-1-
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 June 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, 1,518,871 shares
outstanding as of August 13, 1999.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
ASSETS
------
June 30, December 31,
1999 1998
(Unaudited) (Unaudited)
----------- -----------
Cash and due from banks $ 2,084,628 $ 3,397,203
Federal funds sold $ 3,160,000 $15,850,000
---------- ----------
Total cash and cash equivalents $ 5,244,628 $19,247,203
Securities:
Available for sale, at fair values 8,500,426 8,036,357
Loans, net 99,322,634 88,295,060
Property and equipment, net 3,254,803 2,406,538
Other assets 3,730,690 3,606,774
----------- -----------
Total Asset $120,053,181 $121,591,932
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities;
Deposits
Non-interest bearing deposits $ 5,702,382 $ 10,478,489
Interest bearing deposits $100,603,738 97,903.091
----------- -----------
Total deposits $106,306,120 $108,381,580
Other liabilities 879,422 688,858
----------- -----------
Total liabilities $107,185,542 $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 June 30, 1999
and December 31, 1998 $ 7,649,291 $ 7,649,291
Retained earnings 5,326,572 4,829,006
Unrealized gain (loss) on securities, net (108,224) 43,197
----------- -----------
Total Shareholders' Equity $ 12,867,639 $ 12,521,494
----------- -----------
Total liability and shareholders, equity $120,053,181 $121,591,932
=========== ===========
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
Ashburn, Georgia
Consolidated Statements of Income
for the three months ended
June 30,
-------------------
1999 1998
---- ----
Interest income $2,671,550 $2,492,880
Interest expense 1,286,557 1,201,417
---------- ---------
Net interest income $1,384,993 $1,291,463
Provision for possible loan losses 295,000 150,000
--------- ---------
Net interest income after provision
for possible loan losses $1,089,993 $1,141,463
========= =========
Other income
Service charges $ 143,623 $ 110,172
Other fees 86,261 14,211
--------- ---------
Total other income $ 229,884 $ 124,383
========= =========
Salaries and benefits $ 431,530 $ 350,832
Advertising and business development 42,196 25,339
Repairs and maintenance 28,347 26,706
Depreciation 51,060 39,210
Legal and professional 66,929 50,460
Data processing 37,296 36,026
Regulatory fee's and assessments 3,889 12,023
Other operating expenses 209,269 188,230
-------- ---------
Total operating expenses $ 870,516 $ 728,826
========= =========
Net income before taxes $ 449,361 $ 537,020
Provision for income taxes 128,000 280,000
--------- ---------
Net income after taxes $ 321,361 $ 257,020
--------- ---------
Other comprehensive income, net of tax:
Unrealized holding gains/(losses)
on securities available for sale $ (90,143) $ 4,941
--------- ---------
Comprehensive income $ 231,218 $ 261,961
========= =========
Basic income per share $ .21 $ .23
========= =========
Diluted income per share $ .19 $ .22
========= =========
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
Ashburn, Georgia
Consolidated Statements of Income
for the six months ended
June 30,
-------------------
1999 1998
---- ----
Interest income $5,316,270 $4,837,477
Interest expense 2,564,421 2,308,236
--------- ---------
Net interest income $2,751,849 $2,529,241
Provision for possible loan losses 460,000 300,000
--------- ---------
Net interest income after prevision
for possible loan losses $2,291,849 $2,229,241
--------- ---------
Other income
Gain on sale of securities $ - - $ 3,728
Service charges 274,920 230,591
Other fees 119,362 36,689
--------- ---------
Total other income $ 394,282 $ 271,008
Salaries and benefits $ 830,720 $ 713,114
Advertising and business development 76,300 54,688
Repairs and maintenance 55,450 48,317
Depreciation 100,320 93,272
Legal and professional 112,960 78,850
Data processing 76,846 69,479
Regulatory fees and assessments 33,578 25,646
Other operating expenses 365,504 355,864
--------- ---------
Total operating expenses $1,651,678 $1,439,230
========= =========
Net income before taxes $1,034,453 $1,061,019
Provision for income taxes 385,000 514,505
--------- ---------
Net income after taxes $ 649,453 $ 546,514
--------- ---------
Other comprehensive
income, net of tax:
Unrealized holding gains/(losses)
on securities available for sale $ (151,421) $ 5,411
--------- ---------
Comprehensive income $ 498,032 $ 551,925
========= =========
Basic income per share $ .43 $ .50
========= ========
Diluted income per share $ .38 $ .44
========= ========
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
Ashburn, Georgia
Consolidated Statements of Cash Flows
(Unaudited)
For the six-month period
Ended June 30,
------------------------
1999 1998
---- ----
Cash flows from operating activities: $ 1,276,421 $ 860,603
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets $ (948,585) $ (510,552)
Purchase of securities, AFS (2,103,411) (1,521,014)
Maturity and paydowns, AFS 1,487,921 1,611,747
(Increase) in loans, net (11,487,574) (11,454,628)
----------- -----------
Net cash used by investing activities $(13,051,649) $(11,874,447)
----------- -----------
Cash flows from Financing Activities:
Gain on sale of treasury stock $ - - $ 4,820
(Decrease) in deposits (2,075,460) 12,316,878
Payment of cash dividends (151,887) (105,425)
Exercise of stock warrants - - 105,000
----------- -----------
Net cash (used by) financing activities $ (2,227,347) $ 12,321,273
----------- -----------
Net (decrease) in cash and cash equivalents $(14,002,575) $ 1,307,429
Cash and cash equivalents,
beginning of period 19,247,203 5,020,621
----------- -----------
Cash and cash equivalents, end of period $ 5,244,628 $ 6,328,050
=========== ===========
Refer to notes to the financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to financial statements (Unaudited)
June 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 six-month periods ended
June 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 June 30, 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. 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 third
branch, which will be located in Cordele, Georgia. The Company
has received preliminary approval from the Office of the
Comptroller of the Currency to establish a de novo bank,
Cumberland National Bank, St. Marys, Georgia ("Cumberland
National"). It is anticipated that Cumberland National will
become operational prior to year-end 1999.
On August 6, 1990 the subsidiary Bank was capitalized with a
$3,3 million injection from the Company. By June 30, 1999, the
Bank's capital had increased to $9.1 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
June 30, 1999 by regulator
------------- ----------------
Leverage ratio 7.5% 4.0%
Risk weighted ratio 10.1% 8.0%
Total assets decreased by $1.5 million to $120.1 million
during the six-month period ended June 30, 1999. The decrease
resulted when deposits gathered from outside of the Company's
primary service area were not renewed. Reducing these deposits
was made possible because at December 31, 1998 the Company had
$15.9 million invested in federal funds yielding approximately
4.5%.
Liquidity is the Company's ability to meet all deposit
withdrawals immediately, while also providing for the credit
needs of customers. The June 30, 1999 financial statements
evidence a satisfactory liquidity position as total cash and cash
equivalents amounted to $5.2 million, representing 4.4% of total
assets. Investment securities amounted to $8.5 million,
representing 7.1% of total assets; these securities provide a
secondary source of liquidity since they can be converted into
cash in a timely manner. The subsidiary Bank is a member of the
Federal Reserve System and is maintaining relationships with
several correspondent banks and, thus, could obtain funds on
short notice. The Company's management closely monitors and
maintains appropriate levels of interest earning assets and
interest bearing liabilities, so that maturities of assets are
such that adequate funds are provided to meet customer
withdrawals and loan demand. There are no trends, vents or
uncertainties that will result in or are reasonably likely to
result in the Company's liquidity increasing or decreasing in any
material way.
Results of Operations
- ---------------------
Net income for the three months ended June 30, 1999 amounted
to $321,361 or $.19 per diluted share. For the three-month
period ended June 30, 1998, net income amounted to $257,020 or
$.23 per diluted share. Basic earnings per share for the three-
month period ended June 30, 1999 and 1998 amounted to $.21 and
$.23, respectively. The reduction in earnings per share figures
is mainly due to the fact that the average number of shares
outstanding increased by approximately 400,000, or 34.5%. The
primary reason for the increase in net income for the three-month
period ended June 30, 1999 as compared to the three-month period
ended June 30, 1998 is the $93,530 increase in net interest
income. This increase was due to a higher level of earning
assets. Other operating expenses and the provision for loan
losses increased by $141,690 and $145,000, respectively, for the
three-month period ended June 30 , 1999 as compared to the three-
month period ended June 30, 1998. Operating expenses increased
because of the additional personnel hired in preparation for the
opening of Cumberland National. Provision for loan losses
increased because of higher charge-offs.
For the six-month periods ended June 30, 1999 and 1998, net
income amounted to $649,453 and $546,514, respectively. Despite
the higher income in the first six-months of 1999, earnings per
share declined when compared to the six-month period ended June
30, 1998. As mentioned earlier, this is due to the significantly
higher average number of shares outstanding in the 1999 period.
For the six-month periods ended June 30, 1999 and 1998, diluted
earnings per share amounted to $.38, and $.44, respectively.
Below is a more detailed discussion concerning results of
operations for the six-month periods ended June 30, 1999 and
1998.
a. Earning assets have increased from $98.1 million at June 30,
1998 to $111.0 million at June 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
$2,529,241 to $2,751,849 for the same period one year later,
representing an increase of $222,608, or 8.8%.
b. Other income increased from $271,008 for the six-month
period ended June 30, 1998 to $394,282 for the six-month
period ended June 30, 1999. The above increase of $123,274
represents a 45.5% 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.
c. Other operating expense increased from $1,439,230 for the
six-month period ended June 30, 1998 to $1,651,678 for the
six-month period ended June 31, 1999. The above increase
amounting to $212,448 represents an increase of 14.8%. 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 2.94% for the six month-
period ended June 30, 1998 to 2.74% for the same period one
year later.
At June 30, 1999, the allowance for loan losses amounted to
$1,739,590, or 1.72% 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
six-month period ended June 30, 1999, net charge-offs amounted to
approximately $545,000, 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
an internal task force to address the Year 2000 issue, conduct a
comprehensive review of the Bank's system and ensure that the
Bank takes any necessary measures. The following items have been
assessed as of June 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 system 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 art 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 time frames. The
Bank has budgeted $85,000 for expenses associated with Year 2000
compliance. Approximately $34, 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.
-----------------
The Company filed an application to list its Common Stock on
the Nasdaq National Market on March 16, 1999. In connection with
such application, the Company has arranged to have its Common
Stock traded on the over-the-counter Bulletin Board under the
symbol "CBAC." Also, the Company has received the approval of the
Federal Deposit Insurance Corporation and the Office of the
Comptroller of the Currency for the formation of Cumberland
National Bank, a proposed wholly-owned subsidiary of the Company,
and is awaiting final approval of such formation from the Board
of Governors of the Federal Reserve Board.
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 June 30, 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: August 13, 1999 By: /s/
--------------------------------------
T. Brinson Brock, Sr., President,
Principal Executive Officer and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,084,628
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,160,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,500,426
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 101,062,224
<ALLOWANCE> 1,739,590
<TOTAL-ASSETS> 120,053,181
<DEPOSITS> 106,306,120
<SHORT-TERM> 0
<LIABILITIES-OTHER> 879,422
<LONG-TERM> 0
0
0
<COMMON> 7,649,291
<OTHER-SE> 5,218,348
<TOTAL-LIABILITIES-AND-EQUITY> 120,053,181
<INTEREST-LOAN> 4,925,914
<INTEREST-INVEST> 390,356
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,316,270
<INTEREST-DEPOSIT> 2,564,421
<INTEREST-EXPENSE> 2,564,421
<INTEREST-INCOME-NET> 2,751,849
<LOAN-LOSSES> 460,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,651,678
<INCOME-PRETAX> 1,034,453
<INCOME-PRE-EXTRAORDINARY> 1,034,453
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 649,453
<EPS-BASIC> .43
<EPS-DILUTED> .38
<YIELD-ACTUAL> 4.94
<LOANS-NON> 302,603
<LOANS-PAST> 132,033
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 211,283
<ALLOWANCE-OPEN> 1,565,923
<CHARGE-OFFS> 561,686
<RECOVERIES> 17,097
<ALLOWANCE-CLOSE> 1,739,590
<ALLOWANCE-DOMESTIC> 1,720,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 19,590
</TABLE>
