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 June 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.
- -----------------------------------------------------------------
(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 Ln.-Westfield Village, Wilkesboro, NC 28697
- ---------------------------------------------------------------
(Address of Principal Executive Offices)
(336) 903-0600
- ---------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
N/A
- ---------------------------------------------------------------
(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 1,482,884 shares issued and
outstanding as of August 3, 2000.
(Page 1 of 14)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
CONSOLIDATED BALANCE SHEETS
ASSETS
------
At June 30, At December 31,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
----------- -----------
Cash and due from banks $ 3,373,128 $ 14,469,256
Federal funds sold 3,200,000 2,000,000
----------- -----------
Total cash and cash equivalents $ 6,573,128 $ 16,469,256
Securities:
Available-for-sale,
at estimated market values 19,961,273 19,372,280
Held-to-maturity (Estimated market
values of $10,725,726 (06-30-00)
and $1,788,107 (12-31-99) 10,796,984 1,806,490
Loans, net 74,714,821 72,935,601
Property and equipment 2,203,039 2,172,849
Other assets 1,384,746 1,049,054
----------- -----------
Total Assets $115,633,991 $113,805,530
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
- -----------
Deposits
Non-interest bearing deposits $ 6,810,641 $ 7,998,076
Interest bearing deposits 89,024,103 83,944,444
----------- -----------
Total deposits $ 95,834,744 $ 91,942,520
FHLB advances 5,675,577 8,684,919
Other liabilities 1,067,607 1,042,655
----------- -----------
Total Liabilities $102,577,928 $101,670,094
----------- -----------
Commitments & Contingencies
Shareholders' Equity:
- --------------------
Common stock - $3.00 par value, 10
million shares authorized; 1,482,884
and 1,467,384 shares issued and
outstanding at June 30, 2000 and
December 31, 1999, respectively $ 4,448,652 $ 4,402,152
Paid-in-capital 4,858,393 4,742,143
Retained earnings 4,011,818 3,221,263
Unrealized gain on
securities available-for-sale (262,800) (230,122)
----------- -----------
Total Shareholders' Equity $ 13,056,063 $ 12,135,436
----------- -----------
Total Liabilities
and Shareholders' Equity $115,633,991 $113,805,530
=========== ===========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
INCOME STATEMENTS
(UNAUDITED)
For the Six Months
Ended June 30,
------------------------
2000 1999
---- ----
Interest and fees
on loans and investments $5,077,820 $4,451,275
Interest expense 2,356,514 1,937,520
--------- ---------
Net interest income $2,721,306 $2,513,755
Provision for possible loan losses 65,000 50,000
--------- ---------
Net interest income (loss) after
provision for possible loan losses $2,656,306 $2,463,755
--------- ---------
Other income:
Service fees and other charges $ 184,782 $ 151,155
Gain on sale of assets - - 1,759
Gain/(loss) on sale of securities (26,159) 9,784
--------- ---------
Total Other Income $ 158,623 $ 162,698
--------- ---------
Operating expenses:
Salaries and benefits $ 937,687 $ 748,132
Legal and professional 54,049 123,429
Depreciation 74,310 58,296
Amortization 3,331 3,331
Courier and postage 64,066 53,314
Rent and land lease 33,733 24,700
Data processing 94,525 105,028
Regulatory assessments 30,403 31,500
Other operating expenses 364,921 312,487
--------- ---------
Total operating expenses $1,657,025 $1,460,217
--------- ---------
Income before taxes $1,157,904 $1,166,236
Income tax 367,349 468,023
--------- ---------
Net Income $ 790,555 $ 698,213
========= =========
Basic income per share $ .53 $ .48
========= =========
Diluted income per share $ .49 $ .43
========= =========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
INCOME STATEMENTS
(UNAUDITED)
For the Three Months
Ended June 30,
------------------------
2000 1999
---- ----
Interest and fees
on loans and investments $2,561,375 $2,210,529
Interest expense 1,237,005 941,308
--------- ---------
Net interest income $1,324,370 $1,269,221
Provision for possible loan losses 25,000 45,000
--------- ---------
Net interest income after
provision for possible loan losses $1,299,370 $1,224,221
--------- ---------
Other income:
Service fees and other charges $ 94,696 $ 82,504
Gain (loss) on sale of securities - - 4,600
--------- ---------
Total other income $ 94,696 $ 87,104
--------- ---------
Operating expenses:
Salaries and benefits $ 470,514 $ 371,061
Legal and professional 27,176 54,074
Depreciation 37,972 29,626
Amortization 1,666 1,666
Courier and postage 27,335 26,032
Rent and land lease 17,364 12,374
Data processing 45,168 52,957
Regulatory assessments 17,612 15,750
Other operating expenses 206,211 136,921
--------- ---------
Total operating expenses $ 851,018 $ 700,461
--------- ---------
Net Income before taxes $ 543,048 $ 610,864
Income taxes 175,633 251,220
--------- ---------
Net Income $ 367,415 $ 359,644
========= =========
Basic income per share $ .25 $ .25
========= =========
Diluted income per share $ .23 $ .23
========= =========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
June 30,
------------------------
2000 1999
---- ----
Cash flows from operating activities: $ 569,903 $ 844,619
----------- ----------
Cash flows from investing activities
Purchase of equipment (104,500) (28,150)
(Increase) in loans, net (1,844,220) (995,363)
Securities, available-for-sale
Sale of securities 1,558,740 1,769,535
Purchase of securities (2,497,113) (5,282,774)
Maturities and pay-downs 365,924 5,606,018
Securities, held-to-maturity
Purchase of securities (9,089,568) - -
Maturities and pay-downs 99,074 757,253
----------- ----------
Net cash used in investing activities $(11,511,663) $ 1,826,519
----------- ----------
Cash flows from financing activities
Increase in deposits $ 3,892,224 $ (923,752)
Reduction in borrowings, net (3,009,342) - -
Cancellation of 82,968 stock
warrants and 20,000 stock options - - (1,155,100)
Proceeds from exercise
of warrants/options 162,750 173,200
----------- ----------
Net cash provided by financing activities $ 1,045,632 $(1,905,652)
----------- ----------
Net (decrease) in cash and cash equivalents $ (9,896,128) $ 57,280
Cash and cash equivalents
at beginning of period 16,469,256 3,823,091
----------- ----------
Cash and cash equivalents at end of period $ 6,573,128 $ 3,880,371
=========== ==========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX-MONTH PERIODS ENDED JUNE 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 19,300 57,900 115,300 - - - - 173,200
Cancellation
of 82,968
stock warrants
and 20,000
stock options - - - - (1,155,100) - - - - (1,155,100)
Comprehensive Income:
- --------------------
Net income,
six-month
period ended
June 30, 1999 - - - - - - 698,213 - - 698,213
Net unrealized
(losses) on
securities,
six- month
period ended
June 30, 1999 - - - - - - - - (191,819) (191,819)
--------- ---------- ---------- --------- -------- ----------
Balance,
June 30,
1999 1,466,284 $ 4,398,852 $ 4,729,893 $2,466,007 $(100,324) $11,494,428
========= ========== ========== ========= ======== ==========
Balance,
December 31,
1999 1,467,384 $ 4,402,152 $ 4,742,143 $3,221,262 $(230,122) $12,135,436
--------- ---------- ---------- --------- -------- ----------
Exercise of
warrants/
options 15,500 46,500 116,250 - - - - 162,750
Comprehensive Income:
- ---------------------
Net income,
six-month
period ended
June 30,
2000 - - - - - - 790,555 - - 790,555
Net unrealized
(losses) on
securities, six-
month period
ended June 30,
2000 - - - - - - - - (32,678) (32,678)
--------- ---------- ---------- --------- -------- ----------
Balance,
June 30,
2000 1,482,884 $ 4,448,652 $ 4,858,393 $4,011,817 $(262,800) $13,056,063
========= ========== ========== ========= ======== ==========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 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 six-month periods ended June 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 June 30, 2000 and December 31, 1999, there were 1,482,884 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 June 30, 2000 and December 31, 1999, there were
151,568 warrants outstanding. The Company also has a stock option plan with
164,500 and 180,500 options outstanding at June 30, 2000 and December 31,
1999, respectively.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
In March, 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 provides
guidance for capitalizing and expensing the costs of computer software
developed or obtained for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The adoption
of SOP 98-1 did not have a material impact on the accompanying consolidated
financial statements.
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. Since
the Company does not invest in derivative instruments, the adoption of SFAS
No. 133 does not have a material impact on the financial statements.
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after
the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise" amends prior accounting standards, primarily SFAS 65, with respect
to the classification of retained interests, such as mortgage-backed
securities, following a securitization of mortgage loans held for sale. This
statement became effective in the first quarter of 1999. Since the Company
does not securitize mortgage loans, no financial statement impact has resulted
from adopting this statement.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS.
- ---------------------
Total assets increased by $1.8 million to $115.6 million during the six-month
period ended June 30, 2000. More specifically, cash and cash equivalents
decreased by $9.9 million as there was no longer a need to maintain a high
level of liquid funds due to Y2K concerns. In addition, net loans increased
by $1.8 million, securities increased by $9.6 million, and other assets
increased by $300,000.
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 June
30, 2000 financial statements evidence a satisfactory liquidity position as
total cash and cash equivalents amounted to $6.6 million, representing 5.7% of
total assets. Investment securities, which amounted to $30.8 million or 26.6%
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
June 30, 2000 by regulator
------------- ----------------
Leverage ratio 9.4% 4.0%
Risk weighted ratio 13.6% 8.0%
During the first six months of 2000, 15,500 options were exercised, resulting
in a $162,750 increase in the Company's capital accounts. These funds can be
injected into the Bank's capital accounts as management deems appropriate.
Results of Operations
- ---------------------
For the three-month periods ended June 30, 2000 and 1999, net income amounted
to $367,415 and $359,644, respectively. On a per share basis, basic and
diluted income for the three-month period ended June 30, 2000 amounted to $.25
and $.23, respectively. For the three-month period ended June 30, 1999, basic
and diluted income per share were identical to the results achieved during the
three-month period ended June 30, 2000, or $.25 and $.23, respectively. Below
is a brief comparison of selected items for the three-month period ended June
30, 2000 as compared to the three-month period ended June 30, 1999.
(i) Net interest income increased by approximately $55,000, due to a higher
level of earning assets.
(ii) Non-interest income increased by approximately $7,500, due to a higher
volume of transaction accounts.
(iii) Operating expenses were approximately $151,000 higher primarily
due to higher personnel expense and other miscellaneous expenses.
Net income for the six-month period ended June 30, 2000 amounted to $790,555,
or $.49 per diluted share. For the six-month period ended June 30, 1999, net
income amounted to $698,213, or $.43 per diluted share. The following four
items are of significance when one compares the June 30, 2000 results to those
of June 30, 1999.
a. Net interest income, which represents the difference between interest
received on interest earning assets and interest paid on interest
bearing liabilities, increased from $2,513,755 for the six-month period
ended June 30, 1999 to $2,721,306 for the same period one year later,
representing an increase of $207,551, or 8.9%. This increase was
attained primarily because of an $8.9 million increase in average
earning assets, from $100.2 million for the six-month period ended June
30, 1999 to $109.1 million for the six-month period ended June 30, 2000.
b. The net interest yield, defined as net interest income divided by
average interest earning assets, declined from 5.01% for the six-month
period ended June 30, 1999 to 4.99% for the six-month period ended June
30, 2000. In light of the fact that average earning assets increased by
$8.9 million, representing an increase of 8.9%, management does not view
the decline in the net interest yield on earning assets as being
significant. Below is pertinent information concerning the yield on
earning assets and the cost of funds for the six month period ended June
30, 2000.
(in 000's)
------------------------------
Avg. Assets/ Interest Yield/
Description Liabilities Income/Expense Cost
- ----------- ----------- -------------- ------
Due from FHLB $ 3,669 $ 141 7.69%
Federal funds 2,705 78 5.77%
Securities 26,653 885 6.64%
Loans 76,063 3,974 10.45%
-------- ------- -----
Total $ 109,090 $ 5,078 9.31%
======== ======= -----
Transactional
accounts $ 19,402 $ 285 2.94%
Savings 3,653 32 1.75%
CD's 63,184 1,804 5.71%
Other borrowings 6,331 236 7.46%
-------- ------- -----
Total $ 92,570 $ 2,357 5.09%
======== ------- -----
Net interest income $ 2,721
=======
Net yield on earning assets 4.99%
=====
c. Total non-interest income decreased from $162,698 for the six-month
period ended June 30, 1999 to $158,623 for the six-month period ended
June 30, 2000. However, if one discounts gains and losses on sales of
securities and other assets, the remaining core non-interest income
would have increased from $151,155 for the six-month period ended June
30, 1999 to $184,782 for the six-month period ended June 30, 2000, an
increase of $33,627, or 22.2%.
d. For the six-month period ended June 30, 2000, operating expenses
amounted to $1,657,025 representing an annualized 3.02% of average
assets. By comparison, for the six-month period ended June 30, 1999,
operating expenses amounted to $1,460,217, representing an annualized
2.83% of average assets. The increase in operating expenses during 2000
when compared with 1999 is attributable to higher personnel and other
miscellaneous expenses.
During the six-month period ended June 30, 2000, the allowance for loan losses
grew by $119,642 to $1,348,537. The allowance for loan losses as a percentage
of gross loans increased from 1.66% at December 31, 1999 to 1.77% at June 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.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
The 2000 Annual Meeting of Shareholders of the Company was held on May
26, 2000. At the meeting the following persons were elected as directors to
serve for a term of three years and until their successors are elected and
qualified: Robert F. Ricketts, DDS, Dwight E. Pardue and R. Colin Shoemaker.
The number of votes cast for and against the election of each nominee
for director was as follows:
Votes Votes Votes
FOR AGAINST WITHHELD
--------- ------- --------
Robert F. Ricketts, DDS 1,216,205 0 15,620
Dwight E. Pardue 1,216,205 0 15,620
R. Colin Shoemaker 1,215,405 800 15,620
The following persons did not stand for reelection to the Board at the
2000 Annual Meeting of Shareholders as their term of office continued after
the Annual Meeting: Brent F. Eller, Jack Ray Ferguson, Gilbert R. Miller,
Randy D. Miller, Rebecca Ann Sebastian and Ronald S. Shoemaker.
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 June 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: August 4, 2000 BY: /s/ Ronald S. Shoemaker
--------------- -------------------------------------
Ronald S. Shoemaker
President and Chief Executive Officer
(Principal Executive, Financial and Accounting
Officer)