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 June 30, 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 June 30, 1995
Common Stock, $.10 Par Value 1,624,975<PAGE>
INDEX
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - June 30, 1995 and
December 31, 1994 3
Consolidated statements of income - Three months
ended June 30, 1995 and 1994; Six months ended June 30,
1995 and 1994 4-5
Consolidated statements of cash flows - Six months ended
June 30,1995 and 1994 6
Notes to consolidated financial statements - June 30, 1995 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . 15
SIGNATURES<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1995 1994
Assets
Cash . . . . . . . . . . . . $ 2,463,788 $ 2,708,337
Due from banks . . . . . . . . 10,766,982 10,840,264
Interest-bearing deposits with banks 2,330,034 2,113,823
Federal funds sold . . . . . . . . . 9,550,000 100,000
Securities available for sale . . . 21,059,373 20,853,532
Securities held to maturity, estimated
fair values of $43,009,855 and
$39,431,333 . . . . . . . . . 42,536,672 41,532,909
Loans . . . . . . . . . . . . . 226,108,148 212,109,397
Less: Unearned income . . . . . . 3,731,904 5,681,403
Allowance for loan losses . . 1,598,023 1,547,834
Net Loans . . . . . . . . . . 220,778,221 204,880,160
Premises and equipment, net . . . . 11,178,122 10,383,364
Accrued interest . . . . . . . . . . 2,907,108 2,680,379
Intangibles, net . . . . . . . . . . 1,515,473 1,577,189
Other real estate . . . . . . . . . 237,485 290,024
Other assets . . . . . . . . . . . . 1,150,055 1,521,585
Total Assets $ 326,473,313 $ 299,481,566
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing . . . . $ 37,222,328 $ 29,515,704
Interest-bearing . . . . . . . 250,883,010 233,896,857
Total Deposits . . . . . . . . . 288,105,338 263,412,561
Other short-term borrowings . . . . 3,051,915 2,043,902
Accrued interest . . . . . . . . . . 2,216,069 1,395,336
Long-term debt . . . . . . . . . . . 8,247,874 8,712,953
Other liabilities . . . . . . . . . 1,099,800 1,264,478
Total Liabilities 302,720,996 276,829,230
Shareholders' equity
Common stock, par value $.10 per
share, 5,000,000 shares authorized,
1,803,817 shares issued as of
June 30, 1995 and December 31, 1994 . 180,382 180,382
Capital surplus . . . . . . . . . . . 13,983,010 13,983,010
Retained earnings . . . . . . . . . 13,357,220 13,076,135
Unearned ESOP shares - 62,864 and
68,576 shares unreleased at June 30,
1995 and December 31,1994 . . (942,960) (1,028,640)
Treasury stock -115,978 shares at cost (2,899,460) (2,899,460)
Unrealized gains (losses) on
investment securities available
for sale, net of deferred taxes . . 74,125 (659,091)
Total Shareholders' Equity 23,752,317 22,652,336
Total Liabilities and
Shareholders' Equity $ 326,473,313 $ 299,481,566
See notes to consolidated financial statements.
3<PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
June 30
1995 1994
Revenue From Earning Assets
Interest and fees on loans . . . . $ 5,300,988 $ 3,995,962
Interest on investment securities:
Taxable securities . . . . . . . . . . . 695,374 837,633
Securities exempt from federal income taxes 290,102 275,226
Interest on federal funds sold . . . . . . . 87,475 16,707
Interest on deposits in other banks . . . . . 26,458 20,629
Total Revenue From Earning Assets . . . . 6,400,397 5,146,157
Interest Expense
Interest on deposits . . . . . . . . . . . 3,091,918 2,095,844
Interest on other short-term borrowings . . . 43,588 9,286
Interest on long-term debt . . . . . . . . 187,080 127,195
Total Interest Expense . . . . . . . . . . 3,322,586 2,232,325
Net interest income 3,077,811 2,913,832
Provision for loan losses . . . 104,884 151,335
Net interest income after provision
for loan losses . . . 2,972,927 2,762,497
Noninterest Income
Service charges on deposits . . . . . . . . 457,569 393,823
Insurance commissions . . . . . . . . . . . 178,442 221,565
Bank club dues . . . . . . . . . . . . . . . 104,616 76,502
Other operating income . . . . . . . . . . . 124,392 140,020
Investment securities gains . . . . . . . . 2,313 17,539
Total Noninterest Income . . . . . . . . . 867,332 849,449
Noninterest Expenses
Salaries and employee benefits . . . . . . 1,787,846 1,415,885
Occupancy expense . . . . . . . . . . . . 217,644 198,286
Furniture and equipment expense . . . . . 199,716 152,605
Director and committee fees . . . . . . . 70,075 72,250
Other operating expenses . . . . . . . . . 695,401 611,683
Total Noninterest Expenses . . . . . . . 2,970,682 2,450,709
Income before income taxes. . . . . . . . . 869,577 1,161,237
Provision for income taxes . . 199,303 343,580
Net Income . . . . . . . . . . . . . .. $ 670,274 $ 817,657
Earnings Per Common Share - Primary and fully diluted
Net income per common share . . . $ .41 $ .47
Weighted average common shares outstanding . 1,623,866 1,728,420
See notes to consolidated financial statements.
4<PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended
June 30,
1995 1994
Revenue From Earning Assets
Interest and fees on loans . . . . $ 10,262,061 $ 7,435,440
Interest on investment securities:
Taxable securities . . . . . . . 1,388,968 1,687,662
Securities exempt from federal income taxes 580,714 550,943
Interest on federal funds sold . . . . . . . 114,543 44,551
Interest on deposits in other banks . . . . 52,126 35,575
Total Revenue From Earning Assets . . . . . . 12,398,412 9,754,171
Interest Expense
Interest on deposits . . . . . . . . . . . 5,930,537 4,038,226
Interest on other short-term borrowings . 73,110 16,537
Interest on long-term debt . . . . . . . . 367,174 237,924
Total Interest Expense . . . . . . . . . . 6,370,821 4,292,687
Net interest income 6,027,591 5,461,484
Provision for loan losses . . . 226,711 276,525
Net interest income after provision
for loan losses . . . . . . . . . . . . . . 5,800,880 5,184,959
Noninterest Income
Service charges on deposits . . . . . . . . 822,270 740,622
Insurance commissions . . . . . . . . . . . 356,192 434,736
Bank club dues . . . . . . . . . . . . . . . 202,176 142,631
Other operating income . . . . . . . . . . . . . 249,301 252,545
Investment securities gains(losses) . . . . . . (19,970) 26,469
Total Noninterest Income . . . . . . . . . . . 1,609,969 1,597,003
Noninterest Expenses
Salaries and employee benefits . . . . . . . . 3,581,268 2,822,454
Occupancy expense . . . . . . . . . . . . . . 432,595 401,167
Furniture and equipment expense . . . . . . . 384,261 287,100
Director and committee fees . . . . . . . . . 137,500 143,350
Other operating expenses . . . . . . . . . . . 1,406,273 1,265,844
Total Noninterest Expenses . . . . . . . . 5,941,897 4,919,915
Income before income taxes . . . . . . . . . . 1,468,952 1,862,047
Provision for income taxes . . 343,949 521,700
Net Income . . . . . . . . . . . . . . $ 1,125,003 $ 1,340,347
Earnings Per Common Share - Primary and fully diluted
Net income per common share . . . . $ .69 $ .78
Weighted average common shares outstanding 1,622,445 1,714,781
See notes to consolidated financial statements.
5<PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months Ended
June 30,
1995 1994
Operating activities:
Net income . . . . . . . . . . . $ 1,125,003 $ 1,340,347
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses . . . . . . . . . 226,711 276,525
Provision for depreciation and amortization 446,358 322,041
Amortization of investment security premiums and
accretion of discounts . . . . . . . . . . . . (75,396) (88,150)
Provision for deferred taxes . . . . . . . . . (14,304) 10,500
Realized investment security losses (gains) . . 19,970 (26,469)
Gain on sale of premises and equipment . . . . (7,395) (3,596)
Gain on sale of other real estate . . . . . . . -0- (7,325)
Increase in accrued interest receivable . . . (226,729) (139,674)
Increase in accrued interest payable . . . . . 820,733 360,620
Other . . . . . . . . . . . . . . . . . . . . (452,157) (1,068,716)
Net cash provided (used) by
operating activities 1,862,794 976,103
Investing activities:
Proceeds from sales of investment securities 4,531,610 15,321,892
Proceeds from maturity of
investment securities . . . . . . . 9,560,990 19,097,583
Purchase of investment securities . . . . (14,024,752) (23,177,512)
Increase in interest-bearing deposits
with other banks . . . . (216,211) (1,096,650)
Net increase in loans to customers . . . . (15,895,711) (28,446,117)
Proceeds from sale of premises and equipment 40,660 48,091
Proceeds from sale of other real estate . . . -0- 12,500
Capital expenditures . . . . . . . . . . . . (1,212,665) (1,389,278)
Net cash used in investing activities . . . (17,216,667) (19,629,491)
Financing activities:
Net decrease in demand deposits, NOW accounts,
and savings accounts . . . . . . . . . (1,139,167) (2,915,415)
Net increase in certificates of deposit . 25,831,944 16,285,879
Net increase (decrease) in short-term
borrowings . . . . . . . 1,015,994 (48,268)
Issuance of common stock. . . . . . . . . -0- 957,603
Repayment of long-term debt . . . . . . . . . (379,399) (347,570)
Cash dividends . . . . . . . . . . . . . . . . (843,918) -0-
Net cash provided by financing activities . 24,485,454 13,932,229
Net increase (decrease) in cash
and cash equivalents . . . . . . . . . . . 9,132,169 (4,721,159)
Cash and cash equivalents at
beginning of period . . . . . . . . . . . .13,648,601 16,251,805
Cash and cash equivalents at end
of period $ 22,780,770 $ 11,530,646
See notes to consolidated financial statements.
6<PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months Ended
June 30,
1995 1994
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . $ 5,550,088 $ 3,932,067
Income taxes . . . . . . . . . . . 114,261 541,991
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 $85,680 during
each of the six month periods ended June 30, 1995 and 1994 as a
result of payments made by the Company's ESOP.
Investment securities of $39,742,884 were transferred during the six month
period ended June 30,1994 to securities available for sale in accordance with
the provisions of SFAS 115.
Unrealized gains or losses on investment securities available for sale
changed by $733,216 during the six months ended June 30, 1995, from an
unrealized loss of $659,091 at December 31, 1994, to a gain of $74,125 at
June 30,1995 (both net of the effect of deferred taxes.)
See notes to consolidated financial statements.
7<PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 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 six
month period ended June 30,1995 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 23.4 percent and 28.0 percent
for the six months ended June 30, 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 amort-
ized 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 June 30, 1995, the Company had net unrealized gains of $123,541 in available
-for-sale securities which are reflected in the presented assets and resulted
in an increase in stockholders' equity of $74,125 net of deferred tax liability.
There were no trading securities. The net increase in stockholders equity
as a result of the SFAS 115 adjustment from December 31, 1994 to June 30, 1995
was $733,216.
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.
8<PAGE>
NOTE D - Shareholders' Equity (continued)
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 author-
izing 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. The sale became effective on June 20, 1995. If it is fully
subscribed, this sale would create approximately $6,200,000 of additional
capital for the Company.
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. 62,864 shares remain as security for the indebtedness as of June 30, 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 stock-
holder'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 June 30, 1995, the Company's financial statements reflect long term debt
and a corresponding contra-equity account, as a result of this ESOP debt, of
$942,960.
9<PAGE>
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 June 30,1995
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
June 30, 1995 compared to December 31, 1994
Loans
Loans comprised the largest single category of the Company's earning assets
on June 30, 1995. Loans, net of unearned income and reserve for loan losses,
were 67.6% of total assets at June 30, 1995 and 68.4% of total assets at
December 31, 1994. Total net loans were $220,778,221 at June 30, 1995,
representing a 7.8% increase from the December 31, 1994 total of $204,880,160.
This increase of approximately $15.9 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 $10,569,604 or 17.1%
from December 31, 1994 to June 30, 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 June 30, 1995 were $63,596,045 compared with $62,386,441 at
December 31, 1994, reflecting a 1.9% increase of $1,209,604. Short-term
investments in the form of interest-bearing deposits with banks were $2,330,034
at June 30, 1995 and $2,113,823 at December 31, 1994.
Asset Quality
Between December 31, 1994 and June 30,1995,the Company experienced an improve-
ment 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 1.55. The ratio of
total nonperforming assets to total assets experienced a favorable decline of
0.1%, to 0.003 from 0.004, and the ratio of nonperforming loans to total
loans remained the same at 0.005.All three of these ratios compare favorably
with industry averages, and management is aware of no factors which would
suggest that they are prone to erosion in future periods.
Deposits
Total deposits of $288,105,338 at June 30, 1995 increased $24,692,777 (9.4%)
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 $7,706,624 or 26.1% from year-end
1994 to June 30, 1995, and interest-bearing deposits increased $16,986,153
(7.3%) from year-end 1994.Certificates of deposit of $100,000 or more increased
$11,097,579 (11.0%).
10<PAGE>
Other Short-term Borrowings
Other short-term borrowings totalled $3,051,915 at June 30, 1995, a
$1,008,013 increase from the December 31, 1994 total of $2,043,902.
Long-term Debt
At June 30, 1995 and December 31, 1994, the Company had notes payable totaling
$8,247,874, 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 June 30, 1995 and December 31, 1994,
the amounts outstanding were $5,336,263 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 $942,960 at June 30,
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
$1,968,651 at June 30, 1995.
Remaining maturities of long-term debt for the years ending December 31 are as
follows:
1995 . . . . . . . . . $ 459,919
1996 . . . . . . . . . 927,147
1997 . . . . . . . . . 930,879
1998 . . . . . . . . . 934,880
1999 . . . . . . . . . 939,170
Thereafter . . . . . . 4,055,879
$ 8,247,874
Shareholders' Equity
Company shareholders' equity increased $1,099,981 from December 31, 1994
to June 30, 1995, due to: net earnings of $1,125,003, the payment of a
cash dividend of $843,918, the reduction of unearned ESOP shares by $85,680,
and the increase of unrealized gains on securities available for sale totalling
$733,216, net of deferred tax liability.
11<PAGE>
Capital Resources
A strong capital position is vital to the continued profitability of the
Company because it promotes positive depositor and investor confidence and
provides a solid foundation for future growth of the organization. The Company
has provided a 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 $ 23.7 million at June 30, 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 $ 27.2 million at June 30, 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.
12<PAGE>
RESULTS OF OPERATIONS
Six months ended June 30, 1995 and 1994
Summary
Net earnings of the Company for the six months ended June 30, 1995 were
$1,125,003 compared to $1,340,347 for the same period in 1994, representing
a 16.1% 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 opened 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 to a level which not only allows quality service to current
banking customers but which also anticipates continued growth in the future.
Noninterest expenses increased $1,021,982 during the six months ended June
30, 1995 as compared to the same period in 1994, while noninterest income
increased by $12,966.
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 six
months ended June 30,1995 increased $2,644,241 (27.1%) 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 six months ended June 30, 1995 increased $2,078,134 or 48.4% over
the corresponding period of 1994. As a result of these factors, net interest
income increased $566,107 or 10.4% in the six months ended June 30, 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 $226,711 for
the six months ended June 30, 1995 compared to $276,525 for the same period
of 1994. Charge-offs exceeded recoveries by $176,522 for the six months ended
June 30, 1995. The reserve for loan losses as a percent of outstanding loans,
net of unearned income, was .72% at June 30, 1995 compared to .75% at year-end
1994.
Noninterest Income
Noninterest income for the six months ended June 30, 1995 was $1,609,969
compared to $1,597,003 for the same period of 1994. This 0.8% increase was
modest primarily due to a decrease in the amount of insurance commissions
earned by the Company in the form of credit life insurance and the recogn-
ition of a small loss on investment securities as opposed to a small gain in
the first half of 1994. Significant components of noninterest income are
as follows: Service charges on deposits increased $81,648 (11.0%), insurance
commissions decreased $78,544 (18.1%), security losses totaled $19,970 as
opposed to gains of $26,469 in 1994, and other operating income, primarily
dues for the bank club account and appraisal fees, increased $56,301 (14.2%) to
$451,477.
13
Noninterest Expenses
Noninterest expenses for the six months ended June 30, 1995 were $5,941,897,
reflecting a 20.8% increase over the same period of 1994.The primary components
of noninterest expenses are salaries and employee benefits, which increased to
$3,581,268 for the six months ended June 30, 1995, 26.9% 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 costs increased $31,428 (7.8%), furniture and
equipment expenses rose by $97,161 (33.8%), and director and committee fees
decreased by $5,850(4.1%).Other operating expenses rose by 11.1% to $1,406,273.
The majority of these expenses should continue at or above the levels for the
six months ended June 30, 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 $343,949 for the six months ended June
30, 1995 decreased $177,751 compared to the same period of 1994, due primarily
to the decrease in income before tax. Taxes as a percent of earnings
decreased from 28.0% to 23.4%. The effective tax rate of approximately 23.4%
is less than the statutory rate principally because of the effect of tax-exempt
interest income.
14<PAGE>
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Description of Exhibit Page Number
11 Computation of Earnings 16
Per Share
27 Financial Data Schedule
(for the SEC use only)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
June 30, 1995.
15<PAGE>
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
The following tabulation presents the calculation of primary and fully diluted
earnings per common share for the six-month and three-month periods ended June
30, 1995 and 1994.
Six Months Ended Three Months Ended
June 30, June 30,
1995 1994 1995 1994
Reported net income . .$ 1,125,003 $ 1,340,347 $ 670,274 $ 817,657
Earnings on common
shares . . . . . . $ 1,125,003 $ 1,340,347 $ 670,274 $ 817,657
Weighted average common
shares outstanding . 1,622,445 1,714,781 1,623,866 1,728,420
Earnings per common share - primary and
fully diluted
Income from
continuing operations $ .69 $ .78 $ .41 $ .47
Net income . . . . . $ .69 $ .78 $ .41 $ .47
16<PAGE>
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.
August 1, 1995 /s/ Kennon R. Patterson, Sr.
Date Kennon R. Patterson, Sr., as its
President and Chief Executive
Officer
August 1, 1995 /s/ Paul W. Williams,CPA
Date Paul W. Williams,CPA as its Senior
Vice President and Chief
Accounting Officer
17<PAGE>
<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 JUNE 30,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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