SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2000 Commission File No. 0-13100
COMMUNITY BANKSHARES INCORPORATED
(Exact name of registrant as specified in its charter)
Virginia 54-1290793
(State of Incorporation) (I.R.S. Employer Identification No.)
200 North Sycamore Street
P. O. Box 2166
Petersburg, Virginia 23804
(Address of principal executive offices)
(804) 861-2320
(Registrant's telephone number)
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 X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 31, 2000. Common Stock, $3.00 par value, $2,724,725
shares.
COMMUNITY BANKSHARES INCORPORATED
FORM 10-Q
MARCH 31, 2000
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Balance Sheets as of March 31, 2000
(Unaudited) and December 31, 1999..........................
Consolidated Statements of Income for the three months
ended March 31, 2000 and 1999 (Unaudited)..................
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (Unaudited)..................
Notes to Consolidated Statements (Unaudited).................
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................
Item 3. Quantitative and Qualitative Disclosures Regarding
Market Risk...............................................
Part II. Other Information
Item 1. Legal Proceedings............................................
Item 2. Changes in Securities........................................
Item 3. Defaults Upon Senior Securities..............................
Item 4. Results of Votes of Security Holders.........................
Item 5. Other Information............................................
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Financial Data Schedule, Exhibit 27...........
(b) Reports on Form 8-K......................................
CONSOLIDATED BALANCE SHEETS
Community Bankshares Incorporated and Subsidiaries
(Unaudited)
March 31, December 31,
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------
ASSETS
===============================================================================================================
Cash and cash equivalents:
Cash and due from banks $ 14,634 $ 14,410
Federal funds sold 10,695 3,154
- ---------------------------------------------------------------------------- -------------- --------------
Total cash and due from banks 25,329 17,564
- ---------------------------------------------------------------------------- -------------- --------------
Securities available for sale, at fair value 59,490 59,715
Securities held to maturity (fair value, $6,021 - March 31, 2000;
$6,312 - December 31, 1999) 6,162 6,435
Loans, net of unearned income 274,311 265,967
Less allowance for loan losses 2,876 2,773
- ---------------------------------------------------------------------------- -------------- --------------
Net loans 271,435 263,194
- ---------------------------------------------------------------------------- -------------- --------------
Bank premises and equipment, net 4,525 4,575
Accrued interest receivable 2,568 2,229
Other real estate owned 1,369 972
Other assets 4,181 4,152
- ---------------------------------------------------------------------------- -------------- --------------
Total assets $ 375,059 $ 358,836
- ---------------------------------------------------------------------------- ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
===============================================================================================================
Deposits:
Noninterest-bearing deposits $ 55,324 $ 51,033
Interest-bearing deposits 281,918 267,394
- ---------------------------------------------------------------------------- -------------- --------------
Total deposits 337,242 318,427
- ---------------------------------------------------------------------------- -------------- --------------
Accrued interest payable 881 836
Federal funds purchased - 3,597
Other liabilities 1,607 1,583
Guaranteed ESOP debt 229 229
- ---------------------------------------------------------------------------- -------------- --------------
Total liabilities 339,959 324,672
- ---------------------------------------------------------------------------- -------------- --------------
STOCKHOLDERS' EQUITY
===============================================================================================================
Common stock, par value $3 per share, authorized 20,000,000 8,174 8,140
shares, shares issued March 31, 2000 - 2,724,725;
December 31, 1999 - 2,713,258
Capital surplus 3,923 3,894
Retained earnings 25,427 24,513
Accumulated other comprehensive income (loss), net of tax (2,195) (2,154)
Unearned ESOP shares (229) (229)
- ---------------------------------------------------------------------------- -------------- --------------
Total stockholders' equity 35,100 34,164
- ---------------------------------------------------------------------------- -------------- --------------
Total liabilities and stockholders' equity $ 375,059 $ 358,836
- ---------------------------------------------------------------------------- ============== ==============
The notes are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Community Bankshares Incorporated and Subsidiaries
(In thousands, except share and per share data) Three months ended March 31 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Interest Income
=============================================================================================================================
Interest and fees on loans $ 6,151 $ 4,925
Interest on securities:
U.S. government and agencies 819 871
States and political subdivisions 175 180
Other 37 33
Interest on federal funds sold 67 202
- ---------------------------------------------------------------------------------- ---------------- ---------------
Total interest income 7,249 6,211
- ---------------------------------------------------------------------------------- ---------------- ---------------
Interest Expense
=============================================================================================================================
Interest on deposits 2,987 2,542
Interest on federal funds purchased 55 -
Interest on securities sold under agreements to repurchase - 22
- ---------------------------------------------------------------------------------- ---------------- ---------------
Total interest expense 3,042 2,564
- ---------------------------------------------------------------------------------- ---------------- ---------------
Net interest income 4,207 3,647
Provision for loan losses 119 80
- ---------------------------------------------------------------------------------- ---------------- ---------------
Net interest income after provision for loan losses 4,088 3,567
- ---------------------------------------------------------------------------------- ---------------- ---------------
Noninterest Income
=============================================================================================================================
Service charges on deposit accounts and other fees 499 473
Securities gains (losses) - (4)
Gain on sale of other real estate 13 -
Other operating income 43 48
- ---------------------------------------------------------------------------------- ---------------- ---------------
Total noninterest income 555 517
- ---------------------------------------------------------------------------------- ---------------- ---------------
Noninterest Expense
=============================================================================================================================
Salaries and benefits 1,575 1,455
Occupancy and equipment expense 308 305
Other operating expense 685 653
- ---------------------------------------------------------------------------------- ---------------- ---------------
Total noninterest expense 2,568 2,413
- ---------------------------------------------------------------------------------- ---------------- ---------------
Earnings
=============================================================================================================================
Income before income taxes 2,075 1,671
Income tax expense 671 527
- ---------------------------------------------------------------------------------- ---------------- ---------------
Net Income $ 1,404 $ 1,144
- ---------------------------------------------------------------------------------- ================ ===============
Earnings Per Share
=============================================================================================================================
Net income per common share:
Basic $ 0.52 $ 0.41
Diluted $ 0.51 $ 0.39
Average shares outstanding:
Basic 2,715,185 2,759,087
Diluted 2,767,226 2,967,413
=============================================================================================================================
The notes are an integral part of the financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Community Bankshares Incorporated and Subsidiaries
Accumulated
Other Unearned
Common Capital Retained Comprehensive ESOP
(In thousands, except per share data) Stock Surplus Earnings Income (Loss) Shares Total
- ----------------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2000
============================================================================================================================
Balance at beginning of period $8,140 $ 3,894 $ 24,513 $ (2,154) $ (229) $ 34,164
Comprehensive income:
Net income 1,404 1,404
Other comprehensive income, net of tax:
Unrealized holding losses on securities
available-for-sale (net of deferred
tax expense of $21) (41) (41)
- ------------------------------------------------ ---------- ------------- ----------
Comprehensive income 1,404 (41) 1,363
- ------------------------------------------------ ---------- ------------- ----------
Issuance of common stock pursuant to
stock option plans 36 39 75
Common stock repurchased (2) (10) (12)
Cash dividends declared - $.18 per share (490) (490)
- ------------------------------------------------ --------- --------- ---------- -------------- --------- ----------
Balance at end of period $8,174 $ 3,923 $ 25,427 $ (2,195) $ (229) $ 35,100
- ------------------------------------------------ ========= ========= ========== ============== ========= ==========
Three months ended March 31,1999
============================================================================================================================
Balance at beginning of period $8,286 $ 4,915 $ 20,820 $ 99 $ - $ 34,120
Comprehensive income:
Net income 1,144 1,144
Other comprehensive income, net of tax:
Unrealized holding losses on securities
available-for-sale (net of deferred
tax expense of $150) (291) (291)
- ------------------------------------------------ ---------- -------------- ----------
Comprehensive income 1,144 (291) 853
- ------------------------------------------------ ---------- -------------- ----------
Common stock repurchased (36) (250) (286)
Cash dividends declared - $.15 per share (414) (414)
- ------------------------------------------------ --------- --------- ---------- -------------- --------- ----------
Balance at end of period $8,250 $ 4,665 $ 21,550 $ (192) $ - $ 34,273
- ------------------------------------------------ ========= ========= ========== ============== ========= ==========
The notes are an integral part of the financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
COMMUNITY BANKSHARES INCORPORATED AND SUBSIDIARIES
(In Thousands) Three months ended March 31, 2000 1999
- ----------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
================================================================================================================
Net Income $ 1,404 $ 1,144
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation of bank premises and equipment 142 125
Deferred income taxes 49 (99)
Provision for loan losses 119 80
Amortization and accretion of investment securities 19 12
Loss on sale of securities - 4
Gain on sale of other real estate (13) -
Loss on sale of bank premises and equipment 4 -
Changes in operating assets and liabilities:
Increase in accrued interest receivable (339) (175)
Increase in accrued interest payable 45 24
Net change in other operating assets and liabilities (152) (114)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,278 1,001
- ----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
================================================================================================================
Proceeds from sale of investment securities - 4,269
Proceeds from maturities and redemptions of investment securities 1,021 5,437
Purchase of investment securities (1,207) (11,452)
Net increase in loans (8,344) (19,398)
Proceeds from the sale of bank premises and equipment - 105
Proceeds from the sale of other real estate 308 -
Purchase of premises and equipment (56) -
Increase in other assets (26) -
Purchase of other real estate - (255)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,304) (21,294)
- ----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
================================================================================================================
Net increase in deposits 18,815 1,278
Net decrease in federal funds purchased (3,597) (49)
Cash dividends (490) (414)
Common stock repurchased (12) (286)
Net proceeds from issuance of common stock 75 -
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 14,791 529
- ----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 7,765 (19,764)
Cash and cash equivalents, beginning 17,564 47,435
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, ending $25,329 $27,671
================================================================================================================
Supplemental Disclosure of Cash flow information
Interest paid $ 2,997 $ 2,574
- ----------------------------------------------------------------------------------------------------------------
Income taxes paid $ 324 $ 446
- ----------------------------------------------------------------------------------------------------------------
The notes are an integral part of the financial statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not include
all of the disclosures and notes required by generally accepted accounting
principles. In the opinion of management, all material adjustments (which are of
a normal recurring nature) considered necessary for a fair presentation have
been made. The results for the interim period are not necessarily indicative of
the results to be expected for the entire year or any other interim period. The
information reported herein should be read in conjunction with the Notes to
Consolidated Financial Statements included in the Company's Annual Report for
the year ended December 31, 1999. Certain reclassifications have been made to
the 1999 historical financial statements to conform to the 2000 presentation.
Note 2. New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Financial
Accounting Standard ("FAS") 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments and hedging activities. Under FAS 133, derivatives are
recognized on the balance sheet at fair value as an asset or liability. Changes
in the fair value of derivatives will be reported as a component of other
comprehensive income or recognized as earnings through the income statement
depending on the nature of the instrument. FAS 137 was issued in June 1999, and
deferred the effectiveness of FAS 133 to all quarters of fiscal years beginning
after June 15, 2000, with earlier adoption permitted. The Company has not
adopted FAS 133 yet and is currently evaluating FAS 133's effect on its
financial position and results of operation, but it is not expected to have a
material impact.
5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Community Bankshares Incorporated (the "Company" and "Community Bankshares") is
a multi-bank holding company organized under Virginia law, which provides
financial services through its wholly-owned subsidiaries, The Community Bank,
Commerce Bank of Virginia and County Bank of Chesterfield. All three subsidiary
banks are full service retail commercial banks offering a wide range of banking
services, including demand and time deposits, as well as commercial, industrial,
residential construction, residential mortgage, and consumer loans. The
Company's primary trade areas are the Cities of Petersburg and Richmond, and
Chesterfield, Henrico, Hanover and Goochland counties. The Company operates
thirteen branch locations in these Virginia trade areas.
The following discussion provides information about the major components of the
financial condition, results of operations, asset quality, liquidity, and
capital resources of Community Bankshares Incorporated. The discussion and
analysis should be read in conjunction with the Consolidated Financial
Statements.
FINANCIAL CONDITION
Total assets as of March 31, 2000 were $375.1 million, an increase of 4.5% from
$358.8 million at December 31, 1999. Total loans net of unearned income as of
March 31, 2000 stood at $274.3 million, an increase of $8.3 million or 3.1% over
the $266.0 million recorded at December 31, 1999.
Total securities available for sale for the three months ended March 31, 2000
were $59.5 million, essentially unchanged from the $59.7 million at year-end
1999. Federal funds sold increased to $10.7 million at quarter-end.
Total deposits for the three months ended March 31, 2000 stood at $337.2
million, an increase of $18.8 million or 5.9% over the $318.4 million at
December 31, 1999. This increase has occurred mainly in shorter-term
interest-bearing. Total interest-bearing deposits were $281.9 million at March
31, 2000 compared to $267.4 million at year-end 1999, an increase of $14.5
million or 5.4%. Noninterest-bearing deposits grew 8.4% from year-end to $55.3
million.
RESULTS OF OPERATIONS
Net income for the first three months of 2000 was $1.4 million, an increase of
22.7% over the first three months of 1999. Earnings per share for the three
months ended March 31, 2000 was $0.51, on a fully diluted basis, or 30.0% higher
than the $0.39 recorded for the same period last year.
The return on average equity and return on average assets was 16.30% and 1.53%,
respectively for the three months ended March 31, 2000.
6
Net interest income for the first quarter of 2000 increased 15.4% to $4.2
million compared to the first three months of 1999. This increase was primarily
attributable to the growth in the Company's loan portfolio. Total loans, net of
unearned income increased 23.2%, or $51.7 million to $274.3 million compared to
March 31, 1999.
Total interest expense for the three months ended March 31, 2000, increased
18.6% to $3.0 million, up $478 thousand over the same period one year earlier.
This increase was due primarily to an increase in the volume of interest-bearing
liabilities, principally certificates of deposit maturing in less than two
years.
For the three months ended March 31, 2000, noninterest income increased $38
thousand or 7.4% to $555 thousand compared to $517 thousand a year earlier. The
increase arose primarily from service charges on deposit accounts, growing by
5.5% or $26 thousand over the three months ended March 31, 1999.
Noninterest expense of $2.6 million for the three months ended March 31, 2000,
was an increase of $155 thousand or 6.4% over the $2.4 million for the same
period last year. Salaries and employee benefits, the largest component on
noninterest expense, increased 8.2% to $1.6 million for the first three months
of 1999, primarily due to increased staffing levels and higher benefit cost.
ASSET QUALITY
The allowance for loan losses represents management's estimate of an amount
adequate to absorb potential future losses inherent in the loan portfolio. In
assessing the adequacy of the allowance, management relies predominately on its
ongoing review of the lending process and the risk characteristics of the
portfolio in the aggregate. Among other factors, management considers the
Company's loan loss experience, the amount of past-due loans, current and
anticipated economic conditions, and the estimated current values of collateral
securing loans in assessing the level of the allowance for loan losses.
The allowance for loan losses totaled $2.9 million at March 31, 2000 or 1.05% of
total loans, as compared to $2.8 million or 1.04% at December 31, 1999. The
provision for loan losses increased $39 thousand to $119 thousand for the first
three months of 2000 versus the same 1999 period. Net charge-offs were $16
thousand for the March 2000 quarter.
Nonperforming assets, which consist of nonaccrual loans, loans 90 days or more
past due, and other real estate, were $4.6 million at quarter-end March, 2000.
Nonaccrual loans totaled $2.3 million, an increase of $227 thousand over
December 31, 1999. Loans past due 90 days or more totaled $1.0 million at March
31, 2000, up $206 thousand over year-end, and other real estate increased $397
thousand to $1.4 million. Management does not expect any material loss relating
to nonperforming assets.
7
LIQUIDITY
In determining the Company's liquidity requirements, both sides of the balance
sheet are managed to ensure that adequate funding sources are available to
support loan growth, deposit withdrawals or any unanticipated need for funds.
Securities available for sale that mature within one year, or have a weighted
average life of one year are sources of liquidity. Anticipated mortgage-backed
securities paydowns and maturing loans also generate cashflows to meet liquidity
requirements. Wholesale funding sources are also used to supply liquidity such
as federal funds purchased and large denomination certificates of deposit. The
Company considers its sources of liquidity to be adequate to meet its
anticipated needs.
CAPITAL RESOURCES
Community Bankshares strong capital position provides the necessary assurance
required to support anticipated asset growth and to absorb potential losses.
The Company's Tier I capital position capital was $37.3 million at March 31,
2000, or 12.64% of risk-weighted assets. Total risk-based capital was $40.2
million or 13.62% of risk-weighted assets.
Tier I capital consists primarily of common stockholders' equity, while total
risk-based capital includes the allowance for loan losses. Risk weighted assets
are determined by assigning various levels of risk to different categories of
assets and off-balance sheet activities. Under current risk-based capital
standards, all banks are required to have Tier I capital of at least 4% and
total capital of 8%.
FORWARD-LOOKING STATEMENTS
Certain statements in this report may constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Although the Company believes that its expectations with respect to certain
forward-looking statements are based upon reasonable assumptions within the
bounds of its knowledge of its business and operations, there can be no
assurance that actual results, performance or achievements of the Company will
not differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information provided in the
December 31, 1999 Form 10-K.
Part II. OTHER INFORMATION
Item: 1 Legal proceedings
8
There are no material legal proceedings to which the
Registrant or any of its subsidiaries are involved in other
than legal proceedings occurring in the ordinary course of
business, which are deemed immaterial.
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 - Financial Data Schedule, Exhibit 27
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
COMMUNITY BANKSHARES INCORPORATED
/s/Nathan S. Jones, 3rd
- ---------------------------------------
Nathan S. Jones, 3rd
President and Chief Executive Officer
/s/Ray A. Fleming
- ---------------------------------------
Ray A. Fleming
Senior Vice President and Chief Financial Officer
Date: May 19, 2000