<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000 Commission File No. 0-13100
COMMUNITY BANKSHARES INCORPORATED
(Exact name of registrant as specified in its charter)
Virginia 54-1290793
(State of Incorporation) (I.R.S. Employer Identification No.)
200 North Sycamore Street
P. O. Box 2166
Petersburg, Virginia 23804
(Address of principal executive offices)
(804) 861-2320
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of June 30, 2000. Common Stock, $3.00 par value, 2,740,568
shares.
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COMMUNITY BANKSHARES INCORPORATED
FORM 10-Q
June 30, 2000
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. Financial Information
Item 1. Consolidated Balance Sheets as of June 30, 2000
(Unaudited) and December 31, 1999 ..................................... 3
Consolidated Statements of Income for the three months and six
months ended June 30, 2000 and 1999 (Unaudited) ....................... 4
Consolidated Statements of Changes in Stockholders' Equity for
the six months ended June 30, 2000 and 1999 (Unaudited) ............... 5
Consolidated Statements of Cash Flows for the three
months ended June 30, 2000 and 1999 (Unaudited) ....................... 6
Notes to Consolidated Statements (Unaudited) ........................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................... 8
Item 3. Quantitative and Qualitative Disclosures Regarding
Market Risk ........................................................... 11
Part II. Other Information ...................................................... 12
Item 1. Legal Proceedings ...................................................... 12
Item 2. Changes in Securities .................................................. 12
Item 3. Defaults Upon Senior Securities ........................................ 12
Item 4. Results of Votes of Security Holders ................................... 12
Item 5. Other Information ...................................................... 12
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Financial Data Schedule, Exhibit 27 ..................... 12
(b) Reports on Form 8-K ................................................ 12
</TABLE>
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CONSOLIDATED BALANCE SHEETS
Community Bankshares Incorporated and Subsidiaries
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
(In thousands) 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
-------------------------------------------------------------------------------------------------------------
Cash and cash equivalents:
Cash and due from banks $ 19,707 $ 14,410
Federal funds sold 7,326 3,154
------------------------------------------------------------------------- ---------------- -----------
Total cash and due from banks 27,033 17,564
------------------------------------------------------------------------- ---------------- -----------
Securities available for sale, at fair value 58,270 59,715
Securities held to maturity (fair value, $5,704 - June 30, 2000;
$6,312 - December 31,1999)
5,848 6,435
Loans, net of unearned income 280,739 265,967
Less allowance for loan losses 3,066 2,773
------------------------------------------------------------------------- ---------------- -----------
Net loans 277,673 263,194
------------------------------------------------------------------------- ---------------- -----------
Bank premises and equipment, net 5,344 4,575
Accrued interest receivable 2,421 2,229
Other real estate owned 961 972
Other assets 4,298 4,152
------------------------------------------------------------------------- ---------------- -----------
Total assets $ 381,848 $ 358,836
========================================================================= ================ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing deposits $ 58,200 $ 51,033
Interest-bearing deposits 283,635 267,394
------------------------------------------------------------------------- --------------- -----------
Total deposits 341,835 318,427
-------------------------------------------------------------------------------------------------------------
Accrued interest payable 1,045 836
Federal funds purchased 1,460 3,597
Other liabilities 1,006 1,583
Guaranteed ESOP debt 709 229
------------------------------------------------------------------------- --------------- -----------
Total liabilities 346,055 324,672
------------------------------------------------------------------------- --------------- -----------
STOCKHOLDERS' EQUITY
------------------------------------------------------------------------- --------------- -----------
Common stock,par value $3 per share, authorized 20,000,000 8,222 8,140
shares, shares issued June 30, 2000 - 2,740,568;
December 31, 1999 - 2,713,258
Capital surplus 3,985 3,894
Retained earnings 26,510 24,513
Accumulated other comprehensive income (loss), net of tax (2,215) (2,154)
Unearned ESOP shares (709) (229)
------------------------------------------------------------------------- --------------- -----------
Total stockholders' equity 35,793 34,164
------------------------------------------------------------------------- --------------- -----------
Total liabilities and stockholders' equity $ 381,848 $ 358,836
========================================================================= =============== ===========
</TABLE>
The notes are an integral part of the financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Community Bankshares Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except share and per share data) 2000 1999 2000 1999
------------------------------------------------------------------------------------------ -------------------------
<S> <C> <C> <C> <C>
Interest Income
======================================================================================================================
Interest and fees on loans $ 6,554 $ 5,251 $ 12,705 $ 10,176
Interest on securities:
U.S. government and agencies 810 851 1,629 1,722
States and political subdivisions 172 184 347 364
Other 42 34 79 67
Interest on federal funds sold 161 155 228 357
------------------------------------------------------------- ------------ ----------- ----------- -----------
Total interest income 7,739 6,475 14,988 12,686
------------------------------------------------------------- ------------ ----------- ----------- -----------
Interest Expense
======================================================================================================================
Interest on deposits 3,383 2,569 6,370 5,111
Interest on federal funds purchased 25 - 80 -
Interest on securities sold under agreements to repurchase - 20 - 42
------------------------------------------------------------- ------------ ----------- ----------- -----------
Total interest expense 3,408 2,589 6,450 5,153
------------------------------------------------------------- ------------ ----------- ----------- -----------
Net interest income 4,331 3,886 8,538 7,533
Provision for loan losses 280 40 399 120
------------------------------------------------------------- ------------ ----------- ----------- -----------
Net interest income after provision for loan losses 4,051 3,846 8,139 7,413
------------------------------------------------------------- ------------ ----------- ----------- -----------
Noninterest Income
======================================================================================================================
Service charges on deposit accounts and other fees 618 508 1,117 981
Securities gains 8 6 8 2
Gain on sale of other real estate 114 - 127 -
Other operating income 48 49 91 97
------------------------------------------------------------ ------------ ----------- ----------- -----------
Total noninterest income 788 563 1,343 1,080
------------------------------------------------------------- ------------ ----------- ----------- -----------
Noninterest Expense
======================================================================================================================
Salaries and benefits 1,536 1,491 3,111 2,946
Occupancy and equipment expense 342 321 650 626
Other operating expense 684 692 1,369 1,345
------------------------------------------------------------- ------------ ----------- ----------- -----------
Total noninterest expense 2,562 2,504 5,130 4,917
------------------------------------------------------------- ------------ ----------- ----------- -----------
Earnings
======================================================================================================================
Income before income taxes 2,277 1,905 4,352 3,576
Income tax expense 674 608 1,345 1,135
------------------------------------------------------------- ------------ ----------- ----------- -----------
Net Income $ 1,603 $ 1,297 $ 3,007 $ 2,441
------------------------------------------------------------- ============ =========== =========== ===========
Earnings Per Share
======================================================================================================================
Net income per common share
Basic $ 0.59 $ 0.47 $ 1.11 $ 0.89
Diluted $ 0.58 $ 0.44 $ 1.09 $ 0.85
Average shares outstanding:
Basic 2,725,605 2,730,789 2,725,605 2,730,789
Diluted 2,786,871 2,938,115 2,758,853 2,938,115
======================================================================================================================
</TABLE>
The notes are an integral part of the financial statements.
4
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Community Bankshares Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Accumulated
Other Unearned
Common Capital Retained Comprehensive ESOP
(In thousands, except per share data) Stock Surplus Earnings Income (Loss) Shares Total
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six months ended June 30, 2000
-------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $ 8,140 $ 3,894 $24,513 $ (2,154) $ (229) $34,164
Comprehensive income:
Net income 3,007 3,007
Other comprehensive income, net of tax:
Unrealized holding losses on securities
available-for-sale (net of deferred
tax expense of $31) (61) (61)
---------------------------------------------- ------- --------- -------
Comprehensive income 3,007 (61) 2,946
---------------------------------------------- ------- --------- -------
Issuance of common stock pursuant to
stock option plans 84 101 185
Common stock repurchased (2) (10) (12)
Cash dividends declared - $.37 per share (1,010) (1,010)
Leveraged ESOP stock purchase (480) (480)
---------------------------------------------- ------- ------- ------- --------- ------ -------
Balance at end of period $ 8,222 $ 3,985 $26,510 $ (2,215) $ (709) $35,793
---------------------------------------------- ======= ======= ======= ========= ====== =======
Six months ended June 30,1999
--------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $ 8,286 $ 4,915 $20,820 $ 99 $ - $34,120
Comprehensive income:
Net income 2,441 2,441
Other comprehensive income, net of tax:
Unrealized holding losses on securities
available-for-sale (net of deferred
tax expense of $636) (1,234) (1,234)
---------------------------------------------- ------- --------- -------
Comprehensive income 2,441 (1,234) 1,207
---------------------------------------------- ------- --------- -------
Common stock repurchased (109) (755) (864)
Cash dividends declared - $.30 per share (823) (823)
---------------------------------------------- ------- ------- ------- --------- ------ -------
Balance at end of period $ 8,177 $ 4,160 $22,438 $ (1,135) $ - $33,640
---------------------------------------------- ======= ======= ======= ========= ====== =======
</TABLE>
The notes are an integral part of the financial statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Community Bankshares Incorporated and Subsidiaries
<TABLE>
<CAPTION>
(In thousands) Six months ended June 30, 2000 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
================================================================================================================
Net Income $ 3,007 $ 2,441
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation of bank premises and equipment 240 251
Deferred income taxes (65) (597)
Provision for loan losses 399 120
Provision for losses on other real estate owned 12 -
Amortization and accretion of investment securities (62) 7
(Gain) loss on sale of securities (8) 7
(Gain) loss on sale of other real estate (127) 1
Changes in operating assets and liabilities:
Increase in accrued interest receivable (192) (131)
Increase in accrued interest payable 209 12
Net change in other operating assets and liabilities (1,069) 977
----------------------------------------------------------------------------------- --------------------------
Net cash provided by operating activities 2,344 3,088
----------------------------------------------------------------------------------- --------------------------
Investing Activities
================================================================================================================
Proceeds from sale of investment securities 196 6,847
Proceeds from maturities and redemptions of investment securities 2,364 8,128
Purchase of investment securities (549) (17,974)
Net increase in loans (14,878) (33,444)
Proceeds from the sale of other real estate 1,152 270
Purchase of premises and equipment (570) (286)
Decrease in other assets 2 -
Purchase of other real estate (1,026) (360)
----------------------------------------------------------------------------------- --------------------------
Net cash used in investing activities (13,309) (36,819)
----------------------------------------------------------------------------------- --------------------------
Financing Activities
================================================================================================================
Net increase in deposits 23,408 10,778
Net increase (decrease) in federal funds purchased (2,137) 858
Cash dividends (1,010) (823)
Common stock repurchased (12) (864)
Net proceeds from issuance of common stock 185 -
----------------------------------------------------------------------------------- --------------------------
Net cash provided by financing activities 20,434 9,949
----------------------------------------------------------------------------------- --------------------------
Increase (decrease) in cash and cash equivalents 9,469 (23,782)
Cash and cash equivalents, beginning 17,564 47,318
----------------------------------------------------------------------------------- --------------------------
Cash and cash equivalents, ending $ 27,033 $ 23,536
----------------------------------------------------------------------------------- ==========================
</TABLE>
The notes are an integral part of the financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not include
all of the disclosures and notes required by generally accepted accounting
principles. In the opinion of management, all material adjustments (which are of
a normal recurring nature) considered necessary for a fair presentation have
been made. The results for the interim period are not necessarily indicative of
the results to be expected for the entire year or any other interim period. The
information reported herein should be read in conjunction with the Notes to
Consolidated Financial Statements included in the Company's Annual Report for
the year ended December 31, 1999. Certain reclassifications have been made to
the 1999 historical financial statements to conform to the 2000 presentation.
Note 2. New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Financial
Accounting Standard ("FAS") 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments and hedging activities. Under FAS 133, derivatives are
recognized on the balance sheet at fair value as an asset or liability. Changes
in the fair value of derivatives will be reported as a component of other
comprehensive income or recognized as earnings through the income statement
depending on the nature of the instrument. FAS 137 was issued in June 1999, and
deferred the effectiveness of FAS 133 to all quarters of fiscal years beginning
after June 15, 2000, with earlier adoption permitted. The Company has not
adopted FAS 133 yet and is currently evaluating FAS 133's effect on its
financial position and results of operation, but it is not expected to have a
material impact.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Community Bankshares Incorporated (the "Company" and "Community Bankshares") is
a multi-bank holding company organized under Virginia law, which provides
financial services through its wholly-owned subsidiaries, The Community Bank,
Commerce Bank of Virginia and County Bank of Chesterfield. All three subsidiary
banks are full service retail commercial banks offering a wide range of banking
services, including demand and time deposits, as well as commercial, industrial,
residential construction, residential mortgage, and consumer loans. The
Company's primary trade areas are the Cities of Petersburg and Richmond, and
Chesterfield, Henrico, Hanover and Goochland counties. The Company operates
thirteen branch locations in these Virginia trade areas.
The following discussion provides information about the major components of the
financial condition, results of operations, asset quality, liquidity, and
capital resources of Community Bankshares Incorporated. The discussion and
analysis should be read in conjunction with the Consolidated Financial
Statements.
FINANCIAL CONDITION
-------------------
Total assets as of June 30, 2000 were $381.9 million, an increase of 6.4% from
$358.8 million at December 31, 1999. Total loans, net of unearned income as of
June 30, 2000 stood at $280.7 million, an increase of $14.8 million or 5.6% over
the $266.0 million recorded at December 31, 1999.
Total securities available for sale for at June 30, 2000 were $58.3 million,
essentially unchanged from the $59.7 million at year-end 1999. Federal funds
sold increased to $7.3 million at quarter-end.
Total deposits as of June 30, 2000 stood at $341.8 million, an increase of $23.4
million or 7.4% over the $318.4 million at December 31, 1999. This increase
occurred mainly in shorter-term interest-bearing deposits. Total interest-
bearing deposits were $283.6 million at June 30, 2000 compared to $267.4 million
at year-end 1999, an increase of $16.2 million or 6.1%. Noninterest-bearing
deposits increased 14.0% or $7.2 million from the year-end level of $51.0
million.
RESULTS OF OPERATIONS
Net income for the three months ended June 30, 2000 totaled $1.6 million, an
increase of 23.6% over the same 1999 period. Earnings per share for the June
2000 quarter was $0.58, on a diluted basis, or 31.8% higher than the $0.44
recorded for the same period last year.
The return on average equity and return on average assets was 18.09% and 1.68%,
respectively for the three months ended June 30, 2000.
8
<PAGE>
Net interest income, the difference between the interest earned and interest
paid, is the largest component of the Company's earnings and changes in it have
the greatest impact on net income. Variations in the volume and mix of assets
and liabilities and their relative sensitivity to interest rate movements
determine changes in net interest income. Net interest income for the second
quarter of 2000 increased 11.5% to $4.3 million compared to $3.9 million for the
second quarter of 1999. Continued growth in the Company's loan portfolio was the
primary factor contributing to this increase. Total loans, net of unearned
income grew $14.8 million to $280.7 million compared to December 31,1999.
Total interest expense for the quarter ended June 30, 2000, increased 31.6% to
$3.4 million, up $819 thousand over the same period one year earlier. This
increase was due primarily to an increase in the volume of interest-bearing
liabilities, principally certificates of deposit maturing in less than two
years.
For the three months ended June 30, 2000, noninterest income increased $225
thousand or 40.0% to $788 thousand compared to $563 thousand a year earlier.
The increase arose primarily from higher service charges on deposit accounts, up
21.7% or $110 thousand, and a gain on sale of other real estate of approximately
$114 thousand.
Noninterest expense of $2.6 million for the quarter ended June 30, 2000, was an
increase of $58 thousand or 2.3% over the same period last year. Salaries and
employee benefits, the largest component of noninterest expense, increased 3.0%
to $1.5 million for the second quarter of 2000, primarily due to slightly higher
staffing levels and higher benefit cost compared to the same 1999 period.
Net income for the six months ended June 30, 2000 totaled $3.0 million, an
increase of 23.2% over the six months ended June 30, 1999. Earnings per share
for the first half of the year was $1.09, on a diluted basis, or 28.2% higher
than the $0.85 recorded for the same period last year.
The return on average equity and return on average assets was 17.17% and 1.61%,
respectively for the six months ended June 30, 2000.
Net interest income for the first six months of 2000 increased 13.3% to $8.5
million compared to the six months ended June 30, 1999. Continued growth in the
Company's loan portfolio in excess of deposit growth was the primary factor
contributing to this increase. Total interest expense for the six months ended
June 30, 2000, increased 25.2% to $6.5 million, higher by $1.3 million compared
to the same period one year earlier.
Noninterest income for the six months ended June 30, 2000, increased 24.4% to
$1.3 million compared to $1.1 million for the same period a year earlier.
Noninterest expense totaled $5.1 million for the six months ended June 30, 2000,
an increase of $213 thousand or 4.3% over the previous year.
9
<PAGE>
ASSET QUALITY
The allowance for loan losses represents management's estimate of an amount
adequate to absorb potential future losses inherent in the loan portfolio. In
assessing the adequacy of the allowance, management relies predominately on its
ongoing review of the lending process and the risk characteristics of the
portfolio in the aggregate. Among other factors, management considers the
Company's loan loss experience, the amount of past-due loans, current and
anticipated economic conditions, and the estimated current values of collateral
securing loans in assessing the level of the allowance for loan losses.
The allowance for loan losses totaled $3.1 million at June 30, 2000 or 1.09% of
total loans, net of unearned income as compared to $2.8 million or 1.04% at
December 31, 1999. The provision for loan losses was $280 thousand for the
second quarter of 2000 reflecting management's desire to maintain the allowance
for loan losses at a sufficient level to absorb potential future loan losses
inherent in the growing loan portfolio. Net charge-offs were $90 thousand for
the quarter ended June 30, 2000 or 0.13% of average loans on an annualized
basis. For the six months ended June 30, 2000, net charge-offs were $106,000 or
0.08% of average loans on an annualized basis.
Nonperforming assets, which consist of nonaccrual loans, loans 90 days or more
past due, and other real estate owned, were $2.5 million at quarter-end June,
2000, lower by $1.4 million compared to year-end 1999. Nonaccrual loans totaled
$410 thousand, a decrease of $1.6 million since December 31, 1999. Loans past
due 90 days or more totaled $1.1 million at June 30, 2000, up $277 thousand over
year-end 1999, and other real estate owned decreased $11 thousand to $1.0
million. Management does not expect to incur any material losses related to
nonperforming assets.
LIQUIDITY
In determining the Company's liquidity requirements, both sides of the balance
sheet are managed to ensure that adequate funding sources are available to
support loan growth, deposit withdrawals or any unanticipated need for funds.
Securities available for sale that mature within one year, or have a weighted
average life of one year are sources of liquidity. Anticipated mortgage-backed
securities paydowns and maturing loans also generate cashflows to meet liquidity
requirements. Wholesale funding sources are also used to supply liquidity such
as federal funds purchased and large denomination certificates of deposit. The
Company considers its sources of liquidity to be adequate to meet its
anticipated needs.
CAPITAL RESOURCES
-----------------
Community Bankshares capital position provides the necessary assurance required
to support anticipated asset growth and to absorb potential losses.
10
<PAGE>
The Company's Tier I capital position capital was $38.0 million at June 30,
2000, or 12.62% of risk-weighted assets. Total risk-based capital was $41.1
million or 13.64% of risk-weighted assets.
Tier I capital consists primarily of common stockholders' equity, while total
risk-based capital includes the allowance for loan losses. Risk weighted assets
are determined by assigning various levels of risk to different categories of
assets and off-balance sheet activities. Under current risk-based capital
standards, all banks are required to have Tier I capital of at least 4% and
total capital of 8%.
FORWARD-LOOKING STATEMENTS
Certain statements in this report may constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Although the Company believes that its expectations with respect to certain
forward-looking statements are based upon reasonable assumptions within the
bounds of its knowledge of its business and operations, there can be no
assurance that actual results, performance or achievements of the Company will
not differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information provided in the
December 31, 1999 Form 10-K.
11
<PAGE>
Part II. OTHER INFORMATION
Item: 1 Legal proceedings
There are no material legal proceedings to which the Registrant or
any of its subsidiaries are involved in other than legal proceedings
occurring in the ordinary course of business, which are deemed
immaterial.
2 Changes in securities - None
3 Defaults upon senior securities - None
4 Results of votes of security holders - None
5 Other information - None
6 Exhibits and Reports on Form 8-K
(a) Exhibits - Financial Data Schedule, Exhibit 27
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
COMMUNITY BANKSHARES INCORPORATED
/s/Nathan S. Jones, 3rd
-------------------------
Nathan S. Jones, 3rd
President and Chief Executive Officer
/s/Ray A. Fleming
-----------------
Ray A. Fleming
Senior Vice President and Chief Financial Officer
Date: August 11, 2000
12
