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 March 31, 1994.
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 33-31013-A
COMMUNITY NATIONAL BANCORPORATION
(Exact name of small business issuer as specified in its charter)
Georgia 58-1856963
(State of Incorporation) (I.R.S. Employer Identification No.)
600 E. Washington Avenue, P.O. Box 2619, Ashburn, Georgia 31714
(Address of Principal Executive Offices)
(912) 567-9686
(Issuer's Telephone Number, Including Area Code)
Not Applicable
(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, $5.00 par value per share, 353,417 shares issued
and outstanding as of May 12, 1994.
(Page 1 of 13)
There Is No Exhibit Index
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
ASSETS
March 31, December 31,
1994 1993
(Unaudited) (Unaudited)
Cash and due from banks $ 1,367,254 $ 1,402,123
Federal funds sold 6,475,000 5,225,000
Total cash and cash equivalents $ 7,842,254 $ 6,627,123
Securities:
Available for sale, at fair values 6,386,411 7,353,938
Held to maturity (Fair value of
$1,640,254 (3-31-94) and
$1,691,727 (12-31-93) 1,644,612 1,648,008
Loans, net 39,952,202 39,651,674
Property and equipment, net 1,242,481 1,277,347
Other assets 1,039,745 1,072,721
Total Assets $58,107,705 $57,630,811
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 3,230,586 $ 3,619,337
Interest bearing deposits 49,979,482 49,083,411
Total deposits $53,210,068 $52,702,748
Obligation under capital lease 207,754 227,918
Other liabilities 516,647 504,042
Total liabilities $53,934,469 $53,434,708
Commitments and contingencies
Shareholders' Equity:
Common stock, $5.00 par value,
10,000,000 shares authorized,
352,001 issued and outstanding $ 1,760,005 $ 1,760,005
Paid-in-capital 1,705,823 1,705,823
Retained earnings 711,221 601,101
Unrealized gain (loss) on securities, net (3,813) 129,174
Total Shareholders' Equity 4,173,236 $ 4,196,103
Total liabilities and shareholders' equity $58,107,705 $57,630,811
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Income
For the quarter
Ended March 31,
1994 1993
Interest income $1,198,060 $1,116,681
Interest expense 497,804 511,793
Net interest margin 700,256 604,888
Provision for possible loan losses 144,000 75,000
Net interest income after provision
for possible loan losses 556,256 529,888
Gain on sale of securities 106,608 25,192
Other income 97,629 75,177
Total other income 204,237 100,369
Salaries and benefits 190,418 167,274
Other operating expenses 273,200 205,985
Total operating expenses 463,618 373,259
Net income (loss) before taxes 296,875 256,998
Provision for income taxes 124,372 82,975
Income after provision for income taxes 172,503 174,023
Net income after taxes $ 172,503 $ 174,023
Net Income Per Share $ .44 $ .44
Weighted average number
of shares outstanding 396,951 396,951
Refer to notes to the financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Cash Flows
for the quarter ended
March 31,
1994 1993
Cash flows from operating activities $ 380,619 $ 259,581
Cash flows from investing activities:
Funds from matured securities and paydowns 1,164,942 $ 250,000
Funds from sale of securities 3,204,687 2,030,625
Purchase of securities (3,507,809) (131,643)
(Increase) in loans, net (444,528) (3,897,713)
Purchase of property and equipment (6,576) (21,464)
Net cash used in investing activities $ 410,716 $(1,770,195)
Cash flows from financing activities:
Increase in customer deposits $ 507,320 $ 3,345,847
Payment of cash dividends (63,360) (49,280)
(Decrease) in lease obligations (20,164) (17,479)
Net cash provided from financing activities $ 423,796 $ 3,279,088
Net increase in cash and cash equivalents $ 1,215,131 $ 1,768,474
Cash and cash equivalents,
beginning of period 6,627,123 3,134,224
Cash and cash equivalents, end of period $ 7,842,254 $ 4,902,698
Refer to notes to the financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1994
Note 1 - Basis of Presentation
The accompanying unaudited 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 period
ended March 31, 1994 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1994. For
further information, refer to the financial statements and
footnotes included in the Company's annual report on Form 10-KSB
for the year ended December 31, 1993.
Note 2 - Organization of the Business
Community National Bancorporation, Ashburn, Georgia (the
"Company") was organized in August, 1989 to serve as a holding
company for a proposed de novo bank, Community National Bank,
Ashburn, Georgia (the "Bank"). The Bank was chartered and is
currently regulated by the Office of the Comptroller of the
Currency; its deposits are each insured up to $100,000, subject to
aggregation rules, by the Federal Deposit Insurance Corporation.
The Company purchased 100 percent of the Bank's shares by injecting
$3.3 million into the Bank's capital accounts immediately prior to
commencement of banking operations (August, 1990).
Note 3 - Summary of Significant Accounting Policies
Basis of Presentation and Reclassification. The consolidated
financial statements include the accounts of both the Company and
the Bank. All intercompany accounts and transactions have been
eliminated in consolidation. Certain prior year amounts have been
reclassified to conform to the current year presentation.
Basis of Accounting. The accounting and reporting policies
of the Company conform to generally accepted accounting principles
and to general practices in the banking industry. The Company uses
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1994
the accrual basis of accounting by recognizing revenues when they
are earned and expenses in the period incurred, without regard to
the time of receipt or payment of cash.
Organizational Costs. In accordance with the Financial
Accounting Standards Board ("FASB") Statement No. 7, the Company
and the Bank capitalized all direct organizational costs that were
incurred in the expectation that they would generate future
revenues or otherwise be of benefit after the Bank opened for
business. These capitalized costs are amortized over a sixty-month
period using the straight line method.
Investment Securities. In May, 1993, FASB issued Statement
of Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"), which
the Company adopted as of December 31, 1993. SFAS No. 115 requires
the reporting of certain securities at fair value except those
securities which the Company has the positive intent and ability
to hold to maturity. (Prior to the adoption of SFAS No. 115, all
investment securities were carried at amortized cost). Management
determines the appropriate classification of its investment
securities at the time of purchase and accounts for them as
follows:
(i) Held to maturity - The category of securities "held
to maturity" are those investment securities that
management has the intent to and the Company has the
ability at the time of purchase to hold until maturity.
Securities in this category are carried at amortized
cost, adjusted for accretion of discounts and
amortization of premiums using the straight line method
over the estimated life of each security. If a security
has a decline in fair value below its amortized cost that
is other than temporary, that security will be written
down to its new cost basis by recording a loss in the
consolidated statement of income.
(ii) Available for sale - Investment securities to be
held for indefinite periods of time and not intended to
be held to maturity are classified as "available for
sale". Assets included in this category are those assets
that management intends to use as part of its
asset/liability management strategy and that may be sold
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1994
in response to changes in interest rates. Securities
available for sale are recorded at fair value. Both
unrealized holding gains and losses on securities
available for sale, net of taxes, are included as a
separate component of shareholders' equity in the
consolidated balance sheet until these gains or losses
are realized. The cost of investment securities sold is
determined by the specific identification method. If a
security has a decline in fair value that is other than
temporary, that security will be written down to its fair
value by recording a loss in the consolidated statement
of income.
(iii) Trading securities - Securities that are held
principally for the purpose of selling in the near future
are classified as trading securities. These securities
are recorded at fair value. Both unrealized gains and
losses are included in the consolidated statement of
income. The Company currently has no securities
classified as trading securities.
Loans, Interest and Fee Income on Loans. Loans are stated at
the principal balance outstanding. Unearned discount, unamortized
loan fees, if any, and the allowance for possible loan losses are
deducted from total loans in the consolidated balance sheet.
Interest income is recognized over the term of the loan based on
the principal amount outstanding.
Loans are generally placed on non-accrual status when
principal or interest becomes ninety days past due, or when payment
in full is not anticipated. When a loan is placed on non-accrual
status, interest accrued but not received is generally reversed
against interest income. If collectibility is in doubt, cash
receipts on non-accrual loans are first applied to reduce principal
rather than to principal and interest, as in accrual loans.
Classification of a loan as non-accrual is not necessarily
indicative of a potential loss of principal. Points on real estate
loans are taken into income to the extent they represent the direct
cost of initiating a loan. The amount in excess of direct costs
is deferred and amortized over the expected life of the loan.
Allowance for Possible Loan Losses. The provisions for loan
losses charged to operating expenses reflect the amount deemed
appropriate by management to establish an adequate reserve to meet
the present and foreseeable risk characteristics of the current
loan portfolio. Management's judgement is based on periodic
evaluation of individual loans, the overall risk characteristics
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1994
of the various portfolio segments, past experience with losses and
prevailing and anticipated economic conditions. Note, however,
that ultimate losses may vary from the current estimates and any
adjustments are charged against earnings in the periods in which
they become known. Loans which are determined to be uncollectible
are charged against the allowance. Provisions for loan losses and
recoveries on loans previously charged-off are added to the
allowance.
Property and Equipment. Furniture, equipment and leasehold
improvements are stated at cost, net of accumulated depreciation.
Depreciation is computed using the straight line method over the
estimated useful lives of the related assets. Maintenance and
repairs are charged to operations, while major improvements are
capitalized. Upon retirement, sale or other disposition of
property and equipment, the cost and accumulated depreciation are
eliminated from the accounts, and gains or losses are included in
income from operations.
Income Taxes. The Company and the Bank file consolidated
income tax returns. The Company and the Bank adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109") to be effective for the calendar year ended
December 31, 1993. SFAS No. 109 utilizes the asset and liability
method of accounting for income taxes rather than the deferred
method which was previously utilized under Accounting Principles
Board Opinion 11. Under SFAS No. 109, deferred income taxes are
recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to
differences between financial statement carrying amounts and the
tax basis of existing assets and liabilities. The effect on
deferred income taxes of a change in tax rates is recognized in
income in the period including the enactment date.
For years prior to 1993, the Bank and the Company used the
deferred method of accounting for income taxes. Deferred federal
and state income taxes were based on income and expenses reported
in different periods for financial statement and income tax
purposes at the then current statutory rate.
Statement of Cash Flows. For purposes of reporting cash
flows, cash and cash equivalents include cash on hand, amounts due
from banks and federal funds sold. Generally, federal funds are
purchased or sold for one-day periods.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1994
Profit Sharing Plan. During 1992, the Company instituted a
Profit Sharing Plan (the "Plan") which covers substantially all of
its full time employees upon their completion of one year of
service, provided they are at least twenty-one years old. The
Board of Directors determines the amounts to be contributed to the
Plan on an annual basis.
Earnings Per Share. Primary earnings per share are computed by
dividing net earnings by the weighted average number of common
stock and common stock equivalents outstanding during the year.
The outstanding options and warrants are considered common stock
equivalents. In the computation of primary earnings per share,
however, a common stock equivalent is only used if its effect is
dilutive.
Dividends. The Company paid $.18 and $.14 in dividends for each
share of common stock, or $63,360 and $49,280 to all shareholders
during the quarters ended March 31, 1994 and 1993, respectively.
The declaration of future dividends is within the discretion of the
Board of Directors and will depend, among other things, upon
business conditions, earnings, the financial condition of the Bank
and the Company, and regulatory requirements.
Item 2 - Management Discussion and Analysis of Financial Condition
and Results of Operation.
Liquidity and sources of capital
Community National Bancorporation (the "Company") was
organized in August, 1989 and began banking operations through its
wholly owned subsidiary, Community National Bank (the "Bank"), on
August 6, 1990. During the period from April, 1989 (inception) to
August 6, 1990, the Company was in the development stage and
devoted most of its efforts to organizing, incorporating, planning,
raising capital and recruiting personnel.
On August 6, 1990 the subsidiary Bank was capitalized with a
$3.3 million injection from the Company. By March 31, 1994, the
Bank's capital had increased to $4.0 million through retained
earnings. This level of capitalization, as measured by the Bank's
primary regulator, the OCC, is adequate based on the following
capital ratios and guidelines.
Bank's Minimum required
March 31, 1994 by regulator
Leverage ratio 6.9% 4.0%
Risk weighted ratio 11.0% 8.0%
Total assets increased by $.5 million to $58.1 million during the
three-month period ended March 31, 1994. The increase was
generated solely through a $.5 million increase in deposits. The
additional funds that were generated through growth were utilized
to increase net loans by $300,000 and federal funds sold by
$200,000. Over the same time period, securities were reduced by
$1.0 million and the funds were utilized to increase federal funds
sold. Consequently, federal funds sold, at $6.5 million, is
relatively high. Management intends to shift funds from federal
funds sold to securities when it believes that such action will be
beneficial to the Bank.
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of
customers. The March 31, 1994 financial statements evidence a
satisfactory liquidity position as total cash and cash equivalents
amounted to $7.8 million, representing 13.5% of total assets.
Investment securities amounted to $8.0 million, representing 13.8%
of total assets; these securities provide a secondary source of
liquidity since they can be converted into cash in a timely
manner.
The subsidiary Bank is a member of the Federal Reserve System and
is maintaining relationships with several correspondent banks and,
thus, could obtain funds on short notice. The Company's management
closely monitors and maintains appropriate levels of interest
earning assets and interest bearing liabilities, so that maturities
of assets are such that adequate funds are provided to meet
customer withdrawals and loan demand. There are no trends,
demands, commitments, events or uncertainties that will result in
or are reasonably likely to result in the Company's liquidity
increasing or decreasing in any material way.
Results of operations
For the quarter ended March 31, 1994, net income amounted to
$172,503 as compared to $174,023 for the same period one year
earlier. Net income per share of $.44 is identical for the two
time periods, above. Income for the quarters ended March 31, 1994
and 1993 remained virtually constant primarily due to the fact that
the overall growth in assets from $57.1 million (03-31-93) to $58.1
million (03-31-94) slowed considerably. More specifically, the
growth in loans, the highest yielding of all asset categories, from
$38.3 million (03-31-93) to $40.0 million (03-31-94), at a 4.3%
rate, was not sufficient to produce additional income to cover
increasing overhead expense. The majority of the growth in
overhead expense, or $50,000, is a one-time payment to consultants.
Provision for loan losses for the three-month periods ended March
31, 1994 and 1993 amounted to $144,000 and $75,000, respectively.
The provision for the three-month period ended March 31, 1994 was
$69,000 higher than the provision for the same period one year
earlier because management charged-off $68,401 in loans during the
first quarter of 1994. The allowance for loan losses at March 31,
1994 amounted to $734,356, or 1.80 percent of total loans. At
March 31, 1994, management considers the loan loss allowance
appropriate and adequate to cover possible losses in the loan
portfolio. 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 loan loss reserve account 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 1. Legal Proceedings. There are no material pending
legal proceedings to which the Company or the Bank is a party or
of which any of their property is the subject.
Item 2. Changes in Securities.
(a) None.
(b) None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was been submitted to a vote of security-holders
during the quarter ended March 31, 1994.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) Reports on Form 8-K - There were no reports on Form 8-K
filed during the quarter ended March 31, 1994.
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 NATIONAL BANCORPORATION
(Registrant)
Date: May 12, 1994 BY: /s/ Theron G. Reed
Theron G. Reed
President,
Principal Executive Officer and
Principal Financial Officer
