SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- ----------------------------------
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997.
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 33-31013-A
COMMUNITY NATIONAL BANCORPORATION
(Exact name of small business issuer as specified in its
charter)
Georgia 58-1856963
(State of Incorporation) (I.R.S. Employer Identification No.)
561 E. Washington Avenue, P.O. Box 2619, Ashburn, Georgia 31714
(Address of Principal Executive Offices)
(912) 567-9686
(Issuer's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be
filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of
shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Common stock, no par value per share, 1,060,251 shares issued
and outstanding as of November 12, 1997.
Transitional Small Business Disclosure Format (Check one):
Yes No X
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
consolidated Balance Sheets
ASSETS
September 30, December 31,
1997 1996
(Unaudited) (Unaudited)
Cash and due from banks $ 1,387,107 $ 3,512,819
Federal funds sold, net 2,080,000 2,600,000
--------- ---------
Total cash and cash equivalents $ 3,467,107 $ 6,112,819
Securities:
Available for sale,
at fair values 7,892,357 7,600,849
Loans, net 73,589,068 60,529,687
Property and equipment, net 1,081,135 1,017,210
Other assets 2,847,186 1,995,364
--------- ---------
Total Assets $88,876,853 $77,255,929
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 4,754,602 $ 5,859,192
Interest bearing deposits 76,304,123 64,234,336
---------- ----------
Total deposits $81,058,725 $70,093,528
Obligation under capital lease -- 15,186
Other liabil6ities 872,492 891,938
------- -------
Total liabilities $81,931,217 $71,000,652
----------- -----------
----------- -----------
Commitments and contingencies
Shareholders' Equity:
Common stock, no par value,
10,000,000 shares authorized,
1,060,251 shares issued and
outstanding $ 1,767,085 $ 1,767,085
Paid-in-capital 1,712,903 1,712,903
Retained earnings 3,481,106 2,783,964
Less: Treasury stock (30,000) --
Unrealized gain/(loss) on
securities, net 14,542 (8,675)
------ -----
Total Shareholders' Equity 6,945,636 $ 6,255,277
Total liabilities and
shareholders' equity $88,587,683 $77,255,929
----------- -----------
----------- -----------
Refer to notes to the consolidated financial statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Income
for the quarter ended
September 30,
1997 1996
Interest income $2,157,990 $1,828,470
Interest expense 1,036,930 903,748
--------- -------
Net interest margin $1,121,060 $ 924,722
Provisions for possible loan losses 199,800 152,000
Net interest income after provisions
for possible loan losses $ 921,260 $ 772,722
Gain on sale of securities $ 282 $ --
Service charges on deposit accounts 104,428 90,273
Other income 25,461 31,242
------ ------
Total other income $ 130,171 $ 121,515
Salaries and benefits $ 267,583 $ 237,142
Advertising and business development 24,991 24,062
Repairs and maintenance 166,577 18,896
Depreciation 44,224 45,102
Legal and professional 42,773 30,935
Data processing 29,972 18,826
Regulatory fees and assessments 12,891 30,384
Other operating expenses 109,319 84,338
-------- ------
Total other expenses $ 548,330 $ 489,685
---------- ----------
Net income before income taxes $ 503,101 $ 404,552
Provision for income taxes 229,525 166,365
------- -------
Net income $ 273,576 $ 238,187
--------- ----------
--------- ----------
Net income per shar e $ .22 $ .20
--------- ---------
--------- ---------
Refer to notes to the consolidated financial statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Income
for the three quarters ended
September 30,
1997 1996
Interest income $6,085,951 $5,238,663
Interest expense 2,930,885 2,539,724
----------- ----------
Net interest margin $3,155,066 $2,698,939
Provisions for possible loan losses 489,300 317,000
------- -------
Net interest income after provisions
for possible loan losses $2,665,766 $2,381,939
--------- ---------
Gain/(loss) on sale of securities $ 282 $ (2,883)
Service charges on deposit accounts 312,031 281,214
Other income 68,924 86,409
------ ------
Total other income $ 381,237 $ 364,740
---------- ----------
---------- ----------
Salaries and benefits $ 771,502 $ 706,604
Advertising and business development 60,345 46,179
Repairs and maintenance 59,695 61,214
Depreciation 132,122 133,766
Legal and professional 94,314 94,781
Data processing 80,840 57,584
Regulatory fees and assessments 36,552 79,752
Other operating expenses 324,333 317,087
------- -------
Total other expenses $1,559,703 $1,496,967
--------- ---------
Net income before taxes $1,487,300 $1,249,712
Provision for income taxes 691,200 521,505
------- -------
Net income $ 796,100 $ 728,207
------- -------
Net income per share $ .65 $ .60
--------- ----------
--------- ----------
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Cash Flows
for the three quarters ended
September 30,
1996 1997
Cash flows from operating activities $ 641,332 $ 757,960
------- -------
Cash flows from investing activities:
Securities, available-for-sale
Sale of securities $ 489,319 $ 2,740,796
Purchase of securities (2,084,688 ) (3,119,640)
Maturity and paydowns 1,232,000 692,267
(Increase) in loans, net (13,548,681) (12,497,387)
Purchase of property and equipment (196,047) (31,012)
-------- ------
Net cash used in
investing activities $(14,108,097) $(12,214,976)
----------- ----------
Cash flows from financing activities:
Increase in customer deposits $ 10,965,197 $ 12,356,210
Purchase of treasury stock (30,000) --
Payment of cash dividends (98,958) (63,615)
Decrease in lease obligations (15,186) (39,138)
------ -------
Net cash provided
from financing activities $ 10,821,053 $ 12,253,457
Net increase in
cash and cash equivalents $ (2,645,712) $ 796,441
Cash and cash equivalents,
beginning of period 6,112,819 3,304,059
--------- ---------
Cash and cash equivalents,
end of period $ 3,467,107 $ 4,100,500
--------- ---------
--------- ---------
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
September 30, 1997
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the nine-month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1997. For further information, refer to
the financial statements and footnotes included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1996.
Note 2 - Organization of the Business
Community National Bancorporation, Ashburn, Georgia (the "Company")
was organized in August, 1989 to serve as a holding company for a
proposed de novo bank, Community National Bank, Ashburn, Georgia
(the "Bank"). The Bank was chartered and is currently regulated
by the Office of the Comptroller of the Currency; its deposits are
each insured up to $100,000, subject to aggregation rules, by the
Federal Deposit Insurance Corporation. The Company purchased 100
percent of the Bank's shares by injecting $3.3 million into the
Bank's capital accounts immediately prior to commencement of
banking operations (August, 1990).
Note 3 - Summary of Significant Accounting Policies
Basis of Presentation and Reclassification. The consolidated
financial statements include the accounts of the Company and the
Subsidiary. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain prior year amounts
have been reclassified to conform to the current year presentation.
Stock Split. During the three-month period ended September 30,
1997, the Board of Directors approved a three-for-one stock split
and a change in par value of its capital stock from $5.00 per share
to no par value. Income per share data for all previous periods
presented was adjusted to reflect the stock split.
<PAGE>
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
September 30, 1997
Basis of Accounting. The accounting and reporting policies of the
Company conform to generally accepted accounting principles and to
general practices in the banking industry. The Company uses the
accrual basis of accounting by recognizing revenues when they are
earned and recognizing expenses in the period incurred, without
regarding the time of receipt or payment of cash.
Investment Securities. The Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investment
in Debt and Equity Securities" ("SFAS 115") on January 1, 1994.
SFAS 115 requires investments in equity and debt securities to be
classified into three categories:
1. Held-to-maturity securities: These are securities which the
Company has the ability and intent to hold until maturity. These
securities are stated at cost, adjusted for amortization of
premiums and the accretion of discounts.
2. Trading securities: These are securities which are bought and
held principally for the purpose of selling in the near future.
Trading securities are reported at fair market value, and related
unrealized gains and losses are recognized in the income statement.
3. Available-for-sale securities: These are securities which are
not classified as either held-to-maturity or as trading securities.
These securities are reported at fair market value. Unrealized
gains and losses are reported, net of tax, as separate components
of shareholders' equity. Unrealized gains and losses are excluded
from the income statement.
Loans, Interest and Fee Income on Loans. Loans are stated at the
principal balance outstanding. Unearned discount, unamortized loan
fees and the allowance for possible loan losses are deducted from
total loans in the statement of condition. Interest income is
recognized over the term of the loan based on the principal amount
outstanding. Points on real estate loans are taken into income to
the extent they represent the direct cost of initiating a loan.
The amount in excess of direct costs is deferred and amortized over
the expected life of the loan.
Loans are generally placed on non-accrual status when principal or
interest becomes ninety days past due, or when payment in full is
not anticipated. When a loan is placed on non-accrual
status,interest accrued but not received is generally reversed
against interest income. If collectibility is in doubt, cash
receipts on non-accrual loans are not recorded as interest income,
but are used to reduce principal.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
September 30, 1997
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.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
September 30, 1997
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. As of September
30, 1997 and 1996, common stock equivalents amounted to 1,232,163
and 1,211,124, respectively.
<PAGE>
Item 2 - Management Discussion and Analysis of Financial Condition
and Results of Operation.
Liquidity and sources of capital
Community National Bancorporation (the "Company") was organized in
August, 1989 and began banking operations through its wholly owned
subsidiary, Community National Bank (the "Bank"), on August 6,
1990. During the period from April, 1989 (inception) to August 6,
1990, the Company was in the development stage and devoted most of
its efforts to organizing, incorporating, planning, raising capital
and recruiting personnel.
On August 6, 1990 the subsidiary Bank was capitalized with a $3.3
million injection from the Company. By September 30, 1997, the
Bank's capital had increased to $6.9 million through retained
earnings. This level of capitalization, as measured by the Bank's
primary regulator, the OCC, is adequate based on the following
capital ratios and guidelines.
Bank's Minimum required
September 30, 1997 by regulator
Leverage ratio 7.6% 4.0%
Risk weighted ratio 11.1% 8.0%
Total assets increased by $11.3 million to $88.6 million during the
nine-month period ended September 30, 1997. The increase was
generated from higher deposits and profits. The additional funds
that were generated through growth were utilized primarily to
expand the loan portfolio.
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of
customers. The September 30, 1997 financial statements evidence
a satisfactory liquidity position as total cash and cash
equivalents amounted to $3.5 million, representing 3.9% of total
assets. Investment securities amounted to $7.9 million,
representing 8.9% of total assets; these securities provide a
secondary source of liquidity since they can be converted into cash
in a timely manner. The subsidiary Bank is a member of the Federal
Reserve System and is maintaining relationships with several
correspondent banks and, thus, could obtain funds on short notice.
The Company's management closely monitors and maintains appropriate
levels of interest earning assets and interest bearing liabilities,
so that maturities of assets are such that adequate funds are
provided to meet customer withdrawals and loan demand. There are
no trends, demands, commitments, events or uncertainties that will
result in or are reasonably likely to result in the Company's
liquidity increasing or decreasing in any material way.
Results of Operations
Net income for the nine months ended September 30, 1997 amounted
to $796,100 or $.65 per share. This compares favorably with net
income of $728,207 or $.60 per share attained during the same
nine-month period one year earlier. The primary reasons for the
increase in net income from 1996 to 1997 are as follows:
a. Earning assets have increased from $72.7 million at September
30, 1996 to $83.6 million at September 30, 1997. As a consequence,
net interest income, which represents the difference between
interest received on interest earning assets and interest paid on
interest bearing liabilities, has increased from $2,698,939 to
$3,155,066 for the same period one year later, representing an
increase of $456,127, or 16.9%.
b. Operating expenses have increased from $1,496,967 for the
nine-month period ended September 30, 1996 to $1,559,703 for
the nine-month period ended September 30, 1997. However, despite the above
increase operating expenses as a percent of total assets declined
from 2.57% to 2.35%. The decline is attributed to attainment of
economies of scale.
c. Other income increased from $364,740 for the nine-month period
ended September 30, 1996 to $381,237 for the nine-month period
ended September 30, 1997. The above increase of $16,497 represents
a 4.5% improvement. This increase is primarily due to increased
activity in transactional accounts due to a higher deposit base.
Note that the provision for loan losses increased from $317,000 to
$489,300 for the nine-month periods ended September 30, 1996 and
1997. The above increase was due to higher loan balances.
For the three-month periods ended September 30, 1997 and 1996, net
income amounted to $273,576 and $238,187, respectively. On a per
share basis, net income amounted to $.22 and $.20 for the three-month
periods ended September 30, 1997 and 1996, respectively. An
increase in net income for the three-month periods ended September
30, 1997 as compared to 1996 was attained due to a higher net
interest income which was sufficient to support higher provisions
for both loan losses and taxes.
At September 30, 1997, the allowance for loan losses amounted to
$1,524,837, or 2.03% of gross loans. At December 31, 1996, the
allowance amounted to $1,200,398, or 1.94% of gross loans.
Management considers the allowance for loan losses to be adequate
and sufficient to absorb possible future losses; however, there can
be no assurance that charge-offs in future periods will not exceed
the allowance for loan losses or that additional provisions to the
allowance will not be required.
The Company is not aware of any current recommendation by the
regulatory authorities which, if they were to be implemented, would
have a material effect on the Company's liquidity, capital
resources, or results of operations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
COMMUNITY NATIONAL BANCORPORATION, INC.
(Registrant)
Date: November 11, 1997
BY: /s/ Theron G. Reed
President and Chief Executive
Officer
(Principal Executive, Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,387,107
<INT-BEARING-DEPOSITS> 70,000
<FED-FUNDS-SOLD> 2,080,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,892,357
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 75,113,905
<ALLOWANCE> 1,524,837
<TOTAL-ASSETS> 88,587,683
<DEPOSITS> 81,058,725
<SHORT-TERM> 0
<LIABILITIES-OTHER> 872,492
<LONG-TERM> 0
0
0
<COMMON> 1,767,085
<OTHER-SE> 5,178,551
<TOTAL-LIABILITIES-AND-EQUITY> 88,587,683
<INTEREST-LOAN> 5,149,455
<INTEREST-INVEST> 468,248
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,617,703
<INTEREST-DEPOSIT> 2,930,619
<INTEREST-EXPENSE> 2,930,885
<INTEREST-INCOME-NET> 3,155,066
<LOAN-LOSSES> 489,300
<SECURITIES-GAINS> 282
<EXPENSE-OTHER> 1,559,703
<INCOME-PRETAX> 1,487,300
<INCOME-PRE-EXTRAORDINARY> 1,487,300
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 796,100
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
<YIELD-ACTUAL> 4.86
<LOANS-NON> 415,276
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 415,276
<ALLOWANCE-OPEN> 1,200,398
<CHARGE-OFFS> 245,604
<RECOVERIES> 80,743
<ALLOWANCE-CLOSE> 1,524,837
<ALLOWANCE-DOMESTIC> 1,502,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 22,837
</TABLE>
