<PAGE> 1
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, 1999
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 APRIL 30, 1999
--------------------- -----------------------------
COMMON STOCK, $.10 PAR VALUE 4,665,514
<PAGE> 2
INDEX
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ----------------------------- ----
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition - March 31, 1999
and December 31, 1998............................................................................ 3
Consolidated Statements of Income - Three months ended March 31,
1999 and 1998.................................................................................... 4
Consolidated Statements of Other Comprehensive Income - Three months
ended March 31, 1999 and 1998.................................................................... 5
Consolidated Statements of Cash Flows - Three months ended March 31,
1999 and 1998.................................................................................... 6
Notes to Consolidated Financial Statements - March 31, 1999...................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................................ 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................ 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................................. 18
Item 6. Exhibits and Reports on Form 8-K.................................................................. 18
</TABLE>
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Page Number
- -------------- ---------------------- -----------
<S> <C> <C>
10.1 Rights Agent Agreement between Community Bancshares, Inc.
and The Bank of New York, dated January 13, 1999 (1)
11 Computation of Earnings Per Share ............................................ 21
27 Financial Data Schedule (for the SEC use only)
(b) Reports on Form 8-K
</TABLE>
SIGNATURES
- ----------
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, December 31,
1999 1998
----------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash ............................................................. $ 7,240,411 $ 6,204,531
Due from banks ................................................... 11,995,939 19,348,639
Interest-bearing deposits with banks ............................. 950,000 950,000
Securities available for sale .................................... 95,866,751 97,391,609
Loans ............................................................ 444,336,087 435,000,601
Less: Unearned income ............................................ 899,346 1,147,965
Allowance for loan losses .................................. 2,869,080 2,970,597
------------- -------------
NET LOANS ................................................ 440,567,661 430,882,039
Premises and equipment, net ...................................... 30,624,155 29,545,798
Accrued interest ................................................. 5,839,993 5,991,588
Intangibles, net ................................................. 6,244,625 6,355,833
Other real estate ................................................ 361,325 699,014
Other assets ..................................................... 8,148,603 5,874,546
------------- -------------
TOTAL ASSETS ............................................. $ 607,839,463 $ 603,243,597
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing ........................................... $ 62,463,292 $ 62,562,296
Interest-bearing .............................................. 475,672,570 476,023,225
------------- -------------
TOTAL DEPOSITS ........................................... 538,135,862 538,585,521
Other short-term borrowings ...................................... 10,003,068 2,191,841
Accrued interest ................................................. 3,479,990 3,580,934
Long-term debt ................................................... 7,335,350 7,568,716
Other liabilities ................................................ 4,028,338 4,083,184
------------- -------------
TOTAL LIABILITIES ........................................ 562,982,608 556,010,196
Shareholders' equity
Preferred stock, par value $.01 per share, 200,000 shares
authorized, no shares issued ............................. -0- -0-
Common stock, par value $.10 per share, 20,000,000
shares authorized, 4,656,847 shares issued as of March 31,
1999 and 4,647,924 shares issued as of December 31, 1998 . 465,685 464,792
Capital surplus ............................................... 29,065,866 29,100,383
Retained earnings ............................................. 18,170,380 20,169,519
Unearned ESOP shares - 236,287 and 241,350 shares as of
March 31, 1999 and December 31,1998, respectively ........ (2,902,386) (2,944,232)
Accumulated other comprehensive income ........................ 57,310 442,939
------------- -------------
TOTAL SHAREHOLDERS' EQUITY ............................... 44,856,855 47,233,401
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............... $ 607,839,463 $ 603,243,597
============= =============
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1999 1998
----------- -----------
REVENUE FROM EARNING ASSETS
<S> <C> <C>
Interest and fees on loans ...................... $10,650,297 $ 8,146,115
Interest on investment securities:
Taxable securities .............................. 1,237,714 1,083,686
Securities exempt from federal income taxes ..... 212,343 177,370
Interest on federal funds sold .................. -0- 366,675
Interest on deposits in other banks ............. 37,288 20,438
----------- -----------
TOTAL REVENUE FROM EARNING ASSETS . 12,137,642 9,794,284
----------- -----------
INTEREST EXPENSE
Interest on deposits ............................ 5,744,087 5,130,244
Interest on other short-term borrowings ......... 122,542 29,280
Interest on long-term debt ...................... 150,308 147,507
----------- -----------
TOTAL INTEREST EXPENSE ............ 6,016,937 5,307,031
----------- -----------
NET INTEREST INCOME ................................. 6,120,705 4,487,253
Provision for loan losses ........................... 229,792 188,724
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . 5,890,913 4,298,529
NONINTEREST INCOME
Service charges on deposits ..................... 800,729 668,704
Insurance commissions ........................... 495,651 413,712
Bank club dues .................................. 172,701 147,338
Other operating income .......................... 397,393 348,151
Investment securities gains ..................... -0- 8,802
----------- -----------
TOTAL NONINTEREST INCOME .......... 1,866,474 1,586,707
----------- -----------
NONINTEREST EXPENSES
Salaries and employee benefits .................. 4,141,804 3,057,151
Occupancy expense ............................... 615,378 448,316
Furniture and equipment expense ................. 417,193 334,063
Director and committee fees ..................... 169,487 162,608
Other operating expenses ........................ 1,638,843 1,112,446
----------- -----------
TOTAL NONINTEREST EXPENSES ........ 6,982,705 5,114,584
----------- -----------
Income before income taxes .......................... 774,682 770,652
Provision for income taxes .......................... 188,228 211,202
----------- -----------
NET INCOME BEFORE MINORITY INTEREST 586,454 559,450
Minority interest in consolidated subsidiary ........ -0- 4,167
----------- -----------
NET INCOME ........................ $ 586,454 $ 555,283
=========== ===========
EARNINGS PER COMMON SHARE - BASIC ................... $ .13 $ .14
EARNINGS PER COMMON SHARE-ASSUMING DILUTION ......... $ .13 $ .14
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
--------- --------
<S> <C> <C>
Net income ................................................... $ 586,454 $ 555,283
Components of other comprehensive income:
Unrealized holding gains/(losses) arising during the period (642,715) 141,104
Reclassification adjustments for net (gains) losses included
in net income ............................................ -0- (8,802)
--------- ---------
Other comprehensive income/(loss) before income taxes ...... (642,715) 132,302
Income tax expense/(benefit) related to other
comprehensive income/(loss) .............................. (257,086) 52,921
--------- ---------
Total other comprehensive income/(loss) .................... (385,629) 79,381
--------- ---------
Comprehensive income ......................................... $ 200,825 $ 634,664
========= =========
</TABLE>
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See notes to consolidated financial statements
5
<PAGE> 6
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1999 1998
------------ ------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income ................................................... $ 586,454 $ 555,283
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses ............................... 229,792 188,724
Provision for depreciation and amortization ............. 535,223 440,572
Amortization of investment security premiums and
accretion of discounts ............................... 27,919 36,810
Deferred tax expense .................................... 49,532 16,773
(Gain)/loss on sale of premises and equipment ........... (2,462) 7,019
Realized investment security (gains) .................... -0- (8,802)
Increase in accrued interest receivable ................. 151,595 297,766
(Decrease)/increase in accrued interest payable ......... (100,944) 124,413
Other ................................................... (1,889,618) (1,623,180)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ....... (412,509) 35,378
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sales of investment securities - AFS ........... -0- 4,382,500
Proceeds from maturity of investment securities - AFS ........ 4,332,372 1,599,131
Purchase of investment securities - AFS ...................... (3,478,148) (3,384,403)
Decrease in interest-bearing deposits with other banks ....... -0- 859,580
Cash disbursed in acquisition of finance offices ............. -0- (6,543,108)
Net increase in loans to customers ........................... (9,915,414) (10,088,298)
Proceeds from sale of premises and equipment ................. 37,949 102,550
Net proceeds from sale of other real estate .................. 105,958 1,500
Capital expenditures ......................................... (1,537,859) (1,538,176)
------------ ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (10,455,142) (14,608,724)
------------ ------------
FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts,
and savings accounts ....................................... 1,236,352 11,438,579
Net (decrease)/increase in certificates of deposit ........... (1,686,011) 9,262,944
Net increase/(decrease) in short-term borrowings ............. 7,811,227 (1,079,547)
Issuance and sale of common stock ............................ 169,537 145,383
Repayment of long-term debt .................................. (191,520) (192,327)
Cash dividends ............................................... (2,788,754) (2,031,607)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ...... 4,550,831 17,543,425
------------ ------------
Net (decrease)/increase in cash and cash equivalents ............. (6,316,820) 2,970,079
Cash and cash equivalents at beginning of period ................. 25,553,170 46,251,978
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................... $ 19,236,350 $ 49,222,057
============ ============
</TABLE>
See notes to consolidated financial statements
6
<PAGE> 7
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest......................................................... $ 5,860,649 $ 5,182,618
Income taxes..................................................... 119,410 -0-
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
The Company acquired $374,000 in other real estate during the first quarter
of 1998 compared to none during the same period of 1999, as a result of
purchasing homes of employees under the Company's relocation program.
Upon the pledging of purchased shares to obtain additional ESOP debt of
$1,076,958 on December 1, 1998, long-term debt was increased and equity was
decreased . The debt was reduced by $41,847 and $31,111 during the three month
periods ended March 31, 1999 and 1998, respectively, as a result of payments
made by the Company's ESOP on the outstanding ESOP debt.
Net unrealized gains on investment securities available for sale declined
by $642,715 during the three months ended March 31, 1999.
[The remainder of this page intentionally left blank]
See notes to consolidated financial statements
7
<PAGE> 8
COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
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, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. 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, 1998.
NOTE B - INVESTMENT SECURITIES
At March 31, 1999 and December 31, 1998, the Company's investment securities are
categorized as available for sale and, as a result, are stated at fair value
based generally on quoted market prices. Unrealized holding gains and losses,
net of applicable deferred taxes, are included as a component of shareholder's
equity (Accumulated Other Comprehensive Income) until realized.
At March 31, 1999, the Company's available-for-sale investment securities
reflected net unrealized gains of $95,516, which resulted in an increase in
shareholders' equity of $57,310, net of deferred tax liability. The net decrease
in shareholders' equity as a result of the SFAS 115 adjustment from December 31,
1998 to March 31, 1999 was $385,629.
NOTE D - SHAREHOLDERS' EQUITY
Annual dividends of $.60 and $.50 per share were declared by the Company's Board
of Directors on its common stock and paid in January of 1999 and 1998,
respectively. In addition, a two-for-one stock split was declared by the
Company's Board of Directors in March 1998. 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 regulatory restrictions.
On March 28, 1996, the Company issued a total of 135,000 options to its
directors to purchase shares of the Company's common stock. The options were
issued to the directors based upon their years of service and their positions
with the Company. Each of the stock option agreements contained an exercise
price of $10.00 per share, the market value of the Company's common stock at the
time of issuance. The options are exercisable between April 1, 1996 and March
31, 2001. In March 1997, an additional 103,000 options were issued to the
Company's directors with an exercise price of $12.50 per share, the market value
of the Company's common stock at the time of issuance. These options are
exercisable between April 1, 1997 and March 31, 2002. In March 1998, 203,331
options were issued to directors and certain senior officers with an exercise
price of $15.00 per share, the market value of the Company's common stock at the
time of issuance. These options are exercisable between April 1, 1998 and March
31, 2003. Each of these options is treated as non-qualified options under the
provisions of the Internal Revenue Code. The agreements also contain a provision
whereby the Company will compensate the optionee in cash for any federal or
state tax liability incurred upon the exercise of the options.
8
<PAGE> 9
NOTE D - SHAREHOLDERS' EQUITY (CONTINUED)
These options are assumed to be exercised in the calculation of diluted average
shares of common stock outstanding, causing the equivalent average number of
shares outstanding on a diluted basis to be 109,877 greater than that used to
calculate basic earnings per share for March 31, 1999. Average shares
outstanding when assuming dilution were greater than average shares outstanding
for basic earnings per share by 42,075 for March 31, 1998.
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. An employee becomes a participant in
the ESOP on June 30 or December 31 after completing 12 months of employment
during which the employee is credited with 1,000 or more hours of service.
Contributions to the ESOP are made at the discretion of the Company's Board of
Directors, but may not be less than the amount required to cover the debt
service on the ESOP loan. Employer contributions are allocated to eligible
participants in proportion to their compensation, which equals W-2 wages plus
pre-tax reductions for the Company's cafeteria plan. The Internal Revenue Code
imposes a limit ($160,000 in 1998) on the amount of compensation which may be
considered under the ESOP.
On November 3, 1993, the ESOP's Trustees executed a promissory note of
$1,200,000 in order to purchase common stock in the Company's initial public
offering. The note was originally secured by 80,000 shares of purchased stock.
The promissory note has been refinanced in years subsequent to 1993 as
additional shares were purchased by the ESOP. On December 1, 1998, this note was
refinanced and an additional 56,682 shares of the Company's common stock were
purchased by the ESOP. This note, in the original principal of $2,963,842, was
secured by 261,433 shares of the Company's common stock. The note bears interest
at a floating rate, with principal and interest payments of $31,677 due monthly
through November 16, 2010, with the remaining principal, if any, due on that
date. The Company has guaranteed this debt and in accordance with the applicable
accounting and reporting guidelines the debt has been recognized on the
Company's balance sheet, with an offsetting charge against equity. As principal
payments are made by the ESOP, the debt and offsetting charge against equity are
reduced. The shares securing the note are released on a prorata basis by the
lender as monthly payments of principal and interest are made. As of March 31,
1999, there were 236,287 unreleased shares with a fair value, based on recent
trades at $24 per share, of approximately $5,671,000. 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 statements and reduce its shareholders' 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 ($55,344 and $41,795 during the first quarter of 1999 and 1998,
respectively) 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, 1999 and 1998, the Company's financial statements reflect long term
debt and a corresponding contra-equity account, as a result of the ESOP debt,
of $2,902,386 and $2,944,232, respectively.
Company contributions to the ESOP amounted to $95,032 and $72,906 for the three
months ended March 31, 1999 and 1998, respectively. In addition, there were
$2,159 in miscellaneous prior year adjustments recorded during the first quarter
of 1999 that reduced the outstanding principal amount of the ESOP debt.
9
<PAGE> 10
NOTE F - CONTINGENCIES
In September 1998, Community Bank discovered that a number of automobile and
truck loans had been made through its Ft. Payne, Alabama Wal-Mart location which
were not in compliance with the Bank's lending policy. The total amount of those
loans was approximately $9,300,000. The appropriate authorities and the Bank's
financial institution bond carrier were notified, and investigations are still
proceeding. During the first quarter of 1999, the bank took possession of an
additional 135 vehicles, which collateralized loans totaling approximately
$1,800,000. As of March 31, 1999, borrowers had defaulted on loans totaling
approximately $5,200,000 and the Bank had taken possession of a total of 335
vehicles, which were the collateral for such defaulted loans. The Bank intends
to begin disposing of these vehicles in the second quarter of 1999. Although
investigation of the matter has not yet been completed, management currently
believes that the Bank will be reimbursed either by its bond carrier or by other
parties involved in these transactions and the Bank will not incur any material
losses from such loans.
[The remainder of this page intentionally left blank]
10
<PAGE> 11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion is intended to assist an understanding of the Community
Bancshares, Inc. (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 this report 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, 1998.
FINANCIAL CONDITION
MARCH 31, 1999 COMPARED TO DECEMBER 31, 1998
LOANS
Loans comprised the largest single category of the Company's earning assets on
March 31, 1999. Loans, net of unearned income and reserve for loan losses, were
72.5% of total assets at March 31, 1999 and 71.4% of total assets at December
31, 1998. Loans, net of unearned income and allowance for loan losses, were
$440,567,661 at March 31, 1999, representing a 2.3% increase from the December
31, 1998 total of $430,882,039.
INVESTMENT SECURITIES AND OTHER EARNING ASSETS
Investment securities declined $1,524,858, or 1.6%, to $95,866,751 at March 31,
1999 compared to $97,391,609 at December 31, 1998. This decrease was due
primarily to growth in the Company's loan portfolio. 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.
Short-term investments in the form of interest-bearing deposits with banks were
$950,000 at both March 31, 1999 and December 31, 1998.
ASSET QUALITY
Between December 31, 1998 and March 31, 1999, 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) decreased slightly from 0.63 at year-end 1998 to 0.61 at March 31,1999.
The ratio of total nonperforming assets to total assets remained level at 0.008,
while the ratio of nonperforming loans to total loans increased slightly to
0.010 at the end of the first quarter 1999 from 0.009 at December 31, 1998. The
changes in these ratios were due primarily to an increase in past due and
nonaccrual loans, while other real estate declined as the Company disposed of
properties acquired through foreclosure and in conjunction with the purchase of
employees' homes who were relocated by the Company. Another contributing factor
to these changes was the slight decline in the Company's allowance for loan
losses from December 31, 1998 through the end of the first quarter 1999. All
three of these ratios remain favorable as compared with industry averages.
[The remainder of this page intentionally left blank]
11
<PAGE> 12
DEPOSITS
Total deposits of $538,135,862 at March 31, 1999 reflected a slight decrease
compared to total deposits of $538,585,521 at year-end 1998. Deposits are the
Company's primary source of funds with which to support its earning assets.
Noninterest-bearing deposits decreased $99,004, or 0.2%, from year-end 1998 to
March 31, 1999, and interest-bearing deposits decreased $350,655, or 0.1%, from
year-end 1998. Certificates of deposit of $100,000 or more increased $2,507,214,
or 2.9% between periods.
OTHER SHORT-TERM BORROWINGS
Other short-term borrowings totaled $10,003,068 at March 31, 1999, a $7,811,227,
or 356.4%, increase from the December 31, 1998 level of $2,191,841. As deposits
remained flat during the first quarter 1999, the Company increased its overnight
borrowings from the Federal Home Loan Bank of Atlanta to fund loan demand.
LONG-TERM DEBT
At March 31, 1999 and December 31, 1998, the Company had notes payable totaling
$7,335,350 and $7,568,716, respectively.
In December 1992, the Company entered into a loan agreement with a regional bank
for amounts up to $6,500,000. At March 31, 1999 and December 31, 1998, the
amounts outstanding were $2,670,606 and $2,846,631, respectively, due December
2002, bearing interest at a floating prime rate, and collateralized by 100% of
the common stock of the Company's subsidiary bank. The note agreement contains
provisions which limit the Company's right to transfer or issue shares of its
subsidiary bank's 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 in the Company's initial public
offering. The note was originally secured by 80,000 shares of purchased stock.
The promissory note has been refinanced in years subsequent to 1993 as
additional shares were purchased by the ESOP. On December 1, 1998, this note was
refinanced and an additional 56,682 shares of the Company's common stock were
purchased by the ESOP. This note, in the original principal of $2,963,842, was
secured by 261,433 shares of the Company's common stock. The note bears interest
at a floating rate, with principal and interest payments of $31,677 due monthly
through November 16, 2010, with the remaining principal, if any, due on that
date. The Company has guaranteed this debt and in accordance with the applicable
accounting and reporting guidelines the debt has been recognized on the
Company's balance sheet, with an offsetting charge against equity. As principal
payments are made by the ESOP, the debt and offsetting charge against equity are
reduced. The shares securing the note are released on a prorata basis by the
lender as monthly payments of principal and interest are made. The outstanding
balance of this note was $2,902,386 at March 31, 1999 and $2,944,232 at December
31, 1998, secured by 236,287 and 241,350 of unreleased shares of Company common
stock, respectively.
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 $1,762,358
at March 31, 1999 and $$1,777,853 at December 31, 1998.
Maturities of long-term debt for the years ending December 31 are as follows:
<TABLE>
<S> <C>
1999...................... $ 933,820
2000...................... 950,164
2001...................... 968,785
2002...................... 815,310
2003...................... 299,005
Thereafter................ 3,368,266
-------------
$ 7,335,350
=============
</TABLE>
12
<PAGE> 13
SHAREHOLDERS' EQUITY
Company shareholders' equity decreased $2,376,546, or 5.0%, from $47,233,401 at
December 31, 1998 to $44,856,855 at March 31, 1999, due to net earnings of
$586,454, the payment of a cash dividend of $2,788,754, the reduction the ESOP
debt by $41,846, the issuance of additional common stock for $169,537, and the
decrease of unrealized gains on securities available for sale totaling $385,629,
net of deferred tax liability.
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 used both the
retention of earnings as well as funds raised through the sale of its common
stock to maintain a sound capital position.
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 $38,554,920 at March 31, 1999. Tier II capital components
include supplemental capital components such as qualifying allowance for loan
losses and qualifying subordinated debt. Tier I capital plus Tier II capital
components are referred to as Total Risk-Based capital and was $ 42,912,667 at
March 31, 1999.
As of March 31, 1999, the Company and its banking subsidiary are classified as
well capitalized under the financial institutions regulatory framework.
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.
[The remainder of this page intentionally left blank]
13
<PAGE> 14
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
SUMMARY
Net earnings of the Company for the three months ended March 31, 1998 were
$586,454 compared to $555,283 for the same period in 1998, representing a 5.6%
increase. This increase is a direct result of the Company's expansion activity
during 1998 and is reflected in all major components of the statement of
earnings. Net interest income, before provision for loan losses, increased
$1,633,452, or 36.4%, during the first three months of 1999 as compared to the
same period of 1998. Noninterest income increased $279,767, or 17.6%, while
noninterest expenses increased $1,868,121, or 36.5%, during the first quarter of
1999, as compared to the first quarter of 1998.
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 interest earning assets of the Company during the three
months ended March 31, 1999 increased $2,343,358, or 23.9%, from the same period
in 1998. This increase was due to higher average outstanding balances of earning
assets. Average earning assets outstanding during the first quarter of 1999 were
$537,793,351, which represents an increase of $91,400,306, or 20.5%, over the
level for the first quarter of 1998. Interest expense for the three months ended
March 31, 1999 increased $709,906, or 13.4%, over the corresponding period of
1998. As a result of these factors, net interest income, before provision for
loan losses, increased $1,633,452, or 36.4%, in the three months ended March 31,
1999, compared to the same period of 1998.
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. In assessing adequacy, management relies predominantly on
its ongoing review of the loan portfolio, which is undertaken both to ascertain
whether there are probable losses which must be charged off and to assess the
risk characteristics of the portfolio in the aggregate. This review takes into
consideration the judgments of the responsible lending officers and senior
management, and also those of bank regulatory agencies that review the loan
portfolio as part of the regular bank examination process.
In evaluating the allowance, management also considers Community Bank's,
including its finance company subsidiary, historical loan loss experience, the
amount of past due and nonperforming loans, current and anticipated economic
conditions, lender requirements and other appropriate information. Community
Bank allocates its allowance for loan losses to specific loan categories based
on an average of the previous five years net losses for each loan type.
The provision for loan losses was $229,792 for the three months ended March 31,
1999 compared to $188,724 for the same period of 1998. Charge-offs exceeded
recoveries by $332,000 for the three months ended March 31, 1999. The reserve
for loan losses as a percent of outstanding loans, net of unearned income, was
0.65% at March 31, 1999 compared to 0.68% at year-end 1998.
NONINTEREST INCOME
Noninterest income for the three months ended March 31, 1999 was $1,866,474
compared to $1,586,707 for the same period of 1998. This 17.6% increase was
primarily due to an increase in service charges on deposit accounts of $132,025,
or 19.7%, from $668,704 in the first quarter of 1998 as compared to $800,729 for
the same period of 1999. Other components of noninterest income reflecting
increases in the first quarter of 1999 compared to the same period of 1998 are
as follows: Insurance commissions increased $81,939, or 19.8%; bank club dues
increased $25,363, or 17.2%; and other operating income increased $49,242, or
14.1%. The Company recorded no security gains during the three months ending
March 31, 1999, while net security gains were $8,802 for the same period of
1998.
14
<PAGE> 15
NONINTEREST EXPENSES
Noninterest expenses for the three months ended March 31, 1999 were $6,982,705,
reflecting a 36.5% increase over the same period of 1998. The primary components
of noninterest expenses are salaries and employee benefits, which increased
$1,084,653 for the three months ended March 31, 1999, 35.5% higher than in the
same period of 1998. The increases in salaries and employee benefits are due to
staffing for new banking locations and expansion as well as merit increases and
incentive payments. Occupancy costs increased $167,062, or 37.3%, furniture and
equipment expenses rose by $83,130, or 24.9%, and director and committee fees
increased by $6,879, or 4.2%. Other operating expenses rose by 47.3% to
$1,638,843. As a result of the Company's recent growth, management anticipates
that noninterest expenses will remain at least at their current level for the
foreseeable future.
The Company's strategy is to make each office of its subsidiary bank 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 most of its earnings.
INCOME TAXES
The Company attempts to maximize its net income through active tax planning. The
provision for income taxes of $188,228 for the three months ended March 31, 1999
decreased $22,974 compared to $211,202 for the same period of 1998. The
effective tax rate of approximately 24.3% for the first quarter of 1999 is less
than the statutory rate and represents a decrease from the effective tax rate of
approximately 27.4% for the same period of 1998. This decline is in part due to
the effect of tax-exempt interest income.
YEAR 2000 ISSUES
The Year 2000 issue results from of potential problems with computer systems or
other equipment with computer chips using dates that have been sorted as two
digits rather than four (e.g. "98" for 1998). On January 1, 2000, any clock or
date recording mechanism, including date sensitive software, which uses only two
digits to represent the year may recognize a date using "00" as the year 1900.
This could result in system failures or miscalculations causing disruption of
operations, including, among other things, a temporary inability to process
transactions, send invoices or perform similar tasks.
The Company initiated a program in 1997 to identify and review all of the
information technology ("IT") and non-IT systems used by the Company and its
subsidiaries in order to determine whether the systems were Year 2000 compliant.
This study involved identifying any required modifications or replacements of
certain hardware and software maintained by the Company. In addition, the
Company has taken steps to obtain assurance from third-party vendors that
appropriate actions have been taken or are being taken to remedy any Year 2000
issues for computer systems that the vendors are responsible for maintaining and
that are relied upon by the Company.
As a financial institution, the Company's compliance has been closely monitored
by federal regulatory agencies, which have completed a phase one and phase two
examination of the Company and its Year 2000 readiness in the past twelve
months. As of March 31, 1999, no regulatory restriction had been imposed on the
Company by federal regulatory authorities in connection with the Company's
current Year 2000 plan and implementation.
Prior to year-end 1998, the Company had identified its mission critical and
non-mission critical systems and had completed the assessment phase of each
system's Year 2000 readiness. Mission critical systems are those systems that
are vital to the core business activity of the Company and include mainframe
computer applications such as deposit, loan and general ledger systems as well
as the system operating software. In July 1998, the Company purchased and
installed new Year 2000 compliant hardware and software systems to support all
core application processing which were deemed to be mission critical.
Non-mission critical systems typically include embedded technology, such as
micro-controllers in elevators. As of March 31, 1999, all mission critical
systems have been validated.
15
<PAGE> 16
The Company has also evaluated all significant credit customer relationships to
determine any risk represented to the Company by the impact of Year 2000 on
customers' operations. Based on this evaluation, the Company is not aware of
more than normal credit risk associated with these relationships and management
does not believe that any special additions to the allowance for loan losses are
necessary. The Company's assessment of these parties will be ongoing throughout
1999 in order to identify any changes in the readiness of its credit customers
that could negatively impact the Company.
During 1998, the Company spent approximately $415,000 related to the purchase of
new hardware and software to correct Year 2000 problems. These costs have been
capitalized and will be amortized over the life of the related assets. The
Company spent an additional $5,000 for testing of it mission critical systems
and estimates it will spend approximately $15,000 during 1999 for third party
reviews of test results. Since this is an ongoing process involving continual
evaluation, the Company could incur additional unanticipated cost associated
with its Year 2000 readiness. However, management believes that these cost would
be immaterial to the Company's financial condition or results of operations.
Throughout 1998, the Company worked to assess Year 2000 readiness of vendors,
business partners, and other counter parties, focusing on those considered
critical to the Company's operations. The Company began assessing the Year 2000
readiness of depositors and other funds providers during the third quarter of
1998. The Company will continue to monitor and evaluate the Year 2000 readiness
of third parties and take appropriate measures, including development of
contingency plans, to mitigate the risk to the Company where Year 2000
noncompliance by third parties could have a material adverse impact on the
Company's financial condition or results of operations. However, the impact of
Year 2000 noncompliance by all third parties with which the Company transacts
business cannot be assessed at this time.
Management expects its remediation efforts to occur in a timely manner and does
not anticipate significant disruptions in its operations. Failure to complete
such remediations in a timely fashion could have an adverse impact on the
Company's financial condition and results of operations. Management is currently
developing a contingency plan to address any potential failures, which it
expects to have in place by the end of the second quarter, 1999.
Certain statements in this Report are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements are not based on historical facts and may be identified by their
reference to a future period(s) or by the use of forward-looking terminology,
such as "anticipate," "estimate," "expect," "may" and should." These
forward-looking statements include, without limitation, those relating to the
Company's future growth, dividend payments, deposit base, economies, long-term
obligations, loan losses, interest sensitivity, market risk, impact of inflation
and impact of Year 2000 issues. Actual results could differ materially from
those indicated in such forward-looking statements due to a variety of factors.
These factors include, but are not limited to, economic conditions, government
fiscal and monetary policies, prevailing interest rates and effectiveness of the
Company's interest rate strategies, laws and regulations affecting financial
institutions, changes in and effectiveness of the Company's operating or
expansion strategies, geographic concentration of assets and operations,
competition from other financial services companies, Year 2000 compliance
issues, and other risks detailed from time to time in the Company's press
releases and filings with the Securities and Exchange Commission.
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16
<PAGE> 17
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's net interest income, and the fair value of its financial
instruments, are influenced by changes in the level of interest rates. Interest
rate sensitivity is a function of the repricing characteristics of the Company's
interest-earning assets and interest-bearing liabilities. Management monitors
its interest rate risk exposure through the use of a Static Gap analysis and an
Interest Rate Shock analysis.
The static gap analysis measures the amount of repricing risk embedded in the
balance sheet at a specific point in time, by comparing the difference in the
volume of interest-earning assets and interest-bearing liabilities that are
subject to repricing within specific time periods. During the first quarter of
1999, Community Bank saw its interest earning assets repricing within one year
decline while its interest bearing liabilities repricing during this same period
increased. This resulted in the Company being more liability sensitive at March
31, 1999, compared to year-end 1998, indicating that it had more interest
bearing liabilities than interest earning assets repricing during the twelve
months ending March 31, 2000. The cumulative static gap position of rate
sensitive assets to rate sensitive liabilities at March 31, 1999 was: i) .14% at
30 days; ii) .31% at 90 days; iii) .33% at 180 days; and iv) .36% at 365 days.
The interest rate shock analysis measures the impact on Community Bank's net
interest income as a result of immediate and sustained shift in interest rates.
The movement in market rates are based on statistical regression analyses while
management makes assumptions concerning balance sheet growth and the magnitude
of interest rate movements for certain interest earning asset and
interest-bearing liabilities. Using actual maturity and repricing opportunities
of Community Bank's portfolio, in conjunction with management's assumptions, a
rate shock analysis is performed using a plus 200 basis points shift and a minus
200 basis points shift in interest rates. Based on the Company's March 31, 1999
Asset/Liability Analysis, the improvement in net interest income, over the next
twelve months, resulting from a 200 basis points decrease in the interest rate
environment was immaterial. Conversely, a 200 basis points increase in interest
rates would result in a $1,878,000, or 6.4%, decrease in net interest income for
the same period. This is an additional $1,247,000, or 4.2%, decline over
year-end 1998.
While movement of interest rates cannot be predicted with any certainty,
management expects interest rates to be relatively stable during 1999 and
believes that Community Bank's current interest rate sensitivity analysis fairly
reflects its interest rate risk exposure during the twelve months ending March
31. 2000. Management continually evaluates the condition of the economy, the
pattern of market interest rates and other economic data to determine the types
of investments that should be made and at what maturities.
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17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On November 19, 1998, Mr. William Towns, a shareholder of the Company, filed a
shareholder derivative action against the directors of the Company in the state
Circuit Court of Blount County, Alabama. Mr. Towns amended his complaint on
January 14, 1999 to add the Company and Community Bank as defendants in the
action. On February 11, 1999, the complaint was again amended to add Mr. Pat
Bellew and Mrs. Mary Bellew, who are also shareholders of the Company, as
additional plaintiffs. On December 21, 1998, the Company and its directors filed
a motion with the court seeking to have the complaint dismissed. On March 1,
1999, the Company's Board of directors appointed a special Board committee,
comprised of Roy B. Jackson, Merritt M. Robbins and R. Wayne Washam, each of
whom is a non-employee director of the Company, to review the plaintiff's
allegations in accordance with Delaware law. On April 6, 1999, each of the
parties to the action requested that the court stay the litigation and related
discovery, motions and hearings, pending completion of the special committee's
review. On April 30, 1999, the court entered an order staying the litigation and
related discovery, motions and hearing in accordance with the parties' request.
The special committee is required to submit an interim report to the court no
later than July 29, 1999.
The complaint alleged that the directors of the Company breached their fiduciary
duty to the Company and its shareholders, engaged in fraud, fraudulent
concealment, suppression of material fact and suppression of the plaintiff
shareholders, failed to supervise management, and conspired to conceal wrongful
acts from the Company's shareholders and paid themselves excessive director
fees. The complaint also alleged that the Board of Directors acquiesced in
mismanagement and misconduct by Kennon R. Patterson, Sr., the Chairman of the
Board, Chief Executive Officer and President of the Company, including alleged
self dealing, payment of excessive compensation, misappropriation of corporate
opportunities and misappropriation of funds. The complaint sought an unspecified
amount of compensatory and punitive damages, removal of the current directors,
appointment of a new Board of Directors, and attorneys fees and cost. Management
of the Company believes that the plaintiffs' allegations are false and that the
action lacks merit. The Company and its directors intend to defend the action
vigorously, and management of the Company believes that the action will not have
a material adverse effect on the Company's financial condition or results of
operations.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits:
Exhibit Number Description of Exhibit Page Number
- -------------- ---------------------- -----------
<S> <C> <C>
10.1 Rights Agent Agreement between Community Bancshares, Inc. and
The Bank of New York, dated January 13, 1999 (1)
11 Computation of Earnings Per Share 21
27 Financial Data Schedule (for the SEC use only)
</TABLE>
Notes to Exhibits
- -----------------
(1) Filed as Exhibit 4.1 to the Registration Statement on Form 8-A dated
January 21, 1999, and incorporated herein by reference.
18
<PAGE> 19
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(b) Reports on Form 8-K
The Company filed four reports on Form 8-K during the quarter ended March 31,
1999 as follows:
1. January 7, 1999 - Press release regarding declaration of dividend of one
Preferred Share Purchase Right on each outstanding share of the Company's
common stock;
2. January 29, 1999 - Resignation of a Director;
3. March 3, 1999 - Letter to shareholders summarizing the Rights to Purchase
Preferred shares and describing Share Purchase Rights Plan; and
4. March 16, 1999 - Press release regarding the Company's results of
operations during the year ended December 31, 1998
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19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY BANCSHARES, INC.
May 12, 1999 /s/ Kennon R. Patterson, Sr.
Date ----------------------------------------
Kennon R. Patterson, Sr., as its
President and Chief Executive
Officer
May 12, 1999 /s/ Michael A. Bean
Date ----------------------------------------
Michael A. Bean, as its Executive
Vice President and Chief
Accounting Officer
20
<PAGE> 1
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, 1999 and
1998.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Reported net income ................................ $ 586,454 $ 555,283
Earnings on common shares .......................... $ 586,454 $ 555,283
============== ==============
Weighted average common shares outstanding - basic . 4,410,692 3,866,706
============== ==============
Earnings per common share - basic
Income from continuing operations ................ $ .13 $ .14
============== ==============
Net income ....................................... $ .13 $ .14
============== ==============
Weighted average common shares outstanding - diluted 4,520,569 3,908,781
============== ==============
Earnings per common share - diluted
Income from continuing operations ................ $ .13 $ .14
============== ==============
Net income ....................................... $ .13 $ .14
============== ==============
</TABLE>
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21
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMMUNITY BANCSHARES, INC. FOR THE QUARTER ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,240,411
<INT-BEARING-DEPOSITS> 950,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 95,866,751
<INVESTMENTS-CARRYING> 95,866,751
<INVESTMENTS-MARKET> 95,866,751
<LOANS> 443,436,741
<ALLOWANCE> 2,869,080
<TOTAL-ASSETS> 607,839,463
<DEPOSITS> 538,135,862
<SHORT-TERM> 10,003,068
<LIABILITIES-OTHER> 7,508,328
<LONG-TERM> 7,335,350
0
0
<COMMON> 465,685
<OTHER-SE> 44,391,170
<TOTAL-LIABILITIES-AND-EQUITY> 607,839,463
<INTEREST-LOAN> 10,650,297
<INTEREST-INVEST> 1,450,057
<INTEREST-OTHER> 37,288
<INTEREST-TOTAL> 12,137,642
<INTEREST-DEPOSIT> 5,744,087
<INTEREST-EXPENSE> 6,016,937
<INTEREST-INCOME-NET> 6,120,705
<LOAN-LOSSES> 229,792
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,982,705
<INCOME-PRETAX> 774,682
<INCOME-PRE-EXTRAORDINARY> 774,682
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 586,454
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
<YIELD-ACTUAL> 4.68
<LOANS-NON> 1,876,000
<LOANS-PAST> 2,472,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,970,597
<CHARGE-OFFS> 371,547
<RECOVERIES> 40,238
<ALLOWANCE-CLOSE> 2,869,080
<ALLOWANCE-DOMESTIC> 2,869,080
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
