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, 1996 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 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 March 31, 1996
Common stock, par value
$3.00 per share 1,160,000
COMMUNITY BANKSHARES INCORPORATED
INDEX
Page No.
--------
Part I. Financial Information
Consolidated Balance Sheets -March 31, 1996 and
December 31, 1995 3
Consolidated Statements of Income - Three months
ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and 1995 6
Management's Discussion and Analysis of the Financial
Condition and Results of Operations 8
Part II. Other Information l7
Part I. FINANCIAL INFORMATION
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 1996 December 31, 1995
ASSETS
Cash and due from banks $ 3,435,150 $ 3,636,524
Federal funds sold 4,182,000 2,281,000
---------- ----------
Total cash and cash
equivalents $ 7,617,150 $ 5,917,524
Investment securities:
Available-for-sale, market value 1,658,346 1,752,646
Held-to-maturity 11,959,010 12,358,741
Loans (net of reserve for loan
losses - 745,239 and 762,478) 66,157,949 65,255,723
Bank premises and equipment, net 992,939 1,024,856
Accrued interest receivable 482,948 518,555
Other real estate, net 340,714 467,588
Other assets 733,683 841,094
--------- ---------
Total Assets $89,942,739 $88,136,727
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits $14,040,675 $12,683,516
Interest-bearing demand deposits 22,178,622 21,514,060
Savings deposits 7,851,295 7,409,280
Time deposits, $100,000 and over 6,740,078 6,932,820
Other time deposits 27,830,644 28,673,838
---------- ----------
$78,641,314 $77,213,514
Accrued interest payable 391,089 417,782
Other liabilities 312,556 391,644
Guaranteed debt of Employee Stock
Ownership Trust 330,000 330,000
--------- --------
Total Liabilities $79,674,959 $78,352,940
STOCKHOLDERS' EQUITY
Capital stock $ 3,480,000 $ 3,450,000
Surplus 32,500 -
Retained earnings 7,084,982 6,645,036
Net unrealized holding gains on
securities available-for-sale 298 18,751
--------- ---------
Total Stockholders' Equity $10,597,780 $10,113,787
Unearned ESOP shares $ (330,000) $ (330,000)
---------- ----------
Total Liabilities and
Stockholders' Equity $89,942,739 $88,136,727
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Fiscal Year To Date
Ended Three Months Ended
March 30 March 31
1996 1995 1996 1995
INTEREST INCOME
Interest and fees on loans $1,653,871 $1,487,222 $1,653,871 $1,487,222
Interest on investment
securities:
U.S. Government agencies
and obligations 238,315 142,290 238,315 142,290
Other securities 2,083 - 2,083 -
Interest on Federal funds
sold and securities
purchased under agreement
to resell 51,451 15,965 51,451 15,965
--------- --------- --------- ---------
TOTAL INTEREST INCOME $1,945,720 $1,645,477 $1,945,720 $1,645,477
--------- --------- --------- ---------
INTEREST EXPENSE
Interest on deposits 764,908 587,290 764,908 587,290
Interest on Federal funds
purchased - 6,466 - 6,466
--------- --------- --------- ---------
TOTAL INTEREST EXPENSE $ 764,908 $ 593,756 $ 764,908 $ 593,756
--------- --------- --------- ---------
NET INTEREST INCOME $1,180,812 $1,051,721 $1,180,812 $1,051,721
PROVISION FOR LOAN LOSSES 35,000 23,000 35,000 23,000
--------- --------- --------- ---------
NET INTEREST INCOME
AFTER PROVISION
FOR LOAN LOSSES $1,145,812 $1,028,721 $1,145,812 $1,028,721
--------- --------- --------- ---------
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Continued)
Three Months Fiscal Year To Date
Ended Three Months Ended
March 31 March 31
1996 1995 1996 1995
OTHER INCOME
Service charges on deposit
accounts $ 130,338 $ 150,811 $ 130,338 $ 150,811
Other service charges,
commissions and fees 20,088 19,532 20,088 19,532
Gain on sale of bank
premises and equipment - 2,400 - 2,400
Gain on sale of other
real estate 40,216 - 40,216 -
Other operating income 4,893 15,540 4,893 15,540
--------- -------- --------- ---------
TOTAL OTHER INCOME $ 195,535 $ 188,283 $ 195,535 $ 188,283
OTHER EXPENSES
Salaries and wages $ 273,101 $ 270,194 $ 273,101 $ 270,194
Employee benefits 94,064 78,889 94,064 78,889
Net occupancy expense 50,351 42,587 50,351 42,587
Furniture & equipment
expense 46,291 56,548 46,291 56,548
Accounting fees 18,500 19,500 18,500 19,500
FDIC assessments 500 38,236 500 38,236
Postage 15,262 5,357 15,262 5,357
Other operating expenses 151,162 132,659 151,162 132,659
--------- --------- --------- ---------
TOTAL OTHER EXPENSES $ 649,231 $ 643,970 $ 649,231 $ 643,970
INCOME BEFORE INCOME
TAXES $ 692,116 $ 573,034 $ 692,116 $ 573,034
INCOME TAX PROVISION $ 252,170 $ 223,169 $ 252,170 $ 223,169
--------- -------- -------- ---------
NET INCOME $ 439,946 $ 349,865 $ 439,946 $ 349,865
Earnings per common and
common equivalent share
based on 1,249,672
1,241,739,respectively $ .35 $ .29 $ .35 $ .29
Earnings per common share,
assuming full dilution
based on 1,247,247,
1,216,512,respectively $ .35 $ .29 $ .35 $ .29
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31
(UNAUDITED)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 439,946 $ 349,865
Adjustment to reconcile net
income to net cash provided
by operating activities:
Depreciation 41,129 43,702
Provision for loan losses 35,000 23,000
Amortization and accretion of
investment securities 2,396 3,317
Gain on sale of bank premises and
equipment - (2,400)
Gain on sale of other real estate (40,216) -
Changes in operating assets and
liabilities:
(Increase) decrease in accrued
interest receivable 35,607 (10,297)
Increase in prepaid expenses (2,072) (32,645)
Increase (decrease) on accrued
interest payable (26,693) 1,461
Net change in other operating assets
and liabilities 39,901 38,381
---------- ---------
Net cash provided by
operating activities $ 524,998 $ 414,384
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment
securities 463,676 347,456
Net increase in loans made to
customers (937,226) (2,184,611)
Proceeds from sale of bank premises
and equipment - 2,400
Purchase of other real estate (17,947)
Proceeds from sale of other real estate 184,750
Capital expenditures (8,925) (24,856)
--------- ---------
Net Cash used in
investing activities $( 315,672) $(1,859,611)
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31
(UNAUDITED)
1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 1,427,800 $ 3,835,739
Issuance of common stock 62,500 62,500
---------- ----------
Net cash provided by
financing activities $ 1,490,300 $ 3,898,239
---------- ----------
Increase(decrease)in cash and
cash equivalents $ 1,699,626 $ 2,453,012
Cash and cash equivalents:
Beginning of year 5,917,524 4,726,432
---------- ----------
End of first quarter $ 7,617,150 $ 7,179,444
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash payments for:
Interest $ 791,601 $ 592,295
Income taxes $ 240,000 $ 271,836
SUPPLEMENTAL SCHEDULE OF NON CASH
FINANCING ACTIVITIES
Declaration of dividends:
Dividends declared $ - $ 201,250
Increase in other liabilities - (201,250)
- -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the major components of the
results of operations and financial condition, liquidity and capital resources
of Community Bankshares Incorporated. This discussion and analysis should be
read in conjunction with the Consolidated Financial Statements.
Overview. Net income for the first quarter of 1996 of $439,946 was an increase
of 25.75% over the first quarter of 1995. The increase in net income during the
quarter reflects primarily an increase in the lending volume and an improvement
in the rates earned on interest-earning assets. Earnings per share for the
quarter ended March 31, 1996 was $.35 up from $.29 for the same period last
year.
The Bank increased net income 47.08% to $349,865 during the first quarter of
1995 over the first quarter of 1994. This increase was attributable to an
increase in the net interest yield and to the 5.90% growth in the loan
portfolio.
The Company's return on average equity and average assets has increased the
first quarter of 1996 and 1995. The return on average equity was 17.55% for the
quarter ended March 31, 1996, compared to 16.07% in 1995. The return on average
assets amounted to 1.98%, 1.76% and 1.23% for the first quarter ended March 31,
1996, 1995 and 1994 respectively.
Net Interest Income. Net interest income represents the principal source of
earnings for The Community Bank. Net interest income equals the amount by which
interest income exceeds interest expense. Changes in the volume and mix of
interest-earning assets and interest-bearing liabilities, as well as their
respective yields and rates, have a significant impact on the level of net
interest income.
Net interest income increased 12.3% to $1.181 million the first quarter of
1996. This increase was attributable to the growth in average earning assets
and an increase in rates earned on interest-earning assets. The increase
interest-earning assets which increased was due primarily to an
increase in the lending volume which increased 3.9% for the first quarter and an
increase of 65.48% in the investment portfolio for this same period. The Bank
has had a consistent increase in loan demand. It is management's belief that the
increase in the lending volume is a result of competitive pricing and, most
importantly, responsiveness to loan demands. The ability to make a timely loan
decision is an operating characteristic that often allows CBI the opportunity to
meet the needs of borrowers before their competitors. The Bank is competitive
with rates and origination fees charged on loans. However, since 80.2% of the
Bank's loan portfolio may be repriced in one year or less, the Bank may
respond quickly to market changes in rates.
Interest expense for the quarter ended March 31, 1996, increased 28.8% to
$764,908 from $593,756 for the quarter ended March 31, 1995. This increase was
due to an increase in rates on interest-bearing liabilities and an 8.2%
increase in interest bearing liabilities from $59.689 million the first
quarter of 1995 to $64.588 million in the same period in 1996. The increase in
rates was created by national and regional economic factors.
Net interest income was $1.052 for the quarter ended March 31, 1995, an
increase of 27.1% over the $827,459 reported in 1994. This increase was
partially due to the 11.4% increase in interest-earning assets.
During the first quarter of 1995 interest expense increased by $41,223 over the
first quarter of 1994 to $593,756.
Interest Sensitivity. An important element of both earnings performance and the
maintenance of sufficient liquidity is management of the interest sensitivity
gap. The interest sensitivity gap is the difference between interest-sensitive
assets and interest-sensitive liabilities in a specific time interval. The gap
can be managed by repricing assets or liabilities, by replacing an asset or
liability at maturity or by adjusting the interest rate during the life of an
asset or liability. Matching the amounts of assets and liabilities repricing in
the same interval helps to hedge the risk and minimize the impact on net
interest income in periods of rising or falling interest rates.
The objective on interest sensitivity management is to provide flexibility in
controlling the response of both rate-sensitive assets and liabilities to wide
and frequent fluctuations in market rates of interest so that the effect of such
swings on net interest income is minimized. The most important part of this
objective is to maximize earnings while keeping risks within defined limits. To
reduce the impact of changing interest rates as much as possible, CBI attempts
to keep a large portion of its interest-sensitive assets and liabilities in
generally shorter maturities, usually one year or less. This allows CBI the
opportunity to adjust interest rates as needed to react to the loan and deposit
market conditions.
Management evaluates interest sensitivity through the use of a static gap
model on a monthly basis and then formulates strategies regarding asset
generation and pricing, funding sources and pricing, and off-balance sheet
commitments in order to decrease sensitivity risk. These strategies are based
on management's outlook regarding interest rate movements, the state of the
regional and national economies and other financial and business risk factors.
In addition, the Company establishes prices for deposits and loans based on
local market conditions and manages its securities portfolio with policies set
by itself.
The March 31, 1996 results of the rate sensitivity analysis show CBI had $7.736
million more in liabilities than assets subject to repricing within three
months or less and was, therefore, in a liability-sensitive position. The
cumulative gap at the end of one year was a positive $6.973 million, and,
therefore in an asset-sensitive position. The one year positive gap position
reflects a loan portfolio that is weighted predominantly in shorter maturities.
Approximately $53.7 million, or 80% of the total loan portfolio, matures or
reprices within on year or less. An asset-sensitive institution's net
interest margin and net interest income generally will be impacted favorably
by rising interest rates, while that of a liability-sensitive
institution generally will be impacted favorably by declining rates.
Noninterest Income. For the quarter ended March 31, 1996, noninterest income
increased 3.85% to $195,535. This increase is attributable to the sale of other
real estate for which The Bank realized a gain of $40,216. The Bank has marketed
"Free Checking" in order to increase deposits, to increase name recognition in
the community, and at the same time, reduce the cost of funds. This has
contributed to the 13.58% decrease of service charges on deposit accounts.
Noninterest income for the quarter ended March 31, 1995 was $188,283, a decrease
of $20,875 or 9.98% from 1994. The decrease in service charges, commissions and
fees of $2,999 or 2% was a contributing factor.
Noninterest Expense. Noninterest expense of $649,231 for the quarter ended March
31, 1996, was an increase of 8%. Salaries and employee benefits, the largest
single component of noninterest expense had a slight increase of 5.2% for the
quarter. The Bank was able to maintain a small increase in salaries of 1.1% as
compared to previous years, due to the closing of its Washington Street branch.
Management has shifted personnel to other locations to reduce the need for
additional staffing during peak periods of operations.
Due to regulatory rate reductions, FDIC assessments declined by 98.7% or
$37,736, from the previous year's first quarter. In addition, general insurance
decreased by $6,253 or 50.2% due to a new carrier on the general liability
policy that offered more competitive rates.
For 1995, noninterest expense increased by $45,229 or 7.55% over 1994. Salaries
and employee benefits increased 12.10% or $37,673 to $349,083 in the first
quarter of 1995. During 1995, FDIC assessments continued to be a portion of
noninterest expenses increasing by 3.4% to $38,236 from $36,983 during 1994.
Other taxes increased 7.7% or $9,554 due to a change in regulatory guidance in
the computation of state and local franchise tax.
Income Taxes. The provision for income taxes for the quarter ended
March 31, 1996 was $252,170, a 13.00% increase from the previous year's first
quarter. The increase in the provision was due to the increase in taxable
income.
The income tax provision for the first quarter ended March 31, 1995 was
$223,169, up from $200,000 for the first quarter ending March 31, 1994.
Loan Portfolio. CBI's loan portfolio is comprised of commercial loans, real
estate loans, home equity loans, consumer loans, participation loans with
other financial institutions, and other miscellaneous types of credit. The
primary markets in which CBI makes loans are generally in areas contiguous to
its branch locations in the Cities of Petersburg and Colonial Heights, and
Chesterfield County. The philosophy is consistent with CBI's focus on providing
community-based financial services.
As of March 31, 1996 the loan portfolio was $66.158 million, net of
unearned income, an increase from the prior year of 3.9% or $2.509 million.
Real estate lending continues to be the growth of the portfolio with loans
secured by real estate comprising 8.5% of total loans.
Loans, net of unearned income, were $63.650 million at March 31,
1995, up $2.5 million or 3.9% from March 31, 1994.
The Bank's unfunded loan commitments amount to $6.961 million as of March
31, 1996, up from $5.918 million at March 31, 1995. This increase is
attributable to customer loan demands at a specific point in time.
Analysis of the Allowance for Loan Losses. The allowance for loan losses is an
estimate of an amount adequate to provide for potential losses in the loan
portfolio of the Bank. The level of loan losses is affected by general economic
trends, as well as conditions affecting individual borrowers. The allowance is
also subject to regulatory examinations and determinations as to adequacy, which
may take into account such factors as the methodology used to calculate the
allowance and the size of the allowance in comparison to peer companies
identified by regulatory agencies.
The provision for loan losses for the quarter ended March 31, 1996 was
$35,000, an increase of $12,000 over the same period in 1995. Management
charged income for the provision deemed necessary based on its analysis of the
loan portfolio. After reviewing the increase in nonperforming loans and
specifically nonaccural loans, management feels the current year provision
increases the allowance for loan losses to the desired level to cover potential
losses. The Bank had charge-offs, net of recoveries of $52,509 during the first
quarter of 1996, $41,581 over theprevious year. The provision for loan losses to
totaled $23,000 for the quarter ended March 31, 1995.
As of March 31, 1996, the allowance for loan losses was $745,239 down from
$746,723 at March 31, 1995. The allowance as of March 31, 1995 was up $28,166
over the $718,557 at March 31, 1994. The ratio of the allowance for loan loss to
total loans, net of unearned income, has remained constant over the last three
years 1.11% at March 31, 1996, 1.16% at March 31, 1995, and 1.18% at March 31,
1994. It is management's opinion that the allowance for loan losses is adequate
to absorb any future losses that may occur.
The multiple of the allowance for loan losses to nonperforming assets was .91x
at March 31, 1996, 1.59x at March 31, 1995 and 2.02x at March 31, 1994.
Management continually evaluates nonperforming loans relative to their
collateral value and makes appropriate reductions in the carrying value of
those loans based on that review.
The allowance for loan losses related to loans identified as impaired is
primarily based on the excess of the loan's current outstanding principal
balance over the estimated fair market value of the related collateral. For a
loan that is not collateral-dependent, the allowance is recorded at the amount
by which the outstanding principal balance exceeds the current best estimate
for the future cash flows on the loan discounted at the loan's effective
interest rate.
Current accounting developments. The Financial Accounting Standards Board has
issued two Statements, SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of and SFAS No. 123, Accounting
for Stock-Based Compensation. The accounting requirements for these Statements
was effective for fiscal years beginning after December 15,1995. No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the Bank will
estimate future undiscounted cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the expected future cash
flows is less than the carrying amount of the asset, an impairment loss is
recognized. Otherwise, an impairment loss is not recognized.
SFAS No. 123 establishes financial accounting and reporting standards for stock-
based employee compensation plans. Those plans include all arrangements by which
employees receive shares of stock or other equity instruments of the employer or
the employer incurs liabilities to employees in amounts based on the price of
the employer's stock. This Statement provides a fair value based method to
measure compensation cost at the grant date based on the value of the award
and is recognized over the service period.
The Bank adopted SFAS No. 121 and No. 123 beginning January 1, 1996, and
anticipates no material effect on its results of operation upon the adoption of
these Statements.
Nonperforming Assets
March 31, Dec 31,
-------- ----------
1996 1995
Nonaccrual loans $ 246 $ 220
Loans contractually past due 90
days or more and still accruing 571 882
Troubled debt restructuring - -
--------- ---------
Total nonperforming loans $ 817 1,102
Other real estate owned 341 468
--------- ---------
Total nonperforming assets $ 1,158 1,570
Nonperforming assets to period-end
total loans and other real estate 1.74% 2.36%
Loans, including impaired loans, are generally placed in nonaccrual status when
loans are delinquent in principal and interest payments greater that 90 days and
the loan is not well secured and in process of collection. Accruals of interest
are discontinued until it becomes certain that both principal and interest can
be repaid. As shown in the above table, the Bank does have loans that are
contractually past due greater that 90 days that are not in nonaccrual status,
however, those loans are still accruing because they are well secured and in the
process of collection. A loan is well secured if collateralized by liens on real
or personal property, including securities, that have a realizable value
sufficient to discharge the debt in full or by the guarantee of a financially
responsible party. Approximately 73% of these loans are collateralized by
residential real estate. As of March 31, 1996, nonaccrual loans and loans
contractually past due greater than 90 days have increased $243,000 over the
March 31, 1995 levels, respectively.
If foreclosure of property is required, the property is generally sold at a
public auction in which CBI may participate as a bidder. If the Bank is the
successful bidder, the acquired real estate property is then included in the
Bank's real estate owned account until it is sold.
Investment Securities. The securities portfolio is maintained to manage excess
funds in order to provide diversification and liquidity in the overall asset
management policy. The maturity of securities purchased are based on the needs
of the Bank and current yields and other market conditions.
Securities are classified as held-to-maturity when management has the
positive intent and the Bank has the ability at the time of purchase to hold
them until maturity. These securities are carried at cost, adjusted for
amortization of premium and accretion of discount.
Securities to be held for indefinite periods of time and not intended to be
held-to-maturity or on a long-term basis are classified as available-for-sale
and accounted for at fair market value on an aggregate basis. Unrealized gains
or losses are reported as increases or decreases in stockholders's equity, net
of the related deferred tax effect.
The book value of the investment portfolio as of March 31, 1996, was $13.617
million compared to $8.235 million at March 31, 1995.
Deposits. Deposits at March 31, 1996, were $78.641 million, up $6.723 million
from 1995, an increase of 9.35%. The growth in deposits was led by the 14.85%
increase in non-interest demand deposits, which increased from $12.225 million
at March 31, 1995, to $14.041 million at March 31, 1996. At March 31, 1996,
certificates of deposit in excess of $100,000 had grown by $1.622 million, an
increase of 31.7% over March 31, 1995 levels.
Deposits at March 31, 1995 were $71.918 million a 5.5% increase from 1994.
Certificates of deposit of $100,000 or more increased by $622 million from
1994 levels. Noninterest-bearing deposits were 17% of total deposits
at March 31, 1995 compared to 16.2% at March 31, 1994.
Capital Resources. The adequacy of the Bank's capital is reviewed by management
on an ongoing basis with reference to the size, composition and quality of the
Bank's asset and liability levels and consistency with regulatory requirements
and industry standards. Management seeks to maintain a capital structure that
will assure an adequate level of capital to support anticipated asset growth
and absorb potential losses.
The primary source of capital for CBI is internally generated retained earnings.
Average stockholder's equity increased 15.1% during the first quarter of 1996
over 1995. Similarly, average stockholder's equity increased 16.0% in 1995 over
1994.
The FDIC has adopted capital guidelines to supplement the existing definitions
of capital for regulatory purposes and to establish minimum capital standards.
Specifically, the guidelines categorize assets and off-balance sheet items into
four risk-weighted categories. The minimum ratio of qualifying total capital to
risk-weighted assets is 8.0% of which at least 4.0% must be tier 1 capital,
composed of common equity, retained earnings and a limited amount of perpetual
preferred stock, less certain goodwill items. The Bank had a ratio of risk-
weighted assets to total capital of 16.10% at December 31, 1995 and a ratio of
risk-weighted assets to Tier 1 capital of 14.94%. Both of these exceed the
capital requirements adopted by the federal regulatory agencies.
Analysis of Capital
(Unaudited)
March 31, 1996 Dec 31, 1995
-------------- --------------
Tier 1 Capital
Common stock $3,480 $ 3,450
Surplus 33 0
Retained earnings 7,085 6,645
Unearned ESOP shares (330) (330)
--------- ---------
Total Tier 1 Capital $ 10,268 $ 9,765
Tier 2 Capital
Allowance for loan losses 745 762
--------- ---------
Total Tier 2 Capital $ 745 $ 762
--------- ---------
Total risk-based capital $ 11,013 $ 10,527
Capital Ratios:
Tier 1 risk-based capital 15.28% 14.94%
Total risk based capital 16.39% 16.10%
Tier 1 capital to average
total assets 11.42% 11.49%
Liquidity. Liquidity represents an institution's 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, investment in Treasury securities, and loans maturing within one
year. As a result of the Bank's management of liquid assets and the ability to
generate liquidity through liability funding, management believes that the Bank
maintains overall liquidity sufficient to satisfy its depositors'
requirements and meet its customer's credit needs.
For the quarter ended March 31, 1996 the Bank provided cash or liquidity from
operations in the amount of $524,998. This increase in funds in addition to
$1.428 million increase in deposits has given the Bank approximately $1.952
million in funds available for investment during the first quarter of 1996. In
determining investment strategies management considers objectives for the
composition of the loan and investment portfolio, such as type, maturity
distribution, and fixed or variable interest rate characteristics of investment
opportunities. Management's use of funds has included the funding of a $937,226
increase in loan demands. With 80.2% the loan portfolio repricing or maturing in
the next twelve months the Bank has enough asset liquidity to meet the needs of
maturing deposits.
Impact of Inflation and Changing Prices. The consolidated financial statements
and related data presented have been prepared in accordance with generally
accepted accounting principles, which require the measurement of the financial
position and operating results of CBI in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation.
Virtually all of the assets of CBI are monetary in nature. As a result, interest
rates have a more significant impact on a financial institution's performance
than he effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or with the same magnitude as prices of
goods and services.
Other Matters. On December 12, 1995, the Board of Directors unanimously voted to
enter into an Agreement and Plan for Reorganization (the plan) with Commerce
Bank of Virginia to combine their businesses. Commerce Bank of Virginia is a
Virginia state bank with its principal office located in Richmond, Virginia. The
combination of the two companies will be consummated through a Share Exchange
under Virginia law. Under the terms of the Plan, Commerce Bank of Virginia would
become a wholly-owned subsidiary of Community Bankshares Incorporated. For each
share owned, the shareholders of Commerce Bank of Virginia would receive 1.4044
share of stock of Community Bankshares Incorporated. It is anticipated that the
transaction will qualify for and be accounted for as a pooling of interests. The
stockholders of Community Bankshares Incorporated and Commerce Bank of Virginia
will be asked to consider and vote on the proposed Plan at their Annual Meeting.
If adopted by the shareholders, it is anticipated that the transaction will
become effective late in the second quarter of 1996. The proposed
transaction is subject to approval by regulatory authorities.
If the transaction had been consummated prior to March 31, 1996, the
accompanying financial statements would have included the financial position
and results of operations of Commerce Bank of Virginia. Interest income, net
income, and net income per share for the two years ended March 31, 1996 would
have been as follows:
March 31,
1996 1995 Dec 31, 1995
--------------------- --------------
(in thousands, except per share data)
Interest Income $3,357 $2,842 $12,682
Net income $ 691 $ 494 $ 2,355
Earning per common
and equivalent
share $ .35 $ .27 $ 1.27
Earnings per common
share, assuming
full dilution $ .35 $ .27 $ 1.27
Other Information
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 filed for the three months ended March 31, 1996.
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 undersigned thereunto duly authorized.
COMMUNITY BANKSHARES INCORPORATED
/s/NATHAN S JONES, 3RD
Nathan S. Jones, 3rd.
President and Chief Executive Officer
/s/LILLIAN M UMPHLETT
Lillian M. Umphlett
Vice-President/Chief Financial Officer
Date: May 14, 1996