<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995.
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 33-31013-A
COMMUNITY NATIONAL BANCORPORATION
(Exact name of small business issuer as specified in its charter)
Georgia 58-1856963
(State of Incorporation) (I.R.S. Employer Identification No.)
561 E. Washington Avenue, P.O. Box 2619, Ashburn, Georgia 31714
(Address of Principal Executive Offices)
(912) 567-9686
(Issuer's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common equity as of the latest
practicable date.
Common stock, $5.00 par value per share, 353,417 shares issued and
outstanding as of May 1, 1995.
(Page 1 of 17)
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
ASSETS
March 31, December 31,
1995 1994
(Unaudited) (Unaudited)
Cash and due from banks $ 1,226,448 $ 1,883,503
Federal funds sold 3,550,000 3,500,000
Total cash and cash equivalents $ 4,776,448 $ 5,383,503
Securities:
Available for sale, at fair values 7,857,819 9,822,680
Held to maturity (Fair value of
$1,656,282 (3-31-95) and
$1,629,938 (12-31-94) 1,670,644 1,674,191
Loans, net 46,602,971 41,566,324
Property and equipment, net 1,131,339 1,166,912
Other assets 1,516,260 1,587,807
Total Assets $63,555,481 $61,201,417
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 3,607,592 $ 4,956,350
Interest bearing deposits 54,476,277 50,992,030
Total deposits $58,083,869 $55,948,380
Obligation under capital lease 124,196 145,588
Other liabilities 566,141 617,602
Total liabilities $58,774,206 $56,711,570
Commitments and contingencies
Shareholders' Equity:
Common stock, $5.00 par value,
10,000,000 shares authorized,
353,417 issued and outstanding $ 1,767,085 $ 1,767,085
Paid-in-capital 1,712,903 1,712,903
Retained earnings 1,337,170 1,182,091
Unrealized (loss) on securities, net (35,883) (172,232)
Total Shareholders' Equity 4,781,275 $ 4,489,847
Total liabilities and shareholders' equity $63,555,481 $61,201,417
Refer to notes to the consolidated financial statements.<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Income
For the quarter
Ended March 31,
1995 1994
Interest income $1,352,219 $1,198,060
Interest expense 623,779 497,804
Net interest margin 728,440 700,256
Provision for possible loan losses 55,000 144,000
Net interest income after provision
for possible loan losses 673,440 556,256
Gain on sale of securities 689 106,608
Other income 94,163 97,629
Total other income 94,852 204,237
Salaries and benefits 219,941 190,418
Other operating expenses 189,282 273,200
Total operating expenses 409,223 463,618
Net income (loss) before taxes 359,069 296,875
Provision for income taxes 140,375 124,372
Net income after taxes $ 218,694 $ 172,503
Net Income Per Share $ .52 $ .44
Weighted average number
of shares outstanding 424,100 396,951
Refer to notes to the financial statements.<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Cash Flows
for the quarter ended
March 31,
1995 1994
Cash flows from operating activities $ 333,939 $ 380,619
Cash flows from investing activities:
Funds from matured securities and paydowns 106,056 1,164,942
Funds from sale of securities 1,999,999 3,204,687
Purchase of securities - - (3,507,809)
(Increase) in loans, net (5,091,647) (444,528)
Purchase of property and equipment (5,884) (6,576)
Net cash used in investing activities $(2,991,476) $ 410,716
Cash flows from financing activities:
Increase in customer deposits $ 2,135,489 $ 507,320
Payment of cash dividends (63,615) (63,360)
(Decrease) in lease obligations (21,392) (20,164)
Net cash provided from financing activities $ 2,050,482 $ 423,796
Net increase in cash and cash equivalents $ (607,055) $ 1,215,131
Cash and cash equivalents,
beginning of period 5,383,503 6,627,123
Cash and cash equivalents, end of period $ 4,776,448 $ 7,842,254
Refer to notes to the financial statements.<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1995
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 1995 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1995. For further information, refer to the financial statements and
footnotes included in the Company's annual report on Form 10-KSB for the year
ended December 31, 1994.
Note 2 - Organization of the Business
Community National Bancorporation, Ashburn, Georgia (the "Company") was
organized in August, 1989 to serve as a holding company for a proposed de novo
bank, Community National Bank, Ashburn, Georgia (the "Bank"). The Bank was
chartered and is currently regulated by the Office of the Comptroller of the
Currency; its deposits are each insured up to $100,000, subject to aggregation
rules, by the Federal Deposit Insurance Corporation. The Company purchased
100 percent of the Bank's shares by injecting $3.3 million into the Bank's
capital accounts immediately prior to commencement of banking operations
(August, 1990).
Note 3 - Summary of Significant Accounting Policies
Basis of Presentation and Reclassification. The consolidated financial
statements include the accounts of both the Company and the Bank. All
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Basis of Accounting. The accounting and reporting policies of the
Company conform to generally accepted accounting principles and to general
practices in the banking industry. The Company uses<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1995
the accrual basis of accounting by recognizing revenues when they are earned
and expenses in the period incurred, without regard to the time of receipt or
payment of cash.
Organizational Costs. In accordance with the Financial Accounting
Standards Board ("FASB") Statement No. 7, the Company and the Bank capitalized
all direct organizational costs that were incurred in the expectation that
they would generate future revenues or otherwise be of benefit after the Bank
opened for business. These capitalized costs are amortized over a sixty-month
period using the straight line method.
Investment Securities. In May, 1993, FASB issued Statement of
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"), which the Company adopted as of December
31, 1993. SFAS No. 115 requires the reporting of certain securities at fair
value except those securities which the Company has the positive intent and
ability to hold to maturity. (Prior to the adoption of SFAS No. 115, all
investment securities were carried at amortized cost). Management determines
the appropriate classification of its investment securities at the time of
purchase and accounts for them as follows:
(i) Held to maturity - The category of securities "held to maturity" are
those investment securities that management has the intent to and the Company
has the ability at the time of purchase to hold until maturity. Securities in
this category are carried at amortized cost, adjusted for accretion of
discounts and amortization of premiums using the straight line method over the
estimated life of each security. If a security has a decline in fair value
below its amortized cost that is other than temporary, that security will be
written down to its new cost basis by recording a loss in the consolidated
statement of income.
(ii) Available for sale - Investment securities to be held for indefinite
periods of time and not intended to be held to maturity are classified as
"available for sale". Assets included in this category are those assets that
management intends to use as part of its asset/liability management strategy
and that may be sold<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1995
in response to changes in interest rates. Securities available for sale are
recorded at fair value. Both unrealized holding gains and losses on
securities available for sale, net of taxes, are included as a separate
component of shareholders' equity in the consolidated balance sheet until
these gains or losses are realized. The cost of investment securities sold is
determined by the specific identification method. If a security has a decline
in fair value that is other than temporary, that security will be written down
to its fair value by recording a loss in the consolidated statement of income.
(iii) Trading securities - Securities that are held principally for the
purpose of selling in the near future are classified as trading securities.
These securities are recorded at fair value. Both unrealized gains and losses
are included in the consolidated statement of income. The Company currently
has no securities classified as trading securities.
Loans, Interest and Fee Income on Loans. Loans are stated at the
principal balance outstanding. Unearned discount, unamortized loan fees, if
any, and the allowance for possible loan losses are deducted from total loans
in the consolidated balance sheet. Interest income is recognized over the
term of the loan based on the principal amount outstanding.
Loans are generally placed on non-accrual status when principal or
interest becomes ninety days past due, or when payment in full is not
anticipated. When a loan is placed on non-accrual status, interest accrued
but not received is generally reversed against interest income. If
collectibility is in doubt, cash receipts on non-accrual loans are first
applied to reduce principal rather than to principal and interest, as in
accrual loans. Classification of a loan as non-accrual is not necessarily
indicative of a potential loss of principal. Points on real estate loans are
taken into income to the extent they represent the direct cost of initiating a
loan. The amount in excess of direct costs is deferred and amortized over the
expected life of the loan.
Allowance for Possible Loan Losses. The provisions for loan losses
charged to operating expenses reflect the amount deemed appropriate by
management to establish an adequate reserve to meet the present and
foreseeable risk characteristics of the current <PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1995
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 in income in the period including the enactment date.
For years prior to 1993, the Bank and the Company used the deferred
method of accounting for income taxes. Deferred federal and state income
taxes were based on income and expenses reported in different periods for
financial statement and income tax purposes at the then current statutory
rate.
Statement of Cash Flows. For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks and federal
funds sold. Generally, federal funds are purchased or sold for one-day
periods.<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1995
Profit Sharing Plan. During 1992, the Company instituted a Profit
Sharing Plan (the "Plan") which covers substantially all of its full time
employees upon their completion of one year of service, provided they are at
least twenty-one years old. The Board of Directors determines the amounts to
be contributed to the Plan on an annual basis.
Earnings Per Share. Primary earnings per share are computed by dividing
net earnings by the weighted average number of common stock and common stock
equivalents outstanding during the year. The outstanding options and warrants
are considered common stock equivalents. In the computation of primary
earnings per share, however, a common stock equivalent is only used if its
effect is dilutive.
Dividends. The Company paid $.18 in dividends for each share of common
stock, or $63,615 and $63,360 to all shareholders during the quarters ended
March 31, 1995 and 1994, respectively. The declaration of future dividends is
within the discretion of the Board of Directors and will depend, among other
things, upon business conditions, earnings, the financial condition of the
Bank and the Company, and regulatory requirements.
<PAGE>
Item 2 - Management Discussion and Analysis of Financial Condition and Results
of Operation.
Liquidity and sources of capital
Community National Bancorporation (the "Company") was organized in
August, 1989 and began banking operations through its wholly owned subsidiary,
Community National Bank (the "Bank"), on August 6, 1990. During the period
from April, 1989 (inception) to August 6, 1990, the Company was in the
development stage and devoted most of its efforts to organizing,
incorporating, planning, raising capital and recruiting personnel.
On August 6, 1990 the subsidiary Bank was capitalized with a $3.3
million injection from the Company. By March 31, 1995, the Bank's capital had
increased to $4.6 million through retained earnings. This level of
capitalization, as measured by the Bank's primary regulator, the OCC, is
adequate based on the following capital ratios and guidelines.
Bank's Minimum required
Mar. 31, 1995 by regulator
Leverage ratio 7.6% 4.0%
Risk weighted ratio 10.5% 8.0%
Total assets increased by $2.3 million to $63.5 million during the
three-month period ended March 31, 1995. The increase was generated from
higher deposits and profits. The additional funds that were generated through
growth were utilized primarily to expand the loan portfolio.
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customers. The
March 31, 1995 financial statements evidence a satisfactory liquidity position
as total cash and cash equivalents amounted to $4.8 million, representing 7.5%
of total assets. Investment securities amounted to $9.5 million, representing
14.9% of total assets; these securities provide a secondary source of
liquidity since they can be converted into cash in a timely manner. The
subsidiary Bank is a member of the Federal Reserve System and is maintaining
relationships with several correspondent banks and, thus, could obtain funds
on short notice. The Company's management closely monitors and maintains
appropriate levels of interest earning assets and interest bearing
liabilities, so that maturities of assets are such that adequate funds are
provided to meet customer withdrawals and loan demand. There are no trends,
demands, commitments, events or uncertainties that will result in or are
reasonably likely to result in the Company's liquidity increasing or
decreasing in any material way.<PAGE>
Results of Operations
Net income for the three months ended March 31, 1995 amounted to
$218,694 or $.52 per share. This compares with net income of $172,503 or $.44
per share attained during the same three-month period one year earlier. The
primary reasons for the increase in net income from 1994 to 1995 are as
follows:
a. Net interest income, which represents the difference between interest
received on interest earning assets and interest paid on interest
bearing liabilities, has increased from $700,256 for the three months
ended March 31, 1994 to $728,440 for the same period one year later,
representing an increase of $28,184, or 4.0%.
b. Total operating expenses were reduced from $463,618 for the three months
ended March 31, 1994 to $409,223 for the same period one year later.
The reduction of $54,395 in operating expenses is the result of cost-
cutting efforts undertaken by management.
c. Provisions for loan losses were reduced from $144,000 for the three-
month period ended March 31, 1994 to $55,000 for the same three-month
period one year later. As discussed below, the allowance for loan
losses appears adequate.
d. Note that other income was reduced from $204,237 for the three-month
period ended March 31, 1994 to $94,852 for the same period one year
later. The significant reduction in other income is due to the sale of
government-guaranteed loans for a profit of approximately $105,000
during the three-month period ended March 31, 1994. There were no such
sales during the three-month period ended March 31, 1995.
At March 31, 1995 the allowance for loan losses amounted to $750,339, or
1.58 percent of gross loans. Management considers the allowance for loan
losses to be adequate and sufficient to absorb possible future losses;
however, there can be no assurance that charge-offs in future periods will not
exceed the allowance for loan losses or that additional provisions to the
allowance will not be required.
The Company is not aware of any current recommendation by the regulatory
authorities which, if they were to be implemented, would have a material
effect on the Company's liquidity, capital resources, or results of
operations.<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. There are no material pending legal
proceedings to which the Company or the Bank is a party or of which any of
their property is the subject.
Item 2. Changes in Securities.
(a) None.
(b) None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. No matter
has been submitted to a vote of security-holders during the quarter ended
March 31, 1995.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3(a) Articles of Incorporation of Registrant (incorporated by
reference to Exhibit 3(a) of Registration Statement on 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).
27 Financial Data Schedule
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
during the quarter ended March 31, 1995.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMUNITY NATIONAL BANCORPORATION
(Registrant)
Date: May 5, 1995 BY: /s/ Theron G. Reed
Theron G. Reed
President,
Principal Executive Officer and
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,226,448
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,550,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,857,819
<INVESTMENTS-CARRYING> 1,670,644
<INVESTMENTS-MARKET> 1,656,282
<LOANS> 47,353,310
<ALLOWANCE> 750,339
<TOTAL-ASSETS> 63,555,481
<DEPOSITS> 58,083,869
<SHORT-TERM> 0
<LIABILITIES-OTHER> 690,337
<LONG-TERM> 0
<COMMON> 1,767,085
0
0
<OTHER-SE> 3,014,190
<TOTAL-LIABILITIES-AND-EQUITY> 63,555,481
<INTEREST-LOAN> 1,188,983
<INTEREST-INVEST> 163,236
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,352,219
<INTEREST-DEPOSIT> 621,307
<INTEREST-EXPENSE> 623,779
<INTEREST-INCOME-NET> 728,440
<LOAN-LOSSES> 55,000
<SECURITIES-GAINS> 689
<EXPENSE-OTHER> 409,223
<INCOME-PRETAX> 359,069
<INCOME-PRE-EXTRAORDINARY> 359,069
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 218,694
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
<YIELD-ACTUAL> 5.02
<LOANS-NON> 74,532
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 709,721
<CHARGE-OFFS> 16,980
<RECOVERIES> 2,598
<ALLOWANCE-CLOSE> 750,339
<ALLOWANCE-DOMESTIC> 731,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 19,339
</TABLE>
