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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarter period ended September 30, 2002
/ / TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE EXCHANGE ACT
For the transition period from _______ to _______
Commission File Number: 33-81890
Community Bankshares, Inc.
----------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1415887
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
448 North Main Street,
Cornelia, Georgia 30531
(Address of principal executive offices)
(Zip Code)
(706) 778-2265
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant has (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
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of
November 1, 2002: 2,169,757
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet -
September 30, 2002 and December 31, 2001 2
Consolidated Statements of Income
and Comprehensive Income for Three
Months Ended September 30, 2002 and 2001
and Nine Months Ended September 30, 2002
and 2001 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2002 and 2001 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 7
Item 4. Controls & Procedures
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8 - K 8
Signatures 9
Certifications 10
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2002 AND DECEMBER 31, 2001
(Dollars in thousands)
(Unaudited)
ASSETS 2002 2001
------ -------- --------
Cash and due from banks $ 39,093 $ 37,182
Interest-bearing deposits in banks 538 410
Federal funds sold 6,095 16,360
Securities available-for-sale 100,345 77,901
Securities held-to-maturity (fair value
$29,812 and $30,384 27,878 29,602
Restricted equity securities 1,215 1,215
Loans 479,629 455,791
Less allowance for loan losses 7,186 6,652
--------- ---------
Loans, net 472,443 449,139
--------- ---------
Premises and equipment 15,784 15,879
Other assets 16,722 18,521
--------- ---------
Total assets $ 680,113 $ 646,209
========= =========
LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY
Deposits
Non-interest-bearing demand $ 86,081 $ 81,174
Interest-bearing demand 128,571 131,034
Savings 30,742 26,500
Time, $100,000 and over 124,093 113,545
Other time 218,867 209,962
--------- ---------
Total deposits 588,354 562,215
Other borrowings 16,811 12,070
Other liabilities 9,832 13,321
--------- ---------
Total liabilities 614,997 587,606
--------- ---------
Redeemable common stock held by ESOP, net of unearned ESOP
shares related to ESOP debt guarantee of $1,550,000 at September 30,
2002 and December 31, 2001, respectively
13,957 15,160
--------- ---------
Shareholders' equity
Common stock, par value $1; 5,000,000
shares authorized; 2,169,757 and 2,186,330 shares issued and
outstanding at September 30, 2002 and December 31, 2001 2,201 2,186
Capital surplus 6,315 6,182
Retained earnings 41,733 35,071
Accumulated other comprehensive income,
net of tax 2,215 4
Less 31,573 shares of Treasury stock at September 30, 2002 (1,305) 0
--------- ---------
Total shareholders' equity 51,159 43,443
--------- ---------
Total liabilities, redeemable common stock and shareholders' equity $ 680,113 $ 646,209
========= =========
See Notes to Consolidated Financial Statements.
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHESIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 AND
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---------------------- ------------------------
Interest income
Loans $ 9,395 $ 10,621 $ 28,098 $ 32,432
Taxable securities 720 645 2,086 2,030
Nontaxable securities 774 615 2,213 1,836
Deposits in banks 3 9 9 23
Federal funds sold 61 185 272 633
-------- -------- -------- --------
Total interest income 10,953 12,075 32,678 36,954
-------- -------- -------- --------
Interest expense
Deposits 3,837 5,642 12,101 17,606
Other borrowings 181 170 518 497
-------- -------- -------- --------
Total interest expense 4,018 5,812 12,619 18,103
-------- -------- -------- --------
Net interest income 6,935 6,263 20,059 18,851
Provision for loan losses 641 401 1,694 1,201
-------- -------- -------- --------
Net interest income after
Provision for loan losses 6,294 5,862 18,365 17,650
-------- -------- -------- --------
Other income
Service charges on deposit accounts 1,325 1,155 3,816 3,220
Other service charges and fees 448 328 1,150 900
Gains on sale of loans 108 32 155 95
Nonbank subsidiary non-interest income 3,029 1,727 7,186 7,864
Security transactions, net -- 139 --
Other operating income 159 153 552 530
-------- -------- -------- --------
Total other income 5,069 3,395 12,998 12,609
-------- -------- -------- --------
Other expenses
Salaries and employee benefits 4,332 3,998 13,007 12,510
Equipment expense 819 606 2,384 2,248
Occupancy expense 477 436 1,380 1,308
Other operating expenses 2,194 2,382 6,589 7,185
-------- -------- -------- --------
Total other expenses 7,822 7,422 23,340 23,251
-------- -------- -------- --------
Income before income taxes 3,541 1,835 8,023 7,008
Income tax expense 1,006 516 2,259 2,067
-------- -------- -------- --------
Net income $ 2,535 $ 1,319 $ 5,764 $ 4,941
-------- -------- -------- --------
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains arising during
periods
1,331 466 2,294 823
Less: reclassification adjustment for (gains)
Losses realized in net income, net of tax -0- -- (83) --
-------- -------- -------- --------
Total other comprehensive income 1,331 466 2,211 823
-------- -------- -------- --------
Comprehensive income $ 3,866 $ 1,785 $ 7,975 $ 5,764
======== ======== ======== ========
Basic earnings per common share $ 1.17 $ 0.60 $ 2.64 $ 2.26
======== ======== ======== ========
Diluted earnings per common share 1.16 0.60 2.64 2.24
======== ======== ======== ========
Cash dividends per share of common stock $ .06 $ .05 $ .18 $ .15
======== ======== ======== ========
See Notes to Consolidated Financial Statements.
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Dollars in thousands)
(Unaudited)
2002 2001
-------- --------
OPERATING ACTIVITIES
Net income $ 5,764 $ 4,941
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 2,406 1,927
Provision for loan losses 1,694 1,201
Deferred income taxes 1,116 (340)
Decrease in loans held for sale 0 704
Net (gains) losses on sale of securities (139) 0
Net (gains) losses on sale of other real estate 32 14
Decrease in interest receivable 640 167
Increase (decrease) in interest payable (3,029) 4,474
Increase (decrease) in taxes payable 250 (1,012)
Decrease in accounts
Receivable of nonbank subsidiary 633 959
Decrease in work in
Process of nonbank subsidiary 135 595
Decrease in accruals and payables
of nonbank subsidiary (654) (4,657)
Other operating activities (1,718) (1,074)
-------- --------
Net cash provided by
Operating activities 7,130 7,899
-------- --------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (32,233) (31,978)
Proceeds from sales of securities available for sale 5,118 5,719
Proceeds from maturities of securities
Available-for-sale 8,494 16,961
Proceeds from maturities of securities
held-to-maturity 1,724 1,579
Net (increase) decrease in Federal funds sold 10,265 (11,420)
Net (increase) decrease in interest-bearing
deposits in banks (128) (42)
Net increase in loans (29,038) (32,974)
Purchase of premises and equipment (1,985) (2,695)
Proceeds from sales of premises and equipment 8 --
Proceeds from sales of other real estate 3,372 978
-------- --------
Net cash used in
Investing activities (34,403) (53,872)
-------- --------
FINANCING ACTIVITIES
Net increase in deposits 26,140 38,085
Advances from FHLB 5,000 0
Repayment of other borrowings (259) 0
Proceeds for the exercise of stock options 0 30
Dividends paid (392) (327)
Purchase of treasury stock (1,305)
-------- --------
Net cash provided by
Financing activities 29,184 38,820
-------- --------
Net increase (decrease) in cash and
Due from banks $ 1,911 $ (7,153)
Cash and due from banks at beginning of the period 37,182 38,410
-------- --------
Cash and due from banks at end of the period $ 39,093 $ 31,257
-------- --------
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 15,648 $ 13,629
Income taxes $ 2,183 $ 3,419
NONCASH TRANSACTIONS
Principal balance of loan transferred to other real estate $ (4,041) $ (1,372)
See Notes to Consolidated Financial Statements
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in our opinion, necessary for a fair statement of
results for the interim periods.
The results of operations for the three and nine month periods ending September
30, 2002 are not necessarily indicative of the results to be expected for the
full year.
NOTE 2. RECENT DEVELOPMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 141 (SFAS No. 141), "Business Combinations" and Statement No. 142 (SFAS No.
142), "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. SFAS No. 141 also specifies criteria that intangible assets
acquired in a purchase method business combination must meet to be recognized
and reported apart from goodwill. SFAS No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. The impact of this change has resulted in a
reduction of amortization expense of $2,000 per quarter. Goodwill was evaluated
prior to June 30, 2002 and it was determined no write-down because of impairment
was warranted. SFAS No. 142 also requires that intangible assets with estimable
useful lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment. SFAS No. 141 was
effective July 1, 2001 while the provisions of SFAS No. 142 were adopted
effective January 1, 2002.
NOTE 3. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) and
weighted-average shares outstanding (the denominator) used in determining basic
and diluted earnings per common share (EPS).
Three Months Ended June 30, 2002
(Dollars and shares in Thousands,
except per share amounts)
Net Weighted-Average
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS $2,535 2,175 $ 1.17
Effect of Dilutive Securities
Stock options 0 15 .01
------ ------ -------
Diluted EPS $2,535 2,190 $ 1.16
====== ====== =======
Three Months Ended September 30 2001
(Dollars and shares in Thousands,
except per share amounts)
Net Weighted-Average
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS $1,319 2,185 $ .60
Effect of Dilutive Securities
Stock options 0 19 0
------ ------ -----
Diluted EPS $1,319 2,204 $ .60
====== ====== =====
Nine Months Ended September 30, 2002
(Dollars and shares in Thousands,
except per share amounts)
Net Weighted-Average
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS $5,764 2,180 $ 2.64
Effect of Dilutive Securities
Stock options 0 1 0
------ ------ -----
Diluted EPS $5,764 2,181 $ 2.64
====== ====== =====
Nine Months Ended September 30, 2001
(Dollars and shares in Thousands,
except per share amounts)
Net Weighted-Average
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS $4,941 2,183 $ 2.26
Effect of Dilutive Securities
Stock options 0 19 .02
------ ------ -----
Diluted EPS $4,941 2,202 $ 2.24
====== ====== =====
NOTE 4 SEGMENT INFORMATION
Selected segment information by industry segment for the three and nine month
periods ended September 30, 2002 and 2001 is as follows:
Reportable Segments
(Dollars in thousands)
-----------------------------------------------------
For the three month period ended Financial All
September 30, 2002 Banking Supermarkets Other Total
---------------------------------- --------- ------------ --------- ---------
Revenue from external customers $ 12,996 $ 3,004 $ 103 $ 16,103
Intersegment revenues (expenses) (59) 54 550 545
Segment profit (loss) 1,790 980 (261) 2,509
Segment assets 679,917 17,549 5,591 703,057
Reportable Segments
(Dollars in thousands)
-----------------------------------------------------
For the three month period ended Financial All
September 30, 2001 Banking Supermarkets Other Total
---------------------------------- --------- ------------ --------- ---------
Revenue from external customers $ 13,848 1,628 $ 61 $ 15,537
Intersegment revenues (expenses) (206) 256 475 525
Segment profit (loss) 1,313 360 (371) 1,302
Segment assets 636,286 22,834 3,950 663,070
Reportable Segments
(Dollars in thousands)
-----------------------------------------------------
For the nine month period ended Financial All
September 30, 2002 Banking Supermarkets Other Total
---------------------------------- --------- ------------ --------- ---------
Revenue from external customers $ 38,506 $ 7,208 $ 351 $ 46,065
Intersegment revenues (expenses) (302) 492 1,646 1,836
Segment profit (loss) 4,888 1,838 (939) 5,787
Segment assets 679,917 17,549 5,591 703,057
Reportable Segments
(Dollars in thousands)
-----------------------------------------------------
For the nine month period ended Financial All
September 30, 2001 Banking Supermarkets Other Total
---------------------------------- --------- ------------ --------- ---------
Revenue from external customers $ 42,006 $ 7,562 $ 337 $ 49,905
Inter-segment revenues (expenses) (658) 908 1,435 1,685
Segment profit (loss) 3,817 2,193 (1,017) 4,993
Segment assets 636,286 22,834 3,950 663,070
For the three months For the six months
Ended September, 30 Ended September, 30
------------------- -------------------
2002 2001 2002 2001
Net Income
Total profit for reportable segments $ 2,770 $ 1,673 $ 6,726 $ 6,010
Non-reportable segment loss (261) (371) (939) (1,017)
Elimination of intersegment (gains) losses 27 17 (22) (52)
Total consolidated other income $ 2,535 $ 1,319 $ 5,764 $ 4,941
TOTAL ASSETS 2002
------------ ---------
Total assets for reportable segments $ 697,466
Non-reportable segment assets 5,591
Elimination of intersegment assets (22,943)
---------
Total consolidated assets $ 680,113
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
- ----------------------------------------------
The following appears in accordance with the Securities Litigation Reform Act.
These financial statements and discussion and analysis include forward looking
statements that involve inherent risks and uncertainties. A number of important
factors could cause actual results to differ materially from those in the
forward looking statements. Those factors include fluctuations in interest
rates, inflation, government regulations, economic conditions, and competition
in the geographic business areas in which we conduct operations.
Management's Discussion and Analysis
- ----------------------------------------------
The following is management's discussion and analysis of certain significant
factors which have affected our financial position and operating results during
the periods included in the accompanying consolidated financial statements.
Financial Condition
As of September 30, 2002, we continue to experience moderate growth in total
assets, total loans and total deposits as compared to December 31, 2001. Total
assets, loans, and deposits increased by 5.25%, 5.23% and 4.65% respectively.
The growth in all areas except for loans is slightly less than the same period
last year but consistent with management's expectations. The growth in assets is
attributable to growth in deposits and retention of earnings. Management expects
the growth to continue in the future.
Liquidity
As of September 30, 2002, the liquidity ratio was 21.33% which is within our
target range of 20 - 25%. The banks have available lines of credit to meet
unexpected liquidity needs. Liquidity is measured by the ratio of net cash,
short term and marketable securities to net deposits and short term liabilities.
Interest Rate Risk
Our overall interest rate risk was less than 3% of net interest income subjected
to rising and falling rates of 200 basis points. We have positioned ourselves to
minimize the affect of changes in rates in either direction.
Capital
Banking regulation requires the Company and the Banks to maintain capital levels
in relation to our assets. At September 30, 2002, the Company's and banks'
capital ratios were considered well capitalized based on regulatory minimum
capital requirements. The minimum capital requirements and the actual capital
ratios for the Company at September 30, 2002 were as follows:
Actual Regulatory Minimum
------ ------------------
Leverage 9.03% 4.00%
Risked Based Capital ratios:
Core Capital 12.18% 4.00%
Total Capital 13.43% 8.00%
Results of Operation
Net interest income for the nine month period ended September 30, 2002 is up
6.41% over the same period for 2001, from $18,851,000 to $20,059,000 and is up
10.73% for the three month period ending September 30, 2002 from $6,263,000 to
$6,935,000 for 2002. Interest income was down by 11.57% for the nine month
period ending September 30, 2002 from $36,954,000 to $32,678,000 and down 9.29%
for the three month period ending September 30, 2002 from $12,075,000 to
$10,953,000. The decrease in interest income is the net effect of a decrease in
the average prime rate from one year ago and an increase in earning assets of
$42,655,000 from September 2001 to September 2002. This represents a 7.44%
increase in earning assets and includes a 27.70% increase in investments of
$28,075,000 and a 7.15% increase in total loans amounting to $31,988,000 for the
12 month period. Federal Funds sold declined by $17,450,000 during this 12 month
period. Interest expense was down 30.29% or $5,484,000 for the nine month period
ended September 30, 2002, over the same period in 2001 and down 30.87% or
$1,794,000 for the three month period ending September 30, 2002, as compared to
2001. These decreases were related directly to the lower rate environment. The
Company's net interest margin was 4.89% for the nine month period ended
September 30, 2002 compared to 4.48% for the same period in 2001. Management
plans for a stable net interest margin over the next twelve months. Any increase
in rates would have a slight positive effect on our net interest margin, and
conversly, any decrease in rates would have a slight negative effect on our net
interest margin.
The loan loss reserve is evaluated quarterly and adjusted to reflect the risk in
the portfolio in the following manner. We use two different methods of measuring
risk in the portfolio: (1) Risk in our watch list of loans and past due ratios,
(2) Percentage of classified loans and 3) and Historical Charge-offs. We then
compare results to reserve balances to assure all identified risk are covered.
The following table furnishes information on the loan loss reserve for the
current nine month reporting period and the same period for 2001.
2002 2001
------- -------
Beginning Balance $ 6,652 $ 6,307
Less Charge Offs:
Commercial Loans (167) (117)
Real Estate Loans (618) (151)
Consumer Loans (544) (726)
(1,329) (994)
------- -------
Plus Recoveries
Commercial Loans 19 14
Real Estate Loans 17 11
Consumer Loans 133 119
------- -------
169 144
------- -------
Net Charge-offs (1,160) (859)
------- -------
Provision for loan loss 1,694 1,201
------- -------
Ending Balance $ 7,186 $ 6,658
======= =======
The majority of the real estate loan charge-offs for 2002 related to one loan
and does not represent a general decline in the real estate portfolio. The
provision for loan losses for the nine month period ended September 30, 2002
represented 127.5% of charge-offs for the same period, while the provision for
the first nine months of 2001 represented 120% of the charge offs recorded in
that period. The reserve at September 30, 2002 represented 180% of non-accrual
loans while the reserve at September 30, 2001 represented 184% of non-accrual
loans. Non-accrual loans have increased from $3,613,000 at September 30, 2001 to
$3,997,000 as of September 30, 2002. Past due loans greater than 90 days and
accruing interest have increased from $2,121,000 in 2001 to $2,367,000 in 2002.
The level of non-accrual loans and past due loans is indicative of the overall
state of the economy. Our net charged-off loans to total loan ratio was .24% for
the nine month period ended September 30, 2002 compared to .19% for the same
period in 2001. The loan loss reserve balance to total loan ratio at September
30, 2002 was 1.50% as compared to 1.49% at September 30, 2001. Management
considered the loan loss reserve to be adequate to absorb any anticipated losses
that may be incurred.
The following table is a summary of Non Accrual, Past due and Restructured Debt
September 30, 2002
Non-accrual Past Due Restructured
Loans 90 days Debt
Still accruing
----------- -------------- -----------
Commercial Loans $ 556 $ 456 $ 134
Real Estate Loans 2,910 1,691 965
Consumer Loans 531 220 58
------ ------ ------
Total $3,997 $2,367 $1,157
====== ====== ======
September 30, 2001
Non-accrual Past Due Restructured
Loans 90 days Debt
Still accruing
----------- -------------- ------------
Commercial Loans $ 137 $ 302 $ 22
Real Estate Loans 3,064 1,515 992
Consumer Loans 412 304 61
------ ------ ------
Total $3,613 $2,121 $1,274
====== ====== ======
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity or capital resources.
These classified loans do not represent material credits about which management
is aware of any information which causes management to have doubts concerning
the collectibility of such credits.
The banks place loans on non-accrual at such a time it is apparent that the
collection of principal and interest is questionable and the loan is either past
due 90 days or bankruptcy has been filed.
Other income increased by 3.01% or $389,000 during the nine month period ended
September 30, 2002 as compared to the same period for 2001 and the three month
period ending September 30, 2002 showed a 49.31% or $1,674,000 increase over the
same three month period of 2001. The increase during both the three month and
nine month periods is attributed to amending FSI's contract to install banking
pavilions for the Canadian Imperial of Commerce. Without the one time settlement
other income decreased for the nine month period ended September 30, 2002. This
decrease for the nine month period is primarily due to the decrease in activity
associated with an agreement between Financial Supermarkets, Inc. (FSI), a
nonbank subsidiary, and the Canadian Imperial Bank of Commerce ("CIBC") to
establish banking pavilions in Florida. Due to slowing economic conditions,
management anticipates fewer sales of supermarket bank units. Service charges on
deposit accounts increased by $596,000 or 18.51% for the nine month period ended
September 30, 2002, and increased $170,000 or 14.72% for the three month period
ended September 30, 2002, as compared to the same periods in 2001. During the
last two quarters of 2001, the banks started charging a daily overdraft fee on
accounts that are overdrawn more than one day. During the nine and three month
periods ended September 30, 2002, these fees totaled $487,000 and $196,000
respectively. Non-sufficient funds (NSF) charges increased $141,000 and $72,000
for the nine month period and the three month period ended September 30, 2002,
respectively, compared to the same period in 2001. NSF charges increased
primarily as a result of our continued growth in accounts in the totally free
checking program.
Other expenses increased by .38% or $89,000 for the nine month period ended
September 30, 2002, and increased 5.39% or $400,000 for the three month period
ending September 30, 2002 as compared to the same periods in 2001. Salaries and
benefits increased by $497,000 or 3.97% during the nine month period ended
September 30, 2002 compared to the same period in 2001. Full time equivalent
employees increased only from 383 at the end of September 2001 to 387 at
the end of September 2002. Other operating expenses reflected a reduction of
8.56% or $616,000 for the nine month period ending September 30, 2002 when
compared to the nine month period ended September 30, 2001 and a 7.89% decrease
for the three month period ending September 30, 2002 compared to the same period
in 2001. In other operating expenses, travel expenses decreased 31.69% or
$393,000 for the nine month period ended September 30, 2002, and 28.19% or
$115,000 for the three month period ended September 30, 2002. These decreases
are due to a slow down in non-bank subsidiary travel during the nine months
ended September 30, 2002. In addition, legal fees decreased by 51.56% or
$132,000 for the nine month period ended September 30, 2002 and 52.44% or
$43,000 for the three month period ended September 30, 2002 when compared to the
same periods in 2001.
We incurred income tax expenses of $1,006,000 which represents an effective rate
of 28.41% for the three month period ended September 30, 2002 as compared to
$516,000 which represents an effective tax rate of 28.12% for the same period in
2001. In addition, we incurred income tax expenses of $2,259,000 which
represents an effective rate of 28.16% for the nine month period ended September
30, 2002 as compared to $2,067,000 which represents an effective tax rate of
29.49% for the same period in 2001.
Net income for the nine month period ended September 30, 2002, was $5,764,000 or
an increase of 16.66% and for the three month period ended September 30, 2002,
was $2,535,000 or an increase of 92.20% over the same periods for 2001. Our
income fluctuated due to the timing of supermarket bank installations and the
one time settlement for the contract amendment with CIBC in the third quarter.
We are not aware of any other known trends, events or uncertainties, other than
the effect of events as described above, that will have or that are reasonably
likely to have a material effect on its liquidity, capital resources or
operations. We are also not aware of any current recommendations by the
regulatory authorities which, if they were implemented, would have such an
effect.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed only to U.S. dollar interest rate changes and
accordingly, the Company manages exposure by considering the possible changes in
the net interest margin. The Company does not have any trading instruments nor
does it classify any portion of the investment portfolio as held for trading.
The Company does not engage in any hedging activities or enter into any
derivative instruments with a higher degree of risk than mortgage backed
securities, which are commonly pass through securities. Finally, the Company has
no exposure to foreign currency exchange rate risk, commodity price risk, and
other market risks.
Interest rates play a major part in the net interest income of a financial
institution. The sensitivity to rate changes is known as "interest rate risk".
The repricing of interest earning assets and interest-bearing liabilities can
influence the changes in net interest income. As part of the Company's
asset/liability management program, the timing of repriced assets and
liabilities is referred to as Gap management. It is the policy of the Company to
maintain Gap ratio in the one-year time horizon of .80 to 1.20.
GAP management alone is not enough to properly manage interest rate sensitivity,
because interest rates do not respond at the same speed or at the same level to
market rate changes. For example, savings and money market rates are more stable
than loans tied to a "Prime" rate and thus respond with less volatility to a
market rate change.
The Company uses a simulation model to monitor changes in net interest income
due to changes in market rates. The model of rising, falling and stable interest
rate scenarios allows management to monitor and adjust interest rate sensitivity
to minimize the impact of market rate swings. The analysis of impact on net
interest margins as well as market value of equity over a twelve-month period is
subjected to a 200 basis point increase and decrease in rate. The September 2002
model reflects an increase of 2.61% in net interest income and a 15.53% decrease
in market value equity for a 200 basis point increase in rates. The same model
shows a 2.58% decrease in net interest income and an 8.8% increase in market
value equity for a 200 basis point decrease in rates. The Company's policy is to
allow no more than +-8% change in net interest income and no more than +-25%
change in market value equity for these scenarios. Therefore, the Company is
within its policy guidelines and is protected from any significant impact due to
market rate changes.
ITEM 4. CONTROLS & PROCEDURES
Our management, including the chief executive and chief financial officers,
supervised and participated in an evaluation of our disclosure controls and
procedures (as defined in federal securities rules) within the 90 days before we
filed this report. Based on that evaluation, our CEO and CFO have concluded that
our disclosure controls and procedures were effective as of the date of that
evaluation.
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
10.1 Amendment No. 1 to Consulting Agreement
99.1 Certification Pursuant to 18 U.S.C. Section 1350.
99.2 Certification Pursuant to 18 U.S.C. Section 1350.
(b) Reports on Form 8-K
--------------------
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMMUNITY BANKSHARES, INC.
DATE: November 14, 2002 BY: /s/ Harry L. Stephens
Harry L. Stephens,
Executive Vice President and
Chief Financial Officer
CERTIFICATION
I, Harry L. Stephens, certify that:
1. I have reviewed this quarterly report on Form 10Q 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 withih 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 function):
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 14, 2002 /s/ Harry L. Stephens
Harry L. Stephens
Executive Vice-President and Chief
Financial Officer
CERTIFICATION
I, J. Alton Wingate, certify that:
1. I have reviewed this quarterly report on Form 10Q 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 function):
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 14, 2002 /s/ J. Alton Wingate
J. Alton Wingate
President and Chief Executive Officer