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 September 30, 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.)
591 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)
600 E. Washington Avenue, P.O. Box 2619, Ashburn, Georgia 31714
(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 November 10, 1994.
(Page 1 of 14)
There Is No Exhibit Index
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets (Unaudited)
ASSETS
September 30, December 31,
1994 1993
Cash and due from banks $ 1,190,572 $ 1,402,123
Federal funds sold 2,200,000 5,225,000
Total cash and cash equivalents $ 3,390,572 $ 6,627,123
Securities:
Available for sale, at fair values 7,828,690 7,353,938
Held to maturity (Fair value of
$1,518,614 (09-30-94) and
$1,691,727 (12-31-93) 1,537,706 1,648,008
Loans, net 42,484,193 39,651,674
Property and equipment, net 1,193,688 1,277,347
Other assets 2,016,359 1,072,721
Total Assets $58,451,208 $57,630,811
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 2,997,305 $ 3,619,337
Interest bearing deposits 50,297,919 49,083,411
Total deposits $53,295,224 $52,702,748
Obligation under capital lease 166,767 227,918
Other liabilities 618,887 504,042
Total liabilities $54,080,878 $53,434,708
Commitments and contingencies
Shareholders' Equity:
Common stock, $5.00 par value,
10,000,000 shares authorized, 353,417
(09-30-94) and 352,001 (12-31-93) shares
issued and outstanding $ 1,767,085 $ 1,760,005
Paid-in-capital 1,712,903 1,705,823
Retained earnings 973,994 601,101
Unrealized gain (loss) on securities, net (83,652) 129,174
Total Shareholders' Equity 4,370,330 $ 4,196,103
Total liabilities and shareholders' equity $58,451,208 $57,630,811
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Income
For the Nine Months Ended
September 30,
1994 1993
Interest income $3,503,512 $3,433,311
Interest expense 1,538,394 1,614,537
Net interest margin 1,965,118 1,818,774
Provisions for possible loan losses 304,000 259,607
Net interest income after provisions
for possible loan losses 1,661,118 1,559,167
Gain on sale of securities 106,608 25,192
Other income 266,948 200,340
Total other income 373,556 225,532
Salaries and benefits 567,772 521,989
Other operating expenses 740,982 627,564
Total other expenses 1,308,754 1,149,553
Net income before taxes 725,920 635,146
Provision for income taxes 289,667 205,775
Net income after taxes $ 436,253 $ 429,371
Net income per share $ 1.10 $ 1.08
Weighted average number
of shares outstanding 397,927 396,511
Refer to notes to the financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Income
For the Three Months
Ended September 30,
1994 1993
Interest income $1,179,680 $1,145,109
Interest expense 527,685 552,085
Net interest margin 651,995 593,024
Provisions for possible loan losses 85,000 79,607
Net interest income after provisions
for possible loan losses 566,995 513,417
Other income 87,773 60,264
Total other income 87,773 60,264
Salaries and benefits 189,773 184,492
Other operating expenses 237,776 206,128
Total other expenses 427,549 390,620
Net income before taxes 227,219 183,061
Provision for income taxes 118,445 57,858
Net income after taxes $ 108,774 $ 125,203
Net income per share $ .27 $ .32
Weighted average number
of shares outstanding 397,297 396,951
Refer to notes to the financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Cash Flows
for the three quarters ended
September 30,
1994 1993
Cash flows from operating activities $ (182,699) $ 126,147
Cash flows from investing activities:
Funds from maturing or
amortising securities 3,164,942 $ 1,574,256
Funds from sale of securities 3,204,687 2,030,625
Purchase of securities (6,714,260) (131,643)
(Increase) in loans, net (3,136,519) (6,170,306)
Purchase of property and equipment (40,667) (33,593)
Net cash used in investing activities $(3,521,817) $ (2,730,661)
Cash flows from financing activities:
Increase in customer deposits $ 592,476 $ 3,538,480
Payment of cash dividends (63,360) (49,280)
(Decrease) in lease obligations (61,151) (56,085)
Net cash provided
from financing activities $ 467,965 $ 3,433,115
Net increase in cash and cash equivalents $(3,236,551) $ 828,601
Cash and cash equivalents,
beginning of period 6,627,123 3,134,224
Cash and cash equivalents, end of period $ 3,390,572 $ 3,962,825
Refer to notes to the financial statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
September 30, 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 nine-month period
ended September 30, 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)
September 30, 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)
September 30, 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
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
September 30, 1994
evaluation of individual loans, the overall risk characteristics
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)
September 30, 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 nine-month periods ended September 30, 1994
and 1993, respectively. No other dividends have been declared.
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 September 30, 1994,
the Bank's capital had increased to $4.2 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
Sept. 30, 1994 by regulator
Leverage ratio 7.3% 4.0%
Risk weighted ratio 10.7% 8.0%
Total assets increased by $.8 million to $58.4 million during
the nine-month period ended September 30, 1994. The increase was
generated from higher deposits and profits. The additional funds
that were generated through growth were utilized to expand the loan
portfolio.
Liquidity is the Company's ability to meet all deposit
withdrawals immediately, while also providing for the credit needs
of customers. The September 30, 1994 financial statements evidence
a satisfactory liquidity position as total cash and cash
equivalents amounted to $3.4 million, representing 5.8% of total
assets. Investment securities amounted to $9.4 million,
representing 16.0% 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
Net income for the nine months ended September 30, 1994
amounted to $436,253 or $1.10 per share. This compares with net
income of $429,371 or $1.08 per share attained during the same
nine-month period one year earlier. For the three-month periods
ended September 30, 1994 and 1993, net income amounted to $108,774
and $125,203, respectively. Earnings per share for the above
three-month periods amounted to $.27 and $.32, respectively.
Although net income figures for 1994 and 1993 are virtually
identical, their characteristics differ as follows:
a. Net interest income, which represents the difference between
interest received on interest earning assets and interest paid
on interest bearing liabilities, has increased from $1,818,774
for the nine months ended September 30, 1993 to $1,965,118 for
the same period one year later, representing an increase of
$146,344, or 8.1%.
b. Other income, which primarily includes service fees and
overdraft charges increased from $225,532 during the nine
months ended September 30, 1993 to $373,556 for the nine-month
period ended September 30, 1994. This increase was attributed
primarily to a higher service charge/fee structure.
Additionally, gain on sales of securities was increased from
$25,192 for the nine months ended September 30, 1993 to
$106,608 for the same period one year later.
c. Total operating expenses increased from $1,149,553 for the
nine months ended September 30, 1993 to $1,308,754 for the
same period one year later. The increase of $159,201 in
operating expenses is of concern to management. Management
will monitor these expenses and take appropriate steps to
control their growth. It is noted, however, that the level
of operating expenses is within an acceptable range when
compared to that of other banks of similar size and
characteristics.
At September 30, 1994 the allowance for loan losses amounted
to $700,603, or 1.62 percent of gross loans. Management considers
the allowance for loan losses to be adequate and sufficient to
absorb possible future losses; however, there can be no assurance
that charge-offs in future periods will not exceed the allowance
for loan losses or that additional provisions to the allowance will
not be required.
The Company is not aware of any current recommendation by the
regulatory authorities which, if they were to be implemented, would
have a material effect on the Company's liquidity, capital
resources, or results of operations.
PART II - OTHER INFORMATION
Item 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 September 30, 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 September 30, 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: November 10, 1994 BY: /s/ Theron G. Reed
Theron G. Reed
President,
Principal Executive Officer and
Principal Financial Officer
