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, 1997.
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 12, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
ASSETS
- ------
March 31, December 31,
1997 1996
(Unaudited) (Unaudited)
----------- ------------
Cash and due from banks $ 1,497,545 $ 3,512,819
Federal funds sold 2,870,000 2,600,000
--------- ---------
Total cash and cash equivalents $ 4,367,545 $ 6,112,819
Securities:
Available for sale, at fair values 7,471,301 7,600,849
Loans, net 66,549,457 60,529,687
Property and equipment, net 1,021,588 1,017,210
Other assets 1,938,377 1,995,364
---------- ----------
Total Assets $ 81,348,268 $ 77,255,929
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits
Non-interest bearing deposits $ 4,630,576 $ 5,859,192
Interest bearing deposits 69,283,445 64,234,336
---------- ----------
Total deposits $ 73,914,021 $ 70,093,528
Obligation under capital lease - - 15,186
Other liabilities 1,031,474 891,938
---------- ----------
Total liabilities $74,945,495 $ 71,000,652
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 2,968,709 2,783,964
Unrealized (loss)on securities, net (45,924) (8,675)
---------- ----------
Total Shareholders' Equity 6,402,773 $ 6,255,277
---------- ----------
Total liabilities and shareholders'
equity $81,348,268 $77,255,929
---------- ----------
---------- ----------
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,
1997 1996
--------- ---------
Interest income $ 1,881,075 $1,670,884
Interest expense 907,072 798,544
--------- ---------
Net interest margin 974,003 872,340
Provision for possible loan losses 103,500 86,000
--------- ---------
Net interest income after provision
for possible loan losses 870,503 786,340
--------- ---------
(Loss) on sale of securities - - (2,883)
Other income 132,139 123,587
--------- ---------
Total other income 132,139 120,704
--------- ---------
Salaries and benefits 251,806 232,759
Other operating expenses 235,759 232,176
--------- ---------
Total operating expenses 487,565 464,935
--------- ---------
Net income (loss) before taxes 515,077 442,109
Provision for income taxes 231,375 186,205
--------- ---------
Net income after taxes $ 283,702 $ 255,904
--------- ---------
--------- ---------
Net Income Per Share $.69 $.63
--------- ---------
--------- ---------
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,
1997 1996
-------- --------
Cash flows from operating activities $ 622,661 $ 735,926
Cash flows from investing activities:
Securities, available-for-sale
Sale of securities $ - - $ 2,740,796
Purchase of securities - - (2,979,640)
Purchase of fixed assets (51,015) (19,507)
Increase in loans (6,123,270) (3,258,112)
Maturity and paydowns 100,000 51,316
---------- ----------
Net cash used in investing
activities $(6,074,285) $(3,465,147)
----------- -----------
Cash flows from financing activities:
Increase in customer deposits $ 3,820,493 $ 4,854,857
Payment of cash dividends (98,957) (63,615)
(Decrease) in lease obligations (15,186) (13,126)
---------- ---------
Net cash provided from financing
activities $ 3,706,350 $ 4,778,116
---------- ---------
Net (decrease) in cash and
cash equivalents $(1,745,274) $ 2,048,895
Cash and cash equivalents,
beginning of period 6,112,819 3,304,059
---------- ----------
Cash and cash equivalents,
end of period $ 4,367,545 $ 5,352,954
---------- ----------
---------- ----------
Refer to notes to the financial statements
<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1997
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, 1997 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1997. 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, 1996.
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.
<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1997
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.
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.
<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1997
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.
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.
<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1997
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, 1997 and 1996, common stock equivalents amounted to
410,721 and 403,708 respectively.
<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, 1997, the Bank's
capital had increased to $6.3 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, 1997 by regulator
------------- ---------------
Leverage ratio 8.0% 4.0%
Risk weighted ratio 11.5% 8.0%
Total assets increased by $4.0 million to $81.3 million during the
three-month period ended March 31, 1997. 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 $6.0 million. Cash and cash
equivalents decreased by $1.7 million to $4.4 million, but were
sufficient to provide the Bank with a satisfactory level of
liquidity.
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of
customers. The March 31, 1997 financial statements evidence a
satisfactory liquidity position as total cash and cash equivalents
amounted to $4.4 million, representing 5.4% of total assets.
Investment securities amounted to $7.5 million, representing 9.2%
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
$283,702 or $.69 per share. This compares favorably with net
income of $255,904 or $.63 per share attained during the same
three-month period one year earlier. The primary reasons for the
increase in net income from 1996 to 1997 are as follows:
a. Earning assets have increased from $65.3 million at March
31, 1996 to $76.9 million at March 31, 1997. 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 $872,340 to $974,003 for the same period
one year later, representing an increase of $101,663, or
11.7%.
b. Other income increased from $120,704 for the three-month
period ended March 31, 1996 to $132,139 for the three-month
period ended March 31, 1997. The above increase of $11,435
represents a 9.5% improvement. This increase is primarily
due to increased activity in transactional accounts due to a
higher deposit base.
Note that the provision for loan losses increased from $86,000 to
$103,500 for the three-month periods ended March 31, 1996 and
1997. The above increase was due to higher loan balances.
Additionally, other operating expenses increased form $464,935 for
the three-month period ended March 31, 1996 to $487,565 for the
same period, one year later. This increase was primarily due to
the higher asset-base.
At March 31, 1997, the allowance for loan losses amounted to
$1,308,434, or 1.93% of gross loans. At December 31, 1996, the
allowance amounted to $1,200,398, or 1.94% 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 for the quarter ended March
31, 1997.
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
March 31, 1997.
<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)
By: /s/ Theron G. Reed
Theron G. Reed
President, Principal Executive Officer and
Principal Financial Officer
Date: March 14, 1997
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
27 Financial Data Schedule 15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,497,545
<INT-BEARING-DEPOSITS> 100,000
<FED-FUNDS-SOLD> 2,870,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,371,301
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 67,857,892
<ALLOWANCE> 1,308,434
<TOTAL-ASSETS> 81,348,268
<DEPOSITS> 73,914,021
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,031,474
<LONG-TERM> 0
0
0
<COMMON> 1,767,085
<OTHER-SE> 4,635,688
<TOTAL-LIABILITIES-AND-EQUITY> 81,348,268
<INTEREST-LOAN> 1,724,684
<INTEREST-INVEST> 156,391
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,881,075
<INTEREST-DEPOSIT> 906,845
<INTEREST-EXPENSE> 907,072
<INTEREST-INCOME-NET> 974,003
<LOAN-LOSSES> 103,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 487,565
<INCOME-PRETAX> 515,077
<INCOME-PRE-EXTRAORDINARY> 515,077
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 283,702
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
<YIELD-ACTUAL> 5.22
<LOANS-NON> 221,432
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 221,432
<ALLOWANCE-OPEN> 1,200,398
<CHARGE-OFFS> 7,252
<RECOVERIES> 11,788
<ALLOWANCE-CLOSE> 1,308,434
<ALLOWANCE-DOMESTIC> 1,285,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 23,434
</TABLE>
