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, 1998 Commission 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 Identification
Incorporation or Organization) 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: 2,805,799 shares of common
stock outstanding as of May 1, 1998.
<PAGE>
10-QSB TABLE OF CONTENTS
Part I-Financial Statements Page
- --------------------------------------------------------------------------------
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Part II-Other Information
- --------------------------------------------------------------------------------
Item 6 Exhibits and Reports on Form 8-K 19
2
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands) UNAUDITED
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
---- ----
Cash and due from banks:
<S> <C> <C>
Non-interest bearing ............................................................. $ 7,429 $ 4,062
Federal funds sold ............................................................... 5,190 1,060
--------- ---------
Total cash and cash equivalents ............................................ 12,619 5,122
Interest bearing deposits in other banks ............................................. 1,858 1,238
Investment securities:
Securities held-to-maturity ...................................................... 13,691 17,311
Securities available-for-sale .................................................... 16,759 15,141
Loans held for resale ................................................................ 352 358
Loans ................................................................................ 96,055 91,951
Less, allowance for loan losses .................................................. (1,220) (1,140)
--------- ---------
Net loans .................................................................. 94,835 90,811
--------- ---------
Premises and equipment ............................................................... 2,926 2,733
Accrued interest receivable ......................................................... 1,100 1,168
Deferred income taxes ................................................................ 299 351
Other assets ......................................................................... 307 341
--------- ---------
Total assets ............................................................... $ 144,746 $ 134,574
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing ............................................................. $ 19,325 $ 17,003
Interest bearing ................................................................. 102,935 100,164
--------- ---------
Total deposits ............................................................. 122,260 117,167
Federal funds purchased and securities
sold under agreements to repurchase .............................................. 2,331 2,551
Federal Home Loan Bank advances ...................................................... 4,560 1,060
Other liabilities .................................................................... 966 759
--------- ---------
Total liabilities .......................................................... 130,117 121,537
--------- ---------
Shareholders' equity:
Common stock
No par, authorized shares 12,000,000, issued ............................... 10,560 9,156
and outstanding 2,634,676 in 1997 and
2,727,777 in 1998
Retained earnings ................................................................ 4,045 3,861
Accumulated other comprehensive income ........................................... 24 20
--------- ---------
Total shareholders' equity ................................................. 14,629 13,037
--------- ---------
Total liabilities and shareholders' equity ................................. $ 144,746 $ 134,574
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
3
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY (UNAUDITED)
for the three months ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Shares Common Stock Retained Accumulated Total
Earnings Other Stockholders'
Comprehensive Equity
Income (Loss)
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Balances at Dec. 31, 1996 ..................... 2,626,476 $ 9,064 $ 3,040 $ - $ 12,104
Comprehensive income:
Net income .................................. 233 233
Other comprehensive income
(loss) net of tax:
Unrealized (loss) on ...................... (36) (36)
securities
Cost of dividend .............................. - (3) (3)
reinvestment plan
Dividends paid ................................ (197) (197)
--------- --------- -------- ---- --------
Balances at Mar. 31, 1997 ..................... 2,626,476 $ 9,061 $ 3,076 $(36) $ 12,101
========= ========= ======== ==== ========
Balances at Dec. 31, 1997 ..................... 2,634,676 $ 9,156 $ 3,861 $ 20 $ 13,037
Comprehensive income:
Net income .................................. 399 399
Other comprehensive income
(loss) net of tax:
Unrealized gain on ........................ 4 4
securities
Issuance of common stock ...................... 93,101 1,404 1,404
Dividends paid ................................ (215) (215)
--------- --------- -------- ---- --------
Balances at Mar. 31, 1998 ..................... 2,727,777 $ 10,560 $ 4,045 $ 24 $ 14,629
========= ========= ======== ==== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
4
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
(Dollar amounts in thousands, except per share data) UNAUDITED UNAUDITED
--------- ---------
Interest and dividend income:
<S> <C> <C>
Interest and fees on loans ....................................................... $2,203 $1,663
Deposits with other financial institutions ....................................... 38 11
Investment securities:
Interest - U. S. Treasury and U. S. Government ................................. 450 377
Agencies
Dividends ...................................................................... 15 12
------ ------
Total investment securities .................................................. 465 389
------ ------
Federal funds sold and securities
purchased under agreements to resell ........................................... 58 35
------ ------
Total interest and dividend income ........................................... 2,764 2,098
------ ------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more .................................... 287 178
Other .......................................................................... 889 699
------ ------
Total deposits ............................................................... 1,176 877
Federal funds purchased and securities
sold under agreements to repurchase ............................................ 25 19
Federal Home Loan Bank advances .................................................. 52 18
------ ------
Total interest expense ....................................................... 1,253 914
------ ------
Net interest income .................................................................. 1,511 1,184
Provision for loan losses ............................................................ 91 84
------ ------
Net interest income after provision for loan losses .................................. 1,420 1,100
------ ------
Non-interest income:
Service charges on deposit accounts .............................................. 177 123
Other ............................................................................ 53 50
------ ------
Total non-interest income .................................................... 230 173
------ ------
Non-interest expense:
Salaries and employee benefits ................................................... 634 557
Premises and equipment ........................................................... 139 122
Other ............................................................................ 286 241
------ ------
Total non-interest expense ................................................... 1,059 920
------ ------
Net income before taxes .............................................................. 591 353
Provision for income taxes .......................................................... 192 120
------ ------
Net income after taxes ............................................................... $ 399 $ 233
====== ======
5
<PAGE>
<CAPTION>
1998 1997
---- ----
Basic earnings per common share:
Weighted average shares outstanding ................................................... 2,680,714 2,626,476
========== =============
Net income per common share ........................................................... $ 0.15 $ 0.09
========== =============
Diluted earnings per common share:
Weighted average shares outstanding ................................................... 2,738,194 2,659,358
========== =============
Net income per common share ........................................................... $ 0.15 $ 0.09
========== =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
6
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31,
(Dollar amounts in 1998 1997
thousands)
UNAUDITED UNAUDITED
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net income ........................................................................... $ 399 $ 233
Adjustments to reconcile net income
to net cash (provided) used by operating activities
Depreciation and amortization .................................................. 74 63
Provision for loan losses ...................................................... 91 84
Accretion of discounts and amortization of premiums -
investment securities - net .................................................. (31) 5
Deferred income ................................................................ 52 (4)
taxes
Proceeds from sale of real estate loans held for ............................... 2,244 1,328
sale
Origination of real estate loans held for sale ................................. (2,238) (1,215)
Changes in operating assets and liabilities:
(Increase) decrease in interest receivable ..................................... 68 (6)
(Increase) decrease in other assets ............................................ (49) 141
Increase (decrease) in other liabilities ....................................... 207 (4)
-------- --------
Net cash provided (used) by operating ....................................... 817 625
-------- --------
activities
Cash flows from investing activities:
Net (increase) in interest bearing deposits
with other banks .......................................................... (620) (799)
Purchases of held-to-maturity securities ....................................... (5,257) (1,750)
Proceeds from maturities of held-to-maturity ................................... 8,908 2,765
securities
Purchases of available-for-sale securities ..................................... (6,536) (1,529)
Proceeds from maturities of available-for-sale ................................. 4,922 1,606
securities
Net (increase) in loans to customers ........................................... (4,163) (6,590)
Purchases of premises and equipment ............................................ (136) (33)
-------- --------
Net cash (used) in investing activities ..................................... (2,882) (6,330)
-------- --------
Cash flows from financing activities:
Net increase in demand, savings, & time deposits ............................... 5,093 7,541
Net (decrease) in federal funds purchased
and securities sold under agreements to repurchase ............................ (220) (404)
Borrowings from Federal Home Loan Bank advances ................................ 3,500 -
Sale of common stock ........................................................... 1,404 -
Stock issuance & dividend reinvestment costs ................................... - (3)
Dividend payments .............................................................. (215) (197)
-------- --------
Net cash provided by financing activities ................................... 9,562 6,937
-------- --------
Net increase in cash and cash equivalents ............................................ 7,497 1,232
Cash and cash equivalents - beginning of period ...................................... 5,122 6,649
-------- --------
Cash and cash equivalents - end of period ............................................ $ 12,619 $ 7,881
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
7
<PAGE>
Summary of Significant Accounting Principles
A summary of significant accounting policies is included in the 1997
Annual Report of Community Bankshares, Inc. to the Shareholders, which also
contains the Company's audited financial statements for 1997.
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. The consolidated financial
statements also include the pre-opening activities for Florence National Bank
(in organization). 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 1997 Annual Report.
Changes in Comprehensive Income Components
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
effective for fiscal years beginning after December 15, 1997. This Statement
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Disclosure as
required by the Statement is as follows:
<TABLE>
<CAPTION>
Before- Tax Net-of-
Tax (Expense) Tax
Amount or Benefit Amount
Unrealized gains (losses) on securities:
<S> <C> <C> <C>
Unrealized holding gains (losses) arising during period ............................ $(55,000) $ 19,000 $(36,000)
Less: reclassification adjustment
for gains (losses) realized in net income
-------- -------- --------
Net unrealized gains (losses) ...................................................... (55,000) 19,000 (36,000)
-------- -------- --------
Other comprehensive income (loss), March 31, 1997 .................................... $(55,000) $ 19,000 $(36,000)
======== ======== ========
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period ............................ $ 6,000 $ (2,000) $ 4,000
Less: reclassification adjustment
for gains (losses) realized in net income
-------- -------- --------
Net unrealized gains (losses) ...................................................... 6,000 (2,000) 4,000
-------- -------- --------
Other comprehensive income (loss), March 31, 1998 .................................... $ 6,000 $ (2,000) $ 4,000
======== ======== ========
</TABLE>
8
<PAGE>
COMMUNITY BANKSHARES, INC. - AVERAGE BALANCE SHEETS, YIELDS, AND RATES
<TABLE>
<CAPTION>
Quarter ended March 31, 1998 1997
(unaudited) Interest Annualized Interest Annualized
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 ........................ $ 2,807 $ 38 5.42% $ 748 $ 11 5.88%
Investment securities taxable .................... 29,231 461 6.31% 24,954 384 6.16%
Investment securities--tax exempt ................ 374 4 6.48% 413 4 5.87%
Federal funds sold ............................... 4,008 58 5.79% 2,786 35 5.03%
Loans receivable ................................. 94,417 2,203 9.33% 72,216 1,664 9.22%
Total interest earning assets .................... 130,837 2,764 8.45% 101,117 2,098 8.30%
--------- --------- ---- --------- --------- ----
Cash and due from banks .......................... 5,862 4,478
Allowance for loan losses ........................ (1,151) (903)
Premises and equipment ........................... 2,910 2,847
Other assets ..................................... 1,610 1,301
--------- ---------
Total assets ......................................... $ 140,068 $ 108,840
========= =========
Liabilities and Shareholders' Equity
Interest bearing deposits
Savings .......................................... $ 18,318 $ 157 3.43% $ 17,417 $ 142 3.26%
Interest bearing transaction accounts ............ 13,438 64 1.91% 10,722 50 1.87%
Time deposits .................................... 70,045 955 5.45% 51,817 685 5.29%
--------- --------- ---- --------- --------- ----
Total interest bearing deposits .................. 101,801 1,176 4.62% 79,956 877 4.39%
Short-term borrowings ............................ 2,539 25 3.94% 2,028 19 3.75%
FHLB advances .................................... 3,543 52 5.87% 1,116 18 6.45%
--------- --------- ---- --------- --------- ----
Total interest bearing liabilities ............... 107,883 1,253 4.65% 83,100 914 4.40%
Noninterest bearing demand deposits .............. 17,128 12,938
Other liabilities ................................ 900 773
Shareholders' equity ............................. 14,157 12,029
--------- ---------
Total liabilities and shareholders' equity ........... $ 140,068 $ 108,840
========= ========
Interest rate spread ............................. 3.80% 3.90%
Net interest income and net yield on earning assets $ 1,511 4.62% $ 1,184 4.68%
========= ==== ========= ====
</TABLE>
9
<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.
Florence National Bank (in organization)
Community Bankshares, Inc. has entered into an agreement with six local
business people in the Florence, South Carolina community to sponsor the
formation of a new national bank. CBI has assisted in the process of submitting
an application for a bank charter to the Comptroller of the Currency and
preliminary approval was obtained in November 1997 to begin the organization
process. There are various other regulatory approvals that must be obtained
before the bank can begin operation. Management estimates that Florence National
Bank will commence operation in mid-1998.
CBI has filed a registration statement with the Securities and Exchange
Commission in order to offer to the public up to 300,000 shares of its common
stock. The majority of the proceeds of this sale together with the proceeds of
an earlier sale of restricted stock to the organizers of the new bank in the
amount of approximately $615,000, will be used to purchase $4.5 million in
common stock of the new bank. Should the sale not generate sufficient amounts to
purchase the bank stock, CBI has arranged for a line-of-credit with an unrelated
financial institution to provide any additional funds needed to capitalize the
bank. This stock sale began in mid-March.
Year 2000
The change in date from 1999 to 2000 poses potential problems for many
computer systems around the world. Certain of the Corporation's systems may be
affected by this so-called millennium bug. CBI is investigating the extent to
which its systems are affected and communicating with all of its computer
vendors concerning timely completion of remedies for those systems that require
modification. The Corporation is also communicating with third parties on which
it relies to assess their progress in evaluating their systems and implementing
any corrective measures and has formed a committee to coordinate its Year 2000
activities. Management estimates that the costs of Year 2000 compliance will
range between $100,000 and $150,000, and will be funded with internally
generated resources. The Corporation has been taking and will continue to pursue
reasonably necessary steps to protect its operations and assets.
10
<PAGE>
RESULTS OF OPERATIONS
Net Income
For the first quarter of 1998, CBI earned a consolidated profit of
$399,000, compared to $233,000 for the first quarter of 1997, an increase of
71.2% or $166,000. Basic earnings per share were $.15 in the 1998 period,
compared to $.09 for the 1997 period, an increase of 66.7%. The increase in
earnings per share was related to the increase in earnings for the Orangeburg
bank and the beginning of profitable operations at the Sumter bank, which opened
for business in June 1996.
For the first quarter of 1998, Orangeburg National Bank reported a
profit of $373,000, compared to $316,000 for the first quarter of 1997, an
increase of 18% or $57,000.
For the first quarter of 1998, Sumter National Bank reported a profit
of $12,000 compared to a net after tax loss of $102,000 for the first quarter of
1997, an improvement of $114,000.
As noted above, consolidated net income for the period ended March 31,
1998, increased from the prior year by 71.2% or $166,000. The major components
of this increase are discussed below. Net interest income before provision for
loan losses for the three months ended March 31, 1998, increased to $1,511,000,
compared to $1,184,000 for the same period in 1997, an increase of 27.6% or
$327,000. For the same period, the provision for loan losses was $91,000,
compared to $84,000 for the 1997 period, an increase of 8.3% or $7,000.
Non-interest income for the 1998 period increased to $230,000 from $173,000 for
the 1997 period, a 32.9% or $57,000 increase. Non-interest expense increased to
$1,059,000 from $920,000, a 15.1% or $139,000 increase. First quarter 1998
results include results of operation for Sumter National Bank. which was
profitable for the 1998 period. However, for the comparable period in 1997 the
Sumter bank reported a substantial loss, as noted above. Accordingly, many of
the dollar and percentage comparisons and changes between periods discussed in
this report are unusually large.
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, 1998 and 1997, the following table is presented.
11
<PAGE>
Period ended March 31, 1998 1997
---- ----
(dollars in thousands)
Average assets $140,068 $108,840
ROA 1.14% 0.86%
Average equity $14,157 $12,029
ROE 11.27% 7.75%
Net income $399 $233
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 1998, net interest income after provision for loan losses increased
to $1,420,000 from $1,100,000, a 29.1% or $320,000 increase over the first
quarter of 1997. This improvement was the result of a $31 million increase in
the volume of earning assets. The average yield on earning assets increased to
8.45% for the 1998 period from 8.30% for the 1997 period. This increase was
mostly the result of improved yields in the loan portfolio. Also, the cost of
funds increased for the period. For the first quarter of 1998 the cost of funds
averaged 4.65%, compared to 4.40% for the first quarter of 1997.
The increase in the yield on earning assets was exceeded by the
increase in the cost of funds, which resulted in a decline in the 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 3.80% for the first
quarter of 1998, decreased from 3.90% during the first quarter of 1997. CBI's
net interest margin (net interest income divided by total earning assets) was
4.62% for the first quarter of 1998, compared to 4.68% for the first quarter of
1997.
Interest Income
Elsewhere in this report is a table comparing the average balances,
yields, and rates for the interest rate sensitive segments of the Corporation's
balance sheets for the quarters ended March 31, 1998 and 1997. A discussion of
that table follows.
Total interest income for the first quarter 1998 was $2,764,000
compared with $2,098,000 for the same period in 1997, a 31.7% or $666,000
increase. The yield on earning assets for the 1998 period was 8.45%, up from
8.30% for the 1997 period. Total average interest earning assets for the quarter
ended March 31, 1998, were $130,837,000, up from $101,117,000 for the quarter
ended March 31, 1997, an increase of 29.4% or $29,720,000.
The loan portfolio earned $2,203,000 for the first quarter in 1998, up
from $1,664,000 for the same period of 1997, a 32.4% or $539,000 increase. The
first quarter 1998 yield increased to 9.33% from 9.22% for the first quarter in
1997. The average size of the loan portfolio was $94,417,000 for the 1998
quarter, up from $72,216,000 for the same period of 1997, an increase of 30.7%
or $22,201,000.
The taxable investment portfolio earned $461,000 for the first quarter
in 1998, up from $384,000 for the 1997 period, a 20% or $77,000 increase. The
12
<PAGE>
yield increased to 6.31% in the 1998 quarter from 6.16% in the 1997 quarter. The
average size of the portfolio increased to $29,231,000 in the 1998 quarter from
$24,954,000 in the 1997 quarter, an increase of 17.1% or $4,277,000.
The tax exempt investment portfolio earned $4,000 for the first quarter
in 1998, unchanged from the prior year. The yield on the portfolio was 6.48%,
increased from 5.87%. The average size of the portfolio decreased to $374,000
for the 1998 period from $413,000 in the 1997 period, a decrease of 9.4% or
$39,000.
Interest bearing deposits in other banks contributed $38,000 for the
first quarter 1998, compared to $11,000 during the prior year, an increase of
245% or $27,000. The yield on these deposits decreased to 5.42% for the 1998
period from 5.88% in the 1997 period. CBI averaged $2,807,000 in interest
bearing balances in the first quarter 1998 compared to $748,000 the first
quarter of the prior year, an increase of 275% or $2,059,000.
Federal funds sold earned $58,000 the first quarter of 1998 compared to
$35,000 the prior year, an increase of 65.7% or $23,000. Yields increased to
5.79% for the first quarter in 1998 from 5.03% for the first quarter in 1997.
For the first quarter of 1998, CBI increased its average volume in federal funds
sold to $4,008,000 from $2,786,000 for the first quarter of 1997, a 43.9% or
$1,222,000 increase.
Interest Expense
Interest expense increased for the first quarter 1998 to $1,253,000
from the prior year's $914,000, a 37.1% or $339,000 increase. The volume of
interest sensitive liabilities increased to $107,883,000 for the first quarter
in 1998 from $83,100,000 for the first quarter of 1997, a 29.8% or $24,783,000
increase. The average rate CBI paid for interest bearing liabilities during the
1998 quarter was 4.65% up from 4.40% for the 1997 period. This change was
primarily due to the increased cost of time deposits.
The cost of savings accounts increased to $157,000 in the first quarter
in 1998 from $142,000 in the first quarter of 1997, a 10.6% or $15,000 increase.
Average savings deposit balances increased to $18,318,000 for the first quarter
in 1998 from $17,417.000 for the first quarter of 1997, an increase of 5.2% or
$901,000. The average rate paid on these funds increased to 3.47% from 3.26%.
Interest bearing transaction accounts cost $64,000 for the first
quarter in 1998, up from the first quarter of the prior year's $50,000, an
increase of 28% or $14,000. The volume of these deposits increased to
$13,438,000 for the first quarter in 1998 from $10,722,000 for the first quarter
of 1997, a 25.3% or $2,716,000 increase. The average rate paid on these funds
for the first quarter in 1998 increased to 1.91% from 1.87% for the first
quarter of 1997.
Time deposits cost $955,000 for the first quarter of 1998, up from
$685,000 the first quarter of the prior year, an increase of 39.4% or $270,000.
The volume increased to $70,045,000 for the first quarter in 1998 from
$51,817,000 for the first quarter of 1997, a 35.2% or $18,228,000 increase. The
average rate paid on these funds increased to 5.45% for the first quarter in
1998 from 5.29% for the first quarter in 1997.
13
<PAGE>
Short-term borrowings 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 $25,000 for the first quarter in 1998,
increased from $19,000 for the first quarter of 1997, a 47.4% or $6,000
increase. The volume of these funds increased to $2,539,000 in the first quarter
in 1998 from $2,028,000 in the first quarter of 1997, an increase of 25.2% or
$511,000. The average rate paid on these funds increased to 3.94% from 3.75%.
Borrowings from the Federal Home Loan Bank cost $52,000 for the first
quarter in 1998, increased from $18,000 for the first quarter in 1997, an
increase of 189% or $34,000. The advances averaged $3,543,000 during the 1998
quarter, compared to $1,116,000 for the prior year period, a 217% or $2,427,000
increase. During the first quarter of 1998 the Orangeburg bank borrowed an
additional $3.5 million in advances from the Federal Home Loan Bank, as part of
its ongoing asset liability management program. The average rate paid on these
funds decreased to 5.87% from 6.45%.
Non-Interest Income
Non-interest income for the first quarter 1998 grew to $230,000 from
$173,000 in the first quarter of 1997, a 32.9% or $57,0000 increase.. This was
mostly the result of increases in service charge volume at the Sumter bank and
increases in returned check fees for the Orangeburg bank.
Non-Interest Expense
For the first quarter of 1998 non-interest expenses increased to
$1,059,000 from $920,000 for the first quarter of 1997, a 15.1% or $139,000
increase.
For the 1998 period, personnel costs were $634,000 compared to $557,000
for the 1997 period , an increase of 13.8% or $77,000 increase.
For the 1998 period premises and equipment expense were $139,000
compared to $122,000 for the 1997 period, an increase of 13.9% or $17,000.
For the 1998 period other costs were $286,000 compared to $241,000 for
the 1997 period, an increase of 18.7% or $45,000.
Income Taxes
CBI provided $192,000 for federal and state income taxes during the
first quarter of 1998, compared to $120,000 for the same period in 1997, a 60%
or $72,000 increase resulting primarily from the increase in earnings..
14
<PAGE>
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, 1998, the held-to-maturity portfolio totaled $13,691,000
compared to $17,311,000 at December 31, 1997, a decrease of 20.9% or $3,620,000.
At March 31, 1998, the available-for-sale portfolio totaled $16,759,000 compared
to $15,141,000 at December 31, 1997, an increase of 10.7% or $1,618,000. The
following chart summarizes the investment portfolios at March 31, 1998, and
December 31, 1997.
<TABLE>
<CAPTION>
March 31, 1998
------------------------------------------------------------------------
Held-to-maturity Available-for-sale
---------------------------------- -------------------------------------
Amortized cost Fair value Amortized cost Fair value
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
U. S. Government and federal agencies .......... $13,437 $13,462 $15,796 $15,832
Tax exempt securities .......................... 254 256 - -
Other equity securities ........................ - - 927 927
------- ------- ------- -------
Total .......................................... $13,691 $13,718 $16,723 $16,759
======= ======= ======= =======
Unrealized gain ................................ $ 27 $ 36
======= =======
<CAPTION>
March 31, 1997
------------------------------------------------------------------------
Held-to-maturity Available-for-sale
---------------------------------- -------------------------------------
Amortized cost Fair value Amortized cost Fair value
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
U. S. Government and federal agencies........... $16,906 $16,923 $14,413 $14,444
Tax exempt securities .......................... 405 408 - -
Other equity securities ........................ - - 697 697
------- ------- ------- -------
Total .......................................... $17,311 $17,331 $15,110 $15,141
======= ======= ======= =======
Unrealized gain ................................ $ 20 $ 31
======= =======
</TABLE>
Loan portfolio
The loan portfolio is primarily consumer and small business oriented.
At March 31, 1998, the loan portfolio was $96,055,000, compared to $91,951,000
at December 31, 1997, a 4.5% or $4,104,000 increase. The following chart
summarizes the loan portfolio at March 31, 1998, and December 31, 1997.
15
<PAGE>
Mar. 31, 1998 Dec. 31, 1997
------------- -------------
(Dollar amounts in thousands)
Real estate ..................... $56,321 $53,297
Commercial ...................... 23,436 22,306
Loans to individuals ............ 16,298 16,348
------- -------
Total ........................... $96,055 $91,951
======= =======
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, 1998, and December 31, 1997.
Mar.31, 1998 Dec.31, 1997
------------ ------------
(Dollar amounts in thousands)
Past due 90 days + accruing loans ......... $ 62 $ -
Non-accrual loans ......................... $173 $ 81
Impaired loans (included in non-accrual) .. $173 $ 81
Other real estate owned ................... $132 $132
Management considers the past due and non-accrual amounts at March 31,
1998 to be reasonable and manageable in the normal course of business.
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, 1998 Dec.31, 1997
------------- ------------
(Dollar amounts in thousands)
Allowance at beginning of period ......... $1,140 $876
Provision expense ........................ 91 359
Net charge offs .......................... (11) (95)
------ ------
Allowance at end of period ............... $1,220 $1,140
====== ======
Allowance as a percent of outstanding loans 1.27% 1.24%
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, 1998.
Deposits
Deposits were $122,260,000 at March 31, 1998, compared to $117,167,000
at December 31, 1997, an increase of 4.3% or $5,093,000.
16
<PAGE>
Time deposits greater than $100,000 were $23,556,000 at March 31, 1998,
compared to $21,428,000 at December 31, 1997, an increase of 9.9% or $2,128,000.
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 portfolio
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 $122 million in 1998. This
stable, growing base of deposits is the major source of operating liquidity.
CBI's long term liquidity needs are expected to be primarily affected
by the maturing of long-term certificates of deposit. At March 31, 1998, CBI had
approximately $12,035,000 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 $50,628,000 and $20,051,000, respectively. CBI expects
to be able to manage its current balance sheet structure without experiencing
any material liquidity problems.
In the opinion of management, CBI's current and projected liquidity
position is adequate.
17
<PAGE>
Capital resources
As summarized in the table below, CBI maintains a strong capital
position.
Mar. 31, 1998 Dec. 31, 1997
------------- -------------
Tier 1 capital to average total assets .... 10.40% 9.60%
Tier 1 capital to risk weighted assets .... 14.70% 14.10%
Total capital to risk weighted assets ..... 16.00% 15.30%
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, 1998, the common stock account totaled $10,560,000,
compared to $9,156,000 at December 31, 1997. This $1,404,000 increase was the
result of stock sales conducted during the quarter. The stock sales are
primarily to raise capital for the new Florence National Bank (in organization).
Dividends
CBI declared and paid a semi-annual cash dividend of 8 cents per share
during the first quarter of 1998. The total cost of this dividend was $215,000.
18
<PAGE>
Part II--Other Information
Item 2. Changes in Securities and Use of Proceeds
The Corporation sold 53,950 restricted common shares pursuant to an
agreement between CBI and the organizers of the Florence National Bank (in
organization) during the first quarter of 1998. There were no underwriters
involved in this transaction. The restricted shares generated a total offering
price of $665,956. Issuance of these shares was exempt from the registration
requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof.
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 11, 1998
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, 1998, (unaudited) and the Consolidated
Statement of Income for the three months ended March 31, 1998 (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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,429
<INT-BEARING-DEPOSITS> 1,858
<FED-FUNDS-SOLD> 5,190
<TRADING-ASSETS> 352
<INVESTMENTS-HELD-FOR-SALE> 16,759
<INVESTMENTS-CARRYING> 13,691
<INVESTMENTS-MARKET> 13,718
<LOANS> 96,055
<ALLOWANCE> 1,220
<TOTAL-ASSETS> 144,746
<DEPOSITS> 122,260
<SHORT-TERM> 2,331
<LIABILITIES-OTHER> 966
<LONG-TERM> 4,560
0
0
<COMMON> 10,560
<OTHER-SE> 4,069
<TOTAL-LIABILITIES-AND-EQUITY> 144,746
<INTEREST-LOAN> 2,203
<INTEREST-INVEST> 465
<INTEREST-OTHER> 96
<INTEREST-TOTAL> 2,764
<INTEREST-DEPOSIT> 1,176
<INTEREST-EXPENSE> 1,253
<INTEREST-INCOME-NET> 1,511
<LOAN-LOSSES> 91
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 1,059
<INCOME-PRETAX> 591
<INCOME-PRE-EXTRAORDINARY> 591
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 399
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
<YIELD-ACTUAL> 4.62
<LOANS-NON> 62
<LOANS-PAST> 173
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 235
<ALLOWANCE-OPEN> 1,140
<CHARGE-OFFS> 16
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 1,220
<ALLOWANCE-DOMESTIC> 1,220
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
