SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 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 March 31,1996
Common Stock, $.10 Par Value 1,841,385
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INDEX
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets-March 31,1996 and December 31,1995. . 3
Consolidated statements of income - Three months ended March 31,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated statements ofcash flows-Three months ended March 31,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to consolidated financial statements-March 31,1996. . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 14
SIGNATURES
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2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . $ 2,818,535 $ 2,576,214
Due from banks . . 18,612,544 13,512,033
Interest-bearing deposits with banks . . . . . . 1,725,623 1,912,288
Federal funds sold . . . . . . . . . . . . . . . 13,100,000 20,350,000
Securities available for sale . . . . . . . . . 99,538,256 69,989,862
Loans . . . . . . . . . . . . . . . . . . . . . .252,424,950 240,078,385
Less: Unearned income . . . . . . . . . . . . . 1,750,043 2,237,612
Allowance for loan losses . . . . . . . . . . . . 2,374,753 2,208,798
Net Loans . . . . . . . . . . . . . . . . . . . 248,300,154 235,631,975
Premises and equipment, net . . . . . . . . . . 13,300,008 12,524,545
Accrued interest . . . . . . . . . . . . . . . . . 3,825,083 3,476,130
Intangibles, net . . . . . . . . . . . . . . . . . 3,588,006 1,453,756
Other real estate . . . . . . . . . . . . . . . . 724,836 416,836
Other assets . . . . . . . . . . . . . . . . . . . 1,861,841 980,837
Total Assets . . . . . . $407,394,886 $362,824,476
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . $ 49,127,713 $ 41,187,667
Interest-bearing . . . . . . . . . . . . . . 314,692,244 278,961,678
Total Deposits . . . . . . . . . . . 363,819,957 320,149,345
Other short-term borrowings . . . . . . . . . 3,516,094 2,008,684
Accrued interest . . . . . . . . . . . . . . . . 2,400,459 2,073,534
Long-term debt . . . . . . . . . . . . . . . . . . 7,686,589 7,919,873
Other liabilities . . . . . . . . . . . . . . . . 1,087,684 1,653,803
Total Liabilities . . . . . . . . . 378,510,783 333,805,239
Shareholders' equity
Common stock, par value $.10 per share,
5,000,000 shares authorized, 1,903,136
and 1,849,273 shares issued as of March 31,
1996 and December 31, 1995 . . . 190,313 184,927
Capital surplus . . . . . . . . . . . . . . . 15,893,176 14,821,302
Retained earnings . . . . . . . . . . . . . . . 14,024,159 14,262,319
Unearned ESOP shares - 61,751 and 64,607 shares
unreleased at March 31, 1996 and December 31,1995 (952,358) (995,198)
Unrealized losses on investment securities available
for sale, net of deferred taxes . . . . . . . . . (271,187) 745,887
Total Shareholders' Equity . . . . . 28,884,103 29,019,237
Total Liabilities and Shareholders' Equity . . $ 407,394,886 $ 362,824,476
See notes to consolidated financial statements
Page 3
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
1996 1995
Revenue From Earning Assets
Interest and fees on loans . . . . . . $ 5,981,921 $ 4,961,073
Interest on investment securities:
Taxable securities . . . . . . . . . . . . 1,079,490 693,594
Securities exempt from federal income taxes . 233,800 290,612
Interest on federal funds sold . . . . . . . . 280,552 27,068
Interest on deposits in other banks . . . . . 17,611 25,668
Total Revenue From Earning Assets . . . . 7,593,374 5,998,015
Interest Expense
Interest on deposits . . . . . . . . . . . 3,979,911 2,838,619
Interest on other short-term borrowings . . . . 36,039 29,522
Interest on long-term debt . . . . . . . . . . . 163,320 180,094
Total Interest Expense . . . . . . . . . 4,179,270 3,048,235
Net interest income 3,414,104 2,949,780
Provision for loan losses . . . 127,882 121,827
Net interest income after prov.for loan losses . 3,286,222 2,827,953
Noninterest Income
Service charges on deposits . . . . . . . . . . . 485,814 364,701
Insurance commissions . . . . . . . . . . . . . . 83,887 177,750
Bank club dues . . . . . . . . . . . . . . . . . . 117,746 97,560
Other operating income . . . . . . . . . . . 241,908 124,909
Investment securities gains . . . . . . . -0- (22,283)
Total Noninterest Income . . . . . . . . 929,355 742,637
Noninterest Expenses
Salaries and employee benefits . . . . . . . . . 2,073,477 1,793,422
Occupancy expense . . . . . . . . . . . . . . . 228,048 214,951
Furniture and equipment expense . . . . . . . . 220,545 184,545
Director and committee fees . . . . . . . . . . . 70,575 67,425
Other operating expenses . . . . . . . . . . . . 715,391 710,872
Total Noninterest Expenses . . . . . . . . . . 3,308,036 2,971,215
Income before income taxes 907,541 599,375
Provision for income taxes . . 236,913 144,646
Net Income . . . . . . . . . . . . . . . . . $ 670,628 $ 454,729
Earnings Per Common Share - Primary and Fully-diluted
Net income per common share . . . . . . . . . .$ .37 $ .28
Weighted average common shares outstanding . . . 1,826,117 1,621,008
See notes to consolidated financial statements
Page 4
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months Ended
March 31,
1996 1995
Operating activities:
Net income . . . . . . . . . . . . . . . . . . $ 670,628 $ 454,729
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses . . . . . . . . . 127,882 121,827
Provision for depreciation and amortization . . 276,956 214,738
Amortization of investment security premiums and
accretion of discounts . . . . . . . . . (22,130) (35,275)
Realized investment security losses . . . . . . -0- 22,283
Increase in accrued interest receivable . . . . (348,953) (2,956)
Increase in accrued interest payable . . . . 326,925 270,965
Other . . . . . . . . . . . . . . . . . . . . (1,427,814) (769,173)
Net cash provided (used) by operating activities (396,506) 277,138
Investing activities:
Proceeds from sales of investment securities . . -0- 4,529,297
Proceeds from maturity of investment securities 3,135,003 3,925,233
Purchase of investment securities . . . . . . .(34,356,392) (8,073,844)
Decrease (increase) in interest-bearing
deposits with other banks 186,665 (158,929)
Net increase in loans to customers . . . . . . .(12,697,634) (9,416,519)
Purchase of goodwill . . . . . . . . . . . . . (2,189,435) -0-
Capital expenditures . . . . . . . . . . . . (1,019,121) (577,124)
Net cash used in investing activities . . . . . (46,940,914) (9,771,886)
Financing activities:
Net increase (decrease) in demand deposits,
NOW accounts,and savings accounts . . . . . . 29,331,723 (15,527,948)
Net increase in certificates of deposit . . . 14,338,889 27,955,644
Net increase (decrease) in short-term borrowings 1,781,612 (342,036)
Issuance and sale of common stock. . . . . . 1,077,260 -0-
Repayment of long-term debt . . . . . . . . (190,444) (189,597)
Cash dividends . . . . . . . . . . . . . . . . . (908,788) (843,918)
Net cash provided by financing activities . . . 45,430,252 11,052,145
Net increase(decrease)in cash & cash equivalents (1,907,168) 1,557,397
Cash and cash equivalents at beginning of period 36,438,247 13,648,601
Cash and cash equivalents at end of period . . $ 34,531,079 $ 15,205,998
See notes to consolidated financial statements
Page 5
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1996 1995
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest . . . . . . . . . . . $ 3,852,345 $ 2,777,270
Income taxes . . . . . . . . . 28,742 32,339
Supplemental schedule of non-cash investing and financing activities:
Other real estate of $444,500 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
$137,918 on October 2, 1995, long-term debt was increased and equity was
decreased . The debt was reduced and shares were released by $42,840 during
each of the three month periods ended March 31, 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 $1,017,074 during the three months ended March 31, 1995, from an
unrealized gain of $745,887 at December 31, 1995, to a loss of $271,187 at
March 31, 1996 (both net of the effect of deferred taxes).
See notes to consolidated financial statements
6 <PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 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 three month period
ended March 31,1996 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 26.1 percent and 24.1 percent for the
three months ended March 31, 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 March 31, 1996, the Company had net unrealized losses of $451,978 in
available-for-sale securities which are reflected in the presented assets and
resulted in a decrease in stockholders' equity of $271,187, 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 March 31,
1996 was $1,017,074.
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 March 31, 1996, $4,239,665 of additional capital had been generated
by the sale. If the stock sale is fully subscribed, it would create
approximately $1,900,000 of additional capital for the Company in 1996.
7 <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
quarter of 1996 to rise by 2,885 shares. There was no dilutative effect on
earnings per share for the quarter ended March 31, 1996, nor on the book value
of the Company s common shares at March 31, 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. This note was refinanced on October 2, 1995. The shares
securing the note are released proratably by the lender as monthly payments of
principal and interest are made. Also on October 2, 1995, the ESOP acquired
7,455 additional shares with the proceeds of a second promissory note,
collateralized by the acquired shares. Both notes are guaranteed by the Company.
As of March 31, 1996, there were 61,751 unreleased shares with a fair
value of approximately $1,235,000. 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 March 31, 1996, the Company's financial statements reflect long term and a
corresponding contra-equity account, as a result of the ESOP debt, of $952,358.
8 <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 March 31, 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
March 31, 1996 compared to December 31, 1995
Loans
Loans comprised the largest single category of the Company's earning assets on
March 31, 1996. Loans, net of unearned income and reserve for loan losses,
were 61.5% of total assets at March 31, 1996 and 65.6% of total assets at
December 31, 1995. Total net loans were $248,300,154 at March 31, 1996,
representing a 5.4% increase from the December 31, 1995 total of $235,631,975.
This increase of approximately $12.7 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 $10,508,394 or 11.6% from
December 31, 1995 to March 31, 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 March 31, 1996 were $99,538,256 compared with
$69,989,862 at December 31, 1995, reflecting an 42.2% increase of $29,548,394.
Short-term investments in the form of interest-bearing deposits with banks were
$1,725,623 at March 31, 1996 and $1,912,288 at December 31, 1995.
Asset Quality
Between December 31, 1995 and March 31, 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 1.81 to 1.22. The
ratio of total nonperforming assets to total assets experienced an increase to
0.005 from 0.003, and the ratio of nonperforming loans to total loans increased
to 0.008 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 $363,819,957 at March 31, 1996 increased $43,670,612 (13.6%)
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 $7,940,046 or 19.3% from year-end
1995 to March 31, 1996, and interest-bearing deposits increased $35,730,566
(12.8%) from year-end 1995. Certificates of deposit of $100,000 or more
increased $14,171,669 (11.2%).
9 <PAGE>
Other Short-term Borrowings
Other short-term borrowings totaled $3,516,094 at March 31, 1996, a
$1,507,410 increase from the December 31, 1995 total of $2,008,684.
Long-term Debt
At March 31, 1996 and December 31, 1995, the Company had notes payable totaling
$7,686,589, 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 March 31, 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 Company's ESOP borrowed $1,200,000 for the
acquisition of Company common stock. On October 2, 1995, the $885,840 balance
remaining on this debt was refinanced and is due December 2, 2000, bearing
interest at a floating rate, collateralized by the shares of the Company's
common stock purchased by the ESOP. 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. 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 $814,440 at March 31, 1996.
On October 2, 1995, the ESOP purchased 7,455 additional shares of the Company s
stock with $137,918 borrowed from a regional bank. This note is payable on
or before June 1, 1996, is accruing interest at a floating rate, and is
collateralized by the 7,455 shares of stock acquired with its proceeds.
Also guaranteed by the Company, it too is recognized on the Company s statement
of condition, with an offsetting charge against equity.
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 $1,931,595
at March 31, 1996.
Maturities of long-term debt for the years ending December 31 are as follows:
1996 . . . . . . . . $ 839,111
1997 . . . . . . . . 938,208
1998 . . . . . . . . 942,209
1999 . . . . . . . . 946,500
2000 . . . . . . . . 951,580
Thereafter . . . . . 3,068,981
$ 7,686,589
Shareholders' Equity
Company shareholders' equity decreased $135,134 from December 31, 1995 to
March 31, 1996, due to: net earnings of $670,628, the payment of a cash
dividend of $908,788, the sale of additional common stock for $1,077,260, the
reduction of unearned ESOP shares by $42,840, and the decrease in the
measurement for unrealized gains or losses on securities available for sale
totaling $1,017,074, net of deferred tax liability.
10 <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 $27.0 million at March 31, 1996. 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 $31.1 million at March 31, 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.
11 <PAGE>
RESULTS OF OPERATIONS
Three months ended March 31, 1996 and 1995
Summary
Net earnings of the Company for the three months ended March 31, 1996 were
$670,628 compared to $454,729 for the same period in 1995, representing a
47.1% 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,
and 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 $464,324 during
the first quarter of 1996, as compared to the same period in 1995;noninterest
expenses increased $336,821 during same period, while noninterest income
increased by $186,718.
Net Interest Income
Net interest income, the difference between interest earned on assets and
the cost of interest-bearing liabilities, is the largest component of the
Company's net income. Revenue from earning assets of the Company during the
three months ended March 31,1996 increased $1,595,359 (26.6%) 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 quarter
of 1996 were $80,639,478 higher than during the first quarter of 1995.
Interest expense for the three months ended March 31, 1996 increased $1,131,035
or 37.1% over the corresponding period of 1995. As a result of these factors,
net interest income increased $464,324, or 15.7%, in the three months ended
March 31, 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 $127,882 for
the three months ended March 31, 1996 compared to $121,827 for the same
period of 1995. Charge-offs exceeded recoveries by $81,524 for the three months
ended March 31,1996.The reserve for loan losses as a percent of outstanding
loans, net of unearned income, was .95% at March 31, 1996 compared to .93% at
year-end 1995.
Noninterest Income
Noninterest income for the three months ended March 31, 1996 was $929,355
compared to $742,637 for the same period of 1995.This 25.1% increase was
primarily due to an increase in service charges on deposit accounts of $121,113
in the first quarter 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 March 31, 1995, of $99,115 . Significant
components of noninterest income are as follows: Service charges on deposits
increased $121,113 (33.2%), insurance commissions decreased $93,863 (52.8%),
there were no security gains or losses, as opposed to losses of $22,283 in 1995,
and other operating income, primarily dues for the bank club account, fees on
debt cancellation contracts, and appraisal fees, increased $116,999 (93.7%) to
$241,708.
12 <PAGE>
Noninterest Expenses
Noninterest expenses for the three months ended March 31, 1996 were
$3,308,036, reflecting an 11.3% increase over the same period of 1995. The
primary components of noninterest expenses are salaries and employee benefits,
which increased to $2,073,447 for the three months ended March 31, 1996, 15.6%
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
$13,097 (6.1%), furniture and equipment expenses rose by $36,000 (19.5%), and
director and committee fees increased by $3,150 (4.7). Other operating expenses
rose by only 0.6% to $715,391.
The majority of these expenses should continue at or above the levels
for the three months ended March 31, 1996, 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 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 $236,913 for the three months ended March 31,
1996 increased $92,267 compared to the same period of 1995, due primarily to
the increase in income before tax. Taxes as a percent of earnings increased
from 24.1% to 26.1%. The effective tax rate of approximately 26.1% is less than
the statutory rate principally because of the effect of tax-exempt interest
income.
13 <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 15
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
March 31, 1996.
14 <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 three-month periods ended March 31, 1996 and
1995.
Three Months Ended
March 31,
1996 1995
Reported net income . . . . . . . . . . . . $ 670,628 $ 454,729
Earnings on common shares . . . . . . . . . $ 670,628 $ 454,729
Weighted average common shares outstanding 1,826,117 1,621,008
Earnings per common share - primary and fully diluted
Income from continuing operations . . . . $ .37 $ .28
Net income . . . . . . . . . . . . . . . $ .37 $ .28
15 <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.
May 5, 1996 /s/ Kennon R. Patterson, Sr.
Date Kennon R. Patterson, Sr., as its
President and Chief Executive
Officer
May 5, 1996 /s/ Paul W. Williams, CPA
Date Paul W. Williams, CPA, as its
Senior Vice President and Chief
Accounting Officer
16 <PAGE>
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