SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999.
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File No. 0-22517
COMMUNITY BANCSHARES, INC.
- ----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
North Carolina 56-1693841
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1301 Westwood Lane, Westfield Village Wilkesboro, North Carolina 28679
- -----------------------------------------------------------------------
(Address of Principal Executive Offices)
(336) 838-4100
- ------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
1600 Curtis Bridge Road Wilkesboro, North Carolia 28679
- ------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer (1) 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 issuer was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
---- -----
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common equity as of the latest
practicable date.
Common stock, $3.00 par value per share 1,447,884 shares issued and
outstanding as of May 13, 1999.
(Page 1 of 14)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY BANCSHARES, INC.
Wilkesboro, North Carolina
Consolidated Balance Sheets
ASSETS
------
March 31, December 31,
1999 1998
----------- -----------
(Unaudited) (Unaudited)
----------- -----------
Cash and due from banks $ 1,654,692 $ 3,181,025
Federal funds sold 2,200,000 - -
----------- -----------
Total cash and cash equivalents $ 3,854,692 $ 3,181,025
Securities:
Available-for-sale,
at estimated market values 23,429,505 24,288,316
Held-to-maturity (Estimated market
values of $2,007,684 (03-31-99)
and $2,416,622 (12-31-98) 1,984,818 2,385,162
Loans, net 71,551,863 72,120,625
Property and equipment 2,190,611 2,214,607
Goodwill 18,319 19,984
Other assets 820,376 923,482
----------- -----------
Total Assets $103,850,184 $105,133,201
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
- ------------
Deposits
Non-interest bearing deposits $ 7,098,461 $ 7,959,459
Interest bearing deposits 83,922,986 83,347,077
----------- -----------
Total deposits $ 91,021,447 $ 91,306,536
Other liabilities 1,731,425 1,856,731
----------- -----------
Total Liabilities $ 92,752,872 $ 93,163,267
----------- -----------
Commitments & Contingencies
Shareholders' Equity:
- ---------------------
Common stock - $3.00 par value, 10
million shares authorized; 1,447,884
and 1,446,984 shares issued and
outstanding at March 31, 1999 and
December 31, 1998, respectively $ 4,343,652 $ 4,340,952
Paid-in-capital 4,620,893 5,769,693
Retained earnings 2,106,362 1,767,794
Unrealized gain on
securities available-for-sale 26,405 91,495
----------- -----------
Total Shareholders' Equity $ 11,097,312 $ 11,969,934
----------- -----------
Total Liabilities
and Shareholders' Equity $103,850,184 $105,133,201
=========== ===========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
Wilkesboro, North Carolina
Consolidated Income Statements
(Unaudited)
For the quarter
ended March 31,
-----------------
1999 1998
---- ----
Interest and fees
on loans and investments $2,240,746 $2,140,821
Interest expense 996,212 1,062,706
--------- ---------
Net interest income $1,244,534 $1,078,115
Provision for possible loan losses 5,000 105,000
--------- ---------
Net interest income after
provision for possible loan losses $1,239,534 $ 973,115
--------- ---------
Other income:
Service fees and other charges $ 68,651 $ 60,120
Gain on sale of assets 1,759 34,954
Gain on sale of securities 5,184 - -
--------- ---------
Total other income $ 75,594 $ 95,074
--------- ---------
Operating expenses:
Salaries and benefits $ 377,070 $ 344,305
Legal and professional 69,355 62,979
Depreciation 28,670 19,290
Amortization 1,665 1,665
Courier and postage 27,282 24,864
Rent and land lease expense 12,326 23,318
Data processing 52,071 41,649
Other operating expenses 191,317 148,078
--------- ---------
Total operating expenses $ 759,756 $ 666,148
--------- ---------
Net income before taxes $ 555,372 $ 402,041
--------- ---------
Income taxes 216,803 168,900
--------- ---------
Net income $ 338,569 $ 233,141
--------- ---------
Other comprehensive
income, net of tax:
Unrealized holding gains/(losses)
on securities available for sale (65,090) 5,296
--------- ---------
Comprehensive income $ 273,479 $ 238,437
========= =========
Basic income per share $ .23 $ .18
========= =========
Diluted income per share $ .20 $ .15
========= =========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
Wilkesboro, North Carolina
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
------------------
1999 1998
---- ----
Cash flows from operating activities: $ 338,569 $ 154,265
---------- ----------
Cash flows from Investing Activities:
Purchase of fixed assets (4,674) (29,709)
Decrease in loans 563,762 84,640
Securities: Available-for-sale
Sale of securities 1,521,600 - -
Purchase of securities (2,296,313) (5,542,928)
Maturity and paydowns 1,581,568 990,000
Securities: Held-to-maturity
Purchase of securities - - (538,462)
Maturity and paydowns 400,344 382,641
---------- ----------
Net cash provided by investing activities $ 1,766,287 $(4,653,818)
---------- ----------
Cash flows from Financing Activities:
(Decrease) in deposits $ (285,089) $ 7,396,828
Cancellation of 82,968 stock
warrants and 20,000 stock options (1,155,100) - -
Exercise of warrants/options 9,000 14,200
---------- ----------
Cash (used by) financing activities (1,431,189) 7,411,028
---------- ----------
Net increase in cash and cash equivalents $ 673,667 $ 2,911,475
Cash and cash equivalents,
beginning of period 3,181,025 4,034,421
---------- ----------
Cash and cash equivalents, end of period $ 3,854,692 $ 6,945,896
========== ==========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
Wilkesboro, North Carolina
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1999
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all 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 ending December
31, 1999. These statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in
Form 10-KSB for the year ended December 31, 1998.
NOTE 2 - SUMMARY OF ORGANIZATION
Community Bancshares, Inc., Wilkesboro, North Carolina (the "Company"),
was incorporated under the laws of the State of North Carolina on June 11,
1990, for the purpose of becoming a bank holding company with respect to a
proposed national bank, Wilkes National Bank (the "Bank"), located in
Wilkesboro, North Carolina. Upon commencement of the Bank's principal
operations on January 17, 1992, the Company acquired 100 percent of the
voting stock of the Bank by injecting $3,750,000 into the Bank's capital
accounts.
As of March 31, 1999 and December 31, 1998, there were 1,447,884 and
1,446,984 shares of common stock outstanding, respectively.
The Company offered warrants to its organizers and to a group of
initial subscribers. Each warrant, when surrendered with $5.50 to the
Company, is convertible into one share of common stock. The warrants expire
ten years from January 17, 1992. At March 31, 1999 and December 31, 1998,
there were 152,068 and 235,036 warrants outstanding, respectively. The
Company also has a stock option plan with 180,596 and 201,496 options
outstanding at March 31, 1999 and December 31, 1998, respectively.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
Beginning January 1, 1998, the Company adopted the provisions of SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which is effective for annual and interim periods beginning
after December 15, 1997. This Statement establishes standards for the method
that public entities are to use when reporting information about operating
segments in annual financial statements and requires that those enterprise
reports be issued to shareholders, beginning with annual financial statements
in 1998 and for interim and annual financial statements thereafter. SFAS 131
also established standards for related disclosures about products and
services, geographic areas and major customers.
SFAS No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits" revises and standardizes certain disclosures which
were required under SFAS Nos. 87, 88 and 106. Generally, the new Statement
uses a separate but parallel format, eliminates less useful information,
requires additional data deemed useful by analysts, and allows some
aggregation of presentation. This Statement was adopted by the Company
during 1998.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June, 1998 and is effective for all calendar-year
entities beginning in January, 2000. This Statement applies to all entities
and requires that all derivatives be recognized as assets or liabilities in
the balance sheet, at fair values. Gains and losses of derivative
instruments not designated as hedges will be recognized in the income
statement. The Company has not made an assessment of the expected impact
that SFAS No. 133 will have on its financial statements.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Total assets decreased by $1.3 million to $103.8 million during the
three-month period ended March 31, 1999. The majority of the decrease is
attributed to a $.6 million and a $1.3 million reduction in both loans and
securities, respectively. Management's recent efforts have focused on
improving profitability, especially net interest income, rather than in
growing the organization. In attaining this goal, management believes that
both asset quality and the pricing of interest sensitive products have both
improved.
Liquidity and Sources of Capital
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customers. The
March 31, 1999 financial statements evidence a satisfactory liquidity
position as total cash and cash equivalents amounted to $3.9 million,
representing 3.7% of total assets. Investment securities, which amounted to
$25.4 million or 24.5% of total assets, provide a secondary source of
liquidity because they can be converted into cash in a timely manner. The
subsidiary Bank is a member of the Federal Reserve System and is maintaining
relationships with several correspondent banks and, thus, could obtain funds
on short notice. The Company's management closely monitors and maintains
appropriate levels of interest earning assets and interest bearing
liabilities, so that maturities of assets are such that adequate funds are
provided to meet customer withdrawals and loan demand. There are no trends,
demands, commitments, events or uncertainties that will result in or are
reasonably likely to result in the Company's liquidity increasing or
decreasing in any material way. The Bank maintains an adequate level of
capitalization as measured by the following capital ratios and the respective
minimum capital requirements by the Bank's primary regulator, the Office of
the Comptroller of the Currency.
Bank's Minimum required
March 31 1999 by regulator
Leverage ratio 8.6% 4.0%
Risk weighted ratio 12.7% 8.0%
With respect to the leverage ratio, the regulator expects a minimum of
5.0% to 6.0% ratio for banks that are not rated CAMEL 1. Although the Bank
is not rated CAMEL 1, its leverage ratio of 8.6% is well above the required
minimum.
During the first three months of 1999, 900 options were exercised for
$9,000. Additionally, the Company purchased 82,968 stock warrants and 20,000
stock options for an aggregate cost of $1,155,100. The above warrants and
options were subsequently cancelled by the Company.
Results of Operations
Net income for the three-month period ended March 31, 1999 amounted to
$338,569, or $.20 per diluted share. For the three-month period ended March
31, 1998, net income amounted $233,141, or $.15 per diluted share. The
following five items are of significance when one compares the March 31, 1999
results to those of March 31, 1998.
a. Net interest income, which represents the difference between interest
received on interest earning assets and interest paid on interest
bearing liabilities, has increased from $1,078,115 for the three-month
period ended March 31, 1998 to $1,244,534 for the same period one year
later, representing an increase of $166,419, or 15.4%. This increase
was attained primarily because of a $8.4 million increase in average
earning assets, from $92.0 million for the three-month period ended
March 31, 1998 to $100.4 million for the three-month period ended March
31, 1999.
b. The net interest yield, defined as net interest income divided by
average interest earning assets, has increased from 4.69% for the
three-month period ended March 31, 1998 to 4.96% for the three-month
period ended March 31, 1999. Below is pertinent information concerning
the yield on earning assets and the cost of funds as of March 31, 1999.
Avg. Assets/ Interest Yield/
Description Liabilities Income/Expense Cost
Federal funds $ 873,333 $ 10,008 4.58%
Securities 26,044,544 366,640 5.63%
Loans 73,513,558 1,864,098 10.14%
----------- --------- -----
Total $100,431,435 $2,240,746 8.92%
=========== ========= =====
Transactional
accounts $ 17,877,686 $ 111,908 2.50%
Savings 3,867,142 19,186 1.98%
CD's 62,679,866 845,826 5.40%
Other borrowings 1,103,730 19,292 6.99%
----------- --------- -----
Total $ 85,528,424 $ 996,212 4.66%
=========== ========= =====
Net interest income $1,244,534
=========
Net yield on earning assets 4.96%
====
c. Total non-interest income has decreased from $95,074 for the three
month period ended March 31, 1998 to $75,594 for the three-month period
ended March 31, 1999. If one excludes all gains on sale of assets,
non-interest income for the three-month period ended March 31, 1999
would have been $68,651, an amount larger than the $60,120 in non-
interest income for the same period one year ago. The increase is
attributable primarily to higher volumes and fees with respect to
transactional accounts.
d. For the three-month period ended March 31, 1999, operating expenses
amounted to $759,756 representing an annualized 2.91% of average
assets. By comparison, for the three-month period ended March 31,
1998, operating expenses amounted to $666,148, representing an
annualized 2.82% of average assets. The increase in operating expense
during 1999 is attributed mainly to salaries, benefits, professional
fees and data processing.
e. Provision for loan losses for the three-month period ended March 31,
1999 and 1998 amounted to $5,000 and $105,000, respectively. This
significant reduction in the provision for loan losses in 1999 when
compared to 1998 had a favorable impact on 1999 profits.
During the three-month period ended March 31, 1999, the allowance for loan
losses has grown by approximately $10,000 to $1,116,678. The allowance for
loan losses as a percentage of gross loans increased from 1.51% at December
31, 1998 to 1.53% at March 31, 1999 mainly due to the fact that gross loans
declined by approximately $550,000 during the three-month period ended March
31, 1999. Management considers the allowance for loan losses to be adequate
and sufficient to absorb possible future losses; however, there can be no
assurance that charge-offs in future periods will not exceed the allowance
for loan losses or that additional provisions to the allowance will not be
required.
The Company is not aware of any current recommendation by the regulatory
authorities which, if they were to be implemented, would have a material
effect on the Company's liquidity, capital resources, or results of
operations.
Year 2000
A critical issue affecting companies that rely extensively on
electronic data processing systems, such as the Company, is the Year 2000
issue. The Year 2000 issue has arisen due to the widespread use of computer
programs that rely on two-digit date codes to perform computations or
decision making functions. Many of these programs may fail as a result of
their inability to properly interpret date codes beginning January 1, 2000.
For example, such programs may misinterpret "00" as the year 1900 rather than
the year 2000. In addition, some equipment being controlled by
microprocessor chips may not deal appropriately with the year "00". This
could result in a system failure or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions or engage in similar, normal business activities.
The Bank primarily uses a third-party vendor for processing its primary
banking applications. During 1997, the Bank formed an internal task force,
chaired by its Operations Executive, to address the Year 2000 issue, conduct
a comprehensive review of the Bank's systems and ensure that the Bank takes
any necessary measures. The Company has completed testing its systems to
ensure that they are Year 2000 compliant. Management estimates that the Bank
will incur approximately $50,000 in expenditures relating to Year 2000
compliance. As of March 31, 1999, the Company had spent approximately
$12,000 to upgrade its software and hardware systems to help ensure that they
would be Year 2000 compliant. Further, all third-party vendors have provided
the Company with documentation confirming that their data processing programs
and systems are indeed Year 2000 compliant. The Company does not believe
that material expenditures will be necessary to implement any further
modifications. However, there can be no assurances that unforseen
difficulties or costs will not arise. In addition, there can be no assurance
that systems of other companies on which the Company's systems rely, such as
the Bank's data processing vendor, will be modified on a timely basis, or
that the failure by another company to properly modify its systems will not
negatively impact the Company's systems or operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27.1 - Financial data schedule (for SEC use only).
(b) Reports on Form 8-K. There were no reports on Form 8-K
filed during the quarter ended March 31, 1999.
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.
(Registrant)
Date: May 13, 1999 BY: /s/ Ronald S. Shoemaker
----------------- ------------------------------
Ronald S. Shoemaker
President and Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)
Financial Data Schedule Submitted Under Item 601(a)(27) of Regulation S-B
This schedule contains summary financial information extracted from Community
Bancshares, Inc. unaudited consolidated financial statements for the periods
ended March 31, 1999 and 1998 and is qualified in its entirety by reference to
such financial statements.
Item Number Item Description Amount
March 31,
-------------------------
1999 1998
---- ----
9-03(1) Cash and due from banks $ 1,654,692 $ 2,895,896
9-03(2) Interest bearing deposits 0 0
9-03(3) Federal funds sold - purchased
securities for sale 2,200,000 4,050,000
9-03(4) Trading account assets 0 0
9-03(6) Investment and mortgage backed
securities held for sale 23,429,505 18,150,205
9-03(6) Investment and mortgage backed
securities held to maturity -
carrying value 1,984,818 3,783,626
9-03(6) Investment and mortgage backed
securities held to maturity -
market value 2,007,684 3,803,851
9-03(7) Loans 72,668,541 70,060,648
9-03(7)(2) Allowance for losses 1,116,678 1,056,284
9-03(11) Total assets 103,850,184 100,656,438
9-03(12) Deposits 91,021,447 89,176,392
9-03(13) Short-term borrowings 0 0
9-03(15) Other liabilities 1,731,425 1,129,714
9-03(16) Long-term debt 0 0
9-03(19) Preferred stock -
mandatory redemption 0 0
9-03(20) Preferred stock -
no mandatory redemption 0 0
9-03(21) Common stock 4,343,652 3,896,268
9-03(22) Other stockholders' equity 6,753,660 6,454,064
9-03(23) Total liabilities and
stockholders' equity 103,850,184 100,656,438
9-04(1) Interest and fees on loans 1,864,098 1,793,269
9-04(2) Interest and dividends
on investments 376,648 347,552
9-04(4) Other interest income 0 0
9-04(5) Total interest income 2,240,746 2,140,821
9-04(6) Interest on deposits 976,920 1,062,706
9-04(9) Total interest expense 996,212 1,062,706
9-04(10) Net interest income 1,244,534 1,078,115
9-04(11) Provision for loan losses 5,000 105,000
9-04(13)(h) Investment securities gains/losses 5,184 0
9-04(14) Other expenses 759,756 666,148
9-04(15) Income/loss before income tax 555,372 402,041
9-04(17) Income/loss before
extraordinary items $ 555,372 $ 402,041
9-04(18) Extraordinary items, less tax 0 0
9-04(19) Cumulative change in
accounting principles 0 0
9-04(20) Net income or loss 338,569 233,141
9-04(21) Earnings per share - basic .23 .18
9-04(21) Earnings per share - diluted .20 .15
I.B.5. Net yield - interest earning
assets - actual 4.96% 4.69%
III.C.1(a) Loans on non-accrual 0 2,485
III.C.1(b) Accruing loans past due
90 days or more 0 17,113
III.C.1(c) Troubled debt restructuring 0 0
III.C.2. Potential problem loans 694,731 1,446,000
IV.A.1 Allowance for loan losses -
beginning of period 1,106,830 1,033,393
IV.A.2 Total chargeoffs 3,669 85,111
IV.A.3 Total recoveries 8,517 3,002
IV.A.4 Allowance for loan losses -
end of period 1,116,678 1,056,284
IV.B.1 Loan loss allowance allocated to
domestic loans 1,100,000 1,045,000
IV.B.2 Loan loss allowance allocated to
foreign loans 0 0
IV.B.3 Loan loss allowance - unallocated 16,678 11,284
