UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
/X/ Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
/ / 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 (I. R. S. Employer
of incorporation or organization) Identification No.)
448 North Main Street, Cornelia, Georgia 30531
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 778-2265
Securities registered pursuant to Section 12(b) of the Act: 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 _____.
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.
Not applicable. Registrant is not required to 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 20, 1998:
$32,880,195 (based upon approximate market value of $27/share, the
latest sales price known to the Registrant for the Common Stock, for
which there is no established trading market.
As of March 20, 1998, 2,169,830 shares of Common Stock, par value
$1.00 per share, were issued and outstanding.<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
The following is a discussion and analysis of the Company's financial
condition at December 31, 1997 and the results of operations for the three
year period ended December 31, 1997. The purpose of the 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.
BALANCE SHEET REVIEW. The Company experienced significant growth
during 1997. For the year ended December 31, 1997, consolidated assets grew
$61.5 million, or 19.49%, up from 1996 growth of $45.6 million or 16.88%.
During 1997, the Company's average assets were $342.1 million, compared
with $289.3 million during 1996. This represents an 18.24% increase in
average assets during 1997 compared with a 12.75% increase during 1996.
Total earning assets, which include investment securities, loans,
Federal Funds sold, and interest-bearing deposits in banks increased $53.5
million or 19.09% during 1997. During 1996, earning assets increased $34.0
million, or 13.78%. Average earning assets for 1997 were $309.5 million,
an increase of 17.58% over average earning assets in 1996 which were $263.3
million or an increase of 12.18% over 1995.
Total investments increased by $15.9 million or 24.11% over 1996.
Average investments were $76.2 million for 1997, a 27.30% increase over
average investments for 1996. This increase occurred mainly in the held to
maturity portfolio and it was represented by increased investments in bank
qualified municipals in an attempt to increase the yield and lower tax
liabilities of the Company.
Total loans grew by $39.4 million during 1997 for an increase of 19.36%
over 1996. During 1997 average loans were $223.2 million or an increase of
16.73% over 1996 compared to an increase during 1996 of 12.11% to 191.2
million. The increase in loans is primarily the result of loan growth in
the new markets into which the Company entered in Hall and White Counties,
along with the continued growth of the Loan Production Office (LPO).
As a result of increased investing and lending activities Federal
Funds sold decreased by $2.4 million or 28.5% from year end 1996 to 1997.
Average Federal Funds for 1997 were $9.7 million or an 18.2% decrease.
During 1996, average Federal Funds sold had shown an increase of $2.7
million or 29.7% over 1995.
The growth in assets for the year ended December 31, 1997 was funded
mainly by growth in deposits. Consolidated deposits grew $56.8 million or
20.4% as compared to $36.3 million or 14.96% in 1996. This growth was
aided by the purchase and assumption of a branch of SunTrust Bank in
Clarkesville, Georgia, which added approximately $12.4 in deposits to the
Company's consolidated deposits. Deposit growth was fairly evenly spread
over every deposit product offered by the Company as stable interest rates
did little to influence deposit movement during 1997.
As shown in Table 2 of the Selected Statistical Data, the average
yields on interest earning assets and interest bearing liabilities showed
very little change from 1996 to 1997 due to a fairly stable interest rate
environment. The net interest spread was down 4 basis points from
1996 to 1997, and the net interest margin was down 1 basis point from
1996 to 1997.
At December 31, 1997, the Company reported net unrealized gains of
approximately $217,000 in the securities available for sale portfolio as
compared to net unrealized losses of approximately $124,000 at December 31,
1996. 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.
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 1997 the Company sold $10.7 million of securities
classified as available for sale, realizing net losses of $3,992 on a
consolidated basis. The held to maturity securities portfolio included net
unrealized gains of approximately $839,000 at December 31, 1997. 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 35.5% 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 regularly
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 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, 1997 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.
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, the increases in other borrowed funds and the
issuance of common stock. Financing activities use cash for the payment of
cash dividends and the repayment of other borrowed funds.
For the year ended December 31, 1997, $28.7 million in cash flows
from operating activities were provided by interest and fees received
from loans, securities and federal funds. Approximately $12.4 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 $12.9 million of interest paid on deposits and
borrowings, $10.5 million paid for salaries and other personnel benefits
and $11.8 million paid for occupancy and equipment expenses, income taxes
and other operating payments. Cash flows of $21.1 million were provided
by the proceeds of sales and maturities of investment securities. Cash
flows provided by financing activities consisted of $56.8 million in net
increases in deposits and were primarily used to fund the $40.2 million in
et increase in loans. The net increase in cash and due from banks for
the year ended December 31, 1997 was $4.5 million.
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 $8.3 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
provided by financing activities consisted $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 for the
year ended December 31, 1996 was $5.8 million.
At December 31, 1997, the Company's and Community Banking
Subsidiaries' capital ratios were considered adequate based on minimum
capital requirements of the FDIC and applicable state regulatory
agencies. During 1997, the Company increased capital, by retaining net
earnings of $5.3 million ;and issuing $.9 million of common stock,
compared to an increase in 1996 of $3.8 million in retained net earnings
and $1.0 million 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 and other borrowings through dividends
available from its subsidiaries and current operations. At December 31,
1997, approximately $3 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 it 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, 1997 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, 1997 AND 1996
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. The Company's net interest income increased by
$2.3 million for the year ended December 31, 1997 as compared to an increase
of $1.2 million for the same period in 1996. The increase in net interest
income is attributable to increases in earning assets, particularly loans.
The yield on interest-earning assets declined 2 basis points in 1997 from
1996. This decrease combined with the increase in average interest earning
assets of $46.3 million, net of the increase in average interest-bearing
liabilities of $38.4 million, accounts for the 17.3% increase in net
interest income. Net interest income increased for all Community Banking
Subsidiaries as shown below:
<TABLE>
<CAPTION>
Net interest income Increase/
1997 1996 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Community - Habersham $ 9,546 8,274 1,272
Community - Jackson 3,290 2,713 577
Community - Alabama 1,332 1,050 282
Community - Troup 1,379 1,251 128
-------- ------ ------
$ 15,547 13,288 2,259
======== ======= ======
</TABLE>
The 4 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
1996 increased $1.2 million over 1995. The increase is mainly attributable
to growth in earning assets outpacing the growth in interest bearing
liabilities as shown in Table 1.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the year
ended December 31, 1997 increased by $178,954 from $757,262 at December<PAGE>
31, 1996. This increase is associated with loan growth, 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. The provision for loan losses
decreased $91,538 in 1996 compared to 1995 mainly due to improved loan
quality. 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 made by the Community Banking
Subsidiaries.
As shown in Table 8 of the Selected Statistical Data, nonperforming
loans, which includes nonaccrual and restructured loans, decreased
$508,000 from December 31, 1996 compared to a $346,000 decrease over
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 207% at December 31, 1996 to 327% at
December 31, 1997. 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,
1997, impaired loans included all restructured loans, as were all
nonaccrual loans. However, the Company determined that no reserves were
required because of the Company's collateral positions.
The allowances for loan losses as a percentage of total loans
outstanding at December 31, 1997 and 1996 was 1.64% and 1.75%,
respectively. Net charge-offs in 1997 increased by $280,000 from
$225,000 in 1996, and the net charge-off ratio increased from .12 in 1996
to .23 in 1997. 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 37.4% and 32.9%, respectively, of total loans at December
31, 1997 and 1996. 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 (not including Holding Company other income). Traditional
non-interest income of the Community Banking Subsidiaries accounts for
only 29.0%, or $3.6 million of total other income for 1997, 33.8% in
1996, and 39.2% in 1995.
<PAGE>
<TABLE>
<CAPTION>
Other operating income Increase/
1997 1996 (Decrease)
---- ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Community Banking Subsidiaries
Community - Habersham $ 1,918 $ 1,722 $ 196
Community - Jackson 1,160 732 428
Community - Alabama 249 164 85
Community - Troup 189 176 13
-----------------------------------
$ 3,516 $ 2,794 $ 722
===================================
Financial Supermarkets $ 8,820 $ 5,559 $ 3,261
===================================
</TABLE>
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 $ 473,000 and $205,000,
respectively, for the years ended December 31, 1997 and 1996. These
increases normally have a direct relationship with the change in demand
deposit and savings accounts. Average noninterest-bearing demand deposit
and savings accounts increased $10.7 million in 1997 compared to $6.0
million increase in 1996 over 1995. Included in other operating income
of the Community Banking Subsidiaries are gains on sale of loans
recognized by Community-Habersham and Jackson of $273,000 and $341,000,
respectively. This represents an increase from 1996 of $233,000.
The allocation of services as a percentage of total income for
Financial Supermarkets is shown below:
FINANCIAL SUPERMARKETS
Consulting Services provided for Supermarket
bank installation and opening 74%
Supermarket consulting and ancillary services 22
Other Miscellaneous Consulting Services 4
---
100%
The primary business of Financial Supermarkets(R) "FSI" is
services offered in connection with the establishment and operation of a
Supermarket Bank(R) service center. In 1997, Financial Supermarkets had
net consulting revenue of $6.6 million compared to $4.2 million in 1996,
an increase of $2.4 million or 56%. The increase in net consulting
revenues in 1996 over 1995 was $1.8 million, or 73%.
In 1997, FSI entered into a contract with NationsBanc Services, Inc.
("NationsBank") to provide services with respect to construction and
installation of Supermarket Bank units in the State of Florida. This
contract significantly increased net income as well as other expenses in 1997.
During 1997 FSI provided agency and consulting services with respect to 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 with the commencement of the first phase of the
project to open 40 banking units. In 1997 NationsBank restructured the
contract to provide that FSI would not be providing services with respect to
the opening of any additional banking center units after the first 40 units.
The contract provides, however, that FSI will receive monthly ongoing
consulting fees in connection with any supermarket bank units opened by
NationsBank in Winn-Dixie Stores located in the state of Florida. These
consulting fees will continue for 15 years after the date the supermarket
branch is opened, decreasing gradually after each five year period. Currently
the FSI is collecting consulting fees on 80 supermarket branches in operation
under this agreement.
While the NationsBank contract accounted for a significant
extraordinary increase in consulting revenue in 1996 and 1997, which will
not be repeated in 1998, FSI continues to increase its number of units
completed for each of the last three years and this trend is expected to
continue.
NON-INTEREST EXPENSE. Other expenses increased for the year ended
December 31, 1997 by $3.8 million compared to the $2.0 million increase
in 1996. This represented a 25.2% increase in expenses for 1997 and
15.27% increase in 1996. Most significant in both years was the increase
in salaries and benefits which is directly related to the growth in the
banking subsidiaries. For the years ended 1997, 1996, and 1995 the
Company had total employees (F.T.E.) of 249, 216, and 172, respectively.
Other expenses increased by 1.1 million in 1997 and 1.3 million in 1996
primarily due to growth and increased activity of FSI.
Equipment and occupancy expenses increased by approximately $383,000
in 1997 over 1996 and approximately $211,000 in 1996 over 1995 due to the
increased number of facilities operated by the Community banking
subsidiaries. The Company operated 23, 18, and 16 locations at year ends
1997, 1996, and 1995, respectively. As 1997 closed, preparations were
being made to open three additional facilities in the first quarter of
1998. Management expects those locations to add to the continued growth
and profitability of the Company.
<TABLE>
<CAPTION>
Other Expenses Increase/
1997 1996 (Decrease)
----------------------------------
(Dollars in Thousands)
<S> <S> <C> <C> <C>
The Company
Salaries and benefits $ 10,474 $ 8,266 $ 2,208
Equipment expenses 1,488 1,374 114
Occupancy expenses 1,076 807 269
Deposit Insurance premiums 33 12 21
Data processing expenses 386 422 (36)
Travel expenses 583 531 52
Office supply expenses 437 373 64
Professional fees 198 253 (55)
Other real estate expenses 142 135 7
Other operating expenses 3,907 2,777 1,130
-------- -------- --------
$ 18,724 $ 14,950 $ 3,774
======== ======== ========
</TABLE>
INCOME TAXES. The Company incurred income tax expenses of $ 2.6
million in 1997 which represented an effective tax rate of 32%, compared
to tax expense of $1.9 million in 1996, or an effective tax rate of 32%.
Income tax expense increased $ 1.3 million from 1995 to $1.9 million in
1996. The effective tax rate at December 31, 1995 was 29%. The increase
in the effective tax rate is related to the increased income of Financial
Supermarkets, which does not have a portion of its income tax-free as do
the Community Banking Subsidiaries.
NET INCOME. The Company's net income for 1997 was $5.6 million,
as compared to $4.0 million in 1996, an increase of 39%. The increase
in net income between 1997 and 1996 is primarily attributable to the
additional interest and fees on loans related to growth and the
performance of Financial Supermarkets. Net income for 1996 increased to
$4.0 million or 29% over 1995's net income of $3.1 million.
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 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 effect 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<PAGE>
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 rage 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. The Company
prepares a report monthly that measures the potential impact on net
interest margin by rising or falling rates. This report is reviewed
monthly by the Asset/Liability Committee and quarterly by each Board of
Directors. (See "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK")
At December 31, 1997, the Company's cumulative one year interest
rate sensitivity gap ratio was 95%. 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, 1997, 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. <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>
Earning assets:
Interest-bearing deposits $ 769 $ - $ - $ - $ 769
Federal funds sold 5,960 - - - 5,960
Investment securities 43,213 5,154 24,543 9,091 82,001
Loans $ 70,588 $ 52,040 $ 91,761 30,832 $ 245,221
--------- --------- --------- --------- ---------
$ 120,530 $ 57,194 $ 116,304 $ 39,923 $ 333,951
========= ========= ========= ========= =========
Interest-bearing liabilities:
Interest-bearing demand $ 72,854 $ - $ - $ - $ 72,854
Savings 16,276 - - - 16,276
Time deposits, $100,000
and over 20,867 21,784 12,654 544 55,849
Time deposits, less than
$100,000 18,359 36,054 85,385 - 139,799
Other borrowings 39 115 308 - 462
----------------------------------------------------- ---------
$ 128,395 $ 57,953 $ 98,347 $ 544 $ 285,239
----------------------------------------------------- ---------
Interest rate sensitivity
gap (7,865) (759) 17,957 39,379 48,712
===================================================== =========
Cumulative interest rate
sensitivity gap (7,865) (8,624) 9,333 48,712
=====================================================
Interest rate sensitivity
gap 0.94 0.99 1.18 73.39
=====================================================
Cumulative interest rate
sensitivity gap 0.94 0.95 1.03 1.17
=====================================================
</TABLE>
<PAGE>
YEAR 2000 COMPLIANCE
The "year 2000 issue" arises from the widespread use of computer
programs that rely on two-digit codes to perform computations or
decision-making functions. Many of these programs may fail due to an
inability to properly interpret date codes beginning January 1, 2000.
For example, such programs may misinterpret "00" as the year 1900
rather than 2000. In addition, some equipment, being controlled by
microprocessor chips, may not deal appropriately with the year "00".
The Bank is evaluating its computer systems to determine which
modifications and expenditures will be necessary to make its systems
compatible with year 2000 requirements. The Company believes that their
systems will be year 2000-compliant upon implementation of such
modifications.
Prior to the emergence of the year 2000 issue, management had made a
decision to install a new data processing system along with a wide area
network. Currently the installation is under way with an estimated
conversion date of November 1998. This new data processing system along
with a wide area network are both certified year 2000 compliant. In
addition to the $1,500,000 estimated cost of this installation, the
Company anticipates expenses of approximately $500,000 will be necessary
to modify other data systems prior to the Year 2000. However, there can
be no assurance that all necessary modifications will be identified and
corrected or that unforeseen difficulties or costs will not arise. In
addition, there can be no assurance that the systems of other companies
on which the Company depends will be modified on a timely basis, or that
the failure by another company to properly modify its systems will not
negatively impact the systems or operations of the Bank.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed only to U.S. dollar interest rate changes and
accordingly, the Company manages exposure by considering the possible
changes in the net interest margin. The Company does not have any
trading instruments nor does it classify any portion of the investment
portfolio as held for trading. The Company does not engage in any
hedging activities or enter into any derivative instruments with a higher
degree of risk than mortgage backed securities which are commonly pass
through securities. Finally, the Company has no exposure to foreign
currency exchange rate risk, commodity price risk, and other market
risks.
Interest rates play a major part in the net interest income of a
financial institution. The sensitivity to rate changes is known as
"interest rate risk." The repricing of interest earning assets and
interest-bearing liabilities can influence the changes in net interest
income. As part of the Company's asset/liability management program,
the timing of repriced assets and liabilities is referred to as Gap
management. It is the policy of the Company to maintain Gap ratio in the
one-year time horizon of .80 to 1.20. See " ASSET/LIABILITY MANAGEMENT" .
GAP management alone is not enough to properly manage interest rate
sensitivity, because interest rates do not respond at the same speed or
at the same level to market rate changes. For example, savings and money
market rates are more stable than loans tied to a "Prime" rate and thus
respond with less volatility to a market rate change.
The Company uses a simulation model to monitor changes in net
interest income due to changes in market rates. The model of rising,
falling and stable interest rate scenarios allows management to monitor
and adjust interest rate sensitivity to minimize the impact of market
rate swings. The analysis of impact on net interest margins as well as
market value of equity over a twelve month period is subjected to a 200
basis point increase and decrease in rate. The February model reflects
an increase of 5% in net interest income and a 6% decrease in market<PAGE>
value equity for a 200 basis point increase in rates. The same model
shows a 5% decrease in net interest income and a 5% increase in market
value equity for a 200 basis point decrease in rates. The Company's
policy is to allow no more than +- 8% change in net interest income and
no more than +- 25% change in market value equity for these scenarios.
Therefore, the Company is within its policy guidelines and is protected
from any significant impact due to market rate changes.
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; 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.<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIALS
TABLE 1 AVERAGE BALANCES
The condensed average balance sheets for the periods indicated are presented
below.
1997 1996 1995
--------------------------------
ASSETS
Cash and due from banks $ 16,260 $ 13,539 $ 10,844
Interest-bearing deposits in banks 488 364 293
Taxable securities 50,957 43,337 43,506
Nontaxable securities 25,223 16,520 11,206
Unrealized losses on securities
available for sale (93) (130) (256)
Federal Funds Sold 9,704 11,864 9,146
Loans 223,170 191,180 170,525
Allowance for loan losses (3,873) (3,368) (2,944)
Other assets 20,243 16,013 14,271
--------------------------------
342,079 289,319 256,591
===============================+
Total interest-earning assets $ 309,542 $ 263,265 $ 234,676
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 41,472 $ 33,052 $ 28,031
Interest-bearing demand 61,638 57,240 53,498
Savings 15,387 13,145 12,141
Time 185,936 153,814 135,493
--------------------------------
Total deposits 304,433 257,251 229,163
Other borrowings 545 885 2,205
Other liabilities 6,894 6,489 4,389
--------------------------------
Total liabilities 311,872 264,625 235,757
--------------------------------
Shareholders' equity 30,207 24,694 20,834
--------------------------------
$ 342,079 $ 289,319 $ 256,591
================================
Total interest-bearing liabilities $ 263,506 $ 225,084 $ 203,337
================================
<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 asset
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,
1997 1996 1995
-------------------------------------------------------------
Average Average Average
Interest Rate Interest Rate Interest Rate
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans 23,562 10.56% 20,440 10.69% 18,146 10.64%
Interest on taxable securities 3,108 6.10% 2,483 5.73% 2,550 5.86%
Interest on nontaxable securities 1,327 5.26% 908 5.50% 641 5.72%
Interest on Federal Funds sold 673 6.94% 625 5.27% 518 5.66%
Interest on deposits in banks 33 6.76% 9 2.47% 16 5.46%
Total interest income 28,703 9.27% 24,465 9.29% 21,871 9.32%
------ ------ ------
INTEREST EXPENSE:
Interest expense on interest-
bearing demand deposits 2,009 3.26% 1,797 3.14% 1,749 3.27%
Interest on savings deposits 436 2.83% 372 2.83% 343 2.83%
Interest on time deposits 10,704 5.76% 9,002 5.85% 7,647 5.64%
Interest on other borrowings 42 7.71% 65 7.34% 136 6.17%
Total interest expense 13,191 5.01% 11,236 4.99% 9,875 4.86%
------ ------ ------
NET INTEREST INCOME 15,512 13,229 11,996
====== ====== ======
Net interest spread 4.26% 4.30% 4.46%
Net yield on average
interest-earning assets 5.01% 5.02% 5.11%
</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 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.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1997 vs. 1996
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 $ (258) $ 3,380 $ 3,122
Interest on taxable securities 168 457 625
Interest on nontaxable (40) 459 419
Interest on Federal Funds sold 175 (127) 48
Interest on deposits in banks 20 4 24
--------------------------------------
Total interest income 141 2,142 4,238
--------------------------------------
Expense from interest-bearing liabilities:
Interest expense on interest-bearing deposits $ 70 $ 142 $ 212
Interest on savings deposits 0 64 64
Interest on time deposits (149) 1,851 1,702
Interest on other borrowings 3 (26) (23)
--------------------------------------
Total interest expense (76) $ 2,031 $ 1,955
--------------------------------------
Net interest income $ 139 $ 2,144 $ 2,283
======================================
</TABLE>
<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 (26) 293 267
Interest on Federal Funds sold (38) 145 107
Interest on deposits in banks (10) 3 (7)
--------------------------------------
Total interest income $ (46) $ 2,640 $ 2,594
--------------------------------------
Expense from interest-bearing liabilities:
Interest expense on interest-bearing deposits $ (71) $ 119 $ 48
Interest on savings deposits 1 28 29
Interest on time deposits 291 1,064 1,355
Interest on other borrowings 22 (93) (71)
--------------------------------------
Total interest expense $ 243 $ 1,118 $ 1,361
--------------------------------------
Net interest income $ (289) $ 1,522 $ 1,233
======================================
</TABLE>
<PAGE>
INVESTMENT PORTFOLIO
TABLE 4 TYPES OF INVESTMENTS
The carrying amounts of securities at the dates indicated are summarized
as follows <F1>:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
U. S. Treasury and other U. S. Government
agencies and corporations $29,094 $27,561 $27,965
Municipal securities 29,497 19,788 14,203
Mortgage-backed securities 21,962 17,806 12,140
Equity securities 1,448 917 658
------------------------------
$82,001 $66,072 $54,966
==============================
<FN>
<F1> Securities include "held to maturity" securities carried at
amortized cost and "available-for-sale" securities carried at fair
value in accordance with FASB 115.
</FN>
</TABLE>
The Community Banking Subsidiaries' mortgage-backed portfolio
consists of fifty-two U.S. Government corporation collateralized mortgage
obligations. The actual maturity of these securities will differ from the
contractual maturity 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 increase while
increases in the interest rates will have the opposite effect on prepayments.
Prepayments of the underlying loans may shorten the life of the security,
thereby adversely affecting the yield to maturity. In an increasing interest
rate, the Community Banking Subsidiaries may have an obligation yielding a
return less than the current yields on securities. However, because the
majority of these in mortgage-backed securities have adjustable rates, negative
effects of changes in interest rates on earnings and carrying values of these
securities are somewhat
mitigated.
<PAGE>
The amounts of securities in each category as of December 31, 1997
are shown in the following table according to 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 4,504 5.46% 650 5.95% 1,448 5.00%
After one year
through five years 27,305 6.15 4,793 5.38 - -
After five years
through ten years 7,387 6.36 6,647 5.15 - -
After ten years 11,860 6.17 17,407 5.28 - -
------- ------- ------
51,056 6.12% 29,497 5.28% 1,448 5.00%
======= ======= ======
<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>
<PAGE>
LOAN PORTFOLIO
TABLE 6 Types of Loans
The amount of loans outstanding at the indicated dates are in the
following table according to the type of loan.
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
--------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural <F1> $118,376 $102,231 $77,871 $77,439 $60,032
Real estate-construction 21,234 9,506 8,036 8,703 7,430
Real estate-mortgage 69,541 57,566 63,312 50,856 56,639
Consumer and other <F2> 36,070 36,483 30,072 25,269 20,848
--------------------------------------------------------
$245,221 $205,786 $179,291 $162,267 $144,949
Less allowance for loan losses (4,024) (3,592) (3,060) (2,686) (2,457)
--------------------------------------------------------
Net loans $241,197 $202,194 $176,231 $159,581 $142,492
<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 Description of the Community Banking-Loans" for a
description of the composition of each loan, the underwriting criteria
and risks that are unique to each.
<PAGE>
TABLE 7 MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST
RATES
Total loans as of December 31, 1997 are shown in the following table
according to maturity classifications one year or less, after one year
through five years and after five years.
December 31, 1997
(Dollars in Thousands)
Maturity:
One year or less:
Commercial, financial and agricultural $ 80,511
Real estate-construction 21,234
All other loans 35,171
---------
$ 136,916
---------
After one year through five years:
Commercial, financial $ 16,929
Real estate-construction -
All other loans 46,246
---------
$ 63,175
---------
After five years:
Commercial, financial and agricultural $ 20,936
Real estate-construction -
All other loans 24,194
---------
$ 45,130
---------
$ 245,221
=========
The following table summarizes loans at December 31, 1997 with due
dates after one year which have predetermined and floating or adjustable
interest rates.
December 31, 1997
(Dollars in Thousands)
Predetermined interest $ 60,145
Floating or adjustable 48,160
---------
$ 108,305
---------
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.<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,
1997 1996 1995 1994 1993
--------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $714 $1,119 $1,456 $640 $1,649
Loans contractually past due ninety
days or more as to interest or
principal payments still accruing 533 445 345 310 62
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 704 620 629 64 73
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, 1997 is as follows:
December 31, 1997
-----------------
Interest income that would have been recorded on
nonaccrual and restructured loans under original terms $83,000
=======
Interest income that was recorded on nonaccrual and
restructured loans $36,000
=======
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, in
management's judgment, the collection of interest and principal become
probable. Loans classified for regulatory purposes as loss, 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 effect 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.
<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, 1997 and 1996 were $23,665,522 and $17,131,200,
respectively. 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.
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,
1997 1996 1995 1994 1993
------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $ 223,170 $ 191,180 $ 170,525 $ 150,426 $ 143,531
==========================================================
Balance of allowance for loan losses
at beginning of year $3,592 $3,060 $2,686 $2,457 $2,242
----------------------------------------------------------
Loans charged off
Commercial ($136) ($118) ($221) ($344) ($441)
Real estate mortgage (35) - - - (237)
Consumer (424) (211) (331) (244) (157)
----------------------------------------------------------
($595) ($329) ($552) ($588) ($835)
----------------------------------------------------------
Loans recovered
Commercial $11 $5 $12 $11 $7
Real estate mortgage 28 35 12 5 5
Consumer 52 64 53 51 112
-----------------------------------------------------------
$91 $104 $77 $67 $124
----------------------------------------------------------
Net charge-offs ($504) ($225) ($475) ($521) ($711)
----------------------------------------------------------
Additions to allowance charged
to operating expense during year $936 $757 $849 $750 $926
----------------------------------------------------------
Balance of allowance for loan losses
at end of year $4,024 $3,592 $3,060 $2,686 $2,457
----------------------------------------------------------
Ratio of net loans charged off during
the year to average loans outstanding 0.23% 0.12% 0.28% 0.35% 0.50%
==========================================================
/TABLE
<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 $4,024,000 at December 31, 1997, representing
1.64% of total loans, compared with approximately $3,592,000 at December
31, 1996, which represented 1.75% 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, 1997.
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, 1997, 1996, 1995, 1994 and
1993 is summarized below:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
----------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial $1,850 $1,830 $1,347 $1,508 $1,219
Real estate 230 105 467 599 492
Consumer 1,944 1,657 1,246 579 746
-------------------------------------------------------
$4,024 $3,592 $3,060 $2,686 $2,457
=======================================================
Percent of loans in Each Category of Total Loans
December 31,
1997 1996 1995 1994 1993
---------------------------------------------------------
(Dollars in Thousands)
Commercial 49% 50% 43% 48% 41%
Real estate 35% 33% 40% 37% 44%
Consumer 16% 17% 17% 15% 15%
------------------------------------------------------
100% 100% 100% 100% 100%
======================================================
</TABLE>
<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,
1997 1996 1995
Average Average Average
Interest Rate Interest Rate Interest Rate
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $ 41,472 - $ 33,052 - $ 28,031 -
Interest-bearing demand deposits 61,638 3.26% 57,240 3.14% 53,498 3.27%
Savings deposits 15,387 2.83% 13,145 2.83% 12,141 2.83%
Time deposits 185,936 5.76% 153,814 5.85% 135,493 5.64%
--------- --------- ---------
Total deposits $ 304,433 $ 257,251 $ 229,163
========= ========= =========
<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, 1997 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.
December 31, 1997
(Dollars in Thousands)
------------------------
Three months or less $20,867
Over three through six months 9,718
Over six through twelve months 12,066
Over twelve months 13,198
-------
$55,849
=======
<PAGE>
RETURN ON ASSETS AND SHAREHOLDERS'' EQUITY
TABLE 11
The following rate of return information for the years is presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
-------------------------
<S> <C> <C> <C>
Return on assets <F1> 1.65% 1.40% 1.22%
Return on equity <F2> 18.69% 16.38% 15.00%
Dividend payout ratio 5.38% 7.25% 8.44%
Equity to assets ratio 8.83% 8.54% 8.12%
<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, $0.14, and $0.13 per share for 1997, 1996 and 1995,
respectively.
</FN>
</TABLE>
<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 Amendment to be signed on its behalf by the, thereunto
duly authorized, in the City of Cornelia, State of Georgia, on the ____ of
June, 1998.
COMMUNITY BANKSHARES, INC.
By:_______________________________
J. Alton Wingate
President and Chief
Executive Officer
