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, 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
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, 1996
Common stock, par value
$3.00 per share 1,160,000
- ----------------------- ---------
Community Bankshares Incorporated
Sycamore at Tabb, P. O. Box 2166
Petersburg, Virginia 23803
August 13, 1996
Securities and Exchange Commission
Washington, D. C. 20549
Gentlemen:
Pursuant to the requirement of the Securities and Exchange Act of 1934, we are
transmitting herewith the attached Form 10-Q.
Sincerely,
/s/ LILLIAN M. UMPHLETT
Lillian M. Umphlett
COMMUNITY BANKSHARES INCORPORATED
INDEX
Page No.
--------
Part I. Financial Information
Consolidated Balance Sheets -June 30, 1996 and
December 31, 1995 3
Consolidated Statements of Income - Six months
ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and 1995 6
Management's Discussion and Analysis of the Financial
Condition and Results of Operations 8
Part II. Other Information 17
Part I. FINANCIAL INFORMATION
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, 1996 December 31, 1995
ASSETS
Cash and due from banks $ 4,742,097 $ 3,636,524
Federal funds sold 1,161,000 2,281,000
------------ ------------
Total cash and cash
equivalents $ 5,903,097 $ 5,917,524
Investment securities:
Available-for-sale, market value 1,552,925 1,752,646
Held-to-maturity 13,409,386 12,358,741
Loans (net of reserve for loan
losses - 768,387 and 762,478) 66,389,788 65,255,723
Bank premises and equipment, net 971,196 1,024,856
Accrued interest receivable 552,820 518,555
Other real estate, net 113,397 467,588
Other assets 987,904 841,094
------------ ------------
Total Assets $ 89,880,513 $ 88,136,727
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits $ 15,076,811 $ 12,683,516
Interest-bearing demand deposits 21,731,452 21,514,060
Savings deposits 7,820,935 7,409,280
Time deposits, $100,000 and over 6,272,828 6,932,820
Other time deposits 27,694,337 28,673,838
------------ ------------
$ 78,596,363 $ 77,213,514
Accrued interest payable 391,932 417,782
Other liabilities 116,114 391,644
Guaranteed debt of Employee Stock
Ownership Trust 310,000 330,000
------------ ------------
Total Liabilities $ 79,414,409 $ 78,352,940
STOCKHOLDERS' EQUITY
Capital stock $ 3,480,000 $ 3,450,000
Surplus 32,500 -
Retained earnings 7,275,991 6,645,036
Net unrealized holding gains on
securities available-for-sale (12,387) 18,751
------------ ------------
Total Stockholders' Equity $ 10,776,104 $ 10,113,787
Unearned ESOP shares $ (310,000) $ (330,000)
------------ ------------
Total Liabilities and
Stockholders' Equity $ 89,880,513 $ 88,136,727
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Fiscal Year To Date
Ended Six Months Ended
June 30 June 30
-------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
INTEREST INCOME
Interest and fees on loans $1,648,882 $1,564,653 $3,302,753 $3,051,875
Interest on investment
securities:
U.S. Government agencies
and obligations 243,646 157,684 481,961 299,974
Other securities 3,669 2,502 5,752 2,502
Interest on Federal funds
sold and securities
purchased under agreement
to resell 44,851 67,590 96,302 83,555
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME $1,941,048 $1,792,429 $3,886,768 $3,437,906
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 737,778 713,953 1,502,686 1,301,243
Interest on Federal funds
purchased - - - 6,466
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE $ 737,778 $ 713,953 $1,502,686 $1,307,709
---------- ---------- ---------- ----------
NET INTEREST INCOME $1,203,270 $1,078,476 $2,384,082 $2,130,197
PROVISION FOR LOAN LOSSES 76,000 26,000 111,000 49,000
---------- ---------- ---------- ----------
NET INTEREST INCOME
AFTER PROVISION
FOR LOAN LOSSES $1,127,270 $1,052,476 $2,273,082 $2,081,197
---------- ---------- ---------- ----------
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Continued)
Three Months Fiscal Year To Date
Ended Six Months Ended
June 30 June 30
------------------------ ----------------------
1996 1995 1996 1995
---- ---- ---- ----
OTHER INCOME
Service charges on deposit
accounts $ 151,226 $ 150,789 $ 281,564 $ 301,600
Other service charges,
commissions and fees 18,257 27,350 38,345 46,882
Gain on sale of bank
premises and equipment - 12,732 - 15,132
Gain on sale of other
real estate 19,924 - 60,140 -
Gain on sale of investment
securities 1,228 - 1,228 -
Other operating income 2,079 11,527 6,972 27,067
---------- ---------- ---------- ----------
TOTAL OTHER INCOME $ 192,714 $ 202,398 $ 388,249 $ 390,681
---------- ---------- ---------- ----------
OTHER EXPENSES
Salaries and wages $ 224,933 $ 264,576 $ 498,034 $ 534,770
Employee benefits 109,209 60,406 203,273 139,295
Net occupancy expense 37,471 36,740 87,822 79,327
Furniture & equipment
expense 47,089 40,647 93,380 97,195
Accounting fees 3,004 1,575 14,004 21,075
FDIC assessments 500 38,237 1,000 76,473
Postage 23,465 26,621 42,750 31,978
Other operating expenses 192,815 145,259 351,477 277,918
---------- ---------- ---------- ----------
TOTAL OTHER EXPENSES $ 638,486 $ 614,061 $1,287,717 $1,258,031
---------- ---------- ---------- ----------
INCOME BEFORE INCOME
TAXES $ 681,498 $ 640,813 $1,373,614 $1,213,847
INCOME TAX PROVISION $ 258,489 $ 217,718 $ 510,659 $ 442,887
---------- ---------- ---------- ----------
NET INCOME $ 423,009 $ 423,095 $ 862,955 $ 770,960
---------- ---------- ---------- ----------
Earnings per common and
common equivalent share
based on 1,246,341, 1,221,659
1,245,638 and 1,218,399
respectively $ .34 $ .35 $ .69 $ .63
---------- ---------- ---------- ----------
Earnings per common share,
assuming full dilution
based on 1,246,341,
1,221,659,1,245,638 and
1,218,399 respectively $ .34 $ .35 $ .69 $ .63
---------- ---------- ---------- ----------
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30
(UNAUDITED)
1996 1995
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 862,955 $ 770,960
Adjustment to reconcile net
income to net cash provided
by operating activities:
Depreciation 82,435 83,546
Provision for loan losses 111,000 49,000
Amortization and accretion of
investment securities 4,665 6,449
Gain on sale of bank premises and
equipment - (15,132)
Gain on sale of other securities (1,228) -
Gain on sale of other real estate (60,140) -
Changes in operating assets and
liabilities:
Increase in accrued interest
receivable (34,265) (69,916)
Increase in prepaid expenses (63,702) (48,552)
Increase in accrued interest
payable (25,850) 35,148
Net change in other operating assets
and liabilities (152,008) (124,036)
----------- ----------
Net cash provided by
operating activities $ 723,862 $ 687,467
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment
securities $ 72,251 -
Proceeds from maturities of investment
securities 1,052,416 637,903
Purchase of investment securities (2,026,205) (1,968,669)
Purchase of other real estate (258,961)
Net increase in loans made to
customers (917,865) (2,650,824)
Proceeds from sale of bank premises
and equipment - 71,610
Proceeds from sale of other real estate 155,186 17,742
Capital expenditures (28,460) (28,161)
Net Cash used in
investing activities $(1,951,638) $(3,920,399)
------------ ------------
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30
(UNAUDITED)
1996 1995
----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 1,382,849 $ 8,285,618
Issuance of common stock 62,500 62,500
Dividends paid (232,000) (201,250)
----------- -----------
Net cash provided by
financing activities $ 1,213,349 $ 8,146,868
----------- -----------
Increase(decrease)in cash and
cash equivalents $ (14,427) $ 4,913,936
Cash and cash equivalents:
Beginning of year 5,917,524 4,726,432
----------- -----------
End of second quarter $ 5,903,097 $ 9,640,368
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash payments for:
Interest $ 1,528,536 $ 1,272,561
=========== ===========
Income taxes $ 497,649 $ 471,836
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON CASH
FINANCING ACTIVITIES
Purchase of property & equipment (28,460) (28,580)
Book value of asset traded-in - 419
----------- -----------
Cash used to purchase
property and equipment (28,460) (28,161)
=========== ===========
Proceeds from sale of other
real estate 482,386 42,742
Increase in loans (327,200) (25,000)
----------- -----------
Cash received from sale of
other real estate 155,186 17,742
=========== ===========
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
(a) Approved the Agreement and Plan of Reorganization,
dated December 12, 1995, between CBI and Commerce
Bank of Virginia ("CBOV") and a related plan of
Share Exchange (collectively, the "Reorganization
Agreement"), providing for a Share Exchange between
CBOV and CBI (the "Reorganization") upon the terms
and conditions herein, including among other things
that each issued and outstanding share of CBOV
Stock will be exchanged for 1.4044 shares of CBI
Common Stock, with cash being paid in lieu of issuing
shares fractional shares.
(b) Amended Article 8 of the Articles of Incorporation
to permit an increase in the size of the Board of
Directors by more than two in a twelve month period,
if the increase is in connection with a merger or share
exchange to which CBI or a wholly owned subsidiary of
CBI is a party, provided the 85% vote requirement of
Article 9 does not apply to such merger or share
exchange.
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 six months ended June 30, 1996.
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 six months of 1996 of $862,955 was an 11.93%
increase over the first six months of 1995. Earnings per share for the period
ended June 30, 1996 was $.69 compared to $.63 for the same period last year.
The Company's return on average equity has decreased the first six
months of 1996 over 1995. The return on average equity was 16.01% for the six
months ended June 30, 1996, compared to 17.58% in 1995. The return on average
assets amounted to 1.93% and 1.89% for the six months ended June 30, 1996 and
1995.
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 11.92% to $2.384 million the first six
months 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
in interest-earning assets was due primarily to an increase in the lending
volume which increased 4.52% for the six month period and an increase of 59.66%
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 79.94% 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 six months ended June 30, 1996, increased
14.91% to $1.503 million from $1.308 million for the quarter ended June 30,
1995. This increase was due to an increase in rates on interest-bearing
liabilities.
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 of 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 June 30, 1996 results of the rate sensitivity analysis show CBI had
$5.647 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 $5.685 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 79.94% 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 six months ended June 30, 1996, noninterest income
decreased .62% to $388,249. The decrease in service charges, commissions and
fees of 18.2% was a contributing factor. 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.
Noninterest Expense. Noninterest expense of $1.287 million for the six months
ended June 30, 1996, was an increase of 2.36%. Salaries and employee benefits,
the largest single component of noninterest expense had a slight increase of
4.04%.
Due to regulatory rate reductions, FDIC assessments declined by 99.8% or
$75,473, from the previous year's first six months.
Income Taxes. The provision for income taxes for the six months ended June 30,
1996 was $510,659, a 15.30% increase from the previous year's. The increase in
the provision was due to the increase in taxable income.
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 June 30, 1996 the loan portfolio was $66.390 million, net of
unearned income, an increase from the prior year of 1.7% or $1.134 million. Real
estate lending continues to be the growth of the portfolio with loans secured by
real estate comprising 86.5% of total loans.
The Bank's unfunded loan commitments amount to $9.920 million as of
June 30, 1996, up from $9.451 million at December 31, 1995.
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 June 30, 1996 was
$111,000, an increase of $62,000 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 $52,851 during the first
six months of 1996.
As of June 30, 1996, the allowance for loan losses was $768,387 up from
$762,478 at December 31, 1995. The ratio of the allowance for loan loss to total
loans, net of unearned income, has remained constant over the last three years
at 1.14% as compared to 1.15% at December 31, 1995. 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 June 30, 1996 and .48x at December 31, 1995. 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 the
adoption has not had a material effect on its financial position or the results
of operation.
Nonperforming Assets
June 30, Dec 31,
1996 1995
Nonaccrual loans $ 240 $ 220
Loans contractually past due 90
days or more and still accruing 1,351 882
Troubled debt restructuring - -
-----------------------
Total nonperforming loans $ 1,559 1,102
Other real estate owned 113 468
-----------------------
Total nonperforming assets $ 1,672 1,570
Nonperforming assets to period-end
total loans and other real estate 2.51 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 88% of these loans are
collateralized by residential real estate.
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 June 30, 1996, was
$14.962 million compared to $14.111 million at December 31, 1995.
Deposits. Deposits at June 30, 1996, were $78.596 million, up $1.382 million
from december 31, 1995, an increase of 1.80%. The growth in deposits was led by
the 18.86% increase in non-interest demand deposits, which increased from
$12.683 million at December 31, 1995,to $15.077 million at June 30, 1996.
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 to 16.01% for the six months
ended June 30, 1996.
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)
-------------- --------------
June 30, 1996 Dec 31, 1995
-------------- --------------
Tier 1 Capital
Common stock $ 3,480 $ 3,450
Surplus 33 0
Retained earnings 7,276 6,645
Unearned ESOP shares (310) (330)
---------------------------
Total Tier 1 Capital $ 10,479 $ 9,765
Tier 2 Capital
Allowance for loan losses 768 762
---------------------------
Total Tier 2 Capital $ 768 $ 762
Total risk-based capital $ 11,247 $ 10,527
===========================
Capital Ratios:
Tier 1 risk-based capital 15.01% 14.94%
Total risk based capital 16.11% 16.10%
Tier 1 capital to average
total assets 11.64% 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 six months ended June 30, 1996 the Bank provided cash or
liquidity from operations in the amount of $723,862. This increase in funds in
addition to $1.383 million increase in deposits has given the Bank approximately
$2.107 million in funds available for investments during the first six months 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 $1,245
increase in loan demands. With 79.9% of the loan portfolio repricing or maturing
in the next twelve months, the Bank has enough asset liquidity to meet the needs
of maturing deposits.
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. The transaction will be
accounted for as a pooling of interests. CBI has received an opinion from its
independent accounting firm that the transactions does qualify for such
accounting treatment. The stockholders of Community Bankshares Incorporated and
Commerce Bank of Virginia voted to approve the Agreement at their Annual
Meetings on June 18, 1996.
If the transaction had been consummated prior to June 30, 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 six months ended June 30, 1996, and 1995, and the year
ended December 31, 1995 would have been as follows:
June 30 ,
1996 1995 Dec 31, 1995
----------------------- --------------
(in thousands, except per share data)
Interest Income $6,776 $5,977 $12,682
Net income $1,401 $1,110 $ 2,355
Earning per common
and equivalent
share $ .74 $ .52 $ 1.27
Earnings per common
share, assuming
full dilution $ .74 $ .52 $ 1.27
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
Nathan S. Jones, 3rd.
President and Chief Executive Officer
Lillian M. Umphlett
Vice-President/Chief Financial Officer
Date: August 12, 1996