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, 1998.
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, 1,118,870
shares issued and outstanding as of November 11, 1998.
Transitional Small Business Disclosure Format
(Check one): Yes No X
(Page 1 of 13)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
ASSETS
-----
- -
September 30,
December 31,
1998
1997
(Unaudited)
(Unaudited)
------------- -
- -----------
Cash and due from banks $ 1,927,632 $
2,770,621
Federal funds sold, net 6,900,000
2,250,000
-----------
- ----------
Total cash and cash equivalents $ 8,827,632 $
5,020,621
Securities:
Available for sale, at fair values 6,675,316
7,077,909
Loans, net 88,454,359
75,791,059
Property and equipment, net 2,226,101
1,323,876
Other assets 3,170,743
2,380,922
-----------
- ----------
Total Assets $109,354,151
$91,594,387
===========
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits
Non-interest bearing deposits $ 5,467,804 $
7,488,707
Interest bearing deposits 94,734,861
76,353,452
-----------
- ----------
Total deposits $100,202,665
$83,842,159
Other liabilities 941,978
574,556
-----------
- ----------
Total liabilities $101,144,643
$84,416,715
-----------
- ----------
Commitments and contingencies
Shareholders' Equity:
Common stock, no par value, 10,000,000
shares authorized, 1,118,871 and
1,060,251 shares issued at September 30,
1998 and December 31, 1997, respectively;
1,118,871 and 1,054,251 shares outstanding
at September 30, 1998 and
December 31, 1997, respectively $ 3,695,388 $
3,479,988
Less: Treasury stock - -
(40,000)
Retained earnings 4,471,741
3,726,950
Unrealized gain on securities, ne 42,379
10,734
----------- -
- ---------
Total Shareholders' Equity 8,209,508 $
7,177,672
----------- -
- ---------
Total liabilities and shareholders'
equity $109,354,151
$91,594,387
===========
==========
Refer to notes to the consolidated financial
statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of
Income
for the three months ended
September 30,
----------
- -------
1998
1997
----
- ----
Interest income $2,595,091
$2,157,990
Interest expense 1,309,687
1,036,930
---------
- ---------
Net interest income $1,285,404
$1,121,060
Provisions for possible loan losses 200,000
199,800
---------
- ---------
Net interest income after provisions
for possible loan losses $1,085,404
$ 921,260
---------
- ---------
Gain on sale of securities $ 622
$ 282
Service charges on deposit accounts 124,398
104,428
Other income 14,217
25,461
---------
- ---------
Total other income $ 139,237
$ 130,171
---------
- ---------
Salaries and benefits $ 346,248
$ 267,583
Advertising and business development 30,777
24,991
Repairs and maintenance 28,213
16,577
Depreciation 46,800
44,224
Legal and professional 38,045
42,773
Data processing 35,319
29,972
Regulatory fees and assessments 9,634
12,891
Other operating expenses 207,403
109,319
-------
- -------
Total other expenses $ 742,439
$ 548,330
---------
- ---------
Net income before income taxes $ 482,202
$ 503,101
Provision for income taxes 178,500
229,525
---------
- ---------
Net income $ 303,702
$ 273,576
=========
=========
Basic income per share $ .27
$ .27
=========
=========
Diluted income per share $ .25
$ .25
=========
=========
Refer to notes to the consolidated financial
statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of
Income
for the nine months ended
September 30,
----------
- -------
1998
1997
----
- ----
Interest income $7,432,568
$6,085,951
Interest expense 3,617,923
2,930,885
---------
- ---------
Net interest income $3,814,645
$3,155,066
Provisions for possible loan losses 500,000
489,300
---------
- ---------
Net interest income after provisions
for possible loan losses $3,314,645
$2,665,766
---------
- ---------
Gain/(loss) on sale of securities $ 4,350
$ 282
Service charges on deposit accounts 354,989
312,031
Other income 50,906
68,924
---------
- ---------
Total other income $ 410,245
$ 381,237
---------
- ---------
Salaries and benefits $1,059,362
$ 771,502
Advertising and business development 85,465
60,345
Repairs and maintenance 76,530
59,695
Depreciation 140,072
132,122
Legal and professional 116,895
94,314
Data processing 104,798
80,840
Regulatory fees and assessments 35,280
36,552
Other operating expenses 563,267
324,333
---------
- ---------
Total other expenses $2,181,669
$1,559,703
---------
- ---------
Net income before taxes $1,543,221
$1,487,300
Provision for income taxes 693,005
691,200
---------
- ---------
Net income $ 850,216
$ 796,100
=========
=========
Basic income per share $ .77
$ .77
=========
=========
Diluted income per share $ .69
$ .69
=========
=========
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,
- --------------------
1998
1997
----
- ----
Cash flows from operating
activities $ 1,075,342 $
641,332
----------- -
- ----------
Cash flows from investing activities:
Securities, available-for-sale
Sale of securities $ - - $
489,319
Purchase of securities (2,501,234)
(2,084,688)
Maturity and paydowns 2,928,019
1,232,000
(Increase) in loans, net (13,163,300)
(13,548,681)
Purchase of property and
equipment (1,042,297)
(196,047)
----------- -
- ----------
Net cash used in investing
activities $(13,778,812)
$(14,108,097)
----------- -
- ----------
Cash flows from financing activities:
Increase in customer deposits $ 16,360,506 $
10,965,197
Sale (purchase) of treasury stock 60,000
(30,000)
Payment of cash dividends (105,425)
(98,958)
Exercise of stock warrants 195,400
- - -
Decrease in lease obligations - -
(15,186)
----------- -
- ----------
Net cash provided
from financing activities $ 16,510,481 $
10,821,053
----------- -
- ----------
Net increase in
cash and cash equivalents $ 3,807,011 $
(2,645,712)
Cash and cash equivalents,
beginning of period 5,020,621
6,112,819
----------- -
- ----------
Cash and cash equivalents,
end of period $ 8,827,632 $
3,467,107
===========
===========
Refer to notes to the consolidated financial
statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
September 30, 1998
Note 1 - Basis of Presentation
The accompanying 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, 1998 are not
necessarily indicative of the results that may be
expected for the year ending December 31, 1998. These
statements should be read in conjunction with the
consolidated financial statements and footnotes thereto
included in 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. In an initial public offering
conducted during 1990, the Company sold and issued
352,001 shares of its common stock. Proceeds from the
above offering amounted to $3,465,828, net of selling
expenses. The Company then 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).
During the three-month period ended September 30,
1997, the Company authorized a three-for-one stock
split and reduced the per share par value of its
capital stock to zero. Income per share data for all
previous periods presented was adjusted to reflect the
stock split.
On May 11, 1998, the Company offered for sale a
minimum of 300,000 shares and a maximum of 400,000
shares of its common stock at a price of $10.00 per
share. As of September 30, 1998, the Company had
accepted subscriptions for 321,811 shares of its common
stock at $10.00 per share. As of September 30, 1998,
the escrow agent held the proceeds of the above sale of
stock. Accordingly, neither the sale of stock nor the
proceeds are reflected on the September 30, 1998
financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
September 30, 1998
Note 3 - Recent Accounting Pronouncements
Beginning January 1, 1998, the Company adopted
SFAS No. 130, "Reporting Comprehensive Income," which
is effective for annual and interim periods beginning
after December 15, 1997. SFAS 130 establishes new
rules for the reporting and display of comprehensive
income and its components; however, the adoption of
this Statement had no impact on the Company's net
income or shareholders' equity. SFAS 130 requires
unrealized gains and losses on the Company's available-
for-sale securities which, prior to adoption were
reported separately in shareholders' equity, to be
included in other comprehensive income. During the
third quarter and for the nine-month period ended
September 30, 1998, total comprehensive income amounted
to $329,936 and $881,861, respectively, and totaled
$291,281 and $819,317 respectively, for the comparable
periods in 1997.
Beginning January 1, 1998, the Company adopted the
provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which is
effective for annual and interim periods beginning
after December 15, 1997. This Statement establishes
standards for the method that public entities are to
use when reporting information about operating segments
in annual financial statements and requires that those
enterprise reports be issued to shareholders, beginning
with annual financial statements in 1998 and for
interim and annual financial statements thereafter.
SFAS 131 also established standards for related
disclosures about products and services, geographic
areas and major customers.
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") opened in September, 1998 and is
located in Ashburn, Georgia, near the Bank's Main
Office. Its primary purpose is to 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. St.
Marys, Georgia is currently experiencing a level of
high economic growth, with which the Bank will soon
participate. In addition, 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.
The opening of the St. Marys Branch is contingent upon
the successful completion of the sale of the Company's
common stock, which is detailed below.
In order to fund the anticipated growth resulting
from the above two branches and from its current
offices, the Bank will need capital over and above the
retained earnings generated internally. Consequently,
the Company is offering to sell a minimum of 300,000
shares and a maximum of 400,000 shares of its no par
common stock. At least $2.5 million of the funds
raised in the offering will be injected into the Bank's
capital accounts. As of September 30, 1998,
subscriptions for 321,811 shares of the Company's
common stock have been accepted for an aggregate price
of $3,218,110. On September 30, 1998, these funds were
still held by an escrow agent, even though the minimum
offering had been met. Subsequently, however, the
funds in escrow were released to the Company. As of
November 11, 1998,subscriptions for 364,450 shares of
the Company's common stock have been accepted in the
offering, for an aggregate price of $3,644,500.
On August 6, 1990 the subsidiary Bank was
capitalized with a $3.3 million injection from the
Company. By September 30, 1998, the Bank's capital had
increased to $7.9 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, 1998 by
regulator
------------------ ---------
- ---
Leverage ratio 7.4% 4.0%
Risk weighted ratio 10.3% 8.0%
Total assets increased by $17.8 million to $109.4
million during the nine-month period ended September
30, 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 $12.6 million, increase
cash and cash equivalents by $3.8 million and acquire
$.8 million in property and equipment.
Liquidity is the Company's ability to meet all
deposit withdrawals immediately, while also providing
for the credit needs of customers. The September 30,
1998 financial statements evidence a satisfactory
liquidity position as total cash and cash equivalents
amounted to $8.8 million, representing 8.1% of total
assets. Investment securities amounted to $6.7
million, representing 6.1% 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 September
30, 1998 amounted to $303,702 or $.25 per diluted
share. For the three-month period ended September 30,
1997, net income amounted to $273,576 or $.25 per
diluted share. Basic earnings per share for the three-
month periods ended September 30, 1998 and 1997 were
identical at $.27. While net income for the three-
month period ended September 30, 1998 exceeded net
income for the three-month period ended September 30,
1997, earnings per share results for both periods were
identical. This occurred because of a higher average
number of shares outstanding for the three-month period
ended September 30, 1998 as compared to the three-month
period ended September 30, 1997. Upon a closer review
of the results for the three-month periods ended
September 30, 1998 and 1997, the following items are
noted:
(i) Net interest income for the three-month
period ended September 30, 1998 was $164,344 above the
results obtained during the three-month period ended
September 30, 1997. This occurred because of higher
earning assets during 1998 as compared to 1997.
(ii) Other income for the three-month period
ended September 30, 1998 was $9,066 above the results
obtained during the three-month period ended September
30, 1997. This occurred because of higher deposit base
during 1998 as compared to 1997.
(iii) Operating expenses for the three-month
period ended September 30, 1998 were $194,109 above the
results obtained during the three-month period ended
September 30, 1997. The higher expenses in 1998 as
compared to 1997 are due to (i) expenses associated
with the Company's public offering of its common stock,
(ii) the expenses associated with the opening of an
additional branch and (iii) the Company's assets are
23.4% greater at September 30, 1998 as compared to
September 30, 1997.
For the nine-month periods ended September 30,
1998 and 1997, net income amounted to $850,216 and
$796,100, respectively. Despite the higher income in
the first nine-months of 1998, earnings per share for
both periods, 1998 and 1997 were identical. For both
nine-month periods ended September 30, 1998 and 1997,
diluted earnings per share amounted to $.69, and basic
earnings per share amounted to $.77. Below is a more
detailed discussion concerning results of operations
for the nine-month periods ended September 30, 1998 and
1997.
a. Earning assets have increased from $83.6
million at September 30, 1997 to $103.9 million at
September 30, 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 $3,155,066 to $3,814,645 for the same
period one year later, representing an increase of
$659,579, or 20.9%.
b. Other income increased from $381,237 for the
nine-month period ended September 30, 1997 to $410,245
for the nine-month period ended September 30, 1998.
The above increase of $29,008 represents a 7.6%
improvement. This increase is primarily due to
increased activity in transactional accounts due to a
higher deposit base.
c. Other operating expenses increased from
$1,559,703 for the nine-month period ended September
30, 1997 to $2,181,669 for the nine-month period ended
September 30, 1998. The above increase which amounted
to $621,966 represents an increase of 39.9%. The
primary reasons for the increase are as follows:
(i) The branch in Cordele, Georgia was not
operational during the first nine months of 1997.
Therefore, the Cordele Branch's operating expenses,
including salaries, advertising, etc., are included
only in the nine-month and three-month periods ended
September 30, 1998.
(ii) During the first nine-months of 1998,
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 requesting permission to sell a minimum of
300,000 Company shares. These expenses did not exist
in 1997.
At September 30, 1998, the allowance for loan
losses amounted to $1,857,673, 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.
Year 2000
- ---------
A critical issue affecting companies that rely
extensively on electronic data processing systems, such
as the Bank, is the Year 2000 issue. The Year 2000
issue has arisen due to the widespread use of computer
programs that rely on two-digit date codes to perform
computations or decision making functions. Many of
these programs may fail as a result of their inability
to properly interpret date codes beginning January 1,
2000. For example, such programs may misinterpret "00"
as the year 1900 rather than the year 2000. In
addition, some equipment being controlled by
microprocessor chips may not deal appropriately with
the year "00". This could result in a system failure
or miscalculations causing disruptions of operations,
including among other things, a temporary inability to
process transactions or engage in similar, normal
business activities.
The Bank primarily uses a third-party vendor for
processing its primary banking applications. During
1997, the Bank formed an internal task force to address
the Year 2000 issue, conduct a comprehensive review of
the Bank's systems and ensure that the Bank takes any
necessary measures. The following items have been
assessed as of September 30, 1998: Computer hardware,
security systems, software applications, vault, ATM
machine, telephone banking and teller machines. All
third-party vendors have been contacted to provide
assurances that their data processing programs and
systems are Year 2000 compliant now or will be well in
advance of the year 2000. The substantial majority of
these vendors responded by stating that they have
obtained or will obtain, in the near future, third-part
reviews and assurances that their products are Year
2000 compliant. Contingency plans, such as the
selection of other vendors, have been formulated in the
event that a vendor is not able to provide a Year 2000
compliant product within the Bank's established
timeframes. The Bank has budgeted $35,000 for expenses
associated with Year 2000 compliance. Approximately
$5,000 of the budgeted amount has been incurred to
date. However, there can be no assurances that
unforseen difficulties or costs will not arise. In
addition, there can be no assurance that systems of
other companies on which the Bank's systems rely, such
as the Bank's data processing vendor, will be modified
on a timely basis, or that the failure by another
company to properly modify its systems will not
negatively impact the Bank's systems or operations.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
There are no material pending legal proceedings to
which the Company or the Bank is a party or of which
any of their property is the subject.
Item 2. Changes in Securities.
---------------------
(a) None.
(b) None.
Item 3. Defaults Upon Senior Securities.
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security
Holders.
-------------------------------------------
- --------
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. As of November 11,
1998, the registrant has received subscriptions for in
excess of 300,000 shares in satisfaction of the minimum
offering requirements; however, the registrant
continues to solicit subscriptions for shares of the
common stock pursuant to the offering.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended September 30, 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)
Date: November 16, 1998 BY: /s/ T. Brinson
Brock
----------------- --------------------
- ---------
T. Brinson Brock
Executive Vice
President, Principal
Executive Officer and
Principal
Financial Officer
