Congaree Bancshares Inc

Merger

On January 5, 2016, Carolina Financial Corporation (“Carolina Financial”) and the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which Carolina Financial will acquire the Company in a cash and stock transaction with a total current value of approximately $16.278 million, which includes the assumption of approximately $1.6 million in preferred stock. Under the terms of the Merger Agreement, the Company will merge with CBAC, Inc. (the “Merger Sub”), a South Carolina corporation and wholly-owned subsidiary of Carolina Financial formed for the purpose of facilitating the merger, with the Company being the surviving corporation. As soon as reasonably practicable thereafter, the Company will merge up and into Carolina Financial, with Carolina Financial as the surviving entity. Simultaneously with the merger or immediately thereafter, the Bank will merge with and into CresCom Bank, the wholly-owned banking subsidiary of Carolina Financial, and CresCom Bank will be the surviving bank. Both Carolina Financial and CresCom Bank will continue their existence under Delaware and South Carolina law, respectively, while the Company and the Bank will cease to exist.

In January 2016, the FASB amended the Financial Instruments topic of the Accounting Standards Codification to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments will be effective for the Company for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company does not expect these amendments to have a material effect on its financial statements.

The Company recorded net income, after tax expense, of $1,733 and net loss available to common shareholders of $(33,547) for the quarter ended March 31, 2015 compared to net income, after tax expense, of $95,783 and net income available to common shareholders of $60,593 for the quarter ended March 31, 2015.  Basic and diluted (loss) earnings per common share were $(0.02) for the first quarter of 2016 compared to basic and diluted earnings per common share of $0.03 in the first quarter of 2015.  The decrease in net income as compared to the first quarter of 2015 is primarily attributable to the merger related expenses of $287,680 and a decrease in gain on sale of securities available for sale of $30,028. For the period ended March 31, 2016, our net interest margin was 4.24% compared to 4.03% at March 31, 2015. 

The most significant component of noninterest expense is compensation and benefits, which totaled $427,569 for the three months ended March 31, 2016, compared to $479,005 for the three months ended March 31, 2015. The decrease in compensation and benefits is primarily related to the elimination of a position.  Legal, audit and merger expenses increased from $65,039 for the three months ended March 31, 2015 to $341,127 for three months ended March 31, 2016, primarily as a result of $287,680 fees related to the merger with Carolina Financial. Other real estate expenses decreased from $153,808 for the three months ended March 31, 2015 to $10,203 for the three months ended March 31, 2016, primarily as a result of reduction in other real estate write downs. Regulatory fees increased from $33,731 for the three months ended March 31, 2015 to $34,324 for the three months ended March 31, 2016 due to a change in the assessment base and average assets used to calculate the fees.