SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
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 November 13, 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
September 30, December 31,
1996 1995
(Unaudited) (Unaudited)
Cash and due from banks $ 1,625,500 $ 2,054,059
Federal funds sold 2,475,000 1,250,000
--------- ---------
Total cash and cash
equivalents $ 4,100,500 $ 3,304,059
Securities:
Available-for-sale, at
fair values 6,738,860 7,123,951
Loans, net 63,454,255 51,273,868
Property and equipment, net 987,247 1,090,001
Other assets 2,387,772 1,701,443
---------- ----------
Total Assets $77,668,634 $64,493,322
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 4,112,279 $ 3,998,070
Interest bearing deposits 66,663,892 54,421,891
---------- ----------
Total deposits $70,776,171 $58,419,961
Obligation under capital lease 28,192 67,330
Other liabilities 862,259 596,943
---------- ----------
Total liabilities $71,666,622 $59,084,234
---------- ----------
---------- ----------
Commitments and contingencies
Shareholders' Equity:
Common stock, $5.00 par value,
10,000,000 shares authorized,
353,417 issued and outstandin $ 1,767,085 $ 1,767,085
Paid-in-capital 1,712,903 1,712,903
Retained earnings 2,569,613 1,905,021
Unrealized gain on securities,
net (47,589) 24,079
--------- ---------
Total Shareholders' Equity $ 6,002,012 $ 5,409,088
Total liabilities and
shareholders' equity $77,668,634 $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
September 30,
1996 1995
Interest income $1,828,470 $1,619,928
Interest expense 903,748 825,135
--------- ---------
Net interest margin $ 924,722 $ 794,793
Provisions for possible
loan losses 152,000 75,000
--------- ---------
Net interest income after provisions
for possible loan losses $ 772,722 $ 719,793
--------- ---------
(Loss) on sale of securities $ - - $ (1,963)
Other income 121,515 94,760
--------- ---------
Total other income $ 121,515 $ 92,797
Salaries and benefits $ 237,142 $ 211,626
Other operating expenses 252,543 285,002
--------- ---------
Total other expenses $ 489,685 $ 496,628
--------- ---------
Net income before income taxes $ 404,552 $ 315,962
Provision for income taxes 166,365 103,025
Net income $ 238,187 $ 212,937
--------- ---------
Net income per share $ .59 $ .50
--------- ---------
--------- ---------
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,
1996 1995
Interest income $5,238,663 $4,555,636
Interest expense 2,539,724 2,181,344
--------- ---------
Net interest margin $2,698,939 $2,374,292
Provisions for possible
loan losses 317,000 233,120
--------- ---------
Net interest income after provisions
for possible loan losses $2,381,939 $2,141,172
--------- ---------
(Loss) on sale of securities $ (2,883) $ (4,066)
Other income 367,623 291,304
--------- ---------
Total other income $ 364,740 $ 287,238
Salaries and benefits $ 706,604 $ 647,012
Other operating expenses 790,363 763,756
--------- ---------
Total other expenses $1,496,967 $1,410,768
--------- ---------
Net income before taxes $1,249,712 $1,017,642
Provision for income taxes 521,505 370,525
--------- ---------
Net income $ 728,207 $ 647,117
--------- ---------
--------- ---------
Net income per share $ 1.80 $ 1.52
--------- ---------
--------- ---------
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,
1996 1995
Cash flows from operating
activities $ 757,960 $ 134,992
--------- -----------
Cash flows from investing activities:
Securities, available-for-sale
Sale of securities 2,740,796 $ 4,799,477
Purchase of securities (3,119,640) (1,501,953)
Maturity and paydowns 692,267 675,906
(Increase) in loans, net (12,497,387) (12,337,015)
Purchase of property and
equipment (31,012) (75,554)
Net cash used in ---------- -----------
investing activities $12,214,976) $ (8,439,139)
---------- -----------
Cash flows from financing activities:
Increase in customer
deposits $ 12,356,210 $ 3,116,708
Increase in federal
funds purchased - - 5,100,000
Payment of cash dividends (63,615) (63,615)
Decrease in lease obligations (39,138) (65,252)
---------- ----------
Net cash provided from
financing activities $ 12,253,457 $ 8,087,841
---------- ----------
Net increase in
cash and cash equivalents $ 796,441 $ (216,306)
Cash and cash equivalents,
beginning of period 3,304,059 5,383,503
---------- ----------
Cash and cash equivalents,
end of period $ 4,100,500 $ 5,167,197
---------- ----------
---------- ----------
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to consolidated financial statements (Unaudited)
September 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 nine-month period
ended September 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)
September 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)
September 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
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
September 30, 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
September 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 September 30, 1996, the
Bank's capital had increased to $5.9 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, 1996 by regulator
Leverage ratio 7.9% 4.0%
Risk weighted ratio 11.6% 8.0%
Total assets increased by $13.2 million to $77.7 million
during the nine-month period ended September 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 September 30, 1996 financial statements
evidence a satisfactory liquidity position as total cash and cash
equivalents amounted to $4.1 million, representing 5.3% of total
assets. Investment securities amounted to $6.7 million,
representing 8.7% 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 nine months period September 30, 1996
amounted to $728,207 or $1.80 per share. These results compare
favorably with net income of $647,117 or $1.52 per share attained
during the same nine-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
$2,374,292 for the nine months ended September 30, 1995 to
$2,698,939 for the same period one year later, representing
an increase of $324,647, or 18.2%.
b. Other income has increased from $287,238 for the nine-month
period ended September 30, 1995 to $364,740 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 September 30, 1996, net
income amounted to $238,187, or $.59 per share. These results
compare favorably with net income of $212,937, or $.50 per share
attained during the three-month period ended June 30, 1995. The
majority of the improved results for the three-month period ended
September 30, 1996 as compared to September 30, 1995 are due to a
higher net interest income and fee income from deposit accounts.
At September 30, 1996 the allowance for loan losses amounted
to $1,117,943 or 1.73 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 September 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 September
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: November 13, 1996
By: /s/ Theron G. Reed
Theron G. Reed
President,
Principal Executive Officer and
Principal Financial Officer
INDEX TO EXHIBITS
Exhibit Sequential
Page Number Description Number
2 Financial Data Schedule 14
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,625,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,475,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,738,860
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 64,572,198
<ALLOWANCE> 1,117,943
<TOTAL-ASSETS> 77,668,634
<DEPOSITS> 70,776,171
<SHORT-TERM> 0
<LIABILITIES-OTHER> 890,451
<LONG-TERM> 0
<COMMON> 1,767,085
0
0
<OTHER-SE> 4,234,927
<TOTAL-LIABILITIES-AND-EQUITY> 77,668,634
<INTEREST-LOAN> 4,836,747
<INTEREST-INVEST> 401,916
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,238,663
<INTEREST-DEPOSIT> 2,534,076
<INTEREST-EXPENSE> 2,539,724
<INTEREST-INCOME-NET> 2,698,939
<LOAN-LOSSES> 317,000
<SECURITIES-GAINS> (2,883)
<EXPENSE-OTHER> 1,496,967
<INCOME-PRETAX> 1,249,712
<INCOME-PRE-EXTRAORDINARY> 1,249,712
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 728,207
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.80
<YIELD-ACTUAL> 4.88
<LOANS-NON> 72,678
<LOANS-PAST> 5,036
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 922,613
<CHARGE-OFFS> 146,324
<RECOVERIES> 24,654
<ALLOWANCE-CLOSE> 1,117,943
<ALLOWANCE-DOMESTIC> 1,100,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 17,943
</TABLE>
