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 quarter period ended March 31, 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 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)
(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 has (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
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of May 1, 1997: 2,004,830.
Page 1
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COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - March 31, 1997 and
December 31, 1996 3
Consolidated Statements of Income - for Three Months
Ended March 31, 1997 and 1996 4 and 5
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1997 and 1996 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
<TABLE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1997 and December 31, 1996
(Dollars in thousands)
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
Assets
Cash and due from banks $18,830 $19,480
Interest-bearing deposits in banks 27 208
Investment securities:
Held to maturity (fair value $22,926 and $18,826) 22,867 18,654
Available for sale, at estimated fair value 51,845 47,418
Federal Funds Sold 9,130 8,345
Loans held for sale 2,521 2,484
Loans 206,010 203,302
Less allowance for loan losses 3,721 3,592
Loans, net 202,289 199,710
Premises and equipment, net 9,031 8,115
Other assets 10,871 11,165
Total Assets $327,411 $315,579
Liabilities and Shareholders' Equity
Deposits:
Noninterest bearing demand $37,472 $36,877
Interest-bearing demand 57,493 61,676
Savings 14,545 13,949
Certificates of deposits $100,000 and over 50,228 48,328
Other time 130,264 117,879
Total deposits 290,002 278,709
Other borrowings 578 616
Other liabilities 8,346 8,994
Total liabilities 298,926 288,319
Commitments and contingent liabilities
Redeemable common stock held by ESOP, 308,870 shares
outstanding, at fair value 6,773 6,177
Shareholders' equity
Common stock, $1 par value , 5,000,000 shares
authorized; 2,004,830 shares issued and
outstanding 2,005 2,005
Capital surplus 5,276 5,276
Retained earnings 14,723 13,876
Unrealized loss on securities available for sale,
net of tax (292) (74)
Total stockholders' equity 21,712 21,083
Total Liabilities and Stockholders' Equity $327,411 $315,579
See Accompanying Note to Consolidated Financial Statements
</TABLE>
Page 3
<PAGE>
<TABLE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED March 31, 1997 and 1996
(Dollars in Thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31
<CAPTION>
1997 1996
<S> <C> <C>
Interest Income
Loans $5,371 $4,799
Taxable securities 753 542
Nontaxable securities 285 194
Deposits in bank 8 1
Federal funds sold 204 156
Total Interest Income 6,621 5,692
Interest Expense
Interest on deposits 3,091 2,650
Interest on borrowed funds 11 16
Total Interest Expense 3,102 2,666
Net Interest Income 3,519 3,026
Provision for loan losses 190 209
Net interest income after
provision for loan losses 3,329 2,817
Other operating income
Service charges on deposit
accounts 462 343
Other service charges,
commissions & fees 166 134
Gains on sale of loans 158 85
Nonbank subsidiary non-
interest income 2,458 1,010
Other income 80 151
Total other income 3,324 1,723
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CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED March 31, 1997 and 1996
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31
1997 1996
Other operating expenses
Salaries and other
employee benefits 2,542 1,779
Occupancy expense 247 192
Equipment expense 336 278
Other operating expenses 1,286 1,150
Total other expenses 4,411 3,399
Income before income taxes 2,242 1,141
Applicable income taxes 730 337
NET INCOME $1,512 $804
Net income per share of common stock $.70 $.39
Weighted average shares outstanding 2,149,095 1,954,604
Cash dividends per share of
common stock $.0350 $.0334
<FN>
See Accompanying Note to Consolidated Financial Statements
</TABLE>
Page 5
<PAGE>
<TABLE>
COMMUNITY BANKSHARES,INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Threee Months Ended March 31, 1997 and 1996
(Dollars in Thousands)
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $1,512 $ 804
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 206 246
Provision for loan losses 190 209
Provision for other real estate 20
(Increase) in interest receivable (192) (410)
(Increase) in deferred taxes (61) (83)
(Increase) in loans held for sale (37) (300)
Increase (decrease) in taxes payable 446 (368)
Increase (decrease) in interest payable 76 (56)
Losses on sale of other real estate 26
Other prepaids, deferrals and accruals, net (415) (316)
Total adjustments 259 (1078)
Net cash provided by (used in) operating activities 1,771 (274)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities
Available for sale (6,859) (6,016)
Held to maturity (4,705) (1,456)
Proceeds from sales of other real estate 25
Proceeds from maturities of investment securities
Available for sale 2,082 5,200
Held to maturity 492 225
Net (increase) decrease in Interest Bearing Deposits
in banks 181 (14)
Net (increase) in Federal funds sold (785) (5)
Net (increase) in loans (2,917) (4,005)
Purchase of premises and equipment (1,120) (306)
Net cash used in investing activities (13,606) (6,377)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 11,293 5,834
Net increase in other borrowed funds 616
Repayment of notes payable (38) (787)
Dividends paid (70) (65)
Proceeds from sale of stock 4
Net cash provided by financing activities 11,185 5,602
Net (decrease) in cash and due from banks (650) (1,049)
Page 6
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Cash and due from banks, beginning of period 19,480 13,646
Cash and due from banks, end of period $18,830 $12,597
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest 3,253 2,722
Income Taxes 345 348
NONCASH TRANSACTIONS
Unrealized losses on securities available
for sale 350 187
Principal balances of loans transferred to other
real estate 148 25
<FN>
See Accompanying Note to Consolidated Financial Statements
</TABLE>
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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 period ending March 31, 1997 are
not necessarily indicative of the results to be expected for the full year.
Page 8
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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 March 31, 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 3.75%, 1.33% and 4.05%
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 March 31, 1997, the Liquidity Ratio was 30.71% 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 March 31, 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 March 31, 1997 were as follows:
Actual Regulatory minimum
Leverage 8.63% 4.00%
Risk Based Capital ratios:
Core Capital 12.38% 4.00%
Total Capital 13.63% 8.00%
Page 9
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Results of Operation
Net interest income for the three month period ended March 31, 1997
increased 16.3% to $3,519,000 over $3,026,000 for the same period for 1996.
Interest income for the three month period was up by 16.3% from $5,692,000
to $6,621,000. This increase in interest income is due to an increase in
earning assets of 15.67% or $39,602,000 at March 31, 1997, compared to March
31, 1996. For the first three months of 1997, earning assets increased by
$11,989,000 or 4.3%. The largest increase in earning assets since March 31,
1996 was the increase in loans of $24,960,000 while investment securities
increased by $17,699,000. Federal Funds sold decreased by $3,070,000.
Interest expense on interest bearing deposits was up by $441,000 or 16.6%
for the first three months of 1997 over the same period for 1996. This
increase in interest expense is due to an increase in interest bearing
deposits of 16.8% or $36,299,000 at March 31, 1997, compared to March 31,
1996. For the first three months of 1997, interest bearing deposits
increased by $10,698,000 or 4.4%. The increase in interest income, interest
expense, and net interest income were all consistent with budget projections
made by management and is on target to be consistent with annual projections.
The provision for loan losses was $190,000 for the first three months of 1997
compared to $209,000 for the same period in 1996, a decrease of 9.1%.
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 amounted to $17,000 for the first quarter of 1997.
Page 10
<PAGE>
The following table furnishes information on the Loan Loss Reserve for the
current three month reporting period and the same period for 1996 .
1997 1996
Beginning Balance 3,592 3,061
Less Charge Offs
Real Estate Loans (24) (0)
Commercial Loans (32) (10)
Consumer Loans (21) (31)
Credit Cards (1) (4)
Plus Recoveries
Real Estate Loans 3 0
Commercial Loans 6 1
Consumer Loans 8 17
Credit Cards 0 0
Plus Provision 190 209
Ending Balance 3,721 3,243
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 three month period ended March 31, 1997
represented 244% of charge offs for the same period, while the provision
for the first three months of 1996 represented 464% of the charge offs
recorded in that period. The reserve at the end of March 31, 1997
represented 371% of nonaccrual loans while the reserve at March 31, 1996
represented 420% of nonaccrual loans. Although non accrual loans have
increased compared to March 31, 1996, the Company is well within its policy
limit of maintaining a loan loss reserve of at least 200% of non-performing
assets. The Loan Loss Reserve balance to total loan ratio at March 31, 1997
was 1.78% as compared to 1.77% at March 31, 1996. Management considered the
Loan Loss Reserve to be adequate to absorb any losses that may be incurred.
Page 11
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The following table is a summary of Non Accrual, Past due and Restructured
Debt
March 31, 1997
Non Accrual Past Due Restructured
Loans 90 days Debt
still accruing
Real Estate Loans 427 15 0
Commercial Loans 262 33 752
Consumer Loans 314 490 0
Total 1,003 538 752
March 31, 1996
Non Accrual Past Due Restructured
Loans 90 days Debt
still accruing
Real Estate Loans 17 140 0
Commercial Loans 263 296 632
Consumer Loans 492 68 0
Total 772 504 632
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 increased primarily due to one additional loan being
restructured during the past twelve months. Non accrual loans increased
primarily as a result of several large loans being moved to non accrual
status during the past twelve month period. Management does not consider
these increases to be a negative trend as non accrual 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 12
<PAGE>
Other income increased by 92.9% or $1,601,000 during the three month
period ended March 31, 1997 as compared to the same period for 1996. The
majority of this increase , $1,448,000, was from the increase in the sale of
supermarket bank units as well as the increase in income associated with the
ongoing licensing of these units. Service charges on deposit accounts increased
by $119,000 or 34.7% as compared to the same period for 1996. The major
increase was the increase in non-sufficient funds (NSF) charges of $113,000.
NSF charges increased primarily as a result of the Company's new program of
free checking. Another result of the free checking program was that service
charges on deposit accounts increased by only $5,000 despite the growth in
total deposits. Other service charges, commissions and fees were up by
$32,000 primarily due to the increase in ATM fees from the Company's
electronic banking program. The gains on sale of loans increased by $73,000
or 85.9% during the three month period ended March 31, 1997 as compared to
the same period for 1996. This increase is due to the increase in SBA loan
origination. Trust department income for the first quarter 1996 was down by
$18,000 for the first quarter of 1997 as compared to the same period one year
ago.
Other operating expenses increased by 29.8% or $1,012,000 for the first three
months of 1997 over the same period in 1996. Salaries and benefits were up
$763,000 or 42.9% from the first quarter of 1996 to the first quarter of 1997.
This is due to increased staffing of 27.5 F.T.E. from 193.5 at the end of March
1996 to 221.0 at the end of March 1997. Equipment and occupancy expenses
were up by $113,000 for the first quarter 1997 over the first quarter of 1996.
The increase in salaries and benefits as well as equipment and occupancy
expenses was primarily due to the addition of five supermarket banking centers
during the past twelve months as well as the increase in cash dispensing
machines.
Net income for the three month period was $1,512,000 or an increase of 88.1%
over the same period for 1996. The net income was more than budgeted numbers
and is consistent with management's expectations for this quarter.
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: May 14, 1997 BY: /s/ Harry L. Stephens
Harry L. Stephens, Executive Vice
President and Chief Financial Officer
Page 15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<CASH> 18,830
<INT-BEARING-DEPOSITS> 27
<FED-FUNDS-SOLD> 9,130
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,845
<INVESTMENTS-CARRYING> 22,867
<INVESTMENTS-MARKET> 22,926
<LOANS> 208,531
<ALLOWANCE> 3,721
<TOTAL-ASSETS> 327,411
<DEPOSITS> 290,002
<SHORT-TERM> 578
<LIABILITIES-OTHER> 8,346
<LONG-TERM> 0
<COMMON> 2,005
0
0
<OTHER-SE> 19,999
<TOTAL-LIABILITIES-AND-EQUITY> 327,411
<INTEREST-LOAN> 5,371
<INTEREST-INVEST> 1,242
<INTEREST-OTHER> 8
<INTEREST-TOTAL> 6,621
<INTEREST-DEPOSIT> 3,091
<INTEREST-EXPENSE> 11
<INTEREST-INCOME-NET> 3,519
<LOAN-LOSSES> 190
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,411
<INCOME-PRETAX> 2,242
<INCOME-PRE-EXTRAORDINARY> 2,242
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,512
<EPS-PRIMARY> .75
<EPS-DILUTED> .70
<YIELD-ACTUAL> 1.21
<LOANS-NON> 1,003
<LOANS-PAST> 538
<LOANS-TROUBLED> 752
<LOANS-PROBLEM> 1,003
<ALLOWANCE-OPEN> 3,592
<CHARGE-OFFS> 78
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 3,721
<ALLOWANCE-DOMESTIC> 3,721
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,721
</TABLE>
