SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
For quarter ended Commission file
June 30, 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
incorporated or organization) Identification 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 15(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 June 30, 1995
Common stock, par value
$3.00 per share 575,000
Part I. FINANCIAL INFORMATION
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30,1995 December 31,1994
ASSETS
Cash and due from banks $ 4,029,368 $ 3,709,432
Federal funds soldd 5,611,000 1,017,000
__________ __________
Total cash and cash
equivalents $ 9,640,368 $ 4,726,432
Investment securities:
Available-for-sale, market value 1,679,222 969,213
Held-to-maturity 8,256,786 7,598,690
Loans (net of reserve for loan
losses - 768,720 and 724,891) 64,107,312 61,488,230
Bank premises and equipment, net 1,056,685 1,167,973
Accrued interest receivable 441,725 371,809
Prepaid expenses 105,922 57,370
Other real estate, net 239,136 274,710
Other assets 692,793 708,701
__________ __________
Total Assets $ 86,219,949 $ 77,363,128
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits $ 12,821,418 $ 11,506,655
Interest-bearing demand deposits 22,939,397 24,628,724
Savings deposits 7,947,107 8,555,392
Time deposits, $100,000 and over 5,819,958 4,408,657
Other time deposits 26,838,532 18,981,366
__________ __________
$ 76,366,412 $ 68,080,794
Accrued interest payable 370,587 335,439
Other liabilities 226,039 351,095
Guaranteed debt of Employee Stock
Ownership Trust 365,500 -
__________ __________
Total Liabilities $ 77,328,538 $ 68,767,328
STOCKHOLDERS' EQUITY
Capital stock $ 1,725,000 $ 1,710,000
Surplus 1,036,432 988,932
Retained earnings 6,481,567 5,911,858
Net unrealized holding gains on
securities available-for-sale 13,912 (14,990)
__________ __________
Total Stockholders' Equity $ 9,256,911 $ 8,595,800
Debt guaranteed in connection
with acquisition of Corpora-
tion's capital by Employee
Stock Ownership Trust $ (365,500) $ -
__________ __________
Total Liabilities and
Stockholders' Equity $ 86,219,949 $ 77,363,128
========== ==========
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Fiscal Year To Date
Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
INTEREST INCOME
Interest and fees on loans $1,564,653 $1,302,044 $3,051,875 $2,505,929
Interest on investment
securities:
U.S. Government agencies
and obligations 157,684 163,791 299,974 330,779
Other securities 2,502 2,502 2,502 2,502
Interest on Federal funds
sold and securities
purchased under agreement
to resell 67,590 4,057 83,555 13,176
__________ __________ __________ __________
TOTAL INTEREST INCOME $1,792,429 $1,472,394 $3,437,906 $2,852,386
__________ __________ __________ __________
INTEREST EXPENSE
Interest on deposits 713,953 559,675 1,301,243 1,112,014
Interest on Federal funds
purchased - 2,890 6,466 3,084
__________ __________ _________ __________
TOTAL INTEREST EXPENSE $ 713,953 $ 562,565 $1,307,709 $1,115,098
__________ __________ __________ __________
NET INTEREST INCOME $1,078,476 $ 909,829 $2,130,197 $1,737,288
PROVISION FOR LOAN LOSSES 26,000 - 49,000 -
__________ __________ __________ __________
NET INTEREST INCOME
AFTER PROVISION
FOR LOAN LOSSES $1,052,476 $ 909,829 $2,081,197 $1,737,288
__________ __________ __________ __________
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Continued)
OTHER INCOME
Service charges on deposit
accounts $ 150,789 $ 166,235 $ 301,600 $ 320,045
Other service charges,
commissions and fees 27,350 20,128 46,882 40,924
Gain on sale of bank
premises and equipment 12,732 - 15,132 -
Gain on sale of investment
securities - 1,428 - 1,428
Other operating income 11,527 30,340 27,067 64,892
__________ __________ __________ __________
TOTAL OTHER INCOME $ 202,398 $ 218,131 $ 390,681 $ 427,289
__________ __________ __________ __________
OTHER EXPENSES
Salaries and wages $ 264,576 $ 262,142 $ 534,770 $ 507,365
Employee benefits 60,406 58,675 139,295 124,862
Net occupancy expense 36,740 34,821 79,327 86,671
Furniture & equipment
expense 40,647 55,566 97,195 98,099
Accounting fees 1,575 4,002 21,075 13,002
FDIC assessments 38,237 36,983 76,473 73,966
Other operating expenses 171,880 166,107 309,896 313,072
__________ __________ __________ __________
TOTAL OTHER EXPENSES $ 614,061 $ 618,296 $1,258,031 $1,217,037
__________ __________ __________ __________
INCOME BEFORE INCOME
TAXES $ 640,813 $ 509,664 $1,213,847 $ 947,540
INCOME TAX PROVISION $ 217,718 $ 170,416 $ 442,887 $ 370,416
__________ __________ __________ __________
NET INCOME
$ 423,095 $ 339,248 $ 770,960 $ 577,124
========== ========== ========== ==========
EARNINGS PER SHARE (Based
on 575,000, 570,000
573,370 and 570,000 shares
outstanding,respectively $ .74 $ .60 $ 1.34 $ 1.01
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30
(UNAUDITED)
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 770,960 $ 577,124
Adjustment to reconcile net
income to net cash provided
by operating activities:
Depreciation 83,546 84,700
Provision for loan losses 49,000 -
Amortization and accretion of
investment securities 6,449 7,367
Gain on sale of bank premises and
equipment (15,132) -
Gain on sale of securities - (1,428)
Changes in operating assets and
liabilities:
Increase in accrued interest
receivable (69,916) (36,923)
Increase in prepaid expenses (48,552) (57,251)
Increase in accrued interest
payable 35,148 7,144
Net change in other operating assets
and liabilities (124,036) (19,377)
__________ __________
Net cash provided by
operating activities $ 687,467 $ 561,356
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment
securities $ - $ 10,000
Proceeds from maturities of investment
securities 637,903 1,820,624
Purchase of investment securities (1,968,669) (1,042,950)
Net increase in loans made to
customers (2,650,824) (3,835,162)
Proceeds from sale of bank premises
and equipment 71,610 -
Proceeds from sale of other real estate 17,742 -
Capital expenditures (28,161) (134,928)
Net Cash (used in)
investing activities $(3,920,399) $(3,182,416)
__________ __________
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30
(UNAUDITED)
1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit $ 8,285,618 $ 207,196
Issuance of common stock 62,500 -
Dividends paid (201,250) (171,000)
__________ __________
Net cash provided by
financing activities $ 8,146,868 $ 36,196
__________ __________
Increase(decrease)in cash and
cash equivalents $ 4,913,936 $(2,584,864)
Cash and cash equivalents:
Beginning of year 4,726,432 6,740,608
__________ __________
End of second quarter $ 9,640,368 $ 4,155,744
========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash payments for:
Interest $ 1,272,561 $ 1,107,955
========== ==========
Income taxes $ 471,836 $ 354,935
========== ==========
SUPPLEMENTAL SCHEDULE OF NON CASH
INVESTING ACTIVITIES
Purchase of property & equipment (28,580) -
Book value of asset traded-in 419 -
__________ __________
Cash used to purchase
property and equipment (28,161) -
========== ==========
Proceeds from sale of other
real estate 42,742 -
Increase in loans (25,000) -
__________ __________
Cash received from sale of
other real estate 17,742 -
========== ==========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations and Financial Condition
The Corporation recorded a net profit of $423,095 during the
second quarter of 1995 compared to a net profit of $339,248 for
the second quarter of 1994. This was an increase of 24.72%.
Income before income taxes for these periods was $640,813 for
1995 and $509,664 for 1994.
On a per share basis, net income for the second quarter of 1995
was $.74. This compares to $.60 for 1994 and $.46 for 1993.
During the second quarter, the company achieved a 17.58% return
on average equity and a 1.89% return on average assets. This
compares with a 15.14% return on average equity and a 1.49%
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 $1,078,476 in the second
quarter in 1995, compared to $909,829 for the same quarter in
1994 and $792,324 for this period in 1993. This growth was
partially driven by higher levels of earning assets which
increased 6.91% in the second quarter of 1995, with average loans
increasing 6.16%. Total interest income for the period ending
June 30, of 1995 and 1994 were $1,792,429 and $1,472,394,
respectively. Loan growth was led by real estate lending. The
increase in interest-earning assets was funded by a 5.42%
increase in total average deposits. Total interest expense for
the second quarter of 1995 and 1994 amounted to $713,953 and
$562,565, 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 5.65% for the period ending
June 30, 1995 compared to 4.93% and 4.90% during the same period
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 $26,000 during the second
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 in the second quarter of that
year. 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 second quarter of 1995 were $4,003
compared to net charge-offs of $42,350 for the same period in
1994 and $4,062 in 1993. As of June 30, 1995 the ratio of
allowance for loan losses to total loans, net of unearned income,
was 1.20% compared to 1.10% as of June 30, 1994.
The coverage provided by the allowance for loan loss reserves for
non-performing loans was 5.29X at June 30, 1995 as compared to a
coverage of 2.52X at June 30, 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:
6/30/95 12/31/94
Commercial
Nonaccrual $ 3,548 $ 3,998
Contractually past due 90 days
or more 35,085 4,000
Installment
Nonaccrual 11,794 13,598
Contractually past due 90 days
or more 26,751 -
Real Estate
Nonaccrual 130,000 -
Contractually past due 90 days
or more 1,164,214 542,217
----------- ----------
$1,371,392 $563,813
Nonperforming loans to total loans
at end of period 2.14% .92%
Noninterest Income and Noninterest Expenses
Noninterest income decreased 7.21% in the second quarter of 1995
compared to an increase of 11.06% in 1994. Of the $202,398 in
noninterest income, $150,789 was provided by service charges on
deposit accounts.
Total noninterest expenses decreased .68% to $614,061 in the
second quarter of 1995, compared to an increase of 9.28% to
$618,296 in 1994. Salaries and employee benefits, the largest
component of noninterest expenses, increased 1.30% in the second
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 second quarter of 1995 was $26,880. 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 second quarter by $10,892.
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 June 30, 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 83.95% as of June
30, 1995. At June 30, 1995, 64.19% 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 76.39%.
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.
At June 30, 1995, the Company had a slight negative gap position.
This liability sensitive position during times of increasing
rates typically has the effect of reducing the net interest
margin.
The majority of the Bank's loans may be repriced in the next
twelve months. Because the Company has a slightly negative gap
position, an increase in market rates will possibly have an
adverse effect on net interest income.
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 14.85% in the second quarter of
1995 over 1994 and the return on average total assets was 1.89%
in the second 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 consists 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 13.59% at June 30, 1995 compared to 12.63% at
December 31, 1994. The Total Capital ratios were 14.76% at June
30, 1995 and 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 June 30, 1995, the
Company's Leverage ratio was 10.31% which exceeded the required
minimum leverage ratio of 4.00%, as shown in the following table:
(Unaudited)
June 30, 1995 December 31, 1994
Tier 1 Capital $ 8,891,411 $ 8,595,800
Tier 2 Capital 768,720 724,891
___________ ___________
Total Qualifying Capital $ 9,660,131 $ 9,320,691
Adjusted Total Assets (including
off-balance sheet exposure) $65,434,093 $64,978,234
Tier 1 Risk-Based Capital Ratio 13.59% 12.63%
Total Risk-Based Capital Ratio 14.76% 13.70%
Leverage Ratio 10.31% 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,
1995, The Bank had approximately $3.4 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
To better serve the marketplace, operations ceased at its West
Washington Street branch as of March 31, 1995. The company
anticipates no deterioration of its deposit base as a result of
this decision and management believes earnings and profits will
not be materially affected.
At the May 16, 1995, Annual Meeting of Shareholders of Community
Bankshares Incorporated, shareholders voted to approve an
Incentive Stock Option Plan and Nonstatutory Stock Option Plan.
Such plans were described in the Proxy Statement dated April 21,
1995.
Also at this meeting, it was voted to approve an amendment to the
Corporation's Articles of Incorporation to increase the amount of
authorized common stock from 1,000,000 to 4,000,000 shares.
At its July 18, 1995 Board Meeting the Company declared a stock
dividend in the form of a 2 for 1 stock split to stockholders of
record as of July 31, 1995.
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.
Reclassifications
Certain amounts relating to the prior period have been restated
to conform to the current period presentations. These
reclassification 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
At the May 16, 1995 Annual Meeting of Shareholders of
Community Bankshares Incorporated, shareholders voted to
approve an Incentive Stock Option Plan and Nonstatutory
Stock Option Plan. Such plans were described in the Proxy
Statement dated April 21, 1995.
Also at this meeting, it was voted to approve an amendment
to the Corporation's Articles of Incorporation to increase
the amount of authorized common stock from 1,000,000 to
4,000,000 shares.
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
filed 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: August 14, 1995