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, 1996
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, 1996
Common Stock, $.10 Par Value 1,882,971
<PAGE>
INDEX
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
PART I.FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets-June 30,1996 and December 31,1995 3
Consolidated statements of income - Three months ended June 30,
1996 and 1995; Six months ended June 30, 1996 and 1995 4-5
Consolidated statements of cash flows - Six months ended June 30,
1996 and 1995 6
Notes to consolidated financial statements -June 30,1996 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,
1996 1995
Assets
Cash . . . . . . . . . . . . . . . . $ 2,976,771 $ 2,576,214
Due from banks . . 16,936,525 13,512,033
Interest-bearing deposits with banks . . . . . . 4,147,551 1,912,288
Federal funds sold . . . . . . . . . . . . . . . 15,400,000 20,350,000
Securities available for sale . . . . . . . . . 98,897,136 69,989,862
Loans . . . . . . . . . . . . . . . . . . . . . 260,164,605 240,078,385
Less: Unearned income . . . . . . . . . . . . 1,485,592 2,237,612
Allowance for loan losses . . . . . . . . 2,231,466 2,208,798
Net Loans . . . . . . . . . . . . . . . . . . 256,447,547 235,631,975
Premises and equipment, net . . . . . . . . . . 14,106,612 12,524,545
Accrued interest . . . . . . . . . . . . . . . . 4,281,842 3,476,130
Intangibles, net . . . . . . . . . . . . . . . . 3,655,652 1,453,756
Other real estate . . . . . . . . . . . . . . . 643,793 416,836
Other assets . . . . . . . . . . . . . . . . . . . 2,476,527 980,837
Total Assets . . . . . . . . . . . . . . . $ 419,969,956 $ 362,824,476
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing . . . . . . . . . . . . $ 51,317,220 $ 41,187,667
Interest-bearing . . . . . . . . . . . . . 323,791,193 278,961,678
Total Deposits . . . . . . . . . . . . . . . 375,108,413 320,149,345
Other short-term borrowings . . . . . . . . . 2,925,426 2,008,684
Accrued interest . . . . . . . . . . . . . . . . . 2,623,847 2,073,534
Long-term debt . . . . . . . . . . . . . . . . . 8,718,684 7,919,873
Other liabilities . . . . . . . . . . . . . . . 1,432,924 1,653,803
Total Liabilities . . . . . . . . . 390,809,294 333,805,239
Shareholders' equity
Common stock, par value $.10 per share, 5,000,000
shares authorized, 2,000,000 and 1,849,273 shares
issued as of June 30, 1996 and December 31, 1995 200,000 184,927
Capital surplus . . . . . . . . . . . . . . . . 17,819,722 14,821,302
Retained earnings . . . . . . . . . . . . . . . 14,796,756 14,262,319
Unearned ESOP shares - 117,029 and 64,607 shares
unreleased at June 30, 1996 and December 31,1995 (2,175,117) (995,198)
Unrealized losses on investment securities
available for sale, net of deferred taxes . . (1,480,699) 745,887
Total Shareholders' Equity . . . . . . . . . . . 29,160,662 29,019,237
Total Liabilities and Shareholders' Equity $ 419,969,956 $ 362,824,476
See notes to consolidated financial statements
Page 3
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
June 30,
1996 1995
Revenue From Earning Assets
Interest and fees on loans . . . . . . . . . .$ 6,230,532 $ 5,300,988
Interest on investment securities:
Taxable securities . . . . . . . . . . . . . 1,292,795 695,374
Securities exempt from federal income taxes . 233,589 290,102
Interest on federal funds sold . . . . . . . . 250,414 87,475
Interest on deposits in other banks . . . . . . 31,216 26,458
Total Revenue From Earning Assets . . . . . 8,038,546 6,400,397
Interest Expense
Interest on deposits . . . . . . . . . . . . . 4,077,274 3,091,918
Interest on other short-term borrowings . . . . 29,372 43,588
Interest on long-term debt . . . . . . . . 170,417 187,080
Total Interest Expense . . . . . . . . . . 4,277,063 3,322,586
Net interest income 3,761,483 3,077,811
Provision for loan losses . . . 170,417 104,884
Net interest income after
provision for loan losses . . . . . . . . . . . 3,612,231 2,972,927
Noninterest Income
Service charges on deposits . . . . . . . . . 536,695 457,569
Insurance commissions . . . . . . . . . . . . . 145,967 178,442
Bank club dues . . . . . . . . . . . . . . . . . . 123,418 104,616
Other operating income . . . . . . . . . . . . . 249,351 124,392
Investment securities gains (losses) . . . . . . (6,596) 2,313
Total Noninterest Income . . . . . . . . . . 1,048,835 867,332
Noninterest Expenses
Salaries and employee benefits . . . . . . . . . 2,185,674 1,787,846
Occupancy expense . . . . . . . . . . . . . . . 236,995 217,644
Furniture and equipment expense . . . . . . . . . 249,783 199,716
Director and committee fees . . . . . . . . . . . 124,875 70,075
Other operating expenses . . . . . . . . . . . . . 786,113 695,401
Total Noninterest Expenses . . . . . . . . . 3,583,440 2,970,682
Income before income taxes 1,077,626 869,577
Provision for income taxes . . 305,029 199,303
Net Income . . . . . . . . . . . . . . . . . . $ 772,597 $ 670,274
Earnings Per Common Share - Primary and Fully-diluted
Net income per common share . . . . . . . $ .40 $ .41
Weighted average common shares outstanding . . 1,948,508 1,623,866
See notes to consolidated financial statements
Page 4
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended
June 30,
1996 1995
Revenue From Earning Assets
Interest and fees on loans . . . . . . . . . . . $ 12,212,453 $ 10,262,061
Interest on investment securities:
Taxable securities . . . . . . . . . . . . . . . 2,372,285 1,388,968
Securities exempt from federal income taxes . . 467,389 580,714
Interest on federal funds sold . . . . . . . . . 530,966 114,543
Interest on deposits in other banks . . . . . . . . 48,827 52,126
Total Revenue From Earning Assets . . . . . . . . 15,631,920 12,398,412
Interest Expense
Interest on deposits . . . . . . . . . . . . . . . 8,057,185 5,930,537
Interest on other short-term borrowings . . . . . 65,411 73,110
Interest on long-term debt . . . . . . . . . . . . . 333,737 367,174
Total Interest Expense . . . . . . . . . . . . . 8,456,333 6,370,821
Net interest income 7,175,587 6,027,591
Provision for loan losses . . . 277,134 226,711
Net interest income after provision for loan losses 6,898,453 5,800,880
Noninterest Income
Service charges on deposits . . . . . . . . . . . 1,022,509 822,270
Insurance commissions . . . . . . . . . . . . . . 229,854 356,192
Bank club dues . . . . . . . . . . . . . . . . . . 241,164 202,276
Other operating income . . . . . . . . . . . . . . 491,259 249,301
Investment securities gains(losses) . . . . . . . . (6,596) (19,970)
Total Noninterest Income . . . . . . . . . . . 1,978,190 1,609,969
Noninterest Expenses
Salaries and employee benefits . . . . . . . . . . 4,259,151 3,581,268
Occupancy expense . . . . . . . . . . . . . . . . 465,043 432,595
Furniture and equipment expense . . . . . . . . . . 470,328 384,261
Director and committee fees . . . . . . . . . . . 195,450 137,500
Other operating expenses . . . . . . . . . . . . . 1,501,504 1,406,273
Total Noninterest Expenses . . . . . . . . . 6,891,476 5,941,897
Income before income taxes 1,985,167 1,468,952
Provision for income taxes . . 541,942 343,949
Net Income . . . . . . . . . . . . . . . . . .$ 1,443,225 $ 1,125,003
Earnings Per Common Share - Primary and Fully-diluted
Net income per common share . . . . . . . $ .76 $ .69
Weighted average common shares outstanding . . . 1,887,084 1,622,445
See notes to consolidated financial statements
Page 5
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
1996 1995
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . $ 1,443,225 $ 1,125,003
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses . . . . . . . . . . . . 277,134 226,711
Provision for depreciation and amortization . . . . 582,277 446,358
Amortization of investment security premiums and
accretion of discounts . . . . . . . . . . . . . . (33,843) (75,396)
Realized investment security losses . . . . . . . . 6,596 19,970
Increase in accrued interest receivable . . . . . . (700,681) (226,729)
Increase in accrued interest payable . . . . . . . 376,384 820,733
Other . . . . . . . . . . . . . . . . . . . . . . (1,770,453) (473,856)
Net cash provided by operating activities 180,639 1,862,794
Investing activities:
Proceeds from sales of investment securities . . . 999,999 4,531,610
Proceeds from maturity of investment securities . .6,604,645 9,560,990
Purchase of investment securities . . . . . . . .(40,195,649) (14,024,752)
Increase in interest-bearing deposits
with other banks . . (2,235,263) (216,211)
Net increase in loans to customers . . . . . . . . (8,464,439) (15,895,711)
Cash acquired - purchase of Haleyville location . 18,811,140 -0-
Proceeds from sale of premises and equipment . . . 92,130 40,660
Capital expenditures . . . . . . . . . . . . . . . (1,868,866) (1,212,665)
Net cash used in investing activities . . . . . . (26,256,303) (17,216,667)
Financing activities:
Net increase (decrease) in demand deposits,
NOW accounts,and savings accounts . . . . . . 17,937,561 (1,139,167)
Net increase in certificates of deposit . . . . . 3,830,233 25,831,944
Net increase in short-term borrowings . . . . . 1,459,322 1,015,994
Issuance and sale of common stock. . . . . . . . . 3,013,493 -0-
Repayment of long-term debt . . . . . . . . . . . (381,108) (379,399)
Cash dividends . . . . . . . . . . . . . . . . . . (908,788) (843,918)
Net cash provided by financing activities . . . . 24,950,713 24,485,454
Net increase(decrease)in cash and cash equivalents (1,124,951) 9,132,169
Cash and cash equivalents at beginning of period . 36,438,247 13,648,601
Cash and cash equivalents at end of period . . $ 35,313,296 $ 22,780,770
See notes to consolidated financial statements
6 <PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
1996 1995
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . $ 7,906,020 $ 5,550,088
Income taxes . . . . . . . . . . . . . . . . . . . 258,690 114,261
Supplemental schedule of non-cash investing and financing activities:
Other real estate of $531,000 was acquired in 1996 from employees as a result
of the Company s relocation program.
Upon the pledging of purchased shares to obtain additional ESOP debt of
$1,126,007 on May 17, 1996 and of $137,918 on October 2,1995, long-term debt
was increased and equity was decreased . The debt was reduced and shares were
released by $80,088 and $85,680 , respectively, during each of the six month
periods ended June 30, 1996 and 1995 as a result of payments made by the
Company's ESOP on the outstanding ESOP debt.
Unrealized gains or losses on investment securities available for sale changed
by $2,226,586 during the six months ended June 30, 1996, from an unrealized gain
of $745,887 at December 31, 1995, to a loss of $1,480,699 at June 30, 1996(both
net of the effect of deferred taxes).
On January 16, 1996, the Company acquired the assets and assumed the
liabilities of the Haleyville, Alabama branch of a regional bank.The liabilities
assumed in the transaction totaled $33,366,553 and non-cash assets acquired
totaled $12,227,125.Accordingly, the resultant cash receipt by the Company,net
of the premium of $2,328,288 paid for the branch s deposits, was $18,811,140.
See notes to consolidated financial statements.
7<PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1996
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,
1996 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1996. 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, 1995.
NOTE B - Income Taxes
The effective tax rates of approximately 27.3 percent and 23.4 percent for
the six months ended June 30, 1996 and 1995 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 June 30, 1996, the Company had net unrealized losses of $2,467,832 in
available-for-sale securities which are reflected in the presented assets and
resulted in a decrease in stockholders' equity of $1,480,699, net of deferred
tax liability. There were no trading securities. The net decrease in
stockholders equity as a result of the SFAS 115 adjustment from December 31,
1995 to June 30, 1996 was $2,226,586.
NOTE D - Shareholders' Equity
In January of 1995, the Board of Directors of the Company declared a dividend
of $.50 per share to shareholders of record as of January 15, 1995, and
another dividend of $.50 per share was declared in January of 1996 to
shareholders of record as of January 12, 1996. 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. As of June 30, 1996, $6,175,898 of additional capital had been generated
by the sale, which was fully subscribed . $3,013,493 of the additional capital
was created in 1996.
8 <PAGE>
NOTE D - Shareholders' Equity (continued)
On March 28, 1996, the Company issued a total of 87,500 options to purchase
its common shares to its directors. The options were distributed among the
directors based upon their years of service and their positions of leadership
with the Company. Each of the stock option agreements contained an option
price of$20.00 per share,the market value of the shares at the time of issuance.
The options are exercisable between April 1, 1996 and March 31, 2001, and are
treated as non-qualified options under the provisions of the Internal
Revenue Code. The agreements also contain a provision whereby the Company
shall compensate the optionee in cash for any federal or state tax liability
incurred upon the exercise of the options.
These options have been treated as common stock equivalents and have been
included in the calculation of average common shares outstanding in Exhibit
11, causing the equivalent average number of shares outstanding for the first
half of 1996 to rise by 45,193 shares. The dilutative effect on earnings
per share for the quarter ended June 30, 1996 was $.02. There was no
dilutative effect on the book value of the Company s common shares at June 30,
1996.
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. Employees who work 1,000 hours in any
consecutive twelve month period become participants in the ESOP on December 31
of that year, and remain eligible in every subsequent year in which 1,000 hours
of work are completed. Employer contributions, which are made at the discretion
of the Company's Board of Directors, are allocated to eligible participants in
proportion to their eligible pay, which equals W-2 wages plus pre-tax reductions
for the Company's cafeteria plan.The Internal Revenue Service imposes a limit
($150,000 in 1996) on the maximum amount of eligible pay under the plan.
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 public offering
of new common stock. The note was originally secured by 80,000 shares of
purchased stock. On October 2, 1995, the ESOP acquired 7,455 additional
shares with the proceeds of a second promissory note, collateralized by the
acquired shares. On May 17, 1996, these two notes were refinanced and an
additional 58,000 shares of stock were obtained by the ESOP. These shares were
funded with the same promissory note which provided funds to refinance the
previously executed notes. This new note was originally secured by 117,847
shares of the Company s common stock. The shares securing the note are released
proratably by the lender as monthly payments of principal and interest are
made. The note is guaranteed by the Company. As of June 30, 1996, there
were 117,029 unreleased shares with a fair value of approximately $2,340,000.
These shares are subtracted from outstanding shares for earnings per share
calculations.
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"). Under the provisions of SOP 93-6,
the employer must recognize the indebtedness of its sponsored ESOP on its
financial statement 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. The portion of payments made by the Company to the ESOP
on behalf of its participating employees which are used to pay interest on the
ESOP debt is classified as interest expense on the Company s income statement.
Dividends paid on released ESOP shares are credited to the accounts of the
participants to whom the shares are allocated. Dividends on unreleased shares
are treated as other income of the ESOP.
At June 30, 1996, the Company's financial statements reflect long term debt
and a corresponding contra-equity account, as a result of the ESOP debt, of
$2,175,117.
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, 1996 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, 1995.
FINANCIAL CONDITION
June 30, 1996 compared to December 31, 1995
Loans
Loans comprised the largest single category of the Company's earning assets
on June 30, 1996. Loans, net of unearned income and reserve for loan losses,
were 61.1% of total assets at June 30, 1996 and 64.9% of total assets at
December 31, 1995. Total net loans were $256,447,547 at June 30, 1996,
representing a 8.8% increase from the December 31, 1995 total of $235,631,975.
This increase of approximately $20.8 million was due to improving economic
conditions in the Company's markets, a significant purchase of loans in the
Haleyville market by the Alabama subsidiary, and a management emphasis on
quality loan growth.
Investment Securities and Other Earning Assets
Investment securities and federal funds sold increased $23,957,274 or 26.5%
from December 31, 1995 to June 30, 1996. This increase was due primarily to
deposit growth in excess of loan growth , and the assumption of liabilities in
excess of assets purchased in the Haleyville, Alabama market. 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, 1996 were $98,897,136 compared
with $69,989,862 at December 31,1995,reflecting a 41.3% increase of $28,907,274.
Short-term investments in the form of interest-bearing deposits with banks
were $4,147,551 at June 30, 1996 and $1,912,288 at December 31, 1995.
Asset Quality
Between December 31, 1995 and June 30, 1996, the Company experienced a slight
decline 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 from 1.80 to 1.20. The ratio of
total nonperforming assets to total assets experienced an increase to
0.004 from 0.003, and the ratio of nonperforming loans to total loans
increased to 0.007 from 0.005 at 12/31/95. These ratios declined due to an
increase in past due and nonaccrual loans, and an increase in other real estate
due to the purchase of employees homes who were relocated by the Company.
All three of these ratios remain favorable as compared 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 $375,108,413 at June 30, 1996 increased $54,959,068 (17.2%)
over total deposits of $320,149,345 at year-end 1995. Deposits are the Company's
primary source of funds with which to support its earning assets. Noninterest-
bearing deposits increased $10,129,553 or 24.6% from year-end 1995 to
June 30, 1996, and interest-bearing deposits increased $44,829,515 (16.1%)
from year-end 1995. Certificates of deposit of $100,000 or more increased
$12,984,915 (21.5%).
10 <PAGE>
Other Short-term Borrowings
Other short-term borrowings totaled $2,925,426 at June 30, 1996, a
$916,742 increase from the December 31, 1995 total of $2,008,684.
Long-term Debt
At June 30, 1996 and December 31, 1995, the Company had notes payable totaling
$8,718,684, and $7,919,873, respectively. On December 17, 1992, the Company
entered into a loan agreement with a regional bank for amounts up to $6,500,000.
At June 30,1996 and December 31, 1995, the amounts outstanding were $4,802,637
and $4,980,512, respectively, due December 17, 2002, bearing interest at a
floating prime, and 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 ESOP's Trustees executed a promissory note of
$1,200,000 in order to purchase common stock from the Company's public offering
of new common stock. The note was originally secured by 80,000 shares of
purchased stock. On October 2, 1995, the ESOP acquired 7,455 additional
shares with the proceeds of a second promissory note, collateralized by the
acquired shares. On May 17, 1996, these two notes were refinanced and an
additional 58,000 shares of stock were obtained by the ESOP with a promissory
note with a beginning balance of $2,183,805. The Company has guaranteed this
debt; accounting and reporting guidelines mandate that the debt be
recognized on the Company's statement of condition, with an offsetting charge
against equity. As principal payments are made by the ESOP, the debt and
offsetting charge against equity are reduced. This note was originally secured
by 117,847 shares of the Company s common stock. The note bears interest at a
floating rate, with principal and interest payments of $23,948 due monthly
through June 17, 2018, with all remaining principal, if any, due upon that
date. The shares securing the note are released proratably by the lender
as monthly payments of principal and interest are made. The outstanding
balance of this note was $2,175,117 at June 30, 1996, secured by 117,029 of
unreleased shares of Company stock .
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 $1,918,806
at June 30, 1996.
Maturities of long-term debt for the years ending December 31 are as follows:
1996 . . . . . . . . . $ 436,921
1997 . . . . . . . . . 882,729
1998 . . . . . . . . . 897,614
1999 . . . . . . . . . 912,767
2000 . . . . . . . . . 929,160
Thereafter . . . . . . 4,659,493
$ 8,718,684
Shareholders' Equity
Company shareholders' equity increased $141,425 from December 31, 1995 to June
30, 1996, due to: net earnings of $1,443,225, the payment of a cash dividend
of $908,788, the sale of additional common stock for $3,013,493, the net
increase of unearned ESOP shares by $1,179,919, and the decrease in the
measurement for unrealized gains or losses on securities available for sale
totaling $2,226,586, 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 less goodwill, amounted to $29.1 million at June 30, 1996. Tier
II capital components include supplemental capital components such as
qualifying allowance for loan losses and qualifying subordinated debt. TierI
capital plus the Tier II capital components is referred to as Total Risk-Based
capital and was $ 33.1 million at June 30, 1996.
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 March 31, 1996 and 1995
Summary
Net earnings of the Company for the six months ended June 30, 1996 were
$1,443,225 compared to $1,125,003 for the same period in 1995, representing
a 28.3% increase. This increase was due principally to the increase of interest
margin resulting from the growth in average earning assets . This is a direct
result of the Company's expansion activity, with three new banking facilities
being opened in 1994, two new locations opening in 1995, four new locations
opening in 1996,plus the purchase of the assets and assumption of liabilities
of the Haleyville, Alabama branch of a regional bank in the first quarter of
1996. This growth in net interest income is partially offset by an increase
in noninterest expense in excess of noninterest income, as the Company is
absorbing the direct costs of operating these new facilities; additionally, 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. Net interest income
increased $1,147,996 during the first half of 1996, as compared to the same
period in 1995; noninterest expenses increased $949,579 during same period,
while noninterest income increased by $368,221.
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, 1996 increased $3,233,508 (26.1%) from the same
period in 1995. This increase was due to higher average outstanding balances
of earning assets. Average earning assets outstanding during the first half
of 1996 were $18,293,715 higher than during the first two quarters of 1995.
Interest expense for the six months ended June 30, 1996 increased $2,085,512 or
32.7% over the corresponding period of 1995. As a result of these factors,
net interest income increased $1,147,996 or 19.1%, in the six months ended June
30, 1996, compared to the same period of 1995.
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 $277,134 for
the six months ended June 30, 1996 compared to $226,711 for the same period
of 1995. Charge-offs exceeded recoveries by $374,063 for the six months ended
June 30, 1996. The reserve for loan losses as a percent of outstanding loans,
net of unearned income, was .86% at June 30, 1996 compared to .93% at year-end
1995.
Noninterest Income
Noninterest income for the six months ended June 30, 1996 was $1,978,190
compared to $1,609,969 for the same period of 1995. This 22.9% increase was
primarily due to an increase in service charges on deposit accounts of $200,239
in the first half of 1996 as compared to the same period of 1995, and the
recognition of fees from debt cancellation contracts, a program which did not
exist during the period ended June 30, 1995, of $215,513 . Significant
components of noninterest income are as follows: Service charges on deposits
increased $200,239 (24.4%), insurance commissions decreased $126,338 (35.5%),
security losses totaled $6,596 as opposed to losses of $19,970 in 1995, and
other operating income, primarily dues for the bank club account, fees on debt
cancellation contracts, and appraisal fees, increased $241,958 (97.1%) to
$491,259.
13 <PAGE>
Noninterest Expenses
Noninterest expenses for the six months ended June 30, 1996 were $6,891,476,
reflecting a 16.0% increase over the same period of 1995. The primary
components of noninterest expenses are salaries and employee benefits, which
increased to $4,259,151 for the six months ended June 30, 1996, 18.9%
higher than in the same period of 1995. The increases in salaries and employee
benefits are due to staffing for new banking locations and future expansion as
well as merit increases and incentive payments. Occupancy costs increased
$32,448 (7.5%), furniture and equipment expenses rose by $86,067 (22.4%), and
director and committee fees increased by $57,950 (42.2).Other operating expenses
rose by 6.8% to $1,501,504.
The majority of these expenses should continue at or above the levels for the
six months ended June 30, 1996, since management intends to continue its growth
policies.
he 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 banks 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 $541,942 for the six months ended June 30,
1996 increased $197,993 compared to the same period of 1995, due primarily to
the increase in income before tax. Taxes as a percent of earnings increased
from 23.4% to 27.3%. The effective tax rate of approximately 27.3% 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, 1996.
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, 1996 and 1995.
Six Months Ended Three Months Ended
June 30, June 30,
1996 1995 1996 1995
Reported net income $ 1,443,225 $ 1,125,003 $ 772,597 $ 670,274
Earnings on common shares $ 1,443,225 $ 1,125,003 $ 772,597 $ 670,274
Weighted average common
shares outstanding . . . 1,887,084 1,622,445 1,948,508 1,623,866
Earnings per common
share-primary and fully-diluted:
Income from continuing
operations . . . . . . $ .76 $ .69 $ .40 $ .41
Net income . . . . . . $ .76 $ .69 $ .40 $ .41
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 7, 1996 /s/ Kennon R. Patterson, Sr.
Date Kennon R. Patterson, Sr., as its
President and Chief Executive
Officer
August 7, 1996 /s/ Paul W. Williams, CPA
Date Paul W. Williams, CPA, as its Senior
Vice President and Chief
Accounting Officer
17 <PAGE>
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