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, 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 June 30, 1997
Common Stock, $.10 Par Value 1,897,623
<PAGE>
INDEX
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - June 30, 1997 and December 31, 1996 3
Consolidated statements of income - Three months ended June 30,
1997 and 1996; Six months ended June 30, 1997 and 1996 4-5
Consolidated statements of cash flows - Six months ended June 30,
1997 and 1996 6
Notes to consolidated financial statements - June 30, 1997 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 16
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
Assets
Cash . . . . . . . . . . . . . . . . . . . . . $ 4,128,500 $ 5,096,892
Due from banks . . . . . . . 17,775,953 12,515,285
Interest-bearing deposits with banks . . . . . 2,949,058 1,773,778
Federal funds sold . . . . . . . . . . . . . . . 19,000,000 -0-
Securities available for sale . . . . . . . . . 80,804,956 86,911,305
Loans . . . . . . . . . . . . . . . . . . . . . 325,736,116 324,571,991
Less: Unearned income . . . . . . . . . . . . 1,436,437 1,809,698
Allowance for loan losses . . . . . . . . 2,534,350 2,424,847
Net Loans . . . . . . . . . . . . . . . . . . . 321,765,329 320,337,446
Premises and equipment, net . . . . . . . . . . 20,462,927 17,076,220
Accrued interest . . . . . . . . . . . . . . . . 4,822,294 4,847,308
Intangibles, net . . . . . . . . . . . . . . . . 3,942,179 4,101,306
Other real estate . . . . . . . . . . . . . . . 844,933 791,435
Other assets . . . . . . . . . . . . . . . . . . 2,200,310 1,258,720
Total Assets . . . . . . . . . . . . . . . . . . $ 478,696,439 $ 454,709,695
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing . . . . . . . . . . . . . $ 54,354,752 $ 50,245,130
Interest-bearing . . . . . . . . . . . . . 375,703,343 350,092,545
Total Deposits . . . . . . . . . . . . . . . . 430,058,095 400,337,675
Other short-term borrowings . . . . . . . . . 3,104,170 8,376,472
Accrued interest . . . . . . . . . . . . . . . . 3,123,022 2,542,825
Long-term debt . . . . . . . . . . . . . . . . . 7,841,000 8,281,449
Other liabilities . . . . . . . . . . . . . . . . 1,668,258 2,612,488
Total Liabilities . . . . . . . . . . . . . . . 445,794,545 422,150,909
Shareholders' equity
Common stock, par value $.10 per share, 5,000,000
shares authorized, 2,004,836 shares issued as
of June 30, 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 . . . . . . . . . . . . . . . . 17,136,899 16,812,517
Unearned ESOP shares - 107,213 and 112,121 shares
unreleased at June 30, 1997 and December 31,1996 . (2,062,383) (2,119,891)
Unrealized losses on investment securities
available for sale, net of deferred taxes . . . (289,064) (153,562)
Total Shareholders' Equity . . . . . . . . . . . . 32,901,894 32,558,786
Total Liabilities and Shareholders' Equity $ 478,696,439 $ 454,709,695
See notes to consolidated financial statements
3 <PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
June 30,
1997 1996
Revenue From Earning Assets
Interest and fees on loans . . . . . . . . . . . . $ 7,842,209 $ 6,230,532
Interest on investment securities:
Taxable securities . . . . . . . . . . . . . . 1,089,642 1,292,795
Securities exempt from federal income taxes . . . 176,050 233,589
Interest on federal funds sold . . . . . . . . . . . 176,319 250,414
Interest on deposits in other banks . . . . . . . . . 29,193 31,216
Total Revenue From Earning Assets . . . . . . . . 9,313,413 8,038,546
Interest Expense
Interest on deposits . . . . . . . . . . . . . . . . 4,678,684 4,077,274
Interest on other short-term borrowings . . . . . . 35,028 29,372
Interest on long-term debt . . . . . . . . . . . . . 168,955 170,417
Total Interest Expense . . . . . . . . . . . . . 4,882,667 4,277,063
Net interest income 4,430,746 3,761,483
Provision for loan losses . . 296,269 149,252
Net interest income after provision for loan losses . . 4,134,477 3,612,231
Noninterest Income
Service charges on deposits . . . . . . . . . . . . 613,676 536,695
Insurance commissions . . . . . . . . . . . . . . . . 142,405 145,967
Bank club dues . . . . . . . . . . . . . . . . . . . 142,123 123,418
Other operating income . . . . . . . . . . . . . . . 246,514 249,351
Investment securities gains . . . . . . . . . . . . -0- (6,596)
Total Noninterest Income . . . . . . . . . . . . 1,144,718 1,048,835
Noninterest Expenses
Salaries and employee benefits . . . . . . . . . . . . 2,269,724 2,185,674
Occupancy expense . . . . . . . . . . . . . . . . . . 353,695 236,995
Furniture and equipment expense . . . . . . . . . . . 294,295 249,783
Director and committee fees . . . . . . . . . . . . . 158,995 124,875
Other operating expenses . . . . . . . . . . . . . . . 819,491 786,113
Total Noninterest Expenses . . . . . . . . . . . 3,896,200 3,583,440
Income before income taxes 1,382,995 1,077,626
Provision for income taxes . . 380,827 305,029
Net Income . . . . . . . . . . . . . . . . . . . $ 1,002,168 $ 772,597
Earnings Per Common Share - Primary and Fully-diluted
Net income per common share . . . . . . . . . . $ .48 $ .39
Weighted average common shares outstanding . . . . . 2,072,847 1,995,547
See notes to consolidated financial statements
Page 4
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended
June 30,
1997 1996
Revenue From Earning Assets
Interest and fees on loans . . . . . . . . . . . $ 15,623,572 $ 12,212,453
Interest on investment securities:
Taxable securities . . . . . . . . . . . . . . 2,205,914 2,372,285
Securities exempt from federal income taxes . . . 358,927 467,389
Interest on federal funds sold . . . . . . . . . . . 195,681 530,966
Interest on deposits in other banks . . . . . . . . 49,434 48,827
Total Revenue From Earning Assets . . . . . . . . 18,433,528 15,631,920
Interest Expense
Interest on deposits . . . . . . . . . . . . . . . . 9,120,982 8,057,185
Interest on other short-term borrowings . . . . . . 79,973 65,411
Interest on long-term debt . . . . . . . . . . . . . . 324,313 333,737
Total Interest Expense . . . . . . . . . . . . . 9,525,268 8,456,333
Net interest income 8,908,260 7,175,587
Provision for loan losses . . . 494,247 277,134
Net interest income after provision for loan losses . 8,414,013 6,898,453
Noninterest Income
Service charges on deposits . . . . . . . . . . . . 1,236,577 1,022,509
Insurance commissions . . . . . . . . . . . . . . . 332,608 229,854
Bank club dues . . . . . . . . . . . . . . . . . . . 276,907 241,164
Other operating income . . . . . . . . . . . . . . . 476,480 491,259
Investment securities gains . . . . . . . . . . . . (2,590) (6,596)
Total Noninterest Income . . . . . . . . . . . . 2,319,982 1,978,190
Noninterest Expenses
Salaries and employee benefits . . . . . . . . . . 4,917,162 4,259,151
Occupancy expense . . . . . . . . . . . . . . . . 697,147 465,043
Furniture and equipment expense . . . . . . . . . 568,701 470,328
Director and committee fees . . . . . . . . . . . . 311,870 195,450
Other operating expenses . . . . . . . . . . . . . . 1,702,030 1,501,504
Total Noninterest Expenses . . . . . . . . . . . 8,196,910 6,891,476
Income before income taxes . . . . . . . . . . . . . 2,537,085 1,985,167
Provision for income taxes . . 712,731 541,942
Net Income . . . . . . . . . . . . . . . . . . $ 1,824,354 $ 1,443,225
Earnings Per Common Share - Primary and Fully-diluted
Net income per common share . . . . . . . . $ .89 $ .75
Weighted average common shares outstanding . . . 2,050,596 1,911,617
See notes to consolidated financial statements
5 <PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
1997 1996
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . $ 1,824,384 $ 1,443,225
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses . . . . . . . . . . . . 494,247 277,134
Provision for depreciation and amortization . . . . . 724,213 582,277
Amortization of investment security premiums and
accretion of discounts . . . . . . . . . . . . . . . . 19,333 (33,843)
Realized investment security losses . . . . . . . . . 2,590 6,596
Increase (decrease) in accrued interest receivable . . 25,014 (700,681)
Increase in accrued interest payable . . . . . . . . . 580,197 376,384
Other . . . . . . . . . . . . . . . . . . . . . . . (1,269,224) (1,770,453)
Net cash provided by operating activities . . . 2,400,754 180,639
Investing activities:
Proceeds from sales of investment securities . . . 5,007,863 999,999
Proceeds from maturity of investment securities . . 3,137,430 6,604,645
Purchase of investment securities . . . . . . . . . (2,286,703)(40,195,649)
Increase in interest-bearing deposits with
other banks (1,175,280) (2,235,263)
Net increase in loans to customers . . . . . . . . (1,295,886) (8,464,439)
Cash acquired - purchase of Haleyville location . . -0- 18,811,140
Proceeds from sale of premises and equipment . . . . 104,855 92,130
Capital expenditures . . . . . . . . . . . . . . . . (4,056,647) (1,868,866)
Net cash used in investing activities . . . . . . (564,368)(26,256,303)
Financing activities:
Net increase in demand deposits, NOW accounts,
and savings accounts . . . . . . . . . . . . . . . 5,299,475 17,937,561
Net increase in certificates of deposit . . . . . . .23,007,155 3,830,233
Net increase (decrease) in short-term borrowings . . (5,064,519) 1,459,322
Issuance and sale of common stock. . . . . . . . . . 96,720 3,013,493
Repayment of long-term debt . . . . . . . . . . . . (382,941) (381,108)
Cash dividends . . . . . . . . . . . . . . . . . . . (1,500,000) (908,788)
Net cash provided by financing activities . . 21,455,890 24,950,713
Net increase (decrease) in cash and cash equivalents 23,292,276 (1,124,951)
Cash and cash equivalents at beginning of period . . 17,612,177 36,438,247
Cash and cash equivalents at end of period . . . . .$ 40,904,453 $ 35,313,296
See notes to consolidated financial statements
6 <PAGE>
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
1997 1996
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . $ 8,945,041 $ 7,906,020
Income taxes . . . . . . . . . . . . . . . . . . . 1,290,777 258,690
Supplemental schedule of non-cash investing and financing activities:
Other real estate of $87,500 was acquired in 1997 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 $57,508 and $80,088 , respectively, during each of
the six month periods ended June 30, 1997 and 1996 as a result of payments
made by the Company's ESOP on the outstanding ESOP debt.
Unrealized gains losses on investment securities available for sale
increased by $135,502 during the six months ended June 30, 1997, from an
unrealized loss of $153,562 at December 31, 1996, to a loss of $289,064 at
June 30, 1997 (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 branchs
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, 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 six month period
ended June 30, 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 28.1 percent and 27.3 percent for
the six months ended June 30, 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 June 30,1997,the Company had net unrealized losses of $481,774 in
available-for-sale securities which are reflected in the presented assets and
resulted in a decrease in stockholders' equity of $289,064, 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 June 30, 1997 was $135,502.
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.
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 8
NOTE D - Shareholders' Equity (continued)
On March 27, 1997 and March 28, 1996, the Company issued 41,500 and 135,000
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.
The Company adopted SFAS No. 123, Accounting for Stock-Based Compensation , on
January 1, 1996. This statement defines a fair value based method of accounting
for an employee stock option or similar equity instrument. However, SFAS No. 123
allows an entity to continue to measure compensation costs for these plans
using the intrinsic value method based method of accounting prescribed in APB
Opinion No. 25, Accounting for Stock Issued to Employees. Entities electing to
remain with the accounting in Opinion No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting defined in SFAS No. 123 had been applied. Under the fair
value based method, compensation cost is measured at the grant date based on
the value of the award and is recognized over the service period, which is
usually the vesting period. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date or other measurement date over the amount an employee must
pay to acquire the stock. The Company has elected to continue to measure
compensation cost for their stock option plan under the provisions in APB
Opinion 25.
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
two quarters of 1997 to rise by 156,781 shares. There was no dilutative
effect on book value per share at either June 30, 1997 or June 30, 1996.
Earnings per average share outstanding were diluted by $ 0.07 per share and
$ 0.03 per share, respectively, for the six months ended June 30, 1997 and 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 1997) 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 107,213 unreleased shares with a fair value of approximately
$2,788,000. 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.
Page 9
NOTE E - Employee Stock Ownership (continued)
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, 1997, the Company's financial statements reflect long term debt
and a corresponding contra-equity account, as a result of the ESOP debt, of
$2,062,383.
10 <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, 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
June 30, 1997 compared to December 31, 1996
Loans
Loans comprised the largest single category of the Company's earning assets
on June 30, 1997. Loans, net of unearned income and reserve for loan losses,
were 67.2% of total assets at June 30, 1997 and 70.4% of total assets at
December 31, 1996. Total net loans were $321,765,329 at June 30, 1997,
representing a 0.5% increase from the December 31, 1996 total of $320,337,446.
This increase of approximately $1.43 million was relatively modest, as
management has made deposit growth a priority over loan growth over the last
several months.
Investment Securities and Other Earning Assets
Investment securities and federal funds sold increased $12,893,651 or 148.4%
from December 31, 1996 to June 30, 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 June 30, 1997 were $80,804,956 compared with $86,911,305 at
December 31, 1996, reflecting a 7.0% decrease of $6,106,349. Short-term
investments in the form of interest-bearing deposits with banks were $2,949,058
at June 30, 1997 and $1,773,778 at December 31, 1996.
Asset Quality
Between December 31, 1996 and June 30, 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 1.09. The ratio of
total nonperforming assets to total assets rose from 0.004 to 0.005, and the
ratio of nonperforming loans to total loans increased to 0.005 from 0.003 at
12/31/96. 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
within an acceptable range, 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 $430,058,095 at June 30, 1997 increased $29,720,420 (7.4%)
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 $4,109,622 or 8.2% from year-end 1996 to
June 30, 1997, and interest-bearing deposits increased $25,610,798 (7.3%) from
year-end 1996. Certificates of deposit of $100,000 or more increased $6,044,162
(7.5%).
11 <PAGE>
Other Short-term Borrowings
ther short-term borrowings totaled $3,104,170 at June 301, 1997, a
$5,272,302 decrease from the December 31, 1996 total of $8,376,472.
Long-term Debt
At June 30, 1997 and December 31, 1996, the Company had notes payable totaling
$7,841,000, 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 June 30, 1997 and December 31, 1996, the
amounts outstanding were $3,913,260 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 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 $2,062,383 at June 30, 1997, secured by 107,213 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 $1,865,357
at June 30, 1997.
Maturities of long-term debt for the years ending December 31 are as follows:
1997 . . . . . . . . . $ 440,216
1998 . . . . . . . . . 892,430
1999 . . . . . . . . . 907,467
2000 . . . . . . . . . 923,328
2001 . . . . . . . . . 941,388
Thereafter . . . . . . 3,736,171
$ 7,841,000
Shareholders' Equity
Company shareholders' equity increased $343,108 from December 31, 1996 to June
30, 1997, due to: net earnings of $1,824,384, the payment of a cash dividend
of $1,500,000, the reduction of unearned ESOP shares by $57,508, the issuance
of additional common stock for $96,720, and the increase of unrealized
losses on securities available for sale totaling $135,504, net of deferred tax
liability.
12 <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 $29.0 million at June 30, 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 $ 33.2 million at June 30, 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.
13 <PAGE>
RESULTS OF OPERATIONS
Six months ended June 30, 1997 and 1996
Summary
Net earnings of the Company for the six months ended June 30, 1997 were
$1,824,384 compared to $1,443,225 for the same period in 1996, representing
a 26.4% 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 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 $1,732,703 during the first half of 1997, as compared to the same
period in 1996; noninterest expenses increased $1,305,434 during same period,
while noninterest income increased by $341,792.
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, 1997 increased $2,801,608 (17.9%) 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 half of
1997 were $50,621,384 higher than during the first two quarters of 1996.
Interest expense for the six months ended June 30, 1997 increased $1,068,905 or
12.6% over the corresponding period of 1996. As a result of these factors,
net interest income increased $1,732,703 or 24.2%, in the six months ended June
30, 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 $494,247
for the six months ended June 30, 1997 compared to $277,134 for the same
period of 1996. Charge-offs exceeded recoveries by $384,744 for the six months
ended June 30, 1997. The reserve for loan losses as a percent of outstanding
loans, net of unearned income, was .78% at June 30, 1997 compared to .75% at
year-end 1996.
Noninterest Income
Noninterest income for the six months ended June 30, 1997 was $2,319,982
compared to $1,978,190 for the same period of 1996. This 17.3% increase was
primarily due to an increase in service charges on deposit accounts of $214,068
in the first half of 1997 as compared to the same period of 1996, and the
recognition of fees from debt cancellation contracts, a relatively new program,
of $111,212 . Significant components of noninterest income are as follows:
Service charges on deposits increased $214,068 (20.9%), insurance commissions
increased $102,754 (44.7%), security losses totaled $2,590 as opposed to losses
of $6,596 in 1996, and other operating income, primarily dues for the bank club
account, fees on debt cancellation contracts, and appraisal fees, decreased
$14,774 (3.0%) to $476,480.
14 <PAGE>
Noninterest Expenses
Noninterest expenses for the six months ended June 30, 1997 were $8,196,910,
reflecting an 18.9% increase over the same period of 1996. The primary
components of noninterest expenses are salaries and employee benefits, which
increased to $4,917,162 for the six months ended June 30, 1997, 15.5%
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
$232,104 (49.9%), furniture and equipment expenses rose by $98,373(20.9%),
and director and committee fees increased by $116,420 (59.6%). Other operating
expenses rose by 13.4% to $1,702,030.
The majority of these expenses should continue to grow at or above the
rate for the six months ended June 30, 1997, 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 $712,731 for the six months ended June 30,
1997 increased $170,789 compared to the same period of 1996, due primarily to
the increase in income before tax. Taxes as a percent of pre-tax
earnings increased from 27.3% to 28.1%. The effective tax rate of approximately
28.1% is less than the statutory rate principally because of the effect of
tax-exempt interest income.
15 <PAGE>
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Description of Exhibit Page Number
11 Computation of Earnings 17
Per Share
27 Financial Data Schedule
(for the SEC use only)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
June 30, 1997.
16 <PAGE>
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
The following tabulation presents the calculation of primary and fully diluted
earnings per common share for the six-month and three-month periods ended June
30, 1997 and 1996.
Six Months Ended Three Months Ended
June 30, June 30,
1997 1996 1997 1996
Reported net income . . . .$ 1,824,354 $ 1,443,225 $ 1,002,168 $ 772,597
Earnings on common shares $ 1,824,354 $ 1,443,225 $ 1,002,168 $ 772,597
Weighted average common
shares outstanding . . . 2,050,596 1,911,617 2,072,847 1.995,547
Earnings per common share-
primary and fully-diluted:
Income from continuing
operations . . . . . . $ .89 $ .75 $ .48 $ .39
Net income . . . . . . $ .89 $ .75 $ .48 $ .39
17 <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, 1997 /s/ Kennon R. Patterson, Sr.
Date Kennon R. Patterson, Sr., as its
President and Chief Executive
Officer
August 7, 1997 /s/ Paul W. Williams, CPA
Date Paul W. Williams, CPA, as its Senior
Vice President and Chief
Accounting Officer
18 <PAGE>
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