SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998 File number: 000-22054
COMMUNITY BANKSHARES, INC.
(Exact Name of Small Business Issuer in its Charter)
South Carolina 57-0966962
(State or Other Jurisdiction of Incorporation or (IRS Employer Identification
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: 2,994,668 shares of common
stock outstanding as of July 27, 1998.
Transitional Small Business Disclosure Format. Yes __ No X
<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 Condition 10
and Results of Operations
Part II-Other Information
- --------------------------------------------------------------------------------
Item 4 Submission of Matters to a Vote of Securities Holders 18
Item 6 Exhibits and Reports on Form 8-K 18
2
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
ASSETS June 30, 1998 Dec. 31, 1997
------------- --------------
(dollar amounts in thousands)
Cash and due from other financial institutions:
<S> <C> <C>
Non-interest bearing ........................................................... $ 7,319 $ 4,062
Federal funds sold ............................................................. 8,270 1,060
--------- ---------
Total cash and cash equivalents ............................................ 15,589 5,122
Interest bearing deposits in other banks ........................................... 2,316 1,238
Investment securities:
Securities held to maturity .................................................... 13,098 17,311
Securities available for sale .................................................. 19,439 15,141
Loans held for resale .............................................................. 78 358
Loans .............................................................................. 102,474 91,951
Less, allowance for loan losses ................................................ (1,270) (1,140)
--------- ---------
Net loans .................................................................. 101,204 90,811
--------- ---------
Premises and equipment ............................................................. 3,475 2,733
Accrued interest receivable ....................................................... 1,290 1,168
Deferred income taxes .............................................................. 394 351
Other assets ....................................................................... 284 341
--------- ---------
Total assets ............................................................... $ 157,167 $ 134,574
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing ........................................................... $ 21,275 $ 17,003
Interest bearing ............................................................... 105,059 100,164
--------- ---------
Total deposits ............................................................. 126,334 117,167
Federal funds purchased and securities
sold under agreements to repurchase ............................................ 2,459 2,551
Federal Home Loan Bank advances .................................................... 9,560 1,060
Other liabilities .................................................................. 682 759
--------- ---------
Total liabilities .......................................................... 139,035 121,537
--------- ---------
Shareholders' equity:
Common stock
No par, authorized shares 12,000,000, issued and ........................... 13,618 9,156
outstanding 2,934,916 in 1998 and 2,634,676 in 1997
Retained earnings .............................................................. 4,493 3,861
Unrealized gain on securities available for sale ............................... 21 20
--------- ---------
Total shareholders' equity ................................................. 18,132 13,037
--------- ---------
Total liabilities and shareholders' equity ................................. $ 157,167 $ 134,574
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS
3
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY
for the six months ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
Common Common Stock Retained Accumulated Total
Shares Earnings Other Shareholders'
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 547 547
Other comprehensive income (loss) net of tax:
Unrealized gain (loss) on (40) (40)
securities
Cost of dividend reinvestment - (9) (9)
plan
Dividends paid (197) (197)
--------- ------- ------ --- -------
Balances at June 30, 1997 2,626,476 $9,055 $3,390 $(40) $12,405
========= ======= ====== === =======
Balances at Dec. 31, 1997 2,634,676 $9,156 $3,861 $20 $13,037
Comprehensive income:
Net income 847 847
Other comprehensive income (loss) net of tax:
Unrealized gain (loss) on 1 1
securities
Issuance of common stock 300,240 4,462 4,462
Dividends paid (215) (215)
--------- ------- ------ --- -------
Balances at June 30, 1998 2,934,916 $13,618 $4,493 $21 $18,132
========= ======= ====== === =======
</TABLE>
4
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six months ended June 30, Quarter ended June 30,
------------------------- ----------------------
1998 1997 1998 1997
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
--------- --------- --------- ---------
Interest and dividend income: (dollar amounts in thousands)
<S> <C> <C> <C> <C>
Interest and fees on loans ............................. $ 4,539 $ 3,546 $ 2,336 $ 1,883
Deposits with other financial institutions ............. 68 34 30 23
Investment securities:
Interest - U. S. Treasury and
U. S. Government Agencies .......................... 927 791 477 414
Dividends ............................................ 30 22 15 10
---------- ---------- ---------- ----------
Total investment securities ....................... 957 813 492 424
---------- ---------- ---------- ----------
Federal funds sold and securities
purchased under agreements to resell ................. 144 94 86 59
---------- ---------- ---------- ----------
Total interest and dividend income ................ 5,708 4,487 2,944 2,389
---------- ---------- ---------- ----------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more .......... 608 373 321 195
Other ................................................ 1,763 1,480 874 781
---------- ---------- ---------- ----------
Total deposits..................................... 2,371 1,853 1,195 976
Federal funds purchased and securities
sold under agreements to repurchase .................. 49 61 24 42
Federal Home Loan Bank advances ........................ 128 37 76 19
---------- ---------- ---------- ----------
Total interest expense ............................ 2,548 1,951 1,295 1,037
---------- ---------- ---------- ----------
Net interest income ........................................ 3,160 2,536 1,649 1,352
Provision for loan losses .................................. 188 177 97 93
---------- ---------- ---------- ----------
Net interest income after provision for loan losses......... 2,972 2,359 1,552 1,259
---------- ---------- ---------- ----------
Non-interest income:
Service charges on deposit accounts .................... 376 253 199 130
Other .................................................. 115 110 62 60
---------- ---------- ---------- ----------
Total non-interest income ......................... 491 363 261 190
---------- ---------- ---------- ----------
Non-interest expense:
Salaries and employee benefits ......................... 1,311 1,133 677 576
Premises and equipment ................................. 276 249 137 127
Other .................................................. 615 543 329 302
---------- ---------- ---------- ----------
Total non-interest expense ........................ 2,202 1,925 1,143 1,005
---------- ---------- ---------- ----------
Net income before taxes .................................... 1,261 797 670 444
Provision for income taxes ................................. 414 250 222 130
---------- ---------- ---------- ----------
Net income after taxes...................................... $ 847 $ 547 $ 448 $ 314
========== ========== ========== ==========
Basic earnings per common share:
Weighted average shares outstanding .................... 2,763,076 2,626,476 2,721,895 2,626,476
========= ========= ========= =========
Net income per common share ............................ $ 0.31 $ 0.21 $ 0.16 $ 0.12
========== ========== ========== ==========
Diluted earnings per common share:
Weighted average shares outstanding .................... 2,862,856 2,670,299 2,800,525 2,664,829
========= ========= ========= =========
Net income per common share ............................ $ 0.30 $ 0.20 $ 0.16 $ 0.12
========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
5
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
---- ----
(dollar amounts in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net income ............................................................................. $ 847 $ 547
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation .................................................................... 156 151
Provision for loan losses ....................................................... 188 177
Accretion of discounts and
amortization of premiums -
investment securities - net ................................................... (26) (51)
Proceeds from sale of real estate loans held for sale ........................... (5,244) (2,111)
Origination of real estate loans held for sale .................................. 5,417 1,864
Changes in assets and liabilities:
(Increase) in interest receivable ............................................... (122) (189)
Decrease in other assets ........................................................ 96 29
(Decrease) in other liabilities ................................................. (77) (20)
-------- --------
Net cash provided (used) by operating activities ....................................... 1,235 397
-------- --------
Cash flows from investing activities:
Proceeds from maturities and sales of
investment securities - hold to maturity ...................................... 11,990 3,267
Purchases of investment securities - hold to maturity ........................... (7,766) (4,446)
Proceeds from maturities and sales of
investment securities - available for sale .................................... 7,202 2,165
Purchases of investment securities - available for sale ......................... (10,970) (4,758)
(Increase) in interest bearing deposits ......................................... (1,592) (1,176)
Net increase in loans to customers .............................................. (10,581) (11,721)
Purchase of premises and equipment .............................................. (873) (105)
-------- --------
Net cash (used) in investing activities ...................................... (12,590) (16,774)
-------- --------
Cash flows from financing activities:
Net increase in demand, savings, & time deposits ................................ 9,167 17,731
Net increase (decrease) in federal funds purchased
and securities sold under agreement to repurchase............................. (92) 4,394
Sale of common stock ............................................................ 4,462 -
Cost of stock sale & dividend reinvestment program .............................. - (9)
Proceeds of FHLB advances ....................................................... 8,500 -
Dividends ....................................................................... (215) (197)
-------- --------
Net cash provided by financing activities ..................................... 21,822 21,919
-------- --------
Net increase in cash and due from other
financial institutions .......................................................... 10,467 5,542
Cash and due from other financial institutions -
beginning of period ............................................................. 5,122 6,649
-------- --------
Cash and due from other financial institutions -
end of period ................................................................... $ 15,589 $ 12,191
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
6
<PAGE>
Notes to Unaudited Financial Statements
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 Tax Net-of-Tax
Amount (Expense) Amount
or Benefit
Unrealized gains (losses) on securities:
<S> <C> <C> <C>
Unrealized holding gains (losses) arising during period ................... $(40,000) $14,000 $(26,000)
Less: reclassification adjustment
for gains (losses) realized in net income.............................. - - -
-------- ------- --------
Net unrealized gains (losses) ............................................. (40,000) 14,000 (26,000)
-------- ------- --------
Other comprehensive income (loss), June 30, 1997 ........................... $(40,000) $14,000 $(26,000)
======== ======= ========
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period ................... $ 1,000 $ 0 $ 1,000
Less: reclassification adjustment
for gains (losses) realized in net income.............................. - - -
-------- ------- --------
Net unrealized gains (losses) ............................................ 1,000 0 1,000
-------- ------- --------
Other comprehensive income (loss), June 30, 1998 ............................ $ 1,000 $ 0 $ 1,000
======== ======= ========
</TABLE>
7
<PAGE>
COMMUNITY BANKSHARES, INC. - AVERAGE BALANCE SHEETS, YIELDS AND RATES
<TABLE>
<CAPTION>
Six months ended June 30, 1998 1997
(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 ............ $ 2,396 $ 68 5.68% $ 1,171 $ 34 5.81%
Investment securities taxable ........ 29,849 951 6.37% 25,989 804 6.19%
Investment securities--tax exempt .... 314 6 5.79% 412 9 6.62%
Federal funds sold ................... 5,294 144 5.44% 3,578 94 5.25%
Loans receivable ..................... 96,812 4,539 9.38% 75,329 3,546 9.41%
-------- ------- ---- -------- ------- ----
Total interest earning assets ........ 134,665 5,708 8.48% 106,479 4,487 8.43%
Cash and due from banks .............. 5,868 4,810
Allowance for loan losses ............ (1,201) (942)
Premises and equipment ............... 3,151 2,837
Other assets ......................... 1,619 1,447
-------- --------
Total assets ............................. $144,102 $114,631
======== ========
Liabilities and Shareholders' Equity
Interest bearing deposits
Savings .............................. $ 18,964 $ 327 3.45% $ 18,651 $ 313 3.36%
Interest bearing transaction accounts 13,491 128 1.90% 11,244 105 1.87%
Time deposits ........................ 70,300 1,916 5.45% 53,675 1,435 5.35%
-------- ------ ---- -------- ------ ----
Total interest bearing deposits ...... 102,755 2,371 4.61% 83,570 1,853 4.43%
Short term borrowing ................. 2,447 49 4.00% 3,142 61 3.88%
FHLB advances ........................ 4,302 128 5.95% 1,123 37 6.59%
-------- ------ ---- -------- ------ ----
Total interest bearing liabilities ... 109,504 2,548 4.65% 87,835 1,951 4.44%
Noninterest bearing demand deposits .. 18,126 13,913
Other liabilities .................... 899 757
Shareholders' equity ................. 15,573 12,126
-------- --------
Total liabilities and shareholders' equity $144,102 $114,631
======== ========
Interest rate spread ................. 3.83% 3.99%
Net interest income and net yield on earning assets $3,160 4.69% $2,536 4.76%
====== ==== ====== ====
</TABLE>
8
<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
Community Bankshares, Inc. 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. Final approval to open was obtained in later June 1998 from the
Comptroller. Various other regulatory agencies, including the Federal Reserve
and the Federal Deposit Insurance Corporation, were required to review and
approve plans for the new bank and acquisition of the new bank by CBI. The bank
opened for business on Monday, July 6, 1998.
From March to July 1998 CBI sold to the public 300,000 shares of its
common stock. This public sale raised $4.6 million. The company also raised
additional capital through the sale of restricted shares to the organizers of
the Florence bank. In total, the company raised $5.4 million, of which $4.5
million was used to capitalize the new bank.
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 $200,000 and $250,000, 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.
9
<PAGE>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Net Income
For the six months ended June 30, 1998, CBI earned a consolidated
profit of $847,000, compared to $547,000 for the comparable period of 1997, an
increase of 54.8% or $300,000. Basic earnings per share were $.31 in the 1998
period, compared to $.21 for the 1997 period, an increase of 47.6%.
For the six months ended June 30, 1998, Orangeburg National Bank
reported a profit of $805,000, compared to $673,000 for the comparable period of
1997, an increase of 19.6% or $132,000.
For the six months ended June 30, 1997, Sumter National Bank reported
a profit of $53,000, compared to an after tax loss of $144,000 for the
comparable period of 1997, an improvement of $197,000.
As noted above, consolidated net income for the six months ended June
30, 1998, increased from the prior year by 54.8% or $300,000. The major
components of this increase are discussed below. Net interest income before
provision for loan losses for the six months ended June 30, 1998, increased to
$3,160,000, compared to $2,536,000 for the same period in 1997, an increase of
24.6% or $624,000. For the 1998 period, the provision for loan losses was
$188,000, compared to $177,000 for the 1997 period, an increase of 6.2% or
$11,000. Non-interest income for the 1998 period increased to $491,000 from
$363,000 for the 1997 period, a 35.2% or $128,000 increase. Non-interest expense
increased to $2,202,000 from $1,925,000, a 14.4% or $277,000 increase.
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 six months ended June
30, 1998 and 1997, the following table is presented.
Period ended June 30,
1998 1997
(dollars in thousands)
Average assets $144,102 $114,631
ROA 1.18% 0.95%
Average equity $15,573 $12,126
ROE 10.88% 9.02%
Net income $847 $547
Average equity and average assets were substantially greater for the
1998 period than they were for the 1997 period primarily as the result of the
sale of stock to capitalize the new bank in Florence and the deposit taking and
borrowing activities of the Sumter and Orangeburg banks, respectively.
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 exceed the interest
paid on interest bearing deposits and other interest bearing funds. During the
first six months of 1998, net interest income after provision for loan losses
increased to $2,972,000 from $2,359,000, a 26% or $613,000 increase over the
comparable period of 1997. This improvement was the result of an increase in the
volume of earning assets at both banks.
10
<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 six month periods ended June 30, 1998 and 1997. A
discussion of that table follows.
Total interest income for the six months ended June 30, 1998, was
$5,708,000 compared with $4,487,000 for the same period in 1997, a 27.2% or
$1,221,000 increase. The yield on earning assets for the 1998 period was 8.48%,
up from 8.43.% for the 1997 period. Total average interest earning assets for
the six months ended June 30, 1998, were $134,665,000, up from $106,479,000 for
the same period in 1997, an increase of 26.5% or $28,186,000.
The loan portfolio earned $4,539,000 for the six months ended June 30,
1998, up from $3,546,000 for the same period of 1997, a 28% or $993,000
increase. The 1998 yield decreased slightly to 9.38% from 9.41% for the 1997
period. Market rates have been stable during the periods. The average size of
the loan portfolio was $96,812,000 for the 1998 period, up from $75,329,000 for
the same period of 1997, an increase of 28.5% or $21,483,000.
The taxable investment portfolio earned $951,000 for the six months
ended June 30, 1998, up from $804,000 for the 1997 period, an 18.3% or $147,000
increase. The yield increased to 6.37% in the 1998 period from 6.19% in the 1997
period. The average size of the portfolio increased to $29,849,000 in the 1998
period from $25,989,000 in the 1997 period, an increase of 14.8% or $3,860,000.
The tax exempt investment portfolio continues to be a relatively small
part of the portfolio, it earned $6,000 for the six months ended June 30, 1998,
compared to $9,000 for the 1997 period, a decline of 33.3% or $3,000. The yield
on the portfolio was 5.79% (on a fully taxable equivalent basis), down from the
prior year's 6.62%. The average size of the portfolio decreased to $314,000 for
the 1998 period from $412,000 in the 1997 period, a decrease of 23.8% or
$98,000.
Interest bearing deposits in other banks contributed $68,000 for the
six months ended June 30, 1998, compared to $34,000 during the prior year, an
increase of 100% or $34,000. The yield on these deposits decreased to 5.68% for
the 1998 period from 5.81% in the 1997 period. CBI averaged $2,396,000 in
interest bearing balances in the 1998 period compared to $1,171,000 in the 1997
period, an increase of 104% or $1,225,000.
Federal funds sold earned $144,000 for the six months ended June 30,
1998, compared to $94,000 the prior year, an increase of 53.2% or $50,000.
Yields increased to 5.44% for the period ended June 30, 1998, from 5.25% for the
1997 period. For the 1998 period, CBI increased its average volume in federal
funds sold to $5,294,000 from $3,578,000 for the 1997 period, a 48% or
$1,716,000 increase.
Interest expense
Interest expense increased for the six months ended June 30, 1998, to
$2,548,000 from the prior year's $1,951,000, a 30.6% or $597,000 increase. The
volume of interest bearing liabilities increased to $109,504,000 for the period
ended June 30, 1998, from $87,835,000 for the 1997 period, a 24.7% or
$21,669,000 increase. The average rate CBI paid for interest bearing liabilities
during the 1998 period was 4.65%, up from 4.44% for the 1997 period.
The cost of savings accounts increased to $327,000 for the six months
ended June 30, 1998 from $313,000 in the 1997 period, a 4.4% or $14,000
11
<PAGE>
increase. Average savings deposit balances increased to $18,964,000 for the
period ended June 30, 1998, from $18,651,000 for the 1997 period, an increase of
1% or $313,000. The average rate paid on these funds increased to 3.45% from
3.36%.
Interest bearing transaction accounts cost $128,000 for the six months
ended June 30, 1998, increased from the prior year's $105,000, an increase of
21.9% or $23,000. The volume of these deposits increased to $13,491,000 for the
period ended June 30, 1998, from $11,244,000 for the 1997 period, a 20% or
$2,247,000 increase. The average rate paid on these funds for the period ended
June 30, 1998, increased to 1.90% from 1.87% for the 1997 period.
Time deposits cost $1,916,000 for the six months ended June 30, 1998,
up from $1,435,000 in the 1997 period, an increase of 33.5% or $481,000. The
volume increased to $70,300,000 for the period ended June 30, 1998, from
$53,675,000 for the 1997 period, a 31% or $16,625,000 increase. The average rate
paid on these funds increased to 5.45% for the period ended June 30, 1998, from
5.35% for the 1997 period.
Short term borrowing consists of federal funds purchased and
securities sold under agreements to repurchase. This is a relatively small and
volatile part of the balance sheet. It cost $49,000 for the six months ended
June 30, 1998, down from $61,000 for the 1997 period, a 19.7% or $12,000
decrease. The volume of these funds decreased to $2,447,000 in the 1998 period
from $3,142,000 in the 1997 period, a decrease of 22.1% or $695,000. The average
rate paid on these funds increased to 4% from 3.88%.
Borrowings from the Federal Home Loan Bank cost $128,000 for the six
months ended June 30, 1998, compared to $37,000 for the 1997 period, a 246% or
$91,000 increase. The advances averaged $4,302,000 during the 1998 period,
compared to $1,123,000 for the prior year period, a 283% or $3,179,000 increase.
The average rate paid on these funds decreased to 5.95% from 6.59%.
Non-Interest Income
Non-interest income for the six months ended June 30, 1997 grew to
$491,000 from $363,000 in the 1997 period, a 35.3% or $128,0000 increase. This
increase was generated by substantial increases in service charge and returned
check fee income at both banks.
Non-Interest Expense
For the six months ended June 30, 1998 non-interest expenses increased
to $2,202,000 from $1,925,000 for the 1997 period, a 14.4% or $277,000 increase.
For the six months ended June 30, 1998 personnel costs were $1,311,000
compared to $1,133,000 for the 1997 period, a 15.7% or $178,000 increase.
Premises and equipment expense for the 1998 period were $276,000
compared to $249,000 for the 1997 period, an increase of 10.8% or $27,000.
Other costs for the 1998 period were $615,000 compared to $543,000 for
the 1997 period, an increase of
12.8% or $72,000.
Income Taxes
CBI provided $414,000 for federal and state income taxes during the
six months ended June 30, 1998, compared to $250,000 for the same period in
1997, a 65.6% or $164,000 increase.
12
<PAGE>
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED JUNE 30, 1998 AND 1997
Net Income
For the quarter ended June 30, 1998, CBI earned a consolidated profit
of $448,000, compared to $314,000 for the comparable period of 1997, an increase
of 42.7% or $134,000. Basic earnings per share were $.16 in the 1998 period,
compared to $.12 for the 1997 period, an increase of 33.3%.
As noted above, consolidated net income for the quarter ended June 30,
1998, increased from the prior year by 42.7% or $134,000. The major components
of this increase are discussed below. Net interest income before provision for
loan losses for the quarter ended June 30, 1998, increased to $1,649,000,
compared to $1,352,000 for the same period in 1997, an increase of 22% or
$297,000. For the same period, the provision for loan losses was $97,000,
compared to $93,000 for the 1997 period, an increase of 4.3% or $4,000.
Non-interest income for the 1998 period increased to $261,000 from $190,000 for
the 1997 period, a 37.4% or $71,000 increase. Non-interest expense increased to
$1,143,000 from $1,005,000, a 13.7% or $138,000 increase.
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 quarter ended June 30, 1998, net interest income after provision for
loan losses increased to $1,552,000 from $1,259,000, a 23.2% or $293,000
increase over the comparable period of 1997.
Interest Income
Total interest income for the second quarter of 1998 was $2,944,000
compared with $2,389,000 for the same period in 1997, a 23.2% or $555,000
increase.
The loan portfolio earned $2,336,000 for the second quarter in 1998,
up from $1,883,000 for the same period of 1997, a 24% or $453,000 increase.
The investment portfolio earned $492,000 for the second quarter in
1998, up from $424,000 for the 1997 period, a 16% or $68,000 increase.
Interest bearing deposits in other banks contributed $30,000 for the
second quarter of 1998, compared to $23,000 during the prior year, an increase
of 30.4% or $7,000.
Federal funds sold earned $86,000 for the second quarter of 1998
compared to $59,000 the prior year, an increase of 45.7% or $27,000.
Interest expense
Interest expense increased for the second quarter of 1998 to
$1,295,000 from the prior year's $1,037,000, a 24.9% or $258,000 increase.
13
<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 June 30, 1998, the held-to-maturity portfolio totaled $13,098,000
compared to $17,311,000 at December 31, 1997, a decrease of 24.3% or $4,213,000.
At June 30, 1998, the available-for-sale portfolio totaled $19,402,000 compared
to $15,141,000 at December 31, 1997, an increase of 28.1% or $4,261,000. The
following chart summarizes the investment portfolios at June 30, 1998, and
December 31, 1997.
<TABLE>
<CAPTION>
June 30, 1998
-------------
Held to maturity Available for sale
---------------- ------------------
Amortized cost Fair value Amortized cost Fair value
-------------- ---------- -------------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
U. S. Government and federal agencies .................. $12,845 $12,867 $17,961 $17,997
Tax exempt securities .................................. 253 254 - -
Other equity securities ................................ - - 1,441 1,442
------- ------- ------- -------
Total .................................................. $13,098 $13,121 $19,402 $19,439
======= ======= ======= =======
Unrealized gain ........................................ $ 23 $ 37
======= =======
<CAPTION>
December 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. 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 June 30, 1998, the loan portfolio was $102,474,000, compared to $91,951,000
at December 31, 1997, an 11.4% or $10,523,000 increase. The following chart
summarizes the loan portfolio at June 30, 1998, and December 31, 1997.
14
<PAGE>
Jun. 30, 1998 Dec. 31, 1997
------------- -------------
(dollars in thousands)
Real estate ................................ $58,951 $53,297
Commercial ................................. 26,791 22,306
Loans to individuals ....................... 16,732 16,348
-------- -------
Total ...................................... $102,474 $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 June 30, 1998, and December 31, 1997.
June 30, Dec. 31,
1998 1997
---- ----
(dollars in thousands)
Past due 90 days and accruing loans ............. $99 $ -
Non-accrual loans ............................... $75 $ 81
Impaired loans (included in nonaccrual) ......... $75 $ 81
Other real estate owned ......................... $84 $132
Management considers the past due and non-accrual amounts at June 30,
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.
June 30, 1998 Dec. 31, 1997
------------- -------------
(dollars in thousands
Allowance at beginning of period $1,140 $876
Provision expense 188 359
Net charge offs (58) (95)
------ ------
Allowance at end of period $1,270 $1,140
====== ======
Allowance as a percent of
outstanding loans 1.24% 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 June 30, 1998.
Deposits
Deposits were $126,334,000 at June 30, 1998, compared to $117,167,000
at December 31, 1997, an increase of 7.8% or $9,167,000.
15
<PAGE>
Time deposits greater than $100,000 were $21,770,000 at June 30, 1998,
compared to $21,428,000 at December 31, 1997, an increase of 1.6% or $342,000.
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 $126 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 June 30, 1998, CBI had
approximately $14 million 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 $56 million and $26 million, 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.
Capital resources
As summarized in the table below, CBI maintains a strong capital
position.
June 30, 1998 Dec. 31, 1997
------------- -------------
Tier 1 capital to average total assets 12.54% 9.60%
Tier 1 capital to risk weighted assets 17.18% 14.10%
Total capital to risk weighted assets 18.39% 15.30%
16
<PAGE>
Banks are required to maintain a minimum risk weighted capital ratio
of at least 8%.
The improvement in the capital ratios for the company are the result
of improvement in earnings and the sale of common stock conducted during the
first half of 1998.
In the opinion of management, the Company's current and projected
capital positions are adequate.
Shareholders' equity
At June 30, 1998 the common stock account totaled $13,618,000,
compared to $9,156,000 at December 31, 1997. This $4,462,000 increase was the
result of stock sales conducted during the first and second quarters of 1998.
The primary purpose of the stock sale was to generate funds needed to capitalize
Florence National Bank.
Part II--Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
CBI had an Annual Meeting of Shareholders on June 29, 1998.
The following persons were elected to the Board:
Three year term: Anna O. Dantzler, William H. Nock, Samuel F. Reid, Jr., and
William W. Traynham.
The other item approved was the ratification of J. W. Hunt and Co., Certified
Public Accountants, as outside auditors for CBI for the year ended December 31,
1998.
The vote tally was as follows:
<TABLE>
<CAPTION>
Total number Voting for Voting against Abstaining Not voting
of shares or to withhold
eligible to vote authority
Election of directors
<S> <C> <C> <C> <C>
Anna O. Dantlzer 2,854,326 2,077,044 28,685 748,597
William H. Nock 2,854,326 2,104,244 1,485 748,597
Samuel F. Reid, Jr 2,854,326 2,104,244 1,485 748,597
William W. Traynham 2,854,326 2,104,141 1,588 748,597
Ratification of J. W. Hunt 2,854,326 2,083,389 300 21,740 748,597
(accountants)
</TABLE>
The following persons continued their terms as directors: E. J. Ayers,
Jr., Martha Rose Carson, J. M. Guthrie, Hugo S. Sims, Jr., J. Otto Warren, Jr.,
Russell S. Wolfe, II, Michael A. Wolfe, Phil P. Leventis and Alvis J. Bynum.
17
<PAGE>
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) 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: August 7, 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 June 30, 1998, (unaudited) and the Consolidated
Statement of Income for the six months ended June 30, 1998 (unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,319
<INT-BEARING-DEPOSITS> 2,316
<FED-FUNDS-SOLD> 8,270
<TRADING-ASSETS> 78
<INVESTMENTS-HELD-FOR-SALE> 19,439
<INVESTMENTS-CARRYING> 13,098
<INVESTMENTS-MARKET> 13,121
<LOANS> 102,474
<ALLOWANCE> 1,270
<TOTAL-ASSETS> 157,167
<DEPOSITS> 126,334
<SHORT-TERM> 2,459
<LIABILITIES-OTHER> 682
<LONG-TERM> 9,560
0
0
<COMMON> 13,618
<OTHER-SE> 4,514
<TOTAL-LIABILITIES-AND-EQUITY> 157,167
<INTEREST-LOAN> 4,539
<INTEREST-INVEST> 957
<INTEREST-OTHER> 212
<INTEREST-TOTAL> 5,708
<INTEREST-DEPOSIT> 2,371
<INTEREST-EXPENSE> 2,548
<INTEREST-INCOME-NET> 3,160
<LOAN-LOSSES> 188
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,202
<INCOME-PRETAX> 1,261
<INCOME-PRE-EXTRAORDINARY> 1,261
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 847
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.30
<YIELD-ACTUAL> 4.69
<LOANS-NON> 75
<LOANS-PAST> 99
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 174
<ALLOWANCE-OPEN> 1,140
<CHARGE-OFFS> 67
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 1,270
<ALLOWANCE-DOMESTIC> 1,270
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
