UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 registrant issuer as specified in its charter)
Georgia 58-1415887
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
448 North Main Street, Cornelia, Georgia
(Address of principal executive offices)
30531
(Zip Code)
(706) 778-2265
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of November 1, 1997: 2,169,830.
Page 1
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997
and December 31, 1996 3 and 4
Consolidated Statements of Income - for Three Months
Ended September 30, 1997 and 1996 and Nine Months Ended
September 30, 1997 and 1996 5 and 6
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1997 and 1996 7 and 8
Note to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8 - K 15
Signatures 16
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and December 31, 1996
(Dollars in thousands)
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Assets
Cash and due from banks 16,335 $19,480
Interest-bearing deposits in banks 717 208
Investment securities:
Held to maturity (fair value $25,670 and $18,826) 25,286 18,654
Available for sale 50,518 47,418
Federal Funds Sold 9,805 8,345
Loans held for sale 2,313 2,484
Loans 226,523 203,302
Less allowance for loan losses 4,056 3,592
Loans, net 222,467 199,710
Premises and equipment 9,835 8,115
Other assets 10,258 11,165
Total Assets 347,534 $315,579
Liabilities, Redeemable Common Stock and Shareholders' Equity
Deposits:
Demand 42,494 $36,877
Interest-bearing demand 63,012 61,676
Savings 16,438 13,949
Certificates of deposits $100,000 and over 56,787 48,328
Other time 128,411 117,879
Total deposits 307,142 278,709
Other borrowings 501 616
Other liabilities 7,841 8,994
Total liabilities 315,484 288,319
Commitments and contingent liabilities
Redeemable common stock held by ESOP, 308,870
shares outstanding, at fair value 6,773 6,177
Page 3
<PAGE>
CONSOLIDATED BALANCE SHEET
September 30, 1997 and December 31, 1996
(Dollars in thousands)
(Unaudited)
1997 1996
Shareholders' equity
Common stock, $1 par value , 5,000,000 shares
authorized; 2,169,830 and 2,004,830 shares
issued and outstanding 2,170 2,005
Surplus 5,962 5,276
Retained earnings 17,861 13,876
Unrealized (loss)gain on securities available
for sale, net of tax 66 (74)
Treasury stock (782) 0
Total shareholders' equity 25,277 21,083
Total liabilities, redeemable common stock
and shareholders' equity 347,534 $315,579
<FN>
See Accompanying Note to Consolidated Financial Statements
</TABLE>
Page 4
<PAGE>
<TABLE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED September 30, 1997 and 1996 and
NINE MONTHS ENDED September 30, 1997 and 1996
(Dollars in Thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
<CAPTION>
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $6,475 $5,449 $17,537 $15,160
Interest on Federal Funds sold 156 166 521 459
Interest on interest-bearing
deposits 61 5 78 7
Interest on investment
securities:
Taxable 717 628 2,279 1,787
Nontaxable 336 236 947 646
Total Interest Income 7,745 6,484 21,362 18,059
Interest Expense
Interest on deposits 3,308 2,868 9,652 8,209
Interest on borrowed funds 10 18 32 46
Total Interest Expense 3,318 2,886 9,684 8,255
Net Interest Income 4,427 3,598 11,678 9,804
Provision for loan losses 247 196 636 624
Net interest income after
provision for loan losses 4,180 3,402 11,042 9,180
Other income
Service charges on deposit
accounts 497 383 1,465 1,103
Other service charges,
commissions & fees 191 150 477 418
Security transactions, net 15 (20) 9 (12)
Gain on sale of loans 261 108 539 302
Nonbank subsidiary non-
interest income 1,170 957 6,120 3,133
Other income 27 91 367 333
Total other income 2,161 1,669 8,977 5,277
Page 5
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED September 30, 1997 and 1996 and
NINE MONTHS ENDED September 30, 1997 and 1996
(Dollars in Thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
Other expenses
Salaries and other
employee benefits 2,350 1,931 7,317 5,608
Occupancy expense 264 217 765 598
Equipment expense 306 260 911 838
Other expenses 1,253 1,258 4,168 3,544
Total other expenses 4,173 3,666 13,161 10,588
Income before income taxes 2,168 1,405 6,858 3,869
Income taxes 689 414 2,210 1,160
NET INCOME $1,479 $991 $4,648 $2,709
Per share of common stock and
common stock equivalents based
on average number shares
outstanding during period,
Net income $ .71 $ .48 $2.26 $1.31
Average shares outstanding 2,075,757 2,059,461 2,031,808 2,063,386
Cash dividends per share of
common stock $.034 $.033 $.11 $.10
<FN>
See Accompanying Note to Consolidated Financial Statements
</TABLE>
Page 6
<PAGE>
<TABLE>
COMMUNITY BANKSHARES,INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997 and 1996
(Dollars in Thousands)
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $4,648 $2,709
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 772 635
Provision for other real estate 50 0
Provision for loan losses 636 624
(Gain) loss on sale of investment securities
available for sale (9) 12
Loss on sale of other real estate 42 0
(Increase) decrease in loans held for sale 171 (268)
Increase in interest receivable (463) (339)
Increase in deferred taxes (147) (47)
Increase in taxes payable (438) (45)
(Increase) decrease in interest payable 508 (342)
Other operating activities 156 1,078
Total adjustments 1,278 1,308
Net cash provided by operating activities 5,926 4,017
INVESTING ACTIVITIES
Proceeds from sale of other real estate 341 124
Purchase of investment securities
Available for sale (16,355) (17,581)
Held to maturity (7,463) (4,984)
Proceeds from sales of investment securities
Available for sale 7,202 2,000
Proceeds from maturities of investment securities
Available for sale 6,297 11,550
Held to maturity 831 500
Net increase in interest bearing deposits
in banks (509) (279)
Net (increase) decrease in Federal funds sold (1,460) 1,020
Net increase in loans (23,613) (18,289)
Purchase of premises and equipment (2,591) (2,636)
Net cash used in investing activities (37,320) (28,575)
FINANCING ACTIVITIES
Net increase in deposits 28,433 24,902
Net increase (decrease) in other borrowed funds 0 1,616
Repayment of notes payable (115) (787)
Dividends paid (212) (195)
Proceeds from issuance of stock 143 4
Net cash provided by financing activities 28,249 25,540
Page 7
<PAGE>
Net (increase) decrease in cash and due from banks (3,145) 982
Cash and due from banks, beginning of period 19,480 13,646
Cash and due from banks, end of period $16,335 $14,628
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest 9,176 8,597
Income Taxes 2,795 1,284
NONCASH TRANSACTIONS
Unrealized (gains) losses on securities available
for sale (235) 165
Principal balances of loans transferred to other
real estate 220 25
<FN>
See Accompanying Note to Consolidated Financial Statements
</TABLE>
Page 8
<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, 1997 are not necessarily indicative of the results to be
expected for the full year.
Page 9
<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, 1997, the Company continues to experience growth in total
assets, total loans and total deposits as compared to December 31, 1996.
Total assets, loans and deposits increased by 10.13%, 11.20% and 10.20%
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 foreseeable future.
Liquidity
As of September 30, 1997, the Liquidity Ratio was 27.63% 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 200 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, 1997, 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, 1997 were as follows:
Actual Regulatory minimum
Leverage 9.27% 4.00%
Risk Based Capital ratios:
Core Capital 13.90% 4.00%
Total Capital 15.16% 8.00%
Page 10
<PAGE>
Results of Operation
Net interest income for the nine month period ended September 30, 1997
increased 19.11% to $11,678,000 over $9,804,000 for the same period for 1996.
Interest income for the nine month period was up by 18.29% from $18,059,000 to
$21,362,000. Earning assets were up by $42,355,000 as of September 30, 1997
over September 30,1996 or an increase of 15.53%. The largest increase in
earning assets was the increase in loans of $23,050,000 for this period
as loan demand continued to be strong in our market area. Interest
expense on deposits increased by 17.58% during the first nine months of 1997
over the same period for 1996 as interest bearing deposits grew by 30,875,000
or 13.21%. Interest income for the three month period ending September 30,
1997 was up 19.45% or $1,261,000 over the three month period ending
September 30, 1996 while interest expense on deposits was up by 15.34% or
$440,000 for the same period. This resulted in an increase in net interest
income of $432,000 or 14.97% for the third quarter of 1997 when compared to
the third quarter of 1996. The increases in interest income and interest
expense and net interest income were consistent with the growth experienced
in assets and liabilities and were consistent with budget projections made by
management.
The provision for loan losses was $636,000 for the first nine months of 1997
compared to $624,000 for the first nine months of 1996, an increase of 1.92%.
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.
Page 11
<PAGE>
The following table furnishes information on the Loan Loss Reserve for the
current nine month reporting period and the same period for 1996.
1997 1996
Beginning Balance 3,592 3,061
Less Charge Offs
Real Estate Loans (35) (0)
Commercial Loans (94) (113)
Consumer Loans (111) (131)
Credit Cards (4) (9)
Plus Recoveries
Real Estate Loans 27 0
Commercial Loans 9 5
Consumer Loans 36 51
Credit Cards 0 0
Plus Provision 636 624
Ending Balance 4,056 3,488
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,
1997 represented 261% of charge offs for the same period, while the provision
for the first nine months of 1996 represented 246% of the charge offs recorded
in that period. The reserve at the end of September 30, 1997 represented 715%
of nonaccrual loans while the reserve at September 30, 1996 represented
360% of nonaccrual loans. Nonaccrual loans have decreased from $998,000 at
September 30, 1996 to $567,000 as of September 30, 1997. The Company is well
within its policy of maintaining a loan loss reserve of at least 200% of non-
performing assets. The Loan Loss Reserve balance to total loan ratio at
September 30, 1997 was 1.77% as compared to 1.75% at September 30, 1996.
Management considered the Loan Loss Reserve to be adequate to absorb any
losses that may be incurred.
Page 12
<PAGE>
The following table is a summary of Non Accrual, Past due and Restructured
Debt:
September 30, 1997
Non Accrual Past Due Restructured
Loans 90 days Debt
still accruing
Real Estate Loans 10 16 0
Commercial Loans 240 387 139
Consumer Loans 317 276 0
Total 567 679 139
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
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.
Restructured debt decreased $485,000 during the past twelve months. Non-
accrual loans decreased $431,000 during the past twelve month period.
Management does not consider these decreases to be a trend as nonaccrual
and restructured debt will periodically fluctuate.
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.
Page 13
<PAGE>
Other income increased by $3,700,000 or 70.12% during the nine month period
ended September 30, 1997 as compared to the same period for 1996 and
increased by $462,000 or 27.19% for the three month period ended
September 30,1997 as compared to the same period in 1996. The reason for the
increase for both the nine month and three month periods was an increase in
sales generated by the Supermarket Bank division. These large increases were
a direct result of the contract with Nations Bank and Winn Dixie which
benefitted our subsidiary, Financial Supermarkets, Inc., by installing 54
supermarket banks in 1997 verses 29 installations for the same period in
1996. This trend, while it will have some benefit to the subsidiary in
subsequent periods due to ongoing fees generated by these new installations,
will not continue in 1998 and management expects earnings to be much lower
accordingly. Service charges on deposit accounts increased 362,000 or 32.82%
for the nine month period ended September 30, 1997 as compared to the same
periods last year. Most of this increase is due to an increase in
nonsufficient funds (NSF) charges resulting from our policy of offering free
checking accounts.
Other expenses increased by $2,573,000 or 24.30% for the first nine months of
1997 over the same period in 1996 and by $507,000 or 13.83% for the third
quarter of 1997 over the third quarter of 1996. Salaries and benefits
accounted for $1,709,000 and $419,000 of these amounts respectively with the
number of personnel rising from 207 full time equivalent employees at
September 30, 1996 to 234 full time equivalent employees at September 30,
1997. This increase was due to the opening of four additional branches during
the last twelve months and the growth experienced during that period.
Occupancy and Equipment expenses were up $240,000 for the nine month period
ending September 30, 1997 over the same period ending September 30, 1996 due
to the four new branches.
Net income for the nine month period ended September 30, 1997 was up 71.58%
over the same period for 1996 and net income for the three month period
ending September 30, 1997 was up 49.24% over the same three month period for
1996. This increase was expected but will not continue in the future due to
the end of our installing units for Nations Bank in Winn Dixie stores in
Florida.
On June 20, 1997 and July 31, 1997 the Company entered into agreements to
purchase the assets and assume the liabilities of the Clarkesville, Georgia
and Cleveland, Georgia branches of Sun Trust Bank, respectively. These
transactions are scheduled to close in the fourth quarter of 1997 and the
first quarter of 1998, respectively. These purchases will increase the market
share in both the Habersham and White County, Georgia markets. Management
anticipates these transactions to have an immaterial effect on the Company's
liquidity, capital resources, and operations.
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 14
<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 15
<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:_Noverber 13, 1997____ BY:______________________________
/s/ Harry L. Stephens, Executive Vice
President and Chief Financial Officer
Page 16
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 16,335
<INT-BEARING-DEPOSITS> 717
<FED-FUNDS-SOLD> 9,805
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,518
<INVESTMENTS-CARRYING> 25,286
<INVESTMENTS-MARKET> 25,670
<LOANS> 228,836
<ALLOWANCE> 4,056
<TOTAL-ASSETS> 347,534
<DEPOSITS> 307,142
<SHORT-TERM> 501
<LIABILITIES-OTHER> 7,841
<LONG-TERM> 0
<COMMON> 2,170
0
0
<OTHER-SE> 23,823
<TOTAL-LIABILITIES-AND-EQUITY> 347,534
<INTEREST-LOAN> 17,537
<INTEREST-INVEST> 3,747
<INTEREST-OTHER> 78
<INTEREST-TOTAL> 21,362
<INTEREST-DEPOSIT> 9,652
<INTEREST-EXPENSE> 32
<INTEREST-INCOME-NET> 11,678
<LOAN-LOSSES> 636
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 13,161
<INCOME-PRETAX> 6,858
<INCOME-PRE-EXTRAORDINARY> 6,858
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,648
<EPS-PRIMARY> 2.29
<EPS-DILUTED> 2.26
<YIELD-ACTUAL> 3.71
<LOANS-NON> 567
<LOANS-PAST> 679
<LOANS-TROUBLED> 139
<LOANS-PROBLEM> 567
<ALLOWANCE-OPEN> 3,592
<CHARGE-OFFS> 244
<RECOVERIES> 72
<ALLOWANCE-CLOSE> 4,056
<ALLOWANCE-DOMESTIC> 4,056
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,056
</TABLE>
