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 June 30, 2000 Commission 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 Identification Number)
Incorporation or Organization)
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 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: 3,193,845 shares of common
stock outstanding as of August 1, 2000.
<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 Results of Operations......................... 9
Item 3 Quantitative and Qualitative Disclosures About
Market Risk ................................................ 19
Part II-Other Information
Item 4 Submission of Matters to a Vote of Security Holders ........... 20
Item 6 Exhibits and Reports on Form 8-K .............................. 21
2
<PAGE>
Part I. Item 1. Financial Statements
COMMUNITY BANKSHARES, INC. - CONSOLIDATED BALANCE SHEETS
$ amounts in thousands
<TABLE>
<CAPTION>
UNAUDITED
June 30, December 31,
ASSETS 2000 1999
------ ---- ----
Cash and due from other financial institutions:
<S> <C> <C>
Non-interest bearing ............................................................ $ 11,082 $ 12,275
Federal funds sold .............................................................. 1,600 8,040
--------- ---------
Total cash and cash equivalents ............................................. 12,682 20,315
Interest bearing deposits in other banks ............................................. 1,342 788
Investment securities:
Securities held to maturity ..................................................... 12,370 13,369
Securities available for sale ................................................... 35,740 30,566
Loans held for resale ................................................................ - 269
Loans ................................................................................ 185,198 157,089
Less, allowance for loan losses ................................................. (2,150) (1,936)
--------- ---------
Net loans ................................................................... 183,048 155,153
Premises and equipment ............................................................... 4,446 4,619
Accrued interest receivable ......................................................... 2,137 1,700
Deferred income taxes ................................................................ 869 858
Other assets ......................................................................... 575 393
--------- ---------
Total assets ................................................................ $ 253,209 $ 228,030
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing ............................................................ $ 28,601 $ 26,878
Interest bearing ................................................................ 173,472 157,486
--------- ---------
Total deposits .............................................................. 202,073 184,364
Federal funds purchased and securities
sold under agreements to repurchase ............................................. 4,543 2,782
Federal Home Loan Bank advances ...................................................... 24,120 19,420
Other liabilities .................................................................... 1,195 1,219
--------- ---------
Total liabilities ........................................................... 231,931 207,785
--------- ---------
Shareholders' equity:
Common stock
No par, authorized shares 12,000,000, issued and ............................ 15,925 14,207
outstanding 3,193,845 in 2000 and 3,191,462 in 1999
Retained earnings ............................................................... 5,998 6,549
Accumulated other comprehensive (loss) .......................................... (645) (511)
--------- ---------
Total shareholders' equity .................................................. 21,278 20,245
--------- ---------
Total liabilities and shareholders' equity .................................. $ 253,209 $ 228,030
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
3
<PAGE>
COMMUNIT BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
for the six months ended June 30, 2000 and 1999 (Unaudited)
($ amounts in thousands)
<TABLE>
<CAPTION>
Accumulated Total
Other Share-
Common Common Retained Comprehensive holders'
Shares Stock Earnings Income (Loss) Equity
------ ----- -------- ------------- ------
<S> <C> <C> <C> <C> <C>
Balances at Dec. 31, 1998 .................................... 3,200,070 $ 14,648 $ 4,975 $ 36 $ 19,659
Comprehensive income:
Net income .............................................. 972 972
Other comprehensive income (loss) net of tax:
Unrealized gain (loss) on securities .................... (439) (439)
Issuance of common stock ..................................... 38,537 171 171
Redemption of common stock ................................... (49,455) (630) (630)
Dividends paid ............................................... - - (273) - (273)
---------- ---------- -------- ----- --------
Balances at June 30, 1999 .................................... 3,189,152 $ 14,189 $ 5,674 $(403) $ 19,460
========== ========== ======== ===== ========
Balances at Dec. 31, 1999 .................................... 3,191,462 $ 14,207 $ 6,549 $(511) $ 20,245
Comprehensive income:
Net income .............................................. 1,477 1,477
Other comprehensive income (loss) net of tax:
Unrealized gain (loss) on securities .................... (134) (134)
Cash-in-lieu of shares in connection with
Jan. 31, 2000 stock dividend ............................ (137)
Market value of shares issued in five
percent stock dividend ...................................... - 1,709 (1,709) -
Shares issued under option agreement ......................... 2,520 19 19
Costs of stock dividend ...................................... (10) (10)
Dividends paid ............................................... - - (319) - (319)
---------- ---------- -------- ----- --------
Balances at June 30, 2000 .................................... 3,193,845 $ 15,925 $ 5,998 $(645) $ 21,278
========== ========== ======== ===== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
4
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30, Three months ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
$ amounts in thousands
Interest and dividend income:
<S> <C> <C> <C> <C>
Interest and fees on loans ............................... $ 7,763 $ 5,632 $ 4,033 $ 2,940
Deposits with other financial institutions ............... 28 79 24 43
Investment securities:
Interest - U. S. Treasury and
U. S. Government Agencies ............................ 1,432 1,081 726 581
Dividends .............................................. 60 56 31 23
----------- ----------- ----------- -----------
Total investment securities ......................... 1,492 1,137 757 604
Federal funds sold and securities
purchased under agreements to resell ................... 188 297 74 143
----------- ----------- ----------- -----------
Total interest and dividend income .................. 9,471 7,145 4,888 3,730
----------- ----------- ----------- -----------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more ............ 1,073 663 565 350
Other .................................................. 2,831 2,168 1,451 1,128
----------- ----------- ----------- -----------
Total deposits ...................................... 3,904 2,831 2,016 1,478
Federal funds purchased and securities
sold under agreements to repurchase .................... 64 75 40 37
Federal Home Loan Bank advances .......................... 526 283 273 155
----------- ----------- ----------- -----------
Total interest expense .............................. 4,494 3,189 2,329 1,670
----------- ----------- ----------- -----------
Net interest income .......................................... 4,977 3,956 2,559 2,060
Provision for loan losses .................................... 338 273 158 139
----------- ----------- ----------- -----------
Net interest income after provision for loan losses .......... 4,639 3,683 2,401 1,921
----------- ----------- ----------- -----------
Non-interest income:
Service charges on deposit accounts ...................... 696 455 349 238
Net loss on sale of available for sale securities ........ (2) - (2) -
Other .................................................... 191 195 101 107
----------- ----------- ----------- -----------
Total non-interest income ........................... 885 650 448 345
----------- ----------- ----------- -----------
Non-interest expense:
Salaries and employee benefits ........................... 1,892 1,683 952 851
Premises and equipment ................................... 456 437 232 222
Other .................................................... 879 777 443 387
----------- ----------- ----------- -----------
Total non-interest expense .......................... 3,227 2,897 1,627 1,460
----------- ----------- ----------- -----------
Income before taxes .......................................... 2,297 1,436 1,222 806
Provision for income taxes ................................... 820 464 439 263
----------- ----------- ----------- -----------
Net income ................................................... $ 1,477 $ 972 $ 783 $ 543
=========== =========== =========== ===========
Basic earnings per common share*:
Weighted average shares outstanding ...................... 3,194,685 3,189,288 3,193,005 3,189,905
=========== =========== =========== ===========
Net income per common share .............................. $ 0.46 $ 0.30 $ 0.25 $ 0.17
=========== =========== =========== ===========
Diluted earnings per common share*:
Weighted average shares outstanding ...................... 3,216,207 3,216,194 3,214,555 3,217,223
=========== =========== =========== ===========
Net income per common share .............................. $ 0.46 $ 0.30 $ 0.24 $ 0.17
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTERGRAL PART OF THE FINANCIAL STATEMENTS
*Per share information has been retroactively adjusted to reflect a 5% stock
dividend paid on Jan. 31, 2000
5
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June 30,
2000 1999
---- ----
(dollar amounts in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net income ................................................................................. $ 1,477 $ 972
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation ....................................................................... 240 209
Provision for loan losses .......................................................... 338 273
Accretion of discounts and
amortization of premiums -
investment securities - net ...................................................... (5) (11)
Origination of real estate loans held for sale ..................................... (2,337) (6,226)
Proceeds from sale of real estate loans held for sale .............................. 2,606 6,741
Changes in assets and liabilities:
(Increase) decrease in interest receivable ......................................... 198 (257)
(Increase) decrease in other assets ................................................ (828) 73
(Decrease) in other liabilities .................................................... (24) (72)
-------- --------
Net cash provided by operating activities .................................................. 1,665 1,702
-------- --------
Cash flows from investing activities:
Proceeds from maturities and sales of
Investment securities - held to maturity ......................................... 1,500 5,419
Purchases of investment securities - held to maturity .............................. (500) (4,101)
Proceeds from maturities and sales of
Investment securities - available for sale ....................................... 2,822 5,363
Purchases of investment securities - available for sale ............................ (8,126) (15,648)
Net (increase) decrease in interest bearing deposits ............................... (554) 371
Net increase in loans to customers ................................................. (28,233) (21,767)
Purchase of premises and equipment ................................................. (67) (925)
-------- --------
Net cash (used) in investing activities .......................................... (33,158) (31,288)
-------- --------
Cash flows from financing activities:
Net increase in demand, savings, & time deposits ................................... 17,709 24,748
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase ................................... 1,761 (582)
Sale of common stock ............................................................... 9 171
Common stock redemption ............................................................ - (630)
Proceeds of FHLB advances .......................................................... 4,700 2,000
Dividends .......................................................................... (319) (273)
-------- --------
Net cash provided by financing activities ........................................ 23,860 25,434
-------- --------
Net (decrease) in cash and due from other financial institutions ........................... (7,633) (4,152)
Cash and due from other financial institutions - beginning of period ....................... 20,315 23,296
-------- --------
Cash and due from other financial institutions - end of period ............................. $ 12,682 $ 19,144
======== ========
</TABLE>
6
<PAGE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
Notes to Unaudited Consolidated Financial Statements
Summary of Significant Accounting Principles
A summary of significant accounting policies and the audited financial
statements for 1999 are included in Corporation's Annual Report on Form 10-K for
the year ended December 31, 1999.
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 1999 Annual Report on Form 10-K.
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 (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
Unrealized gains (losses) on securities:
<S> <C> <C> <C>
Unrealized holding gains (losses) arising during period .............. $(611,000) $ 208,000 $(403,000)
--------- --------- ---------
Other comprehensive income, June 30, 1999 ............................ $(611,000) $ 208,000 $(403,000)
========= ========= =========
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period .............. $(977,000) $ 332,000 $(645,000)
--------- --------- ---------
Other comprehensive income, June 30, 2000 ............................ $(977,000) $ 332,000 $(645,000)
========= ========= =========
</TABLE>
Stock Dividend
On January 31, 2000 CBI effected a five-percent stock dividend. All
shares outstanding and per share data amounts have been retroactively restated
to reflect the dividend.
7
<PAGE>
COMMUNITY BANKSHARES, INC. - AVERAGE BALANCE SHEETS, YIELDS, AND RATES
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
2000 1999
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 ............ $ 985 $ 28 5.69% $ 3,039 $ 79 5.20%
Investment securities taxable ........ 46,367 1,476 6.37% 36,886 1,124 6.09%
Investment securities--tax exempt .... 806 16 6.02% 663 13 5.94%
Federal funds sold ................... 6,062 188 6.20% 12,416 297 4.78%
Loans receivable ..................... 170,429 7,763 9.11% 128,183 5,632 8.79%
-------- ----- ---- -------- ------ ----
Total interest earning assets ........ 224,649 9,471 8.43% 181,187 7,145 7.89%
Cash and due from banks .............. 8,298 8,051
Allowance for loan losses ............ (2,084) (1,571)
Premises and equipment ............... 4,560 4,416
Other assets ......................... 3,085 2,082
-------- -----
Total assets ......................... $238,508 $194,165
======== ========
Liabilities and Shareholders' Equity
Interest bearing deposits
Savings ............................. $ 31,364 $ 610 3.89% $ 28,242 $ 455 3.22%
Interest bearing transaction accounts 20,050 147 1.47% 16,476 127 1.54%
Time deposits ....................... 116,441 3,147 5.41% 88,765 2,249 5.07%
-------- ------ ---- -------- ------ ----
Total interest bearing deposits ..... 167,855 3,904 4.65% 133,483 2,831 4.24%
Short term borrowing ................ 3,134 64 4.08% 4,906 75 3.06%
FHLB advances ....................... 18,311 526 5.75% 10,501 283 5.39%
-------- ------ ---- -------- ------ ----
Total interest bearing liabilities .. 189,300 4,494 4.75% 148,890 3,189 4.28%
Noninterest bearing demand deposits . 27,353 24,765
Other liabilities ................... 1,222 1,083
Shareholders' equity ................ 20,633 19,427
-------- --------
Total liabilities and shareholders'
equity ........................... $238,508 $194,165
======== ========
Interest rate spread ............... 3.68% 3.60%
Net interest income and net yield on earning assets $4,977 4.43% $3,956 4.37%
====== ======
</TABLE>
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in nature
are intended to be, and are hereby identified as `forward looking statements'
for purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended. The Corporation cautions readers that forward
looking statements, including without limitation, those relating to the
Corporation's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward looking statements, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the Corporation's reports filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO JUNE
30, 1999
Net Income
For the first half of 2000 CBI earned a consolidated profit of
$1,477,000 compared to $972,000 for the first half of 1999, an increase of 52%
or $505,000. Basic and diluted earnings per share were $.46 in the 2000 period
compared to $.30 for the 1999 period.
For the first half of 2000 Orangeburg National Bank reported a profit
of $1,104,000 compared to $1,002,000 for the first half of 1999, an increase of
10.2% or $102,000.
For the first half of 2000 Sumter National Bank reported a profit of
$393,000 compared to $213,000 for the first half of 1999, an increase of 84.5%
or $180,000. The Sumter bank began operations in June 1996.
For the first half of 2000 Florence National Bank reported a net loss
of $12,000 compared to net loss of $211,000 for the first half of 1999, an
improvement of $199,000. The Florence bank began operations in July 1998 and the
bank achieved marginal profitability during the second quarter of 2000.
As noted above, consolidated net income for the six months ended June
30, 2000, increased from the prior year by 52% or $505,000. The major components
of this increase are discussed below. Net interest income before provision for
loan losses for the six months ended June 30, 2000 increased to $4,977,000
compared to $3,956,000 for the same period in 1999, an increase of 25.8% or
$1,021,000. For the same period the provision for loan losses was $338,000
compared to $273,000 for the 1999 period, an increase of 23.8% or $65,000.
Non-interest income for the 2000 period increased to $885,000 from $650,000 for
the 1999 period, a 36.2% or $235,000 increase. Non-interest expense increased to
$3,227,000 from $2,897,000, an 11.4% or $330,000 increase.
Profitability
One of the best ways to review earnings is through the ROA (return on
average assets) and the ROE (return on average equity). Return on assets is the
income for the period divided by the average assets for the period, annualized.
Return on equity is the income for the period divided by the average equity for
the period, annualized. Based on operating results for the six months ended June
30, 2000 and 1999, the following table is presented.
Period ended June 30,
2000 1999
---- ----
(dollars in thousands)
Average assets $238,508 $194,165
ROA 1.24% 1.00%
Average equity $20,633 $19,427
ROE 14.32% 10.01%
Net income $1,477 $972
9
<PAGE>
The improvement in ROA and ROE is mostly related to increased volumes of earning
assets at all three banks.
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
six months of 2000 net interest income after provision for loan losses increased
to $4,639,000 from $3,683,000, a 25.9% or $956,000 increase over the first six
months of 1999. This improvement was the result of a $43 million increase in the
volume of earning assets. The average yield on earning assets increased to 8.43%
for the 2000 period from 7.89% for the 1999 period. This was primarily the
result of an increase in the prime lending rate, which was 9.50% during June
2000 compared to 7.75% for the same month in 1999.
For the first six months of 2000 the cost of funds averaged 4.75%,
increased from 4.28% for the first six months of 1999. The increase in the yield
on earning assets was partially offset by this increase 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 3.68% for the first six months of
2000, increased from 3.60% during the first six months of 1999. CBI's net
interest margin (net interest income divided by total earning assets) was 4.43%
for the first six months of 2000 compared to 4.37% for the first six months of
1999.
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 six months ended June 30, 2000 and 1999. A discussion of
that table follows.
Total interest income for the first six months of 2000 was $9,471,000
compared with $7,145,000 for the same period in 1999, a 32.6% or $2,326,000
increase. The yield on average earning assets for the 2000 period was 8.43%,
increased from 7.89% for the 1999 period. Total average interest earning assets
for the 2000 period were $224,649,000, up from $181,187,000 for the 1999 period,
an increase of 24% or $43,462,000.
The loan portfolio earned $7,763,000 for the first six months of 2000,
up from $5,632,000 for the same period of 1999, a 37.8% or $2,131,000 increase.
The yield increased to 9.11% for the 2000 period from 8.79% for the 1999 period.
The average size of the loan portfolio was $170,429,000 for the 2000 period, up
from $128,183,000 for the 1999 period, an increase of 33% or $42,246,000
primarily as the result of strong loan demand.
The taxable investment portfolio earned $1,476,000 for the first six
months in 2000, up from $1,124,000 for the same period in 1999, a 31.3% or
$352,000 increase. The yield increased to 6.37% in the 2000 period from 6.09% in
the 1999 period. The average size of the portfolio increased to $46,367,000 in
the 2000 period from $36,886,000 in the 1999 period, an increase of 25.7% or
$9,481,000.
The tax-exempt investment portfolio earned $16,000 for the first six
months in 2000, up from $13,000 for the same period in 1999, a 23.1% or $3,000
increase. The yield (on a taxable equivalent basis) on the portfolio was 6.02%,
an increase from 5.94%. The average size of the portfolio increased to $806,000
for the 2000 period, up from $663,000 in the 1999 period, an increase of 21.6%
or $143,000.
Interest bearing deposits in other banks contributed $28,000 for the
first six months of 2000 compared to $79,000 during the prior year, a decrease
of 64.6% or $51,000. The yield on these deposits increased to 5.69% for the 2000
period from 5.20% in the 1999 period. CBI averaged $985,000 in interest bearing
balances in the first six months of 2000 compared to $3,039,000 the first six
months of the prior year, a decrease of 67.6% or $2,054,000. The decrease was
related to increased loan demand in all three markets.
10
<PAGE>
Federal funds sold earned $188,000 the first six months of 2000
compared to $297,000 the prior year, a decrease of 36.7% or $109,000. Yields
increased to 6.20% for the first six months in 2000 from 4.78% for the first six
months in 1999. For the first six months of 2000, CBI decreased its average
volume in federal funds sold to $6,062,000 from $12,416,000 for the first six
months of 1999, a 51.2% or $6,354,000 decrease. This decline was mostly
associated with strong loan demand in the three markets.
Interest Expense
Interest expense increased for the first six months of 2000 to
$4,494,000 from the prior year's $3,189,000, a 40.9% or $1,305,000 increase. The
volume of interest bearing liabilities increased to $189,300,000 for the first
six months in 2000 from $148,890,000 for the first six months of 1999, a 27.1%
or $40,410,000 increase. The average rate paid for interest-bearing liabilities
during the 2000 period was 4.75%, up from 4.28% for the 1999 period.
The cost of savings accounts increased to $610,000 in the first six
months in 2000 from $455,000 in the first six months of 1999, a 34.1% or
$155,000 increase. Average savings deposit balances increased to $31,364,000 for
the first six months in 2000 from $28,242,000 for the first six months of 1999,
an increase of 11.1% or $3,122,000. The average rate paid on these funds
increased to 3.89% from 3.22%.
Interest bearing transaction accounts cost $147,000 for the first six
months in 2000, an increase from the prior year's $127,000, up 15.7% or $20,000.
The volume of these deposits increased to $20,050,000 for the first six months
in 2000 from $16,476,000 for the first six months of 1999, a 21.7% or $3,574,000
increase. The average rate paid on these funds for the first six months in 2000
decreased to 1.47% from 1.54% for the first six months of 1999.
Time deposits cost $3,147,000 for the first six months of 2000, up from
$2,249,000 for the first six months of the prior year, an increase of 39.9% or
$898,000. The volume increased to $116,441,000 for the first six months in 2000
from $88,765,000 for the first six months of 1999, a 31.2% or $27,676,000
increase. The average rate paid on these funds increased to 5.41% for the first
six months in 2000 from 5.07% for the first six months in 1999.
Short-term borrowings consist 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 $64,000 for the first six months in 2000
compared to $75,000 for the first six months of 1999, down 14.7% or $11,000. The
volume of these funds decreased to $3,134,000 in the first six months of 2000
from $4,906,000 in the first six months of 1999, a decrease of 36.1% or
$1,772,000. The average rate paid on these funds increased to 4.08% from 3.06%.
Borrowings from the Federal Home Loan Bank cost $526,000 for the first
six months in 2000, an increase from $283,000 for the first six months in 1999,
up 85.9% or $243,000. The advances averaged $18,311,000 during the 2000 period,
compared to $10,501,000 for the prior year period, a 74.4% or $7,810,000
increase. All three banks are now borrowing from the FHLB. The advances are
serving as an alternate funding source for continued strong loan demand. The
average rate paid on these funds increased to 5.75% from 5.39%.
Non-Interest Income
Non-interest income for the first six months of 2000 grew to $885,000
from $650,000 in the first six months of 1999, a 36.2% or $235,000 increase.
This was mostly the result of increasing volumes of service charges associated
with increased numbers of accounts.
Non-Interest Expense
For the first six months of 2000 non-interest expenses increased to
$3,227,000 from $2,897,000 for the first six months of 1999, an 11.4% or
$330,000 increase. This increase is related to higher levels of business
activity and included the following components:
11
<PAGE>
For the 2000 period, personnel costs were $1,892,000 compared to
$1,683,000 for the 1999 period, an increase of 12.4% or $209,000;
For the 2000 period, premises and equipment expense were $456,000
compared to $437,000 for the 1999 period, an increase of 4.3% or $19,000; and
For the 2000 period, other costs were $879,000 compared to $777,000 for
the 1999 period, an increase of 13.1% or $102,000.
Income Taxes
CBI provided $820,000 for federal and state income taxes during the
first six months of 2000 compared to $464,000 for the same period in 1999, a
76.7% or $356,000 increase. The average tax rate for the 2000 period was
approximately 35.7% and for the 1999 period it was approximately 32.3%. The
Corporation benefited in the 1999 period from the exercise of non-qualified
stock options, which reduced the average tax rate.
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED JUNE 30, 2000 AND 1999
Net Income
For the quarter ended June 30, 2000, CBI earned a consolidated profit
of $783,000, compared to $543,000 for the comparable period of 1999, an increase
of 44.2% or $240,000. Basic earnings per share were $.25 in the 2000 period,
compared to $.17 for the 1999 period. The 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 six months
ended June 30, 2000.
Net interest income
Net interest income before provision for loan losses for the quarter
ended June 30, 2000, increased to $2,559,000 compared to $2,060,000 for the same
period in 1999, an increase of 24.2% or $499,000. For the same period the
provision for loan losses was $158,000 compared to $139,000 for the 1999 period,
an increase of 13.7% or $19,000.
Interest Income
Total interest income for the second quarter 2000 was $4,888,000
compared with $3,730,000 for the same period in 1999, a 31% or $1,158,000
increase.
The loan portfolio earned $4,033,000 for the second quarter 2000, up
from $2,940,000 for the same period of 1999, a 37.2% or $1,093,000 increase.
The investment portfolio earned $757,000 for the second quarter 2000,
up from $604,000 for the 1999 period, a 25.3% or $153,000 increase.
Interest bearing deposits in other banks contributed $24,000 for the
second quarter 2000, compared to $43,000 during the prior year, a decrease of
44.2% or $19,000.
Federal funds sold earned $74,000 the second quarter of 2000 compared
to $143,000 the prior year, a decrease of 48.3% or $69,000.
Interest expense
Interest expense increased for the second quarter of 2000 to $2,329,000
from the prior year's $1,670,000, a 39.5% or $659,000 increase.
Non-interest income and expense
Non-interest income for the 2000 period increased to $448,000 from
$345,000 for the 1999 period, a 29.9% or $103,000 increase. Non-interest expense
increased to $1,627,000 from $1,460,000, an 11.4% or $167,000 increase.
12
<PAGE>
CHANGES IN FINANCIAL POSITION
Investment portfolio
The investment portfolio is comprised of 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 June 30, 2000, the held to
maturity portfolio totaled $12,370,000 compared to $13,369,000 at December 31,
1999, a decrease of 7.5% or $999,000. At June 30, 2000, the available for sale
portfolio totaled $35,740,000 compared to $30,566,000 at December 31, 1999, an
increase of 16.9% or $5,174,000. The following chart summarizes the investment
portfolios at June 30, 2000, and December 31, 1999.
<TABLE>
<CAPTION>
June 30, 2000
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 ...... $12,370 $11,817 $33,961 $32,984
agencies
Tax exempt securities ............. - - 819 804
Other equity securities ........... - - 1,952 1,952
------- ------- ------- -------
Total ............................. $12,370 $11,817 $36,732 $35,740
======= ======= ======= =======
Unrealized (loss) ................. $ (553) $ (992)
======= =======
</TABLE>
<TABLE>
<CAPTION>
December 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 ...... $13,369 $12,919 $28,931 $28,151
agencies
Tax exempt securities ............. - - 825 814
Other equity securities ........... - - 1,601 1,601
------- ------- ------- -------
Total ............................. $13,369 $12,919 $31,357 $30,566
======= ======= ======= =======
Unrealized (loss) ................. $ (450) $ (791)
======= =======
</TABLE>
Loan portfolio
The loan portfolio is primarily consumer and small business oriented.
At June 30, 2000 the loan portfolio was $185,198,000, compared to $157,089,000
at December 31, 1999, a 17.9% or $28,109,000 increase. The following chart
summarizes the loan portfolio at June 30, 2000 and December 31, 1999.
Jun. 30, 2000 Dec. 31, 1999
------------- -------------
(dollars in thousands)
Real estate $109,807 $93,836
Commercial 47,060 40,220
Loans to individuals 28,331 23,033
------ ------
Total $185,198 $157,089
======== ========
13
<PAGE>
Past Due and Non-Performing Assets and the Allowance for Loan Losses
CBI closely monitors past due loans and loans that are in non-accrual
status and other real estate owned. Below is a summary of past due and
non-performing assets at June 30, 2000 and December 31, 1999.
Jun. 30, 2000 Dec. 31, 1999
------------- -------------
(dollars in thousands)
Past due 90 days + accruing loans $205 $ -
Non-accrual loans $359 $90
Impaired loans (included in nonaccrual) $359 $90
Other real estate owned $124 $ -
Management considers the past due and non-accrual amounts at June 30,
2000 to be reasonable in relation to the size of the portfolio and manageable in
the normal course of business. The increase in non-accrual assets is associated
with a small number of loans and is not indicative, in the opinion of
management, of any trend.
CBI had no restructured loans during any of the above listed periods.
Each subsidiary bank maintains its own allowance for loan losses, which
is available to absorb losses inherent in the loan portfolio of that bank but
not the other banks. The aggregate allowance for loan losses of the banks and
the aggregate activity with respect to those allowances are summarized below:
<TABLE>
<CAPTION>
Six months ended Year ended Six months ended
June 30, 2000 Dec. 31, 1999 June 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Allowance at beginning of period .................................... $ 1,936 $ 1,459 $ 1,459
Provision expense ................................................... 338 612 273
Net charge offs ..................................................... (124) (135) (37)
------- ------- -------
Allowance at end of period .......................................... $ 2,150 $ 1,936 $ 1,695
======= ======= =======
Allowance as a percent of outstanding loans ......................... 1.16% 1.24% 1.21%
</TABLE>
In reviewing the adequacy of the allowance for loan losses at the end
of each period, management of each bank considers historical loan loss
experience, current economic conditions, 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 bank
considers the allowance adequate to provide for estimated future losses inherent
in the loan portfolio at June 30, 2000.
Deposits
Deposits were $202,073,000 at June 30, 2000 compared to $184,364,000 at
December 31, 1999, an increase of 9.6% or $17,709,000.
Time deposits greater than $100,000 were $40,651,000 at June 30, 2000
compared to $36,163,000 at December 31, 1999, an increase of 12.4% or
$4,488,000.
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
14
<PAGE>
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 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.
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 $202 million in 2000. 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 June 30, 2000 CBI had
approximately $24.3 million and $10.2 million 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
$138.5 million and $47.7 million, respectively. CBI expects to be able to manage
its current balance sheet structure without experiencing any material liquidity
problems.
In the opinion of management, CBI's current and projected liquidity
position is adequate.
Capital resources
As summarized in the table below, CBI maintains a strong capital
position.
June 30, 2000 Dec. 31, 1999
------------- -------------
Tier 1 capital to average total assets ....... 8.89% 9.40%
Tier 1 capital to risk weighted assets ....... 11.85% 13.00%
Total capital to risk weighted assets ........ 13.01% 14.20%
The decline in the capital ratios is related to balance sheet growth
during the period. Banks are required to maintain a minimum total risk weighted
capital ratio of at least 8%, and CBI currently has 13.01%. In the opinion of
management, the Corporation's current and projected capital positions are
adequate.
Dividends
CBI declared and paid a quarterly cash dividend of five cents per share
during the first and second quarters of 2000. The total cost of these dividends
was $319,000. In previous years the Corporation paid dividends on a semi-annual
basis. CBI also declared and paid a five percent stock dividend during the first
quarter of 2000.
15
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices
and rates. The Corporation's market risk arises principally from interest rate
risk inherent in its lending, deposit and borrowing activities. Management
actively monitors and manages its interest rate risk exposure. Although the
Corporation manages other risks, such as credit quality and liquidity risk in
the normal course of business, management considers interest rate risk to be its
most significant market risk and this risk could potentially have the largest
material effect on the Corporation's financial condition and results of
operations. Other types of market risks such as foreign currency exchange risk
and commodity price risk do not arise in the normal course of community banking
activities.
Achieving consistent growth in net interest income is the primary goal
of the Corporation's asset/liability function. The Corporation attempts to
control the mix and maturities of assets and liabilities to achieve consistent
growth in net interest income despite changes in market interest rates. The
Corporation seeks to accomplish this goal while maintaining adequate liquidity
and capital. The Corporation's asset/liability mix is sufficiently balanced so
that the effect of interest rates moving in either direction is not expected to
be significant over time.
The Corporation's Asset/Liability Committee uses a simulation model to
assist in achieving consistent growth in net interest income while managing
interest rate risk. The model takes into account interest rate changes as well
as changes in the mix and volume of assets and liabilities. The model simulates
the Corporation's balance sheet and income statement under several different
rate scenarios. The model's inputs (such as interest rates and levels of loans
and deposits) are updated on a quarterly basis in order to obtain the most
accurate projection possible. The projection presents information over a
twelve-month period. It reports a base case in which interest rates remain flat
and reports variations that occur when rates increase and decrease 100 and 200
basis points. According to the model as of June 30, 2000 the Corporation is
positioned so that net interest income will increase $135,000 and net income
will increase $84,000 in the next twelve months if interest rates rise 200 basis
points. Conversely, net interest income will decline $135,000 and net income
will decline $84,000 in the next twelve months if interest rates decline 200
basis points. Computation of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates and loan prepayment, and should not be relied upon as indicative
of actual results. Further, the computations do not contemplate any actions the
Corporation could undertake in response to changes in interest rates.
As of June 30, 2000 there was no significant change from the interest
rate sensitivity analysis for the various changes in interest rates calculated
as of December 31, 1999. The foregoing disclosures related to the market risk of
the Corporation should be read in connection with Management's Discussion and
Analysis of Financial Position and Results of Operations included in the 1999
Annual Report on Form 10-K.
16
<PAGE>
Part II--Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
CBI had an Annual Meeting of Shareholders on April 25, 2000
The following persons were elected to the Board:
Three year term: E. J. Ayers, Jr., Alvis J. Bynum, J. Otto Warren, Jr. and Jesse
A. Nance.
The other item approved was the ratification of J. W. Hunt and Co., Certified
Public Accountants, as outside auditors for CBI for the year ended December 31,
2000.
The vote tally was as follows:
<TABLE>
<CAPTION>
Total number Voting
of shares against or to Present at
eligible to withhold Voting to meeting and
vote Voting for authority abstain not voting
---- ---------- --------- ------- ----------
Election of directors
<S> <C> <C> <C> <C> <C>
E. J. Ayers, Jr .......................... 3,190,977 2,364,189 0 0 0
Alvis J. Bynum ........................... 3,190,977 2,364,189 0 0 0
J. Otto Warren, Jr ....................... 3,190,977 2,357,639 6,550 0 0
Jesse A. Nance ........................... 3,190,977 2,364,189 0 0 0
Ratification of J. W. Hunt .................... 3,190,977 2,339,460 1,050 23,679 0
</TABLE>
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit No.(from item Description
601 of S-B)
27 Financial Data Schedule
b) Reports on Form 8-K. None.
18
<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: August 11, 2000
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)
19
