SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999 Commission File number: 000-22054
COMMUNITY BANKSHARES, INC.
(Exact Name of Registrant as Specified)
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
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or 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: 3,037,288 shares of common
stock outstanding as of May 3, 1999.
<PAGE>
10-Q 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 18
2
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED BALANCE SHEETS
$ amounts in thousands
<TABLE>
<CAPTION>
March 31, 1999 December 31,
ASSETS UNAUDITED 1998
--------- ----
Cash and due from other financial institutions:
<S> <C> <C>
Non-interest bearing ......................................................... $ 5,432 $ 7,746
Federal funds sold ........................................................... 15,450 15,550
--------- ---------
Total cash and cash equivalents .......................................... 20,882 23,296
Interest bearing deposits in other banks ......................................... 3,885 1,577
Investment securities:
Securities held to maturity .................................................. 13,132 15,286
Securities available for sale ................................................ 22,874 18,862
Loans held for resale ............................................................ 320 722
Loans ............................................................................ 127,405 117,795
Less, allowance for loan losses .............................................. (1,565) (1,459)
--------- ---------
Net loans ................................................................ 125,840 116,336
Premises and equipment ........................................................... 4,151 3,892
Accrued interest receivable ..................................................... 1,390 1,242
Deferred income taxes ............................................................ 454 453
Other assets ..................................................................... 556 615
--------- ---------
Total assets ............................................................. $ 193,484 $ 182,281
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing ......................................................... $ 26,734 $ 23,883
Interest bearing ............................................................. 131,741 123,747
--------- ---------
Total deposits ........................................................... 158,475 147,630
Federal funds purchased and securities
sold under agreements to repurchase .......................................... 3,185 4,464
Federal Home Loan Bank advances .................................................. 11,490 9,490
Other liabilities ................................................................ 1,094 1,038
--------- ---------
Total liabilities ........................................................ 174,244 162,622
--------- ---------
Shareholders' equity:
Common stock
No par, authorized shares 12,000,000, issued ............................. 14,187 14,648
and outstanding 3,037,288 in 1999 and
3,047,686 in 1998
Retained earnings ............................................................ 5,129 4,975
Accumulated other comprehensive income ....................................... (76) 36
--------- ---------
Total shareholders' equity ............................................... 19,240 19,659
--------- ---------
Total liabilities and shareholders' equity ............................... $ 193,484 $ 182,281
========= =========
</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 three months ended March 31, 1999 and 1998 (Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Shares Retained Comprehensive Shareholders'
Shares Amount Earnings Income (Loss) Equity
------ ------ -------- ------------- ------
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
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 (loss) on securities ............. 4 4
Issuance of common stock .............................. 93,101 1,404 1,404
Dividends paid ........................................ 0 0 (215) 0 (215)
---------- -------- ------- ---- --------
Balances at Mar. 31, 1998 ............................. 2,727,777 $ 10,560 $ 4,045 $ 24 $ 14,629
========== ======== ======= ==== ========
Balances at Dec. 31, 1998 ............................. 3,047,686 $ 14,648 $ 4,975 $ 36 $ 19,659
Comprehensive income:
Net income ....................................... 429 429
Other comprehensive income (loss) net of tax:
Unrealized gain (loss) on securities ............. (112) (112)
Issuance of common stock .............................. 36,700 169 169
Redemption of common stock ............................ (47,100) (630) (630)
Dividends paid ........................................ 0 0 (275) 0 (275)
---------- -------- ------- ---- --------
Balances at Mar. 31, 1999 ............................. 3,037,286 $ 14,187 $ 5,129 $(76) $ 19,240
========== ======== ======= ==== ========
</TABLE>
4
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter ended March 31,
1999 1998
---- ----
$ amounts in thousands, except per share UNAUDITED UNAUDITED
--------- ---------
Interest and dividend income:
<S> <C> <C>
Interest and fees on loans ................................................................... $ 2,692 $ 2,203
Deposits with other financial institutions ................................................... 36 38
Investment securities:
Interest - U. S. Treasury and Government Agencies .......................................... 500 450
Dividends .................................................................................. 33 15
---------- -----------
Total investment securities .............................................................. 533 465
Federal funds sold and securities
purchased under agreements to resell ....................................................... 154 58
---------- -----------
Total interest and dividend income ....................................................... 3,415 2,764
---------- -----------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more ................................................ 313 287
Other ...................................................................................... 1,040 889
---------- -----------
Total deposits ........................................................................... 1,353 1,176
Federal funds purchased and securities
sold under agreements to repurchase ........................................................ 38 25
Federal Home Loan Bank advances .............................................................. 128 52
---------- -----------
Total interest expense ................................................................... 1,519 1,253
---------- -----------
Net interest income .............................................................................. 1,896 1,511
Provision for loan losses ........................................................................ 134 91
---------- -----------
Net interest income after provision for loan losses .............................................. 1,762 1,420
---------- -----------
Non-interest income:
Service charges on deposit accounts .......................................................... 217 177
Losses on sale of securities ................................................................. - (1)
Other ........................................................................................ 88 54
---------- -----------
Total non-interest income ................................................................ 305 230
---------- -----------
Non-interest expense:
Salaries and employee benefits ............................................................... 832 634
Premises and equipment ....................................................................... 215 139
Other ........................................................................................ 390 286
---------- -----------
Total non-interest expense ............................................................... 1,437 1,059
Net income before taxes .......................................................................... 630 591
Provision for income taxes ....................................................................... 201 192
---------- -----------
Net income after taxes ........................................................................... $ 429 $ 399
========== ===========
Basic earnings per common share:
Weighted average shares outstanding .......................................................... 3,038,593 2,680,714
========== ===========
Net income per common share .................................................................. $ 0.14 $ 0.15
========== ===========
Diluted earnings per common share:
Weighted average shares outstanding .......................................................... 3,065,001 2,738,194
========== ===========
Net income per common share .................................................................. $ 0.14 $ 0.15
========== ===========
</TABLE>
5
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31,
$ amounts in thousands 1999 1998
---- ----
UNAUDITED UNAUDITED
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net income ............................................................................. $ 429 $ 399
Adjustments to reconcile net income
to net cash (provided) used by operating activities
Depreciation and amortization ................................................... 109 74
Provision for loan losses ....................................................... 134 91
Accretion of discounts and amortization of premiums -
investment securities - net ................................................... 23 (31)
Deferred income taxes ........................................................... - 52
Proceeds from sale of real estate loans held for sale ........................... 3,389 2,244
Origination of real estate loans held for sale .................................. (2,987) (2,238)
Changes in operating assets and liabilities:
(Increase) decrease in interest receivable ...................................... (148) 68
(Increase) decrease in other assets ............................................. 59 (49)
Increase in other liabilities .................................................. 56 207
-------- --------
Net cash provided by operating activities .................................... 1,064 817
-------- --------
Cash flows from investing activities:
Net (increase) in interest bearing deposits
with other banks ........................................................... (2,308) (620)
Purchases of held to maturity securities ........................................ (2,251) (5,257)
Proceeds from maturities of held to maturity securities ......................... 4,403 8,908
Purchases of available for sale securities ...................................... (7,977) (6,536)
Proceeds from maturities of available for sale securities ....................... 3,829 4,922
Net (increase) in loans to customers ............................................ (9,638) (4,163)
Purchase of premises and equipment .............................................. (368) (136)
-------- --------
Net cash (used) in investing activities ...................................... (14,310) (2,882)
-------- --------
Cash flows from financing activities:
Net increase in demand, savings, & time deposits ................................ 10,845 5,093
Net (decrease) in federal funds purchased
and securities sold under agreements to repurchase ........................... (1,279) (220)
Increase in Federal Home Loan Bank advances ..................................... 2,000 3,500
Sale of common stock ............................................................ 169 1,404
Common stock redemption ......................................................... (630) -
Dividend payments ............................................................... (273) (215)
-------- --------
Net cash provided by financing activities .................................... 10,832 9,562
Net (decrease) increase in cash and cash equivalents ................................... (2,414) 7,497
Cash and cash equivalents - beginning of period ........................................ 23,296 5,122
-------- --------
Cash and cash equivalents - end of period .............................................. $ 20,882 $ 12,619
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
6
<PAGE>
Summary of Significant Accounting Principles
A summary of significant accounting policies is included in the 1998
Annual Report of Community Bankshares, Inc. to the Shareholders, which also
contains the Company's audited financial statements for 1998.
Principles of Consolidation
The consolidated financial statements include the accounts of Community
Bankshares, Inc. (CBI), the parent company, and Orangeburg National Bank, Sumter
National Bank and Florence National Bank, its wholly-owned subsidiaries. All
significant intercompany items have been eliminated in the consolidated
statements.
Management Opinion
The interim 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 1998 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>
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
Unrealized gains (losses) on securities:
<S> <C> <C> <C>
Unrealized holding gains (losses) arising during period ............ $ 6,000 $ (2,000) $ 4,000
Less: reclassification adjustment for gains ........................ 0 0 0
(losses) realized in net income --------- -------- --------
Net unrealized gains (losses) ...................................... 6,000 (2,000) 4,000
--------- -------- --------
Other comprehensive income, March 31, 1998 ......................... $ 6,000 $ (2,000) $ 4,000
========= ======== ========
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period ............ $(115,000) $ 39,000 $(76,000)
Less: reclassification adjustment for gains ........................ 0 0 0
(losses) realized in net income --------- -------- --------
Net unrealized gains (losses) ...................................... (115,000) 39,000 (76,000)
--------- -------- --------
Other comprehensive income, March 31, 1999 ......................... $(115,000) $ 39,000 $(76,000)
========= ======== ========
</TABLE>
7
<PAGE>
COMMUNITY BANKSHARES, INC. - AVERAGE BALANCE SHEETS, YIELDS, AND RATES
<TABLE>
<CAPTION>
Quarter ended March 31, 1999 1998
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 .................................. $ 2,671 $ 36 5.39% $ 2,807 $ 38 5.42%
Investment securities taxable .............................. 34,303 527 6.15% 29,231 461 6.31%
Investment securities--tax exempt .......................... 602 6 6.04% 374 4 6.48%
Federal funds sold ......................................... 12,585 154 4.89% 4,008 58 5.79%
Loans receivable ........................................... 122,562 2,692 8.79% 94,417 2,203 9.33%
--------- ------ ---- --------- ------ ----
Total interest earning assets .............................. 172,723 3,415 7.91% 130,837 2,764 8.45%
Cash and due from banks .................................... 7,978 5,862
Allowance for loan losses .................................. (1,519) (1,151)
Premises and equipment ..................................... 4,269 2,910
Other assets ............................................... 2,054 1,610
--------- ---------
Total assets ............................................... $ 185,505 $ 140,068
========= =========
Liabilities and Shareholders' Equity
Interest bearing deposits
Savings .................................................... $ 26,847 $ 216 3.22% $ 18,318 $ 157 3.43%
Interest bearing transaction accounts ...................... 15,919 61 1.53% 13,438 64 1.91%
Time deposits .............................................. 84,534 1,076 5.09% 70,045 955 5.45%
--------- ------ ---- --------- ------ ----
Total interest bearing deposits ............................ 127,300 1,353 4.25% 101,801 1,176 4.62%
Short term borrowing ....................................... 5,113 38 2.97% 2,539 25 3.94%
FHLB advances .............................................. 9,512 128 5.38% 3,543 52 5.87%
--------- ------ ---- --------- ------ ----
Total interest bearing liabilities ......................... 141,925 1,519 4.28% 107,883 1,253 4.65%
Noninterest bearing demand deposits ........................ 23,033 17,128
Other liabilities .......................................... 1,113 900
Shareholders' equity ....................................... 19,434 14,157
--------- ---------
Total liabilities and shareholders' equity ................. $ 185,505 $ 140,068
========= =========
Interest rate spread ....................................... 3.63% 3.80%
Net interest income and net yield on earning assets ........ $1,896 4.39% $1,511 4.62%
====== ==== ====== ====
</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, income and Year 2000 readiness of the Corporation
and its customers, 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.
Year 2000 Readiness Disclosure
The change in the year from 1999 to 2000 may create serious problems
for many computer systems around the world. This so-called millennium bug or Y2K
problem may affect certain of the Corporation's systems. 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. The Corporation has been taking and will continue to
pursue reasonably necessary steps to protect its operations and assets.
Management estimates that the costs of Year 2000 compliance will
approximate $225,000 and will be funded with internally generated resources. The
majority of these costs have already been expended and the remaining items
relate primarily to the Corporation's testing plans. Most of the Corporation's
local and wide area network computer and communications equipment is relatively
new. For this reason, the overall internal financial impact of the Year 2000
problem is expected to be relatively limited.
The Corporation has been devoting significant time and energy to
management of the Year 2000 problem. It formed a Year 2000 steering committee
comprised of senior officers from each of the three banks and the holding
company to oversee the process. The boards of directors of the Corporation and
its subsidiaries receive regular detailed progress reports on the Year 2000
project. The national bank regulators, which supervise the three banking
subsidiaries, have also devoted a substantial amount of their time and
supervisory attention to the Year 2000 problems and related issues, as well as
monitoring the banks' progress toward Year 2000 compliance.
9
<PAGE>
The Corporation has concentrated its internal efforts toward making its
own mission critical systems fully Year 2000 compliant as quickly as practical.
Management expects its efforts to be successful and, consequently, has no plans
to implement any major changes in the information technology systems prior to
January 2000.
The Corporation has completed testing its core information system. Test
results have been successful. Management expects to be substantially complete
with testing of other mission critical systems by the end of the first quarter
1999. In early March 1999 management simulated conducting banking business
during January 2000 and was successful in its testing. In April 1999 management
engaged its independent accounting firm to evaluate the reasonableness and
validity of its testing program.
Nevertheless, the Corporation's ability to avoid experiencing
difficulty as a result of the Year 2000 problem could be adversely affected by
the availability of skilled personnel, the success of vendors, customers and
providers of services in dealing with their own Year 2000 problems and by the
difficulty of identifying all the possible causes of the Year 2000 problem and
interrelationships between various mission critical systems. The Corporation is
refining its contingency planning to anticipate potential problems from external
as well as internal Year 2000 problems, including, but not limited to,
telecommunications and power suppliers.
RESULTS OF OPERATIONS
Net Income
For the first quarter of 1999 CBI earned a consolidated profit of
$429,000, compared to $399,000 for the first quarter of 1998, an increase of
7.5% or $30,000. Basic and diluted earnings per share were $.14 in the 1999
period, compared to $.15 for the 1998 period.
For the first quarter of 1999 Orangeburg National Bank reported a
profit of $469,000, compared to $373,000 for the first quarter of 1998, an
increase of 25.7% or $96,000.
For the first quarter of 1999 Sumter National Bank reported a profit of
$82,000 compared to $12,000 for the first quarter of 1998, an increase of 583%
or $70,000. The Sumter bank began operation in June 1996.
For the first quarter of 1999 Florence National Bank reported a net
after tax loss of $116,000. The Florence bank began operation in July 1998.
As noted above, consolidated net income for the quarter ended March 31,
1999, increased from the prior year by 7.5% or $30,000. The major components of
this increase are discussed below. Net interest income before provision for loan
losses for the three months ended March 31, 1999, increased to $1,896,000,
compared to $1,511,000 for the same period in 1998, an increase of 25.5% or
$385,000. For the same period, the provision for loan losses was $134,000,
compared to $91,000 for the 1998 period, an increase of 47.2% or $43,000.
Non-interest income for the 1999 period increased to $305,000 from $230,000 for
the 1998 period, a 32.6% or $75,000 increase. Non-interest expense increased to
$1,437,000 from $1,059,000, a 35.7% or $378,000 increase. First quarter 1999
results include results of operation for Florence National Bank, which incurred
an after tax loss of $116,000. However, for the comparable period in 1998 the
results only include the operations of the Sumter bank and the Orangeburg bank.
Accordingly, many of the dollar and percentage comparisons and changes between
periods discussed in this report are unusually large or extreme.
10
<PAGE>
Profitability
One of the best ways to review earnings is through the ROA (return on
average assets) and the ROE (return on average equity). Return on assets is the
income for the period 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, 1999 and 1998, the following table is presented.
Period ended March 31, 1999 1998
---- ----
(dollars in thousands)
Average assets $185,505 $140,068
ROA 0.93% 1.14%
Average equity $19,434 $14,157
ROE 8.83% 11.27%
Net income $429 $399
Management regards the decline in ROA and ROE as the temporary result of having
sold stock to capitalize the Florence bank and the time required for a new bank
to reach a size at which the investment is effectively used.
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 1999, net interest income after provision for loan losses increased
to $1,762,000 from $1,420,000, a 24% or $342,000 increase over the first quarter
of 1998. This improvement was the result of a $42 million increase in the volume
of earning assets. The average yield on earning assets decreased to 7.91% for
the 1999 period from 8.45% for the 1998 period. This was mostly the result of a
decline in the prime lending rate, which was 7.75% during the first quarter of
1999, compared to 8.50% for the same period in 1998. For the first quarter of
1999 the cost of funds averaged 4.28%, decreased from 4.65% for the first
quarter of 1998.
As noted above, the decline in the yield on earning assets was
partially offset by the decline in the cost of funds. The effect of these
changes was a net interest spread (yield on earning assets less cost of interest
bearing liabilities) of 3.63% for the first quarter of 1999, decreased from
3.80% during the first quarter of 1998. CBI's net interest margin (net interest
income divided by total earning assets) was 4.39% for the first quarter of 1999,
compared to 4.62% for the first quarter of 1998.
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, 1999 and 1998. A discussion of
that table follows.
Total interest income for the first quarter 1999 was $3,415,000
compared with $2,764,000 for the same period in 1998, a 23.6% or $651,000
increase. The yield on earning assets for the 1999 period was 7.91%, decreased
from 8.45% for the 1998 period. Total average interest earning assets for the
quarter ended March 31, 1999, were $172,723,000, up from $130,837,000 for the
quarter ended March 31, 1998, an increase of 32% or $41,886,000.
The loan portfolio earned $2,692,000 for the first quarter in 1999, up
from $2,203,000 for the same period of 1998, a 22.2% or $489,000 increase. The
first quarter 1999 yield decreased to 8.79% from 9.33% for the first quarter in
1998. The average size of the loan portfolio was $122,562,000 for the 1999
quarter, up from $94,417,000 for the same period of 1998, an increase of 29.8%
or $28,145,000.
The taxable investment portfolio earned $527,000 for the first quarter
in 1999, up from $461,000 for the 1998 period, a 14.3% or $66,000 increase. The
yield decreased to 6.15% in the 1999 quarter from 6.31% in the 1998 quarter. The
average size of the portfolio increased to $32,898,000 in the 1999 quarter from
$29,231,000 in the 1998 quarter, an increase of 12.5% or $3,667,000.
11
<PAGE>
The tax exempt investment portfolio earned $6,000 for the first quarter
in 1999, up from $4,000 for the same period in 1998. The yield on the portfolio
was 6.04%, a decrease from 6.48%. The average size of the portfolio increased to
$602,000 for the 1999 period from $374,000 in the 1998 period, an increase of
61% or $228,000.
Interest bearing deposits in other banks contributed $36,000 for the
first quarter 1999, compared to $38,000 during the prior year, a decrease of
5.3% or $2,000. The yield on these deposits decreased to 5.39% for the 1999
period from 5.42% in the 1998 period. CBI averaged $2,671,000 in interest
bearing balances in the first quarter 1999 compared to $2,807,000 the first
quarter of the prior year, a decrease of 4.8% or $136,000.
Federal funds sold earned $154,000 the first quarter of 1999 compared
to $58,000 the prior year, an increase of 165% or $96,000. Yields decreased to
4.89% for the first quarter in 1999 from 5.79% for the first quarter in 1998.
For the first quarter of 1999, CBI increased its average volume in federal funds
sold to $13,990,000 from $4,008,000 for the first quarter of 1998, a 249% or
$9,982,000 increase. Most of this increase was due to the new Florence bank,
which maintained an average balance in federal funds during the first quarter of
$5,694,000.
Interest Expense
Interest expense increased for the first quarter 1999 to $1,519,000
from the prior year's $1,253,000, a 21.2% or $266,000 increase. The volume of
interest bearing liabilities increased to $141,925,000 for the first quarter in
1999 from $107,883,000 for the first quarter of 1998, a 31.6% or $34,042,000
increase. The average rate paid for interest bearing liabilities during the 1999
quarter was 4.28%, down from 4.65% for the 1998 period.
The cost of savings accounts increased to $216,000 in the first quarter
in 1999 from $157,000 in the first quarter of 1998, a 37.6% or $59,000 increase.
Average savings deposit balances increased to $26,847,000 for the first quarter
in 1999 from $18,318,000 for the first quarter of 1998, an increase of 46.6% or
$8,529,000. The average rate paid on these funds decreased to 3.22% from 3.43%.
Interest bearing transaction accounts cost $61,000 for the first
quarter in 1999, a decrease from the prior year's $64,000, down 4.7% or $3,000.
The volume of these deposits increased to $15,919,000 for the first quarter in
1999 from $13,438,000 for the first quarter of 1998, an 18.5% or $2,481,000
increase. The average rate paid on these funds for the first quarter in 1999
decreased to 1.53% from 1.91% for the first quarter of 1998.
Time deposits cost $1,076,000 for the first quarter of 1999, up from
$955,000 the first quarter of the prior year, an increase of 12.7% or $121,000.
The volume increased to $84,534,000 for the first quarter in 1999 from
$70,045,000 for the first quarter of 1998, a 20.7% or $14,489,000 increase. The
average rate paid on these funds decreased to 5.09% for the first quarter in
1999 from 5.45% for the first quarter in 1998.
Short-term borrowings 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 $38,000 for the first quarter in
1999, an increase from $25,000 for the first quarter of 1998, up 52% or $13,000
increase. The volume of these funds increased to $5,113,000 in the first quarter
in 1999 from $2,539,000 in the first quarter of 1998, an increase of 101% or
$2,574,000. This increase was mostly related to temporary fluctuations in the
balances of customer repurchase agreements. The average rate paid on these funds
decreased to 2.97% from 3.94%.
Borrowings from the Federal Home Loan Bank cost $128,000 for the first
quarter in 1999, an increase from $52,000 for the first quarter in 1998, up 146%
or $76,000. The advances averaged $9,512,000 during the 1999 quarter, compared
to $3,543,000 for the prior year quarter, a 168% or $5,969,000 increase. The
Orangeburg bank has been increasing its borrowings from the Federal Home Loan
Bank as part of its ongoing asset liability management program. The average rate
paid on these funds decreased to 5.38% from 5.87%.
12
<PAGE>
Non-Interest Income
Non-interest income for the first quarter 1999 grew to $305,000 from
$230,000 in the first quarter of 1998, a 32.6% or $75,000 increase. This was
mostly the result of adding the new bank in Florence, plus increases in service
charge volume at the Sumter bank.
Non-Interest Expense
For the first quarter of 1999 non-interest expenses increased to
$1,437,000 from $1,059,000 for the first quarter of 1998, a 35.7% or $378,000
increase, primarily resulting from expenses associated with the Florence bank.
For the 1999 period, personnel costs were $832,000 compared to $634,000
for the 1998 period , an increase of 31.2% or $198,000, which primarily resulted
from staffing the Florence bank.
For the 1999 period, premises and equipment expense were $215,000
compared to $139,000 for the 1998 period, an increase of 54.7% or $76,000.
For the 1999 period, other costs were $390,000 compared to $286,000 for
the 1998 period, an increase of 36.4% or $104,000.
Income Taxes
CBI provided $201,000 for federal and state income taxes during the
first quarter of 1999, compared to $192,000 for the same period in 1998, a 4.7%
or $9,000 increase.
CHANGES IN FINANCIAL POSITION
Investment portfolio
The investment portfolio is comprised of a held-to-maturity securities
and available-for-sale securities. CBI and its three banks usually purchase
short term issues (ten years or less) of U. S Treasury and U. S. Government
agency securities for investment purposes. At March 31, 1999, the
held-to-maturity portfolio totaled $13,132,000 compared to $15,286,000 at
December 31, 1998, a decrease of 14.1% or $2,154,000. At March 31, 1999, the
available-for-sale portfolio totaled $22,874,000 compared to $18,862,000 at
December 31, 1998, an increase of 21.3% or $4,012,000. The following chart
summarizes the investment portfolios at March 31, 1999, and December 31, 1998.
13
<PAGE>
<TABLE>
<CAPTION>
March 31, 1999
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 .................. $ 13,032 $12,932 $ 20,619 $20,517
Tax exempt securities .................................. 100 101 623 625
Other equity securities ................................ 0 0 1,732 1,732
-------- ------- -------- -------
Total .................................................. $ 13,132 $13,033 $ 22,974 $22,874
======== ======= ======== =======
Unrealized gain or (loss) .............................. $ (99) $ (100)
======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 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 .................. $15,035 $15,076 $16,921 $16,975
Tax exempt securities .................................. 251 253 225 227
Other equity securities ................................ - - 1,660 1,660
------- ------- ------- -------
Total .................................................. $15,286 $15,329 $18,806 $18,862
======= ======= ======= =======
Unrealized gain or (loss) .............................. $ 43 $ 56
======= =======
</TABLE>
Loan portfolio
The loan portfolio is primarily consumer and small business oriented.
At March 31, 1999, the loan portfolio was $127,405,000, compared to $117,795,000
at December 31, 1998, an 8.2% or $9,610,000 increase. The following chart
summarizes the loan portfolio at March 31, 1999, and December 31, 1998.
Mar. 31, 1999 Dec. 31, 1998
------------- -------------
(dollars in thousands)
Real estate $74,586 $68,527
Commercial 32,471 29,943
Loans to individuals 20,348 19,325
======== ========
Total $127,405 $117,795
======== ========
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, 1999, and December 31, 1998.
Mar. 31, 1999 Dec. 31, 1998
------------- -------------
(dollars in thousands)
Past due 90 days (accruing loans) $99 $187
Non-accrual loans $31 $31
Impaired loans (included in nonaccrual) $31 $31
Other real estate owned $261 $266
14
<PAGE>
Management considers the past due and non-accrual amounts at March 31,
1999 to be reasonable in relation to the size of the portfolio 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.
<TABLE>
<CAPTION>
Quarter ended Year ended Quarter ended
Mar. 31, 1999 Dec. 31, 1998 Mar. 31, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Allowance at beginning of period ........................... $ 1,459 $ 1,140 $ 1,140
Provision expense .......................................... 134 484 91
Net charge offs ............................................ (28) (165) (11)
------- ------- -------
Allowance at end of period ................................. $ 1,565 $ 1,459 $ 1,220
======= ======= =======
Allowance as a percent of outstanding loans................. 1.23% 1.24% 1.27%
</TABLE>
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, 1999.
Deposits
Deposits were $158,475,000 at March 31, 1999, compared to $147,630,000
at December 31, 1998, an increase of 7.3% or $10,845,000.
Time deposits greater than $100,000 were $26,918,000 at March 31, 1999,
compared to $24,504,000 at December 31, 1998, an increase of 9.9% or $2,414,000.
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, Sumter National Bank, and Florence 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 investment 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.
15
<PAGE>
CBI through its banking subsidiaries also maintains federal funds lines
of credit with correspondent banks, and is able to borrow from the Federal Home
Loan Bank and from the Federal Reserve's discount window.
CBI through its banking subsidiaries has a demonstrated ability to
attract deposits from its markets. Deposits have grown from $30 million in 1989
to over $156 million in 1999. This 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, 1999, CBI had
approximately $19.5 million and $0 in certificates of deposit and other interest
bearing liabilities maturing in one to five years and over five years,
respectively. CBI's assets maturing or repricing in the same periods were $67.6
million and $37.5 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.
Mar. 31, 1999 Dec. 31, 1998
------------- -------------
Tier 1 capital to average total assets 10.41% 10.90%
Tier 1 capital to risk weighted assets 14.70% 15.90%
Total capital to risk weighted assets 15.89% 17.00%
The decline in the capital ratios are related to balance sheet growth
during the period, a redemption of common stock (see the following section on
Common Stock), and the payment of semi-annual dividends to shareholders. Banks
are required to maintain a minimum total risk weighted capital ratio of at least
8%, and CBI currently has 15.89%. In the opinion of management, the Company's
current and projected capital positions are adequate.
Common Stock
At March 31, 1999, the common stock account totaled $14,187,000,
compared to $14,648,000 at December 31, 1998. This $461,000 decrease was the
result of the redemption of $630,000 in CBI common stock and the issuance of
stock for $169,000 resulting from the exercise of employee stock options.
Dividends
CBI declared and paid a semi-annual cash dividend of 9 cents per share
during the first quarter of 1999. The total cost of this dividend was $273,000.
Part II--Other Information
Item 2. Changes in Securities and Use of Proceeds.
During the period ended March 31, 1999, the Registrant issued shares of common
stock to the following classes of persons upon the exercise of options issued
pursuant to the Registrant's 1995 Incentive Stock Option Plan. The securities
were issued pursuant to the exemption from registration provided by Section 4(2)
of the Securities Act of 1933 because the issuance did not involve a public
offering.
Class # of shares Aggregate
Date issued of purchasers issued exercise price
- ----------- ------------- ------ --------------
Jan. 1999 Employees 20,000 $78,000
Feb. 1999 Employees 7,500 $29,250
16
<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) Reports on Form 8-K. None.
17
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: May 11, 1999
COMMUNITY BANKSHARES, INC.
By: s/ E. J. Ayers, Jr.,
-----------------
E. J. Ayers, 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, 1999, (unaudited) and the Consolidated
Statement of Income for the three months ended March 31, 1999 (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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,432
<INT-BEARING-DEPOSITS> 3,885
<FED-FUNDS-SOLD> 15,450
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,874
<INVESTMENTS-CARRYING> 13,132
<INVESTMENTS-MARKET> 13,033
<LOANS> 127,725
<ALLOWANCE> 1,565
<TOTAL-ASSETS> 193,484
<DEPOSITS> 158,475
<SHORT-TERM> 3,185
<LIABILITIES-OTHER> 1,094
<LONG-TERM> 11,490
0
0
<COMMON> 14,187
<OTHER-SE> 5,053
<TOTAL-LIABILITIES-AND-EQUITY> 193,484
<INTEREST-LOAN> 2,692
<INTEREST-INVEST> 533
<INTEREST-OTHER> 190
<INTEREST-TOTAL> 3,415
<INTEREST-DEPOSIT> 1,353
<INTEREST-EXPENSE> 1,519
<INTEREST-INCOME-NET> 1,896
<LOAN-LOSSES> 134
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,437
<INCOME-PRETAX> 630
<INCOME-PRE-EXTRAORDINARY> 630
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 429
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
<YIELD-ACTUAL> 4.39
<LOANS-NON> 31
<LOANS-PAST> 99
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 130
<ALLOWANCE-OPEN> 1,459
<CHARGE-OFFS> 34
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 1,565
<ALLOWANCE-DOMESTIC> 1,565
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
