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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 Sept. 30, 2002 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 4,304,384 shares of common
stock outstanding as of November 1, 2002.
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 Results of Operations .............. 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk ...... 24
Item 4 Controls and Procedures ......................................... 25
Part II-Other Information
Item 6 Exhibits and Reports on Form 8-K ................................ 26
2
Part I. Item 1. Financial Statements
COMMUNITY BANKSHARES, INC. - CONSOLIDATED BALANCE SHEETS
(Dollars in thousands) UNAUDITED
September 30, December 31,
ASSETS 2002 2001
---- ----
Cash and due from other financial institutions:
Non-interest bearing .................................................................. $ 12,653 $ 14,586
Federal funds sold .................................................................... 19,105 11,063
--------- ---------
Total cash and cash equivalents ................................................... 31,758 25,649
Interest bearing deposits in other banks ................................................... 639 2,376
Investment securities:
Securities held to maturity ........................................................... 500 500
Securities available for sale ......................................................... 58,830 43,207
Loans held for resale ...................................................................... 15,567 10,265
Loans ...................................................................................... 300,051 229,905
Less, allowance for loan losses ....................................................... (3,497) (2,830)
--------- ---------
Net loans ......................................................................... 296,554 227,075
Premises and equipment ..................................................................... 6,423 5,177
Other real estate owned .................................................................... - 267
Accrued interest receivable ............................................................... 2,284 1,762
Deferred income taxes ...................................................................... 178 870
Intangible assets .......................................................................... 7,958 921
Other assets ............................................................................... 468 548
--------- ---------
Total assets ...................................................................... $ 421,159 $ 318,617
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing .................................................................. $ 46,069 $ 35,882
Interest bearing ...................................................................... 288,056 219,551
--------- ---------
Total deposits .................................................................... 334,125 255,433
Federal funds purchased and securities
sold under agreements to repurchase ................................................... 10,009 4,171
Federal Home Loan Bank advances ............................................................ 20,210 20,280
Lines of credit payable .................................................................... 11,500 9,028
Other liabilities .......................................................................... 2,574 2,158
--------- ---------
Total liabilities ................................................................. 378,418 291,070
--------- ---------
Shareholders' equity:
Common stock
No par, authorized shares 12,000,000, issued and
outstanding 4,304,384 in 2002 and 3,299,674 in 2001 ............................. 29,090 17,208
Retained earnings ..................................................................... 13,409 10,346
Accumulated other comprehensive income (loss) ......................................... 242 (7)
--------- ---------
Total shareholders' equity ........................................................ 42,741 27,547
--------- ---------
Total liabilities and shareholders' equity ........................................ $ 421,159 $ 318,617
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
3
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
for the nine months ended September 30, 2002 and 2001 (Unaudited)
(Dollars in thousands)
Accumulated
Other Total
Number of Retained Comprehensive Shareholders'
Shares Amount Earnings Income (Loss) Equity
------ ------ -------- ------------ ------
Balances at Dec. 31, 2000 .......................... 3,199,180 $ 15,928 $ 7,342 $ (131) $ 23,139
Comprehensive income:
Net income ....................................... 2,793 2,793
Change in unrealized gain (loss) on
securities available for sale, net
of tax effect ............................... 247 247
Shares issued under option agreement ............... 5,040 39 39
Dividends paid ..................................... - - (672) - (672)
---------- ---------- ---------- ---------- ----------
Balances at September 30, 2001 ..................... 3,204,220 $ 15,967 $ 9,463 $ 116 $ 25,546
========== ========== ========== ========== ==========
Balances at Dec. 31, 2001 .......................... 3,299,674 $ 17,208 $ 10,346 $ (7) $ 27,547
Comprehensive income:
Net income ....................................... 3,936 3,936
Change in unrealized gain (loss) on
securities available for sale, net
of tax effect ............................... 249 249
Shares issued under option agreement ............... 4,710 40 40
Shares issued under merger agreement ............... 1,000,000 12,020 12,020
Expense associated with merger ..................... (178) (178)
Dividends paid ..................................... - - (873) - (873)
---------- ---------- ---------- ---------- ----------
Balances at September 30, 2002 ..................... 4,304,384 $ 29,090 $ 13,409 $ 242 $ 42,741
========== ========== ========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
4
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF INCOME
Nine months ended Sept. 30, Three months ended Sept. 30,
2002 2001 2002 2001
(Dollars in thousands, except per share data) UNAUDITED UNAUDITED UNAUDITED UNAUDITED
--------- --------- --------- ---------
Interest and dividend income:
Loans, including fees ........................................ $14,017 $13,694 $ 5,351 $ 4,578
Deposits with other financial institutions ................... 18 144 8 38
Debt securities .............................................. 1,526 1,602 668 408
Dividends .................................................... 89 118 26 49
Federal funds sold ........................................... 254 642 87 188
------- ------- ------- -------
Total interest and dividend income ...................... 15,904 16,200 6,140 5,261
------- ------- ------- -------
Interest expense:
Deposits:
Certificates of deposit of $100,000 or more ................ 1,410 1,912 496 602
Other ...................................................... 3,460 5,089 1,254 1,561
------- ------- ------- -------
Total deposits .......................................... 4,870 7,001 1,750 2,163
Federal funds purchased and securities
sold under agreements to repurchase ........................ 75 212 31 63
Other borrowed funds ......................................... 1,090 861 384 265
------- ------- ------- -------
Total interest expense .................................. 6,035 8,074 2,165 2,491
------- ------- ------- -------
Net interest income .................................................... 9,869 8,126 3,975 2,770
Provision for loan losses .............................................. 597 457 239 180
------- ------- ------- -------
Net interest income after provision for loan losses .................... 9,272 7,669 3,736 2,590
------- ------- ------- -------
Non-interest income:
Service charges on deposit accounts .......................... 1,843 1,490 761 562
Gains on sales of securities ................................. 119 14 15 14
Mortgage banking income ...................................... 3,112 - 1,164 -
Other ........................................................ 492 483 189 168
------- ------- ------- -------
Total non-interest income ............................... 5,566 1,987 2,129 744
------- ------- ------- -------
Non-interest expense:
Salaries and employee benefits ............................... 5,546 3,172 2,163 1,070
Premises and equipment ....................................... 998 703 393 232
Other ........................................................ 2,219 1,447 884 531
------- ------- ------- -------
Total non-interest expense .............................. 8,763 5,322 3,440 1,833
------- ------- ------- -------
Income before income taxes ............................................. 6,075 4,334 2,425 1,501
Income tax expense ..................................................... 2,139 1,541 825 539
------- ------- ------- -------
Net income ............................................................. $ 3,936 $ 2,793 $ 1,600 $ 962
======= ======= ======= =======
5
Nine months ended Sept. 30, Three months ended Sept. 30,
2002 2001 2002 2001
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
--------- --------- --------- ---------
Basic earnings per common share:
Weighted average shares outstanding .......... 3,487,790 3,201,500 4,309,094 3,200,867
Net income per common share .................. $ 1.13 $ 0.87 $ 0.37 $ 0.30
Diluted earnings per common share:
Weighted average shares outstanding .......... 3,599,383 3,222,456 4,420,687 3,220,138
Net income per common share .................. $ 1.09 $ 0.87 $ 0.36 $ 0.30
Cash dividends per common share ........................ $ .24 $ .21 $ .08 $ .07
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
6
COMMUNITY BANKSHARES, INC. - CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended Sept. 30,
2002 2001
UNAUDITED UNAUDITED
--------- ---------
(Dollars in thousands)
Cash flows from operating activities:
Net income ............................................................................. $ 3,936 $ 2,793
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization ................................................... 489 329
Provision for loan losses ....................................................... 597 457
Accretion of discounts and amortization of premiums-
investment securities - net ................................................... - (18)
Net realized (gains) on sale of securities ...................................... (119) (14)
Proceeds of sale of loans held for sale ......................................... 125,639 9,807
Origination of loans held for sale .............................................. (130,941) (9,807)
Changes in assets and liabilities:
(Increase) decrease in interest receivable ...................................... (522) 550
Decrease in other assets ........................................................ 1,039 79
Increase in other liabilities .................................................. 416 17
--------- ---------
Net cash provided by operating activities ..................................... 534 4,193
--------- ---------
Cash flows from investing activities:
Proceeds from maturities of held to maturity securities ......................... - 11,375
Purchases of investment securities - held to maturity ........................... - (1,153)
Proceeds from maturities of available for sale
securities .................................................................... 35,350 69,672
Proceeds from sales of available for sale securities ............................ 20,543 -
Purchases of investment securities - available for sale ......................... (71,148) (61,200)
Net (increase) decrease in interest bearing deposits ............................ 1,737 (3,535)
Net (increase) in loans to customers ............................................ (70,076) (23,979)
Net cash acquired in transaction accounted under the
purchase method ............................................................. 8,922 -
Cash paid in connection with merger ............................................. (4,000) -
Purchase of premises and equipment .............................................. (1,674) (341)
Net (increase) in other real estate ............................................. - (267)
--------- ---------
Net cash (used) in investing activities ..................................... (80,346) (9,428)
--------- ---------
Cash flows from financing activities:
Net increase in demand, savings, and time deposits .............................. 78,692 14,980
Net increase in federal funds purchased and
securities sold under agreements to repurchase .............................. 5,838 1,624
Net increase under line of credit agreement ..................................... 2,472 -
Repayment of Federal Home Loan Bank advances ................................... (70) (70)
Sale of common stock ............................................................ 40 39
Merger expenses ................................................................. (178) -
Dividends ....................................................................... (873) (672)
--------- ---------
Net cash provided by financing activities ................................... 85,921 15,901
--------- ---------
7
Nine months ended Sept. 30,
2002 2001
UNAUDITED UNAUDITED
--------- ---------
(Dollar amounts in thousands)
Net increase in cash and due from other
Financial institutions ...................................................... 6,109 10,666
Cash and due from other financial institutions -
Beginning of period ......................................................... 25,649 18,339
------- -------
Cash and due from other financial institutions -
End of period ............................................................... $31,758 $29,005
======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
8
Notes to Unaudited Consolidated Financial Statements
Summary of Significant Accounting Principles
A summary of significant accounting policies and the audited financial
statements for 2001 are included in Company's Annual Report on Form 10-K for the
year ended December 31, 2001.
Principles of Consolidation
The consolidated financial statements include the accounts of Community
Bankshares, Inc. (CBI or the Corporation), the parent company, and Orangeburg
National Bank, Sumter National Bank, Florence National Bank, Community Resource
Mortgage Inc., and the Bank of Ridgeway, 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 2001 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 disclosure of comprehensive income and its
components in a full set of general-purpose financial statements. Disclosure as
required by the Statement is as follows:
Nine months ended Sept. 30,
2002 2001
---- ----
(In thousands)
Unrealized holding gains (losses)
on available for sale securities ................ $ 496 $ 388
Less: Reclassification adjustment for gains
(losses) realized in income ..................... 119 14
----- -----
Net unrealized gains (losses) ........................ 377 374
Tax effect ........................................... (128) (127)
----- -----
Net-of-tax amount .................................... $ 249 $ 247
===== =====
9
Earnings Per Share
Basic earnings per share is calculated by dividing net income by the
weighted-average shares of common stock outstanding during each period. Diluted
earnings per share is based on the weighted-average shares of common stock
outstanding during each period plus the maximum dilutive effect of common stock
issuable upon exercise of stock options. The weighted average number of shares
and equivalents are determined after giving retroactive effect to stock
dividends and stock splits. Weighted-average shares outstanding used in
calculating earnings per share for the three and nine months ended September 30,
2002 and 2001 are as follows:
Three months ended Nine months ended
9/30/2002 9/30/2001 9/30/2002 9/30/2001
--------- --------- --------- ---------
Basic .......... 4,309,094 3,200,867 3,487,790 3,201,500
Diluted ........ 4,420,687 3,220,138 3,599,383 3,222,456
Dividends per share are calculated using the current equivalent of
number of common shares outstanding at the time of the dividend based on the
Corporation's shares outstanding.
10
COMMUNITY BANKSHARES, INC. - AVERAGE BALANCE SHEETS, YIELDS, AND RATES
Nine months ended Sept. 30, 2002 2001
In thousands Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates
------- ------- ----- ------- ------- -----
Interest bearing deposits ............................... $ 1,388 $ 18 1.73% $ 4,441 $ 144 4.32%
Investment securities taxable ........................... 43,507 1,504 4.61% 36,490 1,699 6.21%
Investment securities--tax exempt* ...................... 3,290 111 6.82% 746 21 5.69%
Federal funds sold ...................................... 19,672 254 1.72% 19,514 642 4.39%
Loans receivable ........................................ 268,216 14,017 6.97% 206,419 13,694 8.85%
-------- ------- -------- -------
Total interest earning assets ......................... 336,073 15,904 6.31% 267,610 16,200 8.07%
Cash and due from banks ................................. 13,569 9,166
Allowance for loan losses ............................... (3,085) (2,605)
Premises and equipment .................................. 5,830 4,475
Intangible assets ....................................... 3,172 -
Other assets ............................................ 3,374 3,058
-------- --------
Total assets .......................................... $358,933 $281,704
======== ========
Liabilities and Shareholders' Equity
Interest bearing deposits
Savings ................................................. $ 52,748 $ 668 1.69% $37,290 $ 927 3.31%
Interest bearing transaction accounts ................... 41,270 230 0.74% 23,389 165 .94%
Time deposits ........................................... 155,153 3,972 3.41% 136,836 5,909 5.76%
-------- ------- -------- -------
Total interest bearing deposits ....................... 249,171 4,870 2.61% 197,515 7,001 4.73%
Short term borrowing .................................... 4,753 75 2.10% 7,414 212 3.81%
Other borrowings ........................................ 30,537 1,090 4.76% 19,773 861 5.81%
-------- ------- -------- -------
Total interest bearing liabilities .................... 284,461 6,035 2.83% 224,702 8,074 4.79%
Noninterest bearing demand deposits ..................... 38,640 30,779
Other liabilities ....................................... 2,680 1,735
Shareholders' equity .................................... 33,152 24,488
-------- --------
Total liabilities and shareholders' equity ............ $358,933 $281,704
======== ========
Interest rate spread 3.48% 3.28%
Net interest income and net yield on
earning assets $ 9,869 3.92% $ 8,126 4.05%
======= ===== ======= =====
* Yields are quoted as fully taxable equivalents
11
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 words "estimate," "project," "intend,",
"expect," "believe," "anticipate," "plan," and similar expressions identify
forward-looking statements. The Corporation cautions readers that forward
looking statements, including without limitation, those relating to the
Corporation's future business prospects, ability to successfully integrate
recent acquisitions, revenues, working capital, liquidity, capital needs,
interest costs, and income, are subject to 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 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 2001
Net Income
For the first nine months of 2002 Community Bankshares Inc. (CBI)
earned a consolidated profit of $3,936,000 compared to $2,793,000 for the same
period of 2001, an increase of 40.9% or $1,143,000. Basic earnings per share
were $1.13 in the 2002 period compared to $.87 for the 2001 period. Diluted
earnings per share were $1.09 in the 2002 period compared to $.87 for the 2001
period.
For the first nine months of 2002 Orangeburg National Bank reported a
profit of $2,135,000 compared to $1,869,000 for the first nine months of 2001,
an increase of 14.2% or $266,000.
For the first nine months of 2002 Sumter National Bank reported a
profit of $979,000 compared to $849,000 for the first nine months of 2001, an
increase of 15.3% or $130,000.
For the first nine months of 2002 Florence National Bank reported a
profit of $277,000 compared to $125,000 for the first nine months of 2001, an
increase of 122% or $152,000. The Florence bank began operation in July 1998.
For the first nine months of 2002 Community Resource Mortgage Inc.
reported a profit of $333,000. CBI acquired the mortgage company in November
2001 so there are no comparative numbers available.
For the three month period ended September 30, 2002 the Bank of
Ridgeway reported a profit of $291,000. CBI acquired the Ridgeway Bank July 1,
2002 so there are no comparative numbers available.
12
As noted above, consolidated net income for the nine months ended
September 30, 2002, increased from the prior year by 40.9% or $1,143,000. The
major components of this increase are discussed below. Net interest income
before provision for loan losses for the nine months ended September 30, 2002
increased to $9,869,000 compared to $8,126,000 for the same period in 2001, an
increase of 21.4% or $1,743,000. For the same period the provision for loan
losses was $597,000 compared to $457,000 for the 2001 period, an increase of
30.6% or $140,000. Non-interest income for the 2002 period increased to
$5,566,000 from $1,987,000 for the 2001 period, a 180% or $3,579,000 increase.
Non-interest expense increased to $8,763,000 from $5,322,000, a 64.7% or
$3,441,000 increase.
The large percentage increases are primarily the result of the addition
of Community Resource Mortgage and the Bank of Ridgeway. The mortgage company
was acquired November 1, 2001 and the Ridgeway bank was acquired July 1, 2002.
Accordingly, throughout this discussion there will be significant percentage and
dollar changes on a year to date and quarter to date basis. Consoldiated net
income includes $333,000 which was contributed by fee income from residential
mortgage lending activities of the mortgage company. This income is very
sensitive to home purchase and refinancing demand which, in turn, is sensitive
to interest rates. Accordingly, this component of net income is significantly
more volatile than other components of net income. This volatility is somewhat
mitigated by the fact that personnel compensation is directly related to loan
production volumes.
Profitability
Profitability may be measured 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. Operating results for the nine months ended September 30,
2002 and 2001 are shown below.
Period ended September 30,
2002 2001
---- ----
(dollars in thousands)
Average assets ....................... $358,933 $281,704
ROA .................................. 1.46% 1.32%
Average equity ....................... $ 33,152 $ 24,488
ROE .................................. 15.83% 15.21%
Net income ........................... $ 3,936 $ 2,793
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
nine months of 2002 net interest income after provision for loan losses
increased to $9,272,000 from $7,669,000, a 20.9% or $1,603,000 increase over the
2001 period. This improvement was mostly the result of a $69 million increase in
the average volume of earning assets, of which $40 million resulted from
acquistions. The average yield on earning assets decreased to 6.31% for the 2002
period from 8.07% for the 2001 period. This decline in yield was primarily the
result of market interest rate declines. When 2001 began, the prime lending rate
13
was 9.5%; by year-end 2001 it was at 4.75% where it has remained through the
first nine months of 2002.
For the first nine months of 2002 the cost of funds averaged 2.83%,
decreased from 4.79% for the first nine months of 2001. The effect of these
changes was a net interest spread (yield on earning assets less cost of interest
bearing liabilities) of 3.48% for the first nine months of 2002, increased from
3.28% for the first nine months of 2001. CBI's net interest margin (net interest
income divided by total earning assets) was 3.92% for the first nine months of
2002 compared to 4.05% for the first nine months of 2001.
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 nine months ended September 30, 2002 and 2001. A
discussion of that table follows.
Total interest income for the first nine months of 2002 was $15,904,000
compared to $16,200,000 for the same period in 2001, a 1.8% or $296,000
decrease. The yield on average earning assets for the 2002 period was 6.31%,
decreased from 8.07% for the 2001 period. Total average interest earning assets
for the 2002 period were $336,073,000 compared to $267,610,000 for the 2001
period, an increase of 25.6% or $68,463,000.
The loan portfolio earned $14,017,000 for the first nine months of 2002
compared to $13,694,000 for the same period of 2001, a 2.4% or $323,000
increase. The yield decreased to 6.97% for the 2002 period from 8.85% for the
2001 period. The average size of the loan portfolio was $268,216,000 for the
2002 period compared to $206,419,000 for the 2001 period, an increase of 29.9%
or $61,797,000.
The taxable investment portfolio earned $1,504,000 for the first nine
months in 2002 compared to $1,699,000 for the same period in 2001, an 11.5% or
$195,000 decrease. The yield decreased to 4.61% in the 2002 period from 6.21% in
the 2001 period. The average size of the portfolio was $43,507,000 in the 2002
period compared to $36,490,000 in the 2001 period, an increase of 19.2% or
$7,017,000.
The tax-exempt investment portfolio earned $111,000 for the first nine
months in 2002 compared to $21,000 for the same period in 2001, a 429% or
$90,000 increase. The yield (on a taxable equivalent basis) on the portfolio was
6.82%, an increase from 5.69%. The average size of the portfolio was $3,290,000
for the 2002 period compared to $746,000 in the 2001 period, an increase of 341%
or $2,544,000. The unusual magnitude of the percentage change in this category
is due to the acquisition of the Bank of Ridgeway on July 1, 2002 and its tax
exempt investment portfolio, which at September 30, 2002 totaled $9,515,000.
Interest bearing deposits in other banks contributed $18,000 for the
first nine months of 2002 compared to $144,000 during the prior year, a decrease
of 87.5% or $126,000. The yield on these deposits decreased to 1.73% for the
2002 period from 4.32% in the 2001 period. CBI averaged $1,388,000 in interest
bearing balances in the first nine months of 2002 compared to $4,441,000 the
first nine months of the prior year, a decrease of 68.7% or $3,053,000.
Federal funds sold earned $254,000 the first nine months of 2002
compared to $642,000 the prior year, a decrease of 60.4% or $388,000. Yields
14
decreased to 1.72% for the first nine months in 2002 from 4.39% for the first
nine months in 2001. For the first nine months of 2002 CBI increased its average
volume in federal funds sold to $19,672,000 compared to $19,514,000 for the
first nine months of 2001, a .8% or $158,000 increase.
Interest Expense
Interest expense for the first nine months of 2002 was $6,035,000
compared to the prior year's $8,074,000, a 25.3% or $2,039,000 decrease. The
volume of interest bearing liabilities was $284,461,000 for the first nine
months in 2002 compared to $224,702,000 for the first nine months of 2001, a
26.6% or $59,759,000 increase. The average rate paid for interest-bearing
liabilities during the 2002 period was 2.83%, decreased from 4.79% for the 2001
period.
The cost of savings accounts was $668,000 in the first nine months in
2002 compared to $927,000 in the first nine months of 2001, a 27.9% or $259,000
decrease. Average savings deposit balances were $52,748,000 for the first nine
months in 2002 compared to $37,290,000 for the first nine months of 2001, an
increase of 41.5% or $15,458,000. The average rate paid on these funds decreased
to 1.69% from 3.31%.
Interest bearing transaction accounts cost $230,000 for the first nine
months in 2002 compared to the prior year's $165,000, an increase of 39.4% or
$65,000. The volume of these deposits was $41,270,000 for the first nine months
in 2002 compared to $23,389,000 for the first nine months of 2001, a 76.5% or
$17,881,000 increase. The average rate paid on these funds for the first nine
months in 2002 decreased to .74% from .94% for the first nine months of 2001.
Time deposits cost $3,972,000 for the first nine months of 2002
compared to $5,909,000 for the first nine months of the prior year, a decrease
of 32.8% or $1,937,000. The volume was $155,153,000 for the first nine months in
2002 compared to $136,836,000 for the first nine months of 2001, a 13.4% or
$18,317,000 increase. The average rate paid on these funds decreased to 3.41%
for the first nine months in 2002 from 5.76% for the first nine months in 2001.
Short-term borrowings consist 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 $75,000 for the first nine months in 2002
compared to $212,000 for the first nine months of 2001, a decrease of 64.6% or
$137,000. The volume of these funds was $4,753,000 in the first nine months of
2002 compared to $7,414,000 in the first nine months of 2001, a decrease of
35.9% or $2,661,000. The average rate paid on these funds decreased to 2.10%
from 3.81%.
Other borrowings consist of advances from the Federal Home Loan Bank
and warehouse lines of credit for the mortgage company. They cost $1,090,000 for
the first nine months in 2002 compared to $861,000 for the first nine months in
2001, an increase of 26.7% or $229,000. The borrowings averaged $30,537,000
during the 2002 period compared to $19,773,000 for the prior year period, a
54.4% or $10,764,000 increase. The average rate paid on these funds decreased to
4.76% from 5.81%. The primary reason for the substantial increase in these
borrowings is the addition of the lines of credit for the mortgage company,
which are not reflected in 2001 period.
15
Non-Interest Income
Non-interest income for the first nine months of 2002 grew to
$5,566,000 from $1,987,000 for the first nine months of 2001, a 180% or
$3,579,000 increase. Approximately $3 million of this increase was related to
the mortgage company.
Non-Interest Expense
For the first nine months of 2002 non-interest expenses increased to
$8,763,000 from $5,322,000 for the first nine months of 2001, a 64.7% or
$3,441,000 increase. Approximately $2.1 million of this increase was related to
the mortgage company and approximately $650,000 was related to the Ridgeway
bank. These two acquisitions account for most of the increases noted below.
For the 2002 period personnel costs were $5,546,000 compared to
$3,172,000 for the 2001 period, an increase of 74.8% or $2,374,000;
For the 2002 period premises and equipment expenses were $998,000
compared to $703,000 for the 2001 period, an increase of 42% or $295,000; and
For the 2002 period other costs were $2,219,000 compared to $1,447,000
for the 2001 period, an increase of 53.4% or $772,000.
Income Taxes
CBI provided $2,139,000 for federal and state income taxes during the
first nine months of 2002 compared to $1,541,000 for the same period in 2001, a
38.8% or $598,000 increase. The average tax rate for the 2002 period was 35.2%
and for the 2001 period it was 35.6%.
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001
Net Income
For the quarter ended September 30, 2002 CBI earned a consolidated
profit of $1,600,000, compared to $962,000 for the comparable period of 2001, an
increase of 66.3% or $638,000. Basic earnings per share were $.37 in the 2002
period, compared to $.30 for the 2001 period. Diluted earnings per share were
$.36 in the 2002 period, compared to $.30 for the 2001 period. The changes in
the items comprising net interest income, which are discussed below, resulted
from essentially the same factors discussed above regarding the results of
operation for the nine months ended September 30, 2002, most notably the
acquisitions of Community Resource Mortgage and the Bank of Ridgeway.
Net interest income
Net interest income before provision for loan losses for the quarter
ended September 30, 2002 increased to $3,975,000 compared to $2,770,000 for the
same period in 2001, an increase of 43.5% or $1,205,000. For the same period the
provision for loan losses was $239,000 compared to $180,000 for the 2001 period,
an increase of 32.8% or $59,000.
16
Interest Income
Total interest income for the third quarter 2002 was $6,140,000
compared with $5,261,000 for the same period in 2001, a 16.7% or $879,000
increase.
The loan portfolio earned $5,351,000 for the third quarter 2002
compared to $4,578,000 for the same period of 2001, a 16.9% or $773,000
increase.
The investment portfolio earned $694,000 for the third quarter 2002
compared to $457,000 for the 2001 period, a 51.9% or $237,000 increase.
Interest bearing deposits in other banks contributed $8,000 for the
third quarter 2002 compared to $38,000 during the prior year, a decrease of
78.9% or $30,000.
Federal funds sold earned $87,000 the third quarter of 2002 compared to
$188,000 the prior year, a decrease of 53.7% or $101,000.
Interest expense
Interest expense for the third quarter of 2002 was $2,165,000 compared
to the prior year's $2,491,000, a 13.1% or $326,000 decrease.
Non-interest income and expense
Non-interest income for the 2002 period was $2,129,000 compared to
$744,000 for the 2001 period, a 186% or $1,385,000 increase. Most of this change
is due to the mortgage company. Non-interest expense was $3,440,000 compared to
$1,833,000, an 87.7% or $1,607,000 increase.
CHANGES IN FINANCIAL POSITION
Investment portfolio
The investment portfolio is comprised of held to maturity securities
and available for sale securities. CBI and its banks usually purchase short-term
issues (ten years or less) of U. S Treasury and U. S. Government agency
securities for investment purposes. At September 30, 2002, the held to maturity
portfolio totaled $500,000, unchanged from December 31, 2001. At September 30,
2002, the available for sale portfolio totaled $58,830,000 compared to
$43,207,000 at December 31, 2001, an increase of 36.2% or $15,623,000. The
following chart summarizes the investment portfolios at September 30, 2002, and
December 31, 2001.
17
September 30, 2002
Held to maturity Available for sale
Amortized cost Fair value Amortized cost Fair value
-------------- ---------- -------------- ----------
(dollars in thousands)
U. S. Government and agencies .......................... $ 500 $ 502 $46,583 47,008
Tax exempt securities .................................. - - 9,115 9,724
Mortgage backed securities ............................. - - 49 53
Other equity securities ................................ - - 2,045 2,045
------- ------- ------- -------
Total .................................................. $ 500 $ 502 $57,792 $58,830
======= ======= ======= =======
Unrealized gain (loss) ................................. $ 2 $ 1,038
======= =======
December 31, 2001
Held to maturity Available for sale
Amortized cost Fair value Amortized cost Fair value
-------------- ---------- -------------- ----------
(dollars in thousands)
U. S. Government and agencies ........................... $ 500 $ 500 $40,437 $40,415
Tax exempt securities ................................... - - 802 811
Other equity securities ................................. - - 1,981 1,981
----- ------- ------- -------
Total ................................................... $ 500 $ 500 $43,220 $43,207
===== ======= ======= =======
Unrealized (loss) ....................................... $ - $ (13)
===== =======
Loan portfolio
The loan portfolio is primarily consumer and small business oriented.
At September 30, 2002 the loan portfolio was $300,051,000 compared to
$229,905,000 at December 31, 2001, a 30.5% or $70,146,000 increase. The
following chart summarizes the loan portfolio at September 30, 2002 and December
31, 2001.
Sept. 30, 2002 Dec. 31, 2001
-------------- -------------
(dollars in thousands)
Real estate ......................... $187,361 $146,559
Commercial .......................... 76,561 56,515
Loans to individuals ................ 36,129 26,831
-------- --------
Total ............................... $300,051 $229,905
======== ========
Past Due and Non-Performing Assets and the Allowance for Loan Losses
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 September 30, 2002 and December 31, 2001.
18
Sept. 30, 2002 Dec. 31, 2001
-------------- -------------
(dollars in thousands)
Past due 90 days + accruing loans ........ $296 $17
Non-accrual loans ........................ $954 $281
Impaired loans (included in nonaccrual) .. $954 $281
Other real estate owned .................. $ - $267
Management considers the past due and non-accrual amounts at September
30, 2002 to be reasonable in relation to the size of the portfolio and
manageable in the normal course of business.
CBI had no restructured loans during any of the above listed periods.
Allowance for Loan Losses
The Corporation operates four independent community banks in central
South Carolina. Under the provisions of various state and national banking laws
each board of directors is responsible for determining the adequacy of its
Bank's loan loss allowance. In addition, each national Bank is supervised and
regularly examined by the Office of the Comptroller of the Currency of the U. S.
Treasury Department. Our state chartered bank is supervised and regularly
examined by the Federal Deposit Insurance Corporation and state bank examiners.
As a normal part of a safety and soundness examination examiners will assess and
comment on the adequacy of a bank's allowance for loan losses and may, in some
cases, require changes in the allowance. 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 cities or counties. 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 of each of the banks reviews its allowance for loan losses
in three broad categories: commercial, real estate and installment loans.
However, management of each of the banks does not believe it would be useful to
maintain a separate allowance for each category. Instead management of each of
the banks assigns an estimated risk percentage factor to each category in the
computation of the overall allowance. In general terms, the real estate loan
portfolio is subject to the least risk, followed by the installment loan
portfolio, which in turn is followed by the commercial 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.
Based on the current levels of non-performing and other problem loans,
management of each of the banks believes that loan charge-offs in 2002 will
exceed the 2001 levels as such loans progress through the collection process.
Management believes that the allowance for loan losses, as of September 30, 2002
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.
19
The aggregate allowance for loan losses of the Banks and the aggregate
activity with respect to those allowances are summarized in the following table.
Nine months ended Nine months ended
September 30, 2002 Dec. 31, 2001 September 30, 2001
------------------ ------------- ------------------
Allowance at beginning of period ........................... $ 3,248 $ 2,424 $ 2,424
Provision expense .......................................... 597 678 457
Net charge offs ............................................ (348) (272) (120)
------- ------- -------
Allowance at end of period ................................. $ 3,497 $ 2,830 $ 2,761
======= ======= =======
Allowance / outstanding loans .............................. 1.17% 1.23% 1.26%
In reviewing the adequacy of the allowance for loan losses at the end
of each period, management of each bank considers historical loan loss
experience, current economic conditions, loans outstanding, trends in
non-performing and delinquent loans, and the quality of collateral securing
problem loans. Based on these considerations management makes estimates on the
amount of loss inherent in the loan portfolio so that an adequate allowance can
be maintained. After charging off all known losses, management of each bank
considers the allowance adequate to provide for estimated losses inherent in the
loan portfolio at September 30, 2002.
Intangible assets
CBI has adopted FASB No. 142, Goodwill and Other Intangible Assets, as
of January 1, 2002. As of September 30, 2002 the balance in intangible assets
totaled $7,958,000, compared to $921,000 at December 31, 2001. Of the balance,
approximately $7 million represents goodwill and the core deposit intangible
associated with the acquisition of the Ridgeway bank (more fully discussed later
in this document) and the $921,000 represents goodwill associated with the
acquisition of Community Resource Mortgage.
Deposits
Deposits were $334,125,000 at September 30, 2002 compared to
$255,433,000 at December 31, 2001, an increase of 30.8% or $78,692,000.
Time deposits greater than $100,000 were $70,082,000 at September 30,
2002 compared to $51,374,000 at December 31, 2001, an increase of 36.4% or
$18,708,000. This category of deposits is generally more sensitive to changes in
interest rates than other categories and consequently may be a somewhat volatile
funding source. Slightly less than half the increase in balances is accounted
for by the addition of the Ridgeway bank, most of the remainder is due to
increases at the Sumter bank.
20
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, Florence National
Bank and the Bank of Ridgeway 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 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 $334 million in 2002. This base of deposits is the major source of
operating liquidity.
CBI's long term liquidity needs are expected to be primarily affected
by the maturing of long-term certificates of deposit. At September 30, 2002 CBI
had approximately $29.9 million and $20 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
$162 million and $46 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.
21
Capital resources
As summarized in the table below, CBI maintains a well capitalized
position.
Minimum required
for capital
Sept. 30, 2002 Dec. 31, 2001 adequacy
-------------- ------------- --------
Tier 1 capital to average total assets ............................... 8.41% 8.20% 4.00%
Tier 1 capital to risk weighted assets ............................... 11.20% 11.10% 4.00%
Total capital to risk weighted assets ................................ 12.34% 12.30% 6.00%
In the opinion of management, the Corporation's current and projected
capital positions meet all applicable requirements and are adequate.
Dividends
CBI declared and paid a quarterly cash dividend of eight cents per
share for each of the first three quarters of 2002. The total cost of these
dividends was $873,000.
Business Combination
On July 1, 2002 CBI acquired 100% of the common stock of Ridgeway
Bancshares Inc., the parent of the Bank of Ridgeway. The contract purchase price
was one million shares of CBI common stock, with a market value at the time of
the announcement of $12,020,000, and $4 million in cash. CBI incurred additional
costs associated with the acquisition of $621,000. The results of Ridgeway's
operations have been included in the consolidated financial statements since
that date. The Bank of Ridgeway is the oldest state chartered community bank in
the state of South Carolina and is operating as one of four community bank
subsidiaries of CBI. As a result of the acquisition, CBI expects to improve its
position in the South Carolina community banking market.
The following table summarizes the estimated fair market value of the
assets acquired and the liabilities assumed at the date of the acquisition, July
1, 2002. CBI obtained the services of an independent firm to assist in valuing
the loans and deposits. Local real estate appraisers were used to determine the
fair value of the bank's real property.
22
$ in thousands Fair value
----------
ASSETS
Cash and federal funds ................................. $ 9,774
Investments ............................................. 24,727
Loans, net of allowance ................................. 44,078
Premises and equipment .................................. 1,021
Goodwill ................................................ 3,400
Core deposit intangible ................................. 3,698
Other assets ............................................ 599
-------
Total assets acquired ..................................... $87,297
-------
LIABILITIES
Deposits ................................................ $66,697
Short-term borrowings ................................... 3,600
Other liabilities ....................................... 4,359
-------
Total liabilities assumed ................................. 74,656
-------
Net assets acquired ....................................... $12,641
=======
The core deposit intangible of $3.7 million will be amortized over its
estimated useful life of 15 years. The goodwill amount of $3.4 million will be
periodically evaluated for impairment.
23
Presented below are the pro forma results of operations for the year to
date and quarter ended September 30, 2002 and the corresponding periods for 2001
as though the business combination had been completed on the first day the
reported period.
2002 2001
For the nine months ended
September 30, CBI RW Total* CBI RW Total
--- -- ------ --- -- -----
Total interest and noninterest income .......... 21,470 2,693 24,163 18,187 4,524 22,711
Net interest income ............................ 9,869 1,674 11,543 8,126 2,299 10,425
Net income ..................................... 3,936 410 4,346 2,793 791 3,584
EPS ............................................ 1.09 0.91
2002 2001
For the three months ended
September 30, CBI RW Total* CBI RW Total
--- -- ------ --- -- -----
Total interest and noninterest income .......... 6,902 1,367 8,269 6,005 1,477 7,482
Net interest income ............................ 3,097 878 3,975 2,770 785 3,555
Net income ..................................... 1,309 291 1,600 962 270 1,232
EPS ............................................ 0.37 0.36
* CBI total includes Ridgeway results for three months ended Sept. 30, 2002
** Total is from the statements of income
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 the risk that 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. Management believes that 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.
24
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 September 30, 2002 the Corporation is
positioned so that net interest income would be expected to increase $363,000
and net income would be expected to increase $224,000 in the next twelve months
if interest rates rise 100 basis points. Conversely, net interest income would
be expected to decline $363,000 and net income would be expected to decline
$224,000 in the next twelve months if interest rates decline 100 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 September 30, 2002 there was no significant change from the
interest rate sensitivity analysis for the various changes in interest rates
calculated as of December 31, 2001. The foregoing disclosures related to the
market risk of the Corporation should be read in connection with Management's
Discussion and Analysis of Financial Position and Results of Operations included
in the 2001 Annual Report on Form 10-K.
Item 4. Controls and Procedures
(a) Based on their evaluation of the issuer's disclosure controls and procedures
(as defined in 17 C.F.R. Sections 240.13a-14(c) and 240.15d-14(c)) as of a date
within 90 days prior to the filing of this quarterly report, the issuer's chief
executive officer and chief financial officer concluded that the effectiveness
of such controls and procedures was adequate.
(b) There were no significant changes in the issuer's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses, other than the following item.
In September the CBI audit committee and board of directors conducted a review
of the company's risk management systems. They elected to increase the financial
resources devoted to loan review, compliance and internal auditing. The Board
and management consider this to be an enhancement of internal controls.
25
Part II--Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit No.(from Description
item 601 of S-K)
10 Amended and Restated Guaranty Agreement, dated
October 7, 2002
b) Reports on Form 8-K.
1. A Form 8-K was filed July 15, 2002 to report pursuant to item 2
thereof the Corporation's acquisition of Ridgeway Bancshares, Inc.
2. Amendment No. 1 to the above referenced 8-K was filed September 16,
2002 to provide financial statements required by Items 2 and 7 of Form
8-K in conncection with the Corporation's acquisition of Ridgeway
Bancshares, Inc.
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: November 12, 2002
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)
26
CERTIFICATIONS
I, E. J. Ayers, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Community
Bankshares Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002 s/E. J. Ayers, Jr.
-----------------------------------
E. J. Ayers, Jr.
Chairman and CEO
27
CERTIFICATIONS
I, William W. Traynham, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Community
Bankshares Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002 s/William W. Traynham
-----------------------------------
William W. Traynham
President and CFO
28
EXHIBIT INDEX
Exhibit No. (from Description
Item 601 of S-K)
10 Amended and Restated Guaranty Agreement, Dated
October 7, 2002
29