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, 1997
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 31,1997
Common Stock, $.10 Par Value 1,895,169
<PAGE>
INDEX
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets-March 31,1997 and December 31,1996 . . . 3
Consolidated statements of income - Three months ended March 31,
1997 and 1996. . . . . . . . . . . . 4
Consolidated statements of cash flows - Three months ended March 31,
1997 and 1996. . . . . . . . . . . . 5
Notes to consolidated financial statements - March 31, 1997 . . . . 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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
Assets
Cash . . . . . . . . . . . . . . . . . . . . . $ 3,977,970 $ 5,096,892
Due from banks . . 18,558,842 12,515,285
Interest-bearing deposits with banks . . . . . 2,504,343 1,773,778
Federal funds sold . . . . . . . . . . . . . . . 9,200,000 -0-
Securities available for sale . . . . . . . . . 79,301,086 86,911,305
Loans . . . . . . . . . . . . . . . . . . . . . 327,696,327 324,571,991
Less: Unearned income . . . . . . . . . . . . 1,611,915 1,809,698
Allowance for loan losses . . . . . . . . 2,395,536 2,424,847
Net Loans . . . . . . . . . . . . . . . . . . . 323,688,876 320,337,446
Premises and equipment, net . . . . . . . . . . 18,482,057 17,076,220
Accrued interest . . . . . . . . . . . . . . . . 4,318,044 4,847,308
Intangibles, net . . . . . . . . . . . . . . . . . 4,021,741 4,101,306
Other real estate . . . . . . . . . . . . . . . . 869,504 791,435
Other assets . . . . . . . . . . . . . . . . . 2,031,956 1,258,720
Total Assets . . . . . . . . . . . $ 466,954,419 $ 454,709,695
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing . . . . . . . . . . . . $ 55,463,146 $ 50,245,130
Interest-bearing . . . . . . . . . . . . . . . 364,579,672 350,092,545
Total Deposits . . . . . . . . . . . . . . . . 420,042,818 400,337,675
Other short-term borrowings . . . . . . . . . . 3,217,611 8,376,472
Accrued interest . . . . . . . . . . . . . . . 2,705,759 2,542,825
Long-term debt . . . . . . . . . . . . . . . . . 8,061,164 8,281,449
Other liabilities . . . . . . . . . . . . . . . . . 1,503,415 2,612,488
Total Liabilities . . . . . . . . . . . . . . . 435,530,767 422,150,909
Shareholders' equity
Common stock, par value $.10 per share,
5,000,000 shares authorized, 2,004,836
shares issued as of March 31, 1997 and
2,000,000 shares issued as of December 31, 1996 200,484 200,000
Capital surplus . . . . . . . . . . . . . . . . 17,915,958 17,819,722
Retained earnings . . . . . . . . . . . . . . . 16,134,702 16,812,517
Unearned ESOP shares - 109,667 and 112,121 shares
unreleased at March 31, 1997 and December 31,1996 (2,090,958) (2,119,891)
Unrealized losses on investment securities
available for sale, net of deferred taxes . . . (736,534) (153,562)
Total Shareholders' Equity . . . . . . . . . . . . 31,423,652 32,558,786
Total Liabilities and Shareholders' Equity $ 466,954,419 $ 454,709,695
See notes to consolidated financial statements
Page 3
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
1997 1996
Revenue From Earning Assets
Interest and fees on loans . . . . . . . . $ 7,781,363 $ 5,981,921
Interest on investment securities:
Taxable securities . . . . . . . . . . . . . 1,116,272 1,079,490
Securities exempt from federal income taxes . . 182,877 233,800
Interest on federal funds sold . . . . . . . . . . 19,362 280,552
Interest on deposits in other banks . . . . . . . 20,241 17,611
Total Revenue From Earning Assets . . . . . . . . 9,120,115 7,593,374
Interest Expense
Interest on deposits . . . . . . . . . . . . . . 4,442,298 3,979,911
Interest on other short-term borrowings . . . . . 44,945 36,039
Interest on long-term debt . . . . . . . . . . . . 155,358 163,320
Total Interest Expense . . . . . . . . . . . . . 4,642,601 4,179,270
Net interest income 4,477,514 3,414,104
Provision for loan losses . . . 197,978 127,882
Net interest income after provision
for loan losses . . . . . . . . . . . . . . . . 4,279,536 3,286,222
Noninterest Income
Service charges on deposits . . . . . . . . . . . 622,901 485,814
Insurance commissions . . . . . . . . . . . . . . 190,203 83,887
Bank club dues . . . . . . . . . . . . . . . . . . . 134,784 117,746
Other operating income . . . . . . . . . . . . . . . 229,966 241,908
Investment securities gains . . . . . . . . . . . . (2,590) -0-
Total Noninterest Income . . . . . . . . . . . . 1,175,264 929,355
Noninterest Expenses
Salaries and employee benefits . . . . . . . . . . 2,647,438 2,073,477
Occupancy expense . . . . . . . . . . . . . . . . 343,452 228,048
Furniture and equipment expense . . . . . . . . . 274,406 220,545
Director and committee fees . . . . . . . . . . . 152,875 70,575
Other operating expenses . . . . . . . . . . . . . 882,539 715,391
Total Noninterest Expenses . . . . . . . . . . . 4,300,710 3,308,036
Income before income taxes 1,154,090 907,541
Provision for income taxes . . 331,904 236,913
Net Income . . . . . . . . . . . . . . . . . . $ 822,186 $ 670,628
Earnings Per Common Share - Primary and Fully-diluted
Net income per common share . . . . . . . . . $ .42 $ .37
Weighted average common shares outstanding . . 1,978,063 1,826,117
See notes to consolidated financial statements
Page 4
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months Ended
March 31,
1997 1996
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . $ 822,186 $ 670,628
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses . . . . . . . . . . . . . . 197,978 127,882
Provision for depreciation and amortization . . . . . 351,119 276,956
Amortization of investment security premiums and
accretion of discounts . . . . . . . . . . . . . . . (7,018) (22,130)
Realized investment security losses . . . . . . . . -0- -0-
Increase (decrease) in accrued interest receivable . . 529,264 (348,953)
Increase in accrued interest payable . . . . . . . . . 162,934 326,925
Other . . . . . . . . . . . . . . . . . . . . . . . . (426,489) (1,427,814)
Net cash provided (used) by operating activities 1,629,974 (396,506)
Investing activities:
Proceeds from sales of investment securities . . . . . 5,007,863 -0-
Proceeds from maturity of investment securities . . . 1,934,835 3,135,003
Purchase of investment securities . . . . . . . . . . (299,671) (34,356,392)
Decrease (increase) in interest-bearing deposits
with other banks (730,565) 186,665
Net increase in loans to customers . . . . . . . . . (3,302,119) (12,697,634)
Purchase of goodwill . . . . . . . . . . . . . . . . -0- (2,189,435)
Capital expenditures . . . . . . . . . . . . . . . . (1,747,519) (1,019,121)
Net cash used in investing activities . . . . . . 862,824 (46,940,914)
Financing activities:
Net increase in demand deposits, NOW accounts,
and savings accounts . . . . . . . . . . . . . . 6,855,618 29,331,723
Net increase in certificates of deposit . . . . . . .11,435,735 14,338,889
Net increase (decrease) in short-term borrowings . . (5,064,884) 1,781,612
Issuance and sale of common stock. . . . . . . . . 96,720 1,077,260
Repayment of long-term debt . . . . . . . . . . . . (191,352) (190,444)
Cash dividends . . . . . . . . . . . . . . . . . . . (1,500,000) (908,788)
Net cash provided by financing activities . . . . 11,631,837 45,430,252
Net increase (decrease) in cash and cash equivalents 14,124,635 (1,907,168)
Cash and cash equivalents at beginning of period . 17,612,177 36,438,247
Cash and cash equivalents at end of period . . . $ 31,736,812 $ 34,531,079
See notes to consolidated financial statements
5 <PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1997 1996
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . $ 4,113,337 $ 3,852,345
Income taxes . . . . . . . . . . . . . . . . . 493,689 28,742
Supplemental schedule of non-cash investing and financing activities:
Other real estate of $87,500 and $444,500 was acquired in 1997 and 1996,
respectively, 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 $28,933 and
$42,840 during the three month periods ended March 31,1997 and 1996,
respectively, as a result of payments made by the Company's ESOP on the
outstanding ESOP debt.
Unrealized losses on investment securities available for sale increased
by $582,972 during the three months ended March 31, 1997.
See notes to consolidated financial statements
6 <PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1997
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, 1997 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1997. 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 31,1996.
NOTE B - Income Taxes
The effective tax rates of approximately 28.8 percent and 26.1 percent for the
three months ended March 31, 1997 and 1996 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, 1997, the Company had net unrealized losses of $1,227,557 in
available-for-sale securities which are reflected in the presented assets and
resulted in a decrease in stockholders' equity of $736,534, 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, 1996 to
March 31, 1997 was $582,972.
NOTE D - Shareholders' Equity
On January 9, 1996, the Board of Directors of the Company declared a dividend
of $.50 per share to shareholders of record as of January 12, 1996, and
another dividend of $.75 per share was declared in January of 1997 to
shareholders of record as of January 8, 1997. 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. On June 13,
1996, the offering was closed upon full subscription of all shares offered for
sale, raising $6,175,898 of capital after reduction for offering costs.
Page 7
NOTE D - Shareholders' Equity (continued)
On March 27, 1997 and March 28,1996, the Company issued 41,500 and 87,500
options, respectively, 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 $25.00 per share (1997 issuance)
or $20.00 per share (1996 issuance), the market value of the shares at the time
of issuance. The options are exercisable between April 1, 1996 and March 31,
2002, 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 1997 to rise by 86,808 shares. Earnings per share for the period
ended March 31, 1997 were diluted by $ 0.01 per share due to the existence of
the options. There was no dilutative effect on book value per share at March
31, 1997. 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. 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 March 31, 1997,
there were 109,667 unreleased shares with a fair value of approximately
$2,740,000. 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, 1997, the Company's financial statements reflect long term and a
corresponding contra-equity account,as a result of the ESOP debt,of $2,090,958.
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, 1997 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, 1996.
FINANCIAL CONDITION
March 31, 1997 compared to December 31, 1996
Loans
Loans comprised the largest single category of the Company's earning assets on
March 31, 1997. Loans, net of unearned income and reserve for loan losses,
were 69.3% of total assets at March 31, 1997 and 70.4% of total assets at
December 31, 1996. Total net loans were $323,688,876 at March 31, 1997,
representing a 1.0% increase from the December 31, 1996 total of $320,337,446.
This increase of approximately $ 3.35 million was relatively modest, as
management has placed an emphasis on growing deposits in excess of loans over
the last several months.
Investment Securities and Other Earning Assets
Investment securities and federal funds sold increased $1,589,781 or 1.8%
from December 31, 1996 to March 31, 1997. This increase was due primarily to
deposit growth in excess of loan growth . The investment securities portfolio
is used to make various term investments, to provide a source of liquidity
and to serve as collateral to secure certain government deposits. Investment
securities at March 31, 1997 were $79,301,086 compared with $86,911,305 at
December 31, 1996, reflecting an 9.6% decrease of $7,610,219. Short-term
investments in the form of interest-bearing deposits with banks were $2,504,343
at March 31, 1997 and $1,773,778 at December 31, 1996.
Asset Quality
Between December 31, 1996 and March 31, 1997, 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 1.33 to 1.16. The
ratio of total nonperforming assets to total assets remained constant at 0.004,
and the ratio of nonperforming loans to total loans increased to 0.004 from
0.003 at 12/31/96.These ratios declined due to an increase in past due and
nonaccrual loans . 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 $420,042,818 at March 31, 1997 increased $19,705,143 (4.9%)
over total deposits of $400,337,675 at year-end 1996. Deposits are the
Company's primary source of funds with which to support its earning assets.
Noninterest-bearing deposits increased $5,218,016 or 10.4% from year-end
1996 to March 31, 1997, and interest-bearing deposits increased $14,487,127
(4.1%) from year-end 1996. Certificates of deposit of $100,000 or more increased
$5,043,215 (6.3%).
9 <PAGE>
Other Short-term Borrowings
Other short-term borrowings totaled $3,217,611 at March 31, 1997, a
$5,158,861 decrease from the December 31, 1996 total of $8,376,472.
Long-term Debt
At March 31, 1997 and December 31, 1996, the Company had notes payable totaling
$8,061,164, and $8,281,449, 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, 1997 and December 31, 1996,
the amounts outstanding were $4,091,135 and $4,269,010, 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 $59,292 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 Trustees of the Company s ESOP 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 $2,090,958 at March 31, 1997, secured by 109,667 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
$1,879,071 at March 31, 1997.
Maturities of long-term debt for the years ending December 31 are as follows:
1997 . . . . . . . . . $ 653,996
1998 . . . . . . . . . 885,017
1999 . . . . . . . . . 900,047
2000 . . . . . . . . . 915,900
2001 . . . . . . . . . 933,952
Thereafter . . . . . . 3,772,252
$ 8,061,164
Shareholders' Equity
Company shareholders' equity decreased $1,135,134 from December 31, 1996 to
March 31, 1997, due to: net earnings of $822,186, the payment of a cash
dividend of $1,500,000, the reduction of unearned ESOP shares by $28,932, the
issuance of additional common stock of $96,720, and the increase of
unrealized losses on securities available for sale totaling $582,972, 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 $29.4 million at March 31, 1997.
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 $ 33.5 million at March 31, 1997.
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, 1997 and 1996
Summary
Net earnings of the Company for the three months ended March 31, 1997 were
$822,186 compared to $670,628 for the same period in 1996, representing a
22.6% 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, five
new locations in 1996, plus the purchase of the assets and assumption of
liabilities of the Haleyville, Alabama and Uniontown, Alabama branches of a
regional bank during 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 $1,063,410 during the first quarter of
1997, as compared to the same period in 1996; noninterest expenses increased
$992,674 during same period, while noninterest income increased by $245,909.
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, 1997 increased $1,526,741 (20.1%) from the
same period in 1996. This increase was due to higher average outstanding
balances of earning assets. Average earning assets outstanding during the
first quarter of 1997 were $53,134,651 higher than during the first quarter of
1996. Interest expense for the three months ended March 31, 1997 increased
$463,331 or 11.1% over the corresponding period of 1996. As a result of
these factors, net interest income increased $1,063,410, or 31.2%, in the three
months ended March 31, 1997, compared to the same period of 1996.
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 $197,978 for
the three months ended March 31, 1997 compared to $127,882 for the same
period of 1996. Charge-offs exceeded recoveries by $227,289 for the three months
ended March 31, 1997. The reserve for loan losses as a percent of outstanding
loans, net of unearned income, was .74% at March 31, 1997 compared to .75% at
year-end 1996.
Noninterest Income
Noninterest income for the three months ended March 31, 1997 was $1,175,264
compared to $929,355 for the same period of 1996. This 26.5% increase was
primarily due to an increase in service charges on deposit accounts of $137,087
in the first quarter of 1997 as compared to the same period of 1996, and the
recognition of insurance commissions over that of the quarter ended March 31,
1996 of $106,316 . Significant components of noninterest income are as
follows: Service charges on deposits increased $137,087 (28.2%), insurance
commissions increased $106,316 (126.7%), security losses of $2,590 were
realized, as opposed to no gains or losses in the first quarter of 1995,
and other operating income, primarily dues for the bank club account, fees on
debt cancellation contracts, and appraisal fees, decreased $11,942 (-4.9%) to
$229,966.
12 <PAGE>
Noninterest Expenses
Noninterest expenses for the three months ended March 31, 1997 were
$4,300,710, reflecting a 30.0% increase over the same period of 1996. The
primary components of noninterest expenses are salaries and employee benefits,
which increased to $2,647,438 for the three months ended March 31, 1997, 27.7%
higher than in the same period of 1996. 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
$115,404 (50.6%), furniture and equipment expenses rose by $53,861 (24.4%), and
director and committee fees increased by $82,300 (116.6%). Other operating
expenses rose by 23.4% to $882,539.
The majority of these expenses should continue at or above the levels
for the three months ended March 31, 1997, 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 $331,904 for the three months ended March 31,
1997 increased $94,991 compared to the same period of 1996, due primarily to
the increase in income before tax. Taxes as a percent of earnings increased
from 26.1% to 28.8%. The effective tax rate of approximately 28.8% 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, 1997.
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, 1997 and
1996.
Three Months Ended
March 31,
1997 1996
Reported net income . . . . . . . . . . . . $ 822,186 $ 670,628
Earnings on common shares . . . . . . . . . . $ 822,186 $ 670,628
Weighted average common shares outstanding 1,978,063 1,826,117
Earnings per common share - primary and
fully diluted
Income from continuing operations . . . . . . $ .42 $ .37
Net income . . . . . . . . . . . . . . . . $ .42 $ .37
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.
April 25, 1997 /s/ Kennon R. Patterson, Sr.
Date Kennon R. Patterson, Sr., as its
President and Chief Executive
Officer
April 25, 1997 /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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