period applicable to:
Mortgage loans.............. $ 462 50.4 $1,638 54.2 $1,403 51.5 $1,290 56.1 $1,724 59.7 $1,755 57.7
Indirect consumer loans..... 615 31.3 688 28.4 763 32.0 667 25.5 607 24.8 779 27.3
Mobile home loans........... 546 2.6 605 3.6 638 3.9 632 5.4 486 6.1 471 7.0
Commercial loans............ 1,614 12.8 350 10.6 343 9.7 260 9.1 147 5.6 167 5.1
Other loans................. 251 2.9 104 3.2 97 2.9 170 3.9 147 3.8 105 2.9
Unallocated................. 417 -- 282 -- 280 -- 753 -- 994 -- 828 --
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
$ 3,905 100.0 $ 3,667 100.0 $ 3,524 100.0 $ 3,772 100.0 $ 4,105 100.0 $ 4,105 100.0
======= ===== ======= ===== ======= ===== ======= ===== ======= ===== ======= =====
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995, total impaired loans were $505,000 and $819,000,
respectively. Of the total impaired loans at December 31, 1996, none required a
related allowance. At December 31, 1995 the portion of the allowance for loan
losses allocated to impaired loans was $272,000.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS--Asset Quality" and "--Risk
Characteristics of the Loan Portfolio."
6
<PAGE>
Investment Activities
Community 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 December 31, 1996, investment securities classified as "available for sale"
amounted to $71,710,000 and investment securities classified as "held to
maturity" amounted to $47,021,000. Community did not have any securities
classified as "trading securities". At December 31, 1996, the tax affected
unrealized net gains on securities "available for sale" was $147,000 and is
carried as a component of stockholders' equity.
At December 31, 1996, Community owned callable securities totaling $36,500,000
of which $21,000,000 were held in the available for sale portfolio and
$15,500,000 were in the held to maturity portfolio. All such notes are direct
obligations of various government agencies. Approximately $23,500,000 million of
these securities will be called on their call dates based on the current rate
environment. Final maturities ranged from three to ten years with call dates
ranging from three months to three years.
At December 31, 1996, Community owned mortgage-backed securities having a
carrying value of $53,778,000 and an unrealized net loss of $41,000.
Substantially all of Community's mortgage-backed securities are guaranteed by
FHLMC, FNMA or GNMA. Of the total mortgage-backed securities at December 31,
1996, $37,014,000 bear a fixed interest rate and $16,764,000 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 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 adjustable or variable interest rate mortgage-backed
securities. Mortgage-backed securities are expected to have shorter average
lives than their contractual maturities because borrowers may repay obligations
without prepayment penalties.
A breakdown of yields (based on amortized cost) and contractual maturities for
investment securities (excluding marketable equity securities) at
December 31, 1996 is presented below.
<TABLE>
<CAPTION>
After One But After Five But
Within One Year Within Five Years Within Ten Years
------------------ -------------------- -------------------
Carrying Weighted Carrying Weighted Carrying Weighted
(dollars in thousands) Value Avg Yld Value Avg Yld Value Avg Yld
- ---------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Available for sale:
U.S. Government and
Agency obligations................... $ 5,005 5.32% $ 19,620 6.46% $ 11,081 7.26%
Municipal investments................. 1,166 4.74 398 5.64 -- --
Mortgage-backed
securities........................... 1,074 5.65 2,980 6.17 5,138 5.47
Other debt securities................. -- -- 496 5.57 -- --
------- -------- --------
$ 7,245 5.27 $ 23,494 6.39 $ 16,219 6.70
======= ======== ========
Held to maturity:
U.S. Government and
Agency obligations................... $ 7,012 5.29 $ 19,454 6.98 -- --
Municipal investments................. -- -- -- -- -- --
Mortgage-backed
securities........................... 571 6.69 12,655 6.49 6,930 6.61
Other debt securities................. -- -- -- -- -- --
------- -------- -------
$ 7,583 5.39 $ 32,109 6.79 $ 6,930 6.61
======= ======== =======
<CAPTION>
After Ten Years Total
---------------------- --------------------
Carrying Weighted Carrying Weighted
(dollars in thousands) Value Avg Yld Value Avg Yld
- ------------------------------------------ -------- -------- --------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Government and
Agency obligations............. $ -- --% $ 35,706 6.72%
Municipal investments........... -- -- 1,564 4.97
Mortgage-backed
securities..................... 24,031 6.47 33,223 6.26
Other debt securities........... 246 6.36 742 5.83
-------- --------
$ 24,277 6.47 $ 71,235 6.37
======== ========
Held to maturity:
U.S. Government and
Agency obligations............. $ -- -- $ 26,466 6.53
Municipal investments........... -- -- -- --
Mortgage-backed
securities..................... 399 7.75 20,555 6.56
Other debt securities........... -- -- -- --
-------- --------
$ 399 7.75 $ 47,021 6.54
======== ========
- ------------------------------------------------------------------------------
</TABLE>
Community's investment portfolio is managed by Community's officers in
accordance with the investment policy established by the Finance Committee of
Community's Board of Directors and with the advice of professional investment
advisors. The objectives of Community's investment policy are to provide
liquidity, diversification of assets and earnings. At December 31, 1996,
securities held which exceeded 10% of Community's stockholders' equity included
a mortgage-backed security and one U.S. agency security amounting to $5,082,000
and $5,015,000, respectively.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS--Investment Securities" and Notes 1
and 2 of Notes to the Consolidated Financial Statements.
Sources of Funds
Deposits. The majority of Community's deposits are derived from customers who
reside or work in the New Hampshire counties of Merrimack and Hillsborough.
Community receives a smaller volume of deposits from customers residing in a
number of communities across New Hampshire and from outside of the state.
7
<PAGE>
Because convenience is an important factor in attracting deposits, Community
operates four offices located in the City of Concord, each with ample parking
and three with "drive-up" bays. Community also operates offices located to the
west of Concord in Weare, New Hampshire, to the north of Concord in Tilton, New
Hampshire, to the east of Concord in Portsmouth, New Hampshire and to the south
of Concord in Bedford, Hooksett, Manchester and Nashua, New Hampshire. Community
operates automatic teller machines at all of its locations, at four off-site
locations in Concord, Contoocook, Epsom and Tilton, New Hampshire and at 16 Wal-
Mart and Sam's Club facilities throughout New Hampshire. Concord and Centerpoint
are members of an electronic funds transfer network that allows customers to
access cash from their accounts through ATMs located throughout the state of New
Hampshire and throughout the United States.
Community's deposits consist of 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. Community has maintained a competitive deposit pricing structure within
its market to achieve controlled growth and increase its market share.
The following table presents the distribution of Community's average deposits
outstanding and the annualized average interest rates paid on such deposits
during the periods indicated.
<TABLE>
<CAPTION>
Year Ended Six Months Ended Years Ended June 30,
December 31, December 31, ---------------------------------------
(dollars in thousands) 1996 1995 1995 1994
- ---------------------------------------------------------------- ------------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing deposits............... $ 45,415 --% $ 36,268 --% $ 28,963 --% $ 23,552 --%
--------- --------- --------- ---------
Savings deposits:
Savings, club and escrow
accounts................................ 92,622 2.76 93,932 2.96 105,897 2.92 114,012 2.87
Interest bearing NOW accounts............ 34,457 1.19 31,428 1.46 28,841 1.83 25,969 1.90
Money market accounts.................... 14,182 2.87 13,118 2.88 16,466 2.68 18,039 2.58
--------- --------- --------- ---------
Total savings deposits................. 141,261 2.39 138,478 2.61 151,204 2.68 158,020 2.68
Time certificates of deposit................ 205,221 5.59 205,724 5.68 179,448 4.93 155,871 4.51
--------- --------- --------- ---------
Total deposits......................... $ 391,897 3.79 $ 380,470 4.02 $ 359,615 3.59 $ 337,443 3.34
========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Outstanding time certificates of deposit in amounts of $100,000 or more mature
as follows:
<TABLE>
<CAPTION>
At December 31,
(in thousands) 1996
- -------------------------------------------------------------------
<S> <C>
Within 3 months...................................... $ 8,965
Over 3 through 6 months.............................. 7,764
Over 6 through 12 months............................. 6,597
Over 12 months....................................... 6,788
--------
Total................................................ $ 30,114
========
- -------------------------------------------------------------------
</TABLE>
See "MANAGEMENT'S DISCUSSION AND ANALYSIS--Deposits" and Note 7 of Notes to the
Consolidated Financial Statements.
Borrowings. Community 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 creditworthiness 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 December 31,
1996, Community had outstanding advances of $71,512,000 and an available
borrowing capacity with the FHLB of approximately $40,000,000.
Community also uses repurchase agreements as a source of funds. Repurchase
agreements outstanding at December 31, 1996 amounted to $37,102,000 and carried
maturities of three months or less. U.S. Government and Agency securities with a
book value of $39,937,000 and a fair value of $39,430,000 were pledged as
collateral and held by custodians to secure the agreements at December 31, 1996.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS--Borrowed Funds" and Notes 8 and 9 of
Notes to the Consolidated Financial Statements.
8
<PAGE>
Asset/Liability Management
It is Community's policy to manage its assets and liabilities in a manner that
minimizes interest rate risk exposure while meeting the needs of Community's
customers. The following provides insight into the sensitivity of Community's
earnings to changes in interest rates as of December 31, 1996.
<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........... $ 90 $ -- $ -- $ -- $ 90
Investment securities available for sale........... 7,421 18,711 7,649 4,231 38,012
Investment securities held to maturity............. 14,493 2,970 9,003 -- 26,466
Mortgage-backed securities available for sale...... 16,185 7,104 4,985 4,949 33,223
Mortgage-backed securities held to maturity........ 7,554 9,397 2,523 1,081 20,555
Federal Home Loan Bank stock....................... 4,571 -- -- -- 4,571
Mortgage loans held for sale....................... 1,755 -- -- -- 1,755
Mortgage loans:
Home equity....................................... 20,542 121 145 496 21,304
Residential....................................... 34,086 24,220 6,157 11,390 75,853
Commercial and construction....................... 88,282 6,250 1,614 1,111 97,257
Other loans:
Indirect automobile and recreational vehicle...... 52,672 53,263 12,595 2,511 121,041
Mobile home....................................... 8,284 1,942 -- -- 10,226
Other consumer.................................... 4,640 3,258 1,630 1,703 11,231
Commercial........................................ 44,773 2,424 807 665 48,669
-------- -------- ------- ------- --------
Total............................................ $305,348 $129,660 $47,108 $28,137 $510,253
======== ======== ======= ======= ========
Liabilities subject to interest rate adjustment:
Deposits:..........................................
Savings, escrow and club accounts................. $ 17,383 $ 34,766 $34,765 $ -- $ 86,914
Interest-bearing NOW accounts..................... 7,251 14,501 14,502 -- 36,254
Money market accounts............................. 9,045 5,094 5,093 -- 19,232
Time certificates of deposit...................... 156,255 43,069 1,675 -- 200,999
Borrowed funds..................................... 105,179 3,149 -- 560 108,888
-------- -------- ------- ------- --------
Total............................................ $295,113 $100,579 $56,035 $ 560 $452,287
======== ======== ======= ======= ========
Excess (deficiency) of rate sensitive assets
over rate sensitive liabilities................... $ 10,235 $ 29,081 $(8,927) $27,577 $ 57,966
======== ======== ======= ======= ========
Cumulative excess (deficiency)...................... $ 10,235 $ 39,316 $30,389 $57,966
======== ======== ======= =======
Cumulative rate sensitive assets as a
percent of cumulative rate sensitive liabilities... 103.47% 109.94% 106.73% 112.82%
======== ======== ======= =======
Cumulative excess (deficiency) as a percent of
total rate sensitive assets........................ 3.35% 9.04% 6.30% 11.36%
======== ======== ======= =======
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The effect of interest rate changes on the assets and liabilities of financial
institutions such as Concord and Centerpoint 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 adversely
affect net interest income.
Management uses its judgment in classifying assets and liabilities into the
various interest sensitivity time periods, taking into consideration certain
assumptions based on Community's historical experience and other relevant data.
Non-accruing loans amounting to $1,392,000 have been excluded from this
analysis. The analysis takes into consideration next repricing dates on
variable-rate instruments. Amortization on some of Community'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
Community's historical experience they are generally considered more stable and
are classified proportionately according to their established sensitivities in
the "0-1 Year", "1-3 Year" and "3-5 Year" categories.
Community had a positive gap of under 4% of total rate sensitive assets at
December 31, 1996 in the "0-1 Year" category.
9
<PAGE>
Competition
Community experiences substantial competition in attracting and retaining
deposit accounts and in making mortgage and other loans. Community considers
the New Hampshire counties of Merrimack and Hillsborough as its principal
marketplace. Based on June 30, 1996 data compiled by the FDIC, which includes
Community but does not include non-bank financial service providers, there are
40 banking offices of 11 federally-insured depository institutions within
Merrimack county and 86 banking offices of 12 federally-insured depository
institutions within Hillsborough county.
The branches of Community located within Merrimack county had total deposits of
$293,414,000, which represented 19% of the total deposits in competing bank
offices located in Merrimack county. Community ranked first in terms of total
local deposits located in these institutions, based on the FDIC's June 30, 1996
data. The branches of Community located within Hillsborough county had total
deposits of $104,237,000, which represented 3% of the total deposits in
competing bank offices located in Hillsborough county. Community ranked sixth
in terms of total deposits located in these institutions, based on the FDIC's
June 30, 1996 data.
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 service offered. Competition for
origination of first mortgage loans comes primarily from other savings
institutions, mortgage banking firms and commercial banks.
Regulation and Supervision
Community 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. Concord and Centerpoint are subject to regulation, supervision
and examination by the Bank Commissioner and the Federal Deposit Insurance
Corporation ("FDIC"). The Bank Insurance Fund ("BIF") of the FDIC insures
Concord's and Centerpoint's deposit accounts up to the maximum allowed by law.
Concord and Centerpoint derive their 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 Community, Concord and Centerpoint. State and
federal regulations further require that Concord and Centerpoint maintain
various reserves and that they meet certain capital and liquidity requirements.
Concord and Centerpoint are 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. For additional information, See
"MANAGEMENT'S DISCUSSION AND ANALYSIS--Liquidity and Capital Resources."
Personnel
As of December 31, 1996, Community and its subsidiaries had a total of 202 full-
time and 40 part-time employees. None of Community's employees are subject to a
collective bargaining agreement.
ITEM 2. PROPERTIES
Community's main office, which is owned by Community, is located at 43 North
Main Street, Concord, New Hampshire, in the center of the downtown business
district. At present, Community does not require all of the space available in
this building and has leased approximately one half of it to retail businesses.
Community owns two of its branch offices in Concord, each of which is located in
a modern, one-story building. The other branch office located in Concord is a
leased facility located on the Steeplegate Mall property. Community's branch
offices located in Weare, Tilton, Hooksett, Bedford, Manchester, Nashua and
Portsmouth, New Hampshire are also leased. Community 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.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against Community or any of its
subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
10
<PAGE>
PART II
Item 5. MARKET FOR COMMUNITY'S COMMON STOCK AND RELATED SECURITY HOLDERS MATTERS
COMMON STOCK INFORMATION
At January 31, 1997, there were 1,104 shareholders 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 year ended December 31, 1996
Fourth quarter (12/31/96).......... $ 0.16 237,108 $ 20.75 $ 18.500
Third quarter (9/30/96)............ 0.15 194,744 19.75 17.750
Second quarter (6/30/96)........... 0.15 178,704 18.25 17.063
First quarter (3/31/96)............ 0.15 303,958 19.75 17.500
Six months ended December 31, 1995
Second quarter (12/31/95).......... $ 0.15 340,591 $ 19.25 $ 16.500
First quarter (9/30/95)............ 0.14 177,504 17.25 15.750
Fiscal year ended June 30, 1995
Fourth quarter (6/30/95)........... $ 0.13 230,175 $ 17.25 $ 15.250
Third quarter (3/31/95)............ 0.13 227,201 16.25 12.875
Second quarter (12/31/94).......... 0.13 178,655 16.25 12.875
First quarter (9/30/94)............ 0.12 292,397 16.25 14.500
- ----------------------------------------------------------------------------------------------
</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 "MANAGEMENTS DISCUSSION AND
ANALYSIS--Liquity and Capital Resourses"
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Community Bankshares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
At or for the
At or for the Six Months
Year Ended Ended At or for the Years Ended June 30,
December 31, December 31, -------------------------------------------
(dollars in thousands, except per share data) 1996 1995 1995 1994 1993 1992
- --------------------------------------------------------------- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Results of Operations:
Interest and dividend income................ $ 41,578 $ 19,804 $ 33,873 $ 27,204 $ 27,696 $ 29,333
Interest expense............................ 19,757 10,056 15,818 11,768 12,936 17,184
---------- ---------- -------- -------- -------- --------
Net interest and dividend income.......... 21,821 9,748 18,055 15,436 14,760 12,149
Provision for loan losses................... 1,350 498 777 925 2,351 3,021
---------- ---------- -------- -------- -------- --------
Net interest and dividend income after
provision for loan losses............... 20,471 9,250 17,278 14,511 12,409 9,128
Non-interest income......................... 3,993 1,807 2,201 2,818 3,031 2,634
Non-interest expense........................ 16,820 8,019 13,442 12,811 12,980 11,378
---------- ---------- -------- -------- -------- --------
Income before income taxes &
extraordinary item...................... 7,644 3,038 6,037 4,518 2,460 384
Income taxes................................ 2,689 1,264 1,862 897 -- 85
---------- ---------- -------- -------- -------- --------
Net income................................ 4,955 1,774 4,175 3,621 2,460 299
Dividends on preferred stock................ -- -- -- 19 24 --
---------- ---------- -------- -------- -------- --------
Net income available to common
Stockholders............................ $ 4,955 $ 1,774 $ 4,175 $ 3,602 $ 2,436 $ 299
========== ========== ======== ======== ======== ========
Ending Balance Sheet Data:
Assets...................................... $ 550,596 $ 498,003 $507,024 $407,262 $375,436 $354,968
Investments securities...................... 118,731 114,936 128,965 111,246 72,175 80,324
Loans....................................... 388,484 327,014 321,933 260,855 245,145 227,966
Allowance for loan losses................... 3,905 3,667 3,524 3,772 4,105 4,105
Real estate acquired by foreclosure......... 738 566 1,134 836 2,568 6,725
Deposits.................................... 395,787 385,437 373,184 346,389 332,180 308,268
Borrowed funds.............................. 108,888 70,936 93,021 25,986 8,079 12,097
Stockholders' equity........................ 40,807 36,768 34,975 31,218 28,590 24,532
Per Share Data and Other Selected Ratios:
Earnings per common and
common equivalent share................... $ 2.00 $ 0.73 $ 1.70 $ 1.49 $ 1.09 $ 0.24
Dividends paid per share.................... 0.61 0.29 0.51 0.24 -- --
Book value per share........................ 16.66 15.49 14.70 13.13 12.33 11.22
Dividend payout ratio....................... 30.50% 39.73% 30.00% 16.11% --% --%
Return on average assets (1)................ 0.94% 0.70% 0.94% 0.94% 0.69% 0.09%
Return on average equity (1)................ 12.84 9.75 12.77 11.59 9.06 1.20
Net interest margin (FTE) (1)............... 4.43 4.13 4.27 4.25 4.39 3.89
Stockholders' equity to assets at
period end................................ 7.41 7.38 6.90 7.67 7.62 6.91
Average stockholders' equity to
average assets............................ 7.33 7.19 7.33 8.07 7.60 7.43
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Ratios for the six months ended December 31, 1995 are annualized.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 10-K and the tables appearing throughout this section and the section
labeled "Item 1. Description of Business".
During September 1995, Community's Board of Directors voted to change
Community's fiscal year end from June 30 to December 31 effective
December 31,1995. As a result of this reporting transition, the financial
condition section of this Management's Discussion and Analysis provides
information at December 31, 1996, December 31, 1995 and June 30, 1995,
and the results of operations section includes a comparison of the twelve
months ended December 31, 1996 and the six months ended December 31, 1995
(annualized) and a comparison of the two years ended June 30, 1995.
Effective March 20, 1996, Community acquired Centerpoint in a merger accounted
for as a pooling of interest and pursuant to which Community exchanged 657,587
shares of its common shares for 612,849 shares of Centerpoint's outstanding
common shares, a ratio of 1.073 shares for 1 share.
The market area in which Community operates has experienced steady economic
growth during the last year with the strongest activity concentrated in the
southern regions of the state, including the communities of Nashua and
Portsmouth. In general, New Hampshire's economy continues to lead New England
in the rate of growth in numerous economic indices since recovering from the
recession at the beginning of the decade. The current economic outlook for 1997
indicates a continuation of 1996 economic trends.
Financial Condition
Community's total assets amounted to $550,596,000 at December 31, 1996, which
represents an increase of $52,593,000, or 10.6%, from $498,003,000 at
December 31, 1995. Loans, primarily in indirect auto lending through dealers
and to a lesser extent commercial and commercial real estate, provided the
majority of the asset growth offset by a decrease in interest bearing deposits
in other banks. See "Description of Business-Loan Portfolio."
Total assets decreased by $9,021,000, or 1.8%, from $507,024,000 at June 30,
1995 to $498,003,000 at December 31, 1995. In an effort to reduce its
dependency on higher cost borrowed funds and to take advantage of market
conditions, Community repaid maturing borrowed funds with proceeds from consumer
loan sales and investment security maturities and sales.
At December 31, 1996, Community's equity to assets ratio was 7.41%, its Tier 1
leverage ratio was 7.41% and its total risk-based capital ratio was 11.25%, as
compared to 7.38%, 7.04% and 11.79%, respectively, at December 31, 1995. The
capital ratios at June 30, 1995 were 6.90%, 7.19% and 11.33%, respectively. All
of these capital ratios exceeded published regulatory minimums.
Investment Securities
At December 31, 1996, Community's investment securities classified as available
for sale amounted to $71,710,000, or 60.4% of total investment securities with
the remaining securities of $47,021,000, or 39.6%, classified as held to
maturity. At December 31, 1995, securities available for sale and held to
maturity amounted to $67,411,000 and $47,525,000, respectively, which
represented 58.7% and 41.3%, respectively, of total investment securities. At
June 30, 1995 securities available for sale and held to maturity amounted to
$63,568,000 and $65,397,000, respectively, which represented 49.3% and 50.7%,
respectively, of total investment securities.
In June 1996, Community transferred securities with a fair value of $5,730,000
from its available for sale portfolio to its held to maturity portfolio. The
transfer was a result of a strategic decision made by management to hold a
larger percentage of Community's securities to maturity. At the time of the
transfer, the securities had an unrealized loss of $252,000. This unrealized
loss is being amortized over the life of the securities transferred, which is
approximately four years.
During 1996, Community securitized $10,698,000 of residential mortgage loans
with FNMA and transferred them from loans to securities available for sale on
its balance sheet. Of this amount, $8,100,000 have been sold realizing a gain on
sale of $6,000.
In 1995, the Financial Accounting Standards Board allowed a one-time
reassessment of the appropriateness of the classification of all securities
held, and Community reclassified $10,666,000 of securities held to maturity to
available for sale. At the time of reclassification, there was $58,000 in
unrealized gains and $165,000 in unrealized losses relating to the securities
transferred. For further information, see Note 2 of Notes to Consolidated
Financial Statements.
Concord and Centerpoint, as members, owned FHLB stock of $4,571,000 at
December 31, 1996 compared to $4,411,000 and $4,009,000, respectively, for the
periods ended December 31, 1995 and June 30, 1995.
Tax affected unrealized net gains on securities available for sale, amounted to
$147,000 at December 31, 1996 compared to $578,000 and $151,000 at December 31,
1995 and June 30, 1995, respectively.
13
<PAGE>
Risk Characteristics of the Loan Portfolio
Total loans amounted to $388,484,000 at December 31, 1996 compared to
$327,014,000 at December 31, 1995, an increase of $61,470,000 or 18.8%. This
increase in loans was primarily due to expanded and newly developed loan
relationships resulting in increased volumes in indirect automobile and
recreational vehicle, commercial and commercial real estate loans. Total loans
increased by $5,081,000, or 1.6%, from $321,933,000 at June 30, 1995 to
$327,014,000 at December 31,1995. During the six months ended December 31,
1995, Community sold $16,867,000 of indirect automobile loans.
Community has originated a large number of automobile and recreational vehicle
loans through 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, Community substantially increased
its number of active dealer relationships during the fiscal year ended June 30,
1995 resulting in significant growth in loan originations in indirect loans
since that time. At December 31, 1996, the balance of indirect automobile and
recreational vehicle loans through dealers was $121,151,000, or 31.2% of total
loans as compared to $92,845,000 and $102,867,000, respectively, or 28.4% and
32.0%, respectively, of total loans at December 31, 1995 and June 30, 1995.
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
Community's balance sheet, Community has developed the ability to sell
automobile loans, while retaining the right to service these loans. During the
twelve months ended December 31, 1996, Community sold $4,069,000 of automobile
loans compared with $16,867,000 during the six months ended December 31, 1995
and $9,777,000 during the fiscal year ended June 30, 1995 respectively.
Community is obligated to assume a certain portion of credit losses should they
occur and has accrued $89,000 to absorb such losses.
Total commercial loans, which includes commercial mortgage and non-real estate
commercial loans, grew by $23,570,000, or 20.8%, during the twelve months ended
December 31, 1996 as compared to an increase of $8,559,000, or 8.2%, and
$24,072,000, or 29.9%, during the six months ended December 31, 1995 and during
the fiscal year ended June 30, 1995, respectively. Community used market
opportunities in the commercial lending area to grow commercial loans. Loan
growth was primarily to small businesses in the manufacturing, retail and
service industries and to professional associations. Of Community's commercial
loan portfolio at December 31, 1996, which represents 35.2% of total loans,
$11,713,000, or 8.6%, of commercial loans were originated under various Small
Business Administration ("SBA") programs. For further information on loans, see
Note 3 of Notes to the Consolidated Financial Statements.
Commercial and consumer (indirect automobile 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.
Community continues to use the same loan underwriting criteria and loan review
process that have played a role in reducing 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.
Community's indirect auto lending delinquency levels have been consistently
below industry averages over the past few years.
Community's policies on loan-to-value ratios and loan origination and
underwriting criteria for each of its lending categories are set forth below.
On occasion, exceptions may be made to these policies on a case-by-case basis.
Residential mortgage loans are originated and underwritten according to federal
and state regulations and generally in accordance with secondary market
guidelines. As a general rule, the maximum loan-to-value ratio is 80% of the
lesser of the appraised value or purchase price of the property (up to 95% with
private mortgage insurance as secondary market requirements permit). The loan-
to-value ratio maximum may vary with individual program requirements, such as
FHA and VA loans, which are financed up to 100% with guaranties and sold
servicing released to private investors.
The maximum loan-to-value ratio for commercial real estate and commercial
construction loans range from 70% to 85% of the lesser of the appraised value or
purchase price of the property, depending on the type of loan. The maximum loan-
to-value ratio for 1-4 family residential construction is 85%; for non-
residential construction and improved property, 75%; for raw land, 60%; and land
development, 70%.
Among the factors that Community considers in making commercial construction
loans are the experience, background, credibility and overall capacity of the
contractor/developer; the contractor's past performance, including the success
or failure of previous projects; the contractor's reputation for honesty and
integrity; and the contractor's financial condition. Community generally
requires that permanent financing be in place and committed prior to funding
construction.
The maximum loan-to-value ratio for residential construction loans is 80% of the
lower of appraised value, sales price or acquisition cost (up to 90% for pre-
sold primary residence with private mortgage insurance and up to 80% for pre-
sold second homes with private mortgage insurance). Residential construction
loans generally must qualify for sale to Community's secondary financing
markets.
14
<PAGE>
The loan-to-value ratios for new indirect automobile loans range from 90% to
115% of invoice or 80% to 100% of MSRP (manufacturer's suggested retail price)
based off a credit scored matrix. The average loan for new automobiles is
invoice plus 3%. The loan-to-value ratios for used automobile loans range from
NADA (National Auto Dealers Association) loan value to NADA retail value. The
average loan value is approximately 90% of trade value and the spread between
trade value and retail value is approximately 16%. The average loan for used
automobiles is NADA trade value plus 5%.
Asset Quality
Non-Performing Asset Analysis. Non-performing assets consist of non-accrual
loans (which may include impaired loans), real estate acquired through
foreclosure and other assets acquired to satisfy debt. Community's non-
performing assets amounted to $2,418,000 at December 31, 1996 compared to
$2,529,000 at December 31, 1995 and $3,428,000 at June 30, 1995. Included in
these amounts were non-performing loans of $1,392,000, $1,630,000 and
$1,926,000, respectively, at December 31, 1996, December 31, 1995 and June 30,
1995. Impaired loans, which were included in non-performing loans, amounted to
$435,000 at December 31, 1996.
Community's non-performing assets decreased slightly to $2,418,000, or 0.4% of
total assets, at December 31, 1996 from $2,523,000, or 0.5%, of total assets, at
December 31, 1995. Community's non-performing assets increased to $3,428,000, or
0.7% of total assets, at June 30, 1995 from $2,122,000, or 0.5%, of total
assets, at June 30, 1994. The increase in non-performing assets from June 30,
1994 to June 30, 1995 was primarily the result of two commercial loans totaling
approximately $1,200,000 which were originated prior to 1990 and which were
previously performing, being placed onto non-accruing status by Community during
the third quarter of fiscal 1995. The successful resolution of one of these
commercial loans represented the majority of the decrease in non-performing
assets during the six months ended December 31, 1995.
Non-Performing Loan Summary
<TABLE>
<CAPTION>
At December 31, 1996
------------------------------------------------------------------------------------------------
Share of Non- Share of Non-performing Loans
Total Loans Total Loans performing Non-performing as a Percentage of
(dollars in thousands) Outstanding Outstanding Loans Loans Total Loans in Type
- ---------------------------------------------- ----------- ---------- -------------- --------------------
<S> <C> <C> <C> <C> <C>
Residential mortgage loans... $ 81,532 21.0% $ -- --% --%
Commercial loans:
Construction ............. 4,560 1.2 -- -- --
Real estate............... 87,172 22.4 603 43.3 0.7
Other..................... 49,302 12.7 613 44.0 1.2
Home equity.................. 21,629 5.6 21 1.6 0.1
Mobile home loans............ 10,226 2.6 -- -- --
Indirect consumer loans...... 122,787 31.6 110 7.9 0.1
Other consumer loans......... 11,276 2.9 45 3.2 0.4
--------- ----- ------- -----
Total.................. $ 388,484 100.0 $ 1,392 100.0 0.4
========= ===== ======= =====
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Excluded from the above table are $778,000 in substandard loans which were on
accrual status at December 31, 1996. For further information on non-performing
loans, see Notes 1 and 3 of Notes to the Consolidated Financial Statements.
Assets Acquired to Satisfy Debt. Assets acquired to satisfy debt totaled
$1,026,000 at December 31, 1996 compared to $899,000 at December 31, 1995 and
$1,502,000 at June 30, 1995. Of the total at December 31, 1996, $144,000 was in
commercial real estate, $594,000 in primary residential properties, $114,000 in
mobile homes and $174,000 in repossessed vehicles. For further information, see
Notes 1 and 6 of Notes to the Consolidated Financial Statements.
See "Description of Business-Loan Portfolio-Delinquent Loans and Real Estate
Acquired by Foreclosure" and "-Summary of Loan Loss Experience".
Deposits
Total deposits amounted to $395,787,000 at December 31, 1996 which represented
an increase of $10,350,000, or 2.7% over the December 31, 1995 balance of
$385,437,000. This increase is attributed to management's strategy in building
full banking relationships with its business customers. Total deposits at June
30, 1995 amounted to $373,184,000. Deposits provided funding for 77% of total
earning assets at December 31, 1996 compared to 84% at December 31, 1995 and 79%
at June 30, 1995. For further information, see Note 7 of Notes to the
Consolidated Financial Statements.
Borrowed Funds
Funding loan growth was the primary reason for the increase in borrowed funds
from $70,936,000 at December 31, 1995 to $108,888,000 at December 31,1996, which
represents an increase of 53.5%. At June 30, 1995, borrowed funds amounted to
$93,021,000. During the last six months of 1995, investment security maturities
and sales as well as consumer loan sale proceeds were utilized to lessen
Community's dependency on higher costing borrowed funds. For further
information, see Notes 8 and 9 of Notes to the Consolidated Financial
Statements.
15
<PAGE>
Liquidity and Capital Resources
Liquidity is a measure of Community'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.
Community's funding requirements are limited and are adequately satisfied by
dividends from Concord and Centerpoint and by its interest-bearing cash deposit
with Concord. Dividends paid from Concord and Centerpoint to Community are
limited to the extent necessary for Concord and Centerpoint to comply with
regulatory capital guidelines.
Concord and Centerpoint are members of the FHLB, which makes substantial
borrowings available to its members. At December 31, 1996, FHLB borrowings
totaled $71,512,000 with approximately $40,000,000 available in unused borrowing
capacity remaining at the FHLB to meet future large deposit fluctuations or
increased loan demands should either occur.
Total cash and cash equivalents at December 31, 1996 totaled $20,660,000
compared to $31,193,000 and $31,349,000 at December 31, 1995 and June 30, 1995,
respectively. At December 31, 1995, funds originated from the sales of
approximately $10,000,000 in automobile loans were held in interest bearing
deposits in other banks.
At December 31, 1996, the investment portfolio totaled $118,731,000, of which
$71,710,000 was designated as "available for sale" and could be utilized to
manage liquidity needs, and $47,021,000 was designated as "held to maturity."
Community has not historically had, and does not anticipate having, a need to
use the portion of its investment portfolio designated "held to maturity" for
liquidity purposes given its unused borrowing capacity and other liquidity
resources.
At December 31, 1996, Community had equity capital of $40,807,000, resulting in
an equity-to-assets ratio of 7.41%.
Community is regulated by the Federal Reserve Board, which requires Community to
maintain minimum risk-based capital ratios. At December 31, 1996, the minimum
Tier 1 and total risk-based capital ratios required were 4.00% and 8.00%,
respectively. Community's Tier 1 and total risk-based capital ratios at
December 31, 1996 were 10.26% and 11.25%, respectively.
To complement the risk-based guidelines, the Federal Reserve Board requires a
minimum leverage ratio of 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. Community's
leverage ratio was 7.41% at December 31, 1996.
The following table summarizes Concord's required FDIC minimum and actual
regulatory capital ratios and amounts at December 31, 1996:
<TABLE>
<CAPTION>
Required Actual
Regulatory Regulatory
Capital Capital
------------------ ----------------
(dollars in thousands) Amount Ratio Amount Ratio
- ---------------------------------- ------- ------- ------
<S> <C> <C> <C> <C>
Leverage.................. $ 17,605 4.00% $ 30,974 7.04%
Risk-based:
Tier 1................. 12,545 4.00 30,974 9.88
Total risk-based....... 25,090 8.00 33,998 10.84
- --------------------------------------------------------------
</TABLE>
The following table summarizes Centerpoint's required FDIC minimum and actual
regulatory capital ratios and amounts at December 31, 1996:
<TABLE>
<CAPTION>
Required Actual
Regulatory Regulatory
Capital Capital
------------------ ----------------
(dollars in thousands) Amount Ratio Amount Ratio
- ---------------------------------- ------- ------- ------
<S> <C> <C> <C> <C>
Leverage.................. $ 4,461 4.00% $ 7,537 6.76%
Risk-based:
Tier 1................. 3,253 4.00 7,537 9.27
Total risk-based....... 6,506 8.00 8,418 10.35
- --------------------------------------------------------------
</TABLE>
16
<PAGE>
Recent Accounting Developments
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and is to be applied prospectively. However, SFAS No. 127, Deferral of the
Effective Date of Certain Provisions of SFAS No. 125, requires the deferral of
implementation as it relates to repurchase agreements, dollar-rolls, securities
lending and similar transactions until years beginning after December 31, 1997.
Earlier or retrospective application of this statement is not permitted. This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguished transfers of financial assets that are sales from
transfers that are secured borrowings. Management of Community does not expect
that adoption of these statements will have a material impact on Community's
financial position, results of operations or liquidity.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
AND SIX MONTHS ENDED DECEMBER 31, 1995
For the purpose of comparing the December 31, 1996 twelve month income statement
dollar amounts with the December 31, 1995 six month dollar amounts, December 31,
1995 six month numbers, excluding non-recurring items, have been doubled to
estimate annualized comparative dollar amounts. Non-recurring acquisition
expenses and expenses related to the change in the fiscal year end, experienced
during the six months ended December 31, 1995, have been excluded before
annualizing the income statement amounts. The after-tax impact of non-recurring
acquisition expenses and expenses related to the change in the fiscal year end
amounted to $669,000 and $53,000, respectively. There were no such non-
recurring expenses recorded during the twelve months ended December 31, 1996.
Community earned net income of $4,955,000, or $2.00 per share, for the twelve
months ended December 31, 1996. Excluding non-recurring expenses incurred
during the period, earnings for the six months ended December 31, 1995, on an
annualized basis, equaled $4,270,000, or $1.79 per share. Earnings for the
fiscal year ended June 30, 1995 equaled $4,175,000, or $1.70 per share.
Increases, on an annualized basis, in net interest income and non-interest
income more than offset the increases in non-interest expenses and loan loss
provision for the current period versus the prior fiscal year.
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. The amounts for the six months ending December 31, 1995 have
been annualized in order to compare them to the amounts for the twelve months
ending December 31, 1996.
<TABLE>
<CAPTION>
Year Ended December 31, 1996 vs.
Annualized Six Months Ended
December 31, 1995
--------------------------------
Increase (Decrease)
Due to
--------------------------------
(in thousands) Volume Rate Total
- -------------------------------------------------------------- ------ ----------
<S> <C> <C> <C>
Interest and dividend income:
Mortgage loans..................................... $ 40 $ 88 $ 128
Other loans........................................ 1,959 245 2,204
Investment-tax equivalent.......................... (319) (22) (341)
------ ----- ------
Total interest and dividend income................... 1,680 311 1,991
------ ----- ------
Interest expense:
Deposits........................................... (69) (420) (489)
Borrowed funds..................................... 74 60 134
------ ----- ------
Total interest expense............................... 5 (360) (355)
------ ----- ------
Net interest and dividend income..................... $1,675 $ 671 $2,346
====== ===== ======
- ----------------------------------------------------------------------------------
</TABLE>
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 Community. Net interest income on a fully tax-equivalent
basis for the twelve months ended December 31, 1996 amounted to $21,908,000
compared to $9,781,000, or $19,562,000 on an annualized basis, for the six
months ended December 31, 1995. This increase was mostly due to growth in
average earning assets (primarily consumer loans) during the twelve months ended
December 31, 1996 as compared to the six months ended December 31, 1995. The net
interest margin for the twelve months ended December 31, 1996 equaled 4.43%
compared to 4.13%, on an annualized basis, for the six months ended December 31,
1995.
17
<PAGE>
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 8.43% for the twelve months
ended December 31, 1996 compared to 8.37% for the six months ended December 31,
1995. The cost of average interest-bearing liabilities for the twelve months
ended December 31, 1996 equaled 4.52% compared with 4.72% for the six months
ended December 31, 1995. This resulted in an interest rate spread of 3.91% and
3.65%, respectively, for the twelve months ended December 31, 1996 and the six
months ended December 31, 1995. The changes in these yields and costs reflect
the trends in market interest rates over the past eighteen months.
Average Balances
During the twelve months ended December 31, 1996, Community increased its
average earning assets by $20,513,000 over the six months ended December 31,
1995. Earning asset growth was mostly in indirect automobile loans through
dealers. In order to fund this growth in average earning assets, Community
increased its average borrowed funds and average interest-bearing deposits by
$8,899,000 and $2,280,000, respectively, over the last six months in 1995.
Community also experienced growth of $9,147,000 in average non-interest bearing
demand deposits for the twelve months ended December 31, 1996 over the six
months ended December 31, 1995.
Average Balance Sheets and Net Interest and Dividend Income
The following table sets forth certain information relating to Community'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>
Twelve Months Ended Six Months Ended
December 31, December 31,
1996 1995
----------------------------------- ----------------------------
Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Rate Balance Interest Rate (6)
- ----------------------------------------------------------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans............................... $ 170,332 $ 16,136 9.47% $ 171,474 $ 8,004 9.34%
Other loans.................................. 187,303 16,840 8.99 159,860 7,318 9.16
--------- -------- --------- -------
Total loans(1)............................ 357,635 32,976 9.22 331,334 15,322 9.25
Investment and mortgage-backed
securities(2)(5).......................... 136,627 8,689 6.36 142,415 4,515 6.34
--------- -------- --------- -------
Total interest-earning assets........... 494,262 41,665 8.43 473,749 19,837 8.37
--------- -------- --------- -------
Non interest-earning assets...................... 35,805 32,130
Allowance for loan losses........................ (3,682) (3,533)
--------- ---------
Total assets............................ $ 526,385 $ 502,346
========= =========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits..................................... $ 346,482 $ 14,839 4.28 $ 344,202 $ 7,665 4.45
Borrowed funds............................... 90,500 4,918 5.43 81,601 2,391 5.86
--------- -------- --------- -------
Total interest-bearing liabilities...... 436,982 19,757 4.52 425,803 10,056 4.72
--------- -------- --------- -------
Non interest-bearing demand deposits............. 45,415 36,268
Other liabilities................................ 5,405 4,175
--------- ---------
Total liabilities....................... 487,802 466,246
Stockholders' equity............................. 38,583 36,100
--------- ---------
Total liabilities and stockholders'
equity................................ $ 526,385 $ 502,346
========= =========
Net interest income/interest rate spread(3)...... $ 21,908 3.91 $ 9,781 3.65
======== =======
Net interest margin(4)........................... 4.43 4.13
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes non-accrual 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.
(5) Included in investment and mortgage-backed securities are average balances
of non-taxable securities amounting to $4,789,000 and $3,856,000,
respectively, and tax equivalent income of $87,000 and $33,000,
respectively, for the twelve months ended December 31, 1996 and the six
months ended December 31, 1995. Tax equivalent income was calculated using
an effective tax rate of 34%.
(6) Calculated on an annualized basis.
18
<PAGE>
Provision for Loan Losses
The provision for loan losses is based on management's assessment of the
adequacy of the allowance for 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 the twelve months ended December 31, 1996, $1,350,000 was provided for
loan losses compared to $498,000, or $996,000 annualized, for the six months
ended December 31, 1995. The increase is primarily attributable to higher
average loan volumes during the twelve months ended December 31, 1996 as
compared with the six months ended December 31, 1995. The allowance for loan
losses as a percentage of non-performing loans was 280.5% at December 31, 1996
compared to 225.8% at December 31, 1995. At December 31, 1996, the allowance
for loan losses stood at $3,905,000, or 1.0% of total loans compared to
$3,667,000 and 1.1%, respectively, at December 31, 1995. Net charge-offs for
the twelve months ended December 31, 1996 totaled $1,112,000, or 0.31% of total
average loans versus $710,000 and 0.21%, on an annualized basis, respectively,
for the six months ended December 31, 1995.
While management believes that additions to, and the year-end balance of, the
allowance for loan losses are adequate, further provisions to the allowance for
loan losses may be necessary if the market in which Community operates
deteriorates.
Non-Interest Income
Total non-interest income amounted to $3,993,000 for the twelve months ended
December 31, 1996 compared to $1,807,000, or $3,614,000 annualized, for the six
months ended December 31, 1995. This increase is primarily attributable to
higher deposit account service fees and mortgage servicing income. Increase in
transaction activity and number of accounts were the primary reasons for growth
in deposit account fees for the twelve months ended December 31, 1996 and to a
lesser extent an increase in fees charged on deposit accounts, effective
December 31, 1995. The increase in loan servicing income resulted from
Community's purchase of the rights to service approximately $180,000,000 of
mortgage loans during August, 1995 and due to servicing income derived from
indirect automobile loans which were sold with servicing retained during the six
months ended December 31, 1995. Additionally, gains on sales of investment
securities amounted to $540,000 for the year ended December 31, 1996 compared to
$228,000 or $456,000, annualized, for the six months ended December 31, 1995.
Non-Interest Expense
Total non-interest expense amounted to $16,820,000 for the twelve months ended
December 31, 1996. Excluding non-recurring expenses incurred during the period,
total non-interest expense for the six months ended December 31, 1995, on an
annualized basis, amounted to $15,289,000. The increase in non-interest expense
was primarily due to continued investments made by Community to expand its
business lines and product distribution system, increased marketing and normal
increases related to salaries and benefits and other operating expenses. During
the twelve months ended December 31, 1996, Community opened new full service
offices in Hooksett and Portsmouth, New Hampshire, opened new remote automated
cash dispensing machines at 16 of the Walmart and Sam's Club stores in New
Hampshire and expanded its commercial and indirect consumer lending capacity.
Also included in non-interest expense for the twelve months ended December 31,
1996 were some necessary duplicate costs resulting from the Centerpoint
acquisition.
Income Taxes
Income tax expense for the twelve months ended December 31, 1996 amounted to
$2,689,000 which resulted in an effective tax rate of 35.2% for the period.
This compares to $1,264,000 for the six months ended December 31, 1995, or an
effective tax rate of 41.6%. The lower effective tax rate for the twelve months
ended December 31, 1996 compared to the six months ended December 31, 1995 was
primarily due to the non-deductibility of certain acquisition expenses related
to Community's acquisition of Centerpoint and the lowering of Community's
deferred tax asset valuation reserve more significantly during the current
fiscal year ended December 31, 1996. For further information on income taxes,
see Note 11 of Notes to the Consolidated Financial Statements.
RESULTS OF OPERATIONS FOR THE TWO YEARS ENDED JUNE 30, 1995
Community earned net income of $4,175,000, or $1.70 per share, for the fiscal
year ended June 30, 1995. Earnings for the year ended June 30, 1994 were
$3,602,000, or $1.49 per share.
Pretax earnings improved by 33.6% during fiscal 1995 over fiscal 1994 primarily
due to an increase in net interest income of $2,619,000.
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:
19
<PAGE>
<TABLE>
<CAPTION>
Years Ended June 30,
1995 vs. 1994
-----------------------------
Increase (Decrease)
Due to
-----------------------------
(in thousands) Volume Rate Total
- ------------------------------------------------------- ------ -------
<S> <C> <C> <C>
Interest and dividend income:
Mortgage loans.............................. $ 782 $ 886 $ 1,668
Other loans................................. 3,032 (103) 2,929
Investments-tax equivalent.................. 2,376 (298) 2,078
------- ----- -------
Total interest and dividend income............. 6,190 485 6,675
------- ----- -------
Interest expense:
Deposits.................................... 1,437 204 1,641
Borrowed funds.............................. 2,879 (470) 2,409
------- ----- -------
Total interest expense......................... 4,316 (266) 4,050
------- ----- -------
Net interest and dividend income............... $ 1,874 $ 751 $ 2,625
======= ===== =======
- ------------------------------------------------------------------------------
</TABLE>
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 Community. Net interest income on a fully tax-equivalent
basis increased to $18,082,000 in fiscal 1995 from $15,457,000 in fiscal 1994.
This increase was mostly due to growth in earning assets during fiscal 1995
which was partially offset by an increase in interest expense. The increase in
cost of funds was primarily due to the utilization of higher cost borrowed funds
and time certificates of deposit to fund the earning asset growth. Also, during
fiscal 1995 Community experienced a shift in the mix of deposits from the lower
cost savings deposits to the higher cost time certificates of deposit.
Community's net interest margin for fiscal 1995 was 4.27% compared with 4.25% in
fiscal 1994.
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 8.00% in fiscal 1995
compared to 7.48% in fiscal 1994. The cost of average interest-bearing
liabilities in fiscal 1995 and 1994 was 4.15% and 3.62%, respectively. The
changes in these yields and costs reflect the trends in market interest rates
during fiscal 1995 and 1994, as well as the shift in the composition of
deposits to higher rate time certificates from lower costing savings accounts.
Average Balances
During fiscal 1995, Community increased its average earning assets by
$60,051,000, or 16.5%, over fiscal 1994. Earning asset growth was mostly in
indirect automobile loans through dealers. In order to fund this growth in
average earning assets, Community utilized an increase in average borrowed funds
of $39,243,000 and growth in average interest-bearing deposits of $16,761,000
over fiscal 1994. Community also experienced growth of $5,411,000 in average
non-interest bearing demand deposits for fiscal 1995 over 1994.
20
<PAGE>
Average Balance Sheets and Net Interest and Dividend Income
The following table sets forth certain information relating to Community'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,
-----------------------------------------------------------
1995 1994
---------------------------- ----------------------------
Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans............................ $ 159,449 $ 13,962 8.76% $ 156,058 $ 12,294 7.88%
Other loans............................... 138,397 12,124 8.76 105,925 9,195 8.68
--------- -------- --------- -------- ----
Total loans(1)......................... 297,846 26,086 8.76 261,983 21,489 8.20
Investment and mortgage-backed
securities(2)(5)........................ 126,058 7,814 6.20 101,870 5,736 5.63
--------- -------- --------- -------- ----
Total interest-earning assets.......... 423,904 33,900 8.00 363,853 27,225 7.48
--------- -------- --------- -------- ----
Non interest-earning assets.................. 25,874 27,107
Allowance for loan losses.................... (3,620) (4,013)
--------- ---------
Total assets........................... $ 446,158 $ 386,947
========= =========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits:
Savings................................... $ 151,204 $ 4,058 2.68 $ 158,020 $ 4,231 2.68
Time certificates......................... 179,448 8,846 4.93 155,871 7,031 4.51
--------- -------- --------- --------
Total deposits......................... 330,652 12,904 3.90 313,891 11,262 3.59
Borrowed funds............................ 50,479 2,914 5.77 11,236 506 4.50
--------- -------- --------- --------
Total interest-bearing liabilities..... 381,131 15,818 4.15 325,127 11,768 3.62
--------- -------- --------- --------
Non interest-bearing demand deposits......... 28,963 23,552
Other liabilities............................ 3,364 7,033
--------- ---------
Total liabilities...................... 413,458 355,712
Stockholders' equity......................... 32,700 31,235
--------- ---------
Total liabilities and stockholders'
equity................................ $ 446,158 $ 386,947
========= =========
Net interest income/interest rate spread(3).. $ 18,082 3.85 $ 15,457 3.86
======== ========
Net interest margin(4)....................... 4.27 4.25
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes non-accrual 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.
(5) Included in investment and mortgage-backed securities are average balances
of non-taxable securities amounting to $2,078,000 and $3,020,000,
respectively, and tax equivalent income of $27,000 and $21,000,
respectively, for the years ended June 30, 1995 and 1994. Tax equivalent
income was calculated using an effective tax rate of 34%.
Provision for Loan Losses
The provision for loan losses is based on management's assessment of the
adequacy of the allowance for 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, $777,000 was provided for loan losses compared to $925,000
in 1994. The allowance for loan losses as a percent of non-performing loans was
183.0% at June 30, 1995 as compared to 361.3% at June 30, 1994. At June 30,
1995, the allowance for loan losses stood at $3,524,000, or 1.1% of total loans
as compared to $3,772,000 or 1.4% of total loans at June 30, 1994. Improved
asset quality and lower net charge-offs have enabled Community to reduce its
loan loss provisions. Net charge-offs for fiscal years 1995 and 1994 were
$1,025,000 and $1,258,000, respectively.
While management believes that additions to, and the year-end balance of, the
allowance for loan losses are adequate, further provisions to the allowance for
loan losses may be necessary if the market in which Community operates
deteriorates.
21
<PAGE>
Non-Interest Income
Total non-interest income amounted to $2,201,000 for fiscal 1995 compared to
$2,818,000 in fiscal 1994.
Exclusive of loan and security gains, non-interest income steadily increased to
$1,552,000 in fiscal 1995 from $1,205,000 in fiscal 1994. This represented a
28.8% increase in 1995 versus the level earned in fiscal 1994. The increases
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, were the reasons for the increases in
deposit fee income. Continued growth in mortgage loans serviced for others
resulted in a corresponding increase in fee income.
Loan sale gains decreased to $501,000 in fiscal 1995 compared to the higher
level of $1,089,000 earned during fiscal 1994. This decline resulted from
reduced residential mortgage origination volumes caused by the decline in demand
for refinancing as market rates rose. Offsetting a portion of the 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
sales of loans for fiscal 1995.
Also, Community's opportunities to realize security gains have diminished since
fiscal 1994 as market rates rose. Gains on the sale of securities declined from
$524,000 in fiscal 1994 to $148,000 in fiscal 1995.
Non-Interest Expense
Total non-interest expense increased by 4.9% to $13,442,000 in fiscal 1995 from
$12,811,000 experienced during fiscal 1994 primarily due to major investments
made by Community to expand its business lines and product distribution system.
During the fiscal year ended June 30, 1995, Community experienced increases in
salaries and benefits and occupancy and equipment expenses primarily due to
expanding its business lines and product distribution system. During fiscal
1995, Community 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.
Income Taxes
Income tax expense for the year ended June 30, 1995 amounted to $1,862,000 for
an effective rate of 30.8% and for the year ended June 30, 1994 amounted to
$897,000 for an effective rate of 19.9%. The primary reason for the differences
between these rates and the statutory rate of 34.0% was due to Community
lowering its deferred tax asset valuation reserve by $253,000 for the year ended
June 30, 1995 and by $664,000 for the year ended June 30, 1994. For further
information on income taxes, see Note 11 of Notes to the Consolidated Financial
Statements.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' 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 December 31, 1996 and 1995 and June 30,
1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the year ended December 31, 1996, the
six months ended December 31, 1995 and for each of the years in the two-year
period ended June 30, 1995. These consolidated financial statements are the
responsibility of Community'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 December 31, 1996 and 1995 and June 30,
1995, and the results of their operations and their cash flows for the year
ended December 31, 1996, the six months ended December 31, 1995 and each of the
years in the two-year period ended June 30, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 22, 1997
23
<PAGE>
CONSOLIDATED BALANCE SHEETS
Community Bankshares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31,
----------------------- June 30,
(dollars in thousands, except share data) 1996 1995 1995
- --------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C> <C>
Assets
Cash and due from banks (Note 13)................................................ $ 20,570 $ 19,226 $ 17,368
Interest-bearing deposits in other banks......................................... 90 11,967 13,981
--------- --------- ---------
Total cash and cash equivalents............................................ 20,660 31,193 31,349
--------- --------- ---------
Securities available for sale--amortized cost $71,377 at December 31, 1996,
$66,467 at December 31, 1995 and $63,129 at June 30, 1995
(Notes 2, 8 and 9)............................................................. 71,710 67,411 63,568
Securities held to maturity--fair value $46,990 at December 31, 1996,
$47,760 at December 31, 1995 and $65,322 at June 30, 1995
(Notes 2, 8 and 9)............................................................. 47,021 47,525 65,397
Federal Home Loan Bank stock (Notes 2 and 9)..................................... 4,571 4,411 4,009
Mortgage loans held for sale..................................................... 1,755 2,940 4,635
Loans (Notes 3 and 9)............................................................ 388,484 327,014 321,933
Allowance for loan losses (Note 4)............................................... (3,905) (3,667) (3,524)
--------- --------- ---------
Net loans.................................................................. 384,579 323,347 318,409
--------- --------- ---------
Premises and equipment (Note 5).................................................. 9,923 8,938 8,140
Real estate acquired by foreclosure (Note 6)..................................... 738 566 1,134
Due from broker from security sale............................................... -- 1,710 --
Accrued interest receivable...................................................... 3,805 3,724 3,540
Other assets (Notes 6 and 11).................................................... 5,834 6,238 6,843
--------- --------- ---------
Total assets............................................................... $ 550,596 $ 498,003 $ 507,024
========= ========= =========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (Note 7):
Non-interest bearing demand.................................................. $ 52,388 $ 39,969 $ 37,829
Savings...................................................................... 142,400 137,835 138,620
Time certificates............................................................ 200,999 207,633 196,735
--------- --------- ---------
Total deposits............................................................. 395,787 385,437 373,184
Borrowed funds (Notes 8 and 9)................................................. 108,888 70,936 93,021
Liability relating to ESOP (Note 12)........................................... -- 118 197
Accrued interest payable....................................................... 1,463 1,517 1,229
Other liabilities.............................................................. 3,651 3,227 4,418
--------- --------- ---------
Total liabilities.......................................................... 509,789 461,235 472,049
--------- --------- ---------
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
2,448,931 at December 31, 1996, 2,382,849
at December 31, 1995 and 2,380,476 at June 30, 1995.......................... 2,449 2,383 2,380
Additional paid-in capital.................................................... 22,266 21,784 21,766
Retained earnings............................................................. 15,945 12,299 11,068
--------- --------- ---------
40,660 36,466 35,214
Unrealized net gains (losses) on securities
available for sale, net (Note 3).............................................. 147 578 151
Unearned compensation expense--ESOP............................................ -- (118) (197)
Treasury stock (at cost)--9,655 shares at
December 31, 1995 and 11,810 at June 30, 1995.............................. -- (158) (193)
--------- --------- ---------
Total stockholders' equity................................................. 40,807 36,768 34,975
--------- --------- ---------
Total liabilities and stockholders' equity................................. $ 550,596 $ 498,003 $ 507,024
========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Community Bankshares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Six Months Years Ended
Ended Ended June 30,
December 31, December 31, ---------------------
(dollars in thousands, except share data) 1996 1995 1995 1994
- -------------------------------------------------------------------------------- ------------ ---------------------
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans (Note 3)................................................... $ 32,976 $ 15,322 $ 26,086 $ 21,489
Securities available for sale.................................... 5,385 2,203 4,441 4,832
Securities held to maturity...................................... 2,610 1,939 2,921 422
Dividends on Federal Home Loan Bank stock........................ 292 137 202 165
Deposits in other banks.......................................... 315 203 223 296
-------- -------- -------- --------
Total interest and dividend income............................. 41,578 19,804 33,873 27,204
-------- -------- -------- --------
Interest expense:
Deposits......................................................... 14,839 7,665 12,904 11,262
Borrowed funds................................................... 4,918 2,391 2,914 506
-------- -------- -------- --------
Total interest expense......................................... 19,757 10,056 15,818 11,768
-------- -------- -------- --------
Net interest and dividend income..................................... 21,821 9,748 18,055 15,436
Provision for loan losses (Note 4)................................... 1,350 498 777 925
-------- -------- -------- --------
Net interest and dividend income after
provision for loan losses..................................... 20,471 9,250 17,278 14,511
-------- -------- -------- --------
Non-interest income:
Deposit account fees............................................. 848 342 618 469
Gains on sales of investment securities, net (Note 2)............ 540 228 148 524
Gains on sales of loans, net (Note 1)............................ 867 456 501 1,089
Mortgage servicing income........................................ 1,241 556 522 476
Other............................................................ 497 225 412 260
-------- -------- -------- --------
Total non-interest income...................................... 3,993 1,807 2,201 2,818
-------- -------- -------- --------
Non-interest expense:
Salaries and employee benefits (Note 12)......................... 8,170 3,673 6,763 6,141
Occupancy and equipment.......................................... 2,731 1,115 1,963 1,735
Foreclosed property (Note 6)..................................... 128 156 146 67
FDIC deposit insurance premiums.................................. 4 14 806 814
Marketing........................................................ 632 260 353 348
Acquisition costs................................................ -- 669 -- --
Other............................................................ 5,155 2,132 3,411 3,706
-------- -------- -------- --------
Total non-interest expense..................................... 16,820 8,019 13,442 12,811
-------- -------- -------- --------
Income before income taxes........................................... 7,644 3,038 6,037 4,518
Income tax expense (Note 11)......................................... 2,689 1,264 1,862 897
-------- -------- -------- --------
Net income....................................................... 4,955 1,774 4,175 3,621
Dividends on preferred stock......................................... -- -- -- 19
-------- -------- -------- --------
Net income available to common stockholders...................... $ 4,955 $ 1,774 $ 4,175 $ 3,602
======== ======== ======== ========
Earnings per common and common equivalent share...................... $ 2.00 $ 0.73 $ 1.70 $ 1.49
Average number of common and common
equivalent shares outstanding....................................... 2,477,000 2,434,000 2,458,000 2,424,000
Dividends paid per share............................................. $ 0.61 $ 0.29 $ 0.51 $ 0.24
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Community Bankshares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Unrealized
Net Gains
(Losses) on Unearned
Additional Securities Compensation
(dollars in thousands, Preferred Common Paid-in Retained Available for Expense Treasury
except share data) Stock Stock Capital Earnings Sale, Net ESOP Stock Total
- ------------------------- --------- --------- -------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1993....... $ 63 $ 2,318 $ 22,046 $ 4,676 $ - $ (513) $ - $ 28,590
Net income..................... - - - 3,621 - - - 3,621
Amortization of unearned
compensation-ESOP............. - - - - - 158 - 158
Preferred stock exchange
for common stock.............. (27) 27 - - - - - -
Redemption of preferred stock.. (36) - (250) - - - - (286)
Issuance of common stock through
stock option and purchase
plans (Note 12).............. - 32 166 - - - - 198
Cash dividends on preferred
stock......................... - - - (19) - - - (19)
Cash dividends on common
stock......................... - - - (408) - - - (408)
Change in unrealized net gains
(losses) on securities
available for sale, net...... - - - - (636) - - (636)
---- --------- -------- --------- -------- ---- ----- --------
Balances at June 30, 1994....... - 2,377 21,962 7,870 (636) (355) - 31,218
Net income..................... - - - 4,175 - - - 4,175
Amortization of unearned
compensation-ESOP............. - - - - - 158 - 158
Redemption of preferred
stock......................... - - 1 - - - - 1
Issuance of common stock through
stock option and purchase
plans (Note 12).............. - 3 (197) - - - 434 240
Purchase of 42,500 shares of
treasury stock................ - - - - - - (627) (627)
Cash dividends on common
stock......................... - - - (977) - - - (977)
Change in unrealized net gains
(losses) on securities available
for sale, net................ - - - - 787 - - 787
---- --------- -------- --------- -------- ---- ----- --------
Balances at June 30, 1995....... - 2,380 21,766 11,068 151 (197) (193) 34,975
Net income..................... - - - 1,774 - - - 1,774
Amortization of unearned
compensation-ESOP............. - - - - - 79 - 79
Issuance of common stock through
stock option and purchase
plans (Note 12).............. - 3 18 - - - 35 56
Cash dividends on common
stock......................... - - - (543) - - - (543)
Change in unrealized net gains
(losses) on securities
available for sale, net...... - - - - 427 - - 427
---- --------- -------- --------- -------- ---- ----- --------
Balances at December 31, 1995... - 2,383 21,784 12,299 578 (118) (158) 36,768
Net income..................... - - - 4,955 - - - 4,955
Amortization of unearned
compensation-ESOP............. - - - - - 118 - 118
Issuance of common stock through
stock option and purchase
plans (Note 12).............. - 76 630 - - - - 706
Stock option tax benefit....... - - - 67 - - - 67
Retirement of treasury stock... - (10) (148) - - - 158 -
Cash dividends on common stock. - - - (1,376) - - - (1,376)
Change in unrealized net gains
(losses) on securities available
for sale, net................. - - - - (431) - - (431)
---- --------- -------- --------- -------- ---- ----- --------
Balances at December 31, 1996 $ - $ 2,449 $ 22,266 $ 15,945 $ 147 $ - $ - $ 40,807
==== ========= ======== ========= ======== ==== ===== ========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Community Bankshares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Six Months Years Ended
Ended Ended June 30,
December 31, December 31, -------------------------
(in thousands) 1996 1995 1995 1994
- --------------------------------------------------------------- ------------ --------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 4,955 $ 1,774 $ 4,175 $ 3,621
Adjustments to reconcile net income to net
cash provided by (used in)
operating activities:
Provision for loan losses......................... 1,350 498 777 925
Depreciation and amortization, net................ 1,045 829 1,422 1,393
Gains on sales of investment securities, net (540) (228) (148) (524)
Loss on sales and disposal of
premises and equipment........................... 30 - 26
Net (gains) losses on sales and loss
provisions on real estate acquired
by foreclosure................................... 2 51 (51) (130)
Mortgage loans originated for sale................ (53,391) (25,593) (28,655) (112,813)
Mortgage loans sold............................... 54,576 27,288 30,126 120,332
(Increase) decrease in other assets............... 2,308 219 (3,410) 1,736
Increase (decrease) in other liabilities.......... 437 (921) 2,311 (2,890)
-------- -------- --------- --------
Net cash provided by operating activities....... 10,772 3,917 6,547 11,676
-------- -------- --------- --------
Cash flows from investing activities:
Proceeds from sales of securities held to
maturity.......................................... 1,005 - - -
Proceeds from sales of securities available
for sale.......................................... 49,536 13,917 20,925 12,669
Proceeds from maturities and principal
payments of securities held to maturity........... 22,978 11,204 6,014 12,494
Proceeds from maturities and principal
payments of securities available for sale......... 34,640 10,369 13,091 40,136
Purchase of securities held to maturity............ (17,616) (4,000) (30,034) (40,075)
Purchase of securities available for sale.......... (84,120) (16,616) (20,917) (45,319)
Net (increase) decrease in FHLB stock.............. (160) (402) (1,969) 403
Net increase in loans.............................. (77,426) (22,875) (78,694) (37,077)
Proceeds from sales of automobile loans............ 4,069 16,867 9,777 -
Capitalized expenses on real estate
acquired by foreclosure........................... (5) - (232) (65)
Proceeds from disposition of real estate
acquired by foreclosure........................... 540 937 984 2,404
Proceeds from sales of premises and equipment 16 - - 28
Additions to premises and equipment................ (2,276) (1,312) (1,317) (1,008)
Cash paid for mortgage servicing rights............ - (1,755) (453) -
-------- -------- --------- --------
Net cash provided by (used in) investing
activities....................................... (68,819) 6,334 (82,825) (55,410)
-------- -------- --------- --------
Cash flows from financing activities:
Net increase (decrease) in time certificates
of deposit........................................ (6,634) 10,898 41,264 (3,067)
Net increase (decrease) in demand, NOW,
savings and money market deposit accounts......... 16,984 1,355 (14,469) 17,276
Proceeds from borrowings........................... 187,292 103,318 165,945 31,382
Repayments of borrowings........................... (149,340) (125,403) (98,910) (13,394)
Repayments of liability relating to ESOP........... (118) (79) (158) (158)
Proceeds from issuance of common stock............. 706 53 175 171
Purchase of treasury stock......................... - - (627) -
Redemption of preferred stock...................... - - - (286)
Dividends paid on preferred stock.................. - - - (19)
Dividends paid on common stock..................... (1,376) (549) (993) (416)
-------- -------- --------- --------
Net cash provided by (used in) financing
activities...................................... 47,514 (10,407) 92,227 31,489
-------- -------- --------- --------
Net increase (decrease) in cash and cash
equivalents..................................... (10,533) (156) 15,949 (12,245)
Cash and cash equivalents at beginning of
period............................................. 31,193 31,349 15,400 27,645
-------- -------- --------- --------
Cash and cash equivalents at end of period.......... $ 20,660 $31,193 $31,349 $ 15,400
======== ======== ========= ========
Supplemental cash flow information:
Cash paid for:
Income taxes, net................................. $ 2,017 $ 1,112 $ 1,528 $ 1,186
Interest.......................................... 19,811 9,767 15,316 11,725
Supplemental schedule of non-cash activities:
Transfer of securities to available for
sale (Note 2)..................................... $ - $10,666 $ - $ 56,028
Transfer of securities from available
for sale to held to maturity, net................. 5,730 - - 16,113
Mortgage loans securitized during the period 10,698 - 5,551 19,625
Additions to real estate acquired by
foreclosure....................................... 709 420 999 477
Change in net unrealized gains (losses) on
securities available for sale, net................ (431) 427 787 (636)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Community Bankshares, Inc. and Subsidiaries
(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 ("Community"); Concord
Savings Bank ("Concord"), its wholly owned subsidiary, Community Mortgage, Inc.
and its wholly owned subsidiary for indirect lending, Bancredit Corporation
("Bancredit"); and Centerpoint Bank ("Centerpoint"). 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.
Community is a shareholder owned bank holding company organized in 1985 under
New Hampshire statutes to acquire Concord upon its conversion from a mutual
savings bank to a stock guaranty savings bank on May 8, 1986. Concord was
originally chartered by the New Hampshire legislature in 1872. Centerpoint was
formed in 1989 as a New Hampshire-chartered guaranty savings bank and in 1995
completed its conversion to a state-chartered trust company. Community acquired
Centerpoint in 1996 in a transaction accounted for as a pooling-of-interest.
Community is regulated by the Federal Reserve Board, and Concord and Centerpoint
by the Bank Commissioner of the State of New Hampshire and by the Federal
Deposit Insurance Corporation ("FDIC"). Concord and Centerpoint are each
members of the Federal Home Loan Bank of Boston.
On August 29, 1995, Community announced a definitive agreement by which
Centerpoint would merge into Community, with the resulting entity being
Community. The agreement provided that stockholders of Centerpoint would
receive in a tax free exchange, shares of Community common stock in accordance
with an exchange ratio of 1.073 common shares of Community for each common share
of Centerpoint. The transaction which was accounted for under the pooling-of-
interest method was completed on March 20, 1996. Under the pooling-of-interest
method, the recorded amounts of assets and liabilities of Community and
Centerpoint have been carried forward at their previously recorded amounts. At
March 20, 1996, Centerpoint had total assets of $88.6 million and total
stockholders' equity of $6.2 million.
Revenues and expenses have been retroactively restated as if Community and
Centerpoint were combined for the entire fiscal period in which the merger
occurred and for all periods prior to the merger at previously recorded amounts.
Net income for the individual entities was as follows:
<TABLE>
<CAPTION>
Community Centerpoint
(in thousands) Bankshares Bank Combined
- -------------------------------------------------- ----------- --------
<S> <C> <C> <C>
Six months ended December 31, 1995..... $ 1,371 $ 403 $ 1,774
Year ended June 30, 1995............... $ 3,287 $ 888 $ 4,175
Year ended June 30, 1994............... $ 3,090 $ 531 $ 3,621
- --------------------------------------------------------------------------
</TABLE>
The principal business of Community 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. Under the name
Bancredit, Concord is active throughout the state in originating consumer
automobile, recreational vehicle and boat loans. Concord also provides banking
and financial advisory services to municipalities and public agencies throughout
New Hampshire.
Effective December 31, 1995, Community changed its fiscal year end from June 30
to December 31. The financial statements and notes thereto have been presented
accordingly to transition this change in fiscal year end.
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 market
conditions relate to the determination of the allowance for loan losses,
valuation of real estate acquired by foreclosure and the carrying value of
mortgage servicing rights.
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, net of related taxes. 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, net of related taxes, 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
28
<PAGE>
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. Accrual of
interest income on loans and amortization of net deferred fees are discontinued
when loan payments are 90 days or more past due or earlier when concern exists
as to the ultimate collection of principal or interest. When loans are placed
on non-accrual status, the interest receivable on the loan is reversed against
interest income of the current period. Non-performing loans are generally not
returned to performing status until the obligation is brought current, the loan
becomes well-secured and in the process of collection and, in either case, when
concern no longer exists as to the collectibility of principal or interest.
Interest received on non-accruing loans is either applied against principal or
reported as income according to management's judgment as to the collectibility
of principal. Income received on impaired loans is recognized in income similar
to non-accrual loans.
Loan origination fees and related direct incremental loan origination costs are
deferred and amortized over the life of the related loans as yield adjustments
using the level-yield method. When loans are sold or paid-off, the unamortized
fees and costs are transferred to income.
Impaired loans are commercial, commercial real estate, and individually
significant mortgage and consumer loans for which it is probable that Community
will not be able to collect all amounts due according to the contractual terms
of the loan agreement. The definition of "impaired loans" is not the same as
the definition of "non-accrual loans," although the two categories overlap.
Non-accrual loans include impaired loans and 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. Community may choose to place a loan on non-accrual status due to
payment delinquency or uncertain collectibility, while not classifying the loan
as impaired, if (i) it is probable that Community will collect all amounts due
in accordance with the contractual terms of the loan or (ii) the loan is not a
commercial, commercial real estate or an individually significant mortgage or
consumer loan. Factors considered by management in determining impairment
include payment status and collateral value. The amount of impairment for these
types of impaired loans is determined by the difference between the present
value of the expected cash flows related to the loan, using the original
contractual interest rate, and its recorded value, or, as a practical expedient
in the case of collateralized loans, the difference between the fair value of
the collateral and the recorded amount of the loans. When foreclosure is
probable, impairment is measured based on the fair value of the collateral.
Mortgage and consumer loans which are not individually significant are measured
for impairment collectively. Loans that experience insignificant payment delays
and insignificant shortfalls in payment amounts generally are not classified as
impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record and the
amount of the shortfall in relation to the principal and interest owed.
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. Net unrealized losses, if any, are provided for in a
valuation allowance by charges to operations. When loans are sold, a gain or
loss is recognized to the extent that the sales proceeds exceed or are less than
the carrying value of the loans. Gains and losses are determined using the
specific identification method.
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.
Community recognizes as separate assets the rights to service mortgage loans for
others. When Community 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 Community 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 to other non-interest expense in proportion to, and over the
period of, estimated net servicing income by use of the level-yield method.
On a quarterly basis, Community 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. The risk characteristics of the
underlying loans used to stratify loans to measure impairment of originated and
purchased mortgage loan servicing rights include loan type, interest rate, loan
origination date, term to
29
<PAGE>
maturity, and geographic location. This valuation model incorporates assumptions
that market participants would use in estimating future net servicing income
including estimates of prepayment speeds, the cost of servicing loans, discount
rate, float value, ancillary income and default rates. Any impairment is
recognized as a charge to earnings through a valuation allowance.
Effective January 1, 1997, in accordance with SFAS No. 125, the carrying amounts
of mortgage servicing rights and excess loan servicing rights will be combined
and evaluated for impairment based upon fair value.
Allowance for Loan Losses
The allowance for 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. 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, including
impaired loans, are charged-off in whole or in part when, in management's
opinion, collectibility is remote.
While management uses available information to establish the allowance for loan
losses, future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review Concord's and
Centerpoint's allowance for loan losses. Such agencies may require Concord and
Centerpoint to recognize additions to the allowance based on their judgments
about information available to them at the time of their examination.
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
Real estate acquired by foreclosure includes foreclosed properties where
Community is in possession of the collateral. Real estate acquired by
foreclosure in settlement of loans is recorded at the lower of the carrying
amount of the loan or the fair value of the property received minus costs to
sell.
Losses arising from the acquisition of such properties or from the writedowns to
fair values of loans foreclosed or in the process of foreclosure are charged
against the allowance for loan losses. Operating expenses and any subsequent
provisions to reduce the carrying amount to net fair value are charged to
current period earnings. Gains upon disposition are reflected in earnings as
realized. Realized losses are charged to the allowance for losses on real estate
acquired by foreclosure.
Income Taxes
Community 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.
Stock Option Plan
Prior to January 1, 1996, Community accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, Community adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and to provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No. 123
had been applied. Community has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosures required by SFAS
No.123.
30
<PAGE>
Recent Accounting Developments
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and is to be applied prospectively. However, SFAS No. 127, Deferral of the
Effective Date of Certain Provisions of SFAS No. 125, requires the deferral of
implementation as it relates to repurchase agreements, dollar-rolls, securities
lending and similar transactions until years beginning after December 31, 1997.
Earlier or retrospective applications of this Statement are not permitted. This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Management of Community does not expect
that adoption of SFAS No. 125 will have a material impact on Community's
financial position, results of operations or liquidity.
(2) Investment and Mortgage-Backed Securities
The amortized cost and estimated fair 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>
December 31, 1996:
Investment securities:
U.S. Gov't & Agency obligations..... $35,453 $ 293 $ 40 $35,706 $26,466 $ 43 $ 115 $26,394
Municipal investments............... 1,564 - - 1,564 - - - -
Marketable equity securities........ 301 174 - 475 - - - -
Other debt securities............... 754 - 12 742 - - - -
------- ------- ------- ------- ------- ------- ------- -------
38,072 467 52 38,487 26,466 43 115 26,394
------- ------- ------- ------- ------- ------- ------- -------
Mortgage-backed securities:
FHLMC............................... 10,874 7 96 $10,785 16,049 57 49 $16,057
FNMA................................ 15,112 100 156 15,056 4,506 33 - 4,539
Other............................... 7,319 70 7 7,382 - - - -
------- ------- ------- ------- ------- ------- ------- -------
33,305 177 259 33,223 20,555 90 49 20,596
------- ------- ------- ------- ------- ------- ------- -------
Total investment securities:....... $71,377 $ 644 $ 311 $71,710 $47,021 $ 133 $ 164 $46,990
======= ======= ======= ======= ======= ======= ======= =======
December 31, 1995:
Investment securities:
U.S. Gov't & Agency obligations..... $30,892 $ 758 $ 23 $31,627 $34,953 $ 253 $ 38 $35,168
Municipal investments............... 971 - - 971 - - - -
Marketable equity securities........ 181 115 30 266 - - - -
Other debt securities............... 1,256 - 26 1,230 - - - -
Other............................... 113 - - 113 - - - -
------- ------- ------- ------- ------- ------- ------- -------
33,413 873 79 34,207 34,953 253 38 35,168
------- ------- ------- ------- ------- ------- ------- -------
Mortgage-backed securities:
FHLMC............................... 11,340 67 98 11,309 10,621 23 36 10,608
FNMA................................ 17,853 236 134 17,955 1,844 33 - 1,877
Other............................... 3,861 92 13 3,940 107 - - 107
------- ------- ------- ------- ------- ------- ------- -------
33,054 395 245 33,204 12,572 56 36 12,592
------- ------- ------- ------- ------- ------- ------- -------
Total investment securities........ $66,467 $ 1,268 $ 324 $67,411 $47,525 $ 309 $ 74 $47,760
======= ======= ======= ======= ======= ======= ======= =======
June 30, 1995:
Investment securities:
U.S. Gov't & Agency obligations..... $32,810 $ 364 $ 84 $33,090 $37,907 $ 161 $ 174 $37,894
Municipal investments............... 987 - - 987 2,750 - - 2,750
Marketable equity securities........ 182 87 40 229 - - - -
Other debt securities............... 1,256 - 45 1,211 3,944 54 - 3,998
Other............................... 110 - - 110 - - - -
------- ------- ------- ------- ------- ------- ------- -------
35,345 451 169 35,627 44,601 215 174 44,642
------- ------- ------- ------- ------- ------- ------- -------
Mortgage-backed securities:
FHLMC............................... 6,136 8 92 6,052 12,773 35 163 12,645
FNMA................................ 12,566 254 22 12,798 6,902 43 32 6,913
Other............................... 9,082 89 80 9,091 1,121 3 2 1,122
------- ------- ------- ------- ------- ------- ------- -------
27,784 351 194 27,941 20,796 81 197 20,680
------- ------- ------- ------- ------- ------- ------- -------
Total investment securities........ $63,129 $ 802 $ 363 $63,568 $65,397 $ 296 $ 371 $65,322
======= ======= ======= ======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
As a member of the Federal Home Loan Bank ("FHLB") of Boston, Concord and
Centerpoint are 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% and 17.42% for Concord and Centerpoint,
respectively, of its outstanding advances from the FHLB of Boston, whichever is
highest. When such stock is redeemed, Concord and Centerpoint would receive from
the FHLB of Boston an amount equal to the par value of the stock. As of
December 31, 1996, Concord and Centerpoint were required to have an investment
of at least $3,796,000.
An analysis of realized gains and losses on investment and mortgage-backed
securities available and held for sale for the periods indicated is as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
Year Ended Six Months Ended -------------------------------------------
December 31, 1996 December 31, 1995 1995 1994
------------------- ------------------- -------------------- --------------------
Realized Realized Realized Realized Realized Realized Realized Realized
(in thousands) Gains Losses Gains Losses Gains Losses Gains Losses
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities.......... $ - $ - $ - $ - $ - $ - $ - $ -
Marketable equity
securities.............. 1 - - - - - - -
Mortgage-backed
securities.............. 386 10 - - - - - -
Investments, available
and held for sale....... 163 - 228 - 171 23 531 7
-------- -------- -------- -------- -------- -------- -------- --------
$ 550 $ 10 $ 228 $ - $ 171 $ 23 $ 531 $ 7
======== ======== ======== ======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the maturity distribution of investment
securities (excluding marketable equity securities) at December 31, 1996.
<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.......... $5,015 $5,005 $19,463 $19,620 $10,975 $11,081 $ - $ - $35,453 $35,706
Municipal investments........ 1,166 1,166 398 398 - - - - 1,564 1,564
Mortgage-backed securities... 1,076 1,074 2,985 2,980 5,203 5,138 24,041 24,031 33,305 33,223
Other debt securities........ - - 501 496 - - 253 246 754 742
------ ------ ------- ------- ------- ------- ------- ------- ------- -------
Total....................... $7,257 $7,245 $23,347 $23,494 $16,178 $16,219 $24,294 $24,277 $71,076 $71,235
====== ====== ======= ======= ======= ======= ======= ======= ======= =======
Held to maturity:
U.S. Government and
Agency obligations.......... $7,012 $7,008 $19,454 $19,385 $ - $ - $ - $ - $26,466 $26,393
Municipal investments........ - - - - - - - - - -
Mortgage-backed securities... 571 573 12,655 12,671 6,930 6,951 399 402 20,555 20,597
Other debt securities........ - - - - - - - - - -
------ ------ ------- ------- ------- ------- ------- ------- ------- -------
Total....................... $7,583 $7,581 $32,109 $32,056 $ 6,930 $ 6,951 $ 399 $ 402 $47,021 $46,990
====== ====== ======= ======= ======= ======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------------------------
</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 interest rate
scenario, prepayments on mortgage-backed securities are likely to slow.
At December 31, 1996, Community owned callable securities totaling $36,500,000
of which $21,000,000 were held in the available for sale portfolio and
$15,500,000 were in the held to maturity portfolio. All such notes are direct
obligations of various government agencies. Approximately $23,500,000 million of
these securities will be called on their call dates based on the current rate
environment. Final maturities ranged from three to ten years with call dates
ranging from three months to three years.
In June 1996, Community transferred securities with a fair value of $5,730,000
from its available for sale portfolio to its held to maturity portfolio. The
transfer was a result of a strategic decision made by management to hold a
larger percentage of Community's securities to maturity. At the time of the
transfer, the securities had an unrealized loss of $252,000. This unrealized
loss is being amortized over the life of the securities transferred, which is
approximately four years.
In 1995, the Financial Accounting Standards Board allowed a one-time
reassessment of the appropriateness of the classification of all securities
held, and Community reclassified $10,666,000 of securities held to maturity to
available for sale during November 1995. At the time of reclassification, there
were $58,000 in unrealized gains and $165,000 in unrealized losses relating to
the securities transferred.
The "net unrealized gain on investment securities available for sale" included
in the stockholders' equity section of Community's balance sheet as of December
31, 1996 consists of two components: net unrealized gain on investment
securities available for sale of $333,000, net of deferred income taxes of
$127,000; and net remaining loss related to investment securities transferred
32
<PAGE>
during 1996 from the available for sale portfolio to the held to maturity
portfolio of $95,000, net of deferred income taxes of $36,000.
(3) Loans
Community's lending activities are concentrated primarily in central and
southern New Hampshire. Community 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, Community 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.
The composition of loans for the periods indicated is as follows:
<TABLE>
<CAPTION>
At December 31,
------------------------- At June 30,
(in thousands) 1996 1995 1995
- ----------------------------------------------------------- -------- -----------
<S> <C> <C> <C>
Mortgage loans:
Residential................................... $ 75,853 $ 73,051 $ 68,927
Home equity................................... 21,325 17,586 18,489
Construction.................................. 10,452 7,570 4,578
Commercial.................................... 87,408 78,673 73,368
-------- -------- --------
Total mortgage loans........................... 195,038 176,880 165,362
Other loans:
Indirect automobile and recreational vehicle.. 121,151 92,845 102,867
Mobile home................................... 10,226 11,677 12,427
Other installment............................. 6,101 5,461 4,760
Other consumer................................ 5,175 4,881 4,631
Commercial.................................... 49,282 34,447 31,193
-------- -------- --------
Total other loans............................... 191,935 149,311 155,878
Deferred loan origination costs............... 1,511 823 693
-------- -------- --------
Total loans................................. $388,484 $327,014 $321,933
======== ======== ========
- ---------------------------------------------------------------------------------------
</TABLE>
In the ordinary course of business, Community 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 December 31, 1996 was $191,000. Activity in these loans during the
year ended December 31, 1996 included loan additions of $41,000, and loan
repayments of $349,000. The aggregate amount of these loans at December 31,
1995 was $499,000. Activity during the six months ended December 31, 1995
included loan additions of $123,000 and loan repayments of $155,000. The
aggregate amount of these loans at June 30, 1995 was $531,000. Activity in
these loans during the year ended June 30, 1995 included loan additions of
$188,000 and loan repayments of $215,000.
Prior to January 1, 1996, Community from time to time originated automobile
consumer finance contracts through an automobile dealership owned and operated
by one of its directors, subject to Concord's credit approval, on terms
comparable to those accorded other dealers. The Director currently has no
continuing relationships with the dealership. Contracts amounting to $319,000
during the six months ended December 31, 1995 and $1,003,000 during the fiscal
year ended June 30, 1995 were originated through the dealership.
Loans on non-accrual at December 31, 1996 and 1995, and June 30, 1995 totaled
$1,392,000, $1,630,000 and $1,926,000, respectively. At December 31, 1996 and
1995, loans delinquent 90 days and still accruing amounted to $169,000 and
$69,000, respectively. At June 30, 1995 there were no loans that were 90 days
or more past due and still accruing.
At December 31, 1996 and 1995, total impaired loans were $505,000 and $819,000,
respectively. Of the total impaired loans at December 31, 1996, none required a
related allowance. At December 31, 1995, the portion of the allowance for loan
losses allocated to impaired loans was $272,000. All of the impaired loans have
been measured using the fair value of the collateral method. During the year
ended December 31, 1996, the average recorded value of impaired loans was
$660,000 and the related amount of interest income recognized was $7,000, which
included $3,000 of interest income recognized using the cash basis method of
income recognition. Approximately $57,000 of interest income would have been
recognized under original terms. During the six months ended December 31, 1995,
the average recorded value of impaired loans was $605,000 and income of $17,000
was earned. The recognition policy of interest income on impaired loans is the
same for non-accrual loans.
33
<PAGE>
The reduction in interest income for the periods indicated associated with non-
accrual and restructured loans held at the end of such periods is as follows:
<TABLE>
<CAPTION>
Six Years Ended
Year Ended Months Ended June 30,
December 31, December 31, --------------
(in thousands) 1996 1995 1995 1994
- ------------------------------------------------ ------------ ------ -----
<S> <C> <C> <C> <C>
Income in accordance with
original terms.................... $ 95 $ 71 $ 162 $ 68
Income recognized.................. (25) (9) (71) (42)
----- ----- ----- -----
Foregone income.................... $ 70 $ 62 $ 91 $ 26
===== ===== ===== =====
- -------------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995 and June 30, 1995, the principal balance of
residential mortgage loans serviced by Concord for others amounted to
$350,958,000, $345,328,000 and $351,512,000, respectively. At December 31, 1996
and 1995 and June 30, 1995, the principal balance of indirect automobile loans
serviced by Community for others amounted to $17,152,000, $25,942,000 and
$11,536,000, respectively.
Following is an analysis of activity concerning loan servicing rights from
June 30, 1995 to December 31, 1996:
<TABLE>
<CAPTION>
Originated Purchased
Excess Loan Mortgage Loan Mortgage Loan
(in thousands) Servicing Rights Servicing Rights Servicing Rights
- -------------------------------------------------------------- ---------------- ----------------
<S> <C> <C> <C>
Balance at June 30, 1995.......................... $ 137 $179 $2,257
Valuation allowance.............................. -- (9) --
----- ---- ------
Carrying amount at June 30, 1995.................. 137 170 2,257
Originations and acquisitions during the period.. 247 101 --
Receipt of purchase price adjustments............ -- -- (117)
Amortization..................................... (69) (17) (115)
Change in valuation allowance.................... -- (6) (75)
----- ---- ------
Carrying amount at December 31, 1995.............. 315 248 1,950
Originations and acquisitions during the period.. 37 451 --
Amortization..................................... (231) (70) (376)
Change in valuation allowance.................... -- 7 --
----- ---- ------
Carrying amount at December 31, 1996.............. $ 121 $636 $1,574
===== ==== ======
- --------------------------------------------------------------------------------------------------
</TABLE>
(4) Allowance for Loan Losses
Activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Six Months Years Ended
Year Ended Ended June 30,
December 31, December 31, --------------------
(in thousands) 1996 1995 1995 1994
- ------------------------------------------------- ------------ ------- -------
<S> <C> <C> <C> <C>
Balance at beginning of period............ $3,667 $3,524 $3,772 $4,105
Provision for loan losses................. 1,350 498 777 925
Recoveries on loans previously
charged-off.............................. 303 361 482 672
------ ------ ------ ------
5,320 4,383 5,031 5,702
Less loans charged-off.................... 1,415 716 1,507 1,930
------ ------ ------ ------
Balance at end of period.................. $3,905 $3,667 $3,524 $3,772
====== ====== ====== ======
- ----------------------------------------------------------------------------------------
</TABLE>
(5) Premises and Equipment
The major categories of Community's premises and equipment are as follows:
<TABLE>
<CAPTION>
At December 31, Estimated
----------------------- At June 30, Useful Life
(in thousands) 1996 1995 1995 in Years
- ------------------------------------------------ ------- ------- -----------
<S> <C> <C> <C> <C>
Land.................................... $ 1,145 $ 1,014 $ 1,014
Buildings............................... 8,217 7,796 7,178 15 to 40
Leasehold improvements.................. 548 413 412 5 to 15
Construction in process................. 89 398 303
Furniture and equipment................. 6,902 5,261 4,664 2 to 20
Furniture and equipment under
capital leases......................... 486 552 552 3 to 5
------- ------- -------
17,387 15,434 14,123
Less accumulated depreciation........... 7,464 6,496 5,983
------- ------- -------
$ 9,923 $ 8,938 $ 8,140
======= ======= =======
- ------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
Depreciation and amortization of Community's premises and equipment included in
operating expenses for the year ended December 31, 1996, six months ended
December 31, 1995 and years ended June 30, 1995 and 1994 amounted to $1,245,000,
$515,000, $946,000 and $859,000, respectively.
Community is obligated under various non-cancelable operating leases as well as
the capital leases included above, some of which provide for periodic
adjustments. At December 31, 1996, minimum lease payments for capital and
operating leases were as follows:
<TABLE>
<CAPTION>
Operating Capital
(in thousands) Leases Leases
- --------------------------------------------------------------- -------
<S> <C> <C>
Payable:
Within 1 year......................................... $ 428 $ 140
From 1 to 2 years..................................... 429 124
From 2 to 3 years..................................... 348 29
From 3 to 4 years..................................... 312 --
From 4 to 5 years..................................... 186 --
After 5 years......................................... 446 --
------- -----
Total minimum lease payments........................... 2,149 293
Less amount representing interest...................... -- 19
------- -----
$ 2,149 $ 274
======= =====
- ------------------------------------------------------------------------------
</TABLE>
Total operating lease expense for the year ended December 31, 1996, six months
ended December 31, 1995 and for the years ended June 30, 1995 and 1994 amounted
to $377,000, $128,000, $223,000 and $143,000, respectively.
(6) Real Estate Acquired by Foreclosure
Composition of real estate acquired by foreclosure is as follows:
<TABLE>
<CAPTION>
At December 31,
------------------- At June 30,
(in thousands) 1996 1995 1995
- --------------------------------------------------- ------ -----------
<S> <C> <C> <C>
Single family housing projects............ $ 14 $ 14 $ 14
Retail and office......................... 67 247 247
Non-retail commercial..................... 63 -- --
Residential............................... 594 305 873
------ ------ ------
$ 738 $ 566 $1,134
====== ====== ======
- --------------------------------------------------------------------------------
</TABLE>
The above summary excludes $114,000, $225,000 and $277,000, respectively, of
repossessed mobile homes and $174,000, $108,000 and $91,000, respectively, of
repossessed automobiles at December 31, 1996 and 1995 and June 30, 1995 which
are included in other assets in the accompanying balance sheets.
An analysis of real estate acquired by foreclosure for the periods indicated is
as follows:
<TABLE>
<CAPTION>
Six Months Year
Year Ended Ended Ended
December 31, December 31, June 30,
(in thousands) 1996 1995 1995
- --------------------------------------------------------------------- ------------ --------
<S> <C> <C> <C>
Balance at beginning of period.............................. $ 566 $1,134 $ 836
Foreclosures and properties substantively repossessed...... 709 420 999
Capitalized expenses....................................... 5 -- 232
Sales proceeds............................................. (540) (937) (984)
Gains (losses) on sales and loss provisions, net........... (2) (51) 51
----- ------ ------
Balance at end of period.................................... $ 738 $ 566 $1,134
===== ====== ======
- -------------------------------------------------------------------------------------------------
</TABLE>
An analysis of foreclosed property expense for the periods indicated is as
follows:
<TABLE>
<CAPTION>
Six Months Years Ended
Year Ended Ended June 30,
December 31, December 31, -------------
(in thousands) 1996 1995 1995 1994
- ------------------------------------------------ ------------ ----- -----
<S> <C> <C> <C> <C>
Foreclosure and holding costs.......... $ 126 $ 105 $ 197 $ 197
(Recoveries) and loss provisions
during the period, net................ 4 100 (24) --
Gains on sales, net.................... (2) (49) (27) (130)
----- ----- ----- -----
$ 128 $ 156 $ 146 $ 67
===== ===== ===== =====
- ------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
(7) Deposits
The composition of deposits for the periods indicated is as follows:
<TABLE>
<CAPTION>
At December 31,
------------------------- At June 30,
(in thousands) 1996 1995 1995
- -------------------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
Non-interest bearing demand deposits........................... $ 52,388 $ 39,969 $ 37,829
--------- -------- --------
Savings deposits:
Savings, club and escrow accounts............................ 86,914 92,396 92,675
Interest-bearing NOW accounts................................ 36,254 33,309 32,322
Money market accounts........................................ 19,232 12,130 13,623
--------- -------- --------
Total savings deposits..................................... 142,400 137,835 138,620
--------- -------- --------
Time certificates of deposit................................... 200,999 207,633 196,735
--------- -------- --------
Total deposits............................................. $395,787 $385,437 $373,184
========= ======== ========
</TABLE>
- -------------------------------------------------------------------------------
At December 31, 1996 and 1995 and June 30, 1995, time certificate of deposit
accounts with balances of $100,000 or more amounted to $30,114,000, $31,646,000
and $23,456,000, respectively.
A summary of interest expense on deposits for the periods indicated follows:
<TABLE>
<CAPTION>
Six Months Years Ended
Year Ended Ended June 30,
December 31, December 31, -----------------
(in thousands) 1996 1995 1995 1994
- ------------------------------------------------------------- --------- ------- -------
<S> <C> <C> <C> <C>
Savings deposits:
Savings, club and escrow accounts.............. $ 2,552 $ 1,397 $ 3,089 $ 3,271
Interest-bearing NOW accounts.................. 418 230 526 495
Money market accounts.......................... 407 190 443 465
------- -------- ------- -------
Total savings deposits......................... 3,377 1,817 4,058 4,231
------- -------- ------- -------
Time certificates of deposit..................... 11,462 5,848 8,846 7,031
------- -------- ------- -------
$14,839 $ 7,665 $12,904 $11,262
======= ======== ======= =======
</TABLE>
- --------------------------------------------------------------------------------
The average annual interest rates on time certificates of deposit outstanding at
December 31, 1996 by periods to maturity are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
(dollars in thousands) Amount Rate
- ------------------------------------------------------------------------------ --------
<S> <C> <C>
Within 1 year..................................................... $ 156,255 5.40%
From 1 to 2 years................................................. 28,226 5.73
From 2 to 3 years................................................. 14,843 5.73
From 3 to 5 years................................................. 1,675 5.27
---------
$ 200,999 5.47
=========
</TABLE>
- --------------------------------------------------------------------------------
At December 31, 1996 and 1995 and June 30, 1995, time certificates of deposit
issued at rates which may be adjusted periodically during the term of the
certificate amounted to $34,244,000, $32,638,000 and $33,098,000, respectively.
(8) Securities Sold Under Agreements to Repurchase
Information concerning securities sold under agreement to repurchase for the
periods indicated follows:
<TABLE>
<CAPTION>
Daily Average Maximum
End of Period During Period Outstanding
------------------------ ----------------------- at any
(dollars in thousands) Balance Rate Balance Rate Month-end
- --------------------------------------------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996........ $37,102 4.73% 24,770 5.05% $38,964
Six months ended December
31, 1995........................... 11,860 4.72 14,876 4.96 20,212
Year ended June 30, 1995............ 15,879 5.14 3,740 4.73 15,879
</TABLE>
- -------------------------------------------------------------------------------
Repurchase agreements outstanding at December 31, 1996 and 1995 and June 30,
1995 carried maturity dates of three months or less. U.S. Government and Agency
securities with a book value of $39,937,000, $17,809,000 and $20,438,000,
respectively, and a fair value of $39,430,000, $17,698,000 and $20,174,000,
respectively, were pledged as collateral and held by custodians to secure the
agreements at December 31, 1996 and 1995 and June 30, 1995.
36
<PAGE>
Interest expense on repurchase agreements for the year ended December 31, 1996,
the six months ended December 31, 1995 and the years ended June 30, 1995 and
1994 amounted to $1,164,000, $370,000, $177,000 and $29,000, respectively.
(9) Other Borrowed Funds
Composition of other borrowed funds for the periods indicated is as follows:
<TABLE>
<CAPTION>
At December 31, At
------------------------- June 30,
(dollars in thousands) 1996 1995 1995
- -------------------------------------------------------------- --------- ---------
<S> <C> <C> <C> <C>
Advances from the Federal Home Loan Bank of Boston... $71,512 $56,044 $76,748
Capitalized leases................................... 274 306 385
Note payable due in monthly installments including
interest at 7%...................................... -- 5 9
Federal funds purchased.............................. -- 2,721 --
------- ------- -------
$71,786 $59,076 $77,142
======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
A summary of interest expense on other borrowed funds for the periods indicated
follows:
<TABLE>
<CAPTION>
Six Months Years Ended
Year Ended Ended June 30,
December 31, December 31, ---------------------
(in thousands) 1996 1995 1995 1994
- ------------------------------------------------------- ----------- ----- -----
<S> <C> <C> <C> <C>
Advances from the Federal Home Loan Bank of
Boston....................................... $3,720 $2,008 $2,701 $ 441
Capitalized leases............................ 17 10 30 34
Note payable due in monthly installments
including interest at 7%..................... 0 0 1 2
Federal funds purchased....................... 17 3 5 0
------ ------ ------ -----
$3,754 $2,021 $2,737 $ 477
====== ====== ====== =====
</TABLE>
- --------------------------------------------------------------------------------
At December 31, 1996, mortgage loans on residential property of approximately
$80,000,000, investment securities of $25,000,000 and all stock in the Federal
Home Loan Bank of Boston were pledged as collateral to secure the above advances
and a line of credit with the Federal Home Loan Bank of Boston of $10,000,000.
The average annual interest rates on advances from the Federal Home Loan Bank of
Boston outstanding at December 31, 1996 by periods to maturity are summarized as
follows:
<TABLE>
<CAPTION>
Weighted
Average
(dollars in thousands) Amount Rate
- -------------------------------------------------------------------------- --------
<S> <C> <C>
Within 1 year.................................................... $45,077 5.63%
From 1 to 2 years................................................ 25,800 5.56
From 2 to 3 years................................................ 75 8.13
From 3 to 5 years................................................ -- --
After 5 years.................................................... 560 6.77
-------
$71,512 5.61
=======
- -------------------------------------------------------------------------------------------------
</TABLE>
(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 December 31, 1996, Community
was 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 Community
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 Community 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.
37
<PAGE>
Community is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on
Community's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, Community must meet specific
capital guidelines that involve quantitative measures of Community's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. Community's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Community to maintain minimum amounts and ratios (set forth in the
tables below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that
Community meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Federal Reserve
Board categorized Community as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized Community
must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the tables. There are no conditions or events since that
notification that management believes have changed Community's category.
The following table summarizes Community's required and actual regulatory
capital ratios and amounts:
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
------------------------ --------------------- ---------------------------
(in thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------- ---------- ------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets).......... $44,322 11.25% $31,528 8.0% $39,411 10.0%
Tier 1 Capital
(to Risk Weighted Assets).......... $40,417 10.26% $15,764 4.0% $23,646 6.0%
Tier 1 Capital
(to Average Assets)................ $40,417 7.41% $21,814 4.0% $27,268 5.0%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets).......... $39,403 11.79% $26,727 8.0% $33,409 10.0%
Tier 1 Capital
(to Risk Weighted Assets).......... $35,421 10.60% $13,363 4.0% $20,045 6.0%
Tier 1 Capital
(to Average Assets)................ $35,421 7.04% $20,134 4.0% $25,168 5.0%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
The following table summarizes Concord's required and actual regulatory capital ratios and amounts:
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
------------------------ --------------------- ---------------------------
(in thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------- ---------- ------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets).......... $33,998 10.84% $25,090 8.0% $31,362 10.0%
Tier 1 Capital
(to Risk Weighted Assets).......... $30,974 9.88% $12,545 4.0% $18,817 6.0%
Tier 1 Capital
(to Average Assets)................ $30,974 7.04% $17,605 4.0% $22,006 5.0%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets).......... $31,008 11.49% $21,598 8.0% $26,997 10.0%
Tier 1 Capital
(to Risk Weighted Assets).......... $28,081 10.40% $10,799 4.0% $16,198 6.0%
Tier 1 Capital
(to Average Assets)................ $28,081 6.72% $16,705 4.0% $20,881 5.0%
</TABLE>
38
<PAGE>
The following table summarizes Centerpoint's required and actual regulatory
capital ratios and amounts:
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
------------------------ --------------------- ---------------------------
(in thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------- --------- ------ ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital
(to Risk Weighted Assets).......... $ 8,418 10.35% $ 6,506 8.0% $ 8,133 10.0%
Tier 1 capital
(to Risk Weighted Assets).......... $ 7,537 9.27% $ 3,253 4.0% $ 4,880 6.0%
Tier 1 capital
(to Average Assets)................ $ 7,537 6.76% $ 4,461 4.0% $ 5,577 5.0%
As of December 31, 1995:
Total capital
(to Risk Weighted Assets).......... $ 6,768 10.59% $ 5,113 8.0% $ 6,391 10.0%
Tier 1 capital
(to Risk Weighted Assets).......... $ 6,108 9.56% $ 2,556 4.0% $ 3,835 6.0%
Tier 1 capital
(to Average Assets)................ $ 6,108 7.13% $ 3,424 4.0% $ 4,280 5.0%
</TABLE>
- --------------------------------------------------------------------------------
(11) Income Taxes
At December 31, 1996 and 1995 and June 30, 1995 Community had an accrued income
tax payable of $793,000, $465,000 and $306,000, respectively.
On July 1, 1993, the State of New Hampshire modified many of its corporate
income tax laws. These changes resulted in Community being subject to a state
business profits tax equal to 7.5% for fiscal year 1994 and 7.0% for years
thereafter. In addition, Community 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 Community's interest expense, compensation
expense and dividends paid. This additional enterprise tax may be utilized as a
credit against the business profits tax.
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>
Six Months Years Ended
Year Ended Ended June 30,
December 31, December 31, ----------------------
(in thousands) 1996 1995 1995 1994
- ------------------------------------------------------- ----------- ------ ------
<S> <C> <C> <C> <C>
Computed "expected" federal
income tax expense at
statutory rate........................ $ 2,599 $1,033 $2,053 $1,536
Increase (decrease) resulting from:
State taxes (net of federal
benefit, before change in
valuation reserve).................... 193 82 76 54
Dividend received deduction............ (13) (2) (6) (21)
Change in valuation reserve............ (81) (55) (253) (664)
Non-deductible acquisition
expenses.............................. 9 216 -- --
Other.................................. (18) (10) (8) (8)
------- ------ ------ ------
$ 2,689 $1,264 $1,862 $ 897
======= ====== ====== ======
Effective tax rate 35.2% 41.6% 30.8% 19.9%
======= ====== ====== ======
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months Years Ended
Year Ended Ended June 30,
December 31, December 31, ---------------------
(in thousands) 1996 1995 1995 1994
- ------------------------------------------------------- ----------- ------ ------
<S> <C> <C> <C> <C>
Current tax expense:
Federal................................ $2,168 $1,158 $1,865 $1,016
State.................................. 227 96 32 --
------ ------ ------ ------
$2,395 1,254 1,897 1,016
------ ------ ------ ------
Deferred tax expense (benefit):
Federal................................ 309 37 135 463
State.................................. 66 28 83 82
Change in valuation reserve............ (81) (55) (253) (664)
------ ------ ------ ------
294 10 (35) (119)
------ ------ ------ ------
$2,689 $1,264 $1,862 $ 897
====== ====== ====== ======
- ---------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
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>
December 31,
------------------------- June 30,
(in thousands) 1996 1995 1995
- ---------------------------------------------------------------- ----- ---------
<S> <C> <C> <C>
Deferred tax asset:
Allowance for loan losses.............................. $1,285 $1,203 $1,095
Deferred loan fees..................................... 61 177 170
Valuation allowance on repossessed assets.............. -- -- 22
State net operating loss carryforward.................. -- -- 20
Purchased mortgage servicing rights.................... 130 52 --
Accrued expenses....................................... 85 156 151
Other.................................................. 8 56 19
------ ----- -----
Gross deferred tax asset................................ 1,569 1,644 1,477
Valuation reserve....................................... -- (81) (136)
------ ------ ------
1,569 1,563 1,341
Deferred tax liability: ------ ------ ------
Originated mortgage servicing rights.................... 246 96 --
Pension................................................. 82 40 40
Depreciation............................................ 234 176 174
Deferred loan costs..................................... 759 485 425
Unrealized gain on securities available for sale........ 92 366 142
Accrued income.......................................... 42 203 192
Other................................................... 4 67 4
------ ------ -------
1,459 1,433 977
------ ------ -------
Deferred income tax asset, net.......................... $ 110 $ 130 $ 364
====== ====== =======
</TABLE>
- --------------------------------------------------------------------------------
In August 1996, the provisions repealing the current thrift bad debt rules were
passed by Congress as part of "The Small Business Job Protection Act of 1996."
The new rules eliminate the 8% of taxable income method for deducting additions
to the tax bad debt reserves for all thrifts beginning after December 31, 1995.
These rules also require that all thrift institutions recapture all or a portion
of their bad debt reserves added since the base year (last taxable year
beginning before January 1, 1988). Community has previously recorded a
deferred tax liability equal to the bad debt recapture and as such, the new
rules will have no effect on net income or federal income tax expense.
The unrecaptured base year reserves will not be subject to recapture as long as
the institution continues to carry on the business of banking. In addition, the
balance of the pre-1988 bad debt reserves continue to be subject to provision of
present law that require recapture in the case of certain excess distributions
to shareholders. The tax effect of pre-1988 bad debt reserves subject to
recapture in the case of certain excess distributions is approximately $1.3
million.
The realization of the net deferred tax asset is 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 related primarily to
certain state tax temporary differences.
40
<PAGE>
(12) Employee Benefits
Stock Option Plans
In 1985, 1988 and 1992 the stockholders of Community 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 their
director fees. In 1989, the stockholders of Centerpoint approved a plan for its
executive officers. The total number of shares covered by the four plans is
323,156. 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 is summarized as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended Years Ended June 30,
December 31, December 31, -------------------------------------------
1996 1995 1995 1994
------------------- -------------------- ------------------- --------------------
Weighted Weighted Weighted Weighted
Number Average Number Average Number Average Number Average
of Option of Option of Option of Option
Shares Price Shares Price Shares Price Shares Price
- ----------------------------------------------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period..... 178,941 $ 8.78 180,735 $ 8.74 205,615 $ 8.06 232,990 $7.70
Granted................................ 6,111 19.76 1,079 16.75 10,280 10.65 1,000 9.00
Canceled............................... (500) 16.25 (500) 10.00 (3,000) 11.38 (375) 2.83
Exercised.............................. (74,581) 9.14 (2,373) 9.39 (32,160) 4.71 (28,000) 5.09
------- ------- ------- -------
Outstanding at end of period........... 109,971 $ 9.12 178,941 $ 8.78 180,735 $ 8.74 205,615 $8.06
======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995, exercisable stock options amounted to 103,860 and
162,014, respectively.
Community follows APB Opinion No. 25 in accounting for its option plans and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. In determining the pro forma required by SFAS No.
123, the fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The following table presents pro forma
net income and earnings per share assuming the stock option plan was accounted
for using the fair value method prescribed by SFAS No. 123 and the weighted
average assumptions used:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
(dollars in thousands, except per share data) December 31, 1996 December 31, 1995
- ------------------------------------------------------------------- -----------------
<S> <C> <C>
Net income:
As reported................................... $ 4,955 $ 1,774
Pro forma..................................... 4,941 1,771
Earnings per share:.............................
As reported................................... $ 2.00 $ 0.73
Pro forma..................................... 1.99 0.73
Weighted average option value................... $ 9.644 $ 8.398
Risk-free interest rate......................... 6.54% 6.44%
Expected volatility............................. 48.41% 52.97%
Expected dividend yield......................... 2.51% 2.51%
- ------------------------------------------------------------------------------------------
</TABLE>
Pro forma net income reflects only options granted in 1996 and 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income amounts above because
compensation cost is reflected over the options' weighted average vesting period
of approximately one and one third years and compensation cost for options
granted prior to January 1, 1995 is not considered.
Stock Purchase Plan
Under the Stock Purchase Plan approved by Community's stockholders,
participating employees may annually purchase shares through accumulated payroll
deductions. During the year ended December 31, 1996, 1,273 shares were purchased
at $19.00 per share. During the six months ended December 31, 1995 and the
years ended June 30, 1995 and 1994, 2,155, 2,029 and 3,412 shares were
purchased at $13.25, $11.375 and $8.125 per share, respectively. At December 31,
1996, 36,924 shares were available for issuance under the Plan.
Employee Stock Ownership Plan
Concord's Employee Stock Ownership Plan ("ESOP") is designed to provide
retirement benefits for eligible employees of Concord and Centerpoint. Because
the ESOP invests primarily in the stock of Community, it will also give eligible
employees an opportunity to acquire an ownership interest in Community.
Employees are eligible to participate in the ESOP 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.
Community 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.
41
<PAGE>
Repayment of the loan was secured by contributions Concord was 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. During the twelve months
ended December 31, 1996 and the six months ended December 31, 1995, Concord made
contributions to the ESOP totaling $122,000 and $85,000, respectively, and
$167,000 and $179,000, respectively, for the fiscal years ended June 30, 1995
and 1994 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 was repaid as of October 2, 1996.
At December 31, 1996, the shares held by the ESOP amounted to 80,613 which
represents the full number of shares allocable as a result of the loan payoff.
Employees of Centerpoint who met the eligibility requirements were enrolled in
the ESOP effective January 1, 1996.
Pension Plan
Concord provides a noncontributory pension plan for its and Centerpoint's
employees. The funded status of the plan as of December 31, 1996 and 1995 and
June 30, 1995 is as follows:
<TABLE>
<CAPTION>
December 31,
---------------- June 30,
(in thousands) 1996 1995 1995
- ------------------------------------------------------------------- ------ -------
<S> <C> <C> <C>
Vested benefits............................................. $1,254 $1,498 $1,663
Nonvested benefits.......................................... 116 42 46
------ ------ ------
Accumulated benefit obligation............................ 1,370 1,540 1,709
Additional benefits related to future compensation levels... 1,234 541 602
------ ------ ------
Projected benefit obligation.............................. 2,604 2,081 2,311
Plan assets at fair value invested primarily in equity and
fixed-income securities.................................... 4,092 3,665 3,390
------ ------ ------
Plan assets in excess of projected benefit obligation....... 1,488 1,584 1,079
Unrecognized transition asset............................... (678) (746) (781)
Unrecognized experience (gain) loss......................... (639) (623) (113)
------ ------ ------
Prepaid pension cost included in other assets............. $ 171 $ 215 $ 185
====== ====== ======
- ------------------------------------------------------------------------------------------
</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 7.5% and 5.0%, respectively, for December 31, 1996
and 7.0% and 5.0%, respectively, for December 31, 1995, and 8.0% and 6.0%,
respectively, for June 30, 1995. For all periods presented, the expected long-
term rate of return on assets was 8.0%.
Net pension expense for the periods indicated include the following components:
<TABLE>
<CAPTION>
Year Six Months Year
Ended Ended Ended
December 31, December 31, June 30,
(in thousands) 1996 1995 1995
- ------------------------------------------------------------- ------------ --------
<S> <C> <C> <C>
Service cost--benefits earned...................... $ 260 $ 64 $ 258
Interest cost on projected benefit obligation...... 156 77 155
Actual return on plan assets....................... (507) (322) (127)
Net amortization and deferral...................... 135 151 (186)
----- ----- -----
Net pension expense (income)..................... $ 44 $ (30) $ 100
===== ===== =====
- ----------------------------------------------------------------------------------------------
</TABLE>
401(k) Savings Plan
On July 1, 1994, Concord 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. Concord 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 401(k) Plan amounted to $71,000 for the year
ended December 31, 1996, $32,000 for the six months ended December 31, 1995 and
$53,000 for the year ended June 30, 1995. Effective July 1, 1996, eligible
employees of Centerpoint enrolled in Concord's 401(k) Plan and Centerpoint's
401(k) Plan was terminated with the assets of the plan being merged with
Concord's.
Employee Agreements
Concord has a supplemental retirement agreement with its chief executive
officer. This plan provides retirement benefits designed to supplement benefits
available through Concord's retirement plan for employees. Total expense for
this benefit amounted to $28,000 for the year ended December 31, 1996, $15,000
for the six months ended December 31, 1995 and $26,000 and $17,000,
respectively, for the years ended June 30, 1995 and 1994.
42
<PAGE>
Concord 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 (3 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.
Centerpoint also has agreements with three of its officers pursuant to which
that officer's annual compensation and other benefits would be payable for the
period through December 31, 1998 in the case of the president, August 29, 1997
in the case of the senior vice president and September 30, 1997 in the case of
the chief financial officer, after the officer's termination, if such
termination is "without cause" as defined in the agreements.
Incentive Compensation Plans
Community has two incentive compensation plans designed to provide an annual
incentive to improve financial performance, under which annual incentive awards
are paid if Community 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
Concord's 401(k) Plan. Based on financial results achieved during the past
three fiscal years, Community paid total cash incentive awards, as defined in
the two plans, of $177,000 for the year ended December 31, 1996, $55,000 for the
six months ended December 31, 1995 and $96,000 and $111,000, respectively, for
the fiscal years ended June 30, 1995 and 1994. Employees of Centerpoint as of
January 1, 1996 participated in the General Profit Sharing Plan for the year
ended December 31, 1996 as did certain members of senior management in the
Management Incentive Plan.
(13) Financial Instruments with Off-Balance Sheet Risk and Other Commitments and
Contingencies
Concord and Centerpoint are party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of their
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 Concord and Centerpoint have in particular classes of financial
instruments.
Concord's and Centerpoint'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. Concord and Centerpoint use the same
credit policies in making commitments and conditional obligations as they do for
on-balance sheet instruments. Concord and Centerpoint evaluate each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by Concord and Centerpoint upon extension of credit, is based
on management's credit evaluation of the borrower.
Financial instruments with off-balance sheet risk at the dates indicated are as
follows:
<TABLE>
<CAPTION>
At
December 31, At
----------------- June 30,
(in thousands) 1996 1995 1995
- -------------------------------------------------------------------------------------- ------- -------
<S> <C> <C> <C>
Unused home equity lines of credit...................................... $22,734 $16,387 $15,640
Unused commercial lines of credit....................................... 26,458 14,175 10,965
Unadvanced portions of construction loans............................... 6,654 6,207 5,174
Commitments to originate residential mortgage loans..................... 3,427 4,314 4,094
Commitments to originate commercial,
construction and commercial real estate loans......................... 9,775 7,603 15,146
Standby letters of credit............................................... 2,419 1,624 1,659
Unused consumer overdraft protection credit............................. 1,020 1,017 946
Unused consumer line of credit.......................................... 211 -- --
Commitments to sell residential mortgage loans.......................... 4,483 6,322 7,589
Best efforts commitment to sell automobile loans........................ -- 24,000 48,000
Loans sold with credit enhancement...................................... 17,147 24,019 9,777
Unused portion of credit card loans..................................... 3,125 1,489 1,443
- ----------------------------------------------------------------------------------------------------------
</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.
43
<PAGE>
Standby letters of credit are conditional commitments issued by Concord and
Centerpoint 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.
Concord has periodically sold automobile loans with credit enhancement that
obligates Concord to assume a certain portion of credit losses should they
occur. At December 31, 1996, the outstanding balance of those loans totaled
$17,147,000. Concord has provided $89,000 for such losses.
Concord and Centerpoint are required to maintain a portion of their 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 $2,217,000 at December 31,
1996.
Community 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 or results of operations of Community.
(14) Fair Values of Financial Instruments
The estimates of fair value of financial instruments are based on information
available at December 31, 1996 and 1995 and June 30, 1995, 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 Community's entire holdings of a
particular class of financial instruments. Because no market exists for a
portion of Community'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 Community.
The following methods and assumptions were used by Community 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 stock approximates fair value. If redeemed, Concord and Centerpoint
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 amounts. 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 non-accrual loans was estimated
using the estimated fair values of the underlying collateral. The carrying
amount of accrued interest approximates its fair value.
Loan servicing rights: The carrying amounts of loan servicing rights
approximate 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 estimates fair value.
Liability relating to ESOP: The carrying amount reported in the balance sheet
approximates the liability rating to the ESOP's fair value. The liability
reprices quarterly.
Off-balance sheet instruments: The fair value of commitments to extend credit
is 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.
44
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1996 1995 June 30, 1995
-------------------- --------------------- ------------------------
Estimated Estimated Estimated
Carrying Fair Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value Amount Value
- -------------------------------------------------- ---------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents............. $ 20,660 $ 20,660 $ 31,193 $ 31,193 $ 31,349 $ 31,349
Securities available for sale......... 71,710 71,710 67,411 67,411 63,568 63,568
Securities held to maturity........... 47,021 46,990 47,525 47,760 65,397 65,322
Federal Home Loan Bank stock.......... 4,571 4,571 4,411 4,411 4,009 4,009
Mortgage loans held for sale.......... 1,755 1,776 2,940 3,027 4,635 4,751
Loans, net............................ 384,579 385,995 323,347 326,491 318,409 317,098
Accrued interest receivable........... 3,805 3,805 3,724 3,724 3,540 3,540
Loan servicing rights................. 2,331 2,331 2,513 2,513 2,564 2,564
Financial liabilities:
Non-interest bearing demand deposits.. $ 52,388 $ 52,388 $ 39,969 $ 39,969 $ 37,829 $ 37,829
Savings deposits...................... 142,400 142,400 137,835 137,835 138,620 138,620
Time certificates of deposit.......... 200,999 201,630 207,633 208,577 196,735 196,892
Repurchase agreements................. 37,102 37,102 11,860 11,860 15,879 15,879
Other borrowed funds.................. 71,786 71,792 59,076 59,119 77,142 77,171
Liability related to ESOP............. -- -- 118 118 197 197
Accrued interest payable.............. 1,463 1,463 1,517 1,517 1,229 1,229
Credit enhancement liability.......... 89 89 139 139 51 51
Off-balance sheet instruments:
Commitments to extend credit.......... $ -- $ 48 $ -- $ 123 $ -- $ 94
Commitments to sell loans............. -- -- -- -- -- 1
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(15) Condensed Parent Company Financial Information
Condensed financial statements of Community Bankshares, Inc. (the "Parent
Company") as of December 31, 1996 and 1995 and June 30, 1995 and for the year
ended December 31, 1996, the six months ended December 31, 1995 and for the
years ended June 30, 1995 and 1994 follow:
<TABLE>
<CAPTION>
Community Bankshares, Inc. Condensed Balance Sheets
December 31,
--------------------------- June 30,
(dollars in thousands, except share data) 1996 1995 1995
- -------------------------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
Assets
Cash................................................................... $ 1,539 $ 1,263 $ 1,601
Securities available for sale-amortized cost $79 at December 31,
1996 and $80 at December 31, 1995 and June 30, 1995.................. 130 108 97
Investment in subsidiary, at equity.................................... 38,991 35,510 33,418
Other assets........................................................... 188 85 95
------- ------- -------
Total assets...................................................... $40,848 $36,966 $35,211
======= ======= =======
Liabilities and Stockholders' Equity
Liabilities:
Liability relating to ESOP........................................... $ -- $ 118 $ 197
Other liabilities.................................................... 41 80 39
------- ------- -------
Total liabilities................................................. 41 198 236
------- ------- -------
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, 2,448,931 at
December 31, 1996, 2,382,849 shares at December 31, 1995
and 2,380,476 shares at June 30, 1995............................... 2,449 2,383 2,380
Additional paid-in capital........................................... 22,266 21,784 21,766
Retained earnings.................................................... 15,945 12,299 11,068
------- ------- -------
40,660 36,466 35,214
Unrealized net gains (losses) on securities available for sale, net.. 147 578 151
Unearned compensation expense--ESOP.................................. -- (118) (197)
Treasury stock (at cost) - 9,655 shares at December 31, 1995
and 11,810 shares at June 30, 1995.................................. -- (158) (193)
------- ------- -------
Total stockholders' equity........................................ 40,807 36,768 34,975
------- ------- -------
Total liabilities and stockholders' equity........................ $40,848 $36,966 $35,211
======= ======= =======
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
COMMUNITY BANKSHARES, INC.
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Six Months Years Ended
Ended Ended June 30,
December 31, December 31, --------------------
(in thousands) 1996 1995 1995 1994
- -------------------------------------------------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Interest and dividend income......... $ 43 $ 27 $ 61 $ 54
Dividends from subsidiary............ 1,655 549 993 330
Management fees from subsidiary...... 308 98 131 145
Gains on sale of investments......... 1 -- -- --
Equity in undistributed income of
subsidiary.......................... 3,325 1,675 3,182 3,291
------ ------ ------ ------
Total revenues................... 5,332 2,349 4,367 3,820
Operating expenses..................... 382 575 192 199
------ ------ ------ ------
Income before tax.................... 4,950 1,774 4,175 3,621
Income tax benefit..................... (5) -- -- --
------ ------ ------ ------
Net income....................... $4,955 $1,774 $4,175 $3,621
====== ====== ====== ======
- ----------------------------------------------------------------------------------------------
</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.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Six Months Years Ended
Ended Ended June 30,
December 31, December 31, ---------------------
(in thousands) 1996 1995 1995 1994
- ---------------------------------------------------------------------------- -------- ------- -------
<S> <C> <C> <C> <C>
Cash flows from operations:
Net income..................................................... $ 4,955 $ 1,774 $ 4,175 $ 3,621
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in undistributed income of subsidiary................. (3,325) (1,675) (3,182) (3,291)
Net gains on sales of investment securities, net............. (1) -- -- --
(Increase) decrease in other assets.......................... (103) 10 68 (33)
Increase (decrease) in other liabilities..................... (39) 49 (8) 34
------- -------- ------- -------
Net cash used in operating activities....................... 1,487 158 1,053 331
Cash flows from investing activities:
Proceeds from sale of investment securities.................... 2 -- -- --
Purchases of investment securities............................. -- -- (55) --
------- -------- ------- -------
Net cash provided by (used in) investing activities......... 2 -- (55) --
------- -------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock......................... 481 53 175 171
Repayment of borrowings........................................ (118) -- -- --
Purchase of treasury stock..................................... -- -- (627) --
Advance to subsidiaries........................................ (200) -- -- --
Dividends paid on common stock................................. (1,376) (549) (993) (416)
------- -------- ------- -------
Net cash used in financing activities....................... (1,213) (496) (1,445) (245)
------- -------- ------- -------
Net increase (decrease) in cash.................................. 276 (338) (447) 86
Cash at beginning of period...................................... 1,263 1,601 2,048 1,962
------- -------- ------- -------
Cash at end of period............................................ $ 1,539 $ 1,263 $ 1,601 $ 2,048
======= ======== ======= =======
=======================================================================================================================
</TABLE>
46
<PAGE>
(16) Unaudited Consolidated Condensed Quarterly Income Statements
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------
(in thousands, except share data) March 31 June 30 September 30 December 31
- ---------------------------------------------------------------------------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Fiscal Year Ended December 31, 1996
Interest and dividend income..................................... $ 9,642 $ 10,228 $ 10,571 $ 11,137
Interest expense................................................. 4,742 4,937 5,044 5,034
-------- -------- -------- --------
Net interest and dividend income............................. 4,900 5,291 5,527 6,103
Provision for loan losses........................................ 275 300 300 475
-------- -------- -------- --------
Net interest and dividend income after provision for
loan losses................................................ 4,625 4,991 5,227 5,628
Non-interest income.............................................. 1,023 975 969 1,026
Non-interest expense............................................. (3,865) (4,017) (4,222) (4,716)
-------- -------- -------- --------
Income before income taxes................................... 1,783 1,949 1,974 1,938
Income taxes..................................................... 629 699 713 648
-------- -------- -------- --------
Net income................................................... $ 1,154 $ 1,250 $ 1,261 $ 1,290
======== ======== ======== ========
Earnings per common and common equivalent share.................. $ 0.47 $ 0.50 $ 0.51 $ 0.52
======== ======== ======== ========
Dividends per share.............................................. $ 0.15 $ 0.15 $ 0.15 $ 0.16
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Quarters Ended
-------------------------------------------------------
(in thousands, except share data) September 30 December 31 March 31 June 30
- ---------------------------------------------------------------------------- ----------- --------- --------
<S> <C> <C> <C> <C>
Six Months Ended December 31, 1995
Interest and dividend income..................................... $ 9,852 $ 9,952
Interest expense................................................. 5,033 5,023
-------- --------
Net interest and dividend income............................. 4,819 4,929
Provision for loan losses........................................ 250 248
-------- --------
Net interest and dividend income after provision for
loan losses................................................. 4,569 4,681
Non-interest income.............................................. 778 1,029
Non-interest expense............................................. (3,606) (4,413)
-------- --------
Income before income taxes................................... 1,741 1,297
Income taxes..................................................... 603 661
-------- --------
Net income................................................... $ 1,138 $ 636
======== ========
Earnings per common and common equivalent share.................. $ 0.46 $ 0.27
======== ========
Dividends per share.............................................. $ 0.14 $ 0.15
======== ========
Fiscal Year Ended June 30, 1995
Interest and dividend income..................................... $ 7,547 $ 8,064 $ 8,754 $ 9,508
Interest expense................................................. 3,293 3,602 4,152 4,771
-------- -------- -------- --------
Net interest and dividend income............................. 4,254 4,462 4,602 4,737
Provision for loan losses........................................ 159 193 200 225
-------- -------- -------- --------
Net interest and dividend income after provision for
loan losses................................................. 4,095 4,269 4,402 4,512
Non-interest income.............................................. 548 480 521 652
Non-interest expense............................................. (3,187) (3,378) (3,405) (3,472)
-------- -------- -------- --------
Income before income taxes................................... 1,456 1,371 1,518 1,692
Income taxes..................................................... 429 385 491 557
-------- -------- -------- --------
Net income................................................... $ 1,027 $ 986 $ 1,027 $ 1,135
======== ======== ======== ========
Earnings per common and common equivalent share.................. $ 0.42 $ 0.41 $ 0.42 $ 0.46
======== ======== ======== ========
Dividends per share.............................................. $ 0.12 $ 0.13 $ 0.13 $ 0.13
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Aggregate quarterly earnings per share may not equal earnings per share for the
full year due to rounding.
(17) Subsequent Events
On March 24, 1997, Community entered into a definitive agreement with CFX
Corporation ("CFX") pursuant to which CFX will acquire Community and its
subsidiaries, Concord and Centerpoint. The agreement provides for the merger of
Community with CFX, followed by the merger of Concord and Centerpoint with CFX
Bank, a wholly owned banking subsidiary of CFX. Under the terms of the
agreement, each share of Community Common Stock will be exchanged for 2.2 shares
of CFX Common Stock, subject to adjustment in certain circumstances. In
connection with the transaction, Community has granted to CFX an option to
acquire up to 19.9% of the outstanding shares of Community Common Stock under
certain circumstances. The transaction, which is subject to regulatory and
shareholder approval by both CFX and Community, is expected to be consummated in
the third quarter of 1997.
47
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors
The following table sets forth the name and age (as of March 27, 1997) of the
current directors of the Company and the period during which each person served
on the Board of Directors of the Company and Concord Savings Bank ("Concord")
and Centerpoint Bank ("Centerpoint"), the Company's two bank subsidiaries.
<TABLE>
<CAPTION>
Director of Director of Director of
the Company Concord Centerpoint Term
Name Age Since Since Since Expires
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Arthur R. Bethke 75 1996 -- 1989 1997
John N. Buxton 49 1992 1992 -- 1997/(1)/
Douglas Crichfield/(2)/ 53 1990 1990 1996 1997/(1)/
William S. Fenollosa 56 1985 1990 -- 1996/(1)/
Oliver R. Fifield 70 1985 1972 -- 1996/(1)/
Thomas M. Hardiman/(3)/ 67 1985 1968 -- 1996/(1)/
Walter W. Hemming 57 1996 -- 1989 1997
Robert A. Hill 48 1992 1992 -- 1997/(1)/
Russell A. Holden 72 1986 1986 -- 1998/(1)/
Lucia P. Kittredge 49 1986 1986 -- 1998/(1)/
Seth A. Resnicoff 59 1986 1986 -- 1998/(1)/
Eleanor H. Stark 63 1985 1978 -- 1997/(1)/
James R. Stewart 57 1985 1976 -- 1996/(1)/
Philip M. Stone/(4)/ 67 1996 -- 1989 1997
Katherine F. Tsouros 59 1985 1978 -- 1998/(1)/
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Although the directors' terms have expired or will expire in the years
indicated due to the change in the Companys' fiscal year from June 30 to
December 31 in 1995, the directors have served or will continue to serve
for approximately six months beyond the expiration of their current
terms. Thus, the directors whose terms expired in 1996 are expected to
serve until the 1997 annual meeting, the directors whose terms expire in
1997 are expected to serve until the 1998 annual meeting and the
directors whose terms expire in 1998 are expected to serve until the 1999
annual meeting.
(2) President and Chief Executive Officer
(3) Chairman of the Board
(4) Senior Vice President
<PAGE>
(b) Executive Officers
The names and ages (as of March 27, 1997) of each of the excutive officers
of the Company, the position or office held by each such person, the period
during which he has served in such capacity and the principal occupation of
each such person during at least the last five years is set forth below.
For information regarding Douglas Crichfield and Philip M. Stone, see
"Information Regarding Directors."
(c) Identification of certain significant employees: Not applicable
(d) Family relationship: None
<PAGE>
(e) Business experience
The principal occupation and business experience during at least the last
five years of each director and nominee is as follows
Thomas M. Hardiman was a Consultant to Chubb Securities Corporation from
1987 through 1989, a Senior Vice President of Chubb Securities Corporation
from 1982 until his retirement in 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., and
Beede Electrical Instrument Co.
Arthur R. Bethke is the President of Concord Oil Company, a corporation
engaged in the distribution of gasoline and fuel oil in the Concord,
Massachusetts region. He is also the Chairman of R. Murphy Company, a
manufacturing concern.
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 and President and Chief Executive
Officer of the Company and Concord since 1990 and a Director of Centerpoint
since 1996. Previously, he served as Executive Vice President and Treasurer
of Concord and Treasurer and Chief Financial Officer of the Company from
1988 to 1990. He was Vice President of Corporate Finance at Bank of New
England Corporation from 1986 to 1988, and held various positions,
including Senior Vice President, Treasurer and Trust Officer, with Hancock
Bank and Trust Co. from 1976 to 1986.
William S. Fenollosa was President and owner of Granite State Volkswagen,
Inc., an automobile sales and service dealership in Concord, New Hampshire,
from 1967 until his retirement in 1995.
Oliver R. Fifield was President of Northeast Consolidated Services, Inc., a
corporation providing administrative office support to The New Hampshire
and Vermont Blue Cross-Blue Shield corporations, from 1981 until his
retirement in 1985. Mr. Fifield was President of Northeast Equity Corp., a
business equipment leasing corporation owned by Blue Cross-Blue Shield,
from 1983 to 1985.
Walter W. Hemming is a Principal of Hemming Associates, a management
consulting business.
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 until his retirement in 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 Chairman of the Board of
Strategic Healthcare, Concord, New Hampshire, a company providing
management and marketing services to independent physicians and surgeons,
and a Trustee of Derryfield School, Manchester, New Hampshire.
Eleanor H. Stark served as elected representative to the New Hampshire
House of Representatives from 1981 to 1985.
<PAGE>
James R. Stewart has been President, Treasurer and a principal owner of Capital
Offset, Inc., a printing firm, since 1975.
Philip M. Stone has been President, Chief Executive Officer and Chairman of the
Board of Centerpoint since its formation in 1989. He has been Senior Vice
President of the Company since 1996.
Katherine F. Tsouros serves as an officer and active member of the Boards of
various non-profit organizations in the Concord, New Hampshire area.
<PAGE>
Paul M. Ferguson joined the Company in 1991 as Senior Vice President-Credit
Administration of Concord Savings Bank, and was elected Executive Vice
President-Banking Services in 1995. In 1995, Mr. Ferguson was elected Vice
President-Credit Administration of the Company and in 1996 was elected Senior
Vice President and Chief Credit Officer of the Company. Mr. Ferguson has been a
director of Centerpoint Bank since 1996. 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 President,
Southern Division and prior to that, as Vice President Senior 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. Mr. Ferguson is 43 years old.
John C. Baity, Jr. joined the Company in 1996 as Senior Vice President,
Treasurer and Chief Financial Officer of both the Company and Concord Savings
Bank. From 1995 to 1996, he served as Senior Vice President and Treasurer of
First NH Bank, N.A. His prior experience includes three years as Senior Vice
President and Treasurer of Chemical Bank New Jersey, and seven years in finance
for Chemical Banking Corporation in New York, New York. Mr. Baity is 40 years
old.
Gerald R. Emery joined the Company in 1988 as Vice President-Finance of Concord
Savings Bank. He was elected Treasurer of the Company and Concord Savings Bank
and Senior Vice President and Chief Financial Officer of Concord Savings Bank in
1990. In 1996 Mr. Emery relinquished his titles as Treasurer and Chief
Financial Officer and was elected Secretary of the Company and Senior Vice
President-Operations of Concord Savings Bank. 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 in both New Hampshire and in Vermont. Mr. Emery
is 51 years old.
(f) Involvement in certain legal proceedings: not applicable
(g) Promoters and Control Persons: not applicable
<PAGE>
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth certain information as to the compensation paid
or accrued by the Company to the Chief Executive Officer and to the Company's
most highly compensated officers other than the Chief Executive Officer who
served as executive officers in 1996 and whose annual compensation exceeded
$100,000 in 1996.
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------------
Other All
Annual Other
Year Salary Bonus Compensation Compensation
- --------------------------------------------------------------------------------------------------
<S> <C>
Douglas Crichfield 1996 $170,577 $ 5,960 -- $39,830/(1)/
President and Chief Executive 1995 154,522 19,443 -- 36,419
Officer, the Company and 1994 148,893 14,395 -- 29,007
Concord
Paul M. Ferguson 1996 127,692 3,750 -- 8,993/(2)/
Senior Vice President, the 1995 117,182 7,043 -- 6,384
Company; Executive 1994 107,182 8,561 -- 4,043
Vice President, Concord
Philip M. Stone/(3)/ 1996 112,805 -- -- 2,187/(5)/
Senior Vice President, the 1995 100,716 -- -- 1,008
Company; President, Chief 1994 91,680 -- 160,000/(4)/ --
Executive Officer and Chairman
of the Board, Centerpoint
Gerald R. Emery 1996 98,000 7,450 -- 6,216/(6)/
Secretary, the Company; 1995 95,728 4,698 -- 4,343
Senior Vice President, Concord 1994 90,867 6,807 -- 3,006
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes $28,437 accrued as an expense with respect to Mr. Crichfield's
supplemental retirement agreement, the Company's matching contributions of
$3,000 under the Company's 401(k) plan and an ESOP allocation valued at
$8,393.
(2) Includes the Company's matching contributions under the Company's 401(k)
plan and an ESOP allocation valued at $6,363.
(3) Amounts in the table represent Mr. Stone's compensation both prior to and
since the consummation of the Company's acquisition of Centerpoint.
(4) Represents amounts earned pursuant to an employment agreement between
Centerpoint and Mr. Stone, which provides for the payment to Mr. Stone of
$160,000 upon the attainment of certain goals by Centerpoint. Those goals
were attained in 1994. Pursuant to a deferred compensation agreement, Mr.
Stone has elected to defer receipt of this amount until beginning in 1999
and ending in 2006.
(5) Represents the Company's matching contributions under the Company's 401(k)
plan.
(6) Includes the Company's matching contributions of $1,055 under the Company's
401(k) plan and an ESOP allocation valued at $5,161.
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Options
Values
The following table sets forth certain information regarding stock options
exercised during the year ended December 31, 1996 and stock options held as of
December 31, 1996 by the executive officers named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
Value of
Unexercised
Number of Unexercised In-the-Money
Options at Options at
Shares Fiscal Year-End Fiscal Year-End/(1)/
Acquired on Value ------------------------------ ---------------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Douglas Crichfield 0 0 21,319 0 $ 230,882 0
Paul M. Ferguson 0 0 8,000 0 111,500 0
Philip M. Stone 10,730 $ 193,140 32,190 0 311,599 0
Gerald R. Emery 750 14,438 8,325 0 85,200 0
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on December 31, 1996 market price of $19.00 less the applicable
option exercise price. These values have not been and may never be
realized. Actual gains, if any, on exercise will depend on the value of the
Common Stock on the date of the sale of the shares.
Pension Plan Table
The following table shows the estimated annual benefits payable to employees of
the Company and its subsidiaries under Concord'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>
The annual pension benefit is computed on the basis of a straight-life annuity.
Benefits under the plan are based on the five highest years' base salary (up to
a maximum of $150,000), offset by benefits provided under the Employee Stock
Ownership Plan, but not by Social Security benefits. Mr. Crichfield has eight
years, Mr. Ferguson has five years, Mr. Stone has five years, and Mr. Emery has
eight years, of credited service under the plan. For the year ended December 31,
1996, Mr. Crichfield's base salary, as disclosed above in the Summary
Compensation Table, exceeded the maximum covered compensation by $20,577.
Concord and Mr. Crichfield are parties to an Executive Supplemental Retirement
Agreement ("Supplemental Agreement") under which, if he works for Concord 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 five-year period ending on termination of employment,
less (b) the benefit payable in life annuity form under Concord's retirement
plan discussed above and under Concord's Employee Stock Ownership Plan. 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 salary in excess of $150,000 cannot 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.
<PAGE>
Severance Benefits and Employment Agreements
The following is a description of severance and employment agreements with
officers named in the Summary Compensation Table.
In April 1989 the Company and Concord entered into a severance benefits
agreement with Mr. Crichfield. The agreement provides that under certain
circumstances Mr. Crichfield (1) will be paid a lump sum amount equal to three
times his highest salary rate in effect at any time within the 12-month period
preceding termination, (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 Concord's tax-qualified employee
benefit plans if he 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.
A Change of Control is generally defined in the agreement to include (i) 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 Concord, (ii) the merger or
consolidation of the Company or Concord (other than a merger or consolidation of
Concord with or into another entity wholly owned by the Company), (iii) the sale
by the Company or Concord of a majority of its assets, or (iv) the entering into
of any transaction by Concord or the Company in which another entity (other than
an insurer of Concord's deposit liabilities) assumes a majority of the deposit
liabilities of Concord.
The Company and Concord also have entered into severance agreements with Paul M.
Ferguson, in 1989, and with Gerald R. Emery, in 1992, which are similar to Mr.
Crichfield's agreement. Messrs. Ferguson's and Emery's agreements provide for
(1) a lump sum payment equal to two times their highest salary rate in effect
within the 12-month period preceding termination, (2) acceleration of vesting of
stock options previously granted to them, and (3) the benefits described in (4)
above with respect to Mr. Crichfield's agreement.
Centerpoint has entered into an employment agreement with Philip M. Stone dated
August 29, 1995 pursuant to which Centerpoint has agreed to pay Mr. Stone an
annual salary at the rate of not less than $100,000 per year during each year of
his employment with Centerpoint. The agreement terminates on December 31, 1998.
In addition, the agreement provides that Centerpoint will employ Mr. Stone as
Chairman of the Board until December 31, 1998 and as President until June 30,
1998. From July 1, 1998 until the expiration of the agreement, Centerpoint has
agreed to employ Mr. Stone to provide consulting assistance. The agreement also
provides for certain fringe benefits.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of January 31, 1997
regarding (1) each person known by the Company to own beneficially more than 5%
of the Company's Common Stock; (ii) each director and each nominee for director
individually; (iii) each executive officer named in the Summary Compensation
Table; and (iv) all directors and executive officers of the Company as a group.
Except as otherwise noted in the footnotes to the table, the beneficial owners
have sole voting and investment power as to all shares beneficially owned by
them. All of the individuals named below are directors of the Company.
Messrs. Bethke, Fenollosa, Fifield, Hardiman, Hemming, Stewart and Stone are
nominees.
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percentage
Name Ownership/(1)/ of Class
- --------------------------------------------------------------------------------
<S> <C> <C>
The Killen Group, Inc.
1199 Lancaster Avenue
Berwyn, PA 19312 153,690/(2)/ 6.3
Arthur R. Bethke 46,948 1.9
John N. Buxton 1,143/(3)/ *
Douglas Crichfield 67,892/(4)/ 2.7
Gerald R. Emery 10,759/(5)/ *
William S. Fenollosa 2,215/(6)/ *
Paul M. Ferguson 10,152/(7)/ *
Oliver R. Fifield 3,743/(8)/ *
Thomas M. Hardiman 11,500 *
Walter W. Hemming 38,448 1.5
Robert A. Hill 998/(9)/ *
Russell A. Holden 2,514/(10)/ *
Lucia P. Kittredge 5,346/(11)/ *
Seth A. Resnicoff 12,058/(3)/ *
Eleanor H. Stark 1,327/(12)/ *
James R. Stewart 4,801/(6)/ *
Philip M. Stone 55,313/(13)/ 2.2
Katherine F. Tsouros 3,140/(11)/ *
Directors and executive
officers as a group (18 persons) 279,547/(14)/ 11.1%
- --------------------------------------------------------------------------------
</TABLE>
* Less than one percent
(1) For purposes of this table, a person is deemed to be the beneficial owner
of any shares of Common Stock if he has or shares voting power or
investment power with respect to such shares, or has the right to acquire
beneficial ownership of such shares at any time within 60 days of the date
of this table.
(2) The Killen Group's Form 13G dated February 14, 1997 filed with the
Securities and Exchange Commission reports that the Group has sole
dispositive power with respect to 153,690 shares of the Company's Common
Stock and sole voting power with respect to 62,500 shares of the Company's
Common Stock.
(3) Includes 716 shares obtainable upon exercise of stock options.
(4) Includes 21,319 shares obtainable upon exercise of stock options and 3,061
shares held in Concord's Employee Stock Ownership Plan.
(5) Includes 8,325 shares obtainable upon exercise of stock options and 2,434
held in Concord's Employee Stock Ownership Plan.
(6) Includes 319 shares obtainable upon exercise of stock options.
(7) Includes 7,250 shares obtainable upon exercise of stock options and 1,241
shares held in Concord's Employee Stock Ownership Plan.
(8) Includes 464 shares obtainable upon exercise of stock options.
(9) Includes 159 shares obtainable upon exercise of stock options.
(10) Includes 514 shares obtainable upon exercise of stock options.
(11) Includes 591 shares obtainable upon exercise of stock options.
(12) Includes 446 shares obtainable upon exercise of stock options.
(13) Includes 21,460 shares obtainable upon exercise of stock options.
(14) Includes 64,439 shares obtainable upon exercise of stock options and 6,736
shares allocable to executive officers under Concord's Employee Stock
Ownership Plan.
<PAGE>
Item 13. Transactions with Certain Related Persons
In the ordinary course of business, the Company, through its banking
subsidiaries, makes loans to its 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.
<PAGE>
Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater-than-10% shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the Company, or
written representations that no Forms 5 were required, the Company believes that
during 1996 all Section 16(a) filing requirements applicable to its officers,
directors, and greater-than-10% beneficial owners were complied with.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
AND 8-K/A
(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) None.
(c) See Index to Exhibits included elsewhere herein.
<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.
Dated: March 28, 1997 By: /s/ Douglas Crichfield
Douglas Crichfield, President
<TABLE>
<CAPTION>
Name Title Date
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Douglas Crichfield President and Director March 28, 1997
- ------------------------------ (Principal Executive Officer)
Douglas Crichfield
/s/ John C. Baity, Jr. Treasurer (Principal Financial March 28, 1997
- ------------------------------ and Accounting Officer)
John C. Baity, Jr.
/s/ Thomas M. Hardiman Director March 28, 1997
- ------------------------------
Thomas M. Hardiman
/s/ William S. Fenollosa Director March 28, 1997
- ------------------------------
William S. Fenollosa
/s/ Oliver R. Fifield Director March 28, 1997
- ------------------------------
Oliver R. Fifield
/s/ Eleanor H. Stark Director March 28, 1997
- ------------------------------
Eleanor H. Stark
/s/ Katherine F. Tsouros Director March 28, 1997
- ------------------------------
Katherine F. Tsouros
/s/ James R. Stewart Director March 28, 1997
- ------------------------------
James R. Stewart
/s/ Lucia P. Kittredge Director March 28, 1997
- ------------------------------
Lucia P. Kittredge
/s/ Seth A. Resnicoff Director March 28, 1997
- ------------------------------
Seth A. Resnicoff, M.D.
/s/ Russell A. Holden Director March 28, 1997
- ------------------------------
Russell A. Holden
/s/ John N. Buxton Director March 28, 1997
- ------------------------------
John N. Buxton
/s/ Robert A. Hill Director March 28, 1997
- ------------------------------
Robert A. Hill
/s/ Philip M. Stone Director March 28, 1997
- ------------------------------
Philip M. Stone
/s/ Walter W. Hemming Director March 28, 1997
- ------------------------------
Walter W. Hemming
/s/ Arthur R. Bethke Director March 28, 1997
- ------------------------------
Arthur R. Bethke
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT METHOD OF FILING
- ---------------------------------------------------------------- -------------------------------------------------
<S> <C> <C>
3.1 Restated Articles of Incorporation of Community Incorporated by reference to Exhibit 3.1(b) to
Bankshares, Inc. 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) to
of Community Bankshares, Inc. dated October 27, 1989 Annual Report on Form 10-K for the year ended
June 30, 1991
3.1(b) Articles of Amendment to the Restated Articles of Incorporated by reference to Exhibit 3.1(b) to
Incorporation of Community Bankshares, Inc. Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996
3.2 By-laws of Community Bankshares, Inc. as currently Incorporated by reference to Quarterly
in effect Report on Form 10-Q for the quarter ended
September 30, 1995
4.1 Loan Agreement dated September 22, 1986 between Incorporated by reference to Exhibit 4 to Annual
the Savers Bank and the Trustee of the Concord Savings Report on Form 10-K for year ended June 30, 1986
Bank Employees Stock Ownership Plan, with related Note
and Pledge
4.2 Amendment to Loan Agreement between the Savers Bank Incorporated by reference to Exhibit 4.2 to
and the Trustee of the Concord Savings Bank Employee Quarterly report on Form 10-Q for quarter ended
Stock Ownership Plan, dated January 25, 1988 March 31, 1988
4.3 Rights Agreement between Community Bankshares, Inc. Incorporated by reference to Form 8-A filed
and the First National Bank of Boston June 30, 1989
4.4 Community Bankshares, Inc. Dividend Reinvestment Incorporated by reference to Form S-3
and Stock Dividend Plan, dated December 28, 1994 (File No. 33-87956) filed December 28, 1994
10.2(a) Concord Savings Bank 1985 Stock Option Plan, as Incorporated by reference to Exhibit 10.2 to
amended* Amendment No. 3 to Registration Statement
10.2(b) Amendment to said Stock Option Plan adopted Incorporated by reference to Exhibit 10.2(b) to
August 18, 1987* 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 quarter ended
September 30, 1988
10.5 Form of Severance Benefits Agreement with Incorporated by reference to Exhibit 10.9 to Annual
Douglas Crichfield dated August 1, 1988* Report on Form 10-K for year ended June 30, 1989
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT METHOD OF FILING
- ------------------------------------------------------------------ -------------------------------------------------
<S> <C> <C>
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 Incorporated by reference to Exhibit 10.7(a) to
with Gerald R. Emery dated December 30, 1992* Annual Report on Form 10-K for year ended
June 30, 1993
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 Paul M. Ferguson* Incorporated by reference to Exhibit 10.11
to Annual Report on Form 10-K for year ended
June 30, 1991
10.10(a) Amendment of Form of Severance Benefits Agreement Incorporated by reference to Exhibit 10.11(a) to
with Paul M. Ferguson dated December 30, 1992* Annual Report on Form 10-K for year ended
June 30, 1993
10.11 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
10.12 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
10.13 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
10.14 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
10.15 Agreement and Plan of Merger by and between the Incorporated by reference to Annex A of the Proxy
Company and Centerpoint Bank, dated as of Statement-Prospectus included in Registration
August 28, 1995 Statement on Form S-4 (File No. 33-63443)
(the "S-4 Registration Statement")
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT METHOD OF FILING
- ----------------------------------------------------------- ---------------------------------------------------
<S> <C> <C>
10.16 Employment Agreement between Centerpoint Bank Incorporated by reference to the S-4 Registration
and Phillip Stone, dated August 29, 1995* Statement
10.17 Employment Agreement between Centerpoint Bank Incorporated by reference to the S-4
and Lucy T. Gobin, dated August 29, 1995* Registration Statement
10.18 Employment Agreement between Centerpoint Bank Incorporated by reference to the S-4
and Joseph B. Reilly, dated August 29, 1995* Registration Statement
10.19 Centerpoint Bank 1989 Stock Option Plan* Incorporated by reference to Exhibit 10.20 to
Transition Report on Form 10-K for the six months
ended December 31, 1995
10.20 Form of Severance Benefits Agreement with Filed herewith
John C. Baity, Jr.*
10.21 Agreement and Plan of Reorganization dated Incorporated by reference to Exhibit 2.2 to the Annual
March 24, 1997 between CFX Corporation and Report on Form 10-K for the Year Ended December 31,
Community Bankshares, Inc., including Plan 1996 filed by CFX Corporation.
of Share Exchange and Agreement and Plan
of Merger among Concord Savings Bank,
Centerpoint Bank and CFX Bank.
10.22 Stock Option Agreement dated March 24, Incorporated by reference to Exhibit 99.3 to the
1997 between CFX Corporation and Community Annual Report on Form 10-K for the Year Ended
Bankshares, Inc. December 31, 1996 filed by CFX Corporation.
11 Statement re computation of Income per share Filed herewith
21.1 Subsidiaries of Community Bankshares, Inc. Filed herewith
23 Consent of KPMG Peat Marwick LLP to incorporation Filed herewith
by reference of opinion in Registration
Statements on Form S-8 (File Nos. 333-2157,
33-53678, 33-44264, 33-18853) and Form S-3
(File No. 33-87956).
27.1 Financial Data Schedule Filed herewith
99 Joint press release issued by CFX Corporation Incorporated by reference to Exhibit 99.2 to the
and Community Bankshares, Inc., dated March Annual Report on Form 10-K for the Year Ended
24, 1997. December 31, 1996 filed by CFX Corporation.
</TABLE>
* Indicates management contract or compensatory plan
<PAGE>
Exhibit 10.20
[LOGO OF CONCORD SAVINGS BANK APPEARS HERE]
December 30, 1996
Mr. John C. Baity, Jr.
24 Cricket Hill Road
Bedford, NH 03110
Dear John:
The Board of Directors of Concord Savings Bank (the "Bank") has
determined that should Community Bankshares, Inc., the parent corporation of the
Bank (the "Company"), receive proposals from third parties with respect to its
future or the future of the Bank, it is important to the Bank that you be able
to assess and advise the Boards of Directors of the Company and the Bank whether
such proposals would be in the best interests of the Company and its
shareholders and to take such other action regarding such proposals as such
Boards might determine to be appropriate. The Board recognizes that the
continuing possibility of a change of control of the Company or the Bank and
consequent change in the terms of your employment is unsettling to you and could
interfere with your ability to assess and advise the Board concerning any such
proposals.
The Board has therefore authorized this Agreement as a means of
assuring you that a change of control of the Company or the Bank will not result
in any change in the terms of your employment at the Bank, and thereby assuring
the Company and the Bank that they will have your continued dedication and the
availability of your advice and counsel notwithstanding the possibility, threat
or occurrence of a bid to take over control of the Company or the Bank. In
consideration of the foregoing and for other good and valuable consideration,
the Bank and you agree as follows:
1. In the event that any Person (as defined in Section 13(d) of the
Securities Exchange Act of 1934, which includes any individual, corporation,
partnership, company, group or other entity) begins a tender or exchange offer,
circulates a proxy to the Company's stockholders or takes other steps to effect
a "change of control" (as hereinafter defined), you agree that you will not
voluntarily leave the
<PAGE>
[LOGO OF CONCORD SAVINGS BANK APPEARS HERE] Page 2
employ of the Bank and will render the services contemplated in the recitals to
this Agreement until such Person has abandoned or terminated his efforts to
effect a "change of control" or until a "change of control" has occurred.
2. For purposes of this Agreement, a "change of control" shall be
deemed to take place hereafter if:
(A) A Person other than the Company becomes the beneficial owner of
shares of the Company or the Bank having 25% or more of the total
number of votes that may be cast for election of Directors of the
Company or the Bank, as the case may be;
(B) The Company or the Bank merges or consolidates (other than a
merger or consolidation of the Bank with or into another entity
wholly-owned by the Company); or
(C) The Company or the Bank sells a majority of its assets, or enters
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;
For purposes of this Agreement, the term "Good Reason" shall mean any
of the following:
(a) reduction in the rate of your salary or in other form of your
compensation or benefits including failure to continue any
incentive compensation or employee benefit or stock option plan,
without providing an appropriate substitute therefor of equal
value to you,
(b) substantial change in (i) the nature or scope of your duties,
responsibilities, powers or authority, or (ii) your title,
position or status,
(c) good faith determination by you at least six months following a
change of control and for reasonable cause that because of the
change of control you are unable to perform your duties
adequately,
(d) relocation by the Company or its successor or by the Bank or its
successor of your office to any place outside the 40 mile radius
from the present principal office of the Bank,
<PAGE>
[LOGO OF CONCORD SAVINGS BANK APPEARS HERE] Page 3
(e) material breach by the Company or its successor or by the Bank or
its successor of an employment, compensation or similar agreement
between you and the Company or between you and the Bank, or
(f) failure of the Company or its successor or the Bank or its
successor to give to you within ten days after your written
request therefor written assurance of its intention to honor this
Agreement.
3. If within two years after a "change of control" (as defined
above) your employment with the Bank or any of its subsidiaries or affiliates is
(a) involuntarily terminated for any reason other than (i) gross dereliction of
duty, (ii) criminal or civil judgment, which, in the Bank's or its successor's
good faith judgment, renders you unsuitable for such employment, (iii) your
death or disability, or (iv) retirement, whether voluntary or involuntary, at or
after your normal retirement date under the terms of the Bank's Retirement Plan,
or (b) voluntarily terminated for Good Reason (as defined above), then
(A) The Bank will pay you as termination compensation promptly after
such termination a lump sum equal to: (i) two year's salary at
the highest salary rate in effect for you at any time during the
twelve-month period preceding such termination, plus (ii) an
amount equal to your salary on a per diem basis for any vacation
--- ----
earned but not taken by you in the calendar year of your
termination through the date of your termination, earned at the
rate of one week of vacation for each three-month period of
service.
(B) To the extent that your rights and benefits under the Bank's
Retirement Plan and any other qualified employee pension, profit-
sharing or stock bonus plan maintained by the Bank are not then
vested, such rights and benefits shall vest immediately in full
and shall not be subject to any reduction. Such benefits shall be
payable to you at such time and in the same manner as provided by
such Retirement Plan or other qualified plan for the payment of
benefits thereunder. Should you be party to a separate agreement
with the Bank pursuant to which you are entitled to receive
<PAGE>
[LOGO OF CONCORD SAVINGS BANK APPEARS HERE] Page 4
supplemental retirement payments from the Bank in addition to
any retirement benefits to be paid to you under the Bank's
Retirement Plan and any other qualified employee pension, profit-
sharing or stock bonus plan maintained by the Bank, your rights
under such separate agreement shall vest immediately in full and
shall not be subject to any reduction. Notwithstanding any
provisions of any stock option plan of the Company or any
agreements thereunder, all stock options granted to you under
such plans and not then exercised shall in such event and at such
time become immediately exercisable;
(C) You shall be promptly reimbursed by the Bank or its successor for
(i) up to $10,000 of fees and expenses charged to you by
executive recruiting, counseling or placement firms you may incur
in seeking new employment following the termination of your
employment as contemplated herein, and (ii) all relocation
expenses of any kind you might incur as a result of accepting new
employment (including, without limitation, all moving expenses as
defined in Section 217 of the Internal Revenue Code of 1986, as
amended (the "Code"), in each case to the extent not reimbursed
or paid by your new employer. If any of the fees and expenses for
which you are to be reimbursed are not deductible by you for tax
purposes, then the Bank shall also pay you an additional amount
equal to the taxes paid by you on the reimbursement of such non-
deductible items plus the taxes payable by you in respect of such
additional amount itself;
(D) The Bank or its successor shall promptly reimburse you for the
amount of any and all legal fees and expenses incurred by you as
a result or consequence of the termination of your employment as
contemplated herein, including without limitation the amount of
all such fees and expenses, if any, incurred by you in seeking to
obtain or enforce any right or benefit provided to you by the
Bank or the Company pursuant to or in accordance with this
Agreement, plus taxes payable to you on such reimbursements; and
<PAGE>
[LOGO OF CONCORD SAVINGS BANK APPEARS HERE] Page 5
(E) The Bank or its successor will, during the period of two years
immediately following the cessation of your employment, reimburse
you in full for all costs and expenses you may incur, plus taxes
payable by you on such reimbursement, in maintaining coverage
equivalent to the insurance coverages you presently have under
the Bank's group life insurance, group medical insurance and
group dental insurance plans (and any types of coverage you may
have as a result of your participation in any other group benefit
plan of the Bank in the future). During any part of such period
in which you are eligible to participate in any group insurance
plan maintained by the Bank or its successor, the Bank or such
successor may fulfill its obligations under this provision by
paying (i) the premiums required under such group plan(s), plus
the taxes payable by you thereon as aforesaid, plus (ii) if the
coverages then provided under such group plans are not equivalent
to the coverages required hereunder, the costs and expenses
incurred by you, plus taxes as aforesaid, in obtaining additional
insurance to supplement the group coverage to the extent needed
to provide the coverage required hereby. During any part of such
period in which you are not eligible to participate in any one or
more of the Bank's or such successor's group insurance plans, the
Bank or such successor will reimburse you in full for all costs
and expenses you may incur, plus taxes payable by you on such
reimbursement, in maintaining insurance comparable to that
currently provided to you under the Bank's group life, group
medical and group dental plans (and any types of coverage you may
have as a result of your participation in any other group benefit
plan of the Bank in the future). Notwithstanding the foregoing
provisions of this Paragraph (E), (i) the Bank's or such
successor's obligations hereunder shall be reduced to the extent
that insurance coverage is provided to you by another employer
during the whole or any part of such two-year period, and (ii)
amounts reimbursable under this Paragraph (E) shall include
insurance premiums, copayments and/or deductibles to the extent
that such costs are incurred by you during such two-year period
and such costs would not have been incurred had you remained in
the employ of
<PAGE>
[LOGO OF CONCORD SAVINGS BANK APPEARS HERE] Page 6
the Bank or its successor and continued to be covered under its
benefit plans, but shall not include costs of uninsured medical
or dental expenses or life insurance benefits in the event that
you fail to obtain insurance comparable to that previously
provided by the Bank or its successor. Accordingly, in the event
that you are unable to obtain or choose not to obtain, during any
part of said two-year period, insurance coverages comparable to
those provided under the Bank's or its successor's plans, the
sole obligation of the Bank or its successor under this Paragraph
(E) shall be to pay you an amount equal to the then cost of
providing such coverages under group plans provided by the Bank
or its successor to its key executives at the time of the
cessation of your employment, plus taxes payable by you with
respect to such amount, for the period of time in which you are
so uninsured.
4. It is the intention of the parties that no payments to or for
your benefit under this Letter Agreement or any other agreement or plan pursuant
to which you are entitled to receive payments or benefits shall be non-
deductible to the Bank or the Company (as the case may be) by reason of the
operation of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") relating to parachute payments. Accordingly, and notwithstanding any
----
other provision of this Letter Agreement or any such agreement or plan, if by
reason of the operation of said Section 280G, any such payments exceed the
amount which can be deducted by the Bank or the Company for Federal income tax
purposes, such payments shall be reduced to the maximum amount which can be
deducted by the Bank or the Company. To the extent that payments exceeding such
maximum deductible amount have been made to you or your beneficiary, you or your
beneficiary shall refund such excess payments to the Bank or the Company (as
applicable) with interest thereon at the Applicable Federal Rate determined
under Section 1274(d) of the Code, compounded annually, or at such other rate as
may be required in order that no such payments shall be non-deductible to the
Bank or the Company by reason of the operation of said Section 280G. To the
extent that there is more than one method of reducing payments to bring them
within the limitations of said Section 280G, you shall determine which method
shall be followed, provided that if you fail to make such determination within
forty-five days after the Bank or the Company has sent you written notice of the
need for such reduction, the Bank or the Company may determine the method of
such reduction in its sole discretion.
<PAGE>
[LOGO OF CONCORD SAVINGS BANK APPEARS HERE] Page 7
5. You shall retain in confidence after your termination all
confidential information known to you concerning the Company and its
subsidiaries and the Bank and its subsidiaries and their businesses so long as
such information is not publicly disclosed by the Company or the Bank or
otherwise publicly available.
In the event of termination of your employment under the circumstances
described herein, the arrangements provided for by this Agreement, by any stock
option or other agreement between the Company or any of its subsidiaries or the
Bank or any of its subsidiaries and you in effect at the time, and by any other
applicable plan of the Company or any of its subsidiaries or the Bank or any of
its subsidiaries will constitute the entire obligation of the Company and the
Bank to you and performance thereof by the Company or the Bank, as the case may
be, will constitute full settlement of any claim that you might otherwise assert
against the Company or any of its subsidiaries or the Bank or any of its
subsidiaries on account of such termination. You shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment provided for
in this Agreement be reduced by any compensation earned by you as the result of
employment by another employer after the termination of your employment with the
Bank or any of its subsidiaries or affiliates.
This Agreement shall be binding upon and inure to the benefit of the
Bank and any successor of the Bank. Neither this Agreement nor any rights
arising hereunder may be assigned or pledged by you during your lifetime. This
Agreement shall inure to the benefit of and be enforceable by your personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
is no such designee, to your estate.
This Agreement may not be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing signed by you and such
officer as may be specifically designated by the Board of Directors of the Bank.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws
<PAGE>
[LOGO OF CONCORD SAVINGS BANK APPEARS HERE] Page 8
of the State of New Hampshire. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
If you are in agreement with the foregoing, please so indicate by
signing and returning to the Bank the original of this Agreement, whereupon this
shall constitute a binding agreement between you and the Bank. The second copy
is for your files.
Very truly yours,
CONCORD SAVINGS BANK
By:/s/ Douglas Crichfield
------------------------
President
Agreed to this 3rd day of December 1996.
/s/ John C. Baity, Jr.
- ---------------------------
John C. Baity, Jr.
The foregoing statement is joined in by Community Bankshares, Inc.
(the "Company"). To the extent not performed by the Bank, the agreement shall be
performed by the Company, and the undersigned duly authorized officer of the
Company has set his hand hereto on this 30th day of December 1996.
COMMUNITY BANKSHARES,INC.
By:/s/ Douglas Crichfield
------------------------
President
<PAGE>
Community Bankshares, Inc.
Form 10K
December 31, 1996
Exhibit 11
<TABLE>
<CAPTION>
Six Months Years Ended
Year Ended Ended June 30,
December 31, December 31, -----------------------------
1996 1995 1995 1994
---------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Net income $4,955,000 $1,774,000 $4,175,000 $3,602,000
Primary average common and common
equivalent shares 2,477,000 2,434,000 2,458,000 2,424,000
Primary earnings per common and common
equivalent share $ 2.00 $ 0.73 $ 1.70 $ 1.49
Fully diluted average common and common
equivalent shares 2,480,000 2,437,084 2,462,933 2,436,931
Fully diluted earnings per common and common
equivalent share $ 2.00 $ 0.73 $ 1.70 $ 1.48
</TABLE>
<PAGE>
Community Bankshares, Inc.
Form 10K
December 31, 1996
Exhibit 21.1
Subsidiaries of Community Bankshares, Inc.:
Concord Savings Bank
Community Mortgage, Inc.
Bancredit Corporation
Centerpoint Bank
<PAGE>
Exhibit 23
Consent of Independent Auditors
The Board of Directors
Community Bankshares, Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 333-2157, 33-53678, 33-44264 and 33-18853) on Forms S-8 of our report
dated January 22, 1997, relating to the consolidated balance sheets of Community
Bankshares, Inc. and subsidiaries as of December 31, 1996 and 1995 and June 30,
1995 and 1994, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the year ended December 31, 1996, the
six months ended December 31, 1995, and for each of the years in the two year
period ended June 30, 1995, which report appears in the December 31, 1996 annual
report on Form 10-K of Community Bankshares, Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10K AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FIANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 20,570
<INT-BEARING-DEPOSITS> 90
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 76,281
<INVESTMENTS-CARRYING> 47,021
<INVESTMENTS-MARKET> 46,990
<LOANS> 388,484
<ALLOWANCE> (3,905)
<TOTAL-ASSETS> 550,596
<DEPOSITS> 395,787
<SHORT-TERM> 108,888
<LIABILITIES-OTHER> 5,114
<LONG-TERM> 0
0
0
<COMMON> 2,449
<OTHER-SE> 38,358
<TOTAL-LIABILITIES-AND-EQUITY> 550,596
<INTEREST-LOAN> 32,976
<INTEREST-INVEST> 8,287
<INTEREST-OTHER> 315
<INTEREST-TOTAL> 41,578
<INTEREST-DEPOSIT> 14,839
<INTEREST-EXPENSE> 19,757
<INTEREST-INCOME-NET> 21,821
<LOAN-LOSSES> 1,350
<SECURITIES-GAINS> 540
<EXPENSE-OTHER> 16,820
<INCOME-PRETAX> 7,644
<INCOME-PRE-EXTRAORDINARY> 7,644
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,955
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 2.00
<YIELD-ACTUAL> 4.43
<LOANS-NON> 1,392
<LOANS-PAST> 169
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,667
<CHARGE-OFFS> 1,415
<RECOVERIES> 303
<ALLOWANCE-CLOSE> 3,905
<ALLOWANCE-DOMESTIC> 3,905
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
