SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Sept.30, 2000 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)
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 3,193,845 shares of common
stock outstanding as of October 25, 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 ..... 9
and Results of Operations
Item 3 Quantitative and Qualitative Disclosures about Market Risk ...... 17
Part II-Other Information
Item 6 Exhibits and Reports on Form 8-K ................................ 18
2
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED BALANCE SHEETS
$ amounts in thousands
<TABLE>
<CAPTION>
UNAUDITED
Sept. 30, December 31,
ASSETS 2000 1999
---- ----
Cash and due from other financial institutions:
<S> <C> <C>
Non-interest bearing ............................................................ $ 11,959 $ 12,275
Federal funds sold .............................................................. 6,328 8,040
--------- ---------
Total cash and cash equivalents ............................................. 18,287 20,315
Interest bearing deposits in other banks ............................................. 1,569 788
Investment securities:
Securities held to maturity ..................................................... 12,371 13,369
Securities available for sale ................................................... 35,577 30,566
Loans ................................................................................ 186,407 157,358
Less, allowance for loan losses ................................................. (2,270) (1,936)
--------- ---------
Net loans ................................................................... 184,137 155,422
Premises and equipment ............................................................... 4,471 4,619
Accrued interest receivable ......................................................... 2,243 1,700
Deferred income taxes ................................................................ 898 858
Other assets ......................................................................... 291 393
--------- ---------
Total assets ................................................................ $ 259,844 $ 228,030
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing ............................................................ $ 29,566 $ 26,878
Interest bearing ................................................................ 181,725 157,486
--------- ---------
Total deposits .............................................................. 211,291 184,364
Federal funds purchased and securities
sold under agreements to repurchase ............................................. 5,757 2,782
Federal Home Loan Bank advances ...................................................... 19,050 19,420
Other liabilities .................................................................... 1,514 1,219
--------- ---------
Total liabilities ........................................................... 237,612 207,785
--------- ---------
Shareholders' equity:
Common stock
No par, authorized shares 12,000,000, issued and
outstanding 3,193,845 in 2000 and 3,191,462 in 1999 ......................... 15,925 14,207
Retained earnings ............................................................... 6,730 6,549
Accumulated other comprehensive (loss) .......................................... (423) (511)
--------- ---------
Total shareholders' equity .................................................. 22,232 20,245
--------- ---------
Total liabilities and shareholders' equity .................................. $ 259,844 $ 228,030
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
3
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY
for the nine months ended September 30, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Total
------------ Retained Comprehensive Shareholders'
Shares Amount Earnings Income (Loss) Equity
------ ------ -------- ------------- ------
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Balances at Dec. 31, 1998 .................................... 3,047,686 $ 14,648 $ 4,975 $ 36 $ 19,659
Comprehensive income:
Net income .............................................. 1,586 1,586
Other comprehensive income (loss) net of tax:
Unrealized gain (loss) on securities .................... (526) (526)
Issuance of common stock ..................................... 38,715 187 187
Redemption of common stock ................................... (47,100) (630) (630)
Dividends paid ............................................... - - (607) - (607)
---------- ---------- ---------- ----- ----------
Balances at September 30, 1999 ............................... 3,039,301 $ 14,205 $ 5,954 $(490) $ 19,669
========== ========== ========== ===== ==========
Balances at Dec. 31, 1999 .................................... 3,191,462 $ 14,207 $ 6,549 $(511) $ 20,245
Comprehensive income:
Net income .............................................. 2,342 2,342
Other comprehensive income (loss) net of tax:
Unrealized gain (loss) on securities .................... 88 88
Cash-in-lieu of shares in connection ......................... (137)
with Jan. 31, 2000 stock dividend
Market value of shares issued in five ........................ - 1,708 (1,708) -
percent stock dividend
Shares issued under option agreement ......................... 2,520 20 19
Costs of stock dividend ...................................... (10) (10)
Dividends paid ............................................... - - (453) - (452)
---------- ---------- ---------- ----- ----------
Balances at Sept. 30, 2000 ................................... 3,193,845 $ 15,925 $ 6,730 $(423) $ 22,232
========== ========== ========== ===== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
4
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine months ended Sept. 30, Three months ended Sept. 30,
2000 1999 2000 1999
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
--------- --------- --------- ---------
Interest and dividend income: $ amounts in thousands
<S> <C> <C> <C> <C>
Interest and fees on loans ..................................... $ 12,184 $ 8,886 $ 4,421 $ 3,254
Deposits with other financial institutions ..................... 53 90 25 11
Investment securities:
Interest - U. S. Treasury and
U. S. Government Agencies .................................. 2,159 1,727 727 646
Dividends .................................................... 96 80 36 24
--------- --------- --------- ---------
Total investment securities ............................... 2,255 1,807 763 670
Federal funds sold and securities
purchased under agreements to resell ......................... 252 454 64 157
--------- --------- --------- ---------
Total interest and dividend income ........................ 14,744 11,237 5,273 4,092
--------- --------- --------- ---------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more .................. 1,666 1,069 593 406
Other ........................................................ 4,473 3,369 1,642 1,201
--------- --------- --------- ---------
Total deposits ............................................ 6,139 4,438 2,235 1,607
Federal funds purchased and securities
sold under agreements to repurchase .......................... 117 137 53 62
Federal Home Loan Bank advances ................................ 863 441 337 158
--------- --------- --------- ---------
Total interest expense .................................... 7,119 5,016 2,625 1,827
--------- --------- --------- ---------
Net interest income ................................................ 7,625 6,221 2,648 2,265
Provision for loan losses .......................................... 490 439 152 166
--------- --------- --------- ---------
Net interest income after provision for loan losses ................ 7,135 5,782 2,496 2,099
--------- --------- --------- ---------
Non-interest income:
Service charges on deposit accounts ............................ 1,059 723 363 268
Other .......................................................... 290 271 101 76
--------- --------- --------- ---------
Total non-interest income ................................. 1,349 994 464 344
--------- --------- --------- ---------
Non-interest expense:
Salaries and employee benefits ................................. 2,831 2,569 939 886
Premises and equipment ......................................... 690 670 234 233
Other .......................................................... 1,331 1,188 452 411
--------- --------- --------- ---------
Total non-interest expense ................................ 4,852 4,427 1,625 1,530
--------- --------- --------- ---------
Net income before taxes ............................................ 3,632 2,349 1,335 913
Provision for income taxes ......................................... 1,290 763 470 299
--------- --------- --------- ---------
Net income ................................................ $ 2,342 $ 1,586 $ 865 $ 614
========= ========= ========= =========
Basic earnings per common share:*
Weighted average shares outstanding ............................ 3,195,245 3,189,288 3,194,965 3,189,288
Net income per common share .................................... $0.73 $0.50 $0.27 $0.19
Diluted earnings per common share*:
Weighted average shares outstanding ............................ 3,216,733 3,216,194 3,216,470 3,216,194
Net income per common share .................................... $0.73 $0.49 $0.27 $0.19
</TABLE>
*Per share information has been retroactively adjusted to reflect a 5% stock
dividend paid on Jan. 31, 2000.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
5
<PAGE>
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine months ended Sept. 30,
2000 1999
UNAUDITED UNAUDITED
--------- ---------
(dollar amounts in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net income ........................................................................... $ 2,342 $ 1,586
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation ..................................................................... 360 350
Provision for loan losses ........................................................ 490 439
Accretion of discounts and
amortization of premiums -
investment securities - net .................................................... (7) (14)
Changes in assets and liabilities:
Proceeds of sale of loans held for resale ........................................ 4,861 8,446
Origination of loans held for resale ............................................. (4,861) (7,992)
(Increase) in interest receivable ................................................ (543) (471)
(Increase) decrease in other assets .............................................. 62 (11)
(Decrease) increase in other liabilities ......................................... 295 (105)
-------- --------
Net cash provided by operating activities ........................................ 2,999 2,228
-------- --------
Cash flows from investing activities:
Net decrease (increase) in interest bearing deposits ............................. (781) 1,482
Proceeds from maturities of
Investment securities - held to maturity ....................................... 1,500 5,919
Purchases of investment securities - held to maturity ............................ (501) (4,101)
Proceeds from maturities of
Investment securities - available for sale ..................................... 3,551 6,636
Purchases of investment securities - available for sale .......................... (8,468) (19,046)
Net (increase) in loans to customers ............................................. (29,205) (33,752)
Purchase of premises and equipment ............................................... (212) (1,144)
-------- --------
Net cash (used) in investing activities ........................................ (34,116) (44,006)
-------- --------
Cash flows from financing activities:
Net increase in demand, savings, and time deposits ............................... 26,927 29,928
Net increase in federal funds purchased and
securities sold under agreements to repurchase ................................. 2,975 351
Increase (decrease) in Federal Home Loan Bank advances ........................... (370) 1,930
Sale of common stock ............................................................. 10 187
Redemption of common stock ....................................................... - (630)
Dividends paid in cash ........................................................... (453) (607)
-------- --------
Net cash provided by financing activities ...................................... 29,089 31,159
-------- --------
Net (decrease) in cash and due from other
financial institutions ........................................................... (2,028) (10,619)
Cash and cash equivalents - beginning of period ...................................... 20,315 23,296
-------- --------
Cash and cash equivalents - end of period ............................................ $ 18,287 $ 12,677
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
6
<PAGE>
Notes to Unaudited Consolidated Financial Statements
Summary of Significant Accounting Policies
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 has issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
effective for fiscal years beginning after December 15, 1997. This Statement
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Disclosure as
required by the Statement is as follows:
<TABLE>
<CAPTION>
Before-Tax Tax Net-of-Tax
Amount Benefit Amount
------ ------- ------
Unrealized (losses) on securities:
<S> <C> <C> <C>
Unrealized holding (losses) arising during period .................... $(742,000) $ 252,000 $(490,000)
--------- --------- ---------
Other comprehensive income, September 30, 1999 ....................... $(742,000) $ 252,000 $(490,000)
========= ========= =========
Unrealized (losses) on securities:
Unrealized holding (losses) arising during period .................... $(640,000) $ 217,000 $(423,000)
--------- --------- ---------
Other comprehensive income, September 30, 2000 ....................... $(640,000) $ 217,000 $(423,000)
========= ========= =========
</TABLE>
Stock Dividend
On January 31, 2000 CBI effected a five-percent stock dividend. All
outstanding shares and per share data amounts have been retroactively restated
to reflect the dividend.
Recently issued accounting standards
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." All derivatives are to be measured at fair
value and recognized in the balance sheet as assets and liabilities. The
statement's effective date was delayed and is effective for fiscal years and
quarters beginning after June 15, 2000. Because the Company does not use
derivative instruments or transactions at this time, management does not expect
that this standard will have a significant effect on the financial statements of
the Company.
7
<PAGE>
COMMUNITY BANKSHARES, INC. - AVERAGE BALANCE SHEETS, YIELDS AND RATES
<TABLE>
<CAPTION>
Nine months ended September 30, 2000 1999
----------------------------------- ----------------------------------
(unaudited) Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates
------- -------- ------ ------- -------- -----
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits .............. $ 1,159 $ 53 6.10% $ 2,285 $ 90 5.25%
Investment securities taxable .......... 46,646 2,230 6.37% 38,775 1,785 6.14%
Investment securities--tax exempt (1) .. 806 25 6.27% 749 22 5.93%
Federal funds sold ..................... 5,324 252 6.31% 12,225 454 4.95%
Loans receivable ....................... 175,774 12,184 9.24% 134,149 8,886 8.83%
-------- ------- ---- -------- ------- ----
Total interest earning assets .......... 229,709 14,744 8.56% 188,183 11,237 7.96%
Cash and due from banks ................ 8,365 8,187
Allowance for loan losses .............. (2,130) (1,632)
Premises and equipment ................. 4,582 4,510
Other assets ........................... 3,171 2,174
-------- --------
Total assets ............................... $243,697 $201,422
======== ========
Liabilities and Shareholders' Equity
Interest bearing deposits
Savings ................................ $ 32,650 $ 955 3.90% $ 28,804 $ 706 3.27%
Interest bearing transaction accounts .. 20,519 241 1.57% 16,946 196 1.54%
Time deposits .......................... 117,735 4,943 5.60% 93,186 3,536 5.06%
-------- ------- ---- -------- ------- ----
Total interest bearing deposits ........ 170,904 6,139 4.79% 138,936 4,438 4.26%
Short term borrowing ................... 3,553 117 4.39% 5,572 137 3.28%
FHLB advances .......................... 19,342 863 5.95% 10,949 441 5.37%
-------- ------- ---- -------- ------- ----
Total interest bearing liabilities ..... 193,799 7,119 4.90% 155,457 5,016 4.30%
Noninterest bearing demand deposits .... 27,568 25,457
Other liabilities ...................... 1,283 1,025
Shareholders' equity ................... 21,047 19,483
-------- --------
Total liabilities and shareholders' equity . $243,697 $201,422
======== ========
Interest rate spread ................... 3.66% 3.66%
Net interest income and net yield on earning assets $ 7,625 4.43% $ 6,221 4.41%
====== ==== ======= ====
</TABLE>
(1) Yield is shown on a fully taxable equivalent basis.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations and in Quantitative and
Qualitative Disclosures about Market Risk which are not historical in nature are
intended to be, and are hereby identified as `forward looking statements' for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended. Community Bankshares, Inc. ("CBI") cautions readers
that forward looking statements, including without limitation, those relating to
CBI's future business prospects, revenues, working capital, liquidity, capital
needs, interest costs 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 CBI's
reports filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net Income
For the nine months ended September 30, 2000 (the "2000 period") CBI
earned a consolidated profit of $2,342,000 compared to $1,586,000 for the
comparable period of 1999, an increase of 47.7% or $756,000. Basic earnings per
share were $.73 in the 2000 period compared to $.50 for the 1999 period.
Orangeburg National Bank reported net income of $1,687,000 for the 2000
period. This compares to $1,547,000 for the same period in 1999, an increase of
$140,000 or 9%. At September 30, 2000 the Orangeburg bank had $100 million in
loans, $147 million in assets, and $123 million in deposits.
Sumter National Bank reported net income of $634,000 for the 2000
period. This compares to $377,000 for the same period in 1999, an increase of
$257,000 or 68.2%. At September 30, 2000 the Sumter bank had $60 million in
loans, $73 million in assets, and $55 million in deposits. The Sumter bank began
operation in June 1996.
Florence National Bank reported net income of $39,000 for the 2000
period. This compares to a net after tax loss of $283,000 for the same period in
1999, for an improvement of $322,000. At September 30, 2000 the Florence bank
had $27 million in loans, $39 million in assets, and $34 million in deposits.
The Florence bank began operation in July 1998.
As noted above, consolidated net income for the 2000 period increased
from the prior year by 47.7% or $756,000. The major components of this increase
are discussed below. Net interest income before provision for loan losses for
the 2000 period increased to $7,625,000, compared to $6,221,000 for the same
period in 1999, an increase of 22.6% or $1,404,000. For the 2000 period the
provision for loan losses was $490,000 compared to $439,000 for the 1999 period,
an increase of 11.6% or $51,000. Non-interest income for the 2000 period
increased to $1,349,000 from $994,000 for the 1999 period, a 35.7% or $355,000
increase. Non-interest expense increased to $4,852,000 from $4,427,000, a 9.6%
or $425,000 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
9
<PAGE>
the period, annualized. Based on operating results for the 2000 and 1999
periods, the following table is presented.
Nine months ended Sept. 30,
2000 1999
---- ----
(dollars in thousands)
Average assets ............... $ 243,697 $ 201,422
ROA .......................... 1.28% 1.05%
Average equity ............... $ 21,047 $ 19,483
ROE .......................... 14.84% 10.85%
Net income ................... $ 2,342 $ 1,586
Net interest income
Net interest income, the major component of CBI's income, is the amount
by which interest and fees on interest earning assets exceed the interest paid
on interest bearing deposits and other interest bearing funds. During the 2000
period net interest income after provision for loan losses increased to
$7,135,000 from $5,782,000, a 23.4% or $1,353,000 increase over the comparable
1999 period. This improvement was primarily the result of an increase in the
volume of earning assets at all three banks.
Interest Income
Elsewhere in this report is a table comparing the average balances,
yields, and rates for the interest rate sensitive segments of the company's
balance sheet for the nine-month periods ended September 30, 2000 and 1999. A
discussion of that table follows.
Total interest income for the 2000 period was $14,745,000 compared with
$11,237,000 for the same period in 1999, a 31.2% or $3,508,000 increase. The
yield on earning assets for the 2000 period was 8.56%, up from 7.96% for the
1999 period. Total average interest earning assets for the 2000 period were
$229,709,000, up from $188,183,000 for the same period in 1999, an increase of
22.1% or $41,526,000.
The loan portfolio earned $12,184,000 for the 2000 period, up from
$8,886,000 for the same period of 1999, a 37.1% or $3,298,000 increase. The 2000
yield increased to 9.24% from 8.83% for the 1999 period. The increase in yield
followed the increase in the prime lending rate, which rose to 9.50% in May 2000
from 8.00% in July 1999. The average size of the loan portfolio was $175,774,000
for the 2000 period, up from $134,149,000 for the same period of 1999, an
increase of 31% or $41,625,000.
10
<PAGE>
The taxable investment portfolio earned $2,230,000 for the 2000 period
up from $1,785,000 for the 1999 period, a 24.9% or $445,000 increase. The yield
increased to 6.37% in the 2000 period from 6.14% in the 1999 period. The average
size of the portfolio increased to $46,646,000 in the 2000 period from
$38,775,000 in the 1999 period, an increase of 20.3% or $7,871,000.
The tax exempt investment portfolio continues to be a relatively small
part of the portfolio. It earned $25,000 for the 2000 period compared to $22,000
for the 1999 period, an increase of 13.6% or $3,000. The yield on the portfolio
was 6.27% (on a fully taxable equivalent basis), increased from the prior year's
5.93%. The average size of the portfolio increased to $806,000 for the 2000
period from $749,000 in the 1999 period, an increase of 33.5% or $57,000.
Interest bearing deposits in other banks contributed $53,000 for the
2000 period compared to $90,000 during 1999, a decrease of 41.1% or $37,000. The
yield on these deposits increased to 6.10% from 5.25%. CBI averaged $1,159,000
in interest bearing balances in the 2000 period compared to $2,285,000 in the
1999 period, a decrease of 49.3% or $1,126,000.
Federal funds sold earned $252,000 for the 2000 period compared to
$454,000 the prior year, a decrease of 44.5% or $202,000. Yields increased to
6.55% from 4.95%. For the 2000 period CBI decreased its average volume in
federal funds sold to $5,130,000 from $12,225,000 for the 1999 period, a 58% or
$7,095,000 decrease. This decline was directly related to the strong loan demand
in each of the three banks' markets.
Interest expense
Interest expense increased for the 2000 period to $7,119,000 from
$5,016,000 for the 1999 period, a 41.9% or $2,103,000 increase. The volume of
interest bearing liabilities increased to $193,799,000 for the 2000 period from
$155,457,000 for the 1999 period, a 24.7% or $38,342,000 increase. The average
rate CBI paid for interest bearing liabilities during the 2000 period was 4.90%,
up from 4.30% for the 1999 period.
The cost of savings accounts increased to $955,000 for the 2000 period
from $706,000 in the 1999 period, a 35.3% or $249,000 increase. Average savings
deposit balances increased to $32,650,000 for the 2000 period from $28,804,000
for the 1999 period, an increase of 13.4% or $3,846,000. The average rate paid
on these funds increased to 3.90% from 3.27%.
Interest bearing transaction accounts increased to $241,000 for the
2000 period from $196,000 for the 1999 period, a 23% or $45,000 increase. The
volume of these deposits increased to $20,519,000 for the 2000 period from
$16,946,000 for the 1999 period, a 21.1% or $3,573,000 increase. The average
rate paid on these funds increased to 1.57% from 1.54%.
Time deposits cost $4,943,000 for the 2000 period up from $3,536,000 in
the 1999 period, an increase of 39.8% or $1,407,000. The volume increased to
$117,735,000 for the 2000 period from $93,186,000 for the 1999 period, a 26.3%
or $24,549,000 increase. The average rate paid on these funds increased to 5.60%
for the 2000 period from 5.06% for the 1999 period.
Short-term borrowing consists of federal funds purchased and securities
sold under agreements to repurchase. It cost $117,000 for the 2000 period, down
11
<PAGE>
from $137,000 for the 1999 period, a 14.6% or $20,000 decrease. The volume of
these funds decreased to $3,553,000 in the 2000 period from $5,572,000 in the
1999 period, a decline of 36.2% or $2,019,000. The average rate paid on these
funds increased to 4.39% from 3.28%.
Borrowings from the Federal Home Loan Bank cost $863,000 for the 2000
period compared to $441,000 for the 1999 period, a 95.7% or $422,000 increase.
The advances averaged $19,342,000 during the 2000 period compared to $10,949,000
for the prior year period, a 76.7% or $8,393,000 increase. The average rate paid
on these funds increased to 5.95% from 5.37%. The banks all increased their
borrowings from the FHLB as an alternative funding source over higher cost
consumer deposits.
Non-Interest Income
Non-interest income for the 2000 period grew to $1,349,000 from
$994,000 in the 1999 period, a 35.7% or $355,0000 increase. This increase was
mostly generated by substantial increases in service charge fee income at the
Florence bank resulting from increased volumes of accounts.
Non-Interest Expense
For the 2000 period non-interest expenses increased to $4,852,000 from
$4,427,000 for the 1999 period, a 9.6% or $425,000 increase.
Personnel costs were $2,831,000 for the 2000 period compared to
$2,569,000 for the 1999 period, a 10.2% or $262,000 increase.
Premises and equipment expense for the 2000 period were $690,000
compared to $670,000 for the 1999 period, an increase of 3% or $20,000.
Other costs were $1,331,000 for the 2000 period compared to $1,188,000
for the 1999 period, an increase of 12% or $143,000.
Income Taxes
CBI provided $1,290,000 for federal and state income taxes during the
2000 period compared to $763,000 for the same period in 1999, a 69.1% or
$527,000 increase. The average tax rate for the 2000 period was approximately
35.5% and for the 1999 period it was approximately 32.4%. 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 SEPTEMBER 30, 2000 AND 1999
Net Income
For the quarter ended September 30, 2000 (the "2000 quarter"), CBI
earned a consolidated profit of $865,000 compared to $614,000 for the comparable
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period of 1999, an increase of 40.9% or $251,000. Basic earnings per share were
$.27 in the 2000 period compared to $.19 for the 1999 period.
The other changes in the items comprising net interest income, which
are discussed below resulted from essentially the same factors discussed above
regarding the results of operations for the nine months ended September 30,
2000.
Net interest income
Net interest income before provision for loan losses for the 2000
quarter increased to $2,648,000, compared to $2,265,000 for the 1999 quarter, an
increase of 16.9% or $383,000. For the 2000 quarter the provision for loan
losses was $152,000 compared to $166,000 for the 1999 quarter, a decrease of
8.4% or $14,000.
Interest Income
Total interest income for the third quarter 2000 was $5,273,000
compared with $4,092,000 for the same period in 1999, a 28.9% or $1,181,000
increase.
The loan portfolio earned $4,421,000 for the third quarter in 2000, up
from $3,254,000 for the same period of 1999, a 35.9% or $1,167,000 increase.
The investment portfolio earned $763,000 for the third quarter in 2000,
up from $670,000 for the 1999 period, a 13.9% or $93,000 increase.
Interest bearing deposits in other banks contributed $25,000 for the
third quarter 2000, compared to $11,000 during the prior year, an increase of
127% or $14,000.
Federal funds sold earned $64,000 the third quarter of 2000 compared to
$157,000 the prior year, a decrease of 59.2% or $93,000.
Interest expense
Interest expense increased for the third quarter of 2000 to $2,625,000
from the prior year's $1,827,000, a 43.7% or $798,000 increase.
Non-interest income and expense
Non-interest income for the 2000 quarter increased to $464,000 from
$344,000 for the 1999-quarter, a 34.9% or $120,000 increase. Non-interest
expense increased to $1,625,000 from $1,530,000, a 6.2% or $95,000 increase.
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CHANGES IN FINANCIAL POSITION
Investment portfolio
The investment portfolio is comprised of a held-to-maturity and an
available-for-sale portion. CBI and its three banks usually purchase short-term
issues of U. S. Treasury and U. S. Government agency securities for investment
purposes. At September 30, 2000 the held-to-maturity portfolio totaled
$12,371,000 compared to $13,369,000 at December 31, 1999, a decrease of 7.5% or
$998,000. At September 30, 2000 the available-for-sale portfolio totaled
$35,577,000 compared to $30,566,000 at December 31, 1999, an increase of 16.4%
or $5,011,000. The following chart summarizes the investment portfolios at
September 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
September 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 agencies .................... $ 12,371 $ 11,972 $ 33,460 $ 32,816
Tax exempt securities .................................... - - 817 809
Other equity securities .................................. - - 1,952 1,952
-------- -------- -------- --------
Total .................................................... $ 12,371 $ 11,972 $ 36,229 $ 35,577
======== ======== ======== ========
Unrealized (loss) ........................................ $ (399) $ (652)
======== ========
</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 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 September 30, 2000 the loan portfolio was $186,407,000 compared to
$157,358,000 at December 31, 1999, an 18.5% or $29,049,000 increase. The
following chart summarizes the loan portfolio at September 30, 2000 and December
31, 1999.
Sep. 30, 2000 Dec. 31, 1999
------------- -------------
(dollars in thousands)
Real estate ................................ $109,900 $ 94,105
Commercial ................................. 49,904 40,220
Loans to individuals ....................... 26,603 23,033
-------- --------
Total ...................................... $186,407 $157,358
======== ========
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Past Due and Non-Performing Assets and the Allowance for Loan Losses
CBI closely monitors past due loans and loans that are in non-accrual
status and other real estate owned. Below is a summary of past due and
non-performing assets at September 30, 2000 and December 31, 1999.
.
Sept. 30, 2000 Dec. 31, 1999
-------------- -------------
(dollars in thousands)
Past due 90 days + accruing loans ........... $ 4 $ -
Non-accrual loans ........................... $571 $90
Impaired loans (included in nonaccrual) ..... $571 $90
Other real estate owned ..................... $124 $ -
The increase in non-accrual loans is related to a limited number of
accounts and is not indicative of any trends. Management considers the past due
and non-accrual amounts at September 30, 2000 to be reasonable and manageable in
the normal course of business.
CBI had no restructured loans during any of the above listed periods.
CBI's activity with its allowance for loan losses reserve is summarized
below.
<TABLE>
<CAPTION>
Sept. 30, 2000 Dec. 31, 1999 Sept. 30, 1999
-------------- ------------- --------------
<S> <C> <C> <C>
Allowance at beginning of period .................................... $ 1,936 $ 1,459 $ 1,459
Provision expense ................................................... 490 612 439
Net charge offs ..................................................... (156) (135) (93)
------- ------- -------
Allowance at end of period .......................................... $ 2,270 $ 1,936 $ 1,805
======= ======= =======
Allowance as a percent of outstanding loans ......................... 1.22% 1.23% 1.19%
</TABLE>
In reviewing the adequacy of the allowance for loan losses at the end
of each period, management of each of the banks considers historical loan loss
experience, current economic condition, loans outstanding, trends in
non-performing and delinquent loans, and the quality of collateral securing
problem loans. After charging off all known losses, management of each of banks
considers the allowance adequate to provide for estimated future losses inherent
in the loan portfolio at September 30, 2000.
Deposits
Deposits were $211,291,000 at September 30, 2000 compared to
$184,364,000 at December 31, 1999, an increase of 14.6% or $26,927,000.
Time deposits greater than $100,000 were $41,118,000 at September 30,
2000 compared to $36,163,000 at December 31, 1999, an increase of 13.7% or
$4,955,000.
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Liquidity
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. Adequate liquidity is necessary to meet the requirements of
customers for loans and deposit withdrawals in a timely and economical manner.
The most manageable sources of liquidity are composed of liabilities, with the
primary focus of liquidity management being the ability to attract deposits
within the Orangeburg National Bank, Sumter National Bank, and Florence National
Bank service areas. Core deposits (total deposits less certificates of deposit
of $100,000 or more) provide a relatively stable funding base. Certificates of
deposit of $100,000 or more are generally more sensitive to changes in rates, so
they must be monitored carefully. Asset liquidity is provided by several
sources, including amounts due from banks, federal funds sold, and investments
available for sale.
CBI and its banks maintain an available-for-sale investment and a
held-to-maturity investment portfolio. While all these investment securities are
purchased with the intent to be held to maturity, such securities are marketable
and occasional sales may occur prior to maturity as part of the process of
asset/liability and liquidity management. Such sales will generally be from the
available-for-sale portfolio. Management deliberately maintains a short-term
maturity schedule for its investments so that there is a continuing stream of
maturing investments. CBI intends to maintain a short-term investment portfolio
in order to continue to be able to supply liquidity for its lending activity and
for customer withdrawals.
CBI has substantially more liabilities (mostly deposits, which may be
withdrawn) which mature in the next 12 months than it has assets maturing in the
same period. However, based on its historical experience, and that of similar
financial institutions, CBI believes that it is unlikely that so many deposits
would be withdrawn, without being replaced by other deposits, that CBI would be
unable to meet its liquidity needs with the proceeds of maturing assets.
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 $211 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 September 30, 2000 CBI
had approximately $24.7 million in certificates of deposit and other interest
bearing liabilities maturing in one to five years. CBI had $10.2 million in such
liabilities maturing in over 5 years. CBI's assets maturing or repricing in the
same periods were $107.7 million and $39.9 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.
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Capital resources
As shown by the capital ratios in the table below, CBI maintains a
strong capital position.
Sept. 30, 2000 Dec. 31, 1999
-------------- -------------
Tier 1 capital to average total assets ..... 8.93% 9.40%
Tier 1 capital to risk weighted assets ..... 12.35% 13.00%
Total capital to risk weighted assets ...... 13.58% 14.20%
Banks are required to maintain a minimum risk weighted capital ratio of
at least 8%.
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 13.58%. 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 and six cents per share during the
third quarter of 2000. The total cost of these dividends was $453,000. 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.
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
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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 September 30, 2000 the Corporation is
positioned so that net interest income is estimated to increase $319,000 and net
income is estimated to increase $196,000 in the next twelve months if interest
rates rise 200 basis points. Conversely, net interest income is estimated to
decline $319,000 and net income is estimated to decline $196,000 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 September 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.
Part II--Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index.
b) None.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: November 13, 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)
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EXHBIT INDEX
Exhibit No.(from item Description
601 of S-B) -----------
(27) Financial Data Schedule
