SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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, 1,534,711 shares
outstanding as of November 12, 1999.
Page 1
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
ASSETS
------
September 30, December 31,
1999 1998
(Unaudited) (Unaudited)
------------- ------------
Cash and due from banks $ 2,382,964 $ 3,397,203
Federal funds sold 2,430,000 15,850,000
----------- -----------
Total cash and cash equivalents $ 4,812,964 $ 19,247,203
Securities:
Available for sale, at fair values 8,688,332 8,036,357
Loans, net 104,597,697 88,295,060
Property and equipment, net 4,156,901 2,406,538
Other assets 4,421,469 3,606,774
----------- -----------
Total Assets $126,677,363 $121,591,932
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits
Non-interest bearing deposits $ 5,613,160 $ 10,478,489
Interest bearing deposits 106,750,525 97,903,091
----------- -----------
Total deposits $112,363,685 $108,381,580
Other liabilities 1,043,345 688,858
----------- -----------
Total liabilities $113,407,030 $109,070,438
----------- -----------
Commitments and contingencies
Shareholders' Equity:
Common stock, no par value, 10,000,000
shares authorized, 1,534,711 and 1,518,871
shares issued and outstanding at Sept. 30,
1999 and December 31, 1998, respectively $ 7,702,091 $ 7,649,291
Retained earnings 5,731,123 4,829,006
Unrealized gain (loss) on securities, net (162,881) 43,197
----------- -----------
Total Shareholders' Equity 13,270,333 $ 12,521,494
----------- -----------
Total liabilities and shareholders' equity $126,677,363 $121,591,932
=========== ===========
Refer to notes to the consolidated financial statements.
Page 2
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COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Income
for the three months ended
September 30,
1999 1998
---- ----
Interest income $2,804,444 $2,595,091
Interest expense 1,360,430 1,309,687
--------- ---------
Net interest income $1,444,014 $1,285,404
Provisions for possible loan losses 200,064 200,000
--------- ---------
Net interest income after provisions
for possible loan losses $1,243,950 $1,085,404
--------- ---------
Gain on sale of securities $ - - $ 622
Service charges on deposit accounts 156,137 124,398
Other income 21,729 14,217
--------- ---------
Total other income $ 177,866 $ 139,237
--------- ---------
Salaries and benefits $ 378,951 $ 346,248
Advertising and business development 29,122 30,777
Repairs and maintenance 31,945 28,213
Depreciation 49,390 46,800
Legal and professional 62,509 38,045
Data processing 40,591 35,319
Regulatory fees and assessments 16,101 9,634
Other operating expenses 152,856 207,403
--------- ---------
Total other expenses $ 761,465 $ 742,439
--------- ---------
Net income before income taxes $ 660,351 $ 482,202
Provision for income taxes 255,800 178,500
--------- ---------
Net income after taxes $ 404,551 $ 303,702
--------- ---------
Other comprehensive
income, net of tax:
Unrealized holding gains (losses)
on securities available for sale $ (54,657) $ 26,234
--------- ---------
Comprehensive income $ 349,894 $ 329,936
========= =========
Basic income per share $ .27 $ .27
========= =========
Diluted income per share $ .23 $ .25
========= =========
Refer to notes to the consolidated financial statements
Page 3
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COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Income
for the nine months ended
September 30,
1999 1998
---- ----
Interest income $8,120,714 $7,432,568
Interest expense 3,924,851 3,617,923
--------- ---------
Net interest income $4,195,863 $3,814,645
Provisions for possible loan losses 660,064 500,000
--------- ---------
Net interest income after provisions
for possible loan losses $3,535,799 $3,314,645
--------- ---------
Gain on sale of securities $ - - $ 4,350
Service charges on deposit accounts 431,057 354,989
Other income 141,091 50,906
--------- ---------
Total other income $ 572,148 $ 410,245
--------- ---------
Salaries and benefits $1,209,671 $1,059,362
Advertising and business development 105,422 85,465
Repairs and maintenance 87,395 76,530
Depreciation 149,710 140,072
Legal and professional 175,469 116,895
Data processing 117,437 104,798
Regulatory fees and assessments 49,679 35,280
Other operating expenses 518,360 563,267
--------- ---------
Total other expenses $2,413,143 $2,181,669
Net income before taxes $1,694,804 $1,543,221
Provision for income taxes 640,800 693,005
--------- ---------
Net income after taxes $1,054,004 $ 850,216
--------- ---------
Other comprehensive
income, net of tax:
Unrealized holding gains (losses)
on securities available for sale $ (206,078) $ 31,645
--------- ---------
Comprehensive income $ 847,926 $ 881,861
========= =========
Basic income per share $ .69 $ .77
========= =========
Diluted income per share $ .59 $ .69
========= =========
Refer to notes to the consolidated financial statements.
Page 4
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COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Unaudited Consolidated Statements of Cash Flows
for the three quarters ended
September 30,
1999 1998
---- ----
Cash flows from operating activities $ 1,161,007 $ 1,075,342
----------- -----------
Cash flows from investing activities:
Securities, available-for-sale
Sale of securities $ - - $ - -
Purchase of securities (2,103,411) (2,501,234)
Maturity and paydowns 1,487,921 2,928,019
(Increase) in loans, net (16,962,701) (13,163,300)
Purchase of property and equipment (1,900,073) (1,042,297)
----------- -----------
Net cash used in investing activities $(19,478,264) $(13,778,812)
----------- -----------
Cash flows from financing activities:
Increase in customer deposits $ 3,982,105 $ 16,360,506
Sale (purchase) of treasury stock - - 60,000
Payment of cash dividends (151,887) (105,425)
Exercise of stock warrants 52,800 195,400
----------- -----------
Net cash provided
from financing activities $ 3,883,018 $ 16,510,481
----------- -----------
Net (decrease) in
cash and cash equivalents $(14,434,239) $ 3,807,011
Cash and cash equivalents,
beginning of period 19,247,203 5,020,621
----------- -----------
Cash and cash equivalents, end of period $ 4,812,964 $ 8,827,632
=========== ===========
Refer to notes to the consolidated financial statements.
Page 5
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COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
September 30, 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 and nine-month
periods ended September 30, 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 September 30, 1999 and December 31, 1998, there were
1,534,711 and 1,518,871 shares of common stock outstanding,
respectively.
Page 6
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COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
September 30, 1999
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.
Page 7
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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. Since then, the Bank has opened two
other branches - one in Cordele, Georgia and one in Ashburn,
Georgia. The Bank is in the process of constructing its fourth
branch, which will be located in Cordele, Georgia. The Company
has received approval from the Office of the Comptroller of the
Currency to establish a de novo bank, Cumberland National Bank,
St. Marys, Georgia ("Cumberland National"). Cumberland National
commenced operations on October 1, 1999.
On August 6, 1990 the subsidiary Bank was capitalized with a
$3.3 million injection from the Company. By September 30, 1999,
the Bank's capital had increased to $9.5 million through retained
earnings and a $.5 million 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
September 30, 1999 by regulator
------------------ ------------
Leverage ratio 7.9% 4.0%
Risk weighted ratio 10.6% 8.0%
Total assets increased by $5.1 million to $126.7 million
during the nine-month period ended September 30, 1999. The
increase is attributed to a single deposit, the majority of which
had been withdrawn by October 15, 1999.
Liquidity is the Company's ability to meet all deposit
withdrawals immediately, while also providing for the credit
needs of customers. The September 30, 1999 financial statements
evidence a satisfactory liquidity position as total cash and cash
equivalents amounted to $4.8 million, representing 3.8% of total
assets. Investment securities amounted to $8.7 million,
representing 6.9% of total assets; these securities provide a
secondary source of liquidity since they can be converted into
cash in a timely manner. The subsidiary Bank is a member of the
Federal Reserve System and is maintaining relationships with
several correspondent banks and, thus, could obtain funds on
short notice. The Company's management closely monitors and
maintains appropriate levels of interest earning assets and
interest bearing liabilities, so that maturities of assets are
such that adequate funds are provided to meet customer
withdrawals and loan demand. There are no trends, demands,
commitments, events or uncertainties that will result in or are
reasonably likely to result in the Company's liquidity increasing
or decreasing in any material way.
Page 8
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Results of Operations
---------------------
Net income for the three months ended September 30, 1999
amounted to $404,551 or $.23 per diluted share. For the three-
month period ended September 30, 1998, net income amounted to
$303,702 or $.25 per diluted share. Basic earnings per share for
each of the three-month periods ended September 30, 1999 and 1998
amounted to $.27. The reduction in diluted earnings per share
figures for the three-month period ended September 30, 1999 as
compared to the three-month period ended September 30, 1998 is
mainly due to the fact that the average number of shares
outstanding increased by approximately 400,000, and due to the
granting of 110,000 stock options. Net income over the above
periods, however, has increased by $100,849 due to increases of
$158,610 in net interest income, and $38,629 in service charges,
and decreases of $19,026 in operating expenses and $77,300 in tax
provisions.
For the nine-month periods ended September 30, 1999 and
1998, net income amounted to $1,054,004 and $850,216,
respectively. Despite the higher income in the first nine-months
of 1999, earnings per share declined when compared to the nine-
month period ended September 30, 1998. As mentioned earlier,
this is due to the significantly higher average number of shares
of common stock and stock options outstanding in the 1999 period.
For the nine-month periods ended September 30, 1999 and 1998,
diluted earnings per share amounted to $.59, and $.69,
respectively; basic earnings per share for the above periods
amounted to $.69 and $.77, respectively. Below is a more
detailed discussion concerning results of operations for the nine-
month periods ended September 30, 1999 and 1998.
a. Earning assets have increased from $103.9 million at
September 30, 1998 to $117.5 million at September 30, 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 $3,814,645 to $4,195,863 for the same
period one year later, representing an increase of $381,218,
or 10.0%.
b. Other income increased from $410,245 for the nine-month
period ended September 30, 1998 to $572,148 for the nine-
month period ended September 30, 1999. The above increase
of $161,903 represents a 39.5% improvement. This increase
is primarily due to increased activity in transactional
accounts due to a higher deposit base, as well as to
increases in the fee structure.
Page 9
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c. Other operating expenses increased from $2,181,669 for the
nine-month period ended September 30, 1998 to $2,413,143 for
the nine-month period ended September 30, 1999. The above
increase amounting to $231,474 represents an increase of
10.6%. The primary reasons for the increase are expenses
associated with the preparation for the opening of
Cumberland National. Such expenses include personnel and
professional costs. Note, however, that as a percent of
average assets, operating expenses declined from 2.89% for
the nine month-period ended September 30, 1998 to 2.59% for
the same period one year later.
At September 30, 1999, the allowance for loan losses
amounted to $1,762,223, or 1.66% of gross loans. At December 31,
1998, the allowance amounted to $1,824,179, or 2.02% of gross
loans. The primary reasons for the reduction in the reserve for
loan losses can be attributed to heavier than normal charge-offs.
For the nine-month period ended September 30, 1999, net charge-
offs amounted to approximately $721,957, of which $453,000 was
associated with a single credit relationship. 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
Page 10
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an internal task force to address the Year 2000 issue, conduct a
comprehensive review of the Bank's systems and ensure that the
Bank takes any necessary measures. The following items have been
assessed as of September 30, 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-part reviews and assurances
that their products are Year 2000 compliant. Contingency plans,
such as the selection of other vendors, have been formulated in
the event that a vendor is not able to provide a Year 2000
compliant product within the Bank's established timeframes. The
Bank has budgeted $85,000 for expenses associated with Year 2000
compliance. Approximately $46,000 of the budgeted amount has
been incurred to date. However, there can be no assurances that
unforseen difficulties or costs will not arise. In addition,
there can be no assurance that systems of other companies on
which the Bank's systems rely, such as the Bank's data processing
vendor, will be modified on a timely basis, or that the failure
by another company to properly modify its systems will not
negatively impact the Bank's systems or operations.
Page 11
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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.
-----------------
The Company is proceeding with its plan to acquire all of the
issued and outstanding capital stock of Tarpon Financial Corporation for
the aggregate purchase price of $3,720,000 in cash and common stock. In
this connection, the Company expects to file a Form S-4/Proxy with the
Securities and Exchange Commission ("SEC") and for the required regulatory
approvals on or before November 30, 1999. Depending on when SEC and
regulatory approvals are obtained, it is expected that the merger will be
submitted for approval by Tarpon's shareholders in early 2000. Upon
consummation of the merger, Tarpon's sole subsidiary, First National Bank,
Tarpon Springs, Florida, will become the Company's third banking
subsidiary.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on October 12, 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
(Registrant)
Date: November 12, 1999. BY: /S/ T. Brinson Brock, Sr.
--------------------------------------------
T. Brinson Brock, Sr.
President and Chief Executive Officer
Principal Executive, Financial
and Accounting Officer
Page 12
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<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2382964
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2430000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8688332
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<LOANS> 106359920
<ALLOWANCE> 1762223
<TOTAL-ASSETS> 126677363
<DEPOSITS> 112363685
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0
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<COMMON> 7702091
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<EXPENSE-OTHER> 2413143
<INCOME-PRETAX> 1694804
<INCOME-PRE-EXTRAORDINARY> 1694804
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<NET-INCOME> 1054004
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