SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File No. 33-31013-A
COMMUNITY NATIONAL BANCORPORATION
----------------------------------
(Exact name of small business issuer as specified in its
charter)
Georgia 58-186963
----------------------- ----------------------------------
(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, 1,060,758 shares
outstanding as of May 11, 1998.
Transitional Small Business Disclosure Format (Check one):
Yes No X
PART I
FINANCIAL INFORMATION
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
Item 1. Financial Statements.
ASSETS
------
March 31, December 31,
1998 1997
Cash and due from banks (Unaudited) (Unaudited)
Federal funds sold 2,880,000 2,250,000
----------- -----------
Total cash and cash equivalents $ 5,174,002 $ 5,020,621
Securities: Available for sale,
at fair values 7,101,825 7,077,909
Loans, net 81,280,661 75,791,059
Property and equipment, net 1,580,671 1,323,876
Other assets 2,214,111 2,380,922
----------- -----------
Total Assets $97,351,270 $91,594,387
=========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
------------------------------------
Liabilities:
Deposits
Non-interest bearing deposits $ 5,676,535 $ 7,488,707
Interest bearing deposits 83,428,776 76,353,452
----------- -----------
Total deposits $89,105,311 $83,842,159
Other liabilities 878,748 574,556
----------- -----------
Total liabilities $89,984,059 $84,416,715
=========== ===========
Commitments and contingencies
Shareholders' Equity:
Common stock, no par value,
10,000,000 shares authorized,
1,061,751 and 1,060,251 shares
issued at March 31, 1998 and
December 31, 1997, respectively;
1,055,751 and 1,054,251 shares
outstanding at March 31, 1998
and December 31, 1997,
respectively $ 3,484,988 $ 3,479,988
Less: Treasury stock (40,000) (40,000)
Retained earnings 3,911,019 3,726,950
Unrealized gain on securities, net 11,204 10,734
----------- -----------
Total Shareholders' Equity 7,367,211 $ 7,177,672
----------- -----------
Total liabilities and
shareholders' equity $97,351,270 $91,594,387
=========== ===========
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Income
For the quarter ended
March 31,
1998 1997
Interest income $2,344,597 $1,881,075
Interest expense 1,106,819 907,072
----------- ----------
Net interest margin 1,237,778 974,003
Provision for possible loan losses 150,000 103,500
----------- -----------
Net interest income after provision
for possible loan losses 1,087,778 870,503
----------- -----------
Gain on sale of securities 3,728 - -
Service charges 120,419 104,892
Other fees 22,478 27,247
----------- -----------
Total other income 146,625 132,139
----------- -----------
Salaries and benefits 362,282 251,806
Advertising and business
development 29,349 12,599
Repairs and maintenance 21,611 19,095
Depreciation 54,062 46,637
Legal and professional 28,390 26,111
Data Processing 33,453 20,058
Regulatory fees and assessments 13,623 11,709
Other operating expenses 167,634 99,550
----------- -----------
Total operating expenses 710,404 487,565
----------- -----------
Net income (loss) before taxes 523,999 515,077
Provision for income taxes 234,505 231,375
----------- -----------
Net income after taxes $ 289,494 $ 283,702
=========== ===========
Basic income Per Share $ .27 $ .27
=========== ===========
Diluted income Per Share $ .22 $ .23
=========== ===========
Refer to notes to the financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Cash Flows
for the quarter ended
March 31,
1998 1997
Cash flows from operating
activities $ 944,922 $ 622,661
----------- -----------
Cash flows from investing
activities:
Securities, available-for-sale
Maturities and paydowns $ 1,511,747 $ 100,000
Purchase of securities (1,521,014) - -
Purchase of fixed assets (305,399) (51,015)
Increase in loans (5,639,602) (6,123,270)
----------- -----------
Net cash used in investing
activities $(5,954,268) $(6,074,285)
Cash flows from financing
activities:
Increase in customer deposits $ 5,263,152 $ 3,820,493
Exercise of warrants 5,000 - -
Payment of cash dividends (105,425) (98,957)
(Decrease) in lease obligations - - (15,186)
Net cash provided from financing
activities $ 5,162,727 $ 3,706,350
----------- -----------
Net increase in cash and cash
equivalents $ 153,381 $(1,745,274)
Cash and cash equivalents,
beginning of period 5,020,621 6,112,819
----------- ------------
Cash and cash equivalents,
end of period $ 5,174,002 $ 4,367,545
=========== ============
Refer to notes to the financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1998
NOTE 1 BASIS OF PRESENTATION.
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include
all the information and footnotes required by generally
accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results
for the three-month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for
the year ending December 31, 1998. 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, 1997.
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 Bank. 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.
Both earnings per share and shareholders' equity for both the
year ended and as of December 31, 1997 were reclassified to
allow for the three-for-one stock split which was effected
during the fourth quarter of 1998.
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. In preparing the
financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues
and expenses for the period. Actual results could differ
significantly from those estimates. Material estimates that
are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan
losses and the valuation of real estate acquired in connection
with foreclosures or in satisfaction of loans.
INVESTMENT SECURITIES.
The Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investment in Debt
and Equity Securities" ("SFAS 115"). 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. As of December 31, 1997 and March
31, 1998, the Company had no securities in this category.
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. As of December 31, 1997 and March 31, 1998,
the Company had no securities in this category.
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.
A decline below cost in the fair value of any
available-for sale or held-to-maturity security that is deemed
other than temporary, results in a charge to income and the
establishment of a new cost basis for the security.
Purchase premiums and discounts on investment
securities are amortized and accreted to interest income using
the level yield method on the outstanding principal balances.
In establishing the accretion of discounts and amortization of
premiums, the Company utilizes market based prepayment
assumptions. Interest and dividend income are recognized when
earned. Realized gains and losses for securities sold are
included in income and are derived using the specific
identification method for determining the costs of securities
sold.
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.
Accrual of interest on loans is discontinued either
when reasonable doubt exists as to the full or timely
collection of interest or principal or when a loan becomes
contractually past due by 90 days or more with respect to
interest or principal. When a loan is placed on non-accrual
status, all interest previously accrued but not collected is
reversed against current period interest income. Income on
such loans is then recognized only to the extent that cash is
received and where the future collection of principal is
probable. Loans are returned to accrual status only when they
are brought fully current with respect to interest and
principal and when, in the judgment of management, the loans
are estimated to be fully collectible as to both principal and
interest.
The Company adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of
a Loan," as amended by SFAS 118, "Accounting for Impairment of
a Loan - Income Recognition and Disclosure". These standards
require impaired loans to be measured based on the present
value of expected future cash flows discounted at the loan's
original effective interest rate, or at the loan's observable
market price, or the fair value of the collateral if the loan
is collateral dependent. A loan is considered impaired when,
based on current information and events, it is probable that
the Company will be unable to collect all amounts due
according to the contractual terms of the note agreement.
Cash receipts on impaired loans which are accruing interest
are applied to principal and interest under the contractual
terms of the loan agreement. Cash receipts on impaired loans
for which the accrual of interest has been discontinued are
applied to reduce the principal amount of such loans until the
principal has been recovered and are recognized as interest
income thereafter.
ALLOWANCE FOR POSSIBLE LOAN LOSSES.
The allowance for loan losses is established through
provisions charged to operations. Such provisions are based
on management's evaluation of the loan portfolio under current
economic conditions, past loan loss experience, adequacy of
underlying collateral, changes in the nature and volume of the
loan portfolio, review of specific problem loans, and such
other factors which, in management's judgment, deserve
recognition in estimating loan losses. Loans are charged-off
when, in the opinion of management, such loans are deemed to
be uncollectible. Subsequent recoveries are added to the
allowance.
Management believes that the allowance for loan
losses is adequate. While management uses available
information to recognize losses of loans, future additions to
the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically
review the Company's allowance for loan losses. Such agencies
may require the Company to recognize additions to the
allowance for loan losses based on their judgments about
information available to them at the time of their
examination.
PROPERTY AND EQUIPMENT.
Building, furniture andequipment 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. The Company files a consolidated income tax
return. Taxes are accounted for in accordance with 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 attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. 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. Under SFAS 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
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 ("EPS").
The Company adopted Statement of Financial Accounting
Standard No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128
establishes standards for computing and presenting EPS.
Because the Company has a complex capital structure, it is
required to report: (i) basic EPS and (ii) diluted EPS.
Basic EPS is defined as the amount of earnings available to
each share of common stock outstanding during the reporting
period. Diluted EPS is defined as the amount of earnings
available both to each share of common stock outstanding
during the reporting period and to each share that would have
been outstanding assuming the issuance of common stock for all
dilutive potential common stock outstanding during the
reporting period.
Basic EPS is computed by dividing income available to
common shareholders by the weighted average number of common
shares outstanding during the period. Diluted EPS is computed
assuming the conversion of all warrants and options. For both
three-month periods ended March 31, 1998 and 1997, basic EPS
amounted to $.27. For the three-month periods ended March 31,
1998 and 1997, diluted EPS amounted to $.22 and $.23,
respectively.
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION.
LIQUIDITY AND SOURCES OF CAPITAL
Community National Bancorporation (the "Company") was
organized in August, 1989 and began banking operations through
its wholly owned subsidiary, Community National Bank (the
"Bank"), on August 6, 1990. During the period from April,
1989 (inception) to August 6, 1990, the Company was in the
development stage and devoted most of its efforts to
organizing, incorporating, planning, raising capital and
recruiting personnel.
The Bank obtained the necessary approvals to open
both its second and third branches. The second branch
("Ashburn Branch") will be located in Ashburn, Georgia, near
the Bank's Main Office. The Ashburn Branch will relieve the
high level of activity at the Main Office and thus improve
convenience to local customers. The third branch ("St. Marys
Branch") will be located in St. Marys, Georgia, approximately
150 miles from Ashburn, Georgia, and will be opened upon
successful completion of the public offering described below.
St. Marys, Georgia is currently experiencing a level of high
economic growth, from which the Bank expects to develop an
increased deposit base and further diversify its loan
portfolio through the addition of the St. Marys Branch. It is
projected that the majority of the loans in St. Marys, Georgia
will be to commercial businesses and to homeowners purchasing
primary residences. Since the Bank's current loan portfolio
is concentrated in agricultural loans, loans from the St.
Marys Branch will diversify the portfolio and reduce the
relative risk of loan losses in the event that the farming
industry experiences a downturn. It is anticipated that the
Ashburn Branch and the St. Marys Branch will be operational in
the third and fourth calendar quarters of 1998, respectively.
In order to fund the anticipated growth resulting
from the above branches and from its current offices, the Bank
will need capital over and above the retained earnings
generated from operations. Consequently, the Company will
commence an offering to sell a minimum of 300,000 shares and a
maximum of 400,000 shares of its no par common stock at a
price of $10.00 per share. At least $2.5 million of the funds
raised in the offering will be injected into the Bank's
capital accounts. The Registration Statement was declared
effective May 11, 1998.
On August 6, 1990 the subsidiary Bank was capitalized
with a $3.3 million injection from the Company. By March 31,
1998, the Bank's capital had increased to $7.2 million through
retained earnings. This level of capitalization, as measured
by the Bank's primary regulator, the OCC, is adequate based on
the following capital ratios and guidelines.
Bank's Minimum required
Mar. 31, 1998 by Regulator
Leverage ratio 7.6% 4.0%
Risk weighted ratio 10.5% 8.0%
Total assets increased by $5.7 million to $97.3
million during the three-month period ended March 31, 1998.
The increase was generated from higher deposits and profits.
The additional funds that were generated through growth were
utilized primarily to expand the loan portfolio by $5.5
million and increase cash and cash equivalents by $.2 million.
Liquidity is the Company's ability to meet all
deposit withdrawals immediately, while also providing for the
credit needs of customers. The March 31, 1998 financial
statements evidence a satisfactory liquidity position as total
cash and cash equivalents amounted to $5.2 million,
representing 5.3% of total assets. Investment securities
amounted to $7.1 million, representing 7.3% of total assets;
these securities provide a secondary source of liquidity since
they can be converted into cash in a timely manner. The
subsidiary Bank is a member of the Federal Reserve System and
is maintaining relationships with several correspondent banks
and, thus, could obtain funds on short notice. The Company's
management closely monitors and maintains appropriate levels
of interest earning assets and interest bearing liabilities,
so that maturities of assets are such that adequate funds are
provided to meet customer withdrawals and loan demand. There
are no trends, demands, commitments, events or uncertainties
that will result in or are reasonably likely to result in the
Company's liquidity increasing or decreasing in any material
way.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1998
amounted to $289,494 or $.22 per diluted share. For the
three-month period ended March 31, 1997, net income amounted
to $283,702 or $.25 per diluted share. Basic earnings per
share for both three-month periods ended March 31, 1998 and
1997 was $.27. Below is a more detailed discussion concerning
results of operations for the three-month periods ended March
31, 1998 and 1997.
a. Earning assets have increased from $76.9 million
at March 31, 1997 to $92.9 million at March 31, 1998. 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 $974,003 to $1,237,778 for the same period one
year later, representing an increase of $263,775, or 27.1%.
b. Other income increased from $132,139 for the
three-month period ended March 31, 1997 to $146,625 for the
three-month period ended March 31, 1998. The above increase
of $14,486 represents an 11.0% improvement. This increase is
primarily due to increased activity in transactional accounts
due to a higher deposit base.
c. Other operating expenses increased from $487,565
for the three-month period ended March 31, 1997 to $710,404
for the three-month period ended March 31, 1998. The above
increase amounting to $222,839 represents an increase of
45.7%. The primary reasons for the increase are as follows:
(i) The branch in Cordele, Georgia was not
operational during the first quarter of 1997. Therefore, the
Cordele Branch's operating expenses, including salaries,
advertising, etc., are included only the three month period
ended March 31, 1998.
(ii) The Company incurred significant expenses
with respect to obtaining approval to establish a branch in
St. Marys, Georgia, and for the filing of a Registration
Statement pursuant to the public offering.
At March 31, 1998, the allowance for loan losses
amounted to $1,706,276, or 2.06% of gross loans, slightly
higher than year-end 1997. At December 31, 1997, the
allowance amounted to $1,565,923, or 2.02% 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.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to
which the Company or theBank is a party or of which any of
their property is the subject.
ITEM 2. CHANGES IN SECURITIES.
(a) None.
(b) None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Registrant filed a Registration Statement on Form SB-2 with
the Securities and Exchange Commission which
Registration Statement became effective May 11, 1998.
Pursuant to the Registration Statement, 400,000 shares of no
par common stock were registered for sale at an offering price
of $10.00 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during
the quarter ended March 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
COMMUNITY NATIONAL BANCORPORATION
(Registrant)
By: /s/
T. Brinson Brock, Sr.
Executive Vice President, Principal Executive Officer and
Principal Accounting Officer
Date: May 14, 1998
<PAGE>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,294,002
<INT-BEARING-DEPOSITS> 60,000
<FED-FUNDS-SOLD> 2,880,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,041,825
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<INVESTMENTS-MARKET> 0
<LOANS> 82,986,937
<ALLOWANCE> 1,706,276
<TOTAL-ASSETS> 97,351,270
<DEPOSITS> 89,105,311
<SHORT-TERM> 0
<LIABILITIES-OTHER> 878,748
<LONG-TERM> 0
0
0
<COMMON> 3,484,988
<OTHER-SE> 3,882,223
<TOTAL-LIABILITIES-AND-EQUITY> 97,351,270
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<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,344,597
<INTEREST-DEPOSIT> 1,106,819
<INTEREST-EXPENSE> 1,106,819
<INTEREST-INCOME-NET> 1,237,778
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<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 710,404
<INCOME-PRETAX> 523,999
<INCOME-PRE-EXTRAORDINARY> 523,999
<EXTRAORDINARY> 0
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<NET-INCOME> 289,494
<EPS-PRIMARY> .27
<EPS-DILUTED> .22
<YIELD-ACTUAL> 5.32
<LOANS-NON> 13,712
<LOANS-PAST> 19,415
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 296,035
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<CHARGE-OFFS> 35,038
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