SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2007 Commission File No. 000-22054
COMMUNITY BANKSHARES, INC.
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(Exact name of registrant as specified in its charter)
South Carolina 57-0966962
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
102 Founders Court
Orangeburg, South Carolina 29118
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(Address of principal executive offices, zip code)
(803) 535-1060
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(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 a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (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, 4,475,232 shares outstanding on May 2, 2007.
COMMUNITY BANKSHARES, INC.
FORM 10-Q
Index
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets .................................... 3
Consolidated Statements of Income .............................. 4
Consolidated Statements of Changes in Shareholders' Equity ..... 5
Consolidated Statements 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 ..... 20
Item 4T. Controls and Procedures ........................................ 20
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..... 21
Item 6. Exhibits........................................................ 21
SIGNATURES ................................................................ 22
2
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
COMMUNITY BANKSHARES, INC.
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2007 2006
----- ----
(Dollars in thousands)
Assets
Cash and due from banks ................................................................. $ 16,833 $ 17,622
Federal funds sold ...................................................................... 9,394 29,102
--------- ---------
Total cash and cash equivalents .................................................. 26,227 46,724
Interest-bearing deposits with other banks .............................................. 1,695 1,926
Securities available-for-sale ........................................................... 81,268 84,783
Securities held-to-maturity (estimated fair value $1,750 for 2007
and $1,750 for 2006) ............................................................... 1,750 1,750
Other investments ....................................................................... 3,345 3,246
Loans held for sale ..................................................................... 9,023 9,235
Loans receivable ........................................................................ 424,328 409,720
Less, allowance for loan losses ..................................................... (4,961) (4,662)
--------- ---------
Net loans ........................................................................ 419,367 405,058
Premises and equipment - net ............................................................ 10,355 10,307
Accrued interest receivable ............................................................. 3,815 3,821
Net deferred income tax assets .......................................................... 1,192 1,231
Goodwill ................................................................................ 4,321 4,321
Core deposit intangible assets .......................................................... 2,530 2,591
Prepaid expenses and other assets ....................................................... 2,644 3,524
--------- ---------
Total assets ..................................................................... $ 567,532 $ 578,517
========= =========
Liabilities
Deposits
Noninterest bearing ................................................................. $ 60,674 $ 61,693
Interest-bearing .................................................................... 409,096 421,928
--------- ---------
Total deposits ................................................................... 469,770 483,621
Short-term borrowings ................................................................... 12,125 12,948
Long-term debt .......................................................................... 29,685 26,188
Accrued interest payable ................................................................ 1,573 1,578
Accrued expenses and other liabilities .................................................. 921 1,558
--------- ---------
Total liabilities ................................................................ 514,074 525,893
--------- ---------
Shareholders' equity
Common stock - no par value; 12,000,000 shares authorized; issued and
outstanding - 4,468,502 for 2007 and 4,426,648 for 2006 ............................. 30,843 30,603
Additional paid-in capital .............................................................. 27 -
Retained earnings ....................................................................... 22,851 22,382
Accumulated other comprehensive income (loss) ........................................... (263) (361)
--------- ---------
Total shareholders' equity ....................................................... 53,458 52,624
--------- ---------
Total liabilities and shareholders' equity ....................................... $ 567,532 $ 578,517
========= =========
See accompanying notes to unaudited consolidated financial statements.
3
COMMUNITY BANKSHARES, INC.
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
---------
2007 2006
----- ----
(Dollars in thousands,
except per share)
Interest and dividend income
Loans, including fees ........................................................... $8,157 $7,683
Interest-bearing deposits with other banks ...................................... 33 20
Debt securities ................................................................. 1,016 553
Dividends ....................................................................... 47 34
Federal funds sold .............................................................. 180 323
------ ------
Total interest and dividend income .......................................... 9,433 8,613
------ ------
Interest expense
Deposits
Time deposits $100M and over .................................................... 993 859
Other deposits .................................................................. 2,645 1,944
------ ------
Total interest expense on deposits .......................................... 3,638 2,803
Short-term borrowings ........................................................... 116 101
Long-term debt .................................................................. 437 482
------ ------
Total interest expense ...................................................... 4,191 3,386
------ ------
Net interest income .................................................................. 5,242 5,227
Provision for loan losses ............................................................ 375 615
------ ------
Net interest income after provision .................................................. 4,867 4,612
------ ------
Noninterest income
Service charges on deposit accounts ............................................. 891 832
Mortgage brokerage income ....................................................... 655 837
Net securities gains ............................................................ 2 1
Other ........................................................................... 277 264
------ ------
Total noninterest income .................................................... 1,825 1,934
------ ------
Noninterest expenses
Salaries and employee benefits .................................................. 2,934 2,579
Premises and equipment .......................................................... 562 624
Advertising ..................................................................... 143 75
Supplies ........................................................................ 125 72
Other ........................................................................... 1,350 1,277
------ ------
Total noninterest expenses .................................................. 5,114 4,627
------ ------
Income before income taxes ........................................................... 1,578 1,919
Income tax expense ................................................................... 573 718
------ ------
Net income ........................................................................... $1,005 $1,201
====== ======
Per share
Net income ...................................................................... $ 0.23 $ 0.27
Net income - diluted ............................................................ 0.22 0.27
Cash dividends declared ......................................................... 0.12 0.11
See accompanying notes to unaudited consolidated financial statements.
4
COMMUNITY BANKSHARES, INC.
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
Common Stock
------------ Additional Accumulated
Number of Paid-in Retained Other Comprehensive
Shares Amount Capital Earnings Income (Loss) Total
------ ------ ------- -------- ------------- -----
(Dollars in thousands, except per share)
Balance, January 1, 2006 ................................ 4,404,303 $ 30,202 $ - $ 19,325 $ (535) $ 48,992
---------
Comprehensive income
Net income .......................................... - - - 1,201 - 1,201
---------
Unrealized holding gains and losses
on available-for-sale securities arising
during the period, net of income taxes of $25 ..... - - - - (44) (44)
Reclassification adjustment for losses (gains)
realized in income, net of income taxes of $0 ..... - - - - (1) (1)
---------
Total other comprehensive income (loss) ......... - - - - - (45)
---------
Total comprehensive income .................... - - - - - 1,156
---------
Proceeds of sale of common stock ........................ 1,000 16 - - - 16
Exercise of employee stock options ...................... 21,345 239 - - - 239
Cash dividends declared, $.11 per share ................. - - - (486) - (486)
--------- --------- --------- --------- --------- ---------
Balance, March 31, 2006 ................................. 4,426,648 $ 30,457 $ - $ 20,040 $ (580) $ 49,917
========= ========= ========= ========= ========= =========
Balance, January 1, 2007 ................................ 4,441,220 $ 30,603 $ - $ 22,382 $ (361) $ 52,624
---------
Comprehensive income
Net income .......................................... - - - 1,005 - 1,005
---------
Unrealized holding gains and losses
on available-for-sale securities arising
during the period, net of income taxes of $48 ..... - - - - 99 99
Reclassification adjustment for losses (gains)
realized in income, net of income taxes of $1 ..... - - - - (1) (1)
---------
Total other comprehensive income (loss) ......... - - - - - 98
---------
Total comprehensive income .................... - - - - - 1,103
---------
Share-based compensation ................................ - - 27 - - 27
Proceeds of sale of common stock ........................ 500 8 - - - 8
Exercise of employee stock options ...................... 26,782 232 - - - 232
Cash dividends declared, $.12 per share ................. - - - (536) - (536)
--------- --------- --------- --------- --------- ---------
Balance, March 31, 2007 ................................. 4,468,502 $ 30,843 $ 27 $ 22,851 $ (263) $ 53,458
========= ========= ========= ========= ========= =========
See accompanying notes to unaudited consolidated financial statements.
5
COMMUNITY BANKSHARES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
---------
2007 2006
---- ----
(Dollars in thousands)
Operating activities
Net income .............................................................................. $ 1,005 $ 1,201
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization .................................................... 289 314
Net (accretion) amortization of securities ....................................... (8) 6
Provision for loan losses ........................................................ 375 615
Net securities gains ............................................................. (2) (1)
Proceeds of sales of loans held for sale ......................................... 35,627 51,178
Originations of loans held for sale .............................................. (35,415) (52,036)
Losses on sales of other real estate ............................................. 5 -
(Increase) decrease in accrued interest receivable ............................... (1) 236
Decrease in other assets ......................................................... 828 458
(Decrease) increase in accrued interest payable .................................. (5) 33
Decrease (increase) in other liabilities ......................................... (637) 570
Share-based compensation ......................................................... 27 -
-------- --------
Net cash provided by operating activities .................................... 2,088 2,574
-------- --------
Investing activities
Net decrease (increase) in interest-bearing deposits with other banks ................... 231 (809)
Purchases of available-for-sale securities .............................................. (1,966) (2,499)
Maturities, calls and paydowns of available-for-sale securities ......................... 5,635 3,705
Proceeds of sales of other investments .................................................. 238 -
Purchases of other investments .......................................................... (337) (71)
Net increase in loans made to customers ................................................. (15,016) (4,629)
Purchases of premises and equipment ..................................................... (276) (737)
Proceeds from sales of foreclosed assets ................................................ 379 -
-------- --------
Net cash used by investing activities ........................................ (11,112) (5,040)
-------- --------
Financing activities
Net decrease in deposits ................................................................ (13,851) (4,544)
Net (decrease) increase in short-term borrowings ........................................ (823) 1,516
Proceeds from issuing long-term debt .................................................... 7,500 -
Repayment of long-term debt ............................................................. (4,003) (503)
Proceeds from sale of stock ............................................................. 8 16
Exercise of employee stock options ...................................................... 232 239
Cash dividends paid ..................................................................... (536) (486)
-------- --------
Net cash used by financing activities ........................................ (11,473) (3,762)
-------- --------
Decrease in cash and cash equivalents ........................................................ (20,497) (6,228)
Cash and cash equivalents, beginning of period ............................................... 46,724 51,991
-------- --------
Cash and cash equivalents, end of period ..................................................... $ 26,227 $ 45,763
======== ========
Supplemental disclosures of cash flow information
Cash payments for interest .............................................................. $ 4,196 $ 3,353
======== ========
Cash payments for income taxes .......................................................... $ 48 $ -
======== ========
Supplemental disclosures of non-cash investing activities
Transfers of loans receivable to other real estate ...................................... $ 276 $ -
======== ========
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 2006 are included in Community Bankshares,
Inc.'s (the "Company" or "CBI") Annual Report on Form 10-K for the year ended
December 31, 2006 filed with the Securities and Exchange Commission.
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 2006 Annual Report on Form 10-K.
Nonperforming Loans - As of March 31, 2007, there were $6,326,000 in nonaccrual
loans and $167,000 in 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)
Three Months Ended
March 31,
---------
2007 2006
---- ----
(Dollars in thousands,
except per share amounts)
Net income per share, basic
Numerator - net income ............................................................. $ 1,005 $ 1,201
========== ==========
Denominator
Weighted average common shares issued and outstanding ............................ 4,448,546 4,414,059
========== ==========
Net income per share, basic ........................................... $ .23 $ .27
========== ==========
Net income per share, assuming dilution
Numerator - net income ............................................................. $ 1,005 $ 1,201
========== ==========
Denominator
Weighted average common shares issued and outstanding ............................ 4,448,546 4,414,059
Effect of dilutive stock options ................................................. 62,091 84,916
---------- ----------
Total shares .......................................................... 4,510,637 4,498,975
========== ==========
Net income per share, assuming dilution ............................... $ .22 $ .27
========== ==========
7
Stock-Based Compensation - Effective January 1, 2006, the Company began
accounting for compensation expenses related to stock options granted to
employees and directors under the recognition and measurement principles of
Statement of Accounting Standards No. 123(R) "Share-Based Payment" ("SFAS
123(R)) using the modified prospective application method. The Company had
previously 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 until
the mandatory effective date for SFAS 123(R).
Options previously issued under the Company's plans had no intrinsic value at
the grant date and no compensation cost was recognized in accordance with APB
No. 25. Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation," required 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. Under
the modified prospective application method of SFAS 123(R), the Company is
required to apply SFAS 123(R) only to new awards and to awards modified,
repurchased or cancelled after the required effective date. Compensation cost
would also be recognized for the portions of previously granted awards
outstanding which had not vested on the effective date. The Company had no such
awards outstanding as of January 1, 2006 and the Company made no awards of stock
options during 2006. During the first quarter of 2007, stock-based compensation
included in salaries and employee benefits totaled $27,000.
Variable Interest Entities - On March 8, 2004, CBI sponsored the creation of a
Delaware trust, 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 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 the 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.
The Company's investment in the Trust is carried at cost in other assets and the
debentures are included in long-term debt in the consolidated balance sheet.
8
New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 159 "The Fair Value Option for Financial Assets and
Financial Liabilities," ("SFAS No. 159" or the "Statement") which is effective
for fiscal years beginning after November 15, 2007. Under the provisions of SFAS
No. 159, entities may choose, but are not required, to measure many financial
instruments and certain other items at their fair values, with changes in the
fair values of those instruments reported in earnings. While most of the
Statement's provisions apply only to entities that elect the fair value option,
SFAS No. 159 also applies to all entities with trading and available-for-sale
securities, such as the Company. The Company has not determined what effect, if
any, the Statement will have on its future financial statements, other
agreements, or planned or intended changes in business practices.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Statements included in this report 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
concerning plans, objectives, goals, strategies, future events or performance
and underlying assumptions and other statements which are other than statements
of historical facts. Such forward-looking statements may be identified, without
limitation, by the use the 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 risks and uncertainties include, but are
not limited to:
o the Company's growth and ability to maintain growth;
o governmental monetary and fiscal policies, as well as legislative and
regulatory changes;
o the effects of interest rate changes on our level and composition of
deposits, loan demand and the value of our loan collateral and
securities;
o the effects of competition from other financial institutions operating
in the Company's market areas and elsewhere, including institutions
operating locally, regionally, nationally and internationally;
o failure of assumptions underlying the establishment of the allowance
for loan losses, including the value of collateral securing loans; and
o loss of consumer confidence and economic disruptions resulting from
terrorist activities.
9
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.
References to our Website Address
References to our website address throughout this Quarterly Report on
Form 10-Q and in any documents incorporated into this Form 10-Q by reference are
for informational purposes only, or to fulfill specific disclosure requirements
of the Securities and Exchange Commission's rules or the American Stock Exchange
listing standards. These references are not intended to, and do not, incorporate
the contents of our website by reference into this Form 10-Q or the accompanying
materials.
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 2006 Annual Report on Form
10-K filed with the Securities and Exchange Commission.
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 a community bank 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 2006 for a detailed description of CBI's
estimation process and methodology related to the allowance for loan losses.
RESULTS OF OPERATIONS
Changes in Financial Condition
During the three months ended March 31, 2007, deposits decreased by
$13,851,000, or 2.9%, due to a net seasonal outflow of deposits related to local
government tax receipts and to the Company's deliberate actions to reduce
certain high cost time deposits. Loans increased by $14,608,000, or 3.6%, during
the period. Real estate mortgage and construction loans increased by
$20,031,000, or 6.8%, during the 2007 period. Funding for these changes was
provided primarily by decreasing the Company's cash and federal funds sold
positions and by allowing some maturities, calls and paydowns of the Company's
investments in securities available-for-sale to occur without reinvestment. In
addition, the Company increased long-term debt by $3,497,000 during the first
quarter of 2007.
10
Earnings Performance
For the quarter ended March 31, 2007, CBI earned consolidated net
income of $1,005,000, compared with $1,201,000 for the comparable period of
2006, a decrease of $196,000 or 16.3%. Basic earnings per share were $.23 in the
2007 period, compared with $.27 for the 2006 quarter. Diluted earnings per share
were $.22 for the 2007 period and $.27 for the 2006 period.
Net interest income for the first quarter of 2007 was substantially
unchanged from the amount reported for the first quarter of 2006. The positive
effects of higher average amounts of securities and higher rates earned on loans
and securities in 2007 were substantially offset by higher interest expenses
resulting primarily from higher rates paid for interest bearing deposit
accounts. The Federal Reserve's Open Market Committee (the "Committee")
continued to hold steady the federal funds rates throughout the 2007 first
quarter. At present, market interest rates for shorter-term financial
instruments generally exceed the rates for longer-term financial instruments.
Interest rates have generally increased for the Company's pre-existing variable
rate loans and the Company is currently charging higher rates for new and
renewed loans. The Company also realized higher rates for federal funds sold and
new investments in securities during the 2007 first quarter. The Company's
funding sources primarily are short-term deposits, and rates associated with
those sources, as well as any short-term borrowings and long-term debt incurred
during the 2007 period, have also been subject to the increases. The interest
rate spread (yield earned on average earning assets less the rate paid on
average interest bearing liabilities) for the first three months of 2007 was 6
basis points lower than for the same period of 2006.
The results for the 2007 period were affected favorably by the regular
re-evaluation of the Company's allowance for loan losses, which resulted in a
decrease of $240,000 in the provision for loan losses compared with the same
period of 2006.
Noninterest income for the 2007 first quarter was $109,000 less than
for the same period of 2006 primarily due to a decrease of $182,000 in mortgage
brokerage income. Service charges assessed on deposit accounts and for other
services increased by $59,000 in the 2007 period over the prior year amount.
Noninterest expense for the first quarter of 2007 was $487,000 more
than for the same period of 2006 primarily due to increases of $355,000 in
salaries and employee benefits and $121,000 in advertising and supplies
expenses, partially offset by a $62,000 decrease in expenses for premises and
equipment during the 2007 period.
Much of the increase in salaries and employee benefits is attributable
to management's decision to augment its lending staff. During the past twelve
months, the Bank has added six highly experienced lending officers to its staff,
only one of whom was a replacement. However, largely as a result of the efforts
of the new lending officers, the loan portfolio increased 3.6%, or $14.6
million, during the first quarter of 2007, which is expected to have a positive
impact on earnings in future periods.
11
Summary Income Statement
------------------------
(Dollars in thousands)
For the Three Months Ended March 31, 2007 2006 Dollar Change Percentage Change
---- ---- ------------- -----------------
Interest income .................................... $9,433 $8,613 $ 820 9.5%
Interest expense ................................... 4,191 3,386 805 23.8%
------ ------ ------
Net interest income ................................ 5,242 5,227 15 0.3%
Provision for loan losses .......................... 375 615 (240) -39.0%
Noninterest income ................................. 1,825 1,934 (109) -5.6%
Noninterest expenses ............................... 5,114 4,627 487 10.5%
Income tax expense ................................. 573 718 (145) -20.2%
------ ------ ------
Net income ......................................... $1,005 $1,201 $ (196) -16.3%
====== ====== ======
Net Interest Income
Net interest income is the amount of interest income earned on interest
earning assets (primarily loans, securities, interest bearing deposits in 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 increased by $820,000, or 9.5%, in the 2007 first
quarter compared with the same 2006 period. Interest income from loans increased
from $7,683,000 in the 2006 period to $8,157,000 in the 2007 period primarily
due to higher rates charged on loans outstanding. The Company sold approximately
$8,162,000 of loans during the fourth quarter of 2006 and gross charge-offs of
loans during 2006 totaled $11,365,000. These events led to a lower amount of
average loans in the first quarter of 2007 compared with the first quarter of
2006 despite a $14,608,000 increase in the period-ending amount of loans
compared with the ending amount as of December 31, 2006. The amount of interest
earned on investment securities in the first quarter of 2007 was $476,000, or
81.1%, higher than in the 2006 period due to both increased average volumes and
higher yields earned. Interest earned on federal funds sold decreased by
$143,000, or 44.3%, from the amount for the first quarter of 2006 primarily due
to a decrease of $15,437,000, or 52.2%, in the average amount of such funds
outstanding during the period.
Interest expense for deposits increased from $2,803,000 for the 2006
period to $3,638,000 for the 2007 period primarily due to higher rates
associated with all categories of interest bearing deposits. The average rate
paid for all interest bearing deposits was 3.56% during the 2007 period,
compared with 2.87% during the 2006 period. Larger average amounts of
interest-bearing deposits, especially savings and time deposits, also
contributed to this increased interest expense. During the first three months of
2007, the Company reduced rates offered for certain new time deposit accounts.
These actions are expected to reduce the volume of new interest bearing deposits
and reduce the rate of future increases in deposit interest expenses.
In the first quarter of 2007, interest expense for long-term debt,
which includes junior subordinated debentures and advances obtained from the
Federal Home Loan Bank of Atlanta, totaled $437,000, a decrease of $45,000, or
9.3%, from the amount for the same period of 2006. Although average amounts of
long-term debt outstanding decreased by $6,435,000, or 19.7%, the interest rate
paid for such borrowings increased by 76 basis points.
12
Interest expenses for short-term borrowings in the first quarter of
2007 were $116,000, an increase of $15,000, or 14.9%, over the amount for the
same period of 2006, as a result of an increase of $1,550,000, or 15.1%, in the
average amount of those borrowings.
Average Balances, Yields and Rates
Three Months Ended March 31,
----------------------------
2007 2006
---- ----
Interest Interest
Average Income / Yields / Average Income / Yields /
Balances Expense Rates (1) Balances Expense Rates(1)
-------- ------- --------- -------- ------- --------
(Dollars in thousands)
Assets
Interest earning deposits ............................... $ 2,547 $ 33 5.25% $ 1,538 $ 20 5.27%
Investment securities - taxable ......................... 84,722 1,020 4.88% 57,868 540 3.78%
Investment securities - tax exempt (2) .................. 4,750 43 3.67% 5,423 47 3.51%
Federal funds sold ...................................... 14,155 180 5.16% 29,592 323 4.43%
Loans, including loans held for sale (2)(3) ............. 423,632 8,157 7.81% 430,109 7,683 7.24%
--------- --------- --------- ---------
Total interest earning assets ............... 529,806 9,433 7.22% 524,530 8,613 6.66%
Cash and due from banks ................................. 17,330 16,236
Allowance for loan losses ............................... (4,864) (11,343)
Premises and equipment .................................. 10,313 6,516
Intangible assets ....................................... 6,880 10,446
Other assets ............................................ 7,497 7,978
--------- ---------
Total assets ................................ $ 566,962 $ 554,363
========= =========
Liabilities and shareholders' equity
Interest bearing deposits
Interest bearing transaction accounts ............ $ 77,051 $ 259 1.36% $ 73,906 $ 219 1.20%
Savings .......................................... 96,148 672 2.83% 85,521 451 2.14%
Time deposits .................................... 241,571 2,707 4.54% 236,100 2,133 3.66%
--------- --------- --------- ---------
Total interest bearing deposits ............. 414,770 3,638 3.56% 395,527 2,803 2.87%
Short-term borrowings ................................... 11,826 116 3.98% 10,276 101 3.99%
Long-term debt .......................................... 26,276 437 6.74% 32,711 482 5.98%
--------- --------- --------- ---------
Total interest bearing liabilities .......... 452,872 4,191 3.75% 438,514 3,386 3.13%
Noninterest bearing demand deposits ..................... 59,068 63,186
Other liabilities ....................................... 1,820 2,972
Shareholders' equity .................................... 53,202 49,691
--------- ---------
Total liabilities and
shareholders' equity ...................... $ 566,962 $ 554,363
========= =========
Interest rate spread .................................... 3.47% 3.53%
Net interest income and net yield on earning assets ..... $ 5,242 4.01% $ 5,227 4.04%
----
(1) Yields and rates are annualized.
(2) Yields on tax-exempt securities and loans have not been stated on a
tax-equivalent basis.
(3) Nonaccruing loans are included in the loan balance and income from such
loans is recognized on a cash basis. The amounts of such loans and income
are not material.
13
Provision and Allowance for Loan Losses
The provision for loan losses for the 2007 first quarter was $375,000,
a decrease of $240,000, or 39.0%, from the $615,000 provided for the same period
of 2006. This decrease was due primarily to a decrease in net charge-offs during
the 2007 first quarter, as discussed below.
Net charge-offs during the three months ended March 31, 2007 were
$76,000, compared with $1,162,000 for the same period of 2006. The allowance for
loan losses as of March 31, 2007 was 1.17% of loans outstanding, compared with
1.14% as of December 31, 2006 and 2.66% as of March 31, 2006.
The activity in the allowance for loan losses is summarized in the
following table:
Three Months Three Months
Ended Year Ended Ended
March 31, December 31, March 31,
2007 2006 2006
---- ---- ----
(Dollars in thousands)
Allowance at beginning of period ................................. $ 4,662 $ 11,641 $ 11,641
Provision for loan losses ........................................ 375 2,950 615
Net charge-offs .................................................. (76) (9,929) (1,162)
--------- --------- ---------
Allowance at end of period ....................................... $ 4,961 $ 4,662 $ 11,094
========= ========= =========
Allowance as a percentage of loans outstanding ................... 1.17% 1.14% 2.66%
Loans at end of period ........................................... $ 424,328 $ 409,720 $ 417,451
========= ========= =========
Non-performing loans, consisting of nonaccrual loans and loans 90 or
more days past due which are still accruing interest, totaled $6,493,000 as of
March 31, 2007, compared with $4,946,000 as of December 31, 2006, an increase of
$1,547,000 or 31.3%. The majority of non-performing loans as of March 31, 2007
were secured by commercial real estate and other collateral. Accordingly, the
amount of such non-performing loans does not reflect the amount of probable loss
that management estimates will be incurred with respect to those loans. The
amount of such estimated loss is included in the allowance for loan losses.
Following is a summary of non-performing loans as of March 31, 2007 and
December 31, 2006:
March 31, December 31,
2007 2006
---- ----
(Dollars in thousands)
Non-performing loans
Nonaccrual loans .............................. $6,326 $4,714
Past due 90 days or more and still accruing ... 167 232
------ ------
Total ........................... $6,493 $4,946
====== ======
Non-performing loans as a percentage of:
Loans outstanding ............................. 1.53% 1.21%
Allowance for loan losses ..................... 130.88% 106.09%
14
The following table shows quarterly changes in non-performing and
potential problem loans since December 31, 2004. Potential problem loans are
loans as to which information about the borrowers' possible credit problems
causes management to have serious doubts about their ability to comply with
current repayment terms, which may result in subsequent classification of such
loans as non-performing loans.
90 Days or
More Past Due Total Percentage Percentage
Nonaccrual and Still Nonperforming of Total Potential of Total
Loans Accruing Loans Loans Problem loans Loans
----- -------- ----- ----- ------------- -----
(Dollars in thousands)
December 31, 2004 ................ $ 4,941 $ 137 $ 5,078 1.29% $ 4,628 1.18%
Net change ....................... 118 215 333 2,972
-------- -------- -------- --------
March 31, 2005 ................... 5,059 352 5,411 1.33% 7,600 1.87%
Net change ....................... 200 (9) 191 10,400
-------- -------- -------- --------
June 30, 2005 .................... 5,259 343 5,602 1.35% 18,000 4.35%
Net change ....................... 4,954 74 5,028 (4,107)
-------- -------- -------- --------
September 30, 2005 ............... 10,213 417 10,630 2.57% 13,893 3.35%
Net change ....................... 1,438 312 1,750 15,420
-------- -------- -------- --------
December 31, 2005 ................ 11,651 729 12,380 2.99% 29,313 7.08%
Net change ....................... 3,128 949 4,077 (2,767)
-------- -------- -------- --------
March 31, 2006 ................... 14,779 1,678 16,457 3.94% 26,546 6.36%
Net change ....................... (3,628) (1,476) (5,104) (3,461)
-------- -------- -------- --------
June 30, 2006 .................... 11,151 202 11,353 2.71% 23,085 5.51%
Net change ....................... (2,483) 175 (2,308) (219)
-------- -------- -------- --------
September 30, 2006 ............... 8,668 377 9,045 2.19% 22,866 5.55%
Net change ....................... (3,954) (145) (4,099) (7,475)
-------- -------- -------- --------
December 31, 2006 ................ 4,714 232 4,946 1.21% 15,391 3.76%
Net change ....................... 1,612 (65) 1,547 (1,143)
-------- -------- -------- --------
March 31, 2007 ................... $ 6,326 $ 167 $ 6,493 1.53% $ 14,248 3.36%
======== ======== ======== ========
During the first quarter of 2007, nonaccrual loans increased by
$1,612,000, primarily as a result of the addition of a $1 million real estate
secured acquisition and development loan. Other elements of the increase were
attributable to a small number of real estate secured loans that migrated from
potential problem loan status. During the month of April, $600,000 of the
increase was paid off without loss to the Bank.
Management will continue to monitor the levels of non-performing and
potential problem loans and dedicate the resources it believes are necessary to
address the weaknesses in these credits in order to enhance the probability of
collection or recovery of these assets. Management considers the levels and
trends in non-performing loans and past due loans in determining how the
provision and allowance for loan losses is estimated and adjusted.
15
Noninterest Income
Noninterest income for the first quarter of 2007 decreased by $109,000,
or 5.6%, from the $1,934,000 reported for the 2006 period. Mortgage brokerage
income decreased by $182,000 or 21.7%, from $837,000 for the 2006 period, due to
a softening of the residential real estate market and a decrease in the number
of loans originated and sold during the quarter. The Company decided in mid-2006
to refocus its mortgage-lending efforts to emphasize production for sale of
conventional one-to-four family mortgages, and to limit wholesale mortgage
production to a select group of high-quality originators. Service charges on
deposit accounts increased by $59,000 over the first quarter of 2006, primarily
as a result of increased volumes of overdraft fee income.
Noninterest Expenses
Salaries and employee benefits for the first quarter of 2007 were
$355,000, or 13.8%, more than in the same 2006 period. This increase resulted
from the hiring of two additional senior loan officers in the mortgage loan
division during the first quarter of 2007, the hiring of other experienced
lenders during 2006 and early 2007, the hiring of a Director of Internal Audit
in early 2007, and related personnel and normal salary increases generally
granted in conjunction with annual employee performance reviews. One of the new
mortgage loan division officers will lead the Bank's mortgage loan production
office opened in Charlotte, NC during the first quarter of 2007. Expenses of
premises and equipment decreased by $62,000, or 9.9%, for the first quarter of
2007 as a result of the first quarter 2006 retirement of several obsolete assets
and demolition costs associated with the old corporate headquarters building. In
early May 2007 the Company began construction of a new branch office in the
rapidly growing northeast Columbia, SC market. This office, which is expected to
cost approximately $830,000, is expected to open for business by the end of
2007.
During the fourth quarter of 2006, the Company merged its four former
subsidiary banks into a single bank. The Company expects that this change
ultimately will result in significant financial savings, improved operational
efficiency and effectiveness, improved customer service through unified
selection of banking products and services, accelerated approval of loan
requests, and better availability of ATM and in-bank services for all customers.
Higher advertising and supplies expenses in the first quarter of 2007, however,
reflect some of the short-term costs of this change.
Income Taxes
Income tax expense for the first quarter of 2007 decreased $145,000, or
20.2%, from the amount for the first quarter of 2006. The average tax rate for
2007 was 36.3% compared with 37.4% in 2006.
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 market areas. Individual and commercial deposits are the primary
16
source of funds for credit activities, along with long-term borrowings from the
Federal Home Loan Bank of Atlanta and the net proceeds of issuing $10,000,000 of
trust preferred securities. 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 March 31, 2007 were $469,770,000, a decrease of
$13,851,000, or 2.9%, from the amount as of December 31, 2006. As of March 31,
2007 the loan to deposit ratio was 90.3%, compared with 84.7% at December 31,
2006 and 90.8% at March 31, 2006. Loans held-for-sale have not been included in
the numerator of the calculation of the loan to deposit ratio. The Bank has
significant amounts of long-term debt available under agreements with the
Federal Home Loan Bank of Atlanta.
Management believes CBI and the Bank's liquidity sources are adequate
to meet their current and projected operating needs.
CAPITAL RESOURCES
CBI and the Bank 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 March 31, 2007 risk-based capital ratios for CBI and the Bank are
presented in the following table, compared with the "well capitalized" (Bank
only) and minimum ratios under the regulatory definitions and guidelines:
March 31, 2007
--------------
Tier 1 Total Capital Leverage
------ ------------- --------
Community Bankshares, Inc. ................ 13.26% 14.43% 10.17%
Community Resource Bank ................... 11.65% 12.83% 8.88%
Minimum "well capitalized" requirement .... 6.00% 10.00% 6.00%
Minimum requirement ....................... 4.00% 8.00% 5.00%
As shown in the table above, the Bank's capital ratios exceed the
regulatory requirement to be considered "well capitalized." In the opinion of
management, the current and projected capital positions of CBI and the Bank are
adequate.
17
SUBSEQUENT EVENT
In the fourth quarter of 2006, CBI merged its four banks into one bank
and, as part of its ongoing asset/liability review process, has since been
reviewing its combined balance sheet. For a long period, each of the former
subsidiary banks maintained an investment in the stock of The Bankers Bank in
Atlanta, Georgia. Management determined that the Bank had too great an
investment in that stock and elected to sell 275 of the 375 shares owned at a
pretax gain of $704,000. This nonrecurring gain will be recognized in the
consolidated financial statements for the second quarter of 2007.
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 discussd under "Results of Operations - Net Interest Income" and in
the notes to unaudited consolidated financial statements under "Variable
Interest Entities," as of March 31, 2007, CBI held an equity interest in, and
guarantees the liabilities of, a non-consolidated variable interest entity, SCB
Capital Trust I.
Commitments
The Bank is party to credit related financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its 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.
The following table sets forth the contractual amounts of commitments
which represent credit risk:
March 31, 2007
--------------
(Dollars in
thousands)
Loan commitments ............... $ 64,084
Standby letters of credit ...... 2,595
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
18
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.
The Company entered into a contract for the construction of a new
branch office to be located on Clemson Road in the northeast Columbia, SC area.
Construction is expected to begin during the second quarter of 2007 and the
office is expected to open for business before year end. Estimated construction
costs total $830,000.
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
effectively insulate CBI from the effects of changes in interest rates during
the time the commitments are outstanding, but the arrangements do not qualify 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.
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 March 31, 2007, and the estimated fair values of those financial
instruments included in other assets and liabilities in the balance sheet as of
that date.
19
March 31, 2007
--------------
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 .................................. $ 16,320 $ 22
Forward sales contracts with investors
of mortgage loans to be held for sale .......... $ 16,320 $ (22)
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 March 31, 2007, CBI is positioned so that
net interest income would decrease $48,000 and net income would decrease $32,000
in the next twelve months if interest rates rose 100 basis points. Conversely,
net interest income would increase $48,000 and net income would increase $32,000
in the next twelve months if interest rates declined 100 basis points. 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 March 31, 2007 there was no significant change from the interest
rate sensitivity analysis for the various changes in interest rates calculated
as of December 31, 2006. 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 2006 Annual Report
on Form 10-K.
Item 4T. 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) or 240.15d-15(e)), the Company's chief
executive officer and chief financial officer concluded that such controls and
procedures, as of the end of the period covered by this report, were effective.
20
There has been no change in the Company's internal control over
financial reporting during the most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II--OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On February 14, 2007, the Company sold 500 shares of its common stock
to an executive officer for an aggregate purchase price of $8,250. Issuance of
the securities was not registered under the Securities Act of 1933 in reliance
on the exemption provided by Section 4(2) thereof because no public offering was
involved.
Item 6. Exhibits
Exhibits 31-1 Rule 13a-14(a)/15d-14(a) Certification of principal executive
officer
31-2 Rule 13a-14(a)/15d-14(a) Certification of principal financial
officer
32 Certifications Pursuant to 18 U.S.C. Section 1350
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: May 10, 2007
COMMUNITY BANKSHARES, INC.
By: s/ Samuel L. Erwin
---------------------------------------------
Samuel L. Erwin
Chief Executive Officer
By: s/ William W. Traynham
---------------------------------------------
William W. Traynham
President and Chief Financial Officer
(Principal Accounting Officer)
22