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, 2001.
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) 903-0600
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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 1,478,994 shares issued and
outstanding as of August 6, 2001.
Transitional small business disclosure format (check one):
Yes No X
---- ----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
------
June 30, December 31,
2001 2000
----------- -----------
Cash and due from banks $ 3,795,404 $ 3,121,848
Interest bearing deposits
in other banks - - 2,789,223
Federal funds sold 1,845,000 1,200,000
----------- -----------
Total cash and cash equivalents $ 5,640,404 $ 7,111,071
Securities:
Available-for-sale,
at estimated market values 31,472,479 28,748,815
Held-to-maturity (Estimated market
values of $2,723,689 (06-30-01)
and $3,672,801 (12-31-00) 2,667,252 3,623,682
Loans, net 78,995,698 74,576,196
Property and equipment 2,459,568 2,174,511
Other assets 1,072,986 1,214,187
----------- -----------
Total Assets $122,308,387 $117,448,462
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
- -----------
Deposits
Non-interest bearing deposits $ 8,372,142 $ 7,841,546
Interest bearing deposits 92,149,162 88,478,580
----------- -----------
Total deposits $100,521,304 $ 96,320,126
FHLB advances 5,658,520 5,667,288
Other liabilities 1,033,227 1,200,811
----------- -----------
Total Liabilities $107,213,051 $103,188,225
----------- -----------
Commitments & Contingencies
Shareholders' Equity:
- --------------------
Common stock - $3.00 par value, 10
million shares authorized; 1,478,994
and 1,471,884 shares issued and
outstanding at June 30, 2001 and
December 31, 2000, respectively $ 4,436,982 $ 4,415,652
Paid-in-capital 4,791,133 4,762,393
Retained earnings 5,443,156 4,831,429
Accumulated other
comprehensive income 424,065 250,763
----------- -----------
Total Shareholders' Equity $ 15,095,336 $ 14,260,237
----------- -----------
Total Liabilities
and Shareholders' Equity $122,308,387 $117,448,462
=========== ===========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
INCOME STATEMENTS
(UNAUDITED)
For the Six Months
Ended June 30,
-------------------------
2001 2000
---- ----
Interest and fees
on loans and investments $4,811,910 $5,077,820
Interest expense 2,488,860 2,356,514
--------- ---------
Net interest income $2,323,050 $2,721,306
Provision for possible loan losses 60,000 65,000
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Net interest income (loss) after
provision for possible loan losses $2,263,050 $2,656,306
--------- ---------
Other income:
Service fees and other charges $ 170,303 $ 184,782
Gain/(loss) on sale of securities 188,020 (26,159)
--------- ---------
Total Other Income $ 358,323 $ 158,623
--------- ---------
Operating expenses:
Salaries and benefits $ 891,219 $ 937,687
Legal and professional 71,931 54,049
Depreciation 75,620 74,310
Amortization 3,331 3,331
Courier and postage 60,607 64,066
Rent and land lease 32,000 33,733
Data processing 125,993 94,525
Regulatory assessments 30,759 30,403
Other operating expenses 356,591 364,921
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Total operating expenses $1,648,051 $1,657,025
--------- ---------
Income before taxes $ 973,322 $1,157,904
Income tax 325,000 367,349
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Net Income $ 648,322 $ 790,555
========= =========
Basic income per share $ .44 $ .53
========= =========
Diluted income per share $ .41 $ .49
========= =========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
INCOME STATEMENTS
(UNAUDITED)
For the Six Months
Ended June 30,
-------------------------
2001 2000
---- ----
Interest and fees
on loans and investments $2,333,393 $2,561,375
Interest expense 1,240,636 1,237,005
--------- ---------
Net interest income $1,092,757 $1,324,370
Provision for possible loan losses 20,000 25,000
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Net interest income after
provision for possible loan losses $1,072,757 $1,299,370
--------- ---------
Other income:
Service fees and other charges $ 83,049 $ 94,696
Gain (loss) on sale of securities 91,410 - -
--------- ---------
Total other income $ 174,459 $ 94,696
--------- ---------
Operating expenses:
Salaries and benefits $ 481,708 $ 470,514
Legal and professional 34,288 27,176
Depreciation 39,762 37,972
Amortization 1,666 1,666
Courier and postage 30,430 27,335
Rent and land lease 15,825 17,364
Data processing 63,558 45,168
Regulatory assessments 15,386 17,612
Other operating expenses 190,637 206,211
--------- ---------
Total operating expenses $ 873,260 $ 851,018
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Net Income before taxes $ 373,956 $ 543,048
Income taxes 128,300 175,633
--------- ---------
Net Income $ 245,656 $ 367,415
========= =========
Basic income per share $ .17 $ .25
========= =========
Diluted income per share $ .16 $ .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,
-------------------------
2001 2000
---- ----
Cash flows from operating activities: $ 719,505 $ 569,903
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Cash flows from investing activities
Purchase of equipment (360,677) (104,500)
(Increase) in loans, net (4,479,502) (1,844,220)
Securities, available-for-sale
Sale of securities 8,781,310 1,558,740
Purchase of securities (13,065,402) (2,497,113)
Maturities and pay-downs 1,713,237 365,924
Securities, held-to-maturity
Purchase of securities - - (9,089,568)
Maturities and pay-downs 1,014,979 99,074
----------- ----------
Net cash used in investing activities $ (6,396,055) $(11,511,663)
----------- ----------
Cash flows from financing activities
Increase in deposits $ 4,201,176 $ 3,892,224
Reduction in borrowings, net (8,768) (3,009,342)
Purchase/cancellation of common stock (112,680) - -
Payment of dividends (36,595) - -
Proceeds from exercise
of warrants/options 162,750 162,750
----------- ----------
Net cash provided by financing activities $ 4,205,883 $ 1,045,632
----------- ----------
Net (decrease) in cash and cash equivalents $ (1,470,667) $ (9,896,128)
Cash and cash equivalents
at beginning of period 7,111,071 16,469,256
----------- ----------
Cash and cash equivalents at end of period $ 5,640,404 $ 6,573,128
=========== ==========
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, 2000 AND 2001
Accumulated
Common Stock Other
------------------ Paid in Retained Comprehensive
Shares Par Value Capital Earnings Income Total
------ --------- ------- -------- ------ -----
Balance,
Dec 31,
1999 1,467,384 $ 4,402,152 $ 4,742,143 $3,221,262 $(230,122) $12,135,436
--------- ---------- ---------- --------- -------- ----------
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)
--------- ---------- ---------- --------- -------- ----------
Total comprehensive
income - - - - - - 790,555 (32,678) 757,877
Exercise of
Warrants/
Options 15,500 46,500 116,250 - - - - 162,750
--------- ---------- ---------- --------- -------- ----------
Balance,
June 30,
2000 1,482,884 $ 4,448,652 $ 4,858,393 $4,011,817 $(262,800) $13,056,063
========= ========== ========== ========= ======== ==========
Balance,
December 31,
2000 1,471,884 $ 4,415,652 $ 4,762,393 $4,831,429 $ 250,763 $14,260,237
--------- ---------- ---------- --------- -------- ----------
Comprehensive Income:
- ---------------------
Net income,
six-month
period ended
June 30,
2001 - - - - - - 648,322 - - 648,322
Net unrealized
gains on
securities, six-
month period
ended June 30,
2001 - - - - - - - - 173,302 173,302
--------- ---------- ---------- --------- -------- ----------
Total comprehensive
income - - - - - - 648,322 173,302 821,624
Exercise
of 500
warrants 500 1,500 1,250 - - - - 2,750
Exercise
of 16,000
option 16,000 48,000 112,000 - - - - 160,000
Retirement
of 9,390
shares (9,390) (28,170) (84,510) - - - - (112,680)
Distribution
Of dividends - - - - - - (36,595) - - (36,595)
--------- ---------- ---------- --------- -------- ----------
Balance,
June 30,
2001 1,478,994 $ 4,436,982 $ 4,791,133 $5,443,156 $ 424,065 $15,095,336
========= ========== ========== ========= ======== ==========
Refer to notes to the consolidated financial statements.
COMMUNITY BANCSHARES, INC.
WILKESBORO, NORTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2001
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, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. 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, 2000.
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.
Since then, three banking branches have been established, bringing the total
banking offices to four.
As of June 30, 2001 and December 31, 2000, there were 1,478,994 and
1,471,884 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, 2001 and December 31, 2000, there were
151,068 and 151,568 warrants outstanding, respectively. The Company also has
a stock option plan with 164,000 and 170,000 options outstanding at June 30,
2001 and December 31, 2000, respectively.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Statement No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or a liability measured at
its fair value. The Statement requires that changes in the derivative
instrument's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Statement No. 133, as amended, is
effective for fiscal years beginning after June 15, 2000. The Company adopted
Statement No. 133 as of September 30, 2000. The adoption of Statement No. 133
did not have a material impact on the financial position or results of
operations of the Company.
In September, 2000, FASB issued Statement No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." This new Statement replaces Statement No. 125, issued in June,
1996. Statement No. 140 resolves certain implementation and other issues that
have arisen since the initial adoption of Statement No. 125, but it carries
over most of Statement No. 125's provisions without change. Statement No. 140
is effective for transfers occurring after March 31, 2001 and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. The adoption of Statement No. 140 will not have a
significant impact on the financial position or results of operations of the
Company.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS.
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Total assets increased by $4.9 million to $122.3 million during the six-
month period ended June 30, 2001. For the six-month period ended June 30,
2001, cash and cash equivalents decreased by $1.5 million to $5.6 million,
securities increased by $1.8 million to $34.1 million, loans increased by $4.4
million to $79.0 million, and all remaining assets increased by $.1 million to
$3.5 million. To fund the $4.9 million increase in assets, deposits grew by
$4.2 million to $100.5 million, other liabilities decreased by $.1 million to
$1.0 million, and the capital accounts increased by $.8 million to $15.1
million.
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, 2001 financial statements evidence a satisfactory liquidity position as
total cash and cash equivalents amounted to $5.6 million, representing 4.6% of
total assets. Investment securities, which amounted to $34.1 million or 27.9%
of total assets, provide a secondary source of liquidity because they can be
converted into cash in a timely manner. The Bank is a member of the Federal
Reserve System and maintains relationships with several correspondent banks
and, thus, could obtain funds from these banks 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
can provide adequate funds to meet customer withdrawals and loan demand. The
Company knows of no trends, demands, commitments, events or uncertainties that
will result in or are reasonably likely to result in its 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 (the "OCC").
Bank's Minimum required
June 30, 2001 by the OCC
------------- ----------------
Leverage ratio 9.3% 4.0%
Risk weighted ratio 13.9% 8.0%
Results of Operations
- ---------------------
For the three-month periods ended June 30, 2001 and 2000, net income amounted
to $245,656 and $367,415, respectively. On a per share basis, basic and
diluted income for the three-month period ended June 30, 2001 amounted to $.17
and $.16, respectively. For the three-month period ended June 30, 2000, basic
and diluted income per share amounted to $.25 and $.23, respectively. Below
is a brief comparison of selected items for the three-month period ended June
30, 2001 as compared to the three-month period ended June 30, 2000 which
contributed to the decrease in income per share for the three-month period
ended June 30, 2001.
(i) Net interest income decreased by approximately $232,000, due to lower
yields on earning assets.
(ii) Non-interest income increased by approximately $80,000. The entire
increase resulted from gains on sales of securities.
(iii) Operating expenses were approximately $22,000 higher during the
three-month period ended June 30, 2001 when compared to 2000.
However, management does not consider this increase to be
significant.
Net income for the six-month period ended June 30, 2001 amounted to $648,322,
or $.44 per diluted share. For the six-month period ended June 30, 2000, net
income amounted to $790,555, or $.49 per diluted share. The following four
items, which contributed to the decrease in income per share, are of
significance when one compares the June 30, 2001 results to those of June 30,
2000.
a. Net interest income, which represents the difference between interest
received on interest earning assets and interest paid on interest
bearing liabilities, decreased from $2,721,306 for the six-month period
ended June 30, 2000 to $2,323,050 for the same period in 2001,
representing a decrease of $398,256, or 14.6%. This decrease occurred
despite a $5.3 million increase in average earning assets, from $109.1
million for the six-month period ended June 30, 2000 to $114.4 million
for the six-month period ended June 30, 2001. As described below, this
decrease is largely due to a lower interest yield during the six-month
period ended June 30, 2001 as compared to 2000.
b. The net interest yield, defined as net interest income divided by
average interest earning assets, declined from 4.99% for the six-month
period ended June 30, 2000 to 4.06% for the six-month period ended June
30, 2001. The reasons for the decline in net interest yield are two-
fold:
(i) The yield on earning assets declined by 90 basis points, from 9.31%
for the six-month period ended June 30, 2000 to 8.41% for the six-
month period ended June 30, 2001; and,
(ii) The cost of funds increased by 9 basis points, from 5.09% for the
six-month period ended June 30, 2000 to 5.18% for the six-month
period ended June 30, 2001.
Below is pertinent information concerning the yield on earning assets
and the cost of funds for the six-month period ended June 30, 2001.
(in 000's)
Avg. Assets/ Interest Yield/
Description Liabilities Income/Expense Cost
----------- ------------ -------------- -----
Due from FHLB $ 2,197 $ 39 3.55%
Federal funds 1,437 29 4.04%
Securities 32,744 1,052 6.43%
Loans 77,993 3,692 9.47%
-------- ------- ----
Total $ 114,371 $ 4,812 8.41%
======== ------- ----
Transactional
accounts $ 23,433 $ 347 2.96%
Savings 3,616 28 1.55%
CD's 63,410 1,937 6.11%
Other borrowings 5,697 177 6.21%
-------- ------- ----
Total $ 96,156 $ 2,489 5.18%
======== ------- ----
Net interest income $ 2,323
=======
Net yield on earning assets 4.06%
====
c. Total non-interest income increased from $158,623 for the six-month
period ended June 30, 2000 to $358,323 for the six-month period ended
June 30, 2001. The entire increase in non-interest income is due to
gains on sales of securities. Core non-interest income evidenced a
slight decline, from $184,782 during the six-month period ended June 30,
2000 to $170,303 during the six-month period ended June 30, 2001.
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, 2001,
operating expenses amounted to $1,648,051, representing an annualized
2.76% of average assets. The decrease in operating expenses during the
six-month period ended June 30, 2001 when compared with the six-month
period ended June 30, 2000 is primarily due to lower personnel expense
and to the attainment of higher operational efficiencies.
During the six-month period ended June 30, 2001, the allowance for loan losses
grew by $9,472 to $1,262,269. The allowance for loan losses as a percentage
of gross loans decreased from 1.65% at December 31, 2000 to 1.57% at June 30,
2001. 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 2001 Annual Meeting of Shareholders of the Company was held on May
25, 2001. At the meeting the following persons were elected as Class I
directors to serve for a term of three years and until their successors are
selected and qualified: Gilbert R. Miller, Randy D. Miller and Rebecca Ann
Sebastian. In addition, Larry Farthing was elected as a Class II director, to
serve for a term of one year and until his successor is elected and qualified.
The number of votes cast for and against the election of each nominee
for director was as follows:
Votes Votes
FOR WITHHELD
--------- --------
Gilbert R. Miller 1,005,004 13,000
Randy D. Miller 1,005,004 13,000
Rebecca Ann Sebastian 1,117,004 1,000
Larry Farthing 1,117,004 1,000
The following persons did not stand for reelection to the Board at the
2001 Annual Meeting of Shareholders as their term of office continued after
the Annual Meeting: Jack Ray Ferguson, Ronald S. Shoemaker, Robert F.
Ricketts, DDS, Dwight E. Pardue and R. Colin Shoemaker.
Item 5. Other Information
- --------------------------
On May 25, 2001, the name of the Company's subsidiary Bank was changed
from Wilkes National Bank to Northwestern National Bank.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits. No exhibits are filed with this report.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed
during the quarter ended June 30, 2001.
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 13, 2001 BY: /s/ Ronald S. Shoemaker
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Ronald S. Shoemaker
President and Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)