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 June 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 August 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 - June 30, 1996 3
Consolidated Statements of Income - for Three Months
Ended June 30,1996 and 1995 and Six Months Ended
June 30, 1996 and 1995 4 and 5
Consolidated Statements of Cash Flows - Six Months
Ended June 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 4. Submission of Matters to a Vote of Security Holders 14
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
June 30, 1996
(Dollars in thousands)
(Unaudited)
Assets
Cash and due from banks $15,750
Interest-bearing deposits in banks 23
Investment securities:
Held to maturity (estimated fair value $15,918) 16,067
Available for sale, at estimated fair value 43,718
Federal Funds Sold 5,150
Loans held for sale 550
Loans 191,959
Less allowance for loan losses 3,417
Loans, net 188,542
Premises and equipment, net 6,255
Other assets 8,709
Total Assets $284,764
Liabilities and Shareholders' Equity
Deposits:
Demand $35,652
Interest-bearing demand and Savings 67,613
Certificates of deposits < $100,000 106,255
Certificates of deposits > $100,000 46,635
Total deposits 256,155
Other borrowed funds 616
Other liabilities 4,330
Total liabilities 261,101
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 17,862
Unrealized loss on securities available for sale,
net of tax (481)
Total shareholders' equity 23,663
Total Liabilities and Shareholders' Equity $284,764
See Accompanying Note to Consolidated Financial Statements
Page 3
<PAGE>
<TABLE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED June 30, 1996 and 1995 and
SIX MONTHS ENDED June 30, 1996 and 1995
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
<CAPTION>
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $4,912 $4,574 $9,711 $8,714
Interest on Federal Funds sold 137 138 293 263
Interest on interest-bearing
deposits 1 44 2 52
Interest on investment
securities:
Taxable 617 586 1,159 1,237
Nontaxable 216 156 410 305
Total Interest Income 5,883 5,498 11,575 10,571
Interest Expense
Interest on deposits 2,691 2,444 5,341 4,585
Interest on borrowed funds 12 37 28 100
Total Interest Expense 2,703 2,481 5,369 4,685
Net Interest Income 3,180 3,017 6,206 5,886
Provision for loan losses 219 166 428 349
Net interest income after
provision for loan losses 2,961 2,851 5,778 5,537
Other operating income
Service charges on deposit
accounts 377 365 720 689
Other service charges,
commissions & fees 134 102 268 279
Security transactions, net 8 (2) 8 (28)
Gain on sale of loans 109 118 194 207
Nonbank subsidiary non-
interest income 1,126 809 2,136 1,803
Other income 131 39 282 108
Total other operating income 1,885 1,431 3,608 3,058
Page 4
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED June 30, 1996 and 1995 and
SIX MONTHS ENDED June 30, 1996 and 1995
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
Other operating expenses
Salaries and other
employee benefits 1,898 1,714 3,677 3,315
Occupancy expense 189 147 381 327
Equipment expense 300 168 578 335
Other operating expenses 1,136 1,169 2,286 2,431
Total other operating
expenses 3,523 3,198 6,922 6,408
Income before income taxes 1,323 1,084 2,464 2,187
Applicable income taxes 409 334 746 669
NET INCOME $914 $750 $1,718 $1,518
Per share of common stock and
common stock equivalents based
on average number shares
outstanding during period,
Net income $ .44 $ .39 $ .83 $ .78
Average shares outstanding 2,064,177 1,938,330 2,064,892 1,934,280
Cash dividends per share of
common stock $.0334 $.0316 $.0668 $.0633
<FN>
See Accompanying Note to Consolidated Financial Statements
</TABLE>
Page 5
<PAGE>
<TABLE>
COMMUNITY BANKSHARES,INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1996 and 1995
(Dollars in Thousands)
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $1,718 $1,518
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 415 366
Provision for loan losses 428 349
Loss on sale of investment securities
available for sale (8) 28
Increase in interest receivable (438) (251)
(Increase) decrease in deferred taxes (148) (185)
(Decrease) increase in taxes payable 114 55
Decrease in interest payable (286) (649)
Other prepaids, deferrals and accruals, net (617) 448
Total adjustments (540) 161
Net cash provided by operating activities 1,178 1,679
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of other real estate 118 450
Purchase of investment securities
Available for sale (11,386) (4,150)
Held to maturity (4,196) (1,465)
Proceeds from sales of investment securities
Available for sale 500 2,100
Proceeds from maturities of investment securities
Available for sale 9,191 1,638
Held to maturity 409 1,575
Net increase in Interest Bearing Deposits in banks (23) 0
Net (increase) decrease in Federal funds sold 7,045 (620)
Net increase in loans (13,218) (7,544)
Purchase of premises and equipment (929) (564)
Net cash used in investing activities (12,489) (8,580)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 13,713 4,099
Net increase in other borrowed funds 616 291
Repayment of notes payable (787) (418)
Dividends paid (131) (123)
Proceeds from sale of stock 4 253
Net cash provided by financing activities 13,415 4,102
Net (increase) decrease in cash and due from banks 2,104 (2,799)
Page 6
<PAGE>
Cash and due from banks, beginning of period 13,646 14,994
Cash and due from banks, end of period $15,750 $12,195
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest 5,655 5,334
Income Taxes 781 650
NONCASH TRANSACTIONS
Unrealized (gains) losses on securities available
for sale 663 (573)
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.
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 June 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 5.46%, 7.37% and 5.65%
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 June 30, 1996, the Liquidity Ratio was 26.61% 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 June 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 June 30, 1996 were as follows:
Actual Regulatory minimum
Leverage 8.31% 4.00%
Risk Based Capital ratios:
Core Capital 11.65% 4.00%
Total Capital 12.90% 8.00%
Page 9
<PAGE>
Results of Operation
Net interest income for the six month period ended June 30, 1996
increased 5.44% to $6,206,000 over $5,886,000 for the same period for 1995.
Interest income for the six month period was up by 9.50% from $10,571,000 to
$11,575,000. Earning assets were up by $24,822,000 as of June 30, 1996
over June 30,1995 or an increase of 10.83%. The largest increase in
interest bearing assets was the increase in loans of $21,969,000 for this
period as loan demand continued to be strong in our market area. Interest
expense on deposits was up by 16.48% over the same period for 1995 as
interest bearing deposits grew by 19,707,000 or 9.81%. Interest income for
the three month period ending June 30, 1996 was up 7.00% over the three month
period ending June 30, 1995 while interest expense on deposits was up by
8.95% for the same two periods. This resulted in an increase in net interest
expense of 5.40% for the second quarter of 1996 when compared to the second
quarter of 1995. The increases in interest income and interest expense and
net interest income were consistent with budget projections made by
management.
The provision for loan losses was $428,000 for the first six months of 1996
compared to $349,000 for the same period in 1995, an increase of 22.6%. 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 increase in
the loan loss provision
Page 10
<PAGE>
The following table furnishes information on the Loan Loss Reserve for the
current six 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 (21) (23)
Consumer Loans (79) (45)
Credit Cards (7) (2)
Plus Recoveries
Real Estate Loans 0 10
Commercial Loans 1 7
Consumer Loans 34 27
Credit Cards 0 0
Plus Provision 428 349
Balance, end of period 3,417 3,009
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 balance to assure any and all identified risk are
covered.
The Provision for Loan Losses for the six month period ended June 1996
represented 400% of charge offs for the same period, while the provision for
the first six months of 1995 represented 498% of the charge offs recorded
in that period. The reserve at the end of June 30, 1996 represented 349%
of nonaccrual loans while the reserve at June 30, 1995 represented
168% of nonaccrual loans. This increase in coverage of nonaccrual loans
was due to the large pay off of nonaccruals in the the first quarter of
1996, resulting from a large bankruptcy paying out. The Loan Loss Reserve
balance to total loan ratio was 1.77% at both June 30, 1996 and June 30,
1995.
Page 11
<PAGE>
The following table is a summary of Non Accrual, Past due and Restructured
Debt
June 30, 1996
Non Accrual Past Due Restructured
Loans 90 days Debt
still accruing
Real Estate Loans 16 633 0
Commercial Loans 387 144 629
Consumer Loans 575 237 0
Total 978 1,014 629
June 30, 1995
Non Accrual Past Due Restructured
Loans 90 days Debt
still accruing
Real Estate Loans 29 249 0
Commercial Loans 650 116 0
Consumer Loans 1,104 248 0
Total 1,783 613 0
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 where collateral value exceeds all principal and
interest due and no loss is expected. The increase in restructured debt is
due to one loan that was restructured through bankruptcy and continues to pay
on time as agreed.
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 June 30, 1996 that are not reflected in the table above.
Page 12
<PAGE>
Other operating income increased by 18% or $550,000 during the six month
period ended June 30, 1996 as compared to the same period for 1995 and
increased by 454,000 for the three month period ended June 30,1996 as compared
to the same period in 1995. The item that was most responsible for this
increase was Non-interest income from non bank subsidiary which had increases
of $333,000 for the six month period and $317,000 for the three month
period. These increases were due to increased sales of Supermarket Bank units
with units completed during the first six months of 1996 of 19 compared to 17
units completed in the first six months of 1995. Likewise, there were 11
units completed in the three month period ending June 30, 1996 as compared
to 8 units completed during the second quarter of 1995.
Other operating expenses increased by 8.0% or $514,000 for the first six
months of 1996 over the same period in 1995 and by 10.19% or $325,000 for
the second quarter of 1996 over the second quarter of 1995. Salaries and
benefits accounted for $362,000 and $184,000 of these amounts respectively
with the number of personnel rising from 180 full time equivalent employees
at June 30, 1995 to 193 full time equivalent employees at June 30, 1996.
This increase was due to the opening of three additional branches in June
and July 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 applied for and received regulatory approval to open
facilities in White and Hall counties in July and September 1996 respectively.
It is anticipated that these two counties will be good market areas for our
company.
Occupancy and Equipment expenses were up $297,000 for the six month period
ending June 30, 1996 over the same period ending June 30, 1995 due to the
three new branches and the operation of 31 cash dispensing machines.
Net income for the six month period ended June 30, 1996 was up 13.2%
over the same period for 1995 and net income for the three month period
ending June 30, 1996 was up 21.89% over the same three month period for 1995.
The net income for the second quarter 1996 was up 13.7% over the income for
the first quarter 1996. Management expects increase to continue for the third
and fourth quarters, however, we do not expect the rate of increase to
continue at the current level.
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>
PART II - OTHER INFORMATION
Item 4. Submission of matters to a vote of Shareholders
(a) The annual meeting of the shareholders of the Company was held on
April 10, 1996.
(b) The following directors were elected at the meeting to serve until
the next shareholder meeting in 1997.
Steven C. Adams
Edwin B. Burr
Harry H. Purvis
H. Calvin Stovall
Dean C. Swanson
George D. Telford
J. Alton Wingate
(c) There were no other matters voted upon at the meeting. The shares
represented at the meeting (1,756,860 shares or 89.87%) voted as
follows:
In favor 1,756,860
Against 0
Abstain 0
Total 1,756,860
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> 6-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<CASH> 15,750
<INT-BEARING-DEPOSITS> 23
<FED-FUNDS-SOLD> 5,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,718
<INVESTMENTS-CARRYING> 16,067
<INVESTMENTS-MARKET> 15,918
<LOANS> 192,509
<ALLOWANCE> 3,417
<TOTAL-ASSETS> 284,764
<DEPOSITS> 256,155
<SHORT-TERM> 616
<LIABILITIES-OTHER> 4,330
<LONG-TERM> 0
<COMMON> 1,955
0
0
<OTHER-SE> 22,189
<TOTAL-LIABILITIES-AND-EQUITY> 284,764
<INTEREST-LOAN> 9,711
<INTEREST-INVEST> 1,862
<INTEREST-OTHER> 2
<INTEREST-TOTAL> 11,575
<INTEREST-DEPOSIT> 5,341
<INTEREST-EXPENSE> 28
<INTEREST-INCOME-NET> 6,206
<LOAN-LOSSES> 428
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 6,922
<INCOME-PRETAX> 2,464
<INCOME-PRE-EXTRAORDINARY> 2,464
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,718
<EPS-PRIMARY> .88
<EPS-DILUTED> .83
<YIELD-ACTUAL> 2.41
<LOANS-NON> 978
<LOANS-PAST> 1,014
<LOANS-TROUBLED> 629
<LOANS-PROBLEM> 978
<ALLOWANCE-OPEN> 3,061
<CHARGE-OFFS> 107
<RECOVERIES> 35
<ALLOWANCE-CLOSE> 3,417
<ALLOWANCE-DOMESTIC> 3,417
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,417
</TABLE>
