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 June 30, 1996.
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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 August 8, 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
June 30, December 31,
1996 1995
(Unaudited) (Unaudited)
Cash and due from banks 1,791,204 2,054,059
Federal funds sold 2,700,000 1,250,000
Total cash and cash equivalents 4,491,204 3,304,059
Securities:
Available-for-sale, at fair values 7,223,466 7,123,951
Loans, net 59,707,725 51,273,868
Property and equipment, net 1,030,367 1,090,001
Other assets 1,948,635 1,701,443
Total Assets 74,401,397 64,493,322
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits 4,203,146 3,998,070
Interest bearing deposits 63,665,579 54,421,891
Total deposits 67,868,725 58,419,961
Obligation under capital lease 41,198 67,330
Other liabilities 750,549 596,943
Total liabilities 68,660,472 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 2,331,426 1,905,021
Unrealized gain on securities, net (70,489) 24,079
Total Shareholders' Equity 5,740,925 5,409,088
Total liabilities and shareholders'
equity 74,401,397 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
June 30,
1996 1995
Interest income 1,739,309 1,583,489
Interest expense 837,432 732,430
Net interest margin 901,877 851,059
Provisions for possible loan losses 79,000 103,120
Net interest income after provisions
for possible loan losses 822,877 747,939
(Loss) on sale of securities - - (2,792)
Other income 122,521 102,381
Total other income 122,521 99,589
Salaries and benefits 236,703 215,445
Other operating expenses 305,644 289,472
Total other expenses 542,347 504,917
Net income before income taxes 403,051 342,611
Provision for income taxes 168,935 127,125
Net income 234,116 215,486
Net income per share .58 .51
Refer to notes to the consolidated financial statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Income
for the two quarters ended
June 30,
1996 1995
Interest income 3,410,193 2,935,708
Interest expense 1,635,976 1,356,209
Net interest margin 1,774,217 1,579,499
Provisions for possible loan losses 165,000 158,120
Net interest income after provisions
for possible loan losses 1,609,217 1,421,379
(Loss) on sale of securities (2,883) (2,103)
Other income 246,108 196,544
Total other income 243,225 194,441
Salaries and benefits 469,462 435,386
Other operating expenses 537,820 478,754
Total other expenses 1,007,282 914,140
Net income before taxes 845,160 701,680
Provision for income taxes 355,140 267,500
Net income 490,020 434,180
Net income per share 1.21 1.02
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Cash Flows
for the two quarters ended
June 30,
1996 1995
Cash flows from operating activities 680,077 670,623
Cash flows from investing activities:
Securities, available-for-sale
Sale of securities 2,740,796 145,520
Purchase of securities (3,119,640) 3,895,500
Maturity and paydowns 154,782 (1,501,953)
(Increase) in loans, net (8,598,857) (9,558,504)
Purchase of property and equipment (29,030) (34,984)
Net cash used in investing activities (8,851,949) (7,054,421)
Cash flows from financing activities:
Increase in customer deposits 9,448,764 3,651,873
Payment of cash dividends (63,615) (63,615)
Decrease in lease obligations (26,132) (43,102)
Net cash provided
from financing activities 9,359,017 3,545,156
Net increase in
cash and cash equivalents 1,187,145 (2,838,642)
Cash and cash equivalents,
beginning of period 3,304,059 5,383,503
Cash and cash equivalents, end of period 4,491,204 2,544,861
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to consolidated financial statements (Unaudited)
June 30, 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 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 six-month period ended June 30,
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.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
June 30, 1996
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.
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.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
June 30, 1996
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 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 and for purposes of computing income
taxes currently payable, deferred taxes are provided on such temporary
differences.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
June 30, 1996
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 June 30, 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 for the
Bank.
On August 6, 1990 the Bank was capitalized with a 3.3 million injection
from the Company. By June 30, 1996, the Bank's capital had increased to 5.7
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
June 30, 1996 by regulator
Leverage ratio 8.0% 4.0%
Risk weighted ratio 11.0% 8.0%
Total assets increased by 9.9 million to 74.4 million during the six-
month period ended June 30, 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 and improve the
liquidity posture of the Bank.
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customers. The
June 30, 1996 financial statements evidence a satisfactory liquidity
position as total cash and cash equivalents amounted to 4.5 million,
representing 6.0% of total assets. Investment securities amounted to 7.2
million, representing 9.7% of total assets. These securities provide a
secondary source of liquidity since they can be converted into cash in a
timely manner. Since the Bank is a member of the Federal Reserve System and
maintains relationships with several correspondent banks, it 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 six months ended June 30, 1996 amounted to 490,020 or
1.21 per share. These results compare favorably with net income of 434,180
or 1.02 per share attained during the same six-month period one year earlier.
The primary reasons for the increase in net income from 1995 to 1996 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 1,579,499 for the six months ended
June 30, 1995 to 1,774,217 for the same period one year later, representing
an increase of 194,718, or 12.3%.
b. Other income has increased from 194,441 for the six-month period
ended June 30, 1995 to 243,225 for the same period one year later. This
increase is due to increased volume and higher charges on deposit accounts.
For the three-month period ended June 30, 1996, net income amounted to
234,116, or .58 per share. These results compare favorably with net income
of 215,486, or .51 per share attained during the three-month period ended
June 30, 1995. The majority of the improved results for the three-month
period ended June 30,1996 as compared to June 30, 1995 are due to a higher
net interest income and fee income from deposit accounts. Additionally, the
provision for loan losses for the quarter ended June 30, 1996 were lower
than the provision for the quarter ended June 30, 1995.
At June 30, 1996 the allowance for loan losses amounted to 1,048,030 or
1.72 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 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 June 30, 1996.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K - There were no reports on Form 8-K
filed during the quarter ended June 30, 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: August 13, 1996
By: /s/ Theron G. Reed
Theron G. Reed
President,
Principal Executive Officer and
Principal Financial Officer
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
27 Financial Data Schedule 15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Jun-30-1996
<CASH> 1,791,204
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,700,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,223,466
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 59,707,725
<ALLOWANCE> 1,048,030
<TOTAL-ASSETS> 74,401,397
<DEPOSITS> 67,868,725
<SHORT-TERM> 0
<LIABILITIES-OTHER> 791,747
<LONG-TERM> 0
0
0
<COMMON> 1,767,085
<OTHER-SE> 3,973,840
<TOTAL-LIABILITIES-AND-EQUITY> 74,401,397
<INTEREST-LOAN> 3,144,078
<INTEREST-INVEST> 266,115
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,410,193
<INTEREST-DEPOSIT> 1,632,195
<INTEREST-EXPENSE> 1,635,976
<INTEREST-INCOME-NET> 1,774,217
<LOAN-LOSSES> 165,000
<SECURITIES-GAINS> (2,883)
<EXPENSE-OTHER> 1,007,282
<INCOME-PRETAX> 845,160
<INCOME-PRE-EXTRAORDINARY> 845,160
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 490,020
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 5.15
<LOANS-NON> 74,609
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 922,613
<CHARGE-OFFS> 57,898
<RECOVERIES> 18,315
<ALLOWANCE-CLOSE> 1,048,030
<ALLOWANCE-DOMESTIC> 1,029,940
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 18,090
</TABLE>
