U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
- -----------------------------------------
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1996
Commission File Number 33-31013-A
COMMUNITY NATIONAL BANCORPORATION
A Georgia Corporation
(IRS Employer Identification No. 58-1856963)
561 East Washington Avenue-Box 2619
Ashburn, Georgia 31714-2619
(912) 567-9686
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
None
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
None
Check whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter
period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate by a check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of the Form 10-KSB or any amendment to this
Form 10-KSB. [X]
The Registrant's revenues for the fiscal year ended December 31,
1996 were $7,548,597.
The aggregate market value of the Common Stock of the Registrant
held by nonaffiliates of the Registrant on March 1, 1997, was
$3,594,492. As of such date, no organized trading market existed
for the Common Stock of the Registrant. The aggregate market
value of the Common Stock of the Registrant held by nonaffiliates
was computed by reference to the estimated fair market value of
the Company's Common Stock as of March 1, 1997 (i.e., $16.50 per
share). The estimated fair market value was determined based upon
isolated purchase/sale transactions which occurred with respect
to the Company's Common Stock during fiscal year 1996. For the
purposes of this response, directors, executive officers and
holders of 5% or more of the Registrant's Common Stock are
considered the affiliates of the Registrant at that date.
The number of shares outstanding of the Registrant's Common Stock
as of March 1, 1997: 353,417 shares of $5.00 par value Common
Stock.
Transitional Small Business Disclosure Format:
Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
None
CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
This Report may contain certain "forward-looking
statements" including statements concerning plans, objectives,
future events or performance and assumptions and other statements
which are other than statements of historical fact. Community
National Bancorporation (the "Company") and its subsidiary
cautions readers that the following important factors, among
others, may have affected and could in the future affect the
Company's actual results and could cause the Company's actual
results for subsequent periods to differ materially from those
expressed in any forward-looking statement made by or on behalf of
the Company herein: (i) the effect of changes in laws and
regulations, including federal and state banking laws and
regulations, with which the Company must comply, and the
associated costs of compliance with such laws and regulations
either currently or in the future as applicable; (ii) the effect
of changes in accounting policies and practices, as may be adopted
by the regulatory agencies as well as by the Financial Accounting
Standards Board, or of changes in the Company's organization,
compensation and benefit plans; (iii) the effect on the Company's
competitive position within its market area of the increasing
consolidation within the banking and financial services
industries, including the increased competition from larger
regional and out-of-state banking organizations as well as nonbank
providers of various financial services; (iv) the effect of
changes in interest rates; and (v) the effect of changes in the
business cycle and downturns in the local, regional or national
economies.
THE COMPANY CAUTIONS THAT THE FOREGOING LIST OF IMPORTANT FACTORS
IS NOT EXCLUSIVE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY
FORWARD-LOOKING STATEMENT, WHETHER WRITTEN OR ORAL, THAT MAY BE
MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.
PART I
Item 1. Description of Business.
A. Business Development.
Community National Bancorporation (hereinafter the
"Company" or the "Registrant") was incorporated as a Georgia
corporation on August 18, 1989, for the purpose of becoming a bank
holding company owning 100% of the outstanding stock of Community
National Bank (the "Bank"), a national banking association
chartered under the laws of the United States. The Company
received approval to become a bank holding company from the
Federal Reserve Bank of Atlanta on February 16, 1990, and from the
Georgia Department of Banking and Finance (the "Georgia
Department") on February 19, 1990. On December 14, 1990, the
Company completed a public offering of its common stock pursuant
to which it raised $3,520,010 from the sale of 352,001 shares of
its common stock at $10.00 per share. The Company used
substantially all of the proceeds of its public offering to
purchase shares of capital stock of the Bank. The Bank received
its permit to begin business from the Office of the Comptroller of
the Currency (the "OCC") on August 6, 1990 and commenced business
as a commercial bank on August 6, 1990. Since that date, the Bank
has engaged in a general commercial banking business, emphasizing
the banking needs of individuals, and small to medium-sized
business and agricultural enterprises in its primary service area.
On April 3, 1992, the Bank acquired $11.3 million of deposits from
the Resolution Trust Corporation as receiver for First Federal
Savings Bank, Ashburn, Georgia.
B. Business.
1. Services Offered by the Bank.
The Bank conducts a commercial banking business serving
Turner County, Georgia. The Bank offers a full range of deposit
services that are typically available in most banks and savings
and loan associations, including checking accounts, NOW accounts,
savings accounts and other deposits of various types, ranging from
daily money market accounts to longer-term certificates of
deposit. It also offers retirement accounts such as IRA's
(Individual Retirement Accounts).
The Bank also offers short to medium-term commercial,
agricultural and personal loans. Commercial loans include both
secured and unsecured loans for working capital (including
inventory and receivables), business expansion (including
acquisition of real estate and improvements), and purchase of
equipment and machinery. The Bank also is qualified to
participate in SBA (Small Business Administration) lending.
Agricultural loans include secured and unsecured loans for row
crop production including corn, soybeans, peanuts, cotton and
other produce. Consumer loans include secured and unsecured loans
for financing automobiles, home improvements, education and
personal investments. The Bank also offers real estate
construction and acquisition loans.
Other services the Bank offers include safe deposit boxes,
travelers' checks, direct deposit of payroll and social security
checks, and automatic drafts for various accounts. The Bank is a
member of the HONOR network of automated teller machines and
offers its own credit cards.
The Bank offers these services from its main office, located
on approximately 3.3 acres between Hudson Avenue and Washington
Street, Ashburn, Turner County, Georgia, in a 9,500 square foot
building constructed in 1991-1992.
2. Market Area and Competition.
The Bank's primary service area includes all of Turner
County, Georgia. The Bank also extends credit to qualified
borrowers in the contiguous counties of Tift, Crisp and Worth.
Turner County is located approximately 80 miles north of the
Georgia-Florida state line, 165 miles south of Atlanta, 38 miles
east of Albany, and 180 miles west of Savannah. The county is
comprised of the cities of Ashburn, which is the county seat,
Sycamore and Rebecca and covers an area of 293 square miles. In
1990, the population of Turner County was 10,498, representing a
10% growth from 1980. Assuming that this rate of growth continues
in the 1990's, by the year 2000, the population of the primary
service area is expected to surpass 11,400.
Turner County's economy is dependent on agriculture.
Management of the Bank intends to continue to place a substantial
portion of the Bank's assets in agricultural loans. This sector
of the economy is healthy and remains the largest single force in
the market. A large portion of the agricultural output produced
in the county is peanuts. Golden Peanut Company is located in
Ashburn and is the largest peanut shelling plant in the Southeast.
Coley Farm Services, also headquartered in Ashburn, serves
primarily as a peanut buying point for area farmers from three
separate locations. Livestock is another important segment of the
economy, with the county containing the largest stock yard in
Georgia, Turner County Stock Yards. The poultry industry is a
growing component of the Turner County economy. In 1995, local
farmers built thirty-five poultry houses in Turner County at a
cost of approximately $3.5 million. The farmers who built these
poultry houses have entered into contracts with Tyson Poultry to
raise chickens for Tyson Poultry. These contracts will contribute
approximately $1.0 million per year to the local economy. Turner
County also contains light manufacturing, primarily in the apparel
and textile sector. The major employer is M&W Sportswear. Other
local manufacturing concerns include Delta Apparel, DCR Industries
and Cornerstone Manufacturing.
Management expects the moderate growth and recent
commercial development experienced in Turner County, along
Interstate 75 and in adjacent Tift County, to continue, providing
a favorable environment for the Bank. However, there is no
assurance that population growth and ongoing economic development
will continue, or that the Bank will be able to exploit the growth
and development profitably even if they continue.
The Bank competes as a financial intermediary with other
commercial banks, savings and loan associations, credit unions,
mortgage banking companies, consumer finance companies, securities
brokerage firms, insurance companies, money market mutual funds,
and other financial institutions.
During 1996, there was one other bank in the Bank's retail
market area, Turner County. Management estimates that as of
December 31, 1996, deposits in the county totaled $150 million,
with the Bank having approximately 46.8% of such deposits.
In general terms, regional and federal interstate banking
laws within the financial services industry in Georgia, as well as
other federal and state laws have caused and will continue to
cause increased competition from both conventional banking
institutions and other businesses offering financial services and
products. Many of the financial institutions operating in Georgia
have substantially greater financial resources and offer certain
services, such as trust services, that the Bank does not expect to
provide in the near future. By virtue of the greater total
capitalization of such institutions, they have substantially
higher lending limits than the Bank and substantial advertising
and promotional budgets. To compete, the Bank relies on
specialized services, responsive handling of customer needs and
personal contacts by officers, directors and staff.
3. Distribution of Assets, Liabilities and Shareholders'
Equity; Interest Rates and Interest Differential.
The following is a presentation of the average consolidated
balance sheet of the Company for the year ended December 31, 1996
and for the year ended December 31, 1995. This presentation
includes all major categories of interest-earning assets and
interest-bearing liabilities:
AVERAGE CONSOLIDATED ASSETS
Year Ended Year Ended
December 31, 1996 December 31, 1995
Cash and due from banks $ 1,604,841 $ 1,204,213
---------- -----------
Interest bearing bank balances 100,000 100,000
Taxable securities 5,036,267 6,872,130
Non-taxable securities 1,907,004 1,978,816
Federal funds sold 2,919,809 1,521,096
Net Loans 58,336,667 49,383,546
----------- ----------
Total earning assets 68,299,747 59,855,588
Other assets 2,821,843 2,627,993
---------- ----------
Total Assets $72,726,431 63,687,794
---------- ----------
---------- ----------
AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY
Year Ended Year Ended
December 31, 1996 December 31, 1995
Non interest
bearing-deposits $ 3,963,860 $ 3,587,272
NOW and money market
deposits 9,598,235 10,054,565
Savings Deposits 1,153,608 1,261,660
Time Deposits 51,272,040 43,103,198
Borrowings (lease) 41,116 103,754
Federal funds purchased 38,094 334,110
Other Liabilities 827,295 263,169
---------- ----------
Total liabilities 66,894,248 58,707,728
---------- ----------
Common Stock 1,767,085 1,767,085
Capital surplus 1,712,903 1,712,903
Retained earnings 2,344,493 1,543,556
Unrealized gain/loss
securities 7,702 (43,478)
--------- -----------
Total stockholders'
equity 5,832,183 4,980,066
--------- -----------
Total liabilities
and stockholders'
equity $72,726,431 $63,687,794
---------- -----------
---------- -----------
The following is a presentation of an analysis of the net
interest earnings of the Company for the periods indicated with
respect to each major category of interest-earning asset and each
major category of interest-bearing liability. The Yield/Rate was
computed on a tax equivalent basis.
Year Ended December 31, 1996
Average Average
Assets Amount Interest Yield/Rate
Interest bearing
bank balances $ 100,000 $ 4,647 4.65%
Taxable securities 5,036,267 307,330 6.10%
Non-taxable securities 1,907,004 87,913 6.98%
Federal funds sold 2,919,809 147,314 5.05%
Net loans 58,336,667(1)6,536,735(2) 11.21%
----------- ---------- ------
Total earning assets $68,299,747 $7,083,939 10.37%
---------- ---------- ------
Liabilities
NOW and money
market deposits $9,598,235 $309,347 3.22%
Savings deposits 1,153,608 39,379 3.41%
Time deposits 51,272,040 3,087,551 6.02%
Borrowings (lease) 41,116 5,132 12.48%
Federal funds purchased 38,094 1,939 5.09%
--------- --------- -----
Total interest bearing
liabilities $62,103,093 $3,443,348 5.54%
----------- --------- -----
----------- --------- -----
Interest spread 4.83%
-----
-----
Net interest income $3,640,591
---------
---------
Net yield on interest earning assets
5.33%
---------
(1) Net loans include $93,505 in loans that were placed on
non-accrual status. The Company would have earned an
additional $6,400 had these loans accrued interest
throughout 1996.
(2) Interest earned on net loans includes $365,541 in loan fees
and service fees.
Year Ended December 31, 1995
Average Average
Assets Amount Interest Yield/Rate
Interest bearing
bank balances $ 100,000 $ 5,497 5.50%
Taxable securities 6,872,130 431,016 6.27%
Non-taxable securities 1,978,816 91,248 6.98%
Federal funds sold 1,521,096 82,601 5.43%
Net loans 49,383,546 5,590,840 11.32%
---------- --------- ------
Total earning assets $59,855,588 $6,201,202 10.36%
----------- --------- ------
----------- --------- ------
Liabilities
NOW and money market
deposits $10,054,565 $ 320,967 3.19%
Savings deposits 1,261,660 40,644 3.22%
Time deposits 43,103,198 2,587,151 6.00%
Borrowings (lease) 103,754 7,651 7.37%
Federal funds purchased 20,784 6.22%
--------- --------- ------
Total interest bearing
liabilities $54,857,287 $2,977,197 5.43%
---------- --------- ------
Interest spread 4.93%
------
Net interest income $3,224,005
----------
Net yield on interest earning assets 5.39%
------
------
(1) Net loans include $80,178 in loans that were placed on non-accrual
status. The Company would have earned an additional
$2,808 had these loans accrued interest throughout 1995.
(2) Interest earned on net loans includes $365,310 in loan fees
and service fees.
4. Rate/Volume Analysis of Net Interest Income.
The effect on interest income, interest expense and net
income in the periods indicated of changes in average balance and
rate from the corresponding prior period is shown below. The
effect of a change in average balance has been determined by
applying the average rate in the earlier period to the change in
average balance in the later period, as compared with the earlier
period. The change in interest due to both volume and rate has
been allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amounts of the change in
each.
Year Ended December 31, 1996
Compared with Year Ended December 31, 1995
Increase (decrease) due to:
Volume Rate Total
Interest earned on:
Interest bearing
bank balances $ - $ (850)$ (850)
Taxable securities (112,289) (11,397) (123,686)
Non-taxable securities (3,335) -- (3,335)
Federal funds sold 70,043 (5,330) 64,713
Net loans 999,465 (53,570) 945,895
-------- -------- --------
Total Interest Income $953,884 $(71,147) $882,737
-------- -------- --------
-------- -------- --------
Interest paid on:
NOW and money market
deposits $(14,657) $3,037 $(11,620)
Savings deposits (4,067) 2,802 (1,265)
Time deposits 491,751 8,649 500,400
Borrowings (7,821) 5,302 (2,519)
Federal funds purchased (15,639) (3,206 (18,845)
-------- -------- --------
Total Interest Expense $449,567 $16,584 $466,151
-------- ------- --------
-------- ------- --------
Change in net
interest income $504,317 ($87,731) $416,586
-------- --------- --------
Year Ended December 31, 1995
Compared with Year Ended December 31, 1994
Increase (decrease) due to:
Volume Rate Total
Interest earned on:
Interest bearing
bank balances $ 2,389 $ 1,397 $ 3,786
Taxable securities (21,462) 49,801 28,339
Non-taxable securities 20,432 3,203 23,635
Federal funds sold (209,978) 116,510 (93,468)
Net loans 954,473 560,954 1,515,427
-------- -------- ---------
Total Interest Income $ 745,854 $731,865 $1,477,719
-------- -------- ---------
-------- -------- ---------
Interest paid on:
NOW and money market
deposits $(46,611) $3,510 $(43,101)
Savings deposits 7,660 (308) 7,352
Time deposits 280,112 612,922 893,034
Borrowings (6,200) (473) (6,673)
Federal funds
purchased 20,784 -- 20,784
-------- -------- --------
Total Interest Expense $255,745 $615,651 $871,396
-------- -------- --------
-------- -------- --------
Change in net
interest income $490,109 $116,214 $606,323
------- -------- --------
------- -------- --------
5. Deposits Analysis.
The Bank offers a full range of interest-bearing and
non-interest bearing accounts, including commercial and retail
checking accounts, negotiable order of withdrawal ("NOW")
accounts, individual retirement accounts, regular interest-bearing
savings accounts and certificates of deposit with a range
of maturity date options. The sources of deposits are residents,
businesses and employees of businesses within the Bank's market
area. Customers are obtained through the personal solicitation
of the Bank's officers and directors, direct mail solicitation
and advertisements published in the local media.
The Bank pays competitive interest rates on time and
savings deposits up to the maximum permitted by law or
regulation. In addition, the Bank has implemented a service
charge fee schedule competitive with other financial institutions
in the Bank's market area, covering such matters as maintenance
fees on checking accounts, per item processing fees on checking
accounts, returned check charges and the like.
The following table presents, for the periods
indicated, the average amount of and average rate paid on each of
the indicated deposit categories.
Year Ended
December 31, 1996
Average Amount Average Rate Paid
Non interest bearing
demand deposits $ 3,963,860 N/A
NOW and money market
deposits $ 9,598,235 3.22%
Savings deposits $ 1,153,608 3.41%
Time deposits $51,272,040 6.02%
Year Ended
December 31, 1995
Deposit Category Average Amount Average Rate Paid
Non interest bearing
demand deposits $ 3,587,272 N/A
NOW and money market
deposits $10,054,565 3.19%
Savings deposits $ 1,261,660 3.22%
Time deposits $43,103,198 6.00%
The following table indicates amounts outstanding of time
certificates of deposit of $100,000 or more and respective
maturities at December 31, 1996:
<PAGE>
Time Certificates
of Deposit
3 months or less $ 4,260,106
3-6 months 3,458,788
6-12 months 4,666,408
over twelve months 1,741,034
----------
Total $14,126,336
----------
----------
6. Loan Portfolio Analysis.
The Company engages in a full complement of lending
activities, including commercial, consumer installment and real
estate loans. A significant number of loans are made to farmers
or farming concerns.
Commercial lending is directed principally towards
businesses whose demands for funds fall within the Company's
legal lending limits and which are potential deposit customers of
the Bank. These loans include loans obtained for a variety of
business purposes, and are made to individual, partnership, or
corporate borrowers. The Company places particular emphasis on
loans to small and medium-sized businesses.
The Company's consumer loans consist primarily of
installment loans to individuals for personal, family and
household purposes, including automobile loans and pre-approved
lines of credit to individuals. This category of loans includes
lines of credit and term loans secured by second mortgages on
residences for a variety of purposes, including home
improvements, education and other personal expenditures.
The Company's real estate loans consist of residential and
commercial first and second mortgages.
The following table presents various categories of loans
contained in the Bank's loan portfolio as of December 31, 1996
and 1995 and the total amount of all loans for such periods:
As of December 31
1996 1995
Type of Loan
Domestic:
Commercial, financial
and agricultural $43,230,547 $33,716,669
Real estate-construction 202,844 688,037
Real estate-mortgage 11,149,943 8,136,175
Installment and other
loans to individuals 7,146,751 9,655,600
----------- ----------
Subtotal 61,730,085 52,196,481
Allowance for loan losses (1,200,398) (922,613)
----------- ----------
Total (net of allowance) $60,529,687 $51,273,868
----------- ----------
----------- ----------
The following is a presentation of an analysis of maturities
of loans as of December 31, 1996 (in thousands):
Due in 1 Due In 1 To Due After
Type of Loan Year or Les 5 Years 5 Years Total
Commercial, financial and
agricultural $ 34,416 $ 7,433 $ 1,382 $ 43,231
Real estate-
construction 203 -- -- 203
------- ------ ------- ------
Total $ 34,619 $ 7,433 $ 1,382 $ 43,434
------- ------ ------- ------
------- ------ ------- ------
Experience of the Company has shown that some receivables
will be paid prior to contractual maturity and others will be
converted, extended or renewed. Therefore, the tabulation of
contractual payments should not be regarded as a forecast of
future cash collections.
The following is a presentation of an analysis of
sensitivity of loans, excluding installment and other loans to
individuals, to changes in interest rates as of December 31, 1996
(in thousands):
Due in 1 Due In 1 To Due After
Type of Loan Year or Less 5 Years 5 Years Total
Fixed rate loans $ 18,115 $ 6,616 $ 1,382 $ 26,113
Variable rate loans 16,504 81 -- 17,321
------- ------- ------ ------
Total $ 34,619 $7,433 $ 1,382 $ 43,434
------- ------- ------ ------
------- ------- ------ ------
The following table presents information regarding
nonaccrual, past due and restructured loans as of December 31,
1996 and 1995 (dollars in thousands):
As of December 31
1996 1995
Loans accounted for on a non-accrual basis:
Number 3 3
Amount: $94 $80
Accruing loans which are contractually past
due 90 days or more as to principal and
interest payments:
Number: 2 0
Amount: $11 $0
Loans which were renegotiated to provide
a reduction or deferral of interest or principal
because of deterioration in the financial
position of the borrower:
Number: 0 0
Amount: $0 $0
Loans now current but for which there are serious
doubts as to the borrower's ability to comply with
existing terms:
Number: 4 1
Amount: $127 $66
As of December 31, 1996, there are no loans classified for
regulatory purposes as doubtful, substandard or special mention
that have not been disclosed in the above table, which (i)
represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating
results, liquidity, or capital resources, or (ii) represent
material credits about which management is aware of any
information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment
terms.
Loans are classified as non-accruing when the probability
of collection of either principal or interest becomes doubtful.
The balance classified as non-accruing represents the net
realizable value of the account, which is the most realistic
estimate of the amount the Company expects to collect in final
settlement. If the account balance exceeds the estimated net
realizable value, the excess is written off at the time this
determination is made.
At December 31, 1996, with the exception of the 3
non-accruing loans reported above, all loans were accruing interest.
There are no other loans which are not disclosed above where
known information about possible credit problems of borrowers
causes management to have serious doubts as to the ability of
such borrowers to comply with the loan repayment terms.
7. Summary of Loan Loss Experience.
An analysis of the Bank's loss experience is furnished in
the following table for the years ended December 31, 1996 and
1995, as well as a breakdown of the allowance for possible loan
losses (in thousands):
Year Ended December 31 1996 1995
Balance at beginning of period $ 923 $ 710
Charge-offs (229) (188)
Recoveries 33 23
Provision charged to Operations 473 378
----- -----
Balance at end of period $1,200 $ 923
----- -----
Ratio of allowance for loan losses
to total loans outstanding during
the period 1.94% 1.77%
----- -----
----- -----
Net charge-offs to average loans .32% .33%
----- -----
----- -----
As of
December 31, 1996, the allowance for possible losses was
allocated as follows:
<PAGE>
Percent of Loans
in Each
Category to
Amount Total Loans
Commercial, financial
and agricultural $ 870,000 70.0%
Real estate-Construction 6,000 .3%
Real estate-Mortgage 168,000 18.1%
Installment and other loans
to individuals 141,000 11.6%
Unallocated 15,398 --
--------- ------
Total $1,200,398 100.0%
--------- ------
8. Loan Loss Reserve.
In considering the adequacy of the Company's allowance for
possible loan losses, management has focused on the fact that as
of December 31, 1996, 70.0% of outstanding loans were in the
category of commercial, financial and agricultural, loans. These
loans are generally considered by management as having greater
risk than other categories of loans in the Company's loan
portfolio. However, 95.4% of the outstanding loans in this
category at December 31, 1996, were made on a secured basis, such
collateral consisting primarily of improved farmland real estate
and equipment. Management believes that the secured condition of
the preponderant portion of its commercial, financial and
agricultural loan portfolio greatly reduces any risk of loss
inherently present in these loans.
The Company's consumer loan portfolio is also secured. At
December 31, 1996, the majority of the Company's consumer loans
were secured by collateral primarily consisting of automobiles,
boats and second mortgages on real estate. Management believes
that these loans involve less risk than other categories of
loans.
Real estate mortgage loans constitute 18.1% of outstanding
loans. Management considers these loans to have minimal risk due
to the fact that these loans represent conventional residential
real estate mortgages where the amount of the original loan does
not exceed 80% of the appraised value of the collateral.
The allowance for loan losses reflects an amount which, in
management's judgment, is adequate to provide for potential loan
losses. Management's determination of the proper level of the
allowance for loan losses is based on the ongoing analysis of the
credit quality and loss potential of the portfolio, actual loan
loss experience relative to the size and characteristics of the
portfolio, changes in composition and risk characteristics of the
portfolio and anticipated impacts of national and regional
economic policies and conditions. Senior management and the
Board of Directors of the Bank review the adequacy of the
allowance for loan losses on a monthly basis.
Management considers the year-end allowance appropriate and
adequate to cover possible losses in the loan portfolio; however,
management's judgment is based upon a number of assumptions about
future events, which are believed to be reasonable, but which may
or may not prove valid. Thus, there can be no assurance that
charge-offs in future periods will not exceed the allowance for
loan losses or that additional increases in the loan loss
allowance will not be required.
9. Investments.
As of December 31, 1996, the securities portfolio comprised
approximately 9.8% of the Company's assets, while loans comprised
approximately 78.3% of the Company's assets. The Bank invests
primarily in obligations of the United States or obligations
guaranteed as to principal and interest by the United States,
other taxable securities and in certain obligations of states and
municipalities. In addition, the Bank enters into Federal Funds
transactions with its principal correspondent banks, and acts as
a net seller of such funds. The sale of Federal Funds amounts to
a short-term loan from the Bank to another bank.
The following table presents, for the years ended December
31, 1996 and 1995, the approximate market value of the Company's
investments, classified by category and by whether they are
considered available-for-sale or held-to-maturity (in thousands):
Investment Category
Available-for-Sale: December 31,
1996 1995
Obligations of U.S. Treasury
and other U.S. Agencies $5,465,945 $4,745,782
State, Municipal and County
Securities 1,734,904 1,916,304
Mortgage-Backed Securities -- 79,565
Federal Reserve Bank Stock 99,000 99,000
Federal Home Loan Bank Stock 201,000 183,300
Other Securities 100,000 100,000
--------- ---------
Total $7,600,849 $7,123,951
Held-to-Maturity:
As of December 31, 1996 and 1995, there were no securities
categorized as held-to-maturity.
The following table indicates, for the year ended December
31, 1996, the amount of investments, appropriately classified,
due in (i) one year or less, (ii) one to five years, (iii) five
to ten years, and (iv) over ten years.
<PAGE>
Investment Category
Average Weighted
Available-for-Sale: Amount Yield
Obligations of U.S. Treasury
and other
U.S. Agencies
0 to 1 year $1,000,785 5.69%
Over 1 through 5 years 4,465,160 6.07%
State, Municipal and
County Securities
0 to 1 year 637,760 6.38%
Over 1 through 5 years 845,540 6.00%
Over 5 through 10 years 251,604 6.29%
Other Securities:
0 to 1 year 100,000 4.65%
No maturity 300,000 6.67%
--------- ----
Total $7,600,849 6.05%
--------- ----
Held-to-Maturity:
As of December 31, 1996, there were no securities
categorized as held-to-maturity.
10. Return on Equity and Assets.
Returns on average consolidated assets and average
consolidated equity for the year ended December 31, 1996 and 1995
are as follows:
1996 1995
Return on average assets 1.30% 1.23%
Return on average equity 16.16% 15.79%
Equity to assets ratio 8.02% 7.82%
Dividend payout ratio 6.75% 8.09%
11. Asset/Liability Management.
It is the objective of the Bank to manage assets and
liabilities to provide a satisfactory, consistent level of
profitability within the framework of established cash, loan
investment, borrowing and capital policies. Certain of the
officers of the Bank are responsible for monitoring policies and
procedures that are designed to ensure acceptable composition of
the asset/liability mix, stability and leverage of all sources of
funds while adhering to prudent banking practices. It is the
overall philosophy of management to support asset growth
primarily through growth of core deposits of all categories made
by individuals, partnerships and corporations. Management of the
Bank seeks to invest the largest portion of the Bank's assets in
commercial, consumer and real estate loans.
The Bank's asset/liability mix is monitored on a daily
basis. A monthly report reflecting interest-sensitive assets and
interest-sensitive liabilities is prepared and presented to the
Bank's Board of Directors. The objective of this policy is to
control interest-sensitive assets and liabilities so as to
minimize the impact of substantial movements in interest rates on
the Bank's earnings.
12. Employees.
As of March 1, 1997, the Bank employed 23 full-time and 2
part-time employees, including 3 officers. The Bank will hire
additional persons as needed, including additional tellers and
financial service representatives. Management of the Bank
believes that its employee relations are good. There are no
collective bargaining agreements covering any of the Bank's
employees.
13. Supervision and Regulation.
The Company and the Bank operate in a highly regulated
environment, and their business activities are governed by
statute, regulation and administrative policies. The business
activities of the Company and the Bank are closely supervised by
a number of state and federal regulatory agencies, including the
Federal Reserve Board, the OCC, the Georgia Department and the
Federal Deposit Insurance Corporation ("FDIC").
The Company is regulated by the Federal Reserve Board under
the federal Bank Holding Company Act of 1956, as amended ("Bank
Holding Company Act"), which requires every bank holding company
to obtain the prior approval of the Federal Reserve Board before
acquiring more than 5% of the voting shares of any bank or all or
substantially all of the assets of a bank, and before merging or
consolidating with another bank holding company. The Federal
Reserve Board (pursuant to regulation and published statements)
has maintained that a bank holding company must serve as a source
of financial strength to its subsidiary banks. In adhering to
the Federal Reserve Board policy, the Company may be required to
provide financial support to a subsidiary bank at a time when,
absent such Federal Reserve Board policy, the Company may not
deem it advisable to provide such assistance. A bank holding
company is generally prohibited from acquiring control of any
company which is not a bank and from engaging in any business
other than the business of banking or managing and controlling
banks.
Pursuant to Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act"), effective
September 29, 1995, an adequately capitalized and adequately
managed bank holding company may acquire a bank across state
lines, without regard to whether such acquisition is permissible
under state law. A bank holding company is considered to be
"adequately capitalized" if it meets all applicable federal
regulatory capital standards.
While the Riegle-Neal Act precludes a state from entirely
insulating its banks from acquisition by an out-of-state holding
company, a state may still provide that a bank may not be
acquired by an out-of-state company unless the bank has been in
existence for a specified number of years, not to exceed five
years. Additionally, the Federal Reserve Board is directed not
to approve an application for the acquisition of a bank across
state lines if (i) the applicant bank holding company, including
all affiliated insured depository institutions, controls, or
after the acquisition would control, more than ten percent of the
total amount of deposits of all insured depository institutions
in the United States (the "ten percent concentration limit") or
(ii) the acquisition would result in the holding company
controlling thirty percent or more of the total deposits of
insured depository institutions in any state in which the holding
company controlled a bank or branch immediately prior to the
acquisition (the "thirty percent concentration limit"). States
may waive the thirty percent concentration limit, or may make
same more or less restrictive, so long as they do not
discriminate against out-of-state bank holding companies.
The Riegle-Neal Act also provides that, beginning on June
1, 1997, banks located in different states may merge and operate
the resulting institution as a bank with interstate branches.
However, a state may (i) prevent interstate branching through
mergers by passing a law prior to June 1, 1997 that expressly
prohibits mergers involving out-of-state banks or (ii) permit
such merger transactions prior to June 1, 1997. Under the
Riegle-Neal Act, an interstate merger transaction may involve the
acquisition of a branch of an insured bank without the
acquisition of the bank itself, but only if the law of the state
in which the branch is located permits this type of transaction.
A state may impose certain conditions on a branch of an
out-of-state bank resulting from an interstate merger so long as
such conditions do not have the effect of discriminating against
out-of-state banks or bank holding companies, other than on the
basis of a requirement of nationwide reciprocal treatment. The
ten percent concentration limit and the thirty percent
concentration limit described above, as well as the rights of the
states to modify or waive the thirty percent concentration limit,
apply to interstate bank mergers in the same manner as they apply
to the acquisition of out-of-state banks.
A bank resulting from an interstate merger transaction may
retain and operate any office that any bank involved in the
transaction was operating immediately before the transaction.
After completion of the transaction, the resulting bank may
establish or acquire additional branches at any location where
any bank involved in the transaction could have established or
acquired a branch.
The Riegle-Neal Act also provides that the appropriate
federal banking agency may approve an application by a bank to
establish and operate an interstate branch in any state that has
in effect a law that expressly permits all out-of-state banks to
establish and operate such a branch.
The Company is also regulated by the Georgia Department
under the Georgia Bank Holding Company Act, which requires every
Georgia bank holding company to obtain the prior approval of the
Georgia Department before acquiring more than 5% of the voting
shares of any bank or all or substantially all of the assets of a
bank or before merging or consolidating with any other bank
holding company. A Georgia bank holding company is generally
prohibited from acquiring ownership or control of 5% or more or
the voting shares of any bank unless the bank being acquired is
either a bank for purposes of the federal Bank Holding Company
Act, or a federal or state savings and loan association or a
savings bank or federal savings bank whose deposits are insured
by the Federal Savings and Loan Insurance Corporation and such
bank has been in existence and continuously operating as a bank
for a period of five years or more prior to the date of
application to the Georgia Department for approval of such
acquisition.
As a national bank, the Bank is subject to the supervision
of the OCC and, to a limited extent, the FDIC and the Federal
Reserve Board. With respect to expansion, national banks
situated in the State of Georgia are currently prohibited from
establishing branch offices or facilities outside of the county
in which the bank's main office is located, except (i) in
adjacent counties in certain situations, or (ii) by means of a
merger or consolidation with a bank which has been in existence
for at least five years. In addition, in the case of a merger or
consolidation, the acquiring bank must have been in existence for
at least 24 months prior to the merger. However, Georgia,
effective July 1, 1996, permits the subsidiary bank(s) of any
bank holding company then engaged in the banking business in the
State of Georgia to establish, de novo, upon receipt of required
regulatory approval, an aggregate of up to three additional
branch banks in any county within the State of Georgia.
Effective July 1, 1998, Georgia will permit, with required
regulatory approval, the establishment of de novo branches in an
unlimited number of counties within the State of Georgia by the
subsidiary bank(s) of the bank holding companies then engaged in
the banking business in the State of Georgia. This new
legislation could result in increased competition in the Bank's
market area. As a national bank, the Bank is subject to the
Georgia banking and usury laws restricting the amount of interest
which it may charge in making loans or other extensions of
credit.
Loans and extensions of credit by national banks are
subject to legal lending limitations. Under federal law, a
national bank may grant unsecured loans and extensions of credit
in an amount of up to 15% of its unimpaired capital and surplus
to any person. In addition, a national bank may grant loans and
extensions of credit to a single person in an amount up to 10% of
its unimpaired capital and surplus, provided that the
transactions are fully secured by readily marketable collateral
having a market value determined by reliable and continuously
available price quotations. This 10% limitation is separate
from, and in addition to, the 15% limitation for unsecured loans.
Loans and extensions of credit may exceed the general lending
limit if they qualify under one of several exceptions. Such
exceptions include certain loans or extensions of credit arising
from the discount of commercial or business paper, the purchase
of bankers' acceptances, loans secured by documents of title,
loans secured by U.S. obligations, and loans to or guaranteed by
the federal government.
Both the Company and the Bank are subject to regulatory
capital requirements imposed by the Federal Reserve Board and the
OCC. The capital adequacy guidelines issued by the Federal
Reserve Board are applied to bank holding companies on a
consolidated basis with the banks owned by the holding company.
The OCC's risk-based capital guidelines apply directly to
national banks regardless of whether they are a subsidiary of a
bank holding company. Under both agencies' requirements, banking
organizations must have capital (as defined in the rules)
equivalent to 8.0% of risk-weighted assets. The risk weights
assigned to assets are based primarily on credit risk. For
example, securities with an unconditional guarantee by the United
States government are assigned the lowest risk category. A risk
weight of 50% is assigned to loans secured by owner-occupied one-to-four
family residential mortgages. The aggregate amount of
assets assigned to each risk category is multiplied by the risk
weight assigned to that category to determine the weighted
values, which are added together to determine total risk-weighted
assets.
Both the Federal Reserve Board and the OCC also require the
maintenance of minimum capital leverage ratios to be used in
tandem with the risk-based guidelines in assessing the overall
capital adequacy of banks and bank holding companies. Under
these new rules, banking institutions are required to maintain a
ratio of "Tier 1" capital to total assets (net of goodwill) of
4.0%. Tier 1 capital includes common stockholders' equity,
noncumulative perpetual preferred stock, and minority interests
in the equity accounts of consolidated subsidiaries.
As of December 31, 1996, the Company maintained a total
risk-based capital ratio and "Tier 1" ratio of 12.5% and 11.2%,
respectively. See also the discussion under "Capital Adequacy"
in Item 6 below.
Both the risk-based capital guidelines and the leverage
ratio are minimum requirements, applicable only to top-rated
banking institutions. Institutions operating at or near these
levels are expected to have well diversified risk, excellent
asset quality, high liquidity, good earnings and, in general,
have to be considered strong banking organizations, rated
Composite 1 under the CAMEL rating system for banks or the BOPEC
rating system for bank holding companies. Institutions with
lower ratings and institutions with high levels of risk or
experiencing or anticipating significant growth would be expected
to maintain ratios 100 to 200 basis points above the stated
minimums.
The OCC recently amended the risk-based capital guidelines
applicable to national banks in an effort to clarify certain
questions of interpretation and implementation, specifically with
regard to the treatment of purchased mortgage servicing rights
("PMSRs") and other intangible assets. The OCC's guidelines
provide that intangible assets are generally deducted from Tier 1
capital in calculating a bank's risk-based capital ratio.
However, certain intangible assets which meet specified criteria
("qualifying intangibles") such as PMSRs are retained as a part
of Tier 1 capital. The OCC currently maintains that only PMSRs
and purchased credit card relationships meet the criteria to be
considered qualifying intangibles. The OCC's guidelines formerly
provided that the amount of such qualifying intangibles that
could be included in Tier 1 capital was strictly limited to a
maximum of 25% of total Tier 1 capital. The OCC has amended its
guidelines to increase the limitation of such qualifying
intangibles from 25% to 50% of Tier 1 capital and further to
permit the inclusion of purchased credit card relationships as a
qualifying intangible asset.
In addition, the OCC has adopted rules which clarify
treatment of asset sales with recourse not reported on a bank's
balance sheet. Among assets affected are mortgages sold with
recourse under Fannie Mae, Freddie Mac and Farmer Mac programs.
The new rules clarify that even though those transactions are
treated as asset sales for bank Call Report purposes, those
assets will still be subject to a capital charge under the
risk-based capital guidelines.
Recent releases by the OCC contain several explanatory
provisions designed to alleviate confusion over treatment of the
following issues in the risk-based guidelines: treatment of
supervisory goodwill in the definition of capital, the unused
portion of commitments, the calculation of the amount of
allowance for loan and lease losses included in Tier 2 capital,
the redemption of capital instruments, local currency claims
guaranteed by central governments which are not member countries
of the Organization for Economic Cooperation and Development
("OECD") and claims on non-OECD central banks.
The OCC, the Federal Reserve Board and the FDIC have
proposed a revision to their risk-based capital guidelines to
further ensure that those guidelines take adequate account of
interest rate risk. Interest rate risk is the adverse effect
that changes in market interest rates may have on a bank's
financial condition and is inherent to the business of banking.
The agencies have proposed two alternative methods for assessing
a bank's capital adequacy for interest rate risk. Under the
first approach, the banking agencies would establish minimum
capital standards for interest rate risk based on either a
supervisory model or the bank's internal model of measuring risk.
Institutions would be required to have capital sufficient to
cover the amount of measured exposure in excess of the threshold
level. The proposed threshold level is a decline in net economic
value equal to 1.0 percent of assets. Under the second approach,
a minimum capital requirement for interest rate risk would not be
set. Instead, examiners would consider results of quantitative
measures of interest rate risk along with other factors in
evaluating an institution's capital adequacy for interest rate
risk.
The Federal Deposit Insurance Corporation Improvement Act
of 1991 (the "Act"), enacted on December 19, 1991, provides for a
number of reforms relating to the safety and soundness of the
deposit insurance system, supervision of domestic and foreign
depository institutions and improvement of accounting standards.
One aspect of the Act involves the development of a regulatory
monitoring system requiring prompt action on the part of banking
regulators with regard to certain classes of undercapitalized
institutions. While the Act does not change any of the minimum
capital requirements, it directs each of the federal banking
agencies to issue regulations putting the monitoring plan into
effect. The Act creates five "capital categories" ("well
capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically
undercapitalized") which are defined in the Act and which will be
used to determine the severity of corrective action the
appropriate regulator may take in the event an institution
reaches a given level of undercapitalization. For example, an
institution which becomes "undercapitalized" must submit a
capital restoration plan to the appropriate regulator outlining
the steps it will take to become adequately capitalized. Upon
approving the plan, the regulator will monitor the institution's
compliance. Before a capital restoration plan will be approved,
any entity controlling a bank (i.e., holding companies) must
guarantee compliance with the plan until the institution has been
adequately capitalized for four consecutive calendar quarters.
The liability of the holding company is limited to the lesser of
five percent of the institution's total assets or the amount
which is necessary to bring the institution into compliance with
all capital standards. In addition, "undercapitalized"
institutions will be restricted from paying management fees,
dividends and other capital distributions, will be subject to
certain asset growth restrictions and will be required to obtain
prior approval from the appropriate regulator to open new
branches or expand into new lines of business.
As an institution drops to lower capital levels, the extent
of action to be taken by the appropriate regulator increases,
restricting the types of transactions in which the institution
may engage and ultimately providing for the appointment of a
receiver for certain institutions deemed to be critically
undercapitalized.
The Act also provides that banks will have to meet new
safety and soundness standards. In order to comply with the Act,
the Federal Reserve Board, the OCC and the FDIC have proposed
rules defining operational and managerial standards relating to
internal controls, loan documentation, credit underwriting,
interest rate exposure, asset growth, director and officer
compensation, asset quality, earnings and stock valuation.
Both the capital standards and the safety and soundness
standards which the Act seeks to implement are designed to
bolster and protect the deposit insurance fund.
In response to the directive issued under the Act, the
regulators have adopted regulations which, among other things,
prescribe the capital thresholds for each of the five capital
categories established under the Act. The following table
reflects these capital thresholds:
Total Risk Tier 1 Risk Tier 1
Based Capital Based Capital Leverage
Ratio Ratio Ratio
Well capitalized (1) 10% 6% 5%
Adequately capitalized(1) 8% 4% 4%(2)
Undercapitalized(3) < 8% < 4% < 4%
Significantly under-
capitalized(3) < 6% < 3% < 3%
Critically under-
capitalized < 2%
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to
appropriate federal banking agency guidelines.
(3) An institution falls into this category if it is below the
specified capital level for any of the three capital
measures.
As a national bank, the Bank is subject to examination and
review by the OCC. This examination is typically completed on-site
at least annually and is subject to off-site review as well.
The Bank submits to the OCC quarterly reports of condition, as
well as such additional reports as may be required by the
national banking laws.
As a bank holding company, the Company is required to file
with the Federal Reserve Board and the Department an annual
report of its operations at the end of each fiscal year and such
additional information as the Federal Reserve Board may require
pursuant to the Act. The Federal Reserve Board may also make
examinations of the Company and each of its subsidiaries.
14. Monetary Policies.
The results of operations of the Bank are affected by
credit policies of monetary authorities, particularly the Federal
Reserve Board. The instruments of monetary policy employed by
the Federal Reserve Board include open market operations in U.S.
Government securities, changes in the discount rate on member
bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member
banks may pay on time and savings deposits. In view of the
changing conditions in the national economy and the money
markets, as well as the effect of action by monetary and fiscal
authorities, including the Federal Reserve Board, no prediction
can be made as to possible future changes in interest rates,
deposit levels, loan demand or the business and earnings of the
Bank.
Item 2. Description of Property.
The Bank owns its main banking facility located in an
approximately 9,500 square foot building at 561 East Washington
Avenue, Ashburn, Georgia 31714. The Hudson Avenue side of the
property contains a house which has been remodeled and is used
for various activities, including banking and civic functions.
The bank invested approximately $1,141,396 in the construction of
the building, landscaping, and the purchase of security devices,
the main vault, furniture and fixtures.
Item 3. Legal Proceedings.
Neither the Company nor the Bank is a party to, nor is any
of their property the subject of any material pending legal
proceeding which is not routine litigation that is incidental to
the business or any other material legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security-holders
during the fourth quarter of the fiscal year covered by this
report.
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters.
The Registrant's articles of incorporation authorize it to
issue up to 10,000,000 shares of common stock, par value $5.00
per share. There is no established public trading market in the
stock. The Registrant sold 352,001 shares of its common stock at
a price of $10.00 per share in its initial public offering which
terminated on December 14, 1990. As of March 1, 1997, 353,417
shares of the Registrant's common stock were issued and
outstanding to 461 holders of record. The Registrant is aware of
isolated transactions which have occurred since the conclusion of
its initial offering; in the last significant such transaction,
100 shares of common stock were sold for $18.00 per share.
During the first quarter of 1996, the Company declared and
paid a dividend of $63,615, i.e., $.18 per share. During the
first quarter of 1995, the Company declared and paid a dividend
of $63,615, i.e., $.18 per share. 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.
The Bank is restricted in its ability to pay dividends
under the national banking laws and by regulations of the OCC.
Pursuant to 12 U.S.C. Section 56, a national bank may not pay
dividends from its capital. All dividends must be paid out of
net profits then on hand, after deducting losses and bad debts.
Payments of dividends out of net profits is further limited by 12
U.S.C. Section 60(a), which prohibits a bank from declaring a
dividend on its shares of common stock until its surplus equals
its stated capital, unless there has been transferred to surplus
not less than 1/10 of the Banks's net profits of the preceding
two consecutive half-year periods (in the case of an annual
dividend). Pursuant to 12 U.S.C. Section 60(b), the approval of
the OCC is required if the total of all dividends declared by
the Bank in any calendar year exceeds the total of its net
profits for that year combined with its retained net profits for
the preceding two years, less any required transfers to surplus.
Under the OCC's regulations, the allowance for loan and
lease losses will not be considered an element of either
"undivided profits then on hand" or "net profits." Further,
under the regulations, a national bank may be able to use a
portion of its capital surplus account as "undivided profits then
on hand," depending on the composition of that account. In
addition, the regulations clarify that dividends on preferred
stock are not subject to the limitations of 12 U.S.C. Section 56,
while explicitly making such dividends subject to the constraints
of 12 U.S.C. Section 60. In general, the regulations do not
diminish or impair a well-capitalized banks ability to make cash
payments to its shareholders in the form of a return of capital.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Discussion of the financial condition and results of
operations of the Company should be read in conjunction with the
Company's consolidated financial statements and related notes
which are included elsewhere herein.
Results of Operations
Year Ended December 31, 1996 Compared to Year Ended December 31,
1995
For the years ended December 31, 1996 and 1995, net income
amounted to $942,558 and $786,545 respectively. For 1996,
primary and fully diluted income per share of common stock was
$2.29; for 1995, primary and fully diluted income per share of
common stock amounted to $1.96. Note that during 1996 and 1995,
the outstanding warrants and stock options were dilutive (i.e.,
upon exercise, they diluted earnings per share by more than 3%),
thus necessitating the disclosure of primary and fully diluted
income per share. Net income in 1996 increased by $156,013
primarily due to the following reasons:
a. Average earning assets for the year ended December 31,
1996 increased from $59.9 million to $68.3 million, representing
an increase of $8.4 million, or 14.0%. Below are various
components of earning assets for the periods indicated:
December 31,
1996 1995
(in 000's)
Federal funds sold $ 2,920 $ 1,521
Securities 7,043 8,951
Net loans 58,337 49,384
------ ------
Total earning assets $68,300 $59,856
------ ------
------ ------
b. As a consequence of the increase in earning assets, the
net interest income also increased from $3,224,005 for the year
ended December 31, 1995 to $3,640,591 for the year ended December
31, 1996. Below are various components of interest income and
expense, as well as their yield/costs for the periods indicated:
Years Ended
December 31, 1996 December 31, 1995
Interest Yield Interest Yield
Income/expense Cost Income/expense Cost
Interest income:
Federal funds sold 147,314 5.05% $82,601 5.43%
Securities 399,890 6.32 527,761 6.42
Loans 6,536,735 11.21 5,590,840 11.32
Total $ 7,083,939 3.22% $ 6,201,202 11.36%
<PAGE>
Interest expense:
NOW and money market
deposit $ 309,347 3.22% $ 320,967 3.19%
Savings Deposits 39,379 3.41 40,644 3.22
Time Deposits 3,087,551 6.00 2,587,151 6.00
Borrowings 7,071 6.02 28,435 6.49
Total $ 3,443,348 8.93% $ 2,977,197 5.43%
Net interest
income $ 3,340,591 $ 3,224,005
Net yield on earning assets 5.33% 5.39%
Net Interest Income
The Company's results of operations are determined by its
ability to manage effectively interest income and expense, to
minimize loan and investment losses, to generate non-interest
income and to control non-interest expense. Since interest rates
are determined by market forces and economic conditions beyond
the control of the Company, the ability to generate net interest
income is dependent upon the Company's ability to maintain an
adequate spread between the rate earned on earning assets and the
rate paid on interest-bearing liabilities, such as deposits and
borrowings. Thus, net interest income is the key performance
measure of income.
The Company's net interest income for 1996 was $3,640,591 as
compared to $3,224,005 for 1995. Average yields on earning
assets were 10.37% and 10.36% for the years ended December 31,
1996 and 1995, respectively. The average costs of funds for 1996
increased to 5.54% from the 1995 cost of 5.43%. The net interest
yield is computed by subtracting interest expense from interest
income and dividing the resulting figure by average interest-earning assets.
Net interest yields for the years ended December
31, 1996 and 1995 amounted to 5.33% and 5.39%, respectively. The
decrease in net interest yield is primarily due to the fact that
the cost of funds in 1996 increased at a pace faster than that of
the yield on earning assets. Net interest income for 1996 as
compared to 1995, increased by $416,585. The increase is due
primarily to the growth in average earning assets from $59.9
million in 1995 to $68.3 million in 1996.
Non-Interest Income
Non-interest income for the years ended December 31, 1996
and 1995, amounted to $464,658 and $389,497, respectively. As a
percentage of average assets, non-interest income increased from
.61% in 1995 to .64% in 1996. The primary reason for the above
increase is due to both a higher transaction volume and an
increase in the fee schedule for deposit accounts.
The following table summarizes the major components of non-interest
income for the periods therein indicated:
Non-Interest Income
Year Ended December 31,
1996 1995
Service fees on deposit accounts $375,961 $305,480
(Loss) on sale of securities (2,811) (4,066)
Miscellaneous, other 91,508 88,083
------- --------
Total non-interest income $464,658 $389,497
------- --------
Non-Interest Expense
Non-interest expense increased from $1,942,408 during 1995
to $2,028,650 in 1996. As a percent of total average assets,
non-interest expense has decreased from 3.05% in 1995 to 2.79% in
1996. Below are the components of non-interest expense for the
years 1996 and 1995.
Non-Interest Expense
Year Ended December 31,
1996 1995
Salaries and other personnel benefits $ 958,920 $ 850,854
Data processing charges 82,984 74,676
Depreciation, amortization 132,722 163,120
Regulatory assessment 117,054 107,699
Other expenses 737,170 746,059
--------- ---------
Total non-interest expense $2,028,650 $1,942,408
For the year ended December 31, 1996, the allowance for loan
losses increased from $922,613 to $1,200,398. The allowance for
loan losses as a percent of gross loans increased from 1.77% at
December 31, 1995 to 1.94% at December 31, 1996. As of December
31, 1996, management considers the allowance for loan losses to
be adequate 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.
Liquidity and Interest Rate Sensitivity
Net interest income, the Company's primary source of
earnings, fluctuates with significant interest rate movements.
To lessen the impact of these margin swings, the balance sheet
should be structured so that repricing opportunities exist for
both assets and liabilities in roughly equivalent amounts at
approximately the same time intervals. Imbalances in these
repricing opportunities at any point in time constitute interest
rate sensitivity.
Interest rate sensitivity refers to the responsiveness of
interest-bearing assets and liabilities to changes in market
interest rates. The rate sensitive position, or gap, is the
difference in the volume of rate sensitive assets and
liabilities, at a given time interval. The general objective of
gap management is to manage actively rate sensitive assets and
liabilities so as to reduce the impact of interest rate
fluctuations on the net interest margin. Management generally
attempts to maintain a balance between rate sensitive assets and
liabilities as the exposure period is lengthened to minimize the
Company's overall interest rate risks. The asset mix of the
balance sheet is continually evaluated in terms of several
variables: yield, credit quality, appropriate funding sources
and liquidity. To effectively manage the liability mix of the
balance sheet focuses on expanding the various funding sources.
The interest rate sensitivity position at year-end 1996 is
presented below. Since all interest rates and yield do not
adjust at the same velocity, the gap is only a general indicator
of rate sensitivity.
months months one year years years Total
EARNING ASSETS
Loans $24,021 $ 7,046 $11,728 $17,179 $1,756 $61,730
Securities 200 1,104 434 5,311 552 7,601
Federal funds
sold 2,600 -- -- -- -- 2,600
------ ------ ------ ------ ----- ------
Total earning
assets $26,821 $8,150 $12,162 $22,490 $2,308 $71,931
------ ------ ------ ------ ----- ------
------ ------ ------ ----- ----- ------
SUPPORTING SOURCES OF FUNDS
Interest-bearing demand
deposits and
savings $11,900 $ -- $ -- $ -- $ -- $11,900
Certificates, Less
than $100M 10,998 8,693 12,097 6,420 -- 38,208
Certificates, $100M
and over 4,260 3,459 4,666 1,741 -- 14,126
Other obligations 12 3 -- -- -- 15
----- ----- ----- ----- ----- ------
Total interest-bearing
liabilities $27,170 $12,155 $16,763 $ 8,161 $ -- $64,249
------ ------ ------ ----- ----- ------
Interest rate
sensitivity gap $ (349) $(4,005) $(4,601) $14,329 $2,308 $ 7,682
Cumulative gap (349) (4,354) (8,955) 5,374 7,682 7,682
Interest rate
sensitivity gap
ratio .99 .67 .73 2.76 N.A. 1.12
Cumulative interest rate
sensitivity gap
ratio .99 .89 .84 1.08 1.12 1.12
As evidenced by the table above, the Company is liability
sensitive from zero to twelve months and asset sensitive
thereafter. In a declining interest rate environment, a
liability sensitive position (a gap ratio of less than 1.0) is
generally more advantageous since liabilities are repriced sooner
than assets. Conversely, in a rising interest rate environment,
an asset sensitive position (a gap ratio over 1.0) is generally
more advantageous, as earning assets are repriced sooner than
liabilities.
As the Company continues to grow, management will
continuously structure its rate sensitivity position to best
hedge against rapidly rising or falling interest rates. The
Bank's Asset/Liability Committee meets on a quarterly basis and
develops management's strategy for the upcoming period. Such
strategy includes anticipations of future interest rate
movements. Interest rate risk will, nonetheless, fall within
previously adopted policy parameters to contain any risk.
Liquidity represents the ability to provide steady sources
of funds for loan commitments and investment activities and to
maintain sufficient funds to cover deposit withdrawals and
payment of debt and operating obligations. These funds can be
obtained by converting assets to cash or by attracting new
deposits. The Company's primary source of liquidity comes from
its ability to maintain and increase deposits through the Bank.
Deposits grew by $11.7 million in 1996. Below are pertinent
liquidity balances and ratios for the years ended December 31,
1996 and 1995.
December, 31
1996 1995
Cash and cash equivalents $6,112,819 $3,304,059
CDS, over $100,000
to total deposits ratio 20.1% 20.7%
Loan to deposit ratio 86.4% 87.8%
Securities to total assets ratio 9.8% 11.0%
Brokered deposits - - - -
As the above balances and ratios indicate, management
believes that the Company's 1996 liquidity position is
satisfactory. Management is unaware of any 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. The Company is not aware of
any current recommendations by the regulatory authorities which,
if implemented, would have a material effect on the Company's
liquidity, capital resources or results of operations.
Capital Adequacy
There are now two primary measures of capital adequacy for
banks and bank holding companies: (i) risk-based capital
guidelines; and (ii) the leverage ratio.
The risk-based capital guidelines measure the amount of a
bank's required capital in relation to the degree of risk
perceived in its assets and its off-balance sheet items. For
example, cash and Treasury Securities are placed under a zero
percent risk category while commercial loans are placed under the
one hundred percent risk category. Banks are required to
maintain a minimum risk-based capital ratio of 8.0%, with at
least 4.0% consisting of Tier 1 capital. Under the risk-based
capital guidelines, there are two "tiers" of capital. Tier 1
capital consists of common shareholders' equity, non-cumulative
and cumulative (bank holding companies only), perpetual preferred
stock and minority interests. Goodwill is subtracted from the
total. Tier 2 capital consists of the allowance for loan losses,
hybrid capital instruments, term subordinated debt and
intermediate term preferred stock.
The second measure of capital adequacy relates to the
leverage ratio. The OCC has established a 3.0% minimum leverage
ratio requirement. Note that the leverage ratio is computed by
dividing Tier 1 capital into total assets. Banks that are not
rated CAMEL 1 by their primary regulator should maintain a
minimum leverage ratio of 3.0% plus an additional cushion of at
least 1 to 2 percent, depending upon risk profiles and other
factors.
A new rule was recently adopted by the Federal Reserve
Board, the OCC and the FDIC that adds a measure of interest rate
risk to the determination of supervisory capital adequacy. In
connection with this new rule, the agencies also proposed a
measurement process to measure interest rate risk. Under this
proposal, all items reported on the balance sheet, as well as
off-balance sheet items, would be reported according to maturity,
repricing dates and cash flow characteristics. A bank's
reporting position would be multiplied by duration-based risk
factors and weighted according to rate sensitivity. The net risk
weighted position would be used in assessing capital adequacy.
The objective of this complex proposal is to determine the
sensitivity of a bank to various rising and declining interest
rate scenarios. This proposal is under consideration by the
Federal banking regulators.
The table below illustrates the Bank's and Company's
regulatory capital ratios at December 31, 1995.
Minimum
December 31, Regulatory
Bank 1996 Requirement
Tier 1 Capital 11.1% 4.0%
Tier 2 Capital 1.3% n/a
---- ----
Total risk-based capital ratio 12.4% 8.0%
---- ----
---- ----
Leverage ratio 8.1% 3.0%
---- ----
---- ----
Company - Consolidated
Tier 1 Capital 11.2% 4.0%
Tier 2 Capital 1.3% n/a
---- ----
Total risk-based capital ratio 12.5% 8.0%
---- ----
---- ----
Leverage ratio 8.2% 3.0%
---- ----
---- ----
The above ratios indicate that the capital positions of the
Company and the Bank are sound and that the Company is well
positioned for future growth.
Accounting Matters
Statement of Financial Accounting Standard No. 107,
"Disclosures about Fair Value of Financial Instruments" ("SFAS
107") requires the disclosure on financial instruments of
estimated fair values for those assets and liabilities capable of
being so estimated. Fair value estimates are made at a specific
point in time and are based on relevant market information which
is continuously changing. For entities with less than $150
million in assets, SFAS 107 shall be effective for fiscal years
ending after December 15, 1995. The Company adopted SFAS 107.
The adoption of SFAS 107 did not have a significant impact on the
Company's consolidated financial condition or results of
operations.
Statement of Financial Accounting Standard No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value
of Financial Instruments" ("SFAS 119") requires issuers and
holders of derivative financial instruments to disclose new
information about these instruments. Derivatives are financial
instruments that derive their value from changes in a benchmark
based on stock prices, interest rates, commodity prices or some
other agreed upon base. Option contracts and forward contracts
are two basic forms of derivatives. For entities with less than
$150 million in assets, SFAS 119 shall be effective for fiscal
years ending after December 15, 1995. The Company adopted SFAS
119. The adoption of SFAS 119 did not have a material impact on
the Company's consolidated financial condition or results of
operations.
Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS 121") establishes
accounting standards for the impairment of long-lived assets and
certain identifiable intangibles, and goodwill related to those
assets. SFAS 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In performing the
review for recoverability, the entity should estimate the future
cash flows expected to results from the use of the asset and its
eventual disposition. SFAS 121 requires the above assets and
intangibles to be reported at the lower of (i) carrying amount or
(ii) fair value less selling costs. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. The Company
adopted SFAS 121.
Statement of Financial Accounting Standard No. 122,
"Accounting for Mortgage Servicing Rights", ("SFAS 122") requires
a mortgage banking enterprise to recognize rights to service
mortgage loans for others as a separate asset. A mortgage
banking enterprise that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and
sells or securities those loans with servicing rights retained
should allocate the total cost of the mortgage loans to (i) the
mortgage servicing rights and (ii) the loans (without the
mortgage servicing rights). The above allocation should be based
on the relative fair values of (i) and (ii) above, if it is
practicable to estimate those fair values. In the event one may
not estimate the above fair values, the entire cost of purchasing
or originating the loans should be allocated to the loans and no
cost should be allocated to the mortgage servicing rights. The
provisions of SFAS 122 shall be applied prospectively in fiscal
years beginning after December 15, 1995. The Company adopted
SFAS 122.
Accounting Matters
Statement of Financial Accounting Standard No. 107,
"Disclosures about Fair Value of Financial Instruments" ("SFAS
107") requires the disclosure on financial instruments of
estimated fair values for those assets and liabilities capable of
being so estimated. Fair value estimates are made at a specific
point in time and are based on relevant market information which
is continuously changing. For entities with less than $150
million in assets, SFAS 107 shall be effective for fiscal years
ending after December 15, 1995. The Company adopted SFAS 107.
The adoption of SFAS 107 did not have a significant impact on the
Company's consolidated financial condition or results of
operations.
Statement of Financial Accounting Standard No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value
of Financial Instruments" ("SFAS 119") requires issuers and
holders of derivative financial instruments to disclose new
information about these instruments. Derivatives are financial
instruments that derive their value from changes in a benchmark
based on stock prices, interest rates, commodity prices or some
other agreed upon base. Option contracts and forward contracts
are two basic forms of derivatives. For entities with less than
$150 million in assets, SFAS 119 shall be effective for fiscal
years ending after December 15, 1995. The Company adopted SFAS
119. The adoption of SFAS 119 did not have a material impact on
the Company's consolidated financial condition or results of
operations.
Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121") establishes
accounting standards for the impairment of long-lived assets and
certain identifiable intangibles, and goodwill related to those
assets. SFAS 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In performing the
review for recoverability, the entity should estimate the future
cash flows expected to results from the use of the asset and its
eventual disposition. SFAS 121 requires the above assets and
intangibles to be reported at the lower of (i) carrying amount or
(ii) fair value less selling costs. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. As of December
31, 1995, the Company had not adopted SFAS 121.
Statement of Financial Accounting Standard No. 122,
"Accounting for Mortgage Servicing Rights", ("SFAS 122") requires
a mortgage banking enterprise to recognize rights to service
mortgage loans for others as a separate asset. A mortgage
banking enterprise that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and
sells or securities those loans with servicing rights retained
should allocate the total cost of the mortgage loans to (i) the
mortgage servicing rights and (ii) the loans (without the
mortgage servicing rights). The above allocation should be based
on the relative fair values of (i) and (ii) above, if it is
practicable to estimate those fair values. In the event one may
not estimate the above fair values, the entire cost of purchasing
or originating the loans should be allocated to the loans and no
cost should be allocated to the mortgage servicing rights. The
provisions of SFAS 122 shall be applied
prospectively in fiscal years beginning after December 15, 1995.
As of December 31, 1996, the Company had not adopted SFAS 122.
Item 7. Financial Statements and Supplementary Data.
The following financial statements are contained in
this Item 7:
Independent Auditors' Report
Consolidated Balance Sheets-as of December 31, 1996
and 1995
Consolidated Statements of Income-for the years ended
December 31, 1996 and 1995
Consolidated Statement of Changes in Stockholders'
Equity-for the years ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows-for the years
ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
CONSOLIDATED FINANCIAL STATEMENTS
for the years ended
December 31, 1996 and 1995
TABLE OF CONTENTS
Page
REPORT OF INDEPENDENT ACCOUNTANTS 39
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 40
Consolidated Statements of Income 41
Consolidated Statements of Changes
in Shareholders' Equity 42
Consolidated Statements of Cash Flows 43
Notes to Consolidated Financial
Statements 44
Report of Independent Accountants
Board of Directors
Community National Bancorporation
Ashburn, Georgia
We have audited the accompanying consolidated balance
sheets of Community National Bancorporation (the "Company") and
subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders'
equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Community National
Bancorporation and subsidiary at December 31, 1996 and 1995, and
the results of their consolidated operations and their cash flows
for the years then ended in conformity with generally accepted
accounting principles.
/s/ FRANCIS & CO., CPAs
Atlanta, Georgia
March 2, 1997
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
ASSETS
December 31,
1996 1995
Cash and due from banks $ 3,512,819 $ 2,054,059
Federal funds sold, net
(Note 3) 2,600,000 1,250,000
--------- ----------
Total cash and cash
equivalents $ 6,112,819 $ 3,304,059
Securities: (Notes 2 & 4)
Available-for-sale at
fair value 7,600,849 7,123,951
Loans, net (includes loans of
$1,579,651 (1996) and
$2,193,261 (1995)
to insiders) (Notes
2, 5, 6 & 14) 60,529,687 51,273,868
Property and equipment,
net (Notes 2 & 7) 1,017,210 1,090,001
Other assets 1,995,364 1,701,443
--------- ----------
Total Assets $77,255,929 $64,493,322
--------- ----------
--------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing
deposits $ 5,859,192 $ 3,998,070
Interest 64,234,336 54,421,891
---------- ----------
Total deposits
(Note (9) $70,093,528 $58,419,961
Obligation under capital
lease (Note 13) 15,186 67,330
Other liabilities 891,938 596,943
---------- ----------
Total Liabilities $71,000,652 $59,084,234
---------- ----------
---------- ----------
Commitments and
contingencies (Note 8)
Shareholders' Equity: (Notes 1,
14 & 17) Common stock,
$5.00 par value, 10,000,000
shares authorized, 353,417
shares issued and
outstanding at December
31, 1996 and 1995 $ 1,767,085 $1,767,085
Paid-in-capital 1,712,903 1,712,903
Retained earnings 2,783,964 1,905,021
Unrealized gain (loss) on
securities, net (8,675) 24,079
----------- ---------
Total Shareholders' Equity $ 6,255,277 $ 5,409,088
---------- ---------
Total Liabilities and
Shareholders' Equity $77,255,929 $64,493,322
---------- ----------
---------- ----------
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Income
Years Ended December 31,
1996 1995
Interest income:
Interest and fees on
loans $ 6,536,735 $ 5,590,840
Interest on investment
securities 399,890 527,761
Interest on federal
funds sold 147,314 82,601
-------- ---------
Total interest income $ 7,083,939 $ 6,201,202
Interest expense:
Interest on deposits and
borrowings (Note 10) 3,443,348 2,977,197
--------- ----------
Net interest income 3,640,591 3,224,005
Provision for possible
loan losses (Note 6) 473,000 378,000
--------- ----------
Net interest income after
provision for possible
loan losses 3,167,591 2,846,005
--------- ----------
Other income:
Gain/(loss) on sale of
securities (Note 4) $ (2,811) $ (4,066)
Service fees on deposit
accounts 375,961 305,480
Miscellaneous, other 91,508 88,083
-------- ----------
Total other income $464,658 $ 389,497
-------- ----------
Other expenses:
Salaries and benefits $ 958,720 $ 850,854
Data processing expense 82,984 74,676
Regulatory fees and
assessments 117,054 107,699
Depreciation and
amortization 132,722 163,120
Other operating expenses
(Note 11) 737,170 746,059
---------- ---------
Total other expenses $ 2,028,650 $ 1,942,408
---------- ---------
<PAGE>
Income (loss) before
income tax $ 1,603,599 $ 1,293,094
Income tax
(Notes 2 & 12) 661,041 506,549
--------- ---------
Net income $ 942,558 $ 786,545
--------- ---------
--------- ---------
Primary net income per
common share (Note 2) $ 2.29 $ 1.96
--------- ---------
Fully diluted net income
per common share
(Note 2) $ 2.29 $ 1.96
--------- ---------
--------- ---------
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1996 and 1995
Number Retained Unrealized Total
of Common Paid-in- Earnings Loss on Shareholders'
Shares Stock Capital (Deficit) Securities Equity
Balance,
December 31,
1994 353,417 $1,767,085 $1,712,903 $1,182,091 $(172,232) $4,489,847
------- --------- --------- --------- -------- ---------
Dividends paid -- -- -- (63,615) -- (63,615)
Net income, 1995 -- -- -- 786,545 -- 786,545
Unrealized (loss)
on securities -- -- -- -- 196,311 106,311
Balance,
December 31,
1995 353,417 $1,767,085 $1,712,903 $1,905,021 $ 24,079 $5,409,088
------- --------- --------- --------- -------- --------
Dividends
paid -- -- -- (63,615) -- (63,615)
Net income,
1996 -- -- -- 942,558 -- 942,558
Unrealized (loss)
on securities -- -- -- -- (32,754) (32,754)
------ --------- --------- ------- -------- --------
Balance,
December 31,
1996 353,417 $1,767,085 $1,712,903 $2,783,964 $ (8,675)$6,255,277
------- ---------- ---------- ---------- -------- ---------
------- --------- --------- ---------- ------- -------
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Cash Flows
Years
Ended
December
31,
1996
1995
Cash flows from operating
activities:
Net income $ 942,558 $ 786,545
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 132,722 163,120
Net amortization of premiums
on securities 12,121 (430)
Loss on sale or settlements
of securities 2,811 4,066
Provisions for loan losses 473,000 378,000
(Increase) in other assets (293,921) (125,283)
Increase in liabilities 294,995 (20,659)
Net cash provided by operating
activities $ 1,564,286$ 1,185,359
Cash flows from investing activities:
Proceeds from sales and
paydowns of investment
securities $ 2,740,796$ 4,817,692
Proceeds from maturities
of investment securities 1,303,466 1,685,000
Purchase of investment
securities (4,568,846) (1,937,097)
Net increase in loans (9,728,819)(10,085,544)
Purchase of property and
equipment (59,931) (74,562)
----------- ------------
Net cash used in investing
activities $(10,313,334)$ (5,594,511)
-----------------------
Cash flows from financing activities:
Payment of dividends $ (63,615) $ (63,615)
(Decrease) in lease
obligations (52,144) (78,258)
Increase in customer
deposits 11,673,567 2,471,581
----------- -----------
Net cash provided from
financing activities $ 11,557,808$ 2,329,708
Net increase in cash and
cash equivalents $ 2,808,760 $ (2,079,444)
Cash and cash equivalents,
beginning of year 3,304,059 5,383,503
----------- ------------
Cash and cash equivalents,
end of year $ 6,112,819 $ 3,304,059
----------- ------------
----------- ------------
Supplemental Information:
Income taxes paid $ 595,747 $ 480,463
------------ ----------
------------ ----------
Interest paid $ 3,422,661 $ 2,842,549
------------ ----------
------------- ---------
Refer to notes to the consolidated financial statements.
Note 1 - 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 by and is
currently regulated by the Office of the Comptroller of the
Currency and its deposits are each insured up to $100,000 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). The Company has no other
subsidiaries.
Note 2 - 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 earned and 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.
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.
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.
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.
Primary earnings per share are calculated using the average
price of a share of common stock during the corresponding
calendar year, while fully diluted earnings per share are
calculated using the corresponding year-end price per share of
common stock.
1996 1995
Primary earnings per share $2.29 $1.96
----- ------
----- ------
Fully diluted earnings per share $2.29 $1.96
----- ------
----- ------
Weighted average number of common
stock and common stock equivalents 410,721 403,708
------- ------
------- ------
Note 3 - Federal Funds Sold
The Bank is required to maintain legal cash reserves
computed by applying prescribed percentages to its various types
of deposits. When the Bank's cash reserves are in excess of the
required amount, the Bank may lend the excess to other banks on a
daily basis. At December 31, 1996 and 1995, the Bank sold
$2,600,000 and $1,250,000, respectively, to other banks through
the federal funds market.<PAGE>
Note 4 - Securities Available-for-Sale
The amortized costs and estimated market values of
securities available-for-sale as of December 31, 1996 follow:
Gross Estimated
Amortized Unrealized Market
Description Costs Gains Losses Values
U.S. Agency
securities $5,505,952 $ 1,943 $ (41,950) $5,465,945
FRB stock 99,000 - - - - 99,000
FHLB stock 201,000 - - - - 201,000
Municipal
securities 1,708,040 26,864 - - 1,734,904
CDS at other banks 100,000 - - - - 100,000
--------- ------- ------ ---------
Total securities $ 7,613,992 $28,807 $ (41,950) $7,600,849
--------- ------- ------- ---------
--------- ------- ------- ---------
The amortized costs and estimated market values of
securities available-for-sale as of December 31, 1995 follow:
Gross Estimated
Amortized Unrealized Market
Description Costs Gains Losses Values
U.S. Treasury
securities $ 992,638 $ 1,108 $ (1,246) $ 992,500
U.S. Agency
securities 3,749,829 9,684 (6,230) 3,753,283
FRB stock 99,000 - - - - 99,000
FHLB stock 183,300 - - - - 183,300
Municipal
securities 1,884,195 32,108 - - 1,916,303
Mortgage backed
securities 78,505 1,060 - - 79,565
CDS at other banks 100,000 - - - - 100,000
Total securities $ 7,087,467 $43,960 $ (7,476) $7,123,951
--------- ------- ------ ---------
--------- ------- ------ ---------
The amortized costs and estimated market values of
securities available-for-sale at December 31, 1996, by
contractual maturity, are shown in the following chart.
Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Estimated
Amortized Market
Costs Values
Due in one year or less $ 1,735,883 $ 1,738,545
Due after one
through five years 5,338,109 5,310,700
Due after five
through ten years 240,000 251,604
FRB stock (no maturity) 99,000 99,000
FHLB stock (no maturity) 201,000 201,000
--------- --------
Total investment securities $ 7,613,992 $ 7,600,849
--------- ---------
--------- ---------
Proceeds from sales of securities during 1996 were
$2,740,796. Net losses of $2,811 were realized on those sales.
Proceeds from sales of securities during 1995 were $4,817,692.
Net losses of $4,066 were realized on those sales.
As of December 31, 1996, an aggregate amount of $2,110,000,
consisting of total or portions of five securities, were pledged
as collateral for public funds deposits aggregating $2,226,302.
As of December 31, 1995, an aggregate amount of $1,650,483,
consisting of total or portions of nine securities, were pledged
as collateral for public funds deposits aggregating $2,081,787.
Note 5 - Loans
The composition of net loans by major loan category, as of
December 31, 1996 and 1995, follows:
December 31,
1996 1995
Commercial, financial,
agricultural $43,230,547 $33,716,669
Real estate - construction 202,844 688,037
Real estate - mortgage 11,149,943 8,136,175
Installment 7,146,751 9,655,600
---------- ---------
Loans, gross $61,730,085 $52,196,481
Deduct:
Allowance for loan losses (1,200,398) (922,613)
----------- ----------
Loans, net $60,529,687 $51,273,868
----------- ----------
----------- ----------
As of December 31, 1996, loans in the amount of $93,505 were
on non-accrual status. If interest had been accrued on those
loans, interest income would have increased by $6,400 or $.02 per
share. As of December 31, 1995, loans in the amount of $80,178
were on non-accrual status. If interest had been accrued on
those loans, interest income would have increased by $2,808 or
$.01 per share.
Note 6 - Allowance for Possible Loan Losses
The allowance for possible loan losses is a valuation
reserve available to absorb future loan charge-offs. The
allowance is increased by provisions charged to operating
expenses and by recoveries of loans which were previously
written-off. The allowance is decreased by the aggregate loan
balances, if any, which were deemed uncollectible during the
year.
Activity within the allowance for loan losses account for
the years ended December 31, 1996 and 1995 follows:
Year ended December 31,
1996 1995
Balance, beginning of year $ 922,613 $ 709,721
Add: Provision for loan losses 473,000 378,000
Add: Recoveries of previously
charged off amounts 33,744 22,568
--------- ---------
Total $1,429,357 $1,110,289
Deduct: Amount charged-off (228,959) (187,676)
--------- ---------
Balance, end of year $1,200,398 $ 922,613
--------- ---------
--------- ---------
Note 7 - Property and Equipment
Building, furniture, equipment, land and land improvements
are stated at cost less accumulated depreciation. Components of
property and equipment included in the consolidated balance
sheets at December 31, 1996 and 1995 follow:
December 31,
1996 1995
Land $ 61,168 $ 61,168
Land improvements 43,111 43,111
Building 939,338 938,977
Furniture and equipment 718,476 680,498
--------- ---------
Total fixed assets $1,762,093 $1,723,754
Deduct:
Accumulated depreciation (744,883) (633,753)
--------- ---------
Total fixed assets, net $1,017,210 $1,090,001
--------- ---------
--------- ---------
Included in furniture and equipment are assets costing
$400,881 which are leased under two separate capital lease
arrangements. Please refer to Note 13 for additional information
concerning the capital leases.
Depreciation expense for the years ended December 31, 1996
and 1995 amounted to $132,722 and $151,473, respectively.
Depreciation is charged to operations over the estimated useful
lives of the assets. The estimated useful lives and methods of
depreciation for the principal items follow:
Type of Asset Life in Years Depreciation Method
Land improvements 2 Straight-line
Furniture and equipment 1 to 7 Straight-line
Building 32 Straight-line
Note 8 - Commitments and Contingencies
Please refer to Note 14 concerning warrants and options
earned by directors and executive officers.
Please refer to Note 13 for the discussion concerning the
lease of the Bank's equipment.
Please refer to Note 15 concerning financial instruments
with off-balance sheet risk.
Note 9 - Deposits
The following details deposit accounts at December 31, 1996
and 1995:
December 31,
1996 1995
Non-interest bearing deposits $ 5,859,192 $ 3,998,070
Interest bearing deposits:
NOW accounts 6,383,195 4,836,437
Money market accounts 4,362,343 4,163,251
Savings 1,154,747 1,175,364
Time, less than $100,000 38,207,715 32,149,278
Time, $100,000 and over 14,126,336 12,097,561
---------- -----------
Total deposits $70,093,528 $58,419,961
---------- -----------
---------- -----------
Note 10 - Interest on Deposits and Borrowings
A summary of interest expense for the years ended December
31, 1996 and 1995 follows:
December 31,
1996 1995
Interest on NOW and Super
NOW accounts $164,863 $166,959
Interest on money market accounts 144,484 154,008
Interest on savings accounts 39,379 40,644
Interest on CDS under $100,000 2,235,709 1,836,134
Interest on CDS $100,000 and over 851,842 751,017
Interest on federal funds purchased 1,939 20,784
Interest, other borrowings 5,132 7,651
--------- ---------
Total interest on deposits and
borrowings $3,443,348 $2,977,197
--------- ---------
--------- ---------
Note 11 - Other Operating Expenses
A summary of other operating expenses for the years ended
December 31, 1996 and 1995 follows:
December 31,
1996 1995
Stationary and supplies $ 50,802 $ 48,942
Professional fees 139,759 110,818
Courier & Postage 38,540 37,413
Advertising & business
development 67,903 73,696
Repairs and maintenance 90,715 63,835
Utilities and telephone 47,301 42,542
Directors' fees 69,550 64,850
Taxes and licenses 54,515 128,544
Write-down on OREO property 40,000 50,000
All other operating expenses 138,085 125,419
------- -------
Total other operating
expenses $737,170 $746,059
------- --------
------- --------
Note 12 - Income Taxes
As of December 31, 1996 and 1995, the Company's provision for
income taxes consisted of the following:
December 31,
1996 1995
Current $ 554,816 $ 421,348
Deferred 106,225 85,201
------- -------
Federal income tax expense $ 661,041 $ 506,549
------- -------
Deferred income taxes consist of the following:
1996 1995
Provision for loan losses $ 94,447 $ 72,383
Other real estate 13,600 17,000
Other (1,822) (4,182)
------- -------
Total $ 106,225 $ 85,201
------- -------
The Company's provision for income taxes differs from the amounts
computed by applying the federal income tax statutory rates to
income before income taxes.
A reconciliation of federal statutory income taxes to the
Company's actual income tax provision follows:
Year ended December 31,
1996 1995
Income taxes at statutory rate $578,611 $389,785
Tax-free investments (34,007) 33,266
Tax deferrals 106,225 85,201
Other 10,212 (1,703)
------- -------
Total $661,041 $506,549
------- -------
------- -------
Included under other assets at December 31, 1996 is a net
deferred tax asset in the amount of $55,336. The tax effects of
the temporary differences that comprise the net deferred tax
asset follow:
Deferred tax assets:
Allowance for loan losses $ 362,865
Other real estate write-down 30,600
Unrealized loss, securities 4,469
Deferred liability, depreciation (1,822)
Valuation reserve (340,776)
----------
Net deferred tax asset $ 55,336
----------
----------
Note 13 - Capital Leases
The Bank leases equipment (under two separate agreements)
that is used in the ordinary course of business for operational
needs. The leased equipment is a component of property and
equipment on the consolidated balance sheets, and its cost is
capitalized. Costs for leased equipment amounting to $247,897
and $152,984 were incurred during 1992 and 1991, respectively.
The lease entered into during 1991 was paid in full during 1996.
The lease entered into during 1992 has a remaining obligation of
$13,911 at December 31, 1996.
Total payments during 1996 and 1995 under the two leases
aggregated $58,426 and $87,897, respectively.
Note 14 - Related Party Transactions
Stock Warrants and Options. In consideration of the
directors' financial risks and efforts in organizing the Company
and the Bank, each director was offered the opportunity to
purchase investment units consisting of one share of the
Company's common stock and a warrant to purchase one share of the
Company's common stock. Each warrant entitles its holder to
purchase the Company's common stock at a price of $10.00 per
share at any time during the warrants' term of ten years. There
were 97,750 units sold to organizers during the Company's initial
offering, and as of December 31, 1996 and 1995, there were 96,334
outstanding warrants.
Additionally, as of December 31, 1996, the president and
executive vice president each had earned options to purchase
14,080 and 10,560 shares of the Company's common stock,
respectively. The options are exercisable at $10.00 per share
and mature at the end of seven years from the date of grant.
Borrowings and Deposits by Directors and Executive Officers.
Certain directors, executive officers and companies with which
they are affiliated, are customers of and have banking
transactions with the Bank in the ordinary course of business.
As of December 31, 1996 and 1995, loans outstanding to directors,
their related interests and executive officers aggregated
$1,579,651 and $2,193,261, respectively. These loans were made
on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable arms-length
transactions.
A summary of loan transactions with directors, including
their affiliates, and executive officers during 1996 and 1995
follows:
1996 1995
Balance, beginning of year $ 2,193,261 $ 2,355,803
New loans 1,226,144 2,135,096
Less: loan payments (1,839,754) (2,297,638)
--------- --------
Balance, end of year $ 1,579,651 $ 2,193,261
--------- --------
--------- --------
Deposits by
directors and their related interests, at December 31, 1996 and
1995, approximated $2,699,257 and $1,843,997, respectively.
Total directors'
fees aggregated $69,550 in 1996 and $64,850 in 1995.
Note 15 - Financial Instruments with Off-Balance Sheet Risk
In the ordinary course of business, and to meet the
financing needs of its customers, the Company is a party to
various financial instruments with off-balance sheet risk. These
financial instruments, which include commitments to extend credit
and standby letters of credit, involve, to varying degrees,
elements of credit and interest rate risk in excess of the
amounts recognized in the balance sheets. The contract amount of
those instruments reflects the extent of involvement the Company
has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is
represented by the contractual amounts of those instruments. The
Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet
instruments.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any material
condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may
require the payment of a fee. At December 31, 1996 and 1995,
unfunded commitments to extend credit were $5,017,054 and
$3,709,000, respectively. The Company evaluates each customer's
credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation
of the borrower. Collateral varies but may include accounts
receivable, inventory, property, plant and equipment, farm
products, livestock and income producing commercial properties.
At December 31, 1996 and 1995, commitments under letters of
credit aggregated approximately $430,823 and $269,700,
respectively. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. Collateral varies but may include
accounts receivable, inventory, equipment, marketable securities
and property. Since most of the letters of credit are expected
to expire without being drawn upon, they do not necessarily
represent future cash requirements.
The Company makes commercial, agricultural, real estate and
consumer loans to individuals and businesses located in and
around Turner County, Georgia. The Company does not have a
significant concentration of credit risk with any individual
borrower. However, a substantial portion of the Company's loan
portfolio is collateralized by real estate (mainly farmland)
located in and around Turner County, Georgia.
Note 16 - Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments" ("SFAS
107"), requires the disclosure of estimated fair values for all
financial instruments, both on-and-off balance sheet assets and
liabilities, whose values may be practically estimated, along
with pertinent information on those financial instruments whose
values may not be so estimated.
Fair value estimates are made at a specific point in time
and are based on relevant market information which is
continuously changing. Because no quoted market prices exist for
a significant portion of the Company's financial instruments,
fair values for such instruments are based on management's
assumptions with respect to future economic conditions, estimated
discount rates, estimates of the amount and timing of future cash
flows, expected loss experience and other factors. These
estimates are subjective in nature involving uncertainties and
matters of significant judgment. Therefore, they cannot be
determined with precision. Note that changes in the assumption
could significantly affect the estimates. The following
disclosures should not be considered a substitute for the
liquidation value of the Company and its subsidiaries, but rather
a good-faith estimate of the increase or decrease in value of
financial instruments held by the Company since purchase,
origination or issuance. The Company has not undertaken any
steps to value any assets or liabilities that are not considered
financial instruments. For example, premises, equipment, core
deposits, intangibles and goodwill are not considered financial
instruments.
The following methods and assumptions were used by the
Company in estimating the fair value of its financial
instruments.
1. Cash and due from banks and interest bearing deposits
with other banks: Fair value equals the carrying value of such
assets.
2. Investment securities and investment securities
available-for-sale: Fair values for investment securities are
based on quoted market prices.
3. Federal funds sold and securities purchased under
agreements to resell: Due to the short term nature of these
assets, the carrying values of these assets approximate their
fair value.
4. Loans: For variable rate loans, (those repricing within
six months or less) fair values are based on carrying values.
Fixed rate commercial loans, other installment loans and certain
real estate mortgage loans were valued using discounted cash
flows. The discount rate used to determine the present value of
these loans was based on interest rates currently being charged
by the Company on comparable loans as to credit risk and term.
5. Off-balance sheet instruments: The Company's loan
commitments are negotiated at current market rates and are
relatively short-term in nature and, as a matter of policy, the
Company generally makes commitments for fixed rate loans for
relatively short periods of time. Therefore, the estimated value
of the Company's loan commitment approximates the carrying
amount.
6. Deposit liabilities: The fair values of demand deposits
are, as required by SFAS 107, equal to the carrying value of such
deposits. Demand deposits include non-interest bearing deposits,
savings accounts, NOW accounts and money market demand accounts.
Discounted cash flows have been used to value fixed rate
term deposits and variable rate term deposits having reached an
interest rate floor. The discount rate used is based on interest
rates currently being offered by the Company on comparable
deposits as to amount and term.
7. Short-term borrowings: The carrying value of federal
funds purchased, securities sold under agreements to repurchase
and other short-term borrowings approximates their carrying
values.
8. FHLB and other borrowings: The fair value of the
Company's fixed rate borrowings are estimated using discounted
cash flows, based on the Company's current incremental borrowing
rates or similar types of borrowing arrangements. The carrying
amount of the Company's variable rate borrowings approximates
their fair values.
At December 31, 1996
Carrying Estimated
Amount Fair Value
Assets:
Cash and due from banks $ 3,512,819 $ 3,512,819
Investment securities
available-for-sale 7,600,849 7,600,849
Federal funds sold and
securities purchased
under agreements to resell 2,600,000 2,600,000
Loans 60,529,687 60,541,011
Liabilities:
Non-interest
bearing deposits 5,859,192 5,859,192
Interest bearing deposits 64,234,336 64,077,185
Note 17 - Dividends
Dividends are paid by the Company from its assets, which are
provided mainly by dividends up-streamed from the Bank. Certain
regulatory restrictions exist, however, regarding the ability of
the Bank to transfer funds to the Company in the form of cash
dividends, loans or advances. For each of the years ended
December 31, 1996 and 1995, dividends amounted to $.18 per share,
or $63,615 per year.
Note 18 - Parent Company Financial Information
This information should be read in conjunction with the
other notes to the consolidated financial statements.
Parent Company Balance Sheets
December 31,
Assets: 1996 1995
Cash $ 14,051 $ - -
Accounts receivable 36,258 467
Investment in CDS 100,000 100,000
Investment in the Bank 6,191,236 5,322,343
Other assets - - 52,247
--------- ---------
Total Assets $6,341,545 $5,475,057
--------- ---------
--------- ---------
Liabilities and Shareholders' Equity:
Income taxes payable $ 79,268 $ 51,242
Other liabilities 7,000 14,727
--------- ---------
Total Liabilities $ 86,268 $ 65,969
--------- ---------
Common stock $1,767,085 $1,767,085
Paid-in-capital 1,712,903 1,712,903
Retained earnings 2,783,964 1,905,021
Unrealized gain (loss) on securities (8,675) 24,079
--------- ---------
Total Capital $6,255,277 $5,409,088
--------- ---------
Total Liabilities and Capital $6,341,545 $5,475,057
--------- ---------
--------- ---------
Parent Company Statements of Income
Years Ended December 31,
1996 1995
Revenues:
Interest income $ 4,647 $ 5,677
Dividends from Bank 65,000 40,000
------- -------
Total revenues $ 69,647 $ 45,677
------- -------
Expenses:
Professional fees $ 27,920 $ 41,963
Amortization of
organization costs - - 2,128
Other expenses 4,855 11,468
------- -------
Total expenses $ 32,775 $ 55,559
------- -------
Income/(loss) before taxes and
equity in undistributed
earnings of Bank 36,872 (9,882)
Tax (benefit) (4,039) - -
------- -------
Income/(loss) before
equity in undistributed
earnings of Bank $ 40,911 $ (9,882)
Equity in undistributed
earnings of Bank 901,647 796,427
------- -------
Net Income $942,558 $786,545
------- -------
------- -------
Parent Company Statements of Cash Flows
Years Ended December 31,
1996 1995
Cash flows from operating activities:
Net income $ 942,558 $ 786,545
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed
earnings of the Bank (901,647) (796,427)
Amortization of organization costs - - 2,128
Decrease in receivables
and other assets 16,456 2,847
Increase in payables 20,299 38,331
-------- --------
Net cash provided
by operating activities $ 77,666 $ 33,424
-------- --------
Cash flows from financing activities:
Payment of cash dividends $ (63,615) $ (63,615)
-------- --------
Net cash provided
from financing activities $ (63,615) $ (63,615)
-------- --------
Net increase in cash
and cash equivalents $ 14,051 $ (30,191)
Cash and cash equivalents,
beginning of year - - 30,191
-------- --------
Cash and cash equivalents, end of year $ 14,051 $ - -
-------- --------
-------- --------
Note 19 - Subsequent Events
Subsequent to December 31, 1996, and prior to the date of
this report, the Company declared a dividend of $.28 per share
for each share of its common stock outstanding. Any declaration
of future dividends is within the Board of Directors' discretion
and will depend, among other things, on general business
conditions, the banking industry, the Company's earnings and
capital needs and any applicable regulatory requirements.
Item 8. Changes in and Disagreements With Accountants and
Financial Disclosure.
The Registrant did not change accountants in 1996 and
continues to use the independent accounting firm of Francis &
Company, CPAs.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act.
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides biographical information for
each director and executive officer of the Registrant. Board
members are elected for a one-year term and serve until their
successors are elected and qualified. Except as otherwise
indicated, each individual has been or was engaged in his/her
present or last principal occupation, in the same or a similar
position, for more than five years.
Name Age Position with Company and Bank and
Principal Occupation
T. Brinson
Brock, Sr. 40 Mr. Brock has been Vice President and
Secretary of the Company since
November 1989 and a director of the
Company since August 1989, and
Executive Vice President, Secretary
and a director of the Bank since
August 1990. Mr. Brock is in charge
of the Bank's lending, business and
professional development activities.
Mr. Brock began his banking career in
1978 with Cordele Banking Company in
Cordele, Georgia. In 1984 he joined
Ashburn Bank as Vice President and
was promoted to Senior Vice President
in charge of lending in 1987. Mr
Brock raises beef cattle and is Vice
President of the Turner County
Cattleman's Association. Mr. Brock
also serves as Vice Chairman of the
Georgia Banker's Agricultural
Committee.
Willis R.
Collins 51 Mr. Collins has been a director of
the Company since August 1989 and of
the Bank since August 1990. Mr.
Collins served as a Commissioner of
Turner County, Georgia from 1986 to
1993. He organized Cotton Warehouse,
Inc. in 1988 and is a partner and
manager of Arabi Gin Company.
Gene Stallings
Crawford 68 Mr. Crawford has been a director of
the Company since August 1989 and of
the Bank since August 1990. For over
forty years Mr. Crawford has been
active in developing Crawford Cattle
Company, a beef and feeder cattle
production business.
Benny Warren
Denham 66 Mr. Denham has been a director of the
Company since August 1989 and of the
Bank since August 1990. Mr. Denham
is a co-owner of Denham Farms and has
operated this farming business since
1951. Mr. Denham has been a director
of Oglethorpe Power Company since
1988. Mr. Denham served as a
Commissioner of Turner County,
Georgia from 1980 to 1990.
Lloyd Greer
Ewing 51 Mr. Ewing has been a director of the
Company since August 1989 and of the
Bank since August 1990. Mr. Ewing
joined Ewing Buick, Pontiac, GMC
Trucks, Inc. in sales in 1973 and has
held various positions in the
company. He is now its President and
General Manager. Mr. Ewing is a
former member of the Board of
Directors at First Federal Savings
Bank of Turner County.
Ava Lovett 52 Ms. Lovett has been Vice President
and Cashier of the Bank since May
1990. Previously, Ms. Lovett served
in various management functions at
several other Georgia banks. Ms.
Lovett also served for four years as
a financial examiner with the Georgia
Department of Banking and Finance,
Atlanta, Georgia (District Office,
Douglas, Georgia). She performed
safety and soundness examinations of
state chartered banks, credit unions
and bank holding companies. Her
responsibilities included examiner-in-charge duties,
credit analysis and
detail (audit) functions.
Grady Elmer
Moore 62 Mr. Moore has been a director of the
Company since August 1989 and of the
Bank since August 1990. Mr. Moore
runs a row crop operation, G.M.
Farms, Inc., which he has pursued for
the past thirty-five years.
Sara Ruth
Raines 50 Mrs. Raines has been a director of
the Company since August 1989 and of
the Bank since August 1990. Until
recently, Mrs. Raines operated a
department (clothing) store in
Ashburn. Mrs. Raines is the
President of Raines Investment Group,
Inc., which is a franchisee of
Aaron's Rental Purchase Stores.
Theron G. Reed 54 Mr. Reed has been President, Chief
Executive Officer and Treasurer of
the Company since November 1989 and a
director of the Company since
November 1989 and President, Chief
Executive Officer and a director of
the Bank since August 1990. Mr. Reed
was employed by the Ashburn Bank from
1965 until his resignation in April
1989. He served as President and CEO
of that institution from March 1980
until April 1989 and prior to that he
served in various other capacities
ranging from Assistant Vice President
to Vice President - Lending.
Benjamin E.
Walker 66 Mr. Walker has been a director of the
Company since August 1989 and of the
Bank since August 1990. Mr. Walker
is a part-owner of M & W Sportswear,
Inc., a local garment contracting
company. Mr. Walker is also a co-owner of SWS
Garment, Inc., a uniform
manufacturing company in Fitzgerald,
Georgia. Mr. Walker is a former
Chairman of the Board of The Citizens
Bank of Ashburn.
Jimmie Ann Ward 59 Mrs. Ward has been a director of the
Company since August 1989 and of the
Bank since August 1990. Mrs. Ward is
Vice President of Ward Land Company
and is a community volunteer in
Turner County.
Freddie J.
Weston, Jr. 59 Mr. Weston has been a director of the
Company since August 1989 and of the
Bank since August 1990. Mr. Weston
served in the U.S. Army for more than
twenty-five years, retiring in
October 1981. Since 1983, he has
been the coordinator of Vocational
Academic Education at Turner County
High School where he is Assistant
Principal and teaches business and
financial management.
COMPLIANCE WITH SECTION 16(a)
Because the Company has no class of equity securities
registered pursuant to Section 12 of the Exchange Act, its
securities are not subject to the reporting requirements of
Section 16(a) of the Exchange Act.
Item 10. Executive Compensation.
A. Named Executive Officers.
The following table sets forth the compensation paid to the
named executive officers of the Company for each of the Company's
last three completed fiscal years:
<PAGE>
SUMMARY COMPENSATION TABLE
ANNUAL
LONG TERM COMPENSATION
COMPENSATION
AWARDS
PAYOUTS
Name and
Principal
Position
(a)
Year
(b)
Salary
Bonus
(d)
Other
Annual
Compensa-tion
(e)
Res-tricted
Stock
Awards
(f)
Securities
Underlying
Options/
SARs
(g)
LTIP
Payouts
(h)
All
Other
Com-pensa-tion
(I)
Theron G.
Reed,
President
and CEO of
the Company
1996
1995
1994
$100,000
$100,404
$93,630
$27,000
$18,000
$15,000
$34,723(1)
$22,408(2)
$32,307(3)
$0
$0
$0
0
0
3,520(4)
$0
$0
$0
$0
$0
$0
T. Brinson
Brock,
Sr.(5)
Vice
President
and
Secretary
of the
Company
19961995
$84,000
$81,200
$23,500
$17,000
$33,053(6)
$21,984(7)
$0
1,760(8)
$0
$0
(1) Includes $17,283 in contributions to the Company's profit sharing
plan and $5,950 in director's fees.
(2) Includes $14,208 in contributions to the Company's profit sharing plan
and $3,400 in director's fees.
(3) Includes contributions to the Company's profit sharing plan and
director's fees.
(4) When the Bank opened for business in 1990, Mr. Reed was granted an
option to acquire 1% of the Registrant's original stock issue (i.e., 3,520
shares). Thereafter, at the end of each of fiscal year 1992, 1993 and 1994,
Mr. Reed, based upon the Bank's having achieved
a specified return on assets in each such year, was granted additional options
to acquire1% per year of the Registrant's original stock issue (i.e., 3,520
additional shares per year). The return on assets which the Bank had to
achieve in years 1992-1994 for Mr.
Reed to earn the options granted to him in such years was: calendar year
1992, .3%; calendar year 1993, .5%; and calendar year 1994, .75%. All
options are exercisable at a price of $10.00 per share and are exercisable
at any time for seven years after the year in which such options were awarded.
(5) No information is provided with respect to Mr. Brock for fiscal year
1994 because, during such fiscal year, Mr. Brock was not a "named executive
officer".
(6) Includes $14,630 in contributions to the Company's profit sharing plan
and $7,150 in director's fees.
(7) Includes $11,784 in contributions to the Company's profit sharing plan
and $4,500 in director's fees.
(8) When the Bank opened for business in 1990, Mr. Brock was granted an
option to acquire 1% of the Registrant's original stock issue (i.e., 3,520
shares). Thereafter, at the end of each of fiscal year 1992, 1993, 1994
and 1995, Mr. Brock, based upon the Bank's having
achieved a specified return on assets in each such year,
was granted additional options to
acquire .5% per year of the Registrant's original stock issue
(i.e., 1,760 additional shares per year). The return on assets which the
Bank had to achieve in years 1992-1995 for Mr. Brock to earn the options
granted to him in such years was: calendar year 1992,.3%; calendar year
1993, .5%; calendar year 1994, .75%; and calendar year 1995, 1.0%. All
options are exercisable at a price of $10.00 per share and are exercisable
at any time for seven years after the year in which such options were
awarded.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Name
(a)
Number of
Securities
Underlying
Options/SARs
Granted
(b)
Percent of
Total
Options/SARs
Granted to
Employees in
Fiscal Year
Exercise or
Base
Price
(d)
Expiration
Date
(e)
Theron G.
Reed
0
0.0%
- - -
- - -
T. Brinson
Brock, Sr.
1,760
100%
$10.00/Share
12/31/02
No stock options or warrants were exercised and there were no SARs
outstanding during fiscal year 1996. The following table presents information
regarding the value of unexercised options and warrants held at December 31,
1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
Name
(a)
Shares
Acquired on
Exercise
(b)
Value
Realized
Number of
Securities
Underlying
Unexercised
Options/SARs at
FY-End
Exercisable/Unexercisable
(d)
Value of
Unexercised
in-the-Money
Options/SARs
at FY-End
Exercisable/Unexercisable
(e)(1)
Theron G. Reed
- - -
- - -
14,080/0
$91,520/$0
T. Brinson
Brock, Sr.
- - -
- - -
10,560/0
$68,640/$0
The Registrant does not have any Long Term Incentive Plans in effect.
B. Directors
The Registrant's directors receives $300 for each monthly bonus meeting
they attended. In addition, directors who are members of the Board's Loan
Committee receive $100 for each Loan
Committee meeting attended. In December 1996 each director of the Bank
received a $1,500 Christmas bonus.
(1) Dollar values calculated by determining the difference
between the estimated fair market value of the Company's
Common Stock at December 31, 1996 (i.e., $16.50 per share)
and the exercise price of such options (i.e., $10.00).
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
On March 1, 1997, the Company had 475 shareholders of
record.
The following table sets forth share ownership information
as of March 1, 1997, with respect to the Registrant's common
stock, with respect to any person known to the Registrant to be a
beneficial owner of more than 5% of the Registrant's common
stock:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS*
Name and Address of
Beneficial Owner Number of Shares Percent of Class(1)
T. Brinson Brock, Sr. 26,279(2) 7.1%
1252 Brock Road
Arabi, Georgia 31712
Willis R. Collins 30,500(3) 8.4%
9655 Georgia Highway 112 East
Rebecca, Georgia 31783
Gene Stallings
Crawford 35,193(4) 9.7%
56 South Academy Street
Rebecca, Georgia 31783
Grady Elmer Moore 25,350(5) 6.9%
5580 Highway 33 North
Arabi, Georgia 31712
Sara Ruth Raines 23,600(6) 6.5%
130 Lamont Street
Ashburn, Georgia 31714
Theron G. Reed 24,121(7) 6.5%
2945 Georgia Highway 90 West
Rebecca, Georgia 31783
Benjamin E. Walker 25,600(8) 7.0%
P.O. Box 185
Ashburn, Georgia 31714
Jimmie Ann Ward 25,000(9) 6.9%
1330 Warwick Highway
Ashburn, Georgia 31714
* Information relating to beneficial ownership of common stock is
based upon "beneficial ownership" concepts set forth in rules of the
SEC under Section 13(d) of the Securities Exchange Act of 1934, as
amended. Under such rules, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power",
which includes the power to vote or direct the voting of such
security, or "investment power", which includes the power to dispose
of or to direct the disposition of such security. A person is also
deemed to be a beneficial owner of any security of which that person
has the right to acquire beneficial ownership within sixty (60)
days. Under the rules, more than one person may be deemed to be a
beneficial owner of the same securities, and a person may be deemed
to be a beneficial owner of securities as to which he has no
beneficial interest. For instance, beneficial ownership includes
spouses, minor children and other relatives residing in the same
household, and trusts, partnerships, corporations or deferred
compensation plans which are affiliated with the principal.
(1) The percentages are based on 353,417 shares of Common Stock
outstanding, plus shares of common stock which may be acquired
by the beneficial owner within 60 days of March 1, 1997, by
exercise of options and/or warrants.
(2) Includes 250 shares held as custodian for Brent Brock, 280
shares held as custodian for Kristen Brock, 100 shares held
as custodian for Hunter Chess Brock, and 326 shares owned by
Mr. Brock's wife, as to all of which Mr. Brock disclaims
beneficial ownership. Does not include 1,000 shares owned by
Mr. Brock's father, and 1,050 shares owned by his mother.
Also includes the right to acquire 7,000 shares pursuant to
currently exercisable warrants and the right to acquire 10,560
shares pursuant to currently exercisable options.
(3) Includes 13,355 shares owned by Mr. Collins' wife as to which
he disclaims beneficial ownership. Also includes the right
to acquire 8,584 shares pursuant to currently exercisable
warrants.
(4) Includes 6,250 shares owned by Mr. Crawford's wife as to which
he disclaims beneficial ownership, 2,705 shares held as
custodian for his son Gene Scott Crawford and 2,705 shares
held as custodian for his son Phillip Andrew Crawford. Also
includes the right to acquire 10,000 shares pursuant to
currently exercisable warrants.
(5) Includes the right to acquire 12,250 shares pursuant to
currently exercisable warrants.
(6) Includes 500 shares owned by Ruth's of Ashburn, Inc., and
8,000 shares owned by Mrs. Raines' husband. Does not include
400 shares owned by Mrs. Raines' son John D. Raines, III and
200 shares owned by her son Mitchell Davis Raines. Also
includes the right to acquire 10,000 shares pursuant to
currently exercisable warrants.
(7) Includes 400 shares held as custodian for Mr. Reed's son, Jeff
Reed, as to which Mr. Reed disclaims beneficial ownership.
Also includes the right to acquire 14,080 shares pursuant to
currently exercisable options and the right to acquire 5,000
shares pursuant to currently exercisable warrants.
(8) Includes 4,100 shares owned by Mr. Walker's wife as to which
he disclaims beneficial ownership. Also includes the right
to acquire 10,000 shares pursuant to currently exercisable
warrants.
(9) Includes 5,000 shares owned by Mrs. Ward's son as to which she
disclaims beneficial ownership. Also includes the right to
acquire 10,000 shares pursuant to currently exercisable
warrants.
The following table sets forth share ownership
information as of March 1, 1997 of the Registrant's common stock
with respect to (i) each director and named executive officer of the
Registrant who beneficially owns common stock of the Registrant; and
(ii) all directors and named executive officers of the Registrant
as a group:
SECURITY OWNERSHIP OF MANAGEMENT*
Name and Address of
Beneficial Owner Number of Shares Percent of Class(1)
T. Brinson Brock, Sr. 26,279(2) 7.1%
1252 Brock Road
Arabi, Georgia 31712
Willis R. Collins 30,500(3) 8.4%
9655 Georgia Highway 112 East
Rebecca, Georgia 31783
Gene Stallings
Crawford 35,193(4) 9.7%
56 South Academy Street
Rebecca, Georgia 31783
Benny Warren Denham 12,900(5) 3.6%
424 East Inaha Road
Sycamore, Georgia 31790
Lloyd Greer Ewing 13,000(6) 3.6%
545 East Monroe
Ashburn, Georgia 31714
Grady Elmer Moore 25,350(7) 6.9%
5580 Highway 33 North
Arabi, Georgia 31712
Sara Ruth Raines 23,600(8) 6.5%
130 Lamont Street
Ashburn, Georgia 31714
Theron G. Reed 24,121(9) 6.5%
2945 Georgia Highway 90 West
Rebecca, Georgia 31783
Benjamin E. Walker 25,600(10) 7.0%
P.O. Box 185
Ashburn, Georgia 31714
Jimmie Ann Ward 25,000(11) 6.9%
1330 Warwick Highway
Ashburn, Georgia 31714
Freddie J. Weston, Jr. 5,000(12) 1.4%
828 West Madison Avenue
Ashburn, Georgia 31714
All directors and named
executive officers
as a group(13) 246,543 shares 53.1%
(11 persons)
* Information relating to beneficial ownership of common
stock is based upon "beneficial ownership" concepts set forth in
rules of the SEC under Section 13(d) of the Securities Exchange
Act of 1934, as amended. Under such rules, a person is deemed to
be a "beneficial owner" of a security if that person has or
shares "voting power", which includes the power to vote or direct
the voting of such security, or "investment power", which
includes the power to dispose of or to direct the disposition of
such security. A person is also deemed to be a beneficial owner
of any security of which that person has the right to acquire
beneficial ownership within sixty (60) days. Under the rules,
more than one person may be deemed to be a beneficial owner of
the same securities, and a person may be deemed to be a
beneficial owner of securities as to which he has no beneficial
interest. For instance, beneficial ownership includes spouses,
minor children and other relatives residing in the same
household, and trusts, partnerships, corporations or deferred
compensation plans which are affiliated with the principal.
(1) The percentages are based on 353,417 shares of common stock
outstanding, plus shares of common stock which may be
acquired by the beneficial owner, or group of beneficial
owners, within 60 days of March 1, 1997, by exercise of
options and/or warrants. The percentage total differs from
the sums of the individual percentages due to the differing
denominators with respect to each calculation.
(2) Includes 250 shares held as custodian for Brent Brock, 280
shares held as custodian for Kristen Brock, 100 shares held
as custodian for Hunter Chess Brock, and 326 shares owned
by Mr. Brock's wife, as to all of which Mr. Brock disclaims
beneficial ownership. Does not include 1,000 shares owned
by Mr. Brock's father, and 1,050 shares owned by his
mother. Also includes the right to acquire 7,000 shares
pursuant to currently exercisable warrants and the right to
acquire 10,560 shares pursuant to currently exercisable
options.
(3) Includes 13,355 shares owned by Mr. Collins' wife as to
which he disclaims beneficial ownership. Also includes the
right to acquire 8,584 shares pursuant to currently
exercisable warrants.
(4) Includes 6,250 shares owned by Mr. Crawford's wife as to
which he disclaims beneficial ownership, 2,705 shares held
as custodian for his son Gene Scott Crawford and 2,705
shares held as custodian for his son Phillip Andrew
Crawford. Also includes the right to acquire 10,000 shares
pursuant to currently exercisable warrants.
(5) Includes 1,596 shares owned by Mr. Denham's wife as to
which he disclaims beneficial ownership. Also includes the
right to acquire 6,000 shares pursuant to currently
exercisable warrants.
(6) Includes 1,000 shares owned by his daughter, Mary Margaret
Ewing, 1,000 shares owned by his son, Lloyd Scott Ewing,
and 1,000 shares owned by his daughter, Jennifer L. Ewing,
as to all of which Mr. Ewing disclaims beneficial
ownership. Also includes the right to acquire 5,000 shares
pursuant to currently exercisable warrants.
(7) Includes the right to acquire 12,250 shares pursuant to
currently exercisable warrants.
<PAGE>
(8) Includes 500 shares owned by Ruth's of Ashburn, Inc., and
8,000 shares owned by Mrs. Raines' husband. Does not
include 400 shares owned by Mrs. Raines' son John D.
Raines, III and 200 shares owned by her son Mitchell Davis
Raines. Also includes the right to acquire 10,000 shares
pursuant to currently exercisable warrants.
(9) Includes 400 shares held as custodian for his son, Jeff
Reed, as to which Mr. Reed disclaims beneficial ownership.
Also includes the right to acquire 14,080 shares pursuant
to currently exercisable options and the right to acquire
5,000 shares pursuant to currently exercisable warrants.
(10) Includes 4,100 shares owned by Mr. Walker's wife as to
which he disclaims beneficial ownership. Also includes the
right to acquire 10,000 shares pursuant to currently
exercisable warrants.
(11) Includes 5,000 shares owned by Mrs. Ward's son as to which
she disclaims beneficial ownership. Also includes the
right to acquire 10,000 shares pursuant to currently
exercisable warrants.
(12) Includes the right to acquire 2,500 shares pursuant to
currently exercisable warrants.
(13) Warrants to purchase common stock of the Company at the
original offering price were issued to each director of the
Company and the Bank on the basis of one warrant for each
share of common stock that they purchased in the initial
offering. The stock purchase warrants entitle the holder
of the warrants to purchase Company stock at $10.00 per
share at any time during the term of the warrant. None of
the warrants were exercisable until December 14, 1991
(which date is one year from the date the offering was
completed). The warrants have a term of ten years from
August 6, 1990 (the date the bank opened for business).
One-third of each director's warrants became vested on
December 14, 1991; an additional one-third became vested on
December 14, 1992, and the final one-third became vested on
December 14, 1993. The warrants exercisable on or after
December 14, 1993, are reflected in the beneficial
ownership table.
Item 12. Certain Relationships and Related Transactions.
During 1996 the Bank loaned funds to certain of the
Company's executive officers and directors in the ordinary course
of business, on substantially the same terms as those prevailing
at the time for comparable transactions with other customers, and
which did not involve more than the normal risk of collectibility
or present other unfavorable features.
Item 13. Exhibits List 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)
21 Subsidiaries of Registrant
27 Financial Data Schedule
B. Reports on Form 8-K.
No reports on Form 8-K were filed during the
fourth quarter of the year ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, Principal Financial Officer
Date: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated:
Signature Title Date
/s/ T. Brinson Brock, Sr. Executive Vice
T. Brinson Brock, Sr. President
and a Director March 31, 1997
/s/ Willis R. Collins
Willis R. Collins Director March 31, 1997
/s/ Gene Stallings Crawford
Gene Stallings Crawford Director March 31, 1997
/s/ Benny Warren Denham
Benny Warren Denham Director March 31, 1997
/s/ Lloyd Greer Ewing
Lloyd Greer Ewing Director March 31, 1997
/s/ Grady Elmer Moore
Grady Elmer Moore Director March 31, 1997
/s/ Sara Ruth Raines
Sara Ruth Raines Director March 31, 1997
/s/ Theron G. Reed
/s/ Theron G. Reed President, Principal
Executive Officer,
Principal Financial
Officer and
Director March 31, 1997
/s/ Jimmie Ann Ward
Jimmie Ann Ward Director March 31, 1997
/s/ Benjamin E. Walker
Benjamin E. Walker Director March 31, 1997
/s/ Freddie J. Weston, Jr.
Freddie J. Weston, Jr. Director March 31, 1997
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT:
The Company's annual report and proxy material will be furnished
to the Company's security holders subsequent to the filing of the
Company's annual report in Form 10-KSB. When the annual report
and proxy material are sent to the Company's security holders,
the Company shall furnish copies of such material to the
Commission.
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
21 Subsidiaries of Registrant
27 Financial Data Schedule
EXHIBIT 27
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,512,819
<INT-BEARING-DEPOSITS> 100,000
<FED-FUNDS-SOLD> 2,600,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,500,849
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 61,730,085
<ALLOWANCE> 1,200,398
<TOTAL-ASSETS> 77,255,929
<DEPOSITS> 70,093,528
<SHORT-TERM> 0
<LIABILITIES-OTHER> 907,124
<LONG-TERM> 0
0
0
<COMMON> 1,767,085
<OTHER-SE> 4,488,192
<TOTAL-LIABILITIES-AND-EQUITY> 77,255,929
<INTEREST-LOAN> 6,536,735
<INTEREST-INVEST> 399,890
<INTEREST-OTHER> 147,314
<INTEREST-TOTAL> 7,083,939
<INTEREST-DEPOSIT> 3,436,277
<INTEREST-EXPENSE> 3,443,348
<INTEREST-INCOME-NET> 3,640,591
<LOAN-LOSSES> 473,000
<SECURITIES-GAINS> (2,811)
<EXPENSE-OTHER> 2,028,650
<INCOME-PRETAX> 1,603,599
<INCOME-PRE-EXTRAORDINARY> 1,603,599
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 942,558
<EPS-PRIMARY> 2.29
<EPS-DILUTED> 2.29
<YIELD-ACTUAL> 5.33
<LOANS-NON> 93,505
<LOANS-PAST> 11,303
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 127,000
<ALLOWANCE-OPEN> 922,613
<CHARGE-OFFS> 228,959
<RECOVERIES> 33,744
<ALLOWANCE-CLOSE> 1,200,398
<ALLOWANCE-DOMESTIC> 1,185,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 15,398
</TABLE>
SUBSIDIARIES OF REGISTRANT
COMMUNITY NATIONAL BANK
561 East Washington Avenue
Ashburn, Georgia 31714
