<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 March 31, 1995
---------
Commission file number 0-14620
-------
Community Bankshares, Inc.
(Exact name of registrant as specified in its charter)
New Hampshire 02-0394439
------------- ----------
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
43 North Main Street
Concord, New Hampshire 03301
----------------------------
(Address of principal executive offices)
(Zip Code)
(603) 224-1100
--------------
(Registrant's telephone number, including area code)
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
- - - ------- ------
1,745,222 shares of Community Bankshares, Inc.'s Common Stock ($1.00 Par Value)
were outstanding as of March 31, 1995. Community Bankshares, Inc. has no other
classes of common stock.
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
- - - -----------------------------
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, June 30,
(Dollars in Thousands Except Share Data) 1995 1994
- - - ---------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,381 $ 7,503
Interest-bearing deposits in other banks 7 509
---------- -----------
Total cash and cash equivalents 6,388 8,012
---------- -----------
Securities available for sale -
amortized cost $56,861 on
March 31, 1995 and $65,252 on June
30, 1994 56,351 64,795
Securities held to maturity - market
value $48,453 on
March 31, 1995 and $32,997 on June
30, 1994 49,330 33,860
Federal Home Loan Bank stock 3,242 1,860
Mortgage loans held for sale 1,762 4,942
Loans 273,250 222,109
Allowance for possible loan losses (3,120) (3,351)
---------- -----------
Net loans 270,130 218,758
---------- -----------
Premises and equipment 7,427 7,150
Real estate acquired by foreclosure or
substantively repossessed 807 836
Accrued interest receivable 2,819 2,526
Other assets 3,670 3,397
---------- -----------
Total assets $ 401,926 $ 346,136
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 14,468 $ 15,067
Savings 117,538 131,877
Time certificates 173,090 145,981
---------- -----------
Total deposits 305,096 292,925
Borrowed funds 65,562 23,507
Liability relating to ESOP 237 355
Accrued interest payable 1,186 693
Other liabilities 1,683 2,031
---------- -----------
Total liabilities 373,764 319,511
---------- -----------
Stockholders' equity:
Preferred stock, $1.00 par value per
share; 1,000,000 shares
authorized, none issued -- --
Common stock, $1.00 par value per
share; 3,000,000 shares
authorized; 1,750,318 issued and
outstanding on
March 31, 1995 and 1,743,532 on June
30, 1994 1,750 1,744
Additional paid-in capital 17,233 17,343
Retained earnings 9,799 8,155
---------- -----------
28,782 27,242
Unrealized net losses on investments
available for sale, net (314) (262)
Unearned compensation expense - ESOP (237) (355)
Treasury stock - 5,096 shares (69) --
---------- -----------
Total stockholders' equity 28,162 26,625
---------- -----------
Total liabilities and stockholders'
equity $ 401,926 $ 346,136
========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
(In Thousands Except Per Share Data) 1995 1994 1995 1994
- - - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 5,681 $ 4,334 $ 15,461 $ 13,810
Securities available for sale 972 1,271 2,966 3,235
Securities held to maturity 652 - 1,763 -
Dividends on Federal Home Loan Bank stock 47 32 126 119
Deposits in other banks 5 45 45 98
-------- -------- --------- ---------
Total interest and dividend income 7,357 5,682 20,361 17,262
-------- -------- --------- ---------
Interest expense:
Deposits 2,944 2,483 8,289 7,777
Borrowed funds 812 129 1,647 255
-------- -------- --------- ---------
Total interest expense 3,756 2,612 9,936 8,032
-------- -------- --------- ---------
Net interest and dividend income 3,601 3,070 10,425 9,230
Provision for possible loan losses 125 75 325 550
-------- -------- --------- ---------
Net interest and dividend income after
provision for possible loan losses 3,476 2,995 10,100 8,680
-------- -------- --------- ---------
Non-interest income:
Deposit account fees 127 85 373 253
Gains on sales of investment securities 24 122 54 333
Gains on sales of loans 54 286 215 982
Mortgage servicing income 132 96 383 355
Other 100 33 247 131
-------- -------- --------- ---------
Total non-interest income 437 622 1,272 2,054
-------- -------- --------- ---------
Non-interest expense:
Salaries and employee benefits 1,387 1,238 4,087 3,761
Occupancy and equipment 362 335 1,085 997
Foreclosed property (13) 37 82 37
FDIC deposit insurance premiums 173 165 505 532
Other 780 835 2,220 2,463
-------- -------- --------- ---------
Total non-interest expense 2,689 2,610 7,979 7,790
-------- -------- --------- ---------
Income before income tax 1,224 1,007 3,393 2,944
Income tax expense 392 232 1,086 679
-------- -------- --------- ---------
Net income $ 832 $ 775 $ 2,307 $ 2,265
======== ======== ========= =========
Earnings per common and
common equivalent share $ 0.46 $ 0.43 $ 1.29 $ 1.27
======== ======== ========= =========
Dividends paid per share $ 0.13 $ 0.08 $ 0.38 $ 0.13
======== ======== ========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
(In Thousands) 1995 1994
- - - ------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,307 $ 2,265
----------- ------------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for possible loan losses 325 550
Depreciation and amortization 272 615
Gains on sales of investment
securities (54) (333)
Mortgage loans originated for sale (18,756) (95,890)
Mortgage loans sold 21,936 98,357
Losses on sales of premises and
equipment -- 26
Net gains on sales and writedowns
of real estate
acquired by foreclosure or
substantively repossessed (34) (103)
(Increase) decrease in other
assets (535) 2,083
Increase (decrease) in other
liabilities 145 (755)
----------- ------------
Total adjustments 3,299 4,550
----------- ------------
Net cash provided by operating 5,606 6,815
activities ----------- ------------
Cash flows from investing activities:
Proceeds from sales - securities
available for sale 8,759 9,222
Proceeds from maturities and
principal payments - securities
available for sale 8,542 28,942
Proceeds from maturities and
principal payments - securities held
to maturity 2,603 221
Purchases - securities available for
sale (8,904) (35,212)
Purchases - securities held to
maturity (18,090) (12,162)
(Purchase) redemption of FHLB stock (1,382) 448
Net increase in loans (51,883) (16,296)
Additions to real estate acquired by
foreclosure (233) (60)
or substantively repossessed
Proceeds from disposition of real
estate acquired by foreclosure
or substantively repossessed 919 2,415
Proceeds from sales of premises and
equipment -- 28
Additions to premises and equipment (833) (475)
----------- ------------
Net cash used in investing (60,502) (22,929)
activities ----------- ------------
Cash flows from financing activities:
Net increase (decrease) in
certificate accounts 27,109 (5,364)
Net increase (decrease) in demand,
NOW, savings and money market
accounts (14,938) 8,220
Proceeds from borrowings 80,905 16,030
Repayments of borrowings (38,850) (7,780)
Repayments of liability related to
ESOP (118) (119)
Proceeds from issuance of common stock 127 121
Purchase of treasury stock (300) --
Dividend paid on common stock (663) (225)
----------- ------------
Net cash provided by financing 53,272 10,883
activities ----------- ------------
Net decrease in cash and cash
equivalents (1,624) (5,231)
Cash and cash equivalents at beginning
of period 8,012 16,464
----------- ------------
Cash and cash equivalents at end of
period $ 6,388 $ 11,233
=========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Income taxes, net $ 920 $ 961
=========== ============
Interest $ 9,443 $ 8,016
=========== ============
SUPPLEMENTAL SCHEDULE OF NON-CASH
ACTIVITIES:
Transfer of securities to available
for sale $ -- $ 56,028
=========== ============
Transfer of securities to held to
maturity $ -- $ 10,957
=========== ============
Additions to real estate acquired by
foreclosure or substantively repossessed $ 623 $ 822
=========== ============
Mortgage loans securitized during the
period $ -- $ 19,563
=========== ============
Increase in net unrealized gains
(losses) on investments
available for sale, net $ (52) $ 447
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995 and 1994
1. Basis of Presentation
---------------------
The unaudited consolidated financial statements of Community Bankshares, Inc.
and its wholly owned subsidiaries ("the Company"), Concord Savings Bank ("the
Bank") and Bancredit Corporation ("Bancredit"), presented herein should be read
in conjunction with the consolidated financial statements of Community
Bankshares, Inc. and subsidiaries as of and for the year ended June 30, 1994. In
the opinion of management, the unaudited financial statements reflect all
adjustments, consisting only of normal recurring adjustments, which are
necessary for a fair presentation. Interim results are not necessarily
indicative of results to be expected for the entire year.
2. Earnings Per Share
------------------
Earnings per share for the periods presented are based on the weighted average
number of common and common equivalent shares outstanding during each period.
5
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
Financial Condition
- - - -------------------
At March 31, 1995, total assets amounted to $401,926,000, an increase of
$55,790,000, or 16.1%, from $346,136,000 at June 30, 1994. The Company's asset
growth was primarily in loans, and to a lesser extent, in investment securities.
Total loans grew by $51,141,000, or 23.0%, since June 30, 1994 and amounted to
$273,250,000, or 68.0% of total assets, at March 31, 1995. With the recent
consolidation that has been taking place in the New Hampshire banking industry,
the Bank has taken advantage of market opportunities to expand and develop new
lending relationships.
The Bank, through its subsidiary Bancredit, has serviced a large number of auto
and recreational vehicle dealers throughout New Hampshire for more than ten
years and understands the challenges and risks associated with this business.
With the addition of experienced, high level personnel the Bank has
substantially increased its number of dealer relationships during the current
fiscal year resulting in significant loan growth in indirect loans. Indirect
loans grew by $35,660,000 since June 30, 1994 which accounted for the majority
of the Company's loan growth during the period.
The Company has also used similar market opportunities in the commercial lending
area to grow commercial loans by $13,105,000 since June 30, 1994. Residential
mortgage loans accounted for the remainder of the Company's loan growth during
the first nine months of fiscal 1995.
Commercial and consumer (indirect auto and recreational vehicle) lending may
entail additional risks compared to residential mortgage lending. Commercial
loans may involve large loan balances to single or groups of related borrowers.
In addition, the payment experience on loans secured by income producing
properties is typically dependent on the successful operation of the properties
and thus may be subject to a greater extent to adverse conditions in the local
real estate market or in the economy in general. Money lent for consumer loans
may be expensive and time consuming to recover in the event of default.
The Bank continues to use the same loan underwriting criteria and loan review
process that has reduced non-performing assets to their current lower levels
which have been maintained over the past couple of years. This, in addition to
an experienced collections department, has kept loan delinquencies and loan
charge-offs at low levels, particularly in the consumer loan portfolio. The
Bank's indirect auto lending delinquency levels have been consistently below
industry standards over the past few years.
Mortgage loans held for sale, those loans which will be sold in the secondary
market, decreased from $4,942,000 at June 30, 1994 to $1,762,000 at March 31,
1994. This reduction in secondary market loan origination demand was primarily
due to the rise in mortgage interest rates and the resulting decline in
refinancing activity.
Total investment securities amounted to $105,681,000, or 26.3% of total assets,
at March 31, 1995 compared to $98,655,000, or 28.5% of total assets, at June 30,
1994. Securities available for sale decreased by $8,444,000 as the Bank sold a
portion of its investments available for sale, primarily mortgage-backed
securities, during the first three quarters of fiscal 1995. The Bank continued
to add to its securities held to maturity as evidenced by the increase of
$15,470,000 since June 30, 1994. At March 31, 1995, securities held to maturity
represented 46.7% of total investments. The investment portfolio consists
primarily of U.S. Treasury and Agency securities, mortgage-backed securities
guaranteed by Federal Home Loan Mortgage Corporation (FHLMC) and Federal
National Mortgage Association (FNMA), and to a lesser extent other mortgage-
backed securities, corporate bonds, municipal investments and marketable equity
securities.
Total deposits increased by $12,171,000 since June 30, 1994 and amounted to
$305,096,000 at March 31, 1995. Due to rising interest rates, the Bank's deposit
growth during the first nine months
6
<PAGE>
of fiscal 1995 occurred in time certificates of deposit. Growth in this category
amounted to $27,109,000 and was partially offset by a decrease of $14,938,000 in
checking and savings accounts. In combination with deposit growth, borrowed
funds were utilized to support the Bank's earning asset growth during the first
nine months of fiscal 1995. Borrowed funds increased by $42,055,000 from
$23,507,000 at June 30, 1994 to $65,562,000 at March 31, 1995. The Bank's
borrowed funds consist primarily of Federal Home Loan Bank (FHLB) advances.
At March 31, 1995, stockholders' equity totaled $28,162,000, resulting in an
equity-to-assets ratio of 7.01% and a regulatory leverage ratio of 7.76%. The
Company's capital exceeds all published regulatory minimums. For further
information on the Company's capital ratios see the "Liquidity and Capital
Resources" section below.
The unrealized net loss on investment securities available for sale, recorded in
stockholders' equity, amounted to $314,000 at March 31, 1995. This was reduced
from an unrealized loss of $1,099,000 at December 31, 1994 and is closer to the
level experienced at June 30, 1994 of $262,000. Normal maturities, principal
payments and recent purchases at market prices improved the portfolio's market
values during the quarter. Additionally, the trend experienced in the unrealized
net loss on securities available for sale during the fiscal year closely follows
the trend in market interest rates in the two to five year U.S. Treasury yields.
These treasury yields began the fiscal year at lower levels, peaked at their
highs around the end of December 1994 and significantly retreated by the end of
the current quarter.
7
<PAGE>
Risk Elements
- - - -------------
At March 31, 1995, total non-performing assets amounted to $2,719,000, or 0.68%
of total assets compared to $1,982,000, or 0.57%, respectively, at June 30,
1994. The increase of $737,000 since June 30, 1994 was primarily due to one
loan, which was previously performing, placed onto non-accruing status by the
Bank during the quarter. Otherwise, non-performing assets for March 31, 1995
would have been slightly below the level experienced at June 30, 1994.
Non-performing assets consist of non-performing loans, loans for which the
accrual of interest has been stopped and commercial loans that have been
restructured with modified terms, and property or other assets which have been
acquired by foreclosure or substantively repossessed. Non-performing loans
increased during the first nine months of fiscal 1995 from $904,000 at June 30,
1994 to $1,500,000 at March 31, 1995. Foreclosed property and repossessed autos
and mobile homes increased from a total of $1,078,000 at June 30, 1994 to
$1,219,000 at March 31, 1995.
The following table summarizes non-performing assets and loans delinquent 90
days or more at the dates indicated.
<TABLE>
<CAPTION>
March 31, June 30, March 31,
(Dollars in Thousands) 1995 1994 1994
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual loans $ 1,329 $ 730 $ 1,308
Restructured loans 171 174 174
--------- --------- ---------
Total non-performing loans 1,500 904 1,482
--------- --------- ---------
Real estate acquired by foreclosure or substantively
repossessed 807 836 1,138
Other assets acquired 412 242 349
--------- --------- ---------
Total assets acquired toward satisfaction of debt
and loans substantively repossessed 1,219 1,078 1,487
--------- --------- ---------
Total non-performing assets 2,719 1,982 2,969
Loans delinquent 90 days or more and still accruing 174 -- --
--------- --------- ---------
Total non-performing assets and loans
delinquent 90 days or more and still accruing $ 2,893 $ 1,982 $ 2,969
========= ========= =========
Non-performing assets as a percent of total loans
and assets acquired toward satisfaction of debt
and loans substantively repossessed 0.99 % 0.89 % 1.38 %
======== ======= =======
</TABLE>
During the first nine months of fiscal 1995, the Bank provided $325,000 into its
allowance for possible loan losses, bringing the allowance to $3,120,000 after
net charge-offs of $556,000. This action produced an allowance for possible loan
losses totaling 1.14% of total loans at March 31, 1995 compared to 1.51% at June
30, 1994. At March 31, 1995, the allowance for possible loan losses represented
208.0% of non-performing loans of $1,500,000 versus 370.7% of non-performing
loans of $904,000 at June 30, 1994.
The allowance for possible loan losses is maintained at a level believed by
management to adequately meet reasonably foreseeable loan losses on the basis of
many factors including risk characteristics of the portfolio, underlying
collateral, current and anticipated economic conditions that may affect the
borrower's ability to pay, specific problem loans, trends in loan delinquencies,
loan charge-offs and loan growth. While management uses the best information
available to establish the allowance for possible loan losses, future additions
to the allowance may be necessary if economic conditions differ substantially
from the assumptions used in making the evaluation. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for possible loan losses. Such agencies
may require the Bank to recognize additions to the allowance based on judgments
different from those of management.
8
<PAGE>
Results of Operations for the Three and Nine Months Ended
---------------------------------------------------------
March 31, 1995 and 1994
-----------------------
Results of Operations
- - - ---------------------
The Company earned net income of $832,000, or $.46 per share, for the third
fiscal quarter ended March 31, 1995, and net income of $2,307,000, or $1.29 per
share, for the nine months then ended. Comparable amounts for the quarter ended
March 31, 1994 and the nine months then ended were net income of $775,000, or
$.43 per share, and $2,265,000, or $1.27 per share, respectively.
During the quarter and the nine months ended March 31, 1995, the Company
provided $125,000 and $325,000, respectively, into the allowance for possible
loan losses. This compares to a provision for possible loan losses of $75,000
and $550,000 experienced during the comparable periods of the prior year. The
reduction in the provision for loan losses for the nine months ended March 31,
1995 versus the same period of 1994 was primarily due to the Bank's improved
asset quality and reduced net charge-offs from the same period a year ago. Non-
performing loans amounted to $1,500,000 at March 31, 1995 as compared to
$1,482,000 at March 31, 1994 and net loan charge-offs declined to $556,000 for
the nine months ended March 31, 1995 versus $826,000 for the same period of the
prior year.
Net interest and dividend income and net interest margin for the quarters ended
March 31, 1995 and 1994 amounted to $3,601,000 and 3.89%, respectively, and
$3,070,000 and 3.90%, respectively. Net interest and dividend income and net
interest margin for the nine months ended March 31, 1995 and 1994 amounted to
$10,425,000 and 3.97%, respectively, and $9,230,000 and 3.98%, respectively. Net
interest income has improved this year versus last year as the Company's earning
assets have increased while its net interest margins have remained comparable
this year versus last year.
Interest Income
- - - ---------------
Total interest and dividend income for the quarter ended March 31, 1995 amounted
to $7,357,000, an increase of $1,675,000 over the same quarter of the prior
year. Year to date total interest income increased by $3,099,000 over the prior
year.
Interest income on loans increased by $1,347,000 for the quarter ended March 31,
1995 versus the same quarter of last year due to an increase in average loans
outstanding during the period of $46,667,000 coupled with an increase in average
yield for the quarter of 63 basis points. On a year to date basis interest
income on loans increased by $1,651,000 this year versus last year as average
loans outstanding and the average yield increased by $17,595,000 and 32 basis
points, respectively. The increase in average loans outstanding has been
primarily in the indirect dealer lending area as a result of the Company's
recent increased penetration into that market statewide.
Interest income on investments for the current quarter increased by $328,000
from the same quarter a year ago. Average investment balances and the average
yield earned on investments increased this quarter from the same quarter last
year by $8,752,000 and 78 basis points, respectively. Interest income on
investments, average investment balances and the average yield on investments
for the nine months ended March 31, 1995 increased by $1,448,000, $22,788,000
and 63 basis points, respectively, compared to the same period last year. The
increase in average investments was primarily due to securitizing mortgage loans
and transferring them into the investment portfolio at the end of the December
1993 quarter and by using investment growth to offset the slow down in loan
growth due to rising interest rates and competition for loans that the Company
experienced during the second half of fiscal 1994.
9
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
(Dollars in Thousands) 1995 1994 1995 1994
- - - ---------------------------------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 5,681 $ 4,334 $ 15,461 $ 13,810
Investments 1,676 1,348 4,900 3,452
------- ------- -------- --------
Total interest and dividend income 7,357 5,682 20,361 17,262
------- ------- -------- --------
Interest expense:
Deposits 2,944 2,483 8,289 7,777
Borrowed funds 812 129 1,647 255
------- ------- -------- --------
Total interest expense 3,756 2,612 9,936 8,032
------- ------- -------- --------
Net interest and dividend income $ 3,601 $ 3,070 $ 10,425 $ 9,230
======= ======= ======== ========
Average yield on:
Loans 8.56 % 7.93 % 8.40 % 8.08 %
Investments 6.36 5.58 6.23 5.60
Average earning assets 7.94 7.21 7.75 7.42
Average cost of:
Deposits 4.04 % 3.60 % 3.88 % 3.75 %
Borrowed funds 6.01 4.49 5.65 5.00
All interest-bearing liabilities 4.35 3.64 4.09 3.78
Net interest margin 3.89 % 3.90 % 3.97 % 3.98 %
Annualized return on average assets 0.86 0.94 0.84 0.93
Annualized return on average equity 12.08 11.59 11.30 11.46
Average equity to average assets 7.10 8.14 7.42 8.09
Equity-to-assets at end of period 7.01 7.97 7.01 7.97
</TABLE>
Interest Expense
- - - ----------------
Interest expense on deposits for the quarter ended March 31, 1995 increased by
$461,000 versus the same quarter of the prior year due to an 44 basis point
increase in average cost coupled with an increase of $15,635,000 in average
interest-bearing deposits. Interest expense on deposits for the nine months
ended March 31, 1995 increased by $512,000 versus the same period of the prior
year due to an increase of $8,737,000 in average interest-bearing deposits and
an increase of 13 basis points in average cost. The Bank continues to experience
deposit growth by offering competitive rates and fees on its deposit products
within its market area and through expansion with the opening of a new
full-service branch facility during September of 1994.
Interest expense on total borrowings for the quarter ended March 31, 1995
increased over the same period of last year by $683,000 and by $1,392,000 on a
year to date basis as average outstanding borrowings increased by $42,586,000
and $32,086,000, respectively, for the current quarter and current year to date
when compared to the same periods of the prior year. Increases of 152 basis
points and 65 basis points, respectively, on average rates paid on borrowed
funds for the current quarter and fiscal year to date versus the same periods of
the prior year also contributed to the increase in interest expense on borrowed
funds. The Bank utilized FHLB advances, along with deposit growth, to fund its
earning asset growth over the past year.
Non-Interest Income
- - - -------------------
Non-interest income for the quarter ended March 31, 1995 decreased by $185,000
from the same quarter of last year and decreased by $782,000 for the nine month
period ended March 31, 1995 when compared to the same nine months a year ago.
The quarterly and year to date decreases in total non-interest income versus the
same periods of last year were primarily attributable to lower loan sale and
security gains. As a result of rising interest rates, the Bank originated fewer
fixed rate mortgage loans for sale into the secondary market. The opportunity to
realize security gains also diminished during the current fiscal year as market
rates rose.
10
<PAGE>
Non-interest income excluding loan and security gains increased by $145,000 and
$264,000, respectively, for the current quarter and nine months versus the same
periods a year ago. The majority of this increase was in deposit account fees
primarily due to the Bank increasing selected deposit and other service fees
effective April 1, 1994 and due to increasing new customer relationships.
Non-Interest Expense
- - - --------------------
Non-interest expense for the quarter ended March 31, 1995 increased by $79,000
over the same quarter of last year and by $189,000 on a year to date basis over
the prior year. The primary reason for these increases was the major investments
made by the Company to expand its business lines and product distribution
system.
Salary and employee benefits expense increased by $149,000 and $326,000,
respectively, for the quarter and year to date versus the same periods of the
prior fiscal year. The increase in salaries and benefits was primarily due to
additions to staff related to expanding major business lines and the product
distribution system. During the first nine months of the current fiscal year the
Company opened a new full-service branch office at the Steeplegate Mall in
Concord, New Hampshire, expanded its indirect auto dealer financing programs and
established a municipal services department. The Company has also incurred
additional benefits expense this year versus last year by establishing and
funding a 401K benefit plan.
The opening of the new branch facility in September 1994 and subsequent opening
of a remote automated teller machine in Tilton, New Hampshire during December
1994 are the primary reasons for increases in occupancy and equipment expense of
$27,000 and $88,000, respectively, for the quarter and nine months ended March
31, 1995 versus the comparable prior year periods.
Foreclosed property expense for the quarter ended March 31, 1995 decreased by
$50,000 over the same quarter of last year and increased by $45,000 on a year to
date basis over the prior year. Although the Company's other real estate owned
remains at a comparable level to that of a year ago, the expenses to maintain,
carry and eventually dispose of such properties has increased over last year on
a year to date basis.
FDIC insurance premiums increased by $8,000 for the quarter from the same period
of a year ago and decreased by $27,000 on a year to date basis versus the same
period of last year. The increase for the quarter was related to growth in
deposit balances. The decrease on a year to date basis was primarily due to a
decrease in premium that went into effect on January 1, 1994 which was partially
offset by a growing deposit base.
Other non-interest expense decreased by $55,000 for the three months ended March
31, 1995 as compared to the same quarter of the prior fiscal year and by
$243,000 on a year to date basis versus the same period a year ago. The
reduction of legal and other expenses related to the resolution of problem loans
was the primary reason for the decrease in other non-interest expense.
Income Taxes
- - - ------------
Income tax expense for the quarters ended March 31, 1995 and 1994 amounted to
$392,000 and $232,000, respectively. Income tax expense for the nine months
ended March 31, 1995 and 1994 amounted to $1,086,000 and $679,000, respectively.
The resulting effective tax rates for fiscal 1995 and fiscal 1994 were 32% and
23%, respectively. The low effective tax rate for the prior fiscal year was
primarily the result of the Company reducing its valuation reserve on its
deferred tax asset by approximately $110,000 for the quarter ended March 31,
1994 and $330,000 for the nine months ended March 31, 1994. This compares to
reductions in the valuation reserve during the current
11
<PAGE>
quarter and fiscal year to date of approximately $38,000 and $113,000,
respectively. At March 31, 1995, the Company's net deferred income tax asset,
net of related valuation reserves, was approximately $665,000.
Liquidity and Capital Resources
- - - -------------------------------
Liquidity is a measure of the Company's ability to meet its cash needs at a
reasonable cost. Cash needs arise primarily as a result of funding lending
opportunities, the maturity of liabilities such as borrowings and the withdrawal
of deposits. Asset liquidity is achieved through the management of earning asset
maturities, loan amortization, deposit growth, securities available for sale and
access to borrowed funds. As a member, the Bank may borrow from the Federal Home
Loan Bank of Boston on a secured basis. Borrowing usually requires the pledging
of the Bank's FHLB stock as well as other collateral. At March 31, 1995, the
Bank's sources of liquidity included $56 million of investment securities
classified as "available for sale" and unused available borrowing capacity
exceeding $75 million at the Federal Home Loan Bank of Boston.
The Holding Company's primary sources of liquidity are dividends from the Bank
and its cash balances. Dividends paid from the Bank to the Holding Company are
limited to the extent necessary for the Bank to comply with regulatory capital
guidelines.
The Bank's deposits are insured by the Federal Deposit Insurance Corporation
which issues and enforces regulations designed to protect the safety and
soundness of insured institutions. At March 31, 1995, the Company had equity
capital of $28,162,000, resulting in an equity-to-assets ratio of 7.01% and a
regulatory leverage ratio of 7.76%. Stockholders' equity includes $314,000 of
unrealized net security losses, net of estimated income taxes, relative to
investment securities classified as available for sale.
The following table summarizes the Company's regulatory capital ratios as of
March 31, 1995.
<TABLE>
<S> <C>
Tier 1 risk-based capital ratio 10.52%
Total risk-based capital ratio 11.67%
Tier 1 leverage capital ratio 7.76%
</TABLE>
The following table summarizes the Bank's regulatory capital ratios as of March
31, 1995.
<TABLE>
<S> <C>
Tier 1 risk-based capital ratio 9.89%
Total risk-based capital ratio 11.05%
Tier 1 leverage capital ratio 6.90%
</TABLE>
The risk-based capital requirement is 4% for Tier 1 and 8% for total risk-based.
In addition, the general valuation allowances that banks are able to include in
risk-weighted capital is equal to 1.25% of risk-weighted assets. Tier 1 capital
excludes unrealized net security gains or losses from investments classified as
available for sale.
The Federal Reserve Board also has an additional capital adequacy guideline
referred to as the Tier 1 leverage capital ratio, which measures the ratio of
Tier 1 capital to total average assets for the most recent quarter. Although the
most highly rated bank holding companies will be required to maintain a minimum
Tier 1 leverage ratio of 3%, most bank holding companies will be required to
maintain Tier 1 leverage capital ratios of 4% to 5% or more. The actual ratio
will be based on the Federal Reserve Board's assessment of the individual bank
holding company's asset quality, earnings performance, interest rate risk, and
liquidity.
12
<PAGE>
During the quarter ended December 31, 1994, the Company initiated a stock
repurchase program under which the Company intends, dependent upon market
conditions, periodically to buy back in the open market up to a total of 5% of
its outstanding common stock.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
-----------------
The Company is not involved in any pending legal proceedings other than those
involved in the ordinary course of business. Management believes that the
resolution of these matters will not materially affect the business or the
consolidated financial condition or results of operations of the Company and its
subsidiaries.
Item 2 - Changes in Securities
---------------------
Not applicable
Item 3 - Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
Item 5 - Other Information
-----------------
Not applicable
Item 6 - List of Exhibits and Reports on Form 8-K
----------------------------------------
No reports on form 8-K were filed during the quarter.
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibits Method of Filing
- - - -------------- ----------------------- ----------------
<S> <C> <C>
11 Statement re computation of Filed herewith
income per share
27 Financial Data Schedule Filed herewith
</TABLE>
13
<PAGE>
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY BANKSHARES, INC.
May 9, 1995 Douglas Crichfield
------------------
Douglas Crichfield
President and Chief Executive Officer
(Principal Executive Officer)
May 9, 1995 Gerald R. Emery
---------------
Gerald R. Emery
Treasurer (Principal Financial
and Accounting Officer)
14
<PAGE>
"EXHIBIT 11"
The following table sets forth in detail the computation of earnings per share
for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------- ---------------------------
1995 1994 1995 1994
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net income $832,000 $775,000 $2,307,000 $2,265,000
Average common and common equivalent
shares 1,789,903 1,790,245 1,792,280 1,781,287
Earnings per common and
common equivalent shares $0.46 $0.43 $1.29 $1.27
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for March 31, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 6,381
<INT-BEARING-DEPOSITS> 7
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 59,593
<INVESTMENTS-CARRYING> 49,330
<INVESTMENTS-MARKET> 48,453
<LOANS> 275,012
<ALLOWANCE> 3,120
<TOTAL-ASSETS> 401,926
<DEPOSITS> 305,096
<SHORT-TERM> 65,562
<LIABILITIES-OTHER> 3,106
<LONG-TERM> 0
<COMMON> 1,750
0
0
<OTHER-SE> 26,412
<TOTAL-LIABILITIES-AND-EQUITY> 401,926
<INTEREST-LOAN> 15,461
<INTEREST-INVEST> 4,855
<INTEREST-OTHER> 45
<INTEREST-TOTAL> 20,361
<INTEREST-DEPOSIT> 8,289
<INTEREST-EXPENSE> 9,936
<INTEREST-INCOME-NET> 10,425
<LOAN-LOSSES> 325
<SECURITIES-GAINS> 54
<EXPENSE-OTHER> 7,979
<INCOME-PRETAX> 3,393
<INCOME-PRE-EXTRAORDINARY> 2,307
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,307
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.29
<YIELD-ACTUAL> 3.97
<LOANS-NON> 1,329
<LOANS-PAST> 174
<LOANS-TROUBLED> 171
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,351
<CHARGE-OFFS> 929
<RECOVERIES> 373
<ALLOWANCE-CLOSE> 3,120
<ALLOWANCE-DOMESTIC> 3,120
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
