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 June 30, 2004 Commission File No. 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 No.)
incorporation or organization)
791 Broughton Street
Orangeburg, South Carolina 29115
--------------------------------------------------------------------------------
(Address of principal executive offices, 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]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common Stock, no par
or stated value, 4,364,362 shares outstanding on August 2, 2004.
COMMUNITY BANKSHARES, INC.
FORM 10-Q
Index
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet ......................................................................... 3
Consolidated Statement of Income ................................................................... 4
Consolidated Statement of Changes in Shareholders' Equity .......................................... 5
Consolidated Statement of Cash Flows ............................................................... 6
Notes to Unaudited Consolidated Financial Statements ............................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .............. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk ......................................... 17
Item 4. Controls and Procedures ............................................................................ 17
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ................................................ 18
Item 6. Exhibits and Reports on Form 8-K ................................................................... 18
SIGNATURES ........................................................................................................... 19
2
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
COMMUNITY BANKSHARES, INC.
Consolidated Balance Sheet
(Unaudited)
June 30, December 31,
2004 2003
----- ----
(Dollars in thousands)
Assets
Cash and due from banks ................................................................. $ 14,857 $ 16,554
Federal funds sold ...................................................................... 16,579 25,321
--------- ---------
Total cash and cash equivalents .................................................. 31,436 41,875
Interest bearing deposits with other banks .............................................. 965 1,124
Securities available-for-sale ........................................................... 53,630 64,864
Securities held-to-maturity (estimated fair value $1,833 for 2004
and $2,155 for 2003) ............................................................... 2,000 2,000
Other investments ....................................................................... 2,040 2,038
Loans held for sale ..................................................................... 11,830 8,411
Loans receivable ........................................................................ 354,772 332,106
Less, allowance for loan losses ..................................................... (4,285) (4,206)
--------- ---------
Net loans ........................................................................ 350,487 327,900
Premises and equipment - net ............................................................ 6,858 6,915
Accrued interest receivable ............................................................. 2,152 2,186
Net deferred income tax assets .......................................................... 1,131 805
Intangible assets ....................................................................... 7,527 7,650
Prepaid expenses and other assets ....................................................... 1,393 812
--------- ---------
Total assets ..................................................................... $ 471,449 $ 466,580
========= =========
Liabilities
Deposits
Non-interest bearing ................................................................ $ 59,769 $ 59,337
Interest bearing .................................................................... 320,998 319,367
--------- ---------
Total deposits ................................................................... 380,767 378,704
Short-term borrowings ................................................................... 8,484 17,960
Long-term debt .......................................................................... 30,647 20,140
Accrued interest payable ................................................................ 702 585
Accrued expenses and other liabilities .................................................. 1,126 1,121
--------- ---------
Total liabilities ................................................................ 421,726 418,510
--------- ---------
Shareholders' equity
Common stock - no par value; 12,000,000 shares authorized; issued and
outstanding - 4,359,237 for 2004 and 4,331,460 for 2003 ............................. 29,725 29,402
Retained earnings ....................................................................... 20,521 18,610
Accumulated other comprehensive income (loss) ........................................... (523) 58
--------- ---------
Total shareholders' equity ....................................................... 49,723 48,070
--------- ---------
Total liabilities and shareholders' equity ....................................... $ 471,449 $ 466,580
========= =========
See accompanying notes to unaudited consolidated financial statements.
3
COMMUNITY BANKSHARES, INC.
Consolidated Statement of Income
(Unaudited)
Period Ended June 30,
---------------------
Three Months Six Months
------------ ----------
2004 2003 2004 2003
---- ---- ---- ----
(Dollars in thousands, except per share)
Interest and dividend income
Loans, including fees ..................................... $ 5,449 $ 5,816 $ 10,780 $ 11,091
Interest bearing deposits with other banks ................ 4 5 8 9
Debt securities ........................................... 409 352 905 845
Dividends ................................................. 19 20 38 40
Federal funds sold ........................................ 47 92 105 149
-------- -------- -------- --------
Total interest and dividend income .................... 5,928 6,285 11,836 12,134
-------- -------- -------- --------
Interest expense
Time deposits $100M and over .............................. 323 412 636 839
Other deposits ............................................ 895 1,079 1,814 2,198
-------- -------- -------- --------
Total deposits ........................................ 1,218 1,491 2,450 3,037
Short-term borrowings ..................................... 64 190 169 371
Long-term debt ............................................ 380 279 683 553
-------- -------- -------- --------
Total interest expense ................................ 1,662 1,960 3,302 3,961
-------- -------- -------- --------
Net interest income ............................................ 4,266 4,325 8,534 8,173
Provision for loan losses ...................................... 258 279 491 543
-------- -------- -------- --------
Net interest income after provision ............................ 4,008 4,046 8,043 7,630
-------- -------- -------- --------
Noninterest income
Service charges on deposit accounts ....................... 822 838 1,667 1,621
Securities gains (losses) ................................. (1) (298) (5) (252)
Mortgage brokerage income ................................. 903 1,314 1,652 2,825
Other ..................................................... 207 222 463 437
-------- -------- -------- --------
Total noninterest income .............................. 1,931 2,076 3,777 4,631
-------- -------- -------- --------
Noninterest expenses
Salaries and employee benefits ............................ 2,225 2,680 4,336 5,031
Premises and equipment .................................... 473 403 963 806
Other ..................................................... 1,077 1,135 2,208 2,116
-------- -------- -------- --------
Total noninterest expenses ............................ 3,775 4,218 7,507 7,953
-------- -------- -------- --------
Income before income taxes ..................................... 2,164 1,904 4,313 4,308
Income tax expense ............................................. 769 719 1,533 1,542
-------- -------- -------- --------
Net income ..................................................... $ 1,395 $ 1,185 $ 2,780 $ 2,766
======== ======== ======== ========
Per share
Net income ................................................ $ 0.32 $ 0.28 $ 0.64 $ 0.65
Net income, assuming dilution ............................. 0.31 0.27 0.62 0.63
Cash dividends declared ................................... 0.10 0.09 0.20 0.18
See accompanying notes to unaudited consolidated financial statements.
4
COMMUNITY BANKSHARES, INC.
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited)
Common Stock
------------ Accumulated
Number of Retained Other Comprehensive
Shares Amount Earnings Income (Loss) Total
------ ------ -------- ------------- -----
(Dollars in thousands, except per share)
Balance, January 1, 2003 .................................. 4,304,384 $ 29,090 $ 14,529 $ 98 $ 43,717
---------
Comprehensive income:
Net income ............................................ - - 2,766 - 2,766
---------
Unrealized holding gains and losses
on available-for-sale securities arising
during the period, net of income taxes of $247 ...... - - - 482 482
Reclassification adjustment for losses (gains)
realized in income, net of income taxes of $85 ...... - - - (167) (167)
---------
Total other comprehensive income ...................... - - - - 315
---------
Total comprehensive income ........................ - - - - 3,081
---------
Exercise of employee stock options ........................ 6,262 69 - - 69
Cash dividends declared, $.18 per share ................... - - (775) - (775)
--------- --------- --------- --------- ---------
Balance, June 30, 2003 .................................... 4,310,646 $ 29,159 $ 16,520 $ 413 $ 46,092
========= ========= ========= ========= =========
Balance, January 1, 2004 .................................. 4,331,460 $ 29,402 $ 18,610 $ 58 $ 48,070
---------
Comprehensive income:
Net income ............................................ - - 2,780 - 2,780
---------
Unrealized holding gains and losses
on available-for-sale securities arising
during the period, net of income taxes of $330 ...... - - - (584) (584)
Reclassification adjustment for losses (gains)
realized in income, net of income taxes of $2 ....... - - - 3 3
---------
Total other comprehensive income (loss) ............... - - - - (581)
---------
Total comprehensive income ........................ - - - - 2,199
---------
Exercise of employee stock options ........................ 27,777 323 - - 323
Cash dividends declared, $.20 per share ................... - - (869) - (869)
--------- --------- --------- --------- ---------
Balance, June 30, 2004 .................................... 4,359,237 $ 29,725 $ 20,521 $ (523) $ 49,723
========= ========= ========= ========= =========
See accompanying notes to unaudited consolidated financial statements.
5
COMMUNITY BANKSHARES, INC.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
June 30,
2004 2003
----- ----
(Dollars in thousands)
Operating activities
Net income .............................................................................. $ 2,780 $ 2,766
Adjustments to reconcile net income to net
cash (used) provided by operating activities
Depreciation and amortization .................................................... 566 465
Net amortization of securities ................................................... 113 133
Provision for loan losses ........................................................ 491 543
Net losses or (gains) on sales of securities ..................................... 5 (72)
Proceeds of sales of loans held for sale ......................................... 90,620 155,668
Originations of loans held for sale .............................................. (94,039) (157,661)
Decrease (increase) in accrued interest receivable ............................... 34 117
(Decrease) increase in other assets .............................................. (631) 81
Gains on sales of other real estate .............................................. (9) -
Increase in accrued interest payable ............................................. 117 63
Increase (decrease) in other liabilities ......................................... 5 (88)
--------- ---------
Net cash provided by operating activities .................................... 52 2,015
--------- ---------
Investing activities
Net decrease (increase) in interest bearing deposits with other banks ................... 159 (750)
Purchases of available-for-sale securities .............................................. (18,771) (43,825)
Maturities, calls and paydowns of available-for-sale securities ......................... 20,054 42,286
Proceeds of sales of available-for-sale securities ...................................... 8,926 2,068
Net purchases of other investments ...................................................... (2) -
Net increase in loans made to customers ................................................. (23,078) (11,927)
Purchases of premises and equipment ..................................................... (386) (746)
Proceeds from sales of other real estate ................................................ 59 -
--------- ---------
Net cash used by investing activities ........................................ (13,039) (12,894)
--------- ---------
Financing activities
Net increase in deposits ................................................................ 2,063 18,750
Net (decrease) increase in short-term borrowings ........................................ (9,476) 1,626
Proceeds from issuing long-term debt .................................................... 10,507 -
Exercise of employee stock options ...................................................... 323 69
Cash dividends paid ..................................................................... (869) (775)
--------- ---------
Net cash provided by financing activities .................................... 2,548 19,670
--------- ---------
(Decrease) increase in cash and cash equivalents ............................................. (10,439) 8,791
Cash and cash equivalents, beginning of period ............................................... 41,875 38,569
--------- ---------
Cash and cash equivalents, end of period ..................................................... $ 31,436 $ 47,360
========= =========
Supplemental Disclosures of Cash Flow Information
Cash payments for interest .............................................................. $ 3,185 $ 3,898
========= =========
Cash payments for income taxes .......................................................... $ 1,624 $ 1,470
========= =========
Supplemental Disclosures of Non-cash Investing Activities
Transfers of loans receivable to other real estate ...................................... $ 87 $ 131
========= =========
See accompanying notes to unaudited consolidated financial statements.
6
COMMUNITY BANKSHARES, INC.
Notes to Unaudited Consolidated Financial Statements
Accounting Principles - A summary of significant accounting policies and the
audited financial statements for 2003 are included in Community Bankshares,
Inc.'s (the "Company" or "CBI") Annual Report on Form 10-K for the year ended
December 31, 2003. Certain amounts in the 2003 consolidated financial statements
have been reclassified to conform to the current period classification. Such
reclassification had no effect on previously reported shareholders' equity or
net income.
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 2003 Annual Report on Form 10-K.
Nonperforming Loans - As of June 30, 2004, there were $1,181,000 in nonaccrual
loans and $226,000 of loans 90 or more days past due and still accruing
interest.
Earnings Per Share - Basic earnings per share is computed by dividing net income
applicable to common shares by the weighted average number of common shares
outstanding. Diluted earnings per share is computed by dividing applicable net
income by the weighted average number of shares outstanding and any dilutive
potential common shares and dilutive stock options. It is assumed that all
dilutive stock options are exercised at the beginning of each period and that
the proceeds are used to purchase shares of the Company's common stock at the
average market price during the period. Net income per share and net income per
share, assuming dilution, were computed as follows:
(Unaudited)
Period Ended June 30,
---------------------
Three Months Six Months
------------ ----------
2004 2003 2004 2003
---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Net income per share, basic
Numerator - net income ............................... $ 1,395 $ 1,185 $ 2,780 $ 2,766
========== ========== ========== ==========
Denominator
Weighted average common shares
issued and outstanding ........................... 4,348,905 4,308,263 4,341,325 4,306,742
========== ========== ========== ==========
Net income per share, basic .................... $ .32 $ .28 $ .64 $ .65
========== ========== ========== ==========
Net income per share, assuming dilution
Numerator - net income ............................... $ 1,395 $ 1,185 $ 2,780 $ 2,766
========== ========== ========== ==========
Denominator
Weighted average common shares
issued and outstanding ........................... 4,348,905 4,308,263 4,341,325 4,306,742
Effect of dilutive stock options ................... 112,304 113,573 124,051 113,574
---------- ---------- ---------- ----------
Total shares ............................ 4,461,209 4,421,836 4,465,376 4,420,316
========== ========== ========== ==========
Net income per share, assuming dilution ........ $ .31 $ .27 $ .62 $ .63
========== ========== ========== ==========
Stock Based Compensation - The Company has elected to continue using the
methodology of Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees," to account for compensation expenses
related to stock-based compensation. Options issued under the Company's plans
have no intrinsic value at the grant date and no compensation cost is recognized
in accordance with APB No. 25. Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), as amended, "Accounting for Stock-Based Compensation,"
7
requires entities to provide pro forma disclosures of net income, and earnings
per share, as if the fair value based method of accounting promulgated by that
standard had been applied. While the Company has adopted the disclosure
provisions of SFAS No. 123, as amended, there are no current intentions to adopt
the fair value recognition provisions of that statement. Had compensation cost
for the Company's stock option plan been determined based on the fair value as
of the grant dates for awards under the plans consistent with the method
prescribed by SFAS No. 123, the Company's net income and earnings per share
would have been adjusted to the pro forma amounts indicated below:
(Unaudited)
Period Ended June 30,
---------------------
Three Months Six Months
------------ ----------
2004 2003 2004 2003
---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Net income, as reported .................................... $ 1,395 $ 1,185 $ 2,780 $ 2,766
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of any related tax effects ........................ 214 - 428 -
--------- --------- --------- ---------
Pro forma net income ....................................... $ 1,181 $ 1,185 $ 2,352 $ 2,766
========= ========= ========= =========
Net income per share, basic
As reported ........................................... $ 0.32 $ 0.28 $ 0.64 $ 0.65
Pro forma ............................................. 0.27 0.28 0.54 0.65
Net income per share, assuming dilution
As reported ........................................... $ 0.31 $ 0.27 $ 0.62 $ 0.63
Pro forma ............................................. 0.26 0.27 0.53 0.63
Variable Interest Entity - On March 8, 2004, CBI sponsored the creation of a
Variable Interest Entity ("VIE"), SCB Capital Trust I (the "Trust"), and is the
sole owner of the common securities issued by the Trust. On March 10, 2004, the
Trust issued $10,000,000 in floating rate capital securities. The proceeds of
this issuance, and the amount of CBI's capital investment, were used to acquire
$10,310,000 principal amount of CBI's floating rate junior subordinated
deferrable interest debt securities ("Debentures") due April 7, 2034, which
securities, and the accrued interest thereon, now constitute the Trust's sole
assets. The interest rate associated with the debt securities, and the
distribution rate on the common securities of the Trust, was established
initially at 3.91% and is adjustable quarterly at 3 month LIBOR plus 280 basis
points. The index rate (LIBOR) may not be lower than 1.11%. CBI may defer
interest payments on the Debentures for up to twenty consecutive quarters, but
not beyond the stated maturity date of the Debentures. In the event that such
interest payments are deferred by CBI, the Trust may defer distributions on the
common securities. In such an event, CBI would be restricted in its ability to
pay dividends on its common stock and to perform under other obligations that
are not senior to the junior subordinated Debentures.
The Debentures are redeemable at par at the option of CBI, in whole or
in part, on any interest payment date on or after April 7, 2009. Prior to that
date, the Debentures are redeemable at 105% of par upon the occurrence of
certain events that would have a negative effect on the Trust or that would
cause it to be required to be registered as an investment company under the
Investment Company Act of 1940 or that would cause trust preferred securities
not to be eligible to be treated as Tier 1 capital by the Federal Reserve Board.
Upon repayment or redemption of the Debentures, the Trust will use the proceeds
of the transaction to redeem an equivalent amount of trust preferred securities
and trust common securities. The Trust's obligations under the trust preferred
securities are unconditionally guaranteed by CBI.
FASB Interpretation 46 (FIN 46), "Consolidation of Variable Interest
Entities," was issued by the Financial Accounting Standards Board (FASB) in
January 2003. FIN 46 requires the primary beneficiary of a variable interest
entity's activities to consolidate the VIE. FIN 46 defines a VIE as an entity in
which the equity investors do not have substantive voting rights and there is
not sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support. The primary beneficiary is the party
that absorbs a majority of the expected losses and/or receives a majority of the
expected residual returns of the VIE's activities. In December 2003, the FASB
8
issued FIN 46(R), which supersedes and amends certain provisions of FIN 46. FIN
46(R) retains many of the concepts and provisions of FIN 46, provides additional
guidance related to the application of FIN 46, provides for certain additional
scope exceptions, and incorporates several FASB Staff Positions issued related
to the application of FIN 46. The provisions of FIN 46 are immediately
applicable to VIEs created, or interests in VIEs obtained, after January 31,
2003 and the provisions of FIN 46(R) are required to be applied to such
entities, except for special purpose entities, by the end of the first reporting
period ending after March 15, 2004 (March 31, 2004 for CBI).
Since CBI is not the primary beneficiary of the VIE as defined by FIN
46 and FIN 46(R), the activities of this VIE have not been consolidated into the
consolidated financial statements of CBI. CBI's investment in the VIE is carried
in the consolidated balance sheet in other assets and the Debentures are
included in long-term debt.
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. Forward-looking statements include statements
other than statements of historical facts concerning plans, objectives, goals,
strategies, future events or performance and underlying assumptions. Such
forward-looking statements may be identified, without limitation, by the use of
the words "anticipates," "believes," "estimates," "expects," "intends," "plans,"
"predicts," "projects," and similar expressions. The Company's expectations,
beliefs, estimates and projections are expressed in good faith and are believed
by the Company to have a reasonable basis, including without limitation,
management's examination of historical operating trends, data contained in the
Company's records and other data available from third parties, but there can be
no assurance that management's expectations, beliefs, estimates or projections
will result or be achieved or accomplished. The Company cautions readers that
forward looking statements, including without limitation, those relating to the
Company's recent and continuing expansion, its future business prospects,
revenues, working capital, liquidity, capital needs, interest costs, income, and
adequacy of the allowance for loan losses, 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 Company's reports filed with the Securities and Exchange
Commission. The Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
Critical Accounting Policies
CBI has adopted various accounting policies, which govern the
application of accounting principles generally accepted in the United States of
America in the preparation of CBI's financial statements. The significant
accounting policies of CBI are described in detail in the notes to CBI's audited
consolidated financial statements included in CBI's Annual Report on Form 10-K.
Certain accounting policies involve significant judgments and estimates
by management, which have a material impact on the carrying value of certain
assets and liabilities. Management considers such accounting policies to be
critical accounting policies. The judgments and estimates used by management are
based on historical experience and other factors, which are believed to be
reasonable under the circumstances. Because of the nature of the judgments and
assumptions made by management, actual results could differ from these judgments
and estimates, which could have a material impact on the carrying values of
assets and liabilities and the results of operations of CBI.
CBI is a holding company for four community banks and a mortgage
company and, as a financial institution, believes the allowance for loan losses
is a critical accounting policy that requires the most significant judgments and
estimates used in preparation of its consolidated financial statements. Refer to
the sections "Allowance for Loan Losses" and "Provision for Loan Losses" in the
Annual Report on Form 10-K for 2003 for a detailed description of CBI's
estimation process and methodology related to the allowance for loan losses.
RESULTS OF OPERATIONS
Earnings Performance
Three Months Ended June 30, 2004 and 2003
For the quarter ended June 30, 2004, CBI earned consolidated net income
of $1,395,000, compared with $1,185,000 for the comparable period of 2003. This
9
represents an increase of $210,000 or 17.7%. Basic earnings per share were $.32
in the 2004 period, compared with $.28 for the 2003 quarter. Diluted earnings
per share were $.31 for the 2004 period and $.27 for the 2003 period.
Operating results for the second quarter of 2004 continued to be
affected by lower demand for mortgage loan refinancing and the effects of the
continued low interest rate environment. Because interest rates have remained
low for a relatively long period of time, the constant strong demand for
mortgage refinancings declined from the level of 2003. Management believes this
occurred because most people who were inclined to refinance had already done so.
However, in response to the Federal Reserve Board's recent actions to raise some
benchmark interest rates, the Company has experienced some upward fluctuations
in activity in this area. Still, except for these occasional spikes, the current
level of mortgage loan activity is believed to reflect more nearly the
underlying base amount of such activity that would be expected to result from
normal, ongoing factors and, accordingly, is believed to be more indicative of a
sustainable level of such activity.
Interest expense was lower in the 2004 quarter, also. This is a result
of the low interest rate environment and a decreased rate of growth for deposits
and other interest bearing liabilities. Total interest bearing liabilities at
June 30, 2004 were $360,129,000 compared with $357,467,000 at December 31, 2003
and $357,225,000 at June 30, 2003. Short-term borrowings have decreased due to
the Company's issuance in March, 2004 of $10,000,000 of subordinated debentures
due in 2034, because of reduced demand for mortgage refinancing for the mortgage
subsidiary, and the Company's decision to finance much of the existing mortgage
loan demand internally.
Also affecting the Company favorably during the three month period were
lower amounts of losses recognized on investment securities transactions in the
2004 period and decreased salaries and employee benefits costs resulting from
the decreased mortgage lending activity. Most of the mortgage subsidiary's loan
officers are compensated using a combination of salary and performance-based
incentives. The incentive component results in lower total expenses for those
employees during periods of decreased mortgage lending activity.
Summary Income Statement
------------------------
(Dollars in thousands)
For the Three Months Ended June 30, 2004 2003 Dollar Change Percentage Change
---- ---- ------------- -----------------
Interest income ...................................... $5,928 $6,285 $ (357) -5.7%
Interest expense ..................................... 1,662 1,960 (298) -15.2%
------ ------ ------
Net interest income .................................. 4,266 4,325 (59) -1.4%
Provision for loan losses ............................ 258 279 (21) -7.5%
Noninterest income ................................... 1,931 2,076 (145) -7.0%
Noninterest expenses ................................. 3,775 4,218 (443) -10.5%
Income tax expense ................................... 769 719 50 7.0%
------ ------ ------
Net income ........................................... $1,395 $1,185 $ 210 17.7%
====== ====== ======
Six Months Ended June 30, 2004 and 2003
CBI's consolidated net income for the six months ended June 30, 2004
was $2,780,000, an increase of $14,000 or 0.5% over the comparable period of
2003. Basic earnings per share were $.64 for the 2004 period and $.65 for the
2003 period. Diluted earnings per share were $.62 and $.63 for the 2004 and 2003
periods, respectively. Net interest income in the 2004 period was $361,000 more
than in the 2003 period, but mortgage brokerage income decreased by $1,173,000.
Salaries and employee benefits were $695,000 less in the 2004 period than in the
2003 period. As discussed above, demand for, and the Company's resources
dedicated to, mortgage lending activities were lower in 2004 than they were in
2003.
10
Summary Income Statement
------------------------
(Dollars in thousands)
For the Six Months Ended June 30, 2004 2003 Dollar Change Percentage Change
---- ---- ------------- -----------------
Interest income ................................... $11,836 $12,134 $ (298) -2.5%
Interest expense .................................. 3,302 3,961 (659) -16.6%
------- ------- ------
Net interest income ............................... 8,534 8,173 361 4.4%
Provision for loan losses ......................... 491 543 (52) -9.6%
Noninterest income ................................ 3,777 4,631 (854) -18.4%
Noninterest expenses .............................. 7,507 7,953 (446) -5.6%
Income tax expense ................................ 1,533 1,542 (9) -0.6%
------- ------- ------
Net income ........................................ $ 2,780 $ 2,766 $ 14 0.5%
======= ======= ======
Net Interest Income
Net interest income is the amount of interest income earned on interest
earning assets (primarily loans, securities, interest bearing deposits with
other banks, and federal funds sold), less the interest expense incurred on
interest bearing liabilities (interest bearing deposits and other borrowings),
and is the principal source of the Company's earnings. Net interest income is
affected by the level of interest rates, volume and mix of interest earning
assets and interest bearing liabilities and the relative funding of those
assets.
Interest income decreased by $357,000, or 5.7%, in the 2004 second
quarter compared with the same 2003 period. Interest and fees on loans decreased
to $5,449,000 for the 2004 quarter from $5,816,000 for the same period of 2003,
primarily due to lower levels of mortgage lending activity and the lower
interest rate environment in the 2004 period. Amounts of interest earned on
other categories of interest earning assets were substantially unchanged, in the
aggregate, as reductions in the average yields earned on those assets were
offset by increased average balances held.
Interest expense for the second quarter of 2004 decreased to $1,662,000
from $1,960,000 for the 2003 period primarily as a result of lower interest
rates paid in the 2004 period. Also, because of the lower demand for mortgage
loan-related products, the Company's average amounts of short-term borrowings
were lower in the 2004 period. As a result, the quarterly interest expense for
such borrowings declined from $190,000 in 2003 to $64,000 for 2004. Interest
expense associated with long-term debt increased in the 2004 three month period
to $380,000 from $279,000 for the same period of 2003 due to the issuance of
$10,000,000 of subordinated debentures in March 2004, discussed below.
Interest income for the six months ended June 30, 2004 decreased by
$298,000, or 2.5% from the same period of 2003, due to the lower levels of
mortgage activity and lower interest rates. Interest and fee income on loans for
the 2004 six month period was $10,780,000, a decrease of $311,000 or 2.8% from
the same period of 2003. The decrease was the result of an approximately
$491,000 decrease in interest and fee income on loans associated with mortgage
lending activities.
Interest expense for the 2004 six month period was $659,000 lower than
in the same 2003 period due to lower rates paid for deposits and reduced amounts
of short-term borrowings. Lower deposit rates primarily are attributable to the
lower interest rate environment in 2004. Reduced short-term borrowings resulted
directly from lower levels of mortgage lending activity and the Company's
issuance of $10,000,000 of long-term subordinated debentures in March 2004,
discussed below.
During the first quarter of 2004, CBI sponsored the creation of a Trust
that issued $10,000,000 in trust preferred securities. The Trust invested the
proceeds of this issuance and $310,000 of capital provided by CBI into
$10,310,000 of junior subordinated debentures due in 2034 ("Debentures") issued
by CBI. Interest payments on the Debentures are due quarterly at a variable
interest rate. CBI used the proceeds of the Debentures to repay certain
pre-existing debt obligations, to enhance the capital position of two of the
subsidiary banks, to provide an additional funding mechanism for its mortgage
brokerage activities, and for other general corporate purposes. Although the
interest rate associated with the debt is variable, management believes that the
indenture provisions governing that variability will result in less volatility
in interest expense than achievable under certain short-term debt agreements. In
addition, because of the long-term nature of the new arrangement, transaction
costs, such as those incurred to renew lines of credit, are expected to be
reduced. Under current regulatory guidelines, the trust preferred securities
issued by the Trust are includible in the Company's Tier 1 capital for
risk-based capital purposes.
11
Average Balances, Yields and Rates
Six Months Ended June 30,
-------------------------
2004 2003
---- ----
Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates* Balances Expense Rates*
-------- ------- ------- -------- ------- ------
(Dollars in thousands)
Assets
Interest earning deposits ............................... $ 1,057 $ 8 1.51% $ 625 $ 9 2.88%
Investment securities - taxable ......................... 52,270 779 2.98% 42,526 709 3.33%
Investment securities - tax exempt ...................... 9,811 164 3.34% 9,317 176 3.78%
Federal funds sold ...................................... 22,353 105 0.94% 26,001 149 1.15%
Loans, including loans held for sale .................... 351,261 10,780 6.14% 336,889 11,091 6.58%
-------- ------ -------- -------
Total interest earning assets .................. 436,752 11,836 5.42% 415,358 12,134 5.84%
Cash and due from banks ................................. 16,277 14,098
Allowance for loan losses ............................... (4,237) (3,706)
Premises and equipment, net ............................. 7,080 6,742
Intangible assets ....................................... 7,588 7,834
Other assets ............................................ 3,936 3,224
-------- --------
Total assets ................................... $467,396 $443,550
======== ========
Liabilities and shareholders' equity
Interest bearing deposits
Savings ............................................ $ 78,473 $ 371 0.95% $ 67,394 $ 416 1.23%
Interest bearing transaction accounts .............. 55,822 114 0.41% 42,252 105 0.50%
Time deposits ...................................... 182,816 1,965 2.15% 185,852 2,516 2.71%
-------- ------ -------- -------
Total interest bearing deposits ................ 317,111 2,450 1.55% 295,498 3,037 2.06%
Short-term borrowings ................................... 13,262 169 2.55% 31,598 371 2.35%
Long-term debt .......................................... 26,608 683 5.13% 20,298 553 5.45%
-------- ------ -------- -------
Total interest bearing liabilities ............. 356,981 3,302 1.85% 347,394 3,961 2.28%
Noninterest bearing demand deposits ..................... 59,542 49,071
Other liabilities ....................................... 1,710 1,837
Shareholders' equity .................................... 49,163 45,248
-------- --------
Total liabilities and shareholders' equity ..... $467,396 $443,550
======== ========
Interest rate spread .................................... 3.57% 3.56%
Net interest income and net yield
on earning assets .................................. $8,534 3.91% $ 8,173 3.93%
Interest free funds supporting earning assets ........... $ 79,771 $ 67,964
* Yields and rates are annualized.
Provision and Allowance for Loan Losses
The provision for loan losses for the 2004 three month period was
$258,000, a decrease of $21,000, or 7.5%, from $279,000 for the same period of
2003. The provision for loan losses decreased to $491,000 for the 2004 six month
period from $543,000 for the 2003 six month period. During the first quarter of
12
2004, a nonaccrual loan of $1,350,000, or approximately 52% of CBI's December
31, 2003 nonaccrual loans, was satisfactorily resolved with CBI collecting all
principal and interest owed. Because of this favorable outcome, the amount
previously included in the allowance for loan losses for this loan was no longer
required. Therefore, the 2004 provision for loan losses was beneficially
affected.
Net charge-offs during the six months ended June 30, 2004 were
$412,000, compared with $194,000 for the same period of 2003. The allowance for
loan losses as of June 30, 2004 was 1.21% of loans outstanding, compared with
1.27% as of December 31, 2003 and 1.23% as of June 30, 2003. Non-performing
loans totaled $1,407,000 as of June 30, 2004, compared with $2,741,000 as of
December 31, 2003, a decrease of $1,334,000 or 48.7%. The coverage ratio
(allowance for loan losses divided by non-performing loans) was 3.05x as of June
30, 2004 and 1.53x as of December 31, 2003. The majority of non-performing loans
at June 30, 2004 were secured by commercial real estate and other collateral.
The activity in the allowance for loan losses is summarized in the
following table:
Six Months Year Ended Six Months
Ended December 31, Ended
June 30, 2004 2003 June 30, 2003
------------- ---- -------------
(Dollars in thousands)
Allowance at beginning of period ................................. $ 4,206 $ 3,573 $ 3,573
Provision for loan losses ........................................ 491 1,119 543
Net charge-offs .................................................. (412) (486) (194)
--------- --------- ---------
Allowance at end of period ....................................... $ 4,285 $ 4,206 $ 3,922
========= ========= =========
Allowance as a percentage of loans outstanding ................... 1.21% 1.27% 1.23%
Loans at end of period ........................................... $ 354,772 $ 332,106 $ 318,217
========= ========= =========
Following is a summary of non-performing loans as of June 30, 2004 and
December 31, 2003:
June 30, 2004 December 31, 2003
------------- -----------------
(Dollars in thousands)
Non-performing loans
Nonaccrual loans ......................................................... $1,181 $2,595
Past due 90 days or more and still accruing .............................. 226 146
------ ------
Total ....................................................... $1,407 $2,741
====== ======
Nonperforming loans as a percentage
of loans outstanding ......................................................... 0.40% 0.83%
Potential problem loans are defined as loans, not including nonaccrual
loans or loans that are 90 days past due and still accruing, where information
about the borrowers' credit problems causes management to have doubts about the
borrowers' ability to comply with the original repayment terms. At June 30,
2004, the Corporation had identified $3,762,000, or 1.1% of the loan portfolio,
as potential problem loans. This is an increase of $525,000 over the amount as
of December 31, 2003. At the end of the the second quarter of 2004, an $824,000
commercial loan was added to potential problem loans. Management is currently
working with this borrower who has presented alternatives for the repayment of
this loan in the near term. The amount of potential problem loans does not
represent management's estimate of potential losses since a significant portion
of these loans are secured by real estate and other forms of collateral.
Management will continue to monitor the levels of non-performing and
potential problem loans and address the weaknesses in these credits to enhance
the ultimate collection or recovery of these assets. Management considers the
levels and trends in non-performing assets and potential problem loans in
determining how the provision and allowance for loan losses is estimated and
adjusted.
13
Noninterest Income
Non-interest income for the 2004 second quarter decreased $145,000, or
7.0%, from the $2,076,000 reported for the same 2003 period. Mortgage brokerage
income for the 2004 quarter decreased by $411,000, or 31.3%, from $1,314,000 in
the 2003 period, due to the market factors discussed previously. Service charge
income totaled $822,000 in the 2004 quarter, a decrease of $16,000, or 1.9%.
Losses on securities transactions in the 2004 period were $297,000 less than in
the same period of 2003.
For the six months ended June 30, 2004, noninterest income was
$854,000, or 18.4% less than for the first six months of 2003. Again, lower
amounts of mortgage brokerage income were the primary factor in this decrease,
but this was partially offset by a $247,000 decrease in losses on securities
transactions.
Noninterest Expenses
Noninterest expenses for the second quarter of 2004 were $443,000, or
10.5%, lower than the amounts reported for the same period of 2003. Salaries and
employee benefits expenses were $455,000, or 17.0%, lower in the 2004 period,
due to the reduced activity in mortgage lending. Expenses related to premises
and equipment increased by $70,000 in the 2004 period, however, due to the
deployment of new technologies, as described below.
Noninterest expense for the first six months of 2004 was $446,000, or
5.6% less than for the same period of 2003. Salaries and employee benefits for
the 2004 six month period were $695,000, or 13.8%, less than for the same period
of 2003. These decreases resulted primarily from the decreased level of activity
in the mortgage brokerage subsidiary. Because demand for refinancing and other
mortgage loan products has declined recently, the number of employees needed to
conduct the operations of that company has decreased. Also, that entity's
compensation system is predominantly commission-based. Expenses associated with
premises and equipment were $157,000, or 19.5%, higher in the 2004 period,
primarily due to the acquisition and implementation of hardware and software
associated with imaging technologies. Over time, the use of such technology is
expected to reduce postage expense, reduce time required for research, improve
internal processes and access to information, enable the Company to take
advantage of the opportunities presented by the recent Check 21 legislation, and
enhance the Company's ability to provide service to its customers. Other
expenses were $92,000, or 4.3%, higher in the 2004 period. The major area of
increase was advertising, which was increased primarily as a result of the
mortgage company's efforts to increase the volume of loan originations.
Income Taxes
Income tax expense was $50,000 more in the 2004 second quarter than for
the 2003 period, as a result of higher net income before taxes. Income tax
expense for the 2004 six month period was $9,000 less than for the same period
of 2003.
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 CBI's service areas. Individual and commercial deposits are the primary
source of funds for credit activities, along with long-term borrowings from the
Federal Home Loan Bank of Atlanta and the proceeds of issuing $10,000,000 of
subordinated debentures. Cash and amounts due from banks and federal funds sold
are CBI's primary sources of asset liquidity. These funds provide a cushion
against short-term fluctuation in cash flow from both loans and deposits.
Securities available-for-sale are CBI's principal source of secondary asset
liquidity. However, the availability of this source is limited by pledging
commitments for public deposits and securities sold under agreements to
repurchase, and is influenced by market conditions.
Total deposits as of June 30, 2004 were $380,767,000, an increase of
$2,063,000, or .5%, from the amount as of December 31, 2003. During the six
months ended June 30, 2004, there was a notable movement of funds from interest
bearing transaction accounts into savings and certificate of deposit accounts.
As of June 30, 2004 the loan to deposit ratio was 93.2%, compared with 87.7% at
December 31, 2003 and 89.4% at June 30, 2003.
14
Management believes CBI and its subsidiaries' liquidity sources are
adequate to meet their current and projected operating needs.
CAPITAL RESOURCES
CBI and its banking subsidiaries are subject to regulatory risk-based
capital adequacy standards. Under these standards, bank holding companies and
banks are required to maintain certain minimum ratios of capital to
risk-weighted assets and average total assets. Under the provisions of the
Federal Deposit Insurance Corporation Improvement Act of 1991, federal bank
regulatory authorities are required to implement prescribed "prompt corrective
actions" upon the deterioration of the capital position of a bank. If the
capital position of an affected institution were to fall below a certain level,
increasingly stringent regulatory corrective actions would be mandated.
The June 30, 2004 risk-based capital ratios for CBI and its banking
subsidiaries are presented in the following table, compared with the "well
capitalized" and minimum ratios under the regulatory definitions and guidelines:
June 30, 2004
-------------
Tier 1 Total Capital Leverage
------ ------------- --------
Community Bankshares, Inc. .......................................... 14.90% 16.06% 11.45%
Orangeburg National Bank ............................................ 12.67% 13.92% 9.40%
Sumter National Bank ................................................ 10.72% 11.98% 9.26%
Florence National Bank .............................................. 11.23% 12.32% 9.80%
Bank of Ridgeway .................................................... 14.31% 15.20% 8.59%
Minimum "well capitalized" requirement .............................. 6.00% 10.00% 6.00%
Minimum requirement ................................................. 4.00% 8.00% 4.00%
As shown in the table above, each of the capital ratios exceeds the
regulatory requirement to be considered "well capitalized." In the opinion of
management, the current and projected capital positions of CBI and its banking
subsidiaries are adequate. The Company's issuance of $10,000,000 of subordinated
debentures during the first quarter of 2004 is includible in Tier 1 and Total
Capital for regulatory risk-based capital purposes.
OFF-BALANCE-SHEET ARRANGEMENTS
In the normal course of business, CBI engages in transactions that, in
accordance with generally accepted accounting principles, are not recorded in
the financial statements (generally commitments to extend credit) or are
recorded in amounts that differ from their notional amounts (generally
derivatives). These transactions involve elements of credit, interest rate and
liquidity risk of varying degrees. Such transactions are used by CBI for general
corporate purposes.
Variable Interest Entity
As discussed under "Results of Operations - Net Interest Income" and in
the notes to unaudited consolidated financial statements under "Variable
Interest Entities," as of June 30, 2004, CBI held an equity interest in, and
guarantees the liabilities of, a non-consolidated variable interest entity.
Commitments
CBI's banking and mortgage brokerage subsidiaries are parties to credit
related financial instruments with off-balance-sheet risk in the normal course
of business to meet the financing needs of their customers. These financial
instruments include commitments to extend credit and standby letters of credit.
Such commitments involve varying degrees of credit and interest rate risk in
excess of the amount recognized in the consolidated balance sheets. Exposure to
credit loss is represented by the contractual, or notional, amounts of these
commitments. The same credit policies are used in making commitments as for
on-balance-sheet instruments.
15
The following table sets forth the contractual amounts of commitments which
represent credit risk:
June 30, 2004
-------------
(Dollars in
thousands)
Loan commitments ................... $ 44,703
Standby letters of credit .......... 2,835
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral obtained, if deemed
necessary by management upon extension of credit, is based on management's
credit evaluation of the counter-party. Collateral held varies but may include
personal residences, accounts receivable, inventory, property, plant and
equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued to
guarantee the performance of a customer to a third party. Those letters of
credit are primarily issued to support private borrowing arrangements. All
letters of credit are short-term guarantees. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. Generally, collateral supporting those commitments is
held if deemed necessary. Since many of the standby letters of credit are
expected to expire without being drawn upon, the total letter of credit amounts
do not necessarily represent future cash requirements.
Derivative Financial Instruments
In April, 2003, the Financial Accounting Standards Board issued
Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities." Among other requirements, this Statement provides that loan
commitment contracts entered into or modified after June 30, 2003 that relate to
the origination of mortgage loans that will be held for sale shall be accounted
for as derivative instruments by the issuer of the loan commitment. In March,
2004, the SEC issued its Staff Accounting Bulletin No 105 "Application of
Accounting Principles to Loan Commitments," which resulted in no changes in
CBI's accounting for such commitments. CBI issues mortgage loan rate lock
commitments to potential borrowers to facilitate its origination of home
mortgage loans that are intended to be sold. Between the time that CBI issues
its commitments and the time that the loans close and are sold, CBI is subject
to variability in the selling prices related to those commitments due to changes
in market rates of interest. However, CBI offsets this variability through the
use of so-called "forward sales contracts" to investors in the secondary market.
Under these arrangements, an investor agrees to purchase the closed loans at a
predetermined price. CBI generally enters into such forward sales contracts at
the same time that rate lock commitments are issued. These arrangements are
designated as fair value hedges. These derivative financial instruments are
carried in the balance sheet at estimated fair value and changes in the
estimated fair values of these derivatives are recorded in the statement of
income in net gains or losses on loans held for sale. Because CBI has
effectively matched its forward sales contracts to investors and rate lock
commitments to potential borrowers, no net gains or losses due to changes in
market interest rates have been recorded in the statement of income.
Derivative financial instruments are written in amounts referred to as
notional amounts. Notional amounts only provide the basis for calculating
payments between counterparties and do not represent amounts to be exchanged
between parties or a measure of financial risk. The following table includes the
notional principal amounts of rate lock commitments and forward sales contracts
as of June 30, 2004, and the estimated fair values of those financial
instruments included in other assets and liabilities in the balance sheet as of
that date.
16
June 30, 2004
-------------
Estimated
Fair Value
Notional Asset
Amount (Liability)
------ -----------
(Dollars in thousands)
Rate lock commitments to potential borrowers
to originate mortgage loans to be held for sale ................................. $17,170 $ 166
Forward sales contracts with investors
of mortgage loans to be held for sale ........................................... 17,170 (166)
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices
and rates. CBI'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 CBI manages other risks,
such as credit quality and liquidity risk in the normal course of business,
management considers interest rate risk to be its most significant market risk
and this risk could potentially have the largest material effect on CBI'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.
CBI's Asset/Liability Committee uses a simulation model to assist in
achieving consistent growth in net interest income while managing interest rate
risk. According to the model, as of June 30, 2004, CBI is positioned so that net
interest income would increase $300,000 and net income would increase $167,000
in the next twelve months if interest rates rose 100 basis points. Conversely,
net interest income would decline $400,000 and net income would decline $231,000
in the next twelve months if interest rates declined 100 basis points. CBI
issued $10 million in trust preferred securities (also referred to herein as
"subordinated debentures") that float with LIBOR, which are at or near their
contractual floor rate. In the current interest rate environment, it is not
expected that there will be any large decreases in market interest rates in the
immediate future. 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 CBI and its customers could undertake in response to changes in interest
rates.
As of June 30, 2004 there was no significant change from the interest
rate sensitivity analysis for the various changes in interest rates calculated
as of December 31, 2003. The foregoing disclosures related to the market risk of
CBI should be read in connection with Management's Discussion and Analysis of
Financial Position and Results of Operations included in the 2003 Annual Report
on Form 10-K.
Item 4. Controls and Procedures
Based on the evaluation required by 17 C.F.R. Section 240.13a-15(b) or
240.15d-15(b) of the Company's disclosure controls and procedures (as defined in
17 C.F.R. Sections 240.13a-15(e) and 240.15d-15(e)), the Company's chief
executive officer and chief financial officer concluded that the effectiveness
of such controls and procedures, as of the end of the period covered by this
quarterly report, was adequate.
No disclosure is required under 17 C.F.R. Section 229.308(c).
17
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On Monday, May 17, 2004, the shareholders of Community Bankshares, Inc.
held their regular annual meeting. At the meeting, two matters were submitted to
a vote with results as follows:
1. Election of six directors to hold office for three-year terms, and for one
director to hold office for a two-year term:
SHARES VOTE
-----------
AUTHORITY
DIRECTORS FOR AGAINST WITHHELD
--- ------- --------
Three-Year Terms
Anna O. Dantzler ...................... 3,073,506 0 34,155
William A. Harwell .................... 3,098,084 0 9,577
Richard L. Havekost ................... 3,103,389 0 4,272
William H. Nock * ..................... 3,098,189 0 9,472
Samuel F. Reid, Jr. ................... 3,098,084 0 9,577
William W. Traynham ................... 3,097,684 0 9,977
Two-Year Term
Keith W. Buckhouse .................... 3,095,189 0 12,472
---------------------
* Mr. Nock resigned effective June 25, 2004 and Robert B. Smith was
appointed to serve in his place until the next election of directors at
the 2005 annual meeting of shareholders.
The following directors continue to serve until the expiration of their
terms at the annual meetings to be held in the years indicated and were not
voted on at the 2004 annual meeting: Thomas B. Edmunds - 2005, Martha Rose C.
Carson - 2005, A. Wade Douroux - 2005, J. M. Guthrie - 2005, Phil P. Leventis -
2005, Wm. Reynolds Williams - 2005, Michael A. Wolfe - 2005, E. J. Ayers, Jr., -
2006; Alvis J. Bynum - 2006; J. Otto Warren, Jr. - 2006 and J. V. Nicholson, Jr.
- 2006.
2. Amendment to the 1997 Stock Option Plan to increase by 300,000 shares the
number of shares of common stock reserved for issuance upon exercise of options
under that plan.
SHARES VOTED
------------
AGAINST OR ABSTENTIONS AND
AUTHORITY BROKER
FOR WITHHELD NON-VOTES
--- -------- ---------
2,041,957 305,069 760,635
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits 31-1 Rule 13a-14(a)/15d-14(a) Certification of principal
executive officer
31-1 Rule 13a-14(a)/15d-14(a) Certification of principal
financial officer
32 Certifications Pursuant to 18 U.S.C. Section 1350
b) Reports on Form 8-K. Form 8-K filed April 21, 2004 pursuant to Items 7 and
12 of that Form.
18
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: August 11, 2004
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)
19
EXHIBIT INDEX
31-1 Rule 13a-14(a)/15d-14(a) Certification of principal executive officer
31-1 Rule 13a-14(a)/15d-14(a) Certification of principal financial officer
32 Certifications Pursuant to 18 U.S.C. Section 1350
20