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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
______________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO
SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2001
Commission File No. 0-13100
______________
COMMUNITY BANKSHARES INCORPORATED
(Exact name of registrant as specified in its charter)
Virginia 54-1290793
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(State of incorporation) (I.R.S. Employer
Identification No.)
11500 West Broad Street, P. O. Box 29569, Richmond, Virginia 23242
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(Address of principal executive offices)
(804) 360-2222
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(Registrant's telephone number)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
----------------------------- ------------------------------------
Common Stock, $3.00 par value NASDAQ
______________
Securities registered pursuant to Section 12(G) of the Act: None
Indicate by a 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X. No .
-- --
______________
The number of shares of common stock of the Registrant outstanding as of March
31, 2001 was 2,742,576.
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1
COMMUNITY BANKSHARES INCORPORATED
---------------------------------
FORM 10-Q
March 31, 2001
INDEX
Page
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Part I. Financial Information
Item 1. Consolidated Balance Sheets as of March 31, 2001
(Unaudited) and December 31, 2000............................. 3
Consolidated Statements of Income for the three months
ended March 31, 2001 and 2000 (Unaudited)..................... 4
Consolidated Statements of Changes in Stockholders' Equity for
the three months ended March 31, 2001 and 2000 (Unaudited).... 5
Consolidated Statements of Cash Flows for the three
months ended March 31, 2001 and 2000 (Unaudited).............. 6
Notes to Consolidated Statements (Unaudited)..................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 8
Item 3. Quantitative and Qualitative Disclosures Regarding
Market Risk................................................... 11
Part II. Other Information
Item 1. Legal Proceedings................................................ 12
Item 2. Changes in Securities............................................ 12
Item 3. Defaults Upon Senior Securities.................................. 12
Item 4. Results of Votes of Security Holders............................. 12
Item 5. Other Information................................................ 12
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Financial Data Schedule, Exhibit 27............... 12
(b) Reports on Form 8-K.......................................... 12
CONSOLIDATED BALANCE SHEETS
Community Bankshares Incorporated and Subsidiary
(Unaudited)
March 31, December 31,
(In thousands, except per share data) 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
=====================================================================================================================
Cash and cash equivalents:
Cash and due from banks $ 17,318 $ 13,188
Federal funds sold 17,987 15,583
- --------------------------------------------------------------------------------------------------------------------
Total cash and due from banks 35,305 28,771
- --------------------------------------------------------------------------------------------------------------------
Securities available for sale, at fair value 54,959 57,700
Securities held to maturity (fair value, $5,170 - March 31, 2001;
$5,351 - December 31, 2000) 5,108 5,345
Total loans 300,074 292,069
Allowance for loan losses (3,235) (3,176)
- --------------------------------------------------------------------------------------------------------------------
Net loans 296,839 288,893
- --------------------------------------------------------------------------------------------------------------------
Bank premises and equipment, net 7,335 7,413
Accrued interest receivable 2,620 2,788
Other real estate owned 1,048 1,046
Other assets 3,425 4,083
- --------------------------------------------------------------------------------------------------------------------
Total assets $406,639 $396,039
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
====================================================================================================================
Deposits:
Noninterest-bearing deposits $ 62,609 $ 55,869
Interest-bearing deposits 299,800 296,662
- --------------------------------------------------------------------------------------------------------------------
Total deposits 362,409 352,531
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Accrued interest payable 1,322 1,396
Other liabilities 1,737 2,586
Guaranteed ESOP debt 600 763
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Total liabilities 366,068 357,276
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Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
====================================================================================================================
Common stock, par value $3 per share, authorized 20,000,000 shares, shares
issued March 31, 2001 - 2,742,576; December 31, 2000 - 2,735,576 8,228 8,207
Capital surplus 3,800 3,901
Retained earnings 29,049 28,164
Accumulated other comprehensive income (loss), net of tax 94 (746)
Unearned ESOP shares (600) (763)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 40,571 38,763
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $406,639 $396,039
====================================================================================================================
See Notes to Consolidated Financial Statements.
3
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Community Bankshares Incorporated and Subsidiary
(In thousands, except share data) Three Months Ended March 31, 2001 2000
- ------------------------------------------------------------------------------------------------------------
Interest Income
============================================================================================================
Interest and fees on loans $ 6,827 $ 6,151
Interest on securities:
U.S. government and agencies 733 819
States and political subdivisions 170 175
Other 15 37
Interest on federal funds sold 195 67
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Total interest income 7,940 7,249
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Interest Expense
============================================================================================================
Interest on deposits 3,769 2,987
Interest on federal funds purchased - 55
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Total interest expense 3,769 3,042
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Net interest income 4,171 4,207
Provision for loan losses 75 119
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Net interest income after provision for loan losses 4,096 4,088
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Noninterest Income
============================================================================================================
Service charges on deposit accounts and other fees 585 515
Securities gains 12 -
Gain on sale of other real estate - 13
Other operating income 57 27
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Total noninterest income 654 555
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Noninterest Expense
============================================================================================================
Salaries and benefits 1,713 1,575
Occupancy and equipment expense 454 308
Other operating expense 625 685
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Total noninterest expense 2,792 2,568
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Earnings
============================================================================================================
Income before income taxes 1,958 2,075
Income tax expense 553 671
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Net Income $ 1,405 $ 1,404
============================================================================================================
Earnings Per Share
============================================================================================================
Net income per common share:
Basic $ 0.51 $ 0.52
Diluted $ 0.50 $ 0.51
Average shares outstanding:
Basic 2,738,532 2,715,185
Diluted 2,797,245 2,767,226
============================================================================================================
See Notes to Consolidated Financial Statements.
4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Community Bankshares Incorporated and Subsidiary
Unearned
Capital Retained ESOP
(In thousands, except per share data) Stock Surplus Earnings Shares
- ----------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2001 $ 8,207 $ 3,901 $ 28,164 $ (763)
- -----------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 1,405 -
Other comprehensive income:
Net unrealized securities gains arising during the
period, net of deferred income taxes of $437 - - - -
Less reclassification adjustment for gains included
in net income, net of income tax expense of $4 - - - -
Total comprehensive income
Issuance of common stock pursuant to exercise of stock options 21 37 - -
Cash settlement of options - (138) - -
Cash dividends declared ($.20 per share) - - (550) -
Release of ESOP Shares - - 30 163
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Balance, March 31, 2001 $ 8,228 $ 3,800 $ 29,049 $ (600)
=============================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2000 $ 8,140 $ 3,894 $ 24,513 $ (229)
- -----------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - 1,404 -
Other comprehensive income:
Net unrealized securities gains arising during the
period, net of deferred income taxes of $21 - - - -
Total comprehensive income
Issuance of common stock pursuant to exercise of stock options 36 39 - -
Common stock repurchased (2) (10) - -
Cash dividends declared ($.18 per share) - - (490) -
- -----------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 $ 8,174 $ 3,923 $ 25,427 $ (229)
=============================================================================================================================
See Notes to Consolidated Financial Statements.
Accumulated
Other
Comprehensive
(In thousands, except per share data) Income (Loss) Total
- ------------------------------------------------------------------------------------------------------
Balance, January 1, 2001 $ (746) $ 38,763
- ------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - 1,405
Other comprehensive income:
Net unrealized securities gains arising during the
period, net of deferred income taxes of $437 848 848
Less reclassification adjustment for gains included
in net income, net of income tax expense of $4 (8) (8)
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Total comprehensive income 2,245
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Issuance of common stock pursuant to exercise of stock options - 58
Cash settlement of options - (138)
Cash dividends declared ($.20 per share) - (550)
Release of ESOP Shares - 193
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Balance, March 31, 2001 $ 94 $ 40,571
======================================================================================================
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Balance, January 1, 2000 $ (2,154) $ 34,164
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Comprehensive income:
Net income - 1,404
Other comprehensive income:
Net unrealized securities gains arising during the
period, net of deferred income taxes of $21 (41) (41)
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Total comprehensive income 1,363
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Issuance of common stock pursuant to exercise of stock options - 75
Common stock repurchased - (12)
Cash dividends declared ($.18 per share) - (490)
- ------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 $ (2,195) $ 35,100
======================================================================================================
See Notes to Consolidated Financial Statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Community Bankshares Incorporated and Subsidiary
(In thousands) Three Months Ended March 31, 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 1,405 $ 1,404
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 224 142
Deferred income taxes 13 49
Provision for loan losses 75 119
Accretion (amortization) of investment securities (19) 19
Gain on sale of securities (12) -
Gain on sale of other real estate - (13)
Loss on sale of bank premises and equipment - 4
Release of ESOP shares 30 -
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest receivable 168 (339)
Increase (decrease) in accrued expenses (397) 45
Net change in other operating assets and liabilities (564) (152)
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Net cash provided by operating activities 923 1,278
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Investing Activities
Proceeds from maturity and redemption of securities held to maturity 236 -
Proceeds from maturity, redemption and sale of securities
available for sale 4,114 1,021
Purchase of investment securities available for sale (62) (1,207)
Net increase in loans (8,021) (8,344)
Proceeds from the sale of other real estate - 308
Capital expenditures (146) (56)
(Increase) decrease in other assets 244 (26)
Purchase of other real estate (2) -
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,637) (8,304)
- -----------------------------------------------------------------------------------------------------------------
Financing Activities
Net increase in deposits 9,878 18,815
Cash settlement of options (138) -
Decrease in federal funds purchased - (3,597)
Dividends paid (550) (490)
Common stock repurchased - (12)
Net proceeds from issuance of common stock 58 75
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 9,248 14,791
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Increase in cash and cash equivalents 6,534 7,765
Cash and cash equivalents at beginning of year 28,771 17,564
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 35,305 $ 25,329
=================================================================================================================
Supplemental Disclosure Of Cash Flow Information
Interest paid $ 3,843 $ 2,997
Income taxes paid $ - $ 324
=================================================================================================================
See Notes to Consolidated Financial Statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Accounting Policies
The accompanying unaudited interim 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, 2000. Certain previously
reported amounts have been reclassified to conform to current presentations.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Community Bankshares Incorporated (the "Company" and "Community Bankshares"), a
Virginia corporation, is a bank holding company headquartered in Richmond,
Virginia. The Company serves the marketplace primarily through its wholly owned
banking subsidiary, Commerce Bank (the "Bank"), a Virginia chartered, Federal
Reserve member commercial bank. The Bank's deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC") to the extent provided by law.
Commerce Bank is supervised and examined by the Federal Reserve and the Bureau
of Financial Institutions of the State Corporation Commission of the
Commonwealth of Virginia (the "SCC"). At March 31, 2001, the Bank operated
thirteen branches in the cities of Richmond, Petersburg, and Colonial Heights,
and the counties of Chesterfield, Henrico, Hanover and Goochland.
Through Commerce Bank's network of banking facilities, Community Bankshares
provides a wide range of commercial banking services to individuals, small to
medium-sized businesses, institutions and governments, located in Virginia. The
Company conducts substantially all of the business operations of a typical
independent commercial bank, including the acceptance of checking and savings
deposits, the making of commercial, real estate, personal, home improvement,
automobile and other installment loans. The Company also offers other related
services, such as traveler's checks, safe deposit boxes, depositor transfer,
customer note payment, collection, notary public, escrow, drive-in and ATM
facilities, and other customary banking services. Community Bankshares does not
offer trust services.
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, 2001 were $406.6 million, up $10.6 million from
year-end 2000. Total loans, accounting for the majority of the increase, grew
$8.0 million or 2.7%. Commercial loan categories accounted for the largest
portion of the increase. Federal funds sold also contributed to the growth in
total assets from to year-end 2000, increasing $2.4 million or 15.4% to $18.0
million. Compared to March 31, 2000, total assets increased $31.6 million or
8.4%, and total loans increased to $25.8 million or 9.4% at March 31, 2001.
Total securities available for sale as of March 31,2001 were $55.0 million, down
$2.7 million or 4.8%, primarily due to an increase in the volume of government
securities being called by the issuing agencies, said activity being triggered
by the current interest rate environment. Approximately $3.7 million of
government agency securities (i.e., FNMA, FHLMC, etc.) were called during the
first quarter of 2001. The current interest
8
rate environment has also affected the market value of the securities available
for sale portfolio, as reflected by the increase in the portfolio's value by
approximately $1.2 million since December 31, 2000.
Total deposits as of March 31, 2001 stood at $362.4 million, an increase of $9.9
million or 2.8% over the $352.5 million recorded at December 31, 2000.
Approximately seventy percent of this increase was attributable to the growth in
noninterest-bearing deposits. Total interest-bearing deposits were $299.8
million at quarter-end 2001. Compared to March 31, 2000, total deposits at March
31, 2001 increased $25.2 million or 7.5%
RESULTS OF OPERATIONS
First quarter 2001 net income totaled $1.4 million. During a quarter marked by a
challenging interest rate environment and restrained economic activity, the
Company's steady earnings resulted in earnings per diluted share of $.50 for the
quarter compared with $.51 per diluted share for the prior year quarter.
Although earnings for the current quarter were slightly higher than a year
earlier, earnings per diluted share declined $.01 due to higher average diluted
shares outstanding for the first quarter of 2001 versus 2000.
Total interest income for the three months ended March 31, 2001 rose $691
thousand to $7.9 million, an increase of 9.5% over the prior year quarter. This
was principally driven by a $25.8 million increase in total loans to $300.1
million. Commercial loan categories accounted for the majority of the loan
growth. Noninterest income increased 17.8 percent to $654 thousand, with higher
levels of service charges on deposit accounts and other fees accounting for most
of the increase. Total interest expense increased 23.9% to $3.8 million, as
total interest-bearing deposits grew $17.9 million, or 6.3%, to $299.8 million
at March 31, 2001. This growth was primarily attributable to the Company's
promotion of its fifteen-month maturity, certificate of deposit product during
the second and third quarter of 2000. Noninterest-bearing deposits had grown to
$62.6 million as of March 31, 2001, an increase of $7.3 million or 13.2% from a
year earlier. Noninterest expense increased 8.7% to $2.8 million for the three
months ended March 31, 2001, due primarily to higher occupancy and equipment
cost related to the Company's new data processing and operating systems housed
in the operations center that was opened during the third quarter of last year.
The return on average equity and return on average assets was 14.36% and 1.45%,
respectively for the three months ended March 31, 2001.
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.
9
The allowance for loan losses totaled $3.2 million at March 31, 2001. The
allowance for loan losses to period end loans was 1.08% at March 31, 2001
compared to 1.09% and 1.05% at December 31, 2000 and March 31, 2000,
respectively. The provision for loan losses was $75 thousand for the first
quarter of 2001. Net of charge-offs, the first quarter 2001 provision, added $59
thousand to the allowance for loan losses.
Nonperforming assets, which consist of nonaccrual loans, loans 90 days or more
past due, and other real estate owned, were $3.4 million at quarter-end March,
2001, lower by $53 thousand compared to year-end 2000. Nonaccrual loans totaled
$971 thousand, an increase of $250 thousand over December 31, 2000. Loans past
due 90 days or more totaled $1.4 million at March 31, 2001, down $305 thousand
from year-end 2000, and other real estate owned at $1.0 million was essentially
unchanged from year-end 2000. Management does not expect to incur any material
losses related to nonperforming assets.
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 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 $40.5 million at March 31,
2001, or 12.97% of risk-weighted assets. Total risk-based capital was $43.7
million or 14.01% 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%.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements. The Company may also make
written forward-looking statements in periodic reports to the Securities and
Exchange Commission, proxy statements, offering circulars and prospectuses,
press releases and other written materials and oral statements made by Community
Bankshares' officers, directors or employees to third parties. Statements that
are not historical facts, including
10
statements about the Company's beliefs and expectations, are forward-looking
statements. These statements are based on beliefs and assumptions of the
Company's management, and on information currently available to such management.
Forward-looking statements include statements preceded by, followed by or that
include the words "believes," "expects," "estimates," "anticipates," "plans," or
similar expressions. Forward-looking statements speak only as of the date they
are made, and the Company undertakes no obligation to update publicly any of
them in light of new information or future events.
Forward-looking statements involve inherent risks and uncertainties. Management
cautions the readers that a number of important factors could cause actual
results to differ materially from those contained in any forward-looking
statement. Such factors include, but are not limited to, the following:
competitive pressures among depository and other financial institutions may
increase significantly; changes in the interest rate environment may reduce
margins; general economic or business conditions may lead to a deterioration in
credit quality or a reduced demand for credit; legislative or regulatory
changes, including changes in accounting standards, may adversely affect the
business in which Community Bankshares is engaged; changes may occur in the
securities markets; and competitors of the Company may have greater financial
resources and develop products that enable such competitors to compete more
successfully than Community Bankshares.
Other factors that may cause actual results to differ from the forward-looking
statements include the following: the timely development of competitive new
products and services by the Company and the acceptance of such products and
services by customers; changes in consumer spending and savings habits; the
effects of competitors' pricing policies; the Company's success in managing the
costs associated with the expansion of existing distribution channels and
developing new ones, and in realizing increased revenues from such distribution
channels, including cross-selling initiatives; and mergers and acquisitions and
their integration into the Company and management's ability to manage these
other risks.
Management of Community Bankshares believes these forward-looking statements are
reasonable; however undue reliance should not be placed on such forward-looking
statements, which are based on current expectations.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder values
of Community Bankshares may differ materially from those expressed in forward-
looking statements contained in this report. Many of the factors that will
determine these results and values are beyond the Company's ability to control
or predict.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
There have been no material changes from the information provided in the
December 31, 2000 Form 10-K.
11
Part II. OTHER INFORMATION
Item: 1 Legal proceedings
There are no material legal proceedings to which the Registrant or its
subsidiary 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, 3/rd/
- -----------------------
Nathan S. Jones, 3/rd/
President and Chief Executive Officer
/s/Ray A. Fleming
- -----------------
Ray A. Fleming
Chief Financial Officer
Date: May 7, 2001
12