<PAGE>
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________
FORM 10-QSB
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from __________ to _____________.
Commission File Number: 0-23411
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Community National Corporation
- ----------------------------------------------------------------
(Exact Name of Small Business Issuer
as Specified in Its Charter)
Tennessee 62-1700975
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
19 Natchez Trace Drive, Lexington, Tennessee 38351
- ----------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code: (901) 968-6624
--------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 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.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the
issuer's common stock as of the latest practicable date.
Class Outstanding at April 30, 1998
- ----------------------------- -----------------------------
Common Stock, $1.00 par value 712,866 shares
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COMMUNITY NATIONAL CORPORATION
CONTENTS
PART I FINANCIAL INFORMATION
Item 1: Financial Statements Page
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Comprehensive
Income 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
PART II OTHER INFORMATION 14
Signature 15
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<PAGE>
1
COMMUNITY NATIONAL CORPORATION
(AND SUBSIDIARY)
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 and DECEMBER 31, 1997
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Non-interest bearing $ 322,125 $ 211,969
Interest bearing 1,587,306 2,529,814
Investment securities:
Securities held-to-maturity (estimated
market value of $1,189,127 (1998) and
$1,189,106 (1997)) 1,157,507 1,157,492
Securities available-for-sale, at
estimated market value 3,483,230 2,518,019
Mortgage-backed and related securities:
Securities held-to-maturity (estimated
market value of $516,323 (1998) and
$563,295 (1997)) 514,014 556,783
Securities available-for-sale, at
estimated market value 3,114,632 3,461,579
Loans receivable, net 20,379,462 19,544,222
Accrued interest receivable 148,486 138,047
Real estate held for investment 336 336
Premises and equipment 530,895 579,148
Stock investments:
Stock in Federal Home Loan Bank, at cost 268,600 263,900
Stock in Federal Reserve Bank, at cost 237,150 237,150
Stock in Savings and Loan Data Corporation,
at cost 15,000 15,000
Other assets 2,402 2,243
------------ ------------
Total Assets $ 31,761,145 $ 31,215,702
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits $ 21,978,306 $ 21,416,047
Advances from FHLB 815,600 821,777
Advances from borrowers for taxes
and insurance 2,272 454
Accrued interest payable 164,099 169,954
Income taxes payable:
Current 62,593 83,507
Deferred 6,835 4,935
Accrued expenses and other liabilities 130,978 151,055
------------ ------------
Total Liabilities $ 23,160,683 $ 22,647,729
----------------- ------------ ------------
Stockholders' Equity
Preferred stock, 2,000,000 shares
authorized, non issued or outstanding $ -- $ --
Common stock of $1.00 par value;
8,000,000 shares authorized
712,866 issued 712,866 712,866
Additional paid-in capital 4,489,512 4,489,512
Retained earnings - substantially
restricted 3,400,028 3,371,864
Accumulated other comprehensive income,
net of taxes (1,944) (6,269)
------------ ------------
Total Stockholders' Equity $ 8,600,462 $ 8,567,973
------------ ------------
Total Liabilities & Stockholders
Equity $ 31,761,145 $ 31,215,702
============ ============
/TABLE
<PAGE>
<PAGE> 2
COMMUNITY NATIONAL CORPORATION
(AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
March 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
INTEREST INCOME
First mortgage loans $ 346,840 $ 359,029
Consumer & other loans 76,855 5,847
Interest and dividends on investments:
Taxable 41,088 50,875
Tax-exempt 18,470 18,470
Dividends 4,718 4,244
Interest on deposits with banks 28,864 7,232
Interest on mortgage-backed securities 66,747 52,231
----------- -----------
Total interest income $ 583,582 $ 497,928
--------------------- ----------- -----------
INTEREST EXPENSE
Interest on deposits $ 268,523 $ 251,777
Interest on advances from FHLB 15,869 18,510
----------- -----------
Total interest expense $ 284,392 $ 270,287
---------------------- ----------- -----------
Net interest income $ 299,190 $ 227,641
-------------------
Provision for loan losses 31,540 6,229
----------- -----------
Net interest income after
provision for loan losses $ 267,650 $ 221,412
--------------------------
NON-INTEREST INCOME:
Income from real estate held
for investment $ 2,775 $ 2,125
Service charges 31,264 12,139
Other operating income 4,825 399
----------- -----------
Total non-interest income $ 38,864 $ 14,663
------------------------- ----------- -----------
NON-INTEREST EXPENSE
Compensation & benefits $ 107,059 $ 97,300
Occupancy & equipment 35,691 10,901
Federal deposit insurance premiums 3,364 3,835
Data processing fees 15,675 6,605
Other operating expenses 49,486 25,162
----------- -----------
Total non-interest expense $ 211,275 $ 143,803
-------------------------- ----------- -----------
Income before income taxes $ 95,239 $ 92,272
Income tax expense 31,429 30,721
----------- -----------
Net income $ 63,810 $ 61,551
---------- =========== ===========
Earnings per common share $ 0.09 $ 0.17
=========== ===========
Diluted earnings per share $ 0.09 $ 0.17
=========== ===========
Dividends paid per share $ 0.05 $ 0.20
=========== ===========
</TABLE>
<PAGE>
3
COMMUNITY NATIONAL CORPORATION
(AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
March 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Net income $63,810 $61,551
Other comprehensive income, net of tax:
Unrealized gains on securities held
as available-for-sale, net of
applicable deferred income taxes
of $2,227 (1998) and $4,391 (1997) 4,325 8,525
------- -------
Other comprehensive income $68,135 $70,076
======= =======
/TABLE
<PAGE>
<PAGE>
4
COMMUNITY NATIONAL CORPORATION
(AND SUBSIDIARY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
----------------- Paid-in Retained Comprehensive Stockholders'
Shares Amount Capital Earnings Income Equity
------ ------ --------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 712,866 $712,866 $4,489,512 $3,371,864 $(6,269) $8,567,973
Comprehensive income:
Net income 63,810 63,810
Change in unrealized gain
(loss) on securities
available-for-sale, net of
applicable deferred income
taxes of $2,227 4,325 4,325
Dividends paid ($.05 per share) (35,646) (35,646)
------- -------- ---------- ----------- ------- ----------
Balance at March 31, 1998 712,866 $712,866 $4,489,512 $ 3,400,028 $(1,944) $8,600,462
======= ======== ========== =========== ======= ==========
/TABLE
<PAGE>
<PAGE>
5
COMMUNITY NATIONAL CORPORATION
(AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION> March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 63,810 $ 61,551
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on loans 31,540 6,229
Provision for depreciation 29,534 2,263
Amortizations of investment securities
premiums and discounts (net) 1,996 1,311
(Gain) loss on sale of investments --
Stock in FHLB received as dividends (4,700) (4,200)
Changes in operating assets and liabilities:
(Increase) decrease in interest receivable (10,439) (21,878)
(Increase) decrease in other assets (159) 622
Increase (decrease) in interest payable (5,855) (988)
Increase (decrease) in income taxes (21,241) 21,162
Increase (decrease) in other liabilities (20,077) 1,705
------------ ------------
Net Cash Provided by Operating Activities $ 64,409 $ 67,777
----------------------------------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans receivable $ (770,240) $ (230,212)
Net (increase) decrease in time deposits 600,000
Additions to premises & equipment (77,823) (10,754)
Purchase of mortgage-backed securities (495,000)
Principal payments on mortgage-backed
securities 229,046 129,948
Purchases of investment securities (700,000)
Proceeds from maturities of investment
securities 395,000 251,720
------------ ------------
Net Cash Provided by Investing Activities $ (1,419,017) $ 740,702
- ----------------------------------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 562,259 $ 245,906
Repayments of FHLB advances (6,177) (6,110)
Net increase in advances from borrowers
for taxes and insurance 1,818 770
Payment of dividends (35,644) (17,599)
------------ ------------
Net Cash Provided by Financing Activities $ 522,256 $ 222,967
- ------------------------------------------ ------------ ------------
Increase (Decrease) in Cash and Cash
equivalents $ (832,352) $ 1,031,446
------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD $ 2,741,783 $ 542,045
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,909,431 $ 1,573,491
============ ============
/TABLE
<PAGE>
<PAGE>
6
COMMUNITY NATIONAL CORPORATION
(AND SUBSIDIARY)
CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.)
THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION> March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Supplemental disclosure of cash flow
information:
Interest paid $ 290,247 $ 271,275
Taxes paid 45,372 9,416
Non-cash investing:
Stock dividends received from Federal
Home Loan Banks 4,700 4,200
Total net increase (decrease) in unrealized
loss on securities available-for-sale 6,552 (17,307)
/TABLE
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7
COMMUNITY NATIONAL CORPORATION
(AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Community National Corporation and subsidiary have been prepared
in accordance with instructions for Form 10-QSB. To the extent
that information and footnotes required by generally accepted
accounting principles for complete financial statements are
contained in the audited financial statements included in the
Corporation's Annual Report for the year ended December 31,
1997, such information and footnotes have not been duplicated
herein. In the opinion of management, all adjustments,
consisting only of normal recurring accruals, which are
necessary for the fair presentation of the interim financial
statements have been included. The statements of earnings for
the three month period ended March 31, 1998 are not necessarily
indicative of the results which may be expected for the entire
year. The December 31, 1997 consolidated balance sheet has been
derived from the audited consolidated financial statements as of
that date.
(2) EARNINGS PER SHARE
Net earnings per share of common stock for the year ended
December 31, 1997 and the three month period ended March 31,
1998 of $0.09 and $0.17 were computed by dividing the net income
by the weighted average number of shares outstanding for the
year. All per share amounts prior to December 11, 1997, the
date of reorganization, have been adjusted for the exchange rate
of 2.581243. Diluted earnings per share has not been presented
because the Company has a simple capital structure.
(3) NEW ACCOUNTING STANDARDS
The Company adopted FASB Statement no. 130, Reporting
Comprehensive Income in 1998. All periods presented are in
accordance with SFAS 130. Statement no. 130 requires the
reporting of comprehensive income in addition to net income from
operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain
financial information that historically has not been recognized
in the calculation of net income. This comprehensive income
consists of securities classified as available-for-sale by the
Company, which have unrealized gains of $4,325 (1998) and $8,525
(1997) net of related taxes.
<PAGE>
<PAGE>
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
Community National Corporation (the "Company") was
incorporated under the laws of the State of Tennessee for the
purpose of holding all of the capital stock of Lexington First
Federal Savings Bank ("Lexington First Federal") following the
second step conversion of its former mutual holding company (the
"Conversion and Reorganization"), which was completed on
December 11, 1997. The Company's principal business is that of
directing, planning and coordinating the business activities of
the Bank. Immediately following the Conversion and
Reorganization, Lexington First Federal converted to a national
bank with the name Community National Bank of Tennessee (the
"Bank") and remained a wholly-owned subsidiary of the Company
(the "Bank Conversion"). Upon the completion of the Bank
Conversion, the Company became a bank holding company. The
Company has no significant assets other than its investment in
the Bank, and certain cash and cash equivalents. At December
31, 1997, on a consolidated basis, the Company had total assets
of $31.2 million, net loans receivable of $19.5 million, cash
and investment securities of $6.4 million, mortgage-backed
securities of $4.0 million, total deposits of $21.4 million and
stockholders' equity of $8.6 million.
The Bank is a national bank operating through its office in
Lexington, Tennessee, serving Henderson County in southwestern
Tennessee. The Bank is the successor to Lexington First
Federal. Therefore, all references to the Bank also include its
predecessor, Lexington First Federal. Until February 1997, the
Bank's primary business, as conducted through its office located
in Lexington, Tennessee, was the origination and holding of
mortgage loans secured by single-family residential real estate
located primarily in Henderson County, Tennessee, with funds
obtained primarily through the attraction of savings deposits,
certificate accounts with terms of 18 months or less, and
Federal Home Loan Bank ("FHLB") advances. The Bank also made
some construction loans on single-family residences, savings
account loans, and second mortgage consumer loans. The Bank
purchased mortgage-backed securities, and invested in other
liquid investment securities.
Beginning in February 1997, the Bank's emphasis shifted to
full service banking, diversification of the loan portfolio, the
origination of long term fixed rate mortgage loans solely for
sale in the secondary market, and the offering of a greater
variety of transaction accounts. Current Bank policy restricts
fixed rate loans to five years with limited exceptions. The
reduction and control of interest rate risk, and the origination
of variable rate loans, short term loans and balloon loans of
one, two, three and five years are emphasized. The Bank's
emphasis is the diversification in the portfolio with quality
consumer and commercial loans in order to both reduce and
control interest rate risk, and to increase the interest rate
spread.
As a bank holding company, the Company is registered with,
and subject to regulation and examination by the Board of
Governors of the Federal Reserve System (the "Federal Reserve
Board"). The Bank is subject to comprehensive examination,
supervision, and regulation by the Office of the Comptroller of
the Currency ("OCC"). Because the Bank was formerly chartered
as a savings association, the Bank's deposits are insured by the
Savings
<PAGE>
<PAGE>
9
Association Insurance Fund ("SAIF") of the Federal Deposit
Insurance Corporation ("FDIC") up to the applicable limits for
each depositor.
The Company's principal executive office is located at the
home office of the Bank at 19 Natchez Trace Drive, Lexington,
Tennessee 38351, and its telephone number is (901) 968-6624.
The Bank is primarily engaged in attracting deposits from
the general public and using those and other available sources
of funds to originate loans secured by single-family residences
located in Henderson County and surrounding counties in West
Tennessee. To a lesser extent, Lexington also originates
construction loans, land loans and consumer loans. It also has
a significant amount of investments in mortgage-backed
securities, United States Government and federal agency
obligations, and tax exempt securities.
The profitability of the Bank depends primarily on its net
interest income, which is the difference between interest and
dividend income on interest-earning assets, principally loans,
mortgage-backed securities and investment securities, and
interest expense on interest-bearing deposits and borrowings.
The Bank's net income also is dependent, to a lesser extent, on
the level of its noninterest income and its non-interest
expenses, such as compensation and benefits, occupancy and
equipment, insurance premiums, and miscellaneous other expenses,
as well as federal income tax expense.
FINANCIAL CONDITION
- -------------------
Consolidated assets of Community National were $31,761,145
as of March 31, 1998, compared to $31,215,702 on December 31,
1997, an increase of $545,443. The increase was primarily
funded by an increase in net loans receivable of $835,240 and an
increase in investments of $965,226 offset by decreases in
mortgage backed securities of $389,716 and cash of $832,352.
The 6.99% annualized growth rate of assets for the quarter is in
accordance with the Company's growth objectives. The funds were
used to purchase investment securities, interest bearing
deposits and to fund loan growth.
Loans receivable, net increased to $20,379,462 on March 31,
1998 from 19,544,222 on December 31, 1997, and increase of
$835,240. Mortgage-backed securities decreased $389,716 to
3,628,646 at March 31, 1998 from $4,018,362 on December 31,
1997.
Deposits totaled $21,978,306 on March 31, 1998, an increase
of 562,259 from $21,416,047 on December 31, 1997. The increase
in deposits is primarily due to increased advertising.
Stockholders' equity was $8,567,973 on December 31, 997,
compared to $8,600,462 on March 31, 1998, an increase of
$32,489. The increase was due to reductions in unrealized loss
in available-for-sale securities of $4,325, earnings for the
quarter of $63,810, off-set by the Company's quarterly cash
dividend of $35,646.
<PAGE>
<PAGE>
10
RESULTS OF OPERATIONS
- ---------------------
Net earnings for the Company's first fiscal quarter ended
March 31, 1998, were $63,810 compared to $61,551 for the
comparable quarter in 1997. The increase of $2,259 was due to
an increase in net interest income after provision for loan
losses, and an increase in service charge income.
Earnings per share for the quarter ended March 31, 1998,
were $0.09 per share based on an average of 712,866 shares
outstanding compared to $.17 per share for the comparable
quarter in 1997 based on an average of 362,131 shares
outstanding.
Net interest income after provision for loan losses for the
quarter ended March 31, 1998 was $267,650 compared to $221,412
for the quarter ended March 31, 1997, an increase of $46,238.
This increase was a result of interest income increasing
$85,654, from $497,928 in 1997 to $583,582 in 1998, while
interest expense increased $14,105 from $270,287 in 1997 to
$284,392 in 1998. The increase in interest income and interest
expense are both due to increases in the average balance of
interest-earnings assets and interest-bearing liabilities.
Non-interest income increased from $14,663 for the quarter
ended March 31, 1997 to $38,864 for the quarter ended March 31,
1998. The increase of $24,201 was due to higher service charge
income and an increase in other operating income.
The Company's non-interest expense for the three months
ended March 31, 1998 was $211,275, compared to $143,803 for the
comparable quarter in 1997. The increase of $67,472 was due to
higher compensation and benefits expense, higher occupancy and
equipment expense and higher other operating expenses which were
caused by additional personnel hired and computer system
upgrades in hardware and software.
PROVISIONS FOR LOAN LOSSES
- --------------------------
The provision for loan losses is based on the periodic
analysis of the loan portfolio by management. In establishing
the provision, management considers numerous factors including
general economic conditions, loan portfolio condition, prior
loss experience and independent analysis. The provision for
loan losses for the three months ended March 31, 1998 was
$31,540. Based upon the analysis of the addition to established
allowances and the composition of the loan portfolio, management
concluded that the allowance is adequate. While current
economic conditions in the Bank's market are stable, future
conditions will dictate the level of future allowances for
losses on loans.
NON-PERFORMING ASSETS
- ---------------------
On March 31, 1998, non-performing assets were $495,978
compared to $352,245 on December 31, 1997. At March 31, 1998,
the Bank's allowance for loan losses was $220,811 or 45% of
non-performing assets compared to $195,239 or 55% at December
31, 1997.
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11
Loans are considered non-performing when the collection of
principal and/or interest is not expected, or in the event,
payments are more than 90 days delinquent.
The allowance for loan losses was 1.07% of total loans as
of March 31, 1998, compared to .99% at December 31, 1997.
REGULATORY CAPITAL
- ------------------
The Bank is subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary -
actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures if the Bank's
assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's
capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts
and ratios on total risk-based capital and Tier 1 capital to
risk-weighted assets (as defined in the regulations) and Tier 1
capital to adjusted total assets (as defined).
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
------------------ ------------------ -------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------ ---------- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1998
Total Risk-Based Capital
(To Risk-Weighted
Assets) $6,610 43.3% $1,223 8.0% $1,528 10.0%
Tier 1 Capital
(To Risk-Weighted
Assets) $6,389 41.8% $ 611 4.0% $ 917 6.0%
Tier 1 Capital
(To Adjusted Total
Assets) $6,389 20.1% $1,270 4.0% $1,588 5.0%
</TABLE>
LIQUIDITY
- ---------
The Bank's principal sources of funds for investments and
operations are net earnings, deposits from its primary market
area, principal and interest payments on loans and
mortgage-backed securities and proceeds from maturing investment
securities. Its principal funding commitments are for the
origination or purchase of loans and the payment of maturing
deposits. Deposits are considered a primary source of funds
supporting the Bank's lending and investment activities.
Deposits were $22 million at March 31, 1998.
<PAGE>
<PAGE>
12
The Bank's is required to maintain minimum levels of liquid
assets as defined by regulations. The required percentage is
currently five percent of net withdrawable savings deposits and
borrowings payable on demand or in one year or less. The Bank
maintained a liquidity ratio of 22.1% at March 31, 1998.
The Bank's most liquid assets are cash and cash
equivalents, which are cash on hand, amount due from financial
institutions, federal funds sold, certificates of deposit with
other financial institutions that have an original maturity of
three months or less and money market mutual funds. The levels
of such assets are dependent on the Bank's operating, financing
and investment activities at any given time. The Bank's cash
and cash equivalents totaled $1.9 million at March 31, 1998.
The variations in levels of cash and cash equivalents are
influenced by deposit flows and anticipated future deposit
flows.
Net cash provided by operating activities decreased from
67,777 for three months ended March 31, 1997 to 64,409 for
three months ended March 31, 1998. The decrease was due to
normal adjustments to accrued income and expenses items.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
FASB STATEMENT ON EARNINGS PER SHARE. In March 1997, the
Financial Accounting Standards ("SFAS") No. 128. The Statement
establishes standards for computing and presenting earnings per
share and applies to entities with publicly held common stock or
potential common stock. This Statement simplifies the standards
for computing earnings per share previously found in Accounting
Principles Board ("APB") Opinion No. 15, Earnings per Share
("EPS"), and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a
presentation of primary EPS with a presentation of basic EPS.
It also requires dual presentation of basic and diluted Earnings
per Share on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of
the numerator and the denominator of the basic EPS computation
to the numerator and denominator the diluted Earnings per Share
Computation. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the
weighted-average number of common stock that then shared in the
earnings of the entity. Diluted EPS is computed similarly to
fully diluted EPS pursuant to APB Opinion No. 15. This
statement supersedes Opinion 15 and AICPA Accounting
Interpretation 1-102 of Opinion 15. This statement is effective
for financial statements issued for periods ending after
December 15, 1997, including interim periods. SFAS No. 128 will
be adopted by the Company in fiscal 1997. The Company does not
believe the impact of adopting SFAS No. 128 will be material to
the Company's financial statements.
FASB STATEMENT ON DISCLOSURE OF INFORMATION ABOUT CAPITAL
STRUCTURE. In February 1997, the FASB issued SFAS No. 129. The
Statement incorporates the disclosure requirements of APB
Opinion No. 15, Earnings per Share, and makes them applicable to
all public and nonpublic entities that have issued securities
addressed by the Statement. APB Opinion No. 15 requires
disclosure of descriptive information about securities that is
not necessarily related to the computation of earnings per
share. This statement continues the previous requirements to
disclose certain information about an entity's capital structure
found in APB Opinion No. 10, Omnibus Opinion - 1966, and No. 15,
Earnings per Share and FASB Statement No. 47, <PAGE>
<PAGE>
13
Disclosure of Long-Term Obligations, for entities that were
subject to the requirements of Opinion No. 15 as provided by
FASB Statement No. 21, Suspension of the Reporting of Earnings
per Share and Segment Information by Nonpublic Enterprises. It
supersedes specific disclosure requirements of Opinions 10 and
15 and Statement 47 and consolidates them in this Statement for
ease of retrieval and for greater visibility to nonpublic
entities. The Statement is effective for financial statements
for periods ending after December 15, 1997. SFAS No. 129 will
be adopted by the Company in fiscal 1997. The Company does not
believe the impact of adopting SFAS No. 129 will be material to
the Company's financial statements.
<PAGE>
<PAGE>
14
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
-----------------
None.
ITEM 2: Changes in Securities
---------------------
None.
ITEM 3: Defaults Upon Senior Securities
-------------------------------
None.
ITEM 4: Submission of Maters to a Vote of Security Holders
--------------------------------------------------
None.
ITEM 5: Other Information
-----------------
None
ITEM 6: Exhibits and Reports on Form 8-K.
--------------------------------
Exhibits:
27 - Financial Data Schedule
Reports on Form 8-K:
None<PAGE>
<PAGE>
15
SIGNATURE
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 NATIONAL CORPORATION
Registrant
Date: May 8, 1998 /s/ Howard Tignor
__________________________
Howard Tignor, President
and Chief Executive Officer
(Duly Authorized Officer)
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