SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001 Commission File number: 000-22054
COMMUNITY BANKSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
South Carolina 57-0966962
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
791 Broughton St., Orangeburg, South Carolina 29115
(Address of Principal Executive Office, Zip Code)
(803) 535-1060
(Registrant's telephone number, including area code)
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 [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 3,199,180 shares of common
stock outstanding as of May 1, 2001.
10-Q TABLE OF CONTENTS
Part I-Financial Statements Page
Item 1 Financial Statements ....................................... 3
Item 2 Management's Discussion and Analysis of
Financial Condition and ................................... 9
Results of Operations
Item 3 Quantitative and Qualitative Disclosure
About Market Risk ......................................... 15
Part II-Other Information
Item 6 Exhibits and Reports on Form 8-K ........................... 16
2
Part I. Item 1. Financial Statements
COMMUNITY BANKSHARES, INC. - CONSOLIDATED BALANCE SHEETS
$ amounts in thousands
UNAUDITED
March 31, December 31,
ASSETS 2001 2000
------ ---- ----
Cash and due from other financial institutions:
Non-interest bearing ............................................................ $ 9,544 $ 10,209
Federal funds sold .............................................................. 15,406 8,130
--------- ---------
Total cash and cash equivalents ............................................. 24,950 18,339
Interest bearing deposits in other banks ............................................. 8,443 594
Investment securities:
Securities held to maturity ..................................................... 8,372 12,371
Securities available for sale ................................................... 30,805 41,195
Loans held for resale ................................................................ 615 343
Loans ................................................................................ 201,644 195,077
Less, allowance for loan losses ................................................. (2,556) (2,424)
--------- ---------
Net loans ................................................................... 199,088 192,653
Premises and equipment ............................................................... 4,394 4,411
Accrued interest receivable ......................................................... 2,293 2,330
Deferred income taxes ................................................................ 709 795
Other assets ......................................................................... 274 292
--------- ---------
Total assets ................................................................ $ 279,943 $ 273,323
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing ............................................................ $ 31,058 $ 31,219
Interest bearing ................................................................ 197,164 187,592
--------- ---------
Total deposits .............................................................. 228,222 218,811
Federal funds purchased and securities
sold under agreements to repurchase ............................................. 5,252 9,352
Federal Home Loan Bank advances ...................................................... 20,350 20,350
Other liabilities .................................................................... 2,140 1,671
--------- ---------
Total liabilities ........................................................... 255,964 250,184
--------- ---------
Shareholders' equity:
Common stock
No par, authorized shares 12,000,000, issued and
outstanding 3,199,180 in 2001 and 2000 ...................................... 15,928 15,928
Retained earnings ............................................................... 8,019 7,342
Accumulated other comprehensive income (loss) ................................... 32 (131)
--------- ---------
Total shareholders' equity .................................................. 23,979 23,139
--------- ---------
Total liabilities and shareholders' equity .................................. $ 279,943 $ 273,323
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
3
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
for the three months ended March 31, 2001 and 2000 (Unaudited)
Accumulated
Other Total
Common Common Retained Comprehensive Shareholders'
Shares Stock Earnings Income (Loss) Equity
------ ----- -------- ------------- ------
Balances at Dec. 31, 1999 .................................... 3,191,462 $ 14,207 $ 6,549 $(511) $ 20,245
Comprehensive income:
Net income .............................................. 694 694
Other comprehensive income (loss) net of tax:
Unrealized (loss) on securities ......................... (169) (169)
Cash-in-lieu of shares in connection
with Jan. 31, 2000 stock dividend ............................. (137)
Market value of shares issued in five
percent stock dividend ....................................... - 1,709 (1,709) -
Costs of stock dividend ...................................... (10) (10)
Dividends paid ............................................... - - (160) - (160)
--------- -------- -------- ----- --------
Balances at Mar. 31, 2000 .................................... 3,191,325 $ 15,906 $ 5,374 $(680) $ 20,600
========= ======== ======== ===== ========
Balances at Dec. 31, 2000 .................................... 3,199,180 $ 15,928 $ 7,342 $(131) $ 23,139
Comprehensive income:
Net income .............................................. 901 901
Other comprehensive income (loss) net of tax:
Unrealized gain on securities ........................... 163 163
Dividends paid ............................................... - - (224) - (224)
--------- -------- -------- ----- --------
Balances at Mar. 31, 2001 .................................... 3,199,180 $ 15,928 $ 8,019 $ 32 $ 23,979
========= ======== ======== ===== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
4
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF INCOME
$ amounts in thousands
Three months ended March 31,
2001 2000
UNAUDITED UNAUDITED
--------- ---------
Interest and dividend income:
Interest and fees on loans ............................................................. $ 4,591 $ 3,730
Deposits with other financial institutions ............................................. 28 4
Investment securities:
Interest - U. S. Treasury and
U. S. Government Agencies .......................................................... 725 706
Dividends ............................................................................ 36 29
---------- ----------
Total investment securities ....................................................... 761 735
Federal funds sold and securities
purchased under agreements to resell ................................................. 170 114
---------- ----------
Total interest and dividend income ................................................ 5,550 4,583
---------- ----------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more .......................................... 648 508
Other ................................................................................ 1,814 1,380
---------- ----------
Total deposits .................................................................... 2,462 1,888
Federal funds purchased and securities
sold under agreements to repurchase .................................................. 83 24
Federal Home Loan Bank advances ........................................................ 301 253
---------- ----------
Total interest expense ............................................................ 2,846 2,165
---------- ----------
Net interest income ........................................................................ 2,704 2,418
Provision for loan losses .................................................................. 142 180
---------- ----------
Net interest income after provision for loan losses ........................................ 2,562 2,238
---------- ----------
Non-interest income:
Service charges on deposit accounts .................................................... 412 347
Other .................................................................................. 139 90
---------- ----------
Total non-interest income ......................................................... 551 437
---------- ----------
Non-interest expense:
Salaries and employee benefits ......................................................... 1,040 940
Premises and equipment ................................................................. 235 224
Other .................................................................................. 437 436
---------- ----------
Total non-interest expense ........................................................ 1,712 1,600
---------- ----------
Net income before taxes .................................................................... 1,401 1,075
Provision for income taxes ................................................................. 500 381
---------- ----------
Net income ................................................................................. $ 901 $ 694
========== ==========
Basic earnings per common share:
Weighted average shares outstanding .................................................... 3,199,180 3,191,325
Net income per common share ............................................................ $ 0.28 $ 0.22
Diluted earnings per common share:
Weighted average shares outstanding .................................................... 3,217,067 3,212,902
Net income per common share ............................................................ $ 0.28 $ 0.22
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
5
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF CASH FLOWS
$ amounts in thousands
Three months ended March 31,
2001 2000
UNAUDITED UNAUDITED
--------- ---------
Cash flows from operating activities:
Net income ............................................................................... $ 901 $ 694
Adjustments to reconcile net income
to net cash provided (used) by operating activities
Depreciation and amortization .................................................... 109 119
Provision for loan losses ........................................................ 142 180
Accretion of discounts and amortization of premiums -
investment securities - net .................................................... (8) 63
Proceeds from sale of real estate loans held for sale ............................ 2,164 1,025
Origination of real estate loans held for sale ................................... (2,436) (806)
Changes in operating assets and liabilities:
(Increase) decrease in interest receivable ....................................... 37 (317)
(Increase) decrease in other assets .............................................. 104 (157)
Increase in other liabilities .................................................... 469 334
-------- --------
Net cash provided by operating activities ..................................... 1,482 1,135
-------- --------
Cash flows from investing activities:
Net increase in interest bearing deposits
with other banks .............................................................. (7,849) (467)
Purchases of held to maturity securities ......................................... - (501)
Proceeds from maturities of held to maturity securities .......................... 3,999 1,000
Purchases of available for sale securities ....................................... (17,544) (4,992)
Proceeds from maturities of available for sale securities ........................ 28,105 353
Net (increase) in loans to customers ............................................. (6,577) (14,430)
Purchase of premises and equipment ............................................... (92) (26)
-------- --------
Net cash provided by (used in) investing activities ........................... 42 (19,063)
-------- --------
Cash flows from financing activities:
Net increase in demand, savings, & time deposits ................................. 9,411 12,893
Net decrease in federal funds purchased
and securities sold under agreements to repurchase .............................. (4,100) (474)
Increase in Federal Home Loan Bank advances ...................................... - 1,200
Cost of stock dividend .......................................................... - (10)
Dividend payments ................................................................ (224) (160)
-------- --------
Net cash provided by financing activities ..................................... 5,087 13,449
-------- --------
Net increase (decrease) in cash and cash equivalents ..................................... 6,611 (4,479)
Cash and cash equivalents - beginning of period .......................................... 18,339 20,315
-------- --------
Cash and cash equivalents - end of period ................................................ $ 24,950 $ 15,836
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
6
Summary of Significant Accounting Principles
A summary of significant accounting policies and the audited financial
statements for 2000 are included in Company's Annual Report on Form 10-K for the
year ended December 31, 2000.
Principles of Consolidation
The consolidated financial statements include the accounts of Community
Bankshares, Inc. (CBI), the parent company, and Orangeburg National Bank, Sumter
National Bank and Florence National Bank, its wholly owned subsidiaries. All
significant intercompany items have been eliminated in the consolidated
statements.
Management Opinion
The interim financial statements in this report are unaudited. In the
opinion of management, all the adjustments necessary to present a fair statement
of the results for the interim period have been made. Such adjustments are of a
normal and recurring nature.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for an entire year. These interim
financial statements should be read in conjunction with the annual financial
statements and notes thereto contained in the 2000 Annual Report on Form 10-K.
Changes in Comprehensive Income Components
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," effective for
fiscal years beginning after December 15, 1997. This Statement establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. Disclosure as required by
the Statement is as follows:
Before-Tax Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period ............. $(1,053,000) $ 373,000 $ (680,000)
Less: reclassification adjustment for gains
(losses) realized in net income ................................ 0 0 0
----------- ----------- -----------
Net unrealized gains (losses) ....................................... (1,053,000) 373,000 (680,000)
----------- ----------- -----------
Other comprehensive (loss), March 31, 2000 .......................... $(1,053,000) $ 373,000 $ (680,000)
=========== =========== ===========
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period ............. $ 48,000 $ (16,000) $ 32,000
Less: reclassification adjustment for gains
(losses) realized in net income ................................ 0 0 0
----------- ----------- -----------
Net unrealized gains (losses) ....................................... 48,000 (16,000) 32,000
----------- ----------- -----------
Other comprehensive income, March 31, 2001 .......................... $ 48,000 $ (16,000) $ 32,000
=========== =========== ===========
7
Stock Dividend
On January 31, 2000 CBI effected a five- percent stock dividend. All
shares outstanding and per share data amounts have been retroactively restated
to reflect the dividend.
COMMUNITY BANKSHARES, INC. - AVERAGE BALANCE SHEETS, YIELDS, AND RATES
($ in thousands)
Quarter ended March 31,
-----------------------
2001 2000
---- ----
Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates
------- -------- ------ ------- -------- -----
Interest bearing deposits ......................... $ 1,830 $ 28 6.12% $ 352 $ 4 4.55%
Investment securities taxable ..................... 46,655 754 6.46% 45,852 727 6.34%
Investment securities--tax exempt ................. 793 7 5.35% 809 8 5.99%
Federal funds sold ................................ 12,117 170 5.61% 7,810 114 5.84%
Loans receivable .................................. 199,047 4,591 9.23% 163,226 3,730 9.14%
-------- ------ -------- ------
Total interest earning assets ..................... 260,442 5,550 8.52% 218,049 4,583 8.41%
Cash and due from banks ........................... 9,269 8,268
Allowance for loan losses ......................... (2,487) (2,009)
Premises and equipment ............................ 4,411 4,576
Other assets ...................................... 3,283 2,973
-------- --------
Total assets ...................................... $274,918 $231,857
======== ========
Liabilities and Shareholders' Equity
Interest bearing deposits
Savings ........................................... $ 35,684 $ 350 3.92% $ 31,191 $ 295 3.78%
Interest bearing transaction accounts ............. 21,267 68 1.28% 19,166 75 1.57%
Time deposits ..................................... 135,324 2,044 6.04% 112,652 1,518 5.39%
-------- ------ -------- ------
Total interest bearing deposits ................... 192,275 2,462 5.12% 163,009 1,888 4.63%
Short term borrowing .............................. 7,304 83 4.55% 2,709 24 3.54%
FHLB advances ..................................... 20,350 301 5.92% 18,001 253 5.62%
-------- ------ -------- ------
Total interest bearing liabilities ................ 219,929 2,846 5.18% 183,719 2,165 4.71%
Noninterest bearing demand deposits ............... 29,582 26,532
Other liabilities ................................. 1,717 1,179
Shareholders' equity .............................. 23,690 20,427
-------- --------
Total liabilities and equity ...................... $274,918 $231,857
======== ========
Interest rate spread .............................. 3.34% 3.70%
Net interest income and net yield on
earning assets .................................... $2,704 4.15% $2,418 4.44%
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in nature
are intended to be, and are hereby identified as `forward looking statements'
for purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended. The Corporation cautions readers that forward
looking statements, including without limitation, those relating to the
Corporation's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward looking statements, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the Corporation's reports filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS: QUARTER ENDED MARCH 31, 2001 COMPARED TO QUARTER ENDED
MARCH 31, 2000
Net Income
For the first quarter of 2001 CBI earned a consolidated profit of
$901,000 compared to $694,000 for the first quarter of 2000, an increase of
29.8% or $207,000. Basic and diluted earnings per share were $.28 in the 2001
period compared to $.22 for the 2000 period.
For the first quarter of 2001 Orangeburg National Bank reported a
profit of $609,000 compared to $541,000 for the first quarter of 2000, an
increase of 12.6% or $68,000.
For the first quarter of 2001 Sumter National Bank reported a profit of
$250,000 compared to $181,000 for the first quarter of 2000, an increase of
38.1% or $69,000. The Sumter bank began operation in June 1996.
For the first quarter of 2001 Florence National Bank reported a profit
of $47,000 compared to net loss of $29,000 for the first quarter of 2000, an
improvement of $76,000. The Florence bank began operation in July 1998.
As noted above, consolidated net income for the quarter ended March 31,
2001, increased from the prior year by 29.8% or $207,000. The major components
of this increase are discussed below. Net interest income before provision for
loan losses for the three months ended March 31, 2001 increased to $2,704,000
compared to $2,418,000 for the same period in 2000, an increase of 11.8% or
$286,000. For the same period, the provision for loan losses was $142,000
compared to $180,000 for the 2000 period, a decrease of 21.1% or $38,000.
Non-interest income for the 2001 period increased to $551,000 from $437,000 for
the 2000 period, a 26.1% or $114,000 increase. Non-interest expense increased to
$1,712,000 from $1,600,000, a 7% or $112,000 increase.
Profitability
One of the best ways to review earnings is through the ROA (return on
average assets) and the ROE (return on average equity). Return on assets is the
income for the period divided by the average assets for the period, annualized.
Return on equity is the income for the period divided by the average equity for
the period, annualized. Based on operating results for the quarters ended March
31, 2001 and 2000, the following table is presented.
9
Period ended March 31, 2001 2000
---- ----
(dollar amounts in thousands)
Average assets ....................... $274,918 $231,857
ROA .................................. 1.31% 1.20%
Average equity ....................... $ 23,690 $ 20,427
ROE .................................. 15.21% 13.59%
Net income ........................... $ 901 $ 694
Net interest income
Net interest income, the major component of CBI's income, is the amount
by which interest and fees on interest earning assets exceeds the interest paid
on interest bearing deposits and other interest bearing funds. During the first
quarter of 2001, net interest income after provision for loan losses increased
to $2,562,000 from $2,238,000, a 14.5% or $324,000 increase over the first
quarter of 2000. This improvement was the result of a $42 million increase in
the volume of earning assets. The average yield on these earning assets
increased to 8.52% for the 2001 period from 8.41% for the 2000 period. This
increase was achieved in a declining interest rate environment. The Federal
Reserve cut the discount interest rate a total of 150 basis points in three
installments during the first quarter of 2001. A fourth fifty basis point
reduction in interest rates occurred in late April. For CBI, the average prime
rate during the first quarter of 2001 was 8.50% compared to 8.75% for the same
period in 2000. The full impact of the rate cuts will not be felt until the
second quarter of 2001 and management expects the cuts will put additional
pressure on net interest margins.
For the first quarter of 2001 the cost of funds averaged 5.18% compared
to 4.71% for the first quarter of 2000. The increase in the cost of the funds
more than offset the increased yield on earning assets. The effect of these
changes was a net interest spread (yield on earning assets less cost of interest
bearing liabilities) of 3.35% for the first quarter of 2001 compared to 3.69%
during the first quarter of 2000. CBI's net interest margin (net interest income
divided by total earning assets) was 4.15% for the first quarter of 2001
compared to 4.44% for the first quarter of 2000.
Interest Income
Elsewhere in this report is a table comparing the average balances,
yields, and rates for the interest rate sensitive segments of the Corporation's
balance sheets for the quarters ended March 31, 2001 and 2000. A discussion of
that table follows.
Total interest income for the first quarter 2001 was $5,550,000
compared with $4,583,000 for the same quarter in 2000, a 21.1% or $967,000
increase. The yield on earning assets for the 2001 quarter was 8.52%, increased
from 8.41% for the 2000 quarter. Total average interest earning assets for the
2001 quarter were $260,442,000 compared to $218,049,000 for the 2000 quarter, an
increase of 19.4% or $42,393,000.
The loan portfolio earned $4,591,000 for the first quarter 2001
compared with $3,730,000 for the same quarter of 2000, a 23.1% or $861,000
increase. The yield on loans for the 2001 quarter was 9.23%, increased from
9.14% for the 2000 quarter. The average size of the loan portfolio for the 2001
quarter was $199,047,000 compared to $163,226,000 for the 2000 quarter, an
increase of 21.9% or $35,821,000.
The taxable investment portfolio earned $754,000 for the first quarter
in 2001 compared with $727,000 for the 2000 quarter, a 3.7% or $27,000 increase.
The yield was 6.46% for the 2001 quarter, increased from 6.34% for the 2000
quarter. The average size of the portfolio for the 2001 quarter was $46,655,000
compared to $45,852,000 for the 2000 quarter, an increase of 1.8% or $803,000.
The tax-exempt investment portfolio earned $7,000 for the first quarter
in 2001 compared with $8,000 for the 2000 quarter, a 12.5% or $1,000 decrease.
The yield on the portfolio was 5.35%, decreased from 5.99%. The average size of
the portfolio was $793,000 for the 2001 quarter compared to $809,000 in the 2000
quarter, a decrease of 19.8% or $16,000.
10
Interest bearing deposits in other banks earned $28,000 for the first
quarter 2001 compared to $4,000 for the 2000 quarter, an increase of 600% or
$24,000. The yield on these deposits was 6.12% for the 2001 quarter, increased
from 4.55% in the 2000 quarter. CBI averaged $1,830,000 in interest bearing
balances in the first quarter 2001 compared to $352,000 the 2000 quarter, an
increase of 420% or $1,478,000. The fall in bond market interest rates during
the first quarter of 2001 resulted in many investments in the banks' investment
portfolios being called prior to maturity. The cash resulting from these
numerous calls was temporarily placed in interest bearing accounts, which
explains the unusual increase in this category.
Federal funds sold earned $170,000 the first quarter of 2001 compared
to $114,000 for the 2000 quarter, an increase of 49.1% or $56,000. The yield was
5.61% for the 2001 quarter, decreased from 5.84% for the 2000 quarter. CBI's
average volume in federal funds sold was $12,117,000 for the 2001 quarter
compared to $7,810,000 for the 2000 quarter, a 55.1% or $4,307,000 increase. As
noted above, the increase in banks' liquidity was directly related to the influx
of cash from called investment securities.
Interest Expense
Interest expense increased to $2,846,000 for the first quarter of 2001
from $2,165,000 for the 2000 quarter, a 31.5% or $681,000 increase. For the same
periods, the volume of interest bearing liabilities was $219,929,000 compared to
$183,719,000, a 19.7% or $36,210,000 increase. The average rate paid for
interest-bearing liabilities was 5.18% for the 2001 quarter, up from 4.71% for
the 2000 quarter.
Savings accounts cost $350,000 in the first quarter in 2001 compared to
$295,000 in the first quarter of 2000, an 18.6% or $55,000 increase. For the
same periods, average savings deposit balances were $35,684,000 compared to
$31,191,000, an increase of 14.4% or $4,493,000. The average rate paid on these
funds increased to 3.92% from 3.78%.
Interest bearing transaction accounts cost $68,000 for the first
quarter in 2001 compared to $75,000 for the first quarter of 2000, a 9.3% or
$7,000 decline. The volume of these deposits was $21,267,000 for the first
quarter in 2001 compared to $19,166,000 for the first quarter of 2000, a 10.96%
or $2,101,000 increase. The average rate paid on these funds decreased to 1.28%
from 1.57%.
Time deposits cost $2,044,000 for the first quarter of 2001 compared to
$1,518,000 for the first quarter of 2000, an increase of 34.7% or $526,000. The
volume was $135,324,000 for the first quarter in 2001 compared to $112,652,000
for the first quarter of 2000, a 20.1% or $22,672,000 increase. The average rate
paid on these funds increased to 6.04% from 5.39%.
Short-term borrowings consists of federal funds purchased and
securities sold under agreements to repurchase. This is a relatively small and
volatile part of the balance sheet. It cost $83,000 for the first quarter in
2001 compared to $24,000 for the first quarter of 2000, a 246% or $59,000
increase. The volume of these funds was $7,304,000 in the first quarter 2001
compared to $2,709,000 in the first quarter of 2000, an increase of 170% or
$4,595,000. The average rate paid on these funds increased to 4.55% from 3.54%.
Borrowings from the Federal Home Loan Bank of Atlanta cost $301,000 for
the first quarter in 2001 compared to $253,000 for the first quarter in 2000, an
increase of 19% or $48,000. The advances averaged $20,350,000 during the 2001
quarter compared to $18,001,000 for the prior year quarter, a 13% or $2,349,000
increase. The average rate paid on these funds increased to 5.92% from 5.62%.
Non-Interest Income
Non-interest income for the first quarter 2001 grew to $551,000 from
$437,000 in the first quarter of 2000, a 26.1% or $114,000 increase. This was
mostly the result of increasing volumes of service charges associated with
increased numbers of accounts and the resulting fee income.
Non-Interest Expense
For the first quarter of 2001 non-interest expenses increased to
$1,712,000 from $1,600,000 for the first quarter of 2000, a 7% or $112,000
increase. This increase is related to higher levels of business activity and
included the following components:
For the 2001 period, personnel costs were $1,040,000 compared to
$940,000 for the 2000 period, an increase of 10.6% or $100,000;
11
For the 2001 period, premises and equipment expense were $235,000
compared to $224,000 for the 2000 period, an increase of 4.9% or $11,000; and
For the 2001 period, other costs were $437,000 compared to $436,000 for
the 2000 period, an increase of .2% or $1,000.
Income Taxes
CBI provided $500,000 for federal and state income taxes during the
first quarter of 2001 compared to $381,000 for the same period in 2000, a 31.2%
or $119,000 increase. The average tax rate for the 2001 period was 35.7% and for
the 2000 period it was 35.4%.
CHANGES IN FINANCIAL POSITION
Investment portfolio
The investment portfolio is comprised of held to maturity securities
and available for sale securities. CBI and its three banks usually purchase
short-term issues (ten years or less) of U. S Treasury and U. S. Government
agency securities for investment purposes. At March 31, 2001 the held to
maturity portfolio totaled $8,372,000 compared to $12,371,000 at December 31,
2000, a decrease of 32.3% or $3,999,000. At March 31, 2001 the available for
sale portfolio totaled $30,805,000 compared to $41,195,000 at December 31, 2000,
a decrease of 25.2% or $10,390,000. The following chart summarizes the
investment portfolios at March 31, 2001 and December 31, 2000. Most of the
decline in the banks' investment portfolios is due to the call of many
securities during the first quarter, which resulted from the decline in bond
market interest rates.
March 31, 2001
Held to maturity Available for sale
---------------- ------------------
Amortized cost Fair value Amortized cost Fair value
-------------- ---------- -------------- ----------
(dollars in thousands)
U. S. Government and federal agencies ...................... $ 8,372 $ 8,373 $28,166 $28,207
Tax exempt securities ...................................... - - 612 617
Other equity securities .................................... - - 1,981 1,981
------- ------- ------- -------
Total ...................................................... $ 8,372 $ 8,373 $30,759 $30,805
======= ======= ======= =======
Unrealized gain ............................................ $ 1 $ 46
======= =======
December 31, 2000
Held to maturity Available for sale
---------------- ------------------
Amortized cost Fair value Amortized cost Fair value
-------------- ---------- -------------- ----------
(dollars in thousands)
U. S. Government and federal agencies .................... $ 12,371 $ 12,217 $ 38,599 $ 38,404
Tax exempt securities .................................... - - 814 810
Other equity securities .................................. - - 1,981 1,981
-------- -------- -------- --------
Total .................................................... $ 12,371 $ 12,217 $ 41,394 $ 41,195
======== ======== ======== ========
Unrealized (loss) ........................................ $ (154) $ (199)
======== ========
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Loan portfolio
The loan portfolio is primarily consumer and small business oriented.
At March 31, 2001 the loan portfolio was $201,644,000 compared to $195,077,000
at December 31, 2000, a 3.7% or $7,182,000 increase. The following chart
summarizes the loan portfolio at March 31, 2001 and December 31, 2000.
Mar. 31, 2001 Dec. 31, 2000
------------- -------------
(dollars in thousands)
Real estate .............................. $117,975 $113,543
Commercial ............................... 53,475 52,264
Loans to individuals ..................... 30,194 29,270
-------- --------
Total .................................... $201,644 $195,077
======== ========
Past Due and Non-Performing Assets
CBI closely monitors past due loans and loans that are in non-accrual
status and other real estate owned. Below is a summary of past due and
non-performing assets at March 31, 2001 and December 31, 2000.
Mar. 31, 2001 Dec. 31, 2000
------------- -------------
(dollars in thousands)
Past due 90 days + accruing loans ............ $582 $ 93
Non-accrual loans ............................ $239 $238
Impaired loans (included in nonaccrual) ...... $239 $238
Other real estate owned ...................... $ - $ -
Management considers the past due and non-accrual amounts at March 31,
2001 to be reasonable in relation to the size of the portfolio and manageable in
the normal course of business. The increase in accruing loans over 90 days past
due is associated with a small number of loans and is not indicative, in the
opinion of management, of any trend.
CBI had no restructured loans during any of the above listed periods.
Allowance for Loan Losses
The Corporation operates three independent community banks in central
South Carolina. Under the provisions of the National Bank Act each board of
directors is responsible for determining the adequacy of its bank's loan loss
allowance. In addition, each bank is supervised and regularly examined by the
Office of the Comptroller of the Currency of the U. S. Treasury Department. As a
normal part of a safety and soundness examination, the OCC examiners will assess
and comment on the adequacy of a national bank's allowance for loan losses. The
allowance presented in this discussion is on an aggregated basis.
The nature of community banking is such that the loan portfolios will
be predominantly comprised of small and medium size business and consumer loans.
As community banks, there is a natural geographic concentration of loans within
the Banks' respective city or county. Management at each bank monitors the loan
concentrations and loan portfolio quality on an ongoing basis including, but not
limited to: quarterly analysis of loan concentrations, monthly reporting of past
dues, non-accruals, and watch loans, and quarterly reporting of loan charge-offs
and recoveries. These efforts focus on historical experience and are bolstered
by quarterly analysis of local and state economic conditions, which is part of
the Banks' assessment of the adequacy of their allowances for loan losses.
Management reviews its allowance for loan losses in three broad
categories: commercial, real estate and installment loans. However, management
does not believe it would be useful to maintain a separate allowance for each
category. Instead management assigns an estimated risk percentage factor to each
category in the computation of the overall allowance. In general terms, the real
estate portfolio is subject to the least risk, followed by the commercial loan
portfolio, followed by the installment loan portfolio. The Banks' internal and
external loan review programs will from time to time identify loans that are
subject to specific weaknesses and such loans will be reviewed for a specific
loan loss allowance.
13
Based on the current levels of non-performing and other problem loans,
management believes that loan charge-offs in 2001 will at least approximate the
2000 levels as such loans progress through the collection process. Management
believes that the allowance for loan losses, as of March 31, 2001 is sufficient
to absorb the expected charge-offs and provide adequately for the inherent
losses that remain in the loan portfolio. Management will continue to closely
monitor the levels of non-performing and potential problem loans and address the
weaknesses in these credits to enhance the amount of ultimate collection or
recovery of these assets. Management considers the levels and trends in
non-performing and past due loans in determining how historical loan loss rates
are adjusted.
The aggregate allowance for loan losses of the banks and the aggregate
activity with respect to those allowances are summarized in the following table.
Quarter ended March Year ended Quarter ended
March 31, 2001 Dec. 31, 2000 March 31, 2000
-------------- ------------- --------------
Allowance at beginning of period ........................... $ 2,424 $ 1,936 $ 1,936
Provision expense .......................................... 142 688 180
Net charge offs ............................................ (10) (200) (29)
------- ------- -------
Allowance at end of period ................................. $ 2,556 $ 2,424 $ 2,087
======= ======= =======
Allowance / outstanding loans .............................. 1.26% 1.24% 1.22%
Deposits
Deposits were $228,222,000 at March 31, 2001 compared to $218,811,000
at December 31, 2000, an increase of 4.3% or $9,411,000.
Time deposits greater than $100,000 were $46,672,000 at March 31, 2001
compared to $38,702,000 at December 31, 2000, an increase of 20.6% or
$7,970,000.
Liquidity
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. Adequate liquidity is necessary to meet the requirements of
customers for loans and deposit withdrawals in a timely and economical manner.
The most manageable sources of liquidity are composed of liabilities, with the
primary focus of liquidity management being the ability to attract deposits
within the Orangeburg National Bank, Sumter National Bank, and Florence National
Bank service areas. Core deposits (total deposits less certificates of deposit
of $100,000 or more) provide a relatively stable funding base. Certificates of
deposit of $100,000 or more are generally more sensitive to changes in rates, so
they must be monitored carefully. Asset liquidity is provided by several
sources, including amounts due from banks, federal funds sold, and investments
available for sale.
CBI and its banks maintain an available for sale investment and a held
to maturity investment portfolio. While all these investment securities are
purchased with the intent to be held to maturity, such securities are marketable
and occasional sales may occur prior to maturity as part of the process of
asset/liability and liquidity management. Such sales will generally be from the
available for sale portfolio. Management deliberately maintains a short-term
maturity schedule for its investments so that there is a continuing stream of
maturing investments. CBI intends to maintain a short-term investment portfolio
in order to continue to be able to supply liquidity to its loan portfolio and
for customer withdrawals.
CBI has substantially more liabilities (mostly deposits, which may be
withdrawn) which mature in the next 12 months than it has assets maturing in the
same period. However, based on its historical experience, and that of similar
financial institutions, CBI believes that it is unlikely that so many deposits
would be withdrawn, without being replaced by other deposits, that CBI would be
unable to meet its liquidity needs with the proceeds of maturing assets.
CBI through its banking subsidiaries also maintains federal funds lines
of credit with correspondent banks, and is able to borrow from the Federal Home
Loan Bank and from the Federal Reserve's discount window.
CBI through its banking subsidiaries has a demonstrated ability to
attract deposits from its markets. Deposits have grown from $30 million in 1989
to over $228 million in 2001. This base of deposits is the major source of
operating liquidity.
14
CBI's long term liquidity needs are expected to be primarily affected
by the maturing of long-term certificates of deposit. At March 31, 2001 CBI had
approximately $23 million and $12 million in certificates of deposit and other
interest bearing liabilities maturing in one to five years and over five years,
respectively. CBI's assets maturing or repricing in the same periods were $107
million and $39 million, respectively. CBI expects to be able to manage its
current balance sheet structure without experiencing any material liquidity
problems.
In the opinion of management, CBI's current and projected liquidity
position is adequate.
Capital resources
As summarized in the table below, CBI maintains a strong capital
position.
March 31, 2001 Dec. 31, 2000
-------------- -------------
Tier 1 capital to average total assets .. 8.73% 8.20%
Tier 1 capital to risk weighted assets .. 12.42% 11.10%
Total capital to risk weighted assets ... 13.66% 12.30%
In the opinion of management, the Company's current and projected
capital positions are adequate. In each case the ratios exceed by a substantial
margin the minimum regulatory requirement for being considered "well
capitalized".
Dividends
CBI declared and paid a quarterly cash dividend of seven cents per
share during the first quarter of 2001. The total cost of this dividend was
$224,000.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices
and rates. The Corporation's market risk arises principally from interest rate
risk inherent in its lending, deposit and borrowing activities. Management
actively monitors and manages its interest rate risk exposure. Although the
Corporation manages other risks, such as credit quality and liquidity risk in
the normal course of business, management considers interest rate risk to be its
most significant market risk and this risk could potentially have the largest
material effect on the Corporation's financial condition and results of
operations. Other types of market risks such as foreign currency exchange risk
and commodity price risk do not arise in the normal course of community banking
activities.
Achieving consistent growth in net interest income is the primary goal
of the Corporation's asset/liability function. The Corporation attempts to
control the mix and maturities of assets and liabilities to achieve consistent
growth in net interest income despite changes in market interest rates. The
Corporation seeks to accomplish this goal while maintaining adequate liquidity
and capital. The Corporation's asset/liability mix is sufficiently balanced so
that the effect of interest rates moving in either direction is not expected to
be significant over time.
The Corporation's Asset/Liability Committee uses a simulation model to
assist in achieving consistent growth in net interest income while managing
interest rate risk. The model takes into account interest rate changes as well
as changes in the mix and volume of assets and liabilities. The model simulates
the Corporation's balance sheet and income statement under several different
rate scenarios. The model's inputs (such as interest rates and levels of loans
and deposits) are updated on a quarterly basis in order to obtain the most
accurate projection possible. The projection presents information over a
twelve-month period. It reports a base case in which interest rates remain flat
and reports variations that occur when rates increase and decrease 100 and 200
basis points. According to the model as of March 31, 2001 the Corporation is
positioned so that net interest income will increase $817,000 and net income
will increase $502,000 in the next twelve months if interest rates rise 300
basis points. Conversely, net interest income will decline $544,000 and net
income will decline $335,000 in the next twelve months if interest rates decline
200 basis points. Computation of prospective effects of hypothetical interest
rate changes are based on numerous assumptions, including relative levels of
market interest rates and loan prepayment, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions the Corporation could undertake in response to changes in interest
rates.
As of March 31, 2001 there was no significant change from the interest
rate sensitivity analysis for the various changes in interest rates calculated
as of December 31, 2000. The foregoing disclosures related to the market risk of
the Company should be read in connection with Management's Discussion and
Analysis of Financial Position and Results of Operations included in the 2000
Annual Report on Form 10-K.
15
Part II--Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
b) Reports on Form 8-K. None.
16
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: May 11, 2001
COMMUNITY BANKSHARES, INC.
By: s/ E. J. Ayers, Jr.,
----------------------------------------------
E. J. Ayers, Jr.,
Chief Executive Officer
By: s/ William W. Traynham
----------------------------------------------
William W. Traynham
President and Chief Financial Officer
(Principal Accounting Officer)
17