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 September 30, 2000.
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-22517
COMMUNITY BANCSHARES, INC.
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(Exact name of small business issuer as specified in its charter)
North Carolina 56-1693841
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(State of Incorporation) (I.R.S. Employer Identification No.)
1301 Westwood Ln.-Westfield Village, Wilkesboro, NC 28697
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(Address of Principal Executive Offices)
(336) 838-4100
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(Issuer's Telephone Number, Including Area Code)
N/A
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(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 1,483,884 shares issued and
outstanding as of November 13, 2000.
(Page 1 of 16)
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
-----------------------------
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
CONSOLIDATED BALANCE SHEETS
At Sept. 30, At December 31,
2000 1999
ASSETS (Unaudited) (Unaudited)
------------ ------------
Cash and due from banks $ 3,053,233 $ 14,469,256
Federal funds sold 1,700,000 2,000,000
----------- -----------
Total cash and cash equivalents $ 4,753,233 $ 16,469,256
Securities:
Available-for-sale,
at estimated market values 20,950,010 19,372,280
Held-to-maturity (Estimated market
values of $11,529,067 (09-30-00)
and $1,788,107 (12-31-99) 11,503,705 1,806,490
Loans, net 73,237,510 72,935,601
Property and equipment 2,173,797 2,172,849
Other assets 1,238,437 1,049,054
----------- -----------
Total Assets $113,856,692 $113,805,530
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 7,595,290 $ 7,998,076
Interest bearing deposits 85,725,409 83,944,444
----------- -----------
Total deposits $ 93,320,699 $ 91,942,520
FHLB advances 5,671,545 8,684,919
Other liabilities 1,244,247 1,042,655
----------- -----------
Total Liabilities $100,236,491 $101,670,094
----------- -----------
Commitments & Contingencies
Shareholders' Equity:
Common stock - $3.00 par value, 10
million shares authorized; 1,483,884
and 1,467,384 shares issued and
outstanding at Sept. 30, 2000 and
December 31, 1999, respectively $ 4,451,652 $ 4,402,152
Paid-in-capital 4,870,393 4,742,143
Retained earnings 4,431,932 3,221,263
Unrealized loss on
securities available-for-sale (133,776) (230,122)
----------- -----------
Total Shareholders' Equity $ 13,620,201 $ 12,135,436
----------- -----------
Total Liabilities
and Shareholders' Equity $113,856,692 $113,805,530
=========== ===========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
INCOME STATEMENTS
(UNAUDITED)
For the nine months
ended September 30,
-----------------------
2000 1999
--------- ---------
Interest income $7,691,240 $6,701,808
Interest expense 3,589,271 2,883,902
--------- ---------
Net interest income $4,101,969 $3,817,906
Provision for possible loan losses 105,000 120,000
--------- ---------
Net interest income after
provision for possible loan losses $3,996,969 $3,697,906
--------- ---------
Other income:
Service fees and other charges $ 279,076 $ 243,153
Gain on sale of assets - - 1,759
Gain/(loss) on sale of securities (36,039) (15,844)
--------- ---------
Total other income $ 243,037 $ 229,068
--------- ---------
Operating expenses:
Salaries and benefits $1,427,004 $1,134,616
Legal and professional 112,951 157,847
Depreciation 116,931 84,549
Amortization 4,996 4,996
Courier and postage 91,526 80,882
Rent and land lease expense 49,106 39,569
Data processing 147,700 151,439
Regulatory assessments 45,825 46,775
Other operating expenses 498,949 496,457
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Total Expenses $2,494,988 $2,197,130
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Income before taxes $1,745,018 $1,729,844
Income tax 534,349 651,449
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Net income $1,210,669 $1,078,395
========= =========
Basic income per share $ .82 $ .74
========= =========
Diluted income per share $ .74 $ .67
========= =========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
INCOME STATEMENTS
(UNAUDITED)
For the three months
ended September 30,
-----------------------
2000 1999
--------- ---------
Interest income $2,613,420 $2,250,533
Interest expense 1,232,757 946,382
--------- ---------
Net interest income $1,380,663 $1,304,151
Provision for possible loan losses 40,000 70,000
--------- ---------
Net interest income after
provision for possible loan losses $1,340,663 $1,234,151
--------- ---------
Other income:
Service fees and other charges $ 94,294 $ 91,998
Gain/(loss) on sale of securities (9,880) (25,628)
--------- ---------
Total other income $ 84,414 $ 66,370
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Operating expenses:
Salaries and benefits $ 489,317 $ 386,484
Legal and professional 58,902 34,418
Depreciation 42,621 26,253
Amortization 1,665 1,665
Courier and postage 27,460 27,568
Rent and land lease expense 15,373 14,869
Data processing 53,175 46,411
Regulatory assessments 15,422 15,275
Other operating expenses 134,028 183,970
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Total Expenses $ 837,963 $ 736,913
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Income before taxes $ 587,114 $ 563,608
Income tax 167,000 183,426
--------- ---------
Net income $ 420,114 $ 380,182
========= =========
Basic income per share $ .28 $ .26
========= =========
Diluted income per share $ .26 $ .23
========= =========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 30,
-----------------
2000 1999
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Cash flows from operating activities: $ 1,418,595 $ 1,605,372
Cash flows from investing activities:
Purchase of equipment (117,879) (45,352)
(Increase) in loans, net (406,909) (133,212)
Securities, available-for-sale
Sale of securities 2,050,537 1,767,535
Purchase of securities (3,871,631) (10,508,344)
Maturities and pay-downs 365,924 9,964,632
Securities, held-to-maturity
Purchase of securities (9,796,289) (989,108)
Maturities and pay-downs 99,074 1,906,784
----------- -----------
Net cash used by investing activities $(11,677,173) $ 1,962,935
----------- -----------
Cash flows from financing activities:
Reduction in borrowings $ (3,013,374) $ 1,488,689
Increase in deposits 1,378,179 490,862
Cancellation of 82,968
warrants and 2,000 options - - (1,155,100)
Proceeds from exercise of warrants/options 177,750 188,200
----------- -----------
Net cash used by financing activities $ (1,457,445) $ 1,012,651
----------- -----------
Net increase (decrease) in
cash and cash equivalents $(11,716,023) $ 4,580,958
Cash and cash equivalents
at beginning of period 16,469,256 3,181,025
----------- -----------
Cash and cash equivalents at end of period $ 4,753,233 $ 7,761,983
=========== ===========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 2000
Accumulated
Common Stock Other
------------------ Paid in Retained Comprehensive
Shares Par Value Capital Earnings Income Total
------ --------- ------- -------- ------ -----
Balance,
Dec 31,
1998 1,446,984 $ 4,340,952 $ 5,769,693 $1,767,794 $ 91,495 $11,969,934
--------- ---------- ---------- --------- -------- ----------
Exercise of
warrants/
options 20,300 60,900 127,300 - - - - 188,200
Cancellation
of 82,968
stock warrants
and 20,000
stock options - - - - (1,155,100) - - - - (1,155,100)
Comprehensive Income:
--------------------
Net income,
nine-month
period ended
Sept 30, 1999 - - - - - - 1,078,395 - - 1,078,395
Net unrealized
(losses) on
securities,
nine-month
period ended
Sept 30, 1999 - - - - - - - - (205,691) (205,691)
--------- ---------- ---------- --------- -------- ----------
Balance,
Sept 30,
1999 1,467,284 $ 4,398,852 $ 4,741,893 $2,486,189 $(114,196) $11,875,738
========= ========== ========== ========= ======== ==========
Balance,
December 31,
1999 1,467,384 $ 4,401,852 $ 4,742,143 $3,221,262 $(230,122) $12,135,436
--------- ---------- ---------- --------- -------- ----------
Exercise of
warrants/
options 16,500 49,500 128,250 - - - - 177,750
Comprehensive Income:
---------------------
Net income,
nine-month
period ended
Sept 30,
2000 - - - - - - 1,210,669 - - 1,210,669
Net unrealized
(losses) on
securities, nine-
month period
ended Sept 30,
2000 - - - - - - - - 96,346 96,346
--------- ---------- ---------- --------- -------- ----------
Balance,
Sept 30,
2000 1,483,884 $ 4,451,652 $ 4,870,393 $4,431,932 $(133,776) $13,620,201
========= ========== ========== ========= ======== ==========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
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 and nine-month periods ended september 30, 2000
are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000. 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, 1999.
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 September 30, 2000 and December 31, 1999, there were 1,483,884 and
1,467,384 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 September 30, 2000 and December 31, 1999, there
were 151,568 warrants outstanding. The Company also has a stock option plan
with 170,000 and 180,500 options outstanding at September 30, 2000 and
December 31, 1999, respectively.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes new accounting and reporting activities for derivatives. The
Standard requires all derivatives to be (i) measured at fair market value and
(ii) recognized as either assets or liabilities in the balance sheet. Under
certain conditions, a derivative may be specifically designated as a hedge.
Accounting for the changes in fair value of a derivative depends on the
intended use of the derivative and the resulting designation. In July 1999,
the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of SFAS No. 133." SFAS No. 137 delays the effective date of SFAS No. 133 for
one year. In June 2000, the Financial Accounting Standards Board issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of SFAS No. 133." SFAS No. 138 amends certain
provisions of SFAS No. 133. Adoption of the Standard is required for the
Company's December 31, 2001, financial statements with early adoption allowed
as of the beginning of any quarter after June 30, 1998. Adoption is not
expected to result in a material financial impact based on the Company's
limited use of derivatives.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS.
---------------------
Total assets increased by $100,000 to $113.9 million during the nine-month
period ended September 30, 2000. More specifically, cash and cash equivalents
decreased by $11.7 million as there was no longer a need to maintain a high
level of liquid funds that was thought to have been required due to Year 2000
concerns. In addition, net loans increased by $300,000, securities increased
by $11.3 million and other assets increased by $200,000.
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
September 30, 2000 financial statements evidence a satisfactory liquidity
position as total cash and cash equivalents amounted to $4.8 million,
representing 4.2% of total assets. Investment securities, which amounted to
$32.5 million or 28.5% 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
September 30, 2000 by regulator
------------------ ----------------
Leverage ratio 9.9% 4.0%
Risk weighted ratio 15.3% 8.0%
During the first nine months of 2000, an aggregate of 16,500 warrants and
options were exercised, resulting in a $177,750 increase in the Company's
capital accounts. These funds may be injected into the Bank's capital
accounts as management deems appropriate.
Results Of Operations
---------------------
Net income for the nine-month period ended September 30, 2000 amounted to
$1,210,669, or $.74 per diluted share. For the nine-month period ended
September 30, 1999, net income amounted to $1,078,395, or $.67 per diluted
share. The following four items are of significance when one compares the
September 30, 2000 results to those of September 30, 1999.
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 $3,817,906 for the nine-month
period ended September 30, 1999 to $4,101,969 for the nine-month period
ended September 30, 2000, representing an increase of $284,063, or 7.4%.
This increase was attained primarily because of a $8.4 million increase
in average earning assets, from $99.7 million for the nine-month period
ended September 30, 1999 to $108.1 million for the nine-month period
ended September 30, 2000.
b. The net interest yield, defined as net interest income divided by
average interest earning assets, has declined from 5.10% for the nine-
month period ended September 30, 1999 to 5.06% for the nine-month period
ended September 30, 2000. In general, when comparing the nine-month
periods ended September 30, 1999 and 2000, the cost of funds increased
at a higher rate than the increase of the yield on earning assets, thus
resulting in a lower net interest yield for the nine-month period ended
September 30, 2000. Below is pertinent information concerning the yield
on earning assets and the cost of funds for the nine-month period ended
September 30, 2000.
(in 000's)
Avg. Assets/ Interest Yield/
Description Liabilities Income/Expense Cost
----------- ----------- -------------- ------
Due from FHLB $ 2,479 $ 145 7.80%
Federal funds 2,578 128 6.62%
Securities 28,291 1,386 6.53%
Loans 74,780 6,032 10.75%
-------- ------- -----
Total $ 108,128 $ 7,691 9.48%
======== ======= =====
Transactional
accounts $ 19,655 $ 431 2.92%
Savings 3,668 48 1.74%
CD's 63,442 2,774 5.83%
Other borrowings 6,116 336 7.33%
-------- ------- -----
Total $ 92,881 $ 3,589 5.15%
======== ======= =====
Net interest income $ 4,102
=======
Net yield on earning assets 5.06%
=====
c. Total non-interest income has increased from $229,068 for the nine-month
period ended September 30, 1999 to $243,037 for the nine-month period
ended September 30, 2000. While the overall non-interest income
increased by only $13,969, or 6.1%, non-interest income received from
service fees and other charges increased by $35,923, or 14.8%.
d. For the nine-month period ended September 30, 2000, operating expenses
amounted to $2,494,988, representing an annualized 2.92% of average
assets. By comparison, for the nine-month period ended September 30,
1999, operating expenses amounted to $2,197,130, representing an
annualized 2.76% of average assets. The increase in operating expenses
during 2000 when compared with 1999 is attributable mainly to higher
personnel costs and other miscellaneous expenses.
For the three-month periods ended September 30, 2000 and 1999, net income
amounted to $420,114 and $380,182, respectively. On a per share basis, basic
and diluted income for the three-month period ended September 30, 2000
amounted to $.28 and $.26, respectively. For the three-month period ended
September 30, 1999, basic and diluted income per share amounted to $.26 and
$.23, respectively. The improvement in net income for the three-month period
ended September 30, 2000 as compared to the three-month period ended September
30, 1999, is primarily due to the following:
(i) Net interest income increased by approximately $76,000, due to both a
higher level of earning assets and higher yields.
(ii) Non-interest income increased by approximately $18,000, due to a higher
volume of transaction accounts.
(iii) Provisions for loan losses were $40,000 during the three-month
period ended September 30, 2000, and $70,000 during the three-
month period ended September 30, 1999.
(iv) The increases in net interest income and non-interest income, combined
with the decrease in the provision for loan losses, were partially
offset by increases in operating expenses which were approximately
$102,000 higher for the three-month period ended September 30,
2000 when compared to three-month period ended September 30, 1999.
During the nine-month period ended September 30, 2000, the allowance for loan
losses has grown from $1,228,895 to $1,277,052. The allowance for loan losses
as a percentage of gross loans increased from 1.66% at December 31, 1999 to
1.71% at September 30, 2000. 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.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
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Certain statements in this Form 10-QSB contain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
which statements generally can be identified by the use of forward-looking
terminology, such as "may," "will," "expect," "estimate," "anticipate,"
"believe," "target," "plan," "project," or "continue" or the negatives thereof
or other variations thereon or similar terminology, and are made on the basis
of management's plans and current analyses of the Company, its business and the
industry as a whole. These forward-looking statements are subject to risks and
uncertainties, including, but not limited to, economic conditions, competition,
interest rate sensitivity and exposure to regulatory and legislative changes
and other risks as detailed from time to time in the Company's filings with the
Securities and Exchange Commission. The above factors, in some cases, have
affected, and in the future could affect, the Company's financial performance
and could cause actual results for fiscal 2000 and beyond to differ materially
from those expressed or implied in such forward-looking statements. The
Company does not undertake to publicly update or revise its forward-looking
statements even if experience or future changes made it clear that any
projected results expressed or implied therein will not be realized.
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 September 30, 2000.
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: November 13, 2000 BY: /s/ Ronald S. Shoemaker
----------------- ---------------------------------------
Ronald S. Shoemaker
President and Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)
