UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 1, 2002
Community Bankshares, Inc.
(Exact name of registrant as specified in its charter)
South Carolina 000-22054 57-0966962
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
791 Broughton Street, Orangeburg, South Carolina 29116
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (803) 535-1060
N/A
(Former name or former address, if changed since last report.)
Item 2. Acquisition or Disposition of Assets.
(a) Effective July 1, 2002, Community Bankshares, Inc. ("CBI") acquired
Ridgeway Bancshares, Inc. ("Ridgeway") pursuant to an Agreement and Plan of
Merger, dated as of November 20, 2001. Ridgeway is a bank holding company
organized under the laws of South Carolina with its principal executive office
in Ridgeway, South Carolina. Ridgeway operates principally through Bank of
Ridgeway, a South Carolina state chartered bank with three offices in Fairfield
and Richland Counties.
Pursuant to the merger, each outstanding share of Ridgeway common stock has
been converted into the right to acquire 25 shares of CBI common stock plus
$100.00 cash, subject to the right of Ridgeway shareholders to make an election
to receive more or less stock or cash. The cash will be paid from CBI's
available funds.
(b) Not applicable.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
The following financial statements of Ridgeway Bancshares, Inc., the
acquired company, are included with this filing:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 2001 and 2000 (audited)
Consolidated Statements of Operations for the Years ended December 31,
2001, 2000 and 1999 (audited)
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income for the Years ended December 31, 2001, 2000 and
1999 (audited)
Consolidated Statements of Cash Flows for the Years ended December 31,
2001, 2000 and 1999 (audited)
Notes to Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31,
2001 (unaudited)
Condensed Consolidated Statements of Operations for the Six Months ended
June 30, 2002 and 2001 (unaudited)
Condensed Consolidated Statements of Cash Flows for the Six Months ended
June 30, 2002 and 2001 (unaudited)
RIDGEWAY BANCSHARES, INC.
Consolidated Financial Statements
Years Ended December 31, 2001, 2000, and 1999
and
Report of Independent Accountants
RIDGEWAY BANCSHARES, INC.
Table of Contents
Page No.
Independent Accountants' Report...................................................................................1
Consolidated Balance Sheets.......................................................................................2
Consolidated Statements of Operations.............................................................................3
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income...............................4
Consolidated Statements of Cash Flows.............................................................................5
Notes to Consolidated Financial Statements.....................................................................6-20
TOURVILLE, SIMPSON & CASKEY, L.L.P.
CERTIFIED PUBLIC ACCOUNTANTS
POST OFFICE BOX 1769
COLUMBIA, SOUTH CAROLINA 29202
TELEPHONE (803) 252-3000
FAX (803) 252-2226
WILLIAM E. TOURVILLE, CPA MEMBER AICPA SEC AND
HARRIET S. SIMPSON, CPA, CISA, CDP PRIVATE COMPANIES
R. JASON CASKEY, CPA PRACTICE SECTIONS
JOHN T. DRAWDY, JR., CPA
TIMOTHY R. ALFORD, CPA
W. CLAYTON HESLOP, CPA
TIMOTHY S. VOGEL, CPA
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Ridgeway Bancshares, Inc.
Ridgeway, South Carolina
We have audited the accompanying consolidated balance sheets of Ridgeway
Bancshares, Inc. and its subsidiary as of December 31, 2001 and 2000 and the
related statements of operations, changes in shareholders' equity and
comprehensive income, and cash flows for the years ended December 31, 2001,
2000, and 1999. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and the significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ridgeway Bancshares, Inc. and
its subsidiary as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years ended December 31, 2001, 2000, and
1999 in conformity with accounting principles generally accepted in the United
States of America.
Tourville, Simpson & Caskey, L.L.P.
Columbia, South Carolina
January 10, 2002
1
RIDGEWAY BANCSHARES, INC.
Consolidated Balance Sheets
December 31, 2001 and 2000
2001 2000
---- ----
Assets
Cash and cash equivalents:
Cash and due from banks ............................................................ $ 3,480,366 $ 2,938,982
Federal funds sold and securities purchased
under agreements to resell ....................................................... 5,334,000 5,960,000
------------ ------------
Total cash and cash equivalents ................................................ 8,814,366 8,898,982
Time deposits with other banks ..................................................... 148,000 137,000
Investment securities:
Securities available-for-sale ..................................................... 8,708,680 7,559,684
Securities held-to-maturity (market value of $19,726,656 in 2001
and $16,220,805 in 2000) ......................................................... 19,351,695 16,116,759
Nonmarketable equity securities ................................................... 63,648 63,648
------------ ------------
Total investment securities .................................................... 28,124,023 23,740,091
Loans receivable: ................................................................... 40,818,194 39,804,725
Less allowance for loan losses ..................................................... 417,404 387,529
------------ ------------
Loans, net ....................................................................... 40,400,790 39,417,196
Premises and equipment, net ......................................................... 737,013 773,165
Accrued interest receivable ......................................................... 600,410 601,553
Other assets ........................................................................ 495,539 573,394
------------ ------------
Total assets ................................................................... $ 79,320,141 $ 74,141,381
============ ============
Liabilities
Deposits:
Non-interest bearing demand deposits .............................................. $ 10,261,425 $ 9,839,029
Interest bearing demand deposits .................................................. 9,966,249 9,211,538
Money market accounts ............................................................. 10,024,776 10,161,177
Savings ........................................................................... 7,499,607 7,621,758
Certificates of deposit of $100,000 and over ...................................... 7,475,636 6,864,350
Certificates of deposit of under $100,000 ......................................... 22,125,126 19,992,563
------------ ------------
Total deposits ................................................................. 67,352,819 63,690,415
Accrued interest payable .......................................................... 130,313 171,663
Securities sold under agreements to repurchase .................................... 3,134,270 2,418,501
Other liabilities ................................................................. 7,238 20,320
------------ ------------
Total liabilities .............................................................. 70,624,640 66,300,899
------------ ------------
Commitments and Contegencies (Notes 5 and 11)
Shareholders' Equity
Common stock, no par value; 100,000 shares authorized; ............................. 2,200,000 2,200,000
40,000 shares issued and outstanding
Accumulated other comprehensive income (loss) ...................................... 68,467 (18,413)
Retained earnings .................................................................. 6,427,034 5,658,895
------------ ------------
Total shareholders' equity ..................................................... 8,695,501 7,840,482
------------ ------------
Total liabilities and shareholders' equity ..................................... $ 79,320,141 $ 74,141,381
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
2
RIDGEWAY BANCSHARES, INC.
Consolidated Statements of Operations
For the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
---- ---- ----
Interest income:
Loans, including fees ................................................. $3,660,489 $3,410,292 $2,941,423
Investment securities:
Taxable .............................................................. 891,397 912,003 919,085
Tax-exempt ........................................................... 436,938 437,632 444,786
Nonmarketable equity securities ...................................... 2,144 3,609 4,631
Federal funds sold and securities purchased
under agreements to resell .......................................... 236,970 218,083 210,617
Time deposits with other banks ........................................ 8,281 8,241 6,713
---------- ---------- ----------
Total ............................................................. 5,236,219 4,989,860 4,527,255
---------- ---------- ----------
Interest expense:
Deposits .............................................................. 2,021,820 1,882,089 1,658,883
Federal funds purchased and securities sold
under agreement to repurchase ....................................... 91,473 161,356 85,262
---------- ---------- ----------
Total ............................................................. 2,113,293 2,043,445 1,744,145
---------- ---------- ----------
Net interest income .................................................... 3,122,926 2,946,415 2,783,110
Provision for loan losses .............................................. 80,000 75,000 60,000
---------- ---------- ----------
Net interest income after provision for loan losses .................... 3,042,926 2,871,415 2,723,110
---------- ---------- ----------
Other operating income
Service charges on deposit accounts ................................... 564,019 480,961 406,495
Other service charges and fees ........................................ 148,255 161,589 125,461
Other income .......................................................... 25,297 28,824 31,048
---------- ---------- ----------
Total ............................................................. 737,571 671,374 563,004
---------- ---------- ----------
Other operating expenses
Salaries and benefits ................................................. 1,196,653 1,172,132 1,082,389
Net occupancy and equipment expense ................................... 213,826 220,604 196,691
Other operating expense ............................................... 868,979 745,510 637,540
---------- ---------- ----------
Total ............................................................. 2,279,458 2,138,246 1,916,620
---------- ---------- ----------
Income before income taxes ............................................. 1,501,039 1,404,543 1,369,494
Income tax expense ..................................................... 412,900 375,825 359,800
---------- ---------- ----------
Net income ............................................................. $1,088,139 $1,028,718 $1,009,694
========== ========== ==========
Earnings per share
Weighted average common shares outstanding ............................ 40,000 40,000 40,000
Net income ............................................................ $ 27.20 $ 25.72 $ 25.24
The accompanying notes are an integral part of the consolidated
financial statements.
3
RIDGEWAY BANCSHARES, INC.
Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income For the Years Ended
December 31, 2001, 2000, and 1999
Common Stock Accumulated
------------ Other
Comprehensive Retained
Shares Amount Income (Loss) Earnings Total
------ ------ ------------- -------- -----
Balance, December 31, 1998 ............ 40,000 $ 2,200,000 $ 56,874 $ 4,152,483 $ 6,409,357
Net income ............................ 1,009,694 1,009,694
Other comprehensive income ............ (139,514) (139,514)
-----------
Comprehensive income ................ 870,180
-----------
Cash dividends declared
-$6.30 per share ................... (252,000) (252,000)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 ............ 40,000 2,200,000 (82,640) 4,910,177 7,027,537
Net income ............................ 1,028,718 1,028,718
Other comprehensive income ............ 64,227 64,227
-----------
Comprehensive income ................ 1,092,945
-----------
Cash dividends declared
-$7.00 per share ..................... (280,000) (280,000)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 ............ 40,000 2,200,000 (18,413) 5,658,895 7,840,482
Net income ............................ 1,088,139 1,088,139
Other comprehensive income ............ 86,880 86,880
-----------
Comprehensive income ................ 1,175,019
-----------
Cash dividends declared
-$8.00 per share ...................... (320,000) (320,000)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 ............ 40,000 $ 2,200,000 $ 68,467 $ 6,427,034 $ 8,695,501
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
4
RIDGEWAY BANCSHARES, INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income ........................................................... $ 1,088,139 $ 1,028,718 $ 1,009,694
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................................... 89,185 87,785 73,366
Provision for possible loan losses ................................. 80,000 75,000 60,000
Premium amortization less accretion ................................ (1,137) 1,135 (512)
Deferred income tax provision (benefit) ............................ (15,345) (25,969) (36,680)
Amortization of intangible assets .................................. 42,000 42,000 50,524
(Increase) decrease in accrued interest receivable ................. 1,143 (30,335) (115,688)
(Increase) decrease in other assets ................................ 174 (6,079) 33,154
Increase (decrease) in accrued interest payable .................... (41,350) 8,295 1,800
Increase (decrease) in other liabilities ........................... (13,082) (69,863) 46,695
------------ ------------ ------------
Net cash provided by operating activities ........................ 1,229,727 1,110,687 1,122,353
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from maturities of securities available-for-sale ............ 8,500,000 2,700,000 3,100,000
Purchases of securities available-for-sale ........................... (9,500,000) (490,313) (2,999,817)
Proceeds from maturities of securities held-to-maturity .............. 7,769,757 2,195,137 2,083,015
Purchases of securities held-to-maturity ............................. (11,014,646) (2,222,010) (6,207,114)
Net increase in loans to customers ................................... (1,063,594) (6,102,884) (3,237,668)
Purchase of premises and equipment ................................... (53,033) (26,526) (229,777)
Net increase in time deposits with other banks ....................... (11,000) (7,000) -
------------ ------------ ------------
Net cash used by investing activities ............................ (5,372,516) (3,953,596) (7,491,361)
------------ ------------ ------------
Cash flows from financing activities:
Net increase in demand and savings deposits .......................... 918,555 4,922,242 711,851
Net increase (decrease) in certificates of deposit ................... 2,743,849 3,796,527 (196,707)
Net increase in securities sold under agreements
to repurchase ...................................................... 715,769 216,231 837,669
Cash dividends paid .................................................. (320,000) (280,000) (252,000)
------------ ------------ ------------
Net cash provided by financing activities ........................ 4,058,173 8,655,000 1,100,813
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ................... (84,616) 5,812,091 (5,268,195)
Cash and cash equivalents, beginning of period ......................... 8,898,982 3,086,891 8,355,086
------------ ------------ ------------
Cash and cash equivalents, end of period ............................... $ 8,814,366 $ 8,898,982 $ 3,086,891
============ ============ ============
5
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation - The accompanying consolidated
financial statements include the accounts of Ridgeway Bancshares, Inc. (the
Company), its wholly-owned subsidiary, Bank of Ridgeway (the Bank), and the
Bank's wholly-owned subsidiary, Ridgeway Insurance Agency (the Agency). The Bank
provides commercial banking services to domestic markets principally in northern
Richland County and in Fairfield County, South Carolina. The Agency has been in
a dormant status for the past several years. The consolidated financial
statements include the accounts of the parent company and its wholly-owned
subsidiary after elimination of all significant intercompany balances and
transactions.
The accounting and reporting policies of the Company reflect industry practices
and conform to generally accepted accounting principles in all material
respects. All significant intercompany accounts and transactions have been
eliminated.
Management's Estimates - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans, including
valuation allowances for impaired loans and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowances for losses on loans and
foreclosed real estate, management obtains independent appraisals for
significant properties. Management must also make estimates in determining the
estimated useful lives and methods for depreciating premises and equipment.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
Company's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Company to recognize additions to the allowances based
on their judgments about information available to them at the time of their
examination. Because of these factors, it is possible that the allowances for
losses on loans and foreclosed real estate may change in the near term.
Significant Group Concentrations of Credit Risk - Most of the Company's
activities are with customers located within Fairfield and Richland Counties in
South Carolina. Note 4 discusses the types of securities that the Company
invests in. Note 5 discusses the types of lending that the Company engages in.
The Company does not have any significant concentrations to any one industry or
customer.
Investment Securities Held to Maturity - Investment securities held to maturity
are stated at cost, adjusted for amortization of premium and accretion of
discount computed by the straight-line method. The Company has the ability and
management has the intent to hold designated investment securities to maturity.
Reductions in market value considered by management to be other than temporary
are reported as a realized loss and a reduction in the cost basis of the
security.
Investment Securities Available-for-Sale - Investment securities
available-for-sale are carried at amortized cost and adjusted to estimated
market value by recognizing the aggregate unrealized gains or losses in a
valuation account. Aggregate market valuation adjustments are recorded in
shareholders' equity net of deferred income taxes. Reductions in market value
considered by management to be other than temporary are reported as a realized
loss and a reduction in the cost basis of the security. The adjusted cost basis
of securities available-for-sale is determined by specific identification and is
used in computing the gain or loss upon sale.
Nonmarketable Equity Securities - Nonmarketable equity securities include the
Company's investments in the stock of Community Financial Services. The stock is
carried at cost because it has no quoted market value and no ready market
exists. Dividends received from the investment is included as a separate
component in interest income.
6
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Loans - Interest income on loans is computed based upon the unpaid principal
balance. Interest income is recorded in the period earned.
The accrual of interest income is discontinued when a loan becomes 90 days past
due as to principal or interest. Management may elect to continue the accrual of
interest when the estimated net realizable value of collateral exceeds the
principal balance and accrued interest. Impaired loans are measured based on the
present value of discounted expected cash flows. When it is determined that a
loan is impaired, a direct charge to bad debt expense is made for the difference
between the net present value of expected future cash flows based on the
contractual rate and the Company's recorded investment in the related loan. The
corresponding entry is to a related valuation account. Interest is discontinued
on impaired loans when management determines that a borrower may be unable to
meet payments as they become due.
The Company identifies impaired loans through its normal internal loan review
process. Loans on the Company's problem loan watch list are considered
potentially impaired loans. These loans are evaluated in determining whether all
outstanding principal and interest are expected to be collected. Loans are not
considered impaired if a minimal delay occurs and all amounts due including
accrued interest at the contractual interest rate for the period of delay are
expected to be collected. At December 31, 2001, management has determined that
no impairment of loans existed that would have a material effect on the
Company's financial statements.
Allowance for Loan Losses - An allowance for possible loan losses is maintained
at a level deemed appropriate by management to provide adequately for known and
inherent risks in the loan portfolio. The allowance is based upon a continuing
review of past loan loss experience, current economic conditions which may
affect the borrowers' ability to pay and the underlying collateral value of the
loans. Loans, which are deemed to be uncollectible, are charged off and deducted
from the allowance. The provision for possible loan losses and recoveries on
loans previously charged off are added to the allowance.
Premises and Equipment - Premises and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed primarily
by the declining-balance method. Rates of depreciation are generally based on
the following estimated useful lives: buildings - 30 years; furniture and
equipment - 5 to 15 years. The cost of assets sold or otherwise disposed of, and
the related accumulated depreciation are eliminated from the accounts and the
resulting gains or losses are reflected in the income statement. Maintenance and
repairs are charged to current expense as incurred, and the costs of major
renewals and improvements are capitalized.
Other Real Estate Owned - Other real estate owned includes real estate acquired
through foreclosure and loans accounted for as in substance foreclosures.
Collateral is considered foreclosed in substance when the borrower has little or
no equity in the fair value of the collateral, proceeds for repayment of the
debt can be expected to come only from the sale of the collateral and it is
doubtful that the borrower can rebuild equity or otherwise repay the loan in the
foreseeable future. Other real estate owned is initially recorded at the lower
of cost (principal balance of the former loan plus costs of improvements) or
estimated fair value.
Any write-downs at the dates of acquisition are charged to the allowance for
possible loan losses. Expenses to maintain such assets, subsequent write-downs
and gains and losses on disposal are included in other expenses.
Intangible Assets - Intangible assets consist of core deposit premiums resulting
from the acquisition of the Blythewood branch. The core deposit premiums are
being amortized over fifteen years using the straight-line method.
Income and Expense Recognition - The accrual method of accounting is used for
all significant categories of income and expense. Immaterial amounts of
insurance commissions and other miscellaneous fees are reported when received.
7
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Retirement Benefits - The Company sponsors a trusteed non-contributory defined
benefit pension plan covering employees who have completed at least 1,000 hours
of service within one year and have attained age twenty-one. The funding policy
for this plan is to contribute annually an amount between the minimum funding
amount required by ERISA and the maximum tax-deductible contribution.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future. See Note
13.
A trusteed retirement savings plan is sponsored by the Company, which provides
retirement benefits to substantially all officers and employees who meet certain
age and service requirements. The plan includes a "salary reduction" feature
pursuant to Section 401(k) of the Internal Revenue Code. Under the plan and
present policies, participants are permitted to make contributions up to 15% of
their annual compensation. At its discretion, the Company can make matching
contributions up to 100% of the participants' contributions. Expenses charged to
earnings for the retirement savings plan were approximately $18,193, $18,536,
and $16,853 in 2001, 2000, and 1999, respectively.
Income taxes - Income taxes are the sum of amounts currently payable to taxing
authorities and the net changes in income taxes payable or refundable in future
years. Income taxes deferred to future years are determined utilizing a
liability approach. This method gives consideration to the future tax
consequences associated with differences between the financial accounting and
tax bases of certain assets and liabilities, principally the allowance for loan
losses.
Earnings Per Share - Earnings per share is calculated by dividing earnings by
the weighted average number of common shares outstanding during the year.
Comprehensive Income - Accounting principles generally require that recognized
revenue, expenses, gains, and losses be included in net income. Although certain
changes in assets and liabilities, such as unrealized gains and losses on
available-for-sale securities, are reported as a separate component of the
equity section of the balance sheet, such items, along with net income, are
components of comprehensive income.
The components of other comprehensive income and related tax effects are as
follows:
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Unrealized holding gains (losses) on available-for-sale securities ....... $ 137,906 $ 101,948 $(221,451)
Reclassification adjustment for (gains) losses realized
in net income ........................................................... - - -
--------- --------- ---------
Net unrealized gains (losses) on securities ............................... 137,906 101,948 (221,451)
Tax effect ................................................................ (51,026) (37,721) 81,937
--------- --------- ---------
Net-of-tax amount ......................................................... $ 86,880 $ 64,227 $(139,514)
========= ========= =========
8
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Statement of Cash Flows - For purposes of reporting cash flows, the Company
considers certain highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents. Cash equivalents include amounts
due from banks, federal funds sold, and securities purchased under agreements to
resell.
During 2001, 2000, and 1999, the Company paid $2,154,643, $2,035,150, and
$1,742,345, respectively, for interest. Cash paid for income taxes was $445,990,
$442,944, and $371,310 in 2001, 2000, and 1999, respectively.
Changes in the valuation account of securities available-for-sale, including the
deferred tax effects, are considered non-cash transactions for purposes of the
statement of cash flows and are presented in detail in the notes to the
financial statements.
Off-Balance-Sheet Financial Instruments - In the ordinary course of business,
the Company enters into off-balance-sheet financial instruments consisting of
commitments to extend credit and letters of credit. These financial instruments
are recorded in the financial statements when they become payable by the
customer.
Recent Accounting Pronouncements - In July, 2001 the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS 141 eliminates the pooling of interests method of accounting for
business combinations and requires the use of the purchase method. The Statement
also requires that intangible assets be reported separately from goodwill. This
Statement is effective for all transactions initiated after June 30, 2001. Under
SFAS 142, goodwill is no longer subject to amortization; however, it should be
evaluated for impairment on at least an annual basis and adjusted to its fair
value. In addition, an acquired intangible should be separately recognized if
the benefit of the intangible asset is obtained through contractual or other
legal rights, or if the intangible asset can be sold, transferred, licensed,
rented or exchanged, regardless of intent to do so. However, the FASB recommends
that financial institutions continue to follow the basic guidelines of SFAS 72
in recording and amortizing goodwill and other unidentifiable intangible assets.
The Company adopted SFAS 141 on July 1, 2001. SFAS 142 is effective for entities
with fiscal years beginning after December 15, 2001. The Company plans to adopt
SFAS 142 on January 1, 2002. The adoption of these Statements is not expected to
have a material impact on the consolidated financial statements.
In June 1998, the FASB issued Statement (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, which as amended by SFAS No, 137
and SFAS 138 is effective for fiscal years beginning after June 15, 2000. This
Statement establishes accounting and reporting standards for derivative
instruments and hedging activities, including certain derivative instruments
embedded in other contracts, and requires that an entity recognize all
derivatives as assets or liabilities in the balance sheet and measure them at
fair value. The accounting for changes in the fair value of a derivative depends
on how the derivative is used and how the derivative is designated. The Company
adopted SFAS 133 on July 1, 2000. The adoption of SFAS No. 133 did not have any
impact on the consolidated financial statements since the Company did not have
any derivative instruments nor any derivative instruments embedded in other
contracts in 2001 or 2000.
Reclassifications - Certain captions and amounts in the consolidated financial
statements of 2000 and 1999 were reclassified to conform with the 2001
presentation.
NOTE 2 - MERGER WITH COMMUNITY BANKSHARES, INC.
On November 22, 2001, the Company announced that it had signed a letter of
intent to merge with Community Bankshares, Inc., a bank holding company
headquartered in Orangeburg, South Carolina. Under the agreement, the Company's
shareholders will receive 25 shares of Community Bankshares, Inc.'s common stock
for each share of the Company's common stock and $100 in cash. Following the
merger, the Bank of Ridgeway will continue to operate as a wholly owned
subsidiary of Community Bankshares, Inc. The merger is expected to be completed
by April 1, 2002.
9
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 3 - CASH AND DUE FROM BANKS
The Company is required by regulation to maintain an average cash reserve
balance based on a percentage of deposits. The average amount of the required
cash reserve balances at December 31, 2001 and December 31, 2000 were
approximately $522,000 and $546,000, respectively.
NOTE 4 - INVESTMENT SECURITIES
The amortized cost and estimated market values of securities available-for sale
at December 31, 2001 and 2000 were:
Gross Unrealized Estimated
Amortized ---------------- Market
Cost Gains Losses Value
---- ----- ------ -----
December 31, 2001:
U.S. Government agencies and corporations ..................... $8,000,000 $ 117,344 $ 13,435 $8,103,909
Obligations of state and political subdivisions ............... 600,000 4,771 - 604,771
---------- ---------- ---------- ----------
Total securities .......................................... $8,600,000 $ 122,115 $ 13,435 $8,708,680
========== ========== ========== ==========
December 31, 2000:
U.S. Treasuries ............................................... $1,498,005 $ 1,483 $ 2,613 $1,496,875
U.S. Government agencies and corporations ..................... 5,990,905 5,256 36,048 5,960,113
Obligations of state and political subdivisions ............... 100,000 2,696 - 102,696
---------- ---------- ---------- ----------
Total securities .......................................... $7,588,910 $ 9,435 $ 38,661 $7,559,684
========== ========== ========== ==========
The amortized cost and estimated market value of securities held to maturity at
December 31, 2001 and 2000 were:
Gross Unrealized Estimated
Amortized ---------------- Market
Cost Gains Losses Value
---- ----- ------ -----
December 31, 2001
U.S. Government agencies & corporations ...................... $10,084,061 $ 176,802 $ 7,187 $10,253,676
Obligations of state and political subdivisions .............. 9,267,634 220,848 15,502 9,472,980
----------- ---------- ---------- -----------
Total securities ......................................... $19,351,695 $ 397,650 $ 22,689 $19,726,656
=========== ========== ========== ===========
December 31, 2000:
U.S. Government agencies & corporations ...................... $ 7,098,958 $ 7,573 $ 26,734 $ 7,079,797
Obligations of state and political subdivisions .............. 9,017,801 140,116 16,909 9,141,008
----------- ---------- ---------- -----------
Total securities ......................................... $16,116,759 $ 147,689 $ 43,643 $16,220,805
=========== ========== ========== ===========
There were no sales of investment securities during 2001 or 2000.
10
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 4 - INVESTMENT SECURITIES - continued
The amortized cost and estimated market value of investment securities at
December 31, 2001 based on their contractual maturities are summarized below.
Actual maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations without penalty.
2001
----
Estimated
Amortized Market
Cost Value
---- -----
Due within one year ............................ $ 1,010,293 $ 1,013,596
Due after one year but within five years ....... 21,261,059 21,659,653
Due after five years but within ten years ...... 5,515,363 5,595,891
Due after ten years ............................ 164,980 166,196
----------- -----------
Total .......................................... $27,951,695 $28,435,336
=========== ===========
At December 31, 2001 and 2000 investment securities with a book value of
$11,564,062 and $8,543,148 and a market value of $11,840,108 and $8,523,642,
respectively, were pledged as collateral to secure public deposits and for other
purposes.
NOTE 5 - LOANS
Loans consisted of the following:
December 31,
------------
2001 2000
---- ----
Real estate ................................ $24,969,988 $23,602,492
Home equity ................................ 2,238,060 2,420,481
Commercial and industrial loans ............ 4,480,227 5,045,202
Consumer ................................... 8,429,228 8,019,601
All other loans ............................ 700,691 716,949
----------- -----------
$40,818,194 $39,804,725
=========== ===========
As of December 31, 2001 and 2000, management had placed loans totaling $187,422
and $225,340 in nonaccrual status because the loans were not performing as
originally contracted. Loans ninety days or more past due and still accruing
interest were $165,472 and $355,233 at December 31, 2001 and 2000, respectively.
No impairment has been recognized because management has determined that the
discounted value of expected proceeds from the sale of collateral, typically
real estate, exceeds the carrying amount of these loans.
11
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 5 - LOANS - continued
Transactions in the allowance for loan losses are summarized below:
2001 2000 1999
---- ---- ----
Balance, January 1 ................ $ 387,529 $ 334,209 $ 304,837
Provision charged to expense ...... 80,000 75,000 60,000
Charge-offs ....................... (68,744) (44,871) (47,445)
Recoveries ........................ 18,619 23,191 16,817
--------- --------- ---------
Balance, December 31 .............. $ 417,404 $ 387,529 $ 334,209
========= ========= =========
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
statements of financial position. The contractual or notional amounts of those
instruments reflect the extent of involvement the Company has in particular
classes of financial instruments.
The Company's 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 written is represented by the contractual or notional
amount of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Standby letters of credit written are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.
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 some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
management's credit evaluation of the counter-party.
Collateral held for commitments to extend credit and standby letters of credit
varies but may include accounts receivable, inventory, property, plant,
equipment, and income-producing commercial properties.
The following table summarizes the Company's off-balance-sheet financial
instruments whose contractual amounts represent credit risk at December 31, 2001
and 2000:
2001 2000
---- ----
Commitments to extend credit ............... $6,128,656 $5,417,598
Standby letters of credit .................. 295,000 273,000
Management is not aware of any significant concentrations of loans to classes of
borrowers or industries that would be affected similarly by economic conditions.
At December 31, 2001, the Company was not committed to lend additional funds to
borrowers having loans in nonaccrual status.
12
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
December 31,
------------
2001 2000
---- ----
Land ....................................... $ 145,185 $ 145,185
Buildings and improvements ................. 949,343 943,823
Furniture and equipment .................... 474,083 632,497
---------- ----------
1,568,611 1,721,505
Less, accumulated depreciation ............. 831,598 948,340
---------- ----------
$ 737,013 $ 773,165
========== ==========
NOTE 7 - DEPOSITS
At December 31, 2001, the scheduled maturities of time deposits are as follows:
2002 $27,488,442
2003 1,450,691
2004 431,482
2005 78,722
2006 and thereafter 151,425
-----------
$29,600,762
===========
Overdrawn deposit accounts in the amount of $65,536 are classified as loans as
of December 31, 2001.
NOTE 8 - SHORT-TERM BORROWINGS
Short-term borrowings payable at December 31, 2001 and 2000 consist of federal
funds purchased and securities sold under agreements to repurchase which
generally mature on a one to thirty day basis. Information concerning securities
sold under agreements to repurchase is summarized as follows:
2001 2000
---- ----
Average balance during the year ................ $2,811,211 $2,894,137
Average interest rate during the year .......... 3.25% 5.48%
Maximum month-end balance during the year ...... $3,416,845 $4,663,044
Under the terms of the repurchase agreement, the Company sells an interest in
securities issued by United States Government Agencies, and the Company agrees
to repurchase the same securities the following business day. The securities
sold under these agreements are the identical securities on the Company's
balance sheet captioned as securities purchased under agreements to resell. As
of December 31, 2001, the par value and market value of the securities held by
the third-party for the underlying agreements were $3,000,000 and $3,176,326,
respectively.
13
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 9 - RELATED PARTY TRANSACTIONS
Certain parties (principally certain directors and stockholders of the Company,
their immediate families and business interests) were loan customers of, and had
other transactions in the normal course of business with the Company. 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.
The aggregate dollar amount of loans to related parties was $730,652 and
$844,208 at December 31, 2001 and 2000, respectively.
NOTE 10 - UNUSED LINES OF CREDIT
As of December 31, 2001, the Company had unused lines of credit to purchase
federal funds from other financial institutions totaling $5,750,000. These lines
of credit are available on a one to seven day basis for general corporate
purposes. The lenders have reserved the right not to renew their respective
lines.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company was not involved as defendant in any litigation at December 31,
2001. Management and legal counsel are not aware of any pending or threatened
litigation, or unasserted claims or assessments that could result in losses, if
any, that would be material to the financial statements.
NOTE 12 - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS, OR ADVANCES
South Carolina banking regulations restrict the amount of dividends that can be
paid to shareholders. All of the Bank's dividends to Ridgeway Bancshares, Inc.
are payable only from the undivided profits of the Bank. At December 31, 2001,
the Bank's undivided profits were $6,413,580. The Bank is authorized to pay cash
dividends up to 100% of net income in any calendar year without obtaining the
prior approval of the Commissioner of Banking provided that the Bank received a
composite rating of one or two at the last Federal or State regulatory
examination. Under Federal Reserve Board regulations, the amounts of loans or
advances from the Bank to the parent company are also restricted.
NOTE 13 - EMPLOYEE BENEFITS
The Company has a contributory defined benefit pension plan, which covers
substantially all employees. Employees covered under the plan are eligible to
participate after attainment of age 21 and completion of at least 1,000 hours of
service, and pension benefits are based on salary and years of service. All
employees are fully vested in the plan after 7 years of service. The actuarially
determined pension benefits are based on the aggregate method. The Company's
funding policy provides that payments to the plan shall be consistent with
minimum government funding regulations plus additional amounts, which may be
approved by the Company from time to time.
14
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 13 - EMPLOYEE BENEFITS - continued
Plan assets are stated at fair value and consist primarily of interest-bearing
certificates of deposit and U.S. Governments bonds. The table of actuarially
computed benefit obligations and net assets of the plan at December 31, 2001,
2000, and 1999 is presented below:
2001 2000 1999
---- ---- ----
Benefit obligation .................................................. $ 727,834 $ 687,651 $ 659,915
Fair Value of plan assets ........................................... 672,394 641,693 646,383
--------- --------- ---------
Funded status ....................................................... $ (55,440) $ (45,958) $ (13,532)
========= ========= =========
Prepaid (unfunded) benefit cost recognized in the
statement of financial position ................................... $ (6,446) $ (486) $ 537
========= ========= =========
The weighted-average assumptions for 2001 and 2000 are as follows:
2001 2000
---- ----
Discount rate .............................. 7.25% 7.25%
Expected return on plan assets ............. 7.25% 7.25%
Rate of compensation increase .............. 5.00% 5.00%
Benefit cost ............................... $ 61,960 $ 59,023
Employer contribution ...................... 56,000 58,000
Plan participants' contributions ........... - -
Benefits paid .............................. 11,667 476
NOTE 14 - OTHER EXPENSES
Other expenses for the years ended December 31, 2001, 2000, and 1999 are
summarized as follows:
2001 2000 1999
---- ---- ----
Stationery and printing .............. $ 68,805 $ 59,406 $ 58,258
Postage and freight .................. 72,647 55,881 58,638
Data processing services ............. 304,020 194,377 148,930
Intangible costs ..................... 42,000 42,000 50,524
Merger expenses ...................... 24,529 74,600 -
Other ................................ 356,978 319,246 321,190
-------- -------- --------
Total ............................ $868,979 $745,510 $637,540
======== ======== ========
15
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 15 - INCOME TAXES
Income tax expense included in the statement of operations for the years ended
December 31, 2001, 2000, and 1999 are summarized as follows:
2001 2000 1999
---- ---- ----
Currently payable:
Federal ......................................................... $ 377,501 $ 353,346 $ 348,060
State ........................................................... 50,744 48,448 48,420
--------- --------- ---------
428,245 401,794 396,480
--------- --------- ---------
Deferred:
Federal ......................................................... 31,329 10,804 (107,687)
State ........................................................... 4,352 948 (10,930)
--------- --------- ---------
35,681 11,752 (118,617)
--------- --------- ---------
$ 463,926 $ 413,546 $ 277,863
========= ========= =========
Income tax expense is allocated as follows:
To continuing operations ........................................ $ 412,900 $ 375,825 $ 359,800
To shareholders' equity ......................................... 51,026 37,721 (81,937)
--------- --------- ---------
$ 463,926 $ 413,546 $ 277,863
========= ========= =========
Net deferred income taxes of $129,182 and $164,863 were included in other assets
at December 31, 2001 and 2000, respectively. Deferred income taxes result from
temporary differences in the recognition of certain items of income and expense
for tax and financial reporting purposes.
The gross amounts of deferred tax assets and deferred tax liabilities as of
December 31, 2001, 2000, and 1999 are as follows:
2001 2000 1999
---- ---- ----
Deferred tax assets:
Allowance for loan losses ......................................... $160,701 $149,199 $128,670
Available-for-sale securities ..................................... - 10,814 48,535
Organizational expense ............................................ 6,211 8,281 10,219
Other ............................................................. 2,482 187 -
-------- -------- --------
Total deferred tax assets ....................................... 169,394 168,481 187,424
-------- -------- --------
Deferred tax liabilities:
Accumulated accretion and amortization
on investment securities ........................................ - 3,618 10,603
Available-for-sale securities ..................................... 40,212 - -
Other ............................................................. - - 206
-------- -------- --------
Total deferred tax liabilities .................................. 40,212 3,618 10,809
-------- -------- --------
Net deferred tax asset .......................................... $129,182 $164,863 $176,615
======== ======== ========
16
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 15 - INCOME TAXES - continued
Deferred tax assets represent the future tax benefit of deductible differences
and, if it is more likely than not that a tax asset will not be realized, a
valuation allowance is required to reduce the recorded deferred tax assets to
net realizable value. Management has determined that it is more likely than not
that the entire deferred tax asset at December 31, 2001 will be realized, and
accordingly, has not established a valuation allowance.
A reconciliation between the income tax expense for the years ended December 31,
2001, 2000, and 1999 and the amount computed by applying the Federal statutory
rate of 34% to income before income taxes follows:
2001 2000 1999
---- ---- ----
Tax expense at statutory rate .......................................... $ 510,353 $ 477,545 $ 465,628
State income tax, net of Federal income tax effect ..................... 33,998 32,601 27,671
Tax exempt interest income ............................................. (156,687) (155,113) (154,188)
Disallowed interest expense ............................................ 20,398 21,659 18,075
Other, net ............................................................. 4,838 (867) 2,614
--------- --------- ---------
Total ............................................................. $ 412,900 $ 375,825 $ 359,800
========= ========= =========
NOTE 16 - REGULATORY MATTERS
The Company and the Bank 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 material
effect on the Company's financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and the
Bank must meet specific capital guidelines that involve quantitative measures of
the Company's and the Bank's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company's and the
Bank's capital amounts and classifications are 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 Company and the Bank to maintain minimum ratios (set forth in the
table below) of Tier 1 and total capital as a percentage of assets and
off-balance-sheet exposures, adjusted for risk weights ranging from 0% to 100%.
Tier 1 capital of the Company and the Bank consists of common shareholders'
equity, excluding the unrealized gain or loss on securities available-for-sale,
minus certain intangible assets. Tier 2 capital consists of the allowance for
loan losses subject to certain limitations. Total capital for purposes of
computing the capital ratios consists of the sum of Tier 1 and Tier 2 capital.
The Company and the Bank are also required to maintain capital at a minimum
level based on average assets (as defined), which is known as the leverage
ratio. Only the strongest institutions are allowed to maintain capital at the
minimum requirement. All others are subject to maintaining ratios 1% to 2% above
the minimum.
As of the most recent regulatory examination, the Bank was deemed
well-capitalized under the regulatory framework for prompt corrective action. To
be categorized well capitalized, the Bank must maintain total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table below. There
are no conditions or events that management believes have changed the Bank's
categories.
17
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 16 - REGULATORY MATTERS - continued
The following table summarizes the capital amounts and ratios of the Bank and
the regulatory minimum requirements at December 31, 2001 and 2000.
To Be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 2001
Total capital (to risk-weighted assets) ............... $8,721 20.26% $3,444 8.00% $4,305 10.00%
Tier 1 capital (to risk-weighted assets) .............. 8,304 19.29% 1,722 4.00% 2,583 6.00%
Tier 1 capital (to average assets) .................... 8,304 10.69% 3,107 4.00% 3,884 5.00%
December 31, 2000
Total capital (to risk-weighted assets) ............... $7,879 21.18% $2,976 8.00% $3,720 10.00%
Tier 1 capital (to risk-weighted assets) .............. 7,492 20.14% 1,488 4.00% 2,232 6.00%
Tier 1 capital (to average assets) .................... 7,492 10.40% 2,881 4.00% 3,602 5.00%
The Federal Reserve Board has similar requirements for bank holding companies.
The Company is currently not subject to these requirements because the Federal
Reserve guidelines contain an exemption for bank holding companies with less
than $150,000,000 in consolidated assets.
18
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 17 - RIDGEWAY BANCSHARES, INC. (PARENT COMPANY ONLY)
Presented below are the condensed financial statements for Ridgeway Bancshares,
Inc. (Parent Company Only).
Balance Sheets
December 31, 2001 and 2000
2001 2000
---- ----
Assets
Cash ........................................................................... $ 5,240 $ 3,458
Investment in banking subsidiary ............................................... 8,682,048 7,827,028
Other assets ................................................................... 8,213 9,996
---------- ----------
Total assets ............................................................. $8,695,501 $7,840,482
========== ==========
Liabilities and Shareholders' equity
Liabilities .................................................................... $ - $ -
Shareholders' equity ........................................................... 8,695,501 7,840,482
---------- ----------
Total liabilities and shareholders' equity ............................... $8,695,501 $7,840,482
========== ==========
Statements of Operations
For the years ended December 31, 2001, 2000, and 1999
2001 2000 1999
---- ---- ----
Income
Dividends from banking subsidiary ................................... $ 320,000 $ 310,000 $ -
Expenses
Other expenses ...................................................... - - 26,542
----------- ----------- ------------
Income (loss) before income taxes and equity in
undistributed earnings of banking subsidiary ....................... 320,000 310,000 (26,542)
Income tax benefit .................................................. - 175 9,821
Equity in undistributed earnings of banking subsidiary .............. 768,139 718,543 1,026,415
----------- ----------- ------------
Net income ............................................................ $ 1,088,139 $ 1,028,718 $ 1,009,694
=========== =========== ===========
19
RIDGEWAY BANCSHARES, INC.
Notes to Consolidated Financial Statements
NOTE 17 - RIDGEWAY BANCSHARES, INC. (PARENT COMPANY ONLY) - continued
Statements of Cash Flows
For the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income ........................................................... $ 1,088,139 $ 1,028,718 $ 1,009,694
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of banking subsidiary ............. (768,139) (718,543) (1,026,415)
Decrease (increase) in other assets ................................ 1,782 (175) (9,821)
(Decrease) increase in other liabilities ........................... - (26,542) 26,542
----------- ----------- -----------
Net cash provided by operating activities ........................ 321,782 283,458 -
----------- ----------- -----------
Cash flows from financing activities:
Cash dividends paid .................................................. (320,000) (280,000) -
----------- ----------- -----------
Net cash used by financing activities .............................. (320,000) (280,000) -
----------- ----------- -----------
Increase in cash ....................................................... 1,782 3,458 -
Cash, beginning ........................................................ 3,458 - -
----------- ----------- -----------
Cash, ending ........................................................... $ 5,240 $ 3,458 $ -
=========== =========== ===========
20
RIDGEWAY BANCSHARES, INC
Condensed Consolidated Balance Sheet
(Dolllars in thousands) UNAUDITED
June 30, December 31,
ASSETS 2002 2001
---- ----
Cash and due from other financial institutions:
Non-interest bearing ........................................................................ $ 3,085 $ 3,494
Federal funds sold .......................................................................... 6,541 5,334
-------- --------
Total cash and cash equivalents ........................................................ 9,626 8,828
Interest bearing deposits in other banks ......................................................... 148 148
Investment securities:
Securities held to maturity ................................................................. 15,891 19,352
Securities available for sale ............................................................... 8,236 8,709
Loans ............................................................................................ 43,883 40,818
Less, allowance for loan losses ............................................................. (441) (417)
-------- --------
Net loans .............................................................................. 43,442 40,401
-------- --------
Premises and equipment ........................................................................... 710 737
Other intangible assets .......................................................................... 291 312
Other assets ..................................................................................... 996 853
-------- --------
Total assets ........................................................................... $ 79,340 $ 79,340
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing ........................................................................ $ 10,309 $ 10,267
Interest bearing ............................................................................ 56,224 57,095
-------- --------
Total deposits ......................................................................... 66,533 67,362
Federal funds purchased and securities
sold under agreements to repurchase ......................................................... 3,600 3,134
Other liabilities ................................................................................ 3,749 156
-------- --------
Total liabilities ...................................................................... 73,882 70,652
-------- --------
Shareholders' equity:
Common stock
$5 par, authorized shares, issued and outstanding 40,000 in 2002 and 2001 .............. 200 200
Surplus ..................................................................................... 2,000 2,000
Retained earnings ........................................................................... 3,166 6,416
Accumulated other comprehensive income ...................................................... 92 72
-------- --------
Total shareholders' equity ............................................................. 5,458 8,688
-------- --------
Total liabilities and shareholders' equity ............................................. $ 79,340 $ 79,340
======== ========
21
RIDGEWAY BANCSHARES, INC.
Condensed Consolidated Statements of Income
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Interest income:
Loans, including fees ........................................ $ 1,636 $ 1,872 $ 820 $ 947
Debt securities: ............................................. 625 659 290 343
Federal funds sold and securites ............................. 70 148 45 64
purchased under agreements to resell
Time deposits with other banks ............................... 4 4 2 2
------- ------- ------- -------
Total ................................................... 2,335 2,683 1,156 1,356
------- ------- ------- -------
Interest expense:
Deposit accounts ............................................. 647 1,114 308 548
Federal funds purchased and securities sold .................. 14 55 7 34
------- ------- ------- -------
under agreement to repurchase
Total ................................................... 661 1,169 315 572
------- ------- ------- -------
Net interest income ............................................ 1,674 1,514 841 784
Provision for loan losses ...................................... 72 36 51 18
------- ------- ------- -------
Net interest income after provision for loan losses............. 1,602 1,478 790 766
------- ------- ------- -------
Other operating income:
Service charges on deposit accounts .......................... 291 285 153 148
Other ........................................................ 67 79 24 29
------- ------- ------- -------
Total ................................................... 358 364 177 177
------- ------- ------- -------
Other operating expenses:
Salaries and employee benefits ............................... 635 600 326 304
Net occupancy and equipment expense .......................... 96 108 47 53
Amortization of intangible assets .......................... 21 21 10 10
Other ........................................................ 603 389 320 202
------- ------- ------- -------
Total ................................................... 1,355 1,118 703 569
------- ------- ------- -------
Income before income taxes ..................................... 605 724 264 374
Income tax expense ............................................. 195 203 90 104
------- ------- ------- -------
Net income ..................................................... $ 410 $ 521 $ 174 $ 270
======= ======= ======= =======
Earnings per share
Weighted average common shares outstanding .................. 40,000 40,000 40,000 40,000
Net income .................................................. $ 10.25 $ 13.03 $ 4.35 $ 6.75
RIDGEWAY BANCSHARES, INC
Condensed Consolidated Statements of Cash Flows
(Unaudiated)
Six Months Ended June 30,
(Dollars in thousands) 2002 2001
---- ----
Cash flows from operating activities:
Net income ............................................................................... $ 410 $ 521
Adjustments to reconcile net income to net cash (used) provided by
operating activities:
Depreciation and amortization ........................................................... 57 65
Provision for loan losses ............................................................... 72 36
Premium amortization less accretion ..................................................... 9 (10)
Changes in operating assets and liabilities: ............................................. (143) 6
Increase (decrease) in other liabilities ................................................ 3,593 86
--------- ---------
Net cash (used) provided by operating activities ..................................... 3,998 704
--------- ---------
Cash flows from investing activities:
Proceeds from maturities of securities available-for-sale ................................ 4,000 5,500
Purchases of securities available-for-sale ............................................... (3,507) (6,978)
Proceeds from maturities of securities held-to-maturity .................................. 3,577 1,826
Purchases of securities held-to-maturity ................................................. (125) (1,104)
Net increase in loans to customers ....................................................... (3,113) (770)
Net increase in time deposits with other banks ........................................... - (11)
Purchases of premises and equipment ...................................................... (9) (47)
--------- ---------
Net cash (used) provided by investing activities ....................................... 823 (1,584)
--------- ---------
Cash flows from financing activities:
Net increase (decrease) in demand and time deposits ...................................... (829) 617
Net increase (decrease) in federal funds purchased and securities sold ................... 466 514
under repurchase agreements
Cash dividends paid ...................................................................... (3,660) (160)
--------- ---------
Net cash provided by financing activities ............................................... (4,023) 971
--------- ---------
Net increase in cash and cash equivalents .................................................. 798 91
Cash and cash equivalents, beginning of period ............................................. 8,828 8,942
--------- ---------
Cash and cash equivalents, end of period ................................................... $ 9,626 $ 9,033
========= =========
(b) Pro forma financial information.
The following pro forma financial information is included with this filing.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited pro forma combined condensed balance sheet
as of June 30, 2002 and unaudited pro forma combined statements of income for
the six months ended June 30, 2002 and the year ended December 31, 2001 combine
the historical financial statements of Community Bankshares and Ridgeway
Bancshares. The pro forma combined condensed statements give effect to the
merger of Ridgeway Bancshares into Community Bankshares as if the merger
occurred on June 30, 2002 with respect to the balance sheet and on January 1,
2002 or January 1, 2001, respectively, with respect to the statements of income
for the six months ended June 30, 2002 and the year ended December 31, 2001,
respectively. The pro forma combined condensed statements give effect to the
proposed merger under the purchase method of accounting.
The purchase method of accounting requires that all of Ridgeway
Bancshares assets and liabilities be adjusted to their estimated fair market
values as of the date of acquisition. For purposes of the pro forma combined
condensed statements, fair market value of June 30, 2002 assets and liabilities
has been estimated by management of Community Bankshares using market
information on July 30, 2002. Accordingly, these adjustments are only
approximations.
The pro forma combined condensed statements also contain adjustments
based on assumed interest rates and estimates by Community Bankshares management
regarding changes in revenues and expenses that management believes will be
achieved after consummation of the merger. Of course, there can be no assurance
that such changes will be of the magnitude estimated or that they will occur at
all.
The pro forma financial statements are provided for informational
purposes. The pro forma combined condensed statements of income are not
necessarily indicative of actual results that would have been achieved had the
merger been consummated at the beginning of the periods presented, and is not
indicative of future results.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
June 30, 2002
(Dollars in thousands)
Community
Bankshares
Community Ridgeway Pro Forma
Bankshares Bancshares Adjustments Combined
---------- ---------- ----------- --------
ASSETS
Cash and federal funds ............................. $ 23,482 $ 9,774 $ (4,150)(1) $ 29,106
Investments ........................................ 40,950 24,051 676(2) 65,677
Loans, net of allowance ............................ 251,993 43,442 636(2) 296,071
Premises and equipment ............................. 5,461 710 311(2) 6,482
Goodwill ........................................... 921 3,061(3) 3,982
Core deposit intangible ............................ 3,698(4) 3,698
Other assets ....................................... 3,076 1,271 (454) 3,893
-------- -------- -------- --------
Total assets ................................. $325,883 $ 79,248 $ 3,778 $408,909
======== ======== ======== ========
LIABILITIES AND EQUITY
Deposits ........................................... $260,808 $ 66,534 $ 163(2) $327,505
Short-term borrowings .............................. 13,246 3,600 16,846
Long-term borrowings ............................... 20,280 - 20,280
Other liabilities .................................. 2,081 3,749 (2,890)(1) 2,940
Shareholder equity ................................. 29,468 5,365 6,505(5) 41,338
-------- -------- -------- --------
Total liabilities and equity ................. $325,883 $ 79,248 $ 3,778 $408,909
======== ======== ======== ========
(1) To record payment of $4 million to Ridgeway shareholders and $150,000 in
estimated direct costs associated with purchase.
(2) To record estimated market value adjustment.
(3) To record goodwill resulting from purchase.
(4) To record estimated core deposit intangible.
(5) To record issuance of $12.52 million in Community Bankshares common stock
and elimination of $5.365 million in Ridgeway Bancshares equity.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
Six Months Ended June 30, 2002
(Dollars in thousands)
Community
Bankshares
Community Ridgeway Pro Forma
Bankshares Bancshares Adjustments Combined
---------- ---------- ----------- --------
Interest income ................................. $ 9,764 $ 2,335 $ (30)(1) $ 12,069
Interest expense ................................ (3,870) (661) (4,531)
-------- -------- -------- --------
Net interest income ....................... 5,894 1,674 (30)(1) 7,538
Provision for loan losses ....................... (358) (72) (430)
Other income .................................... 3,437 358 150 (2) 3,945
Other expenses .................................. (5,323) (1,355) (3)(3) (6,681)
-------- -------- -------- --------
Income before taxes ....................... 3,650 605 117 4,372
Income taxes .................................... (1,314) (195) (40)(4) (1,549)
-------- -------- -------- --------
Net income ................................ $ 2,336 $ 410 $ 77 $ 2,823
======== ======== ======== ========
(1) To record opportunity cost of $4,000,000 in cash disbursed at an assumed
federal funds rate of 1.5%.
(2) To record estimated income from introduction of new products.
(3) To record estimated reduction in operating expenses subsequent to
consummation of the merger and amortization of core deposit intangible.
(4) To record estimated tax effect of projected income increase.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
Year Ended December 31, 2001
(Dollars in thousands)
Community
Bankshares
Community Ridgeway Pro Forma
Bankshares Bancshares Adjustments Combined
---------- ---------- ----------- --------
Interest income ................................. $ 21,201 $ 5,229 $ (60)(1) $ 26,370
Interest expense ................................ (10,261) (2,113) - (12,374)
-------- -------- -------- --------
Net interest income ....................... 10,940 3,116 (60) 13,996
Provision for loan losses ....................... (650) (80) - (730)
Other income .................................... 3,584 743 300 (2) 4,627
Other expenses .................................. (7,810) (2,279) (6)(3) (10,095)
-------- -------- -------- --------
Income before taxes ....................... 6,064 1,500 234 7,798
Income taxes .................................... (2,156) (413) (80)(4) (2,649)
-------- -------- -------- --------
Net income ................................ $ 3,908 $ 1,087 $ 154 $ 5,149
======== ======== ======== ========
(1) To record opportunity cost of $4,000,000 in cash disbursed at an assumed
federal funds rate of 1.5%.
(2) To record estimated income from introduction of new products.
(3) To record estimated reduction in operating expenses subsequent to
consummation of the merger and amortization of core deposit intangible.
(4) To record estimated tax effect of projected income increase.
(c) Exhibits:
Exhibit No.
from Item
601 of Reg. S-K Description
--------------- -----------
2 Agreement and Plan of Merger between Community
Bankshares, Inc. and Ridgeway Bancshares, Inc.
(incorporated by reference to Exhibit 2 to Registration
Statement on Form S-4, File No. 333-81900)
23 Consent of Tourville, Simpson & Caskey, L.L.P.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMMUNITY BANKSHARES, INC.
-------------------------------------
(Registrant)
William W. Traynham
Date: September 16, 2002 By:---------------------------------
William W. Traynham
President
22
EXHIBIT INDEX
Exhibit No.
from Item
601 of Reg. S-K Description
--------------- -----------
2 Agreement and Plan of Merger between Community
Bankshares, Inc. and Ridgeway Bancshares, Inc.
(incorporated by reference to Exhibit 2 to Registration
Statement on Form S-4, File No. 333-81900)
23 Consent of Tourville, Simpson & Caskey, L.L.P.
23