- --------------------------------------------------------------------------------
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 March 31, 1997 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 the 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 April 15, 1997.
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<PAGE>
10-QSB TABLE OF CONTENTS
Part I-Financial Statements Page
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Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II-Other Information
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Item 6 Exhibits and Reports on Form 8-K 19
2
<PAGE>
COMMUNITY BANKSHARES, INC. - BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
March 31, December 31,
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Cash and due from other financial institutions:
Non-interest bearing $ 4,526,000 $ 5,349,000
Federal funds sold 3,355,000 1,300,000
------------- -------------
Total cash and cash equivalents 7,881,000 6,649,000
Interest bearing deposits in other banks 1,230,000 431,000
Investment securities:
Securities held to maturity 14,018,000 15,027,000
Securities available for sale 10,637,000 10,761,000
Loans held for resale 182,000 295,000
Loans 75,395,000 68,829,000
Less, allowance for loan losses (936,000) (876,000)
------------- -------------
Net loans 74,459,000 67,953,000
------------- -------------
Premises and equipment 2,838,000 2,837,000
Accrued interest receivable 861,000 855,000
Deferred income taxes 287,000 283,000
Other assets 198,000 370,000
------------- -------------
Total assets $ 112,591,000 $ 105,461,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 13,714,000 $ 13,337,000
Interest bearing 83,678,000 76,514,000
------------- -------------
Total deposits 97,392,000 89,851,000
Federal funds purchased and securities
sold under agreements to repurchase 1,340,000 1,744,000
Federal Home Loan Bank advances 1,130,000 1,130,000
Other liabilities 628,000 632,000
------------- -------------
Total liabilities 100,490,000 93,357,000
------------- -------------
Shareholders' equity:
Common stock
No par, authorized shares 6,000,000, issued 9,061,000 9,064,000
and outstanding 1,313,238 in 1997 and 1996
Retained earnings 3,076,000 3,040,000
Unrealized (loss) on securities available for sale (36,000) -
------------- -------------
Total shareholders' equity 12,101,000 12,104,000
------------- -------------
Total liabilities and shareholders' equity $ 112,591,000 $ 105,461,000
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
3
<PAGE>
<TABLE>
COMMUNITY BANKSHARES, INC. - STATEMENTS OF INCOME
<CAPTION>
Three months ended March 31,
1997 1996
UNAUDITED UNAUDITED
--------- ---------
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $1,663,000 $1,226,000
Deposits with other financial institutions 11,000 28,000
Investment securities:
Interest - U. S. Treasury and
U. S. Government Agencies 377,000 363,000
Dividends 12,000 6,000
---------- ----------
Total investment securities 389,000 369,000
---------- ----------
Federal funds sold and securities
purchased under agreements to resell 35,000 22,000
---------- ----------
Total interest and dividend income 2,098,000 1,645,000
---------- ----------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more 178,000 177,000
Other 699,000 559,000
---------- ----------
Total deposits 877,000 736,000
Federal funds purchased and securities
sold under agreements to repurchase 19,000 21,000
Federal Home Loan Bank advances 18,000 18,000
---------- ----------
Total interest expense 914,000 775,000
---------- ----------
Net interest income 1,184,000 870,000
Provision for loan losses 84,000 30,000
---------- ----------
Net interest income after provision for loan losses 1,100,000 840,000
---------- ----------
Non-interest income:
Service charges on deposit accounts 123,000 81,000
Other 50,000 26,000
---------- ----------
Total non-interest 173,000 107,000
income
---------- ----------
Non-interest expense:
Salaries and employee benefits 557,000 378,000
Premises and equipment 122,000 69,000
Other 241,000 164,000
---------- ----------
Total non-interest expense 920,000 611,000
---------- ----------
Net income before taxes 353,000 336,000
Provision for income taxes 120,000 118,000
---------- ----------
Net income after taxes $ 233,000 $ 218,000
========== ==========
Per common
share:
Weighted average shares outstanding 1,313,238 1,018,937
========== ==========
Net income per common share $ 0.18 $ 0.21
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE>
<TABLE>
COMMUNITY BANKSHARES, INC. - STATEMENTS OF CASH FLOWS
<CAPTION>
Three months ended March 31,
1997 1996
UNAUDITED UNAUDITED
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 233,000 $ 218,000
Adjustments to reconcile net income
to net cash (provided) used by operating activities
Depreciation and amortization 63,000 38,000
Provision for loan losses 84,000 30,000
Accretion of discounts and amortization of premiums -
investment securities - net 5,000 (3,000)
Deferred income (4,000) (31,000)
taxes
(Increase) decrease in loans held for 113,000 (456,000)
resale
Changes in operating assets and liabilities:
(Increase) in interest receivable (6,000) (96,000)
(Increase) decrease in other assets 141,000 (83,000)
Increase (decrease) in other liabilities (4,000) 35,000
----------- -----------
Net cash provided (used) by operating activities 625,000 (348,000)
----------- -----------
Cash flows from investing activities:
Net (increase) in interest bearing
deposits with other banks (799,000) (475,000)
Purchases of held to maturity securities (1,750,000) (4,229,000)
Proceeds from maturities of held to 2,765,000 2,808,000
maturity securities
Purchases of available for sale securities (1,529,000) (2,624,000)
Proceeds from maturities of available for 1,606,000 1,116,000
sale securities
Net (increase) in loans to customers (6,590,000) (990,000)
Purchase of premises and equipment (33,000) (219,000)
----------- -----------
Net cash (used) in investing activities (6,330,000) (4,613,000)
----------- -----------
Cash flows from financing activities:
Net increase in demand, savings, & time 7,541,000 3,005,000
deposits
Net (decrease) in federal funds purchased
and securities sold under agreements to re-purchase (404,000) (296,000)
Increase in notes payable - 173,000
Increase in Federal Home Loan Bank - 500,000
advances
Sale of common - 2,487,000
stock
Stock issuance & dividend reinvestment (3,000) (32,000)
costs
Dividend payments (197,000) (121,000)
----------- -----------
Net cash provided by financing activities 6,937,000 5,716,000
----------- -----------
Net increase in cash and cash equivalents 1,232,000 755,000
Cash and cash equivalents - beginning of period 6,649,000 4,535,000
----------- -----------
Cash and cash equivalents - end of period $ 7,881,000 $ 5,290,000
=========== ===========
</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 1996.
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 1996 Annual Report.
6
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC. - AVERAGE BALANCE SHEETS, YIELDS, AND RATES
..................................... ...............................
Quarter ended March 31, 1997 1996
..................................... ................................
(unaudited) Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates
------- ------- ----- ------- ------- -----
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits $ 748 $ 11 5.88% $ 2,255 $ 28 4.97%
Investment securities taxable 24,954 384 6.16% 25,323 365 5.77%
Investment securities--tax exempt 413 4 5.87% 414 4 5.86%
Federal funds sold 2,786 35 5.03% 1,807 22 4.87%
Loans, net of unearned income 72,216 1,664 9.22% 52,380 1,226 9.36%
-------- ------ ---- ------- ------ ----
Total interest earning assets 101,117 2,098 8.30% 82,179 1,645 8.01%
Cash and due from banks 4,478 3,209
Allowance for loan losses (903) (712)
Premises and equipment 2,847 1,683
Other assets 1,301 1,070
-------- -------
Total assets $108,840 $87,429
======== =======
Liabilities and Shareholders' Equity
Interest bearing deposits
Savings $ 17,417 $ 142 3.26% $12,922 $ 82 2.54%
Interest bearing transaction accts. 10,722 50 1.87% 7,617 39 2.05%
Time deposits 51,817 685 5.29% 44,993 615 5.47%
-------- ------ ---- ------- ------ ----
Total interest bearing deposits 79,956 877 4.39% 65,532 736 4.49%
Short term borrowing 2,028 19 3.75% 1,940 21 4.33%
FHLB advances 1,116 18 6.45% 1,103 18 6.53%
-------- ------ ---- ------- ------ ----
Total interest bearing liabilities 83,100 914 4.40% 68,575 775 4.52%
Noninterest bearing demand deposits 12,938 9,544
Other liabilities 773 532
Shareholders' equity 12,029 8,778
-------- -------
Total liabilities and equity $108,840 $87,429
======== =======
Interest rate spread 3.90% 3.49%
Net interest income & yield on earning assets $1,184 4.68% $ 870 4.23%
====== ==== ====== ====
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature are
intended to be, and are hereby identified as `forward looking statements' for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended. The Corporation cautions readers that forward looking
statements, including without limitation, those relating to the Corporation's
future business prospects, revenues, working capital, liquidity, capital needs,
interest costs, and income, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements, due to several important factors herein identified,
among others, and other risks and factors identified from time to time in the
Corporation's reports filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Net Income
For the first quarter of 1997, CBI earned a consolidated profit of
$233,000, compared to $218,000 for the first quarter of 1996, an increase of
6.9% or $15,000. Earnings per share were $.18 in the 1997 period, compared to
$.21 for the 1996 period, a decrease of 14.3%. The decline in earnings per share
was related to the sale of 450,000 shares of common stock, conducted during the
first half of 1996. The increase in average shares outstanding between the
periods was 28.8%, the increase in earnings was 6.9%, accordingly the earnings
per share declined.
For the first quarter of 1997, Orangeburg National Bank reported a profit
of $316,000, compared to $247,000 for the first quarter of 1996, an increase of
27.9% or $69,000.
For the first quarter of 1997, Sumter National Bank reported an after tax
loss of $101,000. The bank commenced business on June 10, 1996, and, therefore,
was not in operation during the first quarter of 1996.
As noted above, consolidated net income for the period ended March 31,
1997, increased from the prior year by 6.9% or $15,000. The major components of
this increase are discussed below. Net interest income before provision for loan
losses for the three months ended March 31, 1997, increased to $1,184,000,
compared to $870,000 for the same period in 1996, an increase of 36.1% or
$314,000. For the same period, the provision for loan losses was $84,000,
compared to $30,000 for the 1996 period, an increase of 180% or $54,000.
Non-interest income for the 1997 period increased to $173,000 from $107,000 for
the 1996 period, a 61.7% or $66,000 increase. Non-interest expense increased to
$920,000 from $611,000, a 50.6% or $309,000 increase. First quarter 1997 results
include results of operation for Sumter National Bank, which was not in
operation during the first quarter of 1996. Accordingly, many of the dollar and
percentage comparisons and changes between periods discussed in this report are
unusually large.
8
<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 divided by the average assets for the period, annualized.
Return on equity is the income for the period divided by the average equity for
the period, annualized. Based on operating results for the quarters ended March
31, 1997 and 1996, the following table is presented.
Quarter ended March 31, 1997 1996
(dollars in thousands)
Average assets $108,840 $87,429
ROA 0.86% 1.00%
Average equity $12,029 $8,778
ROE 7.75% 9.93%
Net income $233 $218
Average equity and average assets were substantially greater in the first
quarter of 1997 than they were in the first quarter of 1996 as the result of the
sale of stock to capitalize the Sumter bank and the deposit taking activities of
the Sumter bank, respectively. However, because the expenses associated with the
operations of the Sumter bank exceed its earnings in the first quarter of 1997,
that operating loss prevented a percentage increase in consolidated earnings
equivalent to the percentage increase in average equity and average assets. The
result was a decline in both ROA and ROE as compared to the first quarter of
1996. Management expects the Sumter bank to grow and become profitable over the
next several quarters, which should result in improvement in ROE and ROA.
Net interest income
Net interest income, the major component of CBI's income, is the amount by
which interest and fees on interest earning assets exceeds the interest paid on
interest bearing deposits and other interest bearing funds. During the first
quarter of 1997, net interest income after provision for loan losses increased
to $1,100,000 from $840,000, a 30.9% or $260,000 increase over the first quarter
of 1996. This improvement was the result of an increase in the volume of earning
assets, mostly associated with the operation of the new bank in Sumter, which
had net interest income for the first quarter 1997 of $133,000 or 51% of the
total increase. The average yield on earning assets increased to 8.30% for the
1997 period from 8.01% for the 1996 period. This increase was the result of
improved yields outside the loan portfolio. Also, the cost of funds decreased
for the period. For the first quarter of 1997 the cost of funds averaged 4.40%,
compared to 4.52% for the first quarter of 1996.
The increase in the yield on earning assets and the decrease in the cost of
funds resulted in a better spread and net interest margin. The effect of these
changes was a net interest spread (yield on earning assets less cost of interest
bearing liabilities) of 3.90% for the first quarter of 1997, up from 3.49%
during the first quarter of 1996. CBI's net interest margin (net interest income
divided by total earning assets) was 4.68% for the first quarter of 1996,
compared to 4.23% for the first quarter of 1996.
9
<PAGE>
Interest Income
Elsewhere in this report is a table comparing the average balances, yields,
and rates for the interest rate sensitive segments of the company's balance
sheet for the quarters ended March 31, 1997 and 1996. A discussion of that table
follows.
Total interest income for the first quarter 1997 was $2,098,000 compared
with $1,645,000 for the same period in 1996, a 27.5% or $453,000 increase. The
yield on earning assets for the 1997 period was 8.30%, up from 8.01% for the
1996 period. Total average interest earning assets for the quarter ended March
31, 1997, were $101,117,000, up from $82,179,000 for the quarter ended March 31,
1996, an increase of 23% or $18,938,000. The Sumter bank had average earnings
assets of $13,573,000, which represents 72% of the increase in assets over the
prior year.
The loan portfolio earned $1,664,000 for the first quarter in 1997, up from
$1,226,000 for the same period of 1996, a 35.7% or $438,000 increase. The first
quarter 1997 yield decreased to 9.22% from 9.36% for the first quarter in 1996.
The decline in yield was mostly the result of increased local competition in
both markets. The average size of the loan portfolio was $72,216,000 for the
1997 quarter, up from $52,380,000 for the same period of 1996, an increase of
37.9% or $19,836,000. Of that increase, $8,584,000 or 43% was in the Orangeburg
National Bank portfolio and $11,253,000 or 57% was in the Sumter National Bank
portfolio.
The investment portfolio earned $384,000 for the first quarter in 1997, up
from $365,000 for the 1996 period, a 5.2% or $19,000 increase. The yield
increased to 5.03% in the 1997 quarter from 4.87% in the 1996 quarter. The
average size of the portfolio declined to $24,954,000 in the 1997 quarter from
$25,323,000 in the 1996 quarter, a decrease of 1.5% or $369,000. The investment
portfolio for Sumter National Bank averaged $1,240,000, less than 5% of the
consolidated total.
The tax exempt investment portfolio earned $4,000 for the first quarter in
1997, unchanged from the prior year. The yield on the portfolio was 5.87%,
virtually unchanged from the prior year. The average size of the portfolio
decreased to $413,000 for the 1997 period from $414,000 in the 1996 period, a
decrease of .2% or $1,000. The entire tax exempt portfolio is owned by
Orangeburg National Bank.
Interest bearing deposits in other banks contributed $11,000 for the first
quarter 1997, compared to $28,000 during the prior year, a decrease of 60.7% or
$17,000. The yield on these deposits increased to 5.88% for the 1997 period from
4.87% in the 1996 period. CBI averaged $748,000 in interest bearing balances in
the first quarter 1997 compared to $2,255,000 the first quarter of the prior
year, a decrease of 66.7% or $1,507,000. All the interest bearing balances in
1997 were owned by Orangeburg National Bank. The high balances in 1996 were
related to subscriptions for common stock offered by CBI in connection with its
Sumter bank project. Subscription funds were held in escrow by Orangeburg
National Bank and invested in short term time deposits in Orangeburg National
Bank, pending termination of the offering.
Federal funds sold earned $35,000 the first quarter of 1997 compared to
$22,000 the prior year, an increase of 59% or $13,000. Yields increased to 5.03%
for the first quarter in 1997 from 4.87% for the first quarter in 1996. For the
first quarter of 1997, CBI increased its average volume in federal funds sold to
$2,786,000 from $1,807,000 for the first quarter of 1996, a 54.2% or $979,000
increase. Sumter National Bank averaged $1,080,000 in federal funds sold during
the first quarter.
10
<PAGE>
Interest expense
Interest expense increased for the first quarter 1997 to $914,000 from the
prior year's $775,000, a 17.9% or $139,000 increase. The volume of interest
sensitive liabilities increased to $83,100,000 for the first quarter in 1997
from $68,575,000 for the first quarter of 1996, a 21.2% or $14,525,000 increase.
Sumter National Bank averaged $10,370,000 in interest sensitive liabilities
during the first quarter, which represented 71% of the total increase. The
average rate CBI paid for interest bearing liabilities during the 1997 quarter
was 4.40% down from 4.52% for the 1996 period. This change was primarily due to
the decreased cost of time deposits.
The cost of savings accounts increased to $142,000 in the first quarter in
1997 from $82,000 in the first quarter of 1996, a 73.2% or $60,000 increase.
Average savings deposit balances increased to $17,417,000 for the first quarter
in 1997 from $12,922,000 for the first quarter of 1996, an increase of 34.8% or
$4,495,000. Sumter National Bank averaged $2,959,000 in such balances during the
first quarter, which represented 66% of the total increase.. The average rate
paid on these funds increased to 3.26% from 2.54%.
Interest bearing transaction accounts cost $50,000 for the first quarter in
1997, up from the first quarter of the prior year's $39,000, an increase of
28.2% or $11,000. The volume of these deposits increased to $10,722,000 for the
first quarter in 1997 from $7,617,000 for the first quarter of 1996, a 40.8% or
$3,105,000 increase. Sumter National Bank averaged $1,745,000 in such balances
during the first quarter, which represented 56% of the total increase. The
average rate paid on these funds for the first quarter in 1997 decreased to
1.87% from 2.05% for the first quarter of 1996.
Time deposits cost $685,000 for the first quarter of 1997, up from $615,000
the first quarter of the prior year, an increase of 11.4% or $70,000. The volume
increased to $51,817,000 for the first quarter in 1997 from $44,993,000 for the
first quarter of 1996, a 15.2% or $6,824,000 increase. Sumter National Bank
averaged $5,667,000 in such balances during the first quarter, which represented
83% of the total increase. The average rate paid on these funds decreased to
5.29% for the first quarter in 1997 from 5.47% for the first quarter in 1996.
Short term borrowing consists of federal funds sold and securities sold
under agreements to repurchase. This is a relatively small and volatile part of
the balance sheet. It cost $19,000 for the first quarter in 1997 down from
$21,000 for the first quarter of 1996, a 9.5% or $2,000 decrease. The volume of
these funds increased to $2,028,000 in the first quarter in 1997 from $1,940,000
in the first quarter of 1996, an increase of 4.5% or $88,000. All these balances
were attributable to Orangeburg National Bank. The average rate paid on these
funds decreased to 3.75% from 4.33%.
Borrowings from the Federal Home Loan Bank cost $18,000 for the first
quarter in 1997, unchanged from the prior year period. The advances averaged
$1,116,000 during the 1997 quarter, compared to $1,103,000 for the prior year
period, a 1.2% or $13,000 increase. All these balances were attributable to
Orangeburg National Bank. The average rate paid on these funds decreased to
6.45% from 6.57%.
11
<PAGE>
Non-Interest Income
Non-interest income for the first quarter 1997 grew to $173,000 from
$107,000 in the first quarter of 1996, a 61.7% or $66,0000 increase. This
increase was mostly the result of the operations of the new Sumter bank which
reported $35,000 or 53% of the total increase in non-interest income for the
first quarter 1997. The remainder of the total increase was attributable to
increases in the volume of returned checks in Orangeburg.
Non-Interest Expense
For the first quarter of 1997 non-interest expenses increased to $920,000
from $611,000 for the first quarter of 1996, a 50.6% or $309,000 increase.
Approximately $246,000 (79.6%) of this increase is directly related to the
operation of Sumter National Bank.
For the three months ended March 31, 1997, personnel costs were $557,000
compared to $378,000 for the first quarter of 1996 , a 47.4% or $179,000
increase. Approximately $154,000 (86%) of this increase is directly related to
the operation of Sumter National Bank. The new bank has 16 full time equivalent
employees.
Premises and equipment expense for the 1997 period were $122,000 compared
to $69,000 for the 1996 period, an increase of 76.8% or $53,000. Approximately
$34,000 (64%) of this increase is directly related to the operation of Sumter
National Bank.
Other costs for the first quarter 1997 were $241,000 compared to $164,000
for the first quarter of 1996, an increase of 46.9% or $77,000. Approximately
$59,000 (76.6%) of this increase is directly related to the operation of Sumter
National Bank.
Income Taxes
CBI provided $120,000 for federal and state income taxes during the first
quarter of 1997, compared to $118,000 for the same period in 1996, a 1.7% or
$2,000 increase.
CHANGES IN FINANCIAL POSITION
Investment portfolio
The investment portfolio is comprised of a held to maturity and an
available for sale portion. CBI and its two banks usually purchase short term
issues of U. S Treasury and U. S. Government agency securities for investment
purposes. At March 31, 1997, the held to maturity portfolio totaled $14,018,000
compared to $15,027,000 at December 31, 1996, a decrease of 6.7% or $1,009,000.
At March 31, 1997, the available for sale portfolio totaled $10,637,000 compared
to $10,761,000 at December 31, 1996, a decrease of 1.2% or $124,000. The
following chart summarizes the investment portfolios at March 31, 1997, and
December 31, 1996.
12
<PAGE>
<TABLE>
<CAPTION>
March 31, 1997
----------------------------------------------------------------------------------
Held to maturity Available for sale
----------------------------------- ----------------------------------
Amortized cost Fair value Amortized cost Fair value
-------------- ---------- -------------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
U. S. Treasury and U. S. Government agencies $13,606 $13,524 $10,084 $10,029
Tax exempt securities 412 413 - -
Other equity securities - - 608 608
------- ------- ------- -------
Total $14,018 $13,937 $10,692 $10,637
======= ======= ======= =======
Unrealized gain or (loss) $ (81) $ (55)
======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------------------------
Held to maturity Available for sale
----------------------------------- -------------------------------
Amortized cost Fair value Amortized cost Fair value
-------------- ---------- -------------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
U. S. Treasury and U. S. Government agencies $14,613 $14,612 $10,175 $10,175
Tax exempt securities 414 417 - -
Other equity securities - - 586 586
------- ------- ------- -------
Total $15,027 $15,029 $10,761 $10,761
======= ======= ======= =======
Unrealized gain or (loss) $ 2 $ -
======= =======
</TABLE>
Orangeburg National Bank owns approximately 90% of the held to maturity
and the available for sale investment portfolios. The remainder is owned by
Sumter National Bank and CBI.
Loan portfolio
The loan portfolio is primarily consumer and small business oriented.
At March 31, 1997, the loan portfolio was $75,395,000, compared to $68,829,000
at December 31, 1996, a 9.5% or $6,566,000 increase. The following chart
summarizes the loan portfolio at March 31, 1997, and December 31, 1996.
Mar. 31, 1997 Dec. 31, 1996
(dollars in thousands)
Real estate $45,738 $41,164
Commercial 17,289 16,644
Loans to individuals 12,368 11,021
======= =======
Total $75,395 $68,829
======= =======
13
<PAGE>
At March 31, 1997, Orangeburg National Bank's loan portfolio totaled
$62,134,000, compared to $59,877,000 at December 31, 1996, an increase of
$2,257,000 or 3.8%.
At March 31, 1997, Sumter National Bank's loan portfolio totaled
$13,261,000, compared to $8,952,000 at December 31, 1996, an increase of
$4,309,000 or 48.1%.
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 past due and
non-performing assets at March 31, 1997, December 31, 1996, and March 31, 1996.
Mar. 31, 1997 Dec. 31, 1996 Mar. 31, 1996
------------- ------------- -------------
Past due 90 days + accruing
loans $106,000 $ 93,000 $ -
Non-accrual loans $417,000 $431,000 $271,000
Impaired loans (included in $120,000 $ 12,000 $108,000
nonaccrual)
Other real estate owned $ - $ - $ -
Management considers the past due and non-accrual amounts in March 1997 to
be reasonable and manageable in the normal course of business. All loans shown
in the above table are attributable to Orangeburg National Bank.
CBI had no restructured loans during any of the above listed periods.
CBI's activity with its allowance for loan losses reserve is summarized
below.
Mar. 31, 1997 Dec. 31, 1996 Mar. 31, 1996
------------- ------------- -------------
Allowance at beginning
of period $876,000 $707,000 $707,000
Provision expense 84,000 227,000 30,000
Net charge-offs (24,000) (58,000) (10,000)
-------- -------- --------
Allowance at end of period $936,000 $876,000 $727,000
======== ======== ========
Allowance as a percent of
outstanding loans 1.24% 1.27% 1.36%
At December 31, 1996, the Sumter National Bank allowance for loan losses
was $97,000. The bank increased the allowance with a provision expense of
$39,000. The allowance at March 31, 1997, was $136,000.
At December 31, 1996, the Orangeburg National Bank allowance for loan
losses was $779,000. The bank increased the allowance with a provision expense
of $45,000. Net chargeoffs during the quarter were $24,000. The allowance at
March 31, 1997, was $800,000.
In reviewing the adequacy of the allowance for loan losses at the end of
each period, management 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 allowance adequate to provide for
estimated future losses inherent in the loan portfolio at March 31, 1997.
14
<PAGE>
Deposits
Deposits were $97,392,000 at March 31, 1997, compared to $89,851,000 at
December 31, 1996, an increase of 8.4% or $7,541,000. Approximately $4,811,000
or 64% of this increase was at Sumter National Bank.
Time deposits greater than $100,000 were $14,408,000 at March 31, 1997,
compared to $13,640,000 at December 31, 1996, an increase of 5.6% or $768,000.
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 a timely and economical manner.
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 Orangeburg National Bank and Sumter National Bank service areas. 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 available for sale.
CBI and its banks maintain an available for sale investment and a held to
maturity portfolio. While all these 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. Such sales will generally be from the available for sale
portfolio. Management 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 to its loan portfolio and for customer
withdrawals.
CBI has substantially more liabilities (mostly deposits, which may be
withdrawn) which mature in the next 12 months than it has assets maturing in the
same period. However, based on its historical experience, and that of similar
financial institutions, CBI believes 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 federal funds lines of credit with correspondent banks,
is able to borrow from the Federal Home Loan Bank, and is also able to borrow
from the Federal Reserve's discount window.
CBI has a demonstrated ability to attract deposits from its markets.
Deposits have grown from $30 million in 1989 to over $97 million in 1997. This
stable, growing base of deposits is the major source of operating liquidity.
15
<PAGE>
CBI's long term liquidity needs are expected to be primarily affected by
the maturing of long term certificates of deposit. At March 31, 1997, CBI had
approximately $7,454,000 and $0 in certificates of deposit maturing in one to
five years and over five years, respectively. CBI's assets maturing or repricing
in the same periods were $38,767,000 and $10,416,000, 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.
Capital resources
As summarized in the table below, CBI maintained a strong capital position.
Mar. 31, 1997 Dec. 31, 1996
Tier 1 capital to average total assets 11.53% 11.50%
Tier 1 capital to risk weighted assets 16.18% 17.50%
Total capital to risk weighted assets 17.43% 18.70%
Banks are required to maintain a minimum risk weighted capital ratio of at
least 8%.
In the opinion of management, the Company's current and projected capital
positions are adequate.
Shareholders' equity
At March 31, 1997, the common stock account totaled $9,061,000, compared to
$9,064,000 at December 31, 1996. This $3,000 reduction was for costs associated
with the establishment of a dividend reinvestment plan, although no stock was
sold by CBI during the period. Ongoing costs of the reinvestment plan will be
charged to expense.
Dividends and Dividend Reinvestment
CBI declared and paid a semi-annual cash dividend of 15 cents per share
during the first quarter of 1997. The total cost of this dividend was $197,000.
CBI has implemented a dividend reinvestment plan with an additional
purchase option. The recent dividend payment was the first opportunity for
shareholders to participate in the plan. Approximately $62,000 or 31% of the
dividends were reinvested in CBI's common stock. Shareholders also made
additional purchases of $123,000. Overall, the plan purchased on the open market
13,217 shares at an average cost of $14.04.
16
<PAGE>
Financial information on subsidiaries
ORANGEBURG NATIONAL BANK FINANCIAL HIGHLIGHTS
Mar. 31 Dec. 31,
Period ended 1997 1996
---- ----
(Dollar amounts in thousands)
Financial Condition
Investment securities $22,295 $23,826
Net loans receivable 61,516 59,393
Total assets 93,322 90,772
Total deposits 82,667 79,792
Federal funds purchases and securities 1,340 1,744
sold under agreement to repurchase
Other borrowed money 1,060 1,130
Stockholders' equity $7,615 $7,624
Earnings Summary
Interest income $1,803 $6,904
Interest expense 803 3,176
------- -------
Net interest income 1,000 3,728
Provision for loan losses 45 130
Non-interest income 138 469
Gains on securities - -
Non-interest expense 606 2,238
------- -------
Net income before taxes 487 1,829
Income taxes 171 667
------- -------
Net income after tax $ 316 $ 1,162
======= =======
17
<PAGE>
SUMTER NATIONAL BANK FINANCIAL HIGHLIGHTS
Mar. 31 Dec. 31,
Period ended 1997 1996*
- ------------ ---- -----
(Dollar amounts in thousands)
Financial Condition
Investment securities $ 1,474 $ 1,071
Net loans receivable 13,125 8,855
Total assets 18,050 13,322
Total deposits 14,933 10,112
Stockholders' equity $ 3,056 $ 3,159
Earnings Summary
Interest income $ 282 $ 338
Interest expense 110 142
------- -------
Net interest income 172 196
Provision for loan losses 39 97
Non-interest income 36 45
Non-interest expense 330 701
------- -------
Net loss before taxes (161) (557)
Income tax (benefit) (60) (217)
------- -------
Net (loss) after taxes $ (101) $ (340)
======= =======
*Note - Sumter National Bank began operations on June 10, 1996.
18
<PAGE>
Part II--Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit No.(from Description
item 601 of S-B)
(27) Financial Data Schedule
b) Reports on Form 8-K. None.
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: May 13, 1997
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
Consolidated Balance Sheet at March 31, 1997, (unaudited) and the Consolidated
Statement of Income for the three months ended March 31, 1997 (unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,526
<INT-BEARING-DEPOSITS> 1,230
<FED-FUNDS-SOLD> 3,355
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,617
<INVESTMENTS-CARRYING> 14,018
<INVESTMENTS-MARKET> 14,018
<LOANS> 75,395
<ALLOWANCE> 936
<TOTAL-ASSETS> 112,591
<DEPOSITS> 97,392
<SHORT-TERM> 1,340
<LIABILITIES-OTHER> 628
<LONG-TERM> 1,130
0
0
<COMMON> 9,061
<OTHER-SE> 3,040
<TOTAL-LIABILITIES-AND-EQUITY> 112,591
<INTEREST-LOAN> 1,663
<INTEREST-INVEST> 389
<INTEREST-OTHER> 46
<INTEREST-TOTAL> 2,098
<INTEREST-DEPOSIT> 877
<INTEREST-EXPENSE> 914
<INTEREST-INCOME-NET> 1,184
<LOAN-LOSSES> 84
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 920
<INCOME-PRETAX> 353
<INCOME-PRE-EXTRAORDINARY> 353
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 233
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
<YIELD-ACTUAL> 4.68
<LOANS-NON> 417
<LOANS-PAST> 106
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 523
<ALLOWANCE-OPEN> 876
<CHARGE-OFFS> 29
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 936
<ALLOWANCE-DOMESTIC> 936
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
