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 June 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 small business 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 August 1, 1997: 2,019,830.
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 - June 30, 1997 and
December 31, 1996 3
Consolidated Statements of Income - for Three Months
Ended June 30,1997 and 1996 and Six Months Ended
June 30, 1997 and 1996 4 and 5
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1997 and December 31, 1996
(Dollars in thousands)
(Unaudited)
[CAPTION]
1997 1996
[C] [C]
Assets $21,549 $19,480
Cash and due from banks 300 208
Interest-bearing deposits in banks
Investment securities:
Held to maturity (fair value $24,349 and $18,826) 23,919 18,654
Available for sale, at estimated fair value 52,549 47,418
Federal Funds Sold 7,185 8,345
Loans held for sale 2,463 2,484
Loans 220,600 203,302
Less allowance for loan losses 3,879 3,592
Loans, net 216,721 199,710
Premises and equipment, net 9,289 8,115
Other assets 10,482 11,165
Total Assets $344,457 $315,579
Liabilities and Shareholders' Equity
Deposits:
Noninterest bearing demand $45,172 36,877
Interest-bearing demand 58,915 61,676
Savings 15,848 13,949
Certificates of deposits $100,000 and over 59,110 48,328
Other time 126,284 117,879
Total deposits 305,329 278,709
Other borrowings 539 616
Other liabilities 8,084 8,994
Total liabilities 313,952 288,319
Commitments and contingent liabilities
Redeemable common stock held by ESOP, 308,870 shares
outstanding, at fair value 6,773 6,177
Stockholders' equity
Common stock, $1 par value , 5,000,000 shares
authorized; 2,019,830 and 2,004,830 shares
issued and outstanding 2,020 2,005
Capital surplus 5,404 5,276
Retained earnings 16,381 13,876
Unrealized loss on securities available for sale,
net of tax (73) (74)
Total stockholders' equity 23,732 21,083
Total Liabilities and Stockholders' Equity $344,457 $315,579
See Accompanying Note to Consolidated Financial Statements
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<TABLE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED June 30, 1997 and 1996 and
SIX MONTHS ENDED June 30, 1997 and 1996
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
<CAPTION>
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $5,691 $4,910 $11,062 $9,711
Interest on Federal Funds 161 139 365 293
Interest on interest-bearing
deposits 9 1 17 2
Interest on investment
securities:
Taxable 809 617 1,562 1,159
Nontaxable 326 216 611 410
Total Interest Income 6,996 5,883 13,617 11,575
Interest Expense
Interest on deposits 3,253 2,691 6,344 5,341
Interest on borrowed funds 11 12 22 28
Total Interest Expense 3,264 2,703 6,366 5,369
Net Interest Income 3,732 3,180 7,251 6,206
Provision for loan losses 199 219 389 428
Net interest income after
provision for loan losses 3,533 2,961 6,862 5,778
Other operating income
Service charges on deposit
accounts 506 377 968 720
Other service charges,
commissions & fees 120 134 286 268
Security transactions, net (6) 8 (6) 8
Gain on sale of loans 120 109 278 194
Nonbank subsidiary non-
interest income 2,492 1,126 4,950 2,136
Other income 260 131 340 282
Total other operating income 3,492 1,885 6,816 3,608
Page 4
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CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED June 30, 1997 and 1996 and
SIX MONTHS ENDED June 30, 1997 and 1996
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
Other operating expenses
Salaries and other
employee benefits 2,425 1,898 4,967 3,677
Occupancy expense 254 189 501 381
Equipment expense 269 300 605 578
Other operating expenses 1,629 1,136 2,915 2,286
Total other operating
expenses 4,577 3,523 8,988 6,922
Income before income taxes 2,448 1,323 4,690 2,464
Applicable income taxes 799 409 1,521 746
NET INCOME $1,649 $914 $3,169 $1,718
Per share of common stock and
common stock equivalents based
on average number shares
outstanding during period,
Net income $ .77 $ .44 $1.48 $ .83
Average shares outstanding 2,144,732 2,064,177 2,142,760 2,064,892
Cash dividends per share of
common stock $.035 $.0334 $.07 $.0668
<FN>
See Accompanying Note to Consolidated Financial Statements
</TABLE>
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<TABLE>
COMMUNITY BANKSHARES,INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1997 and 1996
(Dollars in Thousands)
(Unaudited)
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $3,169 $1,718
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 504 415
Provision for loan losses 389 428
Provision for other real estate 35
(Gain) Loss on sale of investment securities
available for sale 6 (8)
Loss on sale of other real estate 40
(Increase) decrease in loans held for sale 21 (100)
Increase in interest receivable (444) (438)
(Increase) in deferred taxes (107) (148)
Increase in taxes payable 745 114
Increase (Decrease) in interest payable 190 (286)
Other prepaids, deferrals and accruals, net (464) (617)
Total adjustments 915 (640)
Net cash provided by operating activities 4,084 1,078
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of other real estate 242 118
Purchase of investment securities
Available for sale (12,411) (11,386)
Held to maturity (5,955) (4,196)
Proceeds from sales of investment securities
Available for sale 4,413 500
Proceeds from maturities of investment securities
Available for sale 2,863 9,191
Held to maturity 690 409
Net increase in Interest Bearing Deposits in banks (92) (23)
Net decrease in Federal funds sold 1,160 7,045
Net increase in loans (17,620) (13,118)
Purchase of premises and equipment (1,851) (929)
Net cash used in investing activities (28,561) (12,389)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 26,620 13,713
Net increase in other borrowed funds 0 616
Repayment of notes payable (77) (787)
Dividends paid (140) (131)
Proceeds from issuance of stock 143 4
Net cash provided by financing activities 26,546 13,415
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Net increase in cash and due from banks 2,069 2,104
Cash and due from banks, beginning of period 19,480 13,646
Cash and due from banks, end of period $21,549 $15,750
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest 6,176 5,655
Income Taxes 883 781
NONCASH TRANSACTIONS
Unrealized (gains) losses on securities available
for sale (2) 663
Principal balances of loans transferred to other
real estate 220 25
<FN>
See Accompanying Note to Consolidated Financial Statements
</TABLE>
Page 7
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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 six month period ending June 30, 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 June 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 9.15%, 8.39% and 9.55%
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, 1997, the Liquidity Ratio was 33.82% which is in excess of 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, 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 June 30, 1997 were as follows:
Actual Regulatory minimum
Leverage 8.73% 4.00%
Risk Based Capital ratios:
Core Capital 12.36% 4.00%
Total Capital 13.61% 8.00%
Page 9
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Results of Operation
Net interest income for the six month period ended June 30, 1997 is up
16.84% over the same period for 1996, from $6,206,000 to $7,251,000, and is up
17.35% for the three month period ending June 30, 1997 from $3,180,000 to
$3,732,000 for 1997. Interest income was up 17.6% for the six month period
ending June 30, 1997 from $11,575,000 to $13,617,000 and up 18.9% for the
three month period ending June 30, 1997 from $5,883,000 to $6,996,000. Interest
expense was up 18.5% for the six month period ended June 30, 1997 over the same
period for the previous year and interest expenses were up 12.56% for the
three month period ending June 30, 1997 over the same period for a year ago
from $2,703,000 to $3,264,000.
The increase in interest income is due to an increase of 9.46% in earning
assets over the six month period of December 31, 1996 through June 30, 1997.
The largest number included in this increase is an 8.39% increase in loans for
the period. The increase in interest income, interest expense, and net
interest income were consistent with budget projections made by management
and are on target to be consistent with annual projections.
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The following table furnishes information on the Loan Loss Reserve for the
current six month reporting period and the same period for 1995 .
1997 1996
Beginning Balance 3,592 3,061
Less Charge Offs
Real Estate Loans (24) (0)
Commercial Loans (43) (21)
Consumer Loans (84) (79)
Credit Cards (1) (7)
Plus Recoveries
Real Estate Loans 23 0
Commercial Loans 6 1
Consumer Loans 21 34
Credit Cards 0 0
Plus Provision 389 428
Balance, end of period 3,879 3,417
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 30, 1997
represented 255% of charge offs for the same period, while the provision for
the first six months of 1996 represented 400% of the charge offs recorded
in that period. The reserve at the end of June 30, 1997 represented 500%
of nonaccrual loans while the reserve at June 30, 1996 represented 349% of
nonaccrual loans. Nonaccrual loans have decreased from $978,000 at June 30,
1996 to $775,000 as of June 30, 1997. 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 Reserved balance to total loan ratio at June 30, 1997
was 1.74% as compared to 1.78% at June 30, 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
June 30, 1997
Non Accrual Past Due Restructured
Loans 90 days Debt
still accruing
Real Estate Loans 198 0 0
Commercial Loans 264 277 606
Consumer Loans 313 128 0
Total 775 405 606
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
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 $23,000 during the past twelve months. Non accrual
loans decreased $203,000 during the past twelve month period. Management does
not consider these decreases to be a 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 operating income increased by 88.91% for the six month period ending
June 30, 1997 as compared to the same period for 1996 and the three month
period ending June 30, 1997 showed an 85.25% increase over the same three month
period of 1996. Both of these large increases were due to non bank subsidiary
non interest income which rose from $2,136,000 for the six month period ending
June 30, 1996 to $4,950,000 for the same period of 1997. The increase for the
three month period ending June 30, was from $1,126,000 to $2,492,000 for this
item. The large increases were a direct result of the contract with Nations
Bank and Winn Dixie which benefited our subsidiary, Financial Supermarkets,
Inc. by installing 40 supermarket banks in 1997. This trend, while it will
have some benefit to the subsidiary in subsequent periods due to on-going
fees generated by these new banks, will not continue in 1998 and management
expects earnings to be much lower accordingly. Other operating income from
the banks was up 26.76% for the six month period ending June 30 and 31.75%
for the three month period ending June 30 over the same periods last year.
This is due primarily to service charges on deposit accounts which grew by
34.44% for the six month period ending June 30, and 34.22% for the three
month period ending June 30,1997 over the same periods of one year ago. Most
of this increase is due to an increase in non sufficient funds (NSF) charges
due to our policy of offering free checking accounts. The gain on sale of loans
was slightly decreased for both periods as SBA loan originations have been
slower this year.
Other operating expenses increased by 29.84% for the six month period ending
June 30, 1997 and 29.92% for the three month period ending June 30, 1997 over
the same periods a year ago. Salaries and benefits were up 35.08% and 27.71%
respectively for the two periods. This was a result of our opening of six
branches in the last twelve months and increasing our number of employees from
193.5 FTE at June 30, 1996 to 227.5 FTE at June 30, 1997. These new facilities
were also responsible for the rise of Occupancy expenses by 31.49% and 34.39%
in the two periods.
Equipment expenses were up 4.67% for the six month period ending June 30,
1997 and 11.52% for the three month period ending June 30, 1997 due to the
expenses associated with operating cash dispensers and travel expenses
associated with the non bank subsidiary.
Net income is up 83.97% for the six month period and 79.32% for the three
month period ending June 30, 1997. This increase was expected but will not
continue in the future due to the end of our building units for Nations Bank
in Winn Dixie stores in Florida.
On June 20, 1997, the Company entered into an agreement to purchase the assets
and assume the liabilities of a branch of SunTrust Bank located in
Clarkesville, Georgia. This transaction is scheduled to close in the forth
quarter of 1997. The purchase will increase the market share in the Habersham
County, Georgia area. Management anticipates this transaction to have an
immaterial effect on the Comapny'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 13
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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
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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: August 12, 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> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<CASH> 21,549
<INT-BEARING-DEPOSITS> 300
<FED-FUNDS-SOLD> 7,185
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,549
<INVESTMENTS-CARRYING> 23,919
<INVESTMENTS-MARKET> 24,349
<LOANS> 220,600
<ALLOWANCE> 3,879
<TOTAL-ASSETS> 344,457
<DEPOSITS> 305,329
<SHORT-TERM> 539
<LIABILITIES-OTHER> 8084
<LONG-TERM> 0
<COMMON> 2,020
0
0
<OTHER-SE> 21,785
<TOTAL-LIABILITIES-AND-EQUITY> 344,457
<INTEREST-LOAN> 11,062
<INTEREST-INVEST> 2,538
<INTEREST-OTHER> 17
<INTEREST-TOTAL> 13,617
<INTEREST-DEPOSIT> 6,344
<INTEREST-EXPENSE> 22
<INTEREST-INCOME-NET> 7,251
<LOAN-LOSSES> 389
<SECURITIES-GAINS> (6)
<EXPENSE-OTHER> 8,988
<INCOME-PRETAX> 4,690
<INCOME-PRE-EXTRAORDINARY> 4,690
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,169
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.48
<YIELD-ACTUAL> 2.36
<LOANS-NON> 775
<LOANS-PAST> 405
<LOANS-TROUBLED> 606
<LOANS-PROBLEM> 775
<ALLOWANCE-OPEN> 3,592
<CHARGE-OFFS> 152
<RECOVERIES> 50
<ALLOWANCE-CLOSE> 3,879
<ALLOWANCE-DOMESTIC> 3,879
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,879
</TABLE>
