SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/x/ Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1996
/ / Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Commission File Number 33-81890
Community Bankshares, Inc.
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(Exact name of registrant as specified in its charter)
Georgia 58-1415887
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 North Main Street, Cornelia, Georgia 30531
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (706) 778-2265
Name of exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (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
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X Not applicable. Registrant is not required to
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be registered under the Securities Exchange Act of 1934.
Aggregate market value of the voting stock held by non-
affiliates (which for purposes hereof are all holders other than
executive officers and directors) of the Registrant as of March
24, 1997: $18,026,800 (computed by reference to the price at
which the stock was sold in the average bid and ask price as of
March 24, 1997).
As of March 24, 1997, 2,004,830 shares of Common Stock were
issued and outstanding, par value $1.00 per share.
<PAGE>
PART I
ITEM 1. BUSINESS.
Community Bankshares, Inc. (the "Company") was organized
under the laws of Georgia in 1980 and commenced operations in
1981. The Company is a registered bank holding company. All of
the Company's activities are currently conducted by or through
its subsidiaries, Community Bank & Trust - Habersham ("Community-
Habersham"), Community Bank & Trust - Alabama ("Community-
Alabama"), Community Bank & Trust - Jackson ("Community-Jackson")
and Community Bank & Trust - Troup, ("Community-Troup")
(collectively, the "Community Banking Subsidiaries") and the non-
bank subsidiary of Community-Habersham, Financial Supermarkets,
Inc. ("Financial Supermarkets").
All references herein to the Company include Community
Bankshares, Inc., the Community Banking Subsidiaries and
Financial Supermarkets unless the context indicates a different
meaning. Unless otherwise indicated, all information in this
Prospectus has been adjusted for the stock split effected as a
Common Stock dividend and the associated reduction in par value
of the Common Stock.
Business Description of Community Banking Subsidiaries
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GENERAL. Each of the Community Banking Subsidiaries is
community-oriented and offers such customary banking services as
consumer and commercial checking accounts, NOW accounts, savings
accounts, certificates of deposit, lines of credit and money
transfers. Each Community Banking Subsidiary finances commercial
and consumer transactions, makes secured and unsecured loans, and
provides a variety of other banking services.
DEPOSITS. Each Community Banking Subsidiary offers a full
range of depository accounts and services to both consumers and
businesses. At December 31, 1996, the Company's aggregate
deposit base, totaling approximately $278.7 million, consisted of
approximately $36.9 million in noninterest-bearing demand
deposits (13.3% of total deposits), approximately $61.7 million
in interest-bearing demand deposits (including money market
accounts) (22.1% of total deposits), approximately $13.9 million
in savings deposits (5% of total deposits), approximately $117.9
million in time deposits in amounts less than $100,000 (42.3% of
total deposits), and approximately $48.3 million in time deposits
of $100,000 or more (17.3% of total deposits).
LOANS. Each Community Banking Subsidiary makes both secured
and unsecured loans to individuals, firms and corporations, and
both consumer and commercial lending operations include various
types of credit for customers. In addition, the Company operates
a loan production office in Gainesville, Georgia through
Community-Habersham. The Gainesville loan production (the "LPO")
office funds and sells on the open market loans guaranteed by the
Small Business Administration (the "SBA"). Secured loans include
first and second real estate mortgage loans. Each Community
Banking Subsidiary also makes direct installment loans to
consumers on both a secured and unsecured basis. At December 31,
1996, consumer, real estate (including mortgage and construction
loans) and commercial loans represented approximately 18.1%,
32.9% and 49.0%, respectively, of the Company's total loan
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portfolio. The real estate loans made by each Community Banking
Subsidiary include residential real estate construction,
acquisition and development loans, as well as loans for other
purposes which are secured by real estate.
Commercial lending is directed principally towards
businesses within the defined trade area of the Community Banking
Subsidiaries or which are existing or potential deposit customers
of the Community Banking Subsidiaries. The Gainesville loan
production office, however, makes a large portion of loans to
individuals and businesses that are not located in its market
area. Loans categorized as commercial loans are not secured by
real estate. Collateral includes marketable securities,
certificates of deposit, accounts receivable, inventory and
equipment. Commercial lending decisions are based upon a
determination of the borrower's ability and willingness to repay
the loan, which in turn are impacted by such factors as the
borrower's cash flow, sales trends and inventory levels, as well
as relevant economic conditions. This category includes loans
made to individual, partnership or corporate borrowers and
obtained for a variety of purposes. Risks associated with these
loans can be significant. Risks include, but are not limited to,
fraud, bankruptcy, economic downturn, deteriorated or non-
existing collateral, and changes in interest rates.
Loans secured by real estate which are made to businesses
are categorized as real estate loans. Often, real estate
collateral is deemed to be superior to other collateral available
to small-to medium-sized businesses. The underwriting standards
of and risks to the Community Banking Subsidiaries are as
described below with respect to real estate loans.
The Community Banking Subsidiaries offer traditional first
mortgage loans to individuals for single-family structures. The
loans are sold in the secondary market. Since the Community
Banking Subsidiaries are originators of mortgages rather than
investors, they sell them servicing-released. They offer loan-
to-value amounts from 70% to 95%. Various types of fixed-rate
and variable-rate products are available. Risks involved with
residential mortgage lending include, but are not limited to,
title defects, fraud, general real estate market deterioration,
inaccurate appraisals, interest rate fluctuations and financial
deterioration of the borrower.
The Community Banking Subsidiaries also make residential
construction loans, generally for one-to-four unit structures.
The Community Banking Subsidiaries require a first lien position
on the loans associated with construction projects and offer
these loans only to bona fide professional building contractors.
Loan disbursements require independent, on-site inspections to
assure the project is on budget and that the loan proceeds are
being used in accordance with the plans, specifications and
survey for the construction project and not being diverted to
other uses. The loan-to-value ratio for such loans is usually
75% to 85% of the as-built appraised value. Loans for
construction can present a high degree of risk to the Community
Banking Subsidiaries, depending on, among other things, whether
the builder can sell the home to a buyer, whether the buyer can
obtain permanent financing, whether the transaction produces
income in the interim, and the nature of changing economic
conditions.
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Additionally, the Community Banking Subsidiaries make
acquisition and development loans to approved developers for the
purpose of developing acreage into single-family lots on which
houses will be built. The loan-to-value ratio for such loans
does not exceed 75% of the value as defined by an independent
appraisal, or 100% of the cost, whichever is less. Loans for
acquisition and development can present a high degree of risk to
the Community Banking Subsidiaries, depending upon, among other
things, whether the developer can find builders to buy the lots,
whether the builders can obtain financing, whether the
transaction produces income in the interim, and the nature of
changing economic conditions.
In addition, the Community Banking Subsidiaries make
consumer loans, consisting primarily of installment loans to
individuals for personal, family and household purposes,
including loans for automobiles, home improvements and
investments. Consumer lending decisions are based on a
determination of the borrower's ability and willingness to repay
the loan, which in turn are impacted by such factors as the
borrower's income, job stability, previous credit history and
collateral for the loan. Risks associated with these loans
include, but are not limited to, fraud, deteriorated or non-
existing collateral, general economic downturn, and consumer
financial problems.
LENDING POLICY. The current lending strategy of each
Community Banking Subsidiary is to offer consumer, real estate
and commercial credit services to individuals and entities that
meet the Company's credit standards. Each Community Banking
Subsidiary provides its lending officers with written guidelines
for lending activities. Lending authority is delegated by the
Board of Directors of the particular Community Banking Subsidiary
to loan officers, each of whom is limited in the amount of
secured and unsecured loans which he or she can make to a single
borrower or related group of borrowers.
LOAN REVIEW AND NONPERFORMING ASSETS. Each Community
Banking Subsidiary reviews its loan portfolio to determine
deficiencies and corrective action to be taken, and the Company
reviews the loan portfolio of each Community Banking Subsidiary.
Senior lending officers conduct periodic reviews of borrowers
with total direct and indirect indebtedness of $75,000 or more
and ongoing review of all past due loans. Past due loans are
reviewed at least weekly by lending officers and a summary report
is reviewed monthly by the particular Community Banking
Subsidiary's Board of Directors. Each Board of Directors reviews
all loans over $100,000, whether current or past due, at least
once annually. In addition, each Community Banking Subsidiary
maintains internal classifications of problem and potential
problem loans.
ASSET/LIABILITY MANAGEMENT. Each Community Banking
Subsidiary's Board of Directors is charged with establishing
policies to manage the assets and liabilities of the bank. Each
Board's task is to manage asset growth, net interest margin and
liquidity and capital. The Board directs the bank's overall
acquisition and allocation of funds. At its monthly meetings,
the Board receives a report from the President of the bank with
regard to the monthly asset and liability funds budget and income
and expense budget in relation to the actual composition and flow
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of funds, the ratio of the amount of rate-sensitive assets to the
amount of rate-sensitive liabilities, the amount of interest rate
risk and equity market value exposure under varying rate
environments, the ratio of loan loss reserve to outstanding loans
and other variables, such as expected loan demand, investment
opportunities, core deposit growth within specified categories,
regulatory changes, monetary policy adjustments and the overall
condition of the local, state and national economy.
INVESTMENT POLICY. The Company's investment portfolio
policy is to maximize income consistent with liquidity, asset
quality and regulatory constraints. The policy is reviewed from
time to time by the Company's Board of Directors. Individual
transactions, portfolio composition and performance are reviewed
and approved monthly by the Board of Directors or a committee
thereof. The President of each Community Banking Subsidiary
implements the policy and reports to the bank's full Board of
Directors on a monthly basis information concerning sales,
purchases, resultant gains or losses, average maturity, federal
taxable equivalent yields and appreciation or depreciation by
investment categories.
Business Description of Non-Banking Subsidiary
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Financial Supermarkets was created with the goal of
strengthening the competitive position of the nation's community
banks in the current regulatory environment and given the recent
growth of relatively larger commercial banks. Financial
Supermarkets, formed as a Georgia corporation in 1984, is a
wholly-owned subsidiary of Community-Habersham and has three
divisions.
Financial Supermarkets' primary division, The Supermarket
Bank , provides various consulting and licensing services to
financial institutions in connection with the establishment of
bank branches in supermarkets. These services are marketed to
interstate, regional and community financial institutions.
Financial Supermarkets enters into agreements with major
supermarket chains for the rights to establish bank branches in
particular sites. Financial Supermarkets then licenses such
rights, along with the right to operate the "Supermarket Bank ,"
to individual financial institutions, in addition to providing
consulting services to such institutions ranging from providing
alternative construction designs to coordinating employee
training.
Since 1984, Financial Supermarkets has assisted clients with
the development of Supermarket Bank facilities in grocery stores
throughout the United States. Financial Supermarkets primarily
competes in the in-store bank branch consulting business with
International Banking Technologies of Atlanta and Memphis-based
National Commerce Bancorp.
Over its ten-year history, Financial Supermarkets has
expanded the scope of its business beyond the supermarket bank
industry. In 1988, it formed a consulting division for the
financial services industry. The division is based in Atlanta
and works with financial institutions across the United States
with regard to state and federal regulatory compliance issues and
other day-to-day operational matters.
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<PAGE>
In 1992, Financial Supermarkets formed a full-service
marketing consulting firm to consult with financial institutions
throughout north Georgia, in addition to working closely with
Supermarket Bank clients to develop related advertising and
marketing programs. In 1994, Financial Supermarkets formed a
travel agency to provide customers with a full range of travel
services.
Competition
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The banking business is highly competitive. Community-
Habersham competes with four other depository institutions in
Habersham County, Georgia; Community-Jackson competes with five
other depository institutions in Jackson County, Georgia;
Community-Alabama competes with two other depository institutions
in Bullock County, Alabama and Community-Troup competes with six
other depository institutions in Troup County, Georgia. Each
Community Banking Subsidiary also competes with other financial
service organizations, including savings and loan associations,
finance companies, credit unions and certain governmental
agencies. To the extent that banks must maintain noninterest-
earning reserves against deposits, they may be at a competitive
disadvantage when compared with other financial service
organizations that are not required to maintain reserves against
substantially equivalent sources of funds. Further, the
increased competition from investment bankers and brokers and
other financial service organizations may have a significant
impact on the competitive environment in which each Community
Banking Subsidiary operates.
Employees
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At December 31, 1996 the Company had 201 full-time employees
and 30 part-time employees. Neither the Company nor any of its
subsidiaries is a party to any collective bargaining agreement,
and management of the Company believes that its employee
relations are good.
Supervision and Regulation
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GENERAL. The Company is a registered bank holding company
subject to regulation by the Board of Governors of the Federal
Reserve (the "Federal Reserve") under the Bank Holding Company
Act of 1956, as amended (the "Bank Holding Act"). The Company is
required to file financial information with the Federal Reserve
periodically and is subject to periodic examination by the
Federal Reserve.
The Bank Holding Act requires every bank holding company to
obtain the prior approval of the Federal Reserve before (i) it
may acquire direct or indirect ownership or control of more than
5% of the voting shares of any bank that it does not already
control; (ii) it or any of its subsidiaries, other than a bank,
may acquire all or substantially all of the assets of a bank; and
(iii) it may merge or consolidate with any other bank holding
company. In addition, a bank holding company is generally
prohibited from engaging in, or acquiring, direct or indirect
control of the voting shares of any company engaged in non-
banking activities. This prohibition does not apply to
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activities found by the Federal Reserve, by order or regulation,
to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. Some of the activities
that the Federal Reserve has determined by regulation or order to
be closely related to banking are: making or servicing loans and
certain types of leases; performing certain data processing
services; acting as fiduciary or investment or financial advisor;
providing discount brokerage services; underwriting bank eligible
securities; underwriting debt and equity securities on a limited
basis through separately capitalized subsidiaries; and making
investments in corporations or projects designed primarily to
promote community welfare.
The Company must also register with the Department of
Banking and Finance of the State of Georgia (the "DBF") and file
periodic information with the DBF. As part of such registration,
the DBF requires information with respect to the financial
condition, operations, management and intercompany relationships
of the Company and Community-Habersham, Community-Jackson and
Community-Troup and related matters. The DBF may also require
such other information as is necessary to keep itself informed as
to whether the provisions of Georgia law and the regulations and
orders issued thereunder by the DBF have been complied with, and
the DBF may examine the Company and each of the Georgia Community
Banking Subsidiaries.
The Company is an "affiliate" of the Community Banking
Subsidiaries under the Federal Reserve Act, which imposes certain
restrictions on (i) loans by the Community Banking Subsidiaries
to the Company, (ii) investments in the stock or securities of
the Company by the Community Banking Subsidiaries, (iii) the
Community Banking Subsidiaries' taking the stock or securities of
an "affiliate" as collateral for loans by the Community Banking
Subsidiaries to a borrower and (iv) the purchase of assets from
the Company by the Community Banking Subsidiaries. Further, a
bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of
services.
Community-Habersham, Community-Jackson and Community-Troup,
as Georgia banking associations, are subject to the supervision
of, and are regularly examined by, the Federal Deposit Insurance
Corporation (the "FDIC") and the DBF. Community-Alabama is
subject to the supervision and examination of the Alabama State
Banking Department (the "ABD") in addition to the FDIC. Both the
FDIC and the DBF must grant prior approval of any merger,
consolidation or other corporate reorganization involving
Community-Habersham, Community-Jackson or Community-Troup. The
ABD must grant prior approval of any merger, consolidation or
other corporate reorganization involving Community-Alabama. A
bank can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC in connection with the
default of a commonly-controlled institution.
PAYMENT OF DIVIDENDS. The Company is a legal entity
separate and distinct from the Community Banking Subsidiaries.
Most of the revenues of the Company result from dividends paid to
it by the Community Banking Subsidiaries. There are statutory
and regulatory requirements applicable to the payment of
dividends by the Community Banking Subsidiaries, as well as by
the Company to its shareholders.
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The Community Banking Subsidiaries are each state-chartered
banks regulated by the DBF or ABD, as applicable, and the FDIC.
Under the regulations of the DBF, dividends may not be declared
out of the retained earnings of a Georgia bank without first
obtaining the written permission of the DBF unless such bank
meets all of the following requirements:
(a) Total classified assets as of the most recent
examination of the bank do not exceed 80% of equity capital (as
defined by regulation);
(b) The aggregate amount of dividends declared or
anticipated to be declared in the calendar year does not exceed
50% of the net profits after taxes but before dividends for the
previous calendar year; and
(c) The ratio of equity capital to adjusted assets is not
less than 6%.
Under the regulations of the ABD, dividends may be declared
by a state bank without obtaining the prior written approval of
the ABD only if (i) the bank's surplus (as defined by regulation)
is equal to at least 20% of its capital (as defined by
regulation) and (ii) the aggregate of all dividends declared or
anticipated to be declared in the calendar year does not exceed
the total of its net earnings (as defined by regulation) of that
year combined with its retained net earnings of the preceding two
years, less any required transfers to surplus. No dividends may
be paid from an Alabama bank's surplus without the prior written
approval of the ABD.
The payment of dividends by the Company and the Community
Banking Subsidiaries may also be affected or limited by other
factors, such as the requirement to maintain adequate capital
above regulatory guidelines. In addition, if, in the opinion of
the applicable regulatory authority, a bank under its
jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending upon the financial condition
of the Community Banking Subsidiaries, could include the payment
of dividends), such authority may require, after notice and
hearing, that such bank cease and desist from such practice. The
FDIC has issued a policy statement providing that insured banks
should generally only pay dividends out of current operating
earnings. In addition to the formal statutes and regulations,
regulatory authorities consider the adequacy of each of the
Community Banking Subsidiary's total capital in relation to its
assets, deposits and other such items. Capital adequacy
considerations could further limit the availability of dividends
to the Community Banking Subsidiaries. At December 31, 1996,
retained earnings available from the Community Banking
Subsidiaries to pay dividends totaled approximately $2.5 million.
For 1996, the Company's cash dividend payout to shareholders was
6.58% of net income.
MONETARY POLICY. The results of operations of the Community
Banking Subsidiaries are affected by credit policies of monetary
authorities, particularly the Federal Reserve. The instruments
of monetary policy employed by the Federal Reserve include open
market operations in U.S. government securities, changes in the
discount rate on bank borrowings and changes in reserve
requirements against bank deposits. In view of changing
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conditions in the national economy and in the money markets, as
well as the effect of actions by monetary and fiscal authorities,
including the Federal Reserve, no prediction can be made as to
possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of the Community Banking
Subsidiaries.
CAPITAL ADEQUACY. The Federal Reserve and the FDIC have
implemented substantially identical risk-based rules for
assessing bank and bank holding company capital adequacy. These
regulations establish minimum capital standards in relation to
assets and off-balance sheet exposures as adjusted for credit
risk. Banks and bank holding companies are required to have (1)
a minimum level of total capital (as defined) to risk-weighted
assets of eight percent (8%); (2) a minimum Tier One Capital (as
defined) to risk-weighted assets of four percent (4%); and (3) a
minimum stockholders' equity to risk-risk-weighted assets of four
percent (4%). In addition, the Federal Reserve and the FDIC have
established a minimum three percent (3%) leverage ratio of Tier
One Capital to total assets for the most highly-rated banks and
bank holding companies. "Tier One Capital" generally consists of
common equity not including unrecognized gains and losses on
securities, minority interests in equity accounts of consolidated
subsidiaries and certain perpetual preferred stock less certain
intangibles. The Federal Reserve and the FDIC will require a
bank holding company and a bank, respectively, to maintain a
leverage ratio greater than three percent (3%) if either is
experiencing or anticipating significant growth or is operating
with less than well-diversified risks in the opinion of the
Federal Reserve. The Federal Reserve and the FDIC use the
leverage ratio in tandem with the risk-based ratio to assess the
capital adequacy of banks and bank holding companies. The FDIC,
the Office of the Comptroller of the Currency (the "OCC") and the
Federal Reserve amended, effective January 1, 1997, the capital
adequacy standards to provide for the consideration of interest
rate risk in the overall determination of a bank's capital ratio,
requiring banks with greater interest rate risk to maintain
adequate capital for the risk. The revised standards are not
expected to have a significant effect on the Company's capital
requirements.
In addition, effective December 19, 1992, a new Section 38
to the Federal Deposit Insurance Act implemented the prompt
corrective action provisions that Congress enacted as a part of
the Federal Deposit Insurance Corporation Improvement Act of 1991
(the "1991 Act"). The "prompt corrective action" provisions set
forth five regulatory zones in which all banks are placed largely
based on their capital positions. Regulators are permitted to
take increasingly harsh action as a bank's financial condition
declines. Regulators are also empowered to place in receivership
or require the sale of a bank to another depository institution
when a bank's capital leverage ratio reaches two percent (2%).
Better capitalized institutions are generally subject to less
onerous regulation and supervision than banks with lesser amounts
of capital.
The FDIC has adopted regulations implementing the prompt
corrective action provisions of the 1991 Act, which place
financial institutions in the following five categories based
upon capitalization ratios: (1) a "well capitalized" institution
has a total risk-based capital ratio of at least 10%, a Tier One
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risk-based ratio of at least 6% and a leverage ratio of at least
5%; (2) an "adequately capitalized" institution has a total risk-
based capital ratio of at least 8%, a Tier One risk-based ratio
of at least 4% and a leverage ratio of at least 4%; (3) an
"undercapitalized" institution has a total risk-based capital
ratio of under 8%, a Tier One risk-based ratio of under 4% or a
leverage ratio of under 4%; (4) a "significantly
undercapitalized" institution has a total risk-based capital
ratio of under 6%, a Tier One risk-based ratio of under 3% or a
leverage ratio of under 3%; and (5) a "critically
undercapitalized" institution has a leverage ratio of 2% or less.
Institutions in any of the three undercapitalized categories
would be prohibited from declaring dividends or making capital
distributions. The FDIC regulations also establish procedures
for "downgrading" an institution to a lower capital category
based on supervisory factors other than capital. Under the
FDIC's regulations, all of the Community Banking Subsidiaries
were "well capitalized" institutions at December 31, 1996.
Set forth below are pertinent capital ratios for the
Company and the Community Banking Subsidiaries as of December 31,
1996.
<TABLE>
<CAPTION>
Minimum Capital Community- Community- Community- Community-
Requirement Habersham Jackson Alabama Troup The Company
----------- --------- -------- -------- ----- -----------
<S> <C> <C> <C> <C> <C>
Tier One Capital 12.91 10.62% 12.60% 16.02% 12.28%
to Risk-based
Assets: 4.00%<F1>
Total Capital to 14.17% 11.87% 13.85% 17.27% 13.48%
Risk-based
Assets: 8.00%<F2>
Leverage Ratio 8.91% 7.47% 7.75% 11.90% 8.51%
(Tier One Capital
to Total Assets):
3.00%<F3>
<FN>
<F1> Minimum required ratio for "well capitalized" banks is 6%
<F2> Minimum required ratio for "well capitalized" banks is 10%
<F3> Minimum required ratio for "well capitalized" banks is 5%
</FN>
</TABLE>
RECENT LEGISLATIVE AND REGULATORY ACTION. On April 19,
1995, the four federal bank regulatory agencies adopted revisions
to the regulations promulgated pursuant to the Community
Reinvestment Act (the "CRA"), which are intended to set distinct
assessment standards for financial institutions. The revised
regulation contains three evaluation tests: (i) a lending test
which will compare the institution's market share of loans in
low- and moderate-income areas to its market share of loans in
its entire service area and the percentage of a bank's
outstanding loans to low- and moderate-income areas or
individuals, (ii) a services test which will evaluate the
provisions of services that promote the availability of credit to
low- and moderate-income areas, and (iii) an investment test,
which will evaluate an institution's record of investments in
organizations designed to foster community development, small-
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and minority-owned businesses and affordable housing lending,
including state and local government housing or revenue bonds.
The regulation is designed to reduce some paperwork requirements
of the current regulations and provide regulators, institutions
and community groups with a more objective and predictable manner
with which to evaluate the CRA performance of financial
institutions. The rule became effective on January 1, 1996, at
which time evaluation under streamlined procedures began for
institutions with assets of less than $250 million that are owned
by a holding company with total assets of less than $1 billion.
It is not anticipated that these regulations will have any
appreciable impact on the Company and the Community Banking
Subsidiaries.
Congress and various federal agencies (including, in
addition to the Community Banking Subsidiaries' regulatory
agencies, the Department of Housing and Urban Development, the
Federal Trade Commission and the Department of Justice)
(collectively the "Federal Agencies") responsible for
implementing the nation's fair lending laws have been
increasingly concerned that prospective home buyers and other
borrowers are experiencing discrimination in their efforts to
obtain loans. In recent years, the Department of Justice has
filed suit against financial institutions, which it determined
had discriminated, seeking fines and restitution for borrowers
who allegedly suffered from discriminatory practices. Most, if
not all, of these suits have been settled (some for substantial
sums) without a full adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to
clarify what constitutes lending discrimination and specify the
factors the agencies will consider in determining if lending
discrimination exists, announced a joint policy statement
detailing specific discriminatory practices prohibited under the
Equal Opportunity Act and the Fair Housing Act. In the policy
statement, three methods of proving lending discrimination were
identified: (1) overt evidence of discrimination, when a lender
blatantly discriminates on a prohibited basis, (2) evidence of
disparate treatment, when a lender treats applicants differently
based on a prohibited factor even where there is no showing that
the treatment was motivated by prejudice or a conscious intention
to discriminate against a person, and (3) evidence of disparate
impact, when a lender applies a practice uniformly to all
applicants, but the practice has a discriminatory effect, even
where such practices are neutral on their face and are applied
equally, unless the practice can be justified on the basis of
business necessity.
On September 23, 1994, President Clinton signed the Reigle
Community Development and Regulatory Improvement Act of 1994 (the
"Regulatory Improvement Act"). The Regulatory Improvement Act
contains funding for community development projects through banks
and community development financial institutions and also
numerous regulatory relief provisions designed to eliminate
certain duplicative regulations and paperwork requirements.
On September 29, 1994, President Clinton signed the Reigle-
Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Federal Interstate Bill") which amends federal law to permit
bank holding companies to acquire existing banks in any state
effective September 29, 1995, and any interstate bank holding
company is permitted to merge its various bank subsidiaries into
-11-<PAGE>
a single bank with interstate branches after May 31, 1997. States
have the authority to authorize interstate branching prior to
June 1, 1997, or alternatively, to opt out of interstate
branching prior to that date. The Georgia Financial Institutions
Code was amended in 1994 to permit the acquisition of a Georgia
bank or bank holding company by out of-state bank holding
companies beginning July 1, 1995. On September 29, 1995, the
interstate banking provisions of the Georgia Financial
Institutions Code were superseded by the Federal Interstate Bill.
On January 26, 1996, the Georgia legislature adopted a bill
(the "Georgia Intrastate Bill") to permit, effective July 1,
1996, any Georgia bank or group of affiliated banks under one
holding company to establish up to an aggregate of three new or
additional branch banks anywhere within the State of Georgia,
excluding any branches established by a bank in a county in which
the bank is already located. After July 1, 1998, all
restrictions on state-wide branching would be removed. Prior to
adoption of the Georgia Intrastate Bill, Georgia only permitted
branching within a county, via merger or consolidation with an
existing bank or in certain other limited circumstances.
FDIC INSURANCE ASSESSMENTS FOR THE COMMUNITY BANKING
SUBSIDIARIES. The Community Banking Subsidiaries are subject to
FDIC deposit insurance assessments for the Bank Insurance Fund
(the "BIF"). In the first six months of 1995, the Community
Banking Subsidiaries were assessed $.23 per $100 of deposits,
except for Community-Troup which was assessed $.26 per $100 of
deposits, based upon a risk-based system whereby banks were
assessed on a sliding scale depending upon their placement in
nine separate supervisory categories, from $.23 per $100 of
deposits for the healthiest banks (those with the highest
capital, best management and best overall condition) to as much
as $.31 per $100 of deposits for the less-healthy institutions,
for an average $.259 per $100 of deposits.
On August 8, 1995, the FDIC lowered the BIF premium for
healthy banks 83% from $.23 per $100 in deposits to $.04 per $100
in deposits, while retaining the $.31 level for the riskiest
banks. The average assessment rate therefore ranges from $.232
to $.044 per $100 of deposits. The new rate took effect on
September 29, 1995. On September 15, 1995, the FDIC refunded
$142,498 to the Community Banking Subsidiaries for premium
overpayments in the second and third quarter of 1995. On
November 14, 1995, the FDIC again lowered the BIF premium for
healthy banks from $.04 per $100 of deposits to zero for the
highest rated institutions (92% of the industry). As a result,
each of the Community Banking Subsidiaries has paid only the
legally required annual minimum payment of $2,000 per year for
insurance for the 1996 year. Had the current rates been in
effect for all of 1994 and 1995, the annual FDIC insurance
premiums paid by the Community Banking Subsidiaries collectively
would have been reduced by $331,000 for 1994 and $185,000 for
1995.
On September 29, 1996, the Economic Growth and Regulatory
Paperwork Reduction Act of 1996 was enacted (the "1996 Act").
The 1996 Act's chief accomplishment was to provide for the
recapitalization of the Savings Association Insurance Fund
("SAIF") by levying a one-time special assessment on SAIF
deposits to bring the fund to a reserve ratio equal to $.25 per
$100 of insured deposits and to provide that beginning in 1997,
-12-<PAGE>
BIF assessments would be used to help pay off the $780 million in
annual interest payments on the $8 billion Financing Corporation
("FICO") bonds issued in the late 1980s as part of the government
rescue of the thrift industry. The law provides that BIF
assessments for FICO bond payments must be set at a rate equal to
20% of the SAIF rates for such assessments in for 1997, 1998 and
1999. After 1999, all FDIC insured institutions will pay the
same assessment rates. For the first six months of 1997, the
assessment for the FICO bond payments will be $.0132 per $100 of
deposits for BIF deposits and $.0648 per $100 of deposits for
SAIF deposits. The FDIC announced on November 26th that the
premium for the first six months for deposit insurance
assessments would range from zero to $.27 per $100 of deposits
with 94% of banks paying nothing for deposit insurance. One of
the provisions of the 1996 Act was to eliminate the minimum
$2,000 per year charge for deposit insurance. As a result, the
Community Banking Subsidiaries will pay no premium for deposit
insurance in the first six months of 1997 and will pay a first
quarter FICO bond assessment of $6,640.00 in the aggregate. The
Bill also provided for certain limited regulatory relief and
modifications to certain out-of-state regulations.
ITEM 2. PROPERTIES.
Community-Habersham's main office is located at 400 North
Main Street, Cornelia, Georgia. Community-Jackson's main office
is located at 117 North Elm Street, Commerce, Georgia.
Community-Alabama's main office is located at 202 N. Powell
Street, Union Springs, Alabama. Community-Troup's main office is
located at 201 Broad Street, LaGrange, Georgia. Community-
Habersham has nine branch offices (two owned and seven leased,
six of which are operated in supermarkets) located in Cornelia,
Clarkesville, Cleveland, Demorest, and Gainesville, Georgia, and
Community-Jackson has four branch offices (all leased, three of
which are operated in supermarkets) located in Commerce and
Jefferson, Georgia. Community-Alabama has one branch (leased and
operated in a supermarket) in Montgomery, Alabama. Financial
Supermarkets leases its main office located in Cornelia, Georgia
as well as a division office in Atlanta, Georgia. Community-
Habersham leases the property occupied by the loan production
office in Gainesville. Management of the Company believes that
all of its properties are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, nor is any of its
property the subject of, any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders
of the Company during the fourth quarter of its fiscal year.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
There is no established public trading market for the Common
Stock. As of January 1, 1997, there were 437 holders of record
of the Common Stock.
In 1996 the Company paid cash dividends of $.135 per share.
In addition, the Company had a thirty-for-one stock split
-13-<PAGE>
effected as a stock dividend on December 28, 1995. The Company
paid cash dividends of $.13 in 1995 (as restated to reflect the
thirty-for-one stock split). The Company intends to continue to
pay cash dividends. However, the amount and frequency of
dividends will be determined by the Company's Board of Directors
in light of the earnings, capital requirements and the financial
condition of the Company, and no assurances can be given that
dividends will be paid in the future. Additionally, the Company
will be unable to pay dividends if it is in violation of certain
financial covenants under a loan agreement with SunTrust Bank.
The Company's ability to pay dividends will also be dependent on
cash dividends paid to it by the Community Banking Subsidiaries.
The ability of the Community Banking Subsidiaries to pay
dividends to the Company is restricted by applicable regulatory
requirements. See "ITEM 1--BUSINESS--Supervision and
Regulation."
-31-<PAGE>
PART II
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Dollars in Thousands, Except Per Share Amounts
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Total interest income 24,465 21,871 17,911 16,948 17,800
Total interest expense 11,236 9,875 7,553 7,386 8,619
Net interest income 13,229 11,996 10,358 9,562 9,181
Provisions for loan losses 757 849 750 926 1,578
Non bank subsidiary income 5,559 3,780 3,007 2,160 1,292
Other operating income 2,833 2,433 2,325 2,131 1,953
Other operating expenses 14,950 12,970 11,606 10,143 9,351
Net income 4,044 3,125 2,419 2,194 1,039
Net income per share of common stock 1.93 1.54 1.21 1.10 0.54
Cash dividends per share 0.14 0.13 0.12 0.12 0.11
SELECTED BALANCE SHEET DATA:
Total assets $ 315,579 $ 270,007 $ 250,468 $ 228,599 $ 214,564
Total deposits 278,709 242,442 224,761 205,514 193,429
Other borrowings 616 787 2,233 2,144 2,600
Redeemable common stock held
by ESOP 6,177 - - - -
Shareholders' equity 21,083 22,469 19,004 17,220 15,241
</TABLE>
-32-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PLAN OF OPERATION.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
1995
The following is a discussion and analysis of the
Company's financial condition at December 31, 1996 and the
results of operations for the three year period ended December
31, 1996. The purpose of this discussion is to focus on
information about the Company's financial condition and results
of operations which are not otherwise apparent from the audited
consolidated financial statements included in this Annual Report.
This discussion and analysis should be read in conjunction with
the consolidated financial statements and related notes and the
selected financial information and statistical data presented
elsewhere in this Annual Report. All financial information and
statistical data for years ended prior to December 31, 1995 have
been restated to include the acquisition of Community-Troup,
which was accounted for as a pooling-of-interest.
BALANCE SHEET REVIEW. The Company's assets continued to
grow during 1996. For the year ended December 31, 1996,
consolidated assets grew $45.6 million, or 16.88%, up from 1995's
growth of $19.5 million or 7.80%. During 1996, the Company's
average assets were $289.3 million, compared with $256.6 million
during 1995. This represents a 12.75% increase in average assets
during 1996 compared with a 9.04% increase during 1995.
Total earning assets, which include investment
securities, loans, federal funds sold, and interest-bearing
deposits in banks increased $34.0 million or 13.78% during 1996.
During 1995, earning assets increased $22.3 million, or 9.92%.
Average earning assets for 1996 were $263.3 million, an increase
of 12.18% over average earning assets in 1995 which were $234.7
million or an increase of 9.16% over 1994.
The most significant increase in earning assets during
1996 was in net loans, the Company's most profitable earning
asset, which increased by $26.0 million or 14.73%. During 1995
net loans increased by $18.3 million, or 11.65%. The Company's
average net loans for 1996 were $187.8 million, a 12.07% increase
over average loans for 1995. In 1995 average net loans were
$167.6 million, a 13.28% increase over 1994. This increase in
loans was principally the result of Community-Habersham's efforts
to promote loan growth through marketing and the continued growth
of the loan production office (LPO), which began showing results
in late 1994 and has continued through 1996.
During 1996 average federal funds sold were $11.9 million
an increase of $2.7 million or 29.7% over 1995. This increase was
largely attributable to the fact that during 1996 the relatively
level yield curve militated against moving excess funds into
short term investment securities as well as the Company's desire
to maintain liquidity to fund loans. Average federal funds for
1995 was $9.1 million an increase of $1.6 million or 21.9% over
1994.
-33-<PAGE>
In 1996, the amount of investment securities increased by
$11.1 million or 20.2%. This increase was mainly attributable to
the significant increase in deposits along with management's
intentions to maintain the appropriate mix of earning assets in
accordance with the company's asset/liability policy.
Management's philosophy is to maintain a loan-to-deposit ratio of
75% and maintain adequate liquidity to meet the demands of their
depositors and borrowers. The loan-to-deposit ratio was 74% for
both December 31, 1996, and 1995.
The growth in assets for the year ended December 31, 1996
was funded primarily by growth in deposits. Consolidated deposits
grew $36.3 million, or 14.96% as compared to $17.7 million in
1995. The majority of the growth was in time deposits, both under
and over $100,000, which increased in total by $26.0 million in
1996 as compared to an increase in 1995 of $17.2 million. This
change in the deposit make-up resulted primarily from the rising
interest-rate environment in 1995 and 1996. As interest rates
rise, depositors are more likely to invest available funds in
longer-term traditional deposit accounts, while the reverse
occurs in a falling interest-rate environment.
As shown in Table 2 of the Selected Statistical Data, the
average yield on time deposits for the year ended December 31,
1996 increased 21 basis points, while short-term deposit accounts
decreased 13 basis points. Total yield on interest-bearing
liabilities increased 13 basis points compared to a decrease of 3
basis points on interest-earning assets, reducing the net
interest spread by 16 basis points compared to 1995. The net
interest spread for 1995 was 4.46% up 12 basis points over 1994.
In 1994, the Company adopted Financial Accounting
Standards Board ("FASB") Statement Number 115 which upon adoption
required the Community Banking Subsidiaries to classify their
investments in debt and equity securities as trading, available
for sale, or held to maturity. Upon the adoption of FASB 115 in
1994, the Company transferred $11.3 million of securities
previously classified as held to maturity to securities available
for sale. The Company was required to adjust the securities
classified as available for sale to fair value and record the
unrealized gain or loss as a component of equity, resulting in
unrealized losses of $420,000 as of December 31, 1994. In October
of 1995, FASB allowed entities a window in which management could
reevaluate their classifications of securities under FASB 115 and
reclassify their portfolios based on their current understanding
of FASB 115. Under this special provision, the Company
transferred $29.6 million of securities from securities held to
maturity to securities available for sale, resulting in an
unrealized loss included in shareholders' equity of $114,000. It
is management's intention to maximize earnings yet provide ample
liquidity to fund loan growth as well as reposition the portfolio
in a changing interest rate environment. By reclassifying these
securities, management became more capable of accomplishing its
objectives without jeopardizing regulatory capital requirements.
At December 31, 1996, the Company reported net unrealized
losses of $124,000 in the securities available for sale portfolio
as compared to net unrealized losses of $136,000 at December 31,
1995. Net unrealized losses represent the difference in the
amortized cost of those securities compared to the fair value at
those dates and are included in shareholders' equity, net of the
deferred tax effect. Losses would only be realized if the Company
-34-<PAGE>
sold any security within the available for sale portfolio.
Management sells securities to meet liquidity needs and may sell
securities in rising interest-rate environments to take advantage
of higher returns in the long run. In 1996 the Company sold $3.5
million of securities classified as available for sale, realizing
net losses of $14,000 on a consolidated basis. The current losses
will be more than offset by increased returns of the subsequent
security purchases. The held to maturity securities portfolio
included net unrealized gains of $172,000 at December 31, 1996
compared to net unrealized gains of $203,000 at December 31,
1995. This decrease is mainly attributable to the increasing
rates in the bond market. A rising interest rate environment is
inversely related to the fixed-rate portion of the securities
portfolio. In 1996 and 1995 rates increased moderately. This
interest rate increase caused the Company's fixed rate portfolio
to decline slightly in value from the prior year. Table 4 of the
Selected Statistical Data summarizes the combined investment
portfolios by types of securities. U.S. Treasury and other U.S.
Government agencies and corporations represent 41.7% of the total
portfolio, which typically provide reasonable returns with
limited risk. The remaining portfolio is comprised of municipal
securities, mortgage-backed securities, and other investments
which provide, in general, higher returns on a tax equivalent
basis, with greater risk elements. Management continually
monitors the Company's investment portfolios and utilizes
forecasting models to project the Company's net interest margin
in various rising, flat, and falling interest-rate scenarios. In
a changing interest rate environment, management would act to
change the Company's asset or liability composition and interest
sensitivity in response to a definitive change in the direction
of interest rates. The Company actively manages the mix of asset
and liability maturities to control the effects of changes in the
general level of interest rates on net interest income. Except
for the effect of inflation on interest rates, inflation does not
have a material impact on the Company due to variability and
short-term maturities of its earning assets. At December 31,
1996, 64.2% of the Company's earning assets repriced or matured
within one year.
LIQUIDITY AND CAPITAL RESOURCES. The liquidity and
capital resources of the Company and the Community Banking
Subsidiaries are monitored by management and on a periodic basis
by state and federal regulatory authorities. The individual
Community Banking Subsidiaries' liquidity ratios at December 31,
1996 were considered satisfactory under their own guidelines as
well as regulatory guidelines. At that date, the Community
Banking Subsidiaries' short-term investments were adequate to
cover any reasonably anticipated immediate need for funds.
The purpose of liquidity management is to ensure that
cash flow is sufficient to satisfy demands for credit,
withdrawals, and other needs of the Company. Traditional sources
of liquidity include asset maturities and growth in core
deposits. A company may achieve its desired liquidity objectives
from the management of assets and liabilities, and through funds
provided by operations. Funds invested in short-term marketable
instruments and the continuous maturing of other earning assets
are sources of liquidity from the asset perspective. The
liability base provides sources of liquidity through deposit
growth and accessibility to market sources of funds.
-35-<PAGE>
Scheduled loan payments are a relatively stable source of
funds, but loan payoffs and deposit flows are influenced by
interest rates, general economic conditions and competition and
may fluctuate significantly. The Company attempts to price its
deposits to meet its asset/liability objectives consistent with
local market conditions.
Cash flows for the Company are of three major types. Cash
flows from operating activities consist primarily of interest and
fees received on loans, interest received on investment
securities, federal funds sold, and interest-bearing deposits
less cash paid for interest and operating expenses. Investing
activities use cash for the purchase of interest-bearing
deposits, investment securities, fixed assets and to fund loans.
Investing activities also generate cash from the proceeds of
matured interest-bearing deposits, matured investment securities,
sales of investment securities, loan repayments and principal
prepayments of securities. Cash flows from financing activities
generate cash from a net increase in deposit accounts and other
borrowed funds. Financing activities use cash for the payment of
cash dividends and notes payable.
For the year ended December 31, 1996, $23.9 million in
cash flows from operating activities were provided by interest
and fees received from loans, securities and federal funds.
Approximately $7.3 million in cash flows were provided by service
charges, nonbank subsidiary income, sale of loans and other
income. Cash flows used in operating activities consisted of
$10.8 million of interest paid on deposits and borrowings, $8.3
million paid for salaries and other personnel benefits and $8.5
million paid for occupancy and equipment expenses, income taxes
and other operating payments. Cash flows of $17.2 million were
provided by the proceeds of sales and maturities of investment
securities. Cash flows of $28.3 million were used to purchase
investment securities. Cash flows provided by financing
activities consisted of $36.3 million in net increases in
deposits and were primarily used to fund the $27.0 million net
increase in loans. The net increase in cash and due from banks
and other interest-bearing deposits for the year ended December
31, 1996 was $6.0 million, which includes a net decrease in other
borrowings of $171,000.
For the year ended December 31, 1995, $21.5 million in
cash flows from operating activities were provided by interest
and fees received from loans, securities and federal funds.
Approximately $7.9 million in cash flows were provided by service
charges, nonbank subsidiary income, sale of loans and other
income. Cash flows used in operating activities consisted of $9.0
million of interest paid on deposits and borrowings, $6.8 million
paid for salaries and other personnel benefits and $6.9 million
paid for occupancy expenses, income taxes and other operating
payments. Cash flows of $20.0 million were provided by the
proceeds of sales and maturities of investment securities. Cash
flows of $19.7 million were used to replace all of those
securities maturing and sold. Cash flows provided by financing
activities consisted of $17.7 million in net increases in
deposits and were primarily used to fund the $19.7 million net
increase in loans. The net decrease in cash and due from banks
for the year ended December 31, 1995 was $1.3 million, which
includes a net decrease in other borrowings of $1.4 million.
-36-<PAGE>
At December 31, 1996, the Company's and Community Banking
Subsidiaries' capital ratios were considered adequate based on
the minimum capital requirements of the FDIC and applicable state
regulatory agencies. During 1996, the Company increased capital,
by retaining net earnings of $3.8 million and issuing $1.0
million of common stock, compared to an increase in 1995 of $2.9
million in retained net earnings and $253,000 in common stock.
Management believes that the liquidity and capital ratios of the
Company and the Community Banking Subsidiaries are adequate based
on regulatory requirements.
The Company is capable of meeting its debt service
requirements related to existing long-term debt and other
borrowings through dividends available from its subsidiaries and
current operations. At December 31, 1996, approximately $2.5
million was available to be paid as dividends to the Company from
the Community Banking Subsidiaries. Although the Company
considers that it has adequate capital to meet its short-term
needs, the Company, at times, may seek additional capital to
support its long-term business goals, including expansion of its
fixed asset base, and for general corporate purposes.
For a tabular presentation of the Community Banking
Subsidiaries' capital ratios at December 31, 1996, see
"SUPERVISION AND REGULATION".
The Company is not aware of any other trends, events or
uncertainties that will have or that are reasonably likely to
have a material effect on the Company's liquidity, capital
resources or operations. The Company is not aware of any current
recommendations by the regulatory authorities which, if they were
implemented, would have such an effect.
EFFECTS OF INFLATION. Inflation impacts banks differently
than non-financial institutions. Banks, as financial
intermediaries, have assets which are primarily monetary in
nature and which tend to fluctuate with inflation. A bank can
reduce the impact of inflation by managing its rate sensitivity
gap, which represents the difference between rate-sensitive
assets and rate-sensitive liabilities. The Company, through its
asset-liability committee, attempts to structure the assets and
liabilities and manage the rate-sensitivity gap, thereby seeking
to minimize the potential effects of inflation. See
"Asset/Liability Management".
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
1995
NET INTEREST INCOME. The Company's results of operations are
influenced by management's ability to effectively manage interest
income and expense, to minimize loan and investment losses, to
generate non-interest income and to control operating expenses.
Because interest rates are determined by market forces and
economic conditions beyond the control of the Company, the
Company's ability to generate net interest income is dependent
upon its ability to obtain an adequate net interest spread
between the rate paid on interest-bearing liabilities and the
rate earned on interest-earning assets. Net interest income
increased by $1.2 million for the year ended December 31, 1996 as
compared to an increase of $1.6 million for the same period in
1995. The increase in net interest income is attributable to
-37-<PAGE>
increases in earning assets, particularly loans. The yield on
interest-earning assets declined 3 basis points in 1996 from
1995. The decrease in the rates on interest-earning assets
resulted in a decrease in interest income of $43,000, as shown in
Table 3 of the Selected Statistical Data. This decrease combined
with the increase in average earning assets of $28.6 million, net
of the increase in average interest-bearing liabilities of $21.7
million, accounts for the 10.3% increase in net interest income.
Net interest income increased for all Community Banking
Subsidiaries as shown below:
<TABLE>
<CAPTION>
Net Interest Income Increase/
1996 1995 (Decease)
---- ---- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Community-Habersham $ 8,274 $ 7,557 $ 717
Community-Jackson 2,713 2,399 314
Community-Alabama 1,050 843 207
Community-Troup 1,251 1,162 89
------ ------ -----
$ 13,288 $ 11,961 $ 1,327
====== ====== =====
</TABLE>
The 16 basis point decrease in the net interest spread in
Table 2 is indicative of the changes in the interest rate
environment. The increase in rates on time deposits slightly
outpaced the increase in rates on loans which was the main cause
for the decrease in net interest spread. The Company will
continue to actively monitor and maintain the net interest spread
to counter act the current market trends. Net interest income
for 1995 increased $1.6 million over 1994. The significant
increase is mainly attributable to the increase in interest
yields on interest-earning assets outpacing the increase in the
rates on interest-bearing liabilities by 12 basis points. The
net yield on interest-earning assets increased 29 basis points in
1995 over 1994. Table 2 of the Selected Statistical Data depicts
the interest yields and interest income and expense for the three
years ended December 31, 1996.
PROVISION FOR LOAN LOSSES. Provision for loan losses for
the year ended December 31, 1996 decreased by $92,000 from
$849,000 at December 31, 1995. This decrease is associated with
improved loan quality, as management maintains an allowance for
loan losses based on the evaluation of potential problem loans as
well as minimal reserves for all loans based on past net
charge-off experience. Provision of loan losses increased $99,000
in 1995 compared to 1994 mainly due to the significant increase
in loans and management's wishes to maintain adequate reserves.
The guaranteed portion of loans generated by the LPO are
subsequently sold. Because most loans generated by the LPO are
out-of-market, the loans generated by the LPO require additional
allowances due to the greater risk of loss in the event of a
default. These loans, however, are subjected to the same
underwriting standards and periodic loan review procedures as
other loans by the Community Banking Subsidiaries.
As shown in Table 8 of the Selected Statistical Data,
nonperforming loans, which includes nonaccrual and restructured
loans, decreased $346,000 from December 31, 1995 compared to a
$1,381,000 increase over 1994. The increase over 1994 is mainly
-38-<PAGE>
attributable to two borrowers who filed bankruptcy in 1995.
Management has reviewed these loans and determined that the
likelihood of any loss in principal is minimal because the loans
are adequately collateralized. The ratio of the allowance for
loan losses to nonperforming loans increased from 147% at
December 31, 1995 to 207% at December 31, 1996. In 1995, the
Company adopted FASB 114 and 118, which requires that impaired
loans be measured based on the present value of expected future
cash flows, the loan's observable market price or at the fair
value of the collateral if collateral dependent. At December 31,
1996, the loans associated with the two borrowers mentioned above
were identified as impaired, as were all nonaccrual loans, but
the Company determined that no reserves were required because of
the Company's collateral positions.
The allowance for loan losses as a percentage of total
loans outstanding at December 31, 1996 and 1995 was 1.75% and
1.71% respectively. Net charge-offs in 1996 decreased by $250,000
from $475,000 in 1995, and the net charge-off ratio decreased
from .28% in 1995 to .12% in 1996. Based on management's
evaluation of the loan portfolio, including a review of past loan
losses, current conditions which may affect borrowers' ability to
repay and the underlying collateral value of the loans,
management considers the allowance for loan losses to be
adequate.
The Company continues to have a concentration in real
estate loans, representing 32.6% and 39.8%, respectively, of
total loans at December 31, 1996 and 1995. Management has
implemented policies to limit extensions of credit to one
borrower and its affiliates. By this method, along with proper
underwriting standards, a fully implemented loan review system
and geographic diversification, management attempts to minimize
the risk associated with the concentrations of credit.
OTHER INCOME. Other operating income consists of income
from operations of the Community Banking Subsidiaries and
Financial Supermarkets . Traditional non-interest income of the
Community Banking Subsidiaries accounts for only 33.8%, or $2.8
million, of total other income for 1996, 39.2% in 1995, and 43.6%
in 1994.
<TABLE>
<CAPTION>
Other Operating Income Increase
1996 1995 (Decrease)
---- ---- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Community Banking Subsidiaries
Community-Habersham $ 3,065 $ 2,087 $ 978
Community-Jackson 732 753 (21)
Community-Alabama 164 168 (4)
Community-Troup 176 141 35
------ ------ -----
$ 4,137 $ 3,149 $ 988
====== ====== =====
Financial Supermarkets(R) $ 5,559 $ 3,780 $ 1,779
====== ====== =====
</TABLE>
-39-<PAGE>
The majority of the increase in other operating income of
the Community Banking Subsidiaries is related to the growth in
deposits. Service charges on deposit accounts increased by
$205,000 and $76,000, respectively, for the years ended December
31, 1996 and 1995. These increases normally have a direct
relationship with the change in demand deposit and savings
accounts. Average demand deposit and savings accounts increased
$9.8 million in 1996 compared to $1.9 increase in 1995 over 1994.
The decrease in other income for Community-Jackson is mainly
attributable to a decrease in gains on the sale of loans. The
decrease in other income for Community-Alabama is partly
attributable to a one time trust fee of $12,000 in 1995. Included
in other operating income of the Community Banking Subsidiaries
are gains on sale of loans recognized by Community-Habersham and
Jackson of $302,000 and $80,000, respectively. This represents a
decrease from 1995 of $79,500.
The allocation of services as a percentage of total
income for Financial Supermarkets is shown below:
FINANCIAL SUPERMARKETS(R)
Supermarket sales 75%
Supermarket consulting and ancillary services 20
Consulting 5
---
100%
The primary business of Financial Supermarkets(R) "FSI" is
the sales and related services offered to establish and operate a
Supermarket Bank(R) service center. In 1996, Financial
Supermarkets(R) had net sales revenue of $4.2 million compared to
$2.4 million in 1995, an increase of $1.8 million or 73.2%. The
increase in net sales revenues in 1995 over 1994 was $600,000, or
30.5%.
In 1996 FSI entered into a contract with Nations
Bank South to construct and install up to 240 Supermarket Bank units
in the Southeastern United States. This contract significantly
increased net income as well as other expenses in 1996. During
1996 FSI installed a total of 46 banking center units, of which
15 were part of the NationsBank contract. Income related to the
NationsBank contract began to be recognized in the fourth quarter of 1996 as
the first phase of the project to install 40 banking units. In 1997
NationsBank restructured the contract to provide that FSI would not be
involved in the installation of any additional banking center units after
the first 40 units. The contract provides, however, that FSI will receive
monthly consulting feees in connection with any supermarket bank units
constructed by NationsBank in Winn-Dixie Stores located in the state of
Florida. These consulting fees will continue for 15 years from the
date the supermarket unit is opened, decreasing gradually after
each five year period. The estimated income from the original 40
units is approximately $360,000 a year during the first five year period.
FSI continues to maintain a steady flow of new supermarket
banking units to be completed outside of the Nations Bank contract.
FSI has continued to increase its number of units completed for each of
the last three years and this trend is expected to continue with the
exception of the extraordinary increase last year and this year related
to the NationsBank Contract.
-40-<PAGE>
NON-INTEREST EXPENSE. Other expenses increased for the
year ended December 31, 1996 by $2.20 million, compared to $1.4
million in 1995, a 15.27% increase. Most significant in both
years were increases of $1.5 million and $857,000 in salaries and
employee benefits, respectively. The increase in salaries and
benefits is directly related to the growth of the Community
Banking Subsidiaries and Financial Supermarkets. For the years
ended December 31, 1996, 1995, and 1994 the Company had total
employees of 216, 172, and 149, respectively. Other expenses for
1995 increased $1.4 million or 11.75% compared to 1994, primarily
for the same reasons stated above.
Deposit insurance premiums decreased by $253,000 for each
year ended December 31, 1996 and 1995 due to regulatory changes.
Expenses associated with other real estate decreased by $90,000
in 1996 and declined by $203,000 during 1995. Other operating
expenses increased by $610,000 in 1996 compared to $13,000 in
1995. The increase in other operating expenses include expenses
preparing for the Nations Bank contract discussed earlier, the
travel expenses related to the Nations Bank contract, and
expenses associated with adding five additional branch locations.
-41-<PAGE>
<TABLE>
<CAPTION>
Other Expenses Increase
1996 1995 (Decrease)
---- ---- ---------
(Dollars in Thousands)
<S> <S> <C> <C> <C>
The Company
Salaries and benefits $ 8,266 $ 6,785 $ 1,481
Equipment expenses 1,374 1,272 102
Occupancy expenses 807 699 108
Deposit Insurance premiums 12 265 (253)
Data processing expenses 422 329 93
Travel expenses 531 526 5
Office supply expenses 373 302 71
Professional fees 253 400 (147)
Other real estate expenses 135 225 (90)
Other operating expenses 2,777 2,167 610
------ ------ -----
$ 14,950 $ 12,970 $ 1,980
====== ====== =====
</TABLE>
INCOME TAXES. The Company incurred income tax
expenses of $1.9 million in 1996 which represented an effective
tax rate of 32%, compared to tax expense of $1.3 million in 1995,
or an effective tax rate of 29%. The increase in the effective
tax rate is related to the income of Financial Supermarkets,
which does not generate tax-free income as do the Community
Banking Subsidiaries. Income tax expense increased $148,000 from
1994 to $1,265,000 in 1995. The effective tax rate at December
31, 1994 was 28%.
NET INCOME. The Company's net income for 1996 was
$4,044,000, as compared to $3,125,000 in 1995, an increase of
29.41%. The increase in net income between 1996 and 1995 is
primarily attributable to the additional interest and fees on
loans related to growth and the performance of Financial
Supermarkets. Net income for 1995 increased to $3,125,000 or 29%
over 1994's net income of $2,419,000.
ASSET/LIABILITY MANAGEMENT. The Company's objective
is to manage assets and liabilities to maintain satisfactory and
consistent profitability. Officers of each Community Banking
Subsidiary are charged with monitoring policies and procedures
designed to ensure an acceptable asset/liability mix.
Management's philosophy is to support asset growth primarily
through growth of core deposits within the Community Banking
Subsidiaries' market areas.
The Company's asset/liability mix is monitored
regularly with a report reflecting the interest rate sensitive
assets and interest rate sensitive liabilities is prepared and
presented to the Board of Directors of each Community Banking
Subsidiary monthly. Management's objective is to monitor interest
rate sensitive assets and liabilities so as to minimize the
impact on earnings of substantial fluctuations in interest rates.
An asset or liability is considered to be interest rate-sensitive
if it will reprice or mature within the time period analyzed,
usually one year or less. The interest rate-sensitivity gap is
the difference between the interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice
within the relevant period. A gap is considered positive when the
amount of interest rate-sensitive assets exceeds the amount of
-42-<PAGE>
interest rate-sensitive liabilities. A gap is considered negative
when the amount of interest rate-sensitive liabilities exceeds
the interest rate-sensitive assets. During a period of rising
interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an
increase in net interest income. Conversely, during a period of
falling interest rates, a negative gap would tend to result in an
increase in net interest income, while a positive gap would tend
to adversely affect net interest income. If the Company's assets
and liabilities were equally flexible and moved concurrently, the
impact of any increase or decrease in interest rates on net
interest income would be minimal.
A simple interest rate "gap" analysis by itself may
not be an accurate indicator of how net interest income will be
affected by changes in interest rates. Accordingly, the Company
also evaluates how changes in interest rates impacts the
repayment of particular assets and liabilities. Income associated
with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by
changes in interest rates. In addition, the magnitude and
duration of changes in interest rates may significantly impact on
net interest income. For example, although certain assets and
liabilities may have similar maturities or periods of repricing,
they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities
fluctuate in advance of changes in general market rates, while
interest rates on other types may lag behind changes in general
market rates. In addition, certain assets, such as adjustable
rate mortgage loans, have features (generally referred to as
"interest rate caps and floors") which limit changes in interest
rates. Also, prepayments and early withdrawal levels could
deviate significantly from those assumed in calculating the
interest rate gap. The ability of many borrowers to service their
debts may decrease in the event of an interest rate increase.
Changes in interest rates also effect the Company's liquidity
position. If deposits are not priced in response to market rates,
a loss of deposits could occur which would negatively effect the
Company's liquidity position.
At December 31, 1996, the Company's cumulative one
year interest rate sensitivity gap ratio was .81%. The Company
was cumulatively within its targeted range of 80% to 120% for all
time horizons.
The following table sets forth the distribution of
the repricing of the Company's earning assets and
interest-bearing liabilities as of December 31, 1996, the
interest rate sensitivity gap, the cumulative interest
rate-sensitivity gap, the interest rate-sensitivity gap ratio and
the cumulative interest rate-sensitivity gap ratio. The table
also sets forth the time periods in which earning assets and
liabilities will mature or may reprice in accordance with their
contractual terms. However, the table does not necessarily
indicate the impact of general interest rate movements on the net
interest margin since the repricing of various categories of
assets and liabilities is subject to competitive pressures and
the needs of the Company's customers. In addition, various assets
and liabilities indicated as repricing within the same period may
in fact, reprice at different times within such period and at
different rates.
-43-<PAGE>
<TABLE>
<CAPTION>
Community Bankshares, Inc.
Consolidated Gap Report
After After
Three One
Months Year but
Within but Within After
Three Within Five Five
Months One Year Years Years Total
------ -------- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Earnings assets:
Interest-bearing deposits $ 208 $ - - $ - - $ - - $ 208
Federal funds sold 8,345 - - - - - - 8,345
Investment securities 37,923 4,090 23,999 60 66,072
Loans 78,432 50,960 56,139 20,255 205,786
------- ------ ------ ------ -------
$ 124,908 $ 55,050 $ 80,138 $ 20,315 $ 280,411
------- ------ ------ ------ -------
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 61,676 $ - - $ - - $ - - $ 61,676
Savings 13,949 - - - - - - 13,949
Time deposits, $100,000
and over 19,655 22,668 5,561 444 48,328
Time deposits, less than
$100,000 37,738 66,956 12,349 836 117,879
Other borrowings 39 115 462 - - 616
------- ------ ------ ------ -------
$ 133,057 $ 89,739 $ 18,372 $ 1,280 $ 242,448
------- ------ ------ ------ -------
Interest rate sensitivity
gap $ (8,149) $ (34,689) $ 61,766 $ 19,035 $ 37,963
====== ======= ====== ====== ======
Cumulative interest rate
sensitivity gap $ (8,149) $ (42,838) $ 18,928 $ 37,963
====== ======= ====== ======
Interest rate sensitivity
gap ratio 0.94 .61 4.36 15.87
==== === ==== =====
Cumulative interest rate
sensitivity gap ratio 0.94 .81 1.08 1.16
==== === ==== =====
</TABLE>
-44-<PAGE>
SELECTED STATISTICAL INFORMATION
The tables and schedules on the following pages set forth certain
significant financial information and statistical data with respect to
the distribution of assets, liabilities and shareholders' equity of the
Company; the interest rates and interest differentials experienced by the
Company; changes in interest income and expense related to rate and
volume; the investment portfolio of the Company; the loan portfolio of
the Company, including types of loans, maturities and sensitivity to
changes in interest rates and information on nonperforming loans; summary
of the loan loss experience and reserves for loan losses of the Company;
types of deposits of the Company and the return on equity and assets for
the Company.
-45-<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIALS
Table 1 Average Balances
<TABLE>
<CAPTION>
The condensed average balance sheets for the periods indicated are
presented below <F1>.
Year Ended December 31,
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 13,539 $ 10,844 $ 9,959
Interest-bearing deposits in banks 364 293 902
Taxable securities 43,337 43,506 45,784
Nontaxable securities 16,520 11,206 10,372
Unrealized losses on securities
available for sale (130) (256) (240)
Federal funds sold 11,864 9,146 7,501
Loans <F2> 191,180 170,525 150,426
Allowance for loan losses (3,368) (2,944) (2,494)
Other assets 16,013 14,271 13,119
--------- --------- --------
$ 289,319 $ 256,591 $ 235,329
========= ========= ========
Total interest-earning assets $ 263,265 $ 234,676 $ 214,985
========= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 33,052 $ 28,031 $ 24,445
Interest-bearing demand 57,240 53,498 55,726
Savings 13,145 12,141 11,624
Time 153,814 135,493 119,969
--------- --------- ---------
Total deposits $ 257,251 $ 229,163 $ 211,764
Other borrowings 885 2,205 1,794
Other liabilities 6,489 4,389 3,681
--------- --------- ---------
Total liabilities $ 264,625 $ 235,757 $ 217,239
--------- --------- ---------
Shareholders' equity <F3><F4> $ 24,694 $ 20,834 $ 18,090
--------- --------- ---------
$ 289,319 $ 256,591 $ 235,329
========= ========= =========
Total interest-bearing liabilities $ 225,084 $ 203,337 $ 189,113
========= ========= =========
<FN>
<F1> Average balances were determined using the daily average
balances during the year for each category.
<F2> Average loans include nonaccrual loans and are stated net of
unearned income.
<F3> In accordance with SFAS 115, average unrealized losses on
securities available for sale have been included in average
shareholders' equity at $276,000, $154,000, and $189,000 for
1996, 1995, and 1994 respectively, which is the average balance
for the year, net of average taxes.
<F4> Average shareholders' equity includes redeemable common stock
held by ESOP.
</FN>
</TABLE>
-46-<PAGE>
TABLE 2 INTEREST INCOME AND INTEREST EXPENSE
The following tables set forth the amount of the Company's
interest income and interest expense for each category of
interest-earning assets and interest-bearing liabilities and the average
interest rate for total interest-earning assets and total
interest-bearing liabilities, net interest spread and net yield on
average interest-earning assets.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
Average Average Average
Interest Rate Interest Rate Interest Rate
-------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans <F1> $ 20,440 10.69% $ 18,146 10.64% $ 14,419 9.59%
Interest on taxable securities 2,483 5.73 2,550 5.86 2,534 5.53
Interest on nontaxable securities <F2> 908 5.50 641 5.72 640 6.17
Interest on Federal funds sold 625 5.27 518 5.66 289 3.85
Interest on deposits in banks 9 2.47 16 5.46 29 3.22
------ ---- ------ ---- ------ ----
Total interest income $ 24,465 9.29% $ 21,871 9.32% $ 17,911 8.33%
------ ------ ------
INTEREST EXPENSE:
Interest on interest-bearing
demand deposits $ 1,797 3.14% $ 1,749 3.27% $ 1,718 3.08%
Interest on savings deposits 372 2.83 343 2.83 330 2.84
Interest on time deposits 9,002 5.85 7,647 5.64 5,411 4.51
Interest on other borrowings 65 7.34 136 6.17 94 5.24
------ ----- ---- ----- ----
Total interest expense $ 11,236 4.99% $ 9,875 4.86% $ 7,553 3.99%
------ ----- -----
NET INTEREST INCOME $ 13,229 $ 11,996 $ 10,358
====== ====== ======
Net interest spread 4.30% 4.46% 4.34%
Net yield on average
interest-earning assets 5.02% 5.11% 4.82%
<FN>
<F1> Interest and fees on loans include $771,000, $512,000, and
$1,117,000 of loan fee income for the years ended December 31, 1996,
1995, and 1994, respectively. Interest income recognized during 1996,
1995, and 1994 on nonaccrual loans was $41,000, $24,000, and $20,000,
respectively.
<F2> Yields on nontaxable securities have not been computed on a tax
equivalent basis.
</FN>
</TABLE>
TABLE 3 RATE AND VOLUME ANALYSIS
The following table describes the extent to which changes in
interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities have affected the Company's interest income
and expense during the year indicated. For each category of
-47-<PAGE>
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (1) change in volume (change in
volume multiplied by old rate); (2) change in rate (change in rate
multiplied by old volume); and (3) a combination of change in rate and
change in volume. The changes in interest income and interest expense
attributable to both volume and rate have been allocated proportionately
to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 vs. 1995
Changes Due To:
Increase
Rate Volume (Decrease)
---- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans $ 85 $ 2,209 $ 2,294
Interest on taxable securities (57) (10) (67)
Interest on nontaxable securities (25) 292 267
Interest on Federal funds sold (36) 143 107
Interest on deposits in banks (10) 3 (7)
---- ------ -----
Total interest income $ (43) $ 2,637 $ 2,594
---- ------ -----
Expense from interest-bearing liabilities:
Interest on interest-bearing deposits $ (73) $ 121 $ 48
Interest on savings deposits 1 28 29
Interest on time deposits 291 1,064 1,355
Interest on other borrowings 21 (92) (71)
---- ----- -----
Total interest expense $ 240 $ 1,121 $ 1,361
---- ----- -----
Net interest income $ (283) $ 1,516 $ 1,233
===== ===== =====
Year Ended December 31,
1995 vs. 1994
Changes Due To:
Increase
Rate Volume (Decrease)
---- ------ ----------
(Dollars in Thousands)
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans $ 1,684 $ 2,043 $ 3,727
Interest on taxable securities 146 (130) 16
Interest on nontaxable securities (48) 49 1
Interest on Federal funds sold 156 73 229
Interest on deposits in banks 13 (26) (13)
---- ----- -----
Total interest income $ (1,951) $ 2,009 $ 3,960
---- ----- -----
Expense from interest-bearing liabilities:
Interest on interest-bearing deposits $ 101 $ (70) $ 31
Interest on savings deposits (2) 15 13
Interest on time deposits 1,476 760 2,236
Interest on other borrowings 18 24 42
---- ----- -----
Total interest expense $ 1,593 $ 729 $ 2,322
---- ----- -----
Net interest income $ 358 $ 1,280 $ 1,638
===== ===== =====
</TABLE>
-48-<PAGE>
INVESTMENT PORTFOLIO
TABLE 4 TYPES OF INVESTMENTS
<TABLE>
<CAPTION>
The carrying amounts of securities at the dates indicated are summarized
as follows <F1>:
December 31,
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
U.S. Treasury and other U.S. Government
agencies and corporations $ 27,561 $ 27,965 $ 30,683
Municipal securities 19,788 14,203 10,279
Mortgage-backed securities 17,806 12,140 13,003
Equity securities 917 658 883
------ ------ ------
$ 66,072 $ 54,966 $ 54,848
====== ====== =======
<FN>
<F1> Securities include "held to maturity" securities
carried at amortized cost and "available for sale"
securities carried at fair value in accordance
with SFAS 115.
</FN>
</TABLE>
The Community Banking Subsidiaries' mortgage-backed
security portfolio consists of sixty U.S. Government corporation
sponsored collateralized mortgage obligations. The actual
maturities of these securities will differ from the contractual
maturities because borrowers on the underlying loans may have the
right to prepay obligations with or without prepayment penalties.
Decreases in interest rates will generally cause prepayments to
accelerate while increases in the interest rates will have the
reverse effect on prepayments. Prepayments of the underlying
mortgages may shorten the life of the security, thereby adversely
affecting the yield to maturity. In an increasing interest rate
environment, the Community Banking Subsidiaries may have a
security yielding a return less than the current yields on
comparable securities. However, because the majority of these
securities in mortgage-backed securities have adjustable rates,
the negative effects of changes in interest rates on earnings and
the carrying values of these securities are somewhat mitigated.
-49-<PAGE>
Table 5 Maturities
The amounts of securities in each category as of
December 31, 1996 are shown in the following table according to
contractual maturity classifications of one year or less, after
one year through five years, after five years through ten years,
and after ten years.
<TABLE>
<CAPTION>
U.S. Treasury and Other
U.S. Government Agencies
and corporations <F3> Municipal securities <F2> Other Securities<F4>
Amount Yield <F1> Amount Yield <F1> Amount Yield <F1>
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
One year or less $ 3,900 5.11% $ 3,016 5.91% $ 917 4.53%
After one year
through five years 26,384 5.84 3,480 5.61 - - - -
After five years
through ten years 5,495 6.75 4,201 5.21 - - - -
After ten years 9,588 6.10 9,091 5.14 - - - -
------ ------ ---- -----
Total $ 45,367 5.94% $ 19,788 5.35% $ 917 4.53%
<FN>
<F1> Yields were computed using book value, coupon interest,
adding discount accretion or subtracting premium
amortization, as appropriate, on a ratable basis over the
life of each security. The weighted average yield for each
maturity range was computed using the carrying value of
each security in that range.
<F2> Yields on municipal securities have not been computed on a tax
equivalent basis.
<F3> The above schedule includes mortgage-backed securities based on
their contractual maturity date. In practice, cash flow in
these securities is significantly faster than their stated
maturity schedules.
<F4> Other securities consists of equity securities and are included
in the under one year maturity range because the securities
have no contractual maturity date.
</FN>
</TABLE>
-50-<PAGE>
LOAN PORTFOLIO
Table 6 Types of Loans
The amount of loans outstanding at the indicated dates are
shown in the following table according to the type of loan.
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural <F1> $ 102,231 $ 77,871 $ 77,437 $ 60,032 $ 57,589
Real estate-construction 9,506 8,036 8,703 7,430 8,364
Real estate-mortgage 57,566 63,312 50,856 56,639 58,050
Consumer and other <F2> 36,483 30,072 25,269 20,848 18,391
-------- ------- ------- ------- -------
$ 205,786 $ 179,291 $ 162,265 $ 144,949 $ 142,394
Less allowance for loan losses (3,592) (3,060) (2,686) (2,457) (2,242)
-------- ------- ------- ------- -------
Net loans $ 202,194 $ 176,231 $ 159,579 $ 142,492 $ 140,152
======== ======= ======= ======= =======
<FN>
<F1> Commercial, financial and agricultural loans include loans
held for sale which are disclosed separately in the
consolidated balance sheets.
<F2> Amounts are disclosed net of unearned loan income.
</FN>
</TABLE>
See "BUSINESS Business Description of the Community Banking
Subsidiaries - Loans" for a description of the composition of each loan
category, the underwriting criteria and risks that are unique to each
category.
-51-<PAGE>
TABLE 7 MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST
RATES
Total loans as of December 31, 1996 are shown in the following
table according to maturity classifications one year or less, after one
year through five years and after five years.
<TABLE>
<CAPTION>
December 31, 1996
-----------------
(Dollars in Thousands)
<S> <C>
Maturity:
One year or less:
Commercial, financial and agricultural $ 70,241
Real estate-construction 9,506
All other loans 33,415
-------
$ 113,162
-------
After one year through five years:
Commercial, financial and agricultural $ -2,701
Real estate-construction --
All other loans 47,375
-------
$ 60,076
-------
After five years:
Commercial, financial and agricultural $ 7,842
Real estate-construction --
All other loans 24,706
-------
$ 32,548
-------
$ 205,786
=======
</TABLE>
The following table summarizes loans at December 31, 1996 with due
dates after one year which have predetermined and floating or
adjustable interest rates.
<TABLE>
<CAPTION>
December 31, 1996
(Dollars in Thousands)
<S> <C>
Predetermined interest rates $ 60,542
Floating or adjustable interest rates 32,082
------
$ 92,624
======
</TABLE>
Records were not available to present the above information in
each loan category listed in the first paragraph above and could
not be reconstructed without undue burden and cost to the Company.
-52-<PAGE>
Table 8 Nonaccrual, Past Due and Restructured Loans
Information with respect to nonaccrual past due and restructured loans
at the indicated dates is as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 1,119 $ 1,456 $ 640 $ 1,649 $ 2,059
Loans contractually past due ninety days
or more as to interest or principal
payments and still accruing 445 345 310 62 385
Loans, the terms of which have been
renegotiated to provide a reduction
or deferral of interest or principal
because of deterioration in the
financial position of the borrower 620 629 64 73 78
Loans, now current about which there are
serious doubts as to the ability of
the borrower to comply with present
loan repayment terms - - - - - - - - - -
</TABLE>
The reduction in interest income associated with nonaccrual
and renegotiated loans as of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
Interest income that would have been recorded on nonaccrual
and restructured loans under original terms $120,000
=======
Interest income that was recorded on nonaccrual and restructured loans $ 41,000
=====
</TABLE>
The Community Banking Subsidiaries' policy is to discontinue
the accrual of interest income when, in the opinion of management,
collection of such interest becomes doubtful. This status is
accorded such interest when (1) there is a significant deterioration in
the financial condition of the borrower and full repayment of principal
and interest is not expected and (2) the principal or interest is more
than ninety days past due, unless the loan is both well-secured and in
the process of collection. Accrual of interest on such loans is resumed
when, in management's judgment, the collection of interest and principal
becomes probable. 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 and
which causes management to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms.
-53-<PAGE>
COMMITMENTS AND LINES OF CREDIT
The Community Banking Subsidiaries will, in the normal
course of business, commit to extend credit in the form of letters of
credit or lines of credit. The amount of outstanding loan commitments and
letters of credit at December 31, 1996 and 1995 were $17,131,000 and
$20,678,000, respectively.
SUMMARY OF LOAN LOSS EXPERIENCE
TABLE 9
The following table summarizes average loan balances for
each year determined using the daily average balances during the year;
changes in the reserve for possible loan losses arising from loans
charged off and recoveries on loans previously charged off; additions to
the reserve which have been charged to operating expense; and the ratio
of net charge-offs during the year to average loans.
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $ 191,180 $ 170,525 $ 150,426 $ 143,531 $ 139,304
======= ======= ======= ======= =======
Balance of allowance for loan losses
at beginning of year $ 3,060 $ 2,686 $ 2,457 $ 2,242 $ 2,030
------- ------- ------- ------- -------
Loans charged off
Commercial $ (118) $ (221) $ (344) $ (441) $ (744)
Real estate mortgage - - - - - - (237) (183)
Consumer (211) (331) (244) (157) (680)
------- ------- ------- ------- -------
$ (329) $ (552) $ (588) $ (835) $ (1,607)
------- ------- ------- ------- -------
Loans recovered
Commercial $ 5 $ 12 $ 11 $ 7 $ 77
Real estate mortgage 35 12 5 5 36
Consumer 64 53 51 112 128
------- ------- ------- ------- -------
$ 104 $ 77 $ 67 $ 124 $ 241
------- ------- ------- ------- -------
Net charge-offs $ (225) $ (475) $ (521) $ (711) $ (1,366)
------- ------- ------- ------- -------
Additions to allowance charged
to operating expense during year $ 757 $ 849 $ 750 $ 926 $ 1,578
------- ------- ------- ------- -------
Balance of allowance for loan losses
at end of year $ 3,592 $ 3,060 $ 2,686 $ 2,457 $ 2,242
------- ------- ------- ------- -------
Ratio of net loans charged off during
the year to average loans outstanding 0.12% 0.28% 0.35% 0.50% 0.98%
==== ==== ==== ==== ====
</TABLE>
-54-
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The provision for possible loan losses is created by
direct charges to income. Losses on loans are charged against the
allowance in the year in which such loans, in management's opinion,
become uncollectible. Recoveries during the year are credited to this
allowance. The factors that influence management's judgment in
determining the amount charged to income are past loan loss experience,
composition of the loan portfolio, evaluation of possible future losses,
current economic conditions and other relevant factors. The Company's
allowance for loan losses was approximately $3,592,000 at December 31,
1996, representing 1.75% of total loans, compared with $3,060,000 at
December 31, 1995, which represented 1.71% of total loans. The allowance
for loan losses is reviewed regularly based on management's evaluation of
current risk characteristics of the loan portfolio, as well as the impact
of prevailing and expected economic business conditions. Management
considers the allowance for loan losses adequate to cover possible loan
losses at December 31, 1996.
Historically, management has not allocated the Company's
allowance for loan losses to specific categories of loans. However, based
on management's best estimate and historical experience, the allocation
of the allowance for loan losses for December 31, 1996, 1995, 1994, 1993,
and 1992 is summarized below:
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial $ 1,830 $ 1,347 $ 1,508 $ 1,219 $ 1,091
Real estate 105 467 599 492 525
Consumer 1,657 1,246 579 746 626
----- ----- ----- ----- -----
$ 3,592 $ 3,060 $ 2,686 $ 2,457 $ 2,242
===== ===== ===== ===== =====
Percent of Loans in Each Category to Total Loans
December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Commercial 50% 43% 48% 41% 40%
Real estate 33 40 37 44 47
Consumer 17 17 15 15 13
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
-55-<PAGE>
DEPOSITS
TABLE 10
<TABLE>
<CAPTION>
Average amount of deposits and average rates paid thereon,
classified as to noninterest-bearing demand deposits, interest-bearing
demand and savings deposits and time deposits, for the years
indicated are presented below. <F1>
Year Ended December 31,
1996 1995 1994
---- ---- ----
Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 33,052 - -% $ 28,031 - -% $ 24,445 - -%
Interest-bearing demand deposits 57,240 3.14 53,498 3.27 55,726 3.08
Savings deposits 13,145 2.83 12,141 2.83 11,624 2.84
Time deposits 153,814 5.85 135,493 5.64 119,969 4.51
------- ------- -------
Total deposits $ 257,251 $ 229,163 $ 211,764
======= ======= =======
<FN>
<F1> Average balances were determined using the daily average balances
during the year for each category.
</FN>
</TABLE>
The amounts of time certificates of deposit issued in amounts of
$100,000 or more as of December 31, 1996 are shown below by category,
which is based on time remaining until maturity of (1) three months
or less, (2) over three through six months, (3) over six through
twelve months and (4) over twelve months.
<TABLE>
<CAPTION>
December 31, 1996
-----------------
(Dollars in Thousands)
<S> <C>
Three months or less $ 18,824
Over three through six months 11,600
Over six through twelve months 10,190
Over twelve months 7,714
------
Total $ 48,328
======
</TABLE>
-56-<PAGE>
RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
Table 11
The following rate of return information for the years
indicated is presented below.
<TABLE>
<CAPTION
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Return on assets <F1> 1.40% 1.22% 1.03%
Return on equity <F2> 16.38% 15.00% 13.37%
Dividend payout ratio <F3><F5> 7.25% 8.44% 9.92%
Equity to assets ratio <F4> 8.54% 8.12% 7.69%
<FN>
<F1> Net income divided by average total assets.
<F2> Net income divided by average equity.
<F3> Dividends declared per share divided by net income per share.
<F4> Average equity divided by average total assets.
<F5> Dividends declared per share after restatement for the stock split
as disclosed in the consolidated financial statements are $0.14,
$0.13, and $0.12 per share for 1996, 1995 and 1994, respectively.
</TABLE>
-57-<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Community Bankshares, Inc.
and Subsidiaries
Cornelia, Georgia
We have audited the accompanying consolidated balance
sheets of Community Bankshares, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Community Bankshares, Inc. and subsidiaries
as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Mauldin & Jenkins, LLC
Atlanta, Georgia
January 10, 1997
-58-<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
Assets ---- ----
------
<S> <C> <C>
Cash and due from banks $ 19,479,573 $ 13,645,886
Interest-bearing deposits in banks 208,224 0
Federal funds sold 8,345,000 12,195,000
Securities available-for-sale 47,417,952 42,686,184
Securities held-to-maturity (fair value $18,826,126 and $12,483,394) 18,653,842 12,280,209
Loans held for sale 2,484,117 450,000
Loans 203,301,540 178,841,321
Less allowance for loan losses 3,591,958 3,060,479
-------------- --------------
Loans, net 199,709,582 175,780,842
Premises and equipment 8,115,002 5,740,766
Other assets 11,165,622 7,228,359
-------------- --------------
TOTAL ASSETS $ 315,578,914 $ 270,007,246
============== ==============
Liabilities, Redeemable Common Stock and Shareholders' Equity
-------------------------------------------------------------
Deposits
Noninterest-bearing demand $ 36,877,267 $ 32,318,426
Interest-bearing demand 61,676,438 57,835,690
Savings 13,949,338 12,075,162
Time, $100,000 and over 48,327,634 39,842,247
Other time 117,878,692 100,370,127
-------------- --------------
TOTAL DEPOSITS 278,709,369 242,441,652
Other borrowings 616,399 786,939
Other liabilities 8,992,947 4,309,630
-------------- --------------
TOTAL LIABILITIES 288,318,715 247,538,221
-------------- --------------
Commitments and contingent liabilities
Redeemable common stock held by ESOP, 308,870 shares outstanding
at December 31, 1996, at fair value 6,177,400 -
-------------- --------------
Shareholders' equity
Common stock, par value $1; 5,000,000 shares authorized; 2,004,830
issued and outstanding at December 31, 1996; 1,954,500 issued
and outstanding at December 31, 1995 2,004,830 1,954,500
Capital surplus 5,276,520 4,323,055
Retained earnings 13,875,615 16,274,898
Unrealized losses on securities available-for-sale, net of tax (74,166) (83,428)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 21,082,799 22,469,025
-------------- --------------
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY $ 315,578,914 $ 270,007,246
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
-59-<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income
Loans $ 20,439,949 $ 18,146,625 $ 14,418,904
Taxable securities 2,482,767 2,550,283 2,534,108
Nontaxable securities 907,794 640,702 639,893
Deposits in banks 8,855 15,538 29,638
Federal fund sold 625,274 517,688 288,905
------------- ------------ -------------
TOTAL INTEREST INCOME 24,464,639 21,870,836 17,911,448
------------- ------------ -------------
INTEREST EXPENSE
Deposits 11,170,833 9,738,965 7,458,452
Other borrowings 64,940 136,094 94,397
------------- ------------ -------------
TOTAL INTEREST EXPENSE 11,235,773 9,875,059 7,552,849
------------- ------------ -------------
NET INTEREST INCOME 13,228,866 11,995,777 10,358,599
PROVISION FOR LOAN LOSSES 757,262 848,800 750,190
------------- ------------ -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,471,604 11,146,977 9,608,409
------------- ------------ -------------
OTHER INCOME
Service charges on deposits accounts 1,543,707 1,338,805 1,263,290
Other service charges, commissions and fees 498,401 372,609 310,751
Trust department fees 103,085 117,309 70,098
Nonbank subsidiary income 5,558,705 3,780,324 3,007,397
Gain on sale of loans 381,636 461,145 391,156
Net realized losses on securities available-for-sale (13,749) (65,247) (5,255)
Other 320,342 207,600 294,860
------------- ------------ -------------
TOTAL OTHER INCOME 8,392,127 6,212,545 5,332,297
------------- ------------ -------------
OTHER EXPENSES
Salaries and employee benefits 8,265,776 6,785,323 5,928,216
Equipment expenses 1,373,968 1,271,574 885,740
Occupancy expenses 807,364 699,173 644,736
Deposit insurance premiums 12,000 264,757 518,418
Data processing expenses 422,188 328,823 237,334
Travel expenses 531,488 525,805 396,930
Office supply expenses 373,163 302,237 203,774
Professional fees 252,747 399,794 208,389
Other real estate expenses 134,533 224,759 427,861
Other operating expenses 2,777,080 2,167,596 2,154,455
------------- ------------ -------------
TOTAL OTHER EXPENSES 14,950,307 12,969,841 11,605,853
------------- ------------ -------------
INCOME BEFORE INCOME TAXES 5,913,424 4,389,681 3,334,853
INCOME TAX EXPENSE 1,869,229 1,264,611 916,311
------------- ------------ -------------
NET INCOME $ 4,044,195 $ 3,125,070 $ 2,418,542
============= ============ =============
NET INCOME PER SHARE OF COMMON STOCK $ 1.93 $ 1.54 $ 1.21
============= ============ =============
WEIGHTED AVERAGE SHARES OUTSTANDING 2,091,419 2,034,494 2,001,580
============= ============ =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
60<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Unrealized
Gains
(Losses) on
Securities
Common Stock Available- Total
----------------------- Capital Retained for-Sale, Shareholders'
Shares Par Value Surplus Earnings Net of Tax Equity
------ --------- ------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1993 64,342 $ 643,420 $ 5,380,843 $ 11,195,941 $ - $ 17,220,204
Net income - - 2,418,542 - 2,418,542
Cash dividends declared,
$.12 per share - - - (214,593) - (214,593)
Net change in unrealized
losses on securities
available-for-sale,
net of tax - - - - (419,906) (419,906)
--------- -------------- ------------ ------------ ------------ -------------
BALANCE, DECEMBER 31,
1994 64,342 643,420 5,380,843 13,399,890 (419,906) 19,004,247
Net income - - - 3,125,070 - 3,125,070
Cash dividends declared,
$.13 per share - - - (250,062) - (250,062)
Issuance of common
stock 808 8,080 245,212 - - 253,292
Recapitalization of
common stock (586,350) 586,350 - - -
30 for 1 stock split 1,889,350 1,889,350 (1,889,350) - - -
Net change in unrealized
losses on securities
available-for-sale,
net of tax - - - - 336,478 336,478
--------- -------------- ------------ ------------ ------------ -------------
BALANCE, DECEMBER 31,
1995 1,954,500 1,954,500 4,323,055 16,274,898 (83,428) 22,469,025
Net income - - - 4,044,195 - 4,044,195
Cash dividends declared,
$.14 per share - - - (266,078) - (266,078)
Issuance of common
stock 50,330 50,330 953,465 - - 1,003,795
Adjustment for shares
owned by ESOP (6,177,400) (6,177,400)
Net change in unrealized
losses on securities
available-for-sale,
net of tax - - - - 9,262 9,262
--------- -------------- ------------ ------------ ------------ -------------
Balance, December 31,
1996 2,004,830 $ 2,004,830 $ 5,276,520 $ 13,875,615 $ (74,166) $ 21,082,799
========= ============== ============ ============ =========== =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
61<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,044,195 $ 3,125,070 $ 2,418,542
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 926,807 788,974 821,503
Amortization of intangibles 8,911 11,311 11,311
Provision for loan losses 757,262 848,800 750,190
Provision for other real estate losses 110,000 167,000 120,000
Deferred income taxes (197,515) (33,852) (192,280)
(Increase) decrease in loans held for sale (2,034,117) 1,692,625 (2,142,625)
Net realized losses on securities 13,749 65,247 5,255
available-for-sale
Net losses on sale of other real estate 2,722 12,468 155,234
Increase in interest receivable (576,126) (405,008) (701,250)
Increase (decrease) in interest payable 395,738 865,574 (824,026)
Increase (decrease) in taxes payable 274,814 (221,057) 320,729
(Increase) decrease in accounts receivable of
nonbank subsidiary (1,127,313) 850,185 (909,024)
Increase in work in process of nonbank subsidiary (1,383,105) (37,553) 90,628
Increase (decrease) in accruals and payables of
nonbank subsidiary 3,773,361 (432,685) 694,966
Other operating activities (437,924) (605,672) 331,304
------------- ------------ ---------
Net cash provided by operating activities 4,551,459 6,691,427 950,457
------------- ------------ ---------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (21,318,882) (13,726,854) (5,881,083)
Proceeds from sales of securities available-for-sale 3,465,702 9,242,423 1,240,625
Proceeds from maturities of securities 13,119,694 5,307,709 4,027,795
available-for-sale
Purchases of securities held-to-maturity (7,042,587) (6,018,408) (9,585,809)
Proceeds from maturities of securities 668,954 5,407,364 6,157,921
held-to-maturity
Net (increase) decrease in Federal funds sold 3,850,000 (5,985,000) 4,465,000
Net (increase) decrease in interest-bearing deposits (208,224) 797,000 (198,000)
in banks
Net increase in loans (24,980,798) (19,733,873) (16,752,385)
Purchase of premises and equipment (3,495,693) (1,014,579) (1,494,884)
Disposal of premises and equipment 194,650 26,300 434,129
Proceeds from sale of other real estate 189,463 1,416,756 1,080,771
------------- ------------ ---------
Net cash used in investing activities (35,557,721) (24,281,162) (16,505,920)
------------- ------------ ---------
</TABLE>
62
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
FINANCING ACTIVITIES
Increase in deposits $ 36,267,717 $ 17,680,181 $ 19,247,233
Net increase in other borrowings 1,616,399 428,415 376,974
Repayment of other borrowings (1,786,939) (1,874,376) (288,554)
Proceeds from the issuance of common stock 1,003,795 253,292 -
Dividends paid (261,023) (246,035) (214,593)
------------ ----------- ------------
Net cash provided by financing activities 36,839,949 16,241,477 19,121,060
------------ ----------- -----------
Net increase (decrease) in cash and due from banks 5,833,687 (1,348,258) 3,565,597
Cash and due from banks at beginning of year 13,645,886 14,994,144 11,428,547
------------ ----------- -----------
Cash and due from banks at end of year $ 19,479,573 $ 13,645,886 $ 14,994,144
============ =========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 10,840,035 $ 9,009,485 $ 8,376,875
Income taxes $ 1,791,930 $ 1,563,738 $ 787,862
NONCASH TRANSACTIONS
Unrealized (gains) losses on securities $ (12,031) $ (396,287) $ 531,929
available-for-sale
Principal balances of loans transferred to other
real estate $ 294,787 $ 542,327 $ 1,056,249
Transfer of securities held-to-maturity to securities
available-for-sale $ 0 $ 29,644,758 $ 11,299,745
</TABLE>
See Notes to Consolidated Financial Statements.
63
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Community Bankshares, Inc. (the Company) is a
multi-bank holding company whose business is
presently conducted by its wholly-owned subsidiaries,
Community Bank & Trust - Habersham located in
Cornelia, Georgia, Community Bank & Trust - Jackson
located in Commerce, Georgia, Community Bank & Trust
- Alabama located in Union Springs, Alabama, and
Community Bank & Trust - Troup located in LaGrange,
Georgia. Financial Supermarkets, Inc. is a
wholly-owned subsidiary of Community Bank & Trust -
Habersham, which provides a variety of bank related
products and services to the financial institution
industry.
The banking subsidiaries are commercial banks
operating independently of one another in their
respective market areas. The banking subsidiaries in
Georgia have identified their primary market areas to
be the county in which they are located and all
surrounding counties. The Georgia banking
subsidiaries are all located approximately 85 miles
from the metropolitan Atlanta area. Community Bank &
Trust - Alabama is located approximately 50 miles
from Montgomery, Alabama. Financial Supermarkets,
Inc. currently provides products and services
primarily in the southeastern United States; however,
their products and services are marketed
internationally. The Banks provide a full range of
banking services to individual and corporate
customers in their primary market areas and
surrounding counties.
BASIS OF PRESENTATION
The consolidated financial statements include the
accounts of the Company and its subsidiaries.
Significant intercompany transactions and accounts
are eliminated in consolidation.
The accounting and reporting policies of the Company
conform to generally accepted accounting principles
and general practices within the financial services
industry. In preparing the financial statements,
management is required to make estimates and
assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance
sheet and revenues and expenses for the year. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash on hand, cash items in process of collection,
and amounts due from banks are included in cash and
due from banks.<PAGE>
The Company maintains amounts due from banks which,
at times, may exceed Federally insured limits. The
Company has not experienced any losses in such
accounts.
64<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SECURITIES
Securities are classified based on management's
intention on the date of purchase. Securities which
management has the intent and ability to hold to
maturity are classified as held-to-maturity and
reported at amortized cost. All other debt
securities are classified as available-for-sale and
carried at fair value with net unrealized gains and
losses included in shareholders' equity, net of tax.
Other equity securities without a readily
determinable fair value are carried at cost.
Interest and dividends on securities, including
amortization of premiums and accretion of discounts,
are included in interest income. Realized gains and
losses from the sales of securities are determined
using the specific identification method.
LOANS HELD FOR SALE
Loans held for sale include mortgage and other loans
and are carried at the lower of aggregate cost or
fair value.
LOANS
Loans are carried at their principal amounts
outstanding less unearned income and the allowance
for loan losses. Interest income on loans is
credited to income based on the principal amount
outstanding.
Loan origination fees and certain direct costs of
most loans are recognized at the time the loan is
recorded. Loan origination fees and costs incurred
for other loans are deferred and recognized as income
over the life of the loan. Because net origination
loan fees and costs are not material, the results of
operations are not materially different than the
results which would be obtained by accounting for
loan fees and costs in accordance with generally
accepted accounting principles.
The allowance for loan losses is maintained at a
level that management believes to be adequate to
absorb potential losses in the loan portfolio.
Management's determination of the adequacy of the
allowance is based on an evaluation of the portfolio,
past loan loss experience, current economic
conditions, volume, growth, composition of the loan
portfolio, and other risks inherent in the portfolio.
In addition, regulatory agencies, as an integral part
of their examination process, periodically review the
Company's allowance for loan losses, and may require
the Company to record additions to the allowance
based on their judgment about information available
to them at the time of their examinations.
65<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
The accrual of interest on impaired loans is
discontinued when, in management's opinion, the
borrower may be unable to meet payments as they
become due. Interest income is subsequently
recognized only to the extent cash payments are
received.
A loan is impaired when it is probable the Company
will be unable to collect all principal and interest
payments due in accordance with the terms of the loan
agreement. Individually identified impaired loans
are measured based on the present value of payments
expected to be received, using the contractual loan
rate as the discount rate. Alternatively,
measurement may be based on observable market prices
or, for loans that are solely dependent on the
collateral for repayment, measurement may be based on
the fair value of the collateral. If the recorded
investment in the impaired loan exceeds the measure
of fair value, a valuation allowance is established
as a component of the allowance for loan losses.
Changes to the valuation allowance are recorded as a
component of the provision for loan losses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed
principally by the straight-line method over the
estimated useful lives of the assets.
OTHER REAL ESTATE OWNED
Other real estate owned represents properties acquired
through foreclosure. Other real estate owned is held
for sale and is carried at the lower of the recorded
amount of the loan or fair value of the properties less
estimated selling costs. Any write-down to fair value
at the time of transfer to other real estate owned is
charged to the allowance for loan losses. Subsequent
gains or losses on sale and any subsequent adjustment
to the value are recorded as other expenses.
66<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
Income tax expense consists of current and deferred
taxes. Current income tax provisions approximate
taxes to be paid or refunded for the applicable year.
Deferred tax assets and liabilities are recognized on
the temporary differences between the bases of assets
and liabilities as measured by tax laws and their
bases as reported in the financial statements.
Deferred tax expense or benefit is then recognized
for the change in deferred tax assets or liabilities
between periods.
Recognition of deferred tax balance sheet amounts is
based on management's belief that it is more likely
than not that the tax benefit associated with certain
temporary differences, tax operating loss
carryforwards and tax credits will be realized. A
valuation allowance is recorded for those deferred
tax items for which it is more likely than not that
realization will not occur.
The Company and the Banks file a consolidated income
tax return. Each entity provides for income taxes
based on its contribution to income taxes (benefits)
of the consolidated group.
SALE OF LOANS
The Banks originate and sell participations in
certain loans. Gains are recognized at the time the
sale is consummated. The amount of gain recognized
on the sale of a specific loan is equal to the
percentage resulting from determining the fair value
of the portion of the loan sold relative to the fair
value of the entire loan including servicing rights.
Any material unrecognized gain is deferred and
amortized into income over the term of the portion of
the loan not sold. Losses are recognized at the time
the loan is identified as held for sale and the
loan's carrying value exceeds its market value.
TRUST DEPARTMENT
Trust income is recognized on the cash basis in
accordance with established industry practices.
Reporting of such fees on the accrual basis would
have no material effect on reported income.
NONBANK SUBSIDIARY REVENUE RECOGNITION
Financial Supermarkets, Inc., a wholly-owned
subsidiary of Community Bank & Trust - Habersham,
recognizes revenue and losses on its installation
contracts on the completed-contract method of
accounting. Under this method, billings and costs
are accumulated during the period of installation,
but no profits are recorded before the completion of
the work. Provisions for estimated losses on
uncompleted contracts are made at the time such<PAGE>
losses are identified. Operating expenses, including
indirect costs and administrative expenses, are
charged as incurred to periodic income and not
allocated to contract costs. Income from other
consulting services is recognized as services are
provided and costs and expenses are incurred for each
individual contract.
67<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
EARNINGS PER SHARE
Earnings per common share are computed by dividing
net income by the weighted average number of shares
of common stock and common stock equivalents
outstanding. Common stock equivalents include stock
options.
NOTE 2. SECURITIES
The amortized cost and fair value of securities are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Securities available-for-sale
December 31, 1996:
U.S. Government and agency
securities $ 27,727,826 $ 42,030 $ (209,345) $ 27,560,511
State and municipal securities 1,091,315 42,845 - 1,134,160
Mortgage-backed securities 17,805,102 147,327 (146,468) 17,805,961
Equity securities 917,320 - - 917,320
------------- ---------- ----------- -------------
$ 47,541,563 $ 232,202 $ (355,813) $ 47,417,952
============= ========== =========== =============
December 31, 1995:
U. S. Government and agency
securities $ 28,170,618 $ 132,095 $ (337,945) $ 27,964,768
State and municipal securities 1,842,027 81,126 - 1,923,153
Mortgage-backed securities 12,151,181 120,747 (131,665) 12,140,263
Equity securities 658,000 - - 658,000
------------- ---------- ----------- -------------
$ 42,821,826 $ 333,968 $ (469,610) $ 42,686,184
============= ========== =========== =============
</TABLE>
68<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 2. SECURITIES (Continued)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY
December 31, 1996:
State and municipal securities $ 18,653,842 $ 234,164 $ (61,880) $ 18,826,126
============= ========== ========== =============
DECEMBER 31, 1995:
State and municipal securities $ 12,280,209 $ 274,560 $ (71,375) $ 12,483,394
============= ========== ========== =============
</TABLE>
The amortized cost and fair value of securities as of December 31, 1996
by contractual maturity are shown below. Maturities may differ from
contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or prepaid with or
without penalty. Therefore, these securities and equity securities are
not included in the categories in the following maturity summary.
<TABLE>
<CAPTION>
Securities Available-for-Sale Securities Held-to-Maturity
----------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 4,324,497 $ 4,316,306 $ 240,799 $ 242,067
Due from one year to five years 22,487,566 22,376,314 3,274,919 3,384,730
Due from five to ten years 1,757,078 1,755,646 3,005,074 3,005,254
Due after ten years 250,000 246,405 12,133,050 12,194,075
Mortgage-backed securities 17,805,102 17,805,961 - -
Equity securities 917,320 917,320 - -
------------- ------------- ------------ -----------
$ 47,541,563 $ 47,417,952 $ 18,653,842 $18,826,126
============= ============= ============ ===========
</TABLE>
Securities with a carrying value of $28,814,848 and $24,975,762 at
December 31, 1996 and 1995, respectively, were pledged to secure public
deposits and for other purposes.
69<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 2. SECURITIES (Continued)
Gains and losses on sales of securities available-for-sale consist of the
following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Gross gains $ 21,143 $ 28,109 $ 1,068
Gross losses (34,892) (93,356) (6,323)
----------- ---------- ----------
Net realized losses $ (13,749) $ (65,247) $ (5,255)
=========== ========== ==========
</TABLE>
Under special provisions adopted by the Financial Accounting Standards
Board in October 1995, the Banks transferred $29,644,758 from securities
held-to-maturity to securities available-for-sale on December 31, 1995,
resulting in a net unrealized loss of $189,519 which was included in
shareholders' equity at $113,711 net of related taxes of $75,808.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995
---------------------------------
<S> <C> <C>
Commercial, financial, and agricultural $ 99,746,883 $ 77,421,000
Real estate - construction 9,506,000 8,036,000
Real estate - mortgage 57,566,000 63,312,000
Consumer 28,659,000 26,068,000
Other 8,139,791 4,276,618
------------- -------------
203,617,674 179,113,618
Unearned income (316,134) (272,297)
Allowance for loan losses (3,591,958) (3,060,479)
------------- -------------
Loans, net $ 199,709,582 $ 175,780,842
============= =============
</TABLE>
70<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Changes in the allowance for loan losses for the years ended
December 31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- ---------------
<S> <C> <C> <C>
Balance, Beginning of Year $ 3,060,479 $ 2,685,800 $ 2,456,954
Provision charged to operations 757,262 848,800 750,190
Loans charged off (329,592) (551,644) (587,880)
Recoveries of loans previously charged off 103,809 77,523 66,536
-------------- -------------- --------------
Balance, End of Year $ 3,591,958 $ 3,060,479 $ 2,685,800
============== ============== ==============
</TABLE>
The total recorded investment in impaired loans was $1,739,091
and $558,829 at December 31, 1996 and 1995, respectively. None of
these loans had a specific allowance for loan losses at December
31, 1996 and 1995 determined in accordance with generally
accepted accounting principles. The average recorded investment
in impaired loans for 1996 and 1995 was $1,966,092 and $560,771,
respectively. Interest income on impaired loans of $108,210 and
$41,176 was recognized for cash payments received for the years
ended 1996 and 1995, respectively.
The Banks have granted loans to certain directors, executive
officers and their related entities. The interest rates on
these loans were substantially the same as rates prevailing at
the time of the transaction and repayment terms are customary for
the type of loan involved. Changes in related party loans for
the year ended December 31, 1996 are as follows:
Balance, beginning of year $ 2,503,772
Advances 2,038,821
Repayments (1,338,420)
-------------
Balance, end of year $ 3,204,173
71<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31
------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Land $ 1,488,621 $ 987,100
Buildings 5,040,830 4,782,763
Equipment 6,754,619 5,900,497
Equipment under capital leases - 178,415
Construction in process
($307,518 estimated cost to
complete) 1,652,390 14,085
------------ ------------
14,936,460 11,862,860
Accumulated depreciation, including $2,974
of accumulated amortization at
December 31, 1995 on equipment under
capital leases (6,821,458) (6,122,094)
------------ ------------
$ 8,115,002 $ 5,740,766
============ ============
</TABLE>
NOTE 5. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
---- -----
<S> <C> <C>
Note payable to bank, due in quarterly
instalments of $38,526 with interest of $ 616,399 $ -
7.25% at December 31, 1996, collateralized
by 50,000 shares of common stock of Community
Bank & Trust-Habersham. Matures December 31, 2000.
Note payable to bank, due in quarterly instalments
of $31,250 with interest due - 406,250
quarterly at prime (8.5%) to April 1, 1999
collateralized by 25,000 shares of common stock
and 25,000 shares of preferred stock of Community
Bank & Trust-Jackson, 7,275 shares of common stock
of Community Bank & Trust-Habersham, and 500
shares of common stock of Community Bank & Trust-Alabama.
Note payable to bank, due in quarterly instalments of
$20,833 with interest due - 208,333
monthly at the Eurodollar rate plus 2.5 %
(8.1875% at December 31, 1995) to June 30, 1998,
collateralized by 25,000 shares of common stock and
25,000 shares of preferred stock of Community Bank
& Trust-Jackson and 7,275 shares of Community
Bank & Trust-Habersham.
Capital lease obligation, due in monthly instalments of
$3,744 to October 15, - 172,356
2000, discounted at a rate of 9.82%. ------------ ------------
$ 616,399 $ 786,939
============ ============
</TABLE>
72<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 5. OTHER BORROWINGS (Continued)
Aggregate maturities required on other borrowings at
December 31, 1996 are as follows:
1997 $ 154,100
1998 154,100
1999 154,100
2000 154,099
----------
$ 616,399
==========
NOTE 6. EMPLOYEE BENEFIT PLANS
INCENTIVE STOCK OPTION PLAN
The Company has an Incentive Stock Option Plan in which the
Company can grant to key personnel options for an aggregate
of 225,000 shares of the Company's common stock at not less
than the fair market value of such shares on the date the
option is granted. If the optionee owns shares of the
Company representing more than 10% of the total combined
voting power, then the price shall not be less than 110% of
the fair market value of such shares on the date the option
is granted. Also, the option period will not exceed ten
years from date of grant.
In connection with the acquisition of The Bank of Troup
County in 1994, the Company honored the stock options
issued to the Bank's president under an employment
contract. The contract, dated March 8, 1993, granted
options to purchase 500 shares of the Bank's common stock
in cash for the years 1993, 1994, 1995 and 1996. The
options are exercisable at book value and expire thirty-one
(31) days after the end of each respective year end. At
December 31, 1996, all the options had been exercised or
had expired.
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ------------------------ ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
------- --------- ------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Under option, beginning of year 204,000 $ 6.42 204,000 $ 6.42 150,000 $ 5.21
Granted 330 11.50 330 9.85 54,330 9.78
Exercised (330) 11.50 - - - -
Terminated - - (330) 9.85 (330) 8.92
------- ------- -------
Under option and exercisable,
end of year 204,000 6.42 204,000 6.42 204,000 6.42
======= ======= =======
</TABLE>
73
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 6. EMPLOYEE BENEFIT PLANS (Continued)
INCENTIVE STOCK OPTION PLAN (CONTINUED)
Under Option and Exercisable, End of Year
-----------------------------------------------------------------
Weighted-
Weighted- Average
Average Remaining
Range of Exercise Contracted
Number Prices Price Life
------ --------- -------- ----------
150,000 $ 5.21 $ 5.21 1
54,000 9.47 - 9.85 9.79 8
--------
204,000
========
As permitted by Statement of Financial Accounting Standard No.
123 "Accounting for Stock-Based Compensation" (SFAS No. 123),
the Company recognizes compensation cost for stock-based
employee compensation awards in accordance with APB Opinion
No. 25, ("Accounting for Stock Issued to Employees"). The
Company recognized no compensation cost for stock-based
employee compensation awards for the years ended December 31,
1996 and 1995. The effect on operations was immaterial for
the years ended December 31, 1996 and 1995.
401(K) PLAN
The Company has a contributory 401(K) retirement plan covering
substantially all employees. Contributions to the plan
charged to expense for the year ended December 31, 1996
amounted to $26,237.
PROFIT-SHARING PLAN
The Company had a noncontributory profit-sharing plans
covering all employees, subject to certain minimum age service
requirements. The amount of the annual contribution to the
plan is at the discretion of the Company's Board of Directors.
The amounts charged to expense were $386,482 and $275,220 for
the years ended December 31, 1995 and 1994, respectively. The
plan was terminated effective January 1, 1996.
EMPLOYEE STOCK OWNERSHIP PLAN
In 1996 the Company established an Employee Stock Ownership
Plan (ESOP) for the benefit of employees who meet certain
eligibility requirements. The Plan was established on January
1, 1996 in connection with the termination of the Company's
Profit Sharing Plan. Contributions to the Plan are determined
by the Board of Directors of the Company taking into
consideration the then prevailing financial conditions and
fiscal requirements of the Company and such other factors as
the Board of Directors may deem pertinent and applicable under
the circumstances. For the year ended December 31, 1996, the
Company made a cash contribution of $488,500 to the Plan.
74<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE 6. EMPLOYEE BENEFIT PLANS (Continued)
EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
In accordance with the Plan, the Company is expected to
honor the rights of certain participants to diversify their
account balances or to liquidate their ownership of the
common stock in the event of distribution. The purchase
price of the common stock is based on the fair market value
of the Company's common stock as of the annual valuation
date which precedes the date the put option is exercised.
No participant has exercised these rights since the
inception of the Plan, and no significant cash outlay is
expected during 1997. However, since the redemption of
common stock is outside the control of the Company, the
Company's maximum cash obligation based on the approximate
market prices of common stock as of the reporting date has
been presented outside of shareholders' equity. The amount
presented as redeemable common stock held by the ESOP in
the consolidated balance sheet represents the Company's
maximum cash obligation and has been reflected as a
reduction of retained earnings.
At December the ESOP held 258,870 allocated shares and 50,000
of committed-to-be-released shares. Shares held by the ESOP
are considered outstanding for purposes of calculating the
Company's earnings per share.
NOTE 7. INCOME TAXES
The income tax expense consists of the following:
<TABLE>
<CAPTION
December 31,
------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current $ 2,112,253 $ 1,327,665 $ 1,159,768
Deferred (197,515) (33,852) (192,280)
Current tax effect of net operating loss carryforward (45,509) (29,202) (51,177)
----------- ----------- -----------
Income tax expense $ 1,869,229 $ 1,264,611 $ 916,311
=========== =========== ===========
</TABLE>
75<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. INCOME TAXES (Continued)
The Company's income tax expense differs from the amounts computed by
applying the Federal income tax statutory rates to income before
income taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------------ ------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory rate $ 2,010,564 34% $ 1,492,492 34% $ 1,133,850 34%
Tax-exempt interest (351,027) (6) (262,391) (6) (240,719) (7)
Disallowed interest 47,859 1 32,469 1 24,030 1
Current tax effect of net
operating loss carryforward (45,509) (1) (29,202) (1) (51,177) (2)
Nondeductible expenses 59,692 1 32,469 1 57,164 2
State income taxes 154,777 3 - - - -
Other items (7,057) - (1,226) (6,837) -
------------ ---- ------------ ---- ------------ -----
Income tax expense $ 1,869,299 32% $ 1,264,611 29% $ 916,311 28%
============ ==== ============ ==== ============ =====
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
----------- ----------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 1,069,063 $ 851,521
Unrealized loss on securities 50,017 52,214
Other - 4,549
Net operating loss carryforward 230,641 276,150
Valuation allowance (230,641) (276,150)
----------- ----------
1,119,080 908,284
----------- ----------
Deferred tax liabilities:
Depreciation 207,900 219,433
Accretion 111,385 84,797
Other 423 -
----------- ----------
319,708 304,230
----------- ----------
Net deferred tax assets $ 799,372 $ 604,054
=========== ==========
</TABLE>
At December 31, 1996, the Company has available net operating
loss carryforwards of approximately $678,000 for Federal income
tax purposes. If unused, the carryforwards will expire in 2009.
76<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. STOCK OPTIONS AND EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
Earnings per common share and common equivalent share
were computed by dividing net income by the weighted
average number of shares of common stock and common
stock equivalents outstanding. The number of common
shares was increased by the number of shares issuable
upon the exercise of the stock options described in Note
6. This theoretical increase in the number of common
shares was reduced by the number of common shares which
are assumed to have been repurchased for the treasury
with the proceeds from the exercise of the options;
these purchases were assumed to have been made at the
price per share that approximates market value. The
treasury stock method for determining the amount of
dilution of stock options is based on the concept that
common shares which could have been purchased with the
proceeds of the exercise of common stock options at
market value are not actually outstanding common shares.
The weighted average number of shares of common stock
and common stock equivalents outstanding at December 31,
1996, 1995 and 1994 was 2,091,419, 2,034,494 and
2,001,580, respectively.
Effective December 20, 1995, the Company recapitalized
by reducing the par value of its common stock from $10
to $1 and declaring a 30 for 1 stock split. The above
transactions increased the number of shares outstanding
at December 31, 1995 to 1,954,500. In accordance with
generally accepted accounting principles, the weighted
average number of shares for 1995 and 1994 were adjusted
to reflect the stock split.
Following is a summary of the computation of weighted
average number of shares of common stock and common
stock equivalents:
<TABLE>
<CAPTION
December 31,
---------------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Weighted average common shares outstanding 1,961,597 1,944,373 1,930,260
Outstanding stock options 204,000 204,660 204,990
Options considered to have been repurchased for the
treasury based on an average book value of
$17.66 and $11.50, respectively (74,178) (114,539) (133,670)
--------- --------- ---------
2,091,419 2,034,494 2,001,580
========= ========= =========
</TABLE>
77<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into
off-balance-sheet financial instruments which are not reflected in the
financial statements. These financial instruments include commitments to
extend credit and standby letters of credit. Such financial instruments
are included in the financial statements when funds are disbursed or the
instruments become payable. These instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in
the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. A summary of the Company's commitments is
as follows:
December 31,
------------
1996 1995
--------------- ---------------
Commitments to extend credit $ 13,890,000 $ 17,276,707
Standby letters of credit 3,241,200 3,401,200
--------------- ---------------
$ 17,131,200 $ 20,677,907
=============== ===============
Commitments to extend credit generally have fixed expiration
dates or other termination clauses and may require payment of a
fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The credit risk
involved in issuing these financial instruments is essentially
the same as that involved in extending loans to customers. The
Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on
management's credit evaluation of the customer. Collateral held
varies but may include real estate and improvements, crops,
marketable securities, accounts receivable, inventory, equipment,
and personal property.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support public
and private borrowing arrangements. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Collateral
held varies as specified above and is required in instances which
the Company deems necessary.
In the normal course of business, the Company is involved in
various legal proceedings. In the opinion of management of the
Company, any liability resulting from such proceedings would not
have a material effect on the Company's financial statements.
78<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
The Company has leased thirteen various properties and telephone
equipment under various noncancelable agreements which expire
between January 1, 1997 to July 10, 2009 and require various
minimum annual rentals. The leases related to properties also
require the payment of property taxes, normal maintenance and
insurance.
The total minimum rental commitment at December 31, 1996 is due
as follows:
During the year ending December 31:
1997 $ 203,621
1998 161,104
1999 150,183
2000 91,775
2001 45,500
Due thereafter 29,000
--------
$ 681,183
========
The total rental expense for the years ended December 31, 1996,
1995 and 1994 is $360,978, $235,783 and $210,656, respectively.
NOTE 10. CONCENTRATIONS OF CREDIT
The banking subsidiaries originate primarily commercial,
residential, and consumer loans to customers in their local
communities and surrounding counties. The ability of the
majority of the Banks' customers to honor their contractual loan
obligations is dependent on their local economy as well as the
economy in the metropolitan Atlanta and Montgomery areas.
Thirty-three percent (33%) of the Company's loan portfolio is
concentrated in loans secured by real estate. A substantial
portion of these loans is in the Banks' primary market areas. In
addition, a substantial portion of the real estate owned is
located in those same markets. Accordingly, the ultimate
collectibility of the Company's loan portfolio and the recovery
of the carrying amount of other real estate owned are susceptible
to changes in market conditions in the Banks' primary market
areas.
79<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. CONCENTRATIONS OF CREDIT (Continued)
The Company's loan portfolio also includes a concentration,
49% of the total portfolio, of commercial, financial, and
agricultural loans. These loans represent loans made
primarily to local businesses in the Banks' market areas.
A portion of these loans are small business loans and
residential loans originated by the loan production office,
a division of Community Bank & Trust - Habersham, which are
outside the Banks' primary market areas. The Company's
lending policies require loans of all types to be
well-collateralized and supported by adequate cash flows.
Other significant concentrations of credit by type of loan
are set forth in Note 3. The Banks, as a matter of policy,
do not generally extend credit to any single borrower or
group of related borrowers in excess of 25% of each
individual Bank's statutory capital, or approximately
$1,750,000, $600,000, $500,000, and $987,500 for Community
Bank & Trust - Habersham, Jackson, Alabama, and Troup,
respectively.
NOTE 11. REGULATORY MATTERS
The Banks are subject to certain restrictions on the amount
of dividends that may be declared without prior regulatory
approval. At December 31, 1996, approximately $2,453,000
of retained earnings were available for dividend
declaration without regulatory approval.
The Company and Banks are subject to various regulatory
capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the financial
statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the
Company and Banks must meet specific capital guidelines
that involve quantitative measures of the assets,
liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The
Company and Banks capital amounts and classification are
also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and the Bank to
maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets and Tier I capital to
average assets. Management believes, as of December 31,
1996, the Company and the Banks meet all capital adequacy
requirements to which it is subject.
80<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. REGULATORY MATTERS (Continued)
As of December 31, 1996 and 1995, notification from the FDIC
categorized the Banks as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as
well capitalized, the Banks must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the following table. There are no conditions or events
since that notification that management believes have changed the
Banks' category.
The Company and Banks' actual capital amounts and ratios are
presented in the following table.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
----------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital
(to Risk Weighted Assets):
Consolidated $ 29,751 13.48% $ 17,656 8.00% $ 22,070 10.00%
Community Bank & Trust - Habersham $ 18,362 14.17% $ 10,368 8.00% $ 12,960 10.00%
Community Bank & Trust - Jackson $ 5,212 11.87% $ 3,512 8.00% $ 4,390 10.00%
Community Bank & Trust - Alabama $ 2,548 13.85% $ 1,471 8.00% $ 1,839 10.00%
Community Bank & Trust - Troup $ 3,902 17.27% $ 1,807 8.00% $ 2,259 10.00%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $ 27,109 12.28% $ 8,828 4.00% $ 13,242 6.00%
Community Bank & Trust - Habersham $ 16,736 12.91% $ 5,184 4.00% $ 7,776 6.00%
Community Bank & Trust - Jackson $ 4,660 10.62% $ 1,756 4.00% $ 2,634 6.00%
Community Bank & Trust - Alabama $ 2,318 12.60% $ 735 4.00% $ 1,103 6.00%
Community Bank & Trust - Troup $ 3,618 16.02% $ 903 4.00% $ 1,355 6.00%
Tier I Capital (to Average Assets):
Consolidated $ 27,109 8.51% $ 12,757 4.00% $ 15,947 5.00%
Community Bank & Trust - Habersham $ 16,736 8.91% $ 7,516 4.00% $ 9,395 5.00%
Community Bank & Trust - Jackson $ 4,660 7.47% $ 2,495 4.00% $ 3,118 5.00%
Community Bank & Trust - Alabama $ 2,318 7.75% $ 1,196 4.00% $ 1,496 5.00%
Community Bank & Trust - Troup $ 3,618 11.90% $ 1,216 4.00% $ 1,520 5.00%
</TABLE>
81<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. BUSINESS COMBINATION
On November 18, 1994, the Company effected a business combination with
The Bank of Troup County by exchanging 7,502 shares of its common stock
for all of the common stock of The Bank of Troup County. The combination
was accounted for as a pooling of interests and, accordingly, all prior
financial statements were restated to include The Bank of Troup County.
The results of operations of the separate companies for periods prior to
the combination are summarized as follows:
<TABLE>
<CAPTION>
Net Income
----------
<S> <C>
For the period from January 1, 1994 through November 18, 1994:
Community Bankshares, Inc. $1,837,094
The Bank of Troup County 114,593
----------
$1,951,687
==========
</TABLE>
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the
Company in estimating its fair value disclosures for
financial instruments. In cases where quoted market prices
are not available, fair values are based on estimates using
discounted cash flow methods. Those methods are
significantly affected by the assumptions used, including
the discount rates and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement
of the instrument. The use of different methodologies may
have a material effect on the estimated fair value amounts.
Also, the fair value estimates presented herein are based
on pertinent information available to management as of
December 31, 1996 and 1995. Such amounts have not been
revalued for purposes of these financial statements since
those dates and, therefore, current estimates of fair value
may differ significantly from the amounts presented herein.
The following methods and assumptions were used by the
Company in estimating fair values of financial instruments
as disclosed herein:
CASH, DUE FROM BANKS, AND FEDERAL FUNDS SOLD:
The carrying amounts of cash, due from banks, and Federal
funds sold approximate their fair value.
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES:
Fair values for securities are based on quoted market
prices. The carrying values of equity securities with no
readily determinable fair value approximate fair values.
82<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
LOANS:
For variable-rate loans that reprice frequently and have
no significant change in credit risk, fair values are
based on carrying values. For other loans, the fair
values are estimated using discounted cash flow methods,
using interest rates currently being offered for loans
with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated
using discounted cash flow methods or underlying
collateral values.
DEPOSITS:
The carrying amounts of demand deposits, savings
deposits, and variable-rate certificates of deposit
approximate their fair values. Fair values for
fixed-rate certificates of deposit are estimated using
discounted cash flow methods, using interest rates
currently being offered on certificates.
OTHER BORROWINGS:
The fair values of the Company's other borrowings are
estimated using discounted cash flow methods based on
the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
ACCRUED INTEREST:
The carrying amounts of accrued interest approximate
their fair values.
REDEEMABLE COMMON STOCK:
The fair values of the Company's redeemable common stock
approximates the recorded amounts.
OFF-BALANCE SHEET INSTRUMENTS:
Fair values of the Company's off-balance sheet financial
instruments are based on fees charged to enter into
similar agreements. However, commitments to extend
credit and standby letters of credit do not represent a
significant value to the Company until such commitments
are funded. The Company has determined that these
instruments do not have a distinguishable fair value and
no fair value has been assigned.
83<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Company's financial instruments
were as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------------------ ------------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ----------- --------------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks, interest-bearing
deposits in banks, and Federal funds sold $ 28,032,797 $ 28,032,797 $ 25,840,886 $ 25,840,886
Securities available-for-sale 47,417,952 47,417,952 42,686,184 42,686,184
Securities held-to-maturity 18,653,842 18,826,126 12,280,209 12,483,394
Loans held for sale 2,484,117 2,484,117 450,000 450,000
Loans, net 199,709,582 202,664,883 175,780,842 181,814,321
Accrued interest receivable 4,098,221 4,098,221 3,522,095 3,522,095
Financial liabilities:
Deposits 278,709,369 278,391,043 242,441,652 242,915,652
Other borrowings 616,399 616,399 786,939 786,939
Accrued interest payable 2,855,753 2,855,753 2,460,015 2,460,015
Redeemable common stock 6,177,400 6,177,400 - -
</TABLE>
NOTE 14. SEGMENT INFORMATION
The Company's operations have been classified into two
business segments, banking and bank consulting services. The
banking segment involves traditional banking services offered
through its four wholly-owned bank subsidiaries. Financial
Supermarkets, Inc. provides various consulting and licensing
services to financial institutions in connection with the
establishment of bank branches in supermarkets. In connection
with the establishment of a Supermarket Bank, Financial
Supermarkets provides consulting services ranging from
providing alternative construction designs to coordinating
employee training. Financial Solutions, a division of
Financial Supermarkets, Inc. was formed to provide various
consulting services to the financial institution industry
including compliance, operational, advertising, marketing and
travel related services.
Total revenue by industry segment includes revenues from
unaffiliated customers and affiliates. Revenues from
affiliates are eliminated in consolidation. Interest income,
interest expenses, data processing fees, management fees and
other various revenues and expenses between affiliates are
recorded on the accrual basis of accounting consistent with
similar transactions with customers outside the consolidated
group. In 1996, Financial Supermarkets, Inc. sold
Supermarket Banks to affiliates recognizing gross profits of
$128,113 which were eliminated in consolidation. The current
depreciation expense related to the gross profit for each
purchase was eliminated in consolidation and the remaining
amount will be eliminated over their estimated useful lives.
84<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. SEGMENT INFORMATION (Continued)
Selected segment information by industry segment for the years
ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
INDUSTRY SEGMENT
---------------------------------------------------------------------------------------
Bank Financial
For the Year Ended Holding Banking Supermarkets,
December 31, 1996 Company Subsidiaries Inc. Eliminations Consolidated
------------------- ------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated customers $ 39,363 $ 27,231,893 $ 5,585,510 $ - $ 32,856,766
Revenues from affiliates 5,728,347 1,362,730 347,752 (7,438,829) -
----------- ---------- ----------- ----------- -----------
Total revenue $ 5,767,710 $ 28,594,623 $ 5,933,262 $ (7,438,829) $ 32,856,766
=========== ========== =========== =========== ===========
Income from continuing
operations before
income taxes $ 4,013,352 $ 5,732,308 $ 2,186,900 $ (6,019,136) $ 5,913,424
=========== ========== =========== =========== ===========
Identifiabl eassets at
December 31, 1996 $ 28,541,867 $ 315,922,943 $ 9,299,430 $(38,185,326) $ 315,578,914
=========== =========== =========== =========== ===========
Depreciation and amortization
expense $ 61,172 $ 762,328 $ 112,218 $ 935,718
=========== =========== =========== ===========
Premises and equipment
acquisitions $ 61,207 $ 3,266,025 $ 168,461 $ 3,495,693
=========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
INDUSTRY SEGMENT
---------------------------------------------------------------------------------------
Bank Financial
For the Year Ended Holding Banking Supermarkets,
December 31, 1995 Company Subsidiaries Inc. Eliminations Consolidated
------------------- ------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated customers $ 5,923 $ 24,297,134 $ 3,780,324 $ - $ 28,083,381
Revenues from affiliates 4,534,541 734,774 151,408 (5,420,723) -
----------- ---------- ----------- ----------- ----------
Total revenue $ 4,540,464 $ 25,031,908 $ 3,931,732 $ (5,420,723) $ 28,083,381
=========== ========== =========== =========== ==========
Income from continuing
operations before
income taxes $ 3,005,070 $ 4,538,218 $ 1,071,084 $ (4,224,691) $ 4,389,681
=========== ========== =========== =========== ==========
Identifiable assets at
December 31, 1995 $ 23,438,211 $ 271,849,097 $ 3,977,696 $(29,257,758) $270,007,246
=========== =========== =========== =========== ===========
Depreciation and amortization
expense $ 50,662 $ 658,894 $ 90,729 $ 800,285
=========== =========== =========== =========
Premises and equipment
acquisitions $ 264,036 $ 650,866 $ 99,677 $ 1,014,579
=========== =========== =========== =========
</TABLE>
85<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
INDUSTRY SEGMENT
---------------------------------------------------------------------------------------
Bank Financial
For the Year Ended Holding Banking Supermarkets,
December 31, 1994 Company Subsidiaries Inc. Eliminations Consolidated
------------------- ------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated customers $ 30,325 $ 20,206,023 $ 3,007,397 $ - $ 23,243,745
Revenues from affiliates 3,425,044 504,594 118,509 4,048,147 -
---------- ------------- ----------- ----------- ----------
Total revenue $ 3,455,369 $ 20,710,617 $ 3,125,906 $ 4,048,147 $ 23,243,745
========== ============= =========== =========== ==========
Income from continuing
operations before
income taxes $ 2,249,189 $ 3,362,772 $ 759,458 $ (3,036,566) $ 3,334,853
========== ============= =========== =========== ==========
Identifiable assets at
December 31, 1994 $ 20,075,741 $ 251,015,762 $ 3,686,029 $ (24,309,613) $250,467,919
========== ============= =========== =========== ===========
Depreciation and amortization
expense $ 36,789 $ 585,992 $ 210,033 $ 832,814
========== ============= =========== ==========
Premises and equipment
acquisitions $ 16,874 $ 1,228,246 $ 249,764 $ 1,494,884
========== ============= =========== ==========
</TABLE>
86<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. PARENT COMPANY ONLY FINANCIAL INFORMATION
The following information presents the condensed balance sheets as of
December 31, 1996 and 1995 and the statements of income and cash flows as
of and for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash $ 442,471 $ 230,197
Investment in subsidiaries 27,341,295 22,577,666
Equipment 123,395 282,429
Other assets 634,706 347,919
---------- ----------
Total assets $ 28,541,867 $ 23,438,211
========== ==========
LIABILITIES
Other borrowings $ 616,399 $ 786,939
Other liabilities 543,432 182,247
---------- ---------
Total liabilities 1,159,831 969,186
---------- ---------
Redeemable common stock 6,177,400 -
---------- ----------
Shareholders' equity 21,204,636 22,469,025
---------- ----------
Total liabilities and shareholders' equity $ 28,541,867 $ 23,438,211
========== ==========
</TABLE>
87<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. PARENT COMPANY ONLY FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $ 800,000 $ 1,000,000 $ 620,000
Interest 4,641 5,779 3,872
Other income 1,208,703 1,031,682 919,524
--------- ---------- ----------
2,013,344 2,037,461 1,543,396
--------- ---------- ----------
EXPENSE
Interest 63,365 61,218 55,449
Salaries and employee benefits 1,109,826 933,871 698,425
Equipment expense 213,985 278,547 224,118
Other expense 367,183 261,758 228,188
--------- ---------- ----------
1,754,359 1,535,394 1,206,180
--------- ---------- ----------
Income before income tax benefits and
equity in undistributed earnings of subsidiaries 258,985 502,067 337,216
Income tax benefits (152,680) (120,000) (54,759)
--------- ---------- ----------
Income before equity in undistributed income
of subsidiaries 411,665 622,067 391,975
Equity in undistributed income of subsidiaries 3,754,367 2,503,003 1,911,973
--------- ---------- ----------
Net income $ 4,166,032 $ 3,125,070 $ 2,303,948
========= ========== ==========
</TABLE>
88<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. PARENT COMPANY ONLY FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 ,1995 AND 1994
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,166,032 $ 3,125,070 $ 2,303,948
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 61,172 50,662 36,789
Undistributed earnings of subsidiaries (3,754,367) (2,503,003) (1,911,973)
Other operating activities 60,433 (30,183) 93,227
----------- ---------- -----------
Net cash provided by operating activities 533,270 642,546 521,991
----------- ---------- -----------
INVESTING ACTIVITIES
Purchases of premises and equipment (61,207) (264,036) -
Investment in subsidiary (1,000,000) (500,000) (13,566)
Disposal of premises and equipment 167,979 - -
----------- ---------- -----------
Net cash used in investing activities (893,228) (764,036) (13,566)
----------- ---------- -----------
FINANCING ACTIVITIES
Advances on other borrowings 1,616,399 428,415 -
Repayment of other borrowings (1,786,939) (336,280) (288,554)
Dividends paid (261,023) (246,035) (214,593)
Proceeds from the issuance of common stock 1,003,795 253,292 -
Payments for fractional shares in business combination - - (18,889)
----------- ---------- -----------
Net cash provided by (used in) financing activities 572,232 99,392 (522,036)
----------- ---------- -----------
Net increase (decrease) in cash 212,274 (22,098) (13,611)
Cash at beginning of year 230,197 252,295 265,906
----------- ---------- -----------
Cash at end of year $ 442,471 $ 230,197 $ 252,295
=========== ========== ============
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 63,365 $ 61,218 $ 55,449
NONCASH TRANSACTIONS
Unrealized (gains) losses on securities
available-for-sale $ (9,262) $ (336,478) $ 419,906
</TABLE>
89<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
During the Company's two most recent fiscal years, the
Company did not change accountants and had no disagreement with
its accountants on any matters of accounting principles or
practices or financial statement disclosure.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
The following is a brief description, as of December 31,
1996, of the business experience of each of the directors and
executive officers of the Company who, except as otherwise
indicated, has been or was engaged in his or her present or last
principal employment, in the same or a similar position, for more
than five years:
Steven C. Adams Mr. Adams has been an attorney with the firm
(47) of Adams, Ellard & Frankum, P.C. since 1973
and President of Chatham Transport Company,
a trucking company, since 1994. He has been
a director of the Company, Community-
Habersham and Financial Supermarkets since
1990.
Edwin B. Burr (63) Mr. Burr has served as a director of the
Company since April of 1995 and Financial
Supermarkets since 1992. Mr. Burr has been
President of Financial Solutions, a bank
consulting firm, since 1988.
Elton S. Collins Mr. Collins has been the President and Chief
(54) Executive Officer of Community-Jackson since
1982.
Annette R. Fricks Mrs. Fricks has been an Executive Vice
(52) President and Corporate Secretary of the
Company and Community-Habersham since 1992
and 1967, respectively, and has also served
as Corporate Secretary of Financial
Supermarkets since 1984.
Charles M. Miller Mr. Miller has served as an Executive Vice
(55) President of the Company, the President and
Chief Operating Officer and director of
Community-Habersham and the Executive Vice
President and director of Financial
Supermarkets since 1990. Mr. Miller has
served as a director of Community-Troup
since November 1994. Mr. Miller previously
was President and a director of the
LaGrange, Georgia branch of Citizens and
Southern National Bank (now known as
NationsBank, N.A. (South)) from 1980-
1990.
-90-<PAGE>
Harry H. Purvis Mr. Purvis is a retired executive of Johnson
(90) & Johnson, Inc., a textile manufacturer, and
has been a director of the Company since
1981 and Community-Habersham since 1956.
Mr. Purvis has also served as a director of
Financial Supermarkets since 1984.
Harry L. Stephens Mr. Stephens has been an Executive Vice
(50) President and the Chief Financial Officer of
the Company and Community-Habersham since
1992 and has served as Treasurer of
Financial Supermarkets since 1986. He was
Senior Vice President of Community-Habersham
from 1986 to 1992.
H. Calvin Stovall, Mr. Stovall, who is retired, was the
Jr. (81) President and Treasurer of Stovall Tractor
Company, a retail farm equipment dealer,
from 1948 until November of 1995. He has
served as the Chairman of the Company's
Board of Directors since 1981. Mr. Stovall
has also served as a director of Community-
Habersham, Community-Jackson, Financial
Supermarkets and Community-Troup since 1963,
1982, 1984 and November 1994, respectively.
Dean C. Swanson Mr. Swanson is President of the Standard
(64) Group, a telecommunications company, and is
a director of Independent Telecommunications
Network. Mr. Swanson has served as a
director of the Company, Community-Habersham
and Financial Supermarkets since 1981, 1972
and 1984, respectively.
George D. Telford Mr. Telford is a retired bank executive and
(76) has served as a director of the Company and
Community-Habersham since 1981 and 1965,
respectively, as well as of Financial
Supermarkets since 1993.
J. Alton Wingate Mr. Wingate has served as a director and the
(57) President and Chief Executive Officer of the
Company, Community-Habersham and Financial
Supermarkets since 1981, 1977 and 1984,
respectively. Mr. Wingate has also been the
Chairman of the Board of Directors and a
director of Community-Jackson, Community-
Alabama and Community-Troup since 1982,
1990 and November 1994, respectively. Mr.
Wingate is a director of Ingles Markets,
Inc.
Directors are elected at each annual meeting of shareholders
and hold office until the next annual meeting and until their
successors are elected and qualified. The executive officers are
elected by the Board of Directors and serve at the will of the
Board. There are no family relationships between executive
officers and directors of the Company.
The Company is not subject to Section 16(a) of the
Securities Exchange Age of 1934.
-91-<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the annual and long-term
compensation paid by the Company's subsidiaries to the Chief
Executive Officer and each executive officer of the Company whose
salary and bonus exceeded $100,000 during the fiscal years ended
December 31, 1996, 1995, and 1994 (the "Named Executive
Officers").
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
Name and Principal Salary Securities Underlying All Other
Position Year ($)<F1> Bonus ($)<F2> Options/SARS (#) Compensation ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
J. Alton Wingate 1996 $243,200 $367,271(7) -- $ 20,784<F3>
President and Chief 1995 237,600 256,364(7) -- 18,194
Executive Officer 1994 233,650 201,927(7) -- 20,335
Charles M. Miller 1996 141,000 20,000 -- 19,555<F4>
Executive Vice 1995 141,000 12,500 -- 14,929
President 1994 141,000 7,500 3,000(8) 14,099
Harry L. Stephens 1996 88,000 43,000 -- 13,846<F5>
Executive Vice 1995 83,000 27,500 -- 10,904
President 1994 78,000 27,000 6,000(8) 9,270
and Chief Financial
Officer
Annette R. Fricks 1996 78,000 43,000 -- 12,911
Executive Vice 1995 73,000 30,000 -- 10,084
President & 1994 68,000 27,000 15,000 7,461
Corporate
Secretary
_________________________________
<FN>
<F1> Includes directors fees.
<F2> Bonuses are included in this report in the year paid.
<F3> Includes premiums of $4,059.88 paid for Mr. Wingate's life insurance
policies and estimated employee stock ownership plan ("ESOP")
contributions of $16,724.87 Final ESOP contributions have not yet been
determined for the 1996 fiscal year.
<F4> Includes premiums of $3,089.06 paid for Mr. Miller's life insurance
policies and estimated ESOP contributions of $16,466.11.
Final ESOP contributions have not yet been determined for
the 1996 fiscal year.
<F5> Includes premiums of $912.00 paid for Mr. Stephens' life insurance
policies and estimated ESOP contributions of $12,934.23.
Final ESOP contributions have not yet been determined for
the 1996 fiscal year.
<F6> Includes premiums of $660.00 paid for Mrs. Fricks' life insurance
policies and estimated ESOP contributions of $12,251.89.
Final ESOP contributions have not yet been determined for
the 1996 fiscal year.
<F7> Mr. Wingate's bonus is contractually based on the performance of
Financial Supermarkets, with caps and guaranteed rates of return
before the bonus can be calculated and paid.
<F8> Restated to reflect the 1995 stock split.
</FN>
</TABLE>
-92-<PAGE>
<TABLE>
<CAPTION>
Fiscal Year End Option/SAR Values
---------------------------------
Value of Unexercised
Number of Unexercised in the Money
Options at Fiscal Year End Options at
Name Exercisable/Unexercisable (#) Fiscal Year End ($)
---- ----------------------------- --------------------
<S> <C> <C>
J. Alton Wingate 150,000/0 $2,218,500
Charles M. Miller 3,000/0 $30,450
Harry L. Stephens 6,000/0 $60,900
Annette R. Fricks 15,000/0 $152,250
</TABLE>
DIRECTOR'S COMPENSATION. The Chairman of the Board of the
Company currently receives a fee of $2,250 per month for service
as the Chairman of the Board and other directors of the Board of
the Company receive $2,000 a year for service on the Company's
Board of Directors. The directors of Community-Habersham,
Community-Jackson, Community-Alabama, Community-Troup and
Financial Supermarkets currently receive fees of $10,000, $3,600,
$3,600, $3,000, and $4,000 per year, respectively.
AGREEMENTS WITH OFFICERS. In 1990, Community-Habersham
entered into an employment agreement with Mr. Miller pursuant to
which the parties agreed that Mr. Miller would serve as the
President, Chief Operating Officer and General Manager of
Community-Habersham. The initial term of the agreement was one
year, subject to successive automatic renewals of one year each
unless (i) either party gives written notice at least 60 days
prior to the annual renewal date of the desire to terminate, or
(ii) Community-Habersham terminates for cause (as defined in the
agreement).
The agreement provides for Mr. Miller to receive an annual
salary of $125,000 plus certain benefits and perquisites. The
Agreement also entitles Mr. Miller to certain severance payments
following a change of control (as defined in the agreement) of
Community-Habersham. Further, Mr. Miller agrees that he will not
compete with or solicit certain customers from Community-
Habersham within Habersham or Jackson County (or any contiguous
county) for a period of three years after termination of Mr.
Miller's employment with Community-Habersham.
In 1987, Community-Habersham and Mr. Wingate entered into a
change-in-control agreement for a three year term, renewable for
an additional one year period annually thereafter in the sole
discretion of the compensation committee of the Board of
Directors of Community-Habersham. In the event a change in
control (as defined in the agreement) of Community-Habersham
occurs and Mr. Wingate's employment is involuntarily terminated
other than for cause, disability or retirement or is voluntarily
terminated as a result of a material reduction of duties,
compensation or benefits or a forced relocation, the agreement
provides for the payment of certain severance benefits to Mr.
Wingate. Such benefits include the continuation of salary
-93-
<PAGE>
payments to Mr. Wingate for a period of 36 months from the date
of termination, the payment of certain bonuses for the year in
which his employment is terminated and the following two calendar
years, the continuation of health and life insurance coverage and
the continued participation by Mr. Wingate in all employee
retirement plans.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth the percent and number of
shares of the Common Stock beneficially owned as of January 1,
1997 by (i) each of the Named Executive Officers, (ii) each of
the directors of the Company, (iii) each shareholder who owns
greater than five percent (5%) of the Company's securities and
(iv) all executive officers and directors of the Company as a
group, without naming such individuals. There were 2,004,830
shares outstanding on such date.
<TABLE>
<CAPTION>
Name of Amount of Shares Percent
Beneficial Owner Beneficially Owned of Class
---------------- ------------------ --------
<S> <C> <C>
Joye H. Adams 141,720<F1> 7.07%
Steven C. Adams 423,710<F2><F3><F4><F5><F6> 21.13%
Edwin B. Burr 1,080<F7> *
Elton S. Collins 334,130<F3><F8><F11> 16.67%
Community Bankshares, Inc. 308,870<F9> 15.41%
Employee Stock Ownership Plan and Trust
Annette R. Fricks 21,550<F24><F25> 1.07%
Emmett D. Hart 151,440<F10> 7.55%
Charles M. Miller 9,660<F23> *
Harry H. Purvis 44,900<F13> 2.24%
Harry L. Stephens 7,410<F12> *
H. Calvin Stovall, Jr. 166,760<F14><F15> 8.32%
Dean C. Swanson 30,000 1.50%
George D. Telford 75,840<F16> 3.78%
J. Alton Wingate 34.95%
700,690<F2><F3><F4><F17><F18><F19><F20><F21>
All executive officers and directors 1,103,490<F22> 55.04%
as a group (11 persons).
________________________
* less than one percent
<FN>
<F1> Mrs. Adams' address is 664 Chenocetah Drive, Cornelia, Georgia
30531.
<F2> Includes an aggregate of 48,000 shares held by the Taft Chatham
Trusts I and II with respect to which Messrs. Wingate and Adams are
co-trustees and share voting and investment power.
<F3> Includes 308,870 shares held by the Community Bankshares, Inc.
ESOP with respect to which Messrs. Wingate,
Adams and Collins are co-trustees and share voting and investment
power.
<F4> Includes 19,500 shares held by Chatham Transport Company with
respect to which Messrs. Wingate and Adams share voting power.
<F5> Includes 44,340 shares held by Mr. Adams as trustee for the F. Jack
Adams Testamentary Trust, as to which Mr. Adams has voting and
investment control.
<F6> Mr. Adam's address is 20 North Main Street, Cornelia, Georgia 30531.
<F7> Does not include 750 shares of Common Stock owned by Mr. Burr's
wife, as to which he disclaims beneficial ownership.
-94-<PAGE>
<F8> Mr. Collins' address is 1851 North Elm Street, Commerce, Georgia
30329.
<F9> The address of the ESOP is 400 North Main Street,
Cornelia, Georgia 30531.
<F10> Mr. Hart's address is 1729 Davis (By-Pass) Road, LaGrange, Georgia
30241.
<F11> Includes presently-exercisable options to acquire 3,000 shares of
Common Stock.
<F12> Includes presently-exercisable options to acquire 6,000 shares of
Common Stock.
<F13> Does not include 1,050 shares of Common Stock owned by Mr. Purvis'
wife, as to which he disclaims beneficial ownership.
<F14> Mr. Stovall's address is 410 Grand View Circle, Cornelia, Georgia
30531.
<F15> Does not include 250 shares of Common Stock owned by Mr. Stovall's
wife, as to which he disclaims beneficial ownership.
<F16> Does not include 9,900 shares of Common Stock owned by Mr. Telford's
wife, as to which he disclaims beneficial ownership.
<F17> Includes 16,500 shares held by the Estate of H. Milton Stewart, Sr.,
of which Mr. Wingate is a co-trustee and has voting and investment
control.
<F18> Includes 5,010 shares held by Mr. Wingate as Attorney-in-Fact for
Virginia Hodgkinson as to which Mr. Wingate has voting and investment
control.
<F19> Includes presently-exercisable options to acquire 150,000 shares of
Common Stock.
<F20> Mr. Wingate's address is 400 North Main Street, Cornelia, Georgia
30531.
<F21> Does not include 300 shares of Common Stock owned by Mr.
Wingate's wife, as to which he disclaims beneficial ownership.
<F22> Includes presently-exercisable options to acquire 174,000 shares of
Common Stock.
<F23> Does not include 420 shares of Common Stock owned by Mr. Miller's
wife, as to which he disclaims beneficial ownership.
<F24> Does not include 2,640 shares of Common Stock owned by Mrs. Fricks'
husband, as to which she disclaims beneficial ownership.
<F25> Includes presently-exercisable options to acquire 15,000 shares of
Common Stock.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Each of the Community Banking Subsidiaries has had, and
expects to have in the future, banking transactions in the
ordinary course of business with directors and officers of the
particular bank and the Company and their associates, including
corporations in which such officers or directors are
shareholders, directors and/or officers, on the same terms
(including interest rates and collateral) as those prevailing at
the time for comparable transactions with other persons. Such
transactions have not involved more than the normal risk of
collectibility or presented other unfavorable features.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Financial Statements.
The following financial statements and notes thereto of
the Registrant are included in this Report:
-95-<PAGE>
Independent Auditor's Report on the Financial Statement
Consolidated Balance Sheets - December 31, 1996
Consolidated Statement of Income for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholder's Equity for the
Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(b) Exhibits.
The following exhibits are required to be filed with
this Report by Item 601 of Regulation S-K:
Exhibit
2 Agreement and Plan of Reorganization by and
between the Registrant and The Bank of Troup
County, dated May 26, 1993 (included as Exhibit 2
to the Registrant's Form S-4 Registration
Statement, Commission File No. 33-81890,
previously filed with the Commission and
incorporated herein by reference).
3.1 Articles of Incorporation of the Registrant, as
amended (included as Exhibit 3.1 to the
Registrant's Form 10-K for the year ended December
31, 1995, previously filed with the Commission and
incorporated herein by reference).
3.2 By-Laws of the Registrant (included as Exhibit 3.3
to the Registrant's Form S-4 Registration
Statement, Commission File No. 33-81890,
previously filed with the Commission and
incorporated herein by reference).
4.1 See exhibits 3.1 and 3.2 for provisions of
Articles of Incorporation and Bylaws as amended,
which define the rights of the holders of Common
Stock of the Registrant (included as Exhibit 4.1
to the Registrant's Form S-4 Registration
Statement, Commission File No. 33-81890,
previously filed with the Commission and
incorporated herein by reference).
10.1 Incentive Stock Option Plan, as adopted August 17,
1987 (included as Exhibit 10.1 to the Registrant's
Form S-4 Registration Statement, Commission File
No. 33-81890, previously filed with the Commission
and incorporated herein by reference).
10.2 Employment Agreement between Charles M. Miller and
Community - Habersham, dated March 31, 1990
(included as Exhibit 10.2 to the Registrant's Form
S-4 Registration Statement, Commission File No.
33-81890, previously filed with the Commission and
incorporated herein by reference).
-96-<PAGE>
10.3 Agreement Regarding Change in Control between J.
Alton Wingate and Community - Habersham, dated
August 17, 1987 (included as Exhibit 10.3 to the
Registrant's Form S-4 Registration Statement,
Commission File No. 33-81890, previously filed
with the Commission and incorporated herein by
reference).
10.4 Profit Sharing Plan, dated September 30, 1993
(included as Exhibit 10.4 to the Registrant's Form
S-4 Registration Statement, Commission File No.
33-81890, previously filed with the Commission and
incorporated herein by reference).
10.5 Amended and Restated Revolving Credit and Term
Loan Agreement Between The Citizens and Southern
National Bank and the Registrant (included as
Exhibit 10.5 to the Registrant's Form S-4
Registration Statement, Commission File No. 33-
81890, previously filed with the Commission and
incorporated herein by reference).
10.6 Revolving Credit/Term Loan Agreement between the
Registrant and SunTrust Bank dated January 10,
1996 (included as Exhibit 10.6 to the Registrant's
Form 10-KSB for the year ended December 31, 1995,
previously filed with the Commission and
incorporated herein by reference).
10.7 Master Consulting Agreement between Financial
Supermarkets, Inc. and NationsBanc Services, Inc.
(included as Exhibit 10.1 to the Registrant's Form
10-QSB for the period ended March 31, 1996 and
incorporated herein by reference).
21 List of Subsidiaries of Registrant (included as
Exhibit 21 to the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1994,
previously filed with the Commission and
incorporated herein by this reference).
27 Financial Data Schedule
(c) No reports on Form 8-K were filed during the last
quarter of 1996.
-97-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this Report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cornelia,
State of Georgia, on the 25th of March, 1997.
COMMUNITY BANKSHARES, INC.
By: /s/ J. Alton Wingate
J. Alton Wingate
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose
signature appears below constitutes and appoints J. Alton Wingate
or Harry L. Stephens and either of them (with full power in each
to act alone), as true and lawful attorneys-in-fact, with full
power of substitution, for him and in his name, place and stead,
in any and all capacities, to sign any amendments to this Report
on Form 10-K and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or their substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed by the
following persons in the capacities indicated on the 25th day of
March, 1997.
Signature Title
/s/ J. Alton Wingate President and Chief Executive
J. Alton Wingate Officer (Principal Executive
Officer) and Director
/s/ Steven C. Adams Director
Steven C. Adams
/s/ Edwin B. Burr Director
Edwin B. Burr
<PAGE>
/s/ Harry H. Purvis Director
Harry H. Purvis
/s/ H. Calvin Stovall, Jr. Director
H. Calvin Stovall, Jr.
/s/ Dean C. Swanson Director
Dean C. Swanson
/s/ George D. Telford Director
George D. Telford
/s/ Harry L. Stephens Executive Vice President and
Harry L. Stephens Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
FILED PURSUANT TO SECTION 15(D) OF THE ACT
BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
The Registrant has furnished annual reports and proxy
material to security holders, and copies of such documents have
been furnished to the Commission for its information.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000927478
<NAME> COMMUNITY BANKSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,480
<INT-BEARING-DEPOSITS> 208
<FED-FUNDS-SOLD> 8,345
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,418
<INVESTMENTS-CARRYING> 18,654
<INVESTMENTS-MARKET> 18,826
<LOANS> 205,786
<ALLOWANCE> 3,592
<TOTAL-ASSETS> 315,579
<DEPOSITS> 278,709
<SHORT-TERM> 616
<LIABILITIES-OTHER> 8,993
<LONG-TERM> 0
6,177
0
<COMMON> 2,005
<OTHER-SE> 19,078
<TOTAL-LIABILITIES-AND-EQUITY> 315,579
<INTEREST-LOAN> 20,440
<INTEREST-INVEST> 3,391
<INTEREST-OTHER> 634
<INTEREST-TOTAL> 24,465
<INTEREST-DEPOSIT> 11,171
<INTEREST-EXPENSE> 11,236
<INTEREST-INCOME-NET> 13,229
<LOAN-LOSSES> 757
<SECURITIES-GAINS> (14)
<EXPENSE-OTHER> 14,950
<INCOME-PRETAX> 5,913
<INCOME-PRE-EXTRAORDINARY> 5,913
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,044
<EPS-PRIMARY> 1.93
<EPS-DILUTED> 1.93
<YIELD-ACTUAL> 5.02
<LOANS-NON> 1,119
<LOANS-PAST> 445
<LOANS-TROUBLED> 620
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,060
<CHARGE-OFFS> 329
<RECOVERIES> 104
<ALLOWANCE-CLOSE> 3,592
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,592
</TABLE>
