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 September 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 (IRS Employer
Incorporation 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 reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 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 [ ]
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 September 30, 1996.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
10-QSB TABLE OF CONTENTS
Part I-Financial Statements Page
Item 1 Financial Statements 2
Item 2 Management's Discussion and Analysis 9
Part II-Other Information
Item 6 Exhibits and Reports on Form 8-K 20
<PAGE>
COMMUNITY BANKSHARES, INC. BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1996 December 31,
Assets UNAUDITED 1995
--------- ----
Cash and due from other financial institutions:
<S> <C> <C>
Non-interest bearing $ 4,662,000 $ 3,025,000
Federal funds sold 4,005,000 1,510,000
------------ ------------
Total cash and cash equivalents 8,667,000 4,535,000
Interest bearing deposits in other banks 546,000 320,000
Investment securities:
Securities held to maturity 17,865,000 15,610,000
Securities available for sale 11,316,000 9,059,000
Loans held for resale 60,000 -
Loans 62,008,000 52,323,000
Less, allowance for loan losses (800,000) (706,000)
------------ ------------
Net loans 61,208,000 51,617,000
------------ ------------
Premises and equipment 2,694,000 1,708,000
Accrued interest receivable 884,000 716,000
Deferred income taxes 203,000 181,000
Other assets 199,000 151,000
------------ ------------
Total assets $103,642,000 $ 83,897,000
============ ============
Liabilities And Shareholders' Equity
Deposits:
Non-interest bearing $ 11,094,000 $ 9,095,000
Interest bearing 76,299,000 63,455,000
------------ ------------
Total deposits 87,393,000 72,550,000
Federal funds purchased and securities
sold under agreements to repurchase 2,815,000 2,570,000
Notes payable - 240,000
Federal Home Loan Bank advances 1,130,000 700,000
Other liabilities 507,000 491,000
------------ ------------
Total liabilities 91,845,000 76,551,000
------------ ------------
Shareholders' equity:
Common stock 9,073,000 4,617,000
Common stock subscribed - 98,000
Retained earnings 2,794,000 2,607,000
Unrealized gain (loss) on securities available for sale, net of tax (70,000) 24,000
------------ ------------
Total shareholders' equity 11,797,000 7,346,000
------------ ------------
Total liabilities and shareholders' equity $103,642,000 $ 83,897,000
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
2
<PAGE>
COMMUNITY BANKSHARES, INC. INCOME STATEMENTS
<TABLE>
<CAPTION>
For The Nine Month Period Ended September 30,
1996 1995
UNAUDITED UNAUDITED
--------- ---------
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $3,874,000 $3,582,000
---------- ----------
Deposits with other financial institutions 25,000 7,000
---------- ----------
Interest - taxable securities 1,159,000 949,000
Interest - tax exempt 13,000 1,000
Dividends 22,000 19,000
---------- ----------
Total investment securities 1,194,000 969,000
---------- ----------
Federal funds sold and securities
purchased under agreements to resell 120,000 154,000
---------- ----------
Total interest and dividend income 5,213,000 4,712,000
---------- ----------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more 580,000 488,000
Other 1,680,000 1,551,000
---------- ----------
Total deposits 2,260,000 2,039,000
Federal funds purchased and securities
sold under agreements to repurchase 65,000 140,000
Federal Home Loan Bank advances 57,000 7,000
---------- ----------
Total interest expense 2,382,000 2,186,000
---------- ----------
Net interest income 2,831,000 2,526,000
Provision for loan losses 140,000 130,000
---------- ----------
Net interest income after provision for loan losses 2,691,000 2,396,000
---------- ----------
Non-interest income:
Service charges on deposit accounts 263,000 239,000
Other 92,000 80,000
---------- ----------
Total non-interest income 355,000 319,000
---------- ----------
Non-interest expense:
Salaries and employee benefits 1,329,000 886,000
Premises and equipment 270,000 193,000
Other 579,000 492,000
---------- ----------
Total non-interest expense 2,178,000 1,571,000
---------- ----------
Net income before taxes 868,000 1,144,000
Provision for income taxes 364,000 408,000
---------- ----------
Net income after taxes $ 504,000 $ 736,000
========== ==========
Per common share:
Weighted average shares outstanding 1,198,610 863,238
========== ==========
Net income per common share $0.42 $0.85
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
3
<PAGE>
COMMUNITY BANKSHARES, INC. INCOME STATEMENTS
<TABLE>
<CAPTION>
For The Quarter Ended September 30,
1996 1995
UNAUDITED UNAUDITED
--------- ---------
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $1,371,000 $1,210,000
---------- ----------
Deposits with other financial institutions 5,000 3,000
---------- ----------
Interest - taxable securities 406,000 326,000
Interest - tax exempt 4,000 1,000
Dividends 9,000 6,000
---------- ----------
Total investment securities 419,000 333,000
---------- ----------
Federal funds sold and securities
purchased under agreements to resell 72,000 75,000
---------- ----------
Total interest and dividend income 1,867,000 1,621,000
---------- ----------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more 206,000 169,000
Other 606,000 567,000
---------- ----------
Total deposits 812,000 736,000
Federal funds purchased and securities
sold under agreements to repurchase 22,000 55,000
Federal Home Loan Bank advances 19,000 -
---------- ----------
Total interest expense 853,000 791,000
---------- ----------
Net interest income 1,014,000 830,000
Provision for loan losses 77,000 50,000
---------- ----------
Net interest income after provision for loan losses 937,000 780,000
---------- ----------
Non-interest income:
Service charges on deposit accounts 91,000 85,000
Other 29,000 27,000
---------- ----------
Total non-interest income 120,000 112,000
---------- ----------
Non-interest expense:
Salaries and employee benefits 523,000 312,000
Premises and equipment 115,000 61,000
Other 229,000 130,000
---------- ----------
Total non-interest expense 867,000 503,000
---------- ----------
Net income before taxes 190,000 389,000
Provision for income taxes 80,000 139,000
---------- ----------
Net income after taxes $ 110,000 $ 250,000
========== ==========
Per common share:
Weighted average shares outstanding 1,168,984 863,238
========= ==========
Net income per common share $0.09 $0.29
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
4
<PAGE>
COMMUNITY BANKSHARES, INC. STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
For The Nine Month Period Ended September 30,
1996 1995
Unaudited Unaudited
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 504,000 $ 736,000
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 134,000 97,000
Provision for loan losses 140,000 130,000
Accretion of discounts and
amortization of premiums -
investment securities - net (28,000) (11,000)
Changes in assets and liabilities:
Proceeds of sale of loans held for resale 2,877,000 1,743,000
Origination of loans held for resale (2,937,000) (1,786,000)
(Increase) in interest receivable (168,000) (129,000)
(Increase) decrease in other assets (70,000) 81,000
Increase in interest payable - 55,000
Increase in other liabilities 16,000 205,000
------------ ------------
Net cash provided by operating activities 468,000 1,121,000
------------ ------------
Cash flows from investing activities:
Net increase in interest bearing deposits (226,000) -
Proceeds from maturities and sales of
investment securities - hold to maturity 5,814,000 9,487,000
Purchases of investment securities - hold to maturity (8,049,000) (10,320,000)
Proceeds from maturities and sales of
investment securities - available for sale 3,068,000 1,788,000
Purchases of investment securities - available for sale (5,411,000) (1,628,000)
Net (increase) in loans to customers (9,731,000) (3,242,000)
Purchase of premises and equipment (1,120,000) (432,000)
Net decrease in other real estate - 100,000
------------ ------------
Net cash (used) in investing activities (15,655,000) (4,247,000)
------------ ------------
Cash flows from financing activities:
Net increase in demand, savings, & time deposits 14,843,000 4,050,000
Net increase in federal funds purchased and
securities sold under agreements to re-
purchase 245,000 1,796,000
Increase in Federal Home Loan Bank advances 430,000 701,000
Increase (decease) in notes payable (240,000) 240,000
Sale of common stock 4,402,000 -
Cost of stock sale (44,000) -
Dividends (317,000) (242,000)
Other - (20,000)
------------ ------------
Net cash provided by financing activities 19,319,000 6,525,000
------------ ------------
Net increase in cash and due from other financial institutions 4,132,000 3,399,000
Cash and due from other financial institutions -beginning of 4,535,000 3,053,000
------------ ------------
period
Cash and due from other financial institutions -end of period $ 8,667,000 $ 6,452,000
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
5
<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.
6
<PAGE>
COMMUNITY BANKSHARES, INC, - COMPARATIVE AVERAGE BALANCES,
YIELDS, AND RATES
<TABLE>
<CAPTION>
For The Nine Month Period Ended September 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 $ 1,124 $ 26 3.02% $ 313 $ 13 5.53%
Investment securities--taxable 26,706 1,180 5.89% 22,566 962 5.68%
Investment securities--tax exempt(1) 417 13 6.25% 33 1 6.14%
Federal funds sold 3,074 120 5.20% 3,555 154 5.78%
Loans, net of unearned income 55,266 3,874 9.35% 50,340 3,582 9.49%
-------- -------- ---- -------- -------- ----
Total interest earning assets 86,587 5,213 8.03% 76,807 4,712 8.18%
Cash and due from banks 3,613 3,099
Allowance for loan losses (733) (651)
Premises and equipment 2,205 1,363
Other assets 1,230 1,061
-------- --------
Total assets $ 92,902 $ 81,679
======== ========
Liabilities and Shareholders'
Equity
Interest bearing deposits
Savings $ 12,600 $ 218 2.30% $ 14,938 $ 344 3.07%
Interest bearing transaction 8,478 129 2.03% 6,022 105 2.32%
accounts
Time deposits 47,224 1,912 5.40% 39,997 1,590 5.30%
-------- -------- ---- -------- -------- ----
Total interest bearing deposits 68,302 2,259 4.41% 60,957 2,039 4.46%
Short term borrowing 2,187 64 3.98% 3,929 140 4.75%
FHLB advances 1,123 58 6.83% 133 7 7.01%
-------- -------- ---- -------- -------- ----
Total interest bearing liabilities 71,612 2,381 4.43% 65,020 2,186 4.48%
Noninterest bearing demand 10,068 9,382
deposits
Other liabilities 591 576
Shareholders' equity 10,631 6,702
-------- --------
Total liabilities and shareholders'
equity $ 92,902 $ 81,679
======== ========
Interest rate spread 3.59% 3.70%
Net interest income and net
yield on earning assets $ 2,831 4.36% $ 2,526 4.38%
======== ==== ======== ====
</TABLE>
(1) Fully tax equivalent yield.
7
<PAGE>
COMMUNITY BANKSHARES, INC., - COMPARATIVE AVERAGE BALANCES,
YIELDS, AND RATES
<TABLE>
<CAPTION>
For The Quarter Ended September 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 $ 354 $ 5 6.03% $ 609 $ 9 5.91%
Investment securities taxable 27,665 414 5.99% 22,927 333 5.81%
Investment securities--tax exempt 417 4 6.24% - - 0.00%
Federal funds sold 5,392 72 5.37% 4,788 69 5.76%
Loans, net of unearned income 58,539 1,372 9.37% 51,533 1,210 9.39%
------ ------ ---- ------- ------ ----
Total interest earning assets 92,367 1,867 8.09% 79,857 1,621 8.12%
Cash and due from banks 4,198 3,114
Allowance for loan losses (759) (664)
Premises and equipment 2,729 1,444
Other assets 1,355 1,098
------- -------
Total assets $99,890 $84,849
======= =======
Liabilities and Shareholders' Equity
Interest bearing deposits
Savings $14,186 $98 2.76% $14,504 $ 110 3.03%
Interest bearing transaction accounts 9,482 49 2.06% 6,412 39 2.43%
Time deposits 49,263 665 5.40% 41,923 573 5.47%
------- ------ ---- ------- ------ ----
Total interest bearing deposits 72,931 812 4.45% 62,839 722 4.60%
Short term borrowing 2,353 22 3.79% 4,706 62 5.27%
FHLB advances 1,163 19 6.64% 399 7 7.01%
------- ------ ---- ------- ------ ----
Total interest bearing liabilities 76,447 853 4.46% 67,944 791 4.66%
Noninterest bearing demand deposits 10,949 9,322
Other liabilities 673 661
Shareholders' equity 11,821 6,922
------- -------
Total liabilities and shareholders' $99,890 $84,849
======= =======
equity
Interest rate spread 3.62% 3.46%
Net interest income and net yield
on earning assets $1,014 4.39% $ 830 4.16%
====== ==== ======= ====
</TABLE>
(1) Fully tax equivalent yield.
8
<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 quarter and period ended September 30, 1996, are for the
consolidated operations of the holding company and the two banks. 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 conducted
early in 1996. 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. The third quarter 1996 reflects the first full quarter of
operation for the Sumter bank.
RESULTS OF OPERATIONS
Synopsis
The 1996 third quarter statement of operations reflects substantial
expenses related to commencement of operations by CBI's new subsidiary, Sumter
National Bank. Consolidated net income has been reduced by $238,000 as a result
of the first four months of operations by the Sumter bank and by $112,000 as a
result of expenses paid during 1996 by CBI directly associated with the start up
of the new bank.
Management views this reduction in earnings as the expected result of a
major investment in a new marketplace. In many ways, the current situation in
Sumter parallels the 1987-1988 initial operating periods for the Orangeburg
bank.
Management of CBI is, nonetheless, pleased with the Sumter bank's steady
progress. At September 30, 1996, the Sumter bank had a loan portfolio of $4.7
million, deposits of $7.7 million, and total assets of $11 million.
9
<PAGE>
Net Income
For the nine months ended September 30, 1996, CBI earned net income of
$504,000, compared to $736,000 for the same period of 1995, a decrease of 31.5%
or $232,000. Earnings per share were $.42 in the 1996 period, compared to $.85
for the 1995 period, a $.43 decrease. The decrease in consolidated earnings for
the 1996 period was anticipated and is attributable to start up expenses and
early operating losses incurred by the Sumter bank.
For the nine months ended September 30, 1996, net interest income after
provision for loan losses increased to $2,382,000, compared to $2,186,000 for
the same period in 1995, an increase of 8.9% or $196,000. Non-interest income
for the 1996 period increased to $355,000, compared to $319,000 for the 1995
period, an 11.3% or $36,000 improvement. Non-interest expense for the 1996
period increased to $2,178,000, compared to $1,571,000 for the 1995 period, a
38.6% or $607,000 increase. This increase was primarily attributable to
pre-opening expenses and early operating losses of the Sumter bank.
For the three months ended September 30, 1996, net income was $110,000,
compared to $250,000 for the comparable period in 1995, a decrease of 56% or
$130,000. On a per share basis, net income declined to $.09 for the three months
ended September 30, 1996, from $.29 for the comparable period in 1995, a
decrease of $.20. These decreases are also primarily attributable to pre-opening
expenses and early operating losses of the Sumter bank.
For the three months ended September 30, 1996, net interest income after
provision for loan losses increased to $1,014,000, compared to $830,000 for the
same quarter in 1995, an increase of 22.2% or $184,000. Non-interest income for
the 1996 quarter increased to $120,000, compared to $112,000 for the 1995
quarter, a 7.1% or $8,000 improvement. Non-interest expense increased to
$867,000 from $503,000, a 72.4% or $364,000 increase, which was also primarily
attributable to pre-opening expenses and early operating losses of the Sumter
bank.
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 September 30, 1996 and 1995, the following table is presented.
<TABLE>
<CAPTION>
Nine months ended Sept. 30, Quarter ended Sept. 30,
1996 1995 1996 1995
---- ---- ---- ----
(dollar amounts in thousands)
<S> <C> <C> <C> <C>
Net income $ 504 $ 736 $ 110 $ 250
Average assets 92,902 81,679 99,890 84,849
Average equity 10,631 6,702 11,821 6,922
ROA 0.72% 1.20% 0.44% 1.18%
ROE 6.32% 14.64% 3.72% 14.45%
</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 also a substantial increase in equity as a result of the stock
sale used to capitalize the Sumter bank.
10
<PAGE>
Net interest income
For the three months ended September 30, 1996, net interest income after
provision for loan losses increased to $937,000, compared to $780,000 for the
comparable period of 1995, an increase of 20.1% or $157,000. This improvement
was the result of an increase in the volume of earning assets. Average earning
assets for the 1996 quarter were $92,367,000 compared to $79,857,000 for the
prior year, an increase of 15.7% or $12,510,000. The yield on these assets
decreased slightly to 8.09% from 8.12%. a decrease of .03. The cost of funds for
the quarter ended September 30, 1996, was 4.46%, compared to 4.66% for the
comparable period of 1995, a .20% decrease. The provision for bad debts was
increased to $77,000 compared to $50,000 the prior year, an increase of 54% or
$27,000. The increase in the provision expense for the quarter was mostly
attributable to the first full quarter of lending by the Sumter bank.
The small 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 third quarter
of 1996 was 3.62%, up from 3.46% for the comparable period in 1995, a .16%
increase. The net interest margin was 4.39% for the 1996 period, increased from
4.16% for the 1995 period, a .23% increase.
For the nine months ended September 30, 1996, net interest income after
provision for loan losses increased to $2,691,000, compared to $2,396,000 for
the nine months ended September 30, 1995, an increase of 12.3 % or $295,000.
This improvement was the result of an increase in the volume of earning assets.
Average earning assets for the 1996 period were $86,588,000, compared to
$76,808,000 for the prior year, an increase of 12.7% or $9,780,000. The yield on
these assets decreased to 8.03% from 8.18%, a decrease of .15% The cost of funds
for the period ended September 30, 1996, was 4.44% compared to 4.48% for the
comparable period of 1995, a .04 decrease. The provision for bad debts was
increased to $140,000 compared to $130,000 the prior year, an increase of 7.7%
or $10,000.
The decrease in the yield on earning assets caused the spread to decline.
The spread (yield on earning assets less cost of interest bearing liabilities)
for the period ended September 30, 1996, was 3.59%, down from 3.70% for the
comparable period in 1995, a .11% decrease. The net interest margin was 4.36%
for the 1996 period, decreased from 4.38% for the 1995 period, a .02% decrease.
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 periods and quarters ended September 30, 1996 and 1995.
Interest Income for the quarter ended September 30
Interest income for the 1996 quarter was $1,867,000, compared to $1,621,000
for the 1995 quarter, an increase of 15.2% or $246,000.
The loan portfolio earned $1,371,000 for the 1996 quarter, compared to
$1,210,000 for the comparable period in 1995, an increase of 13.3% or $161,000.
The third quarter yield decreased to 9.37% from 9.39%, a .02% decrease. During
the 1996 quarter, loans averaged $58,539,000, compared to $51,533,000 for the
1995 quarter, an increase of 13.6% or $7,006,000. (Average loans during the
quarter for the Sumter bank were $2,291,000, or 32.7% of the increase.)
11
<PAGE>
The investment portfolio earned $414,000 for the 1996 quarter, up from
$333,000 for the comparable period in 1995, an increase of 24.5% or $81,000. The
yield for the quarter increased to 5.99% from 5.81%, a .18% increase. During the
1996 quarter, investments averaged $27,665,000, compared to $22,927,000 in the
1995 quarter, an increase of 20.7% or $4,738,000. (Average investments during
the quarter for the Sumter bank were $884,000, or 18.6% of the increase.)
The tax exempt investment portfolio earned $4,000 for the 1996 quarter.
There were no exempt investments for the comparable period in 1995. The yield
for the 1996 quarter was 6.24%. Average tax exempt investments during the
quarter were $417,000.
Interest bearing deposits contributed a small amount to interest income,
$5,000 for the 1996 quarter, compared to $9,000 the same quarter in the prior
year, a 44% or $4,000 increase. During the 1996 quarter, interest bearing
deposits averaged $354,000 compared to $609,000 the prior year, a decrease of
41.8% or $255,000. The yield on these amounts increased to 6.03% from 5.91%.
Federal funds sold earned $72,000 for the 1996 quarter, compared to $75,000
for the 1995 quarter, a decrease of 4% or $3,000. Yields fell to 5.37% from 6.27
%, a .90% decrease. Federal funds averaged $5,392,000 in the 1996 quarter,
compared to $4,788,000 the prior year, an increase of 12.6% or $604,000.
(Average federal funds during the quarter for the Sumter bank were $3,710,000.
The Orangeburg bank had a significant reduction in its federal funds position
due to the normal rotation of accounts by the municipally owned utility company
among local banks.)
Interest Income for the nine months ended September 30
Interest income for the 1996 period was $5,213,000, compared to $4,712,000
for the 1995 period, an increase of 10.6% or $501,000.
The loan portfolio earned $3,874,000 for the 1996 period, up from
$3,582,000 for the comparable period in 1995, an increase of 8.2% or $292,000.
The average yield on loans for the period decreased to 9.35% from the prior
year's 9.49%, a .14% decrease. During the 1996, period loans averaged
$55,266,000, compared to $50,340,000 for the 1995 period, an increase of 9.8% or
$4,936,000.
12
<PAGE>
The investment portfolio earned $1,180,000 for the 1996 period, up from
$962,000 in 1995, an increase of 22.7% or $218,000. During the same period the
yield increased to 5.89% from 5.68%, a .21% increase. During the 1996 period
investments averaged $26,706,000, compared to $22,566,000 in the 1995 period, an
increase of 18.3% or $4,140,000.
The tax exempt investment portfolio earned $13,000 for the 1996 period, up
from $1,000 in 1995, an increase of 1200% or $12,000. For the 1996 period, the
average tax exempt investment portfolio was $417,000, compared to $33,000 for
the comparable period of 1995, an 1163% or $384,000 increase. During the same
period the yield increased to 6.25% from 6.14%, a .11% increase.
For the 1996 period interest bearing deposits generated $26,000 in interest
income, compared to $13,000 the prior year, a 100% or $13,000 increase. During
the 1996 period, interest bearing deposits averaged $1,124,000 compared to
$313,000 the prior year. This increase was primarily the result of the temporary
investment of the proceeds of the sale of stock referred to below. The yield on
these amounts decreased to 3.02% from 5.53%.
For the 1996 period, federal funds sold earned $120,000, down from $154,000
for the same period in 1995, a decrease of 22.1% or $34,000. CBI decreased its
average volume in funds to $3,074,000 from the prior year's $3,555,000, a
decrease of 13.5% or $481,000. Yields declined to 5.20% from 5.78%, a decrease
of .58%.
Interest expense
For the quarter ended September 30, 1996, interest expense increased to
$853,000 from $791,000 for the comparable period in 1995, an increase of 7.8% or
$62,000. The average rate paid for interest bearing liabilities in 1996 was
4.46%, down from 4.66% for the comparable period in 1995, a .20% decrease.
For the period ended September 30, 1996, interest expense was $2,381,000,
compared to $2,186,000 for the same period in 1995, an increase of 8.9% or
$195,000. The average rate paid for interest bearing liabilities during this
period in 1996 was 4.43%, down from the prior year's 4.48%, a .05% decrease.
Non-Interest Income
Non-interest income for the quarter ended September 30, 1996, was $120,000,
compared to $112,000 for the comparable period in 1995, an increase of 7.1% or
$8,000..
Non-interest income for the period ended September 30, 1996, was $355,000,
compared to $319,000 for the comparable period in 1995, an increase of 11.3% or
$36,000.
Non-Interest Expense, for the quarter ended September 30
For the 1996 quarter, non-interest expense was $867,000, compared to
$503,000 for the comparable period in 1995, a 72.4% or $364,000 increase.
Expenses associated with the first full quarter of operation of the Sumter
National Bank totaled $301,000, 82.6% of this increase.
For the 1996 quarter, personnel costs were $523,000 compared to $312,000
for the 1995 quarter, an increase of 67.6% or $211,000. Salaries associated with
the first full quarter of operation of Sumter National Bank totaled $157,000,
74% of the overall increase.
For the 1996 quarter, premises and equipment expense were $115,000 compared
to $61,000 for the 1995 quarter, an increase of 88.5% or $54,000. Costs
associated with the first full quarter of operation of Sumter National Bank
totaled $28,000, 49% of the overall increase.
For the 1996 quarter, other costs were $229,000, compared to $130,000 for
the 1995 quarter, an increase of 76.2% or $99,000 Other costs associated with
the first quarter of operation of Sumter National Bank totaled $116,000.
However, this increase was partially offset by a reduction in the cost of FDIC
deposit insurance.
13
<PAGE>
Non-Interest Expense, for the nine month period ended September 30
For the 1996 period, non-interest expense was $2,178,000, compared to
$1,571,000 for the comparable period in 1995, a 38.6% or $607,000 increase.
Expenses associated with the start up and initial operation of the Sumter
National Bank totaled $507,000, 83.5% of this increase.
For the 1996 period, personnel costs were $1,329,000 compared to $886,000
for the 1995 period, an increase of 50% or $443,000. Salaries associated with
the pre-opening phase and first four months of operation of Sumter National Bank
totaled $280,000, 63% of the overall increase. The remainder of the increase was
the result of increases in staff and normal pay increases.
For the 1996 period, premises and equipment expense were $270,000 compared
to $193,000 for the 1995 period, an increase of 39.9% or $77,000. Expenses
associated with the first four months of operations of Sumter National Bank
totaled $39,000, or 50.6% of the overall increase.
For the 1996 period, other costs were $579,000, compared to $492,000 for
the 1995 period, an increase of 17.7% or $87,000 Other costs associated with the
operation of Sumter National Bank totaled $147,000. However, this increase was
offset by a $69,000 reduction in the cost of FDIC deposit insurance.
Income Taxes
CBI provided $80,000 for federal and state income taxes during the third
quarter of 1996, compared to $139,000 for the same period in 1995, a 42.4% or
$59,000 decrease.
CBI provided $364,000 for federal and state income taxes for the first nine
months of 1996, compared to $408,000 for the same period in 1995, a 10.8% or
$44,000 decrease.
CHANGES IN FINANCIAL POSITION
Investment portfolio
The investment portfolio is comprised of a hold to maturity and an
available for sale portion. CBI and its two banking subsidiaries usually
purchase short term U. S. Treasury and U. S. government agency obligations for
investment purposes. At September 30, 1996, the hold to maturity portfolio
totaled $17,865,000, compared to $15,610,000 at December 31, 1995, an increase
of 14.4% or $2,255,000. At September 30, 1996, the available for sale portfolio
totaled $11,316,000, compared to $9,059,000 at December 31, 1995, an increase of
24.9% or $2,257,000. The following chart summarizes the investment portfolios at
September 30, 1996, and December 31, 1995.
14
<PAGE>
<TABLE>
<CAPTION>
September 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 $ 3,319 $ 3,328 $ 2,490 $ 2,500
U. S. Government agencies 14,130 14,015 8,342 8,229
Tax exempt securities 416 417 - -
Other equity securities - - 587 587
-------- -------- -------- --------
Total $ 17,865 $ 17,760 $ 11,419 $ 11,316
======== ======== ======== ========
Unrealized gain or (loss) $ (105) $ (103)
======== ========
</TABLE>
<TABLE>
<CAPTION>
December 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 agencies 12,684 12,663 5,659 5,669
Tax exempt securities
Other equity securities 323 324 - -
- - 371 371
------- ------- ------- -------
Total $15,610 $15,620 $ 9,022 $ 9,059
======= ======= ======= =======
Unrealized gain or (loss) $ 10 $ 37
======= =======
</TABLE>
Premises and Equipment
Premises and equipment were $2,694,000 at September 30, 1996, up from
$1,708,000 at December 31, 1995, an increase of 57.7% or $986,000. Most of this
increase was associated with the construction and equipping of Sumter National
Bank. At September 30, 1996, premises and equipment at Sumter National Bank
totaled $1,365,000 or 50.6% of the total for CBI.
Loan portfolio
The loan portfolio is primarily consumer and small business oriented. At
September 30, 1996, the loan portfolio was $62,068,000, compared to $52,323,000
at December 31, 1995, an 18.6% or $9,745,000 increase. The portfolio for Sumter
National Bank totaled $4,767,000 at September 30, 1996, or 49% of this increase.
The following chart summarizes the loan portfolio at September 30, 1996, and
December 31, 1995.
15
<PAGE>
<TABLE>
<CAPTION>
Sept. 30, 1996 Dec. 31, 1995
-------------- -------------
(dollars in thousands)
<S> <C> <C>
Real estate $ 38,052 $ 31,477
Commercial
14,103 12,485
Loans to individuals
9,913 8,360
--------- ----------
Total $ 62,068 $ 52,323
========= ==========
</TABLE>
Past Due and Non-Performing Assets and the Allowance for Loan Losses
CBI and its two banking subsidiaries closely monitor 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 September 30, 1996,
December 31, 1995, and September 30, 1995.
<TABLE>
<CAPTION>
Sept. 30, 1996 Dec 31, 1995 Sept. 30, 1995
-------------- ------------ --------------
(dollars in thousands)
<S> <C> <C> <C>
Accruing loans past due 90 days or more $ 38 $ 76 $ 15
Nonaccrual loans 293 348 120
Impaired loans (included in nonaccrual) 108 108 108
Other real estate owned - - -
</TABLE>
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 allowance for loan losses is summarized below.
<TABLE>
<CAPTION>
Sept. 30, 1996 Dec 31, 1995 Sept. 30, 1995
-------------- ------------ --------------
(dollars in thousands)
<S> <C> <C> <C>
Allowance at beginning of year $ 708 $ 616 $ 616
Provision expense 140 160 130
Less net chargeoffs
(48) (68) (66)
-------- --------- -------
Balance at end of period $ 800 $ 708 $ 680
======== ========= =======
Allowance as a percent of outstanding loans 1.29% 1.35% 1.31%
</TABLE>
16
<PAGE>
CBI provided $140,000 for the provision for loan losses for the period
ended September 30, 1996, compared to $130,000 for the 1995 period, an increase
of 7.7% or $10,000. For the first nine months of 1996 the loan portfolio grew to
$62,008,000, compared to $51,617,000 at year end 1995, an increase of 20.1% or
$10,391,000.
In reviewing the adequacy of the allowance for loan losses at the end of
each period, CBI considers historical loan loss experience, current economic
conditions, 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 Sept.tember 30, 1996.
Deposits
Deposits were $87,393,000 at September 30, 1996, compared to $72,550,000 at
December 31, 1995, an increase of 20.4% or $14,843,000. Approximately $7,740,000
or 51% of this increase was the result of first four months operations for the
new bank in Sumter.
Time deposits greater than $100,000 were $15,277,000 at September 30, 1996,
compared to $12,838,000 at December 31, 1995, an increase of 19% or $2,439,000.
Approximately $1,555,000 or 63.7% of this increase was the result of first four
months operations for the new bank in Sumter. While most of the large time
deposits are acquired from customers with standing relationships with the Banks,
it is common industry practice not to consider these types of deposits as core
deposits because their retention can be expected to be heavily influenced by the
rates offered, and therefore they have the characteristics of shorter-term
purchased funds.
Note payable
At December 31, 1995, CBI had $240,000 in notes payable. These prime rate
notes payable were issued in connection with the construction and equipping of
the Sumter bank. The notes reached a maximum of $1,049,000 and were paid off on
June 11, 1996, from the proceeds of the stock sale.
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 $1,130,000 in
such loans outstanding at September 30, 1996, compared to $700,000 at December
31, 1995, an increase of 61.4% or $430,000. $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.
17
<PAGE>
Asset liquidity is provided by several sources, including amounts due from
banks, federal funds sold, and investments maturing within one year.
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 $87 million at September 1996. This stable
growing base of deposits is the major source of operating liquidity. CBI expects
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 71%.
CBI's long term liquidity needs are expected to be primarily affected by
the maturing of long term certificates of deposit. At September 30, 1996, CBI
had approximately $8,191,000 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 $39,088,000 and $8,025,000, 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.
18
<PAGE>
Capital Resources
As summarized in the table below, CBI has a strong capital position, which
has been augmented by the sale of $4.5 million of common stock earlier this
year:
<TABLE>
<CAPTION>
Sept. 30, 1996 Dec. 31, 1995 Sept. 30, 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Tier 1 / total assets 19.66% 8.34% 8.31%
Total capital / total assets 11.97% 9.59% 9.11%
Risk weighted capital ratio 21.00% 14.14% 14.16%
</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 September 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.
Subsequent Events
CBI expects to have its common stock listed on the American Stock Exchange
during the fourth quarter. The ticker symbol for the company will be SCB.
19
<PAGE>
Part II--Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit No.(from item 601 of SB) Description
(27) Financial Data Schedule
(b) Reports on Form 8-K. None.
20
<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: November 14, 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)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet at September 30, 1996 (Unaudited) and the Income Statement for the Nine
Months Ended September 30, 1996 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,662
<INT-BEARING-DEPOSITS> 546
<FED-FUNDS-SOLD> 4,005
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,316
<INVESTMENTS-CARRYING> 11,316
<INVESTMENTS-MARKET> 11,316
<LOANS> 62,008
<ALLOWANCE> (800)
<TOTAL-ASSETS> 103,642
<DEPOSITS> 87,393
<SHORT-TERM> 2,815
<LIABILITIES-OTHER> 507
<LONG-TERM> 1,130
0
0
<COMMON> 9,073
<OTHER-SE> 2,724
<TOTAL-LIABILITIES-AND-EQUITY> 103,642
<INTEREST-LOAN> 3,674
<INTEREST-INVEST> 1,194
<INTEREST-OTHER> 120
<INTEREST-TOTAL> 5,213
<INTEREST-DEPOSIT> 2,260
<INTEREST-EXPENSE> 2,382
<INTEREST-INCOME-NET> 2,831
<LOAN-LOSSES> 140
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,178
<INCOME-PRETAX> 868
<INCOME-PRE-EXTRAORDINARY> 868
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 504
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
<YIELD-ACTUAL> 4.36
<LOANS-NON> 293
<LOANS-PAST> 30
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 323
<ALLOWANCE-OPEN> 707
<CHARGE-OFFS> 67
<RECOVERIES> 20
<ALLOWANCE-CLOSE> 800
<ALLOWANCE-DOMESTIC> 800
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
