SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
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 November 3, 1995.
Transitional Small Business Disclosure Format: Yes _____ No X
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
ASSETS
September 30, December 31,
1995 1994
(Unaudited) (Unaudited)
Cash and due from banks $ 1,667,197 $ 1,883,503
Federal funds sold 3,500,000 3,500,000
Total cash and cash equivalents $ 5,167,197 $ 5,383,503
Securities:
Available for sale, at fair values 6,274,504 9,822,680
Held to maturity (Fair value of
$1,672,031 (9-30-95) and
$1,629,938 (12-31-94) $ 1,663,426 $ 1,674,191
Loans, net 53,670,219 41,566,324
Property and equipment, net 1,112,688 1,166,912
Other assets 2,313,882 1,587,807
Total Assets $70,201,916 $61,201,417
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 3,586,370 $ 4,956,350
Interest bearing deposits 55,478,718 50,992,030
Total deposits $59,065,088 $55,948,380
Obligation under capital lease 80,336 145,588
Other liabilities 5,803,981 617,602
Total liabilities $64,949,405 $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 1,765,594 1,182,091
Unrealized gain on securities, net 6,929 (172,232)
Total Shareholders' Equity $ 5,252,511 $ 4,489,847
Total liabilities and shareholders' equity $70,201,916 $61,201,417
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Income
for the quarter ended
September 30,
1995 1994
Interest income $1,619,928 $1,179,680
Interest expense 825,135 527,685
Net interest margin 794,793 651,995
Provisions for possible loan losses 75,000 85,000
Net interest income after provisions
for possible loan losses 719,793 566,995
(Loss) on sale of securities (1,963) - -
Other income 94,760 87,773
Total other income 92,797 87,773
Salaries and benefits 211,626 189,773
Other operating expenses 285,002 237,776
Total other expenses 496,628 427,549
Net income before income taxes 315,962 227,219
Provision for income taxes 103,025 118,445
Net income $ 212,937 $ 108,774
Net income per share $ .50 $ .27
Weighted average number of shares outstanding 424,100 397,297
Refer to notes to the consolidated financial statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Income
for the three quarters ended
September 30,
1995 1994
Interest income $4,555,636 $3,503,512
Interest expense 2,181,344 1,538,394
Net interest margin 2,374,292 1,965,118
Provisions for possible loan losses 233,120 304,000
Net interest income after provisions
for possible loan losses 2,141,172 1,661,118
(Loss) on sale of securities (4,066) 106,608
Other income 291,304 266,948
Total other income 287,238 373,556
Salaries and benefits 647,012 567,772
Other operating expenses 763,756 740,982
Total other expenses 1,410,768 1,308,754
Net income before taxes 1,017,642 725,920
Provision for income taxes 370,525 289,667
Net income $ 647,117 $ 436,253
Net income per share $ 1.52 $ 1.10
Weighted average number
of shares outstanding 424,100 397,927
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Cash Flows
for the three quarters ended
September 30,
1995 1994
Cash flows from operating activities $ 134,992 $ (182,699)
Cash flows from investing activities:
Funds from maturing or
amortising securities $ 675,906 $ 3,164,942
Funds from sale of securities 4,799,477 3,204,687
Purchase of securities (1,501,953) (6,714,260)
(Increase) in loans, net (12,337,015) (3,136,519)
Purchase of property and equipment (75,554) (40,667)
Net cash used in investing activities $ (8,439,139) $ (3,521,817)
Cash flows from financing activities:
Increase in federal funds purchased $ 5,100,000 $ - -
Increase in customer deposits 3,116,708 592,476
Payment of cash dividends (63,615) (63,360)
Decrease in lease obligations (65,252) (61,151)
Net cash provided
from financing activities $ 8,087,841 $ 467,965
Net increase (decrease) in
cash and cash equivalents $ (216,306) $ (3,236,551)
Cash and cash equivalents,
beginning of period 5,383,503 6,627,123
Cash and cash equivalents, end of period $ 5,167,197 $ 3,390,572
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to consolidated financial statements (Unaudited)
September 30, 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 for Form 10-QSB. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine-month period ended September 30, 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 the accrual basis of
accounting by recognizing revenues when 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
in response to changes in interest rates. Securities available for sale are
recorded at fair value. Both unrealized holding gains and losses on
securities available for sale, net of taxes, are included as a separate
component of shareholders' equity in the consolidated balance sheet until
these gains or losses are realized. The cost of investment securities sold is
determined by the specific identification method. If a security has a decline
in fair value that is other than temporary, that security will be written down
to its fair value by recording a loss in the consolidated statement of income.
(iii) Trading securities - Securities that are held principally for the
purpose of selling in the near future are classified as trading securities.
These securities are recorded at fair value. Both unrealized gains and losses
are included in the consolidated statement of income. The Company currently
has no securities classified as trading securities.
Loans, Interest and Fee Income on Loans. Loans are stated at the
principal balance outstanding. Unearned discount, unamortized loan fees, if
any, and the allowance for possible loan losses are deducted from total loans
in the consolidated balance sheet. Interest income is recognized over the
term of the loan based on the principal amount outstanding.
Loans are generally placed on non-accrual status when principal or
interest becomes ninety days past due, or when payment in full is not
anticipated. When a loan is placed on non-accrual status, interest accrued
but not received is generally reversed against interest income. If
collectibility is in doubt, cash receipts on non-accrual loans are first
applied to reduce principal rather than to principal and interest, as in
accrual loans. Classification of a loan as non-accrual is not necessarily
indicative of a potential loss of principal. Points on real estate loans are
taken into income to the extent they represent the direct cost of initiating a
loan. The amount in excess of direct costs is deferred and amortized over the
expected life of the loan.
Allowance for Possible Loan Losses. The provisions for loan losses
charged to operating expenses reflect the amount deemed appropriate by
management to establish an adequate reserve to meet the present and
foreseeable risk characteristics of the current loan portfolio. Management's
judgement is based on periodic evaluation of individual loans, the overall
risk characteristics
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.
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 during each of the nine-month periods ended September 30, 1995 and 1994.
No other dividends have been declared. The declaration of future dividends is
within the discretion of the Board of Directors and will depend, among other
things, upon business conditions, earnings, the financial condition of the
Bank and the Company and regulatory requirements.
Item 2 - Management Discussion and Analysis of Financial Condition and Results
of Operation.
Liquidity and Sources of Capital
Community National Bancorporation (the "Company") was organized in
August, 1989 and began banking operations through its wholly owned subsidiary,
Community National Bank (the "Bank"), on August 6, 1990. During the period
from April, 1989 (inception) to August 6, 1990, the Company was in the
development stage and devoted most of its efforts to organizing,
incorporating, planning, raising capital and recruiting personnel for the
Bank.
On August 6, 1990 the Bank was capitalized with a $3.3 million injection
from the Company. By September 30, 1995, the Bank's capital had increased to
$5.1 million through retained earnings. This level of capitalization, as
measured by the Bank's primary regulator, the OCC, is adequate based on the
following capital ratios and guidelines.
Bank's Minimum required
Sept. 30, 1995 by regulator
Leverage ratio 7.3% 4.0%
Risk weighted ratio 10.3% 8.0%
Total assets increased by $9.0 million to $70.2 million during the nine-
month period ended September 30, 1995. The increase was generated from higher
deposits and profits as well as borrowings from the federal funds market. The
additional funds that were generated 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
September 30, 1995 financial statements evidence a fair liquidity position as
total cash and cash equivalents amounted to $5.2 million, representing 7.4% of
total assets. Investment securities amounted to $7.9 million, representing
11.3% of total assets. These securities provide a secondary source of
liquidity since they can be converted into cash in a timely manner. As of
September 30, 1995, the Company borrowed $5.1 million through the use of the
federal funds market, in order to fund seasonal loan demand. The high loan
demand is viewed by management as being temporary. Note that the Bank is a
member of the Federal Reserve System and the Federal Home Loan Bank, and it
maintains relationships with several correspondent banks; as such it could
obtain funds on short notice from the above sources. The Company's management
closely monitors and maintains appropriate levels of interest earning assets
and interest bearing liabilities, so that maturities of assets are such that
adequate funds are provided to meet customer withdrawals and loan demand.
There are no trends, demands, commitments, events or uncertainties that will
result in or are reasonably likely to result in the Company's liquidity
increasing or decreasing in any material way.
Results of Operations
Net income for the nine months ended September 30, 1995 amounted to
$647,117 or $1.52 per share. This compares with net income of $436,253 or
$1.10 per share attained during the same nine-month period one year earlier.
The primary reasons for the increase in net income from 1994 to 1995 are as
follows:
a. Earning assets have increased from $54.1 million at September 30, 1994 to
$65.1 million at September 30, 1995. As a consequence, net interest income,
which represents the difference between interest received on interest earning
assets and interest paid on interest bearing liabilities, has increased from
$1,965,118 for the nine months ended September 30, 1994 to $2,374,292 for the
same period one year later, representing an increase of $409,174, or 20.8%.
b. Provisions for loan losses were reduced from $304,000 for the nine-month
period ended September 30, 1994 to $233,120 for the same nine-month period one
year later. As discussed below, the allowance for loan losses appears
adequate.
c. Note that other income was reduced from $373,556 for the nine-month period
ended September 30, 1994 to $287,238 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 $106,608 during the nine-month
period ended September 30, 1994. There were no such sales during the nine-
month period ended September 30, 1995.
At September 30, 1995 the allowance for loan losses amounted to
$831,481, or 1.52 % 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 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 for
the quarter ended September 30, 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 September 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMUNITY NATIONAL BANCORPORATION
(Registrant)
Date: November 3, 1995 By: /s/ Theron G.
Reed
Theron G. Reed
President,
Principal Executive Officer and
Principal Financial Officer
<TABLE> <S> <C>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,667,197
<INT-BEARING-DEPOSITS> 100,000
<FED-FUNDS-SOLD> 3,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,274,504
<INVESTMENTS-CARRYING> 1,563,426
<INVESTMENTS-MARKET> 1,672,031
<LOANS> 54,501,699
<ALLOWANCE> 831,481
<TOTAL-ASSETS> 70,201,916
<DEPOSITS> 59,065,088
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,884,317
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<COMMON> 1,767,085
0
0
<OTHER-SE> 3,485,426
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<INTEREST-TOTAL> 4,555,636
<INTEREST-DEPOSIT> 2,163,955
<INTEREST-EXPENSE> 2,181,344
<INTEREST-INCOME-NET> 2,374,292
<LOAN-LOSSES> 233,120
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<EXPENSE-OTHER> 1,410,768
<INCOME-PRETAX> 1,017,642
<INCOME-PRE-EXTRAORDINARY> 1,017,642
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