UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Mark One
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarter period ended September 30, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ___________
Commission File Number: 33-81890
Community Bankshares, Inc.
________________________________________________
(Exact name of small business issuer as specified in its charter)
Georgia 58-1415887
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
400 North Main Street, Cornelia, Georgia 30531
(Address of principal executive offices)
(706) 778-2265
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of November 1, 1996: 1,954,830.
Transitional Small Business Disclosure Format
Yes ( ) No ( X )
Page 1
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - September 30, 1996 3
Consolidated Statements of Income - for Three Months
Ended September 30, 1996 and 1995 and Nine Months Ended
September 30, 1996 and 1995 4 and 5
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1996 and 1995 6 and 7
Note to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8 - K 14
Signatures 15
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1996
(Dollars in thousands)
(Unaudited)
Assets
Cash and due from banks $14,628
Interest-bearing deposits in banks 279
Investment securities:
Held to maturity (estimated fair value $16,757) 16,788
Available for sale, at estimated fair value 46,717
Federal Funds Sold 11,175
Loans held for sale 718
Loans 197,130
Less allowance for loan losses 3,488
Loans, net 193,642
Premises and equipment, net 7,742
Other assets 9,725
Total Assets $301,414
Liabilities and Shareholders' Equity
Deposits:
Demand $33,571
Interest-bearing demand and Savings 69,864
Certificates of deposits < $100,000 114,028
Certificates of deposits > $100,000 49,881
Total deposits 267,344
Other borrowed funds 1,616
Other liabilities 7,737
Total liabilities 276,697
Commitments and contingent liabilities
Shareholders' equity
Common stock, $1 par value , 5,000,000 shares 1,955
authorized; 1,954,830 shares issued and outstanding
Surplus 4,327
Retained earnings 18,788
Unrealized loss on securities available for sale,
net of tax (353)
Total shareholders' equity 24,717
Total Liabilities and Shareholders' Equity $301,414
See Accompanying Note to Consolidated Financial Statements
Page 3
<PAGE>
<TABLE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED September 30, 1996 and 1995 and
NINE MONTHS ENDED September 30, 1996 and 1995
(Dollars in Thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
<CAPTION>
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $5,449 $4,538 $15,160 $13,252
Interest on Federal Funds sold 166 123 459 386
Interest on interest-bearing
deposits 5 16 7 68
Interest on investment
securities:
Taxable 628 663 1,787 1,900
Nontaxable 236 187 646 492
Total Interest Income 6,484 5,527 18,059 16,098
Interest Expense
Interest on deposits 2,868 2,551 8,209 7,136
Interest on borrowed funds 18 29 46 129
Total Interest Expense 2,886 2,580 8,255 7,265
Net Interest Income 3,598 2,947 9,804 8,833
Provision for loan losses 196 297 624 646
Net interest income after
provision for loan losses 3,402 2,650 9,180 8,187
Other operating income
Service charges on deposit
accounts 383 325 1,103 1,014
Other service charges,
commissions & fees 150 106 418 385
Security transactions, net (20) (4) (12) (32)
Gain on sale of loans 108 62 302 269
Nonbank subsidiary non-
interest income 957 1,192 3,093 2,995
Other income 91 32 373 140
Total other operating income 1,669 1,713 5,277 4,771
Page 4
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED September 30, 1996 and 1995 and
NINE MONTHS ENDED September 30, 1996 and 1995
(Dollars in Thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
Other operating expenses
Salaries and other
employee benefits 1,931 1,714 5,608 5,029
Occupancy expense 217 190 598 517
Equipment expense 260 223 838 558
Other operating expenses 1,258 1,141 3,544 3,572
Total other operating
expenses 3,666 3,268 10,588 9,676
Income before income taxes 1,405 1,095 3,869 3,282
Applicable income taxes 414 321 1,160 990
NET INCOME $991 $774 $2,709 $2,292
Per share of common stock and
common stock equivalents based
on average number shares
outstanding during period,
Net income $ .48 $ .38 $1.31 $1.13
Average shares outstanding 2,059,461 2,034,360 2,063,386 2,023,530
Cash dividends per share of
common stock $.0334 $.032 $.10 $.095
<FN>
See Accompanying Note to Consolidated Financial Statements
</TABLE>
Page 5
<PAGE>
<TABLE>
COMMUNITY BANKSHARES,INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1996 and 1995
(Dollars in Thousands)
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $2,709 $2,292
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 635 564
Provision for loan losses 624 646
(Loss) on sale of investment securities
available for sale 12 32
Increase in interest receivable (339) (85)
Increase in deferred taxes (47) (211)
Decrease in taxes payable (45) (18)
Decrease in interest payable (342) (623)
Other prepaids, deferrals and accruals, net 1,078 440
Total adjustments 1,576 745
Net cash provided by operating activities 4,285 3,037
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of other real estate 124 1,065
Purchase of investment securities
Available for sale (17,581) (7,220)
Held to maturity (4,984) (3,540)
Proceeds from sales of investment securities
Available for sale 2,000 2,100
Proceeds from maturities of investment securities
Available for sale 11,550 3,102
Held to maturity 500 4,185
Net (increase) decrease in Interest Bearing Deposits
in banks (279) 763
Net (increase) decrease in Federal funds sold 1,020 (1,210)
Net increase in loans (18,557) (12,092)
Purchase of premises and equipment (2,636) (616)
Net cash used in investing activities (28,843) (13,463)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 24,902 7,032
Net increase (decrease) in other borrowed funds 1,616 (1,096)
Repayment of notes payable (787) (470)
Dividends paid (195) (185)
Proceeds from sale of stock 4 253
Net cash provided by financing activities 25,540 5,534
Net (increase) decrease in cash and due from banks 982 (4,892)
Page 6
<PAGE>
Cash and due from banks, beginning of period 13,646 14,994
Cash and due from banks, end of period $14,628 $10,102
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest 8,597 7,888
Income Taxes 1,284 1,018
NONCASH TRANSACTIONS
Unrealized (gains) losses on securities available
for sale 165 (637)
Principal balances of loans transferred to other
real estate 25 272
<FN>
See Accompanying Note to Consolidated Financial Statements
</TABLE>
Page 7
<PAGE>
COMMUNITY BANKSHARES, INC
AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
The results of operations for the three month and nine month periods ending
September 30, 1996 are not necessarily indicative of the results to be
expected for the full year.
Page 8
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying consolidated
financial statements.
Financial Condition
As of September 30, 1996, the Company continues to experience growth in total
assets, total loans and total deposits as compared to December 31, 1995.
Total assets, loans and deposits increased by 11.63%, 10.35% and 10.27%
respectively. The growth in deposits and loans is consistent with prior
year and management's expectations. The growth in assets is attributable
to growth in deposits and retention of earnings. Management expects the
growth to continue in the future.
Liquidity
As of September 30, 1996, the Liquidity Ratio was 30.00% which is within the
Company's target range of 25 - 30%. The Banks have available lines of credit
to meet any unexpected liquidity needs. Liquidity is measured by the ratio
of net cash, short term and marketable securities to net deposits and short
term liabilities.
Interest Rate Risk
The Company's overall interest rate risk was less than 5% of net interest
income when subjected to rising and falling rates of 300 basis points. The
company has positioned itself to be protected against any perceivable change
in rates in either direction.
Capital
Banking regulation requires the Company to maintain capital levels in
relation to Company assets. At September 30, 1996, the Company's capital
ratios were considered satisfactory based on regulatory minimum capital
requirements. The minimum capital requirements and the actual capital ratios
for the Company at September 30, 1996 were as follows:
Actual Regulatory minimum
Leverage 8.07% 4.00%
Risk Based Capital ratios:
Core Capital 11.60% 4.00%
Total Capital 12.85% 8.00%
Page 9
<PAGE>
Results of Operation
Net interest income for the nine month period ended September 30, 1996
increased 10.99% to $9,804,000 over $8,833,000 for the same period for 1995.
Interest income for the nine month period was up by 12.18% from $16,098,000 to
$18,059,000. Earning assets were up by $34,526,000 as of September 30, 1996
over September 30,1995 or an increase of 20.16%. The largest increase in
interest bearing assets was the increase in loans of $23,061,000 for this
period as loan demand continued to be strong in our market area. Interest
expense on deposits increased by 15.03% during the first nine months of 1996
over the same period for 1995 as interest bearing deposits grew by 30,472,000
or 14.99%. Interest income for the three month period ending September 30,
1996 was up 17.31% over the three month period ending September 30, 1995 while
interest expense on deposits was up by 12.42% for the same two periods. This
resulted in an increase in net interest income of 22.09% for the third
quarter of 1996 when compared to the third quarter of 1995. The increases in
interest income and interest expense and net interest income were consistent
with the growth experienced in assets and liabilities for the nine month
period and were consistent with budget projections made by management.
The provision for loan losses was $624,000 for the first nine months of 1996
compared to $646,000 for the first nine months of 1995, a decrease of 3.52%.
This provision will fluctuate based on Small Business Administration (SBA)
loans closed, as we have a policy of reserving 5% of the unguaranteed portion
of any SBA loans. This policy accounts for the full amount of the decrease in
the loan loss provision.
Page 10
<PAGE>
The following table furnishes information on the Loan Loss Reserve for the
current nine month reporting period and the same period for 1995 .
1996 1995
Beginning Balance 3,061 2,686
Less Charge Offs
Real Estate Loans (0) (0)
Commercial Loans (113) (180)
Consumer Loans (131) (242)
Credit Cards (9) (3)
Plus Recoveries
Real Estate Loans 0 11
Commercial Loans 5 9
Consumer Loans 51 39
Credit Cards 0 0
Plus Provision 624 646
Balance, end of period 3,488 2,966
The Loan Loss reserve for the company is evaluated monthly and adjusted to
reflect the risk in the portfolio in the following manner. We use four
different methods of measuring risk in the portfolio: (a) Risk in our watch
list of loans and past due ratios; (b) Historical charge offs; ( c)
Peer group comparisons; and (d) Percentage of classified loans. We then
compare results to reserve balances to assure any and all identified risk are
covered.
The Provision for Loan Losses for the nine month period ended September 30,
1996 represented 246% of charge offs for the same period, while the provision
for the first nine months of 1995 represented 152% of the charge offs recorded
in that period. The reserve at the end of September 30, 1996 represented 349%
of nonaccrual loans while the reserve at September 30, 1995 represented
195% of nonaccrual loans. This increase in coverage of nonaccrual loans
was due to a decline in nonaccruals due to the payout of a nonaccrual loan
in the amount of $588,000 during the second quarter of 1996. The Loan Loss
Reserve balance to total loan ratio at September 30, 1996 was 1.76% as
compared to 1.70% at September 30, 1995. Management considered the Loan Loss
Reserve to be adequate to absorb any losses that may be incurred.
Page 11
<PAGE>
The following table is a summary of Non Accrual, Past due and Restructured
Debt
September 30, 1996
Non Accrual Past Due Restructured
Loans 90 days Debt
still accruing
Real Estate Loans 487 253 0
Commercial Loans 168 321 624
Consumer Loans 343 157 0
Total 998 731 624
September 30, 1995
Non Accrual Past Due Restructured
Loans 90 days Debt
still accruing
Real Estate Loans 28 0 0
Commercial Loans 1,089 72 636
Consumer Loans 406 144 0
Total 1,523 216 636
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not
represent or result from trends or uncertainties which management reasonably
expects will materially impact future operating results, liquidity or
capital resources. These classified loans do not represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the
loan repayment terms.
The large decrease in nonaccrual loans is due to a large bankruptcy payoff of
$588,000. The large increase in 90 days past due and still accruing is due
to one real estate loan for $253,000 and one consumer loan in the amount of
$245,000. Both of these loans are more than covered by collateral and no
loss of principal or interest is anticipated.
The bank places loans on nonaccrual at such time it is apparent that the
collection of all principal and interest is questionable and the loan is
either past due 90 days or bankruptcy has been filed. There are no impaired
loans as of September 30, 1996 that are not reflected in the table above.
Page 12
<PAGE>
Other operating income increased by 10.60% or $506,000 during the nine month
period ended September 30, 1996 as compared to the same period for 1995 and
decreased by 44,000 for the three month period ended September 30,1996 as
compared to the same period in 1995. The reason for the increase for the nine
month period was an increase in sales generated in the first two quarters of
1996, by the Supermarket Bank division, when there were 19 sales compared to
17 sales in the first two quarters of 1995. During the third quarter of 1996
there was one less sale than during the third quarter of 1995. Sales for the
fourth quarter of 1996 are anticipated to be up substancially over the fourth
quarter of 1995 due to the installations of Nations Bank branches in the
Winn Dixie stores in Florida. We anticipate at least 17 additional sales
in 1996.
Other operating expenses increased by 9.42% or $912,000 for the first nine
months of 1996 over the same period in 1995 and by 12.18% or $398,000 for
the third quarter of 1996 over the third quarter of 1995. Salaries and
benefits accounted for $579,000 and $217,000 of these amounts respectively
with the number of personnel rising from 180 full time equivalent employees
at September 30, 1995 to 207 full time equivalent employees at September 30,
1996. This increase was due to the opening of three additional branches in
the second quarter of 1996 and the rapid growth experienced in the third
quarter of 1996.
Effective July 1, 1996, the state of Georgia changed its branching law to
allow banks to expand into three new counties during the period of July 1,
1996 through June 30, 1998. In accordance with this change, Community
Bankshares, Inc. has opened a facility in White county in July of 1996 and
plans to open a facility in Hall county in December of 1996. It is
anticipated that these two counties will be good market areas for our
company.
Occupancy and Equipment expenses were up $361,000 for the nine month period
ending September 30, 1996 over the same period ending September 30, 1995 due
to the three new branches and the operation of 31 cash dispensing machines.
Net income for the nine month period ended September 30, 1996 was up 18.19%
over the same period for 1995 and net income for the three month period
ending September 30, 1996 was up 28.03% over the same three month period for
1995. Management expects an even larger rate of increase in the fourth
quarter of 1996 compared to the fourth quarter of 1995 due to increased sales
from the Supermaret Bank Division.
The company is not aware of any other known trends, events or uncertainties,
other than the effect of events as described above, that will have or that
are reasonably likely to have a material effect on its liquidity, capital
resources or operations. The Company is also not aware of any current
recommendations by the regulatory authorities which, if they were implemented,
would have such an effect.
Page 13
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
None.
Page 14
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,thereunto
duly authorized.
COMMUNITY BANKSHARES, INC.
DATE:______________________ BY:______________________________
Harry L. Stephens, Executive Vice
President and Chief Financial Officer
Page 15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 14,628
<INT-BEARING-DEPOSITS> 279
<FED-FUNDS-SOLD> 11,175
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,717
<INVESTMENTS-CARRYING> 16,788
<INVESTMENTS-MARKET> 16,757
<LOANS> 197,848
<ALLOWANCE> 3,488
<TOTAL-ASSETS> 301,414
<DEPOSITS> 267,344
<SHORT-TERM> 1,616
<LIABILITIES-OTHER> 7,737
<LONG-TERM> 0
<COMMON> 1,955
0
0
<OTHER-SE> 23,115
<TOTAL-LIABILITIES-AND-EQUITY> 301,414
<INTEREST-LOAN> 15,160
<INTEREST-INVEST> 2,892
<INTEREST-OTHER> 7
<INTEREST-TOTAL> 18,059
<INTEREST-DEPOSIT> 8,209
<INTEREST-EXPENSE> 46
<INTEREST-INCOME-NET> 9,804
<LOAN-LOSSES> 624
<SECURITIES-GAINS> (12)
<EXPENSE-OTHER> 10,588
<INCOME-PRETAX> 3,869
<INCOME-PRE-EXTRAORDINARY> 3,869
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,709
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.31
<YIELD-ACTUAL> 3.59
<LOANS-NON> 998
<LOANS-PAST> 731
<LOANS-TROUBLED> 624
<LOANS-PROBLEM> 998
<ALLOWANCE-OPEN> 3,061
<CHARGE-OFFS> 253
<RECOVERIES> 56
<ALLOWANCE-CLOSE> 3,488
<ALLOWANCE-DOMESTIC> 3,488
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,488
</TABLE>
