<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, 1999
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
-------
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, 1999
- ----------------------------- -------------------------------
Common Stock, $1.00 par value 712,866 shares
<PAGE>
<PAGE>
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 7-8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
PART II OTHER INFORMATION 15
Signature 16
<PAGE>
<PAGE>
COMMUNITY NATIONAL CORPORATION
(AND SUBSIDIARY)
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 and DECEMBER 31, 1998
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Non-interest bearing $ 431,759 $ 746,912
Interest bearing 3,410,260 3,400,898
Time deposits 0 1,125,000
Investment securities:
Securities held-to-maturity (estimated
market value of $690,708 (1999) and
$1,189,127 (1998)) 657,840 657,770
Securities available-for-sale, at
estimated market value 1,540,558 1,575,472
Mortgage-backed and related securities:
Securities held-to-maturity (estimated
market value of $354,272 (1999) and
$516,323 (1998)) 352,411 380,098
Securities available-for-sale, at
estimated market value 2,414,644 2,756,332
Loans receivable, net 28,029,222 26,403,032
Accrued interest receivable 204,004 238,952
Premises and equipment 774,102 797,980
Stock investments:
Stock in Federal Home Loan Bank, at cost 288,000 283,200
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 72,792 70,092
------------ ------------
Total Assets $ 38,427,742 $ 38,687,888
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 28,820,556 $ 28,993,808
Advances from FHLB 575,237 692,848
Advances from borrowers for taxes
and insurance 4,843 3,164
Accrued interest payable 185,204 211,261
Income taxes payable:
Current 77,864 70,825
Deferred (49,537) (47,248)
Accrued expenses and other liabilities 143,923 116,405
------------ ------------
Total Liabilities $ 29,758,090 $ 30,041,063
------------ ------------
Stockholders' Equity:
Preferred stock, 2,000,000 shares
authorized, non issued or outstanding $ 0 $ 0
Common stock of $1.00 par value;
8,000,000 shares authorized
712,866 shares issued 712,866 712,866
Additional paid-in capital 4,489,512 4,489,512
Retained earnings - substantially
restricted 3,475,362 3,442,772
Accumulated other comprehensive income,
net of taxes (8,088) 1,675
------------ ------------
Total Stockholders' Equity $ 8,669,652 $ 8,646,825
------------ ------------
Total Liabilities & Stockholders'
Equity $ 38,427,742 $ 38,687,888
============ ============
</TABLE>
1<PAGE>
<PAGE>
COMMUNITY NATIONAL CORPORATION
(AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
INTEREST INCOME
First mortgage loans $ 367,221 $ 346,840
Consumer & other loans 200,475 76,855
Interest and dividends on investments:
Taxable 21,307 41,088
Tax-exempt 9,235 18,470
Dividends 4,888 4,718
Interest on deposits with banks 47,420 28,864
Interest on mortgage-backed securities 42,401 66,747
----------- -----------
Total interest income $ 692,947 $ 583,582
----------- -----------
INTEREST EXPENSE
Interest on deposits $ 335,306 $ 268,523
Interest on advances from FHLB 11,765 15,869
----------- -----------
Total interest expense $ 347,071 $ 284,392
----------- -----------
Net interest income $ 345,876 $ 299,190
Provision for loan losses 22,500 31,540
----------- -----------
Net interest income after
provision for loan losses $ 323,376 $ 267,650
----------- -----------
NON-INTEREST INCOME
Income from real estate held
for investment $ 2,700 $ 2,775
Service charges 39,141 31,264
Other operating income 6,052 4,825
----------- -----------
Total non-interest income $ 47,893 $ 38,864
----------- -----------
NON-INTEREST EXPENSE
Compensation & benefits $ 111,272 $ 107,059
Occupancy & equipment 32,620 35,691
Federal deposit insurance premiums 4,400 3,364
Data processing fees 20,262 15,675
Other operating expenses 46,137 49,486
----------- -----------
Total non-interest expense $ 214,691 $ 211,275
----------- -----------
Income before income taxes $ 156,578 $ 95,239
Income tax expense 52,700 31,429
----------- -----------
Net income $ 103,878 $ 63,810
=========== ===========
Earnings per common share $ 0.15 $ 0.09
=========== ===========
Diluted earnings per share $ 0.15 $ 0.09
=========== ===========
Dividends paid per share $ 0.10 $ 0.05
=========== ===========
</TABLE>
2 <PAGE>
<PAGE>
COMMUNITY NATIONAL CORPORATION
(AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
March 31,
1999 1998
--------------------
<S> <C> <C>
Net income $103,878 $ 63,810
Other comprehensive income, net of tax:
Unrealized gains on securities held
as available-for-sale, net of
applicable deferred income taxes
of $2,477 (1999) and $2,227 (1998) (9,763) 4,325
--------------------
Other comprehensive income $ 94,115 $ 68,135
====================
</TABLE>
3 <PAGE>
<PAGE>
COMMUNITY NATIONAL CORPORATION
(AND SUBSIDIARY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Stock Paid-in Retained Comprehensive Stockholders'
Shares Amount Capital Earnings Income Equity
------ ------ --------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 712,866 $712,866 $4,489,512 $3,442,772 $ 1,675 $8,646,825
Comprehensive income:
Net income 103,878 103,878
Change in unrealized gain
(loss) on securities
available-for-sale, net of
applicable deferred income
taxes of $2,477 (9,763) (9,763)
0
0 0 0 (71,288) 0 (71,288)
------- -------- ---------- ----------- ------- ----------
Balance at March 31, 1999 712,866 712,866 4,489,512 3,475,362 (8,088) 8,669,652
======= ======== ========== =========== ======= ==========
</TABLE>
4<PAGE>
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COMMUNITY NATIONAL CORPORATION
(AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 103,878 $ 63,810
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on loans 22,500 31,540
Provision for depreciation 25,077 29,534
Amortizations of investment securities
premiums and discounts (net) 2,367 1,996
Stock in FHLB received as dividends (4,800) (4,700)
Changes in operating assets and liabilities:
(Increase) decrease in interest receivable 34,948 (10,439)
(Increase) decrease in other assets (2,700) (159)
Increase (decrease) in interest payable (26,057) (5,855)
Increase (decrease) in income taxes 2,273 (21,241)
Increase (decrease) in other liabilities 27,518 (20,077)
------------ ------------
Net Cash Provided by Operating Activities $ 185,004 $ 64,409
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in loans receivable $ (1,626,190) $ (770,240)
Net (increase) decrease in time deposits 1,125,000 0
Additions to premises & equipment (1,200) (77,823)
Purchase of mortgage-backed securities 0 (495,000)
Principal payments on mortgage-backed
securities 363,210 229,046
Purchase of investment securities (504,219) (700,000)
Proceeds from maturities of investment
securities 513,075 395,000
------------ ------------
Net Cash Provided by Investing Activities $ (130,323) $ (1,419,017)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (173,252) $ 562,259
Repayments of FHLB advances (117,611) (6,177)
Net increase in advances from borrowers
for taxes and insurance 1,679 1,818
Payment of dividends (71,288) (35,644)
------------ ------------
Net Cash Provided by Financing Activities $ (360,472) $ 522,256
------------ ------------
Increase (Decrease) in Cash and Cash
Equivalents $ (305,791) $ (832,352)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD $ 4,147,810 $ 2,741,783
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,842,019 $ 1,909,431
============ ============
</TABLE>
5<PAGE>
<PAGE>
COMMUNITY NATIONAL CORPORATION
(AND SUBSIDIARY)
CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.)
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 19998
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
------------ ------------
<S> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest $ 347,071 $ 290,247
Income taxes, net of refunds 63,208 45,372
Non cash investing and financing:
Stock dividends received from Federal
Home Loan Banks 4,800 4,700
Total net increase (decrease) in unrealized
loss on securities available-for-sale (9,763) 6,552
</TABLE>
6<PAGE>
<PAGE>
COMMUNITY NATIONAL CORPORATION
(AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(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
year ended December 31, 1998, 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 quarter ended
March 31, 1999, are not necessarily indicative of the
results which may be expected for the entire year. The
December 31, 1998 consolidated balance sheet has been
derived form 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, 1998 and the quarter ended March 31, 1999 of
$0.30 and $0.15 were computed by dividing the net income by
the weighted average number of shares outstanding for the
year.
(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
form 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.
(4) YEAR 2000 READINESS DISCLOSURE
The year 2000 poses many challenges for the banking
industry. Many automated applications may cease to properly
function as a result of how date fields have historically
7<PAGE>
<PAGE>
been programmed. Many programs were designed and developed
without considering the impact of the upcoming change in the
century. Failure to address this issue in a timely manner
may cause banking institutions to experience operational
problems and could cause disruption of financial markets.
Many experts believe that even the most prepared
organizations may encounter some implementation problems.
As a result, Community National Bank has developed a Year
2000 Strategic Plan (the "Plan") to take the necessary steps
to insure that problems and disruptions are minimized.
The Bank's data processing system is outsourced to Intrieve,
a service bureau that services the majority of all thrifts
and savings and loans throughout the nation. All systems
including all bank PC's are integrated with the service
bureau applications. Over $200,000 has been spent on
upgrading all equipment, software and systems. This was
done principally to modernize operations, but a substantial
portion of this investment would have been required for Year
2000 compliance alone. Final testing for Year 2000
compliance has been completed with all applications
performing with Year 2000 dates. Successful tests have been
completed with all vendors and correspondents with whom the
bank directly interfaces. The Bank is Year 2000 compliant
at this point. Additional testing will be made during 1999
to check and reinforce compliance readiness. Should any
unforeseen glitches arise the Bank has a contingency
plan with several alternatives to meet the worst case
scenario.
The Bank's customers have been notified and counseled. All
commercial customers with Year 2000 requirements have been
counseled one on one with compliance assured to the Bank's
satisfaction.
The cost of addressing the Year 2000 issue has had no
material impact on earnings since the expenditures meeting
Year 2000 requirements were required and planned for
modernization alone. With testing reflecting compliance to
date, there are no indications of material impact on
earnings or uncertainty of future operation results or
financial condition.
8<PAGE>
<PAGE>
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, certain cash and cash equivalents, and loans. At
December 31, 1998, on a consolidated basis, the Company had
total assets of $38.7 million, net loans receivable of $26.4
million, cash and investment securities of $7.5 million,
mortgage-backed securities of $3.1 million, total deposits of
$29 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.
9<PAGE>
<PAGE>
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
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 branch building is located is at 435 West Church Street, and
its phone number is (901) 968-9599.
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 $38,427,742 as of
March 31, 1999, compared to $38,687,888 on December 31, 1998, a
decrease of $260,146. This decrease was composed of a decrease
in mortgage backed securities of $369,375,a decrease in
investment securities of $34,844, a decrease in time deposits of
$1,125,000, a decrease in premises and equipment of $23,878, and
a decrease in cash of $305,791. These decreases were offset by
an increase in net loans receivable of $1,626,190.
Loans receivable, net increased to $28,029,222 on March 31, 1999
from $26,403,032 on December 31, 1998, an increase of
$1,626,190. Mortgage-backed securities decreased $369,375 to
$2,767,055 at March 31, 1999 from $3,136,430 on December 31,
1998. The increase in loans is attributable to more competitive
loan products. The decrease in mortgage backed securities is
primarily caused by principal payments.
10<PAGE>
<PAGE>
Deposits totaled $28,820,556 on March 31, 1999, a decrease of
$173,252 from $28,993,808 on December 31, 1998. The decrease in
deposits is primarily due to the maturity of certificates of
deposits.
Stockholders' equity was $8,646,825 on December 31, 1998,
compared to $8,669,652 on March 31, 1999, an increase of
$22,827. The increase was due to earnings for the year of
$103,878, off-set by the Company's quarterly cash dividends of
$71,288 and an increase in unrealized loss on available-for-sale
securities of $9,763.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1999 was
$103,878 compared to $63,810 as of March 31, 1998. The
increase of $40,068 was due to an increase in net interest
income of $46,686, offset by an increase in non-interest expense
of $3,416.
Earnings per share for the quarter ended March 31, 1999, were
$0.15 per share based on an average of 712,866 shares
outstanding compared to $.09 per share for the comparable
quarter in 1998 based on an average of 712,866 shares
outstanding.
Net interest income after provision for loan losses for the
quarter ended March 31, 1999 was $323,376 compared to $267,650
for the quarter ended March 31, 1998, an increase of $55,726.
This increase was a result of interest income increasing
$109,365 from $583,582 in 1998 to $692,947 in 1999, while
interest expense increased $62,679 from $284,392 in 1998 to
$347,071 in 1999. The increase in interest income and interest
expense are both due to increases in the average balance of
interest-earning assets and interest-bearing liabilities.
Non-interest income increased from $38,864 for the quarter ended
March 31, 1998 to $47,893 for the quarter ended March 31, 1999.
The increase of $9,029 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, 1999 was $214,691 compared to $211,275 for the
comparable quarter in 1998. The increase of $3,416 was due to
an increase in data processing expense.
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, 1999 was
$22,500, while the provision for the comparable quarter in 1998
was $31,540. Based upon the analysis of the addition to
established allowances and the
11<PAGE>
<PAGE>
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, 1999, non-performing assets were $466,756 compared
to $430,000 on December 31, 1998. At March 31, 1999, the Bank's
allowance for loan losses was $390,875 or 84% of non-performing
assets compared to $368,375 or 86% at December 31, 1998.
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 1.40% of total loans as of
March 31, 1999 and December 31, 1998.
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).
12<PAGE>
<PAGE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under the
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------ -------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------ ---------- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999
Total Risk-Based Capital
(To Risk-Weighted
Assets) $6,895 32.0% $1,722 8.0% $2,153 10.0%
Tier 1 Capital
(To Risk-Weighted
Assets) $6,624 30.8% $ 861 4.0% $1,292 6.0%
Tier 1 Capital
(To Adjusted Total
Assets) $6,624 17.1% $1,549 4.0% $1,936 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 $28.8 million at March 31, 1999.
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 18.25% at March 31, 1999.
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 $3.84 million at March 31, 1999. 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 increased from
$64,409 for three months ended March 31, 1998 to $185,004 for
three months ended March 31, 1999. The increase was due to
improved net earnings and a decrease in accrued interest payable
on deposit liabilities.
In November 1998, the FASB issued SFAS No. 133. This statement
establishes accounting and reporting standards for derivative
instruments, including certain
13<PAGE>
<PAGE>
derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those at fair value. If certain
conditions are met, a derivative may be specifically designated
a (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation,
and unrecognized firm commitment, an available-for-sale
security, or a foreign-currency-denominated forecasted
transaction.
This statement is not expected to have any significant effect on
the financial position of the bank. In addition no other recent
accounting pronouncements have been issued that are expected to
have any significant effect on the financial position of the
bank that have not already been adopted by the bank.
14<PAGE>
<PAGE>
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
15<PAGE>
<PAGE>
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: April 30, 1999 /s/ Howard Tignor
__________________________
Howard Tignor, President
and Chief Executive Officer
(Duly Authorized Officer)
16
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