Registration No. ________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COMMUNITY BANKSHARES, INC.
(Exact name of Registrant as specified in its charter)
South Carolina 57-0840351
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
791 Broughton Street
Orangeburg, South Carolina 29115
(803) 535-1060
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
WILLIAM W. TRAYNHAM Copies to:
President GEORGE S. KING, JR., ESQ.
Community Bankshares, Inc. SUZANNE HULST CLAWSON, ESQ.
791 Broughton Street Sinkler & Boyd, P.A.
Orangeburg, South Carolina 29115 1426 Main Street, Suite 1200
(803) 535-1060 Columbia, South Carolina 29201
(Name, address, including Zip Code,
and telephone (803) 779-3080 number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [x]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
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<CAPTION>
Calculation of Registration Fee
- -------------------------------------------------------------------------------------------------------------------------------
Proposed
Title of each Amount to be Proposed maximum
class of securities to be registered maximum offering aggregate offering Amount of
registered price per unit(1) price registration fee
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 300,000 shares $15.00 $4,500,000.00 $1,327.50
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(1) Amounts calculated pursuant to Rule 457(c) based on the average of the high
and low price on February 6, 1998 of $15.00 per share on the American Stock
Exchange.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
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CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
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<CAPTION>
Item
Number Caption in Form S-2 Caption in Prospectus
- ------ ------------------- ---------------------
<S> <C> <C>
1 Forepart of Registration Statement and
Outside Front Cover Page of Prospectus........................... Facing Page of Registration Statement,
Cross Reference Sheet, Prospectus
Cover Page
2 Inside Front and Outside Back Cover Pages
of Prospectus.................................................... Available Information, Summary Table
of Contents
3 Summary Information, Risk Factors and Ratio
of Earnings to Fixed charges..................................... Summary, Risk Factors
4 Use of Proceeds.................................................. Use of Proceeds
5 Determination of Offering Price.................................. Risk Factors, Offering and Method of Subscription
6 Dilution ....................................................... Not Applicable
7 Selling Security Holders......................................... Not Applicable
8 Plan of Distribution............................................. Offering and Method of Subscription
9 Description of Securities to be Registered....................... Description of CBI Common Stock
10 Interests of Named Experts and Counsel........................... Not Applicable
11 Information with Respect to Registrant........................... Information About CBI and the Banks
12 Incorporation of Certain Information by
Reference........................................................ Incorporation of Certain Documents by Reference
13 Disclosure of Commission Position on
Indemnification for Securities Act Liabilities................... Description of CBI Common Stock
</TABLE>
<PAGE>
Prospectus
COMMUNITY BANKSHARES, INC.
UP TO 300,000 SHARES
COMMON STOCK (NO PAR VALUE)
Community Bankshares, Inc. ("CBI"), hereby offers for sale up to
300,000 shares of its no par value common stock (the "CBI Common Stock") at the
Purchase Price, as defined herein. The Purchase Price per share of the CBI
Common Stock as to a particular subscriber whose subscription is accepted by CBI
shall be the closing price per share of the CBI Common Stock on the American
Stock Exchange (the "AMEX") on the business day immediately preceding the date
on which such subscriber's fully executed subscription agreement together with
funds representing the subscription price are received by CBI. CBI is a South
Carolina corporation and is a bank holding company for Orangeburg National Bank,
a national bank located in Orangeburg, South Carolina, and Sumter National Bank,
a national bank located in Sumter, South Carolina. This offering is being made
primarily for the purpose of raising capital for CBI to acquire all of the
common stock of Florence National Bank (in Organization), a national bank being
organized in Florence, South Carolina. (Orangeburg National Bank, Sumter
National Bank and Florence National Bank are sometimes referred to herein
collectively as the "Banks.")
Subscription checks should be made payable to Community Bankshares,
Inc. Subscription funds will not be escrowed and subscribers will become
shareholders of CBI upon acceptance of their subscriptions by CBI and issuance
of certificates representing the shares purchased. It will cost $4,500,000 for
CBI to purchase the stock of and capitalize Florence National Bank. The
organizers of Florence National Bank have recently purchased, or agreed to
purchase, approximately $640,000 of restricted CBI Common Stock. Because they
already own, in the aggregate, over 35% of the outstanding CBI Common Stock, the
Executive Officers and Directors of CBI are not presently expected to purchase
more than a minimal number of shares (if any) in this offering. If proceeds of
this offering are not sufficient to capitalize Florence National Bank, CBI plans
to borrow the additional funds necessary to capitalize the bank. This offering
will terminate on June 30, 1998 (unless extended to no later than September 30,
1998), and may close earlier if the minimum objectives are met. No minimum
amount is required to be raised pursuant to this offering. See "OFFERING AND
METHOD OF SUBSCRIPTION."
Commencement of operations by Florence National Bank and acquisition
of Florence National Bank's common stock by CBI are contingent upon approvals by
state and federal agencies. Subscriptions pursuant to this offering are not,
however, contingent upon successful completion of the organization of Florence
National Bank. Once a subscription is accepted by CBI and a certificate
representing the shares purchased is issued, the subscriber will become a
shareholder of CBI. Although CBI anticipates that all regulatory approvals will
be received and Florence National Bank will open for business, there can be no
assurance to that effect. If Florence National Bank does not open for business,
subscribers whose subscriptions have been accepted by CBI will nonetheless
become shareholders of CBI and will not be entitled to any refund of their
subscription funds.
Although the CBI Common Stock is traded on the American Stock
Exchange, trading volume is generally low, and is not expected to increase
significantly in the near future.
THE PURCHASE OF THESE SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS," page 4. THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Price Underwriting
to Discounts and Proceeds to
Public(1) Commissions(2) CBI(3)
- --------------------------------------------------------------------------------
PER SHARE: $-0-
- --------------------------------------------------------------------------------
TOTAL:
300,000 shares........ $-0-
================================================================================
(1) Assuming a Purchase Price of $______________ per share, which was the
closing price of the CBI Common Stock on _________. As described herein,
the daily Purchase Price of the CBI Common Stock may fluctuate.
Accordingly, the price set forth in this table is not necessarily the price
at which a subscriber may purchase shares. See "OFFERING AND METHOD OF
SUBSCRIPTION -- Method of Subscription" for information about the Purchase
Price.
(2) These securities will be offered only by the executive officers and
directors of CBI, Orangeburg National Bank and Sumter National Bank and the
proposed officers and directors of Florence National Bank. No commissions
or other compensation will be paid to any such person in connection with
this offering. See "OFFERING AND METHOD OF SUBSCRIPTION -- Plan of
Distribution."
(3) Before deduction of expenses associated with this offering payable by CBI,
estimated at $50,000.
The date of this Prospectus is __________________, 1998.
<PAGE>
AVAILABLE INFORMATION
CBI is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Copies of such reports, proxy statements and other
information can be obtained, upon payment of prescribed fees, from the SEC at
450 Fifth Street, N.W., Room 2120, Judiciary Plaza, Washington, D.C. 20549. In
addition, such reports, proxy statements and other information can be inspected
at the SEC's facilities referred to above and at the SEC's Regional Offices at 7
World Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The SEC
also maintains a site on the World Wide Web at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC.
CBI has filed with the SEC a Registration Statement under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the CBI Common
Stock offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to CBI and the CBI Common Stock offered hereby,
reference is hereby made to the Registration Statement, including the exhibits
and schedules thereto. The Registration Statement can be inspected and copied at
the public reference facilities of the SEC, 450 Fifth Street, N.W., Room 2120,
Judiciary Plaza, Washington, D.C. 20549, and copies of such materials can be
obtained by mail from the Public Reference Section of the SEC at such address at
prescribed rates. In addition, microfiche of the Registration Statement and
exhibits thereto are available for inspection and reproduction at the public
reference facilities of the SEC at its Regional Offices at the addresses set
forth above. CBI common stock is traded on the American Stock Exchange (the
"AMEX"). Reports, proxy statements and other information concerning CBI may be
inspected at the offices of the AMEX, 86 Trinity Place, New York, New York
10006.
CBI furnishes shareholders with annual reports containing audited financial
information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC are hereby incorporated by
reference in this Prospectus, made a part hereof and are being delivered
herewith: CBI's Annual Report to Shareholders for the fiscal year ended December
31, 1996, which includes CBI's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996 (without exhibits) (except that the information on the
outside and inside covers and on pages 6-11 of the Annual Report to Shareholders
is not incorporated herein by reference), and CBI's Quarterly Report on Form 10-
QSB for the quarter ended September 30, 1997. CBI's Quarterly Reports on Form
10-QSB for the quarters ended March 31, 1997 and June 30, 1997 are incorporated
by reference in this Prospectus and made a part hereof, but are not delivered
herewith. Copies of exhibits to the documents incorporated herein by reference
and of the Forms 10- QSB for the quarters ended March 31, 1997 and June 30, 1997
may be obtained upon written or oral request to William W. Traynham, President,
Community Bankshares, Inc., 791 Broughton Street, Orangeburg, S.C. 29115, (803)
535-1060. CBI will charge $0.20 per page for copies of exhibits to documents
incorporated by reference, but will not charge for copies of the Forms 10-QSB
for the quarters ended March 31, 1997 and June 30, 1997 (without exhibits).
All documents filed by CBI pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the filing of the documents specifically
incorporated by reference above and prior to termination of this offering shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the respective dates of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated
herein by reference will be deemed to be modified or superseded for the purpose
of this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is, or is deemed to be, incorporated
herein by reference modifies or supersedes such statement. Any such statement so
modified or superseded will not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
i
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No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference herein
and, if given or made, such information or representations must not be relied
upon as having been authorized. This document does not constitute an offer to
exchange or sell or a solicitation by any one in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so or to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this
document nor any distribution of securities made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of CBI since the date hereof or that the information herein is correct
as of any time subsequent to the date hereof.
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements with respect to the
financial condition, results of operations, and business of CBI and its
subsidiary banks. These forward-looking statements involve certain risks and
uncertainties. Factors that may cause actual results to differ materially from
those contemplated by such forward-looking statements include, among others, the
following possibilities: (1) CBI and the Banks may not be able to operate
profitably; (2) Competitive pressure in the banking industry may increase
significantly; (3) Costs or difficulties related to operation of Florence
National Bank may be greater than expected; (4) Changes in the interest rate
environment may reduce margins; (5) General economic conditions, either
nationally or regionally, may be less favorable than expected, resulting in,
among other things, a deterioration in credit quality; (6) Changes may occur in
the regulatory environment; (7) Changes may occur in business conditions
and/inflation; and (8) Changes may occur in the securities markets.
ii
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION........................................................ i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................. i
SUMMARY .................................................................. 1
CBI and the Banks................................................. 1
The Offering...................................................... 2
Risk Factors...................................................... 2
Selected Financial Data........................................... 2
RISK FACTORS................................................................. 4
Short Operating History........................................... 4
Lack of Minimum Offering Requirement.............................. 4
Potential Effect of Possible Borrowings........................... 4
No Escrow of Subscription Funds................................... 4
Delay in Obtaining Regulatory Approvals........................... 5
Opening of Florence National Bank not a Condition
to Subscription.................................................. 5
Market for the Shares............................................. 5
Regulatory Restrictions On Dividends.............................. 5
Certain Provisions of the Articles of Incorporation............... 5
Industry Developments............................................. 6
Competition....................................................... 6
Loan Losses; Capital Deficiency................................... 6
Governmental Regulation of the Financial Services Industry........ 6
Monetary Policy and Other Economic Factors........................ 7
CBI AND THE BANKS............................................................ 7
OFFERING AND METHOD OF SUBSCRIPTION.......................................... 8
The Offering...................................................... 8
Method of Subscription............................................ 8
Plan of Distribution.............................................. 9
Expiration Date or Extension of the Offering...................... 9
Issuance of CBI Common Stock...................................... 10
USE OF PROCEEDS.............................................................. 10
By CBI ........................................................ 10
By Florence National Bank......................................... 10
CONSOLIDATED CAPITALIZATION.................................................. 11
MARKET PRICE OF COMMON STOCK AND DIVIDENDS................................... 11
INFORMATION ABOUT CBI AND THE BANKS.......................................... 12
CBI, Orangeburg National Bank and Sumter National Bank............ 12
Recent Developments............................................... 12
Florence National Bank............................................ 12
Background of Organization........................................ 12
Organizers of Florence National Bank.............................. 13
Stock Purchase Commitments by Organizers of
Florence National Bank...........................................15
Market Area....................................................... 15
Competition....................................................... 16
Services to be Offered............................................ 16
Data Processing................................................... 17
Asset and Liability Management.................................... 17
Anticipated Growth................................................ 17
Premises ........................................................ 18
Employees ........................................................ 18
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Page No.
BENEFICIAL OWNERSHIP OF CBI'S COMMON STOCK................................... 18
MANAGEMENT OF CBI............................................................ 18
Stock Ownership of Executive Officers and Directors............... 19
Business Experience of Executive Officers and Directors
for the Past Five Years......................................... 20
Election of Florence National Bank Organizers to the
CBI Board of Directors.......................................... 21
DESCRIPTION OF CBI COMMON STOCK.............................................. 21
Capitalization.................................................... 21
Voting Rights..................................................... 21
Mergers, Consolidations, Exchanges, Sales of
Assets or Dissolution........................................... 22
Classified Board of Directors..................................... 22
Nomination of Directors........................................... 22
Removal of Directors.............................................. 22
Duty of Directors................................................. 22
Preemptive Rights................................................. 22
Amendment to Articles of Incorporation............................ 22
Assessment........................................................ 22
Conversion; Redemption; Sinking Fund.............................. 22
Quorum. ........................................................ 23
Statutory Matters................................................. 23
SUPERVISION AND REGULATION................................................... 24
Regulation of Bank Holding Companies.............................. 24
Payment of Dividends.............................................. 27
Certain Transactions by CBI with its Affiliates................... 27
FDIC Insurance Assessments........................................ 28
Regulation of the Bank............................................ 28
Other Safety and Soundness Regulations............................ 29
Interstate Banking................................................ 30
Legislative Proposals............................................. 31
Fiscal and Monetary Policy........................................ 31
LEGAL MATTERS................................................................ 32
FINANCIAL STATEMENTS OF CBI.................................................. 32
EXPERTS .................................................................. 32
APPENDIX A - Annual Report to Shareholders and Annual Report on Form 10-KSB for
the year ended December 31, 1996.
APPENDIX B - Quarterly Report on Form 10-QSB for the quarter ended September 30,
1997.
APPENDIX C - Subscription Agreement.
iv
<PAGE>
SUMMARY
The following is a brief summary of certain information contained in this
Prospectus and is not intended to be a complete statement of all material facts
regarding the matters set forth herein. It is qualified in its entirety by
reference to more detailed information set forth in this Prospectus, the
accompanying appendices, and the documents incorporated by reference herein.
CBI and the Banks
CBI is a bank holding company which owns Orangeburg National Bank and
Sumter National Bank. Orangeburg National Bank currently operates as a full
service commercial bank in the Orangeburg, South Carolina area, and Sumter
National Bank currently operates as a full service commercial bank in the
Sumter, South Carolina area. The deposits of Orangeburg National Bank and Sumter
National Bank are insured to applicable limits by the Federal Deposit Insurance
Corporation (the "FDIC"). CBI is in the process of making application to state
and federal regulatory authorities for approval to acquire Florence National
Bank.
Florence National Bank is a proposed national bank being organized in
Florence, South Carolina. The deposits of Florence National Bank will also be
insured to applicable limits by the FDIC. Florence National Bank will operate as
a wholly owned subsidiary of CBI with its own Board of Directors. The organizers
and proposed directors of Florence National Bank are Murray L. Garber, Richard
L. Havekost, James R. Livingston, Phillip D. Lowe, Jesse A. Nance, J. Erwin
Paxton, Hugo S. Sims, Jr., William W. Traynham and Wm. Reynolds Williams.
The organizers of Florence National Bank have recently purchased, or agreed
to purchase, $640,000 of restricted CBI Common Stock. These shares are subject
to certain restrictions on resale. See "INFORMATION ABOUT CBI AND THE BANKS --
Florence National Bank -- Stock Purchase Commitments by Organizers of Florence
National Bank." Because they already own over 35% of the outstanding CBI Common
Stock, the Directors and executive officers of CBI are not expected to purchase
more than a minimal number of shares in this offering, if any. Such persons may,
however, subsequently decide to purchase more shares. See "INFORMATION ABOUT
CBIAND THE BANKS -- Florence National Bank -- Stock Purchase Commitments by
Organizers of Florence National Bank" and MANAGEMENT OF CBI -- Stock Ownership
of Executive Officers and Directors."
If all state and federal regulatory approvals are received for CBI to
acquire Florence National Bank and for Florence National Bank to be chartered,
CBI intends to use up to $4,500,000 of the aggregate proceeds of this offering
and the sale of restricted Common Stock to the Florence National Bank organizers
to acquire all of the common stock of Florence National Bank and thereby
capitalize Florence National Bank. If the proceeds of this offering and the sale
of restricted Common Stock to the Florence National Bank organizers are not
sufficient to capitalize Florence National Bank, CBI plans to borrow the
additional funds necessary to capitalize the bank. CBI may also decide to borrow
the funds necessary to capitalize the bank or to commence construction of the
bank's offices prior to completion of this offering. In such case, CBI would use
proceeds of this offering to repay as much of such borrowings as possible.
The principal activity of CBI is operation of Orangeburg National Bank and
Sumter National Bank and, if approvals are received, will also be operation of
Florence National Bank and, possibly, subject to regulatory approvals,
acquisition and operation of commercial banks and/or other financial
institutions in other markets in South Carolina. The Banks will emphasize their
respective local affiliations and personalized service.
The principal office of CBI is located at 791 Broughton Street, Orangeburg,
South Carolina 29115. CBI's telephone number is (803) 535-1060. The principal
office of Orangeburg National Bank is located at 1820 Columbia Road, N.E.,
Orangeburg, South Carolina 29115. The principal office of Sumter National Bank
is located at 683 Bultman Drive in Sumter, South Carolina. The principal office
of Florence National Bank will be located at 2009 Hoffmeyer Road, Florence,
South Carolina.
1
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The Offering
CBI is offering hereby up to 300,000 shares of its common stock. The
Purchase Price per share of the Common Stock as to a particular subscriber whose
subscription is accepted by CBI shall be the closing price of the CBI Common
Stock on the AMEX on the business day immediately preceding the date on which
subscriber's fully executed subscription agreement together with funds
representing the subscription price are received by CBI. The minimum individual
purchase is the number of whole shares that can be purchased for $1,000 at the
Purchase Price. The maximum individual purchase is the number of whole shares
that can be purchased for $200,000 at the Purchase Price. Proceeds of the
offering will be used to capitalize Florence National Bank and/or repay
borrowings incurred to capitalize Florence National Bank, to repay
organizational and preopening expenses of Florence National Bank, and for
general corporate purposes of CBI.
Risk Factors
An investment in the shares offered hereby involves certain risks,
including, among others, the possibility that subscribers may become
shareholders of CBI even if Florence National Bank is not organized, that delay
in obtaining final regulatory approvals required to acquire Florence National
Bank and final regulatory approvals required for Florence National Bank to
commence operations will increase pre-opening expenses, lack of substantial
operating history, absence of active trading in the securities offered hereby
and lack of assurance that active trading in such securities will develop,
competition from other financial institutions with substantially greater
financial and other resources, certain provisions of the Articles of
Incorporation of CBI that may discourage or prevent take-over attempts, and
other risks attendant to the operation of financial institutions. See "RISK
FACTORS."
Selected Financial Data.
The following table presents on an historical basis selected unaudited
consolidated financial data for Orangeburg National Bank, Sumter National Bank
and CBI. The data is based on the financial statements of Orangeburg National
Bank, Sumter National Bank and CBI included herein. Reference is made to these
statements and the related notes for more detailed data. Results for the nine
months ended September 30, 1997 are not necessarily indicative of results to be
expected for the entire year. All adjustments necessary to a fair statement of
results of interim periods of CBI, in the opinion of management of CBI, have
been included. Such adjustments were of a normal recurring nature.
2
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
-------------------- --------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992(1)
---- ---- ---- ---- ---- ---- -------
(Amounts in thousands, except per share data)
Financial Condition
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Investment securities ............ $ 31,241 $ 29,181 $ 25,787 $ 24,669 $ 23,405 $17,249 $17,221
Net loans receivable ............. 85,619 61,208 67,953 51,617 47,938 41,685 36,755
Total assets ..................... 137,154 103,642 105,461 83,897 77,158 66,728 59,574
Total deposits ................... 114,824 87,393 89,851 72,550 67,669 58,735 52,395
Long-term obligations ............ 1,060 1,130 1,130 700 0 0 0
Stockholders' equity ............. $ 12,577 $ 11,797 $ 12,104 7,346 $ 6,387 $ 5,988 $ 5,468
Earnings Summary
Interest income .................. $ 7,082 $ 5,231 $ 7,261 $ 6,327 $ 5,162 $ 4,511 $ 4,467
Interest expense ................. 3,135 2,400 3,279 2,965 2,136 1,820 2,126
Net interest income .............. 3,947 2,831 3,982 $ 3,362 $ 3,026 $ 2,691 $ 2,341
Provision for loan losses ........ 258 140 227 160 125 160 200
Other operating income ........... 559 355 503 431 364 299 248
Other operating expenses ......... 2,948 2,178 3,097 2,179 2,111 1,828 1,509
Net income before taxes .......... 1,300 868 1,161 1,454 1,154 1,002 880
Income taxes ..................... 428 364 411 517 400 345 297
Net income after taxes ........... $ 872 $ 504 $ 750 $ 937 754 657 583
Per share data(2)
Net Income ....................... $ 0.33 $ 0.21 $ 0.31 $ 0.54 $ 0.44 $ 0.41 $ 0.34
Cash Dividends ................... $ 0.15 $ 0.14 $ 0.15 $ 0.14 $ 0.13 $ 0.11 $ 0.08
</TABLE>
(1) Orangeburg National Bank only.
(2) Per share data have been retroactively restated for prior periods to
reflect two-for-one stock splits in 1995 and 1997.
3
<PAGE>
RISK FACTORS
Investment in the securities offered hereby involves a significant degree
of risk. Accordingly, each prospective subscriber, before subscribing for any
shares, should consider certain risks and speculative features inherent in and
affecting the business to be carried on by the Banks and CBI. An investment
should be made only after careful consideration of the risk factors set forth
below and elsewhere in this Prospectus, and should be undertaken only by persons
who can afford an investment involving such risks. In addition to individual
considerations and the factors set forth elsewhere herein, each prospective
subscriber should consider the following:
Short Operating History
Orangeburg National Bank has been operating for ten years. However, CBI and
Sumter National Bank have relatively short operating histories, and Florence
National Bank is currently in the organizational stage and has no operating
history. As a consequence, prospective purchasers of securities offered hereby
have limited information on which to base an investment decision. As a bank
holding company, CBI's profitability depends primarily upon the Banks'
operations. Sumter National Bank's and Florence National Bank's operations are
subject to the risks inherent in the establishment of new businesses and,
specifically, of new banks. Typically, new banks incur substantial initial
expenses and are not profitable for several years after commencing business.
Furthermore, there can be no assurance that Florence National Bank or Sumter
National Bank will ever operate profitably or that Orangeburg National Bank will
continue to operate profitably.
Lack of Minimum Offering Requirement
The requirement that $4,500,000 be raised to capitalize Florence National
Bank is not a minimum offering requirement. As stated above, CBI plans to borrow
money to fund any shortfall between the amount raised pursuant to this offering
and the amount necessary to capitalize Florence National Bank. Accordingly,
there is a risk that the offering will close and subscribers will become
shareholders of CBI even though the market may have judged the terms of the
offering unsatisfactory because the risk of investment is perceived to be too
great, the valuation placed on the offering by CBI is too great, or for any
other reason. See "OFFERING AND METHOD OF SUBSCRIPTION."
Potential Effect of Possible Borrowings
CBI plans to borrow money to fund the shortfall if sufficient funds are not
raised pursuant to this offering to capitalize Florence National Bank. CBI may
also decide to borrow such funds prior to completion of this offering and repay
as much of the borrowings as possible with proceeds of this offering. CBI has
negotiated a commitment with a financial institution to fund such borrowings.
The terms of the loan would require CBI to pledge as security a portion of its
stock in Orangeburg National Bank, may restrict CBI's ability to pay dividends
and require CBI to maintain certain financial ratios. Such borrowings may
decrease CBI's profitability and, if CBI failed to repay the loan and the lender
foreclosed its security interest in the Orangeburg National Bank stock, CBI
could lose its ownership of Orangeburg National Bank. See "USE OF PROCEEDS -- By
CBI."
No Escrow of Subscription Funds
Subscription funds received by the Corporation will not be held in escrow.
Upon acceptance of subscriptions and issuance of stock certificates for the
shares subscribed, subscribers shall become shareholders of CBI. If the
subscription is rejected in whole or in part, the subscription funds
attributable to the rejected portion shall be promptly returned to the
undersigned. No interest will be paid on any such returned funds. See "OFFERING
AND METHOD OF SUBSCRIPTION."
4
<PAGE>
Delay in Obtaining Regulatory Approvals
CBI must secure the prior approval of the Board of Governors of the Federal
Reserve System (the "Federal Reserve") and of the South Carolina State Board of
Financial Institutions (the "State Board") to acquire the stock of Florence
National Bank. Before Florence National Bank may issue its stock to CBI, the
Office of the Comptroller of the Currency (the "OCC") must approve the
Organizers' application for a bank charter and the Federal Deposit Insurance
Corporation (the "FDIC") must approve deposit insurance. Capitalization of
Florence National Bank is a condition precedent to receipt of the final
regulatory approvals. It is anticipated that all final approvals will be
received within 120 days of the completion of this offering, although no
assurances can be given as to when or whether such approvals will be received.
Any significant delay in commencing business will increase pre-operating
expenses and may reduce Florence National Bank's and CBI's capital, potential
revenues and income.
Opening of Florence National Bank not a Condition to Subscription
Although the purpose of this offering is to raise funds to capitalize
Florence National Bank, opening of Florence National Bank is not a condition to
a subscriber's obligations under the Subscription Agreement. Once a subscription
is accepted by CBI and a certificate representing the shares purchased is
issued, the subscriber will become a shareholder of CBI. Although CBI
anticipates that all regulatory approvals will be received and Florence National
Bank will open for business, there can be no assurance to that effect. If
Florence National Bank does not open for business, subscribers whose
subscriptions have been accepted by CBI will nonetheless become shareholders of
CBI and will not be entitled to any refund of their subscription funds. See
"OFFERING AND METHOD OF SUBSCRIPTION."
Market for the Shares
CBI Common Stock has been traded on the American Stock Exchange since
November, 1996. For the year ended December 31, 1997, the total volume of CBI
Common Stock traded was 338,000 shares, which was a substantial increase over
prior years when the stock was not listed. However, the market for CBI Common
Stock is still developing and during 1997 it did not trade every business day.
Large changes in the supply of or demand for CBI Common Stock could result in
substantial changes in the price per share paid or received by any investor. See
"MARKET PRICE OF COMMON STOCK AND DIVIDENDS."
Regulatory Restrictions On Dividends
CBI's principal operations are conducted through its subsidiaries,
Orangeburg National Bank and Sumter National Bank, and, upon completion of its
organization, will also be conducted through Florence National Bank.
Accordingly, CBI generates cash to pay dividends primarily through dividends
paid and to be paid to it by the Banks. The Banks' ability to pay dividends to
CBI and CBI's ability to pay dividends on its Common Stock are, therefore,
subject to and limited by certain legal and regulatory restrictions. See
"SUPERVISION AND REGULATION -- Payment of Dividends."
Certain Provisions of the Articles of Incorporation
CBI's Articles of Incorporation include several provisions that may have
the effect of discouraging or preventing hostile take-over attempts, and thus of
making the removal of incumbent management difficult. The provisionsinclude
staggered terms for the Board of Directors and requirements of super-majority
votes to approve certain business transactions. See "DESCRIPTION OF CBI COMMON
STOCK." To the extent that these provisions are effective in discouraging or
preventing take-over attempts, they may tend to reduce the market price for the
CBI Common Stock.
5
<PAGE>
Industry Developments
In the recent past, legislation has been enacted that could have a dramatic
effect on both the costs of doing business and the competitive factors facing
the financial institutions industry. Additional such legislation is constantly
being considered by Congress. CBI is unable at this time to determine the
impact, if any, of future legislation on its financial condition or operations.
See "SUPERVISION AND REGULATION."
Competition
It is anticipated that Florence National Bank will encounter strong
competition from established financial institutions operating in the Florence,
South Carolina area. In addition, established financial institutions not
currently operating in the Florence area may, under South Carolina law, open
branches in the Florence area at future dates and other institutions may be
organized. At least one other bank is presently being organized in the Florence
area. In the conduct of certain aspects of its banking business, Florence
National Bank will also compete with savings and loan associations, credit
unions, mortgage banking firms, consumer finance companies, insurance companies,
money market mutual funds and other financial institutions, some of which are
not subject to the same degree of regulation as Florence National Bank. Many of
these competitors have substantially greater resources and lending limits than
Florence National Bank and offer certain services, such as extensive and
established branch networks, trust services and international banking services,
that Florence National Bank either does not expect to provide or will not
provide initially. See "INFORMATION ABOUT CBI AND THE BANKS -- Florence National
Bank -- Competition." The Organizers believe that Florence National Bank will be
able to compete effectively with these institutions through the use of
personalized service, loan participations and other techniques, but no
assurances can be given in this regard.
Orangeburg National Bank and Sumter National Bank face similar competition
in their respective market areas.
Loan Losses; Capital Deficiency
Orangeburg National Bank and Sumter National Bank lend (and Florence
National will lend, upon completion of its organization) a substantial portion
of their capital and deposits to individual and commercial borrowers. The Banks'
managements make substantial efforts to be prudent in making such loans, but
some loan losses are unavoidable. Changes in the economy both at the national
and local levels and other factors, both unpredictable and outside the control
of the Banks, could affect the ability of borrowers to repay their loans. It is
possible that, collectively, defaults by the Banks' borrowers could be large
enough to impair the ability of the Banks to continue their operations. Loan
losses and other losses might reduce the Banks' capital below the level required
by the OCC and the National Bank Act which could result in either or both of the
Banks being placed in receivership by the OCC and in a partial or complete loss
of CBI's equity in the Banks.
Governmental Regulation of the Financial Services Industry
During the past few years, significant legislative and regulatory
deregulation of certain aspects of the financial services industry has taken
place. Nonbanking financial institutions, such as securities brokerage firms,
insurance companies and money market funds, are now permitted to offer services
which compete directly with services offered by banks. At the same time, the
services which banks are permitted to offer have been expanded, and restrictions
have been reduced on the rates of interest that banks may pay on deposits. The
Banks' profitability will be largely dependent upon the rate differential
between the interest earned by the Banks on loans to customers and the rate of
return on the Banks' investments, and the interest paid by the Banks on deposits
and other liabilities. While deregulation and increasing competition may result
in the Banks' paying increased interest rates to obtain deposits, a comparable
increase in interest rates on their loans and the rate of return on their
investments may not be attainable, resulting in reduced "spread" and lower
earnings or higher losses. See "SUPERVISION AND REGULATION" and "INFORMATION
ABOUT CBI AND THE BANKS."
6
<PAGE>
Monetary Policy and Other Economic Factors
Changes in governmental economic and monetary policy may affect the ability
of the Banks to attract deposits and make loans. The rates of interest payable
on deposits and chargeable on loans are affected by governmental regulation and
fiscal policy as well as by national, state, and local economic conditions. See
"SUPERVISION AND REGULATION -- Fiscal and Monetary Policy." Furthermore, because
the Banks will for the foreseeable future operate in a limited geographic area,
CBI's ability to operate profitably will depend significantly upon the economies
of the Orangeburg County, Sumter County and Florence County market areas.
CBI AND THE BANKS
CBI was incorporated under South Carolina law on November 30, 1992, for the
purpose of becoming a bank holding company by acquiring all of the common stock
of Orangeburg National Bank. CBI commenced operations on July 1, 1993 upon
effectiveness of the acquisition of Orangeburg National Bank. Orangeburg
National Bank was chartered in 1987 and operates from two offices in Orangeburg,
South Carolina. Sumter National Bank was chartered in 1996 and operates from one
office in Sumter, South Carolina.
CBI is in the process of applying to state and federal regulatory
authorities for approval to acquire Florence National Bank. The organizers of
Florence National Bank submitted an application to the Office of the Comptroller
of the Currency (the "OCC") for a national bank charter and preliminary approval
of the charter application was granted on November 7, 1997. If and when CBI and
Florence National Bank obtain all necessary state and federal approvals, CBI
will use up to $3,700,000 of the net proceeds of this offering, together with
the $640,000 of proceeds from the limited offering to the Florence National Bank
organizers, to acquire all of the common stock of Florence National Bank, and/or
to repay borrowings incurred to acquire such stock. The remaining proceeds will
be retained by CBI for general corporate purposes. See "USE OF PROCEEDS."
The directors of CBI are E.J. Ayers, Jr., Alvis J. Bynum, Martha Rose C.
Carson, Anna O. Dantzler, J. M. Guthrie, Phil P. Leventis, William H. Nock,
Samuel F. Reid, Jr., Hugo S. Sims, Jr., William W. Traynham, J. Otto Warren,
Jr., Michael A. Wolfe, and Russell S. Wolfe, II. See "MANAGEMENT OF CBI." With
the exception of Messrs. Bynum, Nock and Leventis, who are directors of Sumter
National Bank, the foregoing persons are also directors of Orangeburg National
Bank.
The directors of Sumter National Bank are William H. Nock, Alvis J. Bynum,
Ernest C. Brown, Jr., Porter L. Thompkins, Jr., Ben E. Griffith, Jr., Phil P.
Leventis, Joseph T. McElveen, Jr., Charles E. Fienning, T. D. Williams, III.
Orangeburg National Bank serves the Orangeburg, South Carolina area, and Sumter
National Bank serves the Sumter, South Carolina area, as independent,
locally-managed commercial banks emphasizing high quality, responsive and
personalized service. Both banks offer a broad range of consumer and commercial
banking services. See "INFORMATION ABOUT CBI AND THE BANKS -- CBI, Orangeburg
National Bank and Sumter National Bank."
The organizers and proposed directors of Florence National Bank are Murray
L. Garber, Richard L. Havekost, James R. Livingston, Phillip D. Lowe, Jesse A.
Nance, J. Erwin Paxton, Hugo S. Sims, Jr., William W. Traynham and Wm. Reynolds
Williams. Jesse A. Nance, is the proposed president of Florence National Bank.
Upon commencement of business, the deposit accounts of Florence National Bank
will be insured by the FDIC up to the maximum amount permitted by law. Florence
National Bank will serve the Florence, South Carolina area as an independent,
locally-managed commercial bank emphasizing high quality, responsive and
personalized service. See "INFORMATION ABOUT CBI AND THE BANKS -- Florence
National Bank."
7
<PAGE>
OFFERING AND METHOD OF SUBSCRIPTION
The Offering
CBI is offering hereby up to 300,000 shares of CBI Common Stock at the
Purchase Price. The Purchase Price per share of the CBI Common Stock as to a
particular subscriber whose subscription is accepted by CBI shall be the closing
price per share of the CBI Common Stock on the American Stock Exchange (the
"AMEX") on the business day immediately preceding the date on which such
subscriber's fully executed subscription agreement together with funds
representing the subscription price are received by CBI.
The minimum individual purchase pursuant to this offering is the number of
whole shares that may be purchased for $1,000 at the Purchase Price, and the
maximum is the number of whole shares that may be purchased for $200,000 at the
Purchase Price. CBI reserves the right to alter the individual minimum and
maximum purchase amounts should conditions so warrant and specifically reserves
the right to approve purchases of more than $200,000. Subscribers should be
aware that beneficial ownership of more than 10% of the outstanding Common Stock
of CBI would obligate the beneficial owner to comply with certain reporting and
disclosure requirements of federal banking and securities laws.
At least $4,500,000 is necessary for CBI to purchase the stock of and
capitalize Florence National Bank. CBI has previously sold 43,650 shares of
restricted CBI Common Stock to the organizers of Florence National Bank.
Proceeds of that offering were $537,431. Management of CBI expects to sell
additional restricted shares to organizers of Florence National Bank and
estimates that total proceeds of the sales to organizers will be approximately
$640,000. CBI intends to use the proceeds of the sales to organizers, together
with proceeds of this offering, to purchase the stock of and capitalize Florence
National Bank. If fewer than $3,860,000 of shares are sold hereby, CBI plans to
borrow the additional funds necessary in addition to proceeds of this offering
and the prior sales to capitalize the bank. CBI may also decide to borrow the
funds necessary to capitalize the bank or to commence construction of the bank's
offices prior to completion of this offering. In such case, CBI would use
proceeds of this offering to repay as much of such borrowings as possible.
Subscription funds will not be held in an escrow account. Upon acceptance
of a subscription by CBI and issuance by the Transfer Agent of certificates for
the shares purchased, a subscriber will become a shareholder of CBI. If the
subscription is rejected in whole or in part, the subscription funds
attributable to the rejected portion will be promptly returned to the
undersigned. No interest will be paid on any such returned funds.
Although the purpose of this offering is to raise funds to capitalize
Florence National Bank, opening of Florence National Bank is not a condition to
a subscriber's obligations under the Subscription Agreement. Once a subscription
is accepted by CBI and a certificate representing the shares purchased is
issued, the subscriber will become a shareholder of CBI. Although CBI
anticipates that all regulatory approvals will be received and Florence National
Bank will open for business, there can be no assurance to that effect. If
Florence National Bank does not open for business, subscribers whose
subscriptions have been accepted by CBI will nonetheless become shareholders of
CBI and will not be entitled to any refund of their subscription funds.
Method of Subscription
The purchase price per share (the "Purchase Price") of the Common Stock as
to a subscription will be the closing price per share of the Common Stock on the
AMEX on the business day immediately preceding the date on which a fully
executed subscription agreement together with cash, check, draft or money order
representing the subscription price are received by CBI. The date a subscription
is received by CBI will be the date of actual physical receipt by CBI.
Accordingly, if subscribers wish to be assured that their Purchase Price will be
a particular day's closing price, they should hand deliver their fully executed
subscription agreement to CBI, together with cash, check, draft or money order
on the following day. Hand or courier delivery may be made to any one of the
following addresses:
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Community Bankshares, Inc. Community Bankshares, Inc. Community Bankshares, Inc.
791 Broughton Street Sumter Stock Sales Office Florence Stock Sales Office
Orangeburg, South Carolina 29115 409 North Salem Avenue 181 E. Evans Street
Sumter, South Carolina 29150 BTC - 051
c/o Porter L. Thompkins, Jr., C.P.A. Florence, South Carolina 29506
</TABLE>
Subscribers may also mail their subscriptions to:
Community Bankshares, Inc.
Post Office Drawer 2086
Orangeburg, South Carolina 29116
Each business day, CBI will post in its main offices and in the Sumter
Stock Sales Office and the Florence Stock Sales Office the closing price of the
Common Stock on the AMEX on the immediately preceding business day.
Upon receipt by CBI at one of the locations above of a fully executed
subscription agreement together with cash, check, draft or money order
representing the subscription price, CBI will mark the subscription agreement
"Received" and note the date thereon. The Purchase Price of the shares
subscribed will be the closing price of the Common Stock on the AMEX on the
business day immediately preceding the date as to which the subscription
agreement is marked received. CBI shall make the determination of the date on
which a subscription agreement is deemed received. Acknowledgement of receipt of
a subscription agreement in the manner set forth above shall not, however,
constitute acceptance of the subscription. The subscription will only be deemed
accepted when acceptance is noted thereon in writing by the President or
Chairman of the Board of CBI. Promptly upon such acceptance, CBI shall instruct
its transfer agent to issue the number of whole shares that may be purchased at
the Purchase Price with the subscription funds submitted. CBI will promptly
return any excess subscription funds to subscriber.
CBI reserves the right to reject any offer of subscription in whole or in
part or to cancel acceptance of any subscription offer in whole or in part until
the date the shares purchased hereunder are issued. If all or part of a
subscription is not accepted or is cancelled by CBI, all funds relating to the
unaccepted or cancelled portion shall be promptly returned to the subscriber
without interest thereon. Only the President or the Chairman of the Board of CBI
has the authority to accept or reject a subscription, or portion thereof, on
behalf of CBI.
Plan of Distribution
This offering is being made to the public through the executive officers
and directors of CBI, Orangeburg National Bank and Sumter National Bank and the
proposed officers and directors of Florence National Bank. No commission or
other sales compensation will be paid to any officer or director of CBI,
Orangeburg National Bank or Sumter National Bank or any proposed officer or
director of Florence National Bank in connection herewith.
Expiration Date or Extension of the Offering
CBI will offer shares hereunder until the earlier of (1) receipt by CBI of
subscriptions for an aggregate of 300,000 shares; (2) a decision by CBI to
terminate the offering; or (3) June 30, 1998 (the "Expiration Date"). While CBI
intends to use its best efforts to sell all of the shares offered hereby, the
offering may be terminated without notice before all such shares are sold and
before June 30, 1998.
CBI reserves the right, at any time and from time to time, to extend the
Expiration Date, but not beyond September 30, 1998. Extension of the Expiration
Date might cause an increase in CBI's organizational and pre- operating expenses
and in the expenses incurred in connection with this offering.
9
<PAGE>
Issuance of CBI Common Stock Certificates
Certificates representing CBI Common Stock offered hereby are expected to
be issued by CBI's transfer agent promptly after acceptance of each
subscription.
USE OF PROCEEDS
By CBI
No minimum amount is required to be raised pursuant to this offering. The
net proceeds to CBI from this offering would be approximately $4,450,000, if all
shares offered are sold, after deduction of offering expenses estimated at
approximately $50,000. Upon receipt of final regulatory approvals, CBI will use
up to $3,860,000 of the net proceeds of this offering, together with the
$640,000 of proceeds from the sales of restricted Common Stock to organizers of
Florence National Bank, to purchase all of the common stock of Florence National
Bank. The balance of such proceeds, if any, will be retained by CBI to pay
organizational and preopening expenses of Florence National Bank, and for
general corporate purposes.
If net proceeds of at least $3,860,000 are not raised by this offering, CBI
plans to borrow the money necessary to fund the shortfall between (a) proceeds
of this offering and the sales to the organizers of Florence National Bank, and
(b) $4,500,000. CBI may also decide to borrow the funds necessary to capitalize
the bank or to commence construction of the bank's offices prior to completion
of this offering. In such case, CBI would use proceeds of this offering to repay
as much of such borrowings as possible. CBI has negotiated a commitment with
afinancial institution to fund such borrowings. The interest rate on the loan
would be LIBOR plus 2.25%. Monthly payments of interest only would be required
for a period of one year. The loan would be amortized over ten years and would
be due in full seven years from the date of the loan. The terms of the loan
would require CBI to pledge as security a portion of its stock in Orangeburg
National Bank, limit CBI's ability to pay dividends under some circumstances and
require CBI to maintain certain financial ratios.
Any borrowings by CBI to fund a shortfall between proceeds of this offering
and the $4,500,000 required by the OCC to capitalize Florence National Bank will
be subject to the requirement of the Federal Reserve that CBI demonstrate the
ability to reduce the long-term debt to equity ratio to 30 percent or less
within twelve years. CBI expects that it could meet these requirements even if
it borrowed the entire difference between $4,500,000 and the $640,000 expected
to be invested by the organizers of Florence National Bank.
If Florence National Bank does not open for business, CBI will use proceeds
of this offering for general corporate purposes.
By Florence National Bank
Of the $4,500,000 received by Florence National Bank from the sale of its
stock to CBI, approximately $660,000 is expected to be used to build the bank's
offices, and approximately $400,000 is expected to be used for equipment and
furnishings.
The balance of the proceeds from the sale of the stock of Florence National
Bank to CBI is estimated to be $3,390,000. These funds will be commingled with
funds obtained by Florence National Bank from other sources, principally
expected to be customer deposits, and will be employed in banking operations,
including making loans to customers, making investments and, until operations
begin to generate income, paying current operating expenses (including
management salaries). The amount and manner in which these funds will be used
will be subject to the discretion of management and policies of Florence
National Bank and CBI in light of current market conditions and, therefore,
cannot now be usefully predicted.
10
<PAGE>
CONSOLIDATED CAPITALIZATION
The following table sets forth the actual capitalization of CBI as of
September 30, 1997, and the capitalization of CBI as adjusted to give effect to
the sale of 52,000 shares of CBI Common Stock (the number of shares expected to
be purchased by the Florence National Bank organizers), and 352,000 shares of
CBI Common Stock (the total number of shares offered in the present offering
plus the number of shares expected to be purchased by the Florence National Bank
organizers).
Florence National Bank is not expected to begin operations prior to July 1,
1998. Accordingly, the "As Adjusted" amounts reflect the effect of estimated
organizational and pre-opening expenses to July 1, 1998.
<TABLE>
<CAPTION>
Actual As Adjusted(1)
------ --------------
If 52,000 If 352,000
September 30, 1997 shares sold(2) shares sold(3)
------------------ -------------- --------------
Long term Debt
Stockholders' Equity
Common Stock
No par value, 12,000,000 shares
authorized;
<S> <C> <C> <C>
2,686,476 shares outstanding................
2,986,476 shares outstanding................
Total Capital.................................
</TABLE>
(1) Assuming a Purchase Price of $______________ per share, which was the
closing price of the CBI Common Stock on _________. As described herein,
the daily Purchase Price of the CBI Common Stock may fluctuate.
Accordingly, the price set forth in this table is not necessarily the price
at which any or all shares will be sold. See "OFFERING AND METHOD OF
SUBSCRIPTION -- Method of Subscription" for information about the Purchase
Price.
(2) Assumes that only the shares that have been and are expected to be
purchased by the organizers of Florence National Bank are sold, and that
the additional amount needed to capitalize Florence National Bank at
$4,500,000 is borrowed.
(3) Assumes that offering expenses required to be incurred are $50,000, the
maximum amount estimated, and that no borrowings were made to capitalize
Florence National Bank. Should fewer than $3,700,000 of shares be sold and
should CBI borrow funds to capitalize Florence National Bank, the adjusted
figures for both the numbers of shares outstanding and the amount of Common
Stock and Total Stockholders' Equity would be reduced.
MARKET PRICE OF COMMON STOCK
AND DIVIDENDS
The information set forth under "Market for the Corporation's Common Stock
and Related Security Holder Matters" on pages 12 and 13 of CBI's Annual Report
to Shareholders for the year ended December 31, 1996 (the "1996 Annual Report"),
which is incorporated by reference into the Annual Report on Form 10-KSB (the
"1996 10-KSB") included herewith as Appendix A, is incorporated by reference
herein.
11
<PAGE>
During 1997, the range of quarterly high and low prices for the CBI Common
Stock on the AMEX was as follows:
Quarter ended High Low
------------- ---- ---
March 31, 1997 $ 7.37 $ 5.93
June 30, 1997 14.12 7.18
September 30, 1997 19.50 14.37
December 31, 1997 15.25 13.25
INFORMATION ABOUT CBI AND THE BANKS
CBI, Orangeburg National Bank and Sumter National Bank
The following information set forth on the indicated pages of the 1996
10-KSB is incorporated herein by reference and provided herewith:
Item 1. "Description of Business -- Form of Organization," "--Business of
Banking," "--Competition," and "--Dependence on Major Customers,"
pages 69 through 71;
Item 2. "Description of Property," page 80; and
Item 3. "Legal Proceedings," page 80.
The following information set forth on the indicated pages of the 1996
Annual Report is incorporated herein by reference and provided herewith:
"Management's Discussion and Analysis of financial Condition and Results of
Operations," pages 13 through 37.
The information set forth under Item 2. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 9 through 18
and the Consolidated Financial Statements of CBI on pages 3 through 7 of CBI's
Amended Quarterly Report on Form 10-QSB for the period ended September 30, 1997,
is also incorporated herein by reference and provided herewith.
Recent Developments
On January 22, 1998, CBI released its financial summary of operating
results for the year ended December 31, 1997. Net income increased 62% to
$1,216,000, compared to $750,000 during 1996. Earnings per share increased to
$.46 per share, compared to $.31 per share the prior year. At December 31, 1997,
on a consolidated basis, CBI had total assets of $134.7 million, net loans of
$91.2 million, deposits of $117.3 million, and stockholders' equity of $13
million, compared to $105.4 million, $67.9 million, $89.8 million, and $12,1
million, respectively, at December 31, 1996. The increase in 1997 net income was
attributable primarily to a 20% increase in profits at Orangeburg National Bank
and a 52% improvement in operating losses at Sumter National Bank.
Florence National Bank
On November 7, 1997, the OCC granted the organizers of Florence National
Bank preliminary approval to organize Florence National Bank. If the conditions
to final approval are met, Florence National Bank will engage in the commercial
banking business in Florence, South Carolina.
Background of Organization
Substantially all of the large financial institutions headquartered in
South Carolina have been acquired by regional bank holding companies over the
past five years. As a result, South Carolina and its citizens have lost much
12
<PAGE>
of the ability to control financial resources and decisions relating to
allocations of those resources. More and more frequently, underwriting decisions
are being made outside South Carolina by entities and people not familiar with
the borrowers or the communities to be served. In many instances, banking
customers have become frustrated with the delays attendant to such external
decision making and with the lower levels of personal services occasioned by
consolidation and reductions in personnel.
In the face of encroaching bank regionalism, Orangeburg National Bank was
organized in 1987 to take advantage of perceived opportunities for a community
bank offering local decision making, highly personalized service and a
commitment to the well-being and advancement of the communities served. The
perceived opportunity proved to be a reality and Orangeburg National Bank has
successfully attracted a substantial loan and deposit base awayfrom regional
competitors. Although these competitors have greater financial and managerial
resources than Orangeburg National Bank, management of Orangeburg National Bank
believes that it compensates for these differences by offering a high level of
personal service and by responding quickly and efficiently to customer needs.
Based on the success of Orangeburg National Bank as a community-based
financial institution, in late 1994, CBI began assessing the possibilities for,
and feasibility of, organizing another community bank. In particular, CBI noted
the anticipated void expected to be created in Sumter, South Carolina, as a
result of the acquisition by Synovus Financial Corp., of Sumter's only
locally-headquartered financial institution, The National Bank of South
Carolina. The National Bank of South Carolina had been a significant force among
independent banks in South Carolina since it was chartered in 1905, and
management of CBI believed that its acquisition would create opportunities for a
new community bank. Management of CBI, therefore, approached several Sumter-area
businessmen with the idea of organizing a new bank in Sumter. The approach was
enthusiastically received by persons who agreed that the acquisition of The
National Bank of South Carolina would be likely to create a void that could be
filled by a new community bank. With the assistance of CBI, the Sumter
organizers initiated organization of Sumter National Bank, which was ultimately
chartered and opened for business on June 10, 1996, as a wholly-owned subsidiary
of CBI.
Sumter National Bank is confirming the viability of the community bank
concept. The Sumter bank opened for business on June 10, 1996, and by December
31, 1997, after a year and a half of operation, the bank had achieved a
profitable fourth quarter with $25 million in loans, $30 million in assets, and
$27 million in deposits.
In light of the continuing growth and success of Orangeburg National Bank
and Sumter National Bank, management of CBI has continued to look for other
opportunities to expand its community bank network. Management observed that
Florence, South Carolina, while serviced by a number of financial institutions,
had only one locally organized bank. Consequently, management of CBI began to
investigate more closely the potential opportunities for a community-based bank
in Florence. Since management of CBI began its investigation of the Florence
market, the one locally organized financial institution has been merged into a
Charleston-based institution and another bank headquartered in nearby
Timmonsville with offices in Florence has announced plans to be acquired by a
North Carolina bank. CBI believes that the loss to the community of these local
institutions will create an even better opportunity to organize and operate
successfully a new community bank.
Although management of CBI is aware that another community bank is being
organized in the Florence market area, management believes that the market can
support two community banks.
Organizers of Florence National Bank
Set forth below is information about the Florence businessmen who are the
organizers of Florence National Bank. Upon completion of the organization of
Florence National Bank, CBI plans to elect Messrs. Williams and Nance and one
other organizer (to be designated by the organizers) to the Board of Directors
of CBI. Such persons are expected to be elected by the CBI Board to serve until
the first annual meeting of shareholders of CBI following completion of
organization of Florence National Bank, at which annual meeting such persons are
expected to be nominated for reelection by the shareholders of CBI.
13
<PAGE>
Murray L. Garber has been Vice President-Finance of Young Pecan Company in
Florence, South Carolina since October of 1989. Mr. Garber is a licensed
certified public accountant and graduated from the Citadel in Charleston, South
Carolina in 1968 with a B.S. in business administration. Mr. Garber is a member
of the Greater Florence Chamber of Commerce, the Pee Dee Area Citadel Club,
various professional associations, and St. John's Episcopal Church.
Richard L. Havekost is a principal in Raldex, Inc., which invests in motel
properties. From 1967 to 1993, Mr. Havekost was employed by Nucor Corp. in
various capacities, including as Vice President of Nucor Corp. and as General
Manager of the Florence, South Carolina Division of Nucor. Mr. Havekost is a
licensed professional engineer and graduated from the University of Nebraska in
1963 with a B.S. in civil engineering. Mr. Havekost is a member of the Florence
Tax Advisory Committee, the Greater Florence Chamber of Commerce (Vision 2000
Committee), and St. Luke's Lutheran Church.
James R. Livingston has been the Owner-Manager of Palmetto Tire Service
since 1988. Mr. Livingston attended Eastern Kentucky University. Mr. Livingston
is on the boards of the Florence Rotary club, the Florence Chamber of Commerce,
and Florence County Progress, Inc. He is a member of the National Tire Dealers
and Retreaders Association. He is affiliated with Calvary Baptist Church.
Phillip D. Lowe is the Owner, President and a physical therapist with
Lowe's Therapy which provides physical and occupational therapy services in
Florence, South Carolina. Mr. Lowe is a licensed physical therapist and
graduated from the Medical University of South Carolina in 1982 with a B.S. in
physical therapy. Mr. Lowe is a member of various professional organizations,
Ducks Unlimited and numerous other wildlife related organizations, and First
Baptist Church. He is also an adjunct faculty member at Florence-Darlington
Technical College.
Jesse A. Nance is the proposed President of Florence National Bank. Mr.
Nance has served as Vice President of CBI since June of 1997. Prior to that
time, Mr. Nance was a vice president of First Union National Bank of South
Carolina from November of 1989 until June of 1997, when he left to become an
organizer of Florence National Bank. Mr. Nance graduated from the University of
South Carolina with a B.S. in Business Administration in 1976. Mr. Nance is also
a graduate of the Graduate School of Banking of the South. Mr. Nance is on the
Board of the Pee Dee Small Business Development Center, and is a member of the
Greater Florence Chamber of Commerce, the United Way, the Florence Rotary Club,
the Florence County Progress, various wildlife and conservation organizations,
and First Presbyterian Church.
J. Erwin Paxton has been President of Horne Ford, Inc. and President of Pee
Dee Lease Rental Company since 1984. Mr. Paxton has also been Vice President of
Carolina Car Rental since 1984. Mr. Paxton graduated from Wake Forest University
in 1973 with a Bachelor of Business Administration. Mr. Paxton is a member of
the Board of Directors of McLeod Regional Medical Center and Chairman of the
McLeod Regional Medical Center Foundation. Mr. Paxton is also on the Board of
Florence - Darlington Technical College and a member of the Greater Florence
Chamber of Commerce and Central United Methodist Church.
Wm. Reynolds Williams has been associated with Willcox, McLeod, Buyck &
Williams, P.A., a Florence law firm, since 1977, and has been Managing Partner
of the firm since 1990. Mr. Williams graduated from the University of Virginia
in 1967 with a B.A. and from the University of South Carolina School of Law in
1973 with a J.D. Mr. Williams is on the Board of and President of the Florence
Little Theater. Mr. Williams is also a member of the Board of Directors of the
Employers Association, the Francis Marion Future Fund, was a former President of
the Florence Rotary Club, and is Vice-Chairman of the Greater Florence Chamber
of Commerce. He has served on the School Board at St. Anthony's, as Chairman of
the Florence County Election Commission, on the Board of Directors of Florence
County Progress, and several times as President of the Florence County as well
as the South Carolina Republican Party Conventions. Mr. Williams is the
President of the South Carolina chapter of the Federalist Society and a member
of the South Carolina Bar, Defense Research Institute, and the Executive
Committee of the South Carolina Defense Trial Attorneys Association. He also
serves on the State Board for Technical and Comprehensive Education, 1993-2000.
Information about Messrs. Sims and Traynham, who are also organizers of
Florence National Bank is set forth under "MANAGEMENT OF CBI".
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Stock Purchase Commitments by Organizers of Florence National Bank
When Orangeburg National Bank was organized in 1987, the organizers decided
it was necessary for each of them to make a financial commitment to the success
of the bank to ensure that they would have a strong incentive to act in
accordance with the long term best interests of the bank. Accordingly, each
organizer was required to invest at least $100,000 in the bank's stock.
This same philosophy was carried forward into the organization of Sumter
National Bank and is being carried forward into organization of Florence
National Bank. Accordingly, each of the organizers of Florence National Bank
committed to make a substantial investment in CBI Common Stock. Pursuant to a
limited offering of restricted CBI common stock, the organizers of Florence
National Bank have purchased an aggregate of 43,650 shares of restricted CBI
Common Stock for an average price of $12.31 per share, or an aggregate of
$537,481. A total of 52,000 shares are expected to be purchased in the limited
offering by the organizers of Florence National Bank for a price per share equal
to $2.00 less than the closing price of the CBI Common Stock on the AMEX on the
business day immediately preceding their respective purchases, or an aggregate
of approximately $640,000. Each of Messrs. Sims and Traynham already owns at
least $100,000 of CBI stock.
Because the shares of CBI Common Stock being purchased by the organizers of
Florence National Bank have been offered pursuant to exemptions from
registration under the federal and state securities laws, they are "restricted"
securities and may not readily be resold. Such shares generally will be subject
to a one year holding period, and thereafter for an additional year will be
subject to certain restrictions on the number of shares that may be resold
during certain periods of time and to restrictions on the manner in which such
shares may be sold. During such time, resale of the shares will also be subject
to availability of public information about CBI. Shares acquired pursuant to the
limited offering by organizers of Florence National Bank who become directors of
CBI will also be subject to additional restrictions on sale.
Market Area
The primary market area to be served by Florence National Bank will be the
County of Florence, South Carolina. Florence County is located in the
northeastern part of South Carolina and is bordered on the east by Marion and
Dillon Counties, on the north by Darlington County, on the west by Lee, Sumter,
and Clarendon Counties, and on the south by Williamsburg County. The Organizers
of Florence National Bank believe the proposed location of the bank near the
intersection of Hoffmeyer Road and West Evans Street offers excellent business
opportunities. The proposed location is in a busy commercial section of
Florence, near the Florence Mall and adjacent to the local K-Mart, and Hoffmeyer
Road provides easy access to a number of residential areas.
The local economy of Florence County enjoys a well-balanced industrial,
agricultural and manufacturing base, and the City of Florence ranks as one of
the top metropolitan areas for retail sales per household in the state. In the
past five years, Florence County has experienced significant growth in new and
existing industries. New industries that have located in Florence County include
Roche Carolina Inc. (RCI), a subsidiary of Hoffman-LaRoche, Inc. (pharmaceutical
and chemical manufacturer based in Basel, Switzerland), Nan Ya Plastics and
Honda of South Carolina Mfg., a subsidiary of American Honda Motor Co. Blue
Cross and Blue Shield of South Carolina and Amana Corporation have also
significantly expanded their Florence County operations.
Florence County was named by the U.S. Department of Commerce and World
Trade Magazine as the fastest growing export market in the U.S. during 1995.
With the County's proximity to the City of Charleston, one of the east coast's
leading ports, it is becoming among the nation's export leaders. Additionally,
the Economic Development Authority of South Carolina is working with the City of
Florence, South Carolina Research Authority and Francis Marion University to
establish a Florence Research Park adjacent to the Francis Marion University
campus. This park will be part of the state research park system and will allow
the County to attract research- oriented investments.
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<PAGE>
Florence County also has good higher and technical educational resources.
Florence-Darlington Technical College is a two-year, independent technical
college. Through South Carolina's technical college system, new or existing
industries in South Carolina can access resources to implement employee
training. This system has been recognized as a model for the nation and is
credited as a major asset to the state's economic development efforts by major
new industries like Roche Carolina, Nan Ya Plastics and Honda.
Francis Marion University is a four-year, comprehensive university founded
in 1970. FMU offers four undergraduate degrees in twenty-seven majors in both
the liberal arts and professional programs, and cooperates with other colleges
and universities to offer courses leading to degrees at those institutions. A
four-year program of the Reserve Officer Training Corps (ROTC) is also available
at FMU.
Competition
South Carolina law permits statewide branching by banks and savings and
loan associations, and many financial institutions have branch networks. South
Carolina law also permits regional interstate banking, and five of the larger
commercial banks in the Florence area are affiliated with regional banking
groups. Twenty-six financial institutions are represented in Florence County,
including 14 banks ranging in total market area deposits from $240 million to
$6.5 million, 2 savings and loan associations with market area deposits of $127
million and $3.9 million, and 10 credit unions with market area deposits ranging
from $27.6 million to $207,000. (Source: Sheshunoff - The Branches of South
Carolina, 1997)
Banks generally compete with other financial institutions through the
banking products and services offered, the pricing of services, the level of
service provided, the convenience and availability of services, and the degree
of expertise and personal concern with which services are offered. It is
anticipated that Florence National Bank will encounter strong competition from
most of the financial institutions in Florence National Bank's extended market
area. In the conduct of certain areas of its banking business, Florence National
Bank will also compete with credit unions, consumer finance companies, insurance
companies, money market mutual funds and other financial institutions, some of
which are not subject to the same degree of regulation and restriction imposed
upon Florence National Bank. Many of these competitors have substantially
greater resources and lending limits than Florence National Bank will have and
offer certain services, such as international banking services and trust
services, that Florence National Bank will not provide initially. Moreover, most
of these competitors have numerous branch offices located throughout the
extended market area, a competitive advantage that Florence National Bank will
not have in the near future. Florence National Bank believes, however, that its
relatively small size will permit it to offer more personalized service than
many of its competitors, which may provide a competitive advantage. Florence
National Bank should also be able to compensate for its lower initial lending
limits by participating larger loans with Orangeburg National Bank and other
institutions.
Services to be Offered
Florence National Bank plans to emphasize local management and commitment
to the industrial and business growth of the Florence area. Florence National
Bank intends to provide personalized banking services, with emphasis on
knowledge of the individual financial needs and objectives of its customers and
an appropriate array of services to meet those needs and objectives.
The services offered are expected to be substantially the same as the
services offered by Orangeburg National Bank and Sumter National Bank, including
the full range of deposit services that are typically available in most banks
and savings and loan associations, such as checking accounts, NOW accounts, and
savings and other time deposits of various types, ranging from daily money
market accounts to longer-term certificates of deposit. The transaction accounts
and time certificates will be tailored to the principal market area at rates
competitive with those offered in the area. In addition, retirement accounts
such as IRA's (Individual Retirement Accounts) will be made available. All
deposit accounts will be insured by the FDIC up to the maximum amount permitted
by law. Florence National Bank intends to solicit these accounts from
individuals, businesses, associations and organizations, and
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government authorities. Although Florence National Bank intends to be
competitive in its efforts to attract deposit accounts, it will not aggressively
seek jumbo certificates of deposit (certificates in amounts greater than
$100,000) and does not intend to accept brokered deposit accounts.
Florence National Bank plans to offer a full range of short- and
intermediate-term commercial and personal loans. Florence National Bank also
plans to originate variable-rate, residential and other mortgage loans for its
own account, and intends to make personal loans directly to individuals for
various other purposes, including purchases of automobiles, mobile homes, boats
and other recreational vehicles, home improvements, education and personal
investments. Commercial loans, secured and unsecured, are expected to be made
primarily to individuals and small and mid-sized businesses operating in and
around Florence County. These loans are expected to be available for general
operating purposes, acquisition of fixed assets, including real estate,
purchases of equipment and machinery, financing of inventory and accounts
receivable, and other business purposes. Although Florence National Bank plans
to take a progressive and competitive approach to lending, it will stress high
quality in its loans.
Florence National Bank may participate in a regional network of automated
teller machines that may be used by its customers in major cities throughout the
Southeast. Florence National Bank plans to offer both VISA and MasterCard brand
credit cards together with related lines of credit. The lines of credit may be
used for overdraft protection as well as a pre-authorized credit for personal
purchases and expenses.
Florence National Bank also plans to provide safe deposit boxes, travelers
checks, direct deposit of payroll and social security checks, and automatic
drafts for various accounts, but does not expect to provide international or
trust banking services in the near future.
Data Processing
CBI will provide computer and item processing services to Florence National
Bank, as well as to Orangeburg National Bank and Sumter National Bank.
Management of CBI expects that this will result in significant cost savings to
all three banks.
Asset and Liability Management
The primary assets of Florence National Bank will consist of the loan
portfolio and investment account. Efforts will be made generally to match
maturities and rates of loans and the investment portfolio with those of
deposits, although exact matching will not be possible. The majority of Florence
National Bank's securities investments are expected to be in marketable
obligations of the United States Government, federal agencies and state and
municipal governments, generally with varied maturities.
Long-term loans are expected to be priced primarily to be interest-rate
sensitive with only a small portion of Florence National Bank's portfolio of
long-term loans at fixed rates. For the foreseeable future, such fixed-rate
loans are not expected to have maturities longer than five years, except in
exceptional cases.
Deposit accounts will represent the majority of the liabilities of Florence
National Bank. These will include transaction accounts, time deposits and
certificates of deposit. Florence National Bank does not intend to aggressively
seek certificates of deposit over $100,000. The maturities of most
interest-sensitive accounts are expected to be six months or less.
Anticipated Growth
Florence National Bank's initial capitalization is expected to be
$4,500,000, which would support Florence National Bank assets of approximately
$56 million, based on current bank regulatory guidelines. See "USE OF PROCEEDS."
Florence National Bank's growth is expected to come primarily from within the
Florence area through
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loan and deposit business generated at Florence National Bank's proposed main
office located in the central business section of Florence.
Premises
The principal offices of Florence National Bank will be located at 2009
Hoffmeyer Road in Florence, South Carolina. CBI has leased this property from an
unaffiliated third party and will transfer its interest in the lease to Florence
National Bank at CBI's cost. The bank building to be located on the site will be
one story with approximately 7,500 square feet, similar to the buildings in
which the main offices of Orangeburg National Bank and Sumter National Bank are
located.
Employees
It is anticipated that Florence National Bank will employ approximately 13
full-time employees during its first year of operations. To the greatest extent
possible, Florence National Bank will employ people experienced in the banking
profession, and efforts will be made to employ people who are natives of the
Florence area or who are knowledgeable about the area.
The foregoing discussion of the proposed business of Florence National Bank
contains forward looking statements with respect to the anticipated business
operations of Florence National Bank. These forward looking statements contain
certain uncertainties since Florence National Bank has not yet commenced
business operations, and may not commence business operations at all if
necessary regulatory approvals are not received. If Florence National Bank opens
for business, actual business operations could differ from the foregoing
description if management of CBI and Florence National Bank determine that
different business strategies are prudent to meet the needs and demands of the
Florence community.
BENEFICIAL OWNERSHIP OF CBI'S COMMON STOCK
Set forth below is information as of December 31, 1997 about persons who
are beneficial owners of 5% or more of CBI's Common Stock.
Number of Shares % of Outstanding
Name and Address Beneficially Owned Common Stock
- ---------------- ------------------ ------------
Hugo S. Sims, Jr. ................. 188,000(1) 6.8%
1158 Moore Road
Orangeburg, S.C. 29115
J. Otto Warren, Jr. ............... 140,899(2) 5.1%
502 Sellers Ave., SE
Orangeburg, S.C. 29115
(1) Includes 50,000 shares owned by Mr. Sims' wife.
(2) Includes 41,091 shares owned by Mr. Warren's wife.
MANAGEMENT OF CBI
The following tables set forth information as of December 31, 1997 about
the persons who currently serve as executive officers and directors of CBI.
There are no family relationships among any of the directors and executive
officers of CBI.
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Stock Ownership of Executive Officers and Directors
The following table sets forth information about (i) the beneficial stock
ownership of executive officers and directors of CBI as of December 31, 1997;
and (ii) the pro forma beneficial stock ownership of such persons after this
Offering. Although some executive officers and directors may decide to purchase
stock in this offering, no specific commitments to do so have been made, and
such persons are not obligated to purchase stock in this offering. Because
executive officers and directors of CBI already own, in the aggregate, over 35%
of the outstanding CBI Common Stock, any purchases by them pursuant to this
offering are expected to be minimal. Such persons may, however, subsequently
decide to purchase more shares in this offering.
<TABLE>
<CAPTION>
December 31, 1997
Actual Pro Forma
------------------------------ ------------------------------------------
% of
Common % of
Stock Common
Number of % of Number of Ownership Stock
Shares Common Shares if 52,000 Ownership
Position Beneficially Stock Beneficially Shares if 352,000
Name in CBI Owned Ownership Owned Sold Shares Sold
- ---- ------ ----- --------- ----- ---- -----------
<S> <C> <C> <C> <C> <C>
E. J. Ayers, Jr Director 77,600(1) 2.8% 77,600 2.8 2.5
Alvis J. Bynum Director 30,157(2) 1.1% 30,157 1.1 1.0
Martha Rose C. Carson Director 55,400 2.0% 55,400 2.0 1.8
Anna O. Dantzler Director 85,000 3.1% 85,000 3.0 2.7
J. M. Guthrie Director; Chairman 126,164(3) 4.6% 126,164 4.5 4.0
Executive Committee
Phil P. Leventis Director 35,098(4) 1.3% 35,098 1.2 1.1
William H. Nock Director 47,740(5) 1.7% 47,740 1.7 1.5
Samuel F. Reid, Jr Director 41,384(6) 1.5% 41,384 1.5 1.3
Hugo S. Sims, Jr Chairman and Chief 188,000(7) 6.8% 188,000 6.7 6.0
Executive Officer
William W. Traynham Director and President 48,498(8) 1.8% 48,498 1.7 1.6
J. Otto Warren, Jr Director 140,899(9) 5.1% 140,899 5.0 4.5
Michael A. Wolfe Director 46,928(10) 1.7% 46,928 1.7 1.5
Russell S. Wolfe, II Director 59,460(11) 2.2% 59,460 2.1 1.9
All executive officers and 982,328 35.7% 982,328 35.00 31.5
directors as a group (10 persons)
</TABLE>
(1) Includes 1,200 shares owned by Nancy R. Ayers, Mr. Ayers' wife; 2,600
shares owned by an IRA for the benefit of Nancy R. Ayers; and 2,600
shares held by Mr. Ayers in an IRA.
(2) Includes 5,504 shares owned by Marjorie F. Bynum, Mr. Bynums' wife;
and 9,000 shares held by Mr. Bynum as trustee for his grandnephews.
(3) Includes 451 shares owned by Lou D. Guthrie, Mr. Guthrie's wife.
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(4) Includes 2,700 shares held by Ellen L. Leventis, Mr. Leventis' wife; 20,000
shares owned by the Dixie Beverage Co. of Sumter Profit Sharing Plan; and
10,000 shares owned by LPT Enterprises, a limited partnership.
(5) Includes 1,218 shares owned by the Nock Family Trust; 263 shares owned by
an IRA for the benefit of Linda H. Nock, Mr. Nock's wife; 35,519 shares
held by J. C. Bradford & Co., for benefit of Mr. Nock; 2,537 shares held by
Alex Brown & Son; and 8,000 shares subject to qualified stock options that
become exercisable in April 1998.
(6) Includes 13,384 shares held by Mr. Reid as trustee for his minor children;
and 16,000 shares owned by Rosa G. Reid, Mr. Reid's wife.
(7) Includes 50,000 shares owned by Virginia B. Sims, Mr. Sims' wife; and 8,000
shares subject to qualified stock options that become exercisable in April
1998.
(8) Includes 18,471 shares owned jointly with Margaret S. Traynham, Mr.
Traynham's wife; 1,826 shares owned jointly with minor children; 20,000
shares subject to currently exercisable nonqualified stock options; and
8,000 shares subject to qualified stock options that become exercisable in
April 1998.
(9) Includes 41,091 shares owned by Mildred J. Warren, Mr. Warren's wife.
(10) Includes 1,928 shares owned by Joye McGrady Wolfe as custodian for minor
children; 20,000 shares subject to currently exercisable nonqualified stock
options; and 8,000 shares subject to qualified stock options that become
exercisable in April 1998.
(11) Includes 5,075 shares owned by Mary F. Wolfe, Mr. Wolfe's wife.
Business Experience of Executive Officers and Directors for the Past Five Years
The table below sets forth the age, business experience for the past five
years, and term in office for each of the directors and executive officers of
CBI. With the exception of Messrs. Bynum, Leventis and Nock, each of the
directors of CBI is also a director of Orangeburg National Bank. Messrs. Bynum,
Leventis and Nock are also directors of Sumter National Bank.
<TABLE>
<CAPTION>
Director Term Business experience
Name, Address (and age) Since(1) Expires during the past 5 years
- ----------------------- -------- ------- -----------------------
<S> <C> <C> <C>
E. J. Ayers, Jr. (65) 1987 2000 President, C. M. Dukes Oil Co., oil distributor
Orangeburg, S.C. and auto parts supplier; farmer
Alvis J. Bynum (60) 1996 2000 President, Cities Supply Co., waterwork supplies
Sumter, S.C. distributor
Martha Rose C. Carson (62) 1987 1999 President, Marty Rae, Inc., apparel and
Orangeburg, S.C. furniture retailers
Anna O. Dantzler (58) 1994 1998 Retired since 1989; former customer service
Orangeburg, S.C. representative for Orangeburg National Bank.
J. M. Guthrie (70) 1987 1999 President, Superior Motors, Inc., car dealership
Orangeburg, S.C.
William H. Nock (52) 1996 1998 President and Chief Executive Officer, Sumter
Sumter, S.C. National Bank since June 1996; Senior Vice
President, Finance, Carolina First Bank, April 1995 -
July 1995; President and Chief Executive Officer,
Aiken County National Bank, 1992 - April 1995
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Phil P. Leventis (53) 1996 1999 President and Chief Executive Officer, Dixie
Sumter, S.C. Beverage Company, wholesale beer distributor;
member of the South Carolina State Senate; Chairman
of the Board of Directors of Sumter National Bank
since June 1996.
Samuel F. Reid, Jr. (48) 1994 1998 Attorney, Horger, Barnwell & Reid
Orangeburg, S.C.
Hugo S. Sims, Jr. (76) 1987 2000 Chairman of the Board of Directors and
Chief Executive Officer of CBI.
William W. Traynham (42) 1992 1998 President of CBI
Orangeburg, S.C.
J. Otto Warren, Jr. (70) 1987 2000 President, Warren and Griffin Lumber Co., Inc.
Orangeburg, S.C. and Home Builder's Supply Co., Inc., builders'
supply and lumber manufacturer
Michael A. Wolfe (40) 1992 1999 President and Chief Executive Officer of Orangeburg
Orangeburg, S.C. National Bank
Russell S. Wolfe, II (79) 1987 1999 Secretary, Lenaire F. Wolfe Co., heating and air
Orangeburg, S.C. conditioning; Chairman of the Board of Directors of
Orangeburg National Bank.
</TABLE>
- ------------------------------------------------------
(1) Includes service as Director of Orangeburg National Bank prior to formation
of CBI in 1992.
Election of Florence National Bank Organizers to the CBI Board of Directors
Upon completion of the organization of Florence National Bank, CBI plans to
elect Messrs. Williams and Nance and one other organizer (to be designated by
the organizers) to the Board of Directors of CBI. Such persons areexpected to be
elected by the CBI Board to serve until the first annual meeting of shareholders
of CBI following completion of organization of Florence National Bank, at which
annual meeting such persons are expected to be nominated for reelection by the
shareholders of CBI.
DESCRIPTION OF CBI COMMON STOCK
CBI is a South Carolina corporation which was organized to become the
holding company for Orangeburg National Bank. As such, the rights of
shareholders and other matters relating to the stock of CBI are controlled by
South Carolina law.
Capitalization. CBI is authorized to issue 12,000,000 shares of common
stock (no par value). The common stock has unlimited voting rights and is
entitled to receive the net assets of CBI upon dissolution.
Dividends. Subject to certain state and federal law and federal regulatory
restrictions, payment of dividends on the common stock is solely at the
discretion of the Board of Directors. See "SUPERVISION AND REGULATION -- Payment
of Dividends."
Voting Rights. In general, each holder of CBI common stock is entitled to
one vote per share and to the same and identical voting rights as other holders
of CBI common stock. In the election of directors, each shareholder has the
right to vote the number of shares owned by him on the record date for as many
persons as there are
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directors to be elected. Cumulative voting is not permitted. Absence of
cumulative voting makes it more difficult to effect a change in the board of
directors.
Mergers, Consolidations, Exchanges, Sales of Assets or Dissolution. CBI's
Articles of Incorporation (the "Articles") provide that with respect to any plan
of merger, consolidation or exchange or any plan for the sale of all, or
substantially all, the property and assets, with or without the good will, of
CBI or any resolution to dissolve CBI, which plan or resolution shall not have
been adopted by the affirmative vote of at least two thirds of the full board of
directors, such plan or resolution must be approved by the affirmative vote of
holders of 80% of the outstanding shares of CBI. If at least two-thirds of the
full board of directors approve any such plan or resolution, the plan or
resolution need only be approved by the affirmative vote of holders of
two-thirds of the outstanding shares of CBI. Consequently, unless two-thirds of
the directors favor such a plan or resolution, it may be very difficult to
effect any such transaction.
Classified Board of Directors. The Articles provide that there shall be not
less than nine nor more than 24 directors who shall be divided into three
classes, each class to be as nearly equal in number as possible. At each annual
shareholders' meeting, directors constituting approximately one-third of the
members of the Board of Directors are chosen for terms of three years to succeed
those directors whose terms expire. Existence of a classified board makes it
more difficult to effect a change in control because it would normally require
at least two elections to gain a majority representation on the board, and three
elections to change the entire board.
Nomination of Directors. The Articles provide that no person shall be
eligible to be elected a director of CBI at a meeting of shareholders unless
that person has been nominated by a shareholder entitled to vote at such meeting
by giving written notice of such nomination to the secretary of the Corporation
at least thirty days prior to the date of the meeting.
Removal of Directors. The Articles provide that an affirmative vote of 80%
of the outstanding shares of CBI shall be required to remove any or all of the
directors without cause.
Duty of Directors. The Articles provide that when evaluating any proposed
plan of merger, consolidation, exchange or sale of all, or substantially all, of
the assets of CBI, the board of directors shall consider the interests of the
employees of CBI and the community or communities in which CBI and its
subsidiaries, if any, do business in addition to the interests of CBI's
shareholders. Absent this provision, under existing common law, directors would
be required to give paramount consideration with respect to such matters to the
best interests of shareholders.
Preemptive Rights. Shareholders of CBI do not have preemptive rights with
respect to the issuance of additional shares, options or rights of any class of
CBI stock. As a result, the directors may sell additional authorized shares of
CBI common stock without first offering them to existing shareholders and giving
them the opportunity to purchase sufficient additional shares to prevent
dilution of their ownership interests.
Amendment to Articles of Incorporation. Unless such amendment shall have
been approved by the affirmative vote of at least two thirds of the full board
of directors, no amendment to the Articles which amends, alters, repeals or is
inconsistent with any of provisions of the Articles described in the six
paragraphs above or the provisions relating to no cumulative voting above, shall
be effective unless it is approved by the affirmative vote of 80% of the
outstanding shares of CBI. If two thirds of the full board of directors approve
such an amendment, the amendment need only be approved by holders of two thirds
of the outstanding shares of CBI.
Assessment. All shares of Common Stock, upon issuance and receipt of the
consideration for their issuance, will be fully paid and nonassessable.
Conversion; Redemption; Sinking Fund. None of the CBI shares issued or
proposed to be issued pursuant to this offering is convertible, has any
redemption rights or is entitled to any sinking fund.
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<PAGE>
Quorum. One-third of the shares entitled to vote constitutes a quorum at
any meeting of shareholders.
Statutory Matters.
Business Combination Statute. The South Carolina business combinations
statute provides that a 10% or greater shareholder of a resident domestic
corporation cannot engage in a "business combination" (as defined in the
statute) with such corporation for a period of two years following the date on
which the 10% shareholder became such, unless the business combination or the
acquisition of shares is approved by a majority of the disinterested members of
such corporation's board of directors before the 10% shareholder's share
acquisition date. This statute further provides that at no time (even after the
two-year period subsequent to such share acquisition date) may the 10%
shareholder engage in a business combination with the relevant corporation
unless certain approvals of the board of directors or disinterested shareholders
are obtained or unless the consideration given in the combination meets certain
minimum standards set forth in the statute. The law is very broad in its scope
and is designed to inhibit unfriendly acquisitions but it does not apply to
corporations whose articles of incorporation contain a provision electing not to
be covered by the law. CBI's articles of incorporation do not contain such a
provision. An amendment of the articles of incorporation to that effect will,
however, permit a business combination with an interested shareholder even
though that status was obtained prior to the amendment.
Control Share Acquisitions. The South Carolina corporations law also
contains provisions that, under certain circumstances, would preclude an
acquiror of the shares of a South Carolina corporation who crosses one of three
voting thresholds (20%, 331/3% or 50%) from obtaining voting rights with respect
to such shares unless a majority in interest of the disinterested shareholders
of the corporation votes to accord voting power to such shares.
The legislation provides that, if authorized by the articles of
incorporation or bylaws prior to the occurrence of a control share acquisition,
the corporation may redeem the control shares for their fair value if the
acquiring person has not complied with certain procedural requirements
(including the filing of an "acquiring person statement" with the corporation
within 60 days after the control share acquisition) or if the control shares are
not accorded full voting rights by the shareholders. CBI is not authorized by
its articles or bylaws to redeem control shares pursuant to such legislation.
Indemnification of Directors and Officers. Under South Carolina law, a
corporation has the power to indemnify directors and officers who meet the
standards of good faith and reasonable belief that their conduct was lawful and
in the corporate interest (or not opposed thereto) set forth by statute. A
corporation may also provide insurance for directors and officers against
liability arising out of their positions even though the insurance coverage is
broader than the power of the corporation to indemnify. Unless limited by its
articles of incorporation, a corporation must indemnify a director or officer
who is wholly successful, on the merits or otherwise, in the defense of any
proceeding to which he was a party because he is or was a director against
reasonable expenses incurred by him in connection with the proceeding. CBI's
articles of incorporation do not limit such indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
General. Taken together, the foregoing provisions of the Articles of
Incorporation and South Carolina law favor maintenance of the status quo and may
make it more difficult to change current management, and may impede a change of
control of CBI even if desired by a majority of its shareholders.
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SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under federal
and state law. To the extent that the following information describes statutory
and regulatory provisions, it is qualified in its entirety by reference to such
statutes and regulations. Any change in applicable law or regulation may have a
material effect on the business of CBI and the Banks.
Regulation of Bank Holding Companies
General
As a bank holding company registered under the Bank Holding Company Act
("BHCA"), CBI is subject to the regulations of the Federal Reserve. Under the
BHCA, CBI's activities and those of its subsidiaries are limited to banking,
managing or controlling banks, furnishing services to or performing services for
its subsidiaries or engaging in any other activity which the Federal Reserve
determines to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. The BHCA prohibits CBI from acquiring direct
or indirect control of more than 5% of the outstanding voting stock or
substantially all of the assets of any bank or from merging or consolidating
with another bank holding company without prior approval of the Federal Reserve.
The BHCA also prohibits CBI from acquiring control of any bank operating outside
the State of South Carolina unless such action is specifically authorized by the
statutes of the state where the Bank to be acquired is located.
Additionally, the BHCA prohibits CBI from engaging in or from acquiring
ownership or control of more than 5% of the outstanding voting stock of any
company engaged in a non-banking business unless such business is determined by
the Federal Reserve to be so closely related to banking as to be properly
incident thereto. The BHCA generally does not place territorial restrictions on
the activities of such non-banking related activities.
CBI is also registered under the bank holding company laws of South
Carolina. Accordingly, CBI is subject to regulation and supervision by the State
Board.
A registered South Carolina bank holding company must provide the State
Board with information with respect to the financial condition, operations,
management and inter-company relationships of the holding company andits
subsidiaries. The State Board also may require such other information as is
necessary to keep itself informed about whether the provisions of South Carolina
law and the regulations and orders issued thereunder by the State Board have
been complied with, and the State Board may examine any bank holding company and
its subsidiaries.
Under the South Carolina Bank Holding Company Act (the "SCBHCA"), it is
unlawful without the prior approval of the State Board for any South Carolina
bank holding company (i) to acquire direct or indirect ownership or control of
more than 5% of the voting shares of any bank or any other bank holding company,
(ii) to acquire all or substantially all of the assets of a bank or any other
bank holding company, or (iii) to merge or consolidate with any other bank
holding company.
Obligations of Holding Company to its Subsidiary Banks
Under the policy of the Federal Reserve, a bank holding company is required
to serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("1991 Banking Law"), to
avoid receivership of its insured depository institution subsidiary, a bank
holding company is required to guarantee the compliance of any insured
depository institution subsidiary that may become "undercapitalized" with the
terms of any capital restoration plan filed by such subsidiary with its
appropriate federal banking agency up to the lesser of (i) an amount equal to 5%
of the institution's total assets at the time the institution became
undercapitalized, or (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all applicable capital
standards as of the time the institution
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<PAGE>
fails to comply with such capital restoration plan. Under the BHCA, the Federal
Reserve has the authority to require a bank holding company to terminate any
activity or to relinquish control of a nonbank subsidiary (other than a nonbank
subsidiary of a bank) upon the Federal Reserve's determination that such
activity or control constitutes a serious risk to the financial soundness and
stability of any bank subsidiary of the Bank holding company.
In addition, the "cross-guarantee" provisions of the Federal Deposit
Insurance Act, as amended ("FDIA"), require insured depository institutions
under common control to reimburse the FDIC for any loss suffered or reasonably
anticipated by either the Savings Association Insurance Fund ("SAIF") or the
Bank Insurance Fund ("BIF") of the FDIC as a result of the default of a commonly
controlled insured depository institution or for any assistance provided by the
FDIC to a commonly controlled insured depository institution in danger of
default. The FDIC may decline to enforce the cross-guarantee provisions if it
determines that a waiver is in the best interest of the SAIF or the BIF or both.
The FDIC's claim for damages is superior to claims of stockholders of the
insured depository institution or its holding company but is subordinate to
claims of depositors, secured creditors and holders of subordinated debt (other
than affiliates) of the commonly controlled insured depository institutions.
The FDIA also provides that amounts received from the liquidation or other
resolution of any insured depository institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit liabilities of
the institution prior to payment of any other general or unsecured senior
liability, subordinated liability, general creditor or stockholder. This
provision would give depositors a preference over general and subordinated
creditors and stockholders in the event a receiver is appointed to distribute
the assets of the Bank.
Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the OCC is authorized to require payment of the
deficiency by assessment upon the Bank's shareholders', pro rata, and to the
extent necessary, if any such assessment is not paid by any shareholder after
three months notice, to sell the stock of such shareholder to make good the
deficiency.
Capital Adequacy Guidelines for Bank Holding Companies and National Banks
The Federal Reserve has adopted capital adequacy guidelines for holding
companies and banks that are members of the Federal Reserve System subject to
its regulation. For bank holding companies with less than $150 million in
consolidated assets, such as CBI, the guidelines are applied on a bank-only
basis.
Under the guidelines, the minimum ratio of total capital to risk-weighted
assets (including certain off-balance sheet activities, such as standby letters
of credit) is 8%. At least half of the total capital is required to be "Tier 1
capital," principally consisting of common shareholders' equity, noncumulative
perpetual preferred stock, and a limited amount of cumulative perpetual
preferred stock, less certain goodwill items. The remainder ("Tier 2 capital")
may consist of a limited amount of subordinated debt, certain hybrid capital
instruments and other debt securities, perpetual preferred stock, and a limited
amount of the general loan loss allowance. In addition to the risk-based capital
guidelines, the Federal Reserve has adopted a minimum level for the ratio of
Tier 1 capital to average total assets (the "Tier 1 Leverage Ratio"), under
which a bank holding company must maintain a minimum level of Tier 1 capital to
average total consolidated assets of at least 3% in the case of a bank holding
company which has the highest regulatory examination rating and is not
contemplating significant growth or expansion. All other bank holding companies
are expected to maintain a Tier 1 Leverage Ratio of at least 1% to 2% above the
stated minimum. The Federal Reserve's guidelines also require bank holding
companies to maintain minimum ratios of primary capital to total assets and
total capital to total assets of 5.5% and 6.0 percent, respectively. Primary
capital is defined as common stock, perpetual preferred stock, surplus,
undivided profits, contingency and other capital reserves,
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mandatory convertible debt, allowance for possible loan and lease losses,
minority interests in equity of consolidated subsidiaries and perpetual debt
instruments, all subject to various limitations.
The table below summarizes CBI's capital position at December 31, 1996 and
at September 30, 1997.
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Tier 1 capital to total assets 11.31% 11.5%
Tier 1 capital to risk weighted assets 14.17% 17.5%
Total capital to risk weighted assets 15.41% 18.7%
</TABLE>
Orangeburg National Bank and Sumter National Bank are, and Florence
National Bank will be, subject to similar capital requirements adopted by the
OCC. At September 30, 1997, Orangeburg National Bank had a Tier 1 Leverage Ratio
of 7.47% and Sumter National Bank had a Tier 1 Leverage Ratio of 10.66%.
Failure to meet capital guidelines could subject the Banks to a variety of
enforcement remedies, including the termination of deposit insurance by the FDIC
and a prohibition on the taking of brokered deposits.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
However, the management of CBI is unable to predict whether and when higher
capital requirements would be imposed and, if so, at what levels and on what
schedule.
Recent Regulations and Proposals Relating to Capital Adequacy
The 1991 Banking Law required each federal banking agency, including the
Federal Reserve, to revise its risk-based capital standards to ensure that those
standards take adequate account of interest rate risk, concentration of credit
risk and the risks of non-traditional activities, as well as reflect the actual
performance and expected risk of loss on multi-family mortgages. The Federal
Reserve, the FDIC and the OCC have issued a joint rule amending the capital
standards to specify that the banking agencies will include in their evaluations
of a bank's capital adequacy an assessment of the exposure to declines in the
economic value of the bank's capital due to changes in interest rates. The
agencies have also issued a joint policy statement that provides bankers
guidance on sound practices for managing interest rate risk. The policy
statement identifies the key elements of sound interest rate risk management and
describes prudent principles and practices for each element, emphasizing the
importance of adequate oversight by a bank's board of directors and senior
management and of a comprehensive risk management process. The policy statement
also outlines the critical factors that will affect the agencies' evaluation of
a bank's interest rate risk when making a determination of capital adequacy. In
adopting the policy statement, the agencies have asserted their intention to
continue to place significant emphasis on the level of a bank's interest rate
risk exposure and the quality of its risk management process when evaluating a
bank's capital adequacy.
The Federal Reserve, the FDIC, the Office of the Comptroller of the
Currency and the Office of Thrift Supervision have also issued joint rules
amending the risk-based capital guidelines to take into account concentration
ofcredit risk and the risk of non-traditional activities, and to incorporate a
measure for exposure to market risk. The rule relating to concentration of
credit risk and risk of non-traditional activities amends each agency's
risk-based capital standards by explicitly identifying concentration of credit
risk and the risk arising from activities that have not customarily been part of
the banking business but have been conducted as a result of developing
technology and changes in financial markets, as well as an institution's ability
to manage these risks, as important factors to be taken into account by the
agency in assessing an institution's overall capital adequacy. The rule relating
to market risk amends each agency's risk-based-capital standards to incorporate
measures for market risk to cover all positions located in a banking
institution's trading account, foreign exchange and commodity positions. The
effect of the market risk rules is that any bank or bank holding company
regulated by the Federal Reserve, the FDIC or the Office of the Comptroller of
the Currency that has significant exposure to market risk must measure that risk
using its own internal value-at-risk model and also hold a commensurate amount
of capital. "Market risk" means the risk of loss
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<PAGE>
resulting from movements in market prices. "Value-at-risk" is an estimate of
potential changes in portfolio value based on a statistical confidence interval
of changes in market prices that occur during some time intervals. The effective
date of the market risk rules is January 1, 1997, and compliance with the rules
was mandatory January 1, 1998.
CBI is still assessing the impact these rules and proposed policy statement
would have on the capital requirements of the Banks or CBI, but does not expect
the impact to be material.
Payment of Dividends
CBI is a legal entity separate and distinct from the Banks. Most of the
revenues of CBI are expected to result from dividends paid to CBI by the Banks.
There are statutory and regulatory requirements applicable to the payment of
dividends by subsidiary banks as well as by CBI to its shareholders.
Each national banking association is required by federal law to obtain the
prior approval of the OCC for the payment of dividends if the total of all
dividends declared by the board of directors of such bank in any year will
exceed the total of (i) such bank's net profits (as defined and interpreted by
regulation) for that year plus (ii) the retained net profits (as defined and
interpreted by regulation) for the preceding two years, less any required
transfers tosurplus. In addition, national banks can only pay dividends to the
extent that retained net profits (including the portion transferred to surplus)
exceed bad debts (as defined by regulation). In 1990, the OCC issued a
regulation that redefines certain of the terms and methods of calculation used
in these two dividend restrictions. The rule, among other things, changed the
methodology of calculating net profits to be more consistent with GAAP with the
result that provisions for possible credit losses cannot be added back to net
income and charge-offs cannot be deducted from net income in calculating the
level of net profits available for the payment of dividends. The regulation has
not thus far had a material effect on the ability of Orangeburg National Bank to
pay dividends to CBI.
The payment of dividends by CBI and the Banks may also be affected or
limited by other factors, such as the requirements to maintain adequate capital
above regulatory guidelines. In addition, if, in the opinion of the applicable
regulatory authority, a bank under its jurisdiction is engaged in or is about to
engage in an unsafe or unsound practice (which, depending on the financial
condition of the Banks, could include the payment of dividends), such authority
may require, after notice and hearing, that such bank cease and desist from such
practice. The OCC has indicated that paying dividends that deplete a national
bank's capital base to an inadequate level would be an unsafe and unsound
banking practice. The Federal Reserve, the OCC and the FDIC have issued policy
statements which provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.
Certain Transactions by CBI with its Affiliates
There are various legal restrictions on the extent to which bank holding
companies and their nonbank subsidiaries can borrow or otherwise obtain credit
from their bank subsidiaries. An insured bank and its subsidiaries are limited
in engaging in "covered transactions" with their nonbank affiliates to the
following amounts: (i) in the case of any such affiliate, the aggregate amount
of covered transactions of the insured bank and its subsidiaries will notexceed
10% of the capital stock and surplus of the insured bank and (ii) in the case of
all affiliates, the aggregate amount of covered transactions of the insured bank
and its subsidiaries will not exceed 20% of the capital stock and surplus of the
bank. "Covered transactions" are defined by statute to include a loan or
extension of credit, as well as a purchase of securities issued by an affiliate,
a purchase of assets (unless otherwise exempted by the Federal Reserve), the
acceptance of securities issued by the affiliate as collateral for a loan and
the issuance of a guarantee, acceptance, or letter of credit on behalf of an
affiliate. Further, a bank holding company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.
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FDIC Insurance Assessments
Because Orangeburg National Bank's and Sumter National Bank's deposits are,
and Florence National Bank's deposits will be, insured by the BIF, the Banks are
subject to insurance assessments imposed by the FDIC. Under current law, the
insurance assessment to be paid by BIF-insured institutions is as specified in a
schedule issued by the FDIC that specifies, at semiannual intervals, target
reserve ratios designated to increase the FDIC insurance funds' reserve ratios
to 1.25% of estimated insured deposits (or such higher ratio as the FDIC may
determine in accordance with the statute) in 15 years. Further, the FDIC is
authorized to impose one or more special assessments in any amount deemed
necessary to enable repayment of amounts borrowed by the FDIC from the United
States Department of the Treasury ("Treasury Department"). The FDIC has
implemented a risk-based assessment schedule, imposing assessments ranging from
0.00% to 0.27% of an institution's average assessment base. The actual
assessment to be paid by each BIF member is based on the institution's
assessment risk classification, which is determined based on whether the
institution is considered "well capitalized," "adequately capitalized" or
"undercapitalized," as such terms have been defined in applicable federal
regulations adopted to implement the prompt corrective action provisions of the
1991 Banking Law (see "---Other Safety and Soundness Regulations"), and whether
such institution is considered by its supervisory agency to be financially sound
or to have supervisory concerns.
The FDIC may increase or decrease the new assessment rates semiannually up
to a maximum increase or decrease of 5 basis points, as deemed necessary to
maintain the BIF reserve ratio at $1.25 per $100 of insured deposits.
On May 20, 1997, the FDIC voted to collect on behalf of the Financing
Corporation ("FICO") assessments sufficient to meet the funding requirements of
the FICO for the remainder of 1997. The FICO rate on BIF-assessable deposits
will be 1.26 basis points, on an annual basis, and the rate on SAIF-assessable
deposits will be 6.30 basis points.
The Deposit Insurance Funds Act of 1996 (the "Funds Act") authorized the
FICO to levy assessments on BIF- and SAIF-assessable deposits, and stipulated
that the BIF rate must equal one-fifth the SAIF rate through year- end 1999, or
until the insurance funds are merged, whichever occurs first. Thereafter, BIF
and SAIF payers will be assessed pro rata for FICO. The BIF rate of 1.26 basis
points and the SAIF rate of 6.30 basis points are based on deposit balances as
of March 31, 1997, taken from insured institutions' Call Reports and Thrift
Financial Reports. The FICO assessment will continue to be adjusted quarterly to
reflect changes in the assessment bases of the respective funds based on
quarterly Call Report and Thrift Financial Report submissions.
Regulation of the Banks
Orangeburg National Bank and Sumter National Bank are, and Florence
National Bank will be, also subject to examination by the OCC bank examiners. In
addition, Orangeburg National Bank and Sumter National Bank are, and Florence
National Bank will be, subject to various other state and federal laws and
regulations, including state usury laws, laws relating to fiduciaries, consumer
credit and laws relating to branch banking. Orangeburg National Bank's and
Sumter National Bank's loan operations also are, and Florence National Bank's
loan operations will be, subject to certain federal consumer credit laws and
regulations promulgated thereunder, including, but not limited to: the federal
Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers; the Home Mortgage Disclosure Act, requiring financial institutions to
provide certain information concerning their mortgage lending; the Equal Credit
Opportunity Act and the Fair Housing Act, prohibiting discrimination on the
basis of certain prohibited factors in extending credit; the Fair Credit
Reporting Act, governing the use and provision of information to credit
reporting agencies; the Bank Secrecy Act, dealing with, among other things, the
reporting of certain currency transactions; and the Fair Debt Collection Act,
governing the manner in which consumer debts may be collected by collection
agencies. The deposit operations of Orangeburg National Bank and Sumter National
Bank also are, and the deposit operations of Florence National Bank will be,
subject to the Truth in Savings Act, requiring certain disclosures about rates
paid on savings accounts; the Expedited Funds Availability Act, which deals with
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<PAGE>
disclosure of the availability of funds deposited in accounts and the collection
and return of checks by banks; the Right to Financial Privacy Act, which imposes
a duty to maintain certain confidentiality of consumer financial records and the
Electronic Funds Transfer Act and regulations promulgated thereunder, which
govern automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
Orangeburg National Bank and Sumter National Bank are also, and Florence
National Bank will be, subject to the requirements of the Community Reinvestment
Act (the "CRA"). The CRA imposes on financial institutions an affirmative and
ongoing obligation to meet the credit needs of their local communities,
including low- and moderate-income neighborhoods, consistent with the safe and
sound operation of those institutions. Each financial institution's efforts in
meeting community credit needs are evaluated as part of the examination process,
and also are considered in evaluating mergers, acquisitions and applications to
open a branch or facility.
The federal banking agencies, including the OCC, have recently issued a
joint rule that changes the method of evaluating an institution's CRA
performance. The new rule evaluates institutions based on their actual
performance (rather than efforts) in meeting community credit needs. Subject to
certain exceptions, the OCC assesses the CRA performance of a bank by applying
lending, investment and service tests. The lending test evaluates a bank's
record of helping to meet the credit needs of its assessment area through its
lending activities by considering a bank's home mortgage, small business, small
farm, community development, and consumer lending. The investment test evaluates
a bank's record of helping to meet the credit needs of its assessment area
through qualified investments that benefit its assessment area or a broader
statewide or regional area that includes the bank's assessment area. The service
test evaluates a bank's record of helping to meet the credit needs of its
assessment area by analyzing both the availability and effectiveness of a bank's
systems for delivering retail banking services and the extent and innovativeness
of its community development services. The OCC assigns a rating to a bank of
"outstanding," satisfactory," "needs to improve," or "substantial noncompliance"
based on the bank's performance under the lending, investment and service tests.
To evaluate compliance with the tests, subject to certain exceptions, banks will
be required to collect and report to the OCC extensive demographic and loan
data.
For banks with total assets of less than $250 million that are affiliates
of a holding company with banking and thrift assets of less than $1 billion,
such as the Banks and CBI, the OCC evaluates the bank's record of helping to
meet the credit needs of its assessment area pursuant to the following criteria:
(1) the bank's loan-to-deposit ratio, adjusted for seasonal variation and, as
appropriate, other lending-related activities, such as loan originations for
sale to the secondary markets, community development loans, or qualified
investments; (2) the percentage of loans and, as appropriate, other
lending-related activities located in the bank's assessment area; (3) the bank's
record of lending to and, as appropriate, engaging in other lending-related
activities for borrowers of different income levels and businesses and farms of
different sizes; (4) the geographic distribution of the bank's loans; and (5)
the bank's record of taking action, if warranted, in response to written
complaints about its performance in helping to meet credit needs in its
assessment area. Small banks may also elect to be assessed under the generally
applicable standards of the rule, but to do so a small bank must collect and
report extensive data.
A bank may also submit a strategic plan to the OCC and be evaluated on its
performance under the plan.
Other Safety and Soundness Regulations
Prompt Corrective Action. The federal banking agencies have broad powers
under current federal law to take prompt corrective action to resolve problems
of insured depository institutions. The extent of these powers depends upon
whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Under uniform regulations defining such capital
levels issued by each of the federal banking agencies, a bank is considered
"well capitalized" if it has (i) a total risk- based capital ratio of 10% or
greater, (ii) a Tier 1 risk-based capital ratio of 6% or greater, (iii) a
leverage ratio of 5% or greater and (iv) is not subject to any order or written
directive to meet and maintain a specific capital level.
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<PAGE>
An "adequately capitalized" bank is defined as one that has (i) a total
risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based capital
ratio of 4% or greater and (iii) a leverage ratio of 4% or greater (or 3% or
greater in the case of a bank that has a composite CAMEL rating of 1 and is not
experiencing or anticipating significant growth). A bank is considered (A)
"undercapitalized" if it has (i) a total risk-based capital ratio of less than
8%, or (ii) a Tier 2 risk-based capital ratio of less that 4%, and (iii) a
leverage ratio of less than 4% (or 3% in the case of a bank that has a composite
CAMEL rating of 1 and is not experiencing or anticipating significant growth);
(B) "significantly undercapitalized" if the bank has (i) a total risk-based
capital ratio of less than 6%, or (ii) a Tier 1 risk-based capital ratio of less
than 3%; or (iii) a leverage ratio of less than 3%; and (C) "critically
undercapitalized" if the bank has a ratio of tangible equity to total assets
equal to or less than 2%.
A bank that is "undercapitalized" becomes subject to provisions of the FDIA
restricting payment of capital distributions and management fees; requiring OCC
to monitor the condition of the bank; requiring submission by the bank of a
capital restoration plan; restricting the growth of the bank's assets and
requiring prior approval of certain expansion proposals. A bank that is
"significantly undercapitalized" is also subject to restrictions on compensation
paid to senior management of the bank, and a bank that is "critically
undercapitalized" is further subject to restrictions on the activities of the
bank and restrictions on payments of subordinated debt of the bank. The purpose
of these provisions is to require banks with less than adequate capital to act
quickly to restore their capital and to have the OCC move promptly to take over
banks that are unwilling or unable to take such steps.
Brokered Deposits. Under current FDIC regulations, "well capitalized" banks
may accept brokered deposits without restriction, "adequately capitalized" banks
may accept brokered deposits with a waiver from the FDIC (subject to certain
restrictions on payments of rates), while "undercapitalized" banks may not
accept brokered deposits. The regulations provide that the definitions of "well
capitalized", "adequately capitalized" and "undercapitalized" are the same as
the definitions adopted by the agencies to implement the prompt corrective
action provisions of the 1991 Banking Law (described in the previous paragraph).
CBI does not believe that these regulations will have a material adverse effect
on its operations.
Operational and Managerial Standards. The 1991 Banking Law also required
each of the federal banking agencies to develop regulations addressing certain
safety and soundness standards for insured depository institutions and
depository institution holding companies, including operational and managerial
standards, asset quality, earnings and stock valuation standards, as well as
compensation standards (but not dollar levels of compensation). On September 23,
1994, the Riegle Community Development and Regulatory Improvement Act of 1994
amended the 1991 Banking Law to authorize the agencies to establish safety and
soundness standards by regulation or by guideline. Accordingly, the federal
banking agencies have issued Interagency Guidelines Establishing Standards for
Safety and Soundness, which set forth general operational and managerial
standards in the areas of internal controls, information systems and internal
audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth and compensation, fees and benefits. The Guidelines also prohibit
payment of excessive compensation as an unsafe and unsound practice.
Compensation is defined as excessive if it is unreasonable or disproportionate
to the services actually performed. The Guidelines contemplate that each federal
agency will determine compliance with these standards through the examination
process, and if necessary to correct weaknesses, require an institution to file
a written safety and soundness compliance plan. Management does not expect the
Guidelines to materially change current operations of the Banks.
Interstate Banking
In July 1994, South Carolina enacted legislation which effectively provides
that, after June 30, 1996, out-of-state bank holding companies (including bank
holding companies in the Southern Region, as defined under the statute) may
acquire other banks or bank holding companies having offices in South Carolina
upon the approval of the South Carolina State Board of Financial Institutions
and assuming compliance with certain other conditions, including that the effect
of the transaction not lessen competition and that the laws of the state in
which the out-of-state bank holding company filing the applications has its
principal place of business permit South Carolina bank
30
<PAGE>
holding companies to acquire banks and bank holding companies in that state.
Although such legislation may increase takeover activity in South Carolina, CBI
does not believe that such legislation will have a material impact on its
competitive position. However, no assurance of such fact may be given.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
will increase the ability of bank holding companies and banks to operate across
state lines. Under the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994, the existing restrictions on interstate acquisitions of banks by
bank holding companies will be repealed one year following enactment, such that
CBI and any other bank holding company located in South Carolina would be able
to acquire a bank located in any other state, and a bank holding company located
outside South Carolina could acquire any South Carolina-based bank, in either
case subject to certain deposit percentage and other restrictions. The
legislation also provides that, unless an individual state elects beforehand
either (i) to accelerate the effective date or (ii) to prohibit out-of-state
banks from operating interstate branches within its territory, on or after June
1, 1997, adequately capitalized and managed bank holding companies will be able
to consolidate their multistate bank operations into a single bank subsidiary
and to branch interstate through acquisitions. De novo branching by an
out-of-state bank would be permitted only if it is expressly permitted by the
laws of the host state. The authority of a bank to establish and operate
branches within a state will continue to be subject to applicable state
branching laws. South Carolina law was amended, effective July 1, 1996, to
permit such interstate branching but not de novo branching by an out-of-state
bank, CBI believes that this legislation may result in additional acquisitions
of South Carolina financial institutions by out-of-state financial institutions.
However, CBI does not presently anticipate that such legislation will have a
material impact on its operations or future plans.
Legislative Proposals
The Treasury Department has issued a proposal to consolidate the federal
bank regulatory agencies. Under this proposal, most of the supervisory and
regulatory oversight authority of the FDIC, the OCC, the OTS and the Federal
Reserve would be transferred to a new independent federal banking agency. The
FDIC would continue to have oversight over the deposit insurance funds and the
Federal Reserve would continue to carry out monetary and fiscal policy, discount
window operations and payments system functions. The Treasury Department is
expected to seekto introduce a bill in Congress providing for such consolidation
in the near future. However, the plan already is opposed by the Federal Reserve,
which has proposed a competing consolidation plan that would preserve its
regulatory oversight authority. Due to the preliminary nature of the proposal
and opposition by industry groups and others, CBI cannot determine at this time
the effect of any regulatory consolidation.
Other proposed legislation which could significantly affect the business of
banking has been introduced or may be introduced in Congress from time to time.
CBI cannot predict the future course of such legislative proposals or their
impact on CBI should they be adopted.
Fiscal and Monetary Policy
Banking is a business which depends to a large extent on interest rate
differentials. In general, the difference between the interest paid by a bank on
its deposits and its other borrowings, and the interest received by a bank on
its loans and securities holdings, constitutes the major portion of a bank's
earnings. Thus, the earnings and growth of CBI are subject to the influence of
economic conditions generally, both domestic and foreign, and also to the
monetary and fiscal policies of the United States and its agencies, particularly
the Federal Reserve. The Federal Reserve regulates the supply of money through
various means, including open-market dealings in United States government
securities, the discount rate at which banks may borrow from the Federal
Reserve, and the reserve requirements on deposits. The nature and timing of any
changes in such policies and their impact on CBI cannot be predicted.
31
<PAGE>
LEGAL MATTERS
Certain matters relating to this offering of Common Stock have been passed
on for CBI by Sinkler & Boyd, P.A., Columbia, South Carolina, special counsel to
CBI.
FINANCIAL STATEMENTS OF CBI
The audited Financial Statements of CBI on pages 39 through 67 of the 1996
10-KSB, and the unaudited interim Financial Statements on pages 3 through 7 of
the Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997,
are incorporated herein by reference.
EXPERTS
The consolidated balance sheets of CBI as of December 31, 1996 and 1995,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1996, included in CBI's Annual Report on Form 10-KSB for the year
ended December 31, 1996, have been audited by J.W. Hunt and Company, LLP,
independent public accountants, as indicated in their report with respect
thereto, dated January 31, 1997, and are incorporated by reference herein in
reliance upon the authority of J.W. Hunt and Company, LLP, as experts in
accounting and auditing.
32
<PAGE>
APPENDIX A
ANNUAL REPORT TO SHAREHOLDERS AND
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED
DECEMBER 31, 1996
<PAGE>
[FRONT COVER]
[LOGO - Oval with [LOGO - Silhouette of
uneven diagonal of Iris flower in Sumter
Stripes] a rectangle] National
Bank
Orangeburg
National Bank
[LOGO - Square with Community
rounded corners containing Bankshares Inc.
a broad striped field A South Carolina Bank Holding Company
with a silhouette of the
State of South Carolina]
ANNUAL REPORT
TO THE SHAREHOLDERS
for the year ended December 31, 1996
<PAGE>
COMMUNITY BANKSHARES, INC. CORPORATE INFORMATION
Main corporate office 791 Broughton St.
Orangeburg National Bank building
Orangeburg, SC 29115
mailing address:
PO Box 2086
Orangeburg, S.C 29116-2086
Phone (803) 535-1060
Fax (803) 535-1065
E-mail [email protected]
Orangeburg National Bank mailing address
PO Box 2166
Orangeburg, SC 29116-2166
main office
1820 Columbia Road
Orangeburg, SC 29115
Phone (803) 533-3400
Fax (803) 534-0982
Sumter National Bank mailing address
PO Drawer 1629
Sumter, SC 29151-1629
main office
683 Bultman Drive
Sumter, SC 29150
Phone (803) 775-7701
Fax (803) 775-7811
Annual Meeting The annual meeting will be
held on April 29, 1997, at 3:00 PM at
the main office for Sumter National
Bank.
Annual Report and Form The Corporation is presenting an inte-
10-KSB Combined grated report that combines information
required to be filed with the Securities
and Exchange Commission and information
that is required to be presented to
shareholders.
Stock Information The common stock of the
Corporation is listed on the American
Stock Exchange under the ticker symbol
SCB.
Stock Registrar, Registrar and Transfer Company
Transfer Agent, 10 Commerce Drive
Dividend Disbursing Agent, Cranford, NJ 07016-3572
and Dividend Reinvestment
Plan Administrator (800) 368-5948
<PAGE>
Table of Contents Financial Highlights, page 3
Directors and Officers, page 6
Letter to the Shareholders, page 9
Market for Corporation's Common Stock
and Related Security Holder Matters,
page 12
Management's Discussion and Analysis,
page 13
Report of Independent Accountants,
page 39
Financial Statements, page 40
Form 10-KSB, page 68
Financial Highlights for Community Bankshares, Inc.
The following is a summary of the consolidated financial position and
results of operations of the Corporation for the years ended December 31, 1992,
through December 31, 1996.
Community Bankshares, Inc.
Consolidated Financial Highlights
<TABLE>
<CAPTION>
For the year ended December 31, 1996 1995 1994 1993 1992
- ------------------------------- ---- ---- ---- ---- ----
Financial Condition (All amounts in thousands of dollars, except per share data.)
<S> <C> <C> <C> <C> <C>
Investment securities .......................... $ 25,787 $24,669 $23,405 $17,249 $17,221
Net loans receivable .......................... 67,953 51,617 47,938 41,685 41,685
Total assets ................................... 105,461 83,897 77,158 66,728 59,574
Total deposits ................................. 89,851 72,550 67,669 58,735 52,395
Long-term obligations .......................... 1,130 700 - - -
Stockholders' equity ........................... $ 12,104 $ 7,346 $ 6,387 $ 5,988 $ 5,468
Earnings Summary
Interest income ................................ $ 7,261 $ 6,327 $ 5,162 $ 4,511 $ 4,467
Interest expense ............................... 3,279 2,965 2,136 1,820 2,126
-------- ------- ------- ------- -------
Net interest income ............................ 3,982 3,362 3,026 2,691 2,341
Provision for loan losses ...................... 227 160 125 160 200
Other operating income ......................... 503 431 364 299 248
Other operating expenses ....................... 3,097 2,179 2,111 1,828 1,509
-------- ------- ------- ------- -------
Net income before taxes ........................ 1,161 1,454 1,154 1,002 880
Income taxes ................................... 411 517 400 345 297
-------- ------- ------- ------- -------
Net income after tax ........................... $ 750 $ 937 $ 754 $ 657 $ 583
======== ======= ======= ======= =======
Per share data (adjusted for stock split
on Jan. 1, 1995)
Net income $ 0.61 $ 1.09 $ 0.88 $ 0.77 $ 0.69
Dividends $ 0.29 $ 0.28 $ 0.25 $ 0.22 $ 0.16
</TABLE>
20
<PAGE>
Financial Highlights for Orangeburg National Bank.
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994 1993 1992
----------------------- ---- ---- ---- ---- ----
(Dollar amounts in thousands)
Financial Condition
<S> <C> <C> <C> <C> <C>
Investment securities $23,826 $24,669 $23,405 $17,249 $17,220
Net loans receivable 59,393 51,617 48,053 41,685 36,955
Total assets 90,772 83,524 77,102 66,664 59,574
Total deposits 79,792 72,761 67,782 58,782 52,395
Federal funds purchases and 1,744 2,570 2,800 1,635 1,328
securities sold under agreements to
repurchase
Other borrowed money 1,130 700 - - -
Stockholder's equity $ 7,624 $ 6,988 $ 6,180 $ 5,884 $ 5,468
Earnings Summary
Total Interest Income $ 6,904 $ 6,326 $ 5,160 $ 4,506 $ 4,467
Total Interest Expense 3,176 2,956 2,119 1,820 2,126
------- ------- ------- ------- -------
Net interest income 3,728 3,370 3,041 2,686 2,341
Provision for loan and lease losses 130 160 125 160 200
Non-interest income 469 430 362 297 248
Gains on sale of securities - - 2 3 -
Non-interest expense 2,238 2,080 2,006 1,813 1,509
------- ------- ------- ------- -------
Net income before taxes 1,829 1,560 1,274 1,013 880
Income taxes 667 553 444 345 297
------- ------- ------- ------- -------
Net income after tax $ 1,162 $ 1,007 $ 830 $ 668 $ 583
======= ======= ======= ======= =======
</TABLE>
The following is a summary of the financial position and results of
operations of Orangeburg National Bank for the years ended December 31, 1992,
through December 31, 1996.
<PAGE>
Financial Highlights for Sumter National Bank.
The following is a summary of the financial position and results of
operations of Sumter National Bank for the period June 10, 1996, (inception)
through December 31, 1996.
SUMTER NATIONAL BANK FINANCIAL
HIGHLIGHTS
for the seven months ended December 31, 1996
- --------------------------------------- ----
(Dollar amounts in thousands)
Financial Condition
Investment securities $1,071
Net loans receivable 8,855
Total assets 13,322
Total deposits 10,112
Stockholder's equity $3,159
Earnings Summary
Interest income $338
Interest expense 142
-----
Net interest income 196
Provision for loan losses 97
Non-interest income 45
Non-interest expense 701
-----
Net loss before taxes (557)
Income tax benefit (217)
-----
Net loss after tax $(340)
=====
DIRECTORS OF COMMUNITY BANKSHARES, INC.
<TABLE>
<CAPTION>
<S> <C>
E. J. Ayers, Jr. President, CM Dukes Oil Co.
Alvis J. Bynum President, Cities Supply Company, Inc.
Martha Rose C. Carson President, Marty Rae, Inc. & Marty Rae Interiors, Inc.
Anna O. Dantzler Retired
J. M. Guthrie President, Superior Motors, Inc.
Phil P. Leventis President & General Manager, Dixie Beverage Co. of Sumter, Inc.
William H. Nock President & Chief Executive Officer, Sumter National Bank
Samuel F. Reid, Jr. Partner, Horger, Barnwell & Reid
Hugo S. Sims, Jr. Chairman & Chief Executive Officer, Community Bankshares, Inc.
William W. Traynham, Jr. President, Community Bankshares, Inc.
J. Otto Warren, Jr. President, Warren & Griffin Lumber Co. & Home Builders Supply
Michael A. Wolfe President & Chief Executive Officer, Orangeburg National Bank
Russell S. Wolfe, II Secretary, Lenaire Wolfe, Co.
OFFICERS
Hugo S. Sims, Jr. Chairman & Chief Executive Officer
J. Otto Warren, Jr. Vice-Chairman of the Board of Directors
J. M. Guthrie Chairman of the Executive Committee of the Board of Directors
William W. Traynham, Jr. President
Jo Davies Vice President - Operations & Technology
Ginger H. Sims Vice President & Controller
Shirley Myers Assistant Vice President - Operations
Jewel Edwards Assistant Vice President - Operations
<PAGE>
DIRECTORS OF ORANGEBURG NATIONAL BANK
E. J. Ayers, Jr. President, CM Dukes Oil Co.
Martha Rose C. Carson President, Marty Rae, Inc. & Marty Rae Interiors, Inc.
Anna O. Dantzler Retired
J. M. Guthrie President, Superior Motors, Inc.
Samuel F. Reid, Jr. Partner, Horger, Barnwell & Reid
Hugo S. Sims, Jr. Chairman & Chief Executive Officer, Community Bankshares, Inc.
William W. Traynham, Jr. President, Community Bankshares, Inc.
J. Otto Warren, Jr. President, Warren & Griffin Lumber Co. & Home Builders Supply
Michael A. Wolfe President and Chief Executive Officer, Orangeburg National Bank
Russell S. Wolfe, II Secretary, Lenaire Wolfe Co.
OFFICERS
Russell S. Wolfe, II Chairman of the Board of Directors
J. Otto Warren, Jr. Vice-Chairman of the Board of Directors
J. M. Guthrie Chairman of the Executive Committee of the Board of Directors
Michael A. Wolfe President and Chief Executive Officer
Robert C. Cleveland Senior Vice President - Loans
Baxter Culler Vice President - Consumer Loans
Linda G. O'Dell Vice President - Branch Manager & Loan Officer
Wayne Davis Vice President - Loans
Dodd Buie Vice President & Cashier
Jackie Ashe Assistant Vice President & Assistant Branch Manager
Marie Breland Assistant Vice President - Head Teller
Devone Brant Assistant Vice President - Customer Service
Kathy Williams Assistant Vice President - Loan Administration
Michelle Cox Assistant Vice President - Loans
<PAGE>
DIRECTORS OF SUMTER NATIONAL BANK
Ernest C. Brown, Jr. President, ECB Construction, Inc.
Alvis J. Bynum President, Cities Supply Company, Inc.
Charles E. Fienning President, Sumter Packaging Corp.
Ben E. Griffith, Jr. President, People Resources, Inc.
Phil P. Leventis President & General Manager, Dixie Beverage Co. of Sumter, Inc.
Joseph T. McElveen, Jr. Partner, Bryan, Bahnmuller, King, Goldman & McElveen
William H. Nock President & Chief Executive Officer, Sumter National Bank
Porter L. Thompkins, Jr. Certified Public Accountant
T. D. Williams, III MD Partner, Sumter Medical Consultants
OFFICERS
Phil P. Leventis Chairman of the Board of Directors
William H. Nock President & Chief Executive Officer
Robert B. Smith Executive Vice President - Loans
Veronica V. Rodriguez Senior Vice President & Cashier
Chris L. Lee Vice President - Loans
Michael F. Evans Vice President - Loans
</TABLE>
<PAGE>
March 1997
To the Shareholders of Community Bankshares, Inc. :
We have had an incredibly eventful year.
Earnings
Orangeburg National Bank reported after tax earnings of $1,162,000 for
the year ended December 31, 1996, compared to $1,007,000 for 1995, an increase
of $155,000 or 15%. At December 31, 1996, the Orangeburg bank had $60.2 million
in loans, $90.9 million in assets, and $79.9 million in deposits.
Sumter National Bank, which opened for business in June, 1996, reported
a net after tax operating loss of $340,000 for its first seven months of
operation. Of that loss, $184,000 (54%) was incurred in the third quarter and
$102,000 (30%) was incurred in the fourth quarter. At December 31, 1996, the
Sumter bank had $9 million in loans, $13.3 million in assets, and $10 million in
deposits.
Our consolidated net income was $750,000 ($.61 per share) for the year
ended December 31, 1996. This compares to $937,000 ($1.09 per share) for the
same period in 1995, a decrease of $187,000 or 20%.
No one likes to see earnings fall. However, we see this decline in
earnings as the temporary result of the major investment in and development of
the new community bank in Sumter, South Carolina. Looking forward into 1997, we
expect significant improvement in our earnings as the new bank continues to grow
and move toward profitability.
Growth and Value
At December 31, 1996, total consolidated assets for Community
Bankshares, Inc. and its banking subsidiaries were $105.5 million compared to
$83.9 million in 1995, an increase of $21.6 million or 26%. Shareholders' equity
at year-end was $12.1 million compared to $7.3 million in 1995, an increase of
$4.8 million or 66%. This growth in assets and shareholders' equity was also
attributable primarily to the opening of Sumter National Bank. At year end CBI
had 1,313,238 shares of common stock outstanding. Book value at year end was
$9.22 per share. At that time the stock was selling for $12.25 per share on the
American Stock Exchange (the AMEX).
Dividends
In January 1997 the Board of Directors declared a cash dividend of 15
cents per share, payable March 14, 1997, to shareholders of record February 28,
1997. CBI believes that a safe, sound, and consistent dividend policy is an
important corporate objective. CBI paid its first cash dividend in 1991. From
1991 to 1996 CBI has increased its annual cash dividends from 15 cents to 29
cents per share.
<PAGE>
Dividend Reinvestment
Over the past year, we received numerous requests from shareholders
concerning the possibility of a dividend reinvestment plan. After reviewing the
issues, we are pleased to announce that Community Bankshares, Inc. has adopted a
Dividend Reinvestment and Shareholder Stock Purchase Plan. This Plan is entirely
voluntary. All of the Plan details are provided in the prospectus. Copies of the
prospectus are available from the Plan Administrator, Registrar and Transfer
Company, 10 Commerce Drive, Cranford, NJ 07016-3572.
At present only shareholders in South Carolina, Maryland, Missouri,
North Carolina, and Colorado may participate in the Plan. If management of CBI
determines that compliance with applicable securities laws in other states in
which CBI shareholders are located is not too onerous or expensive, CBI may
decide to make the Plan available to shareholders in those states. However, no
assurance to this effect can be given.
Review of 1996
During 1996, we sold 450,000 shares of CBI common stock, mostly in the
Sumter and Orangeburg communities. This offering raised $4.5 million, $3.5
million of which was used to capitalize Sumter National Bank.
During 1996 the new Sumter National Bank building was completed, and
the bank opened for business on June 10, 1996. If you haven't visited the new
bank, we would appreciate your visit. It will give you a chance to meet Bill
Nock, the bank President and Chief Executive Officer, and his staff of friendly
and dependable employees who are eager to serve you.
CBI started trading on the American Stock Exchange on November 20,
1996, under the ticker symbol SCB. We opened that day at $12.00 per share.
Quotes are available daily in the Columbia State, the Orangeburg Times and
Democrat and the Sumter Item, as well as the Wall Street Journal.
Changes in Executive Officers
During the summer, I resigned as Chairman and CEO of Orangeburg
National Bank. I made this change in order to devote more time to the
development of the new bank and the holding company. I have retained my position
as a director of the bank. The Board of Directors of Orangeburg National Bank
elected Russell Wolfe as its new Chairman of the Board. The Board then elected
Michael Wolfe, President of the Bank, as the new Chief Executive Officer (the
Wolfes are not related to each other). Michael Wolfe is also a director of CBI,
but is no longer an officer of the holding company. William Traynham is a
director of Orangeburg National Bank, but is no longer an officer of the bank.
Management is committed to sponsoring and encouraging community banks
because we believe there is a desperate need for local banks, with their
headquarters located in the local communities, providing the kind of personal
services their customers are entitled to demand.
We are pleased to be able to report the results of 1996 and we want you
to understand what CBI, Orangeburg National Bank, and Sumter National Bank are
doing and trying to accomplish. We want you to be informed about the status of
your investment. We appreciate your support and look forward to continuing to
provide the best possible personal banking products and services. Please contact
us with your questions, comments, or suggestions.
Hugo S. Sims, Jr.
Chairman and Chief Executive Officer
Community Bankshares, Inc.
<PAGE>
Market for the Corporation's Common Stock and Related Security Holder Matters
The Corporation's shares of Common Stock are traded on the American
Stock Exchange (the AMEX) under the ticker symbol SCB.
The following table summarizes the range of high and low prices for
the Corporation's Common Stock of which management has knowledge for each
quarterly period over the last two years.
Sales Price of the Corporation's Common Stock
Quarter ended Low High
Mar. 31, 1995 $10.00 $10.00
June 30, 1995 $10.00 $10.00
Sept. 30, 1995 $10.00 $10.00
Dec. 31, 1995 $10.00 $10.00
Mar. 31, 1996 $10.00 $10.00
June 30, 1996 $10.00 $10.00
Sept. 30, 1996 $10.00 $12.00
Dec. 31, 1996 $11.75 $12.25
Between December 1995 and May 1996 the Corporation sold 450,000 shares of its no
par common stock at $10.00 per share. This sale was in conjunction with the
capitalization of the new Sumter bank. On November 20, 1996, CBI was listed on
the AMEX. From that date to year end the corporation had a stock sales volume of
14,900 shares. (Stock prices shown prior to listing on the AMEX are based on a
limited number of shares traded of which management had knowledge.)
There were 1,174 holders of record of the Corporation's Common Stock
(no par value) as of December 31, 1996.
During 1996 the Corporation authorized and paid two cash dividends
totaling 29 cents per share. The total cost to the Corporation of these payments
was approximately $318,000, 42% of after tax profits. During 1995 the
Corporation paid two cash dividends totaling 28 cents per share. The cost to the
Corporation of those payments was $242,000, about 26% of after tax profits. The
Board of Directors decided to maintain its dividend strategy because, in its
opinion, the decline in earnings for 1996 was the temporary result of the
investment in the new bank in Sumter. The dividend policy of the Corporation is
subject to the discretion of the Board of Directors and depends upon a number of
factors, including earnings, financial condition, cash needs and general
business conditions, as well as applicable regulatory considerations. Subject to
ongoing review of these circumstances, the Board expects to maintain a
reasonable, safe, and sound dividend payment policy.
The current source of dividends to be paid by the Corporation is
dividends of its banking subsidiary, Orangeburg National Bank. Accordingly, the
payment of dividends by the Corporation is indirectly subject to the same laws
and regulations that govern the payment of dividends by national banking
associations. Pursuant to 12 U.S.C. Section 56, no national bank may pay
dividends from its capital. All dividends must be paid out of net profits then
on hand, after deduction of losses and bad debts. The payment of dividends out
of net profits is further limited by 12 U.S.C. Section 60(a). This section
prohibits a bank from declaring a dividend on its shares of common stock until
the surplus fund equals the amount of capital stock. If the surplus fund does
not equal the amount of capital stock, a dividend may not be paid until
one-tenth of the Bank's net profits of the preceding half year, in the case of
quarterly or semi-annual dividends, or the preceding two years, in the case of
an annual dividend, are transferred to the surplus fund. Pursuant to 12 U.S.C.
Section 60(b), the approval of the Comptroller of the Currency is required if
21
<PAGE>
the total of all dividends declared by the Bank in any calendar year will exceed
the total of its retained net profits of that year combined with its net profits
of the two preceding years, less any required transfers to surplus or a fund for
the retirement of any preferred stock. Additionally, pursuant to 12 U.S.C.
Section 1818(b), the Comptroller of the Currency may prohibit the payment of
dividends that would constitute an unsafe and unsound banking practice.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion is intended to assist in understanding the
consolidated financial condition and results of operations of Community
Bankshares, Inc. (CBI or the Corporation) for the years ended December 31, 1996
and 1995. This commentary should be reviewed in conjunction with the audited
consolidated financial statements and notes contained elsewhere in this report.
Forward Looking Statements
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in nature
are intended to be, and are hereby identified as `forward looking statements'
for purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended. The Corporation cautions readers that forward
looking statements, including without limitation, those relating to the
Corporation's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward looking statements, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the Corporation's reports filed with the Securities and Exchange
Commission.
Business of the Corporation and the Banks
Community Bankshares, Inc. is a bank holding company. It was
incorporated on November 30, 1992, and commenced operations July 1, 1993, by
acquiring Orangeburg National Bank. CBI owns two banking subsidiaries:
Orangeburg National Bank and Sumter National Bank. CBI provides item and data
processing and other technical services for its two banking subsidiaries. The
consolidated financial report for 1996 represents the operations of the holding
company and its two banks. (Parent only and bank only financial statements are
presented in the footnotes to the consolidated financial statements.)
Orangeburg National Bank is a national banking association that
commenced operations in November 1987. It operates two offices in Orangeburg,
South Carolina. The bank provides commercial banking services to the Orangeburg
community. Its primary customer markets are consumers and small businesses.
Sumter National Bank is a national banking association that commenced
operations in June 1996. It operates one office in Sumter, South Carolina. The
bank provides commercial banking services to the Sumter community. Its primary
customer markets are also consumers and small businesses.
1996 compared to 1995
Earnings Performance
The Corporation's net income was $750,000, or $.61 per share, in 1996.
This compares to $937,000, or $1.09 per share, in 1995, a decrease of $187,000,
or 20%.
22
<PAGE>
Management views this reduction in earnings as the expected and
temporary result of a major investment in a new marketplace.
Distribution of Assets and Liabilities
The Corporation manages its balance sheet in a conservative manner.
The following table shows the percentage relationships of significant components
of average balance sheets for the years ended December 31, 1996 and 1995.
Balance Sheet Categories as a Percent of Average Total Assets as of December 31,
<TABLE>
<CAPTION>
Assets 1996 1995
- ------ ---- ----
<S> <C> <C>
Interest bearing deposits ...................... 0.72% 0.54%
Investment securities taxable .................. 28.20% 27.74%
Investment securities--tax exempt .............. 0.44% 0.12%
Federal funds sold ............................. 3.21% 3.98%
Loans, net of unearned income .................. 60.58% 61.64%
------ ------
Total interest earning assets .................. 93.15% 94.02%
Cash and due from banks ........................ 3.78% 3.73%
Allowance for loan losses ...................... -0.79% -0.80%
Premises and equipment ......................... 2.47% 1.73%
Other assets ................................... 1.39% 1.32%
------ ------
Total assets ....................................... 100.00% 100.00%
====== ======
Liabilities and Stockholders' Equity
Interest bearing deposits
Savings ........................................ 14.78% 17.74%
Interest bearing transaction accounts ......... 9.36% 7.62%
Time deposits .................................. 48.89% 49.30%
------ ------
Total interest bearing deposits ................ 73.03% 74.66%
Short term borrowings .......................... 2.48% 4.53%
FHLB advances .................................. 1.20% 0.33%
------ ------
Total interest bearing liabilities ............. 76.72% 79.52%
Noninterest bearing demand deposits ............ 11.02% 11.46%
Other liabilities .............................. 0.70% 0.74%
Stockholders' equity ........................... 11.57% 8.28%
------ ------
Total liabilities and stockholders' equity ......... 100.00% 100.00%
====== ======
</TABLE>
The following table presents the average balance sheets, the average
yield and the interest earned on earning assets, and the average rate and the
interest paid on interest bearing liabilities for the years ended December 31,
1996 and 1995.
23
<PAGE>
<TABLE>
<CAPTION>
................................... ..........................................
Years ended December 31, 1996 1995
................................... .........................................
Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Balance Expense (1) Rates (1) Balance Expense (1) Rates (1)
Assets ------- ----------- --------- ------- ----------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits ................. $ 687 $ 38 5.53% $ 448 $ 26 5.75%
Investment securities taxable ............. 26,914 1,599 5.94% 22,822 1,306 5.72%
Investment securities--tax exempt ......... 417 17 6.35% 95 4 5.65%
Federal funds sold ........................ 3,067 163 5.32% 3,276 191 5.84%
Loans receivable (2) ...................... 57,805 5,444 9.42% 50,724 4,800 9.46%
------- ------ ---- ------- ------ ----
Total interest earning assets ............. 88,890 7,261 8.17% 77,365 6,327 8.18%
Cash and due from banks ................... 3,606 3,069
Allowance for loan losses ................. (757) (662)
Premises and equipment .................... 2,360 1,425
Other assets .............................. 1,328 1,086
------- -------
Total assets $95,427 $82,283
======= =======
Liabilities and shareholders' equity
Interest bearing deposits
Savings ................................... $14,106 $ 392 2.78% $14,601 $ 443 3.03%
Interest bearing transaction accounts ..... 8,936 183 2.05% 6,273 149 2.38%
Time deposits ............................. 46,646 2,536 5.44% 40,559 2,177 5.37%
------- ------ ---- ------- ------ ----
Total interest bearing deposits ........... 69,688 3,111 4.46% 61,433 2,769 4.51%
Short term borrowings ..................... 2,369 92 3.89% 3,724 177 4.76%
FHLB advances ............................. 1,149 76 6.64% 276 19 6.97%
------- ------ ---- ------- ------ ----
Total interest bearing liabilities ........ 73,206 3,279 4.48% 65,433 2,965 4.53%
Noninterest bearing demand deposits ....... 10,516 9,431
Other liabilities ......................... 667 606
Shareholders' equity ...................... 11,038 6,813
------- -------
Total liabilities and shareholders' equity $95,427 $82,283
======= =======
Interest rate spread (3)...................... 3.69% 3.65%
Net interest income and net yield on
earning assets (4)............................ $3,982 4.48% $3,362 4.35%
====== ==== ====== ====
</TABLE>
Notes
1. Computed on a fully taxable equivalent basis using a federal tax rate of
34%.
2. Nonaccruing loan balances are included in the average loan balances and
income from such loans is recognized on a cash basis.
3. Total interest earning assets yield less total interest bearing liabilities
rate.
4. Net yield equals net interest income divided by total interest earning
assets.
24
<PAGE>
Interest Income and Interest Expense
The Corporation's interest income increased in 1996 from 1995. In 1996
the Corporation earned $7,261,000 in total interest income, up from the prior
year's $6,327,000. This represented a $934,000 or a 14.8% increase. This growth
was mostly the result of increased volume in the loan and investment portfolios.
Interest bearing deposits in other banks contributed $38,000 to
interest income in 1996, up from $26,000 the prior year, an increase of $12,000
or 46.2%. In 1996 the Corporation had an average of $687,000 invested in
interest bearing deposits, up from the prior year's $448,000, an increase of
$239,000 or 53.3%. The average yield on these deposits during 1996 was 5.53%,
down .22% from the prior year's yield of 5.75%.
Investments contributed $1,599,000 to interest income in 1996, up from
$1,306,000 the prior year, an increase of $293,000 or 22.4%. The investment
portfolio averaged $26.9 million in 1996, up from the prior year's $22.8
million, an increase of $4.1 million or 17.9%. The Corporation's investment
portfolio consists primarily of short- term U. S. government and agency debt
issues. The average yield on investments during 1996 was 5.94%, up .22% from
5.72% in 1995.
The Corporation's tax exempt securities portfolio earned $17,000
during 1996, up from $4,000 in 1995, an increase of $13,000 or 325%. The
portfolio averaged $417,000 in 1996, up from $95,000 in 1995, an increase of
$322,000 or 339%. The average yield was 6.35%, compared to 5.65% the prior year,
on a fully taxable equivalent basis.
Federal funds sold represent temporary surplus funds that one bank
lends to another. These funds are a source of day to day operating liquidity.
Federal funds sold contributed $163,000 to interest income in 1996, down from
$191,000 in the prior year, a decrease of $28,000 or 14.7%. The Corporation had
an average of $3.1 million in federal funds during 1996, down from the prior
year's $3.3 million, a decrease of 6.4%. The average yield on federal funds
during 1996 was 5.32%, down from 5.84% in 1995.
The Corporation's major source of interest income is the loan
portfolio, which contributed $5,444,000 to interest income in 1996, up from
$4,800,000 in the prior year, an increase of $644,000 or 13.4%. The average loan
portfolio for 1996 was $57.8 million, compared to the prior year's $50.7
million, an increase of $7.1 million or 14%. The average yield on loans during
1996 was 9.42%, down from 9.46% in 1995.
The Corporation had average earning assets in 1996 of $88.9 million
which earned a yield of 8.17%. In 1995 the Corporation had average earning
assets of $77.4 million which earned a yield of 8.18%.
On the liability side of the balance sheet, the Corporation's savings
deposits consist of savings and money market accounts. Total savings accounts
averaged $14.1 million in 1996, down from $14.6 million in the prior year, a
decrease of $.5 million or 3.4%. The cost of these funds decreased to 2.78% in
1996 from 3.03% in the prior year. In 1996 this category of deposits represented
14.8% of the Corporation's liabilities and equity, down from 17.7% in 1995. The
decrease was attributable primarily to savings customers moving into time
deposits in search of higher rates.
Interest bearing transaction accounts are the lead checking accounts
that the banks offer customers. This overall category was $8.9 million in 1996,
up from $6.3 million in 1995, an increase of $2.6 million or 41.2%. The average
cost of these funds was 2.05% in 1996, compared to 2.38% in the prior year.
Time deposits are the largest category of deposits, totaling $46.6
million in 1996, up from $40.6 million in the prior year, an increase of $6.1
million or 15%. Much of this increase was attributable to the movement of
deposits from regular savings accounts. The cost of time deposits increased to
5.44% from 5.37%.
25
<PAGE>
The Orangeburg bank has several commercial customers for which it
offers daily repurchase agreements. These accounts are not deposits; they are
considered other obligations. Balances in these accounts are subject to wide
fluctuation with the customers' cash flows, but they constitute a relatively
small portion of the balance sheet. The average balance for 1996 was $2.4
million, down from $3.7 million in the prior year, a decrease of $1.3 million
or 35.1%. The cost of these funds decreased to 3.89% from 4.76%.
Orangeburg National Bank is a member of and has the ability to borrow
from the Federal Home Loan Bank (the FHLB). The bank had an average $1.1 million
outstanding balance during 1996 at an average cost of 6.64%. This compares to
$276,000 outstanding in 1995 at an average cost of 6.97%. The increase is a
result of the bank's on-going asset liability management. These loans are
secured by a blanket lien on the bank's one to four family residential mortgage
loan portfolio and the bank's stock in the FHLB..
The Corporation had total interest bearing liabilities in 1996 of
$73.2 million costing an average of 4.48%, compared with interest bearing
liabilities in 1995 of $65.4 million that cost an average of 4.53%.
Interest Income and Interest Expense-Sumter National Bank
Sumter National Bank opened for business on June 10, 1996. By December
31, 1996, the bank's earning assets had grown to $10.8 million, total assets
were $13.7 million, and deposits were $8.5 million.
The average earnings assets for 1996 for the new bank were $4.4
million (4.9% of consolidated earning assets). These earning assets generated
$337,000 in interest income for the year (4.6% of consolidated interest income).
Total interest bearing liabilities for 1996 for the new bank were $3.2
million (4.4% of consolidated interest bearing liabilities). These liabilities
generated $143,000 in interest expense for the year (4.4% of consolidated
interest income).
Volume and Rate Variance Analysis
The table "Volume and Rate Variance Analysis" provides a summary of
changes in net interest income resulting from changes in volume and changes in
rate (The changes in volume are the difference between the current and prior
year's balances times the prior year's rate. The changes in rate are the
difference between the current and prior year's rate times the prior year's
balance.)
As reflected in the table, the increase in 1996 net interest income of
$621,000 is due almost entirely to changes in volume. Almost all of the $935,000
increase in interest income was from volume growth in earning assets. Likewise,
most of the increase in interest expense was due to volume increases for time
deposits. During 1995 there was a similar pattern, with most of the increase in
net interest income coming from changes in volume.
Six interest rate increases from February 1994 to February 1995
resulted in the prime lending rate increasing from 6% to 9%. These increases
were followed by three rate cuts, taking the prime down to 8.25% in February
1996, where it has remained. Management expects that interest rates will move
within a relatively narrow band during 1997, with some small interest rate
changes possible. Inflation is expected to remain low. The Corporation is not
aware of any other immediately identifiable factors that would cause short-term
interest rates to increase sharply in the near term. Therefore, as in 1996,
improvements in net interest income during 1997 are more likely to be the result
of changes in volume and the mix of earning assets and interest bearing
liabilities than changes in rates.
26
<PAGE>
Volume and Rate Variance Analysis
<TABLE>
<CAPTION>
1996 compared to 1995 1995 compared to 1994
------------------------------ ------------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
Interest earning assets (Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits .......................... $ 13 $ (1) $ 12 $ 5 $ 5 $ 10
Investment securities taxable ...................... 240 53 293 31 174 205
Investment securities--tax exempt .................. 13 - 13 (34) 8 (26)
Federal funds sold ................................. (12) (16) (28) 87 31 118
Net loans receivable ............................... 668 (23) 645 531 326 857
---- ----- ----- ----- ------ ---
Total interest income .............................. 922 13 935 620 544 $1,164
Interest bearing liabilities
Savings ............................................ (15) (35) (50) (158) 20 (138)
Interest bearing transaction accounts .............. 57 (23) 34 (7) 33 26
Time deposits ...................................... 330 28 358 412 424 836
---- ----- ----- ----- ------ ------
Total interest bearing deposits .................... 372 (30) 342 247 477 724
---- ----- ----- ----- ------ ------
Short term borrowings .............................. (56) (29) (85) 59 26 85
FHLB advances ...................................... 58 (1) 57 19 - 19
---- ----- ----- ----- ------ ------
Total interest expense ............................. 374 (60) 314 325 503 828
---- ----- ----- ----- ------ ------
Net interest income $548 $ 73 $ 621 $ 295 $ 41 $ 336
==== ===== ===== ===== ====== ======
</TABLE>
(1) The rate volume variance for each category has been allocated on a
consistent basis between rate and volume variances based on the percentage of
rate or volume variance to the sum of the two absolute variances, except in
categories having balances in only one period. In such cases, the entire
variance is attributed to volume differences.
(2) Computed on a fully taxable equivalent basis using a federal income tax rate
of 34%.
Interest Rate Sensitivity
Interest rate sensitivity management is concerned with the management
of both the timing and the magnitude of the repricing characteristics of
interest earning assets and interest bearing liabilities. This is an important
part of asset/liability management. The objectives of interest rate sensitivity
management are to ensure the adequacy of net interest income and to control the
risks to net interest income associated with movements in interest rates. The
table "Interest Sensitivity Analysis" indicates that, on a cumulative basis
through twelve months, rate sensitive liabilities exceeded rate sensitive
assets, resulting in a liability sensitive position at the end of 1996 of $26.8
million.
When interest sensitive assets exceed interest sensitive liabilities
for a specific repricing "horizon," a positive interest sensitivity gap results.
The gap is negative when interest sensitive liabilities exceed interest
sensitive assets, as was the case at the end of 1996, with respect to the one
year "horizon." For a corporation with a negative gap, falling interest rates
would be expected to have a positive effect on the net interest income and
rising rates would be expected to have the opposite effect, because,
theoretically, as rates increase more deposits will reprice than loans or
investments, thus driving up interest costs and decreasing net interest income.
27
<PAGE>
The following table summarizes the Corporation's interest sensitivity
position as of December 31, 1996.
Interest Sensitivity Analysis
<TABLE>
<CAPTION>
Within 3 4-12 1-5 Over 5
months months years years Total
------ ------ ----- ----- -----
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Interest earning assets
Interest bearing deposits ................... $ 331 $ 100 $ - $ - $ 431
Taxable investment securities ............... 3,347 2,422 18,300 717 24,786
Tax exempt investment securities ............ - - 414 - 414
Federal funds sold .......................... 1,300 - - - 1,300
Net loans receivable ........................ 31,963 3,350 23,164 10,216 68,693
------- -------- ------- ------- -------
Total interest earning assets ............... 36,941 5,872 41,878 10,933 95,624
------- -------- ------- ------- -------
Interest bearing liabilities
Savings ..................................... 9,418 - - - 9,418
Interest bearing transaction accounts ....... 17,054 - - - 17,054
Time deposits < $100M ....................... 13,063 16,231 7,109 - 36,403
Time deposits > $100M ....................... 5,078 7,019 1,543 - 13,640
Short term borrowings ....................... 1,744 - - - 1,744
FHLB advances ............................... - 70 280 780 1,130
------- -------- ------- ------- -------
Total interest bearing liabilities .......... $ 46,357 $ 23,320 $ 8,932 $ 780 $79,389
-------- -------- ------- ------- -------
Interest sensitivity gap .................... $ (9,416) $(17,448) $32,946 $10,153 $ 16,235
Cumulative gap .............................. (9,416) (26,864) 6,082 16,235
RSA/RSL ..................................... 80% 25%
Cumulative RSA/RSL .......................... 80% 61%
</TABLE>
RSA- rate sensitive assets; RSL- rate sensitive liabilities
The above table reflects the balances of interest earning assets and
interest bearing liabilities at the earlier of their repricing or maturity
dates. Amortizing fixed rate loans are reflected at the scheduled maturity date.
Variable rate amortizing loans are reflected at the earliest date at which they
may be repriced contractually. Deposits in other banks and debt securities are
reflected at each instrument's ultimate maturity date. Overnight federal funds
sold are reflected as instantly repriceable. Interest bearing liabilities with
no contractual maturity, such as savings deposits and interest bearing
transaction accounts, are reflected in the earliest repricing period possible.
Fixed rate time deposits are reflected at the earlier of their next repricing or
maturity dates.
The Corporation's banks have established Asset/Liability Management
Committees. It is the responsibility of these committees to establish parameters
for various interest risk measures, to set strategies to control interest rate
risk within those parameters, to maintain adequate and stable net interest
income, and to direct the implementation of tactics to facilitate achieving its
objectives. During 1996, emphasis was directed toward controlling the rate of
increase in funding costs. This was done by aggressive monitoring of deposit
rates and restructuring of some deposit products.
28
<PAGE>
Management is aware of its negative gap position and is emphasizing
variable rate loans in 1997. Management also will explore variable rate
investments. If successful, these efforts will help to reduce the negative gap
position and reduce interest rate risk. The Corporation also realizes, however,
that these efforts may be constrained by customer demands during the upcoming
year.
Investment Portfolio
Investment securities constituted $26.9 million (28.20%) of the
Corporation's average assets in 1996 and $22.8 million (27.74%) in 1995.
The following tables summarize the book and market values of
investment securities held by the Corporation at the dates indicated, and the
maturities and weighted average yields of the securities at December 31, 1996.
<TABLE>
<CAPTION>
1996 1995
Amortized cost Fair Value Amortized cost Fair Value
-------------- ---------- -------------- ----------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Securities held to maturity
U. S. Government and agencies ................ $ 14,613 $ 14,612 $ 15,287 $ 15,296
State and local governments .................. 414 417 323 324
--------- --------- --------- --------
Total ................................... $ 15,027 $ 15,029 $ 15,610 $ 15,620
========= ========= ========= ========
Securities available for sale
U. S. Government and agencies ................ $ 10,174 $ 10,174 $ 8,651 $ 8,688
Federal Reserve stock ........................ 336 336 139 139
Federal Home Loan Bank stock ................. 251 251 232 232
--------- --------- --------- --------
Total ................................... $ 10,761 $ 10,761 $ 9,022 $ 9,059
========= ========= ========= ========
</TABLE>
29
<PAGE>
Investment Portfolio Maturities And Yields
<TABLE>
<CAPTION>
After five years
After one year but but within ten
Within one year within five years years Over ten years Total
--------------- ------------------ ---------------- ---------------- ---------------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to maturity
U. S. Treasury securities $1,390 5.48% $ 1,594 6.41% $ - 0.00% $ - 0.00% $ 2,984 6.07%
Federal agency obligations 900 5.92% 10,729 6.07% - 0.00% - 0.00% 11,629 6.06%
State and local governments - 0.00% 414 6.27% - 0.00% - 0.00% 414 6.27%
------ ---- ------- ---- ------ ---- ------- ---- ------- ----
Total held to maturity $2,290 5.65% $12,737 6.12% $ - 0.00% $ - 0.00% $15,027 6.05%
------ ---- ------- ---- ------ ---- ------- ---- ------- ----
Securities available for sale
U. S. Treasury securities $1,979 5.88% $ - 0.00% $ - 0.00% $ - 0.00% 1,979 7.55%
Federal agency obligations 1,000 5.15% 7,196 5.17% - 0.00% - 0.00% 8,196 5.73%
Equities - 0.00% - 0.00% - 0.00% $ 586 6.78% 586 6.52%
------ ---- ------- ---- ------ ---- ------- ---- ------- ----
Total available for sale $2,979 5.63% $ 7,196 5.17% $ - 0.00% $ 586 6.78% $10,761 6.10%
------ ---- ------- ---- ------ ---- ------- ---- ------- ----
Total for portfolio $5,269 5.64% $19,933 5.78% $ - 0.00% $ 586 6.78% $25,788 6.07%
====== ==== ======= ==== ====== ==== ======= ==== ======= ====
</TABLE>
Yields on tax exempt obligations have been computed on a tax
equivalent basis using the maximum federal tax rate of 34%.
As of December 31, 1996, the held to maturity portfolio included gross
unrealized securities gains of $2,741 and no gross unrealized losses. As of
December 31, 1995, the held to maturity portfolio included gross unrealized
securities gains of $70,147 and gross unrealized losses of $60,965. The ratios
of market value to book value, as of December 31, 1996 and 1995, were 1.00 and
1.00, respectively.
As of December 31, 1996, the available for sale portfolio included
gross unrealized securities gains of $14,556 and gross unrealized losses of
$14,491. The amortized cost of the portfolio was $10,761,000. The fair value of
the portfolio was $10,761,000. As of December 31, 1995, the available for sale
portfolio included gross unrealized securities gains of $49,689 and gross
unrealized losses of $13,333.
The taxable portfolio's total income was $1,599,000 for 1996, compared
to $1,306,000 the prior year, an increase of $293,000 or 22.4%. The average
yield in 1996 was 5.94%, compared to 5.72% in 1995.
The Corporation also had tax exempt income of $17,000 for 1996,
compared to $4,000 the prior year, an increase of $13,000 or 325%. The average
tax equivalent yield on the tax exempt portfolio was 6.35% for 1996, compared to
5.65% in 1995.
Loan Portfolio
The average size of the loan portfolio in 1996 was $57.8 million,
compared to $50.7 million the prior year, which represents average growth of
$7.1 million or 14%.
At December 31, 1996, the loan portfolio was $68.8 million, compared
to $52.3 million the prior year, an increase of $16.5 million, or 31.5%. Of the
increase, $8.9 million (54%) was attributable to new loans on the books of the
Sumter bank.
Management believes the loan portfolio is adequately diversified.
There are no foreign loans and few agricultural loans. The Orangeburg bank
ordinarily originates mortgage loans for sale to others, but does not service
such loans. However, certain older mortgage loans and selected new loans with
acceptable rates are owned and serviced by the Orangeburg bank. Real estate
loans are primarily 1 to 4 family residential loans. There were no significant
30
<PAGE>
concentrations in any particular individuals or industry or group of related
individuals or industries at the end of 1996. The table, "Loan Portfolio
Composition," indicates the amounts of loans outstanding according to the type
of loan at the dates indicated.
Lending Risks
Because extending credit involves a certain degree of risk, management
has established loan and credit policies designed to control both the types and
amounts of risks assumed and to minimize losses. Such policies include
limitations on loan-to-collateral values for various types of collateral,
requirements for appraisals of real estate collateral, problem loan management
practices and collection procedures, and nonaccrual and charge-off guidelines.
The Corporation also conducts internal loan reviews to monitor on an ongoing
basis the quality of its portfolio.
The Corporation has a geographic concentration of loans within its
home communities of Orangeburg and Sumter, South Carolina, because its primary
business is community banking.
The Corporation's customer base is predominantly consumers and small
businesses. As a result, the loan portfolio is comprised primarily of consumer
and real estate loans, and, to a lesser extent, small to medium size commercial
loans.
Loan Portfolio Composition
The following table shows the composition of the loan portfolio for
the years ended December 31, 1996 and 1995.
Loan category 1996 1995
- ------------- ---- ----
(Dollar amounts in thousands)
Commercial, financial and agricultural $16,520 $12,408
Real estate - construction 5,611 3,449
Real estate - mortgage 35,553 28,029
Installment loans to individuals 11,021 8,361
Obligations of political subdivisions 124 77
------- -------
Total loans - gross $68,829 $52,324
======= =======
Commercial, financial, and agricultural loans, primarily representing
loans made to small businesses, increased by $4.1 million or 33% during 1996.
These loans may be made on either a secured or an unsecured basis. When taken,
security consists of liens on inventories, receivables, equipment, and furniture
and fixtures. Unsecured business loans are generally short-term with emphasis on
repayment strengths and low debt to worth ratios.
Real estate loans consist of construction and loan secured by
mortgage. Because the Corporation's subsidiaries are community banks, real
estate loans comprise the bulk of the loan portfolio, 60% in 1996. Construction
loans increased $2.2 million or 63% in 1996. Mortgage loans increased $7.5
million or 27% in 1996.
The Corporation generally does not compete with 15 and 30 year fixed
secondary market mortgage interest rates, so it elected to pursue the
origination of mortgage loans that could be easily sold into the secondary
mortgage market. These loans are generally pre-qualified with the underwriters
to avoid problems in the sale of the loans. In 1996 and 1995 the Corporation
sold $4.1 million and $2.9 million, respectively, in such loans. These loans are
sold at par so no gain or loss is recognized at the time of sale. However, fee
income is generated by the origination and sale of these loans. The Corporation
also makes mortgage loans for its own account. Such loans are usually for a
shorter term than loans made to sell and usually have a variable interest rate
rather than a fixed rate of interest.
31
<PAGE>
Installment loans to individuals increased $2.7 million or 32% in
1996.
Most of the increases in loan volume are the result of new and
increased volumes of loan demand in Orangeburg and the opening of the new bank
in Sumter.
Interest income from the loan portfolio was $5,444,000 in 1996,
compared to $4,800,000 in 1995, an increase of $644,000 or 13.4%. The average
yield on the portfolio was 9.42% in 1996, compared to 9.46% in 1995.
Secured versus Unsecured Loans
The Corporation does not aggressively seek to make unsecured loans,
since these loans may be somewhat more risky than collateralized loans. There
are, however, occasions when it is in the business interests of the Corporation
to provide short-term, unsecured loans to selected customers. In 1996 the
Corporation had $4.4 million in unsecured loans or 6.4% of its loan portfolio.
In 1995 the Corporation had $3 million in unsecured loans, or 5.8% of its loan
portfolio. Charge-offs on unsecured loans were not disproportionate to their
share of the total loan portfolio in 1996.
Loan Participations
Periodically, the Corporation's banking subsidiaries enter into sales
or purchases of loan participations with other financial institutions. The banks
generally only sell participations in loans that would cause the bank to exceed
its lending limitation to a single customer. As the banks' lending limits
increase they may buy back such loan participations. Such loans are usually
commercial in nature, subject to the banks' standard underwriting requirements,
and all risks associated with the portion of the loan sold flow to the
purchaser.
At the end of 1996 Orangeburg National Bank had sold $233,000 (all to
Sumter National Bank) in participations and purchased $580,000 ($315,000 from
Sumter National Bank) in such participations. At the end of 1995 the Orangeburg
bank had not sold any such participations and had purchased $291,000 in such
participations.
At the end of 1996 Sumter National Bank had sold $315,000 (all to
Orangeburg National Bank) in participations and purchased $233,000 (all from
Orangeburg National Bank) in such participations.
32
<PAGE>
Maturity Distribution of Loans
The following table sets forth the maturity distribution of the
Corporation's loans, by type, as of December 31, 1996, as well as the type of
interest on loans due after one year.
After one After five
year but years but
Within one within five within ten
year years years Total
---- ----- ----- -----
(Dollar amounts in thousands)
Commercial $ 22,002 $ 4,494 $ 1,380 $ 27,876
Real Estate 9,782 8,135 5,892 23,809
Installment 6,079 8,954 2,111 17,144
----------- ---------- ------------ ----------
Total $ 37,863 $ 21,583 $ 9,383 $ 68,829
=========== ========== ============ ==========
Sensitivity of loans to changes in interest rates-Loans due after one year
Predetermined interest rate $ 27,131
Floating interest rate 3,834
-----------
Total $ 30,965
===========
Non-performing Loans; Other Problem Assets
Nonaccrual and Past Due Loans
The following table presents information about the Corporation's
nonaccrual and past due loans, other real estate owned, and impaired loans at
December 31, 1996 and 1995.
1996 1995
---- ----
(Dollar amounts in thousands)
Nonaccrual loans $ 431 $ 348
Accruing loans 90 days or more past due 93 76
------ ------
Total $ 524 $ 424
====== ======
Total as a % of outstanding loans 0.76% 0.81%
====== ======
Other Real Estate Owned $ - $ -
====== ======
Impaired Loans (included in non accrual) $ 120 $ 108
====== ======
The Corporation had $431,000 in nonaccrual loans at the end of 1996,
compared to $348,000 at the end of 1995. Gross interest income that would have
been recorded for the year ended December 31, 1996, if these loans had been
performing in accordance with their original terms approximated $36,000. No
interest was included in income for the year on these loans.
The Corporation had no restructured loans in 1996 or 1995.
A loan is generally placed on nonaccrual status when principal or
interest is 90 days past due or when serious doubt exists as to collectibility.
Management reviews the status of each nonaccrual loan, information about the
borrower, and the value of any collateral. If the estimated net realizable value
of collateral is sufficient to assure collection of principal and accrued
33
<PAGE>
interest, accrual may be resumed. If management believes that collection of a
significant amount of the principal is in serious doubt, the principal balance
is reduced to the estimated net realizable value of collateral by charge-off to
the allowance for loan losses. Accrued interest is charged against income.
Subsequent payments on such loans are credited to the outstanding principal
balance until such balance is recovered. Then, such payments are credited to the
allowance for loan losses as recoveries to the extent, if any, of any initial
write down to net realizable value. Finally, interest income on nonaccrual loans
is recognized when received. A nonaccrual loan is not returned to accrual status
unless principal and interest are current and the borrower has demonstrated the
ability to continue making payments as agreed.
Nonaccrual loans were not material in relation to the portfolio as a
whole in 1996. Management is aware of no trends, events or uncertainties which
would cause nonaccrual loans to change materially in 1997.
Statements of Financial Accounting Standards No. 114 and No. 118
Effective January 1, 1995, CBI adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for the Impairment of a
Loan," and Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure." These
statements require creditors to account for impaired loans, except for those
collateral dependent loans that are accounted for at fair value or at the lower
of cost or fair value, at the present value of the expected future cash flows
discounted at the loan's effective interest rate.
CBI does not apply FAS 114 to "large groups of smaller balance
homogeneous loans that are collectively evaluated for impairment." These groups
include the Banks' consumer loan portfolio, overdraft protection loans,
residential mortgage loans, and home equity loans. The major category of loans
to which FAS 114 is applied are commercial loans.
CBI determines when loans become impaired through its normal loan
administration and review functions. Loans that are on the Banks' watch loan
report are potentially impaired loans. Management considers a loan to be
impaired when, based on current information and events, it is probable that the
Banks will be unable to collect all principal and interest amounts due according
to the contractual terms of the agreement.
The Banks classify impaired loans as non-accrual loans.
As a matter of general policy, the banks either commence foreclosure
proceedings or charge off an impaired loan within 90 days of placing a loan in
such status.
As of December 31, 1996, the Orangeburg bank had impaired loans of
$120,000. The average recorded investment in such loans for 1996 was $114,000.
The allowance for loan losses related to impaired loans was approximately
$22,000 for 1996, compared to $16,000 for 1995. Interest income of $0 was
recognized during 1996 and 1995 on impaired loans.
The amount of impaired loans at December 31, 1996, represented one
collateral dependent loan. The Orangeburg bank estimates that the fair market
value of the collateral, net of disposal costs, will not be materially different
than the balance of the loan less the related allowance.
The adoption of these accounting standards has not had a material
effect on the financial conditions and results of operations of CBI.
Potential Problem Loans
At December 31, 1996, the Corporation's internal loan review program
had identified $1,311,000 (1.9% of the portfolio) in commercial and industrial
loans, including the above mentioned past due loans, where information about
34
<PAGE>
credit problems of borrowers had caused management to have concerns about the
ability of the borrowers to comply with original repayment terms.
The amounts reflected above do not represent management's estimate of
the potential losses since a large proportion of these loans are secured by real
estate and other marketable collateral.
Other Real Estate
Other real estate, consisting of foreclosed properties, was $0 at year
end 1996 and year end 1995. Other real estate is initially recorded at the lower
of net loan balance or its estimated fair value, net of estimated disposal
costs. The estimate of fair value for foreclosed properties is determined by
appraisal at the time of acquisition.
Provision for Loan Losses
The provision for loan losses is charged to earnings based on
management's continuing review and evaluation of the loan portfolio and general
economic conditions. In reviewing the adequacy of the provision for loan losses
during each period, the Corporation considers historical loan loss experience,
current economic conditions, loans outstanding, trends in non-performing and
delinquent loans, the quality of collateral securing problem loans, and the
results of its ongoing internal loan review process. Provisions for loan losses
totaled $227,000 and $160,000 in 1996 and 1995, respectively. Based on the
available information, the Corporation considers its 1996 provision for loan
losses adequate.
Net charge-offs in 1996 were $58,000 or 25.5% of the provision for
loan losses, compared to $69,000 or 43.1% of the provision for loan losses in
the prior year. See "Allowance for Loan Losses" for a discussion of the factors
management considers in its review of the adequacy of the allowance and
provision for loan losses.
Allowance for Loan Losses
The allowance for loan losses is increased by the provision for loan
losses, which is a direct charge to expense. Losses on loans are charged against
the allowance in the period in which management determines that such loans
become uncollectable. Recoveries of previously charged off loans are credited to
the allowance. At December 31, 1996 and 1995, the allowance for loan losses was
1.27% and 1.35%, respectively, of total loans, and 167% and 167%, respectively,
of nonaccrual loans and accruing loans 90 days or more past due.
35
<PAGE>
Year ended December 31,
1996 1995
---- ----
(Dollar amounts in thousands)
Total loans outstanding at end of year ................. $ 68,829 $ 52,324
======== ========
Average amount of loans outstanding .................... $ 57,806 $ 50,724
======== ========
Allowance for loan losses at beginning of year ......... $ 707 616
-------- --------
Loan charge-offs
Real estate ............................................ - 15
Installment ............................................ 70 58
Credit cards and related plans ......................... 5 2
Commercial and other ................................... 11 9
-------- --------
Total charge-offs ...................................... 86 84
-------- --------
Recoveries
Real estate ............................................ 4 -
Installment ............................................ 23 13
Credit cards and related plans ......................... 1 2
Commercial and other ................................... - -
-------- --------
Total recoveries ....................................... 28 15
-------- --------
Net charge-offs ........................................ 58 69
-------- --------
Provision for loan losses .............................. 227 160
-------- --------
Allowance for loan losses at end of year ............... $ 876 707
======== ========
Ratios
Net charge-offs to average loans outstanding ........... 0.10% 0.14%
Net charge-offs to loans outstanding at end of year .... 0.08% 0.13%
Allowance for loan loss to average loans ............... 1.52% 1.39%
Allowance for loan loss to total loans at end year ..... 1.27% 1.35%
Net charge-offs to allowance for losses ................ 6.62% 9.76%
Net charge-off to provision for loan losses ............ 25.55% 43.13%
36
<PAGE>
Based on the current levels of non-performing and other problem loans,
management believes that loan charge-offs in 1997 will at least approximate the
1996 levels as such loans progress through the collection, foreclosure, and
repossession process. Management believes that the allowance for loan losses, as
of December 31, 1996, is sufficient to absorb the expected chargeoffs and
provide adequately for the inherent losses that remain in the loan portfolio.
Management will continue to closely monitor the levels of non-performing and
potential problem loans and address the weaknesses in these credits to enhance
the amount of ultimate collection or recovery of these assets. Should increases
in the overall level of non-performing and potential problem loans accelerate
from the current trend, management will adjust the methodology for determining
the allowance for loan losses to increase the provision and allowance for loan
losses. This would decrease net income.
The following table presents the allocation of the allowance for loan
losses, as of December 31, 1996 and 1995, compared with the percent of loans in
the applicable categories to total loans.
Allocation of Allowance
for Loan Losses
1996% of loans 1996% of loans
in each category in each category
1996 to total loans 1995 to total loans
---- -------------- ---- --------------
(Dollar amounts in thousands)
Commercial ........... $ 314 24% $ 253 24%
Real estate .......... 313 60% 171 60%
Installment .......... 188 16% 208 16%
Unallocated .......... 61 0% 75 0%
----- --- ------- ---
Total ........... $ 876 100% $ 707 100%
===== === ======= ===
The Corporation maintains an allowance for loan losses it believes
sufficient to cover estimated or reasonably expected losses. The allowance is
allocated to different segments of the portfolio, based on management's
expectations of risk in that segment of the portfolio. This allocation is an
estimate only and is not intended to restrict the Corporation's ability to
respond to losses. The Corporation charges losses from any segment of the
portfolio to the allowance, regardless of the allocation.
In reviewing the adequacy of the allowance for loan losses at the end
of each period, the Corporation considers historical loan loss experience,
current economic conditions, loans outstanding, trends in non-performing and
delinquent loans, and the quality of collateral securing problem loans. After
charging off all known losses, management considers the allowance adequate to
provide for estimated future losses inherent in the loan portfolio at December
31, 1996.
Premises and Equipment
Premises and equipment were $2,837,000 at December 31, 1996, compared
to $1,708,000 the prior year, an increase of $1,129,000 or 66%. Most of this
increase was associated with the construction and equipping of the Sumter
National Bank. Cost of land for the new bank totaled $317,000, the building
totaled $606,000, and equipment, furniture, and fixtures totaled $448,000, for a
grand total of $1,371,000.
Liquidity
Liquidity is the ability to meet current and future obligations
through liquidation or maturity of existing assets or the acquisition of
additional liabilities. Adequate liquidity is necessary to meet the requirements
of customers for loans and deposit withdrawals in a timely and economical
manner. The most manageable sources of liquidity are composed of liabilities,
37
<PAGE>
with the primary focus of liquidity management being the ability to attract
deposits within the Orangeburg National Bank and Sumter National Bank service
areas. Core deposits (total deposits less certificates of deposit of $100,000 or
more) provide a relatively stable funding base. Certificates of deposit of
$100,000 or more are generally more sensitive to changes in rates, so they must
be monitored carefully. Asset liquidity is provided by several sources,
including amounts due from banks, federal funds sold, and investments available
for sale.
The Corporation maintains an available for sale and a hold to maturity
investment portfolio. While investment securities purchased for these portfolios
are generally purchased with the intent to be held to maturity, such securities
are marketable and occasional sales may occur prior to maturity as part of the
process of asset/liability and liquidity management. Management deliberately
maintains a short-term maturity schedule for its investments so that there is a
continuing stream of maturing investments. The Corporation intends to maintain a
short-term investment portfolio in order to continue to be able to supply
liquidity to its loan portfolio and for customer withdrawals.
The Corporation has substantially more liabilities which mature in the
next 12 months than it has assets maturing in the same period. However, based on
its historical experience, and that of similar financial institutions, the
Corporation believes that it is unlikely that so many deposits would be
withdrawn, without being replaced by other deposits, that the Corporation would
be unable to meet its liquidity needs with the proceeds of maturing assets.
The Corporation also maintains several federal funds lines of credit
with correspondent banks, is able to borrow from the Federal Home Loan Bank, and
is also able to borrow from the Federal Reserve's discount window.
The Corporation has a demonstrated ability to attract deposits from
its market area. Deposits have grown from $52 million in 1992 to over $89
million in 1996. This stable growing base of deposits is the major source of
operating liquidity. During this same period, the Corporation's loan to deposit
ratio (net of public deposits), another indicator of liquidity, has gone from
71.4% to 75.4%.
The Corporation's long-term liquidity needs are expected to be
primarily affected by the maturing of long-term certificates of deposit. At
December 31, 1996, the Corporation had approximately $8.6 million and $0 in
certificates of deposit maturing in one to five years and over five years,
respectively. The Corporation's assets maturing in the same periods were $41.8
million and $10.9 million, respectively. With a substantially larger dollar
amount of assets maturing in both periods than liabilities, the Corporation
believes that it will not have any significant long-term liquidity problems.
In the opinion of management, the current and projected liquidity
position is adequate.
Average Deposits
The Corporation's average deposits in 1996 were $80.2 million,
compared to $70.9 million the prior year, an increase of $9.3 million or 13.1%.
Orangeburg National Bank's average deposits for 1996 increased to
$76.4 million from $70.9 million, an increase of $5.5 million or 7.8%. Of this
increase, about $4.2 million or 80% was in time deposits.
Sumter National Bank opened for business in June 1996. The average
deposits for 1996 were $3.8 million.
38
<PAGE>
The total average deposits for the Corporation for the years ended
December 31, 1996 and 1995, are summarized below:
<TABLE>
<CAPTION>
1996 1995
Average balance Average cost Average balance Average cost
--------------- ------------ --------------- ------------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Noninterest bearing demand ....................... $10,516 $ 9,431
Interest bearing transaction accounts ............ 8,936 2.05% 6,273 2.38%
Savings-regular .................................. 9,685 2.42% 11,387 2.94%
Savings- money market ............................ 4,421 3.56% 3,214 3.34%
Time deposits less than $100,000 ................. 32,598 5.39% 28,210 5.40%
Time deposits greater than $100,000 .............. 14,049 5.42% 12,349 5.29%
------- -----
Total average deposits ........................... $80,205 $70,864
======= =====
</TABLE>
At December 31, 1996, the Corporation had $13,640,000 in certificates
of deposit of $100,000 or more. Of those accounts, maturities were as indicated
on the accompanying table.
Maturity (Dollar amounts in thousands)
Less than three months $ 5,078
Over 3 through 6 months 3,580
Over 6 through 12 months 3,439
Over 1 year through 5 years 1,543
Over 5 years -
----------
Total $ 13,640
==========
Return on Equity and Assets
The following table shows the return on assets (net income divided by
average total assets), return on equity (net income divided by average equity),
dividend payout ratio (dividends declared per share divided by net income per
share), and equity to assets ratio (average equity divided by average total
assets) for the years ended December 31, 1996 and 1995.
1996 1995
---- ----
Return on assets (ROA) 0.79% 1.14%
Return on equity (ROE) 6.79% 13.75%
Dividend payout ratio (dividends/net income) 42.40% 25.83%
Equity as a percent of assets 11.57% 8.28%
As discussed elsewhere in this document, management believes the
decline in ROA and ROE is the temporary effect of the investment in the new
Sumter market.
39
<PAGE>
Short-term Borrowings
The following table summarizes the Corporation's short-term borrowings
and rates paid thereon for the years ended December 31, 1996 and 1995. These
borrowings consist of federal funds purchased and securities sold under
agreements to repurchase, which generally mature each business day.
1996 1995
---- ----
(Dollar amounts in thousands)
Short-term borrowings at year end $ 1,744 2,570
Rate at year end 3.75% 4.00%
Maximum amount outstanding at any month end $ 3,776 4,595
Average amount outstanding during year $ 2,138 3,627
Average rate paid during year 3.83% 4.89%
Notes Payable
In August 1995 the Corporation negotiated a $500,000 prime rate,
unsecured, line of credit from another financial institution. The purpose of
this line was to help finance the start up expenses associated with the
organization of Sumter National Bank. In February 1996 the Corporation
negotiated an additional $750,000 prime rate line of credit with the same
financial institution. The purpose of this line was to finance the construction
of Sumter National Bank. The line was secured with a mortgage on the building
and property. Both obligations were repaid in June 1996 from the proceeds of the
stock sale. The lines of credit are summarized below:
1996 1995
---- ----
(Dollar amounts in thousands)
Notes payable at year end ........................ $ - $ 240
Rate at year end ................................. 0.00% 8.50%
Maximum amount outstanding at any month end ...... $ 1,049 $ 240
Average amount outstanding during year ........... $ 196 $ 95
Average rate paid during year .................... 8.30% 8.70%
Federal Home Loan Bank Advances
CBI's banking subsidiary, Orangeburg National Bank, is a member of the
Federal Home Loan Bank and as such has access to long-term borrowing from the
Federal Home Loan Bank. The collateral for any such borrowings is a blanket lien
on the bank's one to four family residential loans and the bank's stock in the
FHLB. In August 1995 the bank borrowed $700,000 at 6.94%. Interest is payable
monthly, principal is payable in ten equal annual payments, and the note's
maturity is August 2005. In January 1996 the bank borrowed $500,000 at 6.21%.
Interest is payable monthly, principal is payable at maturity in January 2006.
1996 1995
---- ----
(Dollar amounts in thousands)
Short term borrowings at year end ................. $ 1,744 $ 2,570
Rate at year end .................................. 3.75% 4.00%
Maximum amount outstanding at any month end ....... $ 3,776 $ 4,595
Average amount outstanding during year ............ $ 2,138 $ 3,627
Average rate paid during year ..................... 3.83% 4.89%
40
<PAGE>
Capital Adequacy
The Federal Reserve and federal bank regulatory agencies have adopted
a risk based capital standard for assessing the capital adequacy of a bank
holding company or financial institution. The minimum required ratio is 8%.
Under the risk-based capital standard, capital is classified into two
tiers. Tier one (or core) capital, for the banks' purposes, consists of common
stockholders' equity minus any intangible assets. Tier two (or supplementary)
capital consists of the loan loss reserves (subject to certain limitations). A
bank's qualifying capital base for purposes of its risk-based capital ratio
consists of the sum of its tier one and tier two capital components, provided
that the maximum amount of tier two capital that may be treated as qualifying
capital is limited to 100% of tier one capital.
In applying the standard, certain off-balance-sheet exposures,
including standby letters of credit and loan commitments with original terms in
excess of one year, are converted to "credit equivalent amounts" by multiplying
the amount of the off-balance-sheet items by the appropriate conversion factor.
The resulting credit equivalent amounts, and all balance sheet assets, are then
assigned to one of four risk weights ranging from 0% to 100%. The total amount
of balance sheet assets and credit equivalent amounts of off-balance-sheet items
in each risk weight category is multiplied by the weight assigned to that
category and the products are then added together to calculate total
risk-weighted assets.
At December 31, 1996, the banks and the consolidated company had the
following capital ratios:
Orangeburg National Bank 1996 1995
- ------------------------ ---- ----
Tier 1 capital to average total assets 8.40% 8.37%
Tier 1 capital to risk weighted assets 13.40% 13.87%
Total capital to risk weighted assets 14.70% 15.13%
Sumter National Bank 1996
- -------------------- ----
Tier 1 capital to average total assets 24.60%
Tier 1 capital to risk weighted assets 28.90%
Total capital to risk weighted assets 29.80%
Community Bankshares Inc. 1996 1995
- ------------------------- ---- ----
Tier 1 capital to average total assets 11.50% 8.93%
Tier 1 capital to risk weighted assets 17.50% 14.44%
Total capital to risk weighted assets 18.70% 15.69%
The minimum capital requirement, effective December 31, 1994, is that a bank
maintain a total capital to risk weighted capital ratio of 8%. (For bank holding
companies with assets less than $150 million, capital requirements are required
to be met at the bank level only.)
The Corporation considers its current and projected capital position
to be adequate.
Shareholders' Equity
In December 1995 CBI began offering up to 450,000 shares of its no par
common stock at $10 per share. The primary purpose of the offering was to
capitalize Sumter National Bank. Proceeds were held in escrow pending receipt of
all regulatory approvals required for the Sumter bank to commence operations. At
December 31, 1995, CBI had received subscriptions for 9,800 shares or $98,000.
41
<PAGE>
From January 1, 1996, to May 15, 1996, CBI received subscriptions for 440,200
shares or $4,402,000. Total sales of 450,000 or $4.5 million were transferred
from stock subscriptions to common stock on June 10, 1996, the date that Sumter
National Bank began operation.
The Common Stock account of the Corporation was $9,065,000 at December
31, 1996, compared to $4,617,000 in the prior year. Changes to the common stock
account are summarized in the following table.
Changes in common stock account
Common stock, December 31, 1995 .............................. $ 4,617
Stock subscriptions received in 1995 ......................... 98
Stock subscriptions received in 1996 ......................... 4,402
Expenses of stock sale ....................................... (43)
Expenses of dividend reinvestment plan ....................... (9)
-------
Common stock, December 31, 1996 .............................. $ 9,065
=======
Dividend Reinvestment Plan
During the first quarter of 1997, CBI began offering a dividend
reinvestment plan to its shareholders in South Carolina, North Carolina,
Maryland, Missouri, and Colorado. The plan enables shareholders to voluntarily
reinvest their cash dividends in the common stock of the corporation. The plan
also provides an additional purchase option for each plan participant allowing
them to buy between $250 and $3,000 in additional stock each year. The plan is
administered by Registrar and Transfer Company.
Dividends
During 1996, CBI paid cash dividends to shareholders of 29 cents per
share, which totaled $318,000. This represented a dividend payout ratio
(dividends divided by net income) of 42%. The dividend payout ratio in 1995 was
26%. The Board of Directors decided to maintain the dividend level because, in
its opinion, the decline in earnings for 1996 was the temporary result of the
investment in the new bank in Sumter.
Noninterest income
Noninterest income increased to $504,000 in 1996 from $431,000 in
1995, a $73,000 or 16.9% increase.
Service charge income in 1996 was $376,000 compared to $324,000 in the
prior year, a $52,000 or 16% increase. Most of this increase resulted from
increased returned check fee income.
The other non-interest income categories showed little change.
Noninterest expense
Overall, non-interest expenses increased to $3,097,000 in 1996 from
$2,179,000 in 1995, an increase of $918,000 or 42.1%.
Personnel costs in 1996 were $1,875,000 compared to $1,246,000 the
prior year, an increase of $629,000 or 50.5%. About $362,000 (57.5%) of this
increase was accounted for by salaries connected with the new Sumter bank, where
42
<PAGE>
there are sixteen employees. An additional $70,000 (11.1%) of this increase is
related to the pre-opening and organizational phase of the new bank.
Premises and equipment expenses in 1996 were $368,000 compared to
$264,000 the prior year, a $104,000 or 39.4% increase. Approximately $65,000 of
this increase relates to the new bank.
Supplies expense was $92,000 in 1996, compared to $60,000 in the prior
year, an increase of $32,000 or 53.3%. Approximately $25,000 of this increase
relates to the new bank.
Director fees were $70,000 in 1996, compared to $58,000 in the prior
year, an increase of $12,000 or 20.7%. Orangeburg National Bank pays its outside
directors $600 per month. Sumter National Bank does not currently pay director
fees. CBI started paying its outside directors $200 per month in November 1995.
FDIC insurance costs were $5,000 in 1996, compared to $78,000 in 1995,
a decrease of $73,000 or 93.6%. This decline reflected reductions in deposit
insurance premiums set by the FDIC.
All other expenses were $686,000 in 1996, compared to $472,000 in the
prior year, an increase of $214,000 or 45.3%. Approximately $108,000 of this
increase relates to the operation of the new bank.
Income Taxes
The Corporation pays U. S. corporate income taxes and South Carolina
bank income taxes. The 1996 provision for income taxes was $411,000, compared to
$517,000 the prior year, a decrease of $106,000 or 20.5%. The Corporation's
effective average tax rate is 35.4 %. The decrease in income taxes parallels the
decrease in net income.
Inflation
The assets and liabilities of the Corporation are mostly monetary in
nature. Accordingly, the financial results and operations of the Corporation are
much more impacted by changes in interest rates than changes in inflation. There
is, however, a strong correlation between increasing inflation and increasing
interest rates.
The impact of inflation has been very moderate during 1996. Consumer
prices increased less than 3% for the year. Prospects appear good for continued
low inflation for the near future.
Although inflation does not normally impact a financial institution as
dramatically as it impacts businesses with large investments in plants and
inventories, it does have an effect. During periods of high inflation there are
usually corresponding increases in the money supply, and banks experience above
average growth in assets, loans, and deposits. General increases in the prices
of goods and services also result in increased operating expenses.
43
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report ............................................. 45
Consolidated Balance Sheets, December 31, 1996 and 1995 .................. 46
Consolidated Statements of Income, Years Ended December 31,
1996, 1995 and 1994 ................................................... 47-48
Consolidated Statements of Changes in Shareholders' Equity, Years Ended
December 31, 1996, 1995 and 1994 ...................................... 49-50
Consolidated Statements of Cash Flows, Years Ended December 31,
1996, 1995 and 1994 ................................................... 51-52
Notes to Consolidated Financial Statements ............................... 53-71
44
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors of
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 the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Corporation'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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
J. W. Hunt and Company, LLP
Columbia, South Carolina
January 31, 1997
45
<PAGE>
<TABLE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
<CAPTION>
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
---- ----
<S> <C> <C>
Cash and due from banks ................................................. $ 5,348,467 $ 3,024,782
Federal funds sold ...................................................... 1,300,000 1,510,000
------------ -----------
Total cash and cash equivalents ........................ 6,648,467 4,534,782
Interest-bearing deposits in other banks ................................ 431,437 320,643
Securities held-to-maturity ............................................. 15,026,542 15,610,088
Securities available-for-sale ........................................... 10,760,854 9,058,549
Real estate loans held for sale ......................................... 295,450 -
Loans receivable ........................................................ 68,828,953 52,323,528
Less, allowance for loan losses ...................................... (875,860) (706,525)
------------ -----------
Net loans receivable .................................. 67,953,093 51,617,003
Premises and equipment - net ............................................ 2,837,115 1,708,247
Accrued interest receivable ............................................. 855,290 716,436
Deferred income taxes ................................................... 283,185 180,501
Other assets ............................................................ 369,631 150,316
------------ -------
Total assets .......................................... $105,461,064 $83,896,565
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand ............................................................... $ 13,337,223 $ 9,094,780
Interest-bearing transaction accounts ................................ 17,052,700 10,728,373
Savings .............................................................. 9,418,608 9,948,802
Certificates of deposit of $100,000 and over ......................... 13,639,689 12,838,000
Other time deposits .................................................. 36,403,025 29,940,257
------------ -----------
Total deposits ........................................ 89,851,245 72,550,212
Federal funds purchased and securities sold under
agreements to repurchase ............................................. 1,744,004 2,570,442
Note payable ............................................................ - 240,000
Other liabilities ....................................................... 631,749 490,179
Federal Home Loan Bank advances ......................................... 1,130,000 700,000
------------ -----------
Total liabilities ..................................... 93,356,998 76,550,833
------------ -----------
Shareholders' equity:
Common stock - no par value, authorized shares -
3,000,000, issued and outstanding,
1,313,238 shares in 1996 and
863,238 shares in 1995 ............................................ 9,064,504 4,616,970
Common stock subscribed - 9,800 shares in 1995 ....................... - 98,000
Retained earnings .................................................... 3,039,520 2,607,458
Unrealized gain on securities available-for-sale,
net of applicable deferred income taxes .............................. 42 23,304
------------ -----------
Total shareholders' equity ............................ 12,104,066 7,345,732
------------ -----------
Total liabilities and shareholders' equity ............ $105,461,064 $83,896,565
============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
46
<PAGE>
<TABLE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME, YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans ............................................ $5,444,377 $ 4,800,348 $ 3,943,923
Deposits with other financial institutions ............................ 37,693 25,726 15,670
Investment securities interest and dividends:
Interest - U. S. Treasury and
U.S. Government Agencies ........................................... 1,569,469 1,280,367 1,087,160
Interest - tax exempt securities .................................... 17,228 3,553 29,142
Dividends - Federal Reserve Bank
and Federal Home Loan Bank ......................................... 29,647 25,588 14,464
---------- --------- ---------
Total investment securities interest
and dividends ........................................ 1,616,344 1,309,508 1,130,766
---------- --------- ---------
Federal funds sold and securities
purchased under agreements to resell ............................... 163,064 191,328 72,015
---------- --------- ---------
Total interest and dividend income ..................... 7,261,478 6,326,910 5,162,374
---------- --------- ---------
Interest expense:
Deposits:
Interest-bearing transaction accounts .............................. 228,451 149,427 123,047
Savings ............................................................ 358,015 442,615 574,943
Certificates of deposit of $100,000 and over ....................... 756,742 637,636 450,165
Certificates of deposit of less than $100,000 ...................... 1,778,225 1,538,924 895,834
---------- --------- ---------
Total deposits ......................................... 3,121,433 2,768,602 2,043,989
Federal funds purchased and securities sold
under agreements to repurchase ..................................... 81,839 168,597 74,940
Note payable .......................................................... - 8,497 17,604
Federal Home Loan Bank advances ....................................... 76,307 19,208 -
---------- --------- ---------
Total interest expense ................................ 3,279,579 2,964,904 2,136,533
---------- --------- ---------
Net interest income ...................................................... 3,981,899 3,362,006 3,025,841
Provision for loan losses ................................................ 227,000 160,000 125,000
---------- --------- ---------
Net interest income after provision
for loan losses ..................................... 3,754,899 3,202,006 2,900,841
---------- --------- ---------
Non-interest income:
Service charges on deposit accounts ................................... 376,887 324,481 263,452
Net realized gains on sales of investment
securities, available-for-sale ..................................... - - 1,831
Deposit box rent ...................................................... 13,529 10,925 10,745
Bank card fees ........................................................ 8,659 9,343 9,525
Credit life insurance commissions ..................................... 26,708 20,859 15,662
Other ................................................................. 77,875 65,215 62,793
---------- --------- ---------
Total non-interest income .............................. 503,658 430,823 364,008
---------- --------- ---------
Non-interest expenses:
Salaries and employee benefits ........................................ 1,875,210 1,246,512 1,034,541
Premises and equipment ................................................ 367,919 263,891 285,532
Supplies .............................................................. 92,448 59,799 42,220
Director fees ......................................................... 69,600 58,000 57,600
FDIC insurance ........................................................ 5,207 78,355 140,628
Other ................................................................. 686,966 472,419 550,495
---------- --------- ---------
Total non-interest expenses ............................ 3,097,350 2,178,976 2,111,016
---------- --------- ---------
Income before income taxes ............................................... 1,161,207 1,453,853 1,153,833
Provision for income taxes ............................................... 411,336 516,551 399,640
---------- --------- ---------
Net income ............................................. 749,871 937,302 754,193
========== ========= =========
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME, YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
---- ---- ----
(Continued)
<S> <C> <C> <C>
Earnings per common share:
Weighted average shares outstanding 1,227,939 863,238 858,562
========== ======== ========
Net income per weighted average number
of shares outstanding $ .61 $ 1.09 $ 0.88
========== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS
48
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY,
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
UNREALIZED
GAIN (LOSS)
ON SECURITIES
AVAILABLE-FOR-
SALE, NET OF
APPLICABLE
............. COMMON STOCK ............ RETAINED DEFERRED
SHARES AMOUNT SUBSCRIBED EARNINGS INCOME TAXES TOTAL
------ ------ ---------- -------- ------------ -----
Balance,
<S> <C> <C> <C> <C> <C> <C>
January 1, 1994 ...................... 362,989 $4,634,531 $ - $1,342,214 $11,714 $5,988,459
Paid to dissenters in
lieu of issuance of
60,000 shares and
satisfaction of related
contingent obligation ............. - (936,600) - - - (939,600)
Sale of shares ....................... 58,600 914,699 - - - 914,699
Dissenter tender
rescinded ......................... 4,530 - - - - -
Additional shares
issued under stock
option plan ....................... 5,500 55,000 - - - 55,000
Net income ........................... - - - 754,193 - 754,193
Dividends paid at $.25
per share ......................... - - - (184,544) - (184,544)
Change in unrealized gain
(loss), net of applicable
deferred income taxes
on securities
available-for-sale ................ - - - - (204,227) (204,227)
Stock split 2 for 1 ................... 431,619 - - - - -
------- ---------- ------- ---------- ------- ----------
Balance,
December 31, 1994 .................... 863,238 4,667,630 - 1,911,863 (192,513) 6,386,980
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY,
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
UNREALIZED
GAIN (LOSS)
ON SECURITIES
AVAILABLE-FOR-
SALE, NET OF
APPLICABLE
............. COMMON STOCK ............ RETAINED DEFERRED
SHARES AMOUNT SUBSCRIBED EARNINGS INCOME TAXES TOTAL
------ ------ ---------- -------- ------------ -----
(CONTINUED):
<S> <C> <C> <C> <C> <C> <C>
Common stock
subscribed ........................ - $ - $98,000 $ - $ - $ 98,000
Stock issuance
cost .............................. - (50,660) - - - (50,660)
Net income ........................... - - - 937,302 - 937,302
Dividends paid at $.28
per share ......................... - - - (241,707) - (241,707)
Change in unrealized gain
(loss), net of applicable
deferred income taxes
on securities
available-for-sale ................ - - - - 215,817 215,817
------- ---------- ------- ---------- ------- ----------
Balance,
December 31, 1995 .................... 863,238 4,616,970 98,000 2,607,458 23,304 7,345,732
Sale of shares ....................... 450,000 4,500,000 (98,000) - - 4,402,000
Stock issuance cost .................. - (52,466) - - - (52,466)
Net income ........................... - - - 749,871 - 749,871
Dividends paid at $.29
per share ......................... - - - (317,809) - (317,809)
Change in unrealized gain
(loss), net of applicable
deferred income taxes
on securities
available-for-sale ................ - - - - (23,262) (23,262)
------- ---------- ------- ---------- ------- ----------
Balance,
December 31, 1996 .................... 1,313,238 9,064,504 - 3,039,520 42 12,104,066
======= ========== ======= ========== ======= ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS
50
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS,
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .............................................................. $ 749,871 $ 937,302 $ 754,193
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................................ 221,899 138,740 144,350
Accretion of discounts and amortization of premiums -
investment securities - net ....................................... (39,664) (21,468) 31,863
Provision for loan losses ............................................ 227,000 160,000 125,000
Loss on sale of other real estate owned .............................. - 7,168 -
Deferred income taxes ................................................ (102,684) 83,630 (111,360)
Net investment securities gains ...................................... - - (1,831)
Proceeds from sales of real estate loans held for sale ............... 4,105,550 2,900,000 4,300,000
Originations of real estate loans held for sale ...................... (4,105,550) (2,900,000) (4,300,000)
(Increase) decrease in real estate loans held for sale ............... (295,450) 115,463 260,274
Changes in operating assets and liabilities:
Increase in accrued interest receivable .............................. (138,854) (119,378) (132,432)
(Increase) decrease in other assets .................................. (237,081) 72,309 (88,235)
Increase (decrease) in other liabilities ............................. 141,570 188,838 (68,298)
------------ ------------- -------------
Net cash provided by operating activities ................ 526,607 1,562,604 913,524
------------ ------------- -------------
Cash flows from investing activities:
Net (increase) decrease in interest-bearing deposits
with banks ........................................................... (110,794) (120,643) 200,000
Purchases of securities held-to-maturity ................................ (9,174,653) (17,566,592) (25,832,574)
Purchases of securities available-for-sale .............................. (6,786,100) (2,645,215) (8,601,124)
Proceeds from sales of securities
available-for-sale ................................................... - - 995,781
Proceeds from maturities of securities
held-to-maturity ..................................................... 9,786,291 16,144,624 22,830,076
Proceeds from maturities of securities
available-for-sale .................................................. 5,095,367 3,040,556 4,217,635
Proceeds from sale of other real estate owned ........................... - 92,832 107,955
Net increase in loans ................................................... (16,588,422) (3,838,620) (6,365,784)
Purchases of premises and equipment ..................................... (1,330,931) (585,169) (21,648)
------------ ------------- -------------
Net cash used by investing activities .................... (19,109,242) (5,478,227) (12,469,683)
------------ ------------- -------------
</TABLE>
51
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS,
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Continued)
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in demand, transaction
and savings deposit accounts ......................................... $ 10,036,576 $ (2,931,974) $ (9,655,539)
Net increase in time deposits ........................................... 7,264,457 7,813,587 18,588,977
Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase ................... (826,438) (230,129) 1,165,571
Federal Home Loan Bank advances ......................................... 430,000 700,000 -
Increase in note payable ................................................ 809,203 240,000 -
Repayment of note payable ............................................... (1,049,203) - -
Proceeds from issuance of common stock .................................. 4,402,000 - 914,699
Proceeds from common stock subscribed ................................... - 98,000 -
Stock issuance cost ..................................................... (52,466) (50,660) -
Stock options exercised ................................................. - - 55,000
Dividends paid .......................................................... (317,809) (241,707) (184,544)
Paid to dissenters in lieu of issuance of 60,000 shares ................. - - (936,600)
------------ ------------- -------------
Net cash provided by financing activities ................ 20,696,320 5,397,117 9,947,564
------------ ------------- -------------
Net increase (decrease) in cash and cash equivalents ....................... 2,113,685 1,481,494 (1,608,595)
Cash and cash equivalents at beginning of year ............................. 4,534,782 3,053,288 4,661,883
------------ ------------- -------------
Cash and cash equivalents at end of year ................................... 6,648,467 4,534,782 3,053,288
============ ============= =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest payments on a cash basis (net of
$6,131 capitalized in 1996) ....................................... $ 3,222,076 $ 2,867,683 $ 2,062,523
============ ============= =============
Cash payments for income taxes ....................................... $ 516,000 $ 527,443 $ 526,112
============ ============= =============
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING ACTIVITIES:
Non-cash transfers during the year for transfer of
loans receivable to other real estate owned ....................... $ - $ - $ 119,493
============ ============= =============
Total increase (decrease) in unrealized gain (loss) on
securities available-for-sale, net of applicable
deferred income taxes .................................................... $ (23,262) $ 215,817 $ (204,227)
============ ============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS
52
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 - ORGANIZATION:
Community Bankshares, Inc. (the "Corporation"), was organized under the laws of
the State of South Carolina and was chartered as a business corporation November
30, 1992. Pursuant to the provisions of the Bank Holding Company Act, an
application was filed with and approved by the Board of Governors of the Federal
Reserve System for the Corporation to become a bank holding company by the
acquisition of Orangeburg National Bank (ONB). ONB provides general banking
services in the Orangeburg area of South Carolina.
During 1992, the Corporation filed a registration statement with the Securities
and Exchange Commission (the SEC) under the Securities Act of 1933 covering
issuance by the Corporation of its common shares in connection with a merger
agreement whereby all the outstanding shares of ONB would be exchanged for
shares of the Corporation. In accordance with the terms of the Merger Agreement,
ONB became a wholly-owned subsidiary of the Corporation in 1993. The Corporation
issued 362,989 shares of common stock in exchange for the outstanding common
stock of ONB on a one-for-one share basis. No shares of the Corporation's common
stock were issued to the holders of 64,530 shares who voted against the merger
and subsequently perfected their rights as dissenters. Such dissenters were paid
the appraised value of ONB stock by the Corporation, and the shares of the
Corporation that were not issued to dissenters were sold at an auction pursuant
to the provisions of the National Bank Act relating to dissenters' rights. A
portion of the shares sold at the auction were purchased by the Corporation and
subsequently sold by the Corporation in an exempt offering to residents of South
Carolina. Acquisition of ONB was recorded at historical cost in a manner similar
to a pooling of interest method.
In June 1996, Sumter National Bank (SNB) commenced operations in Sumter, South
Carolina, following approval by the Comptroller of the Currency and other
regulators. Upon completion of its organization, the common stock of SNB was
acquired by the Corporation. SNB provides general banking services in the Sumter
area of South Carolina.
The Banks operate as wholly-owned subsidiaries of the Corporation with separate
Boards of Directors and operating policies.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of Community Bankshares, Inc. and
subsidiaries are in conformity with generally accepted accounting principles
followed within the banking industry. The significant accounting policies
followed are summarized below.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of Community Bankshares, Inc. and
subsidiaries include the accounts of the Corporation (the Parent Holding
Company) and its wholly-owned subsidiaries, the Banks. Significant intercompany
balances and transactions have been eliminated.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
53
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
ORGANIZATION, STOCK OFFERING AND PREOPENING COSTS:
Costs associated with the organization of SNB have been accounted for as
follows:
Organization costs were deferred and are amortized using the straight-line
method over five years upon commencement of operations.
Stock issuance costs were charged to common stock as incurred.
Preopening costs were expensed as incurred.
CASH AND CASH EQUIVALENTS:
For purposes of the consolidated statements of cash flows, the Corporation has
defined cash and cash equivalents as those amounts included in the balance
sheets under the caption, "Cash and due from banks" and "federal funds sold."
SECURITIES:
Securities that management has the ability and intent to hold to maturity are
classified as held-to-maturity and carried at cost, adjusted for amortization of
premium and accretion of discounts using methods approximating the interest
method. Other securities are classified as available-for-sale and are carried at
fair value. Unrealized gains and losses on securities available-for-sale are
recognized as direct increases or decreases, net of deferred income taxes, in
shareholders' equity until realized. Gains and losses on the sale of
available-for-sale securities are recognized using the specific identification
method.
No securities are being held for short-term resale; therefore, the Corporation
does not currently use a trading account classification.
REAL ESTATE LOANS HELD FOR SALE:
Real estate loans originated and intended for sale in the secondary market are
carried at the lower of cost or fair value determined on an aggregate basis.
Gains and losses, if any, on the sale of such loans are determined using the
specific identification method.
LOAN SALES:
The Corporation originates loans for sale generally without recourse to other
financial institutions under commitments or other arrangements in place prior to
loan origination. Sales are completed at or near the loan origination date. All
fees and other income from these activities are recognized in income when loan
sales are completed. At December 31, 1996, the Corporation had sold mortgage
loans on which recourse remained with the Corporation due to possible borrower
default and other general recourse provisions as follows:
PRINCIPAL
LOAN
BALANCE
SUBJECT TO
PRINCIPAL RECOURSE CRITERIA RECOURSE
A default occurs during the first four (4)installments due
and the default continues for a period of ninety (90) days $1,457,450
==========
54
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The repurchase price would include the outstanding principal loan balance and
accrued interest, any servicing release fee and other costs. Management does not
anticipate any unusual risk associated with this potential obligation.
LOANS RECEIVABLE:
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral,
and current economic conditions.
OTHER REAL ESTATE OWNED:
Real estate properties acquired through or in lieu of loan foreclosure are
recorded at fair value less estimated disposal costs. Fair value is determined
on the basis of the property being disposed of in the normal course of business
and not on a liquidation or distress basis. Subsequent write-downs of other real
estate owned are charged against current earnings.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation computed
principally on the straight-line method over the estimated useful lives of the
assets. Useful lives generally used in providing for depreciation are as
follows:
Building 40 years
Building components 5-30 years
Vault door, safe deposit boxes, night depository, etc. 40 years
Furniture, fixtures and equipment 5-25 years
MARKETING EXPENSES:
The Corporation expenses the costs of marketing as incurred. Marketing expenses
totaled approximately $86,000, $52,000 and $48,000 in 1996, 1995 and 1994,
respectively.
INCOME TAXES:
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws
55
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
or rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes. The provision (benefit) for income taxes of each
subsidiary is recorded as if each subsidiary filed a separate return.
OTHER OFF-BALANCE-SHEET INSTRUMENTS:
In the ordinary course of business the Corporation has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit and standby letters of credit. Such financial instruments are recorded in
the consolidated financial statements when they are funded or related fees are
incurred or received.
FAIR VALUES OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used by the Corporation in estimating
fair values of financial instruments as disclosed herein:
Cash and short-term instruments. The carrying amounts of cash and
short-term instruments approximate their fair value.
Securities available-for-sale and held-to-maturity. Fair values for
securities are based on quoted market prices. The market values of state
and local government securities are established with the assistance of an
independent pricing service. The values are based on data which often
reflect transactions of relatively small size and are not necessarily
indicative of the value of the securities when traded in large volumes.
Loans receivable. For variable-rate loans that reprice frequently and have
no significant change in credit risk, fair values are based on carrying
values. Fair values for certain mortgage loans (for example, one-to-four
family residential) and other consumer loans are based on quoted market
prices of similar loans sold, adjusted for differences in loan
characteristics. Fair values for commercial real estate and commercial
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. Fair values for impaired loans are estimated using
discounted cash flow analyses or underlying collateral values, where
applicable.
Deposit liabilities. The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The carrying amounts of variable-rate,
fixed-term money-market accounts and certificates of deposit (CDs)
approximate their fair values at the reporting date. Fair values for
fixed-rate CDs are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Short-term borrowings. The carrying amounts of federal funds purchased and
borrowings under repurchase agreements, approximate their fair values. Fair
values of other short-term borrowings are estimated using discounted cash
flow analyses based on the Corporation's current incremental borrowing
rates for similar types of borrowing arrangements.
Long-term debt. The fair values of the Corporation's long-term debt are
estimated using discounted cash flow analyses based on the Corporation's
current incremental borrowing rates for similar types of borrowing
arrangements.
56
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Accrued interest. The carrying amounts of accrued interest approximate
their fair values.
Off-balance-sheet instruments. Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the counterparties' credit standings.
EARNINGS PER COMMON SHARE:
Earnings per common share are calculated on the basis of the weighted average
number of shares outstanding during the period. The weighted average number of
shares outstanding used in computing earnings per share does not include stock
options which have been granted but not exercised and common stock subscribed
since the dilution on earnings per common share is less than 3% for all periods
presented.
STOCK-BASED COMPENSATION:
The Corporation currently accounts for its stock-based compensation using the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25).
In 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FASB
No. 123). Under the provisions of FASB No. 123, companies can elect to account
for stock-based compensation plans using a fair-value-based method or continue
measuring compensation expense for those plans using the intrinsic value method
prescribed in APB 25.
The Corporation elected to continue to account for stock-based compensation
using the intrinsic value method. FASB No. 123 did not have an impact on the
Corporation's results of operations or financial position.
DIVIDEND REINVESTMENT PLAN:
Under the Corporation's Dividend Reinvestment Plan, stockholders may reinvest
all or part of their cash dividends in shares of common stock and also purchase
additional shares of common stock.
OTHER:
Certain amounts in the statements have been restated to conform to the current
year's presentation and disclosure requirements.
NOTE 3 - RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS:
During the year ended December 31, 1996, the Banks were able to meet total
reserve requirements of the Federal Reserve with vault cash. The required
reserve balance was $404,000 at December 31, 1996.
At December 31, 1996, the Corporation had bank balances with correspondent banks
totaling approximately $94,000 which were fully insured by the FDIC.
NOTE 4 - INVESTMENT SECURITIES:
Debt and equity securities have been classified in the consolidated financial
statements according to management's intent.
57
<PAGE>
NOTE 4 - INVESTMENT SECURITIES (CONTINUED):
Securities held-to-maturity consist of the following:
<TABLE>
<CAPTION>
.......................... DECEMBER 31, 1996 .......................................
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government and
federal agencies ............. $ 14,612,473 $ - $ - $14,612,473
State and local
governments .................. 414,069 2,741 - 416,810
------------ ------ ------- -----------
Total ............... 15,026,542 2,741 - 15,029,283
============ ====== ======= ===========
<CAPTION>
........................ DECEMBER 31, 1995 ......................................
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government and
federal agencies .............. $15,287,206 $69,149 $(60,965) $15,295,390
State and local
governments ................... 322,882 998 - 323,880
----------- ------- ------- -----------
Total ................ 15,610,088 70,147 (60,965) 15,619,270
=========== ======= ======= ===========
</TABLE>
58
<PAGE>
NOTE 4 - INVESTMENT SECURITIES (CONTINUED):
Securities available-for-sale consist of the following:
<TABLE>
<CAPTION>
.............................. DECEMBER 31, 1996 .........................
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government and
federal agencies .......................... $10,174,597 $14,556 $(14,491) $10,174,662
Federal Home Loan
Bank stock ................................ 250,600 - - 250,600
Federal Reserve
Bank stock ................................ 244,050 - - 244,050
Equity securities ............................ 91,542 - - 91,542
----------- ------- -------- -----------
Total ............................ 10,760,789 14,556 (14,491) 10,760,854
=========== ======= ======== ===========
<CAPTION>
.............................. DECEMBER 31, 1996 .........................
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government and
federal agencies ............................ $8,651,343 $49,689 $(13,333) $8,687,699
Federal Home Loan
Bank stock .................................. 231,800 - - 231,800
Federal Reserve
Bank stock .................................. 139,050 - - 139,050
---------- ------- -------- ---------
Total .............................. 9,022,193 49,689 (13,333) 9,058,549
========== ======= ======== =========
</TABLE>
59
<PAGE>
NOTE 4 - INVESTMENT SECURITIES: (CONTINUED)
The following is a summary of maturities of securities held-to-maturity and
available-for-sale as of December 31, 1996.
<TABLE>
<CAPTION>
SECURITIES SECURITIES
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
---- ---------- ---- ----------
Amounts maturing in:
<S> <C> <C> <C> <C>
One year or less $ 2,291,998 $ 2,291,998 $ 2,971,951 $ 2,979,005
After one year through
five years 12,734,544 12,737,544 7,202,646 7,195,657
After five years through
ten years - - - -
After ten years - - 586,192 586,192
----------- ----------- ----------- -----------
Total 15,026,542 15,029,283 10,760,789 10,760,854
=========== =========== =========== ===========
</TABLE>
Investment securities with a carrying amount of approximately $10,665,000 at
December 31, 1996, were pledged. Of this amount, approximately $4,150,000 was
pledged to secure public deposits.
NOTE 5 - LOANS RECEIVABLE:
The following is a summary of loans by category at December 31, 1996 and 1995
(in thousands of dollars):
1996 1995
---- ----
Commercial, financial and agricultural $ 16,520 $12,408
Real estate - construction 5,611 3,449
Real estate - mortgage 35,553 28,029
Installment loans to individuals 11,021 8,361
Obligations of states and political subdivisions 124 77
-------- -------
Total loans - gross 68,829 52,324
======== =======
Gross proceeds on mortgage loans originated for resale was approximately $4.1
million, $2.9 million and $4.3 million for the years ended December 31, 1996,
1995 and 1994, respectively. The Bank sold all of these loans at par; therefore,
no gain or loss was recognized on the sales.
Loans outstanding to directors, executive officers, principal holders of equity
securities, or to any of their associates totaled $2,958,826 at December 31,
1996, and $2,606,183 at December 31, 1995. A total of $3,006,538 in loans were
made or added, while a total of $2,653,895 were repaid or deducted during 1996.
Related party loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than normal risk of
collectibility. Changes in the composition of the board of directors or the
group comprising executive officers result in additions to or deductions from
loans outstanding to directors, executive officers or principal holders of
equity securities.
60
<PAGE>
NOTE 5 - LOANS RECEIVABLE:(CONTINUED)
Changes in the allowance for loan losses for the years ended December 31, 1996,
1995 and 1994, were as follows:
1996 1995 1994
---- ---- ----
Balance at beginning of year $ 706,525 $ 615,561 $ 544,466
Charge-offs (85,860) (83,532) (121,086)
Recoveries 28,195 14,496 67,181
--------- ---------- ----------
Balance before provision
for loan losses 648,860 546,525 490,561
Provision for loan losses 227,000 160,000 125,000
--------- ---------- ----------
Balance at end of year 875,860 706,525 615,561
========= ========== ==========
Impairment of loans having recorded investments of $120,067 at December 31,
1996, and $108,152 at December 31, 1995, has been recognized in conformity with
FASB Statement 114, as amended by FASB Statement 118. The average recorded
investment in impaired loans during 1996 and 1995 was $113,755 and $92,038,
respectively. The total allowance for loan losses related to these loans was
$22,000 and $16,000 at December 31, 1996 and 1995, respectively. No interest
income was recognized on impaired loans during periods classified as such.
NOTE 6 - PREMISES AND EQUIPMENT:
Premises and equipment at December 31, 1996 and 1995, consist of the following:
1996 1995
---- ----
Land $ 682,636 $ 681,340
Building and components 1,367,585 774,536
Furniture, fixtures and equipment 1,550,449 877,329
---------- ----------
Total 3,600,670 2,333,205
Less, accumulated depreciation 763,555 624,958
---------- ----------
Premises and equipment - net 2,837,115 1,708,247
========== ==========
Depreciation expense charged to operations was $202,063, $124,800, and $124,281,
for the years ended December 31, 1996, 1995 and 1994, respectively.
61
<PAGE>
NOTE 7 - DEPOSITS:
The aggregate amount of short-term jumbo CDs, each with a minimum denomination
of $100,000, was approximately $12,097,000 and $11,101,000 at December 31, 1996
and 1995, respectively.
At December 31, 1996, the scheduled maturities of CDs are as follows (in
thousands of dollars):
1997 $ 41,391
1998 3,319
--------
44,710
========
Deposits of directors and officers totaled approximately $1,907,000 at December
31, 1996.
NOTE 8 - OTHER BORROWED FUNDS:
Federal funds purchased and securities sold under agreements with customers to
repurchase generally mature within one day from the transaction date.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
1996 1995
---- ----
Average balance during the year $2,137,720 $3,624,142
Average interest rate during the year 3.83% 4.89%
Maximum month-end balance during the year $3,776,000 $4,595,000
NOTE 9 - NOTES PAYABLE:
In August 1995, the Corporation negotiated a $500,000, prime rate, unsecured
line of credit with a bank. The purpose of this line of credit was to finance
some of the preopening costs associated with the organization of SNB. In
February 1996, the Corporation negotiated an additional $750,000 prime rate line
of credit with the same bank. The purpose of this line of credit was to help
finance the construction of the office facility for SNB. The line of credit was
collateralized by a mortgage on SNB's building and property. The lines of credit
were repaid in June 1996, and are summarized as follows:
1996 1995
---- ----
Interest rate at year-end - 8.50%
========== ===========
Maximum amount outstanding at any month-end $1,049,203 $ 240,000
========== ===========
Average amount outstanding during the year $ 195,667 $ 95,000
========== ===========
Weighted average interest rate during the year 8.25% 8.70%
========== ===========
NOTE 10 - FEDERAL HOME LOAN BANK ADVANCES:
ONB is a member of the Federal Home Loan Bank and as such, has access to
long-term borrowing. The collateral for any such borrowings is a blanket lien on
ONB's one to four family residential loans and the stock in the Federal Home
Loan Bank. Principal is payable in annual installments of $70,000 and interest
is payable monthly and the advances mature August 2005.
62
<PAGE>
NOTE 10 - FEDERAL HOME LOAN BANK ADVANCES (CONTINUED):
Borrowings during 1996 and 1995 are summarized as follows:
1996 1995
---- ----
Interest rate at year-end 6.73% 6.94%
========== ===========
Maximum amount outstanding at any month-end $1,300,000 $ 700,000
========== ===========
Average amount outstanding during the year $1,148,633 $ 276,000
========== ===========
Weighted average interest rate during the year 6.64% 6.88%
========== ===========
Principal reductions are as follows:
YEAR ENDED:
1997 $ 70,000
1998 70,000
1999 70,000
2000 70,000
2001 70,000
Thereafter 780,000
----------
Total 1,130,000
==========
NOTE 11 - STOCK OPTIONS:
The Corporation has granted 42,000 shares of common stock for issuance to key
employees as nonqualified stock options. The options expire in 2000 and the
exercise price per share is $7.80. All options are exercisable at December 31,
1996.
NOTE 12 - INCOME TAXES:
The Corporation files consolidated federal income tax returns on a calendar-year
basis.
The 1996, 1995 and 1994 provision for income taxes consists of the following:
1996 1995 1994
---- ---- ----
Currently payable:
Federal $ 459,591 $ 507,125 $ 472,102
South Carolina 54,429 46,343 38,898
Deferred income taxes (102,684) (36,917) (111,360)
---------- ----------- -----------
Total 411,336 516,551 399,640
========== =========== ===========
63
<PAGE>
NOTE 12 - INCOME TAXES (CONTINUED):
The provision for federal income taxes differs from that computed by applying
federal statutory rates to income before federal income tax expense as indicated
in the following analysis:
1996 1995 1994
Income tax at statutory rate on income
before income taxes $ 394,811 $ 494,310 $ 392,303
Increase (decrease):
South Carolina bank tax, net of federal
tax benefit 25,837 43,179 25,673
Tax exempt interest (5,858) (2,554) (12,333)
Other (3,454) (18,384) (6,003)
---------- ---------- ---------
Provision for income taxes 411,336 516,551 399,640
========== ========== =========
Temporary differences which give rise to deferred tax assets and liabilities at
December 31, 1996 and 1995 follow:
1996 1995
---- ----
Allowance for loan losses $ 254,516 $ 218,856
Preopening costs 53,062 21,917
Other 26,389 441
---------- ----------
Total deferred tax assets 333,967 241,214
---------- ----------
Depreciation 40,160 37,850
Accretion 10,600 9,811
Unrecognized gain on securities available-for-sale 22 13,052
---------- ----------
Total deferred tax liabilities 50,782 60,713
---------- ----------
Total deferred taxes 283,185 180,501
========== ==========
NOTE 13 - EMPLOYEE BENEFIT PLAN:
Effective January 1, 1990, a defined contribution plan with an Internal Revenue
Code Section 401(K) provision was established. All employees who have completed
1,000 hours of service during a twelve-month period and have attained age 18
will participate as of the January 1, or July 1 closest to the date on which the
employee meets the eligibility requirements.
64
<PAGE>
NOTE 13 - EMPLOYEE BENEFIT PLAN (CONTINUED):
A participant may elect to make tax deferred contributions up to a maximum of
10% of eligible compensation. The Banks will make matching contributions on
behalf of each participant in the amount of 100% of the elective deferral, not
exceeding 3% of the participant's compensation. The Banks may also make
nonelective contributions determined at the discretion of the Board of
Directors. The Banks' contributions for the years ended December 31, 1996, 1995,
and 1994 totaled $90,348, $68,976, and $61,913, respectively.
NOTE 14 - FINANCIAL INSTRUMENTS:
The Banks are parties to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of their customers and
to reduce their own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the consolidated statement of
financial position. The contract or notional amounts of those instruments
reflect the extent of involvement the Banks have in particular classes of
financial instruments.
The Banks' exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of those
instruments. The Banks use the same credit policies in making commitments and
conditional obligations as they do for on-balance-sheet instruments. The Banks
control the credit risk through credit approvals, limits, and monitoring
procedures. Additionally collateral and guarantees may also be required.
Commitments to extend credit and standby letters of credit include exposure to
some credit loss in the event of nonperformance of the customer.
Commitments to extend credit are agreements to lend to a customer as long as
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 many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Banks evaluate each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Banks upon extension of credit, is based on management's credit
evaluation of the counter-party. Collateral held varies but may include personal
residences, accounts receivable, inventory, property, plant, and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Banks to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support private borrowing arrangements. All letters of
credit are short-term guarantees. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Banks' policy for obtaining collateral, and the nature of such
collateral, is essentially the same as that involved in making commitments to
extend credit.
65
<PAGE>
NOTE 14 - FINANCIAL INSTRUMENTS (CONTINUED):
The estimated fair value of the Corporation's consolidated financial instruments
at December 31, 1996 and 1995, are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
---- ----
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents ..................... $ 6,648 $ 6,648 $ 4,535 $ 4,535
Interest-bearing deposits in
other banks ................................ 431 431 321 324
Investment securities ......................... 25,787 25,790 24,669 24,678
Loans receivable .............................. 67,953 68,329 51,617 51,760
Financial liabilities:
Deposits ...................................... 89,851 89,909 72,550 72,582
Federal funds purchased and
securities sold under agreement to
repurchase ................................. 1,744 1,744 2,570 2,570
Federal Home Loan Bank advances ............... 1,130 1,174 700 700
Note payable .................................. - - 240 240
Off-balance-sheet financial instruments:
Commitments to extend credit .................. 10,626 10,626 5,946 5,946
Standby letters of credit ..................... 355 355 193 193
</TABLE>
NOTE 15 - CONCENTRATION OF CREDIT RISK:
The Banks grant agribusiness, commercial, consumer and residential loans to
customers throughout the State of South Carolina. Although the Banks have
diversified loan portfolios, a substantial portion of their debtors' ability to
honor their contracts is dependent upon the economies of Orangeburg and Sumter
Counties, South Carolina and the surrounding areas.
The contractual amounts of credit-related financial instruments such as
commitments to extend credit and letters of credit represent the amounts of
potential accounting loss should the contract be fully drawn upon, the customer
default, and the value of any existing collateral become worthless.
NOTE 16 - CONTINGENCIES:
The Corporation is also subject at times to claims and lawsuits arising out of
the normal course of business. The Corporation does not anticipate any material
losses with respect to such existing or pending claims and lawsuits at December
31, 1996.
NOTE 17 - REGULATORY MATTERS:
The Banks, as national banks, are subject to the dividend restrictions set forth
by the Comptroller of the Currency. Under such restrictions, the Banks may not,
without the prior approval of the Comptroller of the Currency, declare dividends
in excess of the sum of the current years' earnings (as defined) plus the
retained earnings (as defined) from the prior two years. The dividends, at
December 31, 1996, that the Banks could declare, without the approval of the
Comptroller of the Currency, amounted to approximately $1,412,000.
66
<PAGE>
NOTE 17 - REGULATORY MATTERS (CONTINUED)
Under Federal Reserve regulation, the Banks also are limited as to the amount
they may loan to the Corporation unless such loans are collateralized by
specified obligations. The maximum amount available for transfer from the Banks
to the Corporation in the form of loans or advances approximated $2,157,000 at
December 31, 1996.
The Banks are 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 the
Banks' financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Banks must meet specific
capital guidelines that involve quantitative measures of the Banks' assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Banks' 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 the Banks to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the
Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notifications from the Office of the
Comptroller of the Currency categorized the Banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Banks must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the Banks' categories.
67
<PAGE>
NOTE 17 - REGULATORY MATTERS (CONTINUED):
The Banks' actual capital amounts and ratios are also presented in the table (in
thousands of dollars).
<TABLE>
<CAPTION>
At December 31, 1996:
MINIMUM REQUIRED
MINIMUM REQUIRED TO BE WELL
FOR CAPITAL CAPITALIZED
ACTUAL ADEQUACY PURPOSES UNDER PROMPT
CORRECTIVE
ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
Tier I Capital (to
<S> <C> <C> <C> <C> <C> <C>
Average Assets):
Consolidated $12,078 11.5% $4,200 4.0% $5,250 5.0%
ONB 7,623 8.4% 3,640 4.0% 4,550 5.0%
SNB 3,133 24.6% 509 4.0% 636 5.0%
Tier I Capital (to
Risk Weighted
Assets):
Consolidated 12,078 17.5% 2,756 4.0% 4,134 6.0%
ONB 7,623 13.4% 2,271 4.0% 3,407 6.0%
SNB 3,133 28.9% 433 4.0% 650 6.0%
Total Capital (to
Risk Weighted
Assets):
Consolidated 12,886 18.7% 5,512 8.0% 6,891 10.0%
ONB 8,334 14.7% 4,543 8.0% 5,679 10.0%
SNB 3,230 29.8% 866 8.0% 1,084 10.0%
At December 31, 1995:
Tier I Capital (to
Average Assets):
Consolidated $7,346 8.9% $3,291 4.0% $4,114 5.0%
ONB 6,988 8.4% 3,339 4.0% 4,174 5.0%
Tier I Capital (to
Risk Weighted
Assets):
Consolidated 7,346 14.4% 2,035 4.0% 3,052 6.0%
ONB 6,988 13.9% 2,015 4.0% 3,022 6.0%
Total Capital (to
Risk Weighted
Assets):
Consolidated 7,982 15.7% 4,069 8.0% 5,087 10.0%
ONB 7,618 15.1% 4,030 8.0% 5,036 10.0%
</TABLE>
68
<PAGE>
NOTE 18 - CONDENSED FINANCIAL STATEMENTS:
Presented below are the condensed financial statements for Community Bankshares,
Inc. (Parent Company only).
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC. (PARENT COMPANY ONLY)
... DECEMBER 31 ...
1996 1995
---- ----
<S> <C> <C>
Balance Sheets:
Assets:
Cash $ 82,026 $ 210,608
Investment in banking subsidiaries 10,782,768 6,988,005
Securities held-to-maturity (fair value - $890,279 in 1996) 890,279 -
Premises and equipment (net of accumulated
depreciation of $140,721 in 1996 and $1,894 in 1995) 270,898 346,317
Due from banking subsidiaries 2,892 36,049
Other assets 120,125 71,101
----------- ----------
Total assets 12,148,988 7,652,080
=========== ==========
Liabilities and shareholders' equity:
Note payable $ - $ 240,000
Other liabilities 44,922 66,348
Shareholders' equity 12,104,024 7,322,428
Unrealized gain on securities available-for-sale,
net of applicable deferred income taxes 42 23,304
----------- ----------
Total liabilities and shareholders' equity 12,148,988 7,652,080
=========== ==========
<CAPTION>
..... YEAR ENDED DECEMBER 31 .....
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statements of Income:
Income:
Dividends from banking subsidiaries $ 503,500 $ 415,000 $ 328,500
Management fees 437,802 - -
Interest 69,206 - -
----------- ----------- ----------
Total 1,010,508 415,000 328,500
----------- ----------- ----------
</TABLE>
69
<PAGE>
NOTE 18 - CONDENSED FINANCIAL STATEMENTS (CONTINUED):
COMMUNITY BANKSHARES, INC. (PARENT COMPANY ONLY) (CONTINUED):
<TABLE>
<CAPTION>
..... YEAR ENDED DECEMBER 31 .....
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Expenses:
Salaries and employee benefits $ 264,432 $ 45,413 $ -
Premises and equipment 85,664 1,120 516
Supplies 22,263 148 110
Director fees 19,200 2,800 -
Interest 11,098 8,497 17,604
Other general expenses 214,570 48,049 102,462
---------- --------- -----------
Total 617,227 106,027 120,692
---------- --------- -----------
Income before equity in undistributed
earnings of banking subsidiaries 393,281 308,973 207,808
Applicable income tax benefit 38,566 36,049 44,660
Equity in undistributed earnings of
banking subsidiaries 318,024 592,280 501,725
---------- --------- -----------
Net income 749,871 937,302 754,193
========== ========= ===========
Statements of Cash Flows:
Cash flows from operating activities:
Net income $ 749,871 $ 937,302 $ 754,193
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 55,722 13,783 516
(Increase) decrease in due from banking
subsidiaries 33,157 8,611 (44,660)
(Increase) decrease in other assets (65,317) (30,360) 18,624
Increase (decrease) in other liabilities (21,426) 61,348 (8,622)
Undistributed earnings of banking
subsidiaries (318,024) (592,280) (501,725)
---------- ---------- -----------
Net cash provided by operating
activities 433,983 398,404 218,326
---------- ---------- -----------
Cash flows from investing activities:
Investment in SNB (3,500,001) - -
Transfer of premises and equipment to SNB 444,398 - -
Purchase of premises and equipment (408,408) (346,663) -
Purchases of securities held-to-maturity (1,137,056) - -
Proceeds from maturities of securities
held-to-maturity 246,777 - -
----------- ---------- ----------
Net cash used by investing activities (4,354,290) (346,663) -
----------- ---------- ----------
</TABLE>
70
<PAGE>
NOTE 18 - CONDENSED FINANCIAL STATEMENTS (CONTINUED):
COMMUNITY BANKSHARES, INC. (PARENT COMPANY ONLY) (CONTINUED):
<TABLE>
<CAPTION>
..... YEAR ENDED DECEMBER 31 .....
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Increase in note payable $ 809,203 $ 240,000 $ -
Repayment of note payable (1,049,203) - -
Common stock issued 4,402,000 - 914,699
Common stock subscribed - 98,000 -
Stock issuance cost (52,466) (50,660) -
Stock options exercised - - 55,000
Paid to dissenters in lieu of issuance
of 60,000 shares - - (936,600)
Cash dividends paid (317,809) (241,707) (184,544)
----------- ---------- --------------
Net cash used (provided) by financing
activities 3,791,725 45,633 (151,445)
----------- ---------- --------------
Net increase (decrease) in cash and cash equivalents (128,582) 97,374 66,881
Cash and cash equivalents at beginning of year 210,608 113,234 46,353
---------- ----------- --------------
Cash and cash equivalents at end of year 82,026 210,608 113,234
========== =========== ==============
Supplemental disclosures:
Total increase (decrease) in unrealized gain
(loss) on securities available-for-sale $ (23,262) $ 215,817 $ (204,227)
========== =========== ==============
</TABLE>
THESE NOTES ARE AN INTEGRAL PART OF THE ACCOMPANYING FINANCIAL STATEMENTS
71
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December File Number 000-22054
31, 1996
COMMUNITY BANKSHARES, INC.
(Exact Name of Small Business Issuer in its Charter)
South Carolina 57-0966962
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
791 Broughton St., Orangeburg, South Carolina 29115
(Address of Principal Executive Office, Zip Code)
Issuer's Telephone Number, Including Area Code: (803) 535-1060
Securities Registered Pursuant to Section 12(b) of the Act: Common Stock,
No Par Value
(Title of Class)
Securities Registered Pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) has filed all the reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or 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 [_]
Check here if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenue for the most recent fiscal year. $ 7,765,000
The aggregate market value of the Common Stock held by non-affiliates
on February 24, 1997, was approximately $10,735,000. As of February 24, 1997,
there were 1,313,238 shares of the Registrant's Common Stock, no par value,
outstanding. For purposes of the foregoing calculation only, all directors and
executive officers of the Registrant have been deemed affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to the Stockholders for the year ended Dec.
31, 1996 - Part II
(2) Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Shareholders - Part III Transitional Small Business Disclosure Format.
Yes __ No X
1
<PAGE>
10-KSB CROSS REFERENCE INDEX
Part I Page
Item 1 Description of Business 72
Item 2 Description of Property 83
Item 3 Legal Proceedings 83
Item 4 Submission of Matters to a Vote of Security Holders None
Part II
Item 5 Market for Common Equity and Related Stockholder 12
Matters
Item 6 Management's Discussion and Analysis of Financial 13
Position and Operations
Item 7 Financial Statements 39
Item 8 Changes In and Disagreements with Accountants on None
Accounting and Financial Disclosure
Part III
Item 9 Directors and Executive Officers *
Item 10 Executive Compensation *
Item 11 Security Ownership of Certain Beneficial Owners *
and Management
Item 12 Certain Relationships and Related Transactions *
Part IV
Item 13 Exhibits and Reports on Form 8-K 86
* Incorporated by reference to the Registrant's Proxy Statement for the 1997
Annual Meeting of Shareholders
PART I
Item 1. Description of Business
Form of organization
Community Bankshares, Inc. (CBI) is a South Carolina corporation and a
bank holding company. CBI commenced operations on July 1, 1993, upon
effectiveness of the acquisition of the Orangeburg National Bank as a wholly
owned subsidiary. In June 1996 CBI acquired all the stock of Sumter National
Bank, which is also a wholly owned subsidiary.
Orangeburg National Bank (the Orangeburg bank) is a national bank,
chartered in 1987, operating from two offices located in Orangeburg, South
Carolina.
Sumter National Bank (the Sumter bank) is a national bank, chartered
in 1996, operating from one office located in Sumter, South Carolina.
Business of banking
The Banks offer a full array of commercial bank services. Deposit
services include business and personal checking accounts, NOW accounts, savings
accounts, money market accounts, various term certificates of deposit, IRA
accounts, and other deposit services. Deposits are insured up to applicable
limits by the Federal Deposit Insurance Corporation. Most of the Banks' deposits
are attracted from individuals and small businesses.
The Banks offer secured and unsecured, short-to-intermediate term
loans, with floating and fixed interest rates for commercial and consumer
2
<PAGE>
purposes. Consumer loans include: car loans, home equity improvement loans
secured by first and second mortgages, personal expenditure loans, education
loans, and the like. Commercial loans include short term unsecured loans, short
and intermediate term real estate mortgage loans, loans secured by listed
stocks, loans secured by equipment, inventory, accounts receivable, and the
like. The Banks do not and will not discriminate against any applicant for
credit on the basis of race, color, creed, sex, age, marital status, familial
status, handicap, or derivation of income from public assistance programs.
Other services offered by the Banks include safe deposit boxes, night
depository service, VISA and Master Card charge cards (through a correspondent),
tax deposits, sale of U.S. Treasury bonds, notes and bills and other U. S.
government securities (through a correspondent), and twenty-four hour automated
teller service. Each of the banks has an ATM and they are both part of the Honor
and Cirrus networks.
Competition
The market for financial institutions in Orangeburg and Sumter is
highly competitive. Banks generally compete with other financial institutions
through the banking services and products offered, the pricing of services, the
level of service provided, the convenience and availability of services, and the
degree of expertise and personal concern with which services are offered. Both
banks encounter strong competition from most of the financial institutions in
their market areas. The market area for the Orangeburg bank generally
encompasses an area extending nine miles around the city of Orangeburg. The
market area for the Sumter bank generally encompasses the county of Sumter. In
the conduct of certain banking business, the Banks also compete with credit
unions, consumer finance companies, insurance companies, money market mutual
funds, and other financial institutions, some of which are not subject to the
same degree of regulation and restrictions imposed upon the Banks. Many of these
competitors have substantially greater resources and lending limits than the
Banks and offer certain services, such as international banking and trust
services, that the Banks do not provide. The Banks believe, however, that their
relatively small size permits them to offer more personalized services than many
of their competitors. The Banks attempt to compensate for their lower lending
limits by participating larger loans with other institutions, often with each
other.
Most of the other financial institutions in the Orangeburg and Sumter
areas are branch offices of large, regional banks. The financial institution
with the largest deposit base in Orangeburg County is First National Bank with
deposits of $144 million. The following chart illustrates the relative position
of the banks and other financial institutions in the marketplace in terms of
their deposits as of June 30, 1996, 1995 and 1994.
Orangeburg, S. C. Comparative Bank Deposits
<TABLE>
<CAPTION>
June 1996 June 1995 June 1994
----------------------- --------------------- -----------------------
% change
from 1994
Bank Deposit $ % market Deposit $ % market Deposit $ % market to 1996
(Dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
First National Bank $ 141 28.9% $ 123 25.7% $ 119 25.3% 18.4%
First Union National Bank 68 13.9% 70 14.6% 70 14.8% -3.0%
NationsBank 104 21.4% 106 22.3% 104 22.1% 0.0%
BB&T 92 18.8% 100 21.0% 104 22.1% -11.9%
Others 5 1.0% 5 1.1% 6 1.2% -10.7%
Orangeburg National Bank 78 16.0% 73 15.3% 69 14.6% 13.2%
-------- ----- ----- ----- ------- ----- -----
Total deposits $ 488 100.0% $ 477 100.0% $ 472 100.0% 3.4%
======== ===== ===== ===== ======= ===== =====
</TABLE>
Source: 1997 Branches of South Carolina, Sheshunoff Information Services
3
<PAGE>
The financial institution with the largest deposit base in Sumter
County is SAFE (Shaw Air Force Employees) Federal Credit Union with deposits of
$192 million. The following chart illustrates the relative position of the banks
and other financial institutions in the marketplace in terms of their deposits
as of June 30, 1996, 1995 and 1994. (As of June 30, 1996, Sumter National Bank
had been in business for twenty days.)
Sumter, S. C. Comparative Bank Deposits
<TABLE>
<CAPTION>
June 1996 June 1995 June 1994
---------------------- ------------------------ ----------------------
% change
from 1994
Bank Deposit $ % market Deposit $ % market Deposit $ % market to 1996
(Dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
BB&T $ 96 13.7% $ 96 14.3% $ 105 16.1% -8.8%
First Union NB 23 3.3% 20 3.0% 22 3.4% 5.0%
National Bk of SC 167 23.9% 172 25.6% 164 25.3% 1.8%
NationsBank 78 11.2% 70 10.4% 68 10.5% 15.1%
Sumter NB 2 0.3% - 0.0% - 0.0%
Wachovia Bk of SC 139 19.9% 131 19.6% 117 18.1% 18.5%
SAFE FCU 192 27.4% 179 26.7% 171 26.3% 12.2%
Sumter City CU 2 0.3% 2 0.3% 2 0.3% 14.3%
------- ----- ------ ----- ------ ----- ----
Total deposits $ 699 100.0% $ 670 100.0% $ 649 100.0% 7.7%
======= ===== ====== ===== ====== ===== ====
</TABLE>
Source: 1997 Branches of South Carolina, Sheshunoff Information Services
Dependence on Major Customers
The Banks do not consider themselves dependent on any single customer
or small group of customers, either in the deposit or lending areas.
Effect of Government Regulation
General
CBI and the Banks are extensively regulated under federal and state
law. To the extent that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable laws
may have a material effect on the business and prospects of CBI. The operations
of CBI may be affected by possible legislative and regulatory changes and by the
monetary policies of the United States.
CBI. As a bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), CBI is subject to regulation and
supervision by the Board of Governors of the Federal Reserve System (the
"Federal Reserve"). Under the BHCA CBI's activities and those of its
subsidiaries are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or engaging in any other
activity that the Federal Reserve determines to be so closely related to banking
or managing or controlling banks as to be a proper incident thereto. The BHCA
prohibits CBI from acquiring direct or indirect control of more than 5% of any
class of outstanding voting stock, or substantially all of the assets of any
bank, or merging or consolidating with another bank holding company without
prior approval of the Federal Reserve.
Additionally, the BHCA prohibits CBI from engaging in or from
acquiring ownership or control of more than 5% of the outstanding voting stock
of any company engaged in a nonbanking business unless such business is
determined by the Federal Reserve to be so closely related to banking or
4
<PAGE>
managing or controlling banks as to be properly incident thereto. The BHCA
generally does not place territorial restrictions on the activities of such
nonbanking-related entities.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by law and
regulatory policy that are designed to minimize potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance funds in
the event the depository institution becomes in danger of defaulting or in
default under its obligations to repay deposits. For example, under current
federal law, to reduce the likelihood of receivership of an insured depository
institution subsidiary, a bank holding company is required to guarantee the
compliance of any insured depository institution subsidiary that may become
"undercapitalized" within the terms of any capital restoration plan filed by
such subsidiary with its appropriate federal banking agency up to the lesser of
(i) an amount equal to 5% of the institution's total assets at the time the
institution became undercapitalized, or (ii) the amount that is necessary (or
would have been necessary) to bring the institution into compliance with all
applicable capital standards as of the time the institution fails to comply with
such capital restoration plan in order to have the restoration plan approved.
Under a policy of the Federal Reserve with respect to bank holding company
operations, a bank holding company is required to serve as a source of financial
strength to its subsidiary depository institutions and to commit resources to
support such institutions in circumstances where it might not do so absent such
policy. The Federal Reserve also has the authority under the BHCA to require a
bank holding company to terminate any activity or relinquish control of a
nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious risk
to the financial soundness or stability of any subsidiary depository institution
of the bank holding company. Further, federal law grants federal bank regulatory
authorities additional discretion to require a bank holding company to divest
itself of any bank or nonbank subsidiary if the agency determines that
divestiture may aid the depository institution's financial condition.
In addition, the "cross-guarantee" provisions of the Federal Deposit
Insurance Act (FDIA) require insured depository institutions under common
control to reimburse the FDIC for any loss suffered or reasonably anticipated by
either the Savings Association Insurance Fund (SAIF) or the Bank Insurance Fund
(BIF) as a result of the default of a commonly controlled insured depository
institution or for any assistance provided by the FDIC to a commonly controlled
insured depository institution in danger of default. The FDIC may decline to
enforce the cross-guarantee provisions if it determines that a waiver is in the
best interest of the SAIF or the BIF, or both. The FDIC's claim for damages is
superior to claims of stockholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institutions.
The FDIA also provides that amounts received from the liquidation or
other resolution of any insured depository institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit liabilities of
the institution prior to payment of any other general or unsecured senior
liability, subordinated liability, general creditor or stockholder. This
provision would give depositors a preference over general and subordinated
creditors and stockholders in the event a receiver is appointed to distribute
the assets of the Bank.
Any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to priority of payment.
Under the National Bank Act, if the capital stock of a national bank
is impaired by losses or otherwise, the OCC is authorized to require payment of
the deficiency by assessment upon the Bank's shareholders, pro rata, and to the
extent necessary, if any such assessment is not paid by any shareholder after
three months, to sell the stock of such shareholder to make good the deficiency.
5
<PAGE>
As a bank holding company registered under the South Carolina Bank
Holding Company Act, CBI also is subject to regulation by the State Board of
Financial Institutions (the "State Board"). Consequently, CBI must receive the
approval of the State Board prior to engaging in certain acquisitions of banking
institutions or assets. CBI must also file with the State Board periodic reports
with respect to its financial condition and operations, management, and
intercompany relationships between CBI and its subsidiaries.
Dividends. The holders of CBI common stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds legally
available therefor. CBI is a legal entity separate and distinct from the Banks
and depends for its revenues primarily on the payment of dividends from the
Banks. Current federal law would prohibit, except under certain circumstances
and with prior regulatory approval, an insured depository institution, such as
the Banks, from paying dividends or making any other capital distribution if,
after making the payment or distribution, the institution would be considered
"undercapitalized," as that term is defined in applicable regulations.
The Banks. The Banks are both nationally chartered banking
associations subject to supervision by the Office of the Comptroller of the
Currency (the "OCC"). National banks are subject to various statutory
requirements and rules and regulations promulgated and enforced primarily by the
OCC and the FDIC. These statues, rules and regulations relate to insurance of
deposits, required reserves, allowable investments, loans, mergers,
consolidations, issuance of securities, payment of dividends, establishment of
branches and other aspects of the business of the Banks. The FDIC has broad
authority to prohibit the Banks from engaging in what it determines to be unsafe
or unsound banking practices. The Banks also are subject to various other state
and federal laws and regulations, including state usury laws, laws relating to
fiduciaries, consumer credit and equal credit and fair credit reporting laws.
Capital Adequacy. National banks are required to comply with the OCC's
risk-based capital guidelines. Under the guidelines, the minimum ratio of total
capital to risk-weighted assets (including certain off-balance sheet activities,
such as standby letters of credit) was 8%. At least half of the total capital is
required to be "Tier I capital," principally consisting of common shareholders'
equity, non cumulative perpetual preferred stock, and minority interests in the
equity accounts of consolidated subsidiaries, less certain goodwill items. The
remainder ("Tier II capital") may consist of a limited amount of subordinated
debt, certain hybrid capital instruments and other debt securities, cumulative
perpetual preferred stock, long term preferred stock, convertible preferred
stock, and a limited amount of the general loan loss allowance. In addition to
the risk-based capital ratio, the OCC has adopted a minimum level for the ratio
of Tier 1 capital to average total assets ("Tier 1 Leverage Ratio") under which
a national bank must maintain a minimum level of tier 1 capital to average total
consolidated assets of at least 3% in the case of a national bank which has the
highest regulatory examination rating and is not contemplating growth or
significant expansion. All other national banks are expected to maintain a ratio
of at least 1% to 2% above the stated minimum.
The Orangeburg bank had a Tier I Capital to risk weighted assets ratio
in excess of 13% as of December 31, 1996. The Sumter bank had a Tier I Capital
to risk weighted assets ratio in excess of 28% as of December 31, 1996.
Failure to meet capital guidelines could subject the Banks to a
variety of enforcement remedies, including the termination of deposit insurance
by the FDIC and a prohibition on the taking of brokered deposits.
Bank regulators frequently indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
See "Federal Deposit Insurance Improvement Act of 1991" for a discussion of
certain proposed regulations relating to risk-based capital requirements.
Management of the Bank is unable to predict whether and when higher capital
requirements would be imposed and, if so, at what levels and on what schedule.
6
<PAGE>
Dividends
If a national bank's surplus fund equals the amount of its capital
stock, the directors may declare quarterly, semiannual or annual dividends out
of the bank's net profits, after deduction of losses and bad debts. If the
surplus fund does not equal the amount of capital stock, a dividend may not be
paid until one-tenth of the bank's net profits of the preceding half year, in
the case of quarterly or semi-annual dividends, or the preceding two years, in
the case of an annual dividend, are transferred to the surplus fund. Prior
approval of the OCC for the payment of dividends if the total of all dividends
declared by the board of directors of such bank in any year will exceed the
total of (i) such bank's retained net profits (as defined and interpreted by
regulation) for that year plus (ii) the retained net profits (as defined and
interpreted by regulation) for the preceding two years, less any required
transfers to surplus.
In 1990, the OCC issued a regulation that redefines certain of the
terms and methods of calculation used in these two dividend restrictions. The
rule, among other things, changes the methodology of calculating net profits to
be more consistent with generally accepted accounting principles, with the
result that provisions for possible credit losses cannot be added back to net
income and charge-offs cannot be deducted from net income in calculating the
levels of net profits available for the payment of dividends. The Bank does not
believe that the regulation will have a material effect on its ability to pay
dividends.
The payment of dividends by the Banks may also be affected or limited
by other factors, such as the requirements to maintain adequate capital above
regulatory guidelines. In addition, if, in the opinion of the applicable
regulatory authority, a bank under its jurisdiction is engaged in or is about to
engage in an unsafe or unsound practice (which, depending on the financial
condition of the Bank, could include the payment of dividends), such authority
may require, after notice and hearing, that such bank cease and desist from such
practice. The OCC has indicated that paying dividends that deplete a national
bank's capital base to an inadequate level would be an unsafe and unsound
banking practice. The Federal Reserve, the OCC and the FDIC have issued policy
statements which provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.
The Banks' dividends are paid to the Corporation. From those dividends
the Board of Directors of the Corporation may elect to pay dividends to the
shareholders of the Corporation. Accordingly, any restriction on the ability of
the Banks to pay dividends will indirectly restrict the ability of the
Corporation to pay dividends.
Federal Deposit Insurance Corporation Improvement Act of 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") required each federal banking agency to revise its risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risk of nontraditional activities, as
well as reflect the actual performance and expected risk of loss on multifamily
mortgages. The Federal Reserve, the FDIC and the OCC have issued a joint rule
amending the capital standards to specify that the banking agencies will include
in their evaluations of a bank's capital adequacy an assessment of the exposure
to declines in the economic value of the bank's capital due to changes in
interest rates. The agencies have also issued a joint policy statement that
provides bankers guidance on sound practices for managing interest rate risk.
The policy statement identifies the key elements of sound interest rate risk
management and describes prudent principles and practices for each element,
emphasizing the importance of adequate oversight by a bank's board of directors
and senior management and of a comprehensive risk management process. The policy
statement also outlines the critical factors that will affect the agencies'
evaluation of a bank's interest rate risk when making a determination of capital
adequacy. In adopting the policy statement, the agencies have asserted their
intention to continue to place significant emphasis on the level of a bank's
interest rate risk exposure and the quality of its risk management process when
evaluating a bank's capital adequacy.
7
<PAGE>
The Federal Reserve, the FDIC, the OCC and the Office of Thrift
Supervision have also issued a joint rule amending the risk-based capital
guidelines to take account of concentration of credit risk and the risk of
non-traditional activities. The rule amends each agency's risk-based capital
standards by explicitly identifying concentration of credit risk and the risk
arising from other sources, as well as an institution's ability to manage these
risks, as important factors to be taken into account by the agency in assessing
an institution's overall capital adequacy.
CBI does not believe that these rules and proposed policy statement
will have a material impact on the capital requirements of the Banks or CBI.
Insurance
As FDIC-insured institutions, the Banks are subject to insurance
assessments imposed by the FDIC. Under current law, the insurance assessment to
be paid by FDIC-insured institutions shall be as specified in a schedule
required to be issued by the FDIC that specifies, at semiannual intervals,
target reserve ratios designed to increase the FDIC insurance fund's reserve
ratio to 1.25% of estimated insured deposits (or such higher ratio as the FDIC
may determine in accordance with the statute) in 15 years. Further, the FDIC is
authorized to impose one or more special assessments in any amount deemed
necessary to enable repayment of amounts borrowed by the FDIC from the United
State Department of the Treasury.
Effective December 11, 1996, the FDIC implemented a risk-based
assessment schedule, that requires assessments ranging from 0.00% to 0.27% of an
institution's average assessment base. The actual assessment to be paid by each
FDIC-insured institution is based on the institution's assessment risk
classification, which is determined based on whether the institution is
considered "well capitalized," "adequately capitalized" or "undercapitalized,"
as such terms have been defined in applicable federal regulations adopted to
implement the prompt corrective action provisions of FDICIA (see "Other Safety
and Soundness Regulations"), and whether such institution is considered by its
supervisory agency to be financially sound or to have supervisory concerns. As a
result of the current provisions of federal law, the assessment rates on
deposits could increase over the next 15 years over present levels. Based on the
current financial condition and capital levels of the Banks, CBI does not expect
that the current FDIC risk-based assessment schedule will have a material
adverse effect on the Banks' earnings. The Banks' risk-based insurance
assessments currently are set at 0.00% for the first half of 1997.
Other Safety and Soundness Regulations
Prompt Corrective Action. Current law provides the federal banking
agencies with broad powers to take prompt corrective action to resolve problems
of insured depository institutions. The extent of these powers depends upon
whether the institutions in question are "well capitalized", "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Under uniform regulations defining such capital
levels issued by each of the federal banking agencies, a bank is considered
"well capitalized" if it has (i) a total risk-based capital ratio of 10% or
greater, (ii) a Tier 1 risk-based capital ratio of 6% or greater, (iii) a
leverage ratio of 5% or greater, and (iv) is not subject to any order or written
directive to meet and maintain a specific capital level for any capital measure.
An "adequately capitalized " bank is defined as one that has (i) a total
risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based capital
ratio of 4% or greater, and (iii) a leverage ratio of 4% or greater (or 3% or
greater in the case of a bank with a composite CAMEL rating of 1). A bank is
considered (A) "undercapitalized" if it has (i) a total risk-based capital ratio
of less than 8%, (ii) a Tier 1 risk-based capital ratio of less than 4%, or
(iii) a leverage ratio of less than 4% (or 3% in the case of a bank with a
composite CAMEL rating of 1); (B) "significantly undercapitalized" if the bank
has (i) a total risk-based capital ratio of less than 6%, or (ii) a Tier 1
risk-based capital ratio of less than 3%, or (iii) a leverage ratio of less than
3%; and (C) "critically undercapitalized" if the bank has a ratio of tangible
equity to total assets equal to or less than 2%. The Banks currently meet the
definition of well capitalized.
8
<PAGE>
Brokered Deposits. Current federal law also regulates the acceptance
of brokered deposits by insured depository institutions to permit only a "well
capitalized" depository institution to accept brokered deposits without prior
regulatory approval. Under FDIC regulations, "well capitalized" insured
depository institutions may accept brokered deposits without restriction,
"adequately capitalized" insured depository institutions may accept brokered
deposits with a waiver from the FDIC (subject to certain restrictions on
payments of interest rates) while "undercapitalized" insured depository
institutions may not accept brokered deposits. The regulations provide that the
definitions of "well capitalized," "adequately capitalized" and "under
capitalized" are the same as the definitions adopted by the agencies to
implement the prompt corrective action provisions of FDICIA (as described in the
previous paragraph). CBI does not believe that these regulations will have a
material adverse effect on its current operations.
Other FDICIA Regulations. To facilitate the early identification of
problems, FDICIA required the federal banking agencies to review and, under
certain circumstances, prescribe more stringent accounting and reporting
requirements than those required by generally accepted accounting principles.
The OCC has proposed regulations implementing those provisions. The rule, among
other things, requires that management report on the institution's
responsibility for establishing and maintaining an internal control structure
and procedures for financial reporting and compliance with designated laws and
regulations concerning safety and soundness.
FDICIA required each of the federal banking agencies to develop
regulations addressing certain safety and soundness standards for insured
depository institutions (such as the Banks) and depository institution holding
companies (such as CBI), including operational and managerial standards, asset
quality, earnings and stock valuation standards, as well as compensation
standards (but not dollar levels of compensation). On September 23, 1994, the
Riegle Community Development and Regulatory Improvement Act of 1994 amended the
1991 Banking Law to authorize the agencies to establish safety and soundness
standards by regulation or by guideline. Accordingly, the federal banking
agencies have issued Interagency Guidelines Establishing Standards for Safety
and Soundness, which set forth general operational and managerial standards in
the areas of internal controls, information systems and internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth
and compensation, fees and benefits. The Guidelines also prohibit payment of
excessive compensation as an unsafe and unsound practice. Compensation is
defined as excessive if it is unreasonable or disproportionate to the services
actually performed. Bank holding companies are not subject to the Guidelines.
The Guidelines contemplate that each federal agency will determine compliance
with these standards through the examination process, and if necessary to
correct weaknesses, require an institution to file a written safety and
soundness compliance plan. CBI does not expect the Guidelines to materially
change current operations of Orangeburg National Bank or Sumter National Bank.
Community Reinvestment Act
The Banks are subject to the requirements of the Community
Reinvestment Act (the "CRA"). The CRA requires that financial institutions have
an affirmative and ongoing obligation to meet the credit needs of their local
communities, including low and moderate-income neighborhoods, consistent with
the safe and sound operation of those institutions. Each financial institution's
efforts in meeting community credit needs are evaluated as part of the
examination process pursuant to twelve assessment factors. These factors also
are considered in evaluating mergers, acquisitions and applications to open a
branch or facility. The Orangeburg bank received a satisfactory rating in its
most recent evaluation. Because it has only recently opened, the Sumter bank has
not yet been evaluated.
The federal banking agencies, including the OCC, have issued a joint
rule that changes the method of evaluating an institution's CRA performance. The
new rule evaluates institutions based on their actual performance (rather than
efforts) in meeting community credit needs. Subject to certain exceptions, the
OCC assesses the CRA performance of a bank by applying lending, investment and
9
<PAGE>
service tests. The lending test evaluates a bank's record of helping to meet the
credit needs of its assessment area through its lending activities by
considering a bank's home mortgage, small business, small farm, community
development, and consumer lending. The investment test evaluates a bank's record
of helping to meet the credit needs of its assessment area through qualified
investments that benefit its assessment area or a broader statewide or regional
area that includes the bank's assessment area. The service test evaluates a
bank's record of helping the community meet the credit needs of its assessment
area by analyzing both the availability and effectiveness of a bank's systems
for delivering retail banking services and the extent and innovativeness of its
community development services. The OCC assigns a rating to a bank of
"outstanding," "satisfactory," "needs to improve," or "substantial
noncompliance" based on the bank's performance under the lending, investment and
service tests. To evaluate compliance with the tests, subject to certain
exceptions, banks are required to collect and report to the OCC extensive
demographic and loan data.
For banks with total assets of less than $250 million that are
affiliates of a holding company with banking and thrift assets of less than $1
billion, such as the Banks and CBI, the OCC evaluates the bank's record of
helping to meet the credit needs of its assessment area pursuant to the
following criteria: (1) the bank's loan-to-deposit ratio, adjusted for seasonal
variation and, as appropriate, other lending-related activities, such as loan
originations for sale to the secondary markets, community development loans, or
qualified investments; (2) the percentage of loans and as appropriate, other
lending-related activities located in the bank's assessment area; (3) the bank's
record of lending to and, as appropriate, engaging in other lending-related
activities for borrowers of different income levels and businesses and farms of
different sizes; (4) the geographic distribution of the bank's loans; and (5)
the bank's record of taking action, if warranted, in response to written
complaints about its performance in helping to meet credit needs in its
assessment area. Small banks may also elect to be assessed under the generally
applicable standards of the rule, but to do so a small bank must collect and
report extensive data.
A bank may also submit a strategic plan to the OCC and be evaluated on
its performance under the plan.
Transactions Between CBI, Its Subsidiaries and Affiliates
The Banks are subject to certain restrictions on extensions of credit
to executive officers, directors, principal stockholders or any related interest
of such persons. Extensions of credit (i) must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unaffiliated persons; and (ii) must not involve
more than the normal risk of repayment or present other unfavorable features.
Aggregate limitations on extensions of credit also may apply. The Banks are also
subject to certain lending limits and restrictions on overdrafts to such
persons.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to the
bank holding company or its non bank subsidiary, on investments in their
securities and on the use of their securities as collateral for loans to any
borrower. Such restrictions may limit CBI's ability to obtain funds from its
bank subsidiaries for its cash needs, including funds for acquisitions, interest
and operating expenses.
In addition, under the BHCA and certain regulations of the Federal
Reserve, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services. For example, a
subsidiary may not generally require a customer to obtain other services from
any other subsidiary or the holding company parent, and may not require the
customer to promise not to obtain other services from a competitor, as a
condition to an extension of credit to the customer.
Interstate Banking
In July 1994, South Carolina enacted legislation which effectively
provides that, after June 30, 1996, out-of-state bank holding companies
(including bank holding companies in the Southern Region, as defined under the
10
<PAGE>
statute) may acquire other banks or bank holding companies having offices in
South Carolina upon the approval of the South Carolina State Board of Financial
Institutions and assuming compliance with certain other conditions, including
that the effect of the transaction not lessen competition and that the laws of
the state in which the out-of-state bank holding company filing the applications
has its principal place of business permit South Carolina bank holding companies
to acquire banks and bank holding companies in that state. Although such
legislation may increase takeover activity in South Carolina, CBI does not
believe that such legislation will have a material impact on its competitive
position. However, no assurance of such fact may be given.
Congress has enacted the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, which will increase the ability of bank holding
companies and banks to operate across state lines. Under the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994, the existing
restrictions on interstate acquisitions of banks by bank holding companies will
be repealed one year following enactment, such that CBI and any other bank
holding company located in South Carolina would be able to acquire a bank
located in any other state, and a bank holding company located outside South
Carolina could acquire any South Carolina-based bank, in either case subject to
certain deposit percentage and other restrictions. The legislation also provides
that, unless an individual state elects beforehand either (i) to accelerate the
effective date or (ii) to prohibit out-of-state banks from operating interstate
branches within its territory, on or after June 1, 1997, adequately capitalized
and managed bank holding companies will be able to consolidate their multistate
bank operations into a single bank subsidiary and to branch interstate through
acquisitions. De novo branching by an out-of-state bank would be permitted only
if it is expressly permitted by the laws of the host state. The authority of a
bank to establish and operate branches within a state will continue to be
subject to applicable state branching laws. South Carolina law was amended,
effective July 1, 1996, to permit such interstate branching but not de novo
branching by an out of state bank. CBI believes that this legislation may result
in increased takeover activity of South Carolina financial institutions by
out-of-state financial institutions. However, CBI does not presently anticipate
that such legislation will have a material impact on its operations or future
plans.
Change in Bank Control
The BHCA and the Change in Bank Control Act, together with regulations
promulgated by the Federal Reserve, require that, depending on the particular
circumstances, either Federal Reserve approval must be obtained or notice must
be furnished to the Federal Reserve and not disapproved prior to any person or
company acquiring control of a bank holding company, such as CBI subject to
certain exemptions for certain transactions. Control is conclusively presumed to
exist if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Control is rebuttably presumed to exist
if a person acquires 10% or more but less than 25% of any class of voting
securities and either the company has registered securities under Section 12 of
the Exchange Act (which CBI has done with respect to its common stock) or no
other person will own a greater percentage of that class of voting securities
immediately after the transaction. The regulations provide a procedure for
challenge of the rebuttable control presumption.
Approval of Senior Officers. Banks and their holding companies which
have undergone a change in control within the past two years or which have been
deemed by their primary federal bank regulator to be troubled institutions must
give their primary federal bank regulator or the Federal Reserve, respectively,
30 days prior notice of the appointment of senior executive officer or director.
Within the 30 day period, their primary federal bank regulator or the Federal
Reserve, as the case may be, may approve or disapprove any such appointment.
Neither CBI nor the Orangeburg bank currently meet the criteria which trigger
this additional approval. As a newly chartered bank, the Sumter bank is subject
to this requirement.
Other Regulations
Interest and certain other charges collected or contracted for by the
Banks are subject to state usury laws and certain federal laws concerning
interest rates. The Banks' loan operations are also subject to certain federal
11
<PAGE>
laws applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, CRA requiring
financial institutions to meet their obligations to provide for the total credit
needs of the communities it serves, including investing its assets in loans to
low- and moderate-income borrowers, the Home Mortgage Disclosure Act of 1975
requiring financial institutions to provide information to enable the public and
public officials to determine whether a financial institution is fulfilling its
obligation to help meet the housing needs of the community it serves, the Equal
Credit Opportunity Act prohibiting discrimination on the basis of race, creed or
other prohibited factors in extending credit, the Fair Credit Reporting Act of
1978 governing the use and provision of information to credit reporting
agencies, the Fair Debt Collection Act governing the manner in which consumer
debts may be collected by collection agencies, and the rules and regulations of
the various federal agencies charged with the responsibility of implementing
such federal laws. The deposit operations of the Banks also are subject to the
Right to Financial Privacy Act, which imposes a duty to maintain confidentiality
of consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds Transfer
Act and Regulation E issued by the Federal Reserve to implement that act, which
govern automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
Monetary Policy
The Banks are directly affected by government monetary policy and by
regulatory measures affecting the banking industry in general. Of primary
importance is the Federal Reserve Board, whose actions directly affect the money
supply and, in general, affect the Banks' lending abilities by increasing or
decreasing the cost and availability of funds to banks. The Federal Reserve
System regulates the availability of bank credit in order to combat recession
and curb inflationary pressures in the economy by open market operations in
United States government securities, changes in the discount rate on member bank
borrowings, changes in reserve requirements against bank deposits and
limitations on interest rates which banks may pay on time and savings deposits.
Deregulation of interest rates paid by banks on deposits and the types
of deposits that may be offered by banks has eliminated minimum balance
requirements and rate ceilings on various types of time deposit accounts. The
effect of these specific actions and, in general, the deregulation of deposit
interest rates have increased banks' costs of funds and made them more sensitive
to fluctuations in money market rates.
In view of changing conditions in the national economy and money
markets, as well as the effect of actions by monetary and fiscal authorities, no
prediction can be made as to possible future changes in interest rates, deposit
levels, loan demand or the business and earnings of the Banks.
Employees
At December 31, 1996, the Corporation employed 54 full time equivalent
employees and 5 part-time employees. Management believes that its employee
relations are excellent.
Item 2. Description of Property
The Corporation's Orangeburg bank owns land located at 1820 Columbia
Road NE, in Orangeburg, South Carolina. The Orangeburg bank maintains its main
office at this address. The total investment in this real estate was $245,000.
The Bank operates from a one story building of approximately 7,000 square feet.
The Bank's investment in the building is $532,000.
The Orangeburg bank also owns a branch facility at the corner of
Broughton and Glover Streets in Orangeburg. The Bank's investment in the land is
$120,000. The Bank's investment in the building plus its improvements and
renovations is approximately $135,000. The Corporation's offices are also
headquartered at this location.
12
<PAGE>
The foregoing properties are owned in fee simple by the Orangeburg
bank. Management believes that insurance coverage on the foregoing properties is
adequate.
The Corporation's Sumter bank owns land located at 683 Bultman Drive,
in Sumter, South Carolina. The Sumter bank maintains its main office at this
address. The total investment in this real estate was $317,000. The Bank
operates from a one story building of approximately 6,500 square feet. The
Bank's investment in the building is $606,000.
The foregoing property is owned in fee simple by the Sumter bank.
Management believes that insurance coverage on the foregoing properties is
adequate.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted for a vote of the security holders during
the fourth quarter of 1996.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The information set forth under the caption "Market for the
Corporation's Common Stock and Related Security Holder Matters" in the Annual
Report to Shareholders for the year ended December 31, 1996 (the "1996 Annual
Report") is incorporated herein by reference.
The Corporation has not sold any of its securities other than pursuant
to an offering registered under the Securities Act of 1933 during the period
covered by this report.
Item 6. Management's Discussion and Analysis of Financial Position and Results
of Operations
The information set forth under the caption "Management's Discussion
and Analysis of Financial Position and Results of Operations" in the 1996 Annual
Report is incorporated herein by reference.
Item 7. Financial Statements
The information set forth under the caption "Financial Statements" in
the 1996 Annual Report is incorporated herein by reference.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements with or changes in accountants.
PART III
Item 9. Directors and Executive Officers
The information set forth under the caption "Directors and Executive
Officers" in the Proxy Statement to be used in conjunction with the 1997 Annual
13
<PAGE>
Meeting of Shareholders (the "Proxy Statement"), which will be filed within 120
days of the Corporation's fiscal year end, is incorporated herein by reference.
Item 10. Executive Compensation
The information set forth under the caption "Executive Compensation"
in the Proxy Statement is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement is incorporated
herein by reference.
Item 12. Certain Relationships and Related Transactions
The information set forth under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement is incorporated herein by
reference.
Item 13. Exhibits and Reports on Form 8-K
Exhibit No.(from Description
item 601 of SB)
(3) Articles of Incorporation and By-laws, as amended
(incorporated by reference to exhibits filed in the
Registrant's Form 10-KSB filed March 30, 1995).
(4) Stock certificate (incorporated by reference to exhibits
filed in the Registrant's Registration Statement on Form
S-2, filed September 11, 1995, Commission File No.
33-96746).
(10) Form of Unqualified Stock Options
(13) Portions of the Annual Report to Shareholders for the Year
Ended December 31, 1996
(21) Subsidiaries of the registrant (incorporated by reference to
exhibits filed in the Registrant's Registration Statement on
Form S-2, filed September 11, 1995, Commission File No.
33-96746).
(23) Consent of J. W. Hunt and Company, LLP
(27) Financial data schedule
14
<PAGE>
Reports on Form 8-K. None.
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DATED: March 17, 1997
By: s/Hugo S. Sims, Jr.
Hugo S. Sims, Jr.,
Chief Executive Officer and Chairman of the Board of Directors
By s/William W. Traynham, Jr.
William W. Traynham, Jr.
President, Chief Financial Officer, and Director
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
s/E. J. Ayers, Jr. March 17, 1997
E. J. Ayers, Jr., Director
s/ Alvis J. Bynum March 17, 1997
Alvis J. Bynum, Director
s/ Martha Rose C. Carson March 17, 1997
Martha Rose C. Carson, Director
s/ Anna O. Dantzler March 17, 1997
Anna O. Dantzler, Director
s/J. M. Guthrie March 17, 1997
J. M. Guthrie, Director
s/William H. Nock March 17, 1997
William H. Nock, Director
s/ Phil P. Leventis March 17, 1997
Phil P. Leventis, Director
s/ Samuel F. Reid, Jr. March 17, 1997
Samuel F. Reid, Jr., Director
s/ J. Otto Warren, Jr. March 17, 1997
J. Otto Warren, Jr., Director
s/ Michael A. Wolfe, II March 17, 1997
Michael A. Wolfe, II, Director
s/ Russell S. Wolfe, II March 17, 1997
Russell S. Wolfe, II, Director
15
<PAGE>
[BACK COVER]
[LOGO - Square with Community
rounded corners containing Bankshares Inc
a broad striped field with A South Carolina Bank Holding Company
a silhouette of the
State of South Carolina]
Telephone: Street Address: Mailing Address:
(803) 535-1060 791 Broughton Street P. O. Box 2086
Fax (803) 535-1065 Orangeburg, SC 29115 Orangeburg, SC 29116
E-mail [email protected]
LISTED ON THE AMERICAN STOCK EXCHANGE AS "SCB"
<PAGE>
APPENDIX B
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED
SEPTEMBER 30, 1997
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997 File number: 000-22054
COMMUNITY BANKSHARES, INC.
(Exact Name of Small Business Issuer in its Charter)
South Carolina 57-0966962
(State or Other Jurisdiction (IRS Employer Identification Number)
of Incorporation or Organization)
791 Broughton St., Orangeburg, South Carolina 29115
(Address of Principal Executive Office, Zip Code)
(803) 535-1060
(Issuer's telephone number)
Check whether the issuer (1) has filed all the reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 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 _.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 2,626,476 shares of common
stock outstanding as of October 31, 1997.
<PAGE>
10-QSB TABLE OF CONTENTS
Part I-Financial Statements Page
- --------------------------------------------------------------------------------
Item 1 Financial Statements .............................. 3
Item 2 Management's Discussion and Analysis of
Financial Condition and ........................... 9
Results of Operations
Part II-Other Information
- --------------------------------------------------------------------------------
Item 6 Exhibits and Reports on Form 8-K .................. 19
2
<PAGE>
COMMUNITY BANKSHARES, INC. - BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
September 30, December 31,
ASSETS 1997 1996
---- ----
Cash and due from other financial institutions:
<S> <C> <C>
Non-interest bearing ....................................................... $ 6,011,000 $ 5,349,000
Federal funds sold ......................................................... 8,405,000 1,300,000
------------- -------------
Total cash and cash equivalents ........................................ 14,416,000 6,649,000
Interest bearing deposits in other banks ....................................... 1,341,000 431,000
Investment securities:
Securities held to maturity ................................................ 17,407,000 15,027,000
Securities available for sale .............................................. 13,834,000 10,761,000
Loans held for resale .......................................................... 101,000 295,000
Loans .......................................................................... 86,710,000 68,829,000
Less, allowance for loan losses ............................................ (1,091,000) (876,000)
------------- -------------
Net loans .............................................................. 85,619,000 67,953,000
------------- -------------
Premises and equipment ......................................................... 2,797,000 2,837,000
Accrued interest receivable ................................................... 1,141,000 855,000
Deferred income taxes .......................................................... 332,000 283,000
Other assets ................................................................... 166,000 370,000
------------- -------------
Total assets ........................................................... $ 137,154,000 $ 105,461,000
============= =============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits:
Non-interest bearing ....................................................... $ 15,836,000 $ 13,337,000
Interest bearing ........................................................... 98,988,000 76,514,000
------------- -------------
Total deposits ......................................................... 114,824,000 89,851,000
Federal funds purchased and securities
sold under agreements to repurchase ........................................ 7,960,000 1,744,000
Federal Home Loan Bank advances ................................................ 1,060,000 1,130,000
Other liabilities .............................................................. 733,000 632,000
------------- -------------
Total liabilities ...................................................... 124,577,000 93,357,000
------------- -------------
Shareholders' equity:
Common stock
No par, authorized shares 12,000,000, issued
and outstanding 2,626,476 in 1997 and 1996 ............................. 9,055,000 9,064,000
Retained earnings .......................................................... 3,517,000 3,040,000
Unrealized gain (loss) on securities available for sale..................... 5,000 -
------------- -------------
Total shareholders' equity ............................................. 12,577,000 12,104,000
------------- -------------
Total liabilities and shareholders' equity ............................. $ 137,154,000 $ 105,461,000
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
3
<PAGE>
COMMUNITY BANKSHARES, INC. - STATEMENTS OF INCOME
Nine months ended September 30,
<TABLE>
<CAPTION>
1997 1996
UNAUDITED UNAUDITED
--------- ---------
Interest and dividend income:
<S> <C> <C>
Interest and fees on loans ................................................. $ 5,544,000 $ 3,874,000
Deposits with other financial institutions ................................. 54,000 43,000
Investment securities:
Interest - U. S. Treasury and
U. S. Government Agencies .............................................. 1,269,000 1,172,000
Dividends ................................................................ 32,000 22,000
------------- -------------
Total investment securities ........................................... 1,301,000 1,194,000
------------- -------------
Federal funds sold and securities
purchased under agreements to resell ..................................... 183,000 120,000
------------- -------------
Total interest and dividend income .................................... 7,082,000 5,231,000
------------- -------------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more .............................. 624,000 580,000
Other .................................................................... 2,338,000 1,698,000
------------- -------------
Total deposits ........................................................ 2,962,000 2,278,000
------------- -------------
Federal funds purchased and securities
sold under agreements to repurchase ...................................... 118,000 65,000
Federal Home Loan Bank advances ............................................ 55,000 57,000
------------- -------------
Total interest expense ................................................ 3,135,000 2,400,000
------------- -------------
Net interest income ............................................................ 3,947,000 2,831,000
Provision for loan losses ...................................................... 258,000 140,000
------------- -------------
Net interest income after provision for loan losses ............................ 3,689,000 2,691,000
------------- -------------
Non-interest income:
Service charges on deposit accounts ........................................ 399,000 263,000
Other ...................................................................... 160,000 92,000
------------- -------------
Total non-interest income ............................................. 559,000 355,000
------------- -------------
Non-interest expense:
Salaries and employee benefits ............................................. 1,738,000 1,329,000
Premises and equipment ..................................................... 384,000 270,000
Other ...................................................................... 826,000 579,000
------------- -------------
Total non-interest expense ............................................ 2,948,000 2,178,000
------------- -------------
Net income before taxes ........................................................ 1,300,000 868,000
Provision for income taxes ..................................................... 428,000 364,000
------------- -------------
Net income after taxes ......................................................... $ 872,000 $ 504,000
============= =============
Per common share:
Weighted average shares outstanding ........................................ 2,626,476 2,397,220
============= =============
Net income per common share ................................................ $ 0.33 $ 0.21
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
4
<PAGE>
COMMUNITY BANKSHARES, INC. - STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter ended September 30,
1997 1996
UNAUDITED UNAUDITED
--------- ---------
Interest and dividend income:
<S> <C> <C>
Interest and fees on loans ................................................. $ 1,998,000 $ 1,371,000
Deposits with other financial institutions ................................. 20,000 5,000
Investment securities:
Interest - U. S. Treasury and
U. S. Government Agencies .............................................. 478,000 410,000
Dividends ................................................................ 10,000 9,000
------------- -------------
Total investment securities ........................................... 488,000 419,000
------------- -------------
Federal funds sold and securities
purchased under agreements to resell ..................................... 89,000 72,000
------------- -------------
Total interest and dividend income .................................... 2,595,000 1,867,000
------------- -------------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more .............................. 251,000 188,000
Other .................................................................... 858,000 624,000
------------- -------------
Total deposits ........................................................ 1,109,000 812,000
Federal funds purchased and securities
sold under agreements to repurchase ...................................... 57,000 22,000
Federal Home Loan Bank advances ............................................ 18,000 19,000
------------- -------------
Total interest expense ................................................ 1,184,000 853,000
------------- -------------
Net interest income ............................................................ 1,411,000 1,014,000
Provision for loan losses ...................................................... 81,000 77,000
------------- -------------
Net interest income after provision for loan losses ............................ 1,330,000 937,000
------------- -------------
Non-interest income:
Service charges on deposit accounts ........................................ 146,000 91,000
Other ...................................................................... 50,000 29,000
------------- -------------
Total non-interest income ............................................. 196,000 120,000
------------- -------------
Non-interest expense:
Salaries and employee benefits ............................................. 605,000 523,000
Premises and equipment ..................................................... 135,000 115,000
Other ...................................................................... 283,000 229,000
------------- -------------
Total non-interest expense ............................................ 1,023,000 867,000
------------- -------------
Net income before taxes ........................................................ 503,000 190,000
Provision for income taxes ..................................................... 178,000 80,000
------------- -------------
Net income after taxes ......................................................... $ 325,000 $ 110,000
============= =============
Per common share:
Weighted average shares outstanding ........................................ 2,626,476 2,337,968
============= =============
Net income per common share ................................................ $ 0.12 $ 0.05
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
5
<PAGE>
COMMUNITY BANKSHARES, INC. - STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
UNAUDITED
Nine months ended September 30,
1997 1996
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income ..................................................................... $ 872,000 $ 504,000
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation ........................................................... 227,000 134,000
Provision for loan losses .............................................. 258,000 140,000
Accretion of discounts and amortization of premiums -
investment securities - net .......................................... (86,000) (28,000)
Changes in assets and liabilities:
Proceeds of sale of loans held for resale .............................. 3,614,000 2,877,000
Origination of loans held for resale ................................... (3,420,000) (2,937,000)
(Increase) in interest receivable ...................................... (286,000) (168,000)
(Increase) decrease in other assets .................................... 131,000 (70,000)
Decrease in other liabilities .......................................... 101,000 16,000
------------ ------------
Net cash provided by operating activities ...................................... 1,411,000 468,000
------------ ------------
Cash flows from investing activities:
Proceeds from maturities and sales of
investment securities - held to maturity ............................. 5,036,000 5,814,000
Purchases of investment securities - held to maturity .................. (7,381,000) (8,049,000)
Proceeds from maturities and sales of
investment securities - available for sale ........................... 3,724,000 3,068,000
Purchases of investment securities - available for sale ................ (6,741,000) (5,411,000)
Net (increase) in interest bearing deposits ............................ (910,000) (226,000)
Net (increase) in loans to customers ................................... (17,924,000) (9,731,000)
Purchase of premises and equipment ..................................... (163,000) (1,120,000)
Net (increase) in other real estate .................................... - (11,000)
------------ ------------
Net cash (used) in investing activities .............................. (24,759,000) (15,655,000)
------------ ------------
Cash flows from financing activities:
Net increase in demand, savings, & time deposits ....................... 24,973,000 14,843,000
Net increase in federal funds purchased
and securities sold under agreements to repurchase ..................... 6,216,000 245,000
Sale of common stock ................................................... - 4,402,000
Cost of stock sale & dividend reinvestment program ..................... (9,000) (44,000)
Proceeds of FHLB advances .............................................. (70,000) 430,000
Dividends paid.......................................................... (395,000) (317,000)
Notes payable .......................................................... - (240,000)
------------ ------------
Net cash provided by financing activities ............................ 30,715,000 19,319,000
------------ ------------
Net increase in cash and due from other financial institutions ................. 7,367,000 4,132,000
Cash and due from other financial institutions - beginning ..................... 6,649,000 4,535,000
------------ ------------
Cash and due from other financial institutions - end ........................... $ 14,416,000 $ 8,667,000
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
6
<PAGE>
Summary of Significant Accounting Principles
A summary of significant accounting policies is included in the 1996 Annual
Report of Community Bankshares, Inc. to the Shareholders, which also contains
the Company's audited financial statements for 1996.
Principles of Consolidation
The consolidated financial statements include the accounts of Community
Bankshares, Inc. (CBI), the parent company, and Orangeburg National Bank and
Sumter National Bank, its wholly owned subsidiaries. All significant
intercompany items have been eliminated in the consolidated statements.
Management Opinion
The financial statements in this report are unaudited. In the opinion of
management, all the adjustments necessary to present a fair statement of the
results for the interim period have been made. Such adjustments are of a normal
and recurring nature.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for an entire year. These interim
financial statements should be read in conjunction with the annual financial
statements and notes thereto contained in the 1996 Annual Report.
7
<PAGE>
COMMUNITY BANKSHARES, INC. - AVERAGE BALANCE SHEETS, YIELDS AND RATES
<TABLE>
<CAPTION>
Nine months ended September 30, 1997 1996
Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Assets Balance Expense Rates(1) Balance Expense Rates(1)
------- ------- ----- ------- ------- -----
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits ............ $ 1,251 $ 54 5.76% $ 1,124 $ 44 5.22%
Investment securities--taxable ....... 27,612 1,288 6.22% 26,706 1,180 5.89%
Investment securities--tax exempt .... 411 13 6.39% 417 13 6.30%
Federal funds sold ................... 4,543 183 5.37% 3,074 120 5.20%
Loans, net of unearned income ........ 78,252 5,544 9.45% 55,266 3,874 9.35%
-------- ------ ---- ------ ------ ----
Total interest earning assets ........ 112,069 7,082 8.43% 86,587 5,231 8.06%
Cash and due from banks .............. 4,929 3,613
Allowance for loan losses ............ (978) (733)
Premises and equipment ............... 2,831 2,205
Other assets ......................... 1,543 1,230
-------- -------
Total assets ............................. $120,394 $92,902
======== =======
Liabilities and Shareholders' Equity
Interest bearing deposits
Savings .............................. $ 19,267 $ 495 3.43% $12,600 $ 218 2.31%
Interest bearing transaction accounts 11,623 164 1.88% 8,478 129 2.03%
Time deposits ........................ 56,849 2,303 5.40% 47,224 1,930 5.45%
-------- ------ ---- ------- ------ ----
Total interest bearing deposits ...... 87,739 2,962 4.50% 68,302 2,277 4.44%
Short term borrowing ................. 3,969 118 3.96% 2,187 65 3.96%
FHLB advances ........................ 1,114 55 6.58% 1,123 58 6.89%
-------- ------ ---- ------- ------ ----
Total interest bearing liabilities ... 92,822 3,135 4.50% 71,612 2,400 4.47%
Noninterest bearing demand deposits .. 14,500 10,068
Other liabilities .................... 797 591
Shareholders' equity ................. 12,275 10,631
-------- -------
Total liabilities and shareholders' equity $120,394 $92,902
======== =======
Interest rate spread ................. 3.92% 3.59%
Net interest income and net yield on earning assets $3,947 4.70% $2,831 4.36%
====== ==== ====== ====
</TABLE>
(1) Computed on a fully tax equivalent basis using a 34% federal tax rate.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature are
intended to be, and are hereby identified as `forward looking statements' for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended. The Corporation cautions readers that forward looking
statements, including without limitation, those relating to the Corporation's
future business prospects, revenues, working capital, liquidity, capital needs,
interest costs, and income, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements, due to several important factors herein identified,
among others, and other risks and factors identified from time to time in the
Corporation's reports filed with the Securities and Exchange Commission.
Stock Split
The Corporation effected a two-for-one stock split of its common shares at
July 21, 1997. This increased the number of shares outstanding from 1,313,238 to
2,626,476. All information contained within Management's Discussion and Analysis
has been retroactively adjusted to reflect the split.
Florence National Bank (proposed)
On September 15, 1997 CBI entered into an Organizational Agreement pursuant
to which it agreed to sponsor the organization of Florence National Bank
(proposed), a national bank that is being organized by a group of local
businessmen in Florence, South Carolina to become a wholly-owned subsidiary of
CBI. CBI has also agreed to finance the expenses of the organization of the bank
and to furnish the funds necessary to capitalize the bank. The funds to
capitalize Florence National Bank and to finance expenses of organization of the
bank are expected to be provided by CBI from the proceeds of a stock offering or
borrowed funds or some combination of debt and equity. Completion of the
organization of Florence National Bank and acquisition of the bank by CBI are
subject to approval of the Office of the Comptroller of the Currency, the
Federal Deposit Insurance Corporation, the Board of Governors of the Federal
Reserve System, and the South Carolina State Board of Financial Institutions. On
September 15, 1997 an application for a national bank charter for the proposed
Florence National Bank was filed with the Office of the Comptroller of the
Currency and an application for deposit insurance was filed with the Federal
Deposit Insurance Corporation.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net Income
For the nine months ended September 30, 1997, CBI earned a consolidated
profit of $872,000, compared to $504,000 for the comparable period of 1996, an
increase of 73% or $368,000. Earnings per share were $.33 in the 1997 period,
compared to $.21 for the 1996 period, an increase of 57.1%.
For the nine months ended September 30, 1997, Orangeburg National Bank
reported a profit of $1,028,000, compared to $836,000 for the comparable period
of 1996, an increase of 22.9% or $192,000.
For the nine months ended September 30, 1997, Sumter National Bank reported
an after tax loss of $169,000, compared to a loss of $238,000 for the comparable
period of 1996, an improvement of 29% or $69,000. The 1997 amount represents
nine full months of operation, whereas the 1996 amount represents less than four
months of operation.
9
<PAGE>
For the nine months ended September 30, 1997, the holding company's parent
only net income after taxes was $13,000 compared to a net after tax loss of
$94,000 for the same period in 1996. This is an improvement of $107,000 or 114%.
Operations in 1996 included $112,000 in pre-opening expenses associated with the
new Sumter bank.
As noted above, consolidated net income for the nine months ended September
30, 1997, increased from the prior year by 73% or $368,000. Net interest income
before provision for loan losses for the nine months ended September 30, 1997,
increased to $3,947,000, compared to $2,831,000 for the same period in 1996, an
increase of 39.4% or $1,116,000. For the 1997 period, the provision for loan
losses was $258,000, compared to $140,000 for the 1996 period, an increase of
84.3% or $118,000. Non-interest income for the 1997 period increased to $559,000
from $355,000 for the 1996 period, a 57.5% or $204,000 increase. Non-interest
expense increased to $2,948,000 from $2,178,000, a 35.4% or $770,000 increase.
Results for the first nine months of 1997 include results of operations for
Sumter National Bank for the entire period, however the Sumter bank was in
operation for less than four months during the 1996 period. Accordingly, many of
the dollar and percentage comparisons and changes between periods discussed in
this report are unusually large.
Profitability
One of the best ways to review earnings is through the ROA (return on
average assets) and the ROE (return on average equity). Return on assets is the
income for the period divided by the average assets for the period, annualized.
Return on equity is the income for the period divided by the average equity for
the period, annualized. Based on operating results for the nine months ended
September 30, 1997 and 1996, the following table is presented.
Period ended Sept. 30,
1997 1996
---- ----
(dollars in thousands)
Average assets $120,394 $92,902
ROA 0.97% 0.72%
Average equity $12,275 $10,631
ROE 9.47% 6.32%
Net income $872 $504
Average equity and average assets were substantially greater in 1997 than
they were in 1996, primarily as the result of the sale of stock to capitalize
the Sumter bank and the deposit taking activities of the Sumter bank.
Net interest income
Net interest income, the major component of CBI's income, is the amount by
which interest and fees on interest earning assets exceed the interest paid on
interest bearing deposits and other interest bearing funds. During the first
nine months of 1997, net interest income after provision for loan losses
increased to $3,689,000 from $2,691,000, a 39% or $998,000 increase over the
comparable period of 1996. This improvement was the result of an increase in the
volume of earning assets at both banks, but was mostly associated with the
operation of the new bank in Sumter, which had net interest income for the first
nine months of 1997 of $598,000, or 60% of the total increase.
10
<PAGE>
Interest Income
Elsewhere in this report is a table comparing the average balances, yields,
and rates for the interest rate sensitive segments of the company's balance
sheet for the periods ended September 30, 1997 and 1996. A discussion of that
table follows.
Total interest income for the nine months ended September 30, 1997, was
$7,082,000 compared with $5,231,000 for the same period in 1996, a 35.4% or
$1,851,000 increase. The yield on earning assets for the 1997 period was 8.43%,
up from 8.06% for the 1996 period. Total average interest earning assets for the
nine months ended September 30, 1997, were $112,069,000, up from $86,587,000 for
the same period in 1996, an increase of 29.4% or $25,482,000. Sumter National
Bank averaged $18,729,000 in earning assets, or about 73% of the total increase.
The loan portfolio earned $5,544,000 for the nine months ended September
30, 1997, up from $3,874,000 for the same period of 1996, a 43.1% or $1,670,000
increase. The 1997 yield increased to 9.45% from 9.35% for the 1996 period. The
average size of the loan portfolio was $78,252,000 for the 1997 period, up from
$55,266,000 for the same period of 1996, an increase of 41.6% or $22,986,000.
The taxable investment portfolio earned $1,288,000 for the nine months
ended September 30, 1997, up from $1,180,000 for the 1996 period, a 9.2% or
$108,000 increase. The yield increased to 6.22% in the 1997 period from 5.89% in
the 1996 period. The average size of the portfolio increased to $27,612,000 in
the 1997 period from $26,706,000 in the 1996 period, an increase of 3.4% or
$906,000.
The tax exempt investment portfolio continues to be a relatively small part
of the portfolio. It earned $13,000 for the nine months ended September 30,
1997, unchanged from the prior year. The yield on the portfolio was 6.39% (on a
fully taxable equivalent basis), up from the prior year's 6.30%. The average
size of the portfolio decreased to $411,000 for the 1997 period from $417,000 in
the 1996 period, a decrease of 1.4% or $6,000.
Interest bearing deposits in other banks contributed $54,000 for the nine
months ended September 30, 1997, compared to $44,000 during the prior year, an
increase of 22.7% or $10,000. The yield on these deposits increased to 5.76% for
the 1997 period from 5.22% in the 1996 period. CBI averaged $1,251,000 in
interest bearing balances in the 1997 period compared to $1,124,000 in the 1996
period, an increase of 11.3% or $127,000.
Federal funds sold earned $183,000 for the nine months ended September 30,
1997, compared to $120,000 the prior year, an increase of 52.5% or $63,000.
Yields increased to 5.37% for the period ended September 30, 1997, from 5.20%
for the 1996 period. For the 1997 period, CBI increased its average volume in
federal funds sold to $4,543,000 from $3,074,000 for the 1996 period, a 47.8% or
$1,469,000 increase.
Interest expense
Interest expense increased for the nine months ended September 30, 1997 to
$3,135,000 from the prior year's $2,400,000, a 30.6% or $735,000 increase. The
volume of interest bearing liabilities increased to $92,822,000 for the period
ended September 30, 1997, from $71,612,000 for the 1996 period, a 29.6% or
$21,210,000 increase. Sumter National Bank averaged $14,749,000 in interest
bearing liabilities, or about 70% of the total increase. The average rate CBI
paid for interest bearing liabilities during the 1997 period was 4.50%, slightly
up from 4.47% for the 1996 period.
11
<PAGE>
The cost of savings accounts increased to $495,000 for the nine months
ended September 30, 1997 from $218,000 in the 1996 period, a 127% or $277,000
increase. Average savings deposit balances increased to $19,267,000 for the
period ended September 30, 1997, from $12,600,000 for the 1996 period, an
increase of 52.9% or $6,667,000. The average rate paid on these funds increased
to 3.43% from 2.31%. Most of this increase was due to growth in money market
accounts at the Sumter Bank.
Interest bearing transaction accounts cost $164,000 for the nine months
ended September 30, 1997, up from the prior year's $129,000, an increase of
27.1% or $35,000. The volume of these deposits increased to $11,623,000 for the
period ended September 30, 1997, from $8,478,000 for the 1996 period, a 37.1% or
$3,145,000 increase. The average rate paid on these funds for the period ended
September 30, 1997, decreased to 1.88% from 2.03% for the 1996 period.
Time deposits cost $2,303,000 for the nine months ended September 30, 1997,
up from $1,930,000 in the 1996 period, an increase of 19.3% or $373,000. The
volume increased to $56,849,000 for the period ended September 30, 1997, from
$47,224,000 for the 1996 period, a 20.4% or $9,625,000 increase. The average
rate paid on these funds decreased to 5.40% for the period ended September 30,
1997, from 5.45% for the 1996 period.
Short term borrowing consists of federal funds purchased and securities
sold under agreements to repurchase. This is a relatively small and volatile
part of the balance sheet. It cost $118,000 for the nine months ended September
30, 1997, up from $65,000 for the 1996 period, an 81.5% or $53,000 increase. The
volume of these funds increased to $3,969,000 in the 1997 period from $2,187,000
in the 1996 period, an increase of 81.5% or $1,782,000. The average rate paid on
these funds was 3.96% for both periods.
Borrowings from the Federal Home Loan Bank cost $55,000 for the nine months
ended September 30, 1997, compared to $58,000 for the 1996 period, a 5.5% or
$3,000 decline. The advances averaged $1,114,000 during the 1997 period,
compared to $1,123,000 for the prior year period, a .8% or $9,000 decrease. All
these balances were attributable to Orangeburg National Bank. The average rate
paid on these funds decreased to 6.58% from 6.89%.
Non-Interest Income
Non-interest income for the nine months ended September 30, 1997 grew to
$559,000 from $355,000 in the 1996 period, a 57.5% or $204,0000 increase. This
increase was mostly the result of the operation of the new Sumter bank, which
accounted for $118,000 or 58% of the total increase in non-interest income for
the 1997 period. Most of the remainder of the increase was attributable to
increased credit life and accident and health insurance sales in the Orangeburg
bank.
12
<PAGE>
Non-Interest Expense
For the nine months ended September 30, 1997 non-interest expenses
increased to $2,948,000 from $2,178,000 for the 1996 period, a 35.3% or $770,000
increase. Approximately $454,000 (59%) of this increase is related to the
operation of Sumter National Bank.
For the nine months ended September 30, 1997 personnel costs were
$1,738,000 compared to $1,329,000 for the 1996 period, a 30.8% or $409,000
increase.
Premises and equipment expense for the 1997 period were $384,000 compared
to $270,000 for the 1996 period, an increase of 42.2% or $114,000.
Other costs for the 1997 period were $826,000 compared to $579,000 for the
1996 period, an increase of 42.7% or $193,000.
Income Taxes
CBI provided $428,000 for federal and state income taxes during the nine
months ended September 30, 1997, compared to $364,000 for the same period in
1996, a 17.6% or $64,000 increase.
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED SEPTEMBER 30, 1997 AND 1996
Net Income
For the quarter ended September 30, 1997, CBI earned a consolidated profit
of $325,000, compared to $110,000 for the comparable period of 1996, an increase
of 195% or $215,000. Earnings per share were $.12 in the 1997 period, compared
to $.05 for the 1996 period, an increase of 140%.
Net interest income before provision for loan losses for the quarter ended
September 30, 1997, increased to $1,411,000, compared to $1,014,000 for the same
period in 1996, an increase of 39.2% or $397,000. For the same period, the
provision for loan losses was $81,000, compared to $77,000 for the 1996 period,
an increase of 5.2% or $4,000. Non-interest income for the 1997 period increased
to $196,000 from $120,000 for the 1996 period, a 63.3% or $76,000 increase.
Non-interest expense increased to $1,023,000 from $867,000, an 18% or $156,000
increase.
The third quarter of 1996 was the first full quarter of operation for the
Sumter bank. Sumter National Bank's net loss for the quarter ended September 30,
1997, was $25,000, an improvement of 86% over its net loss of $184,000 for the
quarter ended September 30, 1996. Many of the dollar and percentage comparisons
and changes between quarters discussed are unusually large because the Sumter
bank's ratio of non-interest expense to earning assets was so much greater,
17.6% in the 1996 quarter, than in the 1997 quarter, 5.8%.
Net interest income
Net interest income, the major component of CBI's income, is the amount by
which interest and fees on interest earning assets exceeds the interest paid on
interest bearing deposits and other interest bearing funds. During the quarter
ended September 30, 1997, net interest income after provision for loan losses
increased to $1,330,000 from $937,000, a 41.9% or $393,000 increase over the
comparable period of 1996. This improvement was the result of an increase in the
volume of earning assets at both banks.
13
<PAGE>
Interest Income
Total interest income for the third quarter 1997 was $2,595,000 compared
with $1,867,000 for the same period in 1996, a 39% or $1,092,000 increase.
The loan portfolio earned $1,998,000 for the third quarter in 1997, up from
$1,371,000 for the same period of 1996, a 45.7% or $627,000 increase.
The investment portfolio earned $488,000 for the third quarter in 1997, up
from $419,000 for the 1996 period, a 16.5% or $69,000 increase.
Interest bearing deposits in other banks contributed $20,000 for the third
quarter 1997, compared to $5,000 during the prior year, an increase of 300% or
$15,000.
Federal funds sold earned $89,000 the third quarter of 1997 compared to
$72,000 the prior year, an increase of 23.6% or $17,000.
Interest expense
Interest expense increased for the third quarter of 1997 to $1,184,000 from
the prior year's $853,000, a 38.8% or $331,000 increase.
Non-Interest Income
Non-interest income for the third quarter 1997 grew to $196,000 from
$120,000 in the third quarter of 1996, a 63.3% or $76,000 increase.
Non-Interest Expense
For the third quarter of 1997 non-interest expenses increased to $1,023,000
from $867,000 for the third quarter of 1996, an 18% or $156,000 increase.
For the three months ended September 30, 1997, personnel costs were
$605,000 compared to $523,000 for the third quarter of 1996, a 15.7% or $82,000
increase.
Premises and equipment expense for the 1997 period were $135,000 compared
to $115,000 for the 1996 period, an increase of 17.4% or $20,000.
Other costs for the third quarter 1997 were $283,000 compared to $229,000
for the third quarter of 1996, an increase of 23.5% or $54,000.
Income Taxes
CBI provided $178,000 for federal and state income taxes during the third
quarter of 1997, compared to $80,000 for the same period in 1996, a 122% or
$98,000 decrease.
14
<PAGE>
CHANGES IN FINANCIAL POSITION
Investment portfolio
The investment portfolio is comprised of a held to maturity and an
available for sale portion. CBI and its two banks usually purchase short term
issues of U. S Treasury and U. S. Government agency securities for investment
purposes. At September 30, 1997, the held to maturity portfolio totaled
$17,407,000 compared to $15,027,000 at December 31, 1996, an increase of 15.8%
or $2,380,000. At September 30, 1997, the available for sale portfolio totaled
$13,834,000 compared to $10,761,000 at December 31, 1996, an increase of 28.6%
or $3,073,000. The following chart summarizes the investment portfolios at
September 30, 1997, and December 31, 1996.
<TABLE>
<CAPTION>
September 30, 1997
---------------------------------------------------------------------------
Held to maturity Available for sale
--------------------------------------- -----------------------------------
Amortized cost Fair value Amortized cost Fair value
-------------- ---------- -------------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
U. S. Government and
federal agencies ............... $17,000 $16,989 $13,114 $13,122
Tax exempt securities .......... 407 410 - -
Other equity securities ........ - - 712 712
======= ======= ======= =======
Total .......................... $17,407 $17,399 $13,826 $13,834
======= ======= ======= =======
Unrealized gain or (loss) ...... $ (8) $ 8
======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,1996
---------------------------------------------------------------------------
Held to maturity Available for sale
--------------------------------------- -----------------------------------
Amortized cost Fair value Amortized cost Fair value
-------------- ---------- -------------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
U. S. Government and
federal agencies ............... $14,613 $14,612 $10,175 $10,175
Tax exempt securities .......... 414 417 - -
Other equity securities ........ - - 586 586
======= ======= ======= =======
Total .......................... $15,027 $15,029 $10,761 $10,761
======= ======= ======= =======
Unrealized gain or (loss) ...... $ 2 $ -
======= =======
</TABLE>
Orangeburg National Bank owns approximately 91% of the held to maturity and
the available for sale investment portfolios.
15
<PAGE>
Loan portfolio
The loan portfolio is primarily consumer and small business oriented. At
September 30, 1997, the loan portfolio was $86,710,000, compared to $68,829,000
at December 31, 1996, a 25.9% or $17,881,000 increase. The following chart
summarizes the loan portfolio at September 30, 1997, and December 31, 1996.
Sep. 30, 1997 Dec. 31, 1996
------------- -------------
(dollars in thousands)
Real estate ................................ $51,218 $41,164
Commercial ................................. 19,582 16,644
Loans to individuals ....................... 15,910 11,021
======= =======
Total ...................................... $86,710 $68,829
======= =======
At September 30, 1997, Orangeburg National Bank's loan portfolio totaled
$65,963,000 (including loans held for resale) compared to $59,877,000 at
December 31, 1996, an increase of $6,086,000 or 10.2%.
At September 30, 1997, Sumter National Bank's loan portfolio totaled
$20,849,000, compared to $8,952,000 at December 31, 1996, an increase of
$11,897,000 or 133%.
Past Due and Non-Performing Assets and the Allowance for Loan Losses
CBI closely monitors past due loans, non-accrual loans and other real
estate owned. Below is a summary of past due and non-performing assets at
September 30, 1997 and December 31, 1996.
Sept. 30, 1997 Dec. 31, 1996
-------------- -------------
Past due 90 days + accruing loans .......... $104,000 $ 93,000
Non-accrual loans .......................... $365,000 $431,000
Impaired loans (included in nonaccrual) .... $ 12,000 $ 12,000
Other real estate owned .................... $ - $ -
Management considers the past due and non-accrual amounts in September 1997
to be reasonable and manageable in the normal course of business. All loans
shown in the above table are attributable to Orangeburg National Bank.
CBI had no restructured loans during any of the above listed periods.
CBI's activity with its allowance for loan losses reserve is summarized
below.
Sept. 30, 1997 Dec. 31, 1996
-------------- -------------
Allowance at beginning of period ............ $ 876,000 $707,000
Provision expense ........................... 258,000 227,000
Net charge-offs ............................. (43,000) (58,000)
========== ========
Allowance at end of period .................. $1,091,000 $876,000
========== ========
Allowance as a percent of outstanding loans . 1.26% 1.27%
16
<PAGE>
At December 31, 1996, the Sumter National Bank allowance for loan losses
was $97,000. The bank increased the allowance with a provision expense of
$123,000 as it continued to establish its allowance for loan losses. Net
charge-offs during the period were $1,000. The allowance at September 30, 1997,
was $219,000.
At December 31, 1996, the Orangeburg National Bank allowance for loan
losses was $779,000. The bank increased the allowance with a provision expense
of $135,000. Net chargeoffs during the period were $42,000. The allowance at
September 30, 1997 was $872,000.
In reviewing the adequacy of the allowance for loan losses at the end of
each period, management considers historical loan loss experience, current
economic condition, loans outstanding, trends in non-performing and delinquent
loans, and the quality of collateral securing problem loans. After charging off
all known losses, management considers the allowance adequate to provide for
estimated future losses inherent in the loan portfolio at September 30, 1997.
Deposits
Deposits were $114,824,000 at September 30, 1997, compared to $89,851,000
at December 31, 1996, an increase of 27.8% or $24,973,000.
Time deposits greater than $100,000 were $20,484,000 at September 30, 1997,
compared to $13,640,000 at December 31, 1996, an increase of 50.2% or
$6,844,000.
Liquidity
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. Adequate liquidity is necessary to meet the requirements of
customers for loans and deposit withdrawals in a timely and economical manner.
The most manageable sources of liquidity are composed of liabilities, with the
primary focus of liquidity management being the ability to attract deposits
within the Orangeburg National Bank and Sumter National Bank service areas. Core
deposits (total deposits less certificates of deposit of $100,000 or more)
provide a relatively stable funding base. Certificates of deposit of $100,000 or
more are generally more sensitive to changes in rates, so they must be monitored
carefully. Asset liquidity is provided by several sources, including amounts due
from banks, federal funds sold, and investments available for sale.
CBI and its banks maintain an available-for-sale investment and a held to
maturity investment portfolio. While all these investment securities are
purchased with the intent to be held to maturity, such securities are marketable
and occasional sales may occur prior to maturity as part of the process of
asset/liability and liquidity management. Such sales will generally be from the
available for sale portfolio. Management deliberately maintains a short-term
maturity schedule for its investments so that there is a continuing stream of
maturing investments. CBI intends to maintain a short-term investment portfolio
in order to continue to be able to supply liquidity to its loan portfolio and
for customer withdrawals.
17
<PAGE>
CBI has substantially more liabilities (mostly deposits, which may be
withdrawn) which mature in the next 12 months than it has assets maturing in the
same period. However, based on its historical experience, and that of similar
financial institutions, CBI believes that it is unlikely that so many deposits
would be withdrawn, without being replaced by other deposits, that CBI would be
unable to meet its liquidity needs with the proceeds of maturing assets.
CBI through its banking subsidiaries also maintains federal funds lines of
credit with correspondent banks, and is able to borrow from the Federal Home
Loan Bank and from the Federal Reserve's discount window.
CBI through its banking subsidiaries has a demonstrated ability to attract
deposits from its markets. Deposits have grown from $30 million in 1989 to over
$114 million in 1997. This stable, growing base of deposits is the major source
of operating liquidity.
CBI's long term liquidity needs are expected to be primarily affected by
the maturing of long term certificates of deposit. At September 30, 1997, CBI
had approximately $9.1 million and $1.2 million in certificates of deposit
maturing in one to five years and over five years, respectively. CBI's assets
maturing or repricing in the same periods were $58.7 million and $11 million,
respectively. CBI expects to be able to manage its current balance sheet
structure without experiencing any unusual liquidity problems.
In the opinion of management, CBI's current and projected liquidity
position is adequate.
Capital resources
As summarized in the table below, CBI maintained a strong capital position.
Sept. 30, 1997 Dec. 31, 1996
-------------- -------------
Tier 1 capital to average total assets 11.31% 11.50%
Tier 1 capital to risk weighted assets 14.17% 17.50%
Total capital to risk weighted assets 15.41% 18.70%
The moderate decline in the risk weighted capital ratios is the anticipated
effect of the asset growth resulting from the operation of the new bank in
Sumter, combined with asset growth of the Orangeburg bank.
In the opinion of management, the Company's current and projected
capital positions are adequate.
Shareholders' equity
At September 30, 1997 the common stock account totaled $9,055,000, compared
to $9,064,000 at December 31, 1996. This $9,000 reduction was for costs
associated with the establishment of a dividend reinvestment plan, although no
stock was sold by CBI during the period. Ongoing costs of the reinvestment plan
will be charged to expense. Total shareholders' equity increased from
$12,104,000 at December 31, 1996 to $12,577,000 at September 30, 1997, a 3.9%
increase.
ACCOUNTING AND REPORTING MATTERS
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share."
SFAS No. 128 simplifies the current computation of earnings per share and makes
the United States standards for the computation more compatible with
international earnings per share standards. The statement requires dual
presentation of earnings per share for all entities with complex capital
structures. It also replaces the presentation of primary earnings per share with
a presentation of basic earnings per share. The Statement is effective for the
Company for the year ended December 31, 1997. The Company does not anticipate
that adoption of this Statement will have a material effect on its financial
statements.
18
<PAGE>
Part II--Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.(from Description
item 601 of S-B)
(3) Articles of Incorporation, as amended.
(10) Organizational Agreement among Community Bankshares,
Inc. and the Organizers of Florence National Bank,
dated as of September 15, 1997.
(27) Financial Data Schedule
(b) Reports on Form 8-K. None.
Signatures
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DATED: November 10, 1997
COMMUNITY BANKSHARES, INC.
By: s/ Hugo S. Sims, Jr.,
Hugo S. Sims, Jr.,
Chief Executive Officer
By: s/ William W. Traynham
William W. Traynham
President and Chief Financial Officer
(Principal Accounting Officer)
19
<PAGE>
Exhibit Index
Exhibit No.(from Description
item 601 of S-B)
(3) Articles of Incorporation, as amended.
(10) Organizational Agreement among Community Bankshares,
Inc. and the Organizers of Florence National Bank,
dated as of September 15, 1997.
(27) Financial Data Schedule
<PAGE>
EXHIBIT 3
Jim Miles
Secretary of State
Filed
Jun 19, 1997
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended,
the undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
1. The name of the corporation is Community Bankshares, Inc.
2. On June 16, 1997, the corporation adopted the following Amendment(s) of its
Articles of Incorporation.
RESOLVED, that pursuant to a two-for-one split of the authorized shares of
the Corporation's common stock (no par value), the total number of
authorized shares of the Corporation's common stock shall be increased from
6,000,000 shares to 12,000,000 shares (no par value).
3. The manner, if not set forth in the amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
Amendment shall be effected, is as follows: (if not applicable, insert "not
applicable" or "NA").
Shareholders of record on July 2, 1997 will be issued additional stock
certificates representing one additional share of the Corporation's Common
Stock for every one share currently held.
4. Complete either a or b, whichever is applicable.
a. [ ] Amendment(s) adopted by shareholder action.
At the date of adoption of the amendment, the number of outstanding
shares of each voting group entitled to vote separately on the
Amendment, and the vote of such shares was:
Number of Number of Number of Number of
out- Votes Shares Undisputed*
Voting standing Entitled Represented Shares Voted
Group Shares To be Cast at the meeting For Against
b. [x] The amendment(s) was duly adopted by the Incorporators or
board of directors without shareholder approval pursuant to
Sections 33-6-102(d), 33-10-102 and 33-10-105 of the 1976
South Carolina Code as amended, and shareholder action was
not required.
5. Unless a delayed date is specified, the effective date of these Articles of
Amendments shall be the date of acceptance for filing by the Secretary of
State (See Section 33-1-230(b)) Effective July 21, 1997.
DATE: June 16, 1997 COMMUNITY BANKSHARES, INC.
(Name of Corporation)
By: s/William W. Traynham
(Signature)
William W. Traynham, President
(Type or Print Name and Office)
*NOTE: Pursuant to Section 33-10-106(6)(i), the corporation can
alternatively state the total number of votes cast for
and against the amendment by each voting group entitled
to vote separately on the amendment or the total number
of undisputed votes cast for the amendment by each voting
group together with a statement that the number cast for
the amendment by each voting group was sufficient for
approval by that voting group.
<PAGE>
Jim Miles
Secretary of State
Filed
Mar 15, 1995
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended,
the undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
1. The name of the corporation is Community Bankshares, Inc.
2. On December 13, 1994, the corporation adopted the following Amendment(s) of
its Articles of Incorporation.
RESOLVED, that pursuant to a two-for-one split of the authorized shares of
the Corporation's common stock (no par value), the total number of
authorized shares of the Corporation's common stock shall be increased from
3,000,000 shares to 6,000,000 shares (no par value).
3. The manner, if not set forth in the amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
Amendment shall be effected, is as follows: (if not applicable, insert "not
applicable" or "NA").
Shareholders of record on January 1, 1995 will be issued additional stock
certificates representing one additional share of the Corporation's Common
Stock for every one share currently held.
4. Complete either a or b, whichever is applicable.
a. [ ] Amendment(s) adopted by shareholder action.
At the date of adoption of the amendment, the number of outstanding
shares of each voting group entitled to vote separately on the
Amendment, and the vote of such shares was:
Number of Number of Number of Number of
out- Votes Shares Undisputed*
Voting standing Entitled Represented Shares Voted
Group Shares To be Cast at the meeting For Against
b. [x] The amendment(s) was duly adopted by the Incorporators or board of
directors without shareholder approval pursuant to '33-6-102(d),
33-10-102 and 33-10-105 of the 1976 South Carolina Code as amended,
and shareholder action was not required.
5. Unless a delayed date is specified, the effective date of these Articles of
Amendments shall be the date of acceptance for filing by the Secretary of
State (See Section 33-1-230(b))_______________________.
DATE: December 13, 1994 COMMUNITY BANKSHARES, INC.
(Name of Corporation)
By: s/William W. Traynham
(Signature)
William W. Traynham, President
(Type or Print Name and Office)
*NOTE: Pursuant to Section 33-10-106(6)(i), the corporation can
alternatively state the total number of votes cast for and against
the amendment by each voting group entitled to vote separately on
the amendment or the total number of undisputed votes cast for the
amendment by each voting group together with a statement that the
number cast for the amendment by each voting group was sufficient
for approval by that voting group.
<PAGE>
Jim Miles
Secretary of State
Filed
November 30, 1992
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF INCORPORATION
1. The name of the proposed corporation is Community Bankshares, Inc.
2. The initial registered office of the corporation is 1820 Columbia Road,
N.E., Orangeburg, South Carolina 29115.
and the initial registered agent at such address is William W. Traynham.
3. The corporation is authorized to issue shares of stock as follows: Complete
a or b, whichever is applicable:
a. [x] If the corporation is authorized to issue a single class of
shares, the total number of shares authorized is 3,000,000.
B. [ ] The corporation is authorized to issue more than one class of
shares:
Class of Shares Authorized No. of Each Class
-------------------- -----------------------
-------------------- -----------------------
The relative rights, preferences, and limitations of the shares of each
class, and of each series within a class, are as follows:
Common Stock - Shares of this class shall have unlimited voting rights
and shall be entitled, together with any other class having such
rights, to receive the net assets of the Corporation upon dissolution.
4. The existence of the corporation shall begin when these articles are filed
with the Secretary of State unless a delayed date is indicated (See Section
33-1-230(b)):___________________________
5. The optional provisions which the corporation elects to include in the
articles of incorporation are as follows (See Section 33-2-102 and the
applicable comments thereto; and Sections 35-2-105 and 35-2-221 of the 1976
South Carolina Code):
A. Quorum. One-third of the shares entitled to vote thereat shall
constitute a quorum at a meeting of shareholders for the transaction
of any business.
B. Mergers, Consolidations, Exchanges, Sales of Assets or Dissolution.
With respect to any plan of merger, consolidation or exchange or any
plan for the sale of all, or substantially all, the property and
assets, with or without the good will, of the Corporation or any
resolution to dissolve the Corporation, which plan or resolution shall
not have been adopted by the affirmative vote of at least two-thirds
of the full board of directors, such plan or resolution must be
approved by the affirmative vote of holders of 80% of the outstanding
shares of the Corporation.
<PAGE>
C. Classified Board of Directors. There shall be not less than nine nor
more than 24 directors who shall be divided into three classes, each
class to be as nearly equal in number as possible and the election and
terms of directors shall be as provided in Sections 33-8-104 and -106
of the South Carolina Business Corporation Act.
D. Nomination of Directors. No person shall be eligible to be elected a
director of the Corporation at a meeting of shareholders unless that
person has been nominated by a shareholder entitled to vote at such
meeting by giving written notice of such nomination to the secretary
of the Corporation at least thirty days prior to the date of the
meeting.
E. Removal of Directors. An affirmative vote of 80% of the outstanding
shares of the Corporation shall be required to remove any or all of
the directors without cause.
F. Duty of Directors. When evaluating any proposed plan of merger,
consolidation, exchange or sale of all, or substantially all, of the
assets of the corporation, the board of directors shall consider the
interests of the employees of the Corporation and the community or
communities in which the Corporation and its subsidiaries, if any, do
business in addition to the interests of the Corporation's
shareholders.
G. No Preemptive Rights. Shareholders of the Corporation shall not have
preemptive rights with respect to shares, options or rights of the
Corporation.
H. No Cumulative Voting. Cumulative voting with respect to shares of the
Corporation shall not be permitted.
I. Amendment to Articles of Incorporation. Any amendment to the Articles
of Incorporation of the Corporation which amends, alters, repeals or
is inconsistent with any of provisions B, C, D, E, F, G or H above,
unless such amendment shall have been approved by the affirmative vote
of at least two-thirds of the full board of directors, shall not be
effective unless it is approved by the affirmative vote of 80% of the
outstanding shares of the Corporation.
6. The name and address of each incorporator is as follows (only one is
required):
Name Address Signature
William W. Traynham 1820 Columbia Road, N.E.
Orangeburg, SC 29115
E. J. Ayers, Jr. See above
J. Robert Bryant See above s/ J. Robert Bryant
Martha Rose C. Carson See above
J. M. Guthrie See above s/ J. M. Guthrie
Hugo S. Sims, Jr. See above s/ Hugo S. Sims, Jr.
J. Otto Warren See above s/ J. Otto Warren
Kenneth O. Westbury See above s/ Kenneth O. Westbury
Michael A. Wolfe See above s/ Michael A. Wolfe
Russell S. Wolfe, II See above s/ Russell S. Wolfe, II
<PAGE>
7. I, Suzanne Hulst Clawson, an attorney licensed to practice in the
State of South Carolina, certify that the corporation, to whose
articles of incorporation this certificate is attached, has complied
with the requirements Section 33-2-102 of the 1976 South Carolina
Code.
Date: November 25, 1992 s/Suzanne Hulst Clawson
(Signature)
Suzanne Hulst Clawson
P. O. Box 11889
Columbia, South Carolina 29211
<PAGE>
ORGANIZATIONAL AGREEMENT
This Organizational Agreement is entered into as of the 15th day of
September, 1997 by and among the persons signing this Agreement as Organizers
(the "Organizers") and Community Bankshares, Inc., a South Carolina corporation,
(the "Sponsor").
Whereas, the Organizers and the Sponsor wish to organize a national bank in
Florence, South Carolina (the "Bank"); and
Whereas, the Organizers and the Sponsor wish to memorialize their
understandings with respect to the organization of the Bank.
Now, therefore, for and in consideration of the premises and the agreements
contained herein the Organizers and Sponsor agree as follows:
1. Each of the Organizers agrees to serve as an Organizer of the Bank, and to
participate in the organizational process in the manner and to the extent
required by the National Bank Act and the rules, regulations and policies
of the Office of the Comptroller of the Currency (the "OCC"). Each
Organizer also agrees that he will serve as a director of the Bank upon its
organization and will endeavor to the best of his ability to fully
discharge the obligations of a director of a national bank.
Each Organizer acknowledges that he understands that he will be required to
provide certain information concerning his background and financial standing to
the OCC in connection with the Application to Organize the Bank and agrees to
promptly furnish such information as may be required. Each Organizer further
understands that continued participation as an Organizer and, ultimately, as a
director of the Bank is subject to the approval of the OCC and agrees that, if
the approval of the OCC for his participation can not be obtained or is delayed
in a way that will substantially delay the opening of the Bank, he will withdraw
from participation as an Organizer and as a prospective director of the Bank.
Each Organizer further acknowledges and agrees that the Sponsor may
designate two or more persons affiliated with the Sponsor to serve as additional
organizers of the Bank and/or to serve as additional directors of the Bank.
2. Each Organizer agrees that he will purchase at least $100,000 worth of
stock of the Sponsor when called on by the Sponsor to purchase said stock;
provided, however, that if the Organizer is provided with a preliminary
prospectus relating to such sale of stock and if such Organizer notifies
the Company prior to the effectiveness of the prospectus that he will not
subscribe for and purchase such stock and resigns as an Organizer and
prospective director of the Bank, then such Organizer shall be relieved of
any obligation to purchase the stock. Each Organizer acknowledges that this
obligation is independent of the obligations of the other Organizers. Each
Organizer further understands that affiliates of Sponsor (including the
proposed President of the Bank) who may be organizers of the Bank will not
be required to purchase stock in the same amount but may be subject to
separate agreements with respect to stock ownership.
26
<PAGE>
3. The Sponsor agrees to be responsible for the cost of preparing and filing
an application to organize a national bank with the OCC, the pre-opening
expenses associated with the organization of the Bank and related items.
However, the Sponsor reserves the right to require the repayment of such
items from the proceeds of capitalization of the Bank. Sponsor agrees to
buy all of the Bank's stock necessary to capitalize the Bank and the
Organizers agree to sell such stock to the Sponsor.
4. The Organizers agree that, promptly after this Agreement is signed by the
Sponsor, they will meet and elect a Chairman who will be the spokesperson
for the Organizers and they will designate Jesse A. Nance as the person to
be the President of the Bank.
5. Each Organizer agrees to promptly notify the Sponsor of any communication
he receives from the OCC or any other governmental agency regarding the
Bank. The Organizers will give at least two days notice to the Sponsor of
any meeting of Organizers.
6. With the exception of Mr. Nance, no Organizer shall receive any
compensation for his service as an Organizer or as a director of the Bank
until the Bank becomes profitable. Mr. Nance shall receive a salary and
benefits from the Sponsor which may, to the extent permitted by applicable
law and regulation, be charged to the organizational expenses of the Bank.
7. The Organizers shall not incur any expense with respect to the Bank without
the prior written consent of the Sponsor.
8. All correspondence or other communications regarding the organization of
the Bank and the other matters contained in this Agreement shall be
directed to the appropriate party at the address set forth by such parties
named below.
9. This Agreement shall be effective as of the date it is signed by the
Sponsor.
10. The Organizers may, with the approval of the Sponsor, bring in additional
Organizers or replace Organizers who leave the group. Any such additional
or replacement Organizer shall sign this Agreement and thereby be bound by
its terms.
11. This Agreement shall be governed by the laws of the State of South Carolina
and shall inure to the benefit of and be enforceable against the parties
hereto their respective heirs, successors and assigns.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Organizational
Agreement as of the effective date.
ORGANIZERS:
s/Phillip D. Lowe s/James (Jim) R. Livingston
- ----------------------------- ----------------------------------------
(Name) (Name)
507 W. Cheves Street 1801 E. Palmetto Street
- ----------------------------- ----------------------------------------
(Address) (Address)
Florence, SC 29501 Florence, SC 29501
- ----------------------------- ----------------------------------------
(City) (State) (City) (State)
s/Murray L. Garber s/Wm. Reynolds Williams
- ----------------------------- ----------------------------------------
(Name) (Name)
516 S. Edisto Drive PO Box 1909
- ----------------------------- ----------------------------------------
(Address) (Address)
Florence, SC 29501 Florence, SC 29503-1909
- ----------------------------- ----------------------------------------
(City) (State) (City) (State)
s/Robert Johnson, Sr. s/J. Erwin Paxton
- ----------------------------- ----------------------------------------
(Name) (Name)
2620 Mellon Street 600 North Coit Street
- ----------------------------- ----------------------------------------
(Address) (Address)
Florence, SC 29501 Florence, SC 29501
- ----------------------------- ----------------------------------------
(City) (State) (City) (State)
s/Richard L. Havekost s/William W. Traynham
- ----------------------------- ----------------------------------------
(Name) (Name)
1315 Place DeJulian PO Box 2086
- ----------------------------- ----------------------------------------
(Address) (Address)
Florence, SC 29501 Orangeburg, SC 29116
- ----------------------------- ----------------------------------------
(City) (State) (City) (State)
s/Hugo S. Sims, Jr. s/Jesse A. Nance
- ----------------------------- ----------------------------------------
(Name) (Name)
PO Box 2086 181 E. Evans St., BTC-051
- ----------------------------- ----------------------------------------
(Address) (Address)
Orangeburg, SC 29116 Florence, SC 29506
- ----------------------------- ----------------------------------------
(City) (State) (City) (State)
28
<PAGE>
SPONSOR:
COMMUNITY BANKSHARES, INC.
s/Hugo S. Sims
By:
Hugo S. Sims, Chairman
Post Office Box 2086
Orangeburg, South Carolina 29116
Attn: Hugo S. Sims, Chairman
<PAGE>
APPENDIX C
SUBSCRIPTION AGREEMENT
<PAGE>
COMMUNITY BANKSHARES, INC.
SUBSCRIPTION AGREEMENT
The undersigned, having received and reviewed the Prospectus (the
"Prospectus") dated ___________, 1998, of Community Bankshares, Inc. (the
"Corporation"), subject to the terms and conditions of the Prospectus, hereby
subscribes for the number of shares of Common Stock, of Community Bankshares,
Inc. (the "Common Stock"), shown below. The undersigned submits herewith the
purchase price calculated as set forth below. All payments shall be in United
States dollars in cash or by check, draft or money order drawn to the order of
Community Bankshares, Inc.
Your Properly Completed Subscription Form and Payment Must Be
Returned To one of the Following Addresses:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMUNITY BANKSHARES, INC. COMMUNITY BANKSHARES, INC. SUMTER STOCK SALES OFFICE FLORENCE STOCK SALES OFFICE
791 Broughton Street Post Office Drawer 2086 COMMUNITY BANKSHARES, INC. COMMUNITY BANKSHARES, INC.
Orangeburg, South Carolina 29115 Orangeburg, South Carolina 29116 409 North Salem Avenue 181 E. Evans Street
(803) 535-1060 Sumter, South Carolina 29150 BTC - 051
c/o Florence, South Carolina 29506
Porter L. Thompkins, Jr., CPA c/o Jesse Nance
(803) 773-1151 (803) 664-2858
</TABLE>
Acknowledgments and Representations
In connection with this subscription, the undersigned hereby acknowledges
and agrees that:
(1) This subscription may not be cancelled, terminated, or revoked by the
undersigned. Upon acceptance in writing by the Corporation, the
Subscription will be binding and legally enforceable. This subscription
will only be deemed accepted when acceptance is noted hereon by the
President or Chairman of the Board of the Corporation. No other person has
authority to accept or reject a subscription on behalf of the Corporation.
(2) The Corporation reserves the right to accept this subscription in whole or
in part. If this subscription is accepted in part, the undersigned agrees
to purchase the accepted number of shares subject to all of the terms of
this offer.
(3) Funds relating to this subscription received by the Corporation will not be
held in escrow. Upon acceptance of this subscription, subscriber shall
become a shareholder of the Corporation. If the subscription is rejected in
whole or in part, the subscription funds attributable to the rejected
portion shall be promptly returned to the undersigned. No interest will be
paid on any such returned funds.
(4) The Corporation reserves the right to cancel this subscription after
acceptance until the date of issue of the Common Stock.
(5) The shares of Common Stock subscribed for hereby are equity securities and
are not savings accounts or deposits, and INVESTMENT THEREIN IS NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
(6) This subscription is nonassignable and nontransferable, except with the
written consent of the Corporation.
(7) Certificates will be delivered by first class mail to the address set forth
herein.
(8) The undersigned has received a copy of the Prospectus, and represents that
this Subscription Agreement is made solely on the basis of the information
contained in the Prospectus and is not made in reliance on any inducement,
representation or statement not contained in the Prospectus. No person
(including any Officer or Director of CBI or organizer of Florence National
Bank) has authority to give any information or to make any representation
not contained in the Prospectus, and if given or made, such information or
representation must not be relied upon as having been authorized.
Purchase Price
The purchase price per share (the "Purchase Price") of the Common Stock as
to this subscription shall be the closing price per share of the Common Stock on
the American Stock Exchange (the "AMEX") on the business day immediately
preceding the date on which this fully executed subscription agreement together
with cash, check, draft or money order representing the subscription price are
received by the Corporation. The date this subscription is received by the
Corporation shall be the date of actual physical receipt by the Corporation at
any of the addresses set forth above. Accordingly, if subscribers wish to be
assured that their Purchase Price will be a particular day's closing price, they
should hand deliver their fully executed subscription agreement to the
Corporation at any of the addresses set forth above, together with cash, check,
draft or money order on the following day. Each business day, the Corporation
will post in its main offices and at the Sumter and Florence Stock Sales Offices
shown above the closing price of the Common Stock on the AMEX on the immediately
preceding business day.
Upon receipt by the Corporation of a fully executed subscription agreement
together with cash, check, draft or money order representing the subscription
price, the Corporation will mark the subscription agreement "Received" and note
the date thereon. The Purchase Price of the shares subscribed will be the
closing price of the Common Stock on the AMEX on the business day immediately
preceding the date as to which the subscription agreement is marked received.
The Corporation shall make the determination of the date on which a subscription
agreement is deemed received. Acknowledgement of receipt of a subscription
agreement in the manner set forth above shall not, however, constitute
acceptance of the subscription. The subscription will only be deemed accepted
when acceptance is noted thereon in writing by the President or Chairman of the
Board of the Corporation. Promptly upon such acceptance, the Corporation shall
issue the number of whole shares that may be purchased at the Purchase Price
with the subscription funds submitted. The Corporation will promptly return any
excess subscription funds to subscriber.
Subscription
My payment of $_______________ is enclosed. (Must be at least $1,000.)
I want to buy as many whole shares of Common Stock as my payment will buy using
as the purchase price the closing price for Common Stock on the AMEX on the
business day preceding receipt of my subscription.
If I have filled in the blank in this sentence and if the Purchase Price is
greater than $___________ per share, I do not want to buy any Common Stock and I
want you to return my payment.
(Please Type or Print)
- -------------------------------------------------------------
(Name(s) in which stock certificates should be registered**)
- -------------------------------------------------------------
(Street Address)
- -------------------------------------------------------------
(City/State/Zip Code)
- -------------------------------------------------------------
(Social Security or Employer I.D. No.)
(----)--------------- (----)------------------
(Home Telephone No.) (Business Telephone No.)
**Stock certificates for shares to be issued in the names of two or more persons
will be registered in the names of such persons as joint tenants with right of
survivorship, and not as tenants in common.
FOR USE BY THE CORPORATION ONLY.
DATE OF RECEIPT:
CLOSING PRICE OF COMMON STOCK ON BUSINESS
DAY IMMEDIATELY PRIOR TO RECEIPT:
$----------------
NUMBER OF SHARES SUBSCRIPTION FUNDS WOULD
PURCHASE AT SUCH PRICE: _________________
SUBSTITUTE W-9
Under the penalties of perjury, I certify that: (1) the Social Security number
or taxpayer identification number given above is correct; and (2) I am not
subject to backup withholding. INSTRUCTION: YOU MUST CROSS OUT #2 ABOVE IF YOU
HAVE BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE THAT YOU ARE SUBJECT TO
BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON YOUR TAX
RETURN.
I HAVE READ AND UNDERSTAND THE PROSPECTUS AND THIS SUBSCRIPTION AGREEMENT.
- ------------------------------------- -----------------
(Signature) (Date)
- ------------------------------------- -----------------
(Signature) (Date)
If shares are to be held in joint ownership, all joint owners should
sign this Agreement.
SUBSCRIPTION ACCEPTED AS TO _________ SHARES AT A PURCHASE PRICE OF
$______________ PER SHARE.
COMMUNITY BANKSHARES, INC.
BY:--------------------------------
ITS:-------------------------------
C:\6912\5\SUBSCR.AGR
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
SEC registration fee and blue sky filing fees..................... $ 6,000
Accounting fees................................................... 2,000
Legal fees and expenses........................................... 25,000
Mailing and Printing Costs........................................ 14,000
Miscellaneous..................................................... 3,000
-------
TOTAL.................................................... $50,000
Item 15. Indemnification of Directors and Officers.
Under South Carolina law, Section 33-8-510, Code of Laws of South Carolina
1976, as amended, a corporation has the power to indemnify directors and
officers who meet the standards of good faith and reasonable belief that conduct
was lawful and in the corporate interest (or not opposed thereto) set forth in
such statute. Such statute also empowers a corporation to provide insurance for
directors and officers against liability arising out of their positions even
though the insurance coverage is broader than the power of the corporation to
indemnify. Under Section 33-8-520, unless limited by its articles of
incorporation, a corporation must indemnify a director or officer who is wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which he was a party because he is or was a director against reasonable expenses
incurred by him in connection with the proceeding. The registrant's Articles of
Incorporation do not provide otherwise.
Item 16. Exhibits.
See Exhibit Index on Page .
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
<PAGE>
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial information
required to be presented by Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is specifically
incorporated by reference in the prospectus to provide such interim financial
information.
(6) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-2 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Orangeburg, State of South Carolina, on February 11, 1998.
COMMUNITY BANKSHARES, INC.
s/Hugo S. Sims, Jr.
By:---------------------------------
Hugo S. Sims, Jr.
Its Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-2 has been signed by the following persons in
the capacities indicated on February 11, 1998.
Signature Title
- --------- -----
s/E. J. Ayers, Jr.
- --------------------------------- Director
(E. J. Ayers, Jr.)
s/Alvis J. Bynum
- --------------------------------- Director
(Alvis J. Bynum)
s/Martha Rose C. Carson
- --------------------------------- Director
(Martha Rose C. Carson)
s/Anna O. Dantzler
- --------------------------------- Director
(Anna O. Dantzler)
s/J. M. Guthrie
- --------------------------------- Director
(J. M. Guthrie)
s/Phil P. Leventis
- --------------------------------- Director
(Phil P. Leventis)
s/William H. Nock
- --------------------------------- Director
(William H. Nock)
s/Samuel F. Reid, Jr.
- --------------------------------- Director
(Samuel F. Reid, Jr.)
s/Hugo S. Sims, Jr.
- --------------------------------- Chief Executive Officer
(Hugo S. Sims, Jr.) and Director
s/William W. Traynham
- --------------------------------- Chief Financial Officer,
(William W. Traynham) Principal Accounting Officer,
President and Director
s/J. Otto Warren, Jr.
- --------------------------------- Director
(J. Otto Warren, Jr.)
s/Michael A. Wolfe
- --------------------------------- Director
(Michael A. Wolfe)
- --------------------------------- Director
(Russell S. Wolfe, II)
<PAGE>
EXHIBIT INDEX
Exhibit No.
(per Exhibit
Tables in
Item 601 of
Regulation S-K Description of Exhibit Page No.
-------------- ---------------------- --------
3.1 Articles of Incorporation of Registrant, as
amended (incorporated by reference to the
Registrant's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1997)
3.2 Bylaws of Registrant (incorporated by reference to
the Registrant's Form S-4, Commission File No.
33-55314, filed December 3, 1992)
4 Form of stock certificate of Community Bankshares,
Inc. (incorporated by reference to the
Registrant's Form S-4, Commission File No.
33-55314, filed December 3, 1992)
5 Opinion of Sinkler & Boyd, P.A. as to legality of
securities being registered
10.1 Organizational agreement, dated September 15,
1997, by and among the Organizers of Florence
National Bank and Community Bankshares, Inc.
(incorporated by reference to the Registrant's
Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1997).
13.1 Annual Report on Form 10-KSB for the year ended
December 31, 1996 (included as Appendix A to the
Prospectus).
13.2 Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1997 (included as Appendix B
to the Prospectus).
22 Subsidiaries of the Registrant
23.1 Consent of J. W. Hunt and Company, L.L.P.,
Certified Public Accountants
23.2 Consent of Sinkler & Boyd, P.A. (included in
Exhibit 5 above)
24 Power of Attorney
EXHIBIT 5
Sinkler & Boyd, P.A.
Attorneys at Law
The Palmetto Center
1426 Main Street, Suite 1200
Columbia, South Carolina 29201
(803) 779-3080
February 11, 1998
Community Bankshares, Inc.
791 Broughton Street
Orangeburg, South Carolina 29115
Gentlemen:
In connection with the registration under the Securities Act of 1933
(the "Act") of 300,000 shares of the common stock, no par value (the "Common
Stock"), of Community Bankshares, Inc., a South Carolina corporation (the
"Company"), we have examined such corporate records, certificates and other
documents, and such questions of law, as we have considered necessary or
appropriate for the purposes of this opinion.
Upon the basis of such examination, it is our opinion that the Common
Stock, when issued upon the terms and conditions set forth in the Registration
Statement filed by the Company in connection with the registration of the Common
Stock, and upon receipt of the consideration therefor, will be legally issued,
fully paid and nonassessable.
We consent to be named in the Registration Statement as attorneys who
will pass upon certain legal matters in connection with the offering described
in the Registration Statement, and to the filing of a copy of this opinion as an
exhibit to the Registration Statement. In giving such consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Act.
Very truly yours,
Sinkler & Boyd, P.A.
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
Orangeburg National Bank
Sumter National Bank
EXHIBIT 23.1
J. W. Hunt and Company, LLP
CERTIFIED PUBLIC ACCOUNTANTS
<TABLE>
<CAPTION>
<S> <C> <C>
MEMBERS
WILLIAM H. HUNT, CPA AMERICAN INSTITUTE OF MIDDLEBURG
JOHN C. CREECH, JR., CPA CERTIFIED PUBLIC ACCOUNTANTS OFFICE PARK
ANNE H. ROSS, CPA PRIVATE COMPANIES AND 1607 ST. JULIAN PLACE
WILLIAM F. QUATTLEBAUM, CPA SEC PRACTICE SECTIONS POST OFFICE BOX 265
SUSAN R. BERNARD, CPA COLUMBIA, S.C. 29202-0265
803-254-8196
FAX 803-256-1524
</TABLE>
MEMBERS OF CPA ASSOCIATES WITH ASSOCIATED
OFFICES IN
PRINCIPAL U.S. AND INTERNATIONAL CITIES
J. W. HUNT, CPA (1907-1987)
Board of Directors
Community Bankshares, Inc.
We consent to the use in Community Bankshares, Inc.'s Registration Statement on
Form S-2, relating to the registration of up to 300,000 shares of its common
stock, of our report dated January 31, 1997, which is included in Community
Bankshares, Inc.'s Annual Report on Form 10-KSB for the year ended December 31,
1996.
J. W. Hunt and Company, LLP
Columbia, South Carolina
February 11, 1998
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of Community Bankshares, Inc.
and the several undersigned Officers and Directors thereof whose signatures
appear below hereby makes, constitutes and appoints Hugo S. Sims, Jr. and
William W. Traynham, and each of them acting individually, its and his true and
lawful attorneys, with power to act without the other and with full power of
substitution, to execute, deliver and file in its or his name and on its or his
behalf, and in each of the undersigned Officer's and Director's capacity or
capacities as shown below, (a) a Registration Statement on Form S-2 (or other
appropriate form) with respect to the registration under the Securities Act of
1933, as amended, of 300,000 shares of common stock, of Community Bankshares,
Inc. and all documents in support thereof or supplemental thereto and any and
all amendments, including any and all post-effective amendments, to the
foregoing (hereinafter called the "Registration Statement"), and (b) such
registration statements, petitions, applications, consents to service of process
or other instruments, any and all documents in support thereof or supplemental
thereto, and any and all amendments or supplements to the foregoing, as may be
necessary or advisable to qualify or register the securities covered by said
Registration Statement; and each of Community Bankshares, Inc. and said Officers
and Directors hereby grants to said attorneys, and to each of them, full power
and authority to do and perform each and every act and thing whatsoever as said
attorneys or attorney may deem necessary or advisable to carry out fully the
intent of this power of attorney to the same extent and with the same effect as
Community Bankshares, Inc. might or could do, and as each of said Officers and
Directors might or could do personally in his capacity or capacities as
aforesaid, and each of Community Bankshares, Inc. and said Officers and
Directors hereby ratifies and confirms all acts and things which said attorneys
or attorney might do or cause to be done by virtue of this power of attorney and
its or his signatures as the same may be signed by said attorneys or attorney,
or any of them, to any or all of the following (and/or any and all amendments
and supplements to any or all thereof): such Registration Statement under the
Securities Act of 1933, as amended, and all such registration statements,
petitions, applications, consents to service of process and other instruments,
and any and all documents in support thereof or supplemental thereto, under such
securities laws, regulations and requirements as may be applicable.
<PAGE>
IN WITNESS WHEREOF, Community Bankshares, Inc. has caused this power of
attorney to be signed on its behalf, and each of the undersigned Officers and
Directors in the capacity or capacities noted has hereunto set his hand, on the
dates indicated below.
COMMUNITY BANKSHARES, INC.
s/Hugo S. Sims, Jr.
Date: By:--------------------------------
Hugo S. Sims, Jr.
Its Chief Executive Officer
Signature Title Date
- --------- ----- ----
s/E. J. Ayers, Jr.
- ----------------------------- Director
(E. J. Ayers, Jr.)
s/Alvis J. Bynum
- ----------------------------- Director
(Alvis J. Bynum)
s/Martha Rose C. Carson
- ----------------------------- Director
(Martha Rose C. Carson)
s/Anna O. Dantzler
- ----------------------------- Director
(Anna O. Dantzler)
s/J. M. Guthrie
- ----------------------------- Director
(J. M. Guthrie)
s/Phil P. Leventis
- ----------------------------- Director
(Phil P. Leventis)
s/William H. Nock
- ----------------------------- Director
(William H. Nock)
s/Samuel F. Reid, Jr.
- ----------------------------- Director
(Samuel F. Reid, Jr.)
s/Hugo S. Sims, Jr.
- ----------------------------- Chief Executive Officer
(Hugo S. Sims, Jr.) and Director
s/William W. Traynham
- ----------------------------- Chief Financial Officer,
(William W. Traynham) President and Director
s/J. Otto Warren, Jr.
- ----------------------------- Director
(J. Otto Warren, Jr.)
s/Michael A. Wolfe
- ----------------------------- Director
(Michael A. Wolfe)
- ----------------------------- Director
(Russell S. Wolfe, II)
