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, 1997
- ---------------------------------------------
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, 1997
were $8,805,723
The aggregate market value of the Common Stock of the Registrant held
by nonaffiliates of the Registrant on March 1, 1998, was $6,549,830.
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, 1998 (i.e., $10.00 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 1997. 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, 1998: 1,054,251 shares of no 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. On October 9, 1997, the board of directors of the Company
authorized a three-for-one stock split for all shares outstanding as
of October 6, 1997. In connection with the stock split, the Company
amended its Articles of Incorporation, changing the par value of its
Common Stock from $5.00 to no par.
On September 4, 1997, the Bank received approval to open a
branch in Cordele, Crisp County, Georgia, which branch was opened for
business on October 29, 1997. On November 20, 1997, the Bank
received approval to open an additional branch in Ashburn, Turner
County, which branch is expected to open for business in the third
quarter of 1998.
Effective December 27, 1997, the Company entered into a Bank
Development Agreement with a group of businessmen from in and around
Camden County, Georgia (the "Camden Organizers"). Under the terms of
the Bank Development Agreement, the Company and the Camden Organizers
agreed to develop and capitalized a branch of the Bank in St. Marys,
Camden County. Pursuant to the Bank Development Agreement, the Bank
applied and obtained, on March 9, 1998, approval for the opening of a
branch in St. Marys and has purchased, on March 26, 1998, for
$241,074, two parcels of land, 11 acres in the aggregate, in St.
Marys on which it intends to construct the branch building. On
December 27, 1997, the Company also entered into an Employment
Agreement with Rowland T. Eskridge, Sr., one of the Camden
Organizers, under which Mr. Eskridge will serve as Vice President of
Business Development for the Bank and perform various other duties.
The Company, the Bank and the Camden Organizers have agreed to
capitalize the St. Marys branch by means of the proceeds of a public
offering (the "Proposed Offering") by the Company of up to 400,000
shares of its common stock at $10 per share. To effect the Proposed
Offering the Company intends to file a Registration Statement on SEC
Form SB-2 on or about April 20, 1998.
Effective March 24, 1998, T. Brinson Brock, Sr. was elected
President and Chief Executive Officer of the Bank replacing Theron G.
Reed, who continues to serve as President of the Company. In
connection with the change in Mr. Reed's duties, at his request, Mr.
Reed had ceased being employed on a full-time basis by the Bank and
the Company and will render services to the Company on a part-time,
as needed basis, at a compensation level to be determined before the
effective date of the Proposed Offering.
B. Business.
1. Services Offered by the Bank.
The Bank conducts a commercial banking business serving
Turner and Crisp Counties, 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, as well as through a branch
occupying 540 square feet of leased space within the Wal-Mart
discount store in Cordele, Crisp County, Georgia. As appropriate
space becomes available, the Bank intends to conduct a commercial
banking business from the two additional branches: in Ashburn, Turner
County, and St. Marys, Camden County, Georgia.
2. Market Area and Competition.
The Bank's primary service area includes all of Turner and
Crisp County, Georgia. The Bank also extends credit to qualified
borrowers in the contiguous counties of Tift, Crisp and Worth.
Pending the successful completion of the Proposed Offering and
construction of a branch in St. Marys, the Bank will also service
Camden County, Georgia. 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 Turner County 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.
During 1997, there was one other bank in Turner County.
Management estimates that as of December 31, 1997, deposits in the
county totaled $155 million, with the Bank having approximately 52%
of such deposits.
Crisp County is located contiguous to Turner County on the
northwest border. Although slightly smaller in total area, Crisp
County's population is nearly twice that of Turner County according
to the 1990 Census. However, the County's growth rate was 2.7%
between 1980 and 1990 compared to a statewide average of 13.2%.
Retail trade is the largest employment sector in the County,
providing 25% of the jobs and 17% of employment earnings. Service
employment is also important to the County's economy, providing 17%
of the jobs and 15% of employment earnings. Between 1990 and 1994,
Crisp County's unemployment rate was 7.4% compared to 5.7% for the
state's average. The County's per capita income for 1992 was $14,850
compared to $18,549 for the state as a whole. Crisp County had 512
reported business establishments in 1992 and showed no percentage
change over the previous five years. Cordele Uniform, Masonite
Corporation and Serco Company are among the largest non-governmental
employers in the County.
Arabi and Cordele are the only two incorporated
municipalities in the County. The County is the gateway to the
Presidential Pathways Travel Region with many attractions within easy
driving distance of Cordele, including the home of Jimmy Carter, the
Little Grand Canyon and the Andersonville Confederate Prison site.
Crisp County is one of the few areas in the nation designated as an
Enterprise Community/Enterprise Zone.
During 1997 there were three other banks in Crisp County.
Management estimates that as of December 31, 1997, deposits in the
County totaled $229 million, with the branch having less than 1% of
such deposits.
Camden County is bordered on the south by the Florida state
line and on the east by the Atlantic Ocean and Barrier Islands. In
total, Camden County encompasses 630 square miles. The City of St.
Marys is located seven miles east of Interstate 95 on highway 40
extending east to the Atlantic Coast. The economy of this
picturesque southern stretch of Camden County relies heavily on its
ocean access, ports and natural resources. In 1979, Kings Bay, at
St. Marys was selected as the location of the United States Navy's
East Coast Trident submarine base. The base at Kings Bay supports
two of the Navy's most vital weapons systems, the Submarine Launched
Ballistic Missile System: Trident and Ohio Class submarines. The
base began operations in 1989 and will include a tenth submarine
later in 1998. In addition to the naval facility, paper, seafood,
manufacturing and retail activities contribute to the local economy.
Tourism continues to play a vital part in the local economy, due
largely to the historic nature of St. Marys and Cumberland Island.
As of 1996, Camden County had a population of 48,903 which represents
an annual growth rate of 7.4% from the 1993 population of 34,200.
The unemployment rate for Camden County, as of March 1997, was 4.7%
which is .1% higher than the state average. Presently there are 5
banks in Camden County. Management estimates that there are a total
of $142 million in total deposits in the county.
In all three counties, the Bank competes and will compete as
a financial intermediary with other commercial banks, savings and
loan associations, credit unions, mortgage banking companies,
consumer finance companies, securities brokerage firms, insurance
companies, money market mutual funds, and other financial
institutions. Competition is likely to increase due to trends in
federal interstate banking laws and state laws. Many of the
financial institutions operating in Georgia have substantially
greater financial resources and offer certain services, such as trust
services, that the Bank does not expect to provide in the near
future. By virtue of the greater total capitalization of such
institutions, they have substantially higher lending limits than the
Bank and substantial advertising and promotional budgets. To
compete, the Bank relies on specialized services, responsive handling
of customer needs and personal contacts by officers, directors and
staff.
3. Distribution of Assets, Liabilities and Shareholders'
Equity; Interest Rates and Interest Differential.
The following is a presentation of the average consolidated
balance sheet of the Company for the year ended December 31, 1997 and
for the year ended December 31, 1996. This presentation includes all
major categories of interest-earning assets and interest-bearing
liabilities:
AVERAGE CONSOLIDATED ASSETS
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
Cash and due from banks$ $ 1,719,415 $ 1,604,841
-----------
Interest bearing bank balances 93,500 100,000
Taxable securities 6,041,608 6,036,267
Non-taxable securities 1,553,045 1,907,004
Federal funds sold 2,753,055 2,919,809
Net Loans 69,756,028 58,336,667
----------- -----------
Total earning assets 80,197,236 68,299,747
Other assets 2,818,044 2,821,843
----------- -----------
Total assets $84,734,695 $72,726,431
----------- -----------
----------- -----------
AVERAGE CONSOLIDATED
LIABILITIES AND STOCKHOLDERS' EQUITY
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
Non interest bearing-deposits $ 4,855,539 $ 3,963,860
NOW and money market deposits 11,338,648 9,598,235
Savings Deposits 1,291,136 1,153,608
Time Deposits 59,828,302 51,272,040
Borrowings (lease) 2,241 41,116
Federal funds purchased 12,918 38,094
Other Liabilities 709,486 827,295
----------- -----------
Total liabilities 78,038,270 66,894,248
-----------
Common Stock 3,479,988 3,479,988
Treasury Stock (8,850) ---
Retained earnings 3,236,509 2,344,493
Unrealized gain/loss securities (11,222) 7,702
----------- -----------
Total stockholders' equity 6,696,425 5,832,183
----------- -----------
Total liabilities and
stockholders' equity $84,734,695 $72,726,431
----------- -----------
----------- -----------
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, 1997
Average
Average Yield/
Assets Amount Interest Rate
Interest bearing
bank balances $ 93,500 $ 5,352 5.72%
Taxable securities 6,041,608 379,696 6.28%
Non-taxable securities 1,553,045 73,229 7.14%
Federal funds sold 2,753,055 144,290 5.24%
Net loans 69,756,028(1) 7,698,998(2) 11.04%
----------- ---------- ------
Total earning assets $80,197,236 $8,301,565 10.35%
----------- ---------- ------
----------- ---------- ------
Liabilities
NOW and money market
deposits $11,338,648 $ 365,167 3.22%
Savings deposits 1,291,136 41,575 3.22%
Time deposits 59,828,302 3,557,982 5.95%
Borrowings (lease) 2,241 226 10.08%
Federal funds purchased 12,918 679 5.26%
----------- ---------- ------
Total interest bearing
liabilities $72,473,245 $3,965,629 5.47%
----------- ---------- ------
----------- ---------- ------
Interest spread 4.88%
------
------
Net interest income $4,335,936
----------
----------
Net yield on interest earning assets 5.41%
------
------
- ---------------------------------------------------------------------
(1) Net loans include $16,600 in loans that were placed
on non-accrual status. The Company would have earned an
additional $930 had
these loans accrued interest throughout 1997.
(2) Interest earned on net loans includes $403,340 in loan fees and
service fees.
Year Ended December 31, 1996
Average
Average Yield/
Assets Amount Interest 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.
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, 1997
Compared with Year Ended December 31, 1996
------------------------------------------
Increase (decrease) due to:
Interest earned on: Volume Rate Total
Interest bearing bank
balances $ (277) $ 982 $ 705
Taxable securities 63,047 9,319 72,366
Non-taxable securities (16,753) 2,069 (14,684)
Federal funds sold (8,864) 5,840 (3,024)
Net loans 1,259,867 (97,604) 1,162,263
---------- --------- ----------
Total Interest Income $1,297,020 $ (79,394) $1,217,626
---------- --------- ----------
---------- --------- ----------
Interest paid on:
NOW and money market
deposits $ 55,820 $ --- $ 55,820
Savings deposits 4,123 (1,927) 2,196
Time deposits 505,664 (35,233) 470,431
Borrowings (4,077) (829) (4,906)
Federal funds
purchased (1,327) 67 (1,260)
---------- --------- ----------
Total Interest Expense $ 560,203 $ (37,922) $ 522,281
---------- --------- ----------
---------- --------- ----------
Change in net
interest income $ 736,817 $ (41,472) $ 695,345
---------- --------- ----------
---------- --------- ----------
Year Ended December 31, 1996
Compared with Year Ended December 31, 1995
------------------------------------------
Increase (decrease) due to:
Interest earned on: Volume Rate Total
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 $ 49,567 $16,584 $466,151
-------- -------- --------
Change in net
interest income $504,317 ($87,731) $416,586
-------- -------- --------
-------- -------- --------
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, 1997
Deposit Category Average Amount Average Rate Paid
Non interest bearing
demand deposits $ 4,855,539 N/A
NOW and money market deposits $11,338,648 3.22%
Savings deposits $ 1,291,136 3.22%
Time deposits $59,828,302 5.95%
Year Ended December 31, 1996
Deposit Category 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%
The following table indicates amounts outstanding of time
certificates of deposit of $100,000 or more and respective
maturities at December 31, 1997:
Time Certificates of Deposit
3 months or less $ 4,837,027
3-6 months 3,585,632
6-12 months 5,583,142
over twelve months 1,558,952
Total $15,564,753
-----------
-----------
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, 1997 and
1996 and the total amount of all loans for such periods:
As of December 31
Type of Loan 1997 1996
Domestic:
Commercial, financial and
agricultural $56,442,799 $43,230,547
Real estate-construction 188,759 202,844
Real estate mortgage 13,049,306 11,149,943
Installment and other loans
to individuals 7,676,118 7,146,751
---------- ----------
Subtotal 61,760,085
Allowance for loan losses (1,565,923) (1,200,398)
----------- ----------
Total (net of allowance) $75,791,059 $60,529,687
----------- -----------
----------- -----------
The following is a presentation of an analysis of maturities
of loans as of December 31, 1997 (in thousands):
Due in 1 Due In 1 Due After
Type of Loan Year or Less To 5 Years 5 Years Total
Commercial, financial
and agricultural $31,439 $24,261 $ 743 $56,443
Real estate-construction 189 --- --- 189
------- ------- ----- -------
Total $31,628 $24,261 $ 743 $56,632
------- ------- ----- -------
------- ------- ----- -------
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, 1997
(in thousands):
Due in 1 Due In 1 Due After
Type of Loan Year or Less To 5 Years 5 Years Total
Fixed rate loans $10,585 $ 9,316 $ 743 $20,644
Variable rate loans 21,043 14,645 --- 35,988
Total $31,628 $24,261 $ 743 56,632
------- ------- ----- -------
------- ------- ----- -------
The following table presents information regarding
nonaccrual, past due and restructured loans as of December 31, 1997
and 1996 (dollars in thousands):
As of December 31
1997 1996
Loans accounted for on a
non-accrual basis:
Number: 2 3
Amount: $ 17 $ 94
Accruing loans which are contractually
past due 90 days or more as to principal
and interest payments:
Number: 1 2
Amount: $ 46 $ 11
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 2
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: 0 4
Amount: $ 0 $127
As of December 31, 1997, 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, 1997, with the exception of the two 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, 1997 and 1996,
as well as a breakdown of the allowance for possible loan losses (in
thousands):
Year Ended December 31 1997 1996
Balance at beginning of period $1,200 $ 923
Charge-offs (476) (229)
Recoveries 107 33
Provision charged to Operations 735 473
------ ------
Balance at end of period 1,566 $ 1,200
------ ------
------ ------
Ratio of allowance for loan losses to total
loans outstanding during the period 2.02% 1.94%
------ ------
------ ------
Net charge-offs to average loans .53% .32%
------ ------
------ ------
As of December 31, 1997, the allowance for possible losses
was allocated as follows:
Percent of Loans
in Each
Loans Amount Category to Total
Commercial, financial and
agricultural $1,185,000 73.0%
Real estate-Construction 6,000 .2%
Real estate-Mortgage 223,000 16.9%
Installment and other loans
to individuals 142,000 9.9%
Unallocated 9,923 N/A
--------- ------
Total $1,565,923 100.0%
--------- ------
--------- ------
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, 1997, 73.0% 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, 92.3%
of the outstanding loans in this category at December 31, 1997, 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, 1997, 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 16.9% 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, 1997, the securities portfolio comprised
approximately 7.7% of the Company's assets, while loans comprised
approximately 82.7% 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, 1997 and 1996, 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
December 31,
Available-for-Sale: 1997 1996
Obligations of U.S. Treasury
and other U.S. Agencies $5,480,504 $5,465,945
State, Municipal and County
Securities 1,187,667 1,734,904
Mortgage-Backed Securities 19,388 ---
Federal Reserve Bank Stock 99,000 99,000
Federal Home Loan Bank Stock 231,400 201,000
Other Securities 60,000 100,000
---------- ---------
Total $7,077,909 $7,600,849
---------- ----------
---------- ----------
Held-to-Maturity:
As of December 31, 1997 and 1996, there were no securities
categorized as held-to-maturity.
The following table indicates, for the year ended December
31, 1997, 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.
Investment Category
Average
Available-for-Sale: Amount Weighted Yield
Obligations of U.S. Treasury
and other U.S. Agencies
0 to 1 year $ 500,150 5.61%
Over 1 through 5 years 4,980,354 6.16%
State, Municipal and County Securities
0 to 1 year 625,536 7.11%
Over 1 through 5 years 453,567 7.75%
Over 5 through 10 years 108,564 8.94%
Mortgage backed Securities
0 to 1 year 19,338 6.11%
Other Securities
0 to 1 year 60,000 5.73%
No maturity 330,400 6.00%
---------- -----
Total $7,077,909 6.34%
---------- -----
---------- -----
Held-to-Maturity:
As of December 31, 1997, 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, 1997 and 1996
are as follows:
1997 1996
Return on average assets 1.23% 1.30%
Return on average equity 15.56% 16.16%
Equity to assets ratio 7.90% 8.02%
Dividend payout ratio 9.50% 6.75%
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 24, 1998, the Bank employed 34 full-time
equivalent employees, including 2 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, 1997, the Company maintained a total
risk-based capital ratio and "Tier 1" ratio of 11.0% and 9.7%,
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 undercapitalized(3) < 6% < 3% < 3%
Critically undercapitalized < 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 Georgia 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.
The Bank purchased, on March 26, 1998, two parcels of land,
11 acres in the aggregate, in St. Marys for $241,074, where it
intends to build a banking facility for its proposed Camden County
branch. The Bank leases, at the rent of $2,083 per month, 540 square
feet at the Wal-Mart store in Cordele, Crisp County, where it
operates its Crisp County Branch. The lease expires on September
19, 2002.
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, no par value per
share. As of March 1, 1998, 1,054,251 shares of the Registrant's
common stock were issued and outstanding to 458 holders of record.
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. The Registrant is aware of isolated
transactions which have occurred since the conclusion of its initial
offering; during the year ended December 31, 1997, 5,562 shares were
transferred in private sales, with per share prices ranging from
$18-$20. The Company redeemed 2000 shares to be held as treasury
stock, at a per share price of $20.*
- ----------------------------------
* Share numbers and share prices referred to in this paragraph do
not reflect the October 1997 three-for-one stock split.
During the first quarter of 1997 the Company declared and
paid a dividend of $98,957, i.e., $.0933 per share. During the
first quarter of 1996, the Company declared and paid a dividend of
$63,615, i.e., $.06 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, 1997 Compared to Year Ended December 31,
1996
For the years ended December 31, 1997 and 1996, net income
amounted to $1,041,943 and $942,558 respectively. For 1997, basic
and diluted income per share of common stock was $.98 and $.81,
respectively; for 1996, basic and diluted income per share of common
stock amounted to $.89 and $.76, respectively. Note that during
1997 and 1996, the outstanding warrants and stock options were
dilutive (i.e., upon exercise, they diluted earnings per share by
more than 3.0%), thus necessitating the disclosure of basic and
diluted income per share. Net income in 1997 increased by $99,385
primarily due to the following reasons:
a. Average earning assets for the year ended December 31,
1997 increased from $68.3 million to $80.2 million, representing an
increase of $11.9 million, or 17.4%. Below are various components
of average earning assets for the periods indicated:
December 31,
1997 1996
(in 000's)
Federal funds sold $ 2,753 $ 2,920
Securities 7,688 7,043
Net loans 69,756 58,337
------- -------
Total average earning assets $80,197 $68,300
------- -------
------- -------
b. As a consequence of the increase in average earning
assets, the net interest income also increased from $3,640,591 for
the year ended December 31, 1996 to $4,335,936 for the year ended
December 31, 1997. Below are various components of interest income
and expense, as well as their yield/costs for the periods indicated:
Years Ended: December 31, 1997 December 31, 1996
Interest Interest
Income Yield Income Yield
/Expense /Cost /Expense /Cost
Interest income:
Federal funds sold $ 144,290 5.24% $ 147,314 5.05%
Securities 458,277 5.96 399,890 6.32
Loans 7,698,998 11.04 6,536,735 11.21
---------- ------ ---------- -----
Total $8,301,565 10.35% $7,083,939 10.37%
---------- ------ ---------- -----
---------- ------ ---------- -----
Interest expense:
NOW and money
market deposit $ 365,167 3.22% $ 309,347 3.22%
Savings Deposits 41,575 3.22 39,379 3.41
Time Deposits 3,557,982 5.95 3,087,551 6.00
Borrowings 905 5.97 7,071 6.02
---------- ------ ---------- -----
Total $3,965,629 5.47 $3,443,348 5.54%
---------- ------ ---------- -----
---------- ------ ---------- -----
Net interest income $4,335,936 $3,640,591
---------- ---------
---------- ---------
Net yield on
earning assets 5.41% 5.33%
------ -----
------ -----
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 1997 was $4,335,936
as compared to $3,640,591 for 1996. Average yields on earning
assets were 10.35% and 10.37% for the years ended December 31, 1997
and 1996, respectively. The average costs of funds for 1997
decreased to 5.47% from the 1996 cost of 5.54%. 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, 1997
and 1996 amounted to 5.41% and 5.33%, respectively. The increase in
net interest yield is primarily due to the fact that the cost of
funds in 1997 has decreased at a faster pace than the increase in
the yield on earning assets. Net interest income for 1997 as
compared to 1996, increased by $695,345. The increase is due
primarily to the growth in average earning assets from $68.3 million
in 1996 to $80.2 million in 1997.
Non-Interest Income
Non-interest income for the years ended December 31, 1997
and 1996, amounted to $504,158 and $464,658, respectively. As a
percentage of average assets, non-interest income decreased from
.64% in 1996 to .59% in 1997. The primary reason for the above
decrease is due to the fact that the fee schedule on deposit
accounts remained virtually identical in 1997 as compared to 1996.
The following table summarizes the major components of
non-interest income for the periods therein indicated:
Non-Interest Income
Year Ended December 31,
1997 1996
Service fees on deposit accounts $418,012 $375,961
Gain on sale of securities 4,773 (2,811)
Miscellaneous, other 81,373 91,508
-------- --------
Total non-interest income $504,158 $464,658
-------- --------
-------- --------
Non-Interest Expense
Non-interest expense increased from $2,028,650 during 1996
to $2,227,859 in 1997. As a percent of total average assets, non-interest
expense has decreased from 2.79% in 1996 to 2.63% in 1997.
Below are the components of non-interest expense for the years 1997
and 1996.
Non-Interest Expense
Year Ended December 31,
1997 1996
Salaries and other personnel benefits $1,106,062 $ 958,720
Data processing charges 111,377 82,984
Depreciation 130,746 132,722
Professional Fees 141,246 139,759
Other expenses 738,428 714,465
--------- ----------
Total non-interest expense $2,227,859 $2,028,650
--------- ----------
--------- ----------
For the year ended December 31, 1997, the allowance for
loan losses increased from $1,200,398 to $1,565,923. The allowance
for loan losses as a percent of gross loans increased from 1.94% at
December 31, 1996 to 2.02% at December 31, 1997. As of December
31, 1997, 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 1997 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.
After
three After
months After one year
but six but
Within within but within After
three six within five five
months months one year years years Total
EARNING ASSETS
Loans $32,278 $ 8,332 $ 12,331 $21,758 $ 2,658 $77,357
Securities 519 162 524 5,434 439 7,078
Federal funds
sold 2,250 --- --- --- --- 2,250
------- ------ --------- ------ ------- -------
Total earning
assets $35,047 $ 8,494 $ 12,855 $27,192 $ 3,097 $86,685
------- ------- --------- ------ ------- -------
------- ------- --------- ------ ------- -------
SUPPORTING SOURCES OF FUNDS
Interest-bearing
demand deposits
and savings $12,301 $ --- $ --- $ --- $ --- $12,301
Certificates,
Less than
$100M 14,289 10,070 19,205 4,923 --- 48,487
Certificates,
$100M and over 4,837 3,586 5,583 1,559 --- 15,565
------- ------ -------- ------- ------- -------
Total
interest-
bearing
liabilities $31,427 $13,656 $ 24,788 $ 6,482 $ --- $76,353
------- ------- -------- ------- ------- -------
------- ------- -------- ------- ------- -------
Interest rate
Sensitivity
gap $ 3,620 $(5,162) $(11,933) $20,710 $ 3,097 $10,332
Cumulative gap 3,620 (1,542) (13,475) 7,235 10,332 10,332
Interest rate
sensitivity
gap ratio 1.12 .62 .52 4.20 N/A 1.14
Cumulative
interest rate
sensitivity
gap ratio 1.12 .97 .81 1.09 1.14 1.14
As evidenced by the table above, the Company is asset
sensitive from zero to three months, 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. With respect to the Company,
an increase in interest rates would increase income from zero
through three months and from one year on; it would reduce income
from three months through one year. Conversely, a decline in
interest rates would reduce income from zero through three months,
and from one year on; it would increase income from three months
through one year. This, however, assumes that all other factors
affecting income remain constant.
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
$13.7 million in 1997. Below are pertinent liquidity balances and
ratios for the years ended December 31, 1997 and 1996.
December, 31
1997 1996
Cash and cash equivalents $5,020,621 $6,112,819
CDS, over $100,000 to total
deposits ratio 18.6% 20.1%
Loan to deposit ratio 90.4% 86.4%
Securities to total assets ratio 7.7% 9.8%
Brokered deposits --- ---
As the above balances and ratios indicate, management
believes that the Company's 1997 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, 1997.
Minimum
December 31, Regulatory
Bank 1997 Requirement
Tier 1 Capital 9.6% 4.0%
Tier 2 Capital 1.3% N/A
----- -----
Total risk-based capital ratio 10.9% 8.0%
----- -----
----- -----
Leverage ratio 8.1% 3.0%
----- -----
Company - Consolidated
Tier 1 Capital 9.7% 4.0%
Tier 2 Capital 1.3% N/A
----- -----
Total risk-based capital ratio 11.0% 8.0%
----- -----
----- -----
Leverage ratio 8.1% 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.
Adoption and Impact of SFAS No. 128
Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128") establishes standards for
computing and presenting earnings per share ("EPS"). SFAS 128
simplifies the previous standards for competing and presenting EPS
and makes the new standards comparable to international EPS
standards. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997; it also requires
restatement of all prior period EPS data presented. The Company has
adopted SFAS 128. The adoption of SFAS 128 did not have a
significant impact on the Company's consolidated financial condition
or results of operations.
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, 1997 and
1996
Consolidated Statements of Income-for the years ended
December 31, 1997 and 1996
Consolidated Statement of Changes in Stockholders' Equity-for
the years ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows-for the years ended
December 31, 1997 and 1996
Notes to Consolidated Financial Statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
CONSOLIDATED FINANCIAL STATEMENTS
for the years ended
December 31, 1997 and 1996
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 . . . . . . . 45
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, 1997 and 1996, 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, 1997 and 1996, and the results of their
consolidated operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
FRANCIS & CO., CPAs
Atlanta, Georgia
February 14, 1998
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
As of December 31,
1997 1996
ASSETS
Cash and due from banks $ 2,770,621 $ 3,512,819
Federal funds sold, net (Note 3) 2,250,000 2,600,000
----------- -----------
Total cash and cash equivalents $ 5,020,621 $ 6,112,819
Securities: (Notes 2 & 4)
Available-for-sale at fair value 7,077,909 7,600,849
Loans, net (includes loans of $3,191,232
(1997) and $1,579,651 (1996) to
insiders) (Notes 2, 5, 6 & 15) 75,791,059 60,529,687
Property and equipment, net (Notes 2 & 7) 1,323,876 1,017,210
Other assets 2,380,922 1,995,364
----------- -----------
Total Assets $91,594,387 $77,255,929
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 7,488,707 $ 5,859,192
Interest bearing deposits 76,353,452 64,234,336
----------- -----------
Total deposits (Note 9) $88,842,159 $70,093,528
----------- -----------
Obligation under capital lease (Note 14) --- 15,186
Other liabilities 574,556 891,938
----------- -----------
Total Liabilities $84,416,715 $71,000,652
----------- -----------
Commitments and contingencies (Note 8)
Shareholders' Equity: (Notes 1& 15)
Common stock, no par value,
10,000,000 shares authorized,
1,060,251 shares issued; 1,054,251
(1997) and 1,060,251 (1996) outstanding $ 3,479,988 $ 3,479,988
Treasury stock (40,000) ---
Retained earnings 3,726,950 2,783,964
Unrealized gain (loss) on securities, net 10,734 (8,675)
----------- -----------
Total Shareholders' Equity $ 7,177,672 $ 6,255,277
----------- -----------
Total Liabilities and Shareholders'
Equity $91,594,387 $77,255,929
----------- -----------
----------- -----------
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Income
Years Ended December 31,
1997 1996
Interest income:
Interest and fees on loans (Note 2) $ 7,698,998 $ 6,536,735
Interest on investment securities 458,277 399,890
Interest on federal funds sold 144,290 147,314
----------- -----------
Total interest income $ 8,301,565 $ 7,083,939
Interest expense:
Interest on deposits and borrowings
(Note 11) $ 3,965,629 $ 3,443,348
Net interest income 4,335,936 3,640,591
Provision for possible loan losses
(Note 6) 735,300 473,000
---------- -----------
Net interest income after provision
for possible loan losses $ 3,600,636 $ 3,167,591
---------- -----------
Other income:
Gain/(loss) on sale of securities
(Note 4) $ (4,773) $ (2,811)
Service fees on deposit accounts 418,012 375,961
Miscellaneous, other 81,373 91,508
----------- -----------
Total other income $ 504,158 $ 464,658
----------- -----------
Other Expenses:
Salaries and benefits $ 1,106,602 $ 958,720
Data processing expense 111,377 82,984
Professional fees 141,246 139,759
Depreciation 130,746 132,722
Repairs and maintenance 124,152 90,715
Other operating expenses (Note 12) 614,276 623,750
----------- -----------
Total other expenses $ 2,227,859 $ 2,028,650
----------- -----------
Income before income tax $ 1,876,935 $ 1,603,599
Income tax (Notes 2 & 13) 834,992 651,041
----------- -----------
Net income $ 1,041,943 $ 942,558
----------- -----------
----------- -----------
Basic earnings per share (Note 2) $ .98 $ .89
----------- -----------
----------- -----------
Diluted earnings per share (Note 2) $ .81 $ .76
----------- -----------
----------- -----------
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, 1997 and 1996
Common Stock Treasury Stock
Shares Amount Shares Amount
Balance, December 31, 1995 353,417 $3,479,988 353,417 $(40,000)
-------- ---------- ------- ---------
Dividends paid --- --- --- ---
Net income, 1996 --- --- --- ---
Unrealized (loss)
on securities --- --- --- ---
-------- ---------- ------- --------
Balance, December 31, 1996 353,417 $3,479,988 --- $ ---
-------- ---------- ------- --------
Stock Split (3:1) 709,834 --- --- ---
Dividends paid (.0933
per share) --- --- --- ---
Purchase of stock --- --- 6,000 $(40,000)
Net income, 1997 --- --- --- ---
Unrealized gain, securities --- --- --- ---
-------- ---------- ------- --------
Balance, December 31, 1997 1,060,251 $3,479,988 6,000 $(40,000)
-------- ---------- ------- --------
-------- ---------- ------- --------
Unrealized Total
Retained Gain on Shareholders'
Earnings Securities Equity
Balance, December 31, 1995 $1,905,021 $ 34,079 $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 $2,782,964 $ (8,675) $6,255,277
---------- -------- ----------
Stock Split (3:1) --- --- ---
Dividends paid (.0933
per share) (98,957) --- (98,957)
Purchase of stock --- --- (40,000)
Net income, 1997 1,041,943 --- 1,041,943
Unrealized gain, securities --- 19,409 $ 19,409
---------- -------- ----------
Balance, December 31, 1997 $ 326,950 $ 10,734 $7,177,672
---------- -------- ----------
---------- -------- ----------
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Cash Flows
Years Ended
December 31,
1997 1996
Cash flows from operating activities:
Net income $ 1,041,943 $ 942,558
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation $ 130,746 $ 132,722
Net Amortization of premiums on
securities 3,184 12,121
Gain on sale or settlements of
securities (4,773) 2,811
Provisions for loan losses 735,300 473,000
(Increase) in other assets (385,558) (293,921)
(Decrease) in liabilities (317,382) 294,995
------------ ------------
Net cash provided by
operating activities $ 1,203,460 $ 1,564,286
------------ ------------
Cash flows from investing activities:
Proceeds from maturities and
paydowns of securities $ 3,632,000 $ 1,303,466
Proceeds from sales of securities $ 496,626 $ 2,740,796
Purchase of investment securities ( 3,584,688) ( 4,568,846)
Net increase in loans (15,996,672) ( 9,728,819)
Purchase of property and equipment (473,412) (59,931)
Net cash used in investing activities $(15,890,146) $(10,313,334)
------------ ------------
Cash flows from financing activities:
Purchase of stock $ (40,000) $ ---
Payment of dividends (98,957) (63,615)
(Decrease) in lease obligations (15,186) (52,144)
Increase in customer deposits 13,748,631 11,673,567
------------ ------------
Net cash provided from financing
activities $ 13,594,488 $ 11,557,808
------------ ------------
Net (decrease) in cash and
cash equivalents $ (1,092,198) $ 2,808,760
Cash and cash equivalents, beginning
of year $ 6,112,819 $ 3,304,059
------------ ------------
Cash and cash equivalents, end of year $ 5,020,621 $ 6,112,819
------------ ------------
------------ ------------
Years Ended
December 31,
1997 1996
Supplemental Information:
Income taxes paid $ 800,125 $ 595,747
------------ ------------
------------ ------------
Interest paid $ 3,908,406 $ 3,422,661
------------ ------------
------------ ------------
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
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 Bank has two offices, one in
Ashburn, Georgia (headquarters), and one in Cordele, Georgia. 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 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. Such reclassifications had no impact on net income or
shareholders' equity.
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") 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. As of December 31, 1997
and 1996, 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 1996, 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 accredited 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 accruing 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 the provisions of SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by
SFAS No. 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 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 based on their judgments about
information available to them at the time of their examination.
Property and Equipment. Building, furniture, equipment and
leasehold improvements 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.
Other Real Estate. Other real estate represents property
acquired through foreclosure or in satisfaction of loans. Other
real estate is carried at the lower of: (i) cost; or (ii) fair value
less estimated selling costs. Fair value is determined on the basis
of current appraisals, comparable sales and other estimates of value
obtained principally from independent sources. Any excess of the
loan balance at the time of foreclosure or acceptance in
satisfaction of loans over the fair value of the real estate held as
collateral is treated as a loan loss and charged against the
allowance for loan losses. Gain or loss on sale and any subsequent
adjustments to reflect changes in fair value and selling costs are
recorded as a component of income. Costs of improvements to other
real estate are capitalized, while costs associated with holding
other real estate are charged to 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 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.
Profit Sharing. The Company has a noncontributory profit
sharing plan that covers all eligible employees. The annual
contribution to the plan is determined by the Board of Directors.
Such contribution cannot exceed amounts allowable as a deduction for
federal income tax purposes.
Restriction on Cash and Due from Banks. The Bank is
required to maintain reserve funds in cash or on deposits with the
Federal Reserve System. The required reserves at December 31, 1997
and 1996 were approximately $199,000 and $190,000, respectively.
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 Standards 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 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 the year ended December 31, 1997, basic EPS and diluted
EPS were computed as follows:
Basic EPS Diluted EPS
Numerator Denominator Numerator Denominator
Net income $1,041,093 $1,041,943
Weighted average
shares 1,058,866 1,058,866
Options, warrants 220,597
---------- --------- ---------- ---------
Totals $1,041,943 1,058,866 $1,041,943 1,279,463
---------- --------- ---------- ---------
---------- --------- ---------- ---------
EPS $.98 $.81
---- ----
---- ----
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, 1997 and 1996, the Bank sold
$2,250,000 and $2,600,000, respectively, to other banks through the
federal funds market.
Note 4 - Securities Available-for-Sale
The amortized costs and estimated market values of
securities available-for-sale as of December 31, 1997 follow:
Estimated
Description Amortized Costs Market Values
U.S. Agency securities $ 5,484,327 $ 5,480,504
FRB stock 99,000 99,000
FHLB stock 231,400 231,400
Municipal securities 1,167,580 1,187,667
Mortgage backed securities 19,338 19,338
CDS at other banks 60,000 60,000
----------- -----------
Total securities $ 7,061,645 $ 7,077,909
----------- -----------
----------- -----------
Gross Unrealized
Description Gains Losses
U.S. Agency securities $ 7,923 $ (11,746)
FRB stock --- ---
FHLB stock --- ---
Municipal securities 20,701 (614)
Mortgage backed securities --- ---
CDS at other banks --- ---
----------- -----------
Total securities $ 28,624 $ (12,360)
----------- -----------
----------- -----------
The amortized costs and estimated market values of
securities available-for-sale as of December 31, 1996 follow:
Estimated
Description Amortized Costs Market Values
U.S. Agency securities $ 5,505,952 $ 5,465,945
FRB stock 99,000 99,000
FHLB stock 201,000 201,000
Municipal securities 1,708,040 1,734,904
CDS at other banks 100,000 100,000
----------- -----------
Total securities $ 7,613,992 $ 7,600,849
----------- -----------
----------- -----------
Gross Unrealized
Description Gains Losses
U.S. Agency securities $ 1,943 $ (41,950)
FRB stock --- ---
FHLB stock --- ---
Municipal securities 26,864 ---
CDS at other banks --- ---
----------- -----------
Total securities $ 28,807 $ (41,950)
----------- -----------
----------- -----------
All national banks are required to hold FRB stock and all
members of the Federal Home Loan Bank are required to hold FHLB
stock. No ready market exists for either stock and neither stock
has a quoted market value. Accordingly, both FRB stock and FHLB
stock are reported at cost.
The amortized costs and estimated market values of
securities available-for-sale at December 31, 1997, by contractual
maturity, are shown in the following chart. Expected maturities may
differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or
prepayment penalties.
Estimated
Description Amortized Costs Market Values
Due in one year or less $ 1,202,085 $ 1,205,024
Due after one through five years 5,429,160 5,433,921
Due after five through ten years 100,000 108,564
FRB stock (no maturity) 99,000 99,000
FHLB stock (no maturity) 231,400 231,400
----------- ----------
Total securities $ 7,061,645 $ 7,077,909
----------- ----------
----------- ----------
Proceeds from sales of securities during 1997 were
$496,626. Net gains of $4,773 were realized on those sales.
Proceeds from sales of securities during 1996 were $2,740,796. Net
losses of $2,811 were realized on those sales.
As of December 31, 1997, an aggregate amount of $2,750,000,
consisting of total or portions of seven securities, were pledged as
collateral for public funds deposits aggregating $3,706,172. 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.
Note 5 - Loans
The composition of net loans by major loan category, as of
December 31, 1997 and 1996, follows:
December 31,
1997 1996
Commercial, financial, agricultural $56,442,799 $43,230,547
Real estate - construction 188,759 202,844
Real estate - mortgage 13,049,306 1,149,943
Installment 7,676,118 7,146,751
----------- -----------
Loans, gross $77,356,982 $61,730,085
Deduct:
Allowance for loan losses (1,565,923) (1,200,398)
----------- -----------
Loans, net $75,791,059 $60,529,687
----------- -----------
----------- -----------
Loans in nonaccrual status amounted to $16,600 and $93,505
at December 31, 1997 and 1996 respectively. If interest had been
accrued on those loans, interest income would have increased by $930
and $6,400 for the years ended December 31, 1997 and 1996,
respectively. The above nonaccruing loans were the only impaired
loans at December 31, 1997 and 1996. The amounts included in the
allowance for loan losses relating to these impaired loans were
$2,500 and $19,700 at December 31, 1997 and 1996, respectively. The
average recorded investments in impaired loans during 1997 and 1996
were $211,520 and $105,340, respectively. Interest income
recognized for impaired loans during 1997 and 1996 was approximately
$16,300 and $8,300 respectively.
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, 1997 and 1996 follows:
Years ended December 31,
1997 1996
Balance, beginning of year $ 1,200,398 $ 922,613
Add: Provision for loan losses 735,300 473,000
Add: Recoveries of previously charged
off amounts 106,337 33,744
---------- ---------
Total $ 2,042,035 $1,429,357
Deduct: Amount charged-off (476,112) (228,959)
---------- ---------
Balance, end of year $ 1,565,923 $1,200,398
---------- ---------
---------- ---------
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, 1997 and 1996 follow:
December 31,
1997 1996
Land $ 155,018 $ 61,168
Land improvements 43,111 43,111
Leasehold improvements 166,500 ---
Building 939,338 939,338
Furniture and equipment 851,461 718,476
----------- -----------
Property and equipment, gross $ 2,155,428 $ 1,762,093
Deduct:
Accumulated depreciation (831,552) (744,883)
----------- -----------
Property and equipment, net $ 1,323,876 $ 1,017,210
----------- -----------
----------- -----------
Depreciation expense for the years ended December 31, 1997
and 1996 amounted to $130,746 and $132,722, 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 to 7 Straight-line
Furniture and equipment 1 to 7 Straight-line
Building 32 Straight-line
Leasehold improvements 5 Straight-line
Note 8 - Commitments and Contingencies
Please refer to Note 15 concerning warrants and options
earned by directors and executive officers.
Please refer to Note 14 for the discussion concerning the
lease of the Bank's equipment.
Please refer to Note 17 concerning financial instruments
with off-balance sheet risk.
The Bank entered into a five-year operating lease with
respect to its branch located in Cordele, Georgia. Upon expiration,
on September 19, 2002, the lease is renewable for two successive
five-year periods. The approximate future minimum rental
commitments for the above lease as of December 31, 1997 are show
below:
Calendar Year Amount
1998 $ 25,000
1999 25,000
2000 25,000
2001 25,000
2002 18,500
---------
Total $ 118,500
---------
---------
Note 9 - Deposits
The following details deposit accounts at December 31, 1997
and 1996:
December 31,
1997 1996
Non-interest bearing deposits $ 7,488,707 $ 5,859,192
Interest bearing deposits:
NOW accounts 6,585,459 6,383,195
Money market accounts 4,456,079 4,362,343
Savings 1,259,557 1,154,747
Time, less than $100,000 48,487,604 38,207,715
Time, $100,000 and over 15,564,753 14,126,336
----------- -----------
Total deposits $83,842,159 $70,093,528
----------- -----------
----------- -----------
Note 10 - Shareholders' Equity
On September 25, 1997 the Company's Board declared a
three-for-one stock split, in the form of a 200% stock dividend, to
all shareholders of record as of October 1, 1997. The par value per
share was reduced from $5.00 per share to zero. The Company
currently has 10.0 million shares authorized: 1,054,251 and
1,060,251 shares outstanding at December 31, 1997 and 1996,
respectively. There are 289,002 warrants and 73,920 options
outstanding at December 31, 1997. Each warrant and/or option can be
converted into one share of the Company's common stock upon
surrender and payment of $3.33.
Note 11 - Interest on Deposits and Borrowings
A summary of interest expense for the years ended December
31, 1997 and 1996 follows:
December 31,
1997 1996
Interest on NOW accounts $ 211,537 $ 164,863
Interest on money market accounts 153,630 144,484
Interest on savings accounts 41,575 39,379
Interest on CDS under $100,000 2,658,701 2,235,709
Interest on CDS $100,000 and over 899,281 851,842
Interest on federal funds purchased 679 1,939
Interest, other borrowings 226 5,132
----------- -----------
Total interest on deposits
and borrowings $ 3,965,629 $ 3,443,348
----------- -----------
----------- -----------
Note 12 - Other Operating Expenses
A summary of other operating expenses for the years ended
December 31, 1997 and 1996 follows:
December 31,
1997 1996
Stationary and supplies $ 68,050 $ 50,802
Regulatory fees 50,058 117,054
Courier & postage 39,258 38,540
Advertising & business development 85,831 67,903
Utilities and telephone 47,834 47,301
Directors' fees 90,700 69,550
Taxes and licenses 60,309 54,515
All other operating expenses 172,236 178,085
---------- ----------
Total other operating expenses $ 614,276 $ 623,750
---------- ----------
---------- ----------
Note 13 - Income Taxes
As of December 31, 1997 and 1996, the Company's provision
for income taxes consisted of the following:
December 31,
1997 1996
Current $ 735,153 $ 554,816
Deferred 99,839 106,225
----------- -----------
Federal income tax expense $ 834,992 $ 661,041
----------- -----------
----------- -----------
Deferred income taxes consist of the following:
1997 1996
Provision for loan losses $ 124,278 $ 94,447
Other real estate (30,600) 13,600
Other 6,161 (1,822)
----------- -----------
Total $ 99,839 $ 106,225
----------- -----------
----------- -----------
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:
Years Ended December 31
1997 1996
Income taxes at statutory rate $ 638,160 $ 545,224
State tax, net of Federal benefits 80,011 70,306
Change in valuation allowance 124,278 129,801
Other (7,457) (84,290)
------------ -----------
Total $ 834,992 $ 661,041
------------ -----------
------------ -----------
The tax effects of the temporary differences that comprise
the net deferred tax assets at December 31, 1997 and 1996 are
presented below:
1997 1996
Deferred tax assets:
Allowance for loan losses $ 487,143 $ 362,865
Other real estate write-down --- 30,600
Unrealized gain, securities (5,530) 4,469
Deferred asset, depreciation 3,278 (1,822)
Valuation reserve (465,054) (340,776)
------------ -----------
Net deferred tax asset $ 19,837 $ 55,336
------------ -----------
------------ -----------
There was a net change in the valuation allowance during
1996 and 1997. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and
projection for future taxable income over the periods which the
temporary differences resulting in the deferred tax assets are
deductible, management believes it is more likely than not that the
Company will realize the benefits of those deductible differences,
net of the existing valuation allowance at December 31, 1997.
Note 14 - Capital Leases
The Bank leased 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
leases entered into during 1992 and 1991 were paid in full during
1997 and 1996, respectively.
Total payments during 1997 and 1996 under the two leases
aggregated $34,727 and $58,426, respectively.
Note 15 - 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 $3.33 per share at any time during the
warrant's term of ten years. Directors were issued 293,250
non-transferable warrants during the Company's initial offering, and
as of December 31, 1997 and 1996, there remained 289,002 outstanding
warrants.
The president and executive vice president each have
earned options to purchase 42,240 and 31,680 shares of the Company's
common stock, respectively. The options are exercisable at $3.33
per share and mature at the end of seven years from the date of
grant. All the options were outstanding at December 31, 1997 and
1996.
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, 1997 and 1996, loans outstanding to directors, their
related interests and executive officers aggregated $3,191,232 and
$1,579,651, 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 1997 and 1996
follows:
1997 1996
Balance, beginning of year $ 1,579,651 $ 2,193,261
New loans 2,218,615 1,226,144
Less: loan payments (607,034) (1,839,754)
------------ -----------
Balance, end of year $ 3,191,232 $ 1,579,651
------------ -----------
------------ -----------
Deposits by directors and their related interests, at
December 31, 1997 and 1996, approximated $3,464,115 and $2,699,257,
respectively.
Total directors' fees aggregated $90,700 in 1997 and
$69,550 in 1996.
Note 16 - Employee Benefit Plan
A profit sharing plan (the "Plan") was established by the
Bank to provide for participation in profits by employees or their
beneficiaries. The Plan has a pre-determined formula for allocating
contributions among participants and for distributing funds upon the
occurrence of certain events. For the years ended December 31, 1997
and 1996, the Bank contributed $109,247 and $84,600, respectively,
to the Plan.
Note 17 - 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, 1997 and 1996, unfunded
commitments to extend credit were $5,955,959 and $5,017,054,
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, 1997 and 1996, commitments under letters
of credit aggregated approximately $235,000 and $430,823,
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 18 - Regulatory Matters
The Company and the Bank are subject to various regulatory
capital requirements administered by federal banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect
on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The capital
amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weighting and other
factors.
Qualitative measures established by regulation to ensure
capital adequacy require the Company and the Bank to maintain
minimum amounts and ratios (set forth in the table below) of total
and Tier 1 capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier 1 capital to average assets (as
defined). Management believes, as of December 31, 1997, that the
Company and the Bank meet all capital adequacy requirements to which
they are subject.
As of December 31, 1997, the most recent notification
from the Office of the Comptroller of the Currency categorized the
Bank as Well Capitalized. To be categorized as Adequately
Capitalized or Well Capitalized, the Bank must maintain minimum
total risk based, Tier 1 risk-based and Tier 1 leverage ratios as
set forth in the table below. There are no conditions or events
since that notification that management believes have changed the
Company's capital category. The actual capital amounts and ratios
are also presented in the table below.
Minimum Regulatory Capital Guidelines for Banks
Adequately Well
(Dollars in thousands) Actual Capitalized Capitalized
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1997:
Total capital-risk-
based (to risk-weighted
assets):
Bank $8,031 10.9% $5,894 > 8% $7,368 > 10%
Consolidated 8,097 11.0% 5,889 > 8% N/A N/A
Tier 1 capital-risk-
based (to risk-weighted
assets):
Bank $7,103 9.6% $2,960 > 4% $4,439 > 6%
Consolidated 7,167 9.7% 2,955 > 4% N/A N/A
Tier 1 capital-leverage
(to average assets):
Bank $7,103 8.1% $3,508 > 4% $4,385 > 5%
Consolidated 7,167 8.1% 3,539 > 4% N/A N/A
Minimum Regulatory Capital Guidelines for Banks
Adequately Well
(Dollars in thousands) Actual Capitalized Capitalized
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996
Total capital-risk-
based (to risk-weighted
assets):
Bank $6,898 12.4% $4,450 > 8% $5,563 > 10%
Consolidated 6,964 12.5% 4,457 > 8% N/A N/A
Tier 1 capital-risk-
based (to risk-weighted
assets):
Bank $6,200 11.1% $2,234 > 4% $3,351 > 6%
Consolidated 6,264 11.2% 2,237 > 4% N/A N/A
Tier 1 capital-leverage
(to average assets):
Bank $6,200 8.1% $3,062 > 4% $3,827 > 5%
Consolidated 6,264 8.2% 3,056 > 4% N/A N/A
Note 19 - Dividends
The primary source of funds available to the Company to
pay shareholder dividends and other expenses is from the Bank. Bank
regulatory authorities impose restrictions on the amounts of
dividends that may be declared by the Bank. Further restrictions
could result from a review by regulatory authorities of the Bank's
capital adequacy. The amount of cash dividends available from the
Bank for payment in 1998 is $1,804,702 plus 1998 net earnings of the
Bank. At December 31, 1997, $5,308,997 of the Company's investment
in the Bank is restricted as to dividend payments from the Bank to
the Company. During 1997 and 1996, dividends paid by the Company to
its shareholders amounted to $98,957 and $63,615, respectively. On
a per share basis, the above dividends amounted to $.093 for 1997
and $.06 for 1996.
Note 20 - 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,
1997 1996
Assets:
Cash $ 117 $ 14,051
Accounts receivable 21,000 36,258
Investment in CDs 60,000 100,000
Investment in the Bank 7,113,719 6,191,236
----------- -----------
Total Assets $ 7,194,836 $ 6,341,545
----------- -----------
----------- -----------
Liabilities and Shareholders' Equity:
Income taxes payable $ 4,664 $ 79,268
Other liabilities 12,500 7,000
----------- -----------
Total Liabilities $ 17,164 $ 86,268
----------- -----------
Common stock $ 3,479,988 $ 3,479,988
Treasury stock (40,000)
Retained earnings 3,726,950 2,783,964
Unrealized gain on securities 10,734 (8,675)
----------- -----------
Total Shareholders' equity $ 7,177,672 $ 6,255,277
----------- -----------
Total Liabilities and
Shareholders' equity $ 7,194,836 $ 6,341,545
----------- -----------
----------- -----------
Parent Company Statements of Income
Years Ended December 31,
Revenues: 1997 1996
Interest Income $ 5,352 $ 4,647
Dividends from Bank 185,000 65,000
----------- -----------
Total revenues $ 190,352 $ 69,647
----------- -----------
Expenses:
Professional fees $ 61,013 $ 27,920
Other expenses 11,471 4,855
----------- -----------
Total expenses $ 72,484 $ 32,775
----------- -----------
Income before taxes and equity in
undistributed earnings in Bank $ 117,868 $ 36,872
Tax (benefit) (21,000) (4,039)
----------- -----------
Income before equity in undistributed
earnings in Bank $ 138,868 $ 40,911
Equity in undistributed earnings
of Bank 903,075 901,647
----------- -----------
Net Income $ 1,041,943 $ 942,558
----------- -----------
----------- -----------
Parent Company Statements of Cash Flows
Years Ended December 31,
Cash flows from operating activities: 1997 1996
Net income $ 1,041,943 $ 943,558
Adjustments to reconcile net income
to net cash provided by operating
activities: Equity in undistributed
earnings of the Bank (903,075) (901,647)
Decrease in receivables and
other assets 15,259 16,456
(Decrease) in payables (69,104) 20,299
----------- ----------
Net cash provided by operating
activities $ 85,023 $ 77,666
----------- ----------
----------- ----------
Cash flows from investing activities:
Decrease in CDS invested at
other banks $ 40,000 $ ---
----------- ----------
Net cash provided by financing
activities $ 40,000 $ ---
----------- ----------
Cash flows from financing activities:
Payment of cash dividends $ (98,957) $ (63,615)
Purchase of treasury stock (40,000) $ ---
----------- ----------
Net cash used by financing activities $ (138,957) $ (63,615)
----------- ----------
----------- ----------
Net (decrease) in cash and
cash equivalents $ (13,934) $ 14,051
Cash and cash equivalents, beginning
of the year 14,051 ---
----------- ----------
Cash and cash equivalents, end of year $ 117 $ 14,051
----------- ----------
----------- ----------
Note 21 - Subsequent Events
Subsequent to December 31, 1997, and prior to the date of
this report, the Company declared a dividend of $.10 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 1997 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 and Position with Company and Bank and Principal
Occupation
T. Brinson Brock, Sr., 41
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 Chairman of the Georgia Banker's Agricultural Committee.
Willis R. Collins, 52
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, 69
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, 67
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, 53
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, 53
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, 63
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, 52
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, 55
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. Mr. Reed also served as President,
Chief Executive Officer and a director of the Bank from August 1990
until March 24, 1998. 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, 67
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 S.S. 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, 60
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., 60
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. Mr. Weston
is also Vice Chairman of the Ashburn Chamber of Commerce and
Director of the Tiff Area Big Brothers/Big Sisters.
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:
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal Year Salary Bonus Compensation
Position (a) (b) (c) (d) (e)
Theron G. Reed, President 1997 $100,000 $27,500 $39,381(1)
and CEO of the Company 1966 $100,000 $27,500 $34,726(2)
1995 $100,404 $18,000 $22,408(3)
T. Brinson Brock, Sr., 1997 $ 89,000 $27,000 $38,967(4)
Vice President and Secretary 1996 $ 84,000 $23,500 $33,053(5)
of the Company 1995 $ 81,200 $17,000 $21,984(6)
Long Term Compensation
Securi-
Re- ties and All
stricted Underlying LTIP Other
Stock Options Pay- Compen-
Name and Principal Awards /SARs outs sation
Position (a) (f) (g) (h) (i)
Theron G. Reed, President $0 0 0 0
and CEO of the Company $0 0 0 0
$0 0 0 0
T. Brinson Brock, Sr., $0 0 0 0
Vice President and Secretary $0 5,280(7) 0 0
of the Company $0 0 0 0
- --------------------------------------------------------------------
(1) Includes $3,000 car allowance, $7,800 in director's fees,
insurance and profit sharing payments.
(2) Includes $17,283 in contributions to the Company's profit
sharing plan and $5,950 in director's fees.
(3) Includes $14,208 in contributions to the Company's profit
sharing plan and $3,400 in director's fees.
(4) Includes $4,200 car allowance, $9,000 in director's fees,
insurance and profit sharing payments.
(5) Includes $14,630 in contributions to the Company's profit
sharing plan and $7,150 in director's fees.
(6) Includes $11,784 in contributions to the Company's profit
sharing plan and $4,500 in director's fees.
(7) 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 (after taking into account the three-for-one
stock split in October 1997) at a price of $3.33 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)
Percent
Number of of Total
Securities Options/SARs Exer-
Underlying Granted to cise Expi-
Options/SARs Employees in or Base ration
Name Granted Fiscal Year Price Date
(a) (b) (c) (d) (e)
Theron G. Reed 0 0% $N/A/ N/A
Share
T. Brinson Brock, Sr. 0 0% $N/A/ N/A
No stock options or warrants were exercised and there were
no SARs outstanding during fiscal year 1997. The following table
presents information regarding the value of unexercised options and
warrants held at December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Shares Options/SARs Options/SARs
Acquired at FY-End at FY-End
on Value Exercisable Exercisable
Name Exercise Realized /Unexercisable /Unexercisable
(a) (b) (c) (d) (e)(1)
Theron G. Reed --- --- 42,240/0 281,740/0
T. Brinson Brock, Sr. --- --- 31,680/0 211,305/0
(1) Dollar values have been calculated by determining the
difference between the estimated fair market value of the Company's
Common Stock at December 31, 1997 (i.e., $10.00 per share) and the
exercise price of such options (i.e., $3.33). The number of
securities has ben adjusted for the three-for-one stock split in
October 1997.
The Registrant does not have any Long Term Incentive Plans in
effect.
B. Directors
The Registrant's directors receives $500 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 1997, each director of the Bank
received a $2,000 Christmas bonus.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
On March 1, 1998, the Company had 458 shareholders of
record.
The following table sets forth share ownership information
as of March 1, 1998 (adjusted for the three-for-one stock split in
October 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 Number Percent
Beneficial Owner of Shares of Class(1)
T. Brinson Brock, Sr. 78,837(2) 7.1%
1252 Brock Road
Arabi, Georgia 31712
Willis R. Collins 91,500(3) 8.4%
9655 Georgia Highway 112 East
Rebecca, Georgia 31783
Gene Stallings Crawford 105,579(4) 9.7%
56 South Academy Street
Rebecca, Georgia 31783
Grady Elmer Moore 76,050(5) 6.9%
5580 Highway 33 North
Arabi, Georgia 31712
<PAGE>
Sara Ruth Raines 70,800(6) 6.5%
130 Lamont Street
Ashburn, Georgia 31714
Theron G. Reed 72,363(7) 6.5%
2945 Georgia Highway 90 West
Rebecca, Georgia 31783
Benjamin E. Walker 77,361(8) 7.1%
P.O. Box 185
Ashburn, Georgia 31714
Jimmie Ann Ward 75,000(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 1,054,251 shares of Common Stock
outstanding, plus shares of common stock which may be acquired by
the beneficial owner within 60 days of March 1, 1998, by exercise of
options and/or warrants.
(2) Includes 750 shares held as custodian for Brent Brock, 840
shares held as custodian for Kristen Brock, 450 shares held as
custodian for Hunter Chess Brock, and 978 shares owned by Mr.
Brock's wife, as to all of which Mr. Brock disclaims beneficial
ownership. Does not include 3,000 shares owned by Mr. Brock's
father, and 3,150 shares owned by his mother. Also includes the
right to acquire 21,000 shares pursuant to currently exercisable
warrants and the right to acquire 31,680 shares pursuant to
currently exercisable options.
(3) Includes 40,065 shares owned by Mr. Collins' wife as to which
he disclaims beneficial ownership. Also includes the right to
acquire 25,752 shares pursuant to currently exercisable warrants.
(4) Includes 18,750 shares owned by Mr. Crawford's wife as to which
he disclaims beneficial ownership, 8,115 shares held as custodian
for his son Gene Scott Crawford and 8,115 shares held as custodian
for his son Phillip Andrew Crawford. Also includes the right to
acquire 30,000 shares pursuant to currently exercisable warrants.
(5) Includes the right to acquire 36,750 shares pursuant to
currently exercisable warrants.
(6) Includes 1,500 shares owned by Ruth's of Ashburn, Inc., and
24,000 shares owned by Mrs. Raines' husband. Also includes 1,200
shares owned by Mrs. Raines' son John D. Raines, III and 600 shares
owned by her son Mitchell Davis Raines. Also includes the right to
acquire 30,000 shares pursuant to currently exercisable warrants.
(7) Includes 1,200 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 42,240 shares pursuant to
currently exercisable options and the right to acquire 15,000 shares
pursuant to currently exercisable warrants.
(8) Includes 12,300 shares owned by Mr. Walker's wife as to which
he disclaims beneficial ownership. Also includes the right to
acquire 30,000 shares pursuant to currently exercisable warrants.
(9) Includes 15,000 shares owned by Mrs. Ward's son as to which she
disclaims beneficial ownership. Also includes the right to acquire
30,000 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. 78,837(2) 7.1%
1252 Brock Road
Arabi, Georgia 31712
Willis R. Collins 91,500(3) 8.4%
9655 GA Hwy.112 East
Rebecca, Georgia 31783
<PAGE>
Gene Stallings Crawford 105,579(4) 9.7%
56 South Academy Street
Rebecca, Georgia 31783
Benny Warren Denham 38,700(5) 3.6%
424 East Inaha Road
Sycamore, Georgia 31790
Lloyd Greer Ewing 39,000(6) 3.6%
545 East Monroe
Ashburn, Georgia 31714
Grady Elmer Moore 76,050(7) 6.9%
5580 Highway 33 North
Arabi, Georgia 31712
Sara Ruth Raines 70,800(8) 6.5%
130 Lamont Street
Ashburn, Georgia 31714
Theron G. Reed 72,363(9) 6.5%
2945 GA Hwy.90 West
Rebecca, Georgia 31783
Benjamin E. Walker 77,361(10) 7.1%
P.O. Box 185
Ashburn, Georgia 31714
Jimmie Ann Ward 75,000(11) 6.9%
1330 Warwick Highway
Ashburn, Georgia 31714
Freddie J. Weston, Jr. 15,000(12) 1.4%
828 West Madison Avenue
Ashburn, Georgia 31714
All directors and named
executive officers
as a group(13) 740,190 shares 52.2%
(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 1,054,251 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.
All share numbers and percentages reflect the three-for-one stock
split in October 1997.
(2) Includes 750 shares held as custodian for Brent Brock, 840
shares held as custodian for Kristen Brock, 450 shares held as
custodian for Hunter Chess Brock, and 978 shares owned by Mr.
Brock's wife, as to all of which Mr. Brock disclaims beneficial
ownership. Does not include 3,000 shares owned by Mr. Brock's
father, and 3,150 shares owned by his mother. Also includes the
right to acquire 21,000 shares pursuant to currently exercisable
warrants and the right to acquire 31,680 shares pursuant to
currently exercisable options.
(3) Includes 40,065 shares owned by Mr. Collins' wife as to which he
disclaims beneficial ownership. Also includes the right to acquire
25,752 shares pursuant to currently exercisable warrants.
(4) Includes 18,750 shares owned by Mr. Crawford's wife as to which
he disclaims beneficial ownership, 8,115 shares held as custodian
for his son Gene Scott Crawford and 8,115 shares held as custodian
for his son Phillip Andrew Crawford. Also includes the right to
acquire 30,000 shares pursuant to currently exercisable warrants.
(5) Includes 4,788 shares owned by Mr. Denham's wife as to which he
disclaims beneficial ownership. Also includes the right to acquire
18,000 shares pursuant to currently exercisable warrants.
(6) Includes 3,000 shares owned by his daughter, Mary Margaret
Ewing, 3,000 shares owned by his son, Lloyd Scott Ewing, and 3,000
shares owned by his daughter, Jennifer L. Ewing, as to all of which
Mr. Ewing disclaims beneficial ownership. Also includes the right
to acquire 15,000 shares pursuant to currently exercisable warrants.
(7) Includes the right to acquire 36,750 shares pursuant to
currently exercisable warrants.
(8) Includes 1,500 shares owned by Ruth's of Ashburn, Inc., 24,000
shares owned by Mrs. Raines' husband, 1,200 shares owned by Mrs.
Raines' son John D. Raines, III and 600 shares owned by her son
Mitchell Davis Raines. Also includes the right to acquire 30,000
shares pursuant to currently exercisable warrants.
(9) Includes 1,200 shares held as custodian for his son, Jeff Reed,
as to which Mr. Reed disclaims beneficial ownership. Also includes
the right to acquire 42,240 shares pursuant to currently
exercisable options and the right to acquire 15,000 shares pursuant
to currently exercisable warrants.
(10) Includes 12,300 shares owned by Mr. Walker's wife as to which
he disclaims beneficial ownership. Also includes the right to
acquire 30,000 shares pursuant to currently exercisable warrants.
(11) Includes 15,000 shares owned by Mrs. Ward's son as to which
she disclaims beneficial ownership. Also includes the right to
acquire 30,000 shares pursuant to currently exercisable warrants.
(12) Includes the right to acquire 7,500 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 $3.33 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 1997 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 as
amended on November 21, 1997
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)
10(a) Bank Development Agreement executed by
Registrant, effective December 27, 1997
10(b) Employment Agreement between Registrant and
Rowland T. Eskridge, Sr., dated December 27,
1997
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, 1997.
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
President, Principal
Executive Officer, Principal Financial Officer
Date: March 31, 1998
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/ Director March 31, 1998
T. Brinson Brock, Sr.
/s/ Director March 31, 1998
Willis R. Collins
/s/ Director March 31, 1998
Gene Stallings Crawford
/s/ Director March 31, 1998
Benny Warren Denham
/s/ Director March 31, 1998
Lloyd Greer Ewing
/s/ Director March 31, 1998
Grady Elmer Moore
/s/ Director March 31, 1998
Sara Ruth Raines
/s/ Director, President March 31, 1998
Theron G. Reed
/s/ Director March 31, 1998
Benjamin E. Walker
/s/ Director March 31, 1998
Jimmie Ann Ward
/s/ Director March 31, 1998
Freddie J. Weston, Jr.
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 Page
Number Description Number
3(a) Articles of Incorporation of Registrant as --
amended on November 21, 1997
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)
10(a) Bank Development Agreement executed by --
Registrant, effective December 27, 1997
10(b ) Employment Agreement between Registrant and --
Rowland T. Eskridge, Sr., dated December 27,
1997
21 Subsidiaries of Registrant --
27 Financial Data Schedule --
EXHIBIT 3(a)
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
COMMUNITY NATIONAL BANCORPORATION
1.
The name of the corporation (the "Corporation") is:
COMMUNITY NATIONAL BANCORPORATION.
2.
The Articles of Incorporation of the Corporation, filed on
August 18, 1989, are hereby amended by deleting Article 2 in its
entirety and substituting the following in lieu thereof:
"The aggregate number of shares which the Corporation shall
have authority to issue is ten million (10,000,000), all of which
shall be common shares with no par value."
3.
The Amendment was adopted by the Board of Directors of the
Corporation, on September 25, 1997. Pursuant to Section 14-2-1006
of the Georgia Business Corporation Code, approval by the
shareholders was not required.
4.
This Amendment shall become effective upon filing with the
Secretary of Sate.
IN WITNESS WHEREOF, the Corporation has caused these Articles
of Amendment to be executed and its corporate seal to be affixed
thereto this 21st day of November, 1997.
COMMUNITY NATIONAL BANCORPORATION
By: /s/
Theron G. Reed, President
EXHIBIT 3(b)
ARTICLES OF INCORPORATION
OF
COMMUNITY NATIONAL BANCORPORATION
1.
The name of the Corporation is "Community National
Bankcorporation".
2.
The aggregate number of shares which the Corporation shall have
authority to issue in ten million (10,000,000), all of which shall
be common shares of five dollars ($5.00) par value per share.
3.
The address of the initial registered office of the Corporation
shall be located at 707 Hudson Avenue, Ashburn, Turner County,
Georgia 31714, Attention: Theron G. Reed, registered agent of the
Corporation.
4.
The name and address of the Incorporator is Theron G. Reed, 707
Hudson Avenue, Ashburn, Turner County, Georgia 31714.
5.
The mailing address of the initial principal office of the
Corporation is 707 Hudson Avenue, Ashburn, Turner County, Georgia
31714.
6.
No director of the Corporation shall be personally liable to
the Corporation or its shareholders for monetary damages for breach
of duty of care or other duty as a director, provided that this
provision shall not eliminate or limit the liability of a director
(i) for any appropriation, in violation of his duties, or any
business opportunity of the Corporation; (ii) for acts or omissions
which involve intentional misconduct or a knowing violation of law;
(iii) for the types of liability set forth in Section 14-2-831 of
the Georgia Business Corporation Code; or (iv) for any transaction
from which the director received an improper personal benefit.
IN WITNESS WHEREOF, the undersigned has executed these Articles
of Incorporation this 11th day of August, 1989.
By: /s/
Theron G. Reed, President
EXHIBIT 10(a)
BANK DEVELOPMENT AGREEMENT
This Agreement is entered into as of the 27th day of December, 1997,
by and among, COMMUNITY NATIONAL BANCORPORATION, a Georgia
corporation ("Community"), on the one hand and ANGELA BRYANT, DONALD
M. CREWS, J. ALAN EASON, ROWLAND T. ESKRIDGE, SR., BOBBY Y.
FRANKLIN, CARROL E. FRANKLIN, JAMES HANNAH, MAURICE HANNAH, LIZ G.
JORDAN, and JOE SHEPPARD (collectively, the "Founders"), on the
other hand.
RECITAL:
A. The Founders and Community desire to combine their efforts with
the purpose of (a) opening and capitalizing a branch (the "Branch")
of Community National Bank, a wholly-owned subsidiary of Community
("Community Bank"), such branch to conduct business in St. Marys,
Camden County, Georgia, under the name of "Cumberland National Bank"
and (b) if feasible, obtaining regulatory approval for the
incorporation of the Branch into a de novo national bank (the
"Bank") to be named "Cumberland National Bank", all as more
specifically set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
A. Scope of the Development Activities. The parties' joint
development activities shall consist of the following:
1. The filing of the necessary applications and the
prosecution of such applications to the final approval for the
opening of the Branch.
2. The capitalization of the Branch by means of the proceeds
of a public offering of not less than Four Hundred Thousand
(400,000) shares of the common stock of Community (the "Common
Stock"), at Ten Dollars ($10.00) per share (the "Offering"), to be
effected by means of a registration statement on SEC Form SB-2 (the
"SB-2").
3. Subject to the provisions of Section D hereof, the
undertaking of all other steps necessary or appropriate in order to
commence the operations of the Branch as soon as practicable.
4. If then feasible, the (a) modification of the applications
previously filed by the Founders with the Office of the Comptroller
of the Currency ("OCC") and Federal Deposit Insurance Corporation
("FDIC"), to reflect the proposed ownership of the Bank as a wholly-owned
subsidiary of Community; (b) filing of such modified
applications with the OCC and FDIC; (c) obtaining formal approval
of the Bank's charter in accordance with such modified applications;
and (d) incorporating the assets, liabilities and operations of the
Branch into the Bank.
B. Community's Role. Community shall perform the following in
connection with the development activities delineated herein:
1. Cause Community Bank to file, on or before January 20,
1998, the necessary applications to open the Branch and to prosecute
the obtaining of the final approval therefor.
2. Cause the preparation and filing, on or before April 20,
1998, of the SB-2, including qualification in Georgia and such
other states, if any, as may be determined (after consultation with
and input from the Founders) to be optimally conducive to the
ultimate success of the Offering.
3. Generally, prosecute the Offering to its successful
conclusion or termination, as provided herein, the capitalization of
the Branch with the net proceeds of the Offering and the actual
opening of the Branch.
4. Arrive, as soon as practicable after the date hereof, at a
mutually agreeable future employment arrangement between Community
and Rowland T. Eskridge, Sr.
5. Discharge, when required, the optionee's obligations under
the certain option to purchase the parcel of real estate previously
selected by the Founders for the main office of the Branch, and, if
applicable, the Bank.
6. As soon as feasible, obtain the necessary regulatory
approvals for the formation of the Bank and incorporation of the
Branch into the Bank.
7. Secure, as soon as practicable after the date of filing for
the approvals contemplated under Paragraph 6 above, the services of
a President, who shall be the senior operations officer responsible
for day-to-day operations of the Bank, pursuant to terms of
employment, arrived at after consultation with and input from the
Founders, which are standard to the banking industry for a President
of a de novo bank.
Community shall bear the costs and expenses to be incurred in
connection with the discharge of its obligations as set forth in
this Section B, all of which costs and expenses incurred prior to
the completion of the Offering, to be reimbursed to Community from
the net proceeds of the Offering.
C. Founders' Role. The Founders shall perform the following in
connection with the development activities delineated herein:
1. Render the assistance required from time to time to be
provided by the Founders in connection with the discharge of
Community's obligations set forth in Section B above and, generally,
in order to achieve the parties' ultimate objective: the opening of
the Branch and then the formation of the Bank.
2. Irrevocably subscribe, within thirty (30) days after the
effective date of the SB-2, for at least the number of shares of
Common Stock set forth with respect to each of the Founders on
Exhibit A hereto.
All reasonable costs and expenses incurred by the Founders after the
date hereof shall be reimbursed by Community, subject to customary
approval and verification procedures. Certain organizational
expenses incurred by the Founders prior to the date hereof, in the
amount of $135,015 and as set forth in Exhibit B, subject to
regulatory approval, shall be reimbursed to the Founders from the
net proceeds of the Offering. The Founders shall, and hereby do
agree, jointly and severally, to indemnify and hold harmless
Community for and against the liability of any kind, including costs
and expenses, arising in connection with the efforts to organize a
de novo national Bank prior to the date hereof, except as set
forth in Exhibit B.
D. Conditions of the Offering and Opening of the Branch.
1. Community may, in its sole discretion, terminate and
abandon the Offering upon the occurrence of any one or more of the
following:
(a) The Founders do not, in the aggregate, discharge
their obligations set forth in Section C.2 above; or
(b) The necessary regulatory approvals for the formation
of the Branch have not been received by May 1, 1998; or
(c) The total number of shares of Common Stock subscribed
for under the Offering on the 181st day after the effective date of
the SB-2, is less than Three Hundred Thousand (300,000) shares.
Upon the termination and abandonment of the Offering, the parties
shall have no further obligations to one another.
2. Community Bank may, in its sole discretion, not open the
Branch if the total number of shares of Common Stock subscribed for
under the Offering on the 181st day after the effective date of the
SB-2 is less than Three Hundred Thousand (300,000) shares.
E. Participation by the Founders after the Opening of the Branch
and the Bank
1. Upon the opening of the Branch pursuant hereto, each of the
Founders shall be elected to serve as an advisory (nonvoting)
director of the Branch. In addition, upon the opening of the
Branch, three (3) among the Founders, selected by the Founders after
consultation with and input from Community, shall be elected to fill
vacancies on the Board of Directors of Community. Once elected,
each Founder shall serve in accordance with the rules applicable,
from time to time, to directors holding a similar office.
Similarly, upon the opening of the Bank, if at all, each of the
Founders shall be elected to serve as either a director or an
advisory (nonvoting) director of the Bank as shown on Exhibit A
hereto.
2. In consideration of the financial risks accepted by each
Founder before the date hereof, and as an incentive for his or her
future participation as a director, each Founder shall be granted by
Community, if otherwise acceptable to the regulatory authorities, as
of the date of the formal opening of the Branch (the "Starting
Date"), a Warrant (herein so called). Each Warrant shall have an
exercise price of Ten Dollars ($10.00) per share, shall expire on
the seventh (7th) anniversary of the Starting Date, and shall vest
rateably over three (3) years, such vesting being satisfied through
the compliance by each Founder with the minimum attendance
requirements (75% of all meetings) which will be imposed upon the
directors of the Branch and the Bank during each year of service.
In addition, to the extent the regulatory authorities at any time
require the Warrant to be exercised or surrendered in case of a
capital call, the terms of the Warrant shall be subject to
appropriate modification.
3. With respect to any Founder, the number of shares of the
Common Stock to be issued under the Warrant shall be computed and
fixed on the Starting Date as the sum of (a) plus (b) as follows:
(a) 50% of the number of shares of the Common Stock
subscribed and actually acquired by the Founder in the Offering, not
to exceed the number of shares shown against his or her name in
Exhibit A hereto (such number of shares, subject to the limitation
herein, called the "Target Shares") plus
(b) 50% of the Target Shares multiplied by the quotient
of A divided by B, where A is equal to the aggregate number of
shares of Common Stock sold pursuant to the Offering in excess of
100,000, B is equal to 300,000 and the quotient cannot exceed 1.0.
It is agreed and understood that: (i) the actual number of shares
issued under any Warrant shall be rounded off to eliminate
fractional shares; and (ii) the Founders as a group shall be allowed
to reallocate among themselves the number of shares subscribed and
actually acquired by each Founder, provided that in no event shall
the aggregate Target Shares applicable with respect to all of the
Founders exceed 100,000.
4. The shares of Common Stock acquired by the Founders in the
Offering shall be subject to a "lock up" of (a) six (6) months from
the date of issuance with respect to all of such shares; and (b)
twelve (12) months from the date of issuance with respect to 50% of
all such shares.
F. Miscellaneous.
1. Each Founder, individually and as a partner of Cumberland
Investment Company, hereby waives and releases any claim for
usurpation of any right or opportunity in connection with the
execution of this Agreement or the consummation of the transactions
contemplated herein.
2. The provisions hereof constitute the entire Agreement
between the parties with respect to the subject matter hereof, and
there are no representations, inducements, promises, or agreements,
oral or otherwise, between the parties that are not embodied herein.
No amendment to this Agreement shall be binding unless in writing
and signed by all parties.
3. This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which together
shall constitute one and the same Agreement.
IN WITNESS WHEREOF, The undersigned have caused this Agreement to be
executed as of the date first above written.
FOUNDERS:
Signed: /s/
Angela Bryant
Signed: /s/
Donald M. Crews
Signed: /s/
J. Alan Eason
Signed: /s/
Rowland T. Eskridge, Sr.
Signed: /s/
Bobby Y. Franklin
Signed: /s/
Carrol E. Franklin
Signed: /s/
James Hannah
Signed: /s/
Maurice Hannah
Signed: /s/
Liz G. Jordan
Signed: /s/
Joe Sheppard
COMMUNITY NATIONAL BANCORPORATION
By:/s/
Theron G. Reed, President
EXHIBIT A.
Name of Founder Subscription Amount Position at
Bank
Angela Bryant $ 15,000/ 1,500 shares Director
Donald M. Crews $150,000/15,000 shares Director
J.Alan Eason $100,000/10,000 shares Director
Rowland T.Eskridge, Sr. $120,000/12,000 shares Advisory Board
Bobby Y.Franklin $160,000/16,000 shares Advisory Board
Carrol E. Franklin $110,000/11,000 shares Director
James Hannah $110,000/11,000 shares Advisory Board
Maurice Hannah $100,000/10,000 shares Director
Liz G. Jordan $ 25,000/ 2,500 shares Advisory Board
Joe Sheppard $110,000/11,000 shares Director
EXHIBIT 10(b)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
the 27th day of December, 1997, by and between Community National
Bancorporation, (the "Employer"), a Georgia corporation, and Rowland
T. Eskridge, Sr., (the "Employee"), an adult resident of the State of
Georgia.
A. Employer is engaged in the business of banking; and
B. Employer desires to employ the Employee under the terms and
conditions set forth herein; and
C. Employee desires to be employed by Employer in such capacity.
NOW THEREFORE, based on the mutual covenants and conditions contained
herein, the parties hereto agree as follows:
1. Employment. Employee shall provide to Employer the following
services: (a) assist the Employer during the process of application for
regulatory approval of the branch bank (the "Bank"); (b) oversee the
construction of the new Bank building along with the purchasing of all
equipment and supplies necessary to carry on the daily operations of
the Bank; (c) serve as Vice President of Business Development for the
Bank; (d) assist Employer in promotion of a public offering to
capitalize the Bank (the "Offering"); (e) Employee shall have no role
in credit approval or administrative decision making processes of
Employer or the Bank; and (f) Employee will serve as Chairman of the
Advisory Board.
2. Best Efforts of Employee. Employee agrees to perform faithfully,
industriously, and to the best of Employee's ability, experience, and
talents, all of the duties that may be required by the express and
implicit terms of this Agreement, to the reasonable satisfaction of
Employer. Such duties shall be provided at such place(s) as the
business, or circumstances of the Employer may require from time to
time.
3. Compensation of Employee. As compensation for the services
provided by Employee under this Agreement, Employer will pay Employee
as follows: (a) a guaranteed base annual salary of $52,500; plus (b)(i)
a bonus of $12,500 at the end of the first year of employment if the
Offering was successfully completed as provided in that certain Bank
Development Agreement dated the 24th day of December, 1997, and the
Bank has received regulatory approval and opened for business; and (ii)
a bonus of $12,500 at the end of the second year of employment if the
Bank has achieved, by 2nd full year, total deposits of $10,000,000 and
total loans of $5,000,000.
Upon termination of this Agreement, payments under this paragraph shall
cease, provided, however, that the Employee shall be entitled to
payments for periods or partial periods that occurred prior to the date
of termination and for which the Employee has not yet been paid.
Accrued vacation will be paid in accordance with state law and the
Employer's customary procedures.
4. Reimbursement for Expenses in Accordance with Employer's Policy.
The Employer will reimburse Employee for documented "out-of-pocket"
expenses in accordance with Employer policies in effect from time to
time.
5. Recommendations for Improving Operations. Employee shall provide
Employer with all information, suggestions, and recommendations
regarding Employer's business, of which Employee has knowledge, that
will be of benefit to Employer.
6. Confidentiality. Employee recognizes that Employer has and will
have information including, but not limited to, the following:
products, prices, costs, future plans, business affairs, processes,
technical matters, customer lists, deposit and loan information, salary
and employment information, financial information, and other vital
information whether or not such materials shall constitute "trade
secrets" under the O.C.G.A. or common law (collectively "Information")
which are valuable, special and unique assets of Employer. Employee
agrees that the Employee will not at any time or in any manner, either
directly or indirectly, divulge, disclose, or communicate in any manner
any Information to any third party without prior written consent of the
Employer. Employee will protect the Information and treat it as
strictly confidential. A violation by Employee of this paragraph shall
be a material violation of this Agreement and will justify legal and/or
equitable relief including without limitation, termination of this
Agreement without further obligation hereunder.
7. Unauthorized Disclosure of Information. If it appears that
Employee has disclosed (or has threatened to disclose) Information in
violation of this Agreement, Employer shall be entitled to an
injunction to restrain Employee from disclosing, in whole or in part,
such Information, or from providing any services to any party to whom
such Information has been disclosed or may be disclosed. Employer
shall not be prohibited by this provision from pursuing other remedies,
including other legal or equitable relief as provided by law.
8. Confidentiality After Termination of Employment. The
confidentiality provisions of this Agreement shall remain in full force
and effect for a period of five (5) years after the termination of
Employee's employment.
9. Non-Compete Agreement. Recognizing that the various items of
Information are special and unique assets of the company and that
Employee shall be responsible for developing business relationships on
behalf of Employer, Employee agrees and covenants that for a period of
one year following the termination of Employee's employment, whether
such termination is voluntary or involuntary, with or without cause,
Employee will not directly or indirectly engage in any business
competitive with Employer. This covenant shall apply to the
geographical area that includes the area within a twenty-five (25) mile
radius of St. Mary's Georgia. Directly or indirectly engaging in any
competitive business includes, but is not limited to, (i) engaging in a
business as owner, partner, or agent, (ii) becoming an employee of any
third party that is engaged in such business, (iii) becoming interested
directly or indirectly in any such business, or (iv) soliciting any
customer of Employer for the benefit of a third party that is engaged
in such business. Employee agrees that this non-compete provision will
not adversely affect the Employee's livelihood.
10. Employee's Inability to Contract for Employer. Employee shall not
have the right or authority to make any contract or commitment for or
on behalf of Employer without first obtaining the express written
consent of Employer. Employee shall indemnify and hold Employer
harmless from any loss or damage as a result of violation of this
provision.
11. Vacation. Employee shall be entitled to fifteen (15) paid
vacation days per year. Vacation requests exceeding ten (10)
consecutive business days require prior written approval of Employer.
12. Sick Leave/Personal Business. Employee shall be entitled to one
(1) day of paid leave per month, due to illness or to attend to
personal business, not to exceed ninety (90) days in any year. All
requests for sick days and personal days off shall be made by Employee
in accordance with Employer policies in effect from time to time.
13. Holidays. Employee shall be entitled to paid holidays during each
calendar year in accordance with Employer policies in effect from time
to time.
14. Other Benefits. Hospitalization, major medical, dental, and
prescription drug insurance coverage, to be provided according to the
terms of Employer's Group Insurance Plan in effect from time to time.
Employee shall be provided use of an automobile during the term of this
Agreement, including related expenses according to standard Employer
reimbursement policy.
15. Term/Termination. Employee's employment under this Agreement
shall be for two (2) years, beginning on the date of this Agreement.
Notwithstanding the foregoing, if Employee is in violation of this
Agreement, or if the Offering is not successfully completed as provided
in Section 3(b)(i), Employer may terminate employment upon 30 days
notice and without compensation to Employee after the date of such
termination.
16. Compliance with Employer's Rules. Employee agrees to comply with
all of the rules and regulations of Employer.
17. Return of Property. Upon termination of this Agreement, the
Employee shall deliver all property (including keys, records, notes,
data, memoranda, models, and equipment) that is in the Employee's
possession or under the Employee's control which is Employer's property
or related to Employee's business.
18. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed delivered when delivered in
person or deposited in the United States mail, postage paid, addressed
as follows:
Employer:
Community National Bancorporation
President
561 E. Washington Street
P.O. Box 2619
Ashburn, Georgia 31714-2619
United States of America
Employee:
Rowland T. Eskridge, Sr.
611 Bealey Street
P.O. Box 126
St. Marys, Georgia 31558
United States of America
Such addresses may be changed from time to time by either party by
providing written notice in the manner set forth above.
19. Entire Agreement. This Agreement contains the entire agreement of
the parties and there are no other promises or conditions in any other
agreement whether oral or written. This Agreement supersedes any prior
written or oral agreements between the parties.
20. Amendment. This Agreement may be modified or amended, if the
amendment is made in writing and is signed by both parties.
21. Severability. If any provisions of this Agreement shall be held
to be invalid or unenforceable for any reason, the remaining provisions
shall continue to be valid and enforceable. If a court finds that any
provision of this Agreement is invalid or unenforceable, but that by
limiting such provision it would become valid or enforceable, then such
provision shall be deemed to be written, construed, and enforced as so
limited.
22. Waiver of Contractual Right. The failure of either party to
enforce any provision of this Agreement shall not be construed as a
waiver or limitation of that party's right to subsequently enforce and
compel strict compliance with every provision of this Agreement
23. Applicable Law. This Agreement shall be governed by the laws of
the State of Georgia.
EMPLOYER:
COMMUNITY NATIONAL BANCORPORATION
By: /s/
Theron G. Reed, President
AGREED TO AND ACCEPTED
EMPLOYEE:
By: /s/
Rowland T. Eskridge, Sr.
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
COMMUNITY NATIONAL BANK
561 East Washington Avenue
Ashburn, Georgia 31714
EXHIBIT 27
Financial Data Schedule Submitted Under
Item 601 (a) (27) of Regulation S-B
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
COMMUNITY NATIONAL BANCORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS FOR
THE FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
Item Number Item Description Amount
9-03(1) Cash and due from banks $ 2,770,621
9-03(2) Interest-bearing deposits 60,000
9-03(3) Federal funds sold - purchased
securities for resale 2,250,000
9-03(4) Trading account assets 0
9-03(6) Investment and mortgage backed
securities held for sale 7,077,909
9-03(6) Investment and mortgage backed
securities held to maturity
- carrying value 0
9-03(6) Investment and mortgage backed
securities held to maturity
- market value 0
9-03(7) Loans 77,356,982
9-03(7)(2) Allowance for losses 1,565,923
9-03(11) Total assets 91,594,387
9-03(12) Deposits 83,842,159
9-03(13) Short-term borrowings 0
9-03(15) Other liabilities 574,556
9-03(16) Long-term debt 0
9-03(19) Preferred stock - mandatory
redemption 0
9-03(20) Preferred stock - no mandatory
redemption 0
9-03(21) Common stocks 3,479,988
9-03(22) Other stockholders' equity 3,697,684
9-03(23) Total liabilities and
stockholders' equity 91,594,387
9-04(1) Interest and fees on loans 7,698,998
9-04(2) Interest and dividends on
investments 602,567
9-04(4) Other interest income 0
9-04(5) Total interest income 8,301,565
9-04(6) Interest on deposits 3,964,724
9-04(9) Total interest expense 3,965,629
9-04(1) Net interest income 4,335,936
9-04(11) Provision for loan losses 735,300
9-04(13)(h) Investment securities gains/losses 4,773
9-04(14) Other expenses 2,227,859
9-04(15) Income/loss before income tax 1,876,935
9-04(17) Income/loss before extraordinary
items 1,876,935
<PAGE>
9-04(18) Extraordinary items, less tax 0
9-04(19) Cumulative change in accounting
principles 0
9-04(20) Net income or loss 1,041,943
9-04(21) Earnings per share - primary .98
9-04(21) Earnings per share - fully diluted .81
I.B.5 Net yield - interest earning
assets - actual 5.41%
III.C.1(a) Loans on non-accrual 16,600
III.C.1(b) Accruing loans past due 90 days
or more 46,453
III.C.1(c) Troubled debt restructuring 0
III.C.2 Potential problem loans 63,053
IV.A.1 Allowance for loan loss - beginning
of period 1,200,398
IV.A.2 Total chargeoffs 476,112
IV.A.3 Total recoveries 106,337
IV.A.4 Allowance for loan loss - end
of period 1,565,923
IV.B.1 Loan loss allowance allocated to
domestic loans 1,556,000
IV.B.2 Loan loss allowance allocated to
foreign loans 0
IV.B.3 Loan loss allowance - unallocated 9,923
