SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
For quarter ended Commission file
March 31, 1995 Number 2-89588
(Securities Act
Registration 7/18/84)
COMMUNITY BANKSHARES INCORPORATED
Virginia 54-1290793
(State or other jurisdiction of (I.R.S. Employer Iden-
incorporated or organization) tification No.)
Sycamore at Tabb, P. O. Box 2166 23803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 861-2320
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 159(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days. Yes No
X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at March 31, 1995
Common stock, par value
$3.00 per share 575,000
Part I. FINANCIAL INFORMATION
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 1994 December 31,1994
ASSETS
Cash and due from banks $ 3,687,444 $ 3,709,432
Federal funds sold 3,492,000 1,017,000
__________ __________
Total cash and cash
equivalents $ 7,179,444 $ 4,726,432
Investment securities:
Held-to-maturity 7,279,097 7,598,690
Available-for-sale, market value 956,063 969,213
Loans (net of reserve for loan
losses - 746,723 and 724,891) 63,649,841 61,488,230
Bank premises and equipment, net 1,149,414 1,167,973
Accrued interest receivable 382,106 371,809
Prepaid expenses 90,015 57,370
Other real estate, net 274,423 274,710
Other assets 703,375 708,701
_________ __________
Total Assets $ 81,663,778 $77,363,128
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits $12,224,867 $11,506,655
Interest-bearing demand deposits 22,851,819 24,628,724
Savings deposits 8,142,754 8,555,392
Time deposits, $100,000 and over 5,118,065 4,408,657
Other time deposits 23,580,638 18,981,366
___________ ___________
Accrued Interest payable 336,900 335,439
Other liabilities 388,670 351,095
Dividends payable 201,250 -
___________ ___________
Total Liabilities $72,844,963 $68,767,328
STOCKHOLDERS' EQUITY
Capital stock $ 1,725,000 $ 1,710,000
Surplus 1,036,432 988,932
Retained earnings 6,060,473 5,911,858
Net unrealized holding gains on
securities available-for-sale (3,090) (14,990)
___________ ___________
Total Stockholders' Equity $ 8,818,815 $ 8,595,800
___________ ___________
Total Liabilities and
Stockholders' Equity $81,663,778 $77,363,128
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Fiscal Year To Date
Ended Three Months Ended
March 31 March 31
1995 1994 1995 1994
INTEREST INCOME
Interest and fees on loans $ 1,487,222 $1,203,885 $1,487,222 $1,203,885
Interest on investment
securities:
U.S. Government agencies
and obligations 142,290 166,988 142,290 166,988
Interest on Federal funds
sold and securities
purchased under agreement
to resell 15,965 9,119 15,965 9,119
TOTAL INTEREST INCOME $1,645,477 $1,379,992 $1,645,477 $1,379,992
___________ __________ __________ __________
INTEREST EXPENSE
Interest on deposits 587,290 552,339 587,290 552,339
Interest on Federal funds
purchased 6,466 194 6,466 194
__________ __________ __________ __________
TOTAL INTEREST EXPENSE $ 593,756 $ 552,533 $ 593,756 $552,533
__________ __________ __________ __________
NET INTEREST INCOME $1,051,721 $ 827,459 $1,051,721 $ 827,459
PROVISION FOR LOAN LOSSES 23,000 - 23,000 -
__________ __________ __________ __________
NET INTEREST INCOME
AFTER PROVISION
FOR LOAN LOSSES $1,028,721 $ 827,459 $1,028,721 $ 827,459
___________ __________ __________ __________
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
OTHER INCOME
Service charges on deposit
accounts $ 150,811 $ 153,810 $ 150,811 $ 153,810
Other service charges,
commissions and fees 19,532 20,796 19,532 20,796
Gain on sale of bank
premises and equipment 2,400 - 2,400 -
Other operating income 15,540 34,552 15,540 34,552
TOTAL OTHER INCOME $ 188,283 $ 209,158 $ 188,283 $ 209,158
__________ __________ __________ __________
OTHER EXPENSES
Salaries and wages $ 270,194 $ 245,223 $ 270,194 $ 245,223
Employee benefits 78,889 66,187 78,889 66,187
Net occupancy expense 42,587 51,850 42,587 51,850
Furniture & equipment
expense 56,548 42,533 56,548 42,533
Accounting fees 19,500 9,000 19,500 9,000
FDIC assessments 38,236 36,983 38,236 36,983
Other operating expenses 138,016 146,965 138,016 146,965
__________ __________ __________ __________
TOTAL OTHER EXPENSES $ 643,970 $ 598,741 $ 643,970 $ 598,741
__________ __________ __________ __________
INCOME BEFORE INCOME
TAXES $ 573,034 $ 437,876 $ 573,034 $ 437,876
INCOME TAX PROVISION 223,169 200,000 223,169 200,000
__________ __________ __________ __________
NET INCOME $ 349,865 $ 237,876 $ 349,865 $ 237,876
EARNINGS PER SHARE (Based
on 571,722, 570,000
571,722 and 570,000 shares
outstanding,respectively $ .61 $ .42 $ .61 $ .42
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31
(UNAUDITED)
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 349,865 $ 237,876
Adjustment to reconcile net
income to net cash provided
by operating activities:
Depreciation 43,702 41,436
Provision for loan losses 23,000 -
Amortization and accretion of
investment securities 3,317 3,628
Gain on sale of bank premises and
equipment (2,400) -
Changes in operating assets and
liabilities:
Increase in accrued interest
receivable (10,297) (12,166)
Increase in prepaid expenses (32,645) (28,190)
Increase in accrued interest
payable 1,461 498
Net change in other operating assets
and liabilities 38,381 98,525
__________ __________
________
Net cash provided by
operating activities $ 414,384 $ 341,607
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment
securities $ 347,456 $ 972,220
Purchase of investment securities - (7,650)
Net increase in loans made to
customers (2,184,611) (2,942,586)
Proceeds from sale of bank premises
and equipment 2,400 -
Proceeds from sale of other real estate - (102,979)
Capital expenditures (24,856) -
__________ __________
Net Cash provided by
(used in) investing
activities $(1,859,611) $(2,080,995)
____________ ____________
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31
(UNAUDITED)
1995 1994
CASH FLOWS FROM FINANCING ACTIVITES
Net increase in deposits $ 3,835,739 $ 431,035
Issuance of common stock 62,500 -
__________ __________
Net cash provided by
financing activities $ 3,898,239 $ 431,035
__________ ___________
Increase in cash and
cash equivalents $ 2,453,012 $(1,308,353)
Cash and cash equivalents:
Beginning of year 4,726,432 6,740,608
___________ __________
End of first quarter $ 7,179,444 $ 5,432,255
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash payments for:
Interest $ 592,295 $ 552,035
Income taxes $ 271,836 $ 239,935
========== ===========
SUPPLEMENTAL SCHEDULE OF NON CASH
FINANCING ACTIVITIES
Declaration of Dividends:
Dividends declared 201,250 171,000
Increase in other liabilities (201,250) (171,000)
__________ __________
- -
========== ==========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations and Financial Condition
Through sound banking principles, Community Bankshares
Incorporated, increased net income 47.70% during the first quarter
of 1995 over the same period in 1994. This increase was
attributable to an increase in the net interest margin.
The Corporation recorded a net profit of $349,865 during the first
quarter of 1995 compared to a net profit of $237,786 for the first
quarter of 1994. Income before income taxes for these periods was
$573,034 for 1995 and $437,876 for 1994.
On a per share basis, net income for the first quarter of 1995 was
$.61. This compares to $.42 for 1994 and $.42 for 1993.
During the first quarter, the company achieved a 16.07% return on
average equity and a 1.76% return on average assets. This compares
with a 12.68% return on average equity and a 1.23% return on
average assets one year earlier.
Management is unaware of any trend or events or uncertainties that
will have or that are reasonably likely to have a material effect
on the Company's liability, capital resources or operations.
Management has not received any recommendations by regulatory
authorities, which if implemented, would have a material effect on
the Company's liquidity, capital resources or operations.
Net Interest Income and Net Interest Margin
Net interest income, the primary source of the Company's earnings,
is the amount by which interest and fee income earned on earning
assets exceed interest paid on interest-bearing liabilities
consisting of deposits and federal funds purchased and securities
under agreement to repurchase. Net interest income is impacted by
the volume, mix, and the general level of interest rates among
earning assets and interest-bearing liabilities.
The Company's net interest income was $1,051,721 in the first
quarter in 1995, compared to $827,459 for the same quarter in 1994
and $768,119 for this period in 1993. This growth was partially
driven by higher levels of earning assets which increased 4.22% in
the first quarter of 1995, with average loans increasing 6.71%.
Total interest income for the first quarter of 1995 and 1994 was
$1,645,477 and $1,379,992 respectively. Loan growth was led by real
estate lending. The increase in interest-earning assets was funded
by a 2.85% increase in total average deposits. Total interest
expense for the first quarter of 1995 and 1994 amounted to $593,756
and $552,533, respectively.
The net interest margin is a measure of net interest income
performance. It represents the difference between interest income,
including net loan fees earned, and interest expense, reflected as
a percentage of average interest-earning assets. The Company's net
interest margin was 5.75% in 1995 compared to 4.71% and 4.93%
during the first quarters of 1994 and 1993.
Provision for Loan Losses
For each period presented, the provision for loan losses charged to
operations is based on management's judgement after taking into
consideration all factors connected with the collectibility of the
existing portfolio. Management evaluates the loan portfolio in
light of economic conditions, changes in the nature and value of
the portfolio, industry standards and other relevant factors.
Specific factors considered by management in determining the
amounts charged to operations include internally generated loan
review reports, previous loan loss experience with the borrower,
the status of past due interest and principal payments on the loan,
the quality of financial information supplied by the borrower and
the general financial condition of the borrower.
The provision for loan losses totaled $23,000 during the first
quarter of 1995. Because of recoveries totaling $110,506 during the
first quarter of 1994, a transfer to the provision for loan losses
was not deemed necessary. For the first quarter of 1993 the
provision for loan losses totaled $50,200. In the opinion of
management, the provision charged to operations is sufficient to
absorb the current year's net losses while continuing to maintain
the allowance for loan losses at an appropriate level.
Net charge-offs for the first quarter of 1995 were $10,928. There
were no net charge-offs for the first quarter of 1994 compared to
net charge-offs of $32,282 for the same period in 1993. As of March
31, 1995 the ratio of allowance for loan losses to total loans, net
of unearned income, was 1.17% compared to 1.18% as of March 31,
1994.
The coverage provided by the allowance for loan loss reserves for
non-performing loans was 1.59X at March 31, 1995 as compared to a
coverage of 2.02X at March 31 1994. Management believes, based on
its review, that the Company has adequate reserves to cover
estimated future reduction of carrying values that may be required
on these loans.
Nonaccural loans and past due loans are shown as follows:
3/31/95 12/31/94
Commercial
Nonaccrual $ 3,773 $3,998
Contractually past due 90 days
or more - 4,000
Installment
Nonaccrual 12,696 13,598
Contractually past due 90 days
or more 17,412 -
Real Estate
Nonaccrual - -
Contractually past due 90 days
or more 434,513 542,217
________ _______
Nonperforming loans to total laons
at end of period .74% .92%
Noninterest Income and Noninterest Expenses
Noninterest income decreased 9.98% in the first quarter of 1995 in
comparsion to an increase of 7.26% in 1994. Of the $188,283 in
noninterest income, $150,811 was provided by service charges on
deposit accounts.
Total noninterest expenses increased 7.55% to $643,970 in the
first quarter of 1995, compared to an increase of 13.22% to
$589,741 in 1994. Salaries and employee benefits, the largest
component of noninterest expenses, increased 12.10% in the first
quarter of 1995 over 1994. During the third quarter of 1993, by
approval of the Board of Directors, bank management created an
Executive Incentive Compensation Plan for key management personnel
based on the results of the Bank's performance. Due to the adoption
of this plan, the amount charged to salaries for this plan for the
first quarter of 1995 was $26,453. Other than this significant
change, employee benefits remain constant.
In addition, the Board of Directors created a Directors Performance
Adjusted Fees Program. This plan provides for the adjustment of
directors' fees based on meeting certain goals. This program had
the effect of increasing other operating expenses for the first
quarter by $10,119.
The plans described above are based upon the attainment of
specified ROA levels which are computed by using monthly average
assets. The amounts accrued under these plans are based on net
income reflected through March 31, 1995 on an annualized basis.
Liquidity and Interest Rate Sensitivity
Liquidity. Liquidity is the ability to meet present and future
financial obligations through either the sale or maturity of
existing assets or the acquisition of additional funds through
liability management. Liquid assets include cash, interest-bearing
deposits with banks, federal funds sold, investments and loans
maturing within one year. The Company's ability to obtain deposits
and purchase funds at favorable rates determines its liability
liquidity. As a result of the Company's management of liquid assets
and the ability to generate liquidity through liability funding,
management believes that the Company maintains overall liquidity
sufficient to satisfy its depositors' requirements and meet its
customers' credit needs.
Additional sources of liquidity available to the Company include,
but are not limited to, loan payments, the ability to obtain
deposits through the adjustment of interest rates and the
purchasing of federal funds. To further meet its liquidity needs,
the Company also has access to the Federal Reserve System. In the
past, growth in deposits and proceeds from the maturity of
investment securities have been sufficient to fund the net increase
in loans.
Loans, net of unearned income, to deposits were 88.50% as of March
31, 1995. At March 31, 1995, 51.96% of total loans were due to
mature in one year or less. When loans with a variable rate are
included with those due to mature in one year or less, this
percentage increases to 79.36%.
Interest Rate Sensitivity. In conjunction with maintaining a
satisfactory level of liquidity, management must also control the
degree of interest rate risk assumed on the balance sheet. Managing
this risk involves regular monitoring of the interest assets
relative to sensitive liabilities over specific time intervals.
The majority of the Bank's loans may be repriced in the next twelve
months. The Bank's interest rate sensitivity is positioned so that
earnings should remain consistent in either a rising or falling
interest rate environment.
Capital Resources and Adequacy
The primary source of capital for the Company in recent years has
been internally generated retained earnings. Average stockholders'
equity increased 16.06% in the first quarter of 1995 over 1994 and
the return on average total assets was 1.76% in the first quarter
of 1995.
The Company's capital position continues to exceed regulatory
minimums. The primary indicators relied on by the Federal Reserve
Board and other bank regulators in measuring strength of capital
position are the Tier 1 Capital, Total Capital and Leverage ratios.
Tier 1 Capital consist of common and qualifying preferred
stockholders' equity less goodwill. Total Capital consist of Tier
1 capital, qualifying subordinated debt and a portion of the
allowance for loan losses. Risk-based capital ratios are calculated
with reference to risk weighted assets which consist of both on and
off-balance sheet risks. The Company's Tier 1 Capital ratios were
14.13% at March 31, 1995 compared to 12.63% at December 31, 1994.
The Total Capital ratios were 15.32% at March 31, 1995 compared to
13.70% at December 31, 1994. These ratios are in excess of the
mandated minimum requirements of 4.00% and 8.00% respectively. The
Leverage ratios consist of Tier 1 Capital divided by quarterly
total assets. At March 31, 1995, the Company's Leverage ratios were
10.81% which exceeded the required minimum leverage ratio of 4.00%,
as shown in the following table:
(Unaudited)
March 31, 1995 December 31,1994
-------------- -----------------
Tier 1 Capital $ 8,824,995 $ 8,595,800
Tier 2 Capital 746,723 724,891
___________ ___________
Total Qualifying Capital $ 9,571,718 $ 9,320,691
Adjusted Total Assets (including
off-balance sheet exposure) $62,471,492 $64,978,234
Tier 1 Risk-Based Capital Ratio 14.13% 12.63%
Total Risk-Based Capital Ratio 15.32% 13.70%
Leverage Ratio 10.81% 11.11%
The Company's principal source of cash income is dividend payments
from the Bank. Certain limitations exist under applicable law and
regulation by regulatory agencies regarding dividend payments to a
parent by its subsidiaries. As of June 30, 1994, The Bank had
approximately $3.0 million of retained earnings available for
distribution to the Company as dividends without prior regulatory
approval.
Current Accounting Developments
The Financial Accounting Standards Board has issued Statement 114,
Accounting by Creditors for Impairment of a Loan, which becomes
effective for years beginning after December 31, 1994. Earlier
application is permitted. The Statement generally required impaired
loans to be measured on the present value of expected future cash
flows discounted at the loan's effective interest rate or as an
expedient, at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent. A loan is
impaired when it is probable the creditor will be unable to collect
all contractual principal and interest payments due in accordance
with the terms of the loan agreement. The Bank adopted this
Statement for the year beginning January 1, 1995, and anticipates
no material effect on its financial position and results of
operations upon the adoption of this statement.
Other
These interim financial statements are prepared on a basis
consistent of that of the prior year. They present all adjustments
which are, in the opinion of management, necessary for a fair
statement of the results for the interim period presented. All
adjustments are of a normal recurring nature.
Reclassification
Certain amounts relating to the prior period have been restated to
conform to the current period presentations. These
reclassifications have no effect on the previously reported income
or equity.
OTHER INFORMATION
PART II.
ITEM.
1. Legal Proceedings
None
2. Changes in securities
None
3. Defaults upon senior securities
None
4. Results of votes of security holders
None
5. Other Information
None
6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K. There were no reports on Form 8-K
files for the three months ended March 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersign ed thereunto duly authorized.
COMMUNITY BANKSHARES INCORPORATED
Nathan S. Jones, 3rd.
President and Chief Executive Officer
Lillian M. Umphlett
Vice-President/Chief Financial Officer
Date: May 18, 1995