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 Sept.30, 1999 File number: 000-22054
COMMUNITY BANKSHARES, INC.
(Exact Name of registrant as specified in its Charter)
South Carolina 57-0966962
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
791 Broughton St., Orangeburg, South Carolina 29115
(Address of Principal Executive Office, Zip Code)
(803) 535-1060
(Reigstrant's telephone number)
Indicate by checkmark whether the registrant (1) has filed all 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 stock, as of the latest practicable date: 3,039,288 shares of common
stock outstanding as of October 25, 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 Condition and 9
Results of Operations
Item 3 Quantitative and Qualitative Disclosures about Market Risk 18
Part II-Other Information
Item 6 Exhibits and Reports on Form 8-K 19
2
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(dollar amounts in thousands) UNAUDITED
September 30, December 31,
ASSETS 1999 1998
Cash and due from other financial institutions:
<S> <C> <C>
Non-interest bearing .................................................................. $ 6,647 $ 7,746
Federal funds sold .................................................................... 6,030 15,550
--------- ---------
Total cash and cash equivalents ................................................... 12,677 23,296
Interest bearing deposits in other banks ................................................... 95 1,577
Investment securities:
Securities held to maturity ........................................................... 13,469 15,286
Securities available for sale ......................................................... 30,759 18,862
Loans held for resale ...................................................................... 268 722
Loans ...................................................................................... 151,454 117,795
Less, allowance for loan losses ....................................................... (1,805) (1,459)
--------- ---------
Net loans ......................................................................... 149,649 116,336
Premises and equipment ..................................................................... 4,686 3,892
Accrued interest receivable ............................................................... 1,713 1,242
Deferred income taxes ...................................................................... 748 453
Other assets ............................................................................... 331 615
--------- ---------
Total assets ...................................................................... $ 214,395 $ 182,281
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing .................................................................. $ 26,992 $ 23,883
Interest bearing ...................................................................... 150,566 123,747
--------- ---------
Total deposits .................................................................... 177,558 147,630
Federal funds purchased and securities
sold under agreements to repurchase ................................................... 4,815 4,464
Federal Home Loan Bank advances ............................................................ 11,420 9,490
Other liabilities .......................................................................... 933 1,038
--------- ---------
Total liabilities ................................................................. 194,726 162,622
--------- ---------
Shareholders' equity:
Common stock
No par, authorized shares 12,000,000, issued and .................................. 14,205 14,648
outstanding 3,039,288 in 1999 and 3,047,686 in 1998
Retained earnings ..................................................................... 5,954 4,975
Accumulated other comprehensive income (loss) ......................................... (490) 36
--------- ---------
Total shareholders' equity ........................................................ 19,669 19,659
--------- ---------
Total liabilities and shareholders' equity ........................................ $ 214,395 $ 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 nine months ended September 30, 1999 and 1998 (Unaudited)
<TABLE>
<CAPTION>
Common Common Retained Accumulated Total
Shares Stock Earnings Other Shareholders'
Comprehensive Equity
Income (Loss)
(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 .............................................. 1,182 1,182
Other comprehensive income (loss) net of tax:
Unrealized gain (loss) on securities ................ 27 27
Issuance of common stock ..................................... 300,240 5,470 5,470
Dividends paid ............................................... 0 0 (454) 0 (454)
---------- -------- ------- ------- --------
Balances at September 30, 1998 ............................... 2,934,916 $ 14,626 $ 4,589 $ 47 $ 19,262
========== ======== ======= ======= ========
Balances at Dec. 31, 1998 .................................... 3,047,686 $ 14,648 $ 4,975 $ 36 $ 19,659
Comprehensive income:
Net income .............................................. 1,586 1,586
Other comprehensive income (loss) net of tax:
Unrealized gain (loss) on securities ................ (526) (526)
Issuance of common stock ..................................... 38,702 187 187
Redemption of common stock ................................... (47,100) (630) (630)
Dividends paid ............................................... 0 0 (607) 0 (607)
---------- -------- ------- ------- --------
Balances at September 30, 1999 ............................... 3,039,288 $ 14,205 $ 5,954 $ (490) $ 19,669
========== ======== ======= ======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
4
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine months ended Sept.30, Three months ended Sept. 30,
1999 1998 1999 1998
(dollar amounts in thousands) UNAUDITED UNAUDITED UNAUDITED UNAUDITED
Interest and dividend income:
<S> <C> <C> <C> <C>
Interest and fees on loans ................................. $ 8,886 $ 7,027 $ 3,254 $ 2,488
Deposits with other financial institutions ................. 90 98 11 30
Investment securities:
Interest - U. S. Treasury and
U. S. Government Agencies .............................. 1,727 1,398 646 471
Dividends ................................................ 80 58 24 28
---------- ---------- ---------- ----------
Total investment securities ........................... 1,807 1,456 670 499
Federal funds sold and securities
purchased under agreements to resell ..................... 454 328 157 184
---------- ---------- ---------- ----------
Total interest and dividend income .................... 11,237 8,909 4,092 3,201
---------- ---------- ---------- ----------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more .............. 1,069 909 406 301
Other .................................................... 3,369 2,771 1,201 1,008
---------- ---------- ---------- ----------
Total deposits ........................................ 4,438 3,680 1,607 1,309
Federal funds purchased and securities
sold under agreements to repurchase ...................... 137 76 62 27
Federal Home Loan Bank advances ............................ 441 258 158 130
---------- ---------- ---------- ----------
Total interest expense ................................ 5,016 4,014 1,827 1,466
---------- ---------- ---------- ----------
Net interest income ............................................ 6,221 4,895 2,265 1,735
Provision for loan losses ...................................... 439 324 166 136
---------- ---------- ---------- ----------
Net interest income after provision for loan losses ............ 5,782 4,571 2,099 1,599
Non-interest income:
Service charges on deposit accounts ........................ 723 572 268 196
Other ...................................................... 271 213 76 98
---------- ---------- ---------- ----------
Total non-interest income ............................. 994 785 344 294
---------- ---------- ---------- ----------
Non-interest expense:
Salaries and employee benefits ............................. 2,569 2,022 886 711
Premises and equipment ..................................... 670 480 233 204
Other ...................................................... 1,188 1,071 411 456
---------- ---------- ---------- ----------
Total non-interest expense ............................ 4,427 3,573 1,530 1,371
---------- ---------- ---------- ----------
Net income before taxes ........................................ 2,349 1,783 913 522
Provision for income taxes ..................................... 763 601 299 187
---------- ---------- ---------- ----------
Net income after taxes ......................................... $ 1,586 $ 1,182 $ 614 $ 335
========== ========== ========== ==========
Basic earnings per common share:
Weighted average shares outstanding ........................ 3,036,989 2,844,521 3,037,203 2,803,799
Net income per common share ................................ $ 0.52 $ 0.42 $ 0.20 $ 0.12
Diluted earnings per common share:
Weighted average shares outstanding ........................ 3,061,756 2,902,226 3,062,399 2,882,541
Net income per common share ................................ $ 0.52 $ 0.41 $ 0.20 $ 0.12
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
5
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
UNAUDITED UNAUDITED
--------- ---------
(dollar amounts in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net income ................................................................................. $ 1,586 $ 1,182
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation ........................................................................... 350 268
Provision for loan losses .............................................................. 439 324
Accretion of discounts and
amortization of premiums -
investment securities - net .......................................................... (14) (11)
Changes in assets and liabilities:
Proceeds of sale of loans held for resale .............................................. 8,446 7,253
Origination of loans held for resale ................................................... (7,992) (7,700)
(Increase) decrease in interest receivable ............................................. (471) 18
(Increase) in other assets ............................................................. (11) (192)
(Decrease) increase in other liabilities ............................................... (105) 160
-------- --------
Net cash provided by operating activities .............................................. 2,228 1,302
-------- --------
Cash flows from investing activities:
Net decrease (increase) in interest bearing deposits ................................... 1,482 (918)
Proceeds from maturities of
investment securities - held to maturity ............................................. 5,919 17,677
Purchases of investment securities - held to maturity .................................. (4,101) (14,125)
Proceeds from maturities of
investment securities - available for sale ........................................... 6,636 14,946
Purchases of investment securities - available for sale ................................ (19,046) (13,979)
Net (increase) in loans to customers ................................................... (33,752) (17,759)
Purchase of premises and equipment ..................................................... (1,144) (1,412)
Net (increase) in other real estate .................................................... 0 (191)
-------- --------
Net cash (used) in investing activities .............................................. (44,006) (15,761)
-------- --------
Cash flows from financing activities:
Net increase in demand, savings, and time deposits ..................................... 29,928 20,112
Net increase in federal funds purchased and
Securities sold under agreements to repurchase ....................................... 351 269
Increase in Federal Home Loan Bank advances ............................................ 1,930 8,430
Sale of common stock ................................................................... 187 5,470
Redemption of common stock ............................................................. (630) -
Dividends paid in cash ................................................................. (607) (454)
-------- --------
Net cash provided by financing activities ............................................ 31,159 33,827
-------- --------
Net increase (decrease) in cash and due from other
financial institutions ................................................................. (10,619) 19,368
Cash and due from other financial institutions -
beginning of period .................................................................... 23,296 5,122
-------- --------
Cash and due from other financial institutions -
end of period .......................................................................... $ 12,677 $ 24,490
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
6
<PAGE>
COMMUNITY BANKSHARES, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
Before-Tax Tax Net-of-Tax
Amount (Expense) or Amount
Benefit
Unrealized gains (losses) on securities:
<S> <C> <C> <C>
Unrealized holding gains (losses) arising during ....................... $ 71,000 $ (24,000) $ 47,000
period
Less: reclassification adjustment for gains (losses)
realized in net income ............................................ 0 0 0
--------- --------- ---------
Net unrealized gains (losses) .......................................... $ 71,000 $ (24,000) $ 47,000
--------- --------- ---------
Other comprehensive income, at September 30, 1998 ...................... $ 71,000 $ (24,000) $ 47,000
========= ========= =========
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during ....................... $(742,000) $ 252,000 $(490,000)
period
Less: reclassification adjustment for gains (losses)
realized in net income ............................................ 0 0 0
--------- --------- ---------
Net unrealized gains (losses) .......................................... (742,000) 252,000 (490,000)
--------- --------- ---------
Other comprehensive income, at September 30, 1999 ...................... $(742,000) $ 208,000 $(490,000)
========= ========= =========
</TABLE>
7
<PAGE>
COMMUNITY BANKSHARES, INC. - AVERAGE BALANCE SHEETS, YIELDS AND RATES
<TABLE>
<CAPTION>
Nine months ended September 30, 1999 1998
(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 .................. $ 2,285 $ 90 5.25% $ 2,360 $ 98 5.54%
Investment securities taxable .............. 38,775 1,785 6.14% 29,950 1,447 6.44%
Investment securities--tax exempt (1) ...... 749 22 5.93% 294 9 6.18%
Federal funds sold ......................... 12,225 454 4.95% 7,837 328 5.58%
Loans receivable ........................... 134,149 8,886 8.83% 99,995 7,027 9.37%
-------- ------ ----- -------- ------ -----
Total interest earning assets .............. 188,183 11,237 7.96% 140,436 8,909 8.46%
Cash and due from banks .................... 8,187 6,257
Allowance for loan losses .................. (1,632) (1,238)
Premises and equipment ..................... 4,510 3,425
Other assets ............................... 2,174 1,679
-------- --------
Total assets ................................... $201,422 $150,559
======== ========
Liabilities and Shareholders' Equity
Interest bearing deposits
Savings .................................... $28,804 $ 706 3.27% $ 20,356 $ 537 3.52%
Interest bearing transaction accounts ...... 16,946 196 1.54% 13,617 192 1.88%
Time deposits .............................. 93,186 3,536 5.06% 71,821 2,951 5.48%
-------- ------ ----- -------- ------ -----
Total interest bearing deposits ............ 138,936 4,438 4.26% 105,794 3,680 4.64%
Short term borrowing ....................... 5,572 137 3.28% 2,467 76 4.11%
FHLB advances .............................. 10,949 441 5.37% 6,043 258 5.69%
-------- ------ ----- -------- ------ -----
Total interest bearing liabilities ......... 155,457 5,016 4.30% 114,304 4,014 4.68%
Noninterest bearing demand deposits ........ 25,457 18,697
Other liabilities .......................... 1,025 882
Shareholders' equity ....................... 19,483 16,676
-------- --------
Total liabilities and shareholders' equity ..... $201,422 $150,559
======== ========
Interest rate spread ....................... 3.66% 3.78%
----- -----
Net interest income and net yield on earning assets $6,221 4.41% $4,895 4.65%
====== ===== ====== =====
</TABLE>
1) Yield is shown on a fully taxable equivalent basis.
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. Community Bankshares, Inc. ("CBI") cautions
readers that forward looking statements, including without limitation, those
relating to CBI's future business prospects, revenues, working capital,
liquidity, capital needs, interest costs, income and Year 2000 readiness of CBI
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 CBI'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 CBI'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. CBI 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. CBI 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 $250,000 and will be funded with internally generated resources. The
majority of these costs have already been expended and the remaining items
relate primarily to CBI's testing plans. Most of CBI'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.
CBI 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 CBI 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.
CBI 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.
9
<PAGE>
CBI has completed testing its core information system and other mission
critical systems. Test results have been successful. 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, CBI'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. CBI 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 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net Income
For the nine months ended September 30, 1999 (the 1999 period) CBI
earned a consolidated profit of $1,586,000, compared to $1,182,000 for the
comparable period of 1998, an increase of 34% or $404,000. Basic earnings per
share were $.52 in the 1999 period, compared to $.41 for the 1998 period.
Orangeburg National Bank reported net income of $1,547,000 for the 1999
period. This compares to $1,236,000 for the same period in 1998, an increase of
$311,000 or 25%. At September 30, 1999 the Orangeburg bank had $89 million in
loans, $134 million in assets, and $108 million in deposits.
Sumter National Bank reported net income of $377,000 for the 1999
period. This compares to $105,000 for the same period in 1998, an increase of
$272,000 or 259%. At September 30, 1999 the Sumter bank had $47 million in
loans, $58 million in assets, and $52 million in deposits. The Sumter bank began
operation in June 1996.
Florence National Bank reported a net after tax loss of $283,000 for
the 1999 period. This compares to a net after tax loss of $161,000 for the
two-month period ended September 30, 1998. The Florence bank began operation in
July 1998. At September 30, 1999 the Florence bank had $15 million in loans, $22
million in assets, and $18 million in deposits.
As noted above, consolidated net income for the 1999 period increased
from the prior year by 34% or $404,000. The major components of this increase
are discussed below. Net interest income before provision for loan losses for
the 1999 period increased to $6,221,000, compared to $4,895,000 for the same
period in 1998, an increase of 27% or $1,326,000. For the 1999 period the
provision for loan losses was $439,000, compared to $324,000 for the 1998
period, an increase of 35% or $115,000. Non-interest income for the 1999 period
increased to $994,000 from $785,000 for the 1998 period, a 26% or $209,000
increase. Non-interest expense increased to $4,427,000 from $3,573,000, a 24% or
$854,000 increase.
10
<PAGE>
Throughout this discussion many of the dollar and percentage changes
between periods are substantial. The Orangeburg and Sumter banks are continuing
to grow assets and earnings. The 1999 periods include the operations of the
Florence bank for the entire three month and nine month period, however, the
1998 periods only include Florence's operations from when its business began,
July 1998, an approximately three month period.
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 1999 and 1998
periods, the following table is presented.
Nine months ended Sept. 30,
1999 1998
(dollars in thousands)
Average assets $201,422 $150,559
ROA 1.05% 1.05%
Average equity $19,483 $16,676
ROE 10.85% 9.45%
Net income $1,586 $1,182
Average assets were substantially greater in 1999 than they were in
1998 primarily as the result of the growth associated with the operating of
three banks instead of two. Return on assets has not improved because of
operating losses incurred by Florence National Bank.
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 1999
period net interest income after provision for loan losses increased to
$5,782,000 from $4,571,000, a 27% or $1,211,000 increase over the comparable
1998 period. This improvement was primarily the result of an increase in the
volume of earning assets at all three banks.
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 nine month periods ended September 30, 1999 and 1998. A
discussion of that table follows.
Total interest income for the 1999 period was $11,237,000 compared with
$8,909,000 for the same period in 1998, a 26% or $2,328,000 increase. The yield
on earning assets for the 1999 period was 7.96%, down from 8.46.% for the 1998
period. Total average interest earning assets for the 1999 period were
$188,183,000, up from $140,436,000 for the same period in 1998, an increase of
34% or $47,747,000.
11
<PAGE>
The loan portfolio earned $8,886,000 for the 1999 period, up from
$7,027,000 for the same period of 1998, a 26% or $1,859,000 increase. The 1999
yield decreased to 8.83% from 9.37% for the 1998 period. The prime lending rate
fell from 8.50% to 7.75% during the fourth quarter of 1998. It increased during
the third quarter of 1999 to 8.25%. The average size of the loan portfolio was
$134,149,000 for the 1999 period, up from $99,995,000 for the same period of
1998, an increase of 34% or $34,154,000.
The taxable investment portfolio earned $1,785,000 for the 1999 period
up from $1,447,000 for the 1998 period a 23% or $338,000 increase. The yield
decreased to 6.14% in the 1999 period from 6.44% in the 1998 period. The average
size of the portfolio increased to $38,775,000 in the 1999 period from
$29,950,000 in the 1998 period, an increase of 29% or $8,825,000.
The tax exempt investment portfolio continues to be a relatively small
part of the portfolio. It earned $22,000 for the 1999 period compared to $9,000
for the 1998 period an increase of 144% or $13,000. The yield on the portfolio
was 5.93% (on a fully taxable equivalent basis), decreased from the prior year's
6.18%. The average size of the portfolio increased to $749,000 for the 1999
period from $294,000 in the 1998 period, an increase of 155% or $455,000.
Interest bearing deposits in other banks contributed $90,000 for the
1999 period compared to $98,000 during 1998, a decrease of 8% or $8,000. The
yield on these deposits decreased to 5.25% from 5.54%. CBI averaged $2,285,000
in interest bearing balances in the 1999 period, compared to $2,360,000 in the
1998 period, a decrease of 3% or $75,000.
Federal funds sold earned $454,000 for the 1999 period compared to
$328,000 the prior year, an increase of 38% or $126,000. Yields decreased to
4.95% from 5.58%. For the 1999 period CBI increased its average volume in
federal funds sold to $12,225,000 from $7,837,000 for the 1998 period, a 54% or
$4,388,000 increase. This substantial increase was mostly related to the opening
of the new bank in Florence.
Interest expense
Interest expense increased for the 1999 period to $5,016,000 from
$4,014,000 for the 1998 period, a 25% or $1,002,000 increase. The volume of
interest bearing liabilities increased to $155,457,000 for the 1999 period from
$114,304,000 for the 1998 period, a 36% or $41,153,000 increase. The average
rate CBI paid for interest bearing liabilities during the 1999 period was 4.30%,
down from 4.68% for the 1998 period.
The cost of savings accounts increased to $706,000 for the 1999 period
from $537,000 in the 1998 period, a 31% or $169,000 increase. Average savings
deposit balances increased to $28,804,000 for the 1999 period from $20,356,000
for the 1998 period, an increase of 41% or $8,448,000. The average rate paid on
these funds decreased to 3.27% from 3.52%.
Interest bearing transaction accounts cost $196,000 for the 1999
period, almost unchanged from the prior year's $192,000. The volume of these
deposits increased to $16,946,000 for the 1999 period from $13,617,000 for the
1998 period, a 24% or $3,329,000 increase. The average rate paid on these funds
decreased to 1.54% from 1.88%.
12
<PAGE>
Time deposits cost $3,536,000 for the 1999 period up from $2,951,000 in
the 1998 period, an increase of 20% or $585,000. The volume increased to
$93,186,000 for the 1999 period from $71,821,000 for the 1998 period, a 30% or
$21,365,000 increase. The average rate paid on these funds decreased to 5.06%
for the 1999 period from 5.48% for the 1998 period.
Short term borrowing consists of federal funds purchased and securities
sold under agreements to repurchase. It cost $137,000 for the 1999 period,
increased from $76,000 for the 1998 period, an 80% or $61,000 increase. The
volume of these funds increased to $5,572,000 in the 1999 period from $2,467,000
in the 1998 period, an increase of 126% or $3,105,000. The average rate paid on
these funds decreased to 3.28% from 4.11%.
Borrowings from the Federal Home Loan Bank cost $441,000 for the 1999
period compared to $258,000 for the 1998 period, a 71% or $183,000 increase. The
advances averaged $10,949,000 during the 1999 period compared to $6,043,000 for
the prior year period, a 81% or $4,906,000 increase. The increasing volume in
these funds is due to the Orangeburg bank's asset-liability management strategy.
The average rate paid on these funds decreased to 5.37% from 5.69%.
Non-Interest Income
Non-interest income for the 1999 period grew to $994,000 from $785,000
in the 1998 period, a 27% or $209,0000 increase. This increase was generated by
substantial increases in service charge fee income at the Sumter bank and the
operation of the new Florence bank.
Non-Interest Expense
For the 1999 period non-interest expenses increased to $4,427,000 from
$3,573,000 for the 1998 period, a 24% or $854,000 increase. Of this increase,
approximately $752,000 or 81% is related to operation of the new bank in
Florence.
Personnel costs were $2,569,000 for the 1999 period compared to
$2,022,000 for the 1998 period, a 27% or $547,000 increase.
Premises and equipment expense for the 1999 period were $670,000
compared to $480,000 for the 1998 period, an increase of 40% or $190,000.
Other costs were $1,188,000 for the 1999 period compared to $1,071,000
for the 1998 period, an increase of 11% or $117,000.
Income Taxes
CBI provided $763,000 for federal and state income taxes during the
1999 period compared to $601,000 for the same period in 1998, a 27% or $162,000
increase.
13
<PAGE>
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998
Net Income
For the quarter ended September 30, 1999 (the 1999 quarter), CBI earned
a consolidated profit of $614,000, compared to $335,000 for the comparable
period of 1998, an increase of 83% or $279,000. Basic earnings per share were
$.20 in the 1999 period, compared to $.12 for the 1998 period, an increase of
67%.
The substantial 83% increase in net income for the quarter is due to
two major factors. The first factor is that the Florence bank began business in
July 1998 and accordingly began to suffer its initial and most severe operating
losses during the third quarter 1998. During the third quarter 1999 those losses
have been significantly diminished. The second factor is that the Sumter bank
was only slightly profitable during the third quarter 1998. During the third
quarter 1999 the Sumter bank had substantially increased its profitability.
The other changes in the items comprising net interest income which are
discussed below resulted from essentially the same factors discussed above
regarding the results of operation for the nine months ended September 30, 1999.
Net interest income
Net interest income before provision for loan losses for the 1999
quarter increased to $2,265,000, compared to $1,735,000 for the 1998 quarter, an
increase of 31% or $530,000. For the 1999 quarter the provision for loan losses
was $166,000, compared to $136,000 for the 1998 quarter, an increase of 22% or
$30,000.
Interest Income
Total interest income for the third quarter 1999 was $4,092,000
compared with $3,201,000 for the same period in 1998, a 28% or $891,000
increase.
The loan portfolio earned $3,254,000 for the third quarter in 1999, up
from $2,488,000 for the same period of 1998, a 31% or $766,000 increase.
The investment portfolio earned $670,000 for the third quarter in 1999,
up from $499,000 for the 1998 period, a 34% or $171,000 increase.
Interest bearing deposits in other banks contributed $11,000 for the
third quarter 1999, compared to $30,000 during the prior year, a decrease of 63%
or $19,000.
Federal funds sold earned $157,000 the third quarter of 1999 compared
to $184,000 the prior year, a decrease of 15% or $27,000.
Interest expense
Interest expense increased for the third quarter of 1999 to $1,827,000
from the prior year's $1,466,000, a 25% or $361,000 increase.
Non-interest income and expense
Non-interest income for the 1999 quarter increased to $344,000 from
$294,000 for the 1998 quarter, a 17% or $50,000 increase. Non-interest expense
increased to $1,530,000 from $1,371,000, a 12% or $159,000 increase.
14
<PAGE>
CHANGES IN FINANCIAL POSITION
Investment portfolio
The investment portfolio is comprised of a held-to-maturity and an
available-for-sale portion. CBI and its three banks usually purchase short term
issues of U. S Treasury and U. S. Government agency securities for investment
purposes. At September 30, 1999, the held-to-maturity portfolio totaled
$13,469,000 compared to $15,286,000 at December 31, 1998, a decrease of 12% or
$1,817,000. At September 30, 1999, the available-for-sale portfolio totaled
$30,759,000 compared to $18,862,000 at December 31, 1998, an increase of 63% or
$11,897,000. The following chart summarizes the investment portfolios at
September 30, 1999, and December 31, 1998.
<TABLE>
<CAPTION>
September 30, 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 .................. $ 13,369 $ 12,941 $29,358 $28,610
Tax exempt securities .................................. 100 100 828 818
Other equity securities ................................ - - 1,331 1,331
-------- -------- ------- -------
Total ............................................. $ 13,469 $ 13,041 $31,517 $30,759
======== ======== ======= =======
Unrealized (loss) ...................................... $ (428) $ (758)
======= =======
<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 ............................................ $ 43 $ 56
======= =======
</TABLE>
15
<PAGE>
Loan portfolio
The loan portfolio is primarily consumer and small business oriented.
At September 30, 1999, the loan portfolio was $151,722,000, compared to
$117,795,000 at December 31, 1998, a 29% or $33,927,000 increase. The following
chart summarizes the loan portfolio at September 30, 1999, and December 31,
1998.
Sep. 30, 1999 Dec. 31, 1998
------------- -------------
(dollars in thousands)
Real estate ........................ $ 89,266 $ 68,527
Commercial ......................... 38,369 29,943
Loans to individuals ............... 24,087 19,325
-------- --------
Total ......................... $151,722 $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 September 30, 1999, and December 31, 1998.
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
(dollars in thousands)
Past due 90 days + accruing loans ........ $56 $187
Non-accrual loans ........................ $145 $31
Impaired loans (included in nonaccrual) .. $145 $31
Other real estate owned .................. $31 $266
Management considers the past due and non-accrual amounts at September
30, 1999 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.
<TABLE>
<CAPTION>
Sept. 30, 1999 Dec. 31, 1998 Sept. 30, 1998
-------------- ------------- --------------
<S> <C> <C> <C>
Allowance at beginning of period ................................. $ 1,459 $ 1,140 $ 1,140
Provision expense ................................................ 439 484 323
Net charge offs .................................................. (93) (165) (99)
------- ------- -------
Allowance at end of period ....................................... $ 1,805 $ 1,459 $ 1,364
======= ======= =======
Allowance as a % of outstanding loans ............................ 1.19% 1.24% 1.24%
</TABLE>
In reviewing the adequacy of the allowance for loan losses at the end
of each period, management of each of of the banks 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 of each of banks
considers the allowance adequate to provide for estimated future losses inherent
in the loan portfolio at September 30, 1999.
16
<PAGE>
Premises and equipment
Premises and equipment were $4,686,000 at September 30, 1999, compared
to $3,892,000 at December 31, 1998, an increase of 20% or $794,000. Most of this
increase was due to the opening of a new branch bank building on Broughton
Street in Orangeburg. This office replaced an existing branch building, which is
now being rented to Community Bankshares.
Deposits
Deposits were $177,558,000 at September 30, 1999, compared to
$147,630,000 at December 31, 1998, an increase of 20% or $29,928,000.
Time deposits greater than $100,000 were $34,883,000 at September 30,
1999, compared to $24,504,000 at December 31, 1998, an increase of 42% or
$10,379,000.
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 for its lending activity 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.
17
<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 $172 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 September 30, 1999, CBI
had approximately $24.6 million in certificates of deposit and other interest
bearing liabilities maturing in one to five years. CBI had no such liabilities
maturing in over 5 years. CBI's assets maturing or repricing in the same periods
were $86.6 million and $49 million, respectively. CBI expects to be able to
manage its current balance sheet structure without experiencing any material
liquidity problems.
CBI and its three banks have been examining the issue of liquidity and
its relationship to the Y2K computer bug. It is impossible to accurately
quantify possible reaction to the Y2K problem by the public in general and the
banks' customers in particular as the new year approaches. The banks all
recognize their responsibility to be able to provide for customer withdrawals as
well as to fund new loan activity. Accordingly, each bank has adopted a Y2K
liquidity policy which has been discussed with and approved by its board of
directors.
In the opinion of management, CBI's current and projected liquidity
position is adequate with respect to normal operations and the New Year.
Capital resources
As shown by the capital ratios in the table below, CBI maintains a
strong capital position.
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
Tier 1 capital to average total assets 9.34% 10.90%
Tier 1 capital to risk weighted assets 13.00% 15.90%
Total capital to risk weighted assets 14.16% 17.00%
Banks are required to maintain a minimum risk weighted capital ratio of
at least 8%.
In the opinion of management, the Company's current and projected
capital positions are adequate.
Common Stock
At September 30, 1999 the common stock account totaled $14,205,000,
compared to $14,648,000 at December 31, 1998. This $443,000 decrease was the
result of the redemption of $630,000 in CBI common stock and the issuance of
stock for $187,000 resulting from the exercise of employee stock options.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable pursuant to Instruction 1 to 17 C.F.R. 229.305(c).
18
<PAGE>
Part II--Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index.
b) None.
19
<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: November 2, 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)
20
<PAGE>
EXHBIT INDEX
Exhibit No.(from item Description
601 of S-B)
(27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at September 30, 1999, (unaudited) and the
Consolidated Statement of Income for the nine months ended September 30, 1999
(unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,647
<INT-BEARING-DEPOSITS> 95
<FED-FUNDS-SOLD> 6,030
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,759
<INVESTMENTS-CARRYING> 13,469
<INVESTMENTS-MARKET> 13,041
<LOANS> 151,454
<ALLOWANCE> 1,805
<TOTAL-ASSETS> 214,395
<DEPOSITS> 177,558
<SHORT-TERM> 4,815
<LIABILITIES-OTHER> 933
<LONG-TERM> 11,420
0
0
<COMMON> 14,205
<OTHER-SE> 5,464
<TOTAL-LIABILITIES-AND-EQUITY> 214,395
<INTEREST-LOAN> 8,886
<INTEREST-INVEST> 1,807
<INTEREST-OTHER> 549
<INTEREST-TOTAL> 11,242
<INTEREST-DEPOSIT> 4,438
<INTEREST-EXPENSE> 5,021
<INTEREST-INCOME-NET> 6,221
<LOAN-LOSSES> 439
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,427
<INCOME-PRETAX> 2,349
<INCOME-PRE-EXTRAORDINARY> 2,349
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,586
<EPS-BASIC> 0.52
<EPS-DILUTED> 0.52
<YIELD-ACTUAL> 4.41
<LOANS-NON> 145
<LOANS-PAST> 56
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 201
<ALLOWANCE-OPEN> 1,459
<CHARGE-OFFS> 138
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 1,805
<ALLOWANCE-DOMESTIC> 1,805
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
