11
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999.
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 33-31013-A
COMMUNITY NATIONAL BANCORPORATION
- ------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Georgia 58-1856963
- ----------------------------- ----------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
561 E. Washington Avenue, P.O. Box 2619, Ashburn, Georgia 31714
- ------------------------------------------------------------------------
(Address of Principal Executive Offices)
(912) 567-9686
- -----------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
- ----------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer (1) filed all reports required to
be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number
of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Common stock, no par value per share, 1,518,871 shares
outstanding as of May 12, 1999.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
ASSETS
------
March 31, December 31,
1999 1998
(Unaudited) (Unaudited)
----------- -----------
Cash and due from banks $ 1,950,315 $ 3,397,203
Federal funds sold 5,920,000 15,850,000
----------- -----------
Total cash and cash equivalents $ 7,870,315 $ 19,247,203
Securities:
Available for sale, at fair values 8,638,159 8,036,357
Loans, net 93,667,541 88,295,060
Property and equipment, net 2,621,454 2,406,538
Other assets 3,192,364 3,606,774
----------- -----------
Total Assets $115,989,833 $121,591,932
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits
Non-interest bearing deposits $ 6,647,034 $ 10,478,489
Interest bearing deposits 95,878,693 97,903,091
----------- -----------
Total deposits $102,525,727 $108,381,580
Other liabilities 827,685 688,858
----------- -----------
Total liabilities $103,353,412 $109,070,438
----------- -----------
Commitments and contingencies
Shareholders' Equity:
Common stock, no par value, 10,000,000
shares authorized, 1,518,871 shares
issued and outstanding at March 31, 1999
and December 31, 1998 $ 7,649,291 $ 7,649,291
Retained earnings 5,005,211 4,829,006
Unrealized gain (loss) on
securities, net (18,081) 43,197
---------- -----------
Total Shareholders' Equity 12,636,421 $ 12,521,494
Total liabilities and shareholders' ---------- -----------
equity $115,989,833 $121,591,932
=========== ===========
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Income
For the quarter
Ended March 31,
1999 1998
---- ----
Interest income $2,644,720 $2,344,597
Interest expense 1,277,864 1,106,819
--------- ---------
Net interest margin 1,366,856 1,237,778
Provision for possible loan
losses 165,000 150,000
--------- ---------
Net interest income after provision
for possible loan losses 1,201,856 1,087,778
--------- ---------
Gain on sale of securities - - 3,728
Service charges 131,297 120,419
Other fees 33,101 22,478
--------- ---------
Total other income 164,398 146,625
--------- ---------
Salaries and benefits 399,190 362,282
Advertising and business development 34,104 29,349
Repairs and maintenance 27,103 21,611
Depreciation 49,260 54,062
Legal and professional 46,031 28,390
Data Processing 39,550 33,453
Regulatory fees and assessments 29,689 13,623
Other operating expenses 156,235 167,634
--------- ---------
Total operating expenses 781,162 710,404
--------- ---------
Net income (loss) before taxes 585,092 523,999
Provision for income taxes 257,000 234,505
--------- ---------
Net income after taxes 328,092 $ 289,494
--------- ---------
Other comprehensive
income, net of tax:
Unrealized holding gains/(losses)
on securities available for sale $ (61,278) $ 470
--------- ---------
Comprehensive income $ 266,814 $ 289,964
========= =========
Basic income Per Share $ .22 $ .27
========= =========
Diluted income Per Share $ .19 $ .22
========= =========
Refer to notes to the financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Cash Flows
for the quarter ended
March 31,
1999 1998
---- ----
Cash flows from operating activities $ 1,090,831 $ 944,922
----------- ----------
Cash flows from investing activities:
Securities, available-for-sale
Maturities, paydowns, calls $ 941,678 $ 1,511,747
Purchase of securities (1,600,000) (1,521,014)
Purchase of fixed assets (264,176) (305,399)
Increase in loans (5,537,481) (5,639,602)
----------- ----------
Net cash used in investing
activities $ (6,459,979) $(5,954,268)
----------- ----------
Cash flows from financing activities:
(Decrease) in customer deposits $ (5,855,853) $ 5,263,152
Exercise of warrants - - 5,000
Payment of cash dividends (151,887) (105,425)
----------- ----------
Net cash provided from financing
activities $ (6,007,740) $ 5,162,727
----------- ----------
Net increase in cash and cash
equivalents $(11,376,888) $ 153,381
Cash and cash equivalents,
beginning of period 19,247,203 5,020,621
----------- ----------
Cash and cash equivalents,
end of period $ 7,870,315 $ 5,174,002
=========== ==========
Refer to notes to the financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
March 31, 1999
Note 1 - Basis of Presentation
---------------------
The accompanying financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not
include all the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. Operating results for the three-month period
ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December
31, 1999. These statements should be read in conjunction
with the consolidated financial statements and footnotes
thereto included in Form 10-KSB for the year ended December
31, 1998.
Note 2 - Organization of the Business
----------------------------
Community National Bancorporation, Ashburn, Georgia
(the "Company") was organized in August, 1989 to serve as a
holding company for a proposed de novo bank, Community
National Bank, Ashburn, Georgia (the "Bank"). The Bank was
chartered and is currently regulated by the Office of the
Comptroller of the Currency; its deposits are each insured
up to $100,000, subject to aggregation rules, by the Federal
Deposit Insurance Corporation. In an initial public
offering conducted during 1990, the Company sold and issued
352,001 shares of its common stock. Proceeds from the above
offering amounted to $3,465,828, net of selling expenses.
The Company then purchased 100 percent of the Bank's shares
by injecting $3.3 million into the Bank's capital accounts
immediately prior to commencement of banking operations
(August, 1990).
During 1997, the Company authorized a three-for-one
stock split and reduced the par value per share to zero.
On May 11, 1998, the Company offered for sale a
minimum of 300,000 shares and a maximum of 400,000 shares of
its common stock at a price of $10.00 per share. By year-
end 1998, 400,000 shares of common stock were sold for
$3,953,903, net of selling expenses. At March 31, 1999 and
December 31, 1998, there were 1,518,871 shares of common
stock outstanding.
Note 3 - Recent Accounting Pronouncements
--------------------------------
Beginning January 1, 1998, the Company adopted the
provisions of SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective
for annual and interim periods beginning after December 15,
1997. This Statement establishes standards for the method
that public entities are to use when reporting information
about operating segments in annual financial statements and
requires that those enterprise reports be issued to
shareholders, beginning with annual financial statements in
1998 and for interim and annual financial statements
thereafter. SFAS 131 also established standards for related
disclosures about products and services, geographic areas
and major customers.
SFAS No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits" revises and
standardizes certain disclosures which were required under
SFAS Nos. 87, 88 and 106. Generally, the new Statement uses
a separate but parallel format, eliminates less useful
information, requires additional data deemed useful by
analysts, and allows some aggregation of presentation. This
Statement was adopted by the Company during 1998.
SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" was issued in June, 1998
and is effective for all calendar-year entities beginning in
January, 2000. This Statement applies to all entities and
requires that all derivatives be recognized as assets or
liabilities in the balance sheet, at fair values. Gains and
losses of derivative instruments not designated as hedges
will be recognized in the income statement. The Company has
not made an assessment of the expected impact that SFAS No.
133 will have on its financial statements.
Item 2 - Management Discussion and Analysis of
Financial Condition and Results of Operation.
--------------------------------------------
Liquidity and sources of capital
- --------------------------------
Community National Bancorporation (the "Company")
was organized in August, 1989 and began banking operations
through its wholly owned subsidiary, Community National Bank
(the "Bank"), on August 6, 1990. During the period from
April, 1989 (inception) to August 6, 1990, the Company was
in the development stage and devoted most of its efforts to
organizing, incorporating, planning, raising capital and
recruiting personnel.
The Bank obtained the necessary approvals to open
both its third and fourth branches. The third branch ("St.
Marys Branch") will be located in St. Marys, Georgia,
approximately 150 miles from Ashburn, Georgia. St. Marys,
Georgia is currently experiencing a level of high economic
growth, with which the Bank will soon participate. In
addition, it is projected that the majority of the loans in
St. Marys, Georgia will be to commercial businesses and to
homeowners purchasing primary residences. Since the Bank's
current loan portfolio is concentrated in agricultural
loans, loans from the St. Marys Branch will diversify the
portfolio and reduce the relative risk of loan losses in the
event that the farming industry experiences a downturn. The
fourth branch will open in Cordele, Georgia, approximately
18 miles north of the Main Office. While the Bank currently
operates an in-store branch (Walmart) in Cordele, Georgia,
it is believed that a larger location with drive through
facilities will increase both loan and deposit activities,
thereby increasing profits. The Cordele branch is expected
to open during 1999.
In order to fund the anticipated growth resulting
from the above two branches and from its current offices,
the Bank will need capital over and above the retained
earnings generated internally. Consequently, the Company
sold 400,000 shares of its no par common stock for
$3,953,903, net of selling expenses, and injected $.5
million into the Bank's capital accounts.
On August 6, 1990 the subsidiary Bank was
capitalized with a $3.3 million injection from the Company.
By March 31, 1999, the Bank's capital had increased to $8.8
million through retained earnings and a $500,000 capital
injection in late 1998. This level of capitalization, as
measured by the Bank's primary regulator, the OCC, is
adequate based on the following capital ratios and
guidelines.
Bank's Minimum required
March 31, 1999 by regulator
-------------- ----------------
Leverage ratio 7.1% 4.0%
Risk weighted ratio 10.1% 8.0%
Total assets decreased by $5.6 million to $116.0
million during the three-month period ended March 31, 1999.
The decrease was mainly in deposits which were gathered from
outside of the Company's primary service area. Reducing the
deposits was made possible because at December 31, 1998, the
Company had $15.9 million invested in federal funds yielding
4.5%.
Liquidity is the Company's ability to meet all
deposit withdrawals immediately, while also providing for
the credit needs of customers. The March 31, 1999 financial
statements evidence a satisfactory liquidity position as
total cash and cash equivalents amounted to $7.9 million,
representing 6.8% of total assets. Investment securities
amounted to $8.6 million, representing 7.4% of total assets;
these securities provide a secondary source of liquidity
since they can be converted into cash in a timely manner.
The subsidiary Bank is a member of the Federal Reserve
System and is maintaining relationships with several
correspondent banks and, thus, could obtain funds on short
notice. The Company's management closely monitors and
maintains appropriate levels of interest earning assets and
interest bearing liabilities, so that maturities of assets
are such that adequate funds are provided to meet customer
withdrawals and loan demand. There are no trends, demands,
commitments, events or uncertainties that will result in or
are reasonably likely to result in the Company's liquidity
increasing or decreasing in any material way.
Results of Operations
- ---------------------
For the three-month periods ended March 31, 1999
and 1998, net income amounted to $328,092 and $289,494,
respectively. Despite the higher income in the first three-
months of 1999, earnings per share for 1999 were lower due
to the additional 400,000 shares of common stock sold in
late 1998. For the three-month periods ended March 31, 1999
and 1998, diluted earnings per share amounted to $.19 and
$.22, respectively. Basic earnings per share amounted to
$.22 and $.27 for the three month periods ended March 31,
1999 and 1998, respectively. Below is a more detailed
discussion concerning results of operations for the three-
month periods ended March 31, 1999 and 1998.
a. Earning assets have increased from $92.9
million at March 31, 1998 to $108.2 million at March 31,
1999. As a consequence, net interest income, which
represents the difference between interest received on
interest earning assets and interest paid on interest
bearing liabilities, has increased from $1,237,778 to
$1,366,856 for the same period one year later, representing
an increase of $129,078, or 10.4%.
b. Other income increased from $146,625 for the
three-month period ended March 31, 1998 to $164,398 for the
three-month period ended March 31, 1999. The above increase
of $17,773 represents a 12.1% improvement. This increase is
primarily due to increased activity in transactional
accounts due to a higher deposit base. As a percent of
total assets, however, other income declined from .60% to
.57% for the three-month periods ended March 31, 1998 and
1999, respectively.
c. Other operating expenses increased from
$710,404 for the three-month period ended March 31, 1998 to
$781,162 for the three-month period ended March 31, 1999.
The above increase which amounted to $70,758 represents an
increase of 10.0%. As a percent of total assets, however,
other operating expenses declined from 2.91% to 2.69% for
the three-month periods ended March 31, 1998 and 1999,
respectively.
At December 31, 1998, the allowance for loan losses
amounted to $1,824,179, or 2.02% of gross loans. At March
31, 1999, the allowance amounted to $1,923,690, or 2.01% of
gross loans. Management considers the allowance for loan
losses to be adequate and sufficient to absorb possible
future losses; however, there can be no assurance that
charge-offs in future periods will not exceed the allowance
for loan losses or that additional provisions to the
allowance will not be required.
The Company is not aware of any current
recommendation by the regulatory authorities which, if they
were to be implemented, would have a material effect on the
Company's liquidity, capital resources, or results of
operations.
Year 2000
- ---------
A critical issue affecting companies that rely
extensively on electronic data processing systems, such as
the Bank, is the Year 2000 issue. The Year 2000 issue has
arisen due to the widespread use of computer programs that
rely on two-digit date codes to perform computations or
decision making functions. Many of these programs may fail
as a result of their inability to properly interpret date
codes beginning January 1, 2000. For example, such programs
may misinterpret "00" as the year 1900 rather than the year
2000. In addition, some equipment being controlled by
microprocessor chips may not deal appropriately with the
year "00". This could result in a system failure or
miscalculations causing disruptions of operations, including
among other things, a temporary inability to process
transactions or engage in similar, normal business
activities.
The Bank primarily uses a third-party vendor for
processing its primary banking applications. During 1997,
the Bank formed an internal task force to address the Year
2000 issue, conduct a comprehensive review of the Bank's
systems and ensure that the Bank takes any necessary
measures. The following items have been assessed as of
March 31, 1999: Computer hardware, security systems,
software applications, vault, ATM machine, telephone banking
and teller machines. All third-party vendors have been
contacted to provide assurances that their data processing
programs and systems are Year 2000 compliant now or will be
well in advance of the year 2000. All of these vendors
responded by stating that they have obtained third-party
reviews and assurances that their products are Year 2000
compliant. Contingency plans, such as the selection of
other vendors, have been formulated in the event that a
vendor is not able to provide a Year 2000 compliant product
within the Bank's established timeframes. The Bank has
budgeted $85,000 for expenses associated with Year 2000
compliance. Approximately $18,000 of the budgeted amount
has been incurred to date. However, there can be no
assurances that unforeseen difficulties or costs will not
arise. In addition, there can be no assurance that systems
of other companies on which the Bank's systems rely, such as
the Bank's data processing vendor, will be modified on a
timely basis, or that the failure by another company to
properly modify its systems will not negatively impact the
Bank's systems or operations.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
There are no material pending legal proceedings to which
the Company or the Bank is a party or of which any of their
property is the subject.
Item 2. Changes in Securities.
---------------------
(a) None.
(b) None.
Item 3. Defaults Upon Senior Securities.
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
Item 5. Other Information.
-----------------
Registrant filed an application to list its Common Stock
on the Nasdaq National Market on March 16, 1999.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended March 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
COMMUNITY NATIONAL
BANCORPORATION, INC.
(Registrant)
Date: May 14, 1999 BY: /s/ T. Brinson Brock
---------------- ----------------------------------
T. Brinson Brock, Executive Vice
President, Principal Executive
Officer and Chief Financial Officer
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