UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-16461
COMMUNITY BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 63-0868361 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| 68149 Main Street, Blountsville, Alabama | 35031 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(205) 429-1000
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
x Yes ¨ No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act):
¨ Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
As of July 31, 2004, there were 8,426,233 shares of the registrant’s common stock, $.10 par value per share, outstanding.
1
IMPORTANT INFORMATION ABOUT THIS REPORT
In this Quarterly Report on Form 10-Q, which we refer to as this “Report”, the words “Company,” “we,” “us” and “our” refer to the combined entities of Community Bancshares, Inc., Community Bank, 1st Community Credit Corporation, Community Insurance Corp., Southern Select Insurance, Inc., Community Appraisals, Inc., and Community Funding Corporation.
The words “Community Bancshares,” “Community Bank,” “Community Credit,” “Community Insurance,” “Southern Select,” “Community Appraisals,” and “Community Funding” refer to each of those entities individually.
SPECIAL CAUTIONARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made or incorporated by reference in this Report are “forward-looking statements” within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, or the “Exchange Act.”
Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements.
All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “hope,” “project,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “could,” “intend,” “seek,” “target,” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:
| • | future economic or business conditions; |
| • | governmental monetary and fiscal policies, as well as legislative and regulatory changes, including changes in tax laws and regulations; |
| • | the risks of changes in interest rates on the levels, composition and costs of deposits, loan demand, and the values of loan collateral, securities, and interest sensitive assets and liabilities; |
| • | interest rate risks and credit risks of borrowers; |
| • | the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services; |
| • | the failure of assumptions underlying the establishment of the allowance for loan losses and other estimates, and the uncertainty and costs of litigation; |
| • | the risks of mergers, acquisitions and divestures, including, without limitation, the related time and costs of implementing such transactions, and the possible failure to achieve expected gains, revenue growth and/or expense savings expected from such transactions; |
| • | changes in accounting policies, rules and practices; |
| • | difficulties with, or changes in the cost or effectiveness of, technology and/or products; |
| • | the effects of war or other conflict, acts of terrorism or other catastrophic events that affect general economic conditions; and |
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| • | other factors and other information discussed in this Report, as well as other factors and risks described in any of our other reports that we make with the SEC under the Exchange Act. |
All written or oral statements that are made by or are attributable to us are expressly qualified in their entirety by this cautionary notice. We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date of this Report, or after the respective dates on which such statements otherwise are made.
3
PART 1
| Item 1. | Financial Statements. |
Community Bancshares, Inc. and Subsidiaries
Consolidated Balance Sheets
| (Unaudited) June 30, 2004 |
December 31, 2003 |
|||||||
| Assets |
||||||||
| Cash and due from banks |
$ | 31,888,902 | $ | 30,370,220 | ||||
| Interest-bearing deposits in banks and federal funds sold |
3,226,051 | 14,550,000 | ||||||
| Cash and cash equivalents |
35,114,953 | 44,920,220 | ||||||
| Securities available for sale |
160,209,295 | 156,270,593 | ||||||
| Loans held for sale |
— | 1,821,221 | ||||||
| Loans, net of allowance for loan losses of $10,375,043 and $14,357,624 |
297,165,347 | 301,849,451 | ||||||
| Capitalized lease receivable |
2,912,082 | 2,959,818 | ||||||
| Accrued interest receivable |
3,153,638 | 3,260,957 | ||||||
| Premises and equipment, net |
21,381,951 | 22,796,143 | ||||||
| Goodwill and other intangible assets, net |
2,405,815 | 2,445,524 | ||||||
| Foreclosed assets |
5,317,635 | 6,945,494 | ||||||
| Other assets |
16,992,036 | 15,285,190 | ||||||
| Total assets |
$ | 544,652,752 | $ | 558,554,611 | ||||
| Liabilities and stockholders’ equity |
||||||||
| Deposits: |
||||||||
| Noninterest-bearing |
$ | 58,525,193 | $ | 56,255,701 | ||||
| Interest-bearing |
380,697,415 | 397,689,888 | ||||||
| Total deposits |
439,222,608 | 453,945,589 | ||||||
| Other short-term borrowings |
553,212 | 600,000 | ||||||
| FHLB long-term debt |
38,000,000 | 38,000,000 | ||||||
| Capitalized lease obligations |
3,933,264 | 3,976,367 | ||||||
| Other long-term debt |
— | 3,168,502 | ||||||
| Trust preferred securities (Note 6) |
— | 10,000,000 | ||||||
| Junior subordinated debt (Note 6) |
10,310,000 | — | ||||||
| Accrued interest payable |
4,790,851 | 4,248,861 | ||||||
| Other liabilities |
6,210,036 | 9,297,672 | ||||||
| Total liabilities |
503,019,971 | 523,236,991 | ||||||
| Commitments and contingencies (Note 10) |
||||||||
| Stockholders’ equity |
||||||||
| Preferred stock (par value $.10 per share; 200,000 shares authorized; no shares issued or outstanding) |
— | — | ||||||
| Common stock (par value $.10 per share; 20,000,000 shares authorized; 8,586,163 and 6,978,671 shares issued as of June 30, 2004 and December 31, 2003, respectively; 2,191,897 shares of which are exchangeable) |
858,616 | 697,868 | ||||||
| Additional paid-in-capital |
48,586,390 | 40,996,918 | ||||||
| Stock warrant outstanding |
242,500 | — | ||||||
| Treasury common stock, at cost (89,867 and 86,888 shares, as of June 30, 2004 and December 31, 2003, respectively) |
(910,413 | ) | (894,029 | ) | ||||
| Retained earnings (deficit) |
(1,791,370 | ) | (2,075,986 | ) | ||||
| Unearned ESOP common stock (115,063 and 123,111 shares as of June 30, 2004 and December 31, 2003, respectively) |
(1,660,768 | ) | (1,741,248 | ) | ||||
| Accumulated other comprehensive loss |
(3,692,174 | ) | (1,665,903 | ) | ||||
| Total stockholders’ equity |
41,632,781 | 35,317,620 | ||||||
| Total liabilities and stockholders’ equity |
$ | 544,652,752 | $ | 558,554,611 | ||||
The accompanying notes are an integral part of these consolidated financial statements
4
Community Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
| Three months ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Interest income: |
||||||||
| Loans, including fees |
$ | 6,203,437 | $ | 7,019,307 | ||||
| Interest on investment securities: |
||||||||
| Taxable securities |
1,411,032 | 1,241,836 | ||||||
| Tax-exempt securities |
70,727 | 85,930 | ||||||
| Federal funds sold |
20,858 | 75,024 | ||||||
| Other |
60,261 | 7,144 | ||||||
| Total interest income |
7,766,315 | 8,429,241 | ||||||
| Interest expense: |
||||||||
| Deposits |
2,127,965 | 2,661,340 | ||||||
| Short-term borrowings |
598 | 563 | ||||||
| FHLB long-term debt |
569,609 | 569,609 | ||||||
| Capitalized lease obligations |
39,367 | 42,709 | ||||||
| Junior subordinated debentures |
358,337 | 333,802 | ||||||
| Other long-term debt |
16,919 | 47,499 | ||||||
| Total interest expense |
3,112,795 | 3,655,522 | ||||||
| Net interest income |
4,653,520 | 4,773,719 | ||||||
| Provision for loan losses |
78,287 | 2,321,041 | ||||||
| Net interest income, after provision for loan losses |
4,575,233 | 2,452,678 | ||||||
| Noninterest income: |
||||||||
| Service charges on deposits |
738,709 | 710,264 | ||||||
| Insurance commissions |
606,607 | 572,793 | ||||||
| Bank club dues |
89,971 | 104,804 | ||||||
| Debt cancellation fees |
(16,283 | ) | 18,452 | |||||
| Securities gains, net |
— | 80,955 | ||||||
| Other |
108,240 | 305,943 | ||||||
| Total noninterest income |
1,527,244 | 1,793,211 | ||||||
| Noninterest expense: |
||||||||
| Salaries and employee benefits |
3,046,043 | 3,310,160 | ||||||
| Occupancy |
519,307 | 582,715 | ||||||
| Furniture and equipment |
362,644 | 387,607 | ||||||
| Insurance |
306,226 | 287,808 | ||||||
| Director and committee fees |
71,272 | 97,417 | ||||||
| Professional services |
95,064 | 1,233,278 | ||||||
| Foreclosed assets, net |
430,042 | 280,176 | ||||||
| Disposal or impairment of assets |
79,466 | 36,882 | ||||||
| Litigation, fraud or burglary |
3,689 | 14,084 | ||||||
| Other |
920,310 | 1,012,390 | ||||||
| Total noninterest expense |
5,834,063 | 7,242,517 | ||||||
| Income (loss) before income taxes |
268,414 | (2,996,628 | ) | |||||
| Income taxes |
(38,841 | ) | 455,422 | |||||
| Net income (loss) |
$ | 229,573 | $ | (2,541,206 | ) | |||
The accompanying notes are an integral part of these consolidated financial statements
5
Community Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income – continued
(Unaudited)
| Three months ended June 30, |
|||||||
| 2004 |
2003 |
||||||
| Earnings (loss) per share: |
|||||||
| Basic |
$ | 0.03 | $ | (0.55 | ) | ||
| Diluted |
$ | 0.03 | $ | (0.55 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements
6
Community Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
| Six months ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Interest income: |
||||||||
| Loans, including fees |
$ | 12,548,642 | $ | 14,380,212 | ||||
| Interest on investment securities: |
||||||||
| Taxable securities |
2,825,508 | 2,616,483 | ||||||
| Tax-exempt securities |
143,877 | 175,255 | ||||||
| Federal funds sold |
60,130 | 157,282 | ||||||
| Other |
110,194 | 14,254 | ||||||
| Total interest income |
15,688,351 | 17,343,486 | ||||||
| Interest expense: |
||||||||
| Deposits |
4,344,355 | 5,546,548 | ||||||
| Short-term borrowings |
1,241 | 1,713 | ||||||
| FHLB long-term debt |
1,139,219 | 1,132,959 | ||||||
| Capitalized lease obligations |
78,946 | 85,161 | ||||||
| Junior subordinated debentures |
693,272 | 647,966 | ||||||
| Other long-term debt |
49,706 | 77,970 | ||||||
| Total interest expense |
6,306,739 | 7,492,317 | ||||||
| Net interest income |
9,381,612 | 9,851,169 | ||||||
| Provision for loan losses |
377,672 | 3,610,480 | ||||||
| Net interest income, after provision for loan losses |
9,003,940 | 6,240,689 | ||||||
| Noninterest income: |
||||||||
| Service charges on deposits |
1,402,135 | 1,320,822 | ||||||
| Insurance commissions. |
1,280,928 | 1,136,586 | ||||||
| Bank club dues |
182,572 | |||||||