- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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: 3,191,325 shares of common
stock outstanding as of May 1, 2000.
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<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
Part II-Other Information
Item 6 Exhibits and Reports on Form 8-K ......................... 17
2
<PAGE>
Part I. Item 1. Financial Statements
COMMUNITY BANKSHARES, INC. - CONSOLIDATED BALANCE SHEETS
($ amounts in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
---- ----
UNAUDITED
Cash and due from other financial institutions:
<S> <C> <C>
Non-interest bearing ............................................................ $ 10,516 $ 12,275
Federal funds sold .............................................................. 5,320 8,040
--------- ---------
Total cash and cash equivalents ............................................. 15,836 20,315
Interest bearing deposits in other banks ............................................. 1,255 788
Investment securities:
Securities held to maturity ..................................................... 12,870 13,369
Securities available for sale ................................................... 34,973 30,566
Loans held for resale ................................................................ 50 269
Loans ................................................................................ 171,490 157,089
Less, allowance for loan losses ................................................. (2,087) (1,936)
--------- ---------
Net loans ................................................................... 169,403 155,153
Accrued interest receivable ......................................................... 2,017 1,700
Premises and equipment ............................................................... 4,526 4,619
Deferred income taxes ................................................................ 879 858
Other assets ......................................................................... 529 393
--------- ---------
Total assets ................................................................ $ 242,338 $ 228,030
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing ............................................................ $ 27,105 $ 26,878
Interest bearing ................................................................ 170,152 157,486
--------- ---------
Total deposits .............................................................. 197,257 184,364
Federal funds purchased and securities
sold under agreements to repurchase ............................................. 2,308 2,782
Federal Home Loan Bank advances ...................................................... 20,620 19,420
Other liabilities .................................................................... 1,553 1,219
--------- ---------
Total liabilities ........................................................... 221,738 207,785
--------- ---------
Shareholders' equity:
Common stock
No par, authorized shares 12,000,000, issued and ............................ 15,906 14,207
outstanding 3,191,325 in 2000 and 3,191,462 in 1999
Retained earnings ............................................................... 5,374 6,549
Accumulated other comprehensive (loss) .......................................... (680) (511)
--------- ---------
Total shareholders' equity .................................................. 20,600 20,245
--------- ---------
Total liabilities and shareholders' equity .................................. $ 242,338 $ 228,030
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
3
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
for the three months ended March 31, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Common Retained Comprehensive Shareholders'
Shares Stock Earnings Income (Loss) Equity
------ ----- -------- ------------- ------
($ amounts in thousands)
<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 ......................................... 429 429
Other comprehensive income (loss) net of tax:
Unrealized gain (loss) on securities ............... (112) (112)
Issuance of common stock ................................ 38,535 169 169
Redemption of common stock .............................. (49,455) (630) (630)
Dividends paid .......................................... 0 0 (275) 0 (275)
---------- ---------- ---------- ---------- ----------
Balances at Mar. 31, 1999 ............................... 3,189,150 $ 14,187 $ 5,129 $ (76) $ 19,240
========== ========== ========== ========== ==========
Balances at Dec. 31, 1999 ............................... 3,191,462 $ 14,207 $ 6,549 $ (511) $ 20,245
Comprehensive income:
Net income ......................................... 694 694
Other comprehensive income (loss) net of tax:
Unrealized gain (loss) on securities ............... (169) (169)
Cash-in-lieu of shares in connection .................... (137)
with Jan. 31, 2000 stock dividend
Market value of shares issued in five
percent stock dividend ............................. - 1,709 (1,709) -
Costs of stock dividend ................................. (10) (10)
Cash dividends paid ..................................... 0 0 (160) 0 (160)
---------- ---------- ---------- ---------- ----------
Balances at Mar. 31, 2000 ............................... 3,191,325 $ 15,906 $ 5,374 $ (680) $ 20,600
========== ========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
4
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
---- ----
UNAUDITED UNAUDITED
($ amounts in thousands)
Interest and dividend income:
<S> <C> <C>
Interest and fees on loans ............................................................... $ 3,730 $ 2,692
Deposits with other financial institutions ............................................... 4 36
Investment securities:
Interest - U. S. Treasury and
U. S. Government Agencies ............................................................ 706 500
Dividends .............................................................................. 29 33
---------- ----------
Total investment securities ......................................................... 735 533
Federal funds sold and securities
purchased under agreements to resell ................................................... 114 154
---------- ----------
Total interest and dividend income .................................................. 4,583 3,415
---------- ----------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more ............................................ 508 313
Other .................................................................................. 1,380 1,040
---------- ----------
Total deposits ...................................................................... 1,888 1,353
Federal funds purchased and securities
sold under agreements to repurchase .................................................... 24 38
Federal Home Loan Bank advances .......................................................... 253 128
---------- ----------
Total interest expense .............................................................. 2,165 1,519
---------- ----------
Net interest income .......................................................................... 2,418 1,896
Provision for loan losses .................................................................... 180 134
---------- ----------
Net interest income after provision for loan losses .......................................... 2,238 1,762
---------- ----------
Non-interest income:
Service charges on deposit accounts ...................................................... 347 217
Other .................................................................................... 90 88
---------- ----------
Total non-interest income ........................................................... 437 305
---------- ----------
Non-interest expense:
Salaries and employee benefits ........................................................... 940 832
Premises and equipment ................................................................... 224 215
Other .................................................................................... 436 390
---------- ----------
Total non-interest expense .......................................................... 1,600 1,437
---------- ----------
Income before taxes .......................................................................... 1,075 630
Provision for income taxes ................................................................... 381 201
---------- ----------
Net income ................................................................................... $ 694 $ 429
========== ==========
Basic earnings per common share:
Weighted average shares outstanding ...................................................... 3,191,325 3,190,523
========== ==========
Net income per common share .............................................................. $ 0.22 $ 0.13
========== ==========
Diluted earnings per common share:
Weighted average shares outstanding ...................................................... 3,212,902 3,218,251
========== ==========
Net income per common share .............................................................. $ 0.22 $ 0.13
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
5
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31,
($ amounts in thousands) 2000 1999
---- ----
UNAUDITED UNAUDITED
Cash flows from operating activities:
<S> <C> <C>
Net income ............................................................................... $ 694 $ 429
Adjustments to reconcile net income
to net cash (provided) used by operating activities
Depreciation and amortization .................................................... 119 109
Provision for loan losses ........................................................ 180 134
Accretion of discounts and amortization of premiums -
investment securities - net .................................................... 63 23
Proceeds from sale of real estate loans held for sale ............................ 1,025 3,389
Origination of real estate loans held for sale ................................... (806) (2,987)
Changes in operating assets and liabilities:
(Increase) in interest receivable ................................................ (317) (148)
(Increase) decrease in other assets .............................................. (157) 59
Increase in other liabilities .................................................... 334 56
-------- --------
Net cash provided by operating activities .................................... 1,135 1,064
-------- --------
Cash flows from investing activities:
Net (increase) in interest bearing deposits
with other banks .............................................................. (467) (2,308)
Purchases of held to maturity securities ......................................... (501) (2,251)
Proceeds from maturities of held to maturity securities .......................... 1,000 4,403
Purchases of available for sale securities ....................................... (4,992) (7,977)
Proceeds from maturities of available for sale securities ........................ 353 3,829
Net (increase) in loans to customers ............................................. (14,430) (9,638)
Purchase of premises and equipment ............................................... (26) (368)
-------- --------
Net cash (used) in investing activities ....................................... (19,063) (14,310)
-------- --------
Cash flows from financing activities:
Net increase in demand, savings, & time deposits ................................. 12,893 10,847
Net (decrease) in federal funds purchased
and securities sold under agreements to re purchase ........................... (474) (1,279)
Increase in Federal Home Loan Bank advances ...................................... 1,200 2,000
Sale of common stock ............................................................. - 169
Common stock redemption .......................................................... (10) (630)
Dividend payments ................................................................ (160) (275)
-------- --------
Net cash provided by financing activities ..................................... 13,449 10,832
-------- --------
Net decrease in cash and cash equivalents ................................................ (4,479) (2,414)
Cash and cash equivalents - beginning of period .......................................... 20,315 23,296
-------- --------
Cash and cash equivalents - end of period ................................................ $ 15,836 $ 20,882
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
6
<PAGE>
Summary of Significant Accounting Principles
A summary of significant accounting policies and the audited financial
statements for 1999 are included in Company'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 .................. $ (115,000) $ 39,000 $ (76,000)
period
Less: reclassification adjustment for gains
(losses) realized in net income .............................. 0 0 0
Net unrealized gains (losses) ..................................... (115,000) 39,000 (76,000)
----------- ----------- -----------
Other comprehensive income, March 31, 1999 ........................ $ (115,000) $ 39,000 $ (76,000)
=========== =========== ===========
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during .................. $(1,053,000) $ 373,000 $ (680,000)
period
Less: reclassification adjustment for gains
(losses) realized in net income .............................. 0 0 0
----------- ----------- -----------
Net unrealized gains (losses) ..................................... (1,053,000) 373,000 (680,000)
----------- ----------- -----------
Other comprehensive income, March 31, 2000 ........................ $(1,053,000) $ 373,000 $ (680,000)
=========== =========== ===========
</TABLE>
Stock Dividend
On January 31, 2000, CBI effected a 5% 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>
Quarter ended March 31, 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 ...................... $ 352 $ 4 4.55% $ 2,671 $ 36 5.39%
Investment securities taxable .................. 45,852 727 6.34% 34,303 527 6.15%
Investment securities--tax exempt .............. 809 8 5.99% 602 6 6.04%
Federal funds sold ............................. 7,810 114 5.84% 12,585 154 4.89%
Loans receivable ............................... 163,226 3,730 9.14% 122,562 2,692 8.79%
-------- ------ -------- ------
Total interest earning assets .................. 218,049 4,583 8.41% 172,723 3,415 7.91%
Cash and due from banks ........................ 8,268 7,978
Allowance for loan losses ...................... (2,009) (1,519)
Premises and equipment ......................... 4,576 4,269
Other assets ................................... 2,973 2,054
-------- --------
Total assets ................................... $231,857 $185,505
======== ========
Liabilities and Shareholders' Equity
Interest bearing deposits
Savings ........................................ $ 31,191 $295 3.78% $ 26,847 $ 216 3.22%
Interest bearing transaction accounts .......... 19,166 75 1.57% 15,919 61 1.53%
Time deposits .................................. 112,652 1,518 5.39% 84,534 1,076 5.09%
-------- ------ -------- ------
Total interest bearing deposits ................ 163,009 1,888 4.63% 127,300 1,353 4.25%
Short term borrowing ........................... 2,709 24 3.54% 5,113 38 2.97%
FHLB advances .................................. 18,001 253 5.62% 9,512 128 5.38%
-------- ------ -------- ------
Total interest bearing liabilities ............. 183,719 2,165 4.71% 141,925 1,519 4.28%
Noninterest bearing demand deposits ............ 26,532 23,033
Other liabilities .............................. 1,179 1,113
Shareholders' equity ........................... 20,427 19,434
-------- --------
Total liabilities and shareholders' equity ..... $231,857 $185,505
======== ========
Interest rate spread ........................... 3.70% 3.63%
Net interest income and net yield on earning assets $2,418 4.44% $1,896 4.39%
====== ======
</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: QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED
MARCH 31, 1999
Net Income
For the first quarter of 2000 CBI earned a consolidated profit of
$694,000, compared to $429,000 for the first quarter of 1999, an increase of
61.8% or $265,000. Basic and diluted earnings per share were $.22 in the 2000
period, compared to $.13 for the 1999 period.
For the first quarter of 2000 Orangeburg National Bank reported a
profit of $541,000, compared to $469,000 for the first quarter of 1999, an
increase of 15.3% or $72,000.
For the first quarter of 2000 Sumter National Bank reported a profit of
$181,000 compared to $82,000 for the first quarter of 1999, an increase of 121%
or $99,000. The Sumter bank began operation in June 1996.
For the first quarter of 2000 Florence National Bank reported a net
loss of $29,000 compared to net loss of $116,000 for the first quarter of 1999,
an improvement of $87,000. The Florence bank began operation in July 1998.
As noted above, consolidated net income for the quarter ended March 31,
2000, increased from the prior year by 61.7% or $265,000. The major components
of this increase are discussed below. Net interest income before provision for
loan losses for the three months ended March 31, 2000, increased to $2,418,000,
compared to $1,896,000 for the same period in 1999, an increase of 27.5% or
$522,000. For the same period, the provision for loan losses was $180,000,
compared to $134,000 for the 1999 period, an increase of 34.3% or $46,000.
Non-interest income for the 2000 period increased to $437,000 from $305,000 for
the 1999 period, a 43.3% or $132,000 increase. Non-interest expense increased to
$1,600,000 from $1,437,000, an 11.3% or $163,000 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 quarters ended March
31, 2000 and 1999, the following table is presented.
9
<PAGE>
Period ended March 31, 2000 1999
- ---------------------- ---- ----
(dollars in thousands)
Average assets ................ $231,857 $185,505
ROA ........................... 1.20% 0.93%
Average equity ................ $20,427 $19,434
ROE ........................... 13.59% 8.83%
Net income .................... $694 $429
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
quarter of 2000, net interest income after provision for loan losses increased
to $2,238,000 from $1,762,000, a 27% or $476,000 increase over the first quarter
of 1999. This improvement was the result of a $45 million increase in the volume
of earning assets and increasing yields. The average yield on earning assets
increased to 8.41% for the 2000 period from 7.91% for the 1999 period. This was
mostly the result of an increase in the prime lending rate, which was 8.75%
during the first quarter of 2000, compared to 7.75% for the same period in 1999.
For the first quarter of 2000 the cost of funds averaged 4.71%,
increased from 4.28% for the first quarter of 1999. The increase in the yield on
earning assets was partially offset by the 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 3.69% for the first quarter of 2000,
increased from 3.63% during the first quarter of 1999. CBI's net interest margin
(net interest income divided by total earning assets) was 4.44% for the first
quarter of 2000, compared to 4.39% for the first quarter 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 quarters ended March 31, 2000 and 1999. A discussion of
that table follows.
Total interest income for the first quarter 2000 was $4,583,000
compared with $3,415,000 for the same period in 1999, a 34.2% or $1,168,000
increase. The yield on earning assets for the 2000 period was 8.41%, increased
from 7.91% for the 1999 period. Total average interest earning assets for the
2000 period were $218,049,000, up from $172,723,000 for the 1999 period, an
increase of 26.2% or $45,326,000.
The loan portfolio earned $3,730,000 for the first quarter 2000, up
from $2,692,000 for the same period of 1999, a 38.6% or $1,038,000 increase. The
first quarter 2000 yield increased to 9.14% from 8.79% for the first quarter in
1999. The average size of the loan portfolio was $163,226,000 for the 2000
quarter, up from $122,562,000 for the same period of 1999, an increase of 33.2%
or $40,664,000.
The taxable investment portfolio earned $727,000 for the first quarter
in 2000, up from $527,000 for the 1999 period, a 38% or $200,000 increase. The
yield increased to 6.34% in the 2000 quarter from 6.15% in the 1999 quarter. The
average size of the portfolio increased to $45,852,000 in the 2000 quarter from
$34,303,000 in the 1999 quarter, an increase of 33.7% or $11,549,000.
The tax-exempt investment portfolio earned $8,000 for the first quarter
in 2000, up from $6,000 for the same period in 1999, a 33.3% or $2,000 increase.
The yield on the portfolio was 5.99%, a decrease from 6.04%. The average size of
the portfolio increased to $809,000 for the 2000 period, up from $602,000 in the
1999 period, an increase of 34.4% or $207,000.
10
<PAGE>
Interest bearing deposits in other banks contributed $4,000 for the
first quarter 2000, compared to $36,000 during the prior year, a decrease of
88.9% or $32,000. The yield on these deposits decreased to 4.55% for the 2000
period from 5.39% in the 1999 period. CBI averaged $352,000 in interest bearing
balances in the first quarter 2000 compared to $2,671,000 the first quarter of
the prior year, a decrease of 86.8% or $2,319,000.
Federal funds sold earned $114,000 the first quarter of 2000 compared
to $154,000 the prior year, a decrease of 26% or $40,000. Yields increased to
5.84% for the first quarter in 2000 from 4.89% for the first quarter in 1999.
For the first quarter of 2000, CBI decreased its average volume in federal funds
sold to $7,810,000 from $12,585,000 for the first quarter of 1999, a 37.9% or
$4,775,000 increase. This decline was mostly associated with strong loan demand
in the three markets.
Interest Expense
Interest expense increased for the first quarter 2000 to $2,165,000
from the prior year's $1,519,000, a 42.5% or $646,000 increase. The volume of
interest bearing liabilities increased to $183,719,000 for the first quarter in
2000 from $141,925,000 for the first quarter of 1999, a 29.4% or $41,794,000
increase. The average rate paid for interest-bearing liabilities during the 2000
quarter was 4.71%, up from 4.28% for the 1999 period.
The cost of savings accounts increased to $295,000 in the first quarter
in 2000 from $216,000 in the first quarter of 1999, a 36.6% or $79,000 increase.
Average savings deposit balances increased to $31,191,000 for the first quarter
in 2000 from $26,847,000 for the first quarter of 1999, an increase of 16.2% or
$4,344,000. The average rate paid on these funds increased to 3.78% from 3.22%.
Interest bearing transaction accounts cost $75,000 for the first
quarter in 2000, an increase from the prior year's $61,000, up 22.9% or $14,000.
The volume of these deposits increased to $19,166,000 for the first quarter in
2000 from $15,919,000 for the first quarter of 1999, a 20.4% or $3,247,000
increase. The average rate paid on these funds for the first quarter in 2000
increased to 1.57% from 1.53% for the first quarter of 1999.
Time deposits cost $1,518,000 for the first quarter of 2000, up from
$1,076,000 the first quarter of the prior year, an increase of 41.1% or
$442,000. The volume increased to $112,652,000 for the first quarter in 2000
from $84,534,000 for the first quarter of 1999, a 33.3% or $28,118,000 increase.
The average rate paid on these funds increased to 5.39% for the first quarter in
2000 from 5.09% for the first quarter in 1999.
Short-term borrowings consists of federal funds purchased and
securities sold under agreements to repurchase. This is a relatively small and
volatile part of the balance sheet. It cost $24,000 for the first quarter in
2000, compared to $38,000 for the first quarter of 1999, down 36.8% or $14,000.
The volume of these funds decreased to $2,709,000 in the first quarter 2000 from
$5,113,000 in the first quarter of 1999, a decrease of 47% or $2,404,000. The
average rate paid on these funds increased to 3.54% from 2.97%.
Borrowings from the Federal Home Loan Bank cost $253,000 for the first
quarter in 2000, an increase from $128,000 for the first quarter in 1999, up
97.7% or $125,000. The advances averaged $18,001,000 during the 2000 quarter,
compared to $9,512,000 for the prior year quarter, an 89.2% or $8,489,000
increase. This increase is due to all three banks now borrowing from the FHLB.
The average rate paid on these funds increased to 5.62% from 5.38%.
Non-Interest Income
Non-interest income for the first quarter 2000 grew to $437,000 from
$305,000 in the first quarter of 1999, a 43.3% or $132,000 increase. This was
mostly the result of increasing volumes of service charges associated with
increased numbers of accounts and the resulting fee income.
11
<PAGE>
Non-Interest Expense
For the first quarter of 2000 non-interest expenses increased to
$1,600,000 from $1,437,000 for the first quarter of 1999, an 11.3% or $163,000
increase. This increase is related to higher levels of business activity and
included the following components:
For the 2000 period, personnel costs were $940,000 compared to $832,000
for the 1999 period, an increase of 13% or $108,000;
For the 2000 period, premises and equipment expense were $224,000
compared to $215,000 for the 1999 period, an increase of 4.2% or $9,000; and
For the 2000 period, other costs were $436,000 compared to $390,000 for
the 1999 period, an increase of 11.8% or $46,000.
Income Taxes
CBI provided $381,000 for federal and state income taxes during the
first quarter of 2000 compared to $201,000 for the same period in 1999, a 89.6%
or $180,000 increase. The average tax rate for the 2000 period was approximately
35% and for the 1999 period it was approximately 32%. The Corporation benefited
in the 1999 period from the exercise of non-qualified stock options, which
reduced the average tax rate.
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 March 31, 2000, the held to
maturity portfolio totaled $12,870,000 compared to $13,369,000 at December 31,
1999, a decrease of 3.7% or $499,000. At March 31, 2000, the available for sale
portfolio totaled $34,973,000 compared to $30,566,000 at December 31, 1999, an
increase of 14.4% or $4,407,000. The following chart summarizes the investment
portfolios at March 31, 2000, and December 31, 1999.
12
<PAGE>
<TABLE>
<CAPTION>
March 31, 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 agencies ........ $12,870 $12,284 $33,452 $32,416
Tax exempt securities ........................ - - 822 806
Other equity securities ...................... - - 1,752 1,751
------- ------- ------- -------
Total ........................................ $12,870 $12,284 $36,026 $34,973
======= ======= ======= =======
Unrealized (loss) ............................ $ (586) $(1,053)
======= =======
<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 agencies ........ $13,369 $12,919 $28,931 $28,151
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 March 31, 2000 the loan portfolio was $171,490,000, compared to $157,089,000
at December 31, 1999, a 9.2% or $14,401,000 increase. The following chart
summarizes the loan portfolio at March 31, 2000 and December 31, 1999.
Mar. 31, 2000 Dec. 31, 1999
------------- -------------
(dollars in thousands)
Real estate ............................ $101,867 $93,836
Commercial ............................. 44,538 40,220
Loans to individuals ................... 25,085 23,033
-------- --------
Total .................................. $171,490 $157,089
======== ========
Past Due and Non-Performing Assets and the Allowance for Loan Losses
CBI closely monitors past due loans and loans that are in non-accrual
status and other real estate owned. Below is a summary of past due and
non-performing assets at March 31, 2000 and December 31, 1999.
Mar. 31, 2000 Dec. 31, 1999
------------- -------------
(dollars in thousands)
Past due 90 days + accruing loans ........ $3 $0
Non-accrual loans ........................ $398 $90
Impaired loans (included in nonaccrual) .. $398 $90
Other real estate owned .................. $21 $0
13
<PAGE>
Management considers the past due and non-accrual amounts at March 31,
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>
Quarter ended Year ended Quarter ended
Mar. 31, 2000 Dec. 31, 1999 Mar. 31, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Allowance at beginning of period .................................... $ 1,936 $ 1,459 $ 1,459
Provision expense ................................................... 180 612 134
Net charge offs ..................................................... (29) (135) (28)
------- ------- -------
Allowance at end of period .......................................... $ 2,087 $ 1,936 $ 1,565
======= ======= =======
Allowance as a percent of outstanding loans ......................... 1.22% 1.24% 1.23%
</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 March 31, 2000.
Deposits
Deposits were $197,257,000 at March 31, 2000 compared to $184,364,000
at December 31, 1999, an increase of 7% or $12,893,000.
Time deposits greater than $100,000 were $40,775,000 at March 31, 2000
compared to $36,163,000 at December 31, 1999, an increase of 12.8% or
$4,612,000.
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
14
<PAGE>
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 $197 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 March 31, 2000 CBI had
approximately $11.6 million and $20.4 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
$100 million and $43.7 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.
Mar. 31, 2000 Dec. 31, 1999
------------- -------------
Tier 1 capital to average total assets ...... 9.18% 9.40%
Tier 1 capital to risk weighted assets ...... 12.06% 13.00%
Total capital to risk weighted assets ....... 13.24% 14.20%
The small 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 13.24%. In the
opinion of management, the Company'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 quarter of 2000. The total cost of this dividend was $160,000.
In previous years the company paid dividends on a semi-annual basis. CBI also
declared and paid a five percent stock dividend during the first quarter of
2000.
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
15
<PAGE>
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 March 31, 2000 the Corporation is
positioned so that net interest income will increase $122,000 and net income
will increase $75,000 in the next twelve months if interest rates rise 200 basis
points. Conversely, net interest income will decline $82,000 and net income will
decline $50,000 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 March 31, 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 Company 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 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.
17
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: May 11, 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)
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at March 31, 2000 (unaudited) and the Consolidated
Statement of Income for the three months ended March 31, 2000 (unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,516
<INT-BEARING-DEPOSITS> 1,255
<FED-FUNDS-SOLD> 5,320
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 34,973
<INVESTMENTS-CARRYING> 12,870
<INVESTMENTS-MARKET> 12,284
<LOANS> 171,490
<ALLOWANCE> 2,087
<TOTAL-ASSETS> 242,338
<DEPOSITS> 197,257
<SHORT-TERM> 2,308
<LIABILITIES-OTHER> 1,553
<LONG-TERM> 20,620
0
0
<COMMON> 15,906
<OTHER-SE> 4,694
<TOTAL-LIABILITIES-AND-EQUITY> 242,338
<INTEREST-LOAN> 3,730
<INTEREST-INVEST> 735
<INTEREST-OTHER> 118
<INTEREST-TOTAL> 4,583
<INTEREST-DEPOSIT> 1,888
<INTEREST-EXPENSE> 2,165
<INTEREST-INCOME-NET> 2,418
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,600
<INCOME-PRETAX> 1,075
<INCOME-PRE-EXTRAORDINARY> 694
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 694
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.22
<YIELD-ACTUAL> 4.44
<LOANS-NON> 398
<LOANS-PAST> 3
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 401
<ALLOWANCE-OPEN> 1,936
<CHARGE-OFFS> 35
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 2,087
<ALLOWANCE-DOMESTIC> 2,087
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
