<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-16461
COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0868361
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
Main Street, P. O. Box 1000, Blountsville, AL 35031
- - - - --------------------------------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (205) 429-1000
No Change
---------
(Former name, former address and former fiscal year, if changed since
last report)
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 the number of shares outstanding of the registrant's class of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 1995
-------------------------------- -----------------------------
Common Stock, $.10 Par Value 1,622,119
<PAGE> 2
INDEX
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION PAGE
- - - - ----------------------------- ----
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - March 31, 1995 and December 31, 1994 . . . . . . . . . . . 3
Consolidated statements of income - Three months ended March 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated statements of cash flows - Three months ended March 31,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to consolidated financial statements - March 31, 1995 . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
- - - - ---------------------------
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES
- - - - ----------
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, December 31,
1995 1994
--------------- -------------
<S> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,119,912 $ 2,708,337
Due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,686,086 10,840,264
Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . 2,272,752 2,113,823
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400,000 100,000
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . 18,513,677 20,853,532
Securities held to maturity, estimated fair values of
$43,009,855 and $39,431,333 . . . . . . . . . . . . . . . . . . . . . 44,086,048 41,532,909
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220,530,371 212,109,397
Less: Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . 4,633,319 5,681,403
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . 1,598,639 1,547,834
--------------- -------------
NET LOANS . . . . . . . . . . . . . . . . . . . . . . . . 214,298,413 204,880,160
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 10,762,068 10,383,364
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,683,335 2,680,379
Intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,546,330 1,577,189
Other real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,898 290,024
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,475,273 1,521,585
--------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . $ 311,119,792 $ 299,481,566
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,671,903 $ 29,515,704
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,168,354 233,896,857
--------------- -------------
TOTAL DEPOSITS . . . . . . . . . . . . . . . . . . . . . . 275,840,257 263,412,561
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . 1,673,270 2,043,902
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,666,301 1,395,336
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,480,516 8,712,953
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 804,874 1,264,478
--------------- -------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . 288,465,218 276,829,230
Shareholders' equity
Common stock, par value $.10 per share, 5,000,000
shares authorized, 1,803,817 shares issued
as of March 31, 1995 and December 31, 1994 . . . . . . . . . . . 180,382 180,382
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,983,010 13,983,010
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 12,686,946 13,076,135
Unearned ESOP shares - 65,720 shares unreleased at March 31, 1995 . . (985,800) (1,028,640)
Treasury stock - 115,978 shares at cost . . . . . . . . . . . . . . . (2,899,460) (2,899,460)
Unrealized losses on investment securities available for
sale, net of deferred tax benefit . . . . . . . . . . . . . . . . (310,504) (659,091)
--------------- -------------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . 22,654,574 22,652,336
--------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . $ 311,119,792 $ 299,481,566
=============== =============
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
1995 1994
----------------- -----------------
<S> <C> <C>
REVENUE FROM EARNING ASSETS
Interest and fees on loans . . . . . . . . . . . . . . . . . $ 4,961,073 $ 3,439,478
Interest on investment securities:
Taxable securities . . . . . . . . . . . . . . . . . . . . 693,594 850,029
Securities exempt from federal income taxes . . . . . . . . 290,612 275,717
Interest on federal funds sold . . . . . . . . . . . . . . . 27,068 27,844
Interest on deposits in other banks . . . . . . . . . . . . . 25,668 14,946
----------------- -----------------
TOTAL REVENUE FROM EARNING ASSETS . . . . . . . 5,998,015 4,608,014
----------------- -----------------
INTEREST EXPENSE
Interest on deposits . . . . . . . . . . . . . . . . . . . . 2,838,619 1,942,382
Interest on other short-term borrowings . . . . . . . . . . . 29,522 7,251
Interest on long-term debt . . . . . . . . . . . . . . . . . 180,094 110,729
----------------- -----------------
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . 3,048,235 2,060,362
----------------- -----------------
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . 2,949,780 2,547,652
Provision for loan losses . . . . . . . . . . . . . . . . . . . . 121,827 125,190
----------------- -----------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . . . . . . . 2,827,953 2,422,462
NONINTEREST INCOME
Service charges on deposits . . . . . . . . . . . . . . . . . 364,701 346,799
Insurance commissions . . . . . . . . . . . . . . . . . . . . 177,750 213,171
Bank club dues . . . . . . . . . . . . . . . . . . . . . . . 97,560 69,129
Other operating income . . . . . . . . . . . . . . . . . . . 124,909 109,525
Investment securities gains . . . . . . . . . . . . . . . . . (22,283) 8,930
----------------- -----------------
TOTAL NONINTEREST INCOME . . . . . . . . . . . . 742,637 747,554
----------------- -----------------
NONINTEREST EXPENSES
Salaries and employee benefits . . . . . . . . . . . . . . . 1,793,422 1,406,569
Occupancy expense . . . . . . . . . . . . . . . . . . . . . . 214,951 202,881
Furniture and equipment expense . . . . . . . . . . . . . . . 184,545 134,495
Director and committee fees . . . . . . . . . . . . . . . . . 67,425 71,100
Other operating expenses . . . . . . . . . . . . . . . . . . 710,872 654,161
----------------- -----------------
TOTAL NONINTEREST EXPENSES . . . . . . . . . . . 2,971,215 2,469,206
----------------- -----------------
Income before income taxes . . . . . . . . . . . . . . . . . . . 599,375 700,810
Provision for income taxes . . . . . . . . . . . . . . . . . . . 144,646 178,120
----------------- -----------------
NET INCOME . . . . . . . . . . . . . . . . . . . $ 454,729 $ 522,690
================= =================
EARNINGS PER COMMON SHARE - PRIMARY AND FULLY DILUTED
Net income per common share . . . . . . . . . . . . . . . . . $ .28 $ .31
Weighted average common shares outstanding . . . . . . . . . 1,621,008 1,700,990
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Ended
March 31,
---------------------------------------
1995 1994
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 454,729 $ 522,690
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses . . . . . . . . . . . . . . . . 121,827 125,190
Provision for depreciation and amortization . . . . . . . 214,738 151,768
Amortization of investment security premiums and
accretion of discounts . . . . . . . . . . . . . . . . (35,275) (31,648)
Realized investment security losses (gains) . . . . . . . 22,283 (8,930)
Increase in accrued interest receivable . . . . . . . . . (2,956) (163,595)
Increase in accrued interest payable . . . . . . . . . . 270,965 88,653
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (769,173) (705,740)
----------------- -----------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 277,138 (21,612)
----------------- -----------------
INVESTING ACTIVITIES:
Proceeds from sales of investment securities . . . . . . . . 4,529,297 10,451,813
Proceeds from maturity of investment securities . . . . . . . 3,925,233 8,611,611
Purchase of investment securities . . . . . . . . . . . . . . (8,073,844) (11,723,967)
Net increase in interest-bearing deposits
with other banks . . . . . . . . . . . . . . . . . . . . . . (158,929) (1,017,528)
Net increase in loans to customers . . . . . . . . . . . . . (9,416,519) (9,836,228)
Capital expenditures . . . . . . . . . . . . . . . . . . . . (577,124) (384,138)
----------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES . . . . . (9,771,886) (3,898,437)
----------------- -----------------
FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts,
and savings accounts . . . . . . . . . . . . . . . . . . . (15,527,948) (1,052,845)
Net increase in certificates of deposit . . . . . . . . . . . 27,955,644 3,689,203
Net decrease in short-term borrowings . . . . . . . . . . . . (342,036) (134,732)
Issuance of common stock. . . . . . . . . . . . . . . . . . . -0- 957,603
Repayment of long-term debt . . . . . . . . . . . . . . . . . (189,597) (171,528)
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . (843,918) -0-
----------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . 11,052,145 3,287,701
----------------- -----------------
Net increase (decrease) in cash and cash equivalents . . . . . . 1,557,397 (632,348)
Cash and cash equivalents at beginning of period . . . . . . . . 13,648,601 16,251,805
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . $ 15,205,998 $ 15,619,457
================= =================
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Ended
March 31,
---------------------------------------
1995 1994
----------------- -----------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,777,270 $ 1,971,709
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 32,339 1,595
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
Other real estate of $38,413 was acquired in 1995 through foreclosure.
Long-term debt was increased and equity was decreased $1,200,000 on
January 1, 1994 to reflect the existence of leveraged, unreleased ESOP
shares. The debt was reduced and shares were released by $42,840 during
each of the quarters ended March 31, 1995 and 1994 as a result of payments
made by the Company's ESOP.
Investment securities of $39,742,884 were transferred during the quarter
ended March 31,1994 to securities available for sale in accordance with
the provisions of SFAS 115.
See notes to consolidated financial statements
6
<PAGE> 7
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1995 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1995. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
NOTE B - INCOME TAXES
The effective tax rates of approximately 24.1 percent and 25.4 percent for the
three months ended March 31, 1995 and 1994 are less than the statutory rate
principally because of the effect of tax-exempt interest income.
NOTE C - INVESTMENT SECURITIES
Effective January 1, 1994, the Company applied the accounting and reporting
requirements of Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities ("SFAS 115"). This
pronouncement requires that all investments in debt securities be classified as
either HELD-TO-MATURITY SECURITIES, which are reported at amortized cost;
TRADING SECURITIES, which are reported at fair value, with unrealized gains and
losses included in earnings; or AVAILABLE-FOR-SALE SECURITIES, which are
reported at fair value, with unrealized gains and losses excluded from earnings
and reported in a separate component of stockholders' equity (net of deferred
tax effect).
At March 31, 1995, the Company had net unrealized losses of $517,507 in
available-for-sale securities which are reflected in the presented assets and
resulted in a decrease in stockholders' equity of $310,504 net of deferred tax
liability. There were no trading securities.
NOTE D - SHAREHOLDERS' EQUITY
Effective October 1, 1993, the Company offered a maximum of 600,000 shares of
its $.10 par value common stock at $15 per share with the anticipation of
raising up to $9,000,000 of capital. As of December 31, 1993, 535,999 shares
had been issued, raising $7,959,139 of capital after reduction of offering
costs. On February 11, 1994 the offering was closed upon full subscription of
all shares offered for sale, raising an additional $957,603 of capital after
offering costs.
On October 3, 1994, the Company purchased 115,978 shares of stock into treasury
at $25 per share, for a total of $2,899,460, from Jeffrey K. Cornelius, a
former director and officer of the Company.
On January 9, 1995, the Board of Directors of the Company declared a dividend
of $.50 per share to shareholders of record as of January 15, 1995 which was
paid on January 20, 1995. The payment of dividends on common stock is subject
to the prior payment of principal and interest on the Company's long-term debt,
maintenance of sufficient earnings and capital of the subsidiaries and to
regulatory restrictions.
Also on January 9, 1995, the Board of Directors passed a resolution authorizing
the preparation of a Registration Statement for the proposed sale of 312,161
shares of the Company's $.10 par value common stock, consisting of the
Company's 115,978 shares of treasury stock and 196,183 newly issued shares. If
it occurs as expected in the first half of 1995, this sale would create
approximately $6,200,000 of additional capital for the Company.
7
<PAGE> 8
NOTE E - EMPLOYEE STOCK OWNERSHIP PLAN
The Company adopted an Employee Stock Ownership Plan (the "ESOP") effective as
of January 1, 1985, which enables eligible employees of the Company and its
subsidiaries to own Company common stock. On November 3, 1993, the ESOP's
Trustees executed a promissory note of $1,200,000 in order to purchase common
stock from the Company's new offering of its stock. The note was originally
secured by 80,000 shares of purchased stock, which are released proratably by
the lender as monthly payments of principal and interest are made. 65,720
shares remain as security for the indebtedness as of March 31, 1995. The note
is not explicitly guaranteed by the Company.
Effective January 1, 1994, the Company applied the accounting and reporting
requirements of Statement of Position No. 93-6, Employers' Accounting for
Employee Stock Ownership Plans ("SOP 93-6"). SOP 93-6 removes any distinctions
between ESOP loans which are guaranteed by the employer and those which are
not. Under the provisions of SOP 93-6, the employer must recognize the
indebtedness of its sponsored ESOP on its balance sheet and reduce its
stockholder's equity for shares of stock which have not been released by a
lender to the ESOP for allocation to its participating employees. Adjustments
are also required to the method of recording payments made by the Company to
the ESOP on behalf of its participating employees.
At March 31, 1995, the Company's financial statements reflect long term debt
and a corresponding contra-equity account, as a result of this ESOP debt, of
$985,800.
NOTE F - BUSINESS COMBINATIONS
On November 15, 1993, upon receipt of all necessary regulatory and lender
approvals, the Company capitalized a new Tennessee bank subsidiary in Pulaski,
Tennessee and commenced operations. The new subsidiary bank, Community Bank
(Tennessee), was capitalized with $3,500,000 and is wholly owned by the
Company. All of the Tennessee bank's stock is pledged as security against a
note agreement.
8
<PAGE> 9
ITEM 2.
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion is intended to assist an understanding of the Company and its
Subsidiaries' financial condition and results of operations. Unless the
context otherwise indicates, "the Company" shall include the Company and its
Subsidiaries. This analysis should be read in conjunction with the financial
statements and related notes appearing in Item 1 of the March 31, 1995 Form
10-Q and Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing in the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
FINANCIAL CONDITION
MARCH 31, 1995 COMPARED TO DECEMBER 31, 1994
LOANS
Loans comprised the largest single category of the Company's earning assets on
March 31, 1995. Loans, net of unearned income and reserve for loan losses,
were 68.9% of total assets at March 31, 1995 and 68.5% of total assets at
December 31, 1994. Total net loans were $214,298,413 at March 31, 1995,
representing a 4.6% increase from the December 31, 1994 total of $204,880,160.
This increase of approximately $9.4 million was due to improving economic
conditions in the Company's markets, growth in the Company's new subsidiary
bank in Tennessee, and a management emphasis on quality loan growth.
INVESTMENT SECURITIES AND OTHER EARNING ASSETS
Investment Securities and federal funds sold increased $1,513,284 or 2.4% from
December 31, 1994 to March 31, 1995. This increase was due primarily to
deposit growth in excess of loan growth. The investment securities portfolio
is used to make various term investments, to provide a source of liquidity and
to serve as collateral to secure certain government deposits. Investment
securities at March 31, 1995 were $62,599,725 compared with $62,386,441 at
December 31, 1994, reflecting an 0.3% increase of $213,284. Short-term
investments in the form of interest-bearing deposits with banks was $2,272,752
at March 31, 1995 and $2,113,823 at December 31, 1994.
ASSET QUALITY
Between December 31, 1994 and March 31,1995, the Company experienced an
improvement in the quality of its assets as measured by three key ratios. The
ratio of loan loss allowance to total nonperforming assets (defined as
nonaccrual loans, loans past due 90 days or greater, restructured loans,
nonaccruing securities, and other real estate) improved from 1.47 to 1.71. Both
the ratios of total nonperforming loans to total loans and total nonperforming
assets to total assets experienced a favorable decline of 0.1%, to 0.004 and
0.003, respectively. All three of these ratios compare favorably with industry
averages, and management is aware of no factors which should suggest that they
are prone to erosion in future periods.
DEPOSITS
Total deposits of $275,840,257 at March 31, 1995 increased $12,427,696 (4.7%)
over total deposits of $263,412,561 at year-end 1994. Deposits are the
Company's primary source of funds with which to support its earning assets.
Noninterest-bearing deposits increased $6,156,199 or 20.9% from year-end 1994
to March 31, 1995, and interest-bearing deposits increased $6,271,497 (2.7%)
from year-end 1994. Certificates of deposit of $100,000 or more increased
$3,844,295 (8.4%).
9
<PAGE> 10
OTHER SHORT-TERM BORROWINGS
Other short-term borrowings totalled $1,673,270 at March 31, 1995, a $370,632
decrease from the December 31, 1994 total of $2,043,902.
LONG-TERM DEBT
At March 31, 1995 and December 31, 1994, the Company had notes payable totaling
$8,480,516, and $8,712,253, respectively.
On December 17, 1992, the Company entered into a loan agreement with Colonial
Bank for amounts up to $6,500,000. At March 31, 1995 and December 31, 1994, the
amounts outstanding were $5,514,138 and $5,652,014, respectively, due December
17, 2002, bearing interest at a floating prime, collateralized by 100% of the
common stock of the subsidiary banks. The note agreement contains provisions
which limit the Company's right to transfer or issue shares of subsidiary
banks' stock. Principal payments of $58,681 are due monthly; however, the
Company has the option of postponing up to twenty-four monthly principal
payments, provided that no more than six consecutively scheduled installments
are deferred.
On November 3, 1993 the Company's ESOP borrowed $1,200,000 for the acquisition
of Company common stock. The note is due December 5, 2005, bearing interest at
a floating rate, collateralized by shares of the Company's common stock
purchased by the ESOP. The Company has not guaranteed this debt; however, new
accounting and reporting guidelines mandated the debt's recognition on the
Company's balance sheet as of January 1, 1994 with an offsetting charge against
equity. As principal payments are made by the ESOP, the debt and offsetting
charge against equity are reduced. Principal payments of $14,280 are due
monthly, at which time the lender releases a proportionate amount of the stock
held as collateral to the ESOP for allocation to its participants. The
outstanding balance of this note was $985,800 at March 31, 1995.
On October 4, 1994, the Company entered into a twenty year, subordinated
installment capital note due October 1, 2014 for the purchase of treasury
stock. Monthly principal and interest payments of $15,506 are made on the note,
which bears interest at the fixed rate of 7 %. The Company maintains the right
to prepay the note at its sole discretion. The balance of the note was
$1,980,578 at March 31, 1995.
Maturities of long-term debt for the years ending December 31 are as follows:
<TABLE>
<S> <C>
1995 . . . . . . . . . . $ 693,064
1996 . . . . . . . . . . 927,147
1997 . . . . . . . . . . 930,879
1998 . . . . . . . . . . 934,880
1999 . . . . . . . . . . 939,170
Thereafter . . . . . . . 4,055,376
-------------
$ 8,480,516
=============
</TABLE>
SHAREHOLDERS' EQUITY
Company shareholders' equity increased $2,238 from December 31, 1994 to March
31, 1995, due to: net earnings of $454,729, the payment of a cash dividend of
$843,918, the reduction of unearned ESOP shares by $42,840, and the reduction
of unrealized losses on securities available for sale totalling $348,587, net
of deferred tax liability.
10
<PAGE> 11
CAPITAL RESOURCES
A strong capital position is vital to the continued profitability of the
Company because it promotes depositor and investor confidence and provides a
solid foundation for future growth of the organization. The Company has
provided the majority of its capital requirements through the retention of
earnings.
Bank regulatory authorities are placing increased emphasis on the maintenance
of adequate capital. In 1990, new risk-based capital requirements became
effective. The guidelines take into consideration risk factors, as defined by
regulators, associated with various categories of assets, both on and off the
balance sheet. Under the guidelines, capital strength is measured in two tiers
which are used in conjunction with risk-adjusted assets to determine the
risk-based capital ratios. The Company's Tier I capital, which consists of
common equity, amounted to $ 22.9 million at March 31, 1995. Tier II capital
components include supplemental capital components such as qualifying allowance
for loan losses and qualifying subordinated debt. Tier I capital plus the Tier
II capital components is referred to as Total Risk-based capital and was $ 26.4
million at March 31, 1995.
The Company's current capital positions exceed the new guidelines. Management
has reviewed and will continue to monitor the Company's asset mix and product
pricing, and the loan loss allowance, which are the areas determined to be most
affected by these new requirements.
11
<PAGE> 12
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
SUMMARY
Net earnings of the Company for the three months ended March 31, 1995 were
$454,729 compared to $522,690 for the same period in 1994, representing a 13.0%
decrease. This decrease was due principally to the increase of noninterest
expenses in excess of growth in noninterest income. This is a direct result of
the Company's expansion activity, with three new banking facilities being
opened in 1994 and another new location completely staffed and ready for
opening in the second quarter of 1995. In addition to the direct costs of
operating these new facilities, the Company has increased its staffing levels
within its support functions at a level which not only allows quality service
to current banking customers but which also anticipates continued growth in the
future. Noninterest expenses increased $502,009 during the quarter ended March
31, 1995 as compared to the same period in 1994, while noninterest income
decreased by $4,917.
NET INTEREST INCOME
Net interest income, the difference between interest earned on assets and the
cost of interest-bearing liabilities, is the largest component of the Company's
net income. Revenue from earning assets of the Company during the three months
ended March 31, 1995 increased $1,390,001 (30.2%) from the same period in 1994.
This increase was due to a higher interest rate environment combined with
larger outstanding balances of earning assets. Interest expense for the three
months ended March 31, 1995 increased $987,873 or 47.9% over the corresponding
period of 1994. As a result of these factors, net interest income increased
$402,128 or 15.8% in the three months ended March 31, 1995 compared to the same
period of 1994.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents the charge against current earnings
necessary to maintain the reserve for loan losses at a level which management
considers appropriate. This level is determined based upon Community Bank's
historical charge-offs, management's assessment of current economic conditions,
the composition of the loan portfolio and the levels of nonaccruing and past
due loans. The provision for loan losses was $121,827 for the three months
ended March 31, 1995 compared to $125,190 for the same period of 1994.
Charge-offs exceeded recoveries by $71,022 for the three months ended March 31,
1995. The reserve for loan losses as a percent of outstanding loans, net of
unearned income, was .74% at March 31, 1995 compared to .75% at year-end 1994.
NONINTEREST INCOME
Noninterest income for the three months ended March 31, 1995 was $742,637
compared to $747,554 for the same period of 1994. This 0.7% decrease was due
primarily to a decrease in the amount of insurance commissions earned by the
Company in the form of credit life insurance and the recognition of a small
loss on investment securities as opposed to a small gain in the first quarter
of 1994. Significant components of noninterest income are as follows: Service
charges on deposits increased $17,902 (5.2%), insurance commissions decreased
$35,421 (16.6%), security losses totaled $22,283 as opposed to gains of $8,930
in 1994, and other operating income, primarily dues for the bank club account
and appraisal fees, increased $15,384 (14.0%) to $124,909.
12
<PAGE> 13
NONINTEREST EXPENSES
Noninterest expenses for the three months ended March 31, 1995 were $2,971,215,
reflecting a 20.3% increase over the same period of 1994. The primary
components of noninterest expenses are salaries and employee benefits, which
increased to $1,793,422 for the three months ended March 31, 1995, 27.5% higher
than in the same period of 1994. The increases in salaries and employee
benefits are due to staffing for four new banking locations as well as merit
increases and incentive payments. Occupancy cost increased $12,070 (5.9%),
furniture and equipment expenses rose by $50,050 (37.2%), and director and
committee fees increased by $26,150 (58.2%). Other operating expenses rose by
8.7% to $710,872.
The majority of these expenses should continue at or above the levels for the
three months ended March 31, 1995, since management intends to continue its
growth policies.
The Company remains dependent upon the earnings of its principal subsidiary,
Community Bank (Alabama), for its earnings.
The substantial increase in the Company's size has necessitated increased
expenditures for data processing and other support activities and personnel,
which will continue.
The Company's strategy is to make each office of its subsidiary bank a vital
part of the community it serves. Each office has management and personnel as
similar to a full service, stand-alone bank as possible. Although more
expensive, we believe this strategy has been successful for Community Bank, and
will best serve our communities, customers and shareholders. The Company will
remain dependent upon Community Bank for the bulk of its earnings. Management
will strive to build Community Bank's business in a profitable manner and to
minimize any losses and adverse effects on the Company's earnings. Our
strategy for long-term success in these areas will not be sacrificed for
immediate gain.
INCOME TAXES
The Company attempts to maximize its net income through active tax planning.
The provision for income taxes of $144,646 for the three months ended March 31,
1995 decreased $33,474 compared to the same period of 1994, due primarily to
the decrease in net income. Taxes as a percent of earnings increased from
25.4% to 24.1%. The effective tax rate of approximately 24.1% is less than the
statutory rate principally because of the effect of tax-exempt interest income.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number Description of Exhibit
-------------- -------------------------
11 Computation of Earnings
Per Share
27 Financial Data Schedule
(For SEC Use Only)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended March 31, 1995.
14
<PAGE> 15
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.
COMMUNITY BANCSHARES, INC.
May 9, 1995 /s/ Kennon R. Patterson, Sr.
- - - - ----------- --------------------------------
Date Kennon R. Patterson, Sr., as its
President and Chief Executive
Officer
May 9, 1995 /s/ Paul W. Williams
- - - - ----------- -------------------------------
Date Paul W. Williams, as its Senior
Vice President and Chief
Accounting Officer
15
<PAGE> 1
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
The following tabulation presents the calculation of primary and fully diluted
earnings per common share for the three-month periods ended March 31, 1995 and
1994.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Reported net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 454,729 $ 522,690
Earnings on common shares . . . . . . . . . . . . . . . . . . . . . . . . . $ 454,729 $ 522,690
============= =============
Weighted average common shares outstanding . . . . . . . . . . . . . . . . 1,621,008 1,700,990
============= =============
Earnings per common share - primary and fully diluted
Income from continuing operations . . . . . . . . . . . . . . . . . . . . $ .28 $ .31
============= =============
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .28 $ .31
============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF COMMUNITY BANCSHARES, INC. FOR THE PERIOD ENDED
MARCH 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 13,085,998
<INT-BEARING-DEPOSITS> 2,272,752
<FED-FUNDS-SOLD> 1,400,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,513,677
<INVESTMENTS-CARRYING> 44,086,048
<INVESTMENTS-MARKET> 43,009,855
<LOANS> 215,897,052
<ALLOWANCE> 1,598,639
<TOTAL-ASSETS> 311,119,792
<DEPOSITS> 275,840,257
<SHORT-TERM> 1,673,270
<LIABILITIES-OTHER> 2,471,175
<LONG-TERM> 8,480,516
<COMMON> 180,382
0
0
<OTHER-SE> 22,474,192
<TOTAL-LIABILITIES-AND-EQUITY> 311,119,792
<INTEREST-LOAN> 4,961,073
<INTEREST-INVEST> 984,206
<INTEREST-OTHER> 52,736
<INTEREST-TOTAL> 5,998,015
<INTEREST-DEPOSIT> 2,838,619
<INTEREST-EXPENSE> 3,048,235
<INTEREST-INCOME-NET> 2,949,780
<LOAN-LOSSES> 121,827
<SECURITIES-GAINS> (22,283)
<EXPENSE-OTHER> 2,971,215
<INCOME-PRETAX> 599,375
<INCOME-PRE-EXTRAORDINARY> 454,729
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 454,729
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
<YIELD-ACTUAL> 4.34
<LOANS-NON> 321,000
<LOANS-PAST> 337,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,548,000
<CHARGE-OFFS> 104,000
<RECOVERIES> 33,000
<ALLOWANCE-CLOSE> 1,599,000
<ALLOWANCE-DOMESTIC> 1,599,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
