<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, 1996
-------------
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
--- ---
2,422,864 shares of Community Bankshares, Inc.'s Common Stock ($1.00 Par Value)
were outstanding as of June 30, 1996. Community Bankshares, Inc. has no other
classes of common stock.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
--------------------
CONSOLIDATED STATEMENTS OF INCOME
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended-June 30,
-------------------- ---------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
(In Thousands, Except Per Share Data)
(Unaudited)
Interest and dividend income:
Loans.................................................... $ 8,049 $7,483 $15,728 $14,266
Securities available for sale............................ 1,356 936 2,428 1,986
Securities held to maturity.............................. 630 981 1,345 1,810
Federal Home Loan Bank stock............................. 72 59 144 109
Fed funds sold and deposits in other banks............... 121 49 225 91
------- ------ ------- -------
Total interest and dividend income................. 10,228 9,508 19,870 18,262
Interest expense: ------- ------ ------- -------
Deposits................................................. 3,659 3,571 7,425 6,880
Borrowed funds........................................... 1,278 1,200 2,254 2,043
------- ------ ------- -------
Total interest expense............................. 4,937 4,771 9,679 8,923
------- ------ ------- -------
Net interest and dividend income............................... 5,291 4,737 10,191 9,339
Provision for possible loan losses............................. 300 225 575 425
------- ------ ------- -------
Net interest and dividend income after
provision for possible loan losses............... 4,991 4,512 9,616 8,914
Non-interest income: ------- ------ ------- -------
Deposit account fees..................................... 204 158 382 309
Gains on sales of investment securities, net............. 129 94 349 118
Gains on sales of loans, net............................. 224 135 420 236
Loan servicing income.................................... 198 139 408 271
Other.................................................... 112 126 226 239
------- ------ ------- -------
Total non-interest income.......................... 867 652 1,785 1,173
------- ------ ------- -------
Non-interest expense:
Salaries and employee benefits........................... 2,061 1,705 4,006 3,435
Occupancy and equipment.................................. 620 513 1,270 1,011
Foreclosed property...................................... 33 64 58 51
FDIC deposit insurance premiums.......................... 1 207 2 414
Marketing................................................ 145 101 259 194
Other.................................................... 1,049 882 2,074 1,772
------- ------ ------- -------
Total non-interest expense......................... 3,909 3,472 7,669 6,877
------- ------ ------- -------
Income before income taxes..................................... 1,949 1,692 3,732 3,210
Income tax expense............................................. 699 557 1,328 1,048
------- ------ ------- -------
Net income............................................... $ 1,250 $1,135 $ 2,404 $ 2,162
======= ====== ======= =======
Earnings per common and common equivalent share................ $0.50 $0.46 $0.97 $0.88
Average number of common and common
equivalent shares outstanding............................ 2,484 2,467 2,480 2,457
Dividends paid per share....................................... $0.15 $0.13 $0.30 $0.26
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ---------------
<S> <C> <C>
(Dollars in Thousands, Except
Share Data)
(Unaudited)
Assets
Cash and due from banks....................................................... $ 23,735 $ 19,226
Interest-bearing deposits in other banks...................................... 199 11,767
Fed funds sold................................................................ -- 200
-------- --------
Total cash and cash equivalents................................... 23,934 31,193
-------- --------
Securities available for sale--amortized cost $95,484 at June 30, 1996 and
$66,467 at December 31, 1995............................................... 94,828 67,411
Securities held to maturity--fair value $45,694 at June 30, 1996 and
$47,760 at December 31, 1995................................................ 46,019 47,525
Federal Home Loan Bank stock.................................................. 4,571 4,411
Mortgage loans held for sale.................................................. 3,728 2,940
Loans......................................................................... 355,994 327,014
Allowance for possible loan losses............................................ (3,604) (3,667)
-------- --------
Net loans......................................................... 352,390 323,347
-------- --------
Premises and equipment........................................................ 9,638 8,938
Real estate acquired by foreclosure........................................... 557 566
Due from broker for security sale............................................. -- 1,710
Accrued interest receivable................................................... 4,058 3,724
Other assets.................................................................. 7,002 6,238
-------- --------
Total assets...................................................... $546,725 $498,003
======== ========
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing demand........................................... $ 49,393 $ 39,969
Savings............................................................... 143,894 137,835
Time certificates..................................................... 206,897 207,633
-------- --------
Total deposits.................................................... 400,184 385,437
Securities sold under agreements to repurchase........................ 21,419 14,581
Other borrowed funds.................................................. 76,655 56,355
Liability relating to ESOP............................................ 39 118
Due to broker for security purchase................................... 4,858 --
Accrued interest payable.............................................. 1,419 1,517
Other liabilities..................................................... 4,213 3,227
-------- --------
Total liabilities................................................. 508,787 461,235
-------- --------
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; 4,500,000 shares authorized;
issued and outstanding 2,432,519 at June 30, 1996 and
2,382,849 at December 31, 1995.................................. 2,433 2,383
Additional paid-in capital............................................ 22,207 21,784
Retained earnings..................................................... 14,081 12,299
-------- --------
38,721 36,466
Unrealized net gains (losses) on securities available for sale, net... (586) 578
Unearned compensation expense--ESOP................................... (39) (118)
Treasury stock (at cost)--9,655 shares at June 30, 1996
and December 31, 1995............................................... (158) (158)
-------- --------
Total stockholders' equity........................................ 37,938 36,768
-------- --------
Total liabilities and stockholders' equity........................ $546,725 $498,003
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
(In Thousands)
(Unaudited)
Cash flows from operating activities:
Net income...................................................................... $ 2,404 $ 2,162
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Provision for possible loan losses............................................ 575 425
Depreciation and amortization................................................. 903 1,036
Gains on sales of investment securities, net.................................. (349) (118)
Gains on sales of premises and equipment...................................... (9) --
Net (gains) losses on sales and loss provisions on real estate acquired by
foreclosure................................................................. (4) (82)
Mortgage loans originated for sale............................................ (29,444) (14,779)
Mortgage loans sold........................................................... 28,656 13,306
(Increase) decrease in other assets........................................... 1,300 (2,608)
Increase (decrease) in other liabilities...................................... 5,746 (1,474)
-------- --------
Net cash provided by (used in) operating activities......................... 9,778 (2,132)
-------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale............................ 22,162 17,963
Proceeds from maturities and principal payments of securities held to maturity.. 14,208 3,405
Proceeds from maturities and principal payments of securities available for sale 11,149 4,510
Purchase of securities held to maturity......................................... (6,999) (17,162)
Purchase of securities available for sale....................................... (68,241) (14,429)
Purchase of FHLB stock.......................................................... (160) (1,565)
Net increase in loans........................................................... (34,037) (42,223)
Proceeds from sales of automobile loans......................................... 4,069 11,591
Proceeds from disposition of real estate acquired by foreclosure................ 417 626
Proceeds from sales of premises and equipment................................... 16 --
Additions to premises and equipment............................................. (1,278) (503)
Cash paid for mortgage servicing rights......................................... -- (453)
-------- --------
Net cash used in investing activities......................................... (58,694) (38,240)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in time certificates of deposit......................... (736) 15,111
Net increase (decrease) in demand, NOW, savings and money market deposit
accounts...................................................................... 15,483 (5,314)
Proceeds from borrowings........................................................ 70,078 129,738
Repayments of borrowings........................................................ (42,940) (82,361)
Repayments of liability relating to ESOP........................................ (79) (79)
Proceeds from issuance of common stock.......................................... 473 108
Purchase of treasury stock...................................................... -- (395)
Dividends paid on common stock.................................................. (622) (497)
-------- --------
Net cash provided by financing activities..................................... 41,657 56,311
-------- --------
Net increase (decrease) in cash and cash equivalents.......................... (7,259) 15,939
Cash and cash equivalents at beginning of period.................................. 31,193 15,410
-------- --------
Cash and cash equivalents at end of period........................................ $ 23,934 $ 31,349
======== ========
Supplemental cash flow information:
Cash paid for:
Income taxes, net............................................................. $ 1,042 $ 878
Interest...................................................................... 9,777 8,681
Supplemental schedule of non-cash activities:
Securities transferred from available for sale to held to maturity............. $ 5,730 $ --
Mortgage loans securitized during the period................................... -- 5,551
Additions to real estate acquired by foreclosure............................... 404 420
Change in net unrealized gains (losses) on securities available for sale, net.. (1,164) 2,386
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
1. Basis of Presentation
---------------------
The unaudited consolidated financial statements of Community Bankshares, Inc.
and its wholly owned subsidiaries ("the Company"), Concord Savings Bank
("Concord"), Concord's wholly owned subsidiary, Bancredit Corporation
("Bancredit"), and Centerpoint Bank ("Centerpoint") presented herein should be
read in conjunction with the supplemental consolidated financial statements of
Community Bankshares, Inc. and subsidiaries as of and for the year ended
December 31, 1995. In the opinion of management, the unaudited financial
statements reflect all 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.
3. Acquisition Consummation
-------------------------
On March 20, 1996, the Company completed its acquisition of Centerpoint Bank
through the issuance of 657,587 shares of common stock. The acquisition was
accounted for as a pooling-of-interests and, accordingly, the accounts and
results of operations of Centerpoint have been combined with that of the Company
for all periods presented. The separate results of operations of the Company and
Centerpoint for the periods ended June 30, 1995 are presented below:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, 1995 Ended June 30, 1995
------------------------------------------------------------------------
Community Community
Bankshares, Centerpoint Bankshares, Centerpoint
Inc. Bank Combined Inc. Bank Combined
------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Data, Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Interest income $7,880 $1,628 $9,508 $15,237 $3,025 $18,262
Net income 878 257 1,135 1,742 420 2,162
Earnings per common
and common equivalent share $ 0.49 $ 0.43 $ 0.46 $ 0.97 $ 0.71 $ 0.88
</TABLE>
4. Accounting Change
-----------------
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) FAS No. 123, "Accounting for Stock-Based Compensation." This
statement establishes a fair-value-based method of accounting for stock-based
compensation plans under which compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period.
However, the statement allows a company to continue to measure compensation cost
for such plans under Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Under APB Opinion No. 25, no
compensation cost is recorded if, at the grant date, the exercise price of
options granted is equal to the fair market value of the Company's stock. The
Company has elected to continue to follow the accounting method under APB
Opinion No. 25. SFAS No. 123 requires companies that elect to continue to follow
the accounting in APB Opinion No. 25 to disclose in the notes to their financial
statements pro forma net income and earnings per share as if the fair-value-
based method of accounting had been applied. Based on activity for the three and
six months ended June 30, 1996 and 1995, net income and earnings per share would
not have been materially affected had the accounting method under SFAS No. 123
been applied.
5. Recent Accounting Developments
-------------------------------
In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard No. 125 (FAS No. 125), "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities."
This Statement provides guidance for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. FAS 125
supersedes FAS 76, 77, and 122, while amending both FAS 65 and
5
<PAGE>
115. The Statement is effective January 1, 1997 and is to be applied
prospectively. Earlier implementation is not permitted.
A transfer of financial assets in which control is surrendered over those assets
is accounted for as a sale to the extent that consideration other than
beneficial interests in the transferred assets is received in the exchange.
Liabilities and derivatives incurred or obtained by the transfer of financial
assets are required to be measured at fair value, if practicable. Also, any
servicing assets and other retained interests in the transferred assets must be
measured by allocating the previous carrying value between the asset sold and
the interest retained, if any, based on their relative fair values at the date
of transfer. For each servicing contract in existence before January 1, 1997,
previously recognized servicing rights and excess servicing receivables that do
not exceed contractually specified servicing are required to be combined, net of
any previously recognized servicing obligations under that contract, as a
servicing asset or liability. Previously recognized servicing receivables that
exceed contractually specified servicing fees are required to be reclassified as
interest-only strips receivable.
The Statement also requires an assessment of interest-only strips, loans, other
receivables or retained interests in securitizations. If these assets can be
contractually prepaid or otherwise settled such that the holder would not
recover substantially all of its recorded investment, the asset will be measured
like available for sale securities or trading securities, under FAS 115. This
assessment is required for financial assets held on or acquired after January 1,
1997.
In accordance with the above, the Company will apply the requirements of this
Statement beginning January 1, 1997. The Company has not completed the complex
analysis required to determine the future impact on its financial statements
relating to existing financial assets and servicing contracts.
6
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
- -------------
Financial Condition
- -------------------
On March 20, 1996, the Company completed its acquisition of Centerpoint Bank
through the issuance of 657,587 shares of common stock. The acquisition was
accounted for as a pooling-of-interests and, accordingly, the accounts and
results of operations for Centerpoint have been combined with that of the
Company for all periods presented.
At June 30, 1996, total assets amounted to $546,725,000, an increase of
$48,722,000, or 9.8%, from $498,003,000 at December 31, 1995. This growth in
assets was mostly in loans and investment securities available for sale and was
funded primarily with borrowed funds.
Total loans increased by $28,980,000, or 8.9%, from $327,014,000 at December 31,
1995 to $355,994,000 at June 30, 1996. Since December 31, 1995, the Company has
experienced growth in all three of its major loan portfolios. Commercial,
residential mortgage and consumer loan portfolios grew by approximately $9
million, $11 million and $9 million, respectively. The commercial loan growth
was primarily to small businesses in the manufacturing and service industries
and to professional associations. The growth in residential mortgage loans was
primarily in 15 year fixed rate mortgages which resulted from a limited, special
promotion offered by the Company during the first quarter which were originated
for the Company's portfolio. Additionally, the Company has experienced growth in
its adjustable rate mortgage loan product. The growth in consumer loans was
primarily in indirect automobile loans which resulted from competitive pricing
to dealers located throughout the State of New Hampshire.
Total investment securities amounted to $140,847,000, or 25.8% of total assets,
at June 30, 1996 compared to $114,936,000, or 23.1% of total assets, at December
31, 1995. At June 30, 1996, securities available for sale amounted to
$94,828,000, or 67.3% of total investment securities. Securities held to
maturity amounted to $46,019,000 and represented 32.7% of total investment
securities. During the quarter ended June 30, 1996, the Company transferred
$5,730,000 of securities classified as available for sale to held to maturity.
At the time of reclassification, there were $252,000 in unrealized losses
relating to the securities transferred. Such amount continues to be treated as a
reduction of stockholders' equity and is being amortized to interest income over
the remaining life of the related securities. 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 $14,747,000 since December 31, 1995 and amounted to
$400,184,000 at June 30, 1996. Deposit growth during the first two quarters of
1996 was primarily in non-interest bearing deposits and savings deposits which
increased by $9,424,000 and $6,059,000, respectively, since December 31, 1995.
Growth in these two categories more than offset the decline in time deposits
which decreased by $736,000 during the same period. The increase in non-interest
bearing deposits resulted from the Company's continued growth in small
commercial business relationships. The shift from time certificates to savings
deposits was primarily due to the decline in market rates offered on certificate
accounts.
Funding loan growth was the primary reason for the increase in borrowed funds of
$27,138,000 since December 31, 1995. The Bank's borrowed funds consist primarily
of Federal Home Loan Bank (FHLB) advances and, to a lesser extent, repurchase
agreements.
At June 30, 1996, the Company's stockholders' equity totaled $37,938,000,
resulting in an equity-to-assets ratio of 6.94%, a Tier 1 leverage ratio of
7.29% and a total risk-based capital ratio of 11.72%. The Company's capital
ratios exceed all published regulatory minimums. For further information on the
capital ratios of the Company and of Concord and Centerpoint, see the "Liquidity
and Capital Resources" section below.
Due to market conditions the Company's unrealized net gain (losses) on
securities available for sale, recorded net of applicable taxes as a component
of stockholders' equity, declined from an unrealized net gain of $578,000 at
December 31, 1995 to an unrealized net loss of $586,000 at June 30, 1996.
Changes in the market values of
7
<PAGE>
securities available for sale are reflected in the Company's balance sheet as
increases or decreases in stockholder's equity.
Risk Elements
- -------------
At June 30, 1996, total non-performing assets amounted to $2,258,000, or 0.41%
of total assets compared to $2,523,000, or 0.51%, at December 31, 1995. The
decrease of $265,000 since December 31, 1995 was due to sales and resolutions of
non-performing assets exceeding new non-performing loans.
Non-performing assets consist of non-performing loans, impaired loans and loans
for which the accrual of interest has been stopped, and property or other assets
which have been acquired by foreclosure or repossession. Non-performing loans
decreased slightly to $1,516,000 at June 30, 1996 from $1,624,000 at December
31, 1995. Foreclosed property and repossessed autos and mobile homes decreased
from a total of $899,000 at December 31, 1995 to $742,000 at June 30, 1996. At
June 30, 1996, impaired loans, which are included in nonaccrual loans in the
table below, amounted to $633,000 as compared to $819,000 at December 31, 1995.
The following table summarizes non-performing assets and loans delinquent 90
days or more and still accruing at the dates indicated.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
--------- ------------- ---------
<S> <C> <C> <C>
(In Thousands)
Non-accrual loans....................... $1,516 $1,624 $1,926
Restructured loans...................... -- -- --
------ ------ ------
Total non-performing loans............. 1,516 1,624 1,926
------ ------ ------
Real estate acquired by foreclosure..... 557 566 1,134
Other assets acquired................... 185 333 368
------ ------ ------
Total assets acquired toward satisfaction of
debt................................ 742 899 1,502
------ ------ ------
Total non-performing assets............. 2,258 2,523 3,428
Loans delinquent 90 days or more and still
accruing................................ 222 69 --
------ ------ ------
Total non-performing assets and loans
delinquent 90 days or more and still
accruing............................. $2,480 $2,592 $3,428
====== ====== ======
Total non-performing assets as a percentage of
total loans and assets acquired toward
satisfaction of debt................... 0.63% 0.77% 1.06%
</TABLE>
The Company's provision for possible loan losses amounted to $300,000 and
$575,000, respectively, for the quarter and six months ended June 30, 1996,
bringing the allowance to $3,604,000 after net charge-offs of $462,000 and
$638,000, respectively for the quarter and six months ended June 30, 1996. At
June 30, 1996, the allowance for possible loan losses represented 1.01% of total
loans in comparison to 1.12% of total loans at December 31, 1995. At June 30,
1996, the allowance for possible loan losses represented 237.7% of non-
performing loans of $1,516,000 versus 225.8% of non-performing loans of
$1,624,000 at December 31, 1995.
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 Concord's and Centerpoint's allowance for possible loan
losses. Such agencies may require Concord and Centerpoint to recognize additions
to the allowance based on judgments different from those of management.
8
<PAGE>
Results of Operations for the Three and Six Months Ended
--------------------------------------------------------
June 30, 1996 and 1995
----------------------
Results of Operations
- ---------------------
The Company earned net income of $1,250,000, or $0.50 per share, for the quarter
ended June 30, 1996, and $2,404,000, or $0.97 per share, for the six months then
ended. Comparable amounts for the quarter and six months ended June 30, 1995
equaled $1,135,000, or $0.46 per share, and $2,162,000, or $0.88 per share. On
March 20, 1996, the Company completed its acquisition of Centerpoint Bank
through the issuance of 657,587 shares of common stock. The acquisition was
accounted for as a pooling-of-interests and, accordingly, the accounts and
results of operations for Centerpoint have been combined with that of the
Company for all periods presented.
Average Balance Sheets and Net Interest and Dividend Income
- -----------------------------------------------------------
The following table sets forth certain information relating to the Company's
summarized average balance sheets, including interest-earning assets, interest-
bearing liabilities and net interest income on a fully tax-equivalent basis for
the three month periods indicated:
<TABLE>
<CAPTION>
Three Months Ended June 30,
1996 1995
------------------------------ ------------------------------
Average Yield/ Average Yield/
Balance Interest Rate (5) Balance Interest Rate (5)
---------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Assets:
Interest-earning assets:
Loans(1)............................. $350,109 $ 8,049 9.20% $328,870 $7,483 9.10%
Investments(2)....................... 142,260 2,205 6.20 129,242 2,038 6.31
-------- ------- -------- ------
Total interest-earning assets....... 492,369 10,254 8.33 458,112 9,521 8.31
------- ------
Non interest-earning assets............ 36,980 27,720
Allowance for possible loan losses..... (3,662) (3,567)
-------- --------
Total assets........................ $525,687 $482,265
======== ========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits............................. $345,381 $ 3,659 4.24% $334,550 $3,571 4.27%
Borrowed funds....................... 93,437 1,278 5.47 79,220 1,200 6.06
-------- ------- -------- ------
Total interest-bearing liabilities.. 438,818 4,937 4.50 413,770 4,771 4.61
------- ------
Non interest-bearing demand deposits... 43,388 30,778
Other liabilities...................... 5,639 3,472
-------- --------
Total liabilities.................. 487,845 448,020
Stockholders' equity................... 37,842 34,245
-------- --------
Total liabilities and stockholders'
equity....................... $525,687 $482,265
======== ========
Net interest income/interest rate spread(3) $ 5,317 3.83% $4,750 3.70%
======= ======
Net interest margin(4)................. 4.32% 4.15%
</TABLE>
(1) Includes nonaccrual loans.
(2) Investments (includes interest bearing deposits in other banks and fed funds
sold) are shown at average amortized cost.
(3) Interest rate spread is the average yield earned on total earning assets
less the average cost paid for interest-bearing liabilities.
(4) The net interest margin during the period equals net interest income divided
by average interest-earning assets for the period.
(5) Calculated on an annualized basis.
9
<PAGE>
The following table sets forth certain information relating to the Company's
summarized average balance sheets, including interest-earning assets, interest-
bearing liabilities and net interest income on a fully tax-equivalent basis for
the six month periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
------------------------------ ------------------------------
Average Yield/ Average Yield/
Balance Interest Rate (5) Balance Interest Rate (5)
---------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Assets:
Interest-earning assets:
Loans(1).......................... $343,918 $15,728 9.15% $318,815 $14,266 8.95%
Investments (2)................... 134,817 4,173 6.19 127,299 4,016 6.31
-------- ------- -------- -------
Total interest-earning assets... 478,735 19,901 8.31 446,114 18,282 8.20
------- -------
Non interest-earning assets........... 34,931 26,713
Allowance for possible loan losses.... (3,677) (3,572)
-------- --------
Total assets.................... $509,989 $469,255
======== ========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits............................ $344,668 $ 7,425 4.31% $335,242 $ 6,880 4.10%
Borrowed funds...................... 82,045 2,254 5.49 67,899 2,043 6.02
-------- ------- -------- -------
Total interest-bearing liabilities 426,713 9,679 4.54 403,141 8,923 4.43
------- -------
Non interest-bearing demand deposits.. 40,293 29,303
Other liabilities..................... 5,274 3,340
-------- --------
Total liabilities............... 472,280 435,784
Stockholders' equity.................. 37,709 33,471
-------- --------
Total liabilities and stockholders'
equity........................ $509,989 $469,255
======== ========
Net interest income/interest rate
spread(3)........................... $10,222 3.77% $ 9,359 3.77%
======= =======
Net interest margin(4)................ 4.27% 4.20%
</TABLE>
(1) Includes nonaccrual loans.
(2) Investments (includes interest bearing deposits in other banks and fed
funds sold) are shown at average amortized cost.
(3) Interest rate spread is the average yield earned on total earning assets
less the average cost paid for interest-bearing liabilities.
(4) The net interest margin during the period equals net interest income
divided by average interest-earning assets for the period.
(5) Calculated on an annualized basis.
10
<PAGE>
Rate/Volume Analysis
- --------------------
The following table presents changes in interest and dividend income, interest
expense and net interest and dividend income, on a fully tax-equivalent basis,
which are attributable to changes in the average amounts of interest-earning
assets and interest-bearing liabilities outstanding and/or to changes in rates
earned or paid thereon. The net changes attributable to both volume and rate
have been allocated proportionately.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 vs. 1995 June 30, 1996 vs. 1995
----------------------- -------------------------
Increase (Decrease) Increase (Decrease)
----------------------- -------------------------
Due to Due to Due to Due to
Volume Rate Total Volume Rate Total
------- ------- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Interest and dividend income:
Loans........................................... $488 $ 78 $566 $1,143 $ 319 $1,462
Investments..................................... 202 (35) 167 234 (77) 157
---- ----- ---- ------ ----- ------
Total interest and dividend income............ 690 43 733 1,377 242 1,619
---- ----- ---- ------ ----- ------
Interest expense:
Deposits........................................ 113 (25) 88 197 348 545
Borrowed funds.................................. 204 (126) 78 400 (189) 211
---- ----- ---- ------ ----- ------
Total interest expense............................... 317 (151) 166 597 159 756
---- ----- ---- ------ ----- ------
Net interest and dividend income..................... $373 $ 194 $567 $ 780 $ 83 $ 863
==== ===== ==== ====== ===== ======
</TABLE>
Interest Income
- ---------------
Total interest and dividend income, on a fully tax-equivalent basis, increased
by $733,000 and $1,619,000, respectively, for the quarter and six months ended
June 30, 1996 versus the same periods of the prior year. These increases were
primarily due to an increase in average loans outstanding this year versus last
year and, to a lesser extent, due to an increase in yield. The increase in
average loans outstanding has been across all of the Company's major loan
portfolios.
Interest Expense
- ----------------
Interest expense on deposits for the quarter and six months ended June 30, 1996
increased by $88,000 and $545,000, respectively, versus the same periods of the
prior year due to an increase in average cost coupled with an increase in
average interest-bearing deposits. The Company's deposit growth for the quarter
and first six months of this year versus the same periods last year has been
primarily in the higher cost time certificates of deposit. This, coupled with
increased market interest rates paid on these deposits during the first half of
this year versus last year, has increased the Company's deposit interest costs.
The Company also used borrowed funds to fund its loan growth which resulted in
increased average outstanding borrowed funds of $14,217,000 and $14,146,000,
respectively, for the quarter and six months ended June 30, 1996 in comparison
to the same periods of the prior year. This utilization of borrowed funds
resulted in an increase in interest expense of $78,000 and $211,000,
respectively, for the quarter and six months ended June 30, 1996 over the
comparable periods of the prior year.
Provision for Possible Loan Losses
- ----------------------------------
The Company provided $300,000 and $575,000, respectively, for the three and six
months ended June 30, 1996 into the allowance for possible loan losses compared
to a provision for possible loan losses of $225,000 and $425,000, respectively,
for the comparable periods of the prior year. Net loan charge-offs for the
current quarter and six month period equaled $462,000 and $638,000,
respectively, as compared to $321,000 and $418,000, respectively, for the same
periods of the prior year. The current year's loan charge-offs were previously
provided for in the allowance for possible loan losses. The increase in the
provision for loan losses was primarily due to loan growth.
11
<PAGE>
Non-Interest Income
- -------------------
Non-interest income for the quarter and six months ended June 30, 1996 increased
by $215,000 and $612,000, respectively, from the same periods of last year.
Increased transaction activity and numbers of accounts were the primary reasons
for the growth of $46,000 and $73,000, respectively, in deposit account fees
this quarter and year to date when compared to the same periods of the prior
year. The Company also revised its deposit account fee schedule during December
1995.
Favorable market conditions during the quarter and six months ended June 30,
1996 allowed the Company to record $129,000 and $349,000, respectively, in
security gains as compared to $94,000 and $118,000, respectively, during the
same periods of the prior year.
Gains on the sale of loans increased by $89,000 and $184,000, respectively, for
the quarter and six months ended June 30, 1996 versus the same periods of 1995.
This increase resulted primarily from an increase in mortgage loans originated
for sale into the secondary market. The increase in loans originated for sale
was primarily due to lower market rates this year versus last year.
Loan servicing income increased by $59,000 and $137,000, respectively, for the
quarter and year to date versus the same periods of last year primarily due to
income related to the Company's purchase of mortgage servicing rights which were
transferred to the Company during August, 1995.
Non-Interest Expense
- --------------------
Non-interest expense for the quarter and six months ended June 30, 1996
increased by $437,000 and $792,000, respectively, over the same periods of the
prior year. The increase in non-interest expense was primarily due to continued
investments made by the Company to expand its business lines and product
distribution system, increased marketing, as well as normal increases related to
salaries and benefits and other operating expenses. Within the past year the
Company has opened offices in Tilton and Portsmouth, New Hampshire, opened new
remote automated cash dispensing machines at 16 of the Walmart and Sam's Club
stores in New Hampshire and expanded its commercial and indirect consumer
lending capacity. The Company is planning to open another office in Hooksett,
New Hampshire before the end of the year. Also included in non-interest expense
was some necessary duplicate costs resulting from the Centerpoint acquisition.
These costs are expected to be eliminated in future periods.
Offsetting a portion of the increase in non-interest expense was a reduction in
FDIC deposit insurance premiums of $206,000 and $412,000, respectively, for the
quarter and six months ended June 30, 1996 versus the same periods of the prior
year. This reduction was due to substantially lower premiums that the FDIC
charges banks to insure deposits which became effective June 1, 1995. The
premiums were lowered after the Bank Insurance Fund (BIF) met its
congressionally mandated level during the month of May 1995. The Company's
subsidiary banks are currently subject to the minimum premium level.
Income Taxes
- ------------
Income tax expense for the quarters ended June 30, 1996 and 1995 amounted to
$699,000 and $557,000, respectively. Income tax expense for the six months ended
June 30, 1996 and 1995 amounted to $1,328,000 and $1,048,000, respectively. The
effective tax rate for 1996 was 36% compared to 33% in 1995. The lower effective
tax rate for the prior year was primarily the result of the Company reducing its
valuation reserve on its deferred tax asset.
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
12
<PAGE>
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 members, Concord and
Centerpoint may borrow from the Federal Home Loan Bank of Boston on a secured
basis. Borrowing usually requires the pledging of a bank's FHLB stock as well as
certain residential mortgage loans and investment securities. At June 30, 1996,
the Company's sources of liquidity included $95 million of investment securities
classified as "available for sale" and unused available borrowing capacity of
approximately $79 million at the Federal Home Loan Bank of Boston.
The Holding Company's primary sources of liquidity are dividends from its
subsidiary banks and its cash balances. Dividends paid from the banks to the
Holding Company are limited to the extent necessary for the banks to comply with
regulatory capital guidelines.
The deposits of Concord and Centerpoint are insured by the Federal Deposit
Insurance Corporation which issues and enforces regulations designed to protect
the safety and soundness of insured institutions. At June 30, 1996, the Company
had equity capital of $37,938,000, resulting in an equity-to-assets ratio of
6.94% and a Tier 1 leverage ratio of 7.29%. Stockholders' equity was reduced by
$586,000 of net tax-effected unrealized security losses relative to investment
securities classified as available for sale.
The following table summarizes the Company's regulatory capital ratios as of
June 30, 1996.
<TABLE>
<CAPTION>
Required Actual
Regulatory Regulatory
Ratio Ratio
----------- -----------
<S> <C> <C>
Leverage 4.00%-5.00% 7.29%
Risk-based:
Tier 1 4.00 10.71
Total risk-based 8.00 11.72
</TABLE>
The following table summarizes Concord's regulatory capital ratios as of June
30, 1996.
<TABLE>
<CAPTION>
Required Actual
Regulatory Regulatory
Ratio Ratio
----------- -----------
<S> <C> <C>
Leverage 4.00%-5.00% 6.87%
Risk-based:
Tier 1 4.00 10.09
Total risk-based 8.00 11.07
</TABLE>
The following table summarizes Centerpoint's regulatory capital ratios as of
June 30, 1996.
<TABLE>
<CAPTION>
Required Actual
Regulatory Regulatory
Ratio Ratio
----------- -----------
<S> <C> <C>
Leverage 4.00%-5.00% 7.01%
Risk-based:
Tier 1 4.00 9.59
Total risk-based 8.00 10.62
</TABLE>
13
<PAGE>
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 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Method of Filing
- ------- ------------------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
3.1 Restated Articles of Incorporation of Community Bankshares, Incorporated by reference to Exhibit 3.1B to
Inc. Amendment No. 1 to Registration Statement on
Form S-1 (File No.33-00125) the "Registration
Statement")
3.1(a) Statement of Resolution establishing series of shares of Incorporated by reference to Exhibit 3.1(a) to
Community Bankshares, Inc. dated October 27, 1989 Annual Report on Form 10-K for the year ended
June 30,1991
3.1(b) Articles of Amendment to the Restated Articles of Incorporation Incorporated by reference to Exhibit 3.1(b) to
of Community Bankshares, Inc. Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996
3.2 By-laws of Community Bankshares,Inc. as currently in effect Incorporated by reference to Quarterly Report on
Form 10-Q for the quarter ended
September 30, 1995
4.1 Loan Agreement dated September 22, 1986 between the Savers Incorporated by reference to Exhibit 4 to Annual
Bank and the Trustee of the Concord Savings Bank Employees Report on Form 10-K for year ended June 30,
Stock Ownership Plan, with related Note and Pledge 1986
Agreement
4.2 Amendment to Loan Agreement between the Savers Bank and Incorporated by reference to Exhibit 4.2 to
the Trustee of the Concord Savings Bank Employee Stock Quarterly report on Form 10-Q for quarter ended
Ownership Plan, dated January 25,1988 March 31, 1988
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Method of Filing
- ------- -------------------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
4.3 Rights Agreement between Community Bankshares, Inc. Incorporated by reference to Form 8-A filed
and the First National Bank of Boston June 30, 1989
4.4 Community Bankshares, Inc. Dividend Reinvestment Incorporated by reference to Form S-3
and Stock Dividend Plan, dated December 28, 1994 (File No. 33-87956)
10.2(a) Concord Savings Bank 1985 Stock Option Plan, as amended * Incorporated by reference to Exhibit 10.2 to
Amendment No. 3 to Registration Statement
10.2(b) Amendment to said Stock Option Plan adopted August 18, 1987 * Incorporated by reference to Exhibit 10.2(b) to
Annual Report on Form 10-K for year ended
June 30, 1987
10.3 Concord Savings Bank 1988 Stock Option Plan * Incorporated by reference to Exhibit A to Proxy
Statement for Annual Meeting of Stockholders
held on October 20, 1988
10.4 Executive Supplemental Retirement Agreement with Douglas Incorporated by reference to Exhibit 10.8 to the
Crichfield* Quarterly Report on Form 10-Q for quarter ended
September 30, 1988
10.5 Form of Severance Benefits Agreement with Douglas Crichfield Incorporated by reference to Exhibit 10.9 to
dated August 1, 1988 * Annual Report on Form 10-K for year ended
June 30, 1989
10.5 (a) Amendment of Form of Severance Benefits Agreement with Incorporated by reference to Exhibit 10.9(a) to
Douglas Crichfield dated April 19, 1989 * Annual Report on Form 10-K for year ended
June 30, 1989
10.6 Form of Severance Benefits Agreement with Donna L. Bean * Incorporated by reference to Exhibit 10.10 to
Annual Report on Form 10-K for year ended
June 30, 1989
10.7 Form of Severance Benefits Agreement with Gerald R. Emery * Incorporated by reference to Exhibit 10.11 to
Annual Report on Form 10-K for year ended
June 30, 1989
10.7(a) Amendment of Form of Severance Benefits Agreement with Incorporated by reference to Exhibit 10.7(a) to
Gerald R. Emery dated December 30, 1992 * Annual Report on Form 10-K for year ended
June 30, 1993
10.8 Form of Severance Benefits Agreement with David E. Fuller * Incorporated by reference to Exhibit 10.12 to
Annual Report on Form 10-K for year ended
June 30, 1989
10.9 Form of Severance Benefits Agreement with Robert F. Howe * Incorporated by reference to Exhibit 10.13 to
Annual Report on Form 10-K for year ended
June 30, 1989
10.10 Form of Severance Benefits Agreement with Richard E. Kamp * Incorporated by reference to Exhibit 10.14 to
Annual Report on Form 10-K for year ended
June 30, 1989
10.11 Form of Severance Benefits Agreement with Paul M. Ferguson * Incorporated by reference to Exhibit 10.11 to
Annual Report on Form 10-K for year ended
June 30, 1991
10.11(a) Amendment of Form of Severance Agreement with Paul M. Incorporated by reference to Exhibit 10.11(a) to
Ferguson dated December 30, 1992 * Annual Report on Form 10-K for year ended
June 30, 1993
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Method of Filing
- ----------- ----------------------------------------------------------- -----------------------------------------------------
<S> <C> <C>
10.12 Form of Severance Benefits Agreement with Charles E. Gorhan* Incorporated by reference to Exhibit 10.12 to Annual
Report on Form 10-K for year ended June 30, 1991
10.13 Form of Severance Benefits Agreement with Irving S. Felladore* Incorporated by reference to Exhibit 10.13 to Annual
Report on Form 10-K for year ended June 30, 1991
10.14 Form of Severance Benefits Agreement with Margaret A. Flint * Incorporated by reference to Exhibit 10.14 to Annual
Report on Form 10-K for year ended June 30, 1991
10.15 Community Bankshares, Inc. 1992 Stock Option Plan * Incorporated by reference to Exhibit A to Proxy
Statement for Annual Meeting of Stockholders held on
October 15, 1992
10.16 Agreement and Plan of Merger by and between the Company and Incorporated by reference to Annex A of the Proxy
Centerpoint Bank, dated as of August 28, 1995 Statement-Prospectus included in Registration
Statement on Form S-4 (File No. 33-63443) (the "S-4
Registration Statement")
10.17 Employment Agreement between Centerpoint Bank and Philip Incorporated by reference to the S-4 Registration
Stone, dated August 29, 1995. * Statement
10.18 Employment Agreement between Centerpoint Bank and Lucy T. Incorporated by reference to the S-4 Registration
Gobin, dated August 29, 1995 * Statement
10.19 Employment Agreement between Centerpoint Bank Incorporated by reference to the S-4
and Joseph B. Reilly, dated August 29, 1995 * Registration Statement
10.20 Centerpoint Bank 1989 Stock Option Plan * Incorporated by reference to Exhibit 10.20 to
Transition Report on Form 10-K for the six months
ended December 31, 1995
11 Statement re computation of Income per share Filed herewith
27 Financial Data Schedule Filed herewith
* indicates management contract or compensatory plan
(b) Reports on Form 8-K
</TABLE>
The Company filed the following Reports on Form 8-K during the quarter ended
June 30, 1996:
<TABLE>
<CAPTION>
Date of Report Items Reported Financials Filed
-------------- -------------- ----------------
<S> <C> <C>
April 3, 1996 Form 8-K filed with respect None
to the merger between
Community Bankshares, Inc.
and Centerpoint Bank.
May 31, 1996 Form 8-K/A filed containing Centerpoint Financial Statements
required supplemental and
financial information related Pro Forma Financial Information
to the merger between Community
Bankshares, Inc. and Centerpoint
Bank.
June 3, 1996 Form 8-K/A Amendment No. 2 filed None
to clarify that financial
statements filed as Exhibit 99
represent the required pro
forma financial information.
</TABLE>
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC.
Name Title Date
- --------------------------------------------------------------------------------
<S> <C> <C>
/s/ Douglas Crichfield President and Chief Executive August 8, 1996
- --------------------------- Officer
Douglas Crichfield
/s/ Gerald R. Emery Treasurer and Chief Financial August 8, 1996
- --------------------------- Officer (Principal Financial and
Gerald R. Emery Chief Accounting Officer)
</TABLE>
17
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- -------- ------- -------
<S> <C> <C> <C> <C>
(In thousands except per share data)
Net income $1,250 $1,135 $2,404 $2,162
Primary average common and common
equivalent shares 2,483 2,467 2,480 2,457
Primary earnings per common and common
equivalent share $ 0.50 $ 0.46 $ 0.97 $ 0.88
Fully diluted average common and common
equivalent shares 2,484 2,467 2,480 2,457
Fully diluted earnings per common and
common equivalent share $ 0.50 $ 0.46 $ 0.97 $ 0.88
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR 6/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 23,735
<INT-BEARING-DEPOSITS> 199
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 99,399
<INVESTMENTS-CARRYING> 46,019
<INVESTMENTS-MARKET> 45,694
<LOANS> 359,722
<ALLOWANCE> 3,604
<TOTAL-ASSETS> 546,725
<DEPOSITS> 400,184
<SHORT-TERM> 98,074
<LIABILITIES-OTHER> 10,529
<LONG-TERM> 0
0
0
<COMMON> 37,938
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 546,725
<INTEREST-LOAN> 15,728
<INTEREST-INVEST> 3,917
<INTEREST-OTHER> 225
<INTEREST-TOTAL> 19,870
<INTEREST-DEPOSIT> 7,425
<INTEREST-EXPENSE> 9,679
<INTEREST-INCOME-NET> 10,191
<LOAN-LOSSES> 575
<SECURITIES-GAINS> 349
<EXPENSE-OTHER> 7,669
<INCOME-PRETAX> 3,732
<INCOME-PRE-EXTRAORDINARY> 3,732
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,404
<EPS-PRIMARY> .97
<EPS-DILUTED> .97
<YIELD-ACTUAL> 4.27
<LOANS-NON> 1,516
<LOANS-PAST> 222
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,667
<CHARGE-OFFS> 792
<RECOVERIES> 154
<ALLOWANCE-CLOSE> 3,604
<ALLOWANCE-DOMESTIC> 3,604
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
