SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER 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 23803
(Address of principal executive offices)
Registrant's telephone number, including area code: (804) 861-2320
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common Stock, $3 par value Over the Counter
Securities registered pursuant to Section 12(g) of the Act: None
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 (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 .
Indicate by a check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X).
State the aggregate market value of the voting stock held by non-affiliates of
the registrant:
$15,950,000 at March 21, 1996.
<PAGE>
APPLICABLE TO CORPORATE ISSUERS: Indicate the number of shares outstanding of
each of the issuer's classes of common stock:
1,150,000 shares of Common Stock, $3 par value, as of December 31, 1995.
DOCUMENTS INCORPORATED BY REFERENCE. The following documents are incorporated by
reference in this Form 10-K in the Parts indicated:
1. Those portions of the Annual Report to Stockholders for fiscal year ended
December 31, 1995, incorporated herein by reference in Items 6, 7 and 8.
2. Proxy Statement for 1996 Annual Meeting of Stockholders of the Company.
Total number of pages, including cover page - 119
<PAGE>
COMMUNITY BANKSHARES INCORPORATED
Item 1. Business
GENERAL
COMMUNITY BANKSHARES INCORPORATED (CBI) AND THE COMMUNITY BANK. CBI's
sole business is to serve as a holding company for The Community Bank. CBI was
incorporated as a Virginia corporation on January 24, 1985, and on January 1,
1985, it acquired all of the issued and outstanding shares of The Community
Bank's capital stock.
The Community Bank was incorporated in 1973 under the laws of the
Commonwealth of Virginia. Since The Community Bank opened for business on June
10, 1974, its main banking and administrative office has been located at 200
North Sycamore Street, Petersburg, Virginia. The Community Bank opened a branch
office in Colonial Heights, Virginia, during 1984. In 1985, The Community Bank
opened its newest branch in the village of Chester in Chesterfield County,
Virginia.
PRINCIPAL MARKET AREA. The Community Bank concentrates its marketing
efforts in the cities of Petersburg, and Colonial Heights, Virginia, and in the
adjacent counties of Prince George, Dinwiddie and Chesterfield, including the
village of Chester in Chesterfield County. As of December 31, 1995, The
Community Bank had approximately $42.9 million of deposits in the City of
Petersburg; $14.9 million of deposits in the City of Colonial Heights; and $19.3
million of deposits in the village of Chester. CBI's present intention is to
continue concentrating its banking activities in its current market.
BANKING SERVICES. Through its network of banking facilities, The
Community Bank provides a wide range of commercial banking services to
individuals and small and medium-sized businesses. The Community Bank conducts
substantially all of the business operations of a typical independent,
commercial bank, including the acceptance of checking and savings deposits, and
the making of commercial real estate, personal, home improvement, automobile and
other installment and term loans. The Community Bank also offers other related
services, such as travelers' checks, safe deposit, lock box, depositor transfer,
customer note payment, collection, notary public, escrow, drive-in facility and
other customary banking services. Trust services are not offered by The
Community Bank.
The accounts of The Community Bank's depositors are insured up to
$100,000 for each account holder by the Federal Deposit Insurance Corporation,
an instrumentality of the United States Government. Insurance of The
Community Bank's accounts is subject to the statutes and regulations
governing insured banks, to examination by the Federal Deposit Insurance
Corporation, and to certain limitations and restriction imposed by that agency.
<PAGE>
LENDING ACTIVITIES
LOAN PORTFOLIOS. CBI is a residential mortgage and residential
construction lender and also extends commercial loans to small and medium-sized
businesses within its primary service area. Consistent with its focus on
providing community-based financial services, CBI does not attempt to diversify
its loan portfolio geographically by making significant amounts of loans to
borrowers outside its primary service area.
The principal economic risk associated with each of the categories of
loans in CBI's portfolio is the creditworthiness of its borrowers. Within each
category, such risk is increased or decreased depending on prevailing economic
conditions. In an effort to manage the risk, CBI's policy gives loan amount
approval limits to individual loan officers based on their level of experience.
The risk associated with real estate mortgage loans and installment loans to
individuals varies based upon employment levels, consumer confidence,
fluctuations and value of residential real estate and other conditions that
affect the ability of consumers to repay indebtedness. The risk associated with
commercial loans varies based upon the strength and activity of the local
economy of CBI's market area. The risk associated with real estate construction
loans varies based upon the supply and demand for the type of real estate under
construction. Most of CBI's residential real estate construction loans are for
pre-sold and contract homes.
RESIDENTIAL MORTGAGE LENDING. CBI originates conventional fixed rate
and adjustable rate residential mortgage loans. All fixed rate loans are for a
term of three years or less, unless the loan is to be fully amortized in 60
equal monthly payments. CBI does not originate residential mortgage loans for
resale in the secondary market. Many of CBI's residential mortgage loan
customers do not satisfy secondary mortgage market criteria. Such customers can
qualify for a loan by providing larger down payments or third-party guarantors.
RESIDENTIAL CONSTRUCTION LENDING. Because of the attractive adjustable
rates available, CBI makes construction loans for residential purposes. These
include both construction loans to experienced builders and loans to consumers
for owner-occupied residences. CBI does not actively solicit loans to builders
for homes that are not pre-sold. Construction lending entails significant
additional risk as compared with residential mortgage lending. Construction
loans to builders can involve larger loan balances concentrated with single
borrowers or groups of related borrowers. Also, with construction loans, funds
are advanced upon the security of the home under construction, which is of
uncertain value prior to the completion of construction. Thus, it is more
difficult to evaluate accurately the total loan funds required to complete a
project and related loan-to-value ratios. Residential construction loans to
customers, for which a permanent loan commitment from another lender approved
prior to loan closing is required, are subject to the additional risk of the
permanent lender failing to provide the necessary funds at closing, either due
to the borrower's inability to fulfill the terms of his commitment or due to the
permanent lender's inability to meet its funding commitments. In addition to its
unusual credit analysis of the borrowers, CBI seeks to obtain a first lien on
the property as security for its construction loans.
<PAGE>
COMMERCIAL REAL ESTATE LENDING. CBI provides permanent mortgage
financing for a variety of commercial projects. In the normal course of
business, CBI will provide financing for owner-occupied properties and for
income producing, non-owner occupied projects which meet all the guidelines
established by loan policy. These loans generally do not exceed 65% of current
appraised or market value, whichever is lower, for unimproved land and 75% for
improved commercial real estate. Such loans are written on terms which provide
for a maturity provision of from one to three years.
Construction loans for the purpose of constructing commercial projects
are provided for periods of not greater than one year, at floating rates of
interest and are convertible to permanent financing consistent with terms
outlined in CBI loan policy. When a construction loan agreement is entered into,
particular care is taken to govern the process of the loan and, both initial
project review and periodic inspections are conducted by competent personnel who
are independent of CBI. Advance ratios are closely monitored and appropriate
construction reserves are established.
CONSUMER LENDING. CBI currently offers most types of consumer demand,
time and installment loans, including automobile loans.
COMMERCIAL BUSINESS LENDING. As a full-service community bank, CBI
makes commercial loans to qualified small businesses in CBI's market area.
Commercial business loans generally have a higher degree of risk than
residential mortgage loans but have commensurately higher yields. To manage
these risks, CBI generally secures appropriate collateral and carefully monitors
the financial condition of its business borrowers and the concentration of such
loans in CBI's portfolio. Most of CBI's commercial loans are secured by real
estate, which is viewed by CBI as the principal collateral securing such loans.
Residential mortgage loans generally are made on the basis of the borrower's
ability to make repayment from his employment and other income and are secured
by real estate or real estate whose value tends to be easily ascertainable. In
contrast, commercial business loans typically are made on the basis of the
borrower's ability to make repayment from cash flow from its business and are
either unsecured or secured by business assets, such as real estate, accounts
receivable, equipment and inventory. As a result, the availability of funds for
the repayment of commercial business loans may be substantially dependent on the
success of the business itself. Further, the collateral for secured commercial
business loans may depreciate over time and cannot be appraised with as much
precision as residential real estate.
COLLECTION PRACTICES. Often, CBI will not immediately proceed to
foreclose on real estate loans that become more than 90 days past due. Instead,
CBI will permit the borrower to market and sell the collateral in any orderly
manner. If the borrower does not sell the collateral within a reasonable time,
CBI will foreclose and sell the collateral. CBI's experience has been that
losses on well collateralized real estate loans are minimized when it works with
borrowers in this manner, although its practice of working with borrowers at
times results in relatively high balances of past due loans. CBI also has found
that its loan collection practices enable it to compete with larger and less
flexible financial institutions that are not based in the community. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Nonperforming Assets".
<PAGE>
COMPETITION
The Community Bank encounters strong competition for its banking
services within its primary market area. There are seven commercial banks
actively engaged in business in the cities of Petersburg and Colonial Heights,
Virginia, including approximately five major statewide banking organizations.
Finance companies, mortgage companies, credit unions and savings and loan
associations also compete with The Community Bank for loans and deposits. In
addition, in some instances, The Community Bank must compete for deposits with
money market mutual funds that are marketed nationally. Many of The Community
Bank's competitors have substantially greater resources than The Community Bank.
EMPLOYEES
As of December 31, 1995, The Community Bank had 33 full-time and 11
part-time employees. Management of The Community Bank considers its relations
with employees to be excellent. No employees are represented by a union or any
similar group, and The Community Bank has never experienced any strike or labor
dispute.
SUPERVISION AND REGULATION
Banks and their holding companies are extensively regulated entities.
CBI is currently a holding company subject to supervision and regulation by the
Board of Governors of the Federal Reserve System (the Federal Reserve). CBI's
sole subsidiary is The Community Bank, a Virginia chartered bank which is
subject to supervision and regulation by the Federal Reserve and the Bureau of
Financial Institutions of the State Corporation Commission of the Commonwealth
of Virginia (the SCC).
The regulatory discussion is divided into two major subject areas.
First, the discussion addresses the general regulatory considerations governing
bank holding companies. This focuses on the primary regulatory considerations
applicable to CBI as a bank holding company. Second, the discussion addresses
the general regulatory provisions governing depository institutions. This
focuses on the regulatory considerations of The Community Bank.
The discussion below is only a summary of the principal laws and
regulations that comprise the regulatory framework. The descriptions of these
laws and regulations, as well as descriptions of laws and regulations contained
elsewhere herein, do not purport to be complete and are qualified in their
entirety by reference to applicable laws and regulations.
<PAGE>
BANK HOLDING COMPANIES
The BHC Act generally limits the activities of the bank holding company
and its subsidiaries to that of banking, managing or controlling banks, or any
other activity which is so closely related to banking or to managing or
controlling banks as to be a proper incident thereto.
Formerly the BHC Act prohibited the Federal Reserve from approving an
application from a bank holding company to acquire shares of a bank located
outside the state in which the operations of the holding company's banking
subsidiaries are principally conducted, unless such an acquisition was
authorized by statute of the state where the bank whose shares were to be
acquired was located. However, under federal legislation enacted in 1994, the
restriction on interstate acquisitions was abolished, effective September 1995.
A bank holding company from any state now may acquire banks and bank holding
companies located in any other state, subject to certain conditions, including
nationwide and state imposed concentration limits. Banks also will be able to
branch across state lines by acquisition, merger or de novo, effective June 1,
1997 (unless state law would permit such interstate branching at an earlier
date), provided certain conditions are met, including that applicable state law
must expressly permit such interstate branching.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries that are
designed to reduce potential loss exposure to the depositors of the depository
institutions and to the FDIC insurance fund. For example, under a policy of the
Federal Reserve with respect to bank holding company operations, a bank holding
company is required to serve as a source of financial strength to its subsidiary
depository institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. In addition, the
"cross-guarantee" provisions of federal law require insured depository
institutions under common control to reimburse the FDIC for any loss suffered or
reasonably anticipated by the FDIC as a result of the default of a commonly
controlled insured depository institution or for any assistance provided by the
FDIC to a commonly controlled insured depository institution in danger of
default. The FDIC may decline to enforce the cross-guarantee provisions if it
determines that a waiver is in the best interest of the Bank Insurance Fund
(BIF). The FDIC's claim for damages is superior to claims of stockholders of the
insured depository institution or its holding company but is subordinate to
claims of depositors, secured creditors and holders of subordinated debt (other
than affiliates) of the commonly controlled insured depository institutions.
Banking laws also provide that amounts received from the liquidation or
other resolution of any insured depository institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit liabilities of
the institution prior to payment of any other general or unsecured senior
liability, subordinated liability, general creditor or stockholder. This
provision would give depositors a preference over general and subordinated
creditors and stockholders in the event a receiver is appointed to distribute
the assets of any bank subsidiaries.
<PAGE>
CERTAIN REGULATORY CONSIDERATIONS
REGULATORY CAPITAL REQUIREMENTS. All financial institutions are
required to maintain minimum levels of regulatory capital. The federal bank
regulatory agencies have established substantially similar risked based and
leverage capital standards for financial institutions they regulate. These
regulatory agencies also may impose capital requirements in excess of these
standards on a case-by-case basis for various reasons, including financial
condition or actual or anticipated growth. Under the risk-based capital
requirements of these regulatory agencies, The Community Bank is required to
maintain a minimum ratio of total capital to risk-weighted assets of at least
8%. At least half of the total capital is required to be "Tier 1 capital", which
consists principally of common and certain qualifying preferred shareholders'
equity, less certain intangibles and other adjustments. The remainder ("Tier 2
capital") consists of a limited amount of subordinated and other qualifying debt
(including certain hybrid capital instruments) and a limited amount of the
general loan loss allowance. The Tier 1 and total capital to risk-weighted asset
ratios of The Community Bank as of December 31, 1995 are 14.94% and 16.10%,
exceeding the minimums required. Based upon the applicable Federal Reserve
regulations, at December 31, 1995, CBI and The Community Bank would be
considered "well capitalized".
In addition, the federal regulatory agencies have established a minimum
leverage capital ratio (Tier 1 capital to tangible assets). These guidelines
provide for a minimum leverage capital ratio of 3% for banks and their
respective holding companies that meet certain specified criteria, including
that they have the highest regulatory examination rating and are not
contemplating significant growth or expansion. All other institutions are
expected to maintain a leverage ratio of at least 100 to 200 basis points above
that minimum. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets. The leverage ratio of CBI as
of December 31, 1995, was 11.49%, which is well above the minimum requirements.
Each federal regulatory agency is required to revise its risk-capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risks of nontraditional activities,
as well as reflect the actual performance and expected risk of loss on
multifamily mortgages. The Federal Reserve and the FDIC have jointly solicited
comments on a proposed framework for implementing the interest rate risk
component of the risk-based capital guidelines. Under the proposal, an
institution's assets, liabilities, and off-balance sheet positions would be
weighed by risk factors that approximate the instruments' price sensitivity to a
100 basis point change in interest rates. Institutions with interest rate risk
exposure in excess of a threshold level would be required to hold additional
capital proportional to that risk. In 1994, the federal bank regulatory agencies
solicited comments on a proposed revision to the risk-based capital guidelines
to take account of concentration of credit risk and the risk of nontraditional
activities. The revision proposed to amend each agency's risk-based capital
standards by explicitly identifying concentration of credit risk and the risk
arising from nontraditional activities, as well as an institution's ability to
manage those risks, as important factors to be taken into account by the agency
in assessing an institution's overall capital adequacy. The proposal was adopted
as a final rule by the federal bank regulatory agencies and subsequently became
effective on January 17, 1995. CBI does not expect the final rule to have a
material impact on their capital requirements; however, the Federal regulatory
agencies may, as an integral part of their examination process, require CBI to
provide additional capital based on such agency's judgments of information
available at the time of examination.
<PAGE>
The following table summarizes the minimum regulatory and current
capital ratios for CBI on a consolidated basis, at December 31, 1995.
Capital Ratios
Regulatory CBI
Minimum Current
----- ------
Risk-based capital
Tier 1 (2) ..................................... 4.00% 14.94%
Total (2) ...................................... 8.00% 16.10%
Leverage (1) (2) ................................... 3.00% 11.49%
Total shareholders' equity to total assets ......... N/A 11.10%
- ----------------
(1) Leverage ratio is calculated by Tier 1 capital as a percentage of
quarterly period end assets
(2) Calculated in accordance with the Federal Reserve's capital rules,
with adjustment for net unrealized depreciation on securities available for
sale.
LIMITS ON DIVIDENDS AND OTHER PAYMENTS. Certain state law restrictions
are imposed on distributions of dividends to shareholders of CBI. CBI
shareholders are entitled to receive dividends as declared by the CBI Board of
Directors. However, no such distribution may be made if, after giving effect to
the distribution, it would not be able to pay its debts as they become due in
the usual course of business or its total assets would be less than its total
liabilities. There are similar restrictions with respect to stock repurchases
and redemptions.
The Community Bank is subject to legal limitations on capital
distributions including the payment of dividends, if, after making such
distribution, the institution would become "undercapitalized" (as such term is
used in the statute). For all state member banks of the Federal Reserve seeking
to pay dividends, the prior approval of the applicable Federal Reserve Bank is
required if the total of all dividends declared in any calendar year will exceed
the sum of the bank's net profits for that year and its retained net profits for
the preceding two calendar years. Federal law also generally prohibits a
depository institution from making any capital distribution (including payment
of a dividend or payment of a management fee to its holding company) if the
depository institution would thereafter fail to maintain capital above
regulatory minimums. Federal Reserve Banks are also authorized to limit the
payment of dividends by any state member bank if such payment may be deemed to
constitute an unsafe or unsound practice. In addition, under Virginia law no
dividend may be declared or paid that would impair a Virginia chartered bank's
paid-in capital. The Virginia SCC has general authority to prohibit payment of
dividends by a Virginia chartered bank if it determines that the limitation is
in the public interest and is necessary to ensure the bank's financial
soundness.
Most of the revenues of CBI and CBI's ability to pay dividends to its
shareholders will depend on dividends paid to it by The Community Bank. Based on
The Community Bank's current financial condition, CBI expects that the
above-described provisions will have no impact on CBI's ability to obtain
dividends from The Community Bank or on CBI's ability to pay dividends to its
shareholders. At December 31, 1995, the Bank had $3.567 million of retained
earnings legally available for the payment of dividends to CBI.
<PAGE>
In addition to the regulatory provisions regarding holding companies
addressed above, The Community Bank is subject to extensive regulation as well.
The following discussion addresses certain primary regulatory considerations
affecting The Community Bank.
The Community Bank is regulated extensively under both federal and
state law. The Community Bank is organized a Virginia chartered banking
corporation and is regulated and supervised by the Bureau of Financial
Institutions of the Virginia SCC. As a member of the Federal Reserve System as
well, The Community Bank is regulated and supervised by the Federal Reserve Bank
in Richmond. The Virginia SCC and the Federal Reserve Bank of Richmond conduct
regular examinations of The Community Bank, reviewing such matters as the
adequacy of loan loss reserves, quality of loans and investments, management
practices, compliance with laws, and other aspects of their operations. In
addition to these regular examinations, The Community Bank must furnish the
Virginia SCC and the Federal Reserve with periodic reports containing a full and
accurate statement of its affairs. Supervision, regulation and examination of
banks by these agencies are intended primarily for the protection of depositors
rather than shareholders.
INSURANCE OF ACCOUNTS, ASSESSMENTS AND REGULATION BY THE FDIC. The
Community Bank's deposits are insured up to $100,000 per insured depositor (as
defined by law and regulation) through the BIF. The BIF is administered and
managed by the FDIC. As insurer, the FDIC is authorized to conduct examinations
of and to require reporting by BIF-insured institutions. The actual assessment
to be paid by each BIF member is based on the institution's assessment risk
classification and whether the institution is considered by its supervisory
agency to be financially sound or to have supervisory concerns.
The FDIC is authorized to prohibit any BIF-insured institution from
engaging in any activity that the FDIC determines by regulation or order to pose
a serious threat to the respective insurance fund. Also, the FDIC may initiate
enforcement actions against banks, after first giving the institution's primary
regulatory authority an opportunity to take such action. The FDIC may terminate
the deposit insurance of any depository institution, including The Community
Bank, if it determines, after a hearing, that the institution has engaged or is
engaging in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, order or
any condition imposed in writing by the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If deposit insurance
is terminated, the deposits at the institution at the time of termination, less
subsequent withdrawals, shall continue to be insured for a period from six
months to two years, as determined by the FDIC. Management is aware of no
existing circumstances that could result in termination of The Community Bank's
deposit insurance.
OTHER SAFETY AND SOUNDNESS REGULATIONS. The federal banking agencies
have broad powers under current federal law to take prompt corrective action to
resolve problems of insured depository institutions. The extent of these powers
depends upon whether the institutions in question are "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized"
or "critically undercapitalized", as such terms are defined under uniform
regulations defining such capital levels issued by each of the federal banking
agencies.
<PAGE>
In addition, FDIC regulations require that management report on the
institution's responsibility to prepare financial statements, and to establish
and to maintain an internal control structure and procedures for financial
reporting and compliance with designated laws and regulations concerning safety
and soundness; and that independent auditors attest to and report separately on
assertions in management's reports concerning compliance with such laws and
regulations, using FDIC-approved audit procedures.
Each of the federal banking agencies also must develop regulations
addressing certain safety and soundness standards for insured depository
institutions and depository institution holding companies, including
compensation standards, operational and managerial standards, asset quality,
earnings and stock valuation. The federal banking agencies have issued a joint
notice of proposed rulemaking, which requested comment on the implementation of
these standards. The proposed rule sets forth general operational and management
standards in the areas of internal controls, information systems and internal
audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth and compensation, fees and benefits. The proposed contemplates that
each federal agency would determine compliance with these standards through the
examination process, and if necessary to correct weaknesses, require an
institution to file a written safety and soundness compliance plan. CBI has not
yet determined the effect that the proposed rule would have on its operations
and the operations of its depository institution subsidiary if it is enacted
substantially as proposed.
COMMUNITY REINVESTMENT. The requirements of the Community Reinvestment
Act (CRA) affect The Community Bank. The CRA imposes on financial institutions
an affirmative and ongoing obligation to meet the credit needs of their local
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those institutions. Each financial institution's
efforts in meeting community credit needs currently are evaluated as part of the
examination process pursuant to twelve assessment factors. These factors also
are considered in evaluating mergers, acquisitions and applications to open a
branch or facility. To the best knowledge of The Community Bank, it is meeting
its obligations under the CRA.
Item 2. Properties.
CBI's offices and The Community Bank's main office are located in two
3,500 square feet condominiums in a seven-story masonry building located at 200
North Sycamore Street, Petersburg, Virginia. The first floor includes a drive-in
facility, which is serviced by tellers located inside The Community Bank through
a closed circuit TV/pneumatic tube system. The Community Bank's branch office at
2618 South Crater Road in Petersburg was opened in 1979. The South Crater Road
office occupies a one and one-half story 2,100 square foot brick building of
Colonial design. In 1984, the Community Bank opened a branch office in Colonial
Heights, located at 2000 Snead Avenue in a 640 square foot office of
contemporary design. In 1985, The Community Bank opened its newest branch in
Chester, located at 4203 West Hundred Road in a 1,600 square foot brick office
of contemporary design. The Community Bank owns the land and the building in
which the South Crater Road and Chester branches operate, and leases the
Colonial Heights facility.
CBI's facilities and equipment are considered adequate for its
immediate needs and for foreseeable expansion.
<PAGE>
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Market for Company's Common Stock and Related Stockholder
Matters.
As of December 31, 1995, the Company had 724 shareholders of record of
its Common Stock.
Except for one share issued for organizational purposes in 1984, the
Company did not issue any shares of its Common Stock until January 1, 1985, at
which time each share of common stock outstanding of the Bank was automatically
converted into the right to receive one-third share of the Company's Common
Stock.
The following table sets forth, for the quarters indicated, the high
and low sale prices for CBI Common Stock on the OTC Bulletin Board since May
1994 and the high and low bid prices of trades known to CBI on the
over-the-counter market for stock prices reported locally through the regional
quotation system before May 1994 and per share dividends paid during the
respective periods.
CBI Market Price and Dividends
<TABLE>
<CAPTION>
Sales Price (1) Dividends (1)
Number of ----------------------------------------
Shares High Low
------------------------------------
<S> <C> <C> <C> <C>
1993:
1st quarter 58,239 5.750 4.500 .010
2nd quarter 43,135 6.750 5.750
3rd quarter 27,397 7.375 6.625
4th quarter 31,462 8.000 7.250
1994:
1st quarter 20,399 8.625 8.000 .015
2nd quarter 10,794 9.125 8.500
3rd quarter 87,842 9.720 9.000
4th quarter 29,856 10.500 9.500
1995:
1st quarter 28,500 10.625 10.500 .175
2nd quarter 36,982 11.500 10.500
3rd quarter 41,680 11.250 10.500
4th quarter 72,288 13.250 10.500
</TABLE>
- -------------
(1) All prices and dividends are adjusted for a 100% stock dividend paid
on August 31, 1995.
<PAGE>
DIVIDENDS
The Company declared annual dividends of $201,250 and $171,000 on its
Common Stock during 1995 and 1994, respectively. The Company's management
presently intends to continue the Bank's policy of paying out 11.5% to 17.5% of
the previous year's earnings as dividends.
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
As noted in Item 1. Business, the Bank is limited in the amount of
dividends it may pay to the Company in any given year. At December 31, 1995, the
Bank had $3.567 million of retained earnings legally available for the payment
of dividends to the Company.
<PAGE>
Item 6. Selected Financial Data.
COMPARATIVE SUMMARY OF EARNINGS
The following table presents a Comparative Summary of Earnings of the
Company for the five years ended December 31, 1995. These statements should be
read in conjunction with the Consolidated Financial Statements and related Notes
appearing elsewhere in this filing.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data: (in thousands, except ratios and per share data)
Net interest income . . . . . . . $ 4,472 $ 3,784 $ 3,187 $ 2,924 $ 2,681
Provision for loan losses . . . . 247 66 120 372 260
-------------------------------------------------------------------------
Net interest income after
provision for loan losses . . . $ 4,225 $ 3,718 $ 3,067 $ 2,552 $ 2,421
Noninterest income . . . . . . . . 753 801 859 794 681
Noninterest expense . . . . . . . 2,499 2,547 2,281 2,058 2,011
--------------------------------------------------------------------------
Income before income taxes . . . . $ 2,479 $ 1,972 $ 1,645 $ 1,288 $ 1,091
Income taxes . . . . . . . . . . . 856 660 566 442 348
--------------------------------------------------------------------------
Net income . . . . . . . . . . . . $ 1,623 $ 1,312 $ 1,079 $ 846 $ 743
==========================================================================
PER SHARE DATA (1):
Net income . . . . . . . . . . . . $ 1.34 $ 1.10 $ 0.95 $ 0.74 $ 0.65
Cash dividends . . . . . . . . . . $ 0.175 $ 0.15 $ 0.10 $ 0.08 $ 0.075
Book value at period end . . . . . $ 8.51 $ 7.54 $ 6.55 $ 5.71 $ 5.01
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . 88,137 77,363 76,921 68,686 60,252
Loans, net . . . . . . . . . . . . 65,256 61,488 57,162 52,074 43,667
Securities . . . . . . . . . . . . 14,111 8,568 10,437 8,801 9,447
Deposits . . . . . . . . . . . . . 77,214 68,081 68,915 60,524 53,519
Stockholder's equity (1) . . . . . 9,784 8,596 7,470 6,515 5,761
Shares outstanding (1) . . . . . . 1,150,000 1,140,000 1,140,000 1,142,000 1,150,000
PERFORMANCE RATIOS (2):
Return on average assets . . . . . 1.91% 1.69% 1.48% 1.28% 1.29%
Return on average equity . . . . . 17.77% 16.25% 15.49% 13.86% 13.71%
Net interest margin (2) . . . . . 5.64% 5.29% 4.80% 4.92% 5.22%
Average loans to deposits . . . . 85.94% 87.88% 85.38% 82.67% 81.77%
ASSET QUALITY RATIOS:
Allowance for loan losses to
period end loans . . . . . . . 1.15% 1.17% 1.05% 1.09% 1.13%
Allowance for loan losses to
nonaccrual loans . . . . . . . 3.46x 41.20x 64.77x 11.47x 3.75x
Nonperforming assets to period end
loans and other real estate
owned . . . . . . . . . . . . 2.36% 1.32% 1.24% 0.98% 2.77%
Net chargeoffs (recoveries)
to average loans . . . . . . . 0.33% -0.08x 0.15% 0.62% 0.40%
</TABLE>
- --------------------------
(1) All per share information has been restated to reflect a 2 for 1 stock
split effected in the form of a 100% stock dividend paid August 31,
1995.
(2) Net interest margin is calculated as tax-equivalent net interest income
divided by average earning assets and represents the Bank's net yield on
its earning assets.
<PAGE>
Certain selected financial information required by Item 6. is included
in Management's Discussion and Analysis.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The information required by Item 7 of Form 10-K is contained in the
Company's Annual Report to Stockholders for the year ended December 31, 1995,
and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements, together with the report thereon
of Mitchell, Wiggins & Company LLP, is contained in the Company's 1995 Annual
Report to Stockholders and is incorporated herein by reference.
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
Item 10. Directors and Executive Officers of the Company.
With respect to the directors and executive officers of the Company,
the information required by Item 10 of Form 10-K appears in the Company's Proxy
Statement for the 1996 Annual Meeting and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by Item 11 of Form 10-K appears in the
Company's Proxy Statement for the 1996 Annual Meeting and is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 of Form 10-K appears in the
Company's Proxy Statement for the 1996 Annual Meeting and is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 of Form 10-K appears in the
Company's Proxy Statement for the 1996 Annual Meeting and is incorporated herein
by reference.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) The following documents are contained in the Company's 1995 Annual
Report and are incorporated herein by reference.
Financial Statements:
Independent Auditors' Report on the Consolidated Financial
Statements
Consolidated Statements of Condition at December 31, 1995 and
1994
Consolidated Statements of Income for the three years ended
December 31, 1995, 1994, and 1993
Consolidated Statements of Changes in Stockholders' Equity for
the three years ended December 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the three years ended
December 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
(3) Exhibits included herein:
2 - Agreement And Plan Of Reorganization
3 - Articles of Incorporation and By-laws (filed as an Exhibit to
Registrant's Registration Statement of Form S-14 and amendment
No. 1 thereto, filed with the Commission on March 14, 1984 and
July 10, 1984, respectively, and incorporated herein by
reference)
13 - Community Bankshares Incorporated 1995 Annual Report to
Stockholders
21 - Subsidiaries of the Registrant
23 - Consent of Mitchell, Wiggins & Company LLP
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the year ended December 31, 1995.
<PAGE>
EXHIBITS
ANNUAL REPORT ON FORM 10-K
PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMUNITY BANKSHARES INCORPORATED
COMMISSION FILE NUMBER 0-13100
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, COMMUNITY BANKSHARES INCORPORATED 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
Date: 3-19-96
/s/ LILLIAN UMPLHLETT
Lilliam Umphlett
Principal Financial Officer
Date: 3-19-96
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/BOBBY G. HOLDEN Date: 3-19-96
Director
/s/PHILLIP H. KIRKPATRICK Date: 3-19-96
Director
/s/ELINOR B. MARSHALL Date: 3-19-96
Director
/s/JAMES A. BOYD Date: 3-19-96
Director
/s/A. L. SHEFFIELD Date: 3-19-96
Director
/s/LOUIS C. SHELL Date: 3-19-96
Director
<PAGE>
Exhibit Index
2 - Agreement And Plan Of Reorganization
13 - Community Bankshares Incorporated 1995 Annual Report to Stockholders
21 - Subsidiaries of the Registrant
23 - Consent of Mitchell, Wiggins & Company LLP
AGREEMENT AND PLAN OF REORGANIZATION
between
Commerce Bank of Virginia
and
Community Bankshares Incorporated
-------------------------
December 12, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
The Reorganization and Related Matters
<TABLE>
<CAPTION>
Page
<S> <C>
1.1 The Reorganization .........................................................................
1.2 Management and Business of CBOV and CBI.....................................................
1.3 The Closing and Effective Date..............................................................
1.4 Definitions.................................................................................
ARTICLE 2
Basis and Manner of Exchange
2.1 Conversion of Shares........................................................................
2.2 Manner of Exchange..........................................................................
2.3 No Fractional Shares........................................................................
2.4 Dividends...................................................................................
2.5 Dissenting Shares...........................................................................
ARTICLE 3
Representations and Warranties
3.1 Representations and Warranties of CBOV......................................................
(a) Organization, Standing and Power...................................................
(b) Authority..........................................................................
(c) Capital Structure..................................................................
(d) Ownership of Stock.................................................................
(e) Financial Statements...............................................................
(f) Absence of Undisclosed Liabilities.................................................
(g) Legal Proceedings; Compliance with Laws............................................
(h) Regulatory Approvals...............................................................
(i) Labor Relations....................................................................
(j) Tax Matters........................................................................
(k) Property...........................................................................
(l) Reports............................................................................
(m) Employee Benefit Plans.............................................................
(n) Investment Securities..............................................................
(o) Certain Contacts...................................................................
<PAGE>
Page
(p) Insurance..........................................................................
(q) Absence of Material Changes and Events.............................................
(r) Loans, OREO and Allowance for Loan Losses..........................................
(s) Statements True and Correct........................................................
(t) Brokers and Finders................................................................
(u) Repurchase Agreements..............................................................
(v) Administration of Trust Accounts...................................................
(w) Environmental Matters..............................................................
3.2 Representations and Warranties of CBI.......................................................
(a) Organization, Standing and Power...................................................
(b) Authority..........................................................................
(c) Capital Structure..................................................................
(d) Ownership of the CBI Subsidiaries; Capital Structure
of the CBI Subsidiaries; and Organization of the CBI
Subsidiaries.......................................................................
(e) Financial Statements...............................................................
(f) Absence of Undisclosed Liabilities.................................................
(g) Legal Proceedings; Compliance with Laws............................................
(h) Regulatory Approvals...............................................................
(i) Labor Relations....................................................................
(j) Tax Matters........................................................................
(k) Property...........................................................................
(l) Reports............................................................................
(m) Employee Benefit Plans.............................................................
(n) Investment Securities..............................................................
(o) Certain Contacts...................................................................
(p) Insurance..........................................................................
(q) Loans, OREO and Allowance for Loan Losses..........................................
(r) Absence of Material Changes and Events.............................................
(s) Statements True and Correct........................................................
(t) Brokers and Finders................................................................
(u) Repurchase Agreements..............................................................
(v) Administration of Trust Accounts...................................................
(w) Environmental Matters..............................................................
<PAGE>
Page
ARTICLE 4
Conduct Prior to the Effective Date
4.1 Access to Records and Properties............................................................
4.2 Confidentiality.............................................................................
4.3 Registration Statement, Proxy Statement and Shareholder Approval............................
4.4 Operation of the Business of CBOV and CBI...................................................
4.5 Dividends...................................................................................
4.6 No Solicitation.............................................................................
4.7 Regulatory Filings..........................................................................
4.8 Public Announcements........................................................................
4.9 Notice of Breach............................................................................
4.10 Accounting Treatment........................................................................
4.11 Reorganization Consummation.................................................................
4.12 Amendment to Articles of Incorporation......................................................
4.13 Employment Contracts........................................................................
ARTICLE 5
Additional Agreements
5.1 Conversion of Stock Options.................................................................
5.2 Accounting Treatment........................................................................
5.3 Benefit Plans...............................................................................
5.4 Indemnification.............................................................................
ARTICLE 6
Conditions to the Reorganization
6.1 Conditions to Each Party's Obligations to Effect the Reorganization.........................
(a) Shareholder Approvals..............................................................
(b) Regulatory Approvals...............................................................
(c) Registration Statement.............................................................
(d) Tax Opinion........................................................................
(e) Accountant's Letter................................................................
(f) Opinions of Counsel................................................................
(g) Legal Proceedings..................................................................
(h) Employment Contracts...............................................................
6.2 Conditions to Obligations of CBI............................................................
(a) Representations and Warranties.....................................................
<PAGE>
Page
(b) Performance of Obligations.........................................................
(c) Affiliate Letters..................................................................
(d) Investment Banking Letter..........................................................
6.3 Conditions to Obligations of CBOV...........................................................
(a) Representations and Warranties.....................................................
(b) Performance of Obligations.........................................................
(c) Investment Banking Letter..........................................................
(d) Amendment to Articles of Incorporation.............................................
ARTICLE 7
Termination
7.1 Termination.................................................................................
7.2 Effect of Termination.......................................................................
7.3 Non-Survival of Representations, Warranties and Covenants...................................
7.4 Expenses....................................................................................
ARTICLE 8
General Provisions
8.1 Entire Agreement............................................................................
8.2 Waiver and Amendment........................................................................
8.3 Descriptive Headings........................................................................
8.4 Governing Law...............................................................................
8.5 Notices.....................................................................................
8.6 Counterparts................................................................................
8.7 Severability................................................................................
8.8 Brokers and Finders.........................................................................
8.9 Subsidiaries................................................................................
</TABLE>
Exhibit A - Plan of Share Exchange between Commerce Bank of Virginia and
Community Bankshares Incorporated
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of December 12, 1995 by and between Commerce Bank of Virginia, a
Virginia state bank with its principal office located in Richmond, Virginia
("CBOV"), and Community Bankshares Incorporated, a Virginia corporation with its
principal office located in Petersburg, Virginia ("CBI").
WITNESSETH:
WHEREAS, CBOV and CBI desire to combine their respective businesses;
and
WHEREAS, CBOV and CBI have agreed to the affiliation of their two
companies through a Share Exchange under Virginia law, as a result of which CBOV
would become a wholly-owned subsidiary of CBI and the shareholders of CBOV would
become shareholders of CBI, all as more specifically provided in this Agreement
and the Plan of Share Exchange in the form attached hereto as Exhibit A (the
"Plan"); and
WHEREAS, the respective Boards of Directors of CBOV and CBI have
resolved that the transactions described herein are in the best interests of the
parties and their respective shareholders and have authorized and approved the
execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
ARTICLE 1
The Reorganization and Related Matters
1.1 The Reorganization. Subject to the terms and conditions of this
Agreement, at the Effective Date as defined in Section 1.3 hereof, CBOV shall
become a wholly-owned subsidiary of CBI through the exchange of each outstanding
share of common stock of CBOV for shares of the common stock of CBI in
accordance with Section 2.1 of this Agreement and pursuant to a statutory share
exchange under Section 13.1-717 of the Virginia Stock Corporation Act (the
"Reorganization"). At the Effective Date, the Reorganization shall have the
effect provided in Section 13.1-721 of the Virginia Stock Corporation Act.
1.2 Management and Business of CBOV and CBI. The directors, officers
and employees of CBOV will not change as a result of the Reorganization. The
members of the CBOV Board shall become directors of CBI on the Effective Date.
When the CBOV directors become directors of CBI, three members of the CBOV Board
shall become members of each of the three classes of CBI Directors, as
determined by the CBOV Board. The CBOV Directors appointed to Class I shall
serve until the 1998 annual meeting of shareholders; those appointed to Class II
shall serve until the 1999 annual meeting of shareholders; and those appointed
to
<PAGE>
Class III shall serve until the 1997 annual meeting of shareholders. The parties
anticipate that immediately before the Effective Date CBI will have ten
directors and CBOV will have nine directors. As a result of the Reorganization,
CBI will have 19 directors on and after the Effective Date. It is the intention
of CBI and CBOV that after the Effective Date, directors of CBOV, or individuals
designated by directors of CBOV, shall continue to constitute nine nineteenths
(9/19) of the Board of CBI and the parties shall use their best efforts to
maintain that ratio. The parties also acknowledge, however, that such ratio
might change as a result of unanticipated events, including, for example, the
acquisition in the future of another bank by CBI. The parties intend that after
the Effective Date, the chief executive officer of CBOV and the chief executive
officer of The Community Bank, a wholly owned subsidiary of CBI, each will
attend the meetings of the other's Board of Directors.
1.3 The Closing and Effective Date. The closing of the transactions
contemplated by this Agreement and the Plan of Reorganization shall take place
at the offices of Williams, Mullen, Christian & Dobbins, 1021 East Cary Street,
Richmond, Virginia or at such other place as may be mutually agreed upon by the
parties. The Reorganization shall become effective on the date shown on the
Certificate of Share Exchange issued by the State Corporation Commission of
Virginia effecting the Reorganization (the "Effective Date"). Unless otherwise
agreed upon in writing by the chief executive officers of CBI and CBOV, subject
to the conditions to the obligations of the parties to effect the Reorganization
as set forth in Article 6, the parties shall use their best efforts to cause the
Effective Date to occur on the first day of the month following the month in
which the conditions set forth in Sections 6.1(a) and 6.1(b) are satisfied. All
documents required by the terms of this Agreement to be delivered at or prior to
consummation of the Reorganization will be exchanged by the parties at the
closing of the Reorganization (the "Reorganization Closing"), which shall be
held on or before the Effective Date. Prior to the Reorganization Closing, CBI
and CBOV shall execute and deliver to the Virginia State Corporation Commission
Articles of Share Exchange containing a Plan of Share Exchange in substantially
the form of Exhibit A hereto.
1.4 Definitions. Any term defined anywhere in this Agreement shall have
the meaning ascribed to it for all purposes of this Agreement (unless expressly
noted to the contrary). In addition:
(a) the term "knowledge" when used with respect to a party
shall mean the knowledge, after due inquiry, of any "Executive Officer" of such
party, as such term is defined in Regulation O, (12 C.F.R. 215);
(b) the term "Material Adverse Effect", when applied to a
party, shall mean an event, occurrence or circumstance (including without
limitation (i) the making of any provisions for possible loan and lease losses,
write-downs or other real estate and taxes and (ii) any breach of a representa-
tion or warranty by such party) which (a) has or is reasonably likely to have
a material adverse effect on the financial position, results of operations or
business of the party and its subsidiaries, taken as a whole, or (b) would
materially impair the party's ability to perform its obligations under this
Agreement or the consummation of the Reorganization and the other trans-
actions contemplated by this Agreement; provided, however, that solely for
<PAGE>
purposes of measuring whether an event, occurrence or circumstance has a
material adverse effect on such party's results of operations, the term "results
of operations" shall mean net interest income plus non-interest income (less
securities gains) less gross expenses (excluding provisions for possible loan
and lease losses, write-downs of other real estate and taxes); and provided
further, that material adverse effect and material impairment shall not be
deemed to include the impact of (i) changes in banking and similar laws of
general applicability or interpretations thereof by courts or governmental
authorities, (ii) changes in generally accepted accounting principles or
regulatory accounting requirements applicable to banks and bank holding
companies generally, and (iii) the Reorganization on the operating performance
of the parties to this Agreement; and
(c) the term "Previously Disclosed" by a party shall mean
information set forth in a written disclosure letter that is delivered by that
party to the other party prior to or contemporaneously with the execution of
this Agreement and specifically designated as information "Previously Disclosed"
pursuant to this Agreement.
ARTICLE 2
Basis and Manner of Exchange
2.1 Conversion of Shares. Upon, and by reason of, the Reorganization
becoming effective pursuant to the issuance of a Certificate of Share Exchange
by the Virginia State Corporation Commission, no cash, except as set forth in
Section 2.3 below, shall be allocated to the shareholders of CBOV, and stock
shall be issued and allocated as follows:
(a) Each share of common stock, par value $3.50 per share, of
CBOV ("CBOV Common Stock") issued and outstanding immediately prior to the
Effective Date shall, by operation of law, be automatically exchanged for 1.4044
(the "Exchange Ratio") shares of common stock of CBI, par value $3.00 per share
(CBI Common Stock), plus cash for fractional shares. Each holder of a
certificate representing any shares of CBOV Common Stock upon the surrender of
his CBOV stock certificates to CBI, duly endorsed for transfer in accordance
with Section 2.2 below, will be entitled to receive in exchange therefor a
certificate or certificates representing the number of shares of CBI Common
Stock that his shares shall be converted into pursuant to the Exchange Ratio.
Each such holder of CBOV Common Stock shall have the right to receive any
dividends previously declared but unpaid as to such stock and the consideration
described in Sections 2.1 and 2.3 upon the surrender of such certificate in
accordance with Section 2.2. In the event CBI changes the number of shares of
CBI Common Stock issued and outstanding prior to the Effective Date as a result
of any stock split, stock dividends, recapitalization or similar transaction
with respect to the outstanding CBI Common Stock and the record date therefor
shall be prior to the Effective Date, the Exchange Ratio shall be
proportionately adjusted.
(b) Shares of CBOV Common Stock issued and outstanding shall,
by virtue of the Reorganization, continue to be issued and outstanding shares
held by CBI.
<PAGE>
2.2 Manner of Exchange. As promptly as practicable after the Effective
Date, CBI shall cause The Community Bank, acting as the exchange agent
("Exchange Agent"), to send to each former shareholder of record of CBOV
immediately prior to the Effective Date transmittal materials for use in
exchanging such shareholder's certificates of CBOV Common Stock (other than
shares held by shareholders who perfect their dissenters' rights as provided
under Section 2.5 hereof) for the consideration set forth in Section 2.1 above
and Section 2.3 below. Any fractional share checks which a CBOV shareholder
shall be entitled to receive in exchange for such shareholder's shares of CBOV
Common Stock, and any dividends paid on any shares of CBI Common Stock that such
shareholder shall be entitled to receive prior to the delivery to the Exchange
Agent of such shareholder's certificates representing all of such shareholder's
shares of CBOV Common Stock will be delivered to such shareholder only upon
delivery to the Exchange Agent of the certificates representing all of such
shares (or indemnity satisfactory to CBI and the Exchange Agent, in their
judgement, if any of such certificates are lost, stolen or destroyed). No
interest will be paid on any such fractional share checks or dividends to which
the holder of such shares shall be entitled to receive upon such delivery.
2.3 No Fractional Shares. No certificates or scrip for fractional
shares of CBI Common Stock will be issued. In lieu thereof, CBI will pay the
value of such fractional shares in cash on the basis of the book value per share
of CBI Common Stock at the end of the calendar quarter that immediately precedes
the Effective Date.
2.4 Dividends. No dividend or other distribution payable to the holders
of record of CBI Common Stock at or as of any time after the Effective Date
shall be paid to the holder of any certificate representing shares of CBOV
Common Stock issued and outstanding at the Effective Date until such holder
physically surrenders such certificate for exchange as provided in Section 2.2
of this Agreement, promptly after which time all such dividends or distributions
shall be paid (without interest).
2.5 Dissenting Shares. Shareholders of CBOV shall have the right to
demand and receive payment of the fair value of their shares of CBOV Common
Stock pursuant to the provisions of Virginia Code ss. 13.1-729 et seq. (the
"Dissenting Shares"). If, however, a holder shall have failed to perfect his
right to dissent or shall have effectively withdrawn or lost such right, each of
his shares of CBOV Common Stock shall be deemed to have been converted into, at
the Effective Date, the right to receive the number of shares of CBI Common
Stock based on the Exchange Ratio and cash in lieu of any fractional shares
pursuant to Section 2.3 hereof.
ARTICLE 3
Representation and Warranties
3.1 Representations and Warranties of CBOV. CBOV represents
and warrants to CBI as follows:
<PAGE>
(a) Organization, Standing and Power. (1) CBOV is a
corporation and a Virginia state bank, duly organized, validly existing and in
good standing under the laws of Virginia, and it has all requisite corporate
power and authority to carry on its business in Virginia as now being conducted
and to own and operate its assets, properties and business; CBOV has no
subsidiaries; and CBOV has the corporate power and authority to execute and
deliver this Agreement and perform the respective terms of this Agreement and
the Plan of Share Exchange. CBOV is a member of the Federal Reserve System, and
except as Previously Disclosed is in compliance in all material respects with
all rules and regulations promulgated by the Board of Governors of the Federal
Reserve System (the "Federal Reserve"), the Virginia State Corporation
Commission ("SCC") and any other relevant regulatory authority, and it has all
requisite corporate power and authority to carry on a commercial banking
business as now being conducted and to own and operate its assets, properties
and business.
(2) CBOV is an "insured bank" as defined in the Federal
Deposit Insurance Act and applicable regulations thereunder. All of the shares
of capital stock of CBOV are fully paid and nonassessable.
(b) Authority. (1) The execution and delivery of this
Agreement, the Plan of Share Exchange and the consummation of the
Reorganization, have been duly and validly authorized by all necessary corporate
action on the part of CBOV, except the approval of shareholders. The Agreement
represents the legal, valid, and binding obligations of CBOV, enforceable
against CBOV in accordance with its terms (except in all such cases as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(2) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated herein, nor compliance by CBOV
with any of the provisions hereof will: (i) conflict with or result in a breach
of any provision of CBOV's Articles of Incorporation or Bylaws; (ii) to the
knowledge of CBOV, except as Previously Disclosed, constitute or result in the
breach of any term, condition or provision of, or constitute a default under, or
give rise to any right of termination, cancellation or acceleration with respect
to, or result in the creation of any lien, charge or encumbrance upon, any
property or assets of CBOV pursuant to (A) any note, bond, mortgage, indenture,
or (B) any material license, agreement, lease, or other instrument or
obligation, to which CBOV is a party or by which any of them or any of their
properties or assets may be bound, or (iii) to the knowledge of CBOV, subject to
the receipt of the requisite approvals referred to in Section 4.7, violate any
order, writ, injunction, decree, statute, rule or regulation applicable to CBOV
or any or its properties or assets.
(c) Capital Structure. The authorized capital stock of CBOV
consists of 1,500,000 shares of common stock, par value $3.50 per share, of
which, as of the date hereof, 501,254 shares are issued, outstanding, fully paid
and nonassessable, not subject to shareholder preemptive rights and were not
issued in violation of any agreement to which CBOV is a party
<PAGE>
or otherwise bound, or of any registration or qualification provisions of any
federal or state securities laws. Except as Previously Disclosed, there are no
outstanding options, warrants or other rights to subscribe for or purchase from
CBOV any capital stock of CBOV or securities convertible into or exchangeable
for capital stock of CBOV.
(d) Ownership of Stock. (1) CBOV does not own, directly or
indirectly, 5% or more of the outstanding capital stock or other voting
securities of any corporation, bank or other organization actively engaged in
business except as Previously Disclosed.
(e) Financial Statements. CBOV has previously furnished to CBI
true and complete copies of its audited balance sheets and related statements of
income, statements of cash flows, and statements of stockholders' equity for the
three year period ended December 31, 1994, and its unaudited balance sheets and
related statements of income and statements of stockholders' equity for the
three month and nine month periods ending September 30, 1995 (together with the
notes thereto, the "CBOV Financial Statements"). The CBOV Financial Statements
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis during the periods presented, and present fairly
the financial position of CBOV as of the respective dates thereof and the
results of its operations for the three year and nine month periods then ended,
except as may be noted therein, and subject to normal and recurring year end
audit adjustments in the case of unaudited statements.
(f) Absence of Undisclosed Liabilities. At September 30, 1995,
CBOV, to its knowledge, had no obligation or liability (contingent or otherwise)
of any nature which was not reflected in the CBOV Financial Statements, except
for those which in the aggregate are immaterial or have been Previously
Disclosed.
(g) Legal Proceedings; Compliance with Laws. Except as
Previously Disclosed, there are no actions, suits or proceedings instituted or
pending or, to the best knowledge of CBOV's management, threatened against CBOV,
or against any property, asset, interest or right of CBOV, that are reasonably
expected to have, either individually or in the aggregate a material adverse
effect on the financial condition of CBOV or that are reasonably expected to
threaten or impede the consummation of the Reorganization. CBOV is not a party
to any agreement or instrument or subject to any judgment, order, writ,
injunction, decree or rule that might reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), business or prospects
of CBOV. To the best knowledge of CBOV's management, CBOV has complied in all
material respects with all laws, ordinances, requirements, regulations or orders
applicable to its business (including environmental laws, ordinances,
requirements, regulations or orders).
(h) Regulatory Approvals. CBOV knows of no reason why the
regulatory approvals referred to in Section 6.1(b) should not be
obtained without the imposition of any condition of the type referred
to in Section 6.1(b).
(i) Labor Relations. CBOV is not a party to or bound by any
collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor
<PAGE>
organization, nor is it the subject of a proceeding asserting that it has
committed an unfair labor practice (within the meaning of the National Labor
Relations Act) or seeking to compel it to bargain with any labor organization as
to wages and conditions of employment, nor is there any strike or other labor
dispute involving it, pending or, to the best of its knowledge, threatened, nor
is it aware of any activity involving its employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
(j) Tax Matters. CBOV has filed all federal, state and local
tax returns and reports required to be filed, and all taxes shown by such
returns to be due and payable have been paid or are reflected as a liability in
the CBOV Financial Statements or are being contested in good faith and have been
Previously Disclosed. Except to the extent that liabilities therefor are
specifically reflected in the CBOV Financial Statements, there are no federal,
state or local tax liabilities of CBOV other than liabilities that have arisen
since September 30, 1995, all of which have been properly accrued or otherwise
provided for on the books and records of CBOV. Except as Previously Disclosed,
no tax return or report of CBOV is under examination by any taxing authority or
the subject of any administrative or judicial proceeding, and no unpaid tax
deficiency has been asserted against CBOV by any taxing authority.
(k) Property. Except as disclosed or reserved against in the
CBOV Financial Statements, CBOV has good and marketable title free and clear of
all material liens, encumbrances, charges, defaults or equities of whatever
character to all of the material properties and assets, tangible or intangible,
reflected in the CBOV Financial Statements as being owned by CBOV as of the
dates thereof. To the best knowledge of CBOV, all buildings, and all fixtures,
equipment, and other property and assets which are material to its business,
held under leases or subleases by CBOV are held under valid instruments
enforceable in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws. The buildings,
structures, and appurtenances owned, leased, or occupied by CBOV are in good
operating condition and in a state of good maintenance and repair, and to the
best knowledge of CBOV (i) comply with applicable zoning and other municipal
laws and regulations, and (ii) there are no latent defects therein.
(l) Reports. Since January 1, 1990, CBOV has filed all reports
and statements, together with any amendments required to be made with respect
thereto, that were required to be filed with the SCC, the Federal Reserve, and
to the best knowledge of CBOV, any other governmental or regulatory authority or
agency having jurisdiction over its operations.
(m) Employee Benefit Plans. (1) CBOV will deliver for CBI's
review, as soon as practicable, true and complete copies of all material
pension, retirement, profit-sharing, deferred compensation, stock option, bonus,
vacation or other material incentive plans or agreements, all material medical,
dental or other health plans, all life insurance plans and all other material
employee benefit plans or fringe benefit plans, including, without limitation,
all "employee benefit plans" as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), currently
adopted, maintained by, sponsored in whole or in part by, or contributed to by
CBOV for the benefit of employees, retirees or other beneficiaries eligible to
participate (collectively, the "CBOV Benefit Plans").
<PAGE>
Any of the CBOV Benefit Plans which is an "employee pension benefit plan," as
that term is defined in Section (3(2) of ERISA, is referred to herein as a "CBOV
ERISA Plan." No CBOV Benefit Plan is or has been a multi-employer plan within
the meaning of Section 3(37) of ERISA.
(2) Except as Previously Disclosed, all CBOV Benefit Plans are
in compliance with the applicable terms of ERISA and the Internal Revenue Code
of 1986, as amended (the "IRC") and any other applicable laws, rules and
regulations, the breach or violation of which could result in a material
liability to CBOV on a consolidated basis.
(3) No CBOV ERISA Plan which is a defined benefit pension plan
has any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, and the present fair market value of the assets of any
such plan exceeds the plan's "benefit liabilities," as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that would
apply if the plan was terminated in accordance with all applicable legal
requirements.
(n) Investment Securities. Subject to FASB 115 and except for
pledges to secure public and trust deposits and obligations under agreements
pursuant to which CBOV has sold securities subject to an obligation to
repurchase, none of the investment securities reflected in the CBOV Financial
Statements is subject to any restriction, contractual, statutory, or otherwise,
which would impair materially the ability of the holder of such investment to
dispose freely of any such investment at any time. With respect to any
agreements pursuant to which CBOV has purchased securities subject to any
agreement to resell, it has a valid, perfected first lien or security interest
in the government securities or other collateral securing such agreement, and
the value of such collateral equals or exceeds the amount of the debt secured
thereby.
(o) Certain Contracts. (1) Except as Previously Disclosed,
CBOV is not a party to, or is bound by, (i) any material agreement, arrangement
or commitment, (ii) any agreement, indenture or other instrument relating to the
borrowing of money by CBOV or the guarantee by CBOV of any such obligation,
(iii) any agreement, arrangement or commitment relating to the employment of a
consultant or the employment, election, retention in office or severance of any
present or former director or officer, (iv) any agreement to make loans or for
the provision, purchase or sale of goods, services or property between CBOV and
any director of officer of CBOV, or any member of the immediate family or
affiliate of any of the foregoing, or (v) any agreement between CBOV and any 5%
or more shareholder of CBOV; in each case other than agreements entered into in
the ordinary course of the banking business of CBOV consistent with past
practice.
(2) Neither CBOV nor, to the knowledge of CBOV, the other
party thereto, is in default under any material agreement, commitment,
arrangement, lease, insurance policy or other instrument whether entered into in
the ordinary course of business or otherwise, nor has there occurred any event
that, with the lapse of time or giving of notice or both, would constitute such
a default, other than defaults of loan agreement by borrowers from CBOV in the
ordinary course of its business.
<PAGE>
(3) Since September 30, 1995 CBOV has not incurred or paid any
obligation or liability that would be material to CBOV, except obligations
incurred or paid in connection with transactions in the ordinary course of
business of CBOV consistent with its practice and, except as Previously
Disclosed, from September 30, 1995 to the date hereof, CBOV has not taken any
action that, if taken after the date hereof, would breach any of the covenants
contained in Section 4.4 hereof.
(p) Insurance. A complete list of all policies or binders of
fire, liability, product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of CBOV has previously been furnished to CBI and
all such policies or binders are valid and enforceable in accordance with their
terms, are in full force and effect, and insure against risks and liabilities to
the extent and in the manner customary for the industry and are deemed
appropriate and sufficient by CBOV. To its knowledge, CBOV is not in default
with respect to any provision contained in any such policy or binder and has not
failed to give any notice or present any claim under any such policy or binder
in due and timely fashion. CBOV has not received notice of cancellation or
non-renewal of any such policy or binder. CBOV has no knowledge of any
inaccuracy in any application for such policies or binders, any failure to pay
premiums when due or any similar state of facts or the occurrence of any event
that is reasonably likely to form the basis for any material claim against it
not fully covered (except to the extent of any applicable deductible) by the
policies or binders referred to above. CBOV has not received notice from any of
its insurance carriers that any insurance premiums will be increased materially
in the future or that any such insurance coverage will not be available in the
future on substantially the same terms as now in effect.
(q) Absence of Material Changes and Events. Since September
30, 1995, there has not been any material adverse change in the condition
(financial or otherwise), aggregate assets or liabilities, cash flow, earnings
or business of CBOV, and CBOV has conducted its business only in the ordinary
course consistent with past practice.
(r) Loans, OREO and Allowance for Loan Losses. (1) Except as
Previously Disclosed, and except for matters which individually or in the
aggregate do not materially adversely affect the Reorganization or the financial
condition of CBOV, to the best knowledge of CBOV, each loan reflected as an
asset in the CBOV Financial Statements (i) is evidenced by notes, agreements, or
other evidences of indebtedness which are true, genuine and what they purport to
be, (ii) to the extent secured, has been secured by valid liens and security
interests which have been perfected, and (iii) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, subject to bankruptcy, insolvency and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles. All
loans and extensions of credit which are subject to regulation by the Federal
Reserve which have been made by CBOV comply therewith.
(2) The classification on the books and records of CBOV of
loans and/or non-performing assets as nonaccrual, troubled debt restructuring,
OREO or other similar classification, complies in all material respects with
generally accepted accounting principles and applicable regulatory accounting
principles.
<PAGE>
(3) Except for liens, security interests, claims, charges, or
such other encumbrances as have been appropriately reserved for in the CBOV
Financial Statements or are not material, title to the OREO is good and
marketable, and there are no adverse claims or encumbrances on the OREO. All
title, hazard and other insurance claims and mortgage guaranty claims with
respect to the OREO have been timely filed and CBOV has not received any notice
of denial of any such claim.
(4) CBOV is in possession of all of the OREO or, if any of the
OREO remains occupied by the mortgagor, eviction or summary proceedings have
been commenced or rental arrangements providing for market rental rates have
been agreed upon and CBOV is diligently pursuing such eviction or summary
proceedings or such rental arrangements. Except as Previously Disclosed, no
legal proceeding or quasi-legal proceeding is pending or, to the knowledge of
CBOV, threatened concerning any OREO or any servicing activity or omission to
provide a servicing activity with respect to any of the OREO.
(5) Except as Previously Disclosed, all loans made by CBOV to
facilitate the disposition of OREO are performing in accordance with their
terms.
(6) The allowance for possible loan losses shown on the CBOV
Financial Statements was, and the allowance for possible loan losses shown on
the financial statements of CBOV as of dates subsequent to the execution of this
Agreement will be, in each case as of the dates thereof, adequate in all
material respects to provide for possible losses, net of recoveries relating to
loans previously charged off, on loans outstanding (including accrued interest
receivable) of CBOV and other extensions of credit (including letters of credit
and commitments to make loans or extend credit) by CBOV.
(s) Statements True and Correct. None of the information
supplied or to be supplied by CBOV for inclusion in the Registration Statement
on Form S-4 (the "Registration Statement") to be filed by CBI with the SEC, the
Proxy Statement/Prospectus (as defined in Section 4.3) to be mailed to every
CBOV shareholder or any other document to be filed with the SEC, the SCC, the
Federal Reserve, or any other regulatory authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, and, in the case of the Registration Statement, when it becomes
effective and with respect to the Proxy Statement/Prospectus, when first mailed
to CBOV shareholders, be false or misleading with respect to any material fact
or omit to state any material fact necessary in order to make the statements
therein not misleading, or, in the case of the Proxy Statement/Prospectus or any
supplement thereto, at the time of the CBOV Shareholders' Meeting (as defined in
Section 4.3), be false or misleading with respect to any material fact or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for the CBOV
Shareholders' Meeting.
(t) Brokers and Finders. Neither CBOV nor any of its officers,
directors or employees, has employed any broker, finder or financial advisor or
incurred any liability for any fees or commissions in connection with the
transactions contemplated herein, except for McKinnon & Company, Inc.
<PAGE>
(u) Repurchase Agreements. With respect to all agreements
pursuant to which CBOV has purchased securities subject to an agreement to
resell, if any, CBOV has a valid, perfected first lien or security interest in
the government securities or other collateral securing the repurchase agreement,
and the value of such collateral equals or exceeds the amount of the debt
secured thereby.
(v) Administration of Trust Accounts. CBOV has properly
administered, in all respects material and which could reasonably be expected to
be material to the business, operations or financial condition of CBOV, all
accounts for which it acts as a fiduciary including but not limited to accounts
for which they serve as trustees, agents, custodians, personal representatives,
guardians, conservators or investment advisors, in accordance with the terms of
the governing documents and applicable state and federal law and regulation and
common law. Neither CBOV nor any director, officer or employee of CBOV has
committed any breach of trust with respect to any such fiduciary account which
is material to or could reasonably be expected to be material to the business,
operations or financial condition of CBOV and the accountings for each such
fiduciary account are true and correct in all material respects and accurately
reflect the assets of such fiduciary account in all material respects.
(w) Environmental Matters. (1) Except as Previously Disclosed,
to the best of CBOV's knowledge, CBOV does not own or lease any properties
affected by toxic waste, radon gas or other hazardous conditions or constructed
in part with the use of asbestos. CBOV is in substantial compliance with all
Environmental Laws applicable to real or personal properties in which it has a
direct fee ownership or, with respect to a direct interest as lessee, applicable
to the leasehold premises or, to the best knowledge of CBOV, the premises on
which the leasehold is situated. CBOV has not received any Communication
alleging that CBOV is not in such compliance and, to the best knowledge of CBOV,
there are no present circumstances (including Environmental Laws that have been
adopted but are not yet effective) that would prevent or interfere with the
continuation of such compliance.
(2) There are no legal, administrative, arbitral or other
claims, causes of action or governmental investigations of any nature, seeking
to impose, or that could result in the imposition, on CBOV of any liability
arising under any Environmental Laws pending or, to the best knowledge of CBOV,
threatened against (A) CBOV, (B) any person or entity whose liability for any
Environmental Claim CBOV has or may have retained or assumed either
contractually or by operation of law, or (C) any real or personal property which
CBOV owns or leases, or has been or is judged to have managed or to have
supervised or participated in the management of, which liability might have a
material adverse effect on the business, financial condition or results of
operations of CBOV. CBOV is not subject to any agreement, order, judgment,
decree or memorandum by or with any court, governmental authority, regulatory
agency or third party imposing any such liability.
(3) To the best knowledge of CBOV, there are no legal,
administrative, arbitral or other proceedings, or Environmental Claims or other
claims, causes of action or governmental investigations of any nature, seeking
to impose, or that could result in the imposition, on CBOV of any liability
arising under any Environmental Laws pending or
<PAGE>
threatened against any real or personal property in which CBOV holds a security
interest in connection with a loan or a loan participation which liability might
have a material adverse effect on the business, financial condition or results
of operations of CBOV. CBOV is not subject to any agreement, order, judgment,
decree or memorandum by or with any court, governmental authority, regulatory
agency or third party imposing any such liability.
(4) With respect to all real and personal property owned or
leased by CBOV, other than OREO, CBOV has made available to CBI copies of any
environmental audits, analyses and surveys that have been prepared relating to
such properties. With respect to all OREO held by CBOV and all real or personal
property which CBOV has been or is judged to have managed or to have supervised
or participated in the management of, CBOV has made available to CBI the
information relating to such OREO available to CBOV. CBOV is in compliance in
all material respects with all recommendations contained in any environmental
audits, analyses and surveys relating to any of the properties, real or
personal, described in this subsection (4).
(5) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge or disposal of any Materials of Environmental
Concern, that could reasonably form the basis of any Environmental Claim or
other claim or action or governmental investigation that could result in the
imposition of any liability arising under any Environmental Laws currently in
effect or adopted but not yet effective against CBOV or against any person or
entity whose liability for any Environmental Claim CBOV has or may have retained
or assumed either contractually or by operation of law.
(6) For the purpose of this Agreement, the following terms
shall have the following meanings:
(i) "Communication" means a communication which is of a
substantive nature and which is made (A) in writing to CBOV on the one hand or
to CBI or any CBI Subsidiary on the other hand, or (B) orally to a senior
officer of CBOV or of CBI or any CBI Subsidiary, whether from a governmental
authority or a third party.
(ii) "Environmental Claim" means any Communication from any
governmental authority or third party alleging potential liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from the
presence, or release into the environment, of any Material of Environmental
Concern.
(iii) "Environmental Laws" means all applicable federal, state
and local laws and regulations, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, that relate to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata). This definition includes, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of Materials
of Environmental
<PAGE>
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern.
(iv) "Materials of Environmental Concern" means pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other materials regulated under Environmental Laws.
3.2 Representations and Warranties of CBI. CBI represents and warrants
to CBOV as follows:
(a) Organization, Standing and Power. (1) CBI is a corporation
duly organized, validly existing and in good standing under the laws of
Virginia. It has all requisite corporate power and authority to carry on its
business as now being conducted and to own and operate its assets, properties
and business, and CBI has the corporate power and authority to execute and
deliver this Agreement and perform the respective terms of this Agreement and
Plan of Reorganization. CBI is duly registered as a bank holding company under
the Bank Holding Company Act of 1956. The Community Bank is a wholly owned
subsidiary of CBI and is a Virginia corporation and a Virginia state bank, duly
organized, validly existing and in good standing under the laws of Virginia, is
in compliance in all material respects with all rules and regulations
promulgated by any relevant regulatory authority, and it has all requisite
corporate power and authority to carry on a commercial banking business as now
being conducted and to own and operate its assets, properties and business.
(2) CBI has Previously Disclosed its subsidiary corporations
(and the subsidiaries thereof), all of which are duly organized, validly
existing and in good standing in their respective states of incorporation and
which have all requisite corporate power and authority to carry on their
businesses as now being conducted and to own and operate their assets,
properties and business (the "CBI Subsidiaries" and, collectively with CBI, the
"CBI Companies"). Each CBI Subsidiary that is a depository institution is an
"insured bank" as defined in the Federal Deposit Insurance Act and applicable
regulations thereunder. All of the shares of capital stock of the CBI
Subsidiaries held by CBI are duly and validly issued, fully paid and
nonassessable, and all such shares are owned by CBI or a CBI Subsidiary free and
clear of any claim, lien, pledge or encumbrance of any kind, and were not issued
in violation of the preemptive rights of any shareholder or in violation of any
agreement or of any registration or qualification provisions of federal or state
securities laws. Except as Previously Disclosed, none of the CBI Companies owns
any equity securities of any other corporation or entity. Except as Previously
Disclosed, each of the CBI Companies is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or operated,
or the business conducted, by it require such qualification and where failure to
so qualify either singly or in the aggregate would have a material adverse
effect on the financial condition, properties, businesses or results of
operations of the CBI Companies.
(b) Authority. (1) The execution and delivery of this
Agreement and the Plan of Share Exchange and the consummation of the
Reorganization have been duly and validly authorized by all necessary
corporate action on the part of CBI, except the approval of
<PAGE>
shareholders. This Agreement represents the legal, valid, and binding obligation
of CBI, enforceable against CBI in accordance with its terms (except in all such
cases as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(2) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated herein, nor the compliance by CBI
with any of the provisions hereof will (i) conflict with or result in a breach
of any provision of the Articles of Incorporation or Bylaws of CBI, (ii) to the
knowledge of CBI, except as Previously Disclosed, constitute or result in the
breach of any term, condition or provision of, or constitute default under, or
give rise to any right of termination, cancellation or acceleration with respect
to, or result in the creation of any lien, charge or encumbrance upon, any
property or assets of the CBI Companies pursuant to (A) any note, bond,
mortgage, indenture, or (B) any material license, agreement, lease or other
instrument or obligation, to which any of the CBI Companies is a party or by
which any of them or any of their properties or assets may be bound, or (iii) to
the knowledge of CBI, subject to the receipt of the requisite approvals referred
to in Section 4.7, violate any order, writ, injunction, decree, statute, rule or
regulation applicable to any of the CBI Companies or any of their properties or
assets.
(c) Capital Structure. The authorized capital stock of CBI
consists of: 4,000,000 shares of common stock, par value $3.00 per share, of
which 1,150,000 shares are issued and outstanding, fully paid and nonassessable,
not subject to shareholder preemptive rights, and not issued in violation of any
agreement to which CBI is a party or otherwise bound, or of any registration or
qualification provisions of any federal or state securities laws. The shares of
CBI Common Stock to be issued in exchange for shares of CBOV Common Stock upon
consummation of the Reorganization will have been duly authorized and, when
issued in accordance with the terms of this Agreement, will be validly issued,
fully paid and nonassessable and subject to no preemptive rights. Except as
Previously Disclosed, there are no outstanding understandings or commitments of
any character pursuant to which CBI and any of the CBI Companies could be
required or expected to issue shares of capital stock.
(d) Ownership of the CBI Subsidiaries; Capital Structure of
CBI Subsidiaries; and Organization of the CBI Subsidiaries. (1) CBI does not
own, directly or indirectly, 5% or more of the outstanding capital stock or
other voting securities of any corporation, bank or other organization actively
engaged in business except as Previously Disclosed (collectively the "CBI"
Subsidiaries" and each individually a "CBI Subsidiary"). The outstanding shares
of capital stock of each CBI Subsidiary have been duly authorized and are
validly issued, and are fully paid and nonassessable and all such shares are
directly or indirectly owned by CBI free and clear of all liens, claims and
encumbrances. No Rights are authorized, issued or outstanding with respect to
the capital stock of any CBI Subsidiary and there are no agreements,
understandings or commitments relating to the right of CBI to vote or to dispose
of said shares. None of the shares of capital stock of any CBI Subsidiary has
been issued in violation of the preemptive rights of any person.
<PAGE>
(2) Each CBI Subsidiary is a duly organized corporation,
validly existing and in good standing under applicable laws. Each CBI Subsidiary
(i) has full corporate power and authority to own, lease and operate its
properties and to carry on its business as now conducted except where the
absence of such power or authority would not have a material adverse effect on
the financial condition, results of operations or business of CBI on a
consolidated basis, and (ii) is duly qualified to do business in the states of
the United States and foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires such qualification and where
failure to do qualify would have a material adverse effect on the financial
condition, results of operations or business of CBI on a consolidated basis.
Each CBI Subsidiary has all federal, state, local and foreign governmental
authorizations and licenses necessary for it to own or lease its properties and
assets and to carry on its business as it is now being conducted, except where
failure to obtain such authorization or license would not have a material
adverse effect on the business of such CBI Subsidiary.
(e) Financial Statements. CBI's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, and all other documents filed or to be
filed subsequent to December 31, 1994 under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended (together with the rules and
regulations thereunder, the "Exchange Act"), in the form filed with the SEC (in
each such case, the "CBI Financial Statements") did not and will not contain any
untrue statement of a material fact or omit to state a material face required to
be stated therein or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading; and each of the
balance sheets in or incorporated by reference into the CBI Financial Statements
(including the related notes and schedules thereto) fairly presents and will
fairly present the financial position of the entity or entities to which it
relates as of its date and each of the statements of income and changes in
stockholders' equity and cash flows or equivalent statements in the CBI
Financial Statements (including any related notes and schedules thereto) fairly
presents and will fairly present the results of operations, changes in
stockholders' equity and changes in cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein, in
each case in accordance with generally accepted accounting principles
consistently applied to banks and bank holding companies during the periods
involved, except as may be noted therein, subject to normal and recurring
year-end audit adjustments in the case of unaudited statements.
(f) Absence of Undisclosed Liabilities. At September 30, 1995,
none of the CBI Companies, to their knowledge, had any obligation or liability
(contingent or otherwise) of any nature which were not reflected in the CBI
Financial Statements, except for those which in the aggregate are immaterial or
have been Previously Disclosed.
(g) Legal Proceedings; Compliance with Laws. Except as
Previously Disclosed, there are no actions, suits or proceedings instituted or
pending or, to the best knowledge of CBI's management, threatened or probable of
assertion against any of the CBI Companies, or against any property, asset,
interest or right of any of them, that are reasonably expected to have, either
individually or in the aggregate, a material adverse effect on the financial
condition of CBI on a consolidated basis or that are reasonably expected to
threaten or impede the consummation of the transactions contemplated by this
Agreement. None of the CBI
<PAGE>
Companies is a party to any agreement or instrument or subject to any judgment,
order, writ, injunction, decree or rule that might reasonably be expected to
have a material adverse effect on the condition (financial or otherwise),
business or prospects of CBI on a consolidated basis. Except as Previously
Disclosed, as of the date of this Agreement, none of the CBI Companies nor any
of their properties is a party to or is subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a commitment letter
or similar submission to, any federal or state governmental agency or authority
charged with the supervision or regulation of depository institutions or
mortgage lenders or engaged in the insurance of deposits which restricts or
purports to restrict in any material respect the conduct of the business to it
or any of its subsidiaries to properties, or in any manner relates to the
capital, liquidity, credit policies or management of it; and except as
Previously Disclosed, none of the CBI Companies has been advised by any such
regulatory authority that such authority is contemplating issuing or requesting
(or is considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter or similar
submission. To the best knowledge of CBI, the CBI Companies have complied in all
material respects with all laws, ordinances, requirements, regulations or orders
applicable to its business (including environmental laws, ordinances,
requirements, regulations or orders).
(h) Regulatory Approvals. CBI knows of no reason why the
regulatory approvals referred to in Section 6.1(b) should not be
obtained without the imposition of any condition of the type referred
to in Section 6.1(b).
(i) Labor Relations. None of the CBI Companies is a party to,
or is bound by any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization, nor is it the subject
of a proceeding asserting that is has committed an unfair labor practice (within
the meaning of the National Labor Relations Act) or seeking to compel it to
bargain with any labor organization as to wages and conditions of employment,
nor is there any strike or other labor dispute involving it, pending or, to the
best of its knowledge, threatened, nor is it aware of any activity involving its
employees seeking to certify a collective bargaining unit or engaging in any
other organizational activity.
(j) Tax Matters. The CBI Companies have filed all federal,
state, and local tax returns and reports required to be filed, and all taxes
shown by such returns to be due and payable have been paid or are reflected as a
liability in the CBI Financial Statements or are being contested in good faith
and have been Previously Disclosed. Except to the extent that liabilities
therefor are specifically reflected in the CBI Financial Statements, there are
no federal, state or local tax liabilities of the CBI Companies other than
liabilities that have arisen since September 30, 1995, all of which have been
properly accrued or otherwise provided for on the books and records of the CBI
Companies. Except as Previously Disclosed, no tax return or report of any of the
CBI Companies is under examination by any taxing authority or the subject of any
administrative or judicial proceeding, and no unpaid tax deficiency has been
asserted against any of the CBI Companies by any taxing authority.
(k) Property. Except as disclosed or reserved against in the
CBI Financial Statements, all of the CBI Companies have good and
marketable title free and clear of all
<PAGE>
material liens, encumbrances, charges, defaults or equities of whatever
character to all of the material properties and assets, tangible or intangible,
reflected in the CBI Financial Statements as being owned by the CBI Companies as
of the dates thereof. To the best knowledge of CBI, all buildings, and all
fixtures, equipment, and other property and assets which are material to its
business on a consolidated basis, held under leases or subleases by the CBI
Companies are held under valid instruments enforceable in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization, moratorium
and similar laws. The buildings, structures, and appurtenances owned, leased, or
occupied by the CBI Companies are, to the best knowledge of CBI, in good
operating condition, in a state of good maintenance and repair and (i) comply
with applicable zoning and other municipal laws and regulations, and (ii) there
are no latent defects therein.
(l) Reports. Since January 1, 1990, the CBI Companies have
filed all reports and statements, together with any amendments required to be
made with respect thereto, that were required to be filed with the Securities
and Exchange Commission ("SEC"), the Federal Reserve, the SCC, and any other
governmental or regulatory authority or agency having jurisdiction over their
operations.
(m) Employee Benefit Plans. (1) CBI will deliver for CBOV's
review, as soon as practicable, true and complete copies of all material
pension, retirement, profit-sharing, deferred compensation, stock option, bonus,
vacation or other material incentive plans or agreements, all material medical,
dental or other health plans, all life insurance plans and all other material
employee benefit plans or fringe benefit plans, including, without limitation,
all "employee benefit plans" as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), currently
adopted, maintained by, sponsored in whole or in part by, or contributed to by
CBI for the benefit of employees, retirees or other beneficiaries eligible to
participate (collectively, the "CBI Benefit Plans"). Any of the CBI Benefit
Plans which is an "employee pension benefit plan," as that term is defined in
Section 3(2) of ERISA, is referred to herein as a "CBI ERISA Plan." No CBI
Benefit Plan is or has been a multi-employer plan within the meaning of Section
3(37) of ERISA.
(2) Except as Previously Disclosed, all CBI Benefit Plans are
in compliance with the applicable terms of ERISA and the Internal Revenue Code
of 1986, as amended (the "IRC") and any other applicable laws, rules and
regulations the breach or violation of which could result in a material
liability to CBI on a consolidated basis.
(3) No CBI ERISA Plan which is a defined benefit pension plan
has any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, and the present fair market value of the assets of any
such plan exceeds the plan's "benefit liabilities," as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that would
apply if the plan was terminated in accordance with all applicable legal
requirements.
(n) Investment Securities. Subject to FASB 115 and except for
pledges to secure public and trust deposits and obligations under agreements
pursuant to which any of the CBI Companies has sold securities subject to an
obligation to repurchase, none of the investment
<PAGE>
securities reflected in the CBI Financial Statements is subject to any
restriction, contractual, statutory, or otherwise, which would impair materially
the ability of the holder of such investment to dispose freely of any such
investment at any time. With respect to any agreements pursuant to which any of
the CBI Companies has purchased securities subject to any agreement to resell,
it has a valid, perfected first lien or security interest in the government
securities or other collateral securing such agreement, and the value of such
collateral equals or exceeds the amount of the debt secured thereby.
(o) Certain Contracts. (1) Except as Previously Disclosed,
neither CBI nor any CBI subsidiary is a party to, or is bound by, (i) any
material agreement, arrangement or commitment, (ii) any agreement, indenture or
other instrument relating to the borrowing of money by CBI or any CBI Subsidiary
or the guarantee by CBI or any CBI Subsidiary of any such obligation, (iii) any
agreement, arrangement or commitment relating to the employment of a consultant
or the employment, election, retention in office or severance of any present or
former director or officer, (iv) any agreement to make loans or for the
provision, purchase or sale of goods, services or property between CBI or any
CBI Subsidiary and any director or officer of CBI or any CBI Subsidiary, or any
member of the immediate family or affiliate of any of the foregoing, or (v) any
agreement between CBI or any CBI Subsidiary and any 5% or more shareholder of
CBI; in each case other than agreements entered into in the ordinary course of
the banking business of CBI or a CBI Subsidiary consistent with past practice.
(2) Neither CBI or any CBI Subsidiary, nor to the knowledge of
CBI, the other party thereto, is in default under any material agreement,
commitment, arrangement, lease, insurance policy or other instrument, whether
entered into in the ordinary course of business or otherwise, nor has there
occurred any event that, with the lapse of time or giving of notice or both,
would constitute such a default, other than defaults of loan agreements by
borrowers from CBI or a CBI Subsidiary in the ordinary course of its business.
(3) Since September 30, 1995, CBI has not incurred or paid any
obligation or liability that would be material to CBI, except obligations
incurred or paid in connection with transactions in the ordinary course of
business of CBI consistent with its practice and, except as Previously
Disclosed, from September 30, 1995 to the date hereof, CBI has not taken any
action that, if taken after the date hereof, would breach any of the covenants
contained in Section 4.4 hereof.
(p) Insurance. A complete list of all policies or binders of
fire, liability, product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of the CBI Companies has previously been
furnished to CBOV and all such policies or binders are valid and enforceable in
accordance with their terms, are in full force and effect, and insure against
risks and liabilities to the extent and in the manner customary for the industry
and are deemed appropriate and sufficient by CBI. To the knowledge of CBI, the
CBI Companies are not in default with respect to any provision contained in any
such policy or binder and have not failed to give any notice or present any
claim under any such policy or binder in due and timely fashion. None of the CBI
Companies has received notice of cancellation or non-renewal of any such policy
or binder. None of the CBI Companies has knowledge of any inaccuracy in any
<PAGE>
application for such policies or binders, any failure to pay premiums when due
or any similar state of facts or the occurrence of any event that is reasonably
likely to form the basis for any material claim against it not fully covered
(except to the extent of any applicable deductible) by the policies or binders
referred to above. None of the CBI Companies has received notice from any of its
insurance carriers that any insurance premiums will be increased materially in
the future or that any such insurance coverage will not be available in the
future on substantially the same terms as now in effect.
(q) Loans, OREO, and Allowance for Loan Losses. (1) Except as
Previously Disclosed, and except for matters which individually or in the
aggregate, do not materially adversely affect the Reorganization or the
financial condition of CBI, to CBI's best knowledge each loan reflected as an
asset in the CBI Financial Statements (i) is evidenced by notes, agreements, or
other evidences of indebtedness which are true, genuine and what they purport to
be, (ii) to the extent secured, has been secured by valid liens and security
interests which have been perfected, and (iii) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles. All loans and extensions of credit which are subject to regulation
of the Federal Reserve which have been made by CBI and the CBI Subsidiaries
comply therewith.
(2) The classification on the books and records of CBI and
each CBI Subsidiary of loans and/or non-performing assets as nonaccrual,
troubled debt restructuring, OREO or other similar classification, complies in
all material respects with generally accepted accounting principles and
applicable regulatory accounting principles.
(3) Except for liens, security interests, claims, charges, or
such other encumbrances as have been appropriately reserved for in the CBI
Financial Statements or are not material, title to the OREO is good and
marketable, and there are no adverse claims or encumbrances on the OREO. All
title, hazard and other insurance claims and mortgage guaranty claims with
respect to the OREO have been timely filed and neither CBI nor any CBI
Subsidiary has been received any notice of denial of any such claim.
(4) CBI and each CBI Subsidiary are in possession of all of
the OREO or, if any of the OREO remains occupied by the mortgagor, eviction or
summary proceedings have been commenced or rental arrangements providing for
market rental rates have been agreed upon and CBI and/or each CBI Subsidiary are
diligently pursuing such eviction of summary proceedings or such rental
arrangements. Except as Previously Disclosed, no legal proceeding or quasi-legal
proceeding is pending or, to the knowledge of CBI and each CBI Subsidiary,
threatened concerning any OREO or any servicing activity or omission to provide
a servicing activity with respect to any of the OREO.
(5) Except as Previously Disclosed, all loans made by any of
the CBI Companies to facilitate the disposition of OREO are performing in
accordance with their terms.
<PAGE>
(6) The allowance for possible loan losses shown on the CBI
Financial Statements was, and the allowance for possible loan losses shown on
the financial statements of CBI as of dates subsequent to the execution of this
Agreement will be, in each case as of the dates thereof, adequate in all
material respects to provide for possible losses, net of recoveries relating to
loans previously charged off, on loans outstanding (including accrued interest
receivable) of the CBI Companies and other extensions of credit (including
letters of credit and commitments to make loans or extend credit) by CBI.
(r) Absence of Material Changes and Events. Since September
30, 1995, there has not been any material adverse change in the condition
(financial or otherwise), aggregate assets or liabilities, cash flow, earnings
or business or CBI, and CBI has conducted its business only in the ordinary
course consistent with past practice.
(s) Statements True and Correct. None of the information
supplied or to be supplied by CBI for inclusion in the Registration Statement,
the Proxy Statement/Prospectus or any other document to be filed with the SEC or
any other regulatory authority in connection with the transactions contemplated
hereby, will, at the respective time such documents are filed, and, in the case
of the Registration Statement, when it becomes effective and with respect to the
Proxy Statement/Prospectus, when first mailed to CBOV shareholders, be false or
misleading with respect to any material fact or omit to state any material fact
necessary in order to make the statements therein not misleading, or, in the
case of the Proxy Statement/Prospectus or any supplement thereto, at the time of
the CBOV Shareholders' Meeting, be false or misleading with respect to any
material fact or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the CBOV Shareholders' Meeting. All documents that CBI is responsible
for filing with the SEC or any other regulatory authority in connection with the
transactions contemplated, hereby will comply as to form in all material
respects with the provisions of applicable law, including applicable provisions
of federal and state securities law.
(t) Brokers and Finders. Neither CBI nor any CBI Subsidiary,
nor any of their respective officers, directors or employees, has employed any
broker, finder or financial advisor or incurred any liability for any fees or
commissions in connection with the transactions contemplated herein, except for
the McKinnon & Company, Inc.
(u) Repurchase Agreements. With respect to all agreements
pursuant to which CBI or any CBI Subsidiary has purchased securities subject to
an agreement to resell, if any, CBI or such CBI Subsidiary, as the case may be,
has a valid, perfected first lien or security interest in the government
securities or other collateral securing the repurchase agreement, and the value
of such collateral equals or exceeds the amount of the debt secured thereby.
(v) Administration of Trust Accounts. CBI and CBI Subsidiaries
have properly administered, in all respects material and which could reasonably
be expected to be material to the business, operations or financial condition of
CBI and CBI Subsidiaries, taken as a whole, all accounts for which they act as
fiduciaries including but not limited to accounts for which they serve as
trustees, agents, custodians, personal representatives, guardians,
<PAGE>
conservators or investment advisors, in accordance with the terms of the
governing documents and applicable state and federal law and regulation and
common law. Neither CBI nor a CBI Subsidiary, nor any director, officer or
employee of CBI or a CBI Subsidiary has committed any breach of trust with
respect to any such fiduciary account which is material to or could reasonably
be expected to be material to the business, operations or financial condition of
CBI, or a CBI Subsidiary, taken as a whole, and the accountings for each such
fiduciary account are true and correct in all material respects and accurately
reflect the assets of such fiduciary account in all material respects.
(w) Environmental Matters. (1) Except as Previously Disclosed,
to the best of CBI's knowledge, neither CBI nor any CBI Subsidiary owns or
leases any properties affected by toxic waste, radon gas or other hazardous
conditions or constructed in part with the use of asbestos. Each of CBI and the
CBI Subsidiaries is in substantial compliance with all Environmental Laws
applicable to real or personal properties in which it has a direct fee ownership
or, with respect to a direct interest as lessee, applicable to the leasehold
premises or, to the best knowledge of CBI and the CBI Subsidiaries, the premises
on which the leasehold is situated. Neither CBI nor any CBI Subsidiary has
received any Communication alleging that CBI or such CBI Subsidiary is not in
such compliance and, to the best knowledge of CBI and the CBI Subsidiaries,
there are no present circumstances (including Environmental Laws that have been
adopted but are not yet effective) that would prevent or interfere with the
continuation of such compliance.
(2) There are no legal, administrative, arbitral or other
claims, causes of action or governmental investigations of any nature, seeking
to impose, or that could result in the imposition, on CBI and the CBI
Subsidiaries of any liability arising under any Environmental Laws pending or,
to the best knowledge of CBI and the CBI Subsidiaries, threatened against (A)
CBI or any CBI Subsidiary, (B) any person or entity whose liability for any
Environmental Claim, CBI or any CBI Subsidiary has or may have retained or
assumed either contractually or by operation of law, or (C)any real or personal
property which CBI or any CBI Subsidiary owns or leases, or has been or is
judged to have managed or to have supervised or participated in the management
of, which liability might have a material adverse effect on the business,
financial condition or results of operations of CBI. CBI and the CBI
Subsidiaries are not subject to any agreement, order, judgment, decree or
memorandum by or with any court, governmental authority, regulatory agency or
third party imposing any such liability.
(3) To the best knowledge of CBI and the CBI Subsidiaries,
there are no legal, administrative, arbitral or other proceedings, or
Environmental Claims or other claims, causes of action or governmental
investigations of any nature, seeking to impose, or that could result in the
imposition, on CBI or any CBI Subsidiary of any liability arising under any
Environmental Laws pending or threatened against any real or personal property
in which CBI or any CBI Subsidiary holds a security interest in connection with
a loan or a loan participation which liability might have a material adverse
effect on the business, financial condition or results of operations of CBI. CBI
and the CBI Subsidiaries are not subject to any agreement, order, judgment,
decree or memorandum by or with any court, governmental authority, regulatory
agency or third party imposing any such liability.
<PAGE>
(4) With respect to all real and personal property owned or
leased by CBI or any CBI Subsidiary, other than OREO, CBI has made available to
CBOV copies of any environmental audits, analyses and surveys that have been
prepared relating to such properties. With respect to all OREO held by CBI or
any CBI Subsidiary and all real or personal property which CBI or any CBI
Subsidiary has been or is judged to have managed or to have supervised or
participated in the management of, CBI has made available to CBOV the
information relating to such OREO available to CBI. CBI and the CBI Subsidiaries
are in compliance in all material respects with all recommendations contained in
any environmental audits, analyses and surveys relating to any of the
properties, real or personal, described in this subsection (4).
(5) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge or disposal of any Materials of Environmental
Concern, that could reasonably form the basis of any Environmental Claim or
other claim or action or governmental investigation that could result in the
imposition of any liability arising under any Environmental Laws currently in
effect or adopted but not yet effective against CBI or any CBI Subsidiary or
against any person or entity whose liability for any Environmental Claim CBI or
any CBI Subsidiary has or may have retained or assumed either contractually or
by operation of law.
ARTICLE 4
Conduct Prior to the Effective Date
4.1 Access to Records and Properties. CBOV will keep CBI, and CBI will
keep CBOV advised of all material developments relevant to their respective
businesses prior to consummation of the Reorganization. Prior to the Effective
Date, CBI, on the one hand, and CBOV on the other, agree to give to the other
party reasonable access to all the premises and books and records (including tax
returns filed and those in preparation) of it and its subsidiaries and to cause
its officers to furnish the other with such financial and operating data and
other information with respect to the business and properties as the other shall
from time to time request for the purposes of verifying the warranties and
representations set forth herein; provided, however, that any such investigation
shall be conducted in such manner as not to interfere unreasonably with the
operation of the respective business of the other.
4.2 Confidentiality. Between the date of this Agreement and the
Effective Date, CBI and CBOV each will maintain in confidence, and cause its
directors, officers, employees, agents and advisors to maintain in confidence,
and not use to the detriment of the other party, any written, oral or other
information obtained in confidence from the other party or a third party in
connection with this Agreement or the transactions contemplated hereby unless
such information is already known to such party or to others not bound by a duty
of confidentiality or unless such information becomes publicly available through
no fault of such party, unless use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated hereby or unless the
furnishing or use of such information is required by or necessary or appropriate
in connection
<PAGE>
with legal proceedings. If the Reorganization is not consummated, each party
will return or destroy as much of such written information as may reasonably be
requested.
4.3 Registration Statement, Proxy Statement and Shareholder Approval.
The Board of Directors of CBOV, and the Board of Directors of CBI, each will
duly call and will hold a meeting of their respective shareholders as soon as
practicable for the purpose of approving the Reorganization (the "CBOV
Shareholders' Meeting" and the "CBI Shareholders' Meeting", respectively) and,
subject to the fiduciary duties of the Board of Directors of CBOV and of CBI (as
advised in writing by its counsel), CBOV and CBI each shall use its best efforts
to solicit and obtain votes of the holders of its Common Stock in favor of the
Reorganization and will comply with the provisions in their respective Articles
of Incorporation and Bylaws relating to the call and holding of a meeting of
shareholders for such purpose; each member of the Board of Directors of CBOV and
CBI shall vote all shares of CBOV Common Stock and CBI Common Stock under his
control (and not held in a fiduciary capacity) in favor of the Reorganization;
and CBOV and CBI shall, at the other's request, recess or adjourn the meeting if
such recess or adjournment is deemed by the other to be necessary or desirable.
CBI and CBOV will prepare jointly the proxy statement/prospectus to be used in
connection with the CBOV Shareholders' Meeting and the CBI Shareholders' Meeting
(the "Joint Proxy Statement"). CBI will prepare and file with the SEC the
Registration Statement, of which such Joint Proxy Statement shall be a part and
will use its best efforts to have the Registration Statement declared effective
as promptly as possible. When the Registration Statement or any post-effective
amendment or supplement thereto shall become effective, and at all times
subsequent to such effectiveness, up to and including the date of the Meeting,
such Registration Statement and all amendments or supplements thereto, with
respect to all information set forth therein furnished or to be furnished by
CBOV relating to CBOV and by CBI relating to the CBI Companies, (i) will comply
in all material respects with the provisions of the Securities Act of 1933 and
any other applicable statutory or regulatory requirements, including applicable
state blue-sky and securities laws, and (ii) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading; provided, however, in no event shall any party hereto be liable for
any untrue statement of a material fact or omission to state a material fact in
the Registration Statement made in reliance upon, and in conformity with,
written information concerning another party furnished by such other party
specifically for use in the Registration Statement.
4.4 Operation of the Business of CBOV and CBI. CBOV and CBI each agrees
that from the date hereof to the Effective Date it will operate its business
substantially as presently operated and only in the ordinary course, and,
consistent with such operation, it will use its best efforts to preserve intact
its relationships with persons having business dealings with it. Without
limiting the generality of the foregoing, CBOV and CBI each agrees that it will
not, without the prior written consent of the other:
(a) Make any change in its authorized capital stock, or issue
or sell any additional shares of, securities convertible into or exchangeable
for, or options, warrants or rights to purchase, its capital stock, nor shall it
purchase, redeem or otherwise acquire any of
<PAGE>
its outstanding shares of capital stock, provided that CBI and CBOV each may
issue shares of common stock pursuant to options granted or issued prior to the
date hereof:
(b) Voluntarily make any changes in the composition of
its officers, directors or other key management personnel;
(c) Make any change in the compensation or title of any
officer, director of key management employee or make any change in the
compensation or title of any other employee, other than permitted by current
employment policies in the ordinary course of business, any of which changes
shall be reported promptly to the other party;
(d) Enter into any bonus, incentive compensation, stock
option, deferred compensation, profit sharing, thrift, retirement, pension,
group insurance or other benefit plan or any employment or consulting agreement;
(e) Incur any obligation or liability (whether absolute or
contingent, excluding suits instituted against it), make any pledge, or encumber
any of its assets, nor dispose of any of its assets in any other manner, except
in the ordinary course of its business and for adequate value, or as otherwise
specifically permitted in this Agreement;
(f) Except as permitted by Section 4.4(a) hereof, issue or
contract to issue any shares of its Common Stock, options for shares of its
Common Stock, or securities exchangeable for or convertible into such shares;
(g) Knowingly waive any right to substantial value:
(h) Enter into material transactions otherwise than in
the ordinary course of its business;
(i) Alter, amend or repeal its Bylaws or Articles of
Incorporation; or
(j) Propose or take any other action which would make any
representation or warranty in Section 3.1 or Section 3.2 hereof untrue.
4.5 Dividends. CBI and CBOV each agree that the other may declare and
pay only regular periodic cash dividends in the ordinary course of business and
consistent with past practice from the date of this Agreement through the
Effective Date.
4.6 No Solicitation. (a) Unless and until this Agreement shall have
been terminated pursuant to its terms, neither CBOV nor any of its officers,
directors, representatives or agents shall, directly or indirectly, (i)
encourage, solicit or initiate discussions or negotiations with any person other
than CBI concerning any merger, share exchange, sale of substantial assets,
tender offer, sale of shares of capital stock or similar transaction involving
CBOV, (ii) enter into any agreement with any third party providing for a
business combination transaction, equity investment or sale of a significant
amount of assets, or (iii) furnish any information to any other
<PAGE>
person relating to or in support of such transaction. CBOV will promptly
communicate to CBI the terms of any proposal which it may receive in respect to
any of the foregoing transactions.
(b) Unless and until this Agreement shall have been terminated pursuant
to its terms, neither CBI nor any of its officers, directors, representatives or
agents shall, directly or indirectly, (i) encourage, solicit or initiate
discussions or negotiations with any person other than CBOV concerning any
merger, share exchange, sale of substantial assets, tender offer, sale of shares
of capital stock or similar transaction involving CBI, (ii) enter into any
agreement with any third party providing for a business combination transaction,
equity investment or sale of a significant amount of assets, or (iii) furnish
any information to any other person relating to or in support of such
transaction. CBI will promptly communicate to CBOV the terms of any proposal
which it may receive in respect to any of the foregoing transactions.
4.7 Regulatory Filings. CBI and CBOV shall prepare jointly all
regulatory filings required to consummate the transactions contemplated by the
Agreement and the Plan of Share Exchange and submit the filings for approval
with the Federal Reserve Board and the SCC, and any other governing regulatory
authority, as soon as practicable after the date hereof. CBI and CBOV shall use
their best efforts to obtain approvals of such filings.
4.8 Public Announcements. Each party will consult with the other before
issuing any press release or otherwise making any public statements with respect
to the Reorganization and shall not issue any such press release or make any
such public statement prior to such consultations except as may be required by
law.
4.9 Notice of Breach. CBI and CBOV will give written notice to the
other promptly upon becoming aware of the impending or threatened occurrence of
any event which would cause or constitute a breach of any of the
representations, warranties or covenants made to the other party in this
Agreement and will use its best efforts to prevent or promptly remedy the same.
4.10 Accounting Treatment. CBI and CBOV shall each use their best
efforts to ensure that the Reorganization qualifies for pooling-of-interests
accounting treatments.
4.11 Reorganization Consummation. Subject to the terms and conditions
of this Agreement, each party shall use its best efforts in good faith to take,
or cause to be taken, all actions, and to do or cause to be done all things
necessary, proper or desirable, or advisable under applicable laws, as promptly
as practicable so as to permit consummation of the Reorganization at the
earliest possible date, consistent with Section 1.3 herein, and to otherwise
enable consummation of the transactions contemplated hereby and shall cooperate
fully with the other parties hereto to that end, and each of CBOV and CBI shall
use, and shall cause each of their respective subsidiaries to use, its best
efforts to obtain all consents (governmental or other) necessary or desirable
for the consummation of the transactions contemplated by this Agreement.
4.12 Amendment to Articles of Incorporation. At the CBI
Shareholders' Meeting, the CBI Board of Directors shall solicit the approval of
the shareholders of CBI of an
<PAGE>
amendment to the Articles of Incorporation of CBI sufficient to permit the
appointment of all CBOV Directors to the CBI Board in accordance with Section
1.2 hereof.
4.13 Employment Contracts. CBI and CBOV each will use its best
efforts to cause all employment contracts to which it is a party to be amended
in the manner described in Section 6.1(h).
ARTICLE 5
Additional Agreements
5.1 Conversion of Stock Options. (a) On the Effective Date, all rights
with respect to CBOV Common Stock pursuant to stock options ("CBOV Options")
granted by CBOV under a CBOV stock option plan which are outstanding on the
Effective Date, whether or not they exercisable, shall be converted into and
become rights with respect to CBI Common Stock, and CBI shall assume each CBOV
Option in accordance with the terms of the stock option plan under which it was
issued and the stock option agreement by which it is evidenced. From the
Effective Date forward, (i) each CBOV Option assumed by CBI may be excised
solely for shares of CBI Common Stock, (ii) the number of shares of CBI Common
Stock subject to each CBOV Option shall be equal to the number of shares of CBOV
Common Stock subject to such option immediately prior to the Effective Date
multiplied by the Exchange Ratio and (iii) the per share exercise price under
each such CBOV Option shall be adjusted by dividing the per share exercise price
under each such option by the Exchange Ratio and rounding down to the nearest
cent; provided, however, that the terms of each CBOV Option shall, in accordance
with its terms, be subject to further adjustment as appropriate to reflect any
stock split, stock dividend, recapitalization or other similar transaction after
the Effective Date. It is intended that the foregoing assumption shall be
undertaken in a manner that will not constitute a "modification" as defined in
Section 425 of the Code, as to any stock option which is an "incentive stock
option."
5.2 Accounting Treatment. This Reorganization shall qualify for
pooling-of-interests accounting treatment.
5.3 Benefit Plans. Upon consummation of the Reorganization, as soon as
administratively practicable and subject to CBI's best efforts, employees of
CBOV shall be entitled to participate in CBI pension, benefit, health and
similar plans on the same terms and conditions as employees of CBI and its
subsidiaries, without waiting periods or exceptions for pre-existing conditions
and giving effect to years of service with CBOV as if such service were with
CBI. Alternatively, subject to applicable law, CBOV may maintain any or all of
the CBOV employee benefit plans that currently are in effect. Provided
employment contracts are amended in the manner described in Section 6.1(h), CBI
also shall assume and honor in accordance with their terms as in effect on the
date hereof (or as amended after the date hereof with the prior written consent
of CBI), all employment, severance, consulting and other compensation contracts
and agreements Previously Disclosed and executed in writing by CBOV on the one
hand and any individual current or former director, officer or employee thereof
on the other hand, including
<PAGE>
the CBOV Directors' deferred fee plan, copies of which have previously been
delivered by CBOV to CBI.
5.4 Indemnification. CBI agrees that following the Effective Date, it
shall indemnify and hold harmless any person who has rights to indemnification
from CBOV, to the same extent and on the same conditions as such person is
entitled to indemnification pursuant to Virginia law and CBOV's Articles of
Incorporation or Bylaws, as in effect on the date of this Agreement, to the
extent legally permitted to do so, with respect to matters occurring on or prior
to the Effective Date. CBI further agrees that any such person who has rights to
indemnification pursuant to this Section 5.4 is expressly made a third party
beneficiary of this Section 5.4 and may directly, in such person's personal
capacity, enforce such rights through an action at law or in equity or through
any other manner or means of redress allowable under Virginia law to the same
extent as if such person were a party hereto. Without limiting the foregoing, in
any case in which corporate approval may be required to effectuate any
indemnification, CBI shall direct, at the election of the party to be
indemnified, that the determination of permissibility of indemnification shall
be made by independent counsel mutually agreed upon between CBI and the
indemnified party. CBI shall use its reasonable best efforts to maintain CBOV's
existing directors' and officers' liability policy, or some other policy,
including CBI's existing policy, providing at least comparable coverage,
covering persons who are currently covered by such insurance of CBOV on terms no
less favorable than those in effect on the date hereof.
ARTICLE 6
Conditions to the Reorganization
6.1 Conditions to Each Party's Obligations to Effect the
Reorganization. The respective obligations of each of CBI and CBOV to effect the
Reorganization and the other transaction contemplated by this Agreement shall be
subject to the fulfillment or waiver at or prior to the Effective Date of the
following conditions:
(a) Shareholder Approvals. Shareholders of CBOV and of
CBI shall have approved all matters relating to this Agreement and the
Reorganization required to be approved by such shareholders in accordance with
Virginia law.
(b) Regulatory Approvals. This Agreement and the Plan of Share
Exchange shall have been approved by the Federal Reserve, the SCC, and any other
regulatory authority whose approval is required for consummation of the
transactions contemplated hereby, and such approvals shall not have imposed any
condition or requirement which would so materially adversely impact the economic
or business benefits of the transactions contemplated by this Agreement as to
render inadvisable the consummation of the Reorganization in the reasonable
opinion of the Board of Directors of CBI or CBOV.
(c) Registration Statement. The Registration Statement
shall have been declared effective and shall not be subject to a stop order or
any threatened stop order.
<PAGE>
(d) Tax Opinion. CBI and CBOV shall have received an opinion
of Williams, Mullen, Christian & Dobbins, or other counsel reasonably
satisfactory to CBI and CBOV, to the effect that the Reorganization will
constitute a reorganization within the meaning of Section 368 of the Internal
Revenue Code and that no gain or loss will be recognized by the shareholders of
CBOV to the extent they receive CBI Common Stock solely in exchange for their
CBOV Common Stock in the Reorganization.
(e) Accountants' Letter. CBI and CBOV shall have received a
letter, dated as of the Effective Date, from Mitchell, Wiggins & Company,
satisfactory in form and substance to each of CBI and CBOV, that the
Reorganization will qualify for pooling-of-interests accounting treatment under
generally accepted accounting principles.
(f) Opinions of Counsel. CBOV shall have delivered to CBI and
CBI shall have delivered to CBOV opinions of counsel, dated as of the Effective
Date, as to such matters as they may each reasonably request with respect to the
transactions contemplated by this Agreement and in a form reasonably acceptable
to each of them.
(g) Legal Proceedings. Neither CBI nor CBOV shall be
subject to any order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits the consummation of the
Reorganization.
(h) Employment Contracts. All employment contracts of CBI and
CBOV shall have been effectively amended in order that the Reorganization shall
not be considered a change of control that would entitle any employee of CBI or
CBOV to any special severance payments after the Effective Date.
6.2 Conditions to Obligations of CBI. The obligations of CBI to effect
the Reorganization shall be subject to the fulfillment or waiver at or prior to
the Effective Date of the following additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties contained herein of CBOV shall be true and
correct as of the date of this Agreement and upon the Effective Date with the
same effect as though all such representations and warranties had been made on
the Effective Date, except (i) for any such representations and warranties made
as of a specified date, which shall be true and correct as of such date, (ii) as
expressly contemplated by this Agreement, or (iii) for representations and
warranties the inaccuracies of which relate to matters that, individually or in
the aggregate, do not materially adversely affect the Reorganization and the
other transactions contemplated by this Agreement and CBI shall have received a
certificate or certificates signed by the Chief Executive Officer and Chief
Financial Officer of CBOV dated the Effective Date, to such effect.
(b) Performance of Obligations. CBOV shall have performed in
all material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date, and CBI shall have received a certificate
signed by the Chief Executive Officer of CBOV to that effect.
<PAGE>
(c) Affiliate Letters. Each shareholder of CBOV who may be
deemed by counsel for CBI to be an "affiliate" of CBOV within the meaning of
Rule 145 under the Securities Act of 1933 shall have executed and delivered a
commitment and undertaking to the effect that (1) such shareholder will dispose
of the shares of CBI Common Stock received by him in connection with the
Reorganization only in accordance with the provisions of paragraph (d) of Rule
145 and in a manner that would not prevent the Reorganization from qualifying
for pooling-of-interests accounting treatment; (2) such shareholders will not
dispose of any such shares until CBI has received an opinion of counsel
acceptable to it that such proposed disposition will not violate the provisions
of any applicable security laws; and (3) the certificates representing said
shares may bear a conspicuous legend referring to the forgoing restrictions.
(d) Investment Banking Letter. CBI shall have received a
written opinion in form and substance satisfactory to CBI from McKinnon &
Company, Inc. addressed to CBI and dated the date the Proxy Statement/Prospectus
is mailed to shareholders of CBI, or in the alternative on the Effective Date,
to the effect that the terms of the Reorganization, including the Exchange
Ratio, are fair, from a financial point of view, to CBI. At its option CBI may
require that such fairness opinion be updated as of the Effective Date and, in
such event, it shall also be a condition to CBI'S obligation to consummate the
Reorganization that CBI receive such updated fairness opinion.
6.3 Conditions to Obligations of CBOV. The obligations of CBOV to
effect the Reorganization shall be subject to the fulfillment or waiver at or
prior to the Effective Date of the following additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties contained herein of CBI shall be true and correct
as of the date of this Agreement and upon the Effective Date with the same
effect as though all such representations and warranties had been made on the
Effective date, except (i) for any such representations and warranties made as
of a specified date, which shall be true and correct as of such date, (ii) as
expressly contemplated by this Agreement, or (iii) for representations and
warranties the inaccuracies of which relate to matters that, individually or in
the aggregate, do not materially adversely affect the Reorganization and the
other transactions contemplated by this Agreement and CBOV shall have received a
certificate or certificates signed by the Chief Executive Officer and Chief
Financial Officer of CBI dated the Effective Date, to such effect.
(b) Performance of Obligations. CBI shall have performed in
all material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date, and CBOV shall have received a
certificate signed by Chief Executive Officer of CBI to that effect.
(c) Investment Banking Letter. CBOV shall have received a
written opinion in form and substance satisfactory to CBOV from McKinnon &
Company, Inc. addressed to CBOV and dated the date the Proxy
Statement/Prospectus is mailed to shareholders of CBOV, to the effect that the
terms of the Reorganization, including the Exchange Ratio, are fair, from a
financial point of view, to CBOV. At its option, CBOV may require that such
fairness opinion
<PAGE>
be updated as of the Effective Date and, in such event, it shall also be a
condition to CBOV's obligation to consummate the Reorganization that CBOV
receive such updated opinion.
(d) Amendment to Articles of Incorporation. The Articles of
Incorporation of CBI shall have been amended to permit the appointment of all
CBOV Directors to the CBI Board in accordance with Section 1.2 hereof.
ARTICLE 7
Termination
7.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement and the Plan of Share
Exchange by the shareholders of CBI and CBOV, this Agreement may be terminated
and the Reorganization abandoned at any time prior to the Effective Date:
(a) By the mutual consent of the Board of Directors of
each of CBI and CBOV;
(b) By the respective Boards of Directors of CBI or CBOV
if the conditions set forth in Section 6.1 have not been met or waived by CBI
and CBOV;
(c) By the Board of Directors of CBI if the conditions
set forth in Section 6.2 have not been met or waived by CBI;
(d) By the Board of Directors of CBOV if the conditions
set forth in Section 6.3 have not been met or waived by CBOV;
(e) By the respective Boards of Directors of CBI or CBOV
if the Reorganization is not consummated by August 31, 1996.
(f)(i) By the Board of Directors of CBI if the Board of
Directors of CBOV receives a subsequent offer to acquire CBOV and does not
within fourteen (14) days after receipt of such subsequent offer confirm in
writing to CBI that each member of the Board of Directors of CBOV supports the
Reorganization, will vote his shares of CBOV Common Stock in favor of the
Reorganization, and will recommend to the shareholders of CBOV that they approve
the Reorganization.
(ii) By the Board of Directors of CBOV if the Board of
Directors of CBI receives a subsequent offer to acquire CBI and does not within
fourteen (14) days after receipt of such subsequent offer confirm in writing to
CBOV that each member of the Board of Directors of CBI supports the
Reorganization, will vote his shares of CBI Common Stock in favor of the
Reorganization, and will recommend to the shareholders of CBI that they approve
the Reorganization.
<PAGE>
(g) By the Board of Directors of CBOV if, before the Effective
Date, CBI shall enter into any agreement or letter of intent providing for the
direct or indirect acquisition of substantially all of the assets and
liabilities or voting stock of CBI.
7.2 Effect of Termination. In the event of the termination and
abandonment of this agreement and the Reorganization pursuant to Section 7.1,
this Agreement shall become void and have no effect, except that (i) the last
sentence of Section 4.2 and all of Sections 4.8 and 7.4 shall survive any such
termination and abandonment and (ii) no party shall be relieved or released from
any liability arising out of an intentional breach of any provision of this
Agreement.
7.3 Non-Survival of Representations, Warranties and Covenants. Except
for Sections 1.2, 1.4, 2.1, 2.2, 2.3, 2.4, 5.3, 5.4 and 7.4 of this Agreement,
none of the respective representations and warranties, obligations, covenants
and agreements of the parties shall survive the Effective Date, provided that no
such representations, warranties, obligations, covenants and agreements shall be
deemed to be terminated or extinguished so as to deprive CBI or CBOV (or any
director, officer, or controlling person thereof) of any defense in law or
equity which otherwise would be available against the claims of any person,
including without limitation any shareholder or former shareholder of either CBI
or CBOV.
7.4 Expenses. The parties provide for the payment of expenses as
follows:
(a) Except as provided below, each of the parties shall bear
and pay all costs and expenses incurred by it or on its behalf in connection
with the transactions contemplated herein, including fees and expenses of its
own consultants, investment bankers, accountants and counsel.
(b) Notwithstanding the provisions of Section 7.4(a) hereof,
if for any reason the Reorganization is not approved by the shareholders of
either party as required, that party shall bear and pay 50% of the costs and
expenses incurred by the other party with respect to the fees and expenses of
accountants, counsel, printers and persons involved in the transactions
contemplated by this Agreement, including the preparation of the Registration
Statement and the Joint Proxy Statement.
(c) If this Agreement is terminated by CBI or CBOV because of
a willful and material breach by the other of any representation, warranty,
covenant, undertaking or restriction set forth herein, and provided that the
terminating party shall not have been in breach (in any material respect) of any
representation and warranty, covenant, undertaking or restriction contained
herein, then the breaching party shall bear and pay all such costs and expenses
of the other party, including fees and expenses of consultants, investment
bankers, accountants, counsel, printers, and persons involved in the
transactions contemplated by this Agreement, including the preparation of the
Registration Statement and the Joint Proxy Statement.
(d) (i) If this Agreement is terminated by CBI pursuant to
Section 7.1(f)(i), then CBOV shall pay all of the costs and expenses incurred by
CBI relating to the Reorganization including, fees and expenses of consultants,
investment bankers, accountants,
<PAGE>
counsel, printers and persons involved in the transactions contemplated by this
Agreement, including the preparation of the Registration Statement and the Joint
Proxy Statement.
(ii) If this Agreement is terminated by CBOV pursuant to
Section 7.1(f)(ii), then CBI shall pay all of the costs and expenses incurred by
CBI relating to the Reorganization including, fees and expenses of consultants,
investment bankers, accountants, counsel, printers and persons involved in the
transactions contemplated by this Agreement, including the preparation of the
Registration Statement and the Joint Proxy Statement.
(e) Any liability to the other incurred by CBOV or CBI
pursuant to this Section 7.4 shall not exceed a total of $50,000.
(f) Final settlement with respect to the payment of such fees
and expenses by the parties shall be made within thirty (30) days after the
termination of this Agreement.
ARTICLE 8
General Provisions
8.1 Entire Agreement. This Agreement contains the entire agreement
among CBI and CBOV with respect to the Reorganization and the related
transactions and supersedes all prior arrangements or understandings with
respect thereto.
8.2 Waiver and Amendment. Any term or provision of this Agreement may
be waived in writing at any time by the party which is, or whose shareholders
are, entitled to the benefits thereof, and this Agreement may be amended or
supplemented by written instructions duly executed by the parties hereto at any
time, whether before or after the meetings of CBOV and CBI shareholders referred
to in Section 6.1(a) hereof, except statutory requirements and requisite
approvals of shareholders and regulatory authorities.
8.3 Descriptive Headings. Descriptive headings are for convenience only
and shall not control or affect the meaning and construction of any provisions
of this Agreement.
8.4 Governing Law. Except as required otherwise or otherwise indicated
herein, this Agreement shall be construed and enforced according to the laws of
the Commonwealth of Virginia.
8.5 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by registered or certified mail, postage prepaid, addressed as follows:
<PAGE>
If to CBI:
Nathan S. Jones, 3rd, President
Community Bankshares Incorporated
200 North Sycamore Street
Petersburg, Virginia 23804
(Tel. 804-861-2320)
Copy to:
Wayne A. Whitham, Jr.
Williams, Mullen, Christian & Dobbins
1021 East Cary Street
P.O. Box 1320
Richmond, Virginia 23210-1320
(Tel. 804-783-6473)
If to CBOV:
Richard C. Huffman, President
Commerce Bank of Virginia
Post Office Box 29569
Richmond, Virginia 23242-0569
(Tel. 804-360-2222)
Copy to:
Sam T. Beale
Beale, Balfour and Davidson
701 East Franklin Street, #1200
Richmond, Virginia 23219
(Tel. 804-788-1500)
8.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same agreement.
8.7 Severability. In the event any provisions of this Agreement shall
be held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provisions
hereof. Any provision of this Agreement held invalid or unenforceable only in
part or degree shall remain in full force and effect to the extent not held
invalid or unenforceable. Further, the parties agree that a court of competent
jurisdiction may reform any provision of this Agreement held invalid or
unenforceable so as to reflect the intended agreement of the parties hereto.
<PAGE>
8.8 Brokers and Finders. Except for McKinnon & Company, Inc. as to CBI
and McKinnon & Company, Inc. as to CBOV, each of the parties represents and
warrants that neither it nor any of its officers, directors, employees,
affiliates, or subsidiaries has employed any broker or finder or incurred any
liability for any financial advisory fees, investment banker's fees, brokerage
fees, commissions, or finders' fees in connection with this Agreement or the
transactions contemplated hereby. In the event of any claim by any broker or
finder based upon his or its representing or being retained by or allegedly
representing or being retained by either CBI or CBOV, CBI or CBOV, as the case
may be, agrees to indemnify and hold the other party harmless of and from any
such claim.
8.9 Subsidiaries. All representations, warranties, and covenants
herein, where pertinent, include and shall apply to the wholly owned
subsidiaries belonging to the party making such representations, warranties, and
covenants.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in counterparts by their duly authorized officers and
their corporate seals to be affixed hereto, all as of the dates first written
above.
Community Bankshares Incorporated
By: /s/ NATHAN S. JONES, 3RD
Nathan S. Jones, 3rd
President and Chief Executive Officer
ATTEST:
/s/ PHILLIP H. KIRKPATRICK
Secretary
Commerce Bank of Virginia
By: /s/ RICHARD C. HUFFMAN
Richard C. Huffman
President and Chief Executive Officer
ATTEST:
/s/ SAM T. BEALE
Secretary
<PAGE>
Commerce Bank of Virginia
BOARD OF DIRECTORS
Each of the undersigned members of the Board of Directors of Commerce
Bank of Virginia agrees to be bound by his personal obligations as provided in
Section 4.3 and 4.6 of this Agreement.
/s/ SAM T. BEALE
Sam T. Beale
/s/ JAMES R. V. DANIEL
James R. V. Daniel
/s/ JAMES E. BLOOM
James E. Bloom
/s/ RALPH FIELDS
Ralph Fields
/s/ DAVID E. HUDGINS
David E. Hudgins
/s/ BARRY M. KORNBLAU
Barry M. Kornblau
/s/ LAWRENCE B. NUCKOLS
Lawrence B. Nuckols
/s/ JOHN D. SEAL, III
John D. Seal, III
/s/ R. C. HUFFMAN
R. C. Huffman
<PAGE>
Community Bankshares Incorporated
BOARD OF DIRECTORS
Each of the undersigned members of the Board of Directors of Community
Bankshares Incorporated agrees to be bound by his personal obligations as
provided in Section 4.3 and 4.6 of this Agreement.
/s/ LAWRENCE F. DESOUZA
Lawrence F. DeSouza
/s/ ELINOR B. MARSHALL
Elinor B. Marshall
/s/ ALVIN L. SHEFFIELD
Alvin L. Sheffield
/s/ JAMES A. BOYD
James A. Boyd
/s/ PHILLIP H. KIRKPATRICK
Dr. Phillip H. Kirkpatrick
/s/ LOUIS C. SHELL
Louis C. Shell
/s/ B. GLENN HOLDEN
Dr. B. Glenn Holden
/s/ NATHAN S. JONES, 3rd
Nathan S. Jones, 3rd
/s/ HAROLD L. VAUGHN
Harold L. Vaughn
/s/ W. COURTNEY WELLS
W. Courtney Wells
<PAGE>
EXHIBIT A
to the
Agreement and Plan
of Reorganization
PLAN OF SHARE EXCHANGE
BETWEEN
Commerce Bank of Virginia
AND
Community Bankshares Incorporated
Pursuant to this Plan of Share Exchange ("Plan of Share Exchange"),
Commerce Bank of Virginia ("CBOV"), a Virginia state bank, shall become a
wholly-owned subsidiary of Community Bankshares Incorporated ("CBI"), a Virginia
corporation pursuant to a share exchange under Section 13.1-717 of the Virginia
Stock Corporation Act.
ARTICLE 1
Terms of the Share Exchange
1.1 The Share Exchange. Subject to the terms and conditions of the
Agreement and Plan of Reorganization, dated as of December 12, 1995 between CBOV
and CBI, at the Effective Date, CBOV shall become a wholly-owned subsidiary of
CBI through the exchange of each outstanding share of common stock of CBOV for
shares of the common stock of CBI in accordance with Section 2.1 of this Plan of
Share Exchange and pursuant to a share exchange under Section 13.1-717 of the
Virginia Stock Corporation Act (the "Share Exchange"). At the Effective Date,
the Share Exchange shall have the effect as provided in Section 13.1-721 of the
Virginia Stock Corporation Act.
1.2 Articles of Incorporation and Bylaws. The Articles of Incorporation
and Bylaws of CBI in effect immediately prior to the consummation of the Share
Exchange shall remain in effect following the Effective Date until otherwise
amended or repealed.
1.3 Management and Business of CBOV and CBI. The directors, officers
and employees of CBOV will not change as a result of the Reorganization. The
members of the CBOV Board shall become directors of CBI on the Effective Date.
When the CBOV directors become directors of CBI, three members of the CBOV Board
shall become members of each of the three classes of CBI Directors, as
determined by the CBOV Board. The CBOV Directors appointed to Class I shall
serve until the 1998 annual meeting of shareholders; those appointed to Class II
shall serve until the 1999 annual meeting of shareholders; and those appointed
to Class III shall serve until the 1997 annual meeting of shareholders. The
parties anticipate that immediately before the Effective Date CBI will have ten
directors and CBOV will have nine directors. As a result of the Reorganization,
CBI will have 19 directors on and after the Effective Date. It is the intention
of CBI and CBOV that after the Effective Date, directors of
<PAGE>
CBOV, or individuals designated by directors of CBOV, shall continue to
constitute nine nineteenths (9/19) of the Board of CBI and the parties shall use
their best efforts to maintain that ratio. The parties also acknowledge,
however, that such ratio might change as a result of unanticipated events,
including, for example, the acquisition in the future of another bank by CBI.
The parties intend that after the Effective Date, the chief executive officer of
CBOV and the chief executive officer of The Community Bank, a wholly owned
subsidiary of CBI, each will attend the meetings of the other's Board of
Directors.
ARTICLE 2
Manner of Exchanging Shares
2.1 Conversion of Shares. Upon, and by reason of, the Share Exchange
becoming effective pursuant to the issuance of a Certificate of Share Exchange
by the Virginia State Corporation Commission, no cash, except as set forth in
Section 2.3 below, shall be allocated to the shareholders of CBOV, and stock
shall be issued and allocated as follows:
(a) Each share of common stock, par value $3.50 per share, of
CBOV ("CBOV Common Stock") issued and outstanding immediately prior to the
Effective Date shall, by operation of law, be automatically exchanged for 1.4044
(the "Exchange Ratio") shares of common stock of CBI, par value $3.00 per share
(CBI Common Stock), plus cash for fractional shares. Each holder of a
certificate representing any shares of CBOV Common Stock upon the surrender of
his CBOV stock certificates to CBI, duly endorsed for transfer in accordance
with Section 2.2 below, will be entitled to receive in exchange therefor a
certificate or certificates representing the number of shares of CBI Common
Stock that his shares shall be converted into pursuant to the Exchange Ratio.
Each such holder of CBOV Common Stock shall have the right to receive any
dividends previously declared but unpaid as to such stock and the consideration
described in Sections 2.1 and 2.4 upon the surrender of such certificate in
accordance with Section 2.3. In the event CBI changes the number of shares of
CBI Common Stock issued and outstanding prior to the Effective Date as a result
of any stock split, stock dividends, recapitalization or similar transaction
with respect to the outstanding CBI Common Stock and the record date therefor
shall be prior to the Effective Date, the Exchange Ratio shall be
proportionately adjusted.
(b) Shares of CBOV Common Stock issued and outstanding shall,
by virtue of the Reorganization, continue to be issued and outstanding shares
held by CBI.
2.2 Conversion of Stock Options. (a) On the Effective Date, all rights
with respect to CBOV Common Stock pursuant to stock options ("CBOV Options")
granted by CBOV under a CBOV stock option plan which are outstanding on the
Effective Date, whether or not then exercisable, shall be converted into and
become rights with respect to CBI Common Stock, and CBI shall assume each CBOV
Option in accordance with the terms of the stock option plan under which it was
issued and the stock option agreement by which it is evidenced. From the
Effective Date forward, (i) each CBOV Option assumed by CBI may be exercised
solely for
<PAGE>
shares of CBI Common Stock, (ii) the number of shares of CBI Common Stock
subject to each CBOV Option shall be equal to the number of shares of CBOV
Common Stock subject to such option immediately prior to the Effective Date
multiplied by the Exchange Ratio and (iii) the per share exercise price under
each such CBOV Option shall be adjusted by dividing the per share exercise price
under each such option by the Exchange Ratio and rounding down to the nearest
cent; provided, however, that the terms of each CBOV Option shall, in accordance
with its terms, be subject to further adjustment as appropriate to reflect any
stock split, stock dividend, recapitalization or other similar transaction after
the Effective Date. It is intended that the forgoing assumption shall be
undertaken in a manner that will not constitute a "modification" as defined in
Section 425 of the Code, as to any stock option which is an "incentive stock
option."
(b) Pursuant to approval of this Plan of Share Exchange, the
CBI stock option plan shall be amended to increase the number of authorized
shares to cover the conversion of the CBOV Options into options to purchase CBI
common stock pursuant to Section 2.2(a) above and to otherwise provide for
conversion of the CBOV Options as described herein.
2.3 Manner of Exchange. As promptly as practicable after the Effective
Date, CBI shall cause The Community Bank, acting as the exchange agent
("Exchange Agent") to send to each former shareholder of record of CBOV
immediately prior to the Effective Date transmittal materials for use in
exchanging such shareholder's certificates of CBOV Common Stock (other than
shares held by shareholders who perfect their dissenter's rights as provided
under Section 2.5 hereof) for the consideration set forth in Section 2.1 above
and Section 2.4 below. Any fractional share checks which a CBOV shareholder
shall be entitled to receive in exchange for such shareholder's shares of CBOV
Common Stock, and any dividends paid on any shares of CBI Common Stock that such
shareholder shall be entitled to receive prior to the delivery to the Exchange
Agent of such shareholder's certificates representing all of such shareholder's
shares of CBOV Common Stock will be delivered to such shareholder only upon
delivery to the Exchange Agent of the certificates representing all of such
shares (or indemnity satisfactory to CBI and the Exchange Agent, in their
judgment, if any of such certificates are lost, stolen or destroyed). No
interest will be paid on any such fractional share checks or dividends to which
the holder of such shares shall be entitled to receive upon such delivery.
2.4 No Fractional Shares. No certificates or scrip for fractional
shares of CBI Common Stock will be issued. In lieu thereof, CBI will pay the
value of such fractional shares in cash on the basis of the book value per share
of CBI Common Stock at the end of the calendar quarter that immediately precedes
the Effective Date.
2.5 Dividends. No dividend or other distribution payable to the holders
of record of CBI Common Stock at or as of any time after the Effective Date
shall be paid to the holder of any certificate representing shares of CBOV
Common Stock issued and outstanding immediately prior to the Effective Date
until such holder physically surrenders such certificate for exchange as
provided in Section 2.3, promptly after which time all such dividends or
distributions shall be paid by CBI (without interest).
<PAGE>
2.6 Rights of Dissenting Shareholders. Shareholders of CBOV who object
to the Share Exchange will be entitled to the dissenters' rights and remedies
set forth in sections 13.1- 729 through 13.1-741 of the Virginia Stock
Corporation Act.
ARTICLE 3
Termination
This Plan of Share Exchange may be terminated at any time prior to the
Effective Date by the parties hereto as provided in Article 7 of the Agreement
and Plan of Reorganization, dated December 12, 1995, between the parties.
<PAGE>
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C O N T E N T S
GENERAL INFORMATION
INDEPENDENT AUDITORS' REPORT ON THE
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Income for the Years Ended December 31,
1995, 1994, and 1994
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
DIRECTORS AND EXECUTIVE OFFICERS
<PAGE>
CORPORATE HEADQUARTERS
Community Bankshares Incorporated
200 North Sycamore Street
Post Office Box 2166
Petersburg, Virginia 23804
SUBSIDIARY BANK
The Community Bank
200 North Sycamore Street
Post Office Box 2166
Petersburg, Virginia 23804
MARKET INFORMATION
The Company Stock is listed in the National Quotation Bureau "pink
sheets", and three dealers make a work out market. These dealers are Anderson
and Strudwick, Inc., Davenport and Company of Virginia, Inc., and McKinnon and
Company, Inc.
As of March 21, 1996, the Company had 731 shareholders of record of its
Common Stock. The following table sets forth the information known to management
concerning trading in Community Bankshares Incorporated Common Stock for 1995
and 1994.
<TABLE>
<CAPTION>
CBI Market Price and Dividends
Sales Price (1) Dividends (1)
Number of --------------------------------------
Shares High Low
-----------------------------------------
<S> <C> <C> <C> <C>
1994:
1st quarter 20,399 8.625 8.000 .015
2nd quarter 10,794 9.125 8.500
3rd quarter 87,842 9.720 9.000
4th quarter 29,856 10.500 9.500
1995:
1st quarter 28,500 10.625 10.500 .175
2nd quarter 36,982 11.500 10.500
3rd quarter 41,680 11.250 10.500
4th quarter 72,288 13.250 10.500
</TABLE>
- -------------
(1) All prices and dividends are adjusted for a 100% stock dividend paid on
August 31, 1995.
DIVIDENDS
The Company declared dividends of $201,250 on its Common Stock in February,
1996. The Company's management presently intends to continue the Bank's policy
of paying out 11.5% to 17.5% of the previous year's earnings as dividends.
<PAGE>
TRANSFER/DIVIDEND DISBURSING AGENT
The Community Bank
Post Office Box 2166
Petersburg, Virginia 23804
INDEPENDENT AUDITORS FOR 1995
Mitchell, Wiggins & Company LLP
100 Flank Road
Petersburg, Virginia 23805
DESCRIPTION OF BUSINESS
Community Bankshares Incorporated is a registered bank holding company
headquartered in Petersburg, Virginia, with assets of $88,136,727. Organized in
1984, Community Bankshares Incorporated acquired its subsidiary affiliate, The
Community Bank, Petersburg, Virginia, and commenced operations as a bank holding
company on January 1, 1985. Community Bankshares Incorporated, through its
subsidiary bank, engages in a general commercial banking business and provides
full service banking to its customers, except that it does not provide trust
services. The principal market served is comprised of the cities of Petersburg
and Colonial Heights and the adjacent areas of the counties of Prince George,
Dinwiddie and Chesterfield, Virginia. A total of four offices are operated in
this area by The Community Bank. At December 31, 1995, the total number of
persons employed by the Company and its affiliate was 44.
<PAGE>
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED FINANCIAL REPORT
December 31, 1995
[MITCHELL, WIGGINS & COMPANY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Community Bankshares Incorporated
Petersburg, Virginia
We have audited the accompanying consolidated balance sheets of Community
Bankshares Incorporated, and its subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Community Bankshares
Incorporated, and its subsidiary at December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ MITCHELL, WIGGINS & COMPANY LLP
Petersburg, Virginia
January 9, 1996
<PAGE>
C O N T E N T S
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets
Consolidated statements of income
Consolidated statements of stockholders' equity
Consolidated statements of cash flows
Notes to consolidated financial statements
- -------------------------------------------------------------------------------
<PAGE>
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 3,636,524 $ 3,709,432
Federal funds sold 2,281,000 1,017,000
-----------------------------------
TOTAL CASH AND CASH EQUIVALENTS 5,917,524 4,726,432
Securities available for sale 1,752,646 969,213
Securities held to maturity (approximate market value,
$12,406,685 in 1995 and $7,103,471 in 1994) 12,358,741 7,598,690
Loans, net 65,255,723 61,488,230
Bank premises and equipment, net 1,024,856 1,167,973
Other real estate owned 467,588 274,710
Accrued interest receivable 518,555 371,809
Other assets 841,094 766,071
-----------------------------------
$88,136,727 $77,363,128
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits $12,683,516 $11,506,655
Interest-bearing demand deposits 21,514,060 24,628,724
Savings deposits 7,409,280 8,555,392
Time deposits, $100,000 and over 6,932,820 4,408,657
Other time deposits 28,673,838 18,981,366
-----------------------------------
77,213,514 68,080,794
Accrued interest payable 417,782 335,439
Other liabilities 391,644 351,095
Guaranteed debt of Employee Stock Ownership Trust 330,000 --
-----------------------------------
78,352,940 68,767,328
-----------------------------------
Commitments and Contingencies
(Note 15)
Stockholders' Equity
Capital stock, par value $3; authorized 4,000,000 shares;
issued 1995 1,150,000 shares; 1994 1,140,000 shares 3,450,000 1,710,000
Surplus -- 988,932
Retained earnings 6,645,036 5,911,858
Net unrealized gain (loss) on available for sale securities,
net of tax 18,751 (14,990)
-----------------------------------
10,113,787 8,595,800
Unearned ESOP shares (330,000) --
-----------------------------------
9,783,787 8,595,800
-----------------------------------
$88,136,727 $77,363,128
===================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 6,355,812 $ 5,347,803 $ 4,664,533
Interest on investment securities:
U. S. Government agencies and corporations 724,658 630,802 657,976
Other securities 5,504 8,282 5,004
Interest on federal funds sold and securities
purchased under agreements to resell 276,189 28,629 58,798
-------------------------------------------------
TOTAL INTEREST INCOME 7,362,163 6,015,516 5,386,311
-------------------------------------------------
Interest expense:
Interest on deposits 2,883,527 2,226,620 2,197,885
Interest on federal funds purchased and securities
sold under agreements to repurchase 6,465 5,287 763
-------------------------------------------------
TOTAL INTEREST EXPENSE 2,889,992 2,231,907 2,198,648
-------------------------------------------------
NET INTEREST INCOME 4,472,171 3,783,609 3,187,663
Provision for loan losses 247,000 66,000 120,000
-------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 4,225,171 3,717,609 3,067,663
-------------------------------------------------
Other income:
Service charges, commissions and fees 672,042 738,357 794,417
Security gains 29,763 47,800 16,000
Loss on sale of other real estate -- (33,980) --
Other operating income 50,748 49,036 48,358
-------------------------------------------------
TOTAL OTHER INCOME 752,553 801,213 858,775
-------------------------------------------------
Other expenses:
Salaries, wages and employee benefits 1,395,308 1,329,570 1,197,749
Net occupancy expense 138,535 150,818 161,290
Furniture and equipment expense 193,786 207,114 185,400
Other operating expenses 232,430 235,675 176,951
Insurance, general 25,685 75,675 48,748
Professional fees 107,329 48,703 70,559
Directors' fees 102,604 98,552 92,131
FDIC assessments 69,734 150,693 136,789
Postage 67,087 86,491 76,438
Stationery and supplies 75,695 65,310 72,296
Taxes 90,443 98,190 62,619
-------------------------------------------------
TOTAL OTHER EXPENSES $ 2,498,636 $ 2,546,791 $ 2,280,970
-------------------------------------------------
</TABLE>
(Continued)
<PAGE>
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME (Continued)
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME BEFORE INCOME TAXES $ 2,479,088 $ 1,972,031 $ 1,645,468
Income taxes 856,092 660,019 566,553
-------------------------------------------------
NET INCOME $ 1,622,996 $ 1,312,012 $ 1,078,915
=================================================
Earnings per common and common equivalent share $ 1.34 $ 1.10 $ 0.95
=================================================
Earnings per common share, assuming full dilution $ 1.34 $ 1.10 $ 0.95
=================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Unrealized
Securities Unearned
Capital Retained Gain ESOP
Stock Surplus Earnings (Loss) Shares
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $ 1,713,000 $ 995,934 $ 3,805,931 $ -- $ --
Net income for the year ended
December 31, 1993 -- -- 1,078,915 -- --
Cash dividends declared, $.10 per share
(based on 1,140,000 shares outstanding) -- -- (114,000) -- --
Purchase of 1,000 shares of common stock (3,000) (7,002) -- -- --
-------------------------------------------------------------------------------
Balance, December 31, 1993 1,710,000 988,932 4,770,846 -- --
Net income for the year ended
December 31, 1994 -- -- 1,312,012 -- --
Cash dividends declared, $.15 per share
(based on 1,140,000 shares outstanding) -- -- (171,000) -- --
Unrealized loss on available for
sale securities, net -- -- -- (14,990) --
-------------------------------------------------------------------------------
Balance, December 31, 1994 1,710,000 988,932 5,911,858 (14,990) --
Issuance of common stock pursuant to
exercise of stock options 15,000 47,500 -- -- --
Stock split effected in the form of a 100%
stock dividend 1,725,000 (1,036,432) (688,568) -- --
Net income for the year ended
December 31, 1995 -- -- 1,622,996 -- --
Cash dividends declared, $.175 per share
(based on 1,150,000 shares outstanding) -- -- (201,250) -- --
Unrealized gain on available for sale
securities, net -- -- -- 33,741 --
Leveraged ESOP stock purchase -- -- -- -- (365,500)
Release of ESOP shares 35,500
-------------------------------------------------------------------------------
$ 3,450,000 $ -- $ 6,645,036 $ 18,751 $(330,000)
===============================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,622,996 $ 1,312,012 $ 1,078,915
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 166,159 177,190 158,887
Deferred income taxes (14,294) (68,367) (8,382)
Provision for loan losses 247,000 66,000 120,000
Amortization and accretion of investment securities 11,991 14,453 5,311
Gain on sale of securities (29,763) (47,800) (16,000)
Loss on sale of other real estate -- 33,980 --
Gain on sale of bank premises and equipment (26,975) (14,181) (7,500)
Changes in operating assets and liabilities:
Increase in accrued interest receivable (146,746) (42,290) (8,559)
Decrease in prepaid expenses 7,675 11,596 10,220
Increase in accrued expenses 90,790 126,385 94,609
Net change in other operating assets and liabilities (45,154) 23,801 (4,983)
-------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,883,679 1,592,779 1,422,518
-------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturity of investment securities 2,364,884 2,884,140 4,280,656
Proceeds from sale of investment securities 78,700 87,800 --
Purchase of investment securities (7,918,174) (1,091,887) (5,906,570)
Net increase in loans (4,196,475) (4,261,535) (5,206,977)
Proceeds from the sale of bank premises and equipment 98,561 19,750 7,500
Capital expenditures (93,478) (266,074) (88,528)
(Increase) decrease in other assets (8,530) 26,319 15,897
Purchase of other real estate (12,045) -- --
-------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (9,686,557) (2,601,487) (6,898,022)
-------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 9,132,720 (834,468) 7,195,287
Dividends paid (201,250) (171,000) (114,000)
Redemption of common stock -- -- (10,002)
Net proceeds from issuance of common stock 62,500 -- --
-------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES $ 8,993,970 $ (1,005,468) $ 7,071,285
-------------------------------------------------
</TABLE>
(Continued)
<PAGE>
COMMUNITY BANKSHARES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 1,191,092 $ (2,014,176) $ 1,595,781
Cash and cash equivalents, beginning 4,726,432 6,740,608 5,144,827
--------------------------------------------------
Cash and cash equivalents, ending $ 5,917,524 $ 4,726,432 $ 6,740,608
==================================================
Supplemental Disclosure Of Cash Flow Information
Interest paid $ 2,807,649 $ 2,204,327 $ 2,235,248
==================================================
Income taxes paid $ 923,836 $ 663,000 $ 583,601
==================================================
Supplemental Disclosure Of Noncash Investing
Activities
Acquisition of other real estate:
Purchase price $ 229,027 $ -- $ --
Reduction of loans (216,982) -- --
--------------------------------------------------
CASH PAID TO ACQUIRE OTHER REAL ESTATE $ 12,045 $ -- $ --
==================================================
Sale of other real estate:
Sales price, net of closing cost $ 35,000 $ 131,235 $ --
Increase in loans (35,000) (131,235) --
--------------------------------------------------
CASH PROCEEDS FROM SALE OF OTHER REAL ESTATE $ $ -- $ --
==================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
COMMUNITY BANKSHARES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Nature of operations: Community Bankshares Incorporated is a one bank holding
company headquartered in Petersburg, Virginia. The Corporation's subsidiary, The
Community Bank, provides a variety of financial services to individuals and
corporate customers from its four branches located throughout Southside
Virginia.
The Community Bank's subsidiary, Community Title Insurance Agency, Inc., is a
corporation organized under the laws of the Commonwealth of Virginia. The
Company's primary purpose is to own a partnership interest in a title insurance
company.
Consolidation and basis of financial statement presentation: The accompanying
consolidated financial statements include the accounts of Community Bankshares
Incorporated, and its subsidiary, The Community Bank, including its subsidiary,
Community Title Insurance Agency, Inc. All significant intercompany transactions
and balances have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management uses estimates and assumptions. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. A substantial portion of the Corporation's loans are
secured by real estate in local markets. In addition, foreclosed real estate is
located in this same market. Accordingly, the ultimate collectibility of a
substantial portion of the Corporation's loan portfolio and the recovery of a
substantial portion of the carrying amount of foreclosed real estate are
susceptible to changes in local market conditions.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
Corporation's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Corporation to recognize additions to the allowances
based on their judgments about information available to them at the time of
their examination.
Cash and cash equivalents: For purposes of reporting the consolidated statements
of cash flows, the Corporation includes cash on hand, amounts due from banks,
federal funds sold and all highly liquid debt instruments purchased with a
maturity of three months or less as cash and cash equivalents on the
accompanying consolidated balance sheets. Cash flows from deposits and loans are
reported net.
The Bank maintains amounts due from banks which, at times, may exceed federally
insured limits. The Bank has not experienced any losses in such accounts.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting change and securities: Effective January 1, 1994, the Corporation
adopted Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting
for Certain Investments in Debt and Equity Securities. This Statement
establishes accounting and reporting standards for investments in debt
securities and investments in equity securities that have readily determinable
fair values. SFAS No. 115 requires that securities be classified as either Held
to Maturity, Available for Sale, or Trading.
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, computed by the straight-line method over
their contractual lives. If the interest method of accounting for amortization
of premiums and accretion of discounts was used, it would not have a material
effect on the consolidated financial statements. Gains and losses on the sale of
such securities are determined by the specific identification method.
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 market value on an aggregate basis. These include securities
used as part of the Bank's asset/liability management strategy and may be sold
in response to changes in interest rates, prepayment risk, the need or desire to
increase capital, to satisfy regulatory requirements and other similar factors.
Unrealized gains or losses are reported as increases or decreases in
stockholders' equity, net of the related deferred tax effect. Realized gains and
losses of securities available for sale are included in net securities gains
(losses) based on the specific identification method.
Trading securities, which are generally held for the short term in anticipation
of market gains, are carried at fair value. Realized and unrealized gains and
losses on trading account assets are included in interest income on trading
account securities. The Corporation held no trading securities during the years
ended December 31, 1995, 1994, and 1993.
Accounting change and loans and allowance for loan losses: Loans are stated at
the amount of unpaid principal, reduced by unearned discount and fees and an
allowance for possible loan losses.
Unearned interest on discounted loans is amortized to income over the life of
the loans, using the interest method. For all other loans, interest is accrued
daily on the outstanding balances.
The allowance for loan losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated. The allowance is
increased by provisions charged to operating expense and reduced by net
charge-offs. The Bank makes periodic credit reviews of the loan portfolio and
considers current economic conditions, historical loss experience, review of
specific problem loans and other factors in determining the adequacy of the
allowance balance.
Loan origination and commitment fees and certain direct loan origination costs
are being deferred and the net amount amortized as an adjustment of the related
loan's yield. The Bank is generally amortizing these amounts over the average
contractual life.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Effective January 1, 1995, the Corporation adopted the SFAS No. 114, Accounting
by Creditors for Impairment of a Loan. This Statement, as amended by SFAS No.
118, generally requires impaired loans to be measured on the present value of
expected future cash flows discounted at the loan's effective interest rate or
as an expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. A loan is impaired when it is
probable the creditor will be unable to collect all contractual principal and
interest payments due in accordance with the terms of the loan agreement. The
Bank does not aggregate loans for risk classification.
Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well secured and in the process of
collection. Loans that are on a current payment status or past due less than 90
days may also be classified as nonaccrual if repayment in full of principal
and/or interest is in doubt. Loans may be returned to accrual status when all
principal and interest amounts contractually due are reasonably assured of
repayment.
When a loan is classified as nonaccrual, all interest receivable on that
particular loan is charged back to income at that time. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. On charged-off loans, cash receipts in excess of the
amount charged to the allowance for loan losses is recognized as income on the
cash basis.
The basic policy of the Bank is to charge off loans when the loss can be readily
determined. Changes in the allowance for loan losses relating to impaired loans
are charged or credited to the provision for loan losses.
Bank premises and equipment: Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets.
Years
------
Buildings and improvements 5 - 50
Furniture and fixtures 3 - 20
Foreclosed properties: Foreclosed properties represents real estate held for
resale acquired through foreclosure or other proceedings. Foreclosed properties
are held for sale and are recorded at the lower of the recorded amount of the
loan or fair value of the properties less estimated costs of disposal. Any
write-down to fair value at the time of foreclosure is charged to the allowance
for loan losses. Property is evaluated regularly to ensure the recorded amount
is supported by its current fair value and valuation allowances to reduce the
carrying amount to fair value less estimated costs to dispose are recorded as
necessary and are charged to expense.
Income taxes: The provision for income taxes relates to items of revenue and
expenses recognized for financial accounting purposes during each of the years.
The actual current tax liability may be more or less than the charge against
earnings due to the effect of deferred income taxes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment. As explained
in Note 6 to the consolidated financial statements, during the year ended
December 31, 1993, the Corporation changed its method of accounting for deferred
income taxes.
Earnings per share: All per share calculations are based on the weighted average
number of shares outstanding of common and common equivalent shares during each
year. Calculations are based on 1,208,672 shares outstanding in 1995, 1,195,026
shares outstanding in 1994, and 1,140,076 shares outstanding in 1993.
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
are effective for fiscal years beginning after December 15, 1995. SFAS 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 important 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 intends to adopt SFAS No. 121 and No. 123 beginning January 1, 1996,
and anticipates no material effect on its results of operations upon the
adoption of these Statements.
Reclassifications: Various items in the consolidated balance sheet at December
31, 1994 have been reclassified to conform to the classifications used at
December 31, 1995.
Various items in the consolidated statements of income and cash flows for the
years ended December 31, 1994 and 1993 have been reclassified to conform to the
classifications used at December 31, 1995. These reclassifications have no
effect on net income.
NOTE 2. RESTRICTIONS ON CASH AND CASH EQUIVALENTS
The Bank is required to maintain average reserve and clearing balances in cash
with the Federal Reserve Bank. The total of these balances, after receiving
credit for vault cash on hand, was approximately $51,000 and $29,000 at December
31, 1995 and 1994, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SECURITIES
The amortized cost and estimated market value of securities available for sale
at December 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of:
U. S. Agency $ 1,583,185 $ 34,417 $ (6,006) $ 1,611,596
Other securities 141,050 -- -- 141,050
------------------------------------------------------------
$ 1,724,235 $ 34,417 $ (6,006) $ 1,752,646
============================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of:
U. S. Agency $ 801,937 $ 3,942 $ (29,916) $ 775,963
Other securities 189,988 3,262 -- 193,250
------------------------------------------------------------
$ 991,925 $ 7,204 $ (29,916) $ 969,213
============================================================
</TABLE>
The amortized cost and estimated market values of securities available for sale
at December 31, 1995, by expected maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
ESTIMATED
AMORTIZED MARKET
COST VALUE
------------------------------
Due in one year or less $ -- $ --
Due after one year but less than five years -- --
Due after five years but less than ten years 289,129 287,428
Due after ten years 1,435,106 1,465,218
------------------------------
$ 1,724,235 $ 1,752,646
==============================
Proceeds from sales of securities available for sale were $78,700 and $87,800
during 1995 and 1994, respectively, resulting in gross gains of $29,763 and
$47,800 and no losses. There were no proceeds from sale of securities during
1993. No gross gains or losses were realized during the year ended December 31,
1993.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SECURITIES (CONTINUED)
The amortized cost and estimated fair value of securities being held to maturity
at December 31 were:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of:
U. S. Agency $ 12,358,741 $ 129,640 $ (81,696) $ 12,406,685
================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of:
U. S. Agency $ 7,598,690 $ 8,135 $ (503,354) $ 7,103,471
================================================================
</TABLE>
The amortized cost and estimated market values of securities being held to
maturity at December 31, 1995, by expected maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
ESTIMATED
AMORTIZED MARKET
COST VALUE
-------------------------------
Due in one year or less $ -- $ --
Due after one year but less than five years 451,863 460,133
Due after five years but less than ten years 1,125,048 1,129,144
Due after ten years 10,781,830 10,817,408
-------------------------------
$ 12,358,741 $ 12,406,685
===============================
Securities with an amortized cost of $1,350,495 and $1,632,340 at December 31,
1995 and 1994, respectively, and a market value of $1,330,647 and $1,500,693 at
December 31, 1995 and 1994, respectively, were pledged to secure public deposits
and for other purposes as required by law.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. LOANS
Major classifications of loans are summarized as follows:
December 31,
----------------------------------
1995 1994
----------------------------------
Commercial $ 6,304,047 $ 6,702,335
Installment 4,362,203 4,524,976
Real estate 56,500,916 52,266,324
----------------------------------
67,167,166 63,493,635
Less unearned discount (1,148,964) (1,280,514)
----------------------------------
66,018,202 62,213,121
Allowance for loan losses (762,479) (724,891)
----------------------------------
Loans, net $ 65,255,723 $ 61,488,230
==================================
An analysis of the transactions in the allowance for loan losses is given below:
Years Ended
December 31,
-------------------------------------
1995 1994 1993
-------------------------------------
Balance, beginning of year $ 724,891 $ 608,050 $ 568,849
Loans charged off (243,934) (61,774) (122,452)
Recoveries credited to reserve 34,522 112,615 41,653
Provision charged to operations 247,000 66,000 120,000
-------------------------------------
Balance, end of year $ 762,479 $ 724,891 $ 608,050
=====================================
At December 31, 1995, the Bank had loans totaling approximately $426,000 for
which impairment had been recognized. The allowance for loan losses related to
these loans totaled approximately $174,000 at December 31, 1995. At December 31,
1995 and 1994, the Bank had nonaccrual loans of approximately $280,000 and
$564,000, respectively. If interest on these loans had been recognized at the
original interest rates, interest income would have increased approximately
$12,000 and $2,000 in 1995 and 1994, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. BANK PREMISES AND EQUIPMENT
Major classifications of bank premises and equipment are summarized as follows:
December 31,
-------------------------------
1995 1994
-------------------------------
Land $ 231,470 $ 275,040
Bank premises 1,010,126 1,079,903
Furniture and equipment 1,486,261 1,484,816
-------------------------------
2,727,857 2,839,759
Less accumulated depreciation 1,703,001 1,671,786
-------------------------------
$ 1,024,856 $ 1,167,973
===============================
NOTE 6. INCOME TAXES
Effective January 1, 1993, the Corporation adopted SFAS No. 109, Accounting for
Income Taxes. As explained in Note 1, SFAS No. 109 adopts a liability method
that requires the recognition of deferred tax assets and liabilities for the
expected future consequences of events that have been recognized in the
Corporation's financial statements or tax returns. In estimating future tax
consequences, SFAS No. 109 generally considers all expected future events other
than enactments of changes in tax laws or rates. Previously, the Corporation
used a liability method under SFAS No. 96, but that method gave no recognition
to future events other than the recovery of assets and settlement of liabilities
at their reported amounts.
The cumulative effect of adopting SFAS No. 109 at the beginning of 1993 was
deemed to be immaterial and is included in the income tax provision for the year
ended December 31, 1993.
The components of the income tax provision for the years ended December 31,
1995, 1994 and 1993 are as follows:
1995 1994 1993
-------------------------------------------
Currently payable $ 870,386 $ 728,386 $ 574,935
Deferred (14,294) (68,367) (8,382)
-------------------------------------------
$ 856,092 $ 660,019 $ 566,553
===========================================
A reconciliation of the expected income tax expense computed at 34 percent to
the income tax expense included in the consolidated statements of income is as
follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------------------------
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Tax provision computed by applying current Federal
income tax rates to income before income taxes $ 842,890 $ 670,491 $ 559,459
Other 13,202 (10,472) 7,094
------------------------------------------
$ 856,092 $ 660,019 $ 566,553
------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES (CONTINUED)
The deferred income taxes result from timing differences in the recognition of
certain income and expense items for tax and financial reporting purposes. The
sources of these timing differences and their related tax effect are as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------------------
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
Difference between the depreciation methods
used for financial statements and for income
tax purposes $ 11,992 $ (3,590) $ (2,812)
Difference between loan loss provision charged
to operating expense and the bad debt deduction
taken for income tax purposes (10,539) (41,966) (11,153)
Accretion of discount recognized on financial
statements but not recognized for income tax
purposes until realized 708 749 2,192
Other timing differences -- -- 3,391
Deferred compensation (16,455) (23,560) --
----------------------------------------
$(14,294) $(68,367) $ (8,382)
========================================
</TABLE>
Net deferred tax assets consist of the following components as of December 31:
<TABLE>
<CAPTION>
1995 1994
----------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 206,999 $ 196,460
Deferred compensation 42,936 26,481
Property and equipment -- 4,131
Unrealized loss on available for sale securities -- 7,722
----------------------------
$ 249,935 $ 234,794
----------------------------
Deferred tax liabilities:
Investment securities $ 9,669 $ 8,961
Property and equipment 7,861 --
Unrealized gain on available for sale securities 9,660 --
----------------------------
$ 27,190 $ 8,961
----------------------------
Net deferred tax assets (included in other assets) $ 222,745 $ 225,833
============================
</TABLE>
During the year ended December 31, 1994, management decreased its deferred tax
asset valuation allowance by $17,000 due to management's expectations of future
tax benefits.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. DEFERRED COMPENSATION AGREEMENTS
The Bank has adopted deferred compensation agreements for certain officers
providing for payments upon retirement, death or disability. These agreements
consist of individual contracts with specific terms determined on an
individual-by-individual basis. The estimated actuarial values of the benefits
are being charged to operations over the period from the effective dates of each
agreement to the normal retirement dates of the officers.
The amount charged to operations in 1995, 1994 and 1993, was $44,201, $20,412
and $18,168, respectively.
These agreements do not qualify under the Internal Revenue Code, and therefore
tax deductions are allowable only when benefits are paid. Appropriate provision
has been made for deferred income taxes associated with the deferred
compensation liability.
The lives of the officers for which deferred compensation agreements have been
adopted have been insured for amounts sufficient to discharge the obligations
thereunder.
Subsequent to the year end, the Board of Directors voted to cancel all
individual contracts that were not vested as of December 31, 1995. In addition,
the Board voted to accelerate the liquidation of the vested contract by making
full and complete payment by January 31, 1996. Accordingly, the present value of
such payment has been accrued and reflected in the accompanying financial
statements.
NOTE 8. EMPLOYEE STOCK OWNERSHIP PLAN WITH 401(K) PROVISIONS
Effective January 1, 1993, the Corporation established an Employee Stock
Ownership Plan with 401(K) provisions by restating, amending and consolidating
the Employee Stock Ownership Plan originally effective January 1, 1987, and the
Profit-Sharing and Thrift Plan originally effective December 31, 1981. All
participants of the pension plans are eligible to participate. Thereafter, each
employee will become eligible to participate in the plan on the first
anniversary date, December 31, following their initial date of service. The
employee must be at least 18 years old and be employed in a full-time position
requiring at least 1,000 hours of service for the plan year ending on that
anniversary date. The Corporation matches 75% of employee contributions up to 5%
of the participant's compensation. Annual contributions to the ESOP are made at
the discretion of the Board of Directors.
During the year ended December 31, 1995, the ESOP purchased additional shares
through the proceeds of a $365,000 direct bank loan. The shares purchased were
pledged as collateral for its debt. As the debt is repaid, shares are released
and allocated to participants. The Company accounts for its ESOP in accordance
with Statement of Position 93-6. Accordingly, the shares pledged are reported as
unearned ESOP shares in the balance sheet. As shares are released, the Company
reports compensation expense equal to the current market price of the shares,
and the shares then become outstanding for earnings per share (EPS) computation.
Dividends on allocated ESOP shares are recorded as a reduction of retained
earnings. Dividends on unallocated ESOP shares are recorded as a reduction of
debt and interest or as compensation costs if paid to participants or added to
their accounts. There were no dividends paid during 1995 after the leveraged
transaction occurred.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. EMPLOYEE STOCK OWNERSHIP PLAN WITH 401(K) PROVISIONS (CONTINUED)
Compensation expense for the 401(k) match and the ESOP was $105,000, $90,000 and
$72,000 for the three years ended December 31, 1995, 1994 and 1993,
respectively. The ESOP shares as of December 31 were as follows:
1995 1994
----------------------
Allocated Shares 138,344 135,452
Unreleased 30,515 --
----------------------
$168,859 $135,452
======================
Fair value of unrealeased shares $404,327 $ --
======================
NOTE 9. AGREEMENT AND PLAN OF REORGANIZATION
On December 12, 1995, the Board of Directors unanimously voted to enter into an
Agreement and Plan of 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 shares
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
Meetings. 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 December 31, 1995, 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 three years ended December 31, 1995 would have
been as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Interest income $ 12,682 $ 8,615 $ 7,451
Net income $ 2,355 $ 1,799 $ 1,375
Earnings per common and common equivalent share $ 1.27 $ 1.00 $ 0.79
Earnings per common share, assuming full dilution $ 1.27 $ 1.00 $ 0.79
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. EMPLOYMENT CONTRACT
The Corporation has entered into an employment contract with Mr. Nathan S. Jones
3rd its President and Chief Executive Officer through June 30, 1998. The
contract will renew for successive terms of one year each if it is not expressly
terminated by either of the parties. The contract provides for a minimum annual
salary, adjusted at the discretion of the Board of Directors. If, during the
term of the contract, the Corporation terminates Mr. Jones' employment without
cause, the Corporation must continue Mr. Jones' salary and benefits for six
months. In addition, the contract provides for increased severance pay if Mr.
Jones' employment terminates within three years after a change in control of the
Corporation. As of December 31, 1995, the cash amount payable to Mr. Jones if
his employment was terminated after a change in control would be approximately
$360,000.
NOTE 11. INCENTIVE COMPENSATION PLANS
During 1993, a Cash Incentive Plan was established for certain employees and
directors of the Bank. The Plan sets forth predetermined award pools for each
group of participants. The level of the award pool is dependent upon the Bank
attaining certain returns on average assets for the year. The amounts awarded
under the Plan for the years ended December 31, 1995, 1994 and 1993 were
$146,294, $151,860, and $105,487, respectively.
NOTE 12. INCENTIVE STOCK OPTION AND NONSTATUTORY STOCK OPTION PLAN
During 1993, the Board of Directors adopted a Stock Plan that provides for the
grant of Incentive Stock Options and the grant of Nonstatutory Stock Options and
Stock Appreciation Rights. This Plan was adopted to encourage key officers and
directors to acquire or to increase their acquisition of the Company's common
stock, thus increasing their personal and proprietary interest in the Company's
continued success. Options may be exercised from date of grant through the
period ending July 20, 2003 and October 18, 2004 for Grants A and B,
respectively.
<TABLE>
<CAPTION>
Shares Under Option
-------------------------------------------------------
1995 1994
-------------------------------------------------------
GRANT A GRANT B Grant A Grant B
-------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 170,000 10,000 170,000 --
Granted during year at $9.75 -- -- -- 10,000
Exercised during year at $6.25 (10,000) -- -- --
-------------------------------------------------------
Outstanding, end of year (Grant A $6.25,
Grant B $9.75) 160,000 10,000 170,000 10,000
=======================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. LIFE INSURANCE
The Bank is owner and designated beneficiary on life insurance in the face
amount of $3,109,000 maintained on certain of its officers and directors. At
December 31, 1995, the cash surrender value of these policies was $481,847 which
is included in other assets.
During the third quarter of 1994, the Bank was notified that the life insurance
carrier for the above policies, Confederation Life Insurance Company, had been
placed under regulatory control. Regulators have said that the insurance company
will continue to pay claims made; however, it will restrict access to cash value
until further notice. Rehabilitators and management are of the opinion that no
losses will occur as a result of the insurance company's rehabilitation and
accordingly, a provision for possible losses due to asset impairment is not
reflected in the accompanying financial statements.
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires
corporations to disclose the fair value of its financial instruments, whether or
not recognized in the balance sheet, where it is practical to estimate that
value.
Fair value estimates made as of December 31, 1995 are based on relevant market
information about the financial instruments. These estimates do not reflect any
premium or discount that could result from offering for sale at one time the
Corporation's entire holding of a particular financial instrument. In cases
where quoted market prices are not available, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheets
for cash and short-term instruments approximate those assets' fair values.
Securities available for sale and investment securities: Fair values were based
on quoted market prices, where available. If quoted market prices were not
available, fair values were based on quoted market prices of comparable
instruments.
Loans: The carrying values, reduced by estimated inherent credit losses, of
variable-rate loans and other loans with short-term characteristics were
considered fair values. For other loans, the fair market values were calculated
by discounting scheduled future cash flows using current interest rates offered
on loans with similar terms adjusted to reflect the estimated credit losses
inherent in the portfolio.
Accrued interest receivable and accrued interest payable: The carrying amounts
reported in the balance sheets for accrued interest receivable and accrued
interest payable approximate their fair values.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Deposit liabilities: The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, NOW, savings, and money market deposits,
was, by definition, equal to the amount payable on demand as of December 31,
1995. The fair value of certificates of deposit was based on the discounted
value of contractual cash flows, calculated using the discount rates that
equaled the interest rates offered at the valuation date for deposits of similar
remaining maturities.
The following is a summary of the carrying amounts and estimated fair values of
the Corporation's financial assets and liabilities to include off-balance sheet
financial instruments as December 31, 1995:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-----------------------------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks, noninterest bearing $ 3,636,524 $ 3,636,524
Federal funds sold and other short-term investments 2,281,000 2,281,000
Securities available for sale 1,752,646 1,752,646
Investment securities 12,358,741 12,406,685
Loans, net of reserve for credit losses 65,255,723 65,234,223
Accrued interest receivable 518,555 518,555
Financial liabilities:
Demand and variable rate deposits $ 41,816,367 $ 41,816,367
Fixed-rate certificates of deposit 35,397,147 35,838,147
Accrued interest payable 417,782 417,782
</TABLE>
At December 31, 1995, the Corporation had outstanding standby letters of credit
and fixed and variable rate commitments to extend credit. For fair value, the
fixed rate loan commitments were considered based on committed rates versus
market rates for similar transactions. Due to market constraints, rates have
remained relatively unchanged on these products, therefore, management has
determined fair value to be the same as the committed value. Standby letters of
credit and variable rate commitments are generally exercisable at the market
rate prevailing at the date the underlying transaction will be completed, and
therefore, they were deemed to have no current fair market value.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. COMMITMENTS AND CONTINGENCIES
Financial instruments with off-balance-sheet risk:
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the consolidated balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as they do for on-balance-sheet instruments. A summary of the Bank's
commitments at December 31, 1995 and 1994 is as follows:
1995 1994
---------------------------------
Commitments to extend credit $ 7,977,000 $ 4,969,000
Standby letters of credit 1,474,000 1,422,000
---------------------------------
$ 9,451,000 $ 6,391,000
=================================
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. The Bank
evaluates each customer's credit-worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the party. Collateral held
varies, but may include accounts receivable, inventory, property and equipment,
residential real estate and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. Since
many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held varies
as specified above and is required in instances which the Bank deems necessary.
Concentrations of credit risk:
All of the Bank's loans, commitments to extend credit, and standby letters of
credit have been granted to customers within the state and, more specifically,
its local geographic area of Virginia. The concentrations of credit by type of
loan are set forth in Note 4.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. RELATED PARTY TRANSACTIONS
At December 31, 1995, loans to officers and directors and corporations in which
officers and directors own a significant interest totaled $1,672,048. All such
loans were made in the normal course of business on substantially the same
terms, including interest and collateral, as those prevailing at the time for
comparable transactions.
An analysis of these related party transactions is as follows:
<TABLE>
<CAPTION>
Balance BALANCE
December 31, DECEMBER 31,
1994 Additions Repayments 1995
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Directors $ 1,328,776 $ 379,257 $ 449,033 $ 1,259,000
Officers and Employees 465,987 429,581 482,521 413,047
--------------------------------------------------------------
$ 1,794,763 $ 808,838 $ 931,554 $ 1,672,047
==============================================================
</TABLE>
NOTE 17. CAPITAL STOCK AND COMMON STOCK SPLIT
On May 16, 1995, the Corporation changed its authorized capital from 1,000,000
shares of $3 par value common stock to 4,000,000 shares of $3 par value common
stock. On July 18, 1995, the Corporation's Board of Directors declared a two for
one split of the common stock effected in the form of a 100% stock dividend on
the outstanding stock to be distributed on August 31, 1995 to the stockholders
of record on July 31, 1995. The par value of the additional shares of common
stock was credited to common stock with reductions from surplus and retained
earnings.
All references in the accompanying consolidated financial statements to the
number of common shares and per share amounts have been restated to reflect the
stock split.
NOTE 18. REGULATORY CAPITAL REQUIREMENTS
Banking laws and regulations limit the amount of dividends that may be paid
without prior approval of the Bank's regulatory agency. Under that limitation,
the Bank could have declared additional dividends of approximately $3,567,000 to
the Corporation in 1995.
Banking regulations also require the Bank to maintain certain minimum capital
levels in relation to its assets. Capital is measured using a leverage ratio as
well as based on risk-weighting assets according to regulatory guidelines. A
comparison of the Bank's actual regulatory capitals as of December 31, 1995 and
1994, with minimum requirements, as defined by regulation, is shown below:
Actual
Minimum --------------------------
Requirements 1995 1994
------------------------------------------
Tier 1 risk-based capital 4.0% 14.94% 14.40%
Total risk-based capital 8.0% 16.10% 15.65%
Leverage ratio 3.0% 11.08% 11.11%
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. PARENT CORPORATION
Financial statements for Community Bankshares Incorporated (not consolidated)
are presented below.
COMMUNITY BANKSHARES INCORPORATED
(Parent Corporation Only)
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 82,075 $ 45,361
Investment in subsidiary 10,062,714 8,505,651
Investment securities available for sale -- 52,200
Other assets 5,000 5,000
----------------------------------
TOTAL ASSETS $ 10,149,789 $ 8,608,212
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Guaranteed debt of Employee Stock Ownership Trust $ 330,000 $ --
Other liabilities 36,002 12,412
----------------------------------
TOTAL LIABILITIES 366,002 12,412
==================================
Stockholders' equity:
Common stock, par value $3 per share, authorized
4,000,000 shares; issued 1995 1,150,000 shares;
1994 1,140,000 shares 3,450,000 1,710,000
Surplus -- 988,932
Retained earnings 6,645,036 5,911,858
Net unrealized gain (loss) on available for sale
securities, net of taxes 18,751 (14,990)
----------------------------------
10,113,787 8,595,800
Unearned ESOP shares (330,000) --
----------------------------------
TOTAL STOCKHOLDERS' EQUITY 9,783,787 8,595,800
----------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,149,789 $ 8,608,212
==================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. PARENT CORPORATION (CONTINUED)
COMMUNITY BANKSHARES INCORPORATED
(Parent Corporation Only)
Statements of Income
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends from subsidiary $ 140,000 $ 171,000 $ 139,000
Unrealized gain on securities -- -- 16,000
Gain on sale of securities 29,763 47,800 --
-------------------------------------------------
TOTAL INCOME 169,763 218,800 155,000
-------------------------------------------------
Expenses:
Professional fees 58,353 12,847 6,095
Supplies 3,782 2,008 1,612
Taxes, miscellaneous 850 850 850
Other 1,949 324 288
-------------------------------------------------
TOTAL EXPENSES 64,934 16,029 8,845
-------------------------------------------------
Income taxes (credits) 3,002 10,802 (6,827)
-------------------------------------------------
INCOME BEFORE EQUITY IN
UNDISTRIBUTED INCOME
OF SUBSIDIARY 101,827 191,969 152,982
Equity in undistributed income of subsidiary 1,521,169 1,120,043 925,933
-------------------------------------------------
NET INCOME $ 1,622,996 $ 1,312,012 $ 1,078,915
=================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. PARENT CORPORATION (CONTINUED)
COMMUNITY BANKSHARES INCORPORATED
(Parent Corporation Only)
Statements of Changes in Stockholders' Equity
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Unrealized
Securities Unearned
Capital Retained Gain ESOP
Stock Surplus Earnings (Loss) Shares
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $1,713,000 $ 995,934 $3,805,931 $ - $ -
Net income for the year ended
December 31, 1993 - - 1,078,915 - -
Cash dividends declared, $.10 per share
(based on 1,140,000 shares outstanding) - - (114,000) - -
Purchase of 1,000 shares of common stock (3,000) (7,002) - - -
-----------------------------------------------------------------------------
Balance, December 31, 1993 1,710,000 988,932 4,770,846 - -
Net income for the year ended
December 31, 1994 - - 1,312,012 - -
Cash dividends declared, $.15 per share
(based on 1,140,000 shares outstanding) - - (171,000) - -
Unrealized loss on available for
sale securities, net - - - (14,990) -
-----------------------------------------------------------------------------
Balance, December 31, 1994 1,710,000 988,932 5,911,858 (14,990) -
Issuance of common stock pursuant to
exercise of stock options 15,000 47,500 - - -
Stock split effected in the form of a 100%
stock dividend 1,725,000 (1,036,432) (688,568) - -
Net income for the year ended
December 31, 1995 - - 1,622,996 - -
Cash dividends declared, $.175 per share
(based on 1,150,000 shares outstanding) - - (201,250) - -
Unrealized gain on available for sale
securities, net - - - 33,741 -
Leveraged ESOP stock purchase - - - - (365,500)
Release of ESOP shares - - - - 35,500
-----------------------------------------------------------------------------
$3,450,000 $ - $6,645,036 $ 18,751 $ (330,000)
=============================================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. PARENT CORPORATION (CONTINUED)
COMMUNITY BANKSHARES INCORPORATED
(Parent Corporation Only)
Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 1,622,996 $ 1,312,012 $ 1,078,915
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of securities (29,763) (47,800) -
Unrealized gain on securities - - (16,000)
Undistributed earnings of subsidiary (1,521,169) (1,120,043) (925,933)
Changes in operating assets and liabilities:
(Increase) decrease in other assets - 10,077 (5,075)
Increase (decrease) in other liabilities 24,700 11,303 (486)
---------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 96,764 165,549 131,421
---------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale of investment securities 78,700 87,800 -
Purchase of investment securities - (48,938) -
---------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 78,700 38,862 -
---------------------------------------------
Cash Flows From Financing Activities
Redemption of common stock - - (10,002)
Dividends paid (201,250) (171,000) (114,000)
Net proceeds from issuance of common stock 62,500 - -
---------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (138,750) (171,000) (124,002)
---------------------------------------------
INCREASE IN CASH 36,714 33,411 7,419
Cash, beginning 45,361 11,950 4,531
---------------------------------------------
Cash, ending $ 82,075 $ 45,361 $ 11,950
=============================================
</TABLE>
COMMUNITY BANKSHARES INCORPORATED
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 and the Notes to Consolidated Financial Statements.
OVERVIEW. Net income for the year ended December 31, 1995 of $1.623 million was
an increase of 23.7% over the year ended December 31, 1994. The increase in net
income during 1995 reflects primarily an increase in the lending volume and an
improvement in the rates earned on interest-earning assets. Earnings per share
for the year ended December 31, 1995 was $1.34 up from $1.10 for the year ended
December 31, 1994. CBI has shown an increase of 118% in net income over the five
years ended December 31, 1995, from $743,000 in 1991 to $1.623 million during
1995. The increase in income over the past five years is attributable to the 49%
growth in the loan portfolio. As total assets grew from $60.252 million in 1991
to $88.137 million as of December 31, 1995, net loans grew from $43.667 million
to $65.256 million.
[GRAPH] [GRAPH]
(Dollars in thousands)
1991 1992 1993 1994 1995
Net Income 743 846 1,079 1,312 1,623
Total Assets 60,252 68,686 76,921 77,363 88,137
The Bank increased net income 21.6% to $1.312 million during 1994 over
1993. This increase was attributable to an increase in the net interest yield
and a decrease in the provision for loan losses. Net income during 1993 of
$1.079 million was a 27% increase over 1992. On a per share basis, net income
was $.95 in 1993.
The Company's return on average equity and average assets has increased
over the past five years. The return on average equity was 17.77% for the year
ended December 31, 1995. The return on average equity was 16.25% in 1994,
compared to 15.49% for 1993. The return on average assets amounted to 1.91%,
1.69% and 1.48% for the three years ended December 31, 1995, 1994, and 1993,
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.
<PAGE>
Net interest income increased 18% to $4.472 million in 1995. This
increase was attributable to an 11% growth in average earning assets, a larger
percentage of total average assets being interest-earning assets and a 10%
increase in rates earned on interest-earning assets. The increase in
interest-earning assets was due primarily to an increase in the lending volume.
During the three years ended December 31, 1995, 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. Rates earned on average assets were 9.28%
during 1995 as compared to 8.42% one year earlier. This return was a result of
increased rates earned on loans. The Bank is competitive with rates and
origination fees charged on loans. However, since 75% 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 year ended December 31, 1995 increased 29.5%
to $2.890 million from $2.232 million for the year ended December 31, 1994. This
increase was due to an increase in rates on interest-bearing liabilities and an
8.09% increase in average interest-bearing liabilities from $57.427 million
during 1994 to $62.074 million in 1995. The increase in rates was created by
national and regional economic factors. In addition, periodically during 1995
management decided to offer rates on large certificates of deposit at 10 to 15
basis points higher than that of other financial institutions.
Net interest income was $3.784 million for the year ended December 31,
1994, an increase of 18.7% over the $3.188 million reported in 1993. This
increase was partially due to the 7.5% increase in interest-earning assets.
Again, the increase in the lending volume was the most significant portion of
the increase in average interest-earning assets with a 10.89% increase. Also
contributing to the rise in net interest income was the 3.95% increase in the
yield on interest-earning assets, which increased from 8.10% to 8.42%. During
1994 interest expense increased by $33,000 to $2.232 million. This small
increase was a result of a decline in rates, which offset the effect of a $3.835
million increase in average interest-bearing liabilities. As the rates declined
during 1994, many depositors elected not to invest in time deposits and opted
for short-term interest-bearing demand deposits which paid a lower rate. Average
certificate of deposits decreased 3% or $766,000 at the same time demand
interest-bearing liabilities increased 15.5% or $4.445 million. This change in
the mix of deposits enabled the Bank to reduce its cost of funds for 1994.
Interest income increased .4% or $21,000 from $5.366 million in 1992 to
$5.387 million during 1993. This increase was very insignificant considering
average loans increased by $6.669 million or 13.85% during 1993. This increase
in volume took place at a time when average rates earned on loans decreased by
9.4%, from 9.40% in 1992 to 8.51% in 1993. Again, the decrease in rates was
controlled by national and regional economic factors. The Bank was able to
maintain a relatively unchanged interest yield for 1993 by maintaining a deposit
mix at lower rates. Interest expense decreased 9.95%, from $2.442 million in
1992 to $2.199 million in 1993. The net interest yield for 1993 was 4.84%, down
slightly from 4.92% during 1992.
The following table sets forth CBI's average interest-earning assets (on a tax
equivalent basis) and average interest-bearing liabilities, the average yields
earned on such assets and rates paid on such liabilities, and the net interest
margin, for the periods indicated:
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS, INTEREST INCOME AND EXPENSE, YIELDS AND RATES
Years Ended December 31,
----------------------------------------------------------------------------------------------
1995 1994 1993
----------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance (6) Interest Rate (1) Balance (6) Interest Rate (1) Balance (6) Interest Rate (1)
----------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Securities $ 10,937 $ 730 6.67% $ 9,420 $ 639 6.78% $ 8,930 $ 663 7.42%
Federal funds sold 3,940 276 7.01% 629 29 4.61% 2,158 59 2.73%
Loans (5) 64,427 6,356 9.87% 61,425 5,348 8.71% 55,390 4,665 8.42%
----------------------------------------------------------------------------------------------
Total interest-earning
assets $ 79,304 $ 7,362 9.28% $71,474 $ 6,016 8.42% $66,478 $ 5,387 8.10%
------- -------- ------
Noninterest-earning
assets:
Cash and due from banks 4,060 4,308 4,375
Premises and equipment 1,075 1,147 1,107
Other assets 1,311 1,541 1,411
Less allowance for loan losses (777) (688) (597)
--------- ----------- -------
Total $ 84,973 $77,782 $72,774
========= =========== =======
Liabilities and Stockholders'
Equity
Interest-bearing liabilities:
Money market and NOW
accounts $ 22,436 $ 801 3.57% $24,819 $ 811 3.27% $22,056 $ 750 3.40%
Savings deposits 7,780 270 3.47% 8,194 265 3.23% 6,512 220 3.38%
Time deposits 26,002 1,456 5.60% 19,683 955 4.85% 20,304 970 4.78%
Large denomination deposits 5,759 357 6.20% 4,541 196 4.32% 4,686 258 5.51%
Federal funds purchased 97 6 6.19% 190 5 2.63% 34 1 2.94%
----------------------------------------------------------------------------------------------
$ 62,074 $ 2,890 4.66% $57,427 $ 2,232 3.89% $53,592 $ 2,199 4.10%
--------- ------- ------
Noninterest-bearing liabilities:
Demand deposits 12,986 11,690 11,823
Other liabilities 780 591 392
-------- ---------- --------
$ 75,840 $69,708 $65,807
Stockholders' Equity 9,133 8,074 6,967
======= =========== ========
Total $ 84,973 $77,782 $72,774
======= =========== ========
Net interest
income/yield
(2)(3) $ 4,472 5.64% $ 3,784 5.29% $ 3,188 4.80%
======== ======= ======
Interest spread (4) 4.62% 4.53% 4.00%
_______________
</TABLE>
(1) Computed on an annualized fully taxable equivalent basis.
(2) Net interest income is the difference between income from earning
assets and interest expense.
(3) Net interest yield is net interest income divided by total average
earning assets.
(4) Interest spread is the difference between the average interest rate
received on earning assets and the average interest rate paid for
interest-bearing liabilities.
(5) Average loan balances include non-accrual loans.
(6) Average balances are computed on monthly balances and management
believes such balances are representative of the operations of
the Bank.
<PAGE>
Interest income and interest expense are affected by changes in both
average interest rates and average volumes of interest-earning assets and
interest-bearing liabilities. The following table analyzes changes in net
interest income attributable to changes in the volume of interest-bearing assets
and liabilities compared to changes in interest rates. Nonaccruing loans are
included in average loans outstanding. The change in interest due to both rate
and volume has been allocated to change due to volume and change due to rate in
proportion to the relationship of the absolute dollar amounts of the change in
each.
<TABLE>
<CAPTION>
VOLUME AND RATE ANALYSIS
Years Ended December 31,
-------------------------------------------------------------------------------------------------------
1995 vs. 1994 1994 vs. 1993 1993 vs. 1992
Increase (decrease) Increase (decrease) Increase (decrease)
Due to changes in: Due to changes in: Due to changes in:
--------------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total Volume Rate Total
--------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Investment Securities,
taxable $ 101 $ (10) $ 91 $ 35 $ (59) $ (24) $ 4 $ (96) $ (92)
Federal funds sold 225 22 247 (56) 26 (30) (7) (19) (26)
Loans 338 670 1,008 517 167 684 592 (454) 138
----------------------------------------------------------------------------------------
$ 664 $ 682 $1,346 $ 496 $ 134 $ 630 $ 589 $(569) $ 20
----------------------------------------------------------------------------------------
Interest expense:
Savings and time
deposits $ 195 $ 462 $ 657 $ 145 $(116) $ 29 $ 210 $(453) $(243)
Federal funds purchased (3) 4 1 5 - 5 - - -
----------------------------------------------------------------------------------------
$ 192 $ 466 $ 658 $ 150 $(116) $ 34 $ 210 $(453) $(243)
----------------------------------------------------------------------------------------
Net interest income $ 472 $ 216 $ 688 $ 346 $ 250 $ 596 $ 379 $(116) $(263)
========================================================================================
</TABLE>
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.
<PAGE>
The following tables present CBI's Interest Rate Sensitivity Analysis as
of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
December 31, 1995
--------------------------------------------------------------
Within 4-12 1-5 Over
3 Months Months Years 5 Years Total
--------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Federal funds sold $ 2,281 $ - $ - $ - $ 2,281
Investment securities - - 452 13,659 14,111
Loans 25,441 25,257 15,320 - 66,018
--------------------------------------------------------------
Total interest-earning assets $ 27,772 $25,257 $15,772 $13,659 $82,410
--------------------------------------------------------------
Interest-Bearing Liabilities:
Deposits:
Demand $ 21,514 $ - $ - $ - $21,514
Savings 7,409 - - - 7,409
Time deposits, $100,000 and over 1,972 2,275 2,686 - 6,933
Other time deposits 7,319 10,685 10,666 4 28,674
--------------------------------------------------------------
Total interest-bearing liabilities $ 38,214 $12,960 $13,352 $ 4 $64,530
--------------------------------------------------------------
Period gap $(10,492) $12,297 $ 2,420 $13,655 $17,880
==============================================================
Cumulative gap $(10,492) $ 1,805 $ 4,225 $17,880
==============================================================
Ratio cumulative gap to total
interest-earning assets -12.73% 2.19% 5.13% 21.70%
====== ==== ==== =====
</TABLE>
<PAGE>
The December 31, 1995 results of the rate sensitivity analysis show CBI
had $10.492 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 $1.805 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 $50.7 million, or 75% of the total loan portfolio, matures or
reprices within one 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.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
December 31, 1994
--------------------------------------------------------------
Within 4-12 1-5 Over Total
3 Months Months Years 5 Years
--------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Federal funds sold $ 1,017 $ - $ - $ - $ 1,017
Investment securities - - 670 7,898 8,568
Loans 22,281 26,310 13,802 - 62,213
--------------------------------------------------------------
Total interest-earning assets $ 23,298 $26,130 $14,472 $ 7,898 $71,798
--------------------------------------------------------------
Interest-Bearing Liabilities:
Deposits:
Demand $ 24,629 $ - $ - $ - $24,629
Savings 8,555 - - - 8,555
Time deposits, $100,000 and over 1,569 1,252 1,588 - 4,409
Other time deposits 4,388 8,839 5,725 29 18,981
--------------------------------------------------------------
Total interest-bearing liabilities $ 39,141 $10,091 $ 7,313 $ 29 $56,574
--------------------------------------------------------------
Period gap $(15,843) $16,039 $ 7,159 $ 7,869 $15,224
==============================================================
Cumulative gap $(15,843) $ 196 $ 7,355 $15,224
==============================================================
Ratio cumulative gap to total
interest-earning assets -22.07% 0.27% 10.24% 21.20%
==============================================================
</TABLE>
NONINTEREST INCOME. For the year ended December 31, 1995 noninterest income
declined by 6.07% to $752,553. This decline is partially attributable to a 9%,
or $66,315 decrease in service charges. 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 income for the year ended December 31, 1994 was $801,213, a
decrease of $57,562 or 6.7% from 1993. The primary reason for this decrease was
the loss recognized on the disposition of other real estate owned in the amount
of $33,980. In addition, service charges, commissions and fees decreased by
$56,060. This reduction is due to an increase in free checking accounts marketed
by the Bank. Due to the offering of these accounts, service charges on deposit
accounts have decreased 5.3% or $36,000 during 1994.
Noninterest income for 1993 increased 8.13% or $64,598 from 1992.
Service charges, commissions and fees, the largest single item of noninterest
income, increased by $34,767 for 1993, up 4.6% from 1992. This increase was due
to service charges on demand deposit accounts and fees charged for letters of
credit.
NONINTEREST EXPENSE. Noninterest expense of $2.499 million for the year ended
December 31, 1995 was a decrease of 1.9%. Salaries and employee benefits, the
largest single component of noninterest expense, had a slight increase of 4.9%
for the year. The Bank was able to maintain a small increase in salaries, 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 54% or $81,000, from the previous year.
In addition, general insurance decreased by $50,000 due to a new carrier on the
general liability policy that offered more competitive rates and an increase in
the cash surrender value in excess of premiums paid on the lives of executives.
Professional fees increased by $59,000 over the previous year. During 1995, the
Corporation has incurred approximately $45,000 additional professional fees
associated with the proposed Share Exchange Agreement that have been expensed as
current operating expenses.
For 1994, noninterest expense increased by $265,821 or 11.65% over
1993. Salaries and employee benefits increased 11% or $132,000 to $1.330 million
in 1994 from $1.198 million in 1993. In addition to inflation and merit pay
increases, the Board of Directors increased the contribution to the ESOP plan by
38% or $25,000 for the year. Furniture and equipment expense increased 11.71%
from $185,400 to $207,114 for the year ended December 31, 1994. Almost 100% of
this increase was attributable to increased depreciation due to acquisition of
operations equipment. During 1994, FDIC assessments continued to be a
significant portion of noninterest expenses increasing by 10.16% to $150,693
from $136,789 during 1993. Other taxes increased 56% or $36,000 due to a change
in regulatory guidance in the computation of state and local franchise tax.
During the year ended December 1993, noninterest expenses increased by
10.8% or $223,000 from $2.058 million during 1992 to $2.281 million in 1993. The
majority of the increase was due to an increase in salaries and employee
benefits of 15.07% or $156,940 from $1.041 million to $1.198 million. During
1993, the Board of Directors adopted a Cash Incentive Plan for certain employees
of the Bank. The Plan set forth predetermined award pools for each group of
participants. Under this plan, $74,256 was awarded during 1993. Also
attributable to the increase in other expenses in 1993 was $31,000 awarded to
the directors under the Cash Incentive Plan.
INCOME TAXES. The provision for income taxes for the year ended December 31,
1995 was $856,092, a 29.7% increase from the previous year. The increase in the
provision was due to the increase in taxable income.
The income tax provision for the year ended December 31, 1994 was
$660,019, up from $566,553 for the year ended December 31, 1993.
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.
<PAGE>
<TABLE>
<CAPTION>
LOAN PORTFOLIO
December 31,
--------------------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------------------
% % %
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
--------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 6,304 9.39% $ 6,702 9.98% $ 6,391 9.52%
Real estate construction 786 1.17% 167 0.26% 189 0.32%
Real estate mortgage:
Residential (1-4 family) 30,819 45.88% 29,914 47.69% 28,346 49.36%
Multifamily - 0.00% - 0.00% 213 0.36%
Nonfarm, nonresidential 24,896 37.07% 22,185 34.94% 19,190 32.53%
--------------------------------------------------------------------------
Real estate mortgage, subtotal 55,715 82.95% 52,099 82.63% 47,749 82.25%
--------------------------------------------------------------------------
Real estate, total 56,501 84.12% 52,266 82.89% 47,938 82.57%
--------------------------------------------------------------------------
Consumer installment 4,362 6.49% 4,525 7.13% 4,669 7.91%
--------------------------------------------------------------------------
Total loans 67,167 100.00% 63,493 100.00% 58,998 100.00%
======= ======= =======
Less unearned income 1,149 1,280 1,228
---------- --------- --------
$66,018 $62,213 $57,770
========== ========= ========
</TABLE>
The following table shows the maturity of loans outstanding as of December
31, 1995. Also provided are the amounts due after one year classified according
to the sensitivity to changes in interest rates. Loans are classified based upon
the period in which the final payment is due.
LOAN MATURITY SCHEDULE
December 31, 1995
-------------------------------------------------
Maturing
-------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
-------------------------------------------------
(Dollars in thousands)
Commercial $ 3,677 $ 2,627 $ - $ 6,304
Installment 1,873 1,973 - 3,846
Real estate 36,971 16,687 2,210 55,868
-------------------------------------------------
Total $42,521 $21,287 $ 2,210 $66,018
=================================================
Loans maturing after one year with:
Fixed interest rates $15,320 $ -
Variable interest rates 5,967 2,210
Total -----------------------
$21,287 $ 2,210
======= =======
As of December 31, 1995, the loan portfolio was $66.018 million, net of
unearned income, an increase from the prior year of 6.1% or $3.805 million. Real
estate lending continues to be the growth of the portfolio with loans secured by
real estate comprising 84.12% of total loans.
<PAGE>
Loans, net of unearned income, were $62.2 million at December 31, 1994,
up $4.5 million or 7.8% from $57.7 million at December 31, 1993. The growth in
real estate loans, which increased $4.33 million or 9.03%, accounted for 96% of
the growth.
Loans secured by real estate comprise 82.32% of total loans at December
31, 1994 and 82.57% at December 31, 1993.
The Bank's unfunded loan commitments amounted to $9.451 million as of
December 31, 1995, up from $6.4 million at December 31, 1994. This increase is
attributable to customer loan demands at a specific point in time. Fixed rate
committments were $4.438 million and $2.593 million as of December 31, 1995 and
1994, respectively. The average rates charged on the fixed rate committments
were 8.5%-10.5% for the years then ended.
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 year ended December 31, 1995 was
$247,000, an increase of $181,000 over the previous year. 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
nonaccrual 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 $209,412 during 1995, an increase of
$260,253 over the previous year.
The provision for loan losses totaled $66,000 for the year ended
December 31, 1994, a decrease of $54,000 from the previous year. The improved
economy along with more effective collection efforts permitted the Bank to
reduce its provision. This decision was made as a result of management's
analysis of the nonperforming loans of $564,000 at December 31, 1994 and the
fact that the Bank had net recoveries for the year ended December 31, 1994 of
$50,841 as compared to net charge-offs during 1993 of $80,799. After
consideration of these factors and the local economy, management recorded a
provision for loan loss that would provide coverage for potential losses.
The provision in 1993 decreased to $120,000 as compared to $371,800 in
1992. The reduction in the 1993 provision was a result of management's belief
that the quality of the loan portfolio had improved. This improvement was due to
the large charge-offs of the previous year that no longer needed to be reserved
for and the relatively low level of nonperforming loans.
As of December 31, 1995, the allowance for loan losses was $762,479 up
from $724,891 at December 31, 1994. The allowance as of December 31, 1994 was up
$116,841 over the $608,050 at December 31, 1993. The ratio of the allowance for
loan loss to total loans, net of unearned income, has remained relatively
constant over the last three years; 1.15% at December 31, 1995, 1.17% at
December 31, 1994, and 1.05% at December 31, 1993. 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 .48x at December 31, 1995, 1.28x at December 31, 1994 and 2.08x at December
31, 1993. 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.
Effective January 1, 1995, CBI adopted Statement of Financial
Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a
Loan (as amended by SFAS No. 118, Accounting by
<PAGE>
Creditors for Impairment of a Loan - Income Recognition and Disclosure).
The effect of adopting this new accounting standard was immaterial to the
operating results of CBI for the year ended December 31, 1995. Prior financial
statements have not been restated to apply the provision of the new standard.
Under the new accounting standard, a loan is considered to be impaired
when it is probable that CBI will be unable to collect all principal and
interest amounts according to the contractual terms of the loan agreement. A
loan is not considered impaired if (a) there is an insignificant delay in or
shortfall in amounts of payments, or (b) CBI expects to collect all amounts due,
including interest accrued at the contractual interest rate for the period of
delay. CBI does not aggregate loans for risk classification.
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 of
the future cash flows on the loan discounted at the loan's effective interest
rate. As of December 31, 1995, CBI had eleven loans with a carrying amount of
$427,000 that were considered to be impaired. The amount of impairment based on
present value of future cash flows or collateral values, if applicable, was
approximately $174,000. The amount provided in the allowance for loan losses for
these impaired loans was $174,000. The following table summarizes changes in the
allowance for loan losses:
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
Years Ended December 31,
---------------------------
1995 1994 1993
---------------------------
(Dollars in thousands)
Allowance for loan losses at beginning of year $ 725 $ 608 $ 569
---------------------------
Loans charged off:
Commercial $ 26 $ 2 $ 17
Installment 19 42 36
Real Estate 199 18 69
---------------------------
Total $ 244 $ 62 $ 122
----------------------------
Recoveries of loans previously charged off:
Commercial $ 14 $ 6 $ 22
Installment 12 3 14
Real Estate 8 104 5
----------------------------
Total $ 34 $ 113 $ 41
----------------------------
Net loans recovered (charged off) $ (210) $ 51 $ (81)
Provision for loan losses 247 66 120
----------------------------
Allowance for loan losses at end of year $ 762 $ 725 $ 608
============================
Average total loans (net of unearned income) $63,650 $60,737 $54,793
Total loans (net of unearned income) $66,018 $66,213 $57,770
Selected Loan Loss Ratios:
Net charge-offs to average loans (2) 0.33% - 0.15%
Provision for loan losses to average loans 0.39% 0.11% 0.22%
Provision for loan losses to net charge-offs (2) 118% - 148%
Allowance for loan losses to year-end loans 1.15% 1.17% 1.05%
Loan loss coverage (1) (2) 1298% - 2180%
- ------------------------------------------------------
(1) Income before income taxes plus provision for loan losses, divided by net
chargeoffs.
(2) Net recoveries for the year.
<PAGE>
A breakdown of the allowance for loan losses is provided in the
following table; however, such a breakdown has not historically been maintained
by the Bank and management does not believe that the allowance can be fragmented
by category with any precision that would be useful to investors. The entire
amount of the allowance is available to absorb losses occurring in any category.
The allowance is allocated below based on the relative percentage in each
category to total loans.
COMPOSITION OF ALLOWANCE FOR LOAN LOSSES
December 31,
---------------------------------------------------------
Balance at End of 1995 1994 1993
Period Applicable to: ---------------------------------------------------------
Amount % Amount % Amount %
---------------------------------------------------------
(Dollars in thousands)
Commercial $ 84 11% $ 80 11% $ 67 11%
Installment 53 7% 58 8% 49 8%
Real Estate 625 82% 587 81% 492 81%
---------------------------------------------------------
$ 762 100% $ 725 100% $ 608 100%
Management has allocated the allowance according to the amount deemed
to be reasonably necessary to provide for the possibility of losses being
incurred. The allocation of the allowance as shown in the table above should not
be interpreted as an indication that loan losses in future years will occur in
the same proportions or that the allocation indicates future loan loss trends.
Furthermore, the portion allocated to each loan category is not the total amount
available for future losses that might occur within such categories since the
total allowance is a general allowance applicable to the entire portfolio.
NONPERFORMING ASSETS. Total nonperforming assets, which consist of nonaccrual
loans, restructured loans, loans 90 days or more past due, and other real estate
owned were $1.570 million at December 31, 1995 an increase of $731,000 from one
year earlier. Total nonperforming assets were $839,000 at December 31, 1994, an
increase of $104,000 over December 31, 1993. Nonperforming loans increased
$204,000 during 1993 over 1992.
<PAGE>
NONPERFORMING ASSETS
December 31,
--------------------------------------
1995 1994 1993
--------------------------------------
Nonaccrual loans $ 220 $ 4 $ -
Loans contractually past due 90
days or more and still accruing 882 560 292
Troubled debt restructuring - - -
--------------------------------------
Total nonperforming loans $1,102 $ 564 $ 292
Other real estate owned 468 275 443
--------------------------------------
Total nonperforming assets $1,570 $ 839 $ 735
======================================
Nonperforming assets to period-end total
loans and other real estate 2.36% 1.32% 1.24%
======================================
Foregone interest income on nonaccrual
loans $ 12 $ 2 $ 2
======================================
Interest income recorded on nonaccrual
loans during the year $ 8 $ - $ 3
======================================
The following table summarizes all nonperforming loans, by loan type as of
December 31, 1995:
Number
of Principal
(Dollars in thousands) Loans Balance
- -----------------------------------------------------------
Residential mortgage 12 $1,028
Installment loans 3 12
Commercial loans 6 62
-----------------------
21 $1,102
== ======
Loans, including impaired loans, are generally placed in nonaccrual
status when loans are delinquent in principal and interest payments greater than
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 than 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 70% of these loans are
collateralized by residential real estate.
As of December 31, 1995, nonaccrual loans and loans contractually past
due greater than 90 days have increased $216,000 and $322,000 over the December
31, 1994 levels, respectively. While the increase is significant, there are only
eight loans in nonaccrual status. The largest two loans, $105,000 and $51,000,
are mortgage real estate loans secured by residential real estate. In the case
of the $105,000 loan,
<PAGE>
the borrower has entered into a contract to sell the collateral and
curtailment for this loan should be forthcoming.
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.
Effective January 1, 1994, the Bank adopted Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt
and Equity Securities. This Statement establishes accounting and reporting
standards for investments in debt and equity securities that have readily
determinable fair values. SFAS No. 115 requires that securities be classified as
either Trading, Available-for-Sale or Held-to-Maturity at the time of purchase.
The Bank does not buy with the intent of trading and, accordingly, does not
maintain a Trading Account. Gains and losses on the sale of securities are
determined by the specific identification method.
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' equity, net of the related deferred tax effect.
The book value of the investment portfolio as of December 31, 1995 was
$14.111 million compared to $8.568 million at December 31, 1994.
The following tables show the amortized cost, fair market value,
maturity distribution, and yield of the investment portfolio as of December
31,1995 and 1994:
<PAGE>
SECURITIES PORTFOLIO
December 31, 1995
--------------------------------------
Held-to-Maturity Available-for-Sale
---------------- -------------------
Cost Market Cost Market
--------------------------------------
(Dollars in thousands)
Mortgage-backed securities:
Guaranteed or issued by
GNMA, FNMA or FHLMC $12,359 $12,407 $ 1,583 $ 1,612
Other securities - - 141 141
--------------------------------------
$12,359 $12,407 $ 1,724 $ 1,753
======= ======= ======= =======
December 31, 1994
--------------------------------------
Held-to-Maturity Available-for-Sale
---------------- ------------------
Cost Market Cost Market
--------------------------------------
(Dollars in thousands)
Mortgage-backed securities:
Guaranteed or issued by
GNMA, FNMA or FHLMC $ 7,599 $ 7,104 $ 802 $ 776
Other securities - - 190 193
--------------------------------------
$ 7,599 $ 7,104 $ 992 $ 969
======= ======= ======= =======
The maturity distribution, book value, market value, and yield of the total
investment securities portfolio at December 31, 1995 and 1994 are presented as
follows:
December 31, 1995
--------------------------------------------------
Held-to-Maturity Available-for-Sale
---------------- ------------------
Book Market Book Market
Value Value Yield Value Value Yield
--------------------------------------------------
(Dollars in thousands)
Within 12 months $ - $ - - $ - $ - -
Over 1 year through 5 years 452 460 8.75% - - -
Over 5 years through 10 years 1,125 1,130 7.40% 289 287 7.35%
Over 10 years 10,782 10,817 7.05% 1,435 1,466 7.08%
-------------------------------------------------
$12,359 $12,407 7.14% $ 1,724 $ 1,753 7.12%
==================================================
December 31, 1994
--------------------------------------------------
Held-to-Maturity Available-for-Sale
---------------- ------------------
Book Market Book Market
Value Value Yield Value Value Yield
--------------------------------------------------
(Dollars in thousands)
Within 12 months $ - $ - - $ - $ - -
Over 1 year through 5 years 670 671 8.51% - - -
Over 5 years through 10 years 1,430 1,344 7.61% 366 346 7.45%
Over 10 years 5,499 5,089 7.08% 626 623 8.22%
-------------------------------------------------
$ 7,599 $ 7,104 7.31% $ 992 $ 969 7.87%
==================================================
<PAGE>
DEPOSITS. Deposits at December 31, 1995 were $77.214 million, up $9.133 million
from 1994, an increase of 13.41%. The growth in deposits was led by the 52.23%
increase in certificate of deposits, which increased from $23.390 million at
December 31, 1994 to $35.607 million at December 31, 1995. At December 31, 1995,
certificates of deposit in excess of $100,000 had grown by $2.524 million, an
increase of 57.25% over December 31, 1994 levels.
Deposits at December 31, 1994 were $68.081 million, a 1.2% decrease
from 1993. Certificates of deposit of $100,000 or more decreased by $310,192
from 1993 levels. Similarly, certificates of deposit under $100,000 decreased
$1.720 million from 1993 levels. Noninterest-bearing deposits were 16.9% of
total deposits at December 31, 1994 compared to 15.46% at December 31, 1993.
<TABLE>
<CAPTION>
DEPOSITS ANALYSIS
December 31,
------------------------------------------------------------
1995 1994 1993
------------------------------------------------------------
Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $12,684 $11,507 $10,651
------- ------- -------
Interest-bearing liabilities:
Money market and NOW accounts 21,514 3.57% 24,629 3.27% 24,792 3.40%
Savings deposits 7,409 3.47% 8,555 3.23% 8,052 3.38%
Time deposits 28,674 5.60% 18,981 4.85% 20,701 4.78%
Large denomination deposits 6,933 6.20% 4,409 4.32% 4,719 5.51%
------------------------------------------------------------
Total interest-bearing accounts $64,530 4.65% $56,574 3.89% $58,264 4.10%
------------------------------------------------------------
Total deposits $77,214 $68,081 $68,915
======= ======= =======
</TABLE>
MATURITY OF CDs OF $100,000 AND OVER
Within Three Six to Over Percent
Three to Six Twelve One of Total
Months Months Months Year Total Deposit
------ ------ ------ ---- ----- -------
(Dollars in thousands)
Dcember 31, 1995 $1,972 $1,253 $1,022 $2,686 $6,933 8.98%
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.
<PAGE>
The primary source of capital for CBI is internally generated retained
earnings. Average stockholders' equity increased 13.11% in 1995 over 1994.
Similarly, average stockholders' equity increased 15.89% in 1994 over 1993. The
following table highlights certain ratios for the periods indicated:
RETURN ON EQUITY AND ASSETS
Years Ended December 31,
---------------------------
1995 1994 1993
---------------------------
Income before securities gains and losses to:
Average total assets 1.87% 1.63% 1.46%
Average stockholders' equity 17.44% 15.66% 15.26%
Net income to:
Average total assets 1.91% 1.69% 1.48%
Average stockholders' equity 17.77% 16.25% 15.49%
Dividend payout ratio (dividends declared
per share divided by net income per share) 13.06% 13.64% 10.53%
Average stockholders' equity to average
total assets ratio 10.75% 10.38% 9.57%
[GRAPH] [GRAPH]
1991 1992 1993 1994 1995
Return on Average Assets 1.29 1.28 1.48 1.69 1.91
Return on Average Equity 14% 14% 15% 16% 18%
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.
<PAGE>
ANALYSIS OF CAPITAL
December 31,
-----------------------------------------
1995 1994 1993
-----------------------------------------
Tier 1 Capital:
Common stock $ 3,450 $ 1,710 $ 1,710
Surplus - 989 989
Retained earnings 6,645 5,912 4,771
Unearned ESOP shares (330) - -
-----------------------------------------
Total Tier 1 Capital $ 9,765 $ 8,611 $ 7,470
-----------------------------------------
Tier 2 Capital
Allowance for loan losses 762 725 608
-----------------------------------------
Total Tier 2 Capital $ 762 $ 725 $ 608
-----------------------------------------
Total risk-based capital $10,527 $ 9,336 $ 8,078
=========================================
Risk weighted assets $65,377 $59,523 $58,279
Capital Ratios:
Tier 1 risk-based capital 14.94% 14.47% 12.82%
Total risk-based capital 16.10% 15.68% 13.86%
Tier 1 capital to average total assets 11.49% 11.07% 10.26%
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 customers' credit needs.
For the year ended December 31, 1995 the Bank provided cash or
liquidity from operations in the amount of $1.884 million. This increase in
funds in addition to a $9.132 million increase in deposits has given the Bank
approximately $10.878 million in funds available for investment during 1995. 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 $4.196
million increase in loan demands and the purchase of $7.918 million of
securities. With 75% 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.
<PAGE>
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 the 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.
<PAGE>
COMMUNITY BANKSHARES INCORPORATED
Nathan S. Jones, 3rd. President and Chief Executive Officer
Lillian M. Umphlett Vice-President/Chief Financial Officer
DIRECTORS
Louis C. Shell, Chairman
W. Courtney Wells, Vice-Chairman
Phillip H. Kirkpatrick, Secretary-Treasurer
Nathan S. Jones, 3rd., President and Chief Executive Officer
James A. Boyd, D.D.S Elinor B. Marshall
Lawrence F. DeSouza Alvin L. Sheffield
B. Glenn Holden, M.D. Harold L. Vaughn
<PAGE>
THE COMMUNITY BANK
OFFICERS
Nathan S. Jones, 3rd. President and Chief Executive Officer
Joseph F. Uzzle Senior Vice-President
Lillian M. Umphlett Vice-President and Cashier
Richard F. Ward, Jr. Vice-President
Deborah L. Eberhardt Assistant Vice-President
Susan P. Ormand Assistant Cashier
Patricia H. Robinson Assistant Cashier
Delores J. Miller Assistant Cashier
Tammy F. Ferguson Assistant Cashier
DIRECTORS
Lawrence F. DeSouza, Chairman
Alvin L. Sheffield, Vice-Chairman
Elinor B. Marshall, Secretary-Treasurer
Nathan S. Jones, 3rd., President and Chief Executive Officer
James A. Boyd, D.D.S. Louis C. Shell
B. Glen Holden, M.D. W. Courtney Wells
Phillip H. Kirkpatrick Harold L. Vaughn
Exhibit 21
Subsidiaries of the Registrant
The Community Bank, incorporated in the Commonwealth of Virginia.
Exhibit 23
REPORT AND CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Community Bankshares Incorporated
Petersburg, Virginia
We hereby consent to the incorporation by reference in this annual report on
Form 10-K of Community Bankshares Incorporated for the year ended December 31,
1995, of our report dated January 9, 1996, which appears on page 4 of the annual
report to shareholders for the year ended December 31, 1995.
The audit referred to in the above mentioned report also included the related
financial schedules for the three years ended December 31, 1995, 1994, and 1993,
listed in the accompanying index. In our opinion, such financial schedules
present fairly the information required to set forth therein.
/s/MITCHELL, WIGGINS & COMPANY LLP
March 19, 1996
Petersburg, Virginia
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000742279
<NAME> COMMUNITY BANKSHARES, INC.
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 3,636,524 3,709,432
<INT-BEARING-DEPOSITS> 21,514,060 24,628,724
<FED-FUNDS-SOLD> 2,281,000 1,017,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 1,752,646 969,213
<INVESTMENTS-CARRYING> 12,358,741 7,598,690
<INVESTMENTS-MARKET> 12,406,685 7,103,471
<LOANS> 65,255,723 61,488,230
<ALLOWANCE> 762,478 724,891
<TOTAL-ASSETS> 88,136,727 77,363,128
<DEPOSITS> 77,213,514 68,080,794
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 391,644 351,095
<LONG-TERM> 330,000 0
3,450,000 1,710,000
0 0
<COMMON> 0 0
<OTHER-SE> 6,663,787 6,885,800
<TOTAL-LIABILITIES-AND-EQUITY> 88,136,727 77,363,128
<INTEREST-LOAN> 6,355,812 5,347,803
<INTEREST-INVEST> 730,162 639,084
<INTEREST-OTHER> 276,189 28,629
<INTEREST-TOTAL> 7,362,163 6,015,516
<INTEREST-DEPOSIT> 2,883,527 2,226,620
<INTEREST-EXPENSE> 2,889,992 2,231,907
<INTEREST-INCOME-NET> 4,472,171 3,783,609
<LOAN-LOSSES> 247,000 66,000
<SECURITIES-GAINS> 29,763 47,800
<EXPENSE-OTHER> 2,498,636 2,546,791
<INCOME-PRETAX> 2,479,088 1,972,031
<INCOME-PRE-EXTRAORDINARY> 2,479,088 1,972,031
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,622,996 1,312,012
<EPS-PRIMARY> 1.34 1.10
<EPS-DILUTED> 1.34 1.10
<YIELD-ACTUAL> 5.64 5.29
<LOANS-NON> 220,000 4,000
<LOANS-PAST> 882,000 560,000
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 724,891 608,050
<CHARGE-OFFS> 243,934 61,774
<RECOVERIES> 34,522 112,615
<ALLOWANCE-CLOSE> 762,479 724,891
<ALLOWANCE-DOMESTIC> 762,479 724,891
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
