U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1994
Commission File Number 33-31013-A
COMMUNITY NATIONAL BANCORPORATION
A Georgia Corporation
(IRS Employer Identification No. 58-1856963)
561 East Washington Avenue-Box 2619
Ashburn, Georgia 31714-2619
(912) 567-9686
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
None
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
None
Check whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding twelve 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 by a check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of the Form 10-KSB or any amendment to this
Form 10-KSB. [X]
The Registrant's revenues for the fiscal year ended December 31,
1994 were $5,171,142.
The aggregate market value of the Common Stock of the Registrant
held by nonaffiliates of the Registrant on March 1, 1995, was
$2,331,000. As of such date, no organized trading market existed
for the Common Stock of the Registrant. The aggregate market
value was computed by reference to the $10 price at which the
Common Stock of the Registrant was sold in the initial public
offering which was completed on December 14, 1990. For the
purposes of this response, directors, officers and holders of 5%
or more of the Registrant's Common Stock are considered the
affiliates of the Registrant at that date.
The number of shares outstanding of the Registrant's Common Stock
as of March 1, 1995: 353,417 shares of $5.00 par value Common
Stock.
Transitional Small Business Disclosure Format:
Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
Item 1. Description of Business.
A. Business Development.
Community National Bancorporation (hereinafter the
"Company" or the "Registrant") was incorporated as a Georgia
corporation on August 18, 1989, for the purpose of becoming a bank
holding company owning 100% of the outstanding stock of Community
National Bank (the "Bank"), a national banking association
chartered under the laws of the United States. The Company
received approvals to become a bank holding company from the
Federal Reserve Bank of Atlanta on February 16, 1990, and from the
Georgia Department of Banking and Finance (the "Department") on
February 19, 1990. On December 14, 1990, the Company completed a
public offering of its common stock pursuant to which it raised
$3,520,010 from the sale of 352,001 shares of its common stock at
$10.00 per share. The Company used substantially all of the
proceeds of its public offering to purchase shares of capital stock
of the Bank. The Bank received its permit to begin business from
the Office of the Comptroller of the Currency (the "OCC") on August
6, 1990 and commenced business as a commercial bank on August 6,
1990. Since that date, the Bank has engaged in a general
commercial banking business, emphasizing the banking needs of
individuals, small to medium-sized business and agricultural
enterprises in its primary service area. On April 3, 1992, the
Bank acquired $11.3 million of deposits from the Resolution Trust
Corporation as receiver for First Federal Savings Bank, Ashburn,
Georgia.
B. Business.
1. Services Offered by the Bank.
The Bank conducts a commercial banking business
serving Turner County, Georgia. The Bank offers a full range of
deposit services that are typically available in most banks and
savings and loan associations, including checking accounts, NOW
accounts, savings accounts and other deposits of various types,
ranging from daily money market accounts to longer-term
certificates of deposit. It also offers retirement accounts such
as IRA's (Individual Retirement Accounts).
The Bank also offers short to medium-term
commercial, agricultural and personal loans. Commercial loans
include both secured and unsecured loans for working capital
(including inventory and receivables), business expansion
(including acquisition of real estate and improvements), and
purchase of equipment and machinery. The Bank also is qualified to
participate in SBA (Small Business Administration) lending.
Agricultural loans include secured and unsecured loans for row crop
production including corn, soybeans, peanuts, cotton and other
produce. Consumer loans include secured and unsecured loans for
financing automobiles, home improvements, education and personal
investments. The Bank also offers real estate construction and
acquisition loans.
Other services the Bank offers include safe deposit
boxes, travelers' checks, direct deposit of payroll and social
security checks, and automatic drafts for various accounts. The
Bank is a member of the HONOR network of automated teller machines
and offers its own credit cards.
The Bank offers these services from its main office,
located on approximately 3.3 acres located between Hudson Avenue
and Washington Street, Ashburn, Turner County, Georgia, in a 9,500
square foot building constructed in 1991-1992.
2. Market Area and Competition.
The Bank's primary service area includes all of
Turner County, Georgia. The Bank also extends credit to qualified
borrowers in the contiguous counties of Tift, Crisp and Worth.
Turner County is located approximately 80 miles north of the
Georgia-Florida state line, 165 miles south of Atlanta, 38 miles
east of Albany, and 180 miles west of Savannah. The county is
comprised of the cities of Ashburn, which is the county seat,
Sycamore and Rebecca and covers an area of 293 square miles. In
1990, the population of Turner County was 10,498, representing a
10% growth from 1980. Assuming that this rate of growth continues
in the 1990's, by the year 2000, the population of the primary
service area is expected to surpass 11,400.
Turner County's economy is dependent on
agriculture. Management of the Bank intends to continue to place
a substantial portion of the Bank's assets in agricultural loans.
This sector of the economy is healthy and remains the largest
single force in the market. A large portion of the agricultural
output produced in the county is peanuts. Golden Peanut Company is
located in Ashburn and is the largest peanut shelling plant in the
Southeast. Coley Farm Services, also headquartered on Ashburn,
serves primarily as a peanut buying point for area farmers from
three separate locations. Livestock is another important segment
of the economy, with the county containing the largest stock yard
in Georgia, Turner County Stock Yards. Turner County also contains
light manufacturing, primarily in the apparel and textile sector.
The major employer is M&W Sportswear. Other local manufacturing
concerns include Duck Head Apparel, DCR Industries and Cornerstone
Manufacturing.
Management expects the moderate growth and recent
commercial development experienced in Turner County, along
Interstate 75 and in adjacent Tift County, to continue, providing
a favorable environment for the Bank. However, there is no
assurance that population growth and ongoing economic development
will continue, or that the Bank will be able to exploit the growth
and development profitably even if they continue.
The Bank competes as a financial intermediary with
other commercial banks, savings and loan associations, credit
unions, mortgage banking companies, consumer finance companies,
securities brokerage firms, insurance companies, money market
mutual funds, and other financial institutions.
During 1994, there was one other bank in the Bank's
retail market area, Turner County. Management estimates that as of
December 31, 1994, deposits in the county totaled $124,498,000
million with the Bank having approximately 45% of such deposits.
Banks affiliated with out-of-state financial
institutions have entered Georgia in recent years to offer limited
financial services, including lending and deposit gathering
activities. Moreover, on March 16, 1994, the Georgia legislature
adopted a reciprocal interstate banking law which will take effect
on July 1, 1995. In essence, the new law permits bank holding
companies headquartered in states outside of Georgia to acquire
Georgia banks, provided that Georgia bank holding companies may
likewise make bank acquisitions in the reciprocal state. In
addition, on September 29, 1994, the United States Congress adopted
the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal Act"). The Riegle-Neal Act provides phased-
in authority for banking organizations to acquire banks across
state lines and for the acquisition or establishment of interstate
branches. Commencing September 29, 1995, the Riegle-Neal Act will
permit an adequately capitalized and adequately managed bank
holding company headquartered in a state outside of Georgia to
acquire a Georgia bank without regard to whether such acquisition
is permissible under Georgia law.
In general terms, regional interstate banking laws,
federal interstate banking initiatives currently being considered
by the United States Congress, as well as other federal and state
laws have and will continue to cause increased competition from
both conventional banking institutions and other businesses
offering financial services and products, within the financial
services industry in Georgia. Many of the financial institutions
operating in Georgia have substantially greater financial resources
and offer certain services, such as trust services, that the Bank
does not expect to provide in the near future. By virtue of the
greater total capitalization of such institutions, they have
substantially higher lending limits than the Bank and substantial
advertising and promotional budgets. To compete, the Bank relies
on specialized services, responsive handling of customer needs and
personal contacts by officers, directors and staff.
<PAGE>
3. Distribution of Assets, Liabilities and
Shareholders' Equity; Interest Rates and Interest
Differential.
The following is a presentation of the average
consolidated balance sheet of the Company for the year ended
December 31, 1994 and for the year ended December 31, 1993. This
presentation includes all major categories of interest-earning
assets and interest-bearing liabilities:
<PAGE>
AVERAGE CONSOLIDATED ASSETS
Year Ended Year Ended
December 31, 1994 December 31, 1993
Cash and due from banks $1,294,966 $ 1,311,018
Interest bearing bank balances 49,589 200,000
Taxable securities 7,306,445 9,195,932
Non-taxable securities 1,526,311 1,418,525
Federal funds sold 4,429,384 3,093,836
Net Loans $40,580,530 $39,142,061
Total earning assets 53,892,259 53,050,354
Other assets 2,760,819 2,392,116
Total assets $57,948,044 $56,753,488
AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY
Year Ended Year Ended
December 31, 1994 December 31, 1993
Non interest bearing-deposits $2,961,590 $2,620,980
NOW and money market deposits 11,505,244 9,991,732
Savings Deposits 1,025,703 682,182
Time Deposits 37,492,770 38,956,483
Borrowings (lease) 187,657 230,948
Other Liabilities 466,645 432,945
Total liabilities $53,639,609 $52,915,270
Common Stock 1,765,315 1,760,005
Capital surplus 1,711,133 1,705,823
Retained earnings 853,516 307,803
Unrealized gain/loss securities (21,529) 64,587
Total stockholders' equity 4,308,435 3,838,218
Total liabilities and
stockholders' equity $57,948,044 $56,753,488
<PAGE>
The following is a presentation of an analysis of the net
interest earnings
of the Company for the periods indicated with respect to each major category
of interest-
earning asset and each major category of interest-bearing liability.
The Yield/Rate was
computed on a tax equivalent basis.
Year Ended December 31, 1994
Average Average
Assets Amount Interest Yield/Rate
Interest bearing
bank balances. $49,589 $1,711 3.45%
Taxable securities 7,306,445 402,677 5.51%
Non-taxable securities 1,526,311 67,613 6.67%
Federal funds sold 4,429,384 176,069 3.98%
Net loans 40,580,53(1) 4,075,413(2) 10.04%
Total earning assets $53,892,259 $4,723,483 8.76%
Liabilities
NOW and money market
deposits $11,505,244 $364,068 3.16%
Savings deposits 1,025,703 33,292 3.25%
Time deposits 37,492,770 1,694,117 4.52%
Borrowings (lease) 187,657 14,324 7.63%
Total interest-
bearing $50,311,374 $2,105,801 4.19%
liabilities
Interest spread 4.57%
Net interest income $2,617,682
Net yield on interest earning assets 4.86%
(1) Net loans include $81,311 in loans that were placed on non-accrual
status. The Company
would have earned an additional $6,119 had these loans accrued interest
throughout 1994.
(2) Interest earned on net loans includes $255,695 in loans and service fees.
<PAGE>
Year Ended December 31, 1993
Average Average
Assets Amount Interest Yield/Rate
Interest bearing
bank balances. $200,000 $8,803 4.40%
Taxable securities 9,195,932 598,504 6.51%
Non-taxable securities 1,418,525 62,235 6.65%
Federal funds sold 3,093,836 91,210 2.95%
Net loans 39,142,061(1) 3,789,168(2) 9.68%
Total earning assets $53,050,354 $4,549,920 8.58%
Liabilities
NOW and money market
deposits $9,991,732 $325,405 3.26%
Savings deposits 682,182 23,056 3.38%
Time deposits 38,956,483 1,772,676 4.55%
Borrowings (lease) 230,948 8,379 3.63%
Total interest-bearing
liabilities $49,861,345 $2,129,516 4.27%
Interest spread 4.31%
Net interest income $2,420,404
Net yield on interest earning assets 4.56%
(1) Net loans include $398,192 in loans that were placed on non-accrual
status. The Company
would have earned an additional $33,659 had these loans accrued
interest throughout
1993.
(2) Interest earned on net loans includes $220,768 in loan fees and
service fees.
4. Rate/Volume Analysis of Net Interest Income.
The effect on interest income, interest expense and net
income in the periods indicated of
changes in average balance and rate from the corresponding prior period
is shown below.
The effect of a change in average balance has been determined by applying
the average rate
in the earlier period to the change in average balance in the later
period, as compared
with the earlier period. The change in interest due to both volume
and rate has been
allocated to volume and rate changes in proportion to the relationship
of the absolute
dollar amounts of the change in each.
Year Ended December 31, 1994
Compared with Year Ended December 31, 1993
Increase (decrease) due to:
Volume Rate Total
Interest earned on:
Interest bearing bank balances
$(5,510) $(1,582) $(7,092)
Taxable securities (112,055) (83,772) (195,827)
Non-taxable securities
5,173 205 5,378
Federal funds sold 46,914 37,945 84,859
Net loans $142,271 $143,974 $286,245
Total Interest Income
$76,793 $96,770 $173,563
Interest paid on:
NOW and money market
deposits $48,481 $(9,818) $38,663
Savings deposits 11,083 (847) 10,236
Time deposits (66,831) (11,728) (78,559)
Borrowings (1,218) 7,163 5,945
Total Interest Expense
$(8,485) $(15,230) $(23,715)
Change in net
interest income $85,278 $112,000 $197,278<PAGE>
Year Ended December 31, 1993
Compared with Year Ended December 31, 1992
Increase (decrease) due to:
Volume Rate Total
Interest earned on:
Interest bearing bank balances
$0 $(2,832) $(2,832)
Taxable securities (1,230) (184,922) (186,152)
Non-taxable securities 41,828 1,136 42,964
Federal funds sold 735 (21,563) (20,828)
Net loans 846,803 (227,600) 619,203
Total Interest Income
$888,136 $(435,781) $452,355
Interest paid on:
NOW and money market
deposits $29,421 $(21,270) $ 8,151
Savings deposits 1,867 (1,394) 473
Time deposits 360,500 (539,999) (179,499)
Borrowings (3,072) (7,689) (10,761)
Total Interest Expense$388,716 $(570,352) $(181,636)
Change in net
interest income $499,420 $134,571 $633,991
<PAGE>
5. Deposits Analysis.
The Bank offers a full range of interest-bearing and
non-interest bearing accounts, including commercial and retail
checking accounts, negotiable order of withdrawal ("NOW") accounts,
individual retirement accounts, regular interest-bearing savings
accounts and certificates of deposit with a range of maturity date
options. The sources of deposits are residents, businesses and
employees of businesses within the Bank's market area. Customers
are obtained through the personal solicitation of the Bank's
officers and directors, direct mail solicitation of the Bank's
officers and directors, direct mail solicitation and advertisements
published in the local media.
The Bank pays competitive interest rates on time
and savings deposits up to the maximum permitted by law or
regulation. In addition, the Bank has implemented a service charge
fee schedule competitive with other financial institutions in the
Bank's market area, covering such matters as maintenance fees on
checking accounts, per item processing fees on checking accounts,
returned checks charges and the like.
The following table presents, for the periods
indicated, the average amount of and average rate paid on each of
the indicated deposit categories.
Year Ended
December 31, 1994
Deposit Category Average Amount Average Rate Paid
Non interest bearing demand deposits
$2,961,590 N/A
NOW and money market
deposits $11,505,244 3.16%
Savings deposits $1,025,703 3.25%
Time deposits $37,492,770 4.52%
Year Ended
December 31, 1993
Deposit Category Average Amount Average Rate Paid
Non interest bearing demand deposits
$2,620,980 N/A
NOW and money market
deposits $9,991,732 3.26%
Savings deposits $682,182 3.38%
Time deposits $38,956,483 4.55%
The following table indicates amounts outstanding of
time certificates of deposit of $100,000 or more and respective
maturities at December 31, 1994:
Time Certificates
of Deposit
3 months or less $2,000,456
3-6 months 3,082,765
6-12 months 3,943,128
over twelve months 1,452,027
Total $10,478,376
<PAGE>
6. Loan Portfolio Analysis.
The Company engages in a full complement of lending
activities, including commercial, consumer installment and real
estate loans. A significant number of loans are made to farmers or
farming concerns.
Commercial lending is directed principally towards
businesses whose demands for funds fall within the Company's legal
lending limits and which are potential deposit customers of the
Bank. These loans include loans obtained for a variety of business
purposes, and are made to individual, partnership, or corporate
borrowers. The Company places particular emphasis on loans to
small and medium businesses.
The Company's consumer loans consist primarily of
installment loans to individuals for personal, family and household
purposes, including automobile loans and pre-approved lines of
credit to individuals. This category of loans includes lines of
credit and term loans secured by second mortgages on residences for
a variety of purposes, including home improvements, education and
other personal expenditures.
The Company's real estate loans consist of
residential and commercial first and second mortgages.
The following table presents various categories of
loans contained in the Bank's loan portfolio as of December 31,
1994 and 1993 and the total amount of all loans for such periods:
As of December 31
1994 1993
Type of Loan
Domestic:
Commercial, financial and agricultural
$26,023,979 $25,489,858
Real estate-construction 140,000 423,045
Real estate-mortgage 6,637,143 7,095,220
Installment and other loans to individuals
9,474,923 7,298,824
Subtotal 42,276,045 40,306,947
Allowance for loan losses (709,721) (655,273)
Total (net of allowance) $41,566,324 $39,651,674
<PAGE>
The following is a presentation of an analysis of
maturities of loans as of December 31, 1994 (in thousands):
Due in 1 Due In 1 ToDue After
Type of Loan Year or Less 5 Years 5 Years Total
Commercial, financial and
agricultural $22,479 $2,739 $806 $26,024
Real estate-construction 140 - - - - 140
Total $22,619 $2,739 $806 $26,164
Experience of the Company has shown that some
receivables will be paid prior to contractual maturity and others
will be converted, extended or renewed. Therefore, the tabulation
of contractual payments should not be regarded as a forecast of
future cash collections.
The following is a presentation of an analysis of
sensitivity of loans, excluding installment and other loans to
individuals, to changes in interest rates as of December 31, 1994
(in thousands):
Due in 1 Due In 1 ToDue After
Type of Loan Year or Less 5 Years 5 Years Total
Fixed rate loans $8,589 $2,739 $806 $12,134
Variable rate loans 14,030 - - - - 14,030
Total $22,619 $2,739 $806 $26,164<PAGE>
The following table presents information regarding
nonaccrual, past due and restructured loans as of December 31, 1994
and 1993 (dollars in thousands):
As of December 31
1994 1993
Loans accounted for on a non-accrual basis:
Number: 2 2
Amount: $81 $398
Accruing loans which are contractually past due
90 days or more as to principal and interest payments:
Number: 0 0
Amount: $0 $0
Loans which were renegotiated to provide
a reduction or deferral of interest or principal
because of deterioration in the financial
position of the borrower:
Number: 0 0
Amount: $0 $0
Loans now current but for which there are serious
doubts as to the borrower's ability to comply with
existing terms:
Number:
3 0
Amount:
$70 $0
As of December 31, 1994, there are no loans
classified for regulatory purposes as doubtful, substandard or
special mention that have not been disclosed in the above table,
which (i) represent or result from trends or uncertainties which
management reasonably expects will materially impact future
operating results, liquidity, or capital resources, or (ii)
represent material credits about which management is aware of any
information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment
terms.
Loans are classified as non-accruing when the
probability of collection of either principal or interest becomes
doubtful. The balance classified as non-accruing represents the
net realizable value of the account, which is the most realistic
estimate of the amount the Company expects to collect in final
settlement. If the account balance exceeds the estimated net
realizable value, the excess is written off at the time this
determination is made.
At December 31, 1994, with the exception of the two
non-accruing loans reported above, all loans were accruing
interest. There are no other loans which are not disclosed above
where known information about possible credit problems of borrowers
causes management to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms.
7. Summary of Loan Loss Experience.
An analysis of the Bank's loss experience is
furnished in the following table for the years ended December 31,
1994 and 1993, as well as a breakdown of the allowance for possible
loan losses (in thousands):
Year Ended December 31
1994 1993
Balance at beginning of period $655 $520
Charge-offs $(289)
$(320)
Recoveries 22 7
Provision charged to Operations 322 448
Balance at end of period $710 $655
Ratio of allowance for loan losses to total
loans outstanding during the period 1.68% 1.63%
As of December 31, 1994, the allowance for possible
losses was allocated as follows:
Percent of Loans in
Each
Amount Category to Total
Loans
Commercial, financial and agricultural$460 61.6%
Real estate-Construction $5 .3
Real estate-Mortgage $70 15.7
Installment and other loans
to individuals $140 22.4
Unallocated $35 N/A
Total $710 100.0%
8. Loan Loss Reserve.
In considering the adequacy of the Company's allowance
for possible loan
losses, management has focused on the fact that as of December
31, 1994, 61.6% of outstanding loans were in the category of
commercial, financial and agricultural, loans. These loans are
generally considered by management as having greater risk than
other categories of loans in the Company's loan portfolio.
However, 97.1% of the outstanding loans in this category at
December 31, 1994, were made on a secured basis, such collateral
consisting primarily of improved farmland real estate and
equipment. Management believes that the secured condition of the
preponderant portion of its commercial, financial and
agricultural loan portfolio greatly reduces any risk of loss
inherently present in these loans.
The Company's consumer loan portfolio is also secured.
At December 31,
1994, the majority of the Company's consumer loans were secured
by collateral primarily consisting of automobiles, boats and
second mortgages on real estate. Management believes that these
loans involve less risk than other categories of loans.
Real estate mortgage loans constitute 15.7% of outstanding
loans.
Management considers these loans to have minimal risk due to the
fact that these loans represent conventional residential real
estate mortgages where the amount of the original loan does not
exceed 80% of the appraised value of the collateral.
The allowance for loan losses reflects an amount which,
in management's
judgment, is adequate to provide for potential loan losses.
Management's determination of the proper level of the allowance
for loan losses is based on the ongoing analysis of the credit
quality and loss potential of the portfolio, actual loan loss
experience relative to the size and characteristics of the
portfolio, changes in composition and risk characteristics of the
portfolio and anticipated impacts of national and regional
economic policies and conditions. Senior management and the
Board of Directors of the Bank review the adequacy of the
allowance for loan losses on a monthly basis.
Management considers the year-end allowance
appropriate and adequate to cover possible losses in the loan
portfolio; however, management's judgment is based upon a number of
assumptions about future events, which are believed to be
reasonable, but which may or may not prove valid. Thus, there can
be no assurance that charge-offs in future periods will not exceed
the allowance for loan losses or that additional increases in the
loan loss allowance will not be required.
9. Investments.
As of December 31, 1994, the securities portfolio
comprised approximately 18.8% of the Company's assets, while loans
comprised approximately 67.9% of the Company's assets. The Bank
invests primarily in obligations of the United States or
obligations guaranteed as to principal and interest by the United
States, other taxable securities and in certain obligations of
states and municipalities. In addition, the Bank enters into
Federal Funds transactions with its principal correspondent banks,
and acts as a net seller of such funds. The sale of Federal Funds
amounts to a short-term loan from the Bank to another bank.
The following table presents, for the years ended
December 31, 1994 and 1993, the approximate market value of the
Company's investments, classified by category and by whether they
are considered available-for-sale or held-to-maturity (in
thousands):
Investment Category
Available-for-Sale: December 31,
1994 1993
Obligations of U.S. Treasury and other
U.S. Agencies $7,577,875$6,948,813
Mortgage-Backed Securities 1,565,971 306,125
Federal Reserve Bank Stock 99,000 99,000
Federal Home Loan Bank Stock 171,900 - -
Other Securities 407,934 - -
Total $9,822.680$7,353,938
Investment Category December 31,
1994 1993
Held-to-Maturity:
Municipal Securities $1,574,191$1,448,008
Certificate of Deposit 100,000 200,000
Total $1,674,191$1,648,008
<PAGE>
The following table indicates, for the year ended
December 31, 1994 ,the amount of investments, appropriately
classified, due in (i) one year or less, (ii) one to five years,
(iii) five to ten years, and (iv) over ten years.
Investment Category
Available-for-Sale: Amount Average Weighted Yield
Obligations of U.S. Treasury and other
U.S. Agencies
0 to 1 year $100,250 6.87%
Over 1 through 5 years 7,477,625 6.41
Mortgage-Backed Securities:
0 to 1 year 178,313 7.33
Over 1 through 5 years 434,219 5.70
Over 10 years 953,439 3.52
Other Securities:
Over 5 through 10 years 103,460 6.85
Over 10 years 304,474 8.31
No maturity 270,900 6.00
Total $9,822,680 6.17%
Investment Category
Held-to-Maturity: Amount Average Weighted Yield
Municipal Securities:
0 to 1 year $84,996 5.77%
Over 1 through 5 years 1,378,824 6.12
Over 10 years 110,371 8.40
Certificate of Deposit:
0 to 1 year 100,000 4.00
Total $1,674,191 6.12
10. Return on Equity and Assets.
Returns on average consolidated assets and average
consolidated equity for the year ended December 31, 1994 and 1993
are as follows:
1994 1993
Return on average assets 1.11% .99%
Return on average equity 14.96% 14.60%
Equity to assets ratio 7.43% 7.28%
Dividend payout ratio 9.83% 8.79%
11. Asset/Liability Management.
It is the objective of the Bank to manage assets
and liabilities to provide a satisfactory, consistent level of
profitability within the framework of established cash, loan
investment, borrowing and capital policies. Certain of the
officers of the Bank are responsible for monitoring policies and
procedures that are designed to ensure acceptable composition of
the asset/liability mix, stability and leverage of all sources of
funds while adhering to prudent banking practices. It is the
overall philosophy of management to support asset growth primarily
through growth of core deposits of all categories made by
individuals, partnerships and corporations. Management of the Bank
seeks to invest the largest portion of the Bank's assets in
commercial, consumer and real estate loans.
The Bank's asset/liability mix is monitored on a
daily basis. A monthly report reflecting interest-sensitive assets
and interest-sensitive liabilities is prepared and presented to the
Bank's Board of Directors. The objective of this policy is to
control interest-sensitive assets and liabilities so as to minimize
the impact of substantial movements in interest rates on the Bank's
earnings.
12. Employees.
As of March 1, 1995, the Bank employed 18 full time
and 4 part-time personnel, including 3 officers. The Bank will
hire additional persons as needed, including additional tellers and
financial service representatives. Management of the Bank believes
that its employee relations are good. There are no collective
bargaining agreements covering any of the Bank's employees.
13. Supervision and Regulation.
The Company and the Bank operate in a highly
regulated environment, and their business activities are governed
by statute, regulation and administrative policies. The business
activities of the Company and the Bank are closely supervised by a
number of state and federal regulatory agencies, including the
Federal Reserve Board, the OCC, the Department and the Federal
Deposit Insurance Corporation ("FDIC").
The Company is regulated by the Federal Reserve
Board under the federal
Bank Holding Company Act of 1956, which requires every bank
holding company to obtain the prior approval of the Federal
Reserve Board before acquiring more than 5% of the voting shares
of any bank or all or substantially all of the assets of a bank,
and before merging or consolidating with another bank holding
company. The Federal Reserve Board (pursuant to regulation and
published statements) has maintained that a bank holding company
must serve as a source of financial strength to its subsidiary
banks. In adhering to the Federal Reserve Board policy, the
Company may be required to provide financial support to a
subsidiary bank at a time when, absent such Federal Reserve Board
policy, the Company may not deem it advisable to provide such
assistance.
A bank holding company is generally prohibited
from acquiring control of any company which is not a bank and from
engaging in any business other than the business of banking or
managing and controlling banks. However, there are certain
activities which have been identified by the Federal Reserve Board
to be so closely related to banking as to be a proper incident
thereto and thus permissible for bank holding companies, including
the following activities: acting as investment or financial
advisor to subsidiaries and certain outside companies; leasing
personal and real property or acting as a broker with respect
thereto; providing management consulting advice to nonaffiliated
banks and non-bank depository institutions; operating collection
agencies and credit bureaus; acting as a futures commission
merchant; providing data processing and data transmission
services; acting as an insurance agent or underwriter with respect
to limited types of insurance; performing real estate appraisals;
arranging commercial real estate equity financing; providing
securities brokerage services; and underwriting and dealing in
obligations of the United States, the states and their political
subdivisions.
As of March 1, 1995, interstate expansion of bank
holding companies is prohibited, unless such acquisition is
specifically authorized by a statute of the state in which the
target bank is located. However, the Riegle-Neal Act, which was
adopted by the United States Congress on September 29, 1994, will,
as hereinafter described, significantly ease the current
restrictions on the interstate acquisition of banks by bank holding
companies.
Pursuant to the Riegle-Neal Act, effective September
29, 1995 an adequately capitalized and adequately managed bank
holding company may acquire a bank across state lines, without
regard to whether such acquisition is permissible under state law.
A bank holding company is considered to be "adequately capitalized"
if it meets all applicable federal regulatory capital standards.
While the Riegle-Neal Act precludes a state from
entirely insulating its banks from acquisition by an out-of-state
holding company, a state may still provide that a bank may not be
acquired by an out-of-state company unless the bank has been in
existence for a specified number of years, not to exceed five
years. Additionally, the Federal Reserve Board is directed not to
approve an application for the acquisition of a bank across state
lines if (i) the applicant bank holding company, including all
affiliated insured depository institutions, controls, or after the
acquisition would control, more than ten percent of the total
amount of deposits of all insured depository institutions in the
United States (the "ten percent concentration limit") or (ii) the
acquisition would result in the holding company controlling thirty
percent or more of the total deposits of insured depository
institutions in any state in which the holding company controlled
a bank or branch immediately prior to the acquisition (the "thirty
percent concentration limit"). States may waive the thirty percent
concentration limit, or may make same more or less restrictive, so
long as they do not discriminate against out-of-state bank holding
companies.
The Riegle-Neal Act also provides that, beginning on
June 1, 1997, banks located in different states may merge and
operate the resulting institution as a bank with interstate
branches. However, a state may (i) prevent interstate branching
through mergers by passing a law prior to June 1, 1997 that
expressly prohibits mergers involving out-of-state banks or (ii)
permit such merger transactions prior to June 1, 1997. Under the
Riegle-Neal Act, an interstate merger transaction may involve the
acquisition of a branch of an insured bank without the acquisition
of the bank itself, but only if the law of the state in which the
branch is located permits this type of transaction. As of March
17, 1995, the legislature of the State of Georgia had not enacted
any legislation in response to the Riegle-Neal Act.
A state may impose certain conditions on a branch of
an out-of-state bank resulting from an interstate merger so long as
such conditions do not have the effect of discriminating against
out-of-state banks or bank holding companies, other than on the
basis of a requirement of nationwide reciprocal treatment. The ten
percent concentration limit and the thirty percent concentration
limit described above, as well as the rights of the states to
modify or waive the thirty percent concentration limit, apply to
interstate bank mergers in the same manner as they apply to the
acquisition of out-of-state banks.
A bank resulting from an interstate merger
transaction may retain and operate any office that any bank
involved in the transaction was operating immediately before the
transaction. After completion of the transaction, the resulting
bank may establish or acquire additional branches at any location
where any bank involved in the transaction could have established
or acquired a branch.
The Riegle-Neal Act also provides that the
appropriate federal banking agency may approve an application by a
bank to establish and operate an interstate branch in any state
that has in effect a law that expressly permits all out-of-state
banks to establish and operate such a branch.
The Company is also regulated by the Department
under the Georgia Bank Holding Company Act, which requires every
Georgia bank holding company to obtain the prior approval of the
Department before acquiring more than 5% of the voting shares of
any bank or all or substantially all of the assets of a bank or
before merging or consolidating with any other bank holding
company. A Georgia bank holding company is generally prohibited
from acquiring ownership or control of 5% or more or the voting
shares of any bank unless the bank being acquired is either a
bank for purposes of the federal Bank Holding Company Act of 1956,
or a federal or state savings and loan association or a savings
bank or federal savings bank whose deposits are insured by the
Federal Savings and Loan Insurance Corporation and such bank has
been in existence and continuously operating as a bank for a period
of five years or more prior to the date of application to the
Department for approval of such acquisition.
As a national bank, the Bank is subject to the
supervision of the OCC and, to a limited extent, the FDIC and the
Federal Reserve Board. With respect to expansion, national banks
situated in the State of Georgia are generally prohibited from
establishing branch offices or facilities outside of the county in
which such main office is located, except (i) in adjacent counties
in certain situations, or (ii) by means of a merger or
consolidation with a bank which has been in existence for at least
five years. In addition, in the case of a merger or consolidation,
the acquiring bank must have been in existence for at least 24
months prior to the merger. The Bank is also subject to the
Georgia banking and usury laws restricting the amount of interest
which it may charge in making loans or other extensions of credit.
Both the Company and the Bank are subject to
regulatory capital requirements imposed by the Federal Reserve
Board and the OCC. The capital adequacy guidelines issued by the
Federal Reserve Board are applied to bank holding companies on a
consolidated basis with the banks owned by the holding company.
The OCC's risk-based capital guidelines apply directly to national
banks regardless of whether they are a subsidiary of a bank holding
company. Under both agencies' requirements, banking organizations
must have capital (as defined in the rules) equivalent to 8.0% of
risk-weighted assets. The risk weights assigned to assets are
based primarily on credit risk. For example, securities with an
unconditional guarantee by the United States government are
assigned the lowest risk category. A risk weight of 50% is
assigned to loans secured by owner-occupied one-to-four family
residential mortgages. The aggregate amount of assets assigned to
each risk category is multiplied by the risk weight assigned to
that category to determine the weighted values, which are added
together to determine total risk-weighted assets.
Both the Federal Reserve Board and the OCC also
require the maintenance of minimum capital leverage ratios to be
used in tandem with the risk-based guidelines in assessing the
overall capital adequacy of banks and bank holding companies.
Under these new rules, banking institutions are required to
maintain a ratio of "Tier 1" capital to total assets (net of
goodwill) of 4.0%. Tier 1 capital includes common stockholders'
equity, noncumulative perpetual preferred stock, and minority
interests in the equity accounts of consolidated subsidiaries.
As of December 31, 1994, the Company maintained a
total risk-based capital ratio and "Tier 1" ratio of 11.4% and
10.2%, respectively. See also the discussion under "Capital
Adequacy" in Item 6 below.
Both the risk-based capital guidelines and the
leverage ratio are minimum requirements, applicable only to top-
rated banking institutions. Institutions operating at or near
these levels are expected to have well diversified risk, excellent
asset quality, high liquidity, good earnings and, in general, have
to be considered strong banking organizations, rated Composite 1
under the CAMEL rating system for banks or the BOPEC rating system
for bank holding companies. Institutions with lower ratings and
institutions with high levels of risk or experiencing or
anticipating significant growth would be expected to maintain
ratios 100 to 200 basis points above the stated minimums.
The OCC, the Federal Reserve Board and the FDIC
recently have proposed a revision to their risk-based capital
guidelines to further ensure that those guidelines take adequate
account of interest rate risk. Interest rate risk is the adverse
effect that changes in market interest rates may have on a bank's
financial condition and is inherent to the business of banking.
The agencies have proposed two alternative methods for assessing a
bank's capital adequacy for interest rate risk. Under the first
approach, the banking agencies would establish minimum capital
standards for interest rate risk based on either a supervisory
model or the bank's internal model of measuring risk. Institutions
would be required to have capital sufficient to cover the amount of
measured exposure in excess of the threshold level. The proposed
threshold level is a decline in net economic value equal to 1.0
percent of assets. Under the second approach, a minimum capital
requirement for interest rate risk would not be set. Instead,
examiners would consider results of quantitative measures of
interest rate risk along with other factors in evaluating an
institution's capital adequacy for interest rate risk.
Finalization with respect to the proposal is anticipated sometime
during 1995.
The Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "Act"), enacted on December 19, 1991,
provides for a number of reforms relating to the safety and
soundness of the deposit insurance system, supervision of domestic
and foreign depository institutions and improvement of accounting
standards. One aspect for the Act is the requirement that banks
will have to meet new safety and soundness standards. In order to
comply with the Act, the Federal Reserve Board, the OCC and the
FDIC issued a Notice of Proposed Rulemaking on November 19, 1993,
which institutes regulations defining operational and managerial
standards relating to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth, director and
officer compensation, asset quality, earnings and stock valuation.
On March 16, 1994, the legislature of the State of
Georgia had enacted an interstate banking statue which, effective
July 1995, will replace the regional interstate banking statue
currently governing acquisitions of and by Georgia-based bank
holding companies. Under the new statue, acquisitions of and by
Georgia banks and bank holding companies would be, under certain
circumstances and on a reciprocal basis, allowed to take place in
all fifty states, as opposed to only the twelve states which are
currently covered by the regional interstate banking statute. The
regional interstate legislation has had the effect, and the
national interstate legislation is likely to have the effect, of
increasing competition among financial institutions in the Bank's
market area and in the State of Georgia generally.
The scope of regulation and permissible activities
of the Company and the Bank is subject to change by future federal
and state legislation.
14. Monetary Policies.
The results of operations of the Bank are affected
by credit policies of monetary authorities, particularly the
Federal Reserve Board. The instruments of monetary policy employed
by the Federal Reserve Board include open market operations in
U.S. Government securities, changes in the discount rate on member
bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks
may pay on time and savings deposits. In view of the changing
conditions in the national economy and the money markets, as well
as the effect of action by monetary and fiscal authorities,
including the Federal Reserve Board, no prediction can be made as
to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of the Bank.
Item 2. Description of Property.
The Bank owns its main banking facility located in an
approximately 9,500 square foot building at 561 East Washington
Avenue, Ashburn, Georgia 31714. The Hudson Avenue side of the
property contains a house which has been remodeled and is used for
various activities, including banking and civic functions. The
bank invested approximately $1,141,396 in the construction of the
building, landscaping, and the purchase of security devices, the
main vault, furniture and fixtures.
Item 3. Legal Proceedings.
Neither the Company nor the Bank is a party to, nor is
any of their property the subject of, any (a) material pending
legal proceeding which is not routine litigation that is incidental
to the business or (b) any other material legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security-holders
during the fourth quarter of the fiscal year covered by this
report.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters.
The Registrant's articles of incorporation authorize it
to issue up to 10,000,000 shares of common stock, par value $5.00
per share. There is no established public trading market in the
stock. The Registrant sold 352,001 shares of its common stock at
a price of $10.00 per share in its initial public offering which
terminated on December 14, 1990. As of March 1, 1995, 353,417
shares of the Registrant's common stock were issued and outstanding
to 475 holders of record. The Registrant is aware of isolated
transactions which have occurred since the conclusion of its
initial offering; in the last significant such transaction, 135
shares of common stock were sold for $15.00 per share.
The Registrant did not pay any dividends in 1992. During
the first quarter of 1993, the Company did declare and pay a
dividend of $49,280, i.e., at $.14 per share. During the first
quarter of 1994, the Company declared and paid a dividend of
$63,360, i.e., at $.18 per share. 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.
The Bank is restricted in its ability to pay dividends
under the national banking laws and by regulations of the OCC.
Pursuant to 12 U.S.C. Section 56, a national bank may not pay
dividends from its capital. All dividends must be paid out of net
profits then on hand, after deducting losses and bad debts.
Payments of dividends out of net profits is further limited by 12
U.S.C. Section 60(a), which prohibits a bank from declaring a
dividend on its shares of common stock until its surplus equals its
stated capital, unless there has been transferred to surplus not
less than 1/10 of the Banks's net profits of the preceding year two
consecutive half-year periods (in the case of an annual dividend).
Pursuant to 12 U.S.C. Section 60(b), the approval of the OCC is
required if the total of all dividends declared by the Bank in any
calendar year exceeds the total of its net profits for that year
combined with its retained net profits for the preceding two years,
less any required transfers to surplus.
Under the OCC's regulations, the allowance for loan and
lease losses will not be considered an element of either "undivided
profits then on hand" or "net profits." Further, under the
regulation, a national bank may be able to use a portion of its
capital surplus account as "undivided profits then on hand,"
depending on the composition of that account. In addition, the
regulations clarify that dividends on preferred stock are not
subject to the limitations of 12 U.S.C. Section 56, while
explicitly making such dividends subject to the constraints of 12
U.S.C. Section 60. In general, the regulations do not diminish or
impair a well-capitalized banks ability to make cash payments to
its shareholders in the form of a return of capital.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Discussion of the financial condition and results of
operations of the Company should be read in conjunction with the
Company's Consolidated Financial Statements, related notes and
statistical information included elsewhere herein.
A. General.
In accordance with the Initial Business Plan, the
Company and the Bank anticipated operating losses in the first few
years of operations. The Company incurred operating (losses) of
$(127,800) in 1989 and $(315,148) in 1990. The trend was reversed
in 1991 when the Company earned $82,425. For the years ended
December 31, 1994, 1993 and 1992, net income amounted to $644,350,
$560,481 and $450,504, respectively. For the year ending December
31, 1995 management expects the Company to operate profitably.
Although these expectations are based upon management's best
judgement, actual results will depend on a number of factors that
cannot be predicted with certainty, and fulfillment of management's
expectations cannot be assured.
For the year ended December 31, 1994, net income
amounted to $644,350, or $1.58 per share. Total assets of the
Company as of December 31, 1994 were $61.2 million. The
consolidated financial statements show that the Company was highly
liquid at December 31, 1994, with $11.5 million in securities and
$3.5 million in Federal Funds sold. Net loans totaled $41.6
million. Deposits totaled $55.9 million and capital totaled $4.5
million.
At December 31, 1993, the Company's net income was
$560,481, or $1.43 per share. As of December 31, 1993, the Company
had total assets of $57.6 million, investment securities of $9.0
million and Federal Funds sold of $5.2 million. Also as of December
31, 1993, net loans totaled $39.7 million, deposits $52.7 million,
and capital $4.2 million.
B. Net Interest/Income Margins.
The primary source of revenue for the Company is net
interest income, which is the difference between income on interest
earning assets (such as investment securities and loans) and
interest incurred on interest bearing sources of funds (such as
deposits and borrowings). The level of net interest income is
determined by the average balances (volume) of interest earning
assets and the various rate spreads between the interest earning
assets and the Company's funding sources. The Company's 1994
average volume of interest earning assets and interest bearing
liabilities are shown under "Distribution of Assets, Liabilities
and Stockholders' Equity; Interest Differential", in Section
B.3 of Item 1 above. Changes in net interest income from period to
period result from increases or decreases in volume of interest
earning assets and interest bearing liabilities, increases or
decreases in the average rates earned and paid on such assets and
liabilities, the ability to manage the earning asset portfolio
(which includes loans) and the availability of particular sources
of funds, such as non-interest bearing deposits.
Net interest income for 1994 was $2,617,682,
compared to $2,420,404 for 1993. The increase in net interest
income is primarily attributable to the increase in volume of
interest earning assets which, in turn, was primarily the result of
aggressive marketing in the community. Average yield on the
earning assets in 1994 was 8.76%, compared to 8.58% in 1993. The
primary reason for the increase in average yield is attributed to
the fact that the Bank increased the amount of consumer loans
outstanding during 1994 by $2.2 million. Note that the category of
consumer loans earns the highest yield of any asset category in the
Bank. Management anticipates that net interest income will
increase slightly in 1995. Although such expectations are based on
managements's best judgement, actual results will depend on a
number of factors that cannot be predicted with certainty and the
fulfillment of management's expectations cannot be assured.
The key performance measure for net interest income
is the "net interest margin", or net interest income divided by
average interest earning assets. The Company's net interest margin
in 1994 was 4.86% compared to 4.56% in 1993. The increase in the
net interest margin was accomplished because the average yield on
assets has increased from 8.58% (1993) to 8.76% (1994). In
addition, the average cost of funds during 1994 declined from 4.27%
(1993) to 4.19% (1994).
<PAGE>
C. Non-Interest Income.
Non-interest income for 1994 was $447,659. The
following table presents the principal components of non-interest
income for 1994 as compared to 1993.
Non-Interest Income
1994 1993
Service charges $275,359 $224,781
Gain on sale of securities 87,364 90,019
Other 84,936 45,229
Total non-interest income $447,659 $360,029
Non-interest income as percentage of average total
assets has increased from .63% for 1993 to .77% for 1994. The
majority of the increase was due to higher service fees and charges
as well as to a higher volume in transactions.
D. Non-Interest Expense.
Non-interest expense, including the provision for
loan losses, totalled $2,011,265 in 1994, compared to $2,005,579
in 1993. Non-interest expense increased by $5,700 in 1994 due to
higher operational costs stemming from increased business and
transactions at the Bank, as well as due to general price
increases. Management anticipates that in 1995 non-interest expense
will continue to increase. Generally, as the Bank grows,
management expects the ratio of non-interest expense, as a
percentage of average total assets, to decline, unless the Bank
experiences excessive charge-offs.
The following table presents the components of non-
interest expense for 1994 as compared to 1993:
Non-interest Expense
1994 1993
Salaries and other personnel benefits $744,961 $705,933
Depreciation and amortization 175,266 159,748
Provision for loan losses 321,500 448,000
Legal and professional 126,950 87,529
Regulatory fees and assessments 148,997 143,367
Other expenses 493,591 461,002
Total non-interest expense $2,011,265$2,005,579
Non-interest expense as a percentage of average
total assets during 1994 was 3.47% and during 1993 was 3.53%.
E. Interest Rate Sensitivity and Liquidity.
Net interest income, the Company's primary source of
earnings, can fluctuate with significant interest rate movements.
To lessen the impact of these margin swings, the balance sheet
would be structured so that repricing opportunities exist for both
assets and liabilities in roughly equivalent amounts at
approximately the same time intervals. Imbalances in these
repricing opportunities at any point in time constitute interest
rate sensitivity. Interest rate sensitivity refers to the
responsiveness of interest bearing assets and liabilities to
changes in market interest rates.
The rate sensitive position, or gap, is the
difference in the volume of rate sensitive assets and liabilities,
at a given time interval. The general objective of gap management
is to actively manage rate sensitive assets and liabilities to
reduce the impact of interest rate fluctuations on the net interest
margin. Management generally attempts to maintain a balance
between rate sensitive assets and liabilities as the exposure
period is lengthened to minimize the overall interest rate risks to
the Company.
The asset mix of the balance sheet is continually
evaluated in terms of several variables: yield, credit quality,
appropriate funding sources and liquidity. Management of the
liability mix of the balance sheet focuses on expanding the various
funding sources.
The interest rate sensitivity position of the
Company at year end 1994 is presented below. The difference
between rate sensitive assets and rate sensitive liabilities, or
the interest rate sensitivity gap, is shown at the bottom of the
table. The Company was liability sensitive between three to twelve
months, and asset sensitive at all other time periods. On a
cumulative basis the Company was again, liability sensitive from
three months to twelve months and asset sensitive at all other time
periods. In a declining interest rate environment, a liability
sensitive position (a gap ratio of less than 1.0) is generally more
advantageous since the liabilities reprice sooner than the assets.
Conversely, in a rising rate environment, an asset sensitive
position (a gap over 1.0) is generally more advantageous as earning
assets reprice sooner than the liabilities. Since all interest
rates and yields do not adjust at the same velocity, the gap is
only a general indicator of rate sensitivity.
<PAGE>
Rate Sensitivity Analysis
December 31, 1994
(To nearest thousand)
After 3 After 6 After 1
Within Months Months Year But
Three But Within But Within But Within 5 After 5
Months 6 Months One Year Years Years Total
EARNING ASSETS
Loans $21,665 $2,942 $6,766 $9,721 $1,182 $42,276
Securities 200 72 191 9,290 1,744 11,497
Federal funds
sold 3,500 - - - - - - - - 3,500
Total earning
assets $25,365 $3,014 $6,957 $19,011 $2,926 $57,273
SUPPORTING SOURCES OF FUNDS
Interest bearing
demand deposits
and savings $12,363 $ - - $ - - $ - - $ - - $12,363
Certificates,
less than $100M 6,886 6,027 8,256 6,982 - - 28,151
Certificates,
$100M and over 2,000 3,083 3,943 1,452 - - 10,478
Other
obligations 21 22 44 59 - - 146
Total interest
bearing
liabilities $21,270 $9,132 $12,243 $8,493 $- - $51,138
Interest rate
sensitivity
gap 4,095 (6,118) (5,286) 10,518 2,926 6,135
Cumulative
gap 4,095 (2,023) (7,309) 3,209 6,135 6,135
Interest rate
sensitivity gap
ratio 1.19 .33 .57 2.24 - - 1.12
Cumulative interest
rate sensitivity
gap ratio 1.19 .93 .83 1.06 1.12 1.12
<PAGE>
As the Bank continues to grow, management will
continuously reposition the rate sensitivity position to best hedge
against rapidly rising or falling interest rates. On a quarterly
basis, the Bank's Asset/Liability Committee meets and develops the
strategy for management to employ for the upcoming period.
Liquidity represents the ability to provide steady
sources of funds for loan commitments and investment activities, as
well as to provide sufficient funds to cover deposit withdrawals
and payment of debt and operating obligations. These funds can be
obtained by converting assets to cash or by attracting new
deposits. As of December 31, 1994, the loan to deposit ratio
amounted to 74.3%. Time deposits in excess of $100,000 represented
18.7% of total deposits and federal funds sold amounted to $3.5
million . Management believes that the Company's liquidity is
adequate at December 31, 1994. 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. The Company is not aware of any
current recommendations 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 operation.
F. Capital Adequacy
There are now two primary measures of capital
adequacy for banks and bank holding companies: (i) risk-based
capital guidelines and (ii) the leverage ratio. As of the end of
1994, the risk-based capital guidelines require that the ratio of
total capital to risk-adjusted assets be not less than 8%, with at
least 4% consisting of Tier 1 capital.
Under the risk-based capital guidelines, Tier 1
capital consists of common stockholders' equity, noncumulative and
cumulative (bank holding company only) perpetual preferred stock,
and minority interests less goodwill. Tier 2 capital consists of
the allowance for loan losses, hybrid capital instruments, term
subordinated debt, and intermediate term preferred stock.
The OCC's leverage ratio is computed by dividing Tier 1 capital into
total assets. As of the end of 1994, for most banks, including
the Bank, the minimum leverage ratio is 3.0%, plus an additional
cushion of at least 1 to 2 percent, depending upon risk profiles
and other factors.
The table below illustrates the Bank's and the
Company's regulatory capital ratios at December 31, 1994.
December 31, Regulatory
1994 requirement
Bank
Tier 1 Capital 9.9% 4.0%
Tier 2 Capital 1.2% N/A
Total risk-based Capital Ratio 11.1% 8.0%
Leverage Ratio 7.6% 3.0%
Company
Tier 1 Capital 10.2% 4.0%
Tier 2 Capital 1.2% N/A
Total risk-based Capital Ratio 11.4% 8.0%
Leverage Ratio 7.7% 3.0%
The above ratios indicate that the capital position
of the Company is sound and that the Company is well positioned for
future growth.
Item 7. Financial Statements and Supplementary Data.
The following financial statements are contained in this
Item 7:
Independent Auditors' Report
Consolidated Balance Sheets-as of December 31, 1994 and 1993
Consolidated Statements of Income-for the years ended December 31,
1994 and 1993
Consolidated Statement of Changes in Stockholders' Equity-for the
years ended December 31, 1994 and 1993
Consolidated Statements of Cash Flows-for the years ended December
31, 1994 and 1993
Notes to Consolidated Financial Statements
<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
FINANCIAL STATEMENTS
for the years ended
December 31, 1994 and 1993
<PAGE>
Francis & Company, CPAs
Independent Auditors' Report
Board of Directors
Community National Bancorporation
Ashburn, Georgia
We have audited the accompanying consolidated balance sheets
of Community National Bancorporation (the "Company") and subsidiary
as of December 31, 1994 and 1993, and the related consolidated
statements of income, changes in shareholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Community National Bancorporation and subsidiary at
December 31, 1994 and 1993, and the results of their operations and
their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Atlanta, Georgia
February 17, 1995
<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
ASSETS
December 31,
1994 1993
Cash and due from banks $1,883,503 $1,402,123
Federal funds sold (Note 3) 3,500,000 5,225,000
Total cash and cash equivalents $5,383,503$6,627,123
Securities: (Notes 2, 4 & 5)
Available for sale at fair valu
$ 9,822,680 7,353,938
Held to maturity (Fair value of
$1,629,938 and $1,691,727 at December
31, 1994 and 1993, respectively)
1,674,191 1,648,008
Loans, net (includes loans to insiders
in the amount of $2,355,803 and
$2,861,630 at December 31, 1994 and 1993,
respectively) (Notes 2, 6, 7 & 15)
$41,566,324 $39,651,674
Property and equipment, net (Notes 2 & 8)
1,166,912 1,277,347
Other assets 1,587,807 1,072,721
Total Assets $61,201,417 $57,630,811
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $4,956,350 3,619,337
Interest bearing deposits 50,992,030 49,083,411
Total deposits (Note 10) $55,948,380 $52,702,748
Obligation under capital lease (Note 14)
145,588 227,918
Other liabilities 617,602 504,042
Total liabilities $56,711,570 $53,434,708
Commitments and contingencies (Note 9)
Shareholders' Equity: (Notes 1, 15 & 17)
Common stock, $5.00 par value,
10,000,000 shares authorized, 353,417
and 352,001 issued and outstanding at
December 31, 1994 and 1993, respectively
$1,767,085 $1,760,005
Paid-in-capital
1,712,903 1,705,823
Retained earnings 1,182,091 601,101
Unrealized gain on securities, net (Note 4)
(172,232) 129,174
Total Shareholders' Equity $4,489,847 $4,196,103
Total liabilities and shareholders' equity
$61,201,417 $57,630,811
Refer to notes to the consolidated financial statements.<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Income
Years Ended December 31,
1994 1993
Interest income:
Interest and fees on loans $4,075,413 $3,789,168
Interest on investment securities
472,001 669,542
Interest on federal funds sold 176,069 91,210
Total interest income $4,723,483 $4,549,920
Interest expense:
Interest on deposits and borrowings (Note 11)
2,105,80 1,129,516
Net interest income 2,617,682 2,420,404
Provision for possible loan losses (Note 7)
321,500 448,000
Net interest income after provision
for possible loan losses 2,296,182 1,972,404
Other income:
Gain on sale of securities (Note 4)
$87,364 $90,019
Service fees on deposit accounts 275,359 224,781
Miscellaneous, other 84,936 45,229
Total other income $447,659 $360,029
Other expenses:
Salaries and benefits $744,961 $705,933
Data processing expense 64,137 67,394
Regulatory fees and assessments 148,997 143,367
Depreciation and amortization 175,266 159,748
Other operating expenses (Note 12)
556,404 481,137
Total other expenses $1,689,765 $1,557,579
Income (loss) before income tax $1,054,076 $774,854
Income tax (Notes 2 & 13) 409,726 214,373
Net income $644,350 $560,481
Primary net income per common share (Note 2)
$1.58 $1.43
Fully diluted net income
per common share (Note 2) $1.58 $1.43
Weighted average number of common stock
and common stock equivalents (Note 2)
424,100 352,001
Refer to notes to the consolidated financial statements.
<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1994 and 1993
Number Paid Retained Unrealized Total
of Common in Earnings Gain on Shareholders'
Shares Stock Capital (Deficit) Securities Equity
Balance,
December 31, 1992
352,001 $1,760,005 $1,705,823 $89,901 - - $3,555,729
Dividends paid - - - - - - (49,281) - - (49,281)
Net income, 1993 - - - - - - 560,481 - - 560,481
Unrealized gain
on securities
- - - - - - - - 129,174 129,174
Balance,
December 31, 1993
352,001 $1,760,005 $1,705,823 $601,101 $129,174 $4,196,103
Redemption of
stock warrants
1,416 7,080 7,080 - - - - 14,160
Dividends paid
- - - - - - (63,360) - - (63,360)
Net income, 1994
- - - - - - 644,350 - - 644,350
Unrealized (loss)
on securities
- - - - - - - - (301,406) (301,406)
Balance,
December 31,1994
353,417 $1,767,085 $,712,093 4,182,091 $(172,232) $4,489,847
Refer to notes to the consolidated financial statements.<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Cash Flows
Years Ended December 31,
1994 1993
Cash flows from operating activities:
Net income $644,350 $560,481
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 175,266 159,748
Net amortization of premiums on securities
19,454 83,467
(Gain) on sale or settlements of securities
(87,364) (90,019)
Provisions for loan losses 321,500 448,000
(Increase) in other assets (534,574) (115,939)
Increase in liabilities 113,560 59,443
Net cash provided by operating activities
$652,192 $1,105,181
Cash flows from investing activities:
Proceeds from sales and
paydowns of investment securities
$4,342,239 3,432,120
Proceeds from maturities
of investment securities 3,300,000 1,650,000
Purchase of investment securities
(10,370,660) (278,700)
Net increase in loans (2,236,150) (5,624,031)
Purchase of property and equipment (45,343) (71,997)
Net cash used in investing activities
` $(5,009,914) $(892,608)
Cash flows from financing activities:
Proceeds from redemption of warrants$14,160 $ - -
Payment of dividends (63,360) (49,281)
(Decrease) in lease obligations (82,330) (78,815)
Increase in customer deposits 3,245,632 3,408,422
Net cash provided from financing
activities $3,114,102 3,280,326
Net increase in cash and cash equivalents
$(1,243,620) $3,492,899
Cash and cash equivalents, beginning of year
6,627,123 3,134,224
Cash and cash equivalents, end of year
5,383,503 6,627,123
Supplemental Information:
Income taxes paid $350,540 $304,650
Interest paid $2,076,979 2,115,974
Refer to notes to the consolidated financial statements.<PAGE>
Community National Bancorporation
Ashburn, Georgia
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
Note 1 - 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 and its deposits are each insured up to $100,000 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). The Company has no other
subsidiaries.
Note 2 - 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 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. As of December 31, 1994 and
1993, total organizational costs, net of amortization, were $11,397
and $30,885, respectively.
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 and
the Company have the intent and 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 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
Community National Bancorporation
Ashburn, Georgia
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
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 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 as
income in the period including the enactment date.
Community National Bancorporation
Ashburn, Georgia
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
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.
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. For the years ended December 31, 1994 and
1993, amounts of $51,626 and $60,000 were contributed to the Plan
and included in the consolidated statements of income under
"Salaries and benefits".
Earnings Per Share. The weighted average number of shares
outstanding as well as all common stock equivalents must be
considered for purposes of computing earnings per share. Note that
common stock equivalents are securities that enable their holders
to obtain additional shares of common stock. Options and warrants
are common stock equivalents. They are used in the computation of
earnings per share only if, upon exercise, they dilute earnings per
share by 3% or more. To compute earnings per share, adjusted net
income is divided by the sum of weighted average common stock
outstanding and common stock equivalents.
Whenever the market price of a share of common stock exceeded
the exercise price of any warrant or option during the calendar
years 1994 and 1993, an increase equal to the number of shares
which would be issuable on any such exercise of warrants and stock
options was reflected as a common stock equivalent. However, since
the treasury stock method was used, common stock equivalents may
not exceed 20% of the outstanding shares. If, upon exercise,
excess funds were available to acquire more than the 20% limit on
common stock equivalents, any excess proceeds are assumed to be
invested in treasury securities and the income from those
investments used to adjust net income accordingly.
Purchases for purposes of the primary earnings per share
calculation were assumed to have been made at the average price of
a share of common stock during the calendar year in question, while
purchases for purposes of the fully diluted calculation were
assumed to have been made at the calendar year-end price of a share
of stock. Note that for the year 1993, warrants and stock options
were anti-dilutive while for 1994 they were not.
1994 1993
Primary earnings per share
$1.58 $1.43
Fully diluted earnings per share
$1.58 $1.43
<PAGE>
Community National Bancorporation
Ashburn, Georgia
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
Note 3 - Federal Funds Sold
The Bank is required to maintain legal cash reserves computed
by applying prescribed percentages to its various types of
deposits. When the Bank's cash reserves are in excess of the
required amount, the Bank may lend the excess to other banks on a
daily basis. As of December 31, 1994 and 1993, the Bank lent, in
the aggregate, $3,500,000 (to four banks) and $5,225,000 (to three
banks), respectively, through the use of the federal funds market.
Note 4 - Securities Available for Sale
The Company adopted the provisions of SFAS No. 115 at December
31, 1993. Accordingly, the Company's investment securities which
are available for sale are recorded at fair value. Unrealized
holding gains and losses on securities available for sale, net of
taxes, are shown as a separate component of shareholders' equity on
the consolidated balance sheets.
At December 31, 1994, a net unrealized holding loss of
$172,232 was shown as a component of shareholders' equity. At
December 31, 1993, a net unrealized holding gain of $129,174 was
shown as a component of shareholders' equity.
The amortized cost and fair values of investment securities
available for sale as of December 31, 1994 follow:
Gross
Amortized Unrealized Fair
Description Cost Gains Losses Value
U.S. Treasury
securities $2,082,270 $168 $(59,843) $2,022,595
U.S. Agency
securities 5,693,288 - - (138,008) 5,555,280
FRB stock 99,000 - - - - 9,000
FHLB stock 171,900 - - - - 171,900
Municipal
securities 410,823 387 (3,276) 407,934
Mortgage backed
securities 1,626,357 1,029 (61,415) 1,565,971
Total securities
$10,083,638 $1,584$(262,542) $9,822,680
<PAGE>
Community National Bancorporation
Ashburn, Georgia
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
The amortized cost and fair values of investment securities
available for sale as of December 31, 1993 are listed below:
Gross
Amortized Unrealized Fair
Description Cost Gains Losses Value
U.S. Treasury
securities $2,539,099 $68,618 $- - $2,607,717
U.S. Agency
securities 4,224,692 116,526 (122) 4,341,096
FRB stock 99,000 - - - - 99,000
Mortgage backed
securities 295,429 10,696 - - 306,125
Total securities
$7,158,220 $195,840 $(122) $7,353,938
The amortized cost and fair value of securities available for
sale at December 31, 1994, by contractual maturity, are shown in
the following chart. Expected maturities may differ from
contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
Due in one year or less $100,082 $100,250
Due after one through five years 675,476 7,477,625
Due after five through ten years 105,823 103,460
Due after ten years 305,000 304,474
FRB stock (no maturity) 99,000 99,000
FHLB stock (no maturity) 171,900 171,900
Mortgage-backed securities 1,626,357 1,565,971
Total investment
securities $10,083,638 $9,822,680
As of December 31, 1994, the Company had recorded a deferred
asset in the amount of $88,726 arising from the unrealized loss of
securities available for sale. Proceeds from sales of securities
during 1994 were $4,174,687. Gross gains of $87,364 were realized
on those sales.
As of December 31, 1993, the Company had recorded a deferred
liability in the amount of $66,544 arising from the unrealized
gains of securities available for sale. Proceeds from sales of
securities during 1993 were $3,109,687. Gross gains of $91,508
were realized on those sales. During 1993, there were losses in
the amount of $1,489 resulting from the settlements of early
paydowns on mortgage-backed securities.
As of December 31, 1994, an aggregate amount of $2,341,331,
consisting of total or portions of seven securities, were pledged
as collateral for public funds deposits aggregating $1,013,686.
As of December 31, 1993, an aggregate amount of $2,315,000,
consisting of total or portions of eight securities, were pledged
as collateral for public funds deposits aggregating $2,670,726.<PAGE>
Community National Bancorporation
Ashburn, Georgia
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
Note 5 - Securities Held to Maturity
At December 31, 1993, the Company implemented SFAS No. 115,
which allows it to designate a portion of its securities portfolio
as "held to maturity". Due to this designation, sales from this
portfolio after December 31, 1993 are not anticipated except under
rare circumstances. All securities held to maturity are recorded
at amortized cost. The amortized cost and fair value of securities
held to maturity as of December 31, 1994 follows:
Gross
Amortized Unrealized Fair
Description Cost Gains Losses Value
Municipal securities
$1,574,191 $- - $(44,253) $1,529,938
CDs at other banks
100,000 - - - - 100,000
Total securities
$1,674,191 $- - $(44,253) $1,629,938
The amortized cost and fair value of securities held to
maturity as of December 31, 1993 follows:
Municipal securities
$1,448,008 $43,719 $- - $1,491,727
CDs at other banks
200,000 - - - - 200,000
Total securities
$1,648,008 $43,719 $- - $1,691,727
The amortized cost and fair value of securities held to
maturity at December 31, 1994, by contractual maturity, are shown
below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Amortized Fair
Cost Value
Due in one year or less $184,996 $184,182
Due after one through five years 1,378,824 1,337,525
Due after five through ten years - - - -
Due after ten years 110,371 108,231
Total investment securities $1,674,191 $1,629,938<PAGE>
Community National Bancorporation
Ashburn, Georgia
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
Note 6 - Loans
The composition of net loans by major loan category, as of
December 31, 1994 and 1993, follows:
December 31,
1994 1993
Commercial, financial,
agricultural $26,023,979 $25,489,858
Real estate - construction 140,000 423,045
Real estate - mortgage 6,637,143 7,095,220
Installment 9,474,923 7,298,824
Loans, gross $42,276,045 $40,306,947
Deduct:
Allowance for loan losses 709,721 655,273
Loans, net $41,566,324 $39,651,674
As of December 31, 1994, loans in the amount of $81,311 were
on non-accrual status. If interest had been accrued on those
loans, interest income would have increased by $6,119 or $.01 per
share. As of December 31, 1993, loans in the amount of $398,192
were on non-accrual status. If interest had been accrued on those
loans, interest income would have increased by $33,659 or $.08 per
share.
Note 7 - Allowance for Possible Loan Losses
The allowance for possible loan losses is a valuation reserve
available to absorb future loan charge-offs. The allowance is
increased by provisions charged to operating expenses and by
recoveries of loans which were previously written-off. The
allowance is decreased by the aggregate loan balances, if any,
which were deemed uncollectible during the year.
Activity within the allowance for loan losses account for the
years ended December 31, 1994 and 1993 follows:
Year ended December 31,
1994 1993
Balance, beginning of year $655,273 $520,288
Add: Provision for loan losses
321,500 448,000
Add: Recoveries of previously
charged off amounts 22,228 7,440
Total 999,001 $975,728
Deduct: Amount charged-off
(289,280) (320,455)
Balance, end of year 709,721 $655,273
Community National Bancorporation
Ashburn, Georgia
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
Note 8 - Property and Equipment
Building, furniture, equipment, land and land improvements are
stated at cost less accumulated depreciation. Components of
property and equipment included in the consolidated balance sheets
at December 31, 1994 and 1993 follow:
December 31,
1994 1993
Land $61,168 $51,968
Land improvements 30,486 30,486
Building 933,437 909,986
Furniture and equipment 624,158 611,586
Total fixed assets 1,649,249 $1,604,026
Deduct: Accumulated depreciation
482,337 326,679
Total fixed assets, net $1,166,912 $1,277,347
Included in furniture and equipment are assets costing
$400,881 which are leased under two separate capital lease
arrangements. Please refer to Note 14 for additional information
concerning the capital leases.
Depreciation expense for the years ended December 31, 1994 and
1993 amounted to $155,778 and $140,260, respectively. Depreciation
is charged to operations over the estimated useful lives of the
assets. The estimated useful lives and methods of depreciation for
the principal items follow:
Type of Asset Life in YearsDepreciation Method
Land improvements 2 Straight-line
Furniture and equipment 1 to 7 Straight-line
Building 32 Straight-line
Note 9 - Commitments and Contingencies
Please refer to Note 15 concerning contracts the Company
executed with the Bank's chief executive officer and executive vice
president.
Please refer to Note 14 for the discussion concerning the
lease of the Bank's equipment.
Please refer to Note 16 concerning financial instruments with
off-balance sheet risk.
<PAGE>
Co mmunity National Bancorporation
As hburn, Georgia
No tes to Consolidated Financial Statements
De cember 31, 1994 and 1993
Note 10 - Deposits
The following details deposit accounts at December 31, 1994
and 1993:
December 31,
1994 1993
Non-interest bearing deposits
$4,956,350 $3,619,337
Interest bearing deposits:
NOW accounts 5,249,485 5,088,339
Money market accounts5,911,642 6,455,133
Savings 1,201,999 750,599
Time, less than
$100,000 28,150,528 26,779,597
Time, $100,000 and over
10,478,376 10,009,743
Total deposits $55,948,380 $52,702,748
Note 11 - Interest on Deposits and Borrowings
A summary of interest expense for the years ended December 31,
1994 and 1993 follows:
December 31,
1994 1993
Interest on NOW and Super NOW accounts
$163,929 $128,337
Interest on money market accounts
200,139 197,068
Interest on savings accounts 33,292 23,056
Interest on CDs under $100,000
1,241,271 1,230,103
Interest on CDs $100,000 and over
452,846 542,573
Interest, other borrowings 14,324 8,379
Total interest on deposits and borrowings
$2,105,801 $2,129,516
<PAGE>
Community National Bancorporation
Ashburn, Georgia
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
Note 12 - Other Operating Expenses
A summary of other operating expenses for the years ended
December 31, 1994 and 1993 follows:
December 31,
1994 1993
Stationary and supplies $37,273 $40,641
Professional fees 126,950 87,529
Courier & Postage 32,585 30,190
Advertising & business development
44,160 37,453
Repairs and maintenance 65,553 62,045
Utilities and telephone 40,467 38,976
Directors' fees 47,200 45,450
Taxes and licenses 56,333 49,761
All other operating expenses105,883 89,092
Total other operating expenses
$556,40 $481,137
Note 13 - Income Taxes
In February, 1992, FASB issued SFAS No. 109, "Accounting for
Income Taxes". Under SFAS No. 109, deferred tax assets or
liabilities are computed based on the difference between the
financial statement and income tax basis of assets and liabilities
using the enacted marginal tax rate. Deferred income tax expenses
or credits are based on the changes in the asset or liability from
period to period. Prior to January 1, 1993, deferred income tax
expenses or credits were recorded to reflect the tax consequences
of timing differences between the recording of income and expenses
for financial reporting purposes and the filing of federal income
tax returns at income tax rates then in effect.
The Company elected to adopt SFAS No. 109 as of January 1,
1993. As permitted under Statement No. 109, prior period financial
statements have not been restated. The cumulative effect of the
change in the method of accounting for income taxes was
insignificant to the Company's financial position and results of
operations.
<PAGE>
Co mmunity National Bancorporation
As hburn, Georgia
No tes to Consolidated Financial Statements
De cember 31, 1994 and 1993
As of December 31, 1994 and 1993, the Company's provision for
income taxes consisted of the following:
December 31,
1994 1993
Current $363,956 $286,678
Deferred 45,770 (72,305)
Federal income tax expense$409,726 $214,373
Deferred income taxes consist of the following:
1994 1993
Provision for loan losses $20,235 $(72,305)
Start-up expenses 21,176 - -
Other 4,359 - -
Total $45,770 $(72,305)
The Company's provision for income taxes differs from the
amounts computed by applying the federal income tax statutory rates
to income before income taxes.
A reconciliation of federal statutory income taxes to the
Company's actual income tax provision follows:
Year ended December 31,
1994 1993
Income taxes at statutory rate
$421,630 $263,450
Tax-free investments (23,782) (23,008)
Decrease in valuation
allowance, deferred asset 20,235 (26,410)
Other (8,357) 341
Total $409,726 $214,373
Included under other assets at December 31, 1994 is a net
deferred tax asset in the amount of $185,907. The tax effects of
the temporary differences that comprise the net deferred tax asset
follow:
Deferred tax assets:
Unrealized loss on securities $88,726
Provision for loan losses 185,673
Valuation allowance (88,492) 97,181
Net deferred tax asset $185,907
<PAGE>
Community National Bancorporation
Ashburn, Georgia
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
Note 14 - Capital Leases
The Bank leases equipment (under two separate agreements) that
is used in the ordinary course of business for operational needs.
The leased equipment is a component of property and equipment on
the consolidated balance sheets, and its cost is capitalized.
Those costs were $247,897 in 1992 and $152,984 in 1991. The
resulting liability account, obligation under capital lease, was
also reflected in the Company's consolidated balance sheets. Note
that the assets under capital leases are being amortized and
included in the annual provision for depreciation expense.
Future minimum lease commitments under these leases at
December 31, 1994, follow:
January 1 to December 31, 1995 $88,734
January 1 to December 31, 1996 58,982
January 1 to December 31, 1997 14,745
Thereafter - -
Total future minimum lease commitments 162,461
Less: amount representing interest (7,848)
amount representing sales tax (9,025)
Present value of minimum lease payments $145,588
Total payments during 1994 and 1993 under the two leases
aggregated $97,651 and $94,024, respectively.
Note 15 - Related Party Transactions
Stock Warrants and Options. In consideration of the
directors' financial risks and efforts in organizing the Company
and the Bank, each director was offered the opportunity to purchase
investment units consisting of one share of the Company's common
stock and a warrant to purchase one share of the Company's common
stock. Each warrant entitles its holder to purchase the Company's
common stock at a price of $10.00 per share at any time during the
warrants' term of ten years. There were 97,750 units sold to
organizers during the Company's initial offering, and as of
December 31, 1994, there were 96,334 outstanding warrants.
Under certain circumstances, the Bank's president and
executive vice president are entitled to stock options. As of
December 31, 1994, the president and executive vice president each
had earned options to purchase 14,080 and 8,800 shares,
respectively. The options are exercisable at $10.00 per share and
mature at the end of seven years. The president has been granted
all of the options outlined in his employment agreement. The
executive vice president may earn options to purchase an additional
1,760 shares during 1995.
Employment Agreements. In April, 1989, the Company entered
into employment agreements with two of its directors who serve as
the president and executive vice president of the Bank. Both
agreements are for five year terms. The agreements provide health
and disability insurance, other customary benefits and, as
discussed above, the granting of stock options. Both agreements
tie annual increases to any increase in the State of Georgia's
Consumer Price Index. The president's annual base salary is
$75,000 and the executive vice president's is $55,000. For the
years ended December 31, 1994 and 1993, the Company incurred
expenses for salary and benefits as follows: (i) for the president:
$144,457 and $123,145, respectively; and (ii) for the executive
vice president: $112,997 and $100,588, respectively.
<PAGE>
Co mmunity National Bancorporation
As hburn, Georgia
No tes to Consolidated Financial Statements
De cember 31, 1994 and 1993
Borrowings and Deposits by Directors and Executive Officers.
Certain directors, executive officers and companies with which they
are affiliated, are customers of and have banking transactions with
the Bank in the ordinary course of business. As of December 31,
1994 and 1993, loans outstanding to directors, their related
interests and executive officers aggregated $2,355,803 and
$2,861,630, respectively. These loans were made on substantially
the same terms, including interest rates and collateral, as those
prevailing at the time for comparable arms-length transactions.
A summary of loan transactions with directors, including their
affiliates, and executive officers during 1994 and 1993 follows:
1994 1993
Balance, beginning of year $2,861,630$2,237,320
New loans 2,153,560 2,854,541
Less: loan payments 2,659,387 2,230,231
Balance, end of year $2,355,803 $2,861,630
Deposits by directors and their related interests, at December
31, 1994 and 1993, approximated $1,756,571 and $1,503,757,
respectively.
Total directors' fees aggregated $47,200 in 1994 and $45,450
in 1993.
Note 16 - Financial Instruments with Off-Balance Sheet Risk
In the ordinary course of business, and to meet the financing
needs of its customers, the Company is a party to various financial
instruments with off-balance sheet risk. These financial
instruments, which include commitments to extend credit and standby
letters of credit, involve, to varying degrees, elements of credit
and interest rate risk in excess of the amounts recognized in the
balance sheets. The contract amount of those instruments reflects
the extent of involvement the Company has in particular classes of
financial instruments.
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is
represented by the contractual amounts of those instruments. The
Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet
instruments.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any material condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require the
payment of a fee. At December 31, 1994 and 1993, unfunded
commitments to extend credit were $5,818,651 and $4,194,855,
respectively. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the borrower.
Collateral varies but may include accounts receivable, inventory,
property, plant and equipment, farm products, livestock and income
producing commercial properties.
At December 31, 1994 and 1993, commitments under letters of
credit aggregated approximately $169,000 and $68,102, respectively.
The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities
to customers. Collateral varies but may include accounts
receivable, inventory, equipment, marketable securities and
property. Since most of the letters of credit are expected to
expire without being
Community National Bancorporation
As hburn, Georgia
No tes to Consolidated Financial Statements
De cember 31, 1994 and 1993
drawn upon, they do not necessarily represent future cash
requirements.
The Company makes commercial, agricultural, real estate and
consumer loans to individuals and businesses located in and around
Turner County, Georgia. The Company does not have a significant
concentration of credit risk with any individual borrower.
However, a substantial portion of the Company's loan portfolio is
collateralized by real estate (mainly farmland) located in and
around Turner County, Georgia.
Note 17 - Dividends
Dividends are paid by the Company from its assets, which are
provided mainly by dividends up-streamed from the Bank. Certain
regulatory restrictions exist, however, regarding the ability of
the Bank to transfer funds to the Company in the form of cash
dividends, loans or advances.
During 1994, the Company received $114,000 in dividends from
the Bank and paid dividends in the amount of $.18 per share of
common stock, or $63,360 in the aggregate to all its shareholders.
During 1993, the Company received $73,000 in dividends from the
Bank and paid dividends in the amount of $.14 per share of common
stock, or $49,281 in the aggregate to all its shareholders.
Co mmunity National Bancorporation
As hburn, Georgia
No tes to Consolidated Financial Statements
De cember 31, 1994 and 1993
Note 18 - Parent Company Financial Information
This information should be read in conjunction with the other
notes to the consolidated financial statements.
Parent Company Balance Sheets
December 31,
Assets 1994 1993
Cash $30,191 $852
Accounts receivable 54,561 29,990
Investment in CDs 100,000 100,000
Investment in the Bank 4,329,605 4,059,137
Organizational costs, net 2,128 5,776
Other assets 1,000 1,000
Total Assets $4,517,485 $4,196,755
Liabilities and Shareholders' Equity
Income taxes payable $19,204 $- -
Accounts payable 8,434 652
Total Liabilities $27,638 $652
Common stock $1,767,085 $1,760,005
Paid-in-capital 1,712,903 1,705,823
Retained earnings 1,182,091 601,101
Unrealized gain (loss) on securities
(172,232) 129,174
Total Capital $4,489,847 $4,196,103
Total liabilities and capital
$4,517,485 $4,196,755
<PAGE>
Community National Bancorporation
Ashburn, Georgia
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
Parent Company Statements of Income
Years Ended December 31,
1994 1993
Revenues:
Interest income $4,449 $5,054
Dividends from Bank 114,000 73,000
Total revenues $118,449 $78,054
Expenses:
Professional fees $30,555 $26,321
Amortization of organization costs
3,648 3,648
Other expenses 11,770 5,278
Total expenses $45,973 $35,247
Income (loss) before taxes and
equity in undistributed earnings of Bank
$72,476 $42,807
Income tax (benefit) - - (10,176)
Income before equity in
undistributed earnings of Bank
72,476 52,983
Equity in undistributed earnings of Bank
571,874 507,498
Net Income $644,350 $560,481
<PAGE>
Community National Bancorporation
Ashburn, Georgia
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
Parent Company Statements of Cash Flows
Years Ended December 31,
1994 1993
Cash flows from operating activities:
Net income $644,350 $560,481
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed
earnings of the Bank
(571,874) ($507,498)
Amortization of organization
costs (Increase) in receivables 3,648 3,648
and advances (24,571) (9,605)
Increase in payables 26,986 (18,688)
Net cash provided
by operating activities $78,539 $28,338
Cash flows from financing activities:
Proceeds from redemption of warrants
$14,160 $- -
Payment of cash
dividends (63,360) (49,281)
Net cash provided
from financing activities
($49,200) ($49,281)
Net (decrease) in cash
and cash equivalents 29,339 (20,943)
Cash and cash equivalents,
beginning of year 852 21,795
Cash and cash equivalents, end of year
$30,191 $852
Note 19 - Subsequent Events
Subsequent to December 31, 1994, and prior to the date of this
report, the Company declared a dividend of $.18 per share for each
share of its common stock outstanding. Any declaration of future
dividends is within the Board of Directors' discretion and will
depend, among other things, upon business conditions, earnings,
capital position and applicable regulatory requirements.
<PAGE>
Item 8.
Changes in and Disagreements With Accountants and Financial Disclosure.
Not applicable. The Registrant did not change
accountants in 1994 and continues to use the independent accounting
firm of Francis & Company, CPAs.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act.
A. The following table sets forth the name of each
director of the Registrant and the Bank, his/her age, positions
held, and a brief description of his/her business experience. The
Registrant's current members of the board of directors serve a term
of one year. Except as otherwise indicated, each individual has
been or was engaged in his/her present or last principal
occupation, in the same or a similar position, for more than five
years.
Name Age Position with Company and Bank and
Principal Occupation
T. Brinson Brock, Sr.38 Mr. Brock has been Vice President and
Secretary since November 1989 and a
director since August 1989 of the Company
and Executive Vice President, Secretary
and a director of the Bank since August
1990. Mr. Brock began his banking career
in 1978 with Cordele Banking Company in
Cordele, Georgia. In 1984 he joined
Ashburn Bank as Vice President and was
promoted to Senior Vice President in
charge of lending in 1987. Mr Brock also
has a beef cattle operation.
Willis R. Collins 49 Mr. Collins has been a director of the
Company since August 1989 and of the Bank
since August 1990. Mr. Collins has been
a County Commissioner since 1986. He has
managed Turnco Farms since 1960 and he
organized Cotton Warehouse, Inc. in 1988.
Gene Stallings Crawford
66 Mr. Crawford has been a director of the
Company since August 1989 and of the Bank
since August 1990. For over forty years
Mr. Crawford has been active in
developing Crawford Cattle Company, a
beef and feeder cattle production
business.
Benny Warren Denham 64 Mr. Denham has been a director of the
Company since August 1989 and of the Bank
since August 1990. Mr. Denham is a co-
owner of Denham Farms and has operated
this farming business since 1951.
Lloyd Greer Ewing 49 Mr. Ewing has been a director of the
Company since August 1989 and of the Bank
since August 1990. Mr. Ewing joined
Ewing Buick, Pontiac GMC Trucks, Inc. in
sales in 1973 and has progressed through
the company for the past nineteen years.
He now is a 50% owner of the business and
is General Manager. Mr. Ewing is a
former member of the Board of Directors
at First Federal Savings Bank of Turner
County.
Ronald Craig Huckaby
35 Mr. Huckaby has been a director of the
Company since August 1989 and of the Bank
since August 1990. Mr. Huckaby is a
farmer and cattleman. He owns 100% of
Huckaby Farms, a row crop operation in
Crisp and Dooly Counties.
Grady Elmer Moore 60 Mr. Moore has been a director of the
Company since August 1989 and of the Bank
since August 1990. Mr. Moore runs a row
crop operation, G.M. Farms, Inc., which
he has pursued for the past thirty-five
years.
Sara Ruth Raines 48 Mrs. Raines has been a director of the
Company since August 1989 and of the
Bank since August 1990. Until recently,
Mrs. Raines has been President and 100%
owner of Hobby's Inc. of Ashburn, a local
department (clothing) store.
Theron G. Reed 52 Mr. Reed has been President, Chief
Executive Officer and Treasurer since
November 1989 and a director since August
1989 of the Company and President, Chief
Executive Officer and a director of the
Bank since August 1990. Mr. Reed was
employed by the Ashburn Bank from 1965
until his resignation in April 1989. He
served as President and CEO of that
institution from March 1980 until April
1989 and prior to that he served in
various other capacities ranging from
Assistant Vice President to Vise
President - Lending.
Benjamin E. Walker 63 Mr. Walker has been a director of the
Company since August 1989 and of the Bank
since August 1990. Mr. Walker is the
majority owner of M & W Sportswear, Inc.,
a local garment contracting company which
has been in business since 1966. Mr.
Walker is also the majority owner of SWS
Garment, Inc., a uniform manufacturing
operation in Fitzgerald, Georgia. Mr.
Walker is the former Chairman of the
Board of Citizens Bank of Ashburn.
Jimmie Ann Ward 57 Mrs. Ward has been a director of the
Company since August 1989 and of the Bank
since August 1990. Mrs. Ward is a
homemaker and community volunteer in
Turner County.
Freddie J. Weston, Jr.
57 Mr. Weston has been a director of the
Company since August 1989 and of the Bank
since August 1990. Mr. Weston served in
the U.S. Army for more than twenty-five
years, retiring in October 1981. Since
1983, he has been the coordinator of
Vocational Academic Education at Turner
County High School where he teaches
business and financial management.
B. Set forth below is the name, age, title and description of
prior business experience of the executive officers of the
Registrant and the Bank. Executive officers are elected by the
Board of Directors for one-year terms in March of each year and
serve until their successors are elected and qualified.
Theron G. Reed - Age 52. Mr. Reed has been President, Chief
Executive Officer and Treasurer since November 1989 and a director
since August 1989 of the Company and President, Chief Executive
Officer and a director of the Bank since August 1990. Mr. Reed was
employed by the Ashburn Bank from 1965 until his resignation in
April 1989. He served as President and CEO of that institution
from March 1980 until April 1989 and prior to that he served in
various other capacities ranging from Assistant Vice President to
Vice President - Lending.
T. Brinson Brock, Sr. - Age 38. Mr. Brock has been Vice
President and Secretary since November 1989 and a director since
August 1989 of the Company and Executive Vice President, Secretary
and a director of the Bank since August 1990. Mr. Brock began his
banking career in 1978 with Cordele Banking Company in Cordele,
Georgia. At Cordele Banking Company his major lending
responsibilities were in the areas of consumer, commercial and
agricultural lending. He also handled the "packaging" of SBA
loans. In 1984 he joined Ashburn Bank as Vice President and served
primarily as a commercial and agricultural loan officer. Promoted
to Senior Vice President in charge of lending in 1987, he
supervised a staff of four consumer, mortgage, agricultural, and
commercial loan officers.
Ava Lovett - Age 50. Ms. Lovett has been Vice President and
Cashier of the Bank since May 1990. From 1989 through 1990, she
was Vice President, Cashier, corporate secretary and operations
compliance officer for Coffee County Bank, Douglas, Georgia. She
supervised all activities of the bank policies and objectives and
was responsible for the bank's daily reserve and money position.
Ms. Lovett prepared management and regulatory reports to the Board,
the annual budget, budget variance analysis and all regulatory
reports. From 1987 through 1989, Ms. Lovett was Vice President,
Cashier and Secretary for Ashburn Bank, Ashburn, Georgia. She
supervised all activities of the operations area and established
operating procedures in accordance with bank policies and
objectives. She was responsible for the bank's daily reserve and
money position. From 1986 through 1987, Ms. Lovett was an Internal
Auditor for Alma Exchange Bank, Alma, Georgia. She established and
implemented an internal audit program for four banks in the bank
holding company. In addition, she performed periodic examinations
of all accounting records of the banks, performed continuous
evaluation of operating procedures and prepared and presented
reports to the Board. From 1982 through 1986 Ms. Lovett was a
financial examiner with the Georgia Department of Banking and
Finance, Atlanta, Georgia (District Office, Douglas, Georgia). She
performed safety and soundness examinations of state chartered
banks, credit unions and bank holding companies. Her
responsibilities included examiner-in-charge duties, credit
analysis and detail (audit) functions.
<PAGE>
Item 10. Executive Compensation.
A. Named Executive Officers.
The following table set forth the compensation paid during
1994 to the named executive officers of the Registrant and the
Bank:
Summary Compensation Table
Name andPrincipal
Position Year Salary Bonus Stock
Options Granted (1) All Other
Compensation(2)
Theron G. Reed
President &
CEo 1994 93, 630 15,000 3,520 32,307.00
1993 93, 630 12,750 3,520 15,667.47
1992 88, 925 12,500 3,520 10,649.62
1 Mr. Reed has been granted options to purchase shares of the
Registrant's common stock, which options are tied to the Bank's
performance and profitability. When the Bank opened for business,
Mr. Reed earned an option to acquire 1% of the Registrant's
original stock issue. Thereafter, at the end of years two through
four, Mr. Reed will have earned additional options to acquire 1%
per year of the Registrant's original stock issue provided the Bank
achieves the following return on assets in each year: calendar year
two .3%; calendar year three .5%; and calendar year four .75%.
All options are exercisable at a price of $10.00 per share and are
exercisable at any time for seven years afterward. In the event of
a change of control of the Bank, prior to the expiration of five
years from the date of Mr. Reed's employment contract, if Mr. Reed
is still employed, then all stock options not already granted shall
immediately be granted in the same manner as if such had been
earned and notwithstanding the fact that the requirements for
earning the options had not been met.
2 Amounts included in "All Other Compensation" include
contributions under the Company's profit sharing plan.
Option Grants in Last Fiscal Year
Number of SecuritiesPercent of Options
Underlying Options Options Granted
Exercise Expiration
Name Granted to Employees
Price Date
Theron G. Reed 3,520 66 2/3 % $10.00 12/31/01
These options have been granted
pursuant to the performance stock option plan described in footnote
1 to the Summary Compensation Table, immediately above.
<PAGE>
The following table presents information regarding the
value of unexercised options and warrants held at December 31,
1994. No stock options or warrants were exercised and there were
no SARs outstanding during fiscal 1994.
Number of Value Unexercised
Unexercised Options In-the-Money-Options
at FY-End at FY-End(1)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
Theron G. Reed 19,080 (2)/0 $47,700/$0
(1) Dollar values calculated by determining the difference between
the estimated fair market value of the Company's Common Stock
at December 31, 1994 ($12.50) and the exercise price of such
options.
(2) Includes 5,000 stock purchase warrants granted in connection
the Company's initial stock offering.
B. Directors
Each director of the Registrant receives $200 for
each monthly meeting attended by him/her. In addition, directors
who are members of the Loan Committee of the Board receive $100 for
each meeting of such committee attended by them. In December of
1994 each director of the Bank received a $1,166.67 Christmas
bonus. In consideration of their efforts in organizing the Bank
and the Registrant and the attendant personal financial risks they
have undertaken, directors were offered the opportunity to purchase
investment units consisting of one share of common stock and a
warrant to purchase one share of common stock for each share
purchased for cash in the initial offering. The stock purchase
warrants entitle the holder of the warrants to purchase the
Registrant's stock at $10.00 per share at any time during the term
of the warrant. The warrants have a term of ten years from August
6, 1990 (the date the Bank opened for business), with one-third of
each of the director's warrants becoming vested and exercisable on
December 14, 1991, and an additional one-third of each director's
warrants becoming vested and exercisable each year on the
anniversary of the Bank's opening for business. If the director
meets the following service requirements, his or her warrants will
be fully vested at the end of the Bank's third year of operation.
To meet the service and vesting requirement, directors must attend
at least 75% of all board meeting unless the absence is deemed by
the Board of Directors to constitute an acceptable excuse. As of
December 31, 1994, all of the directors met his/her service
requirements and all of the warrants acquired by them have become
vested.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management. *
The following table sets forth the ownership of the
Registrant's common stock as of March 1, 1995, by each person known
to the Registrant to own more than 5% of such common stock:
Amount and
Title of Name and Address of Nature of
Class Beneficial Owner Beneficial Owner Percent of
Class1
Common Stock T. Brinson Brock, Sr.22,998(2) 6.22%
Shares 1252 Brock Road
Arabi, Georgia 31712
Common Stock Willis R. Collins 30,500(3) 8.42%
Shares Rural Route 1, Box 102
Rebecca, Georgia 31783
Common Stock Gene Stallings Crawford35,193(4) 9.68%
Shares Rural Route 1, Box 225
Rebecca, Georgia 31783
Common Stock Grady Elmer Moore 25,350(5) 6.93%
Shares Rural Route 1, Box 875
Arabi, Georgia 31712
Common Stock Sara Ruth Raines 22,500(6) 6.19%
Shares 130 Lamont Street
Ashburn, Georgia 31714
Common Stock Theron G. Reed 23,721(7) 6.36%
Shares Rural Route 1, Box 157
Rebecca, Georgia 31783
Common Stock Benjamin E. Walker 20,500(8) 5.64%
Shares P.O. Box 185
Ashburn, Georgia 31714
Common Stock Jimmie Ann Ward 20,000(9) 5.50%
Shares Route 1, Box 765
Ashburn, Georgia 31714
* Information relating to beneficial ownership of common stock is
based upon "beneficial ownership" concepts set forth in rules of
the SEC under Section 13(d) of the Securities Exchange Act of 1934,
as amended (the "Act"). Under such rule a person is deemed to be
a "beneficial owner" of a security if that person has or shares
"voting power", which includes the power to vote or direct the
voting of such security, or "investment power", which includes the
power to dispose or to direct the disposition of such security. A
person is also deemed to be a beneficial owner of any security of
which that person has the right to acquire beneficial ownership
within sixty (60) days. Under the rules, more than one person may
be deemed to be a beneficial owner of the same securities, and a
person may be deemed to be a beneficial owner of securities as to
which he has no beneficial interest. For instance, beneficial
ownership includes spouses, minor children and other relatives
residing in the same household, and trusts, partnerships,
corporations or deferred compensation plans which are affiliated
with the principal.
(1) The percentages are based on 353,417 shares outstanding, plus
shares of common stock which may be acquired by the beneficial
owner, or group of beneficial owners, within 60 days of March 1,
1995, by exercise of options and warrants. The percentage total
differs from the sums of the individual percentages due to the
differing denominators with respect to each calculation. The total
shares owned and the ownership percentage do not include other
options to purchase shares because such options are not presently
exercisable.
(2) Includes 100 shares held as custodian for Brent Brock, 100
shares held as custodian for Kristen Brock, 100 shares held as
custodian for Hunter Chess Brock, as to all of which Mr. Brock
disclaims beneficial ownership. Does not include 1,000 shares
owned by Mr. Brock's father, and 1,050 shares owned by his mother.
Also includes the right to acquire 7,000 shares pursuant to
currently exercisable warrants and the right to acquire 8,800
shares pursuant to current exercisable options.
(3) Includes 12,643 shares owned by Mr. Collins' wife as to which
he disclaims beneficial ownership. Includes the right to acquire
shares pursuant to 8,584 currently exercisable warrants.
(4) Includes 6,250 shares owned by Mr. Crawford's wife as to which
he disclaims beneficial ownership, 2,705 shares held as custodian
for his son Gene Scott Crawford and 2,705 shares held as custodian
for his son Phillip Andrew Crawford. Includes the right to acquire
10,000 shares pursuant to currently exercisable warrants.
(5) Includes the right to acquire 12,250 shares pursuant to
currently exercisable warrants.
(6) Includes 500 shares owned by Hobby's, Inc., and 7,500 shares
owned by Mrs. Raines' husband. Does not include 400 shares owned
by Mrs. Raines' son John D. Raines, III and 200 shares owned by her
son Mitchell Davis Raines. Also includes the right to acquire
10,000 shares pursuant to currently exercisable warrants.
(7) Includes the right to acquire 14,080 shares pursuant to
currently exercisable options and the right to acquire 5,000 shares
pursuant to currently exercisable warrants.
(8) Includes the right to acquire 10,000 shares pursuant to
currently exercisable warrants.
(9) Does not include 5,000 shares owned by Mrs. Ward's son as to
which she disclaims beneficial ownership. Includes the right to
acquire 10,000 shares pursuant to currently exercisable warrants.
The following table sets forth the ownership of the
Registrant's common stock as of March 1, 1995, by each director and
by officers and directors as a group:
Amount and Nature
Title of Name of of Beneficial % of
Class Beneficial Owner Ownership* Class**
Common Stock T. Brinson Brock, Sr.(1)22,998 shares 6.22%
Common Stock Willis R. Collins(2) 30,500 shares 8.42
Common Stock Gene Stallings Crawford(3)35,193 shares 9.68
Common Stock Benny Warren Denham(4)12,800 shares 3.56
Common Stock Lloyd Greer Ewing(5) 10,000 shares 2.79
Common Stock Ronald Craig Huckaby(6)11,681 shares 3.21
Common Stock Grady Elmer Moore (7) 25,350 shares 6.93
Common Stock Sara Ruth Raines(8 22,500 shares 6.19
Common Stock Theron G. Reed(9) 23,721 shares 6.36
Common Stock Benjamin E. Walker(10)20,500 shares 5.64
Common Stock Jimmie Ann Ward(11) 20,000 shares 5.50
Common Stock Freddie J. Weston, Jr.(12)0 shares 1.40
All directors and officers as a group(13) 240,243 shares 50.83%
(12 persons)
* Information relating to beneficial ownership of common stock
is based upon "beneficial ownership" concepts set forth in rules of
the SEC under Section 13(d) of the Securities Exchange Act of 1934,
as amended (the "Act"). Under such rule a person is deemed to be
a "beneficial owner" of a security if that person has or shares
"voting power", which includes the power to vote or direct the
voting of such security, or "investment power", which includes the
power to dispose or to direct the disposition of such security. A
person is also deemed to be a beneficial owner of any security of
which that person has the right to acquire beneficial ownership
within sixty (60) days. Under the rules, more than one person may
be deemed to be a beneficial owner of the same securities, and a
person may be deemed to be a beneficial owner of securities as to
which he has no beneficial interest. For instance, beneficial
ownership includes spouses, minor children and other relatives
residing in the same household, and trusts, partnerships,
corporations or deferred compensation plans which are affiliated
with the principal.
** The percentages are based on 353,417 shares outstanding, plus
shares of common stock which may be acquired by the beneficial
owner, or group beneficial owners, within 60 days of March 1, 1995,
by exercise of options and warrants. The percentage total differs
from the sums of the individual percentages due to the differing
denominators with respect to each calculation. The total shares
owned and the ownership percentage do not include other options or
warrants to purchase shares because such options and warrants are
not presently exercisable.
(1) Includes 100 shares held as custodian for Brent Brock, 100
shares held as custodian for Kristen Brock, 100 shares held as
custodian for Hunter Chess Brock, as to all of which Mr.
Brock disclaims beneficial ownership. Does not include 1,000
shares owned by Mr. Brock's father, and 1,050 shares owned by
his mother. Also includes the right to acquire 7,000 shares
pursuant to currently exercisable warrants and the right to
acquire 8,800 shares pursuant to current exercisable options.
(2) Includes 12,643 shares owned by Mr. Collins' wife as to which
he disclaims beneficial ownership. Includes the right to
acquire shares pursuant to 8,584 currently exercisable
warrants.
(3) Includes 6,250 shares owned by Mr. Crawford's wife as to which
he disclaims beneficial ownership, 2,705 shares held as
custodian for his son Gene Scott Crawford and 2,705 shares
held as custodian for his son Phillip Andrew Crawford.
Includes the right to acquire 10,000 shares pursuant to
currently exercisable warrants.
(4) Includes 1,596 shares owned by Mr. Denham's wife as to which
he disclaims beneficial ownership. Also includes the right to
acquire 6,000 shares pursuant to currently exercisable
warrants.
(5) Includes the right to acquire 5,000 shares pursuant to
currently exercisable warrants.
(6) Includes the right to acquire 10,000 shares pursuant to
currently exercisable warrants.
(7) Includes the right to acquire 12,250 shares pursuant to
currently exercisable warrants.
(8) Includes 500 shares owned by Hobby's, Inc., and 7,500 shares
owned by Mrs. Raines' husband. Does not include 400 shares
owned by Mrs. Raines' son John D. Raines, III and 200 shares
owned by her son Mitchell Davis Raines. Also includes the
right to acquire 10,000 shares pursuant to currently
exercisable warrants.
(9) Includes the right to acquire 14,080 shares pursuant to
currently exercisable options and the right to acquire 5,000
shares pursuant to currently exercisable warrants.
(10) Includes the right to acquire 10,000 shares
pursuant to currently exercisable warrants.
(11) Does not include 5,000 shares owned by Mrs. Ward's son as to
which she disclaims beneficial ownership. Includes the right
to acquire 10,000 shares pursuant to currently exercisable
warrants.
(12) Includes the right to acquire 2500 shares pursuant to
currently exercisable warrants.
(13) Warrants to purchase common stock of the Company at the
original offering price were issued to each director of the
Company and the Bank on the basis of one warrant for each
share of common stock that they purchased in the initial
offering. The stock purchase warrants entitle the holder of
the warrants to purchase Company stock at $10.00 per share at
any time during the term of the warrant. None of the warrants
were exercisable until December 14, 1991 (which date is one
year from the date the offering was completed). The warrants
have a term of ten years from August 6, 1990 (the date the
bank opened for business). One-third of each director's
warrants became vested on December 14, 1991; an additional
one-third have and will become vested and exercisable each
year on the anniversary of the Bank's opening for business.
If the director meets the following service requirements, his
or her warrants will be fully vested at the end of the Bank's
third year of operation. To meet the service and vesting
requirement, directors must attend at least 75% of all board
meetings unless the absence is deemed by the Board of
Directors to constitute an acceptable excuse. The warrants
exercisable on or after August 6, 1993, are reflected in the
beneficial ownership table.
Item 12. Certain Relationships and Related Transactions.
During 1994 the Bank loaned funds to certain of the
Company's executive officers and directors in the ordinary course
of business, on substantially the same terms as those prevailing at
the time for comparable transactions with other customers, and
which did not involve more than the normal risk of collectibility
or present other unfavorable features.
<PAGE>
Part IV
Item 13. Exhibits List and Reports on Form 8-K.
A. Financial Statements.
The following financial statements and accountants'
reports have been filed as Item 7 in Part II of this report:
Independent Auditors' Report
Consolidated Balance Sheets-December 31, 1994 and 1993
Consolidated Statements of Income-years ended December 31, 1994 and
1993
Consolidated Statement of Changes in Stockholder's Equity-years
ended December 31, 1994 and 1993
Consolidated Statements of Cash Flow-years ended December 31, 1994
and 1993
Notes to Consolidated Financial Statements
B. Exhibits.
3(a) Articles of Incorporation of Registrant (incorporated by
reference to Exhibit 3(a) of Registration Statement of Form S-
18, File No. 33-31013-A)
3(b) By-laws of Registrant (incorporated by reference to Exhibit
3(b) of Registration Statement on Form S-18, File No. 33-
31013-A)
10(a) Contract for Purchase of Realty (incorporated by
reference to Exhibit 10(c) of Registration Statement on
Form S-18, File No. 33-31013-A)
10(b) Executor's Deed Under Power (incorporated by reference to
Exhibit 10(d) of Registration Statement on Form S-18,
File No. 33-31013-A)
10(c) Partnership Agreement (incorporated by reference to
Exhibit 10(e) of Registration Statement on Form S-18,
File No. 33-31013-A)
21 Subsidiaries of Registrant
27 Financial Data Schedule
C. Report on Form 8-K.
No reports on Form 8-K were
filed during the fourth quarter of the year ended December 31,
1994.
D. Exhibits.
All required exhibits other
than Exhibits 21and 27 are incorporated by reference as noted in
Section B of Item 13 of Part IV of this report. Exhibits 21 and 27
can be found in the Exhibits section.<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) for 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)
BY: /s/ Theron G. Reed
Theron G. Reed
President, Principal
Executive Officer, Principal Financial Officer
Date: March 30, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated:
Signature Title Date
/s/ T. Brinson Brock, Sr. Executive Vice President March 30, 1995
T. Brinson Brock, Sr. and a Director
/s/ Willis R. Collins Director March 30, 1995
Willis R. Collins
/s/ Gene Stallings CrawfordDirector March 30, 1995
Gene Stallings Crawford
/s/ Benny Warren Denham Director March 30,
1995
Benny Warren Denham
/s/ Lloyd Greer Ewing Director March 30,
1995
Lloyd Greer Ewing
/s/ Ronald Craig Huckaby Director March 30,
1995
Ronald Craig Huckaby
/s/ Grady Elmer Moore Director March 30,
1995
Grady Elmer Moore
/s/ Sara Ruth Raines Director March 30,
1995
Sara Ruth Raines
/s/ Theron G. Reed President,
Principal Executive March 30, 1995
Theron G. Reed Officer, Principal Financial
Officer and a Director
/s/ Jimmie Ann Ward Director March 30, 1995
Jimmie Ann Ward
/s/ Benjamin E. Walker Director March 30,
1995
Benjamin E. Walker
/s/ Freddie J. Weston, Jr. Director March 30, 1995
Freddie J. Weston, Jr.
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT:
The Company's annual report and proxy material will be furnished to
the Company's security holders subsequent to the filing of the
Company's annual report in Form 10-KSB. When the annual report and
proxy material are sent to the Company's security holders, the
Company shall furnish copies of such material to the Commission.
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
21 Subsidiaries of Registrant 64
27 Financial Data Schedule 66
<PAGE>
EXHIBIT 21
<PAGE>
SUBSIDIARIES OF REGISTRANT
COMMUNITY NATIONAL BANK
561 East Washington Avenue
Ashburn, Georgia 31714
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 1,883,503
<INT-BEARING-DEPOSITS> 100,000
<FED-FUNDS-SOLD> 3,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,822,680
<INVESTMENTS-CARRYING> 1,674,191
<INVESTMENTS-MARKET> 1,629,938
<LOANS> 42,276,045
<ALLOWANCE> 709,721
<TOTAL-ASSETS> 61,201,417
<DEPOSITS> 65,948,380
<SHORT-TERM> 0
<LIABILITIES-OTHER> 763,190
<LONG-TERM> 0
<COMMON> 1,767,085
0
0
<OTHER-SE> 2,894,994
<TOTAL-LIABILITIES-AND-EQUITY> 61,201,417
<INTEREST-LOAN> 4,075,413
<INTEREST-INVEST> 472,001
<INTEREST-OTHER> 176,069
<INTEREST-TOTAL> 4,723,483
<INTEREST-DEPOSIT> 2,091,477
<INTEREST-EXPENSE> 2,105,801
<INTEREST-INCOME-NET> 2,617,682
<LOAN-LOSSES> 321,500
<SECURITIES-GAINS> 87,364
<EXPENSE-OTHER> 1,689,765
<INCOME-PRETAX> 1,054,076
<INCOME-PRE-EXTRAORDINARY> 1,054,076
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 644,350
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.58
<YIELD-ACTUAL> 4.86
<LOANS-NON> 81,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 70,000
<ALLOWANCE-OPEN> 655,273
<CHARGE-OFFS> 289,280
<RECOVERIES> 22,228
<ALLOWANCE-CLOSE> 709,721
<ALLOWANCE-DOMESTIC> 675,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 34,721
</TABLE>
