SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996 File number: 000-22054
COMMUNITY BANKSHARES, INC.
(Exact Name of Small Business Issuer in its Charter)
South Carolina 57-0966962
(State or Other Jurisdiction of Incorporation (IRS Employer
or Organization) Identification Number)
791 Broughton St., Orangeburg, South Carolina 29115
(Address of Principal Executive Office, Zip Code)
(803) 535-1060
(Issuer's telephone number)
Check whether the issuer (1) has filed all the reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or 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 _.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 1,313,238 shares of common
stock outstanding as of June 30, 1996.
<PAGE>
10-QSB TABLE OF CONTENTS
Part I-Financial Statements Page
Item 1 Financial Statements ..................................... 3
Item 2 Management's Discussion and Analysis .....................10
Part II-Other Information
Item 4 Submission of Matters to a Vote of Security Holders ......17
Item 6 Exhibits and Reports on Form 8-K .........................18
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<PAGE>
Community Bankshares, Inc. Balance Sheets
<TABLE>
<CAPTION>
June 30,
1996 December 31,
ASSETS UNAUDITED 1995
------ --------- ------------
Cash and due from other financial institutions:
<S> <C> <C>
Non-interest bearing $ 5,792,000 $ 3,025,000
Federal funds sold 2,685,000 1,510,000
Total cash and cash equivalents 8,477,000 4,535,000
----------- -----------
Interest bearing deposits in other banks 329,000 320,000
Investment securities:
Securities held to maturity 16,525,000 15,610,000
Securities available for sale 10,202,000 9,059,000
Loans 55,849,000 52,323,000
Less, allowance for loan losses (742,000) (706,000)
----------- -----------
Net loans 55,107,000 51,617,000
----------- -----------
Premises and equipment 2,526,000 1,708,000
Accrued interest receivable 846,000 716,000
Deferred income taxes 249,000 181,000
Other assets 394,000 151,000
----------- -----------
Total assets $94,655,000 $83,897,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $10,477,000 $ 9,095,000
Interest bearing 68,746,000 63,455,000
----------- -----------
Total deposits 79,223,000 72,550,000
Federal funds purchased and securities
sold under agreements to repurchase 1,907,000 2,570,000
Notes payable 240,000
-
Federal Home Loan Bank advances 1,200,000 700,000
Other liabilities 470,000 491,000
----------- -----------
Total liabilities 82,800,000 76,551,000
----------- -----------
Shareholders' equity:
Common stock
No par, authorized shares 3,000,000, issued and outstanding 9,073,000 4,617,000
1,313,238 in 1996 and 863,238 in 1995
Common stock subscribed 98,000
-
Retained earnings 2,881,000 2,607,000
Unrealized gain (loss) on securities available for sale (99,000) 24,000
---------- -----------
Total shareholders' equity 11,855,000 7,346,000
----------- -----------
Total liabilities and shareholders' equity $94,655,000 $83,897,000
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
-3-
<PAGE>
<TABLE>
<CAPTION>
Community Bankshares, Inc. Income Statements for the period ended June 30,
1996 1995
UNAUDITED UNAUDITED
--------- ---------
Interest and dividend income:
<S> <C> <C>
Interest and fees on loans $2,503,000 $2,372,000
---------- ----------
Deposits with other financial institutions 20,000 4,000
---------- ----------
Interest - taxable securities 753,000 623,000
Interest - tax exempt 9,000
-
Dividends 13,000 13,000
---------- ----------
Total investment securities 775,000 636,000
---------- ----------
Federal funds sold and securities
purchased under agreements to resell 48,000 79,000
---------- ----------
Total interest and dividend income 3,346,000 3,091,000
---------- ----------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more 374,000 319,000
Other 1,074,000 991,000
---------- ----------
Total deposits 1,448,000 1,310,000
Federal funds purchased and securities
sold under agreements to repurchase 43,000 85,000
Federal Home Loan Bank advances 38,000 -
---------- ----------
Total interest expense 1,529,000 1,395,000
---------- ----------
Net interest income 1,817,000 1,696,000
Provision for loan losses 63,000 80,000
---------- ----------
Net interest income after provision for loan losses 1,754,000 1,616,000
---------- ----------
Non-interest income:
Service charges on deposit accounts 172,000 154,000
Other 63,000 53,000
---------- ----------
Total non-interest income 235,000 207,000
---------- ----------
Non-interest expense:
Salaries and employee benefits 806,000 574,000
Premises and equipment 155,000 132,000
Other 350,000 362,000
---------- ----------
Total non-interest expense 1,311,000 1,068,000
---------- ----------
Net income before taxes 678,000 755,000
Provision for income taxes 284,000 269,000
---------- ----------
Net income after taxes $ 394,000 $ 486,000
========== ==========
Per common share:
Weighted average shares outstanding 1,139,359 863,238
========= =========
Net income per common share $ 0.35 $ 0.56
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
-4-
<PAGE>
<TABLE>
<CAPTION>
Community Bankshares, Inc. Income Statements for the quarter ended June 30,
1996 1995
UNAUDITED UNAUDITED
--------- ---------
Interest and dividend income:
<S> <C> <C>
Interest and fees on loans $1,277,000 $1,192,000
Deposits with other financial institutions 10,000 2,000
---------- ----------
Interest - taxable securities 394,000 316,000
Interest - tax exempt 5,000 -
Dividends 7,000 6,000
---------- ----------
Total investment securities 406,000 322,000
---------- ----------
Federal funds sold and securities
purchased under agreements to resell 26,000 67,000
---------- ----------
Total interest and dividend income 1,719,000 1,583,000
---------- ----------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more 197,000 169,000
Other 533,000 527,000
---------- ----------
Total deposits 730,000 696,000
Federal funds purchased and securities
sold under agreements to repurchase 22,000 54,000
Federal Home Loan Bank advances 20,000 -
---------- ----------
Total interest expense 772,000 750,000
---------- ----------
Net interest income 947,000 833,000
Provision for loan losses 33,000 35,000
---------- ----------
Net interest income after provision for loan losses 914,000 798,000
---------- ----------
Non-interest income:
Service charges on deposit accounts 91,000 80,000
Other 37,000 30,000
---------- ----------
Total non-interest income 128,000 110,000
---------- ----------
Non-interest expense:
Salaries and employee benefits 428,000 290,000
Premises and equipment 86,000 70,000
Other 186,000 185,000
---------- ----------
Total non-interest expense 700,000 545,000
---------- ----------
Net income before taxes 342,000 363,000
Provision for income taxes 166,000 132,000
---------- ----------
Net income after taxes $ 176,000 $ 231,000
========== ==========
Per common share:
Weighted average shares outstanding 1,139,359 863,238
========== ==========
Net income per common share $ 0.15 $ 0.27
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
-5-
<PAGE>
<TABLE>
<CAPTION>
Community Bankshares, Inc. Statement of Cash Flow for the period ended June 30,
1996 1995
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 394,000 $ 486,000
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation 76,000 64,000
Provision for loan losses 63,000 80,000
Accretion of discounts and
amortization of premiums -
investment securities - net (12,000) (4,000)
Changes in assets and liabilities:
(Increase) decrease in interest receivable (130,000) (20,000)
(Increase) decrease in other assets (300,000) (73,000)
Increase in interest payable - 40,000
Increase (decrease) in other liabilities (21,000) 76,000
------------ -----------
Net cash provided (used) by operating activities 70,000 795,000
------------ -----------
Cash flows from investing activities:
Proceeds from maturities and sales of
investment securities - hold to maturity 4,814,000 6,085,000
Purchases of investment securities - hold to (5,724,000) (4,361,000)
maturity
Proceeds from maturities and sales of
investment securities - available for sale 1,922,000 1,933,000
Purchases of investment securities - available (3,180,000) (536,000)
for sale
Net (increase) decrease in interest bearing
deposits (9,000) -
Net increase in loans to customers (3,553,000) (2,136,000)
Purchase of premises and equipment (894,000) (49,000)
Net (increase) decrease in other real estate (11,000) 100,000
------------ -----------
Net cash (used) in investing activities (6,635,000) 1,036,000
------------ -----------
Cash flows from financing activities:
Net increase in demand, savings, & time 6,673,000 5,242,000
deposits
Net increase (decrease) in federal funds purchased and
securities sold under agreements to re-
purchase (663,000) 416,000
Sale of common stock 4,402,000 -
Cost of stock sale (44,000) -
Proceeds of FHLB advances 500,000 -
Dividends (121,000) (121,000)
Notes payable (240,000) -
------------ -----------
Net cash provided by financing activities 10,507,000 5,537,000
------------ -----------
Net increase (decrease) in cash and due from other
financial institutions 3,942,000 7,368,000
Cash and due from other financial institutions -
beginning of period 4,535,000 3,253,000
------------ -----------
Cash and due from other financial institutions -
end of period $ 8,477,000 $10,621,000
============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
-6-
<PAGE>
Summary of Significant Accounting Principles
A summary of significant accounting policies is included in the 1995
Annual Report of Community Bankshares, Inc. to the Shareholders, which also
contains the Company's audited financial statements for 1995.
Principles of Consolidation
The consolidated financial statements include the accounts of Community
Bankshares, Inc. (CBI), the parent company, and Orangeburg National Bank, and
Sumter National Bank, its wholly owned subsidiaries. All significant
intercompany items have been eliminated in the consolidated statements.
Management Opinion
The financial statements in this report are unaudited. In the opinion
of management, all the adjustments necessary to present a fair statement of the
results for the interim period have been made. Such adjustments are of a normal
and recurring nature.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for an entire year. These interim
financial statements should be read in conjunction with the annual financial
statements and notes thereto contained in the 1995 Annual Report.
-7-
<PAGE>
<TABLE>
<CAPTION>
Community Bankshares, Inc, - Comparative Average Balances, Yields, and Rates for the period ended June 30,
.......................................... .........................................
Dollar amounts in thousands 1996 1995
.......................................... .........................................
Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates
- ------ ------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits $ 1,510 $ 20 2.65% $ 166 $ 4 4.82%
Investment securities taxable 26,227 766 5.84% 22,386 635 5.67%
Investment securities--tax exempt 417 9 4.32% 49 1 4.08%
Federal funds sold 1,915 48 5.01% 2,939 79 5.38%
Loans, net of unearned income 53,629 2,503 9.33% 49,743 2,372 9.54%
------- ------ ---- ------- ------ ----
Total interest earning assets 83,698 3,346 8.00% 75,283 3,091 8.21%
Cash and due from banks 3,321 3,091
Allowance for loan losses (721) (645)
Premises and equipment 1,943 1,323
Other assets 1,170 1,041
------- -------
Total assets $89,411 $80,093
======= =======
Liabilities and Shareholders'
Equity
Interest bearing deposits
Savings $13,353 $ 168 2.52% $15,155 $ 234 3.09%
Interest bearing transaction 7,976 80 2.01% 5,827 66 2.27%
accounts
Time deposits 44,657 1,200 5.37% 39,035 1,010 5.17%
------- ------ ---- ------- ------ ----
Total interest bearing deposits 65,986 1,448 4.39% 60,017 1,310 4.37%
Short term borrowing 2,103 43 4.09% 3,541 85 4.80%
FHLB advances 1,152 38 6.60% - - 0.00%
------- ------ ---- ------- ------ ----
Total interest bearing liabilities 69,241 1,529 4.42% 63,558 1,395 4.39%
Noninterest bearing demand
deposits 9,629 9,412
Other liabilities 553 531
Shareholders' equity 9,988 6,592
------- -------
Total liabilities and
shareholders' equity $89,411 $80,093
======= =======
Interest rate spread 3.58% 3.82%
Net interest income and
net yield on earning assets $1,817 4.34% $1,696 4.51%
====== ==== ====== ====
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Community Bankshares, Inc, - Comparative Average Balances, Yields, and Rates for the quarter ended June 30,
.......................................... .........................................
Dollar amounts in thousands 1996 1995
.......................................... .........................................
Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates
- ------ ------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits $ 765 $ 10 5.23% $ 166 $ 2 4.82%
Investment securities taxable 27,130 401 5.91% 22,103 322 5.83%
Investment securities--tax exempt 420 5 4.76% - - 0.00%
Federal funds sold 2,023 26 5.14% 5,016 67 5.34%
Loans, net of unearned income 54,878 1,277 9.31% 50,392 1,192 9.46%
------- ------ ---- ------- ------ ----
Total interest earning assets 85,216 1,719 8.07% 77,677 1,583 8.15%
Cash and due from banks 3,432 3,086
Allowance for loan losses (730) (660)
Premises and equipment 2,201 1,304
Other assets 1,269 1,014
------- -------
Total assets $91,388 $82,421
======= =======
Liabilities and Shareholders'
Equity
Interest bearing deposits
Savings $13,783 $ 86 2.50% $14,445 $ 112 3.10%
Interest bearing transaction 8,336 41 1.97% 6,137 35 2.28%
accounts
Time deposits 44,321 603 5.44% 40,508 547 5.40%
------- ------ ---- ------- ------ ----
Total interest bearing deposits 66,440 730 4.39% 61,090 694 4.54%
Short term borrowing 2,268 22 3.88% 4,571 56 4.90%
FHLB advances 1,200 20 6.67% - - 0.00%
------- ------ ---- ------- ------ ----
Total interest bearing liabilities 69,908 772 4.42% 65,661 750 4.57%
Noninterest bearing demand
deposits 9,712 9,430
Other liabilities 570 625
Shareholders' equity 11,198 6,705
------- -------
Total liabilities and
shareholders' equity $91,388 $82,421
======= =======
Interest rate spread 3.65% 3.58%
Net interest income and
net yield on earning assets $ 947 4.45% $ 833 4.29%
====== ==== ====== ====
</TABLE>
-9-
<PAGE>
Item 2. Management's Discussion and Analysis
Corporate Form
Community Bankshares, Inc. (CBI) is a bank holding company organized
under the laws of South Carolina. It presently conducts business through its two
banking subsidiaries. On July 1, 1993, Orangeburg National Bank (the Orangeburg
bank) became a wholly owned subsidiary of CBI. On June 10, 1996, Sumter National
Bank (the Sumter bank) became a wholly owned subsidiary of CBI. (It also
commenced banking operations on that date.) Accordingly, the financial
statements for the period ended June 30, 1996, are for the consolidated
operations of the holding company and the two banks. Accordingly, all operating
results have been combined. All significant intercompany transactions have been
eliminated.
Sumter National Bank
On May 5, 1995, CBI entered into an agreement to sponsor the
organization of Sumter National Bank, a national bank organized by a group of
local businessmen in Sumter, South Carolina to become a wholly-owned subsidiary
of CBI. CBI also agreed to pay a portion of the expenses of the organization of
the bank and to furnish the funds necessary to capitalize the bank. The funds to
capitalize Sumter National Bank and to pay certain expenses of organization of
the bank were provided by CBI from the proceeds of a stock offering. Completion
of the organization of Sumter National Bank and acquisition of the bank by CBI
were subject to approval of the Office of the Comptroller of the Currency (OCC),
the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the
Federal Reserve System (Federal Reserve), and the South Carolina State Board of
Financial Institutions (State Board). On July 12, 1995, an application for a
national bank charter for the proposed Sumter National Bank was filed with the
OCC and an application for deposit insurance was filed with the FDIC. During
December 1995 preliminary approval was obtained from the OCC and the FDIC.
Federal Reserve approval was obtained in March 1996 and State Board approval was
obtained in May 1996. The construction of the bank building began in January
1996 and was completed in May 1996. The new bank opened for business on Monday,
June 10, 1996. As further explained elsewhere herein, many of the significant
changes in line items as compared with earlier periods are attributable to the
completion of organization and opening of the Sumter bank in the second quarter
of 1996.
RESULTS OF OPERATIONS
Net Income
For the six months ended June 30, 1996, CBI earned a net income of
$394,000, compared to $486,000 for the same period of 1995, a decrease of 18.9%
or $92,000. Earnings per share were $.35 in the 1996 period, compared to $.56
for the 1995 period, a $.21 decrease. The decrease in consolidated earnings for
the 1996 period was anticipated and is attributable primarily to start up
expenses and early operating losses incurred by the Sumter bank.
Net interest income after provision for loan losses for the period ended
June 30, 1996, increased to $1,754,000, compared to $1,616,000 for the same
period in 1995, an increase of 8.5% or $138,000. Non-interest income for the
1996 period increased to $235,000, compared to $207,000 for the 1995 period, a
13.5% or $28,000 improvement. Non-interest expense increased to $1,311,000 from
$1,068,000, a 22.8% or $243,000 increase, which was primarily attributable to
pre-opening expenses and early operating losses of the Sumter bank.
Net income for the three months ended June 30, 1996, was $176,000,
compared to $231,000 for the comparable period in 1995, a decrease of 23.8% or
$55,000. On a per share basis, net income declined to $.15 for the three months
ended June 30, 1996, from $.27 for the comparable period in 1995. These
decreases are also primarily attributable to pre-opening expenses and early
operating losses of the Sumter bank. Additionally, the per share decline was
accentuated by the issuance of 450,000 shares of common stock during the 1996
period.
Net interest income after provision for loan losses for the quarter
ended June 30, 1996, increased to $914,000, compared to $798,000 for the same
quarter in 1995, an increase of 14.5% or $116,000. Non-interest income for the
1996 quarter increased to $128,000, compared to $110,000 for the 1995 quarter, a
16.3% or $18,000 improvement. Non-interest expense increased to $700,000 from
$545,000, a 28.4% or $155,000 increase, which was also primarily attributable to
pre-opening expenses and early operating losses of the Sumter bank.
-10-
<PAGE>
Profitability
One of the best ways to review earnings is through the ROA (return on
average assets) and the ROE (return on average equity). Return on assets is the
income for the period annualized divided by the average assets for the period.
Return on equity is the income for the period annualized divided by the average
equity for the period. Based on operating results for the quarters and periods
ended June 30, 1996 and 1995, the following table is presented.
<TABLE>
<CAPTION>
Six months ended June 30, Quarter ended June 30,
------------------------- ----------------------
1996 1995 1996 1995
(dollars in thousands)
<S> <C> <C> <C> <C>
Net income $ 394 486 176 231
Average assets $ 89,411 80,093 91,388 82,421
Average equity $ 9,988 6,592 11,198 6,705
ROA 0.88% 1.21% 0.77% 1.12%
ROE 7.89% 14.75% 6.29% 13.78%
</TABLE>
Declines in the ROA and ROE resulted from a decline in net income
primarily attributable to start up expenses and early operating losses incurred
by the Sumter bank and a substantial increase in equity as a result of the stock
sale used to capitalize the Sumter bank.
Net interest income
For the quarter ended June 30,1996, net interest income after provision
for loan losses increased to $914,000, compared to $798,000 for the quarter
ended June 30, 1995, an increase of 14.5% or $116,000. This improvement was the
result of an increase in the volume of earning assets. Average earning assets
for the 1996 quarter were $85,216,000 compared to $77,677,000 for the prior
year, an increase of 9.7% or $7,539,000. The yield on these assets decreased to
8.07% from 8.15%. a decrease of .08%. The cost of funds for the quarter ended
June 30, 1996, was 4.42%, compared to 4.57% for the comparable period of 1995, a
.15% decrease. The provision for bad debts was decreased to $33,000 compared to
$35,000 the prior year, a decrease of 5.7% or $2,000.
The decrease in the yield on earning assets was more than offset by the
decreased cost of funds, causing the spread to improve. The spread (yield on
earning assets less cost of interest bearing liabilities) for the second quarter
of 1996 was 3.65%, up from 3.58% for the comparable period in 1995, a .07%
increase. The net interest margin was 4.45% for the 1996 period, increased from
4.29% for the 1995 period, a .16% increase. The net interest margin increased
primarily because of reductions in the cost of savings and interest bearing
accounts.
For the period ended June 30, 1996, net interest income after provision
for loan losses increased to $1,754,000, compared to $1,616,000 for the period
ended June 30, 1995, an increase of 8.5% or $138,000. This improvement was the
result of an increase in the volume of earning assets. Average earning assets
for the 1996 period were $83,698,000, compared to $75,283,000 for the prior
year, an increase of 11.2% or $8,415,000. The yield on these assets decreased to
8.00% from 8.21% a decrease of .21%. The cost of funds for the period ended June
30, 1996, was 4.42%, compared to 4.39% for the comparable period of 1995, a .03%
increase. The provision for bad debts was decreased to $63,000 compared to
$80,000 the prior year, a decrease of 21.2% or $17,000.
The decrease in the yield on earning assets and the increased cost of
funds caused the spread to decline. The spread (yield on earning assets less
cost of interest bearing liabilities) for the period ended June 30, 1996, was
3.58%, down from 3.82% for the comparable period in 1995, a .24% increase. The
net interest margin was 4.34% for the 1996 period, decreased from 4.51% for the
1995 period, a .17% increase.
Interest Income
Preceding this discussion are tables comparing the average balances,
yields, and rates for the interest rate sensitive segments of CBI's balance
sheet for the period and quarter ended June 30, 1996 and 1995.
Interest income for the quarter ended June 30, 1996 was $1,719,000,
compared to $1,583,000 for the quarter ended June 30, 1995, an increase of 8.6%
or $136,000.
-11-
<PAGE>
Interest income for the six months ended June 30, 1996, was $3,346,000,
compared to $3,091,000 for the quarter ended June 30, 1995, an increase of 8.2%
or $255,000.
The loan portfolio earned $1,277,000 for the quarter ended June 30,
1996, compared to $1,192,000 for the comparable period in 1995, an increase of
7.1% or $85,000. The second quarter yield decreased to 9.31% from 9.46%, a .15%
decrease. The prime rate that prevailed during the first half of 1996 was 8.25%,
compared to 9% during the comparable period in 1995.
The loan portfolio earned $2,503,000 for the period ended June 30, 1996,
up from $2,372,000 for the comparable period in 1995, an increase of 5.5% or
$131,000. The average yield on loans for the period decreased to 9.33% from the
prior year's 9.54%, a .21% decrease.
The investment portfolio earned $401,000 for the quarter ended June 30,
1996, up from $322,000 the second quarter of 1995, an increase of 24.5% or
$79,000. The yield for the period increased to 5.91% from 5.83%, a .08%
increase.
The investment portfolio earned $766,000 for the period ended June 30,
1996, up from $635,000 in 1995, an increase of 20.6% or $131,000. For the period
ended June 30, 1996, the average investment portfolio was $26,227,000, compared
to $22,386,000 for the comparable period of 1995, a 17.4% or $3,841,000
increase. During the same period the yield increased to 5.84% from 5.67%, a .17%
increase.
The tax exempt investment portfolio earned $5,000 for the quarter ended
June 30, 1996, there were no exempt investments during the second quarter of
1995. The yield for the period was 4.76%.
The tax exempt investment portfolio earned $9,000 for the period ended
June 30, 1996, up from $1,000 in 1995, an increase of 800% or $8,000. For the
period ended June 30, 1996, the average tax exempt investment portfolio was
$417,000, compared to $49,000 for the comparable period of 1995, a 751% or
$368,000 increase. During the same period the yield increased to 4.32% from
4.08%, a .24% increase.
Interest bearing deposits contributed only a small amount to interest
income, $10,000 for the quarter ended June 30, 1996, compared to $2,000 the same
period in the prior year, a 400% or $8,000 increase. During the 1996 period,
interest bearing deposits averaged $765,000 in balances compared to $166,000 the
prior year. The yield on these amounts increased to 5.23% from 4.82%. This
increase, as well as the increase for the six month period, was attributable to
an interest bearing account established by the Orangeburg bank with the Federal
Home Loan Bank.
For the six months ended June 30, 1996, the interest bearing deposits
generated $20,000 in interest income compared to $4,000 the prior year, a 400%
or $16,000 increase.
Federal funds sold earned $26,000 the quarter ended June 30, 1996,
compared to $67,000 for the quarter ended June 30, 1995, a decrease of 61.2% or
$41,000. Yields fell to 5.14% from 5.34%, a .20% decrease. The volume of federal
funds sold declined for the quarter and the period because of the local utility
company's rotation of its accounts among the various Orangeburg banks.
For the six months ended June 30, 1996, federal funds sold earned
$48,000, down from $79,000 for the same period in 1995, a decrease of 41.2% or
$31,000. CBI decreased its average volume in funds to $1,915,000 from the prior
year's $2,939,000, a decrease of 34.8% or $1,024,000. Yields declined to 5.01%
from 5.38%, a decrease of .37%.
Interest expense
For the quarter ended June 30, 1996, interest expense increased to
$772,000 from $750,000 for the comparable period in 1995, an increase of 2.9% or
$22,000. The average rate paid for interest bearing liabilities in 1996 was
4.42%, down from 4.57% for the comparable period in 1995, a .15% decrease.
For the period ended June 30, 1996, interest expense was $1,529,000,
compared to $1,395,000 for the same period in 1995, an increase of 9.6% or
$134,000. The average rate paid for interest bearing liabilities during this
period in 1996 was 4.42%, up from the prior year's 4.39%, a .03% increase.
-12-
<PAGE>
Non-Interest Income
Non-interest income for the quarter ended June 30, 1996, was $128,000,
compared to $110,000 for the comparable period in 1995, an increase of 16.4% or
$18,000. Most of this increase was attributable to increases in returned check
fee volume.
Non-interest income for the period ended June 30, 1996, was $235,000,
compared to $207,000 for the comparable period in 1995, an increase of 13.5% or
$28,000. Most of this increase was attributable to increases in returned check
fee volume.
Non-Interest Expense
For the quarter ended June 30, 1996, non-interest expense was $700,000,
compared to $545,000 for the comparable period in 1995, a 28.4% or $155,000
increase.
For the period ended June 30, 1996, non-interest expense was $1,311,000,
compared to $1,068,000 for the comparable period in 1995, a 22.7% or $243,000
increase.
For the six months ended June 30, 1996, personnel costs were $806,000
compared to $574,000 for the same period in the prior year, an increase of 40.4%
or $232,000. Salaries associated with the pre-opening phase and first month of
operation of Sumter National Bank totaled $123,000, approximately 53% of the
overall increase. The remainder of the increase was the result of increases in
staff and normal annual pay increases.
Premises and equipment expense for the same period in 1996 were $155,000
compared to $132,000 for the comparable period in 1995, an increase of 17.4% or
$23,000. Expenses associated with the first month of operations of Sumter
National Bank totaled $11,000, or approximately 48% of the overall increase.
Other costs through June 30, 1996, were $350,000, compared to the prior
year's $362,000, a decrease of 3.4% or $12,000. Other costs associated with the
pre-opening phase and first month of operation of Sumter National Bank totaled
$44,000. However, this was more than offset by a $74,000 reduction in the cost
of FDIC deposit insurance.
Income Taxes
CBI provided $166,000 for federal and state income taxes during the
second quarter of 1996, compared to $132,000 for the same period in 1995, a 25%
or $34,000 increase.
CBI provided $284,000 for federal and state income taxes for the first
six months of 1996, compared to $269,000 for the same period in 1995, a 5.6% or
$25,000 increase.
CHANGES IN FINANCIAL POSITION
Investment portfolio
The investment portfolio is comprised of a hold to maturity and an
available for sale portion. CBI usually purchases short term U. S. Treasury and
government agencies for investment purposes. At June 30, 1996, the hold to
maturity portfolio totaled $16,525,000, compared to $15,610,000 at December 31,
1995, an increase of 5.9% or $915,000. At June 30, 1996, the available for sale
portfolio totaled $10,202,000, compared to $9,059,000 at December 31, 1995, an
increase of 12.6% or $1,143,000. The following chart summarizes the investment
portfolios at June 30, 1996, and December 31, 1995.
-13-
<PAGE>
<TABLE>
<CAPTION>
June 30, 1996
-------------------------------------------------------------------------------------
Hold to maturity Available for sale
----------------------------------------- ------------------------------------------
Amortized cost Fair value Amortized cost Fair value
(dollars in thousands)
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 3,577 $ 3,582 $ 2,496 $ 2,501
U. S. Government 12,530 12,327 7,366 7,206
agencies
Tax exempt securities 418 417 -
Other equity securities - - 495 495
======= ======= ======== =======
Total $16,525 $16,326 $ 10,357 $10,202
======= ======= ======== =======
Unrealized (loss) $ (199) $ (155)
====== ========
</TABLE>
<TABLE>
<CAPTION>
Dec. 31, 1995
-------------------------------------------------------------------------------------
Hold to maturity Available for sale
----------------------------------------- ------------------------------------------
Amortized cost Fair value Amortized cost Fair value
(dollars in thousands)
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 2,603 $ $ 2,633 $ 2,992 $3,019
U. S. Government 12,684 12,663 5,659 5,669
agencies
Tax exempt securities 323 324 - -
Other equity securities - - 371 371
======= ======= ======= ======
Total $15,610 $15,620 $ 9,022 $9,059
======= ======= ======= ======
Unrealized gain $ 10 $ 37
======= =======
</TABLE>
Premises and Equipment
Premises and equipment were $2,526,000 at June 30, 1996, up from
$1,708,000 at December 31, 1995, an increase of 47.8% or $818,000. Most of this
increase was associated with the construction and equipping of Sumter National
Bank.
At June 30, 1996, premises and equipment at Sumter National Bank
totaled $1,212,000 or approximately 48% of the total for CBI.
Loan portfolio
The loan portfolio is primarily consumer and small business oriented. At
June 30, 1996, the loan portfolio was $55,849,000, compared to $52,323,000 at
December 31, 1995, a 6.7% or $3,526,000 increase. The following chart summarizes
the loan portfolio at June 30, 1996, and December 31, 1995.
<TABLE>
<CAPTION>
Jun. 30, 1996 Dec. 31, 1995
(dollars in thousands)
<S> <C> <C>
Real estate $34,508 $31,477
Commercial 13,013 12,485
Loans to individuals 8,328
8,360
========= =======
Total $55,849 $52,323
========= =======
</TABLE>
-14-
<PAGE>
Past Due and Non-Performing Assets and the Allowance for Loan Losses
CBI closely monitors past due loans and loans that are in non-accrual
status and other real estate owned. Below is a summary of CBI's past due and
non-performing assets at June 30, 1996, December 31, 1995, and June 30, 1995.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
<S> <C> <C> <C> <C>
Past due 90 days + $192,000 $ 76,000 $ 25,000
accruing loans
Non-accrual loans $297,000 $348,000 $171,000
Impaired loans (included $108,000 $108,000 $ -
in nonaccrual)
Other real estate owned $ 11,000 $ - $ -
</TABLE>
Most of the increase in past due loans due the first half of 1996 was
attributable to one loan, which is well collateralized. CBI considers these
levels to be manageable in the normal course of business.
CBI had no restructured loans during any of the above listed periods.
CBI's loan loss reserve is summarized below.
<TABLE>
<CAPTION>
June 30, 1996 Dec. 31, 1995 June 30, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Allowance at beginning of year $ 706,000 $ 616,000 $ 616,000
Provision expense 63,000 160,000 80,000
Net charge-offs (27,000) (70,000) (32,000)
============ =========== ============
Allowance at end of period $ 742,000 $ 706,000 $ 664,000
============ =========== ============
Gross loans outstanding 55,849,000 52,323,000 50,773,000
Allowance as a percent of 1.33% 1.35% 1.31%
outstanding loans
</TABLE>
CBI provided $63,000 for the provision for loan losses for the period
ended June 30, 1996, compared to $80,000 for the 1995 period, a decrease of
21.2% or $17,000. For the first half of 1996 the loan portfolio grew to
$55,849,000, compared to $52,323,000 at year end 1995, an increase of 6.7% or
$3,526,000. For the first half of 1995 the loan portfolio grew to $50,773,000,
compared to $48,669,000 at year end 1993, an increase of 4.3% or $2,104,000.
In reviewing the adequacy of the allowance for loan losses at the end of
each period, CBI considers historical loan loss experience, current economic
condition, loans outstanding, trends in non-performing and delinquent loans, and
the quality of collateral securing problem loans. After charging off all known
losses, management considers the reserve adequate to provide for estimated
future losses inherent in the loan portfolio at June 30, 1996.
Deposits
Deposits were $79,223,000 at June 30, 1996, compared to $72,550,000 at
December 31, 1995, an increase of 9.2% or $6,673,000. Approximately $2,365,000
or 35% of this increase was the result of first month operations for the Sumter
bank.
Time deposits greater than $100,000 were $16,138,000 at June 30, 1996,
compared to $11,866,000 at December 31, 1995, an increase of 36% or $4,272,000.
Note payable
CBI arranged $1,049,000 in prime rate credit lines with United Carolina
Bank which were paid off on June 11, 1996, from the proceeds of the stock sale.
The lines helped finance the office construction and pre-opening phase of the
Sumter National Bank.
-15-
<PAGE>
Federal Home Loan Bank advances
Orangeburg National Bank is a member of the Federal Home Loan Bank
system and, as such, is entitled to borrow from the system. The Bank has $1.2
million in such loans outstanding at June 30, 1996, compared to $700,000 for the
comparable period in 1995, an increase of 71% or $500,000. $120,000 of the
advances matures within the next year, the remainder matures in greater than one
year. The collateral for these loans is a blanket lien on the Bank's one to four
family residential mortgage loan portfolio.
Liquidity
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. Adequate liquidity is necessary to meet the requirements of
customers for loans and deposit withdrawals in the most timely and economical
manner. Some liquidity is insured by maintaining assets that may be converted
immediately into cash at minimal cost (such as amounts due from banks and
federal funds). However, the most manageable sources of liquidity are composed
of liabilities, with the primary focus of liquidity management being the ability
to attract deposits within the bank's service area. Core deposits (total
deposits less certificates of deposit of $100,000 or more) provide a relatively
stable funding base. Certificates of deposit of $100,000 or more are generally
more sensitive to changes in rates, so they must be monitored carefully.
Asset liquidity is provided by several sources, including amounts due
from banks, federal funds sold, and investments maturing within one year (the
average maturity in the investment portfolio is about 18 months).
While investment securities are purchased with the intent to be held to
maturity, such securities are marketable and occasional sales may occur prior to
maturity as part of the process of asset/liability and liquidity management. CBI
deliberately maintains a short-term maturity schedule for its investments so
that there is a continuing stream of maturing investments. CBI intends to
maintain a short-term investment portfolio in order to continue to be able to
supply liquidity, if needed, to its loan portfolio and for other obligations.
Although CBI has substantially more liabilities (including mostly
deposits, which may be withdrawn) which mature in the next 12 months than it has
assets maturing in the same period, its historical experience, and that of most
other banks, leads CBI to believe that it is unlikely that so many deposits
would be withdrawn, without being replaced by other deposits, that CBI would be
unable to meet its liquidity needs with the proceeds of maturing assets.
CBI also maintains two federal funds lines of credit with correspondent
banks and is able to borrow from the Federal Home Loan Bank, as well as from the
Federal Reserve's discount window.
CBI has a demonstrated ability to attract deposits. Deposits have grown
from $30 million at year end 1989 to $79 million at mid-year 1996. This stable
growing base of deposits is the major source of operating liquidity. CBI does
expect that the rate of growth in deposits may slow somewhat in future years as
its market share continues to grow. During this same period CBI's loan to
deposit ratio (net of public deposits), another indicator of liquidity, has gone
from 80% to 70%.
CBI's long term liquidity needs are expected to be primarily affected by
the maturing of long term certificates of deposit. At June 30, 1996, CBI had
approximately $4,169,000 in certificates of deposit maturing in one to five
years and no certificates of deposit maturing over five years. CBI's assets
maturing in the same periods were $36,712,000 and $7,059,000, respectively. CBI
expects to be able to manage its current balance sheet structure without
experiencing any unusual liquidity problems.
In the opinion of management, CBI's current and projected liquidity
position is adequate.
-16-
<PAGE>
Capital resources
As summarized in the table below, CBI maintains a strong capital
position, which has been augmented by the recently completed sale of $4.5
million of common stock:
<TABLE>
<CAPTION>
June 30, 1996 Dec. 31, 1995 June 30, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Tier 1 / total assets 12.45% 8.34% 8.70%
Total capital / total assets 13.24% 9.04% 9.10%
Risk weighted capital ratio 20.72% 14.90% 19.03%
</TABLE>
Banks are required to maintain a minimum risk weighted capital ratio of
8%.
In the opinion of management, current and projected capital positions
are adequate.
Common Stock
In December 1995 CBI began offering up to 450,000 shares of its no par
common stock at $10 per share. The primary purpose of the offering was to fund
the acquisition of all the stock of the Sumter National Bank. By May 15, 1996,
CBI had received subscriptions for 450,000 shares or $4.5 million, compared to
9,800 shares or $98,000 at December 31, 1995. On June 10, 1996, Sumter National
Bank began operations and the subscribers became common shareholders of CBI.
The Common Stock account of CBI was $9,073,000 at June 30, 1996,
compared to $4,617,000 at December 31, 1995. The Common Stock account has been
increased by the $4.5 million in proceeds from the stock sale and reduced by
$44,000 in expenses directly associated with the raising of capital, including
legal and accounting fees, printing, postage, and advertising.
Part II--Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
CBI had an Annual Meeting of Shareholders on April 30, 1996.
The following persons were elected to the Board:
Three year term: Martha Rose Carson. J. M. Guthrie, Russell S, Wolfe, and
Michael A. Wolfe.
The other item voted upon was the ratification of J. W. Hunt and Co., Certified
Public Accountants, as outside auditors for CBI for the year ended December 31,
1996.
-17-
<PAGE>
The vote tally was as follows:
<TABLE>
<CAPTION>
Election of directors
--------------------------------------------------------------------------
Martha Rose J. M. Russell S. Wolfe Michael A. Ratification of
Carson Guthrie Wolfe J. W. Hunt
<S> <C> <C> <C> <C> <C>
Total number of shares 863,238 863,238 863,238 863,238 863,238
eligible to vote
Voting for 610,551 612,751 615,751 615,751 606,747
Voting against or to
withhold authority 7,946 5,746 2,746 2,746 -
Voting to abstain 11,150
Not voting 244,741 244,741 244,741 244,741 245,341
</TABLE>
The following persons continued their terms as directors: E. J. Ayers, Jr.,
Anna O. Dantzler, Samuel F. Reid, Jr., Hugo S. Sims, Jr., William W. Traynham,
and J. Otto Warren, Jr.
Additionally, on June 11, 1996, the Board of CBI appointed the following
persons to serve as directors until the 1997 Annual Meeting of Shareholders:
William H. Nock, Phil P. Leventis, and Alvis J. Bynum.
item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.(from item Description
601 of SB)
(27) Financial Data Schedule
b) Reports on Form 8-K. None.
-18-
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DATED: August 13, 1996
COMMUNITY BANKSHARES, INC.
By: s/ Hugo S. Sims, Jr.,
Hugo S. Sims, Jr.,
Chief Executive Officer
By: s/ William W. Traynham
William W. Traynham
President and Chief Financial Officer
(Principal Accounting Officer)
-19-
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at June 30, 1996 (Unaudited) and the Consolidated
Statement of Income for the Six Months Ended June 30, 1996 (Unaudited) 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-END> JUN-30-1996
<CASH> 5,792
<INT-BEARING-DEPOSITS> 329
<FED-FUNDS-SOLD> 2,685
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,202
<INVESTMENTS-CARRYING> 10,202
<INVESTMENTS-MARKET> 10,202
<LOANS> 55,849
<ALLOWANCE> (742)
<TOTAL-ASSETS> 94,655
<DEPOSITS> 79,223
<SHORT-TERM> 1,907
<LIABILITIES-OTHER> 470
<LONG-TERM> 1,200
0
0
<COMMON> 9,073
<OTHER-SE> 2,782
<TOTAL-LIABILITIES-AND-EQUITY> 94,655
<INTEREST-LOAN> 2,503
<INTEREST-INVEST> 775
<INTEREST-OTHER> 48
<INTEREST-TOTAL> 3,346
<INTEREST-DEPOSIT> 1,448
<INTEREST-EXPENSE> 1,529
<INTEREST-INCOME-NET> 1,817
<LOAN-LOSSES> 63
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,311
<INCOME-PRETAX> 678
<INCOME-PRE-EXTRAORDINARY> 678
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 394
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
<YIELD-ACTUAL> 4.34
<LOANS-NON> 297
<LOANS-PAST> 197
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 602
<ALLOWANCE-OPEN> 707
<CHARGE-OFFS> 38
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 732
<ALLOWANCE-DOMESTIC> 732
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
