COMMUNITY BANCSHARES, INC.
To the Shareholders of
Community Bancshares, Inc.:
In connection with the Annual Meeting of Shareholders of Community
Bancshares, Inc. (the "Company") to be held at 10:00 A.M., local time,
on Thursday, March 26, 1998, we enclose a Notice of Meeting and Proxy
Statement containing information concerning those matters which are to be
considered at the meeting.
You are cordially invited to attend the Annual Meeting in
person. We willappreciate your signing and returning the form of proxy in
the enclosed postage-prepaid envelope so that your shares can be voted in the
event you are unable to attend the meeting. Your proxy will, of course, be
returned to you if you are present at the meeting and so request.
We are enthusiastic about the future and appreciate your continued
support. We look forward to seeing you on March 26.
Sincerely yours,
Kennon R. Patterson, Sr.
Chairman and President
Please fill in, date, sign and mail promptly the accompanying Proxy in the
return envelope furnished for that purpose, whether or not you plan to attend
the meeting.
<PAGE> 1
COMMUNITY BANCSHARES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
____________________________
The Annual Meeting of the shareholders of Community Bancshares, Inc.
(the "Company"), will be held at the Administrative Building of Community
Bank headquarters, Highway 231 South, Blountsville, Alabama, on Thursday, March
26, 1998 at 10:00 A.M., local time, for the following purposes:
1. To elect Glynn Debter, John J. Lewis, Jr., Loy McGruder,
Kennon R. (Chip) Patterson, Jr., and Bishop K. Walker, Jr., as Class
II directors to serve a three year term and until their successors
are elected and qualified.
2. To approve the appointment of Dudley, Hopton-Jones, Sims &
Freeman, PLLP, to serve as independent auditors for the year ending
December 31, 1998; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on January 31, 1998, are
entitled to notice of and to vote at the meeting.
The enclosed Proxy Statement explains the proposals. We urge you to read
these materials carefully.
You are cordially invited to attend the meeting. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING IN PERSON, YOU ARE REQUESTED TO COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. If
you need assistance in completing your proxy, please call the Company at
telephone number (205) 429-1000.
THE CORPORATION'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF ALL THE PROPOSALS PRESENTED.
By Order of the Board of Directors
Bishop K. Walker, Jr.
Secretary
Blountsville, Alabama
March 6, 1998
<PAGE> 2
COMMUNITY BANCSHARES, INC.
Proxy Statement for the Annual Meeting
of Shareholders to be Held March 26, 1998
_____________________________________
INTRODUCTION
This Proxy Statement is furnished to shareholders of Community Bancshares,
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Annual Meeting of Shareholders to be held March 26, 1998, and at any
adjournments thereof (the "Meeting"), for the purposes of (i) electing five
directors of the Company, and (ii) transacting such other business as may
properly come before the Meeting.
The executive offices of the Company are located at Highway 231 South,
P.O. Box 1000, Blountsville, Alabama 35031. This Proxy Statement was mailed to
shareholders of the Company on or about March 6, 1998.
Shareholders Entitled to Vote
Each holder of record of the Company's current $.10 par value common stock
(herein sometimes referred to as "Shares") as of the close of business on
January 31, 1998, will be entitled to vote at the Meeting. Each shareholder
will be entitled to one vote on each proposal for each Company Share held as
of such date. At the close of business on that date, there were 2,031,606
Shares issued and outstanding, and these were held by approximately 1,295
persons. Notwithstanding the record date specified above,the Company's stock
transfer books will not be closed and Shares may be transferred subsequent to
the record date, although all votes must be cast in the names of shareholders of
record as of the record date.
Votes Required
All matters which may be considered and acted upon by the shareholders at
the Meeting require approval by the affirmative vote of at least a majority of
the valid votes cast.
Proxies
If the enclosed form of proxy is executed and returned, it may nevertheless
be revoked at any time before it has been exercised; but it if is not revoked,
the Shares represented thereby will be voted by the persons designated in such
proxy. Shares represented by the proxies received will be voted in favor of (i)
the election of all nominees for directors, (ii) approval of the appointment
of Dudley, Hopton-Jones, Sims & Freeman, PLLP, as independent auditors of the
Company for the year ending December 31, 1998, and (iii) in the best judgment of
such proxies as to any other matters which may come before the Meeting.
<PAGE> 3
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of January 31, 1998, certain informat-
ion with respect to all those known by the Company to be beneficial owners of
more than 5% of the Company's outstanding common stock, all Company directors,
all nominees for directors, and all directors, nominees for directors and
officers of the Company as a group.
<TABLE>
<CAPTION>
Number of
Shares of
Common Stock Percent of
Beneficially Outstanding
Name and Address Owned Common Stock
C. K. Copeland 9,000 0.44
Trafford, AL
Bryan A. Corr 75,681(1) 3.73
Oneonta, AL
Glynn Debter 3,400 0.16
Horton, AL
Edward Ferguson 5,714 0.28
Blountsville, AL
Denny Kelly 27,832 (2)(3) 1.37
Blountsville, AL
John J. Lewis, Jr. 4,782 0.24
Blountsville, AL
Stacey W. Mann 11,490 (2)(4) 0.57
Oneonta, AL
Loy McGruder 12,109 (2)(5) 0.60
Huntsville, AL
Hodge Patterson, III 24,465 (2)(6) 1.20
Hartselle, AL
Kennon R. Patterson, Sr. 230,148 (2)(7) 11.33
Boaz, AL
Kennon R. (Chip) Patterson, Jr. 26,862 (2)(8) 1.32
Boaz, AL
Merritt Robbins 71,000 3.49
New Hope, AL
Robert O. Summerford 35,100 (9) 1.73
Falkville, AL
<PAGE> 4
Henry Sims 1,050 0.05
Pulaski, TN
Bishop K. Walker, Jr. 123,368 (2)(10) 6.07
Union Grove, AL
R.Wayne Washam 5,201 0.26
Arab, AL
First National Bank of Commerce 250,025 (11) 12.31
as Trustee of the Community
Bancshares, Inc. Employee
Stock Ownership Plan ("ESOP")
All Company directors, nominees 668,312 32.90
for directors, and officers as
a group
_________________________
(1) Includes 60,000 shares held by Oneonta Telephone Co. Inc.,
Mr. Corr is Chairman and a controlling shareholder.
(2) Includes 2,219 shares as a fractional portion of shares held by
Community Investments, a partnership composed of ten individuals,
of which the director is a partner
(3) Includes 5,868 shares allocated to Mr. Kelly's ESOP account through
December 31, 1996.
(4) Includes 5,138 shares allocated to Mr. Mann's ESOP account through
December 31, 1996.
(5) Includes 3,455 shares allocated to Mr. McGruder's ESOP account through
December 31, 1996.
(6) Includes 4,154 shares allocated to Mr. Patterson's ESOP account through
December 31, 1996.
(7) Includes 15,172 shares allocated to Mr.Patterson's ESOP account through
December 31, 1996.
(8) Includes 2,023 shares allocated to Mr. Patterson's ESOP account through
December 31, 1996.
(9) Includes 21,100 shares held by Summerford Nursing Home and 7,000
shares held by Summerford Drugs of which Mr. Summerford is Chairman,
President and a controlling shareholder.
(10) Includes 5,200 shares allocated to Mr. Walker's ESOP account through
December 31, 1996.
(11) Voting power for shares allocated to participants in the ESOP is
exercised by the participants. The ESOP Committee directs the voting
of unallocated shares.
<PAGE> 5
ELECTION OF DIRECTORS
At the annual meeting of shareholders on March 26, 1996, the shareholders
approved an amendment to the by-laws of the Company providing for a classified
board of directors consisting of three classes with the term of office of each
class expiring in successive years.The Company s by-laws provide that the number
of directors will be fixed from time to time by the vote of the directors.
The current number of directors has been fixed at eighteen. The terms of
the Class II directors expire at this Annual Meeting. The terms of Class III
directors will expire at the 1999 Annual Meeting. The Board of Directors is
recommending the re-election of those persons currently serving as Class II
directors. Each of the Class II directors elected at this Annual Meeting
will serve three year terms expiring at the 2001 Annual Meeting of Shareholders
or until his respective successor is elected and qualified. It is intended
that unless Withhold Authority is noted as to all or some of the nominees,
proxies in the accompanying form will be voted at the Annual Meeting for the
election of the nominees named below for the term indicated.
Management proposes to nominate Glynn Debter, John J. Lewis, Jr., Loy
McGruder, Kennon R. (Chip) Patterson, Jr., and Bishop K. Walker, Jr., for
election as directors to hold office until expiration of their term and until
their successors shall have been elected and qualified. It is intended that the
persons named in the proxy will vote for the election of these persons.
Management believes that all of the nominees will be available and able to
serve as directors, but if for any reason any of these persons should not be
available or able to serve, the proxies may exercise discretionary authority to
vote for substitutes proposed by the Company's Board of Directors.
C.K. Copeland, Stacey W. Mann, Hodge Patterson, III, and Robert O. Summerford
were elected by the shareholders at the last Annual Meeting. Directors Kennon
R. Patterson, Sr. and Hodge Patterson, III, are brothers. Kennon R. Patterson,
Jr.,is the son of Kennon R. Patterson,Sr.,and the nephew of Hodge Patterson,III.
Edward Ferguson is the brother-in-law of Kennon R. Patterson, Sr.
The directors and nominees for directors and the executive officers of
the Company, their ages, length of tenure as directors and as officers,
positions held in the Company and its Subsidiaries and their principal
occupation or employment during the last five years are as follows:
<PAGE> 6
<CAPTION>
Director
Name, Age and Position Held in of Company Principal Experience
the Company and Its Subsidiaries Since During Past Five Years(1)
<S> <C> <C>
Kennon R. Patterson, Sr. (55) 1983 Chairman, CEO and President
Chairman, President, and Chief Executive of the Company since 1983;
Officer of the Company; Chairman and Chief Executive Officer and President
Chief Executive Officer of Community Community Bank since 1983; Chairman
Bank; Chairman of Community of Community Bank since 1984;
Bank; Director of Community Chairman of Community Bank
Appraisals, Inc.; Director of Community since 1993 - 1997.
Insurance Corp.; Director of 1st Community
Credit Corporation
Denny Kelly (58) 1986 Director of Community Bank
Director of the Company; Director since 1985: President of Community
and President of Community Bank since 1993; Executive
Bank, Director of 1st Community Vice President of Community Bank
Credit Corporation 1985 - 1993.
Bishop K. Walker, Jr. (66) 1983 Director of the Company since
Director, Vice Chairman, Secretary, since 1983;Director of Community Bank
Executive Vice President, General since 1984;Vice President and General
Counsel of the Company; Director and Counsel of the Company since 1987;
Secretary of Community Bank; Senior Vice President and General Counsel
Chairman of Community of Community Bank,1987-1993; President
Insurance Corp; Director of Southern and Director of Community Insurance Corp.
Select Insurance, Inc. 1987-1997.
Hodge Patterson, III (42) 1993 Director of the Company since 1993;
Director of the Company; Vice Sr.Vice President of Community Bank
Chairman, Director and Executive 1988 - 1993; Vice-Chairman, Chief
Vice President of Community Bank; Executive Officer and President
Director of Community Appraisals, Inc. of Community Bank(Tennessee)1993-1997.
C. K. Copeland (74) 1996 Self-employed agriculture operations.
Director of the Company; Director of Community Bank since
Director of Community Bank; 1993.
Director of Community Insurance
Corporation
Glynn Debter (63) 1996 Owner - Operator Debter Farms.
Director of the Company;
Director of Community Bank;
Director of Community
Appraisals, Inc.
<PAGE> 7
</TABLE>
<TABLE>
<S> <C> <C>
Loy McGruder (57) 1996 Director of Community Bank since 1995;
Director of the Company; Executive Vice President of Community
Director and Executive Vice Bank since 1994; Sr. Vice President
President of Community Bank; of Community Bank 1993-94, City
Director of Community Insurance President of Community Bank -- New
Corp. Hope, 1987 - 1993.
Merritt Robbins (59) 1996 Owner-Operator of Piggly Wiggly
Director of the Company; Director Stores
of Community Bank; Director
of 1st Community Credit Corporation
Robert O. Summerford (67) 1996 Owner-operator of Summerford Nursing
Director of the Company; Director Home.Owner-operator of Summerford Drugs.
of Community Bank; Director
of Community Appraisals, Inc.
Wayne Washam (61) 1996 Retired; Assistant Superintendent of
Director of the Company; Director Arab City Schools 1992-1996;Director of
of Community Bank; Director of of Community Bank since 1993.
1st Community Credit Corporation
Bryan A. Corr (37) 1997 Director and President Oneonta Telephone
Director of the Company; Director Company, 1987 - present; Director and
Community Bank; Director of President of North Alabama Cellular,
Community Insurance Corporation 1992 - present.
Edward Ferguson (55) 1997 President of 1st Community Credit Corp.
Director of the Company; Director since 1995; Vice President of Security
of Community Bank; Chairman Mutual Financial Services,Inc.1993- 1995;
and President of 1st Community Sr Manager of Security Mutual Finance
Credit Corporation Corp., Inc., 1976 - 1993.
John J. Lewis, Jr. (50) 1997 Various positions with Tyson Foods,
Director of the Company; Director Inc., 1986 - present
of Community Bank; Director
of Community Appraisals, Inc.
Stacey W.Mann (45) 1997 Sr. Vice President of Community Bank
Director of the Company; Director 1986 - 1996; Executive Vice
and Executive Vice President of President of Community Bank
Community Bank; Director 1997-present
of 1st Community Credit Corporation
<PAGE> 8
</TABLE>
<TABLE>
<S> <C> <C>
Kennon R. (Chip) Patterson, Jr. (31) 1997 Sr. Vice President of Community Bank
Director of the Company; Director 1996 - 1997; Executive
and Executive Vice President of Vice President of Community Bank
of Community Bank; Director 1997-present
of 1st Community Credit Corporation
Henry Sims (74) 1997 Retired, Director of Tennessee
Director of the Company; Director Technology Center,Pulaski,Tennessee,
of Community Bank 1982-1997; Director of Community
Bank (Tennessee), 1993 - 1997.
________________________________________________
The individuals listed above have been employed during the past five years
either in the principal occupations shown or in other executive positions with
the Company or one of its Subsidiaries.
All directors of the Company hold office for three year terms unless
they sooner resign, become disqualified, or are removed. The officers of
the Company are elected annually by the directors and serve until their
successors are elected and qualified or until their earlier resignation,
removal or disqualification.
Messrs. Kennon R. Patterson, Sr. and Bishop K. Walker, Jr. are executive
officers of the Company.
In 1997, the Board of Directors held 12 regular meetings and one special
meeting. All incumbent directors of the Company attended 75% or more of the
meetings of the Board and the committees on which they served.
DIRECTOR ATTENDANCE AND FILINGS
The Company's Board of Directors has five committees. The Executive Committee
consists of Denny Kelly, Kennon R.Patterson, Sr., Merritt Robbins, Bishop K.
Walker, Jr., and Wayne Washam of the Board of Directors. The Executive
Committee reviews the personnel and policies of the Company. This Committee
held no meetings in 1997.
The ESOP and Pension Plan Administrative Committee is comprised of Kennon R.
Patterson, Sr., Bishop K. Walker, Jr., Stacey W. Mann and Dicey Childers. The
committee is scheduled to meet annually, and manages the Company's Employee
Stock Ownership Plan and Pension Plan. This committee held two meetings in
1997. See "Executive Compensation - ESOP" and "Executive Compensation - Pension
Plan".
<PAGE> 9
The Nominating Committee consists of C.K. Copeland, Glynn Debter, Loy McGruder,
Hodge Patterson, III, and Robert O. Summerford. The Nominating Committee
recommends for Board approval persons to fill any vacancies on the Board of
Directors and Directors for nomination and election at the Annual Meeting of
Shareholders. This Committee held two meetings in 1997.
During 1997, it was determined that certain directors may have
failed to timely file reports regarding initial ownership as required by
Section 16(a) of the Securities Exchange Act of 1934. Reports were submitted
for all directors. The Company has relied on the representations of its
directors and executive officers for this disclosure.
The Executive Compensation Committee annually reviews all officer salaries
and makes recommendations to the Board for salary adjustments of all officers of
the Company and its two bank subsidiaries. This Committee held one meeting in
1997. See "Board Compensation Committee".
<PAGE> 10
EXECUTIVE COMPENSATION
The table shows the cash compensation paid by the Company and its Subsidiaries
during 1997 to the Chief Executive Officer and the other four most highly
compensated executive officers receiving $100,000 or more in cash compensation.
Annual Compensation
Name and Other Annual
Principal Position Year Salary Bonus Compensation (1)
Kennon R. Patterson, Sr. 1997 495,000 165,000 34,600
Chief Executive Officer 1996 450,000 150,000 32,400
1995 450,000 100,000 20,400
Bishop K. Walker, Jr. 1997 225,000 50,000 27,750
General Counsel 1996 150,000 60,000 26,000
1995 150,000 50,000 18,000
Denny Kelly 1997 150,000 30,000 27,000
President - Community Bank 1996 130,000 50,000 26,000
1995 100,000 50,000 18,000
Hodge Patterson, III 1997 150,000 30,000 28,600
Executive Vice President - 1996 120,000 50,000 28,400
Community Bank 1995 82,000 25,000 9,150
Loy McGruder 1997 125,000 30,000 27,000
Executive Vice President - 1996 95,000 35,000 26,000
Community Bank 1995 85,000 25,000 - 0 -
_________________________________________
(1) Director's fees of $1000 per month paid as director of the Company
and $1000 per month paid as director of Community Bank, an Alabama subsidiary
of the Company. Messrs. Patterson each received director's fees of $200 per
month paid as director of Community Bank, a Tennessee subsidiary of the Company.
Each named person also receives $250 per month for service as a director of
either Community Appraisals, Inc., Community Insurance Corp., 1st Community
Credit Corporation, or Southern Select Insurance, Inc., all of which are
subsidiaries of Community Bank (Alabama). Mr. Kennon R. Patterson, Sr., serves
as a director of all of these companies except Southern Select Insurance, Inc.
Directors C.K. Copeland, Bryan Corr, Glynn Debter, Merritt Robbins, Henry
Sims, Robert O. Summerford and R. Wayne Washam each received additional
director fees of $5,000.00. Directors receive no fees for attending committee
meetings. Directors receive monthly fees regardless of their attendance at
meetings, provided that they attend at least 75% of the meetings of the boards
and of all committees on which they serve during the year. Total fees of
$456,550 were paid to all Company directors for service in 1997, including
fees received by such persons from Subsidiaries.
<PAGE> 11
On December 7, 1993, Community Bancshares' Board of Directors authorized
and entered into a ten-year employment contract with Kennon R. Patterson, Sr.
and a five year employment contract with Bishop K. Walker, Jr. These contracts
provide each employee with three weeks of paid vacation annually, a suitable
automobile, reimbursement of reasonable business and professional expenses,
including normal and customary professional and educational meetings, and
memberships in such civic and social clubs determined to be in the best
interest of the employer and such employees. The Board of Directors authorized
and entered into a new ten-year employment contract with Kennon R. Patterson,
Sr. and a five year employment contract with Bishop K. Walker, Jr. on December
9, 1995, effective January 1, 1996. On March 28, 1996, the Board of Directors
entered into a twelve year employment contract with Kennon R. Patterson, Sr.,
with the same provisions as previously stated.
<PAGE> 12
OPTION/SAR GRANTS IN LAST FISCAL YEAR
---------------------------------------------------------------------------
Individual Grants Potential
realizable value
at assumed annual
rates of stock price
appreciation for
option term
-----------------------------------------------------------------------------
Name Options/SARs Percent of total Exercise or Expiration 5% 10%
Granted (#) Options/SARs base price date
granted to ($/Sh)
employees in
fiscal year
- -------------------------------------------------------------------------------
Kennon R. Patterson, Sr. 2,000 3.88% $25.00 3/26/02 $31.91 $40.26
Chief Executive Officer
Bishop K. Walker, Jr. 1,500 2.91 25.00 3/26/02 31.91 40.26
General Counsel
Denny Kelly 1,000 1.94 25.00 3/26/02 31.91 40.26
President
Community Bank
Hodge Patterson, III 1,000 1.94 25.00 3/26/02 31.91 40.26
Executive President
Community Bank
Loy McGruder 1,000 1.94 25.00 3/26/02 31.91 40.26
Executive Vice President
Community Bank
<PAGE> 13
LONG TERM COMPENSATION ALL OTHER
COMPENSATION(1)
Name and
Principal Position Year Options
Kennon R. Patterson, Sr. 1997 2,000 11,000
Chief Executive Officer 1996 26,000 50,000
1995 7,500
Bishop K. Walker, Jr. 1997 1,500 3,839
General Counsel 1996 18,000 3,839
1995 1,839
Denny Kelly 1997 1,000 1,800
President Community Bank 1996 11,000 1,800
1995 1,800
Hodge Patterson, III 1997 1,000 1,800
Executive Vice President 1996 10,000 1,800
Community Bank 1995 1,800
Loy McGruder 1997 1,000 1,800
Executive Vice President 1996 9,000 1,800
Community Bank 1995 1,800
(1) The amounts in this column represent premiums paid by the Company or
its subsidiaries for a life insurance policy or payments to the director
in lieu thereof. Mr. Kennon R. Patterson,Sr. and Mr. Bishop K. Walker,Jr.
received cash payments for the purpose of a policy in lieu of payment of
premiums by the Company.
<PAGE> 14
BOARD COMPENSATION COMMITTEE
The Company has an Executive Compensation Committee consisting of Hodge
Patterson, III, Wayne Washam, Denny Kelly, Merritt Robbins, and Bryan Corr,
which sets executive compensation including bonuses. The Executive Compensation
Committee's policies are to evaluate the Company's performance as to growth,
asset composition, rate of return, and profitability on a peer group basis
and on an internal year-to-year basis comparing the Company's current year
performance to prior years' performance.
In reviewing Chairman Patterson's compensation for 1997, the Board
ompensation Committee considered the factors set forth in its policies.
During 1997, the Company expanded its geographical market through acquisitions
and new locations.In addition to the expansion of the area served, Mr.
Patterson's management leadership in the development of new business products
and service were a key factor in the continued growth in assets and
profitability of the Company.
By The Executive Compensation Committee
Hodge Patterson, III Denny Kelly Merritt Robbins
Wayne Washam Bryan Corr
COMPARATIVE STOCK PERFORMANCE
</TABLE>
<TABLE>
<CAPTION>
Community
Bancshares NASDAQ AMEX
(Dollars in thousands)
------------------------------------------------------------
<S> <C> <C> <C>
1992 $ 100 $ 100 $ 100
1993 176.47 129.37 119.32
1994 294.12 130.80 118.63
1995 236.86 189.41 137.32
1996 274.66 238.95 146.10
1997 362.15 390.90 171.48
</TABLE>
The graph compares the cumulative shareholder return on the Common Stock of
the Company for the previous five fiscal years with the cumulative total
return of the NASDAQ Bank Index and the American Stock Exchange Index as
published in "The Wall Street Journal".
<PAGE> 15
STOCK OPTION AND OTHER EMPLOYEE BENEFIT PLANS
At present, the Company has no employee benefit plans except its pension
plan, the informal bonus policy plan, its employee stock ownership plan
("ESOP"), the Benefit Restoration Plan and stock options. The ESOP was
established in 1985 for purposes of providing an additional benefit to
employees, increasing their ownership interest in the Company and raising
capital to provide for the Company's future growth and debt service. The
Company contributed $289,147 to the ESOP in 1997, which was used to apply to the
indebtedness incurred by the ESOP and to make payment to certain participants
in the ESOP who received cash payments under the provisions of the ESOP.
PENSION PLAN
Summary of Plan Coverage
The Revised Pension Plan (the "Pension Plan") is a noncontributory defined
benefit pension plan that may provide retirement, disability and death
benefits for eligible employees of Community Bank and other employees of
a participating employer. Employees who are expected to work 1,000 hours in
the calendar year for a participating employer become participants in the
Pension Plan on January 1 following their date of employment. As described
below, benefits under the Pension Plan depend upon a participant's years of
credited service with the employer and his highest average monthly earnings
for the five consecutive year period out the 10-year period prior to his
retirement or termination of employment. An employee who completes 10 years
of service and attains age 55 is eligible for early retirement benefits.
During 1995, the Plan was amended to provide that participants in the Pension
Plan prior to November 1, 1995, would receive a 20 percent vested right after
two years of service, 40 percent after three years, 60 percent after four years,
and 100 percent after five years. Participants entering the Plan on or
after November 1,1995, receive no vested benefit prior to five years of credited
service but are 100 percent vested after five years of credited service.
Community Bancshares, Inc., and other participating employers provide all
funds necessary to pay the costs of the Pension Plan, which are determined by
independent actuaries for the Pension Plan. The benefits have been funded
through a trust which was established with Central Bank of the South,as trustee,
to accept and administer pension trusts. On July 9, 1996, the board of
directors appointed First National Bank of Commerce as successor trustee.
Criteria for Determining Amounts Payable
The monthly retirement income available to a participant who lives to
the normal retirement date (the first day of the month coincident with or
following a participant's 65th birthday) is one and one half percent (1.5%) of
the participant's average monthly earnings multiplied by his years of credited
service. Monthly earnings are based upon a participant's pay including
bonuses, overtime or other forms of extraordinary compensation.A participant's
average monthly earnings is based on the highest average of his or her earnings
in the five consecutive calendar years out of the last 10 years preceding his
retirement or termination of employment. A participant receives one year of
credited service for each plan year (i.e., a calendar year) during which he
performs 1,000 hours or more with Community Bank or its participating
affiliates.
<PAGE> 16
There is a minimum benefit available to a participant equal to
the lesser of (a) 2% of Top Heavy Compensation multiplied by the participant's
number of years of Top Heavy Service or (b) 20% of Top Heavy Compensation.
A participant may elect early retirement if he or she is age 55 or more and
is credited with 10 or more years of service. In such event, the monthly
retirement income benefit is reduced 1/180 for each of the first 60 months and
1/360 for each of the next 60 months by which his early retirement precedes his
normal retirement date.
A participant electing late retirement continues to receive credit for
his or her additional years of service and monthly earnings up to his or her
actual retirement.The participant will receive the greater of the amount just
described or the actuarial value of the benefit earned at normal retirement
date.
Death benefits are payable to a surviving spouse in the event a participant
(or former participant) with 2 or more years of credited service dies prior
to the commencement of benefits. Generally, the benefit is based on the
participant's earned vested benefit at death and equals the amount the
spouse would have received (under the joint and 50% survivor option) on the
earliest retirement date upon which the participant could have received benefits
and is payable at the time the participant would have commenced such benefits.
Form of Benefits
The normal form of benefit for a married participant is a joint and
50% survivor annuity, and for an unmarried participant is a life annuity.
The consent of the spouse of a married participant is needed to elect an
alternative form of payment. Alternative forms of benefit include a life
annuity with a guarantee of 240 monthly payments, a guaranteed number of
payments up to 240 with no lifetime guarantee, and a joint and survivor annuity
with the survivor annuity payable to a designated beneficiary in a fractionally
smaller amount.
Estimated Payment Schedules
Average Amount of Estimated Annual Pension for Representative
Compensation for Years of Credited Service (2)
Last 5 Years 10 20 30 40
Before Retirement (1) Years Years Years Years
$ 25,000 $ 5,000 $ 7,500 $ 11,250 $ 15,000
50,000 10,000 15,000 22,500 30,000
75,000 15,000 22,500 33,750 45,000
100,000 20,000 30,000 45,000 60,000
250,000 50,000 75,000 112,500 150,000
500,000 100,000 150,000 225,000 300,000
1,000,000 200,000 300,000 450,000 600,000
__________________________________________
(1) It has been assumed that compensation is equal to Top Heavy
Compensation (i.e., base pay equal to W-2 earnings). These calculations
do not reflect any maximum benefits imposed by the Internal Revenue
Service under IRS Section 415.
(2) Total Credited Service as of January 1, 1998 was 15 years for Kennon R.
Patterson, Sr., 11 years for B.K. Walker, Jr.,12 years for Denny
Kelly, 11 years for Hodge Patterson, III, and 11 years for Loy McGruder.
<PAGE> 17
The Pension Plan has been amended effective January 1, 1989, and in order to
comply with the Tax Reform Act of 1986.
ESOP
The ESOP was established on December 20, 1985, effective as of January 1,1985,
and is qualified as an "employee stock ownership plan" within the meaning
of Section 407(d)(6) of the Employee Retirement Income Security Act of 1974
("ERISA"). The purposes of the ESOP include providing an additional
benefit to employees, giving participants an ownership interest in the Company,
and supporting the Company's growth and debt service. The principal investment
of the Trust established under the ESOP is Company common stock. The ESOP
consists of both an employee stock ownership plan within the meaning of Section
4975(e) of the Internal Revenue Code of 1986, as amended ( the"Code") and,
prior to 1987, a tax credit (employee stock ownership plan ("PAYSOP") under
Section 409 of the Code.
Each employee of the Company and its Subsidiaries is eligible to participate
in the ESOP on December 31 following the completion of one year of service.
A year of service is a Plan Year (i.e., the calendar year) in which the
employee is credited with 1,000 hours of service. An hour of service is
generally an hour for which an employee is paid or entitled to payment. An
employee who fails to meet this requirement by December 31 shall be eligible
to participate in the ESOP on the first day after he completes a year of
service in either the 12-month period following his employment commencement
date, or thereafter the Plan Year following his employment commencement
date. The amount to be contributed to the ESOP each year is determined by the
Company's Board of Directors from profits. Contributions can be made in
either cash or stock. Participants are not required to contribute to the ESOP
nor are they permitted to make voluntary contributions.
The ESOP is managed by an ESOP Administrative Committee appointed by the
Company's Board of Directors.Messrs. Kennon R. Patterson, Sr., and J. K.
Cornelius served as trustees of the ESOP but resigned in July 1986 and were
succeeded by Central Bank of the South. On July 6, 1996, First National Bank of
Commerce was elected as successor Trustee to Compass Bank formerly known as
Central Bank of the South (the "Trustee").The Trustee is directed to invest
contributions in Company stock or temporarily in cash. The Trustee is also
authorized to incur loans to finance purchases of Company Shares and to use
such stock as collateral for such financing. At the direction of the ESOP
Administrative Committee, the Trustee entered into an ESOP loan from an
unrelated bank on November 3, 1993 and borrowed $1,200,000 to purchase 80,000
Shares from the Company at $15.00 per Share. ESOP contributions by the Company
during 1997 were applied to the service of this debt and to make payment to
certain plan participants entitled to distributions from the ESOP. At the end
of 1997, the amount of the indebtedness was $2,002,902, repayment of
which was secured by the pledge of 102,305 Company Shares. ESOP shares pledged
as collateral are released by the unrelated bank monthly as the debt is serviced
by the Company.
Accounts are maintained for each ESOP participant. Contributions by the
Company are allocated to the accounts of the participants based on their
relative amounts of compensation for the year. Forfeitures under the ESOP
are allocated in the same manner as contributions. Participants must be
credited with 1,000 hours of service and be employed on the last day of the
Plan Year to share in contributions and forfeitures, except in the event of
retirement, death or disability.
As to Shares allocated to each ESOP participant's account, the participant
is entitled to direct the Trustee as to voting such Shares. Otherwise,
all Shares held by the ESOP shall be voted in the manner determined by the
ESOP Administrative Committee to be in the best interests of
participants and beneficiaries.
<PAGE> 18
A participant becomes entitled to the full amount in his ESOP account
if he attains the normal retirement age of 65, dies or becomes disabled.
If termination is due to other reasons, a participant is entitled to the
vested portion of his account in the ESOP determined in accordance with a
vesting schedule. During 1995, the ESOP was amended to provide that participants
prior to November 1, 1995, would receive a 20 percent vested right after two
years of service, 40 percent after three years, 60 percent after four years,
and 100 percent after five years. Participants entering the ESOP on or
after November 1, 1995, receive no vested benefit prior to five years of
credited service but are 100 percent vested after five years of credited
service. A participant receives a year of credited service for each Plan
Year in which he has at least 1,000 hours of service. Years of service
before the effective date of the ESOP are recognized for vesting service. A
participant is always 100% vested as to amounts contributed previously under
the PAYSOP.
After a participant's retirement, disability or death, distribution of his
account normally will be made in a lump sum. Distribution will be in stock or
cash or both, but if it is cash, the participant will be informed of his right
to demand stock. In the event of termination for reasons other than retirement,
death or disability, distribution occurs after a break in service and will be
a lump sum. A break in service is a Plan Year in which the participant is
credited with less than 500 hours of service.The Company Shares to be
distributed are subject to a right of first refusal. Before the stock can be
sold, it must first be offered to the Trustee at its fair market value. The
Trustee must also offer put options to participants who receive distributions of
shares from the ESOP Trust.
BENEFIT RESTORATION PLAN
On April 12, 1995, the Board of Directors authorized the establishment of the
Community Bancshares, Inc. Benefit Restoration Plan (the "Benefit Restoration
Plan"). Section 401 of the Internal Revenue Code of 1987 imposes maximum
limitations on the amount of employee compensation that can be taken into
account for determining qualified retirement plan benefits. Section 415 of
the Internal Revenue Code of 1987 imposes maximum benefits that can be paid
from a qualified retirement plan. The Company's Pension Plan is a qualified
retirement plan under the Internal Revenue Code.
The Benefit Restoration Plan provides retirement benefits to participants
whose compensation or benefit payment exceeds the maximum amounts allowed
for qualified retirement plans. Payments under the Benefit Restoration Plan
are payable to the recipient in the same manner as they would be paid under the
Pension plan disregarding the applicable limitations of the Internal
Revenue Code of 1987. If any lump sum actuarial equivalent of any benefits
ayable to a recipient is $10,000 or less, the plan administrative committee may
direct payment to the appropriate recipient in a lump sum. Vesting is
in accordance with the vesting schedule under the provisions of the Pension
Plan.
The Benefit Restoration Plan is effective January 1, 1995, and presently has
four named participants although not all participants have reached either
the compensation limit or benefit limit imposed by the Internal Revenue Code
of 1987 for qualified retirement plans. The named participants are
Kennon R. Patterson, Sr., Bishop K. Walker, Jr., Denny Kelly and Hodge
Patterson, III. The Company accrued $154,075 to fund the Benefit Restoration
Plan during 1997.
<PAGE> 19
CHANGE IN CONTROL COMPENSATION AGREEMENTS
During 1996 the Company entered into Change in Control Agreements with Kennon
R. Patterson, Sr., Bishop K. Walker, Jr., Denny Kelly, Hodge Patterson, III,
and Loy McGruder. Each of the agreements provide that if employment is
terminated within thirty months following a Change in Control (as defined) for
reasons other than for cause (as defined), each person is entitled to receive
a cash payment in an amount equal to thirty months of his base salary plus an
amount equal to the amount of bonuses that would have been payable to the
employee for the next thirty months computed on the basis of the prior two
years bonuses to such employee . The agreements further provide for
continued credited service in the Company s retirement plans and for continuing
health insurance coverage. Each employee is also entitled to such payments
and benefits if he terminates his employment within thirty months after a
Change in Control due to a reduction in salary or responsibilities, assignment
of duties inconsistent with his position, or a mandatory transfer of residence
more than fifty miles from his then current residence.
STOCK OPTIONS
The Company granted Stock Options as a form of long-term compensation
for Directors and to further establish incentive for the directors to increase
the value of the Company to shareholders since the exercise of the options will
be of greater reward to the Directors with a greater increase in the stock
trading price.The grant of Stock Options is a common compensation method
by financial institutions and other business entities and allows the Company to
be competitive in obtaining and retaining Directors.
The options to purchase the Company s stock that were granted in 1997 were
issued at 100 percent of the fair market value of the Company s stock on the
date of the grant. The options are exercisable immediately and expire five
years after the date of the grant with special provisions in the event of
the grantee s death.
CERTAIN TRANSACTIONS
Some Company and Subsidiary directors, officers and principal shareholders
and their associates were customers of, or had transactions with, the Company
or its Subsidiaries in the ordinary course of business during 1997. Some of
the directors of the Company or its Subsidiaries are directors, officers,
trustees or principal securities holders of corporations or other
organizations which also were customers of, or had transactions with, the
Company or its Subsidiaries in the ordinary course of business during 1997.
Except as noted below, all outstanding loans and other transactions
with Company or Subsidiary directors, officers and principal shareholders,
including, without limit, those discussed herein, were made in the ordinary
course of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions
with other persons and, when made, did not involve more than the normal risk
of collectability or present other unfavorable features. In addition to banking
and financial transactions, the Company or its Subsidiaries may have had
additional transactions with, or used products or services of, various
organizations of which directors of the Company or its Subsidiaries are
associated. Except as noted in the following paragraphs, the amounts
involved in such noncredit transactions have in no case been material in
relation to the business of the Company, its Subsidiaries or such other
organizations. It is expected that the Company and its Subsidiaries will
continue to have similar transactions in the ordinary course of its
business with such individuals and their associates in the future.
<PAGE> 20
The aggregate amount of credit outstanding to all Company and Subsidiary
directors, nominees for directors, executive officers and principal
shareholders who were indebted to the Company or any of its Subsidiaries in
an amount in excess of $60,000 totalled approximately $3,784,892 at December
31, 1997. This amount represented approximately 10.52 percent of the Company's
total shareholders' equity on that date.
On October 2, 1994, the Company purchased 115,978.384 shares held by
Jeffrey K. Cornelius, a former director of the Company. The Company
purchased the Shares to maintain the Company's current successful policies and
to preserve goodwill and harmonious relations in the communities, and among
the customers, served by the Company. These Shares represented approximately
6.43% of the Company's outstanding Common Stock. Payment to Mr. Cornelius was
made from cash on hand with the balance of $2,000,000 to be paid over a period
of 20 years pursuant to a subordinated capital note from the Company to Mr.
Cornelius. Such note bears interest on the outstanding principal amount
at a rate of 7.0% per annum, is payable in 240 equal monthly installments of
principal and interest, and may be prepaid in whole or in part at any time
without penalty. As of December 31, 1997, the principal indebtedness to Mr.
Cornelius was $1,837,201.
The Company had previously issued 11,692 shares of its Series 1984-1 8%
Cumulative Preferred Stock. The Company redeemed all the Preferred Shares
effective December 31, 1993, by establishment of an escrow account. Preferred
shareholders received payment of the stated value of $69.44 upon
surrender of their stock certificate to the Company. All certificates have been
surrendered to the Company.
During 1997, the company and its subsidiaries, entered into a service
contract with Heritage Valley Farms, owned by Kennon R. Patterson, Sr., a
director and officer of the Company, for the upkeep and maintenance of the
external grounds of the Company and its subsidiaries. Maintenance expense
under this contract for nineteen locations amounted to $96,300 for the year
ended December 31, 1997, which is an average cost of $422 per month per
location.
During 1997, the company, Community Bank (Alabama), Community Bank
(Tennessee) and 1st Community Credit Corporation paid Heritage Interiors, a
decorating and design firm owned and operated by the wife of Kennon R.
Patterson,Sr., a director and officer of the Company, for the interior
design, equipment, furniture, appliances, fixtures, carpets, wallcoverings,
drapes, and accessories for various Company and subsidiaries' facilities
consisting of $803,510.18 at the headquarters in Blountsville; $136,133.86
at the Oneonta bank office; $222.47 at Snead; $52.89 at West Blount;
$139,484.62 at Cleveland; $196.10 at Arab; $1,957.09 at Gurley; $ 359.22
at New Hope; $482.48 at Meridianville; $92.22 at Falkville; $1,686.94 at
Hartselle; $38.12 at Elkmont; $963.84 at Rainsville;$25,738.62 at Rogersville;
$810.00 at Haleyville; $8,661.33 at Double Springs; $41.98 at Hamilton;
$41.98 at Uniontown; $736.70 at Pulaski; Fort Payne Wal-Mart $8,617.12;
Guntersville Wal-Mart $1,504.11; Oneonta Wal-Mart $664.99; Hartselle
Wal-Mart $7,436.10. Total purchases were $1,139,432.96 for the Company and all
related organizations.
Com-Pac, a partnership composed of Kennon R. Patterson, Sr., Birl Bryson and
Bishop K. Walker, Jr., all of whom are shareholders, directors and officers
of Community Bancshares, Inc. and its banking subsidiary, Community Bank
(Alabama) and as a group control more than 5% of the common stock, entered
into a lease agreement with Community Bank (Alabama) to lease 1.2 acres
of land and a building of approximately 3,300 square feet located in
Meridianville, Madison County, Alabama. The building consists of an approved
vault, security equipment, a drive-in window, two remote drive-in
facilities, lobby, three private offices, six teller stations storage room
and restroom facilities with appropriate exterior paving, landscaping and
parking. Community Bank (Alabama) commenced paying monthly rental payments
of $5,373 per month on September 1, 1990. The lease to
<PAGE> 21
Community Bank(Alabama) provided an option to purchase the facility at any time
during the five-year lease at cost. In addition to lease payments,
Community Bank (Alabama) provides insurance coverage and is responsible for
payments of ad valorem taxes and maintenance. In accordance with the lease
agreement, Community Bank (Alabama) purchased the property from Com-Pac during
1995 for $500,630.
The Company during 1990 conveyed a lot and assigned leases on two
additional lots in the City of Hartselle, Morgan County, Alabama,to Com-Pac.
The sales price of the lot was $75,000.00 (the cost of the lot) and the two
leases which Com-Pac assumed presently call for monthly rentals of $400.00 and
$600.00. Com-Pac subsequently constructed a building and entered into a lease
agreement with Community Bank (Alabama) to lease the three lots and the
building. The building is approximately 3,300 square feet and consists of an
approved vault, security equipment, a drive-in window, two remote drive-in
facilities, lobby, three private offices, six teller stations, storage room
and restroom facilities with appropriate paving, landscaping and parking.
Community Bank (Alabama) commenced paying monthly rentals of $6,573 per month on
September 1, 1990. The lease to Community Bank (Alabama) provides an option to
purchase the facility at any time during the five year lease plus the
assumption of the two leases on the leased lots, or, in the event of purchase
of said lots, plus their cost (which is fixed under an agreement to purchase
and/or option to purchase at $75,000 for each lot upon certain happenings).
In addition to the lease payments, Community Bank (Alabama) provides insurance
coverage and is responsible for payment of ad valorem taxes and maintenance.
In accordance with the lease agreement, Community Bank (Alabama) purchased
the property from Com-Pac during 1995 for $592,476 and assumed the two leases on
the leased lots.
Both the Meridianville and Hartselle leases, with options to purchase between
Community Bank (Alabama) and Com-Pac were approved by the Board of Directors
with the abstention of Birl Bryson, Jeffrey K. Cornelius, Kennon R. Patterson,
Sr., and B.K. Walker, Jr. The leases by Com-Pac to Community Bank (Alabama)
were considerably more favorable to Community Bank (Alabama) than proposals
received by Community Bank (Alabama) from outside sources. The purchases of
the Meridianville and Hartselle properties were approved by the Board of
Directors with the abstention of Kennon R. Patterson, Sr. and B.K. Walker, Jr.
<PAGE> 22
APPROVAL OF APPOINTMENT OF AUDITORS
At the annual shareholder meeting held on March 27, 1997, the shareholders
elected Dudley, Hopton-Jones, Sims & Freeman, PLLP, ("Dudley") to be the
independent public accountants to audit the financial statements of the Company
and its subsidiaries for 1997.
A representative of Dudley is expected to be present at the annual meeting
and will have an opportunity to make a statement if he desires and to respond to
appropriate questions.
The Board of Directors recommends a vote FOR approval of the appointment
of Dudley as independent auditors for 1998.
SHAREHOLDER PROPOSALS
Any proposal which a shareholder of the Company intends to be presented
at the annual meeting of shareholders to be held in 1999 must be received by
the Company on or before November 25, 1998. Only proper proposals which are
timely received will be included in the proxy statement and form of proxy.
OTHER MATTERS
Management does not know of any matters to be brought before the Meeting
other than as described in this proxy statement. Should other matters
properly come before the Meeting, the persons designated as proxies will vote
in accordance with their best judgment on such matters.
EXPENSES OF SOLICITATION
The cost of soliciting proxies in the accompanying form will be borne by
the Company. In addition to the use of the mails, proxies may be solicited
by directors, officers or other employees of the Company or its subsidiaries
personally, by telephone or by telegraph. The Company does not expect to
pay any compensation for the solicitation of proxies, but may reimburse brokers,
custodians or other persons holding stock in their names or in the names of
nominees for their expenses in sending proxy materials to principals and
obtaining their instructions.
AVAILABILITY OF ANNUAL REPORT
A copy of the Annual Report and Form 10-K for the year ended December 31,
1997 will be mailed to each shareholder on March 6, 1998, and will be
provided with no charge to each Shareholder upon request at the annual
Stockholder's Meeting on March 26, 1998. Requests for such copies should be
directed to: Mr. Kennon R. Patterson, Sr., Chairman, Community Bancshares, Inc.,
P.O. Box 1000, Blountsville, Alabama, 35031.
<PAGE> 23
