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, 1996.
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 10, 1996.
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
March 31, December 31,
1996 1995
(Unaudited) (Unaudited)
Cash and due from banks $ 1,852,954 $ 2,054,059
Federal funds sold 3,500,000 1,250,000
Total cash and cash equivalents $ 5,352,954 $ 3,304,059
Securities:
Available for sale, at fair values 7,311,479 7,123,951
Loans, net 54,451,619 51,273,868
Property and equipment, net 1,065,330 1,090,001
Other assets 1,487,019 1,701,443
Total Assets $69,668,401 $64,493,322
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 3,633,459 $ 3,998,070
Interest bearing deposits 59,641,359 54,421,891
Total deposits $63,274,818 $58,419,961
Obligation under capital lease 54,204 67,330
Other liabilities 765,194 596,943
Total liabilities $64,094,216 $59,084,234
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 2,097,310 1,905,021
Unrealized (loss) on securities, net (3,113) 24,079
Total Shareholders' Equity 5,574,185 $ 5,409,088
Total liabilities and shareholders' equity $69,668,401 $64,493,322
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Income
For the quarter
Ended March 31,
1996 1995
Interest income $1,670,884 $1,352,219
Interest expense 798,544 623,779
Net interest margin 872,340 728,440
Provision for possible loan losses 86,000 55,000
Net interest income after provision
for possible loan losses 786,340 673,440
(Loss) on sale of securities (2,883) 689
Other income 123,587 94,163
Total other income 120,704 94,852
Salaries and benefits 232,759 219,941
Other operating expenses 232,176 182,282
Total operating expenses 464,935 409,223
Net income (loss) before taxes 442,109 359,069
Provision for income taxes 186,205 140,375
Net income after taxes $ 255,904 $ 218,694
Net Income Per Share $ .63 $ .52
Refer to notes to the financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Cash Flows
for the quarter ended
March 31,
1996 1995
Cash flows from operating activities $ 735,926 $ 333,939
Cash flows from investing activities:
Securities, available-for-sale
Sale of securities $ 2,740,796 $ 1,999,999
Purchase of securities (2,979,640) - -
Maturity and paydowns 51,316 106,056
Net cash used in investing activities $(3,465,147) $(2,991,476)
Cash flows from financing activities:
Increase in customer deposits $ 4,854,857 $ 2,135,489
Payment of cash dividends (63,615) (63,615)
(Decrease) in lease obligations (13,126) (21,392)
Net cash provided from financing activities $ 4,778,116 $ 2,050,482
Net increase in cash and cash equivalents $ 2,048,895 $ (607,055)
Cash and cash equivalents,
beginning of period 3,304,059 5,383,503
Cash and cash equivalents, end of period $ 5,352,954 $ 4,776,448
Refer to notes to the financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1996
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, 1996 are not necessarily indicative
of the results that may be expected for the year ending December 31,
1996. 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, 1995.
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 the Company and the
Subsidiary. All significant 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
recognizing expenses in the period incurred, without regarding the time
of receipt or payment of cash.
Investment Securities. The Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investment in Debt
and Equity Securities (SFAS 115) on January 1, 1994. SFAS 115 requires
investments in equity and debt securities to be classified into three
categories:
1. Held-to-maturity securities: These are securities which the
Company has the ability and intent to hold until maturity. These
securities are stated at cost, adjusted for amortization of premiums and
the accretion of discounts.<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1996
2. Trading securities: These are securities which are bought and
held principally for the purpose of selling in the near future. Trading
securities are reported at fair market value, and related unrealized
gains and losses are recognized in the income statement.
3. Available-for-sale securities: These are securities which are
not classified as either held-to-maturity or as trading securities.
These securities are reported at fair market value. Unrealized
gains and losses are reported, net of tax, as separate components
of shareholders' equity. Unrealized gains and losses are excluded
from the income statement.
Loans, Interest and Fee Income on Loans. Loans are stated at the
principal balance outstanding. Unearned discount, unamortized loan fees
and the allowance for possible loan losses are deducted from total loans
in the statement of condition. Interest income is recognized over the
term of the loan based on the principal amount outstanding. 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.
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
not recorded as interest income, but are used to reduce principal.
Allowance for Possible Loan Losses. The provisions for loan losses
charged to operating expense 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 and regular evaluation of
individual loans, the overall risk characteristics of the various
portfolio segments, past experience with losses and prevailing and
anticipated economic conditions. Loans which are determined
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1996
to be uncollectible are charged against the allowance. Provisions for
loan losses and recoveries on loans previously charged-off are added to
the allowance.
The Company adopted Statement of Financial Accounting Standards No.
114, Accounting by Creditors for Impairment of a Loan, (SFAS 114) on
January 1, 1995. Under the new standard, a loan is considered impaired,
based on current information and events, if it is probable that the
Company will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based on the
present value of expected future cash flows discounted at the historical
effective interest rate, except that all collateral-dependent loans are
measured for impairment based on the fair value of the collateral. The
adoption of SFAS 114 resulted in no change to the allowance for credit
losses at January 1, 1995.
In October, 1994, FASB issued Statement of Financial Accounting
Standards No. 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure (SFAS 118). SFAS 118 amends SFAS 114
to allow a creditor to use existing methods for recognizing interest
income on an impaired loan, rather than the methods prescribed in SFAS
114.
Property and Equipment. Building, furniture and equipment 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 gain or
loss is included in income from operations.
Income Taxes. The consolidated financial statements have been
prepared on the accrual basis. When income and expenses are recognized
in different periods for financial reporting purposes
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1996
and for purposes of computing income taxes currently payable, deferred
taxes are provided on such temporary differences.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes
(SFAS 109). Under SFAS 109, deferred tax assets and liabilities are
recognized for the expected future tax consequences of events that have
been recognized in the financial statements or tax return. Deferred tax
assets and liabilities are measured using the enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be realized or settled.
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.
Earnings Per Share. The weighted average number of shares
outstanding as well as all of the common stock equivalents must be
considered for purposes of computing earnings per share. 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 shares of common stock outstanding and of
common stock equivalents. As of March 31, 1996 and 1995, common stock
equivalents amounted to 403,708 and 424,100 respectively.
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, 1996, the Bank's
capital had increased to $5.5 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, 1996 by regulator
Leverage ratio 7.9% 4.0%
Risk weighted ratio 11.2% 8.0%
Total assets increased by $5.2 million to $69.7 million during the
three-month period ended March 31, 1996. 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 by $3.2 million and improve the Bank's liquidity position by
increasing cash and cash equivalents by $2.0 million.
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customers.
The March 31, 1996 financial statements evidence a satisfactory
liquidity position as total cash and cash equivalents amounted to $5.4
million, representing 7.7% of total assets. Investment securities
amounted to $7.3 million, representing 10.5% of total assets; these
securities provide a secondary source of liquidity since they can be
converted into cash in a timely manner. The subsidiary Bank is a member
of the Federal Reserve System and is maintaining relationships with
several correspondent banks and, thus, could obtain funds on short
notice. The Company's management closely monitors and maintains
appropriate levels of interest earning assets and interest bearing
liabilities, so that maturities of assets are such that adequate funds
are provided to meet customer withdrawals and loan demand.
There are no trends, demands, commitments, events or uncertainties that
will result in or are reasonably likely to result in the Company's
liquidity increasing or decreasing in any material way.
Results of Operations
Net income for the three months ended March 31, 1996 amounted to
$255,904 or $.63 per share. This compares with net income of $218,694
or $.52 per share attained during the same three-month period one year
earlier. The primary reasons for the increase in net income from 1995
to 1996 are as follows:
a. Earning assets have increased from $59.7 million at March 31, 1995
to $65.3 million at March 31, 1996. 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 $728,440 to $872,340 for the same period
one year later, representing an increase of $143,900, or 19.7%.
b. Other income increased from $94,852 for the three-month period ended
March 31, 1995 to $120,704 for the three-month period ended March
31, 1996. The above increase of $25,852 represents a 27.2% improvement.
Note that the provision for loan losses increased from $55,000 to
$86,000 for the three-month periods ended March 31, 1995 and 1996. The
above increase was due to higher loan balances. Additionally, other
operating expenses increased form $409,223 for the three-month period
ended March 31, 1995 to $464,935 for the same period, one year later.
This increase was primarily due to the higher asset-base.
At March 31, 1996, the allowance for loan losses amounted to $1,002,966,
or 1.81 percent of gross loans. Management considers the allowance for
loan losses to be adequate and sufficient to absorb possible future
losses; however, there can be no assurance that charge-offs in future
periods will not exceed the allowance
for loan losses or that additional provisions to the allowance will not
be required.
The Company is not aware of any current recommendation by the regulatory
authorities which, if they were to be implemented, would have a material
effect on the Company's liquidity, capital resources, or results of
operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. There are no material pending legal
proceedings to which the Company or the Bank is a party or of which any
of their property is the subject.
Item 2. Changes in Securities.
(a) None.
(b) None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. No
matter
has been submitted to a vote of security-holders for the
quarter
ended March 31, 1996.
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, 1996.
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 10, 1996 By:
Theron G. Reed
President,
Principal Executive Officer and
Principal Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
27 Financial Data Schedule 14
Financial Data Schedule Submitted Under Item 601(a)(27) of Regulation S-B
This schedule contains summary financial information extracted from
Community National Bancorporation's unaudited consolidated financial
statements for the periods ended March 31, 1996 and March 31, 1995 and is
qualified in its entirety by reference to such financial statements.
Item Number Item Description Amount
9-03(1) Cash and due from banks $ 1,852,954
9-03(2) Interest bearing deposits 0
9-03(3) Federal funds sold - purchased
securities for sale 3,500,000
9-03(4) Trading account assets 0
9-03(6) Investment and mortgage backed
securities held for sale 7,311,479
9-03(6) Investment and mortgage backed
securities held to maturity -
carrying value 0
9-03(6) Investment and mortgage backed
securities held to maturity -
market value 0
9-03(7) Loans 55,454,585
9-03(7)(2) Allowance for losses 1,002,966
9-03(11) Total assets 69,668,401
9-03(12) Deposits 63,274,818
9-03(13) Short-term borrowings 0
9-03(15) Other liabilities 819,398
9-03(16) Long-term debt 0
9-03(19) Preferred stock -
mandatory redemption 0
9-03(20) Preferred stock -
no mandatory redemption 0
9-03(21) Common stocks 1,767,085
9-03(22) Other stockholders' equity 3,807,100
9-03(23) Total liabilities and
stockholders' equity 69,668,401
9-04(1) Interest and fees on loans 1,542,264
9-04(2) Interest and dividends
on investments 128,620
9-04(4) Other interest income
9-04(5) Total interest income 1,670,884
9-04(6) Interest on deposits 796,185
9-04(9) Total interest expense 798,544
9-04(10) Net interest income 872,340
9-04(11) Provision for loan losses 86,000
9-04(13)(h) Investment securities gains/losses
9-04(14) Other expenses 464,935
9-04(15) Income/loss before income tax 442,109
<PAGE>
Item Number Item Description Amount
9-04(17) Income/loss before
extraordinary items 442,109
9-04(18) Extraordinary items, less tax 0
9-04(19) Cumulative change in
accounting principles 0
9-04(20) Net income or loss 255,904
9-04(21) Earnings per share - primary .72
9-04(21) Earnings per share - fully diluted .72
I.B.5. Net yield - interest earning
assets - actual 5.36%
III.C.1(a) Loans on non-accrual 81,397
III.C.1(b) Accruing loans past due
90 days or more 0
III.C.1(c) Troubled debt restructuring 0
III.C.2. Potential problem loans 0
IV.A.1 Allowance for loan losses -
beginning of period 922,613
IV.A.2 Total chargeoffs 19,079
IV.A.3 Total recoveries 13,432
IV.A.4 Allowance for loan losses -
end of period 1,002,966
IV.B.1 Loan loss allowance allocated to
domestic loans 990,000
IV.B.2 Loan loss allowance allocated to
foreign loans 0
IV.B.3 Loan loss allowance - unallocated 12,966
