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 September 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 September 30,1995
Common Stock, $.10 Par Value 1,726,310
<PAGE>
INDEX
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets-September30,1995 and December 31,1994 3
Consolidated statements of income-Three months ended September 30, 1995
and 1994;Nine months ended September 30,1995 and 1994 . . . . . 4-5
Consolidated statements of cash flows - Nine months ended September 30,
1995 and 1994. . . . . . . . . . . . 6
Notes to consolidated financial statements-September 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
September 30, December 31,
1995 1994
Assets
Cash . . . . . . . . . . . . . . . . . . . $ 2,145,491 $ 2,708,337
Due from banks . . 11,445,400 10,840,264
Interest-bearing deposits with banks . . . . . 1,900,406 2,113,823
Federal funds sold . . . . . . . . . . . . . . 8,800,000 100,000
Securities available for sale . . . . . . . . 28,317,763 20,853,532
Securities held to maturity, estimated fair
values of $41,056,700 and $39,431,333 . . . . 41,059,017 41,532,909
Loans . . . . . . . . . . . . . . . . . . . . .233,806,633 212,109,397
Less: Unearned income . . . . . . . . . . . . 2,929,506 5,681,403
Allowance for loan losses . . . . . . . . 1,622,658 1,547,834
Net Loans . . . . . . . . . . . . . . 229,254,469 204,880,160
Premises and equipment, net . . . . . . . . . 12,378,921 10,383,364
Accrued interest . . . . . . . . . . . . . . . . 3,331,508 2,680,379
Intangibles, net . . . . . . . . . . . . . . . . 1,484,614 1,577,189
Other real estate . . . . . . . . . . . . . . . 190,193 290,024
Other assets . . . . . . . . . . . . . . . . . 819,762 1,521,585
Total Assets . . . . . . . . . . . . . . . . $ 341,127,544 $ 299,481,566
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing . . . . . . . . . . . . $ 40,349,286 $ 29,515,704
Interest-bearing . . . . . . . . . . . . . . 259,439,627 233,896,857
Total Deposits . . . . . . . . . . . . . . . 299,788,913 263,412,561
Other short-term borrowings . . . . . . . . . 3,495,760 2,043,902
Accrued interest . . . . . . . . . . . . . . . 2,390,646 1,395,336
Long-term debt . . . . . . . . . . . . . . . . 8,015,022 8,712,953
Other liabilities . . . . . . . . . . . . . . 1,006,869 1,264,478
Total Liabilities . . . . . . . . . . . . . 314,697,210 276,829,230
Shareholders' equity
Common stock, par value $.10 per share, 5,000,000
shares authorized, 1,803,817 shares issued
as of September 30,1995 and December 31,1994 180,382 180,382
Capital surplus . . . . . . . . . . . . . . . . 13,490,615 13,983,010
Retained earnings . . . . . . . . . . . . . . . 13,968,086 13,076,135
Unearned ESOP shares - 60,008 and 68,576
shares unreleased at September 30, 1995
and December 31,1994 . (900,120) (1,028,640)
Treasury stock - 17,499 shares at cost at
September 30, 1995 and 115,978 shares at
cost at December 31, 1994 . . . . . (437,485) (2,899,460)
Unrealized gains (losses) on investment securities
available for sale, net of deferred taxes . . . . 128,856 (659,091)
Total Shareholders' Equity . . . . . . . . . . 26,430,334 22,652,336
Total Liabilities and Shareholders' Equity . .$ 341,127,544 $ 299,481,566
See notes to consolidated financial statements
3
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
September 30,
1995 1994
Revenue From Earning Assets
Interest and fees on loans . . . . . . . . $ 5,595,033 $ 4,264,949
Interest on investment securities:
Taxable securities . . . . . . . . . . . . . 756,258 733,475
Securities exempt from federal income taxes . 288,078 290,418
Interest on federal funds sold . . . . . . . . . 126,130 4,481
Interest on deposits in other banks . . . . . . 25,880 43,308
Total Revenue From Earning Assets . . . . . 6,791,379 5,336,631
Interest Expense
Interest on deposits . . . . . . . . . . . . . . 3,353,745 2,273,363
Interest on other short-term borrowings . . . . 42,671 8,106
Interest on long-term debt . . . . . . . . . . . . 175,539 180,872
Total Interest Expense . . . . . . . . . . . . 3,571,955 2,462,341
Net interest income 3,219,424 2,874,290
Provision for loan losses . . . 154,369 185,030
Net interest income after prov. for loan losses 3,065,055 2,689,260
Noninterest Income
Service charges on deposits . . . . . . . . . . . 454,863 384,846
Insurance commissions . . . . . . . . . . . . . . 181,716 206,099
Bank club dues . . . . . . . . . . . . . . . . . . 111,057 79,036
Other operating income . . . . . . . . . . . . . . . 147,172 172,406
Investment securities gains . . . . . . . . . . . . 45 (5,603)
Total Noninterest Income . . . . . . . . . . . . 894,853 836,784
Noninterest Expenses
Salaries and employee benefits . . . . . . . . . . 1,838,662 1,510,471
Occupancy expense . . . . . . . . . . . . . . . . 237,307 130,732
Furniture and equipment expense . . . . . . . . . 218,280 136,610
Director and committee fees . . . . . . . . . . . 71,625 82,884
Other operating expenses . . . . . . . . . . . . . 586,488 633,174
Total Noninterest Expenses . . . . . . . . . . . 2,952,362 2,493,871
Income before income taxes. . . . . . . . . . . . . 1,007,546 1,032,173
Provision for income taxes . . 396,680 257,250
Net Income . . . . . . . . . . . . . . . . . $ 610,866 $ 774,923
Earnings Per Common Share - Primary and fully diluted
Net income per common share . . . . . . . . $ .37 $ .45
Wgted average common shares outstanding . . . 1,687,582 1,731,267
See notes to consolidated financial statements
4
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended
September 30,
1995 1994
Revenue From Earning Assets
Interest and fees on loans . . . . . . . . . . .$ 15,857,094 $ 11,700,389
Interest on investment securities:
Taxable securities . . . . . . . . . . . . . 2,145,226 2,421,137
Securities exempt from federal income taxes . . 868,792 841,361
Interest on federal funds sold . . . . . . . . . . 240,673 49,032
Interest on deposits in other banks . . . . . . . . 78,006 78,883
Total Revenue From Earning Assets . . . . . . . 19,189,791 15,090,802
Interest Expense
Interest on deposits . . . . . . . . . . . . . . . 9,284,282 6,311,589
Interest on other short-term borrowings . . . . . 115,781 24,643
Interest on long-term debt . . . . . . . . . . . . . 542,713 382,385
Total Interest Expense . . . . . . . . . . . . . 9,942,776 6,718,617
Net interest income 9,247,015 8,372,185
Provision for loan losses . . . 381,080 461,555
Net interest income after provision for loan losses 8,865,935 7,910,630
Noninterest Income
Service charges on deposits . . . . . . . . . . . 1,277,133 1,125,468
Insurance commissions . . . . . . . . . . . . . . 537,908 640,835
Bank club dues . . . . . . . . . . . . . . . . . . 313,233 221,667
Other operating income . . . . . . . . . . . . . . . 396,473 424,951
Investment securities gains . . . . . . . . . . . . (19,925) 20,866
Total Noninterest Income . . . . . . . . . . . . 2,504,822 2,433,787
Noninterest Expenses
Salaries and employee benefits . . . . . . . . . . 5,419,930 4,369,336
Occupancy expense . . . . . . . . . . . . . . . 669,902 531,899
Furniture and equipment expense . . . . . . . . 602,541 423,710
Director and committee fees . . . . . . . . . . . . 209,125 226,234
Other operating expenses . . . . . . . . . . . . . .1,992,761 1,899,018
Total Noninterest Expenses . . . . . . . . . . 8,894,259 7,450,197
Income before income taxes . . . . . . . . . . . . 2,476,498 2,894,220
Provision for income taxes . . 740,629 778,950
Net Income . . . . . . . . . . . . . . . . . $ 1,735,869 $ 2,115,270
Earnings Per Common Share - Primary and fully diluted
Net income per common share . . . . . . . . $ 1.06 $ 1.23
Wgted average common shares outstanding . . . 1,644,396 1,720,337
See notes to consolidated financial statements
5
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months Ended
September 30,
1995 1994
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . $ 1,735,869 $ 2,115,270
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses . . . . . . . . . . . . 381,080 461,555
Provision for depreciation and amortization . . . . 674,092 517,212
Amortization of investment security premiums and
accretion of discounts . . . . . . . . . . . . (106,010) (155,898)
Provision for deferred taxes . . . . . . . . . . . 142,337 38,000
Realized investment security losses (gains) . . . . 19,925 (20,866)
Gain on sale of premises and equipment . . . . . . (10,495) (3,596)
Gain on sale of other real estate . . . . . . . . -0- (7,325)
Increase in accrued interest receivable . . . . . (651,129) (352,647)
Increase in accrued interest payable . . . . . . . 995,310 540,498
Other . . . . . . . . . . . . . . . . . . . . . . (234,362) (1,478,296)
Net cash provided (used) by operating activities 2,946,617 1,653,907
Investing activities:
Proceeds from sales of investment securities . . . 5,523,194 19,809,705
Proceeds from maturity of investment securities . 13,186,562 27,085,773
Purchase of investment securities . . . . . . . .(24,300,765) (31,481,081)
Decrease (increase) in interest-bearing
deposits with other banks 213,417 (1,247,212)
Net increase in loans to customers . . . . . . . (24,396,594) (41,545,368)
Proceeds from sale of premises and equipment . 46,660 274,351
Proceeds from sale of other real estate . . . . 47,292 12,500
Capital expenditures . . . . . . . . . . . . . (2,613,239) (3,029,735)
Net cash used in investing activities . . . . (32,293,473) (30,121,067)
Financing activities:
Net increase (decrease) in demand deposits,
NOW accounts, and savings accounts . . . . . . .(11,105,427) 8,862,455
Net increase in certificates of deposit . . . . 47,481,779 14,098,685
Net increase (decrease) in short-term borrowings 1,156,543 532,659
Issuance and sale of common stock. . . . . . . . 1,969,580 957,603
Repayment of long-term debt . . . . . . . . . (569,411) (523,611)
Cash dividends . . . . . . . . . . . . . . . . (843,918) -0-
Net cash provided by financing activities . . . 38,089,146 23,927,791
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . 8,742,290 (4,539,369)
Cash and cash equivalents at beginning of period . 13,648,601 16,251,805
Cash and cash equivalents at end of period . . $ 22,390,891 $ 11,712,436
See notes to consolidated financial statements
6 <PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months Ended
September 30,
1995 1994
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . .$ 8,947,466 $ 7,259,115
Income taxes . . . . . . . . . . . . . . . . . . . 778,279 741,991
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 $128,520 during
each of the nine month periods ended September 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 nine month
period ended September 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 $787,947 during the nine months ended September 30, 1995, from
an unrealized loss of $659,091 at December 31, 1994, to a gain of $128,856
at September 30, 1995 (both net of the effect of deferred taxes).
See notes to consolodated financial statements.
7 <PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 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 adjust-
ments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the nine month
period ended September 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 29.9 percent and 26.9 percent for
the nine months ended September 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 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 September 30, 1995, the Company had net unrealized gains of $214,761 in
available-for-sale securities which are reflected in the presented assets
and resulted in an increase in stockholders' equity of $128,856 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 September 30, 1995 was $787,947.
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 subsidiar-
ies 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. The sale became effective on June 20, 1995. As of September 30, 1995,
98,479 shares of the existing treasury stock had been sold, resulting in
$1,969,580 of new capital. 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. 60,008
shares remain as security for the indebtedness as of September 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 indebted-
ness 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 September 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
$900,120.
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 September 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
September 30, 1995 compared to December 31, 1994
Loans
Loans comprised the largest single category of the Company's earning assets
on September 30, 1995. Loans, net of unearned income and reserve for loan
losses, were 67.2% of total assets at September 30, 1995 and 68.4% of total
assets at December 31, 1994. Total net loans were $229,254,469 at September
30, 1995, representing an 11.9% increase from the December 31, 1994 total of
$204,880,160. This increase of approximately $24.4 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 $15,690,339 or 25.1%
from December 31, 1994 to September 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 September 30, 1995 were $69,376,780 compared with $62,386,441 at
December 31, 1994, reflecting an 11.2% increase of $6,990,339. Short-term
investments in the form of interest-bearing deposits with banks were $1,990,406
at September 30, 1995 and $2,113,823 at December 31, 1994.
Asset Quality
Between December 31,1994 and September 30,1995, 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) declined slightly from 1.47 to
1.46. 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 $299,788,913 at September 30, 1995 increased $36,376,352
(13.8%) 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 $10,833,582 or 36.7% from year-end
1994 to September 30, 1995, and interest-bearing deposits increased $25,542,770
(10.9%) from year-end 1994.Certificates of deposit of $100,000 or more increased
$11,246,084 (24.7%).
10 <PAGE>
Other Short-term Borrowings
Other short-term borrowings totalled $3,495,760 at September 30, 1995, a
$1,415,858 increase from the December 31, 1994 total of $2,043,902.
Long-term Debt
At September 30, 1995 and December 31, 1994, the Company had notes payable
totaling $8,015,022, 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 September 30, 1995 and December 31, 1994,
the amounts outstanding were $5,158,388 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 $900,120 at September 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 $1,956,514
at September 30, 1995.
Remaining maturities of long-term debt for the years ending December 31 are as
follows:
1995 . . . . . . . . . $ 227,067
1996 . . . . . . . . . 927,147
1997 . . . . . . . . . 930,879
1998 . . . . . . . . . 934,880
1999 . . . . . . . . . 939,170
Thereafter . . . . . . 4,055,879
$ 8,015,022
Shareholders' Equity
Company shareholders' equity increased $3,777,998 from December 31, 1994
to September 30, 1995, due to: net earnings of $1,735,869, the payment of a
cash dividend of $843,918, the sale of additional common stock for $1,969,580,
the reduction of unearned ESOP shares by $128,520, and the increase of
unrealized gains on securities available for sale totalling $787,947, 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 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 $ 26.3 million at September 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 $ 29.7 million at September 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
Nine months ended September 30, 1995 and 1994
Summary
Net earnings of the Company for the nine months ended September 30, 1995 were
$1,735,869 compared to $2,115,270 for the same period in 1994, representing
a 17.9% 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 $1,444,062 during the nine months ended September
30, 1995 as compared to the same period in 1994, while noninterest income
increased by $71,035.
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
nine months ended September 30, 1995 increased $4,098,989 (27.2%) 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 nine months ended September 30, 1995 increased $3,224,159 or 48.0% over
the corresponding period of 1994. As a result of these factors, net interest
income increased $874,830 or 10.5% in the nine months ended September 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
$381,080 for the nine months ended September 30, 1995 compared to $461,555
for the same period of 1994. Charge-offs exceeded recoveries by $306,253
for the nine months ended September 30, 1995. The reserve for loan
losses as a percent of outstanding loans, net of unearned income, was .70% at
September 30, 1995 compared to .75% at year-end 1994.
Noninterest Income
Noninterest income for the nine months ended September 30, 1995 was $2,504,822
compared to $2,433,787 for the same period of 1994.This 2.9% 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 recognition of a small
loss on investment securities as opposed to a small gain in the first nine
months of 1994. Significant components of noninterest income are as follows:
Service charges on deposits increased $151,665 (13.5%), insurance commissions
decreased $102,927 (16.1%), security losses totaled $19,925 as opposed to gains
of $20,866 in 1994, and other operating income, primarily dues for the bank
club account and appraisal fees, increased $63,088 (9.8%) to $709,706.
Noninterest Expenses
Noninterest expenses for the nine months ended September 30, 1995 were
$8,894,259, reflecting a 19.4% increase over the same period of 1994. The
primary components of noninterest expenses are salaries and employee benefits,
which increased to $5,419,930 for the nine months ended September 30,
1995, 24.0% 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
$138,008 (25.6%), furniture and equipment expenses rose by $178,831 (42.2%), and
director and committee fees decreased by $17,109 (7.6%). Other operating
expenses rose by 4.9% to $1,992,761.
The majority of these expenses should continue at or above the levels for
the nine months ended September 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 $740,629 for the nine months ended September
30, 1995 decreased $38,821 compared to the same period of 1994, due primarily
to the decrease in income before tax.Taxes as a percent of earnings increased
from 26.9% to 29.9%. The effective tax rate of approximately 29.9% is less than
the statutory rate principally because of the effect of tax-exempt interest
income.
14 <PAGE>
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Description of Exhibit Page Number
11 Computation of Earnings 16
Per Share
27 Financial Data Schedule
(for the SEC use only)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
September 30, 1995.
15 <PAGE>
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
The following tabulation presents the calculation of primary and fully diluted
earnings per common share for the six-month and three-month periods ended
September 30, 1995 and 1994.
Nine Months Ended Three Months Ended
September 30, September 30,
1995 1994 1995 1994
Reported net income . . .$ 1,735,869 $ 2,115,270 $ 610,866 $ 774,923
Earnings -common shares $ 1,735,869 $ 2,115,270 $ 610,866 $ 774,923
Weighted average common
shares outstanding . . 1,644,396 1,720,337 1,687,582 1,731,267
Earnings per common share - primary and
fully diluted
Income from continuing
operations . . . . . $ 1.06 $ 1.23 $ .37 $ .45
Net income . . . . . $ 1.06 $ 1.23 $ .37 $ .45
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.
November 9, 1995 /s/ Kennon R. Patterson, Sr.
Date Kennon R. Patterson, Sr., as its
President and Chief Executive
Officer
November 9, 1995 /s/ Paul W. Williams, CPA
Date Paul W. Williams, 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
SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 13590891
<INT-BEARING-DEPOSITS> 1900406
<FED-FUNDS-SOLD> 8800000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28317763
<INVESTMENTS-CARRYING> 41059017
<INVESTMENTS-MARKET> 41056700
<LOANS> 230877127
<ALLOWANCE> 1622658
<TOTAL-ASSETS> 341127544
<DEPOSITS> 299788913
<SHORT-TERM> 3495760
<LIABILITIES-OTHER> 3397515
<LONG-TERM> 8015022
<COMMON> 180382
0
0
<OTHER-SE> 26249962
<TOTAL-LIABILITIES-AND-EQUITY> 341127544
<INTEREST-LOAN> 15857094
<INTEREST-INVEST> 3014018
<INTEREST-OTHER> 318679
<INTEREST-TOTAL> 19189791
<INTEREST-DEPOSIT> 9284282
<INTEREST-EXPENSE> 9942776
<INTEREST-INCOME-NET> 9247015
<LOAN-LOSSES> 381080
<SECURITIES-GAINS> (19925)
<EXPENSE-OTHER> 8894259
<INCOME-PRETAX> 2476498
<INCOME-PRE-EXTRAORDINARY> 1735869
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1735869
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
<YIELD-ACTUAL> 4.26
<LOANS-NON> 478000
<LOANS-PAST> 444000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1548000
<CHARGE-OFFS> 369000
<RECOVERIES> 63000
<ALLOWANCE-CLOSE> 1623000
<ALLOWANCE-DOMESTIC> 1623000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
