4
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, 1998
____________________________________________
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:
Common Stock, No Par Value
________________________
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
_________________________
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,
1998 were $8,805,723.
The aggregate market value of the Common Stock of the Registrant
held by non-affiliates of the Registrant on March 22, 1999, was
$10,632,950. 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 Common Stock as of March 22, 1999 (i.e.,
$10.00 per share). The estimated fair market value was
determined based upon the offering price of the secondary public
offering completed by the Company on December 31, 1998. 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 22, 1999: 1,518,871 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 that are not
statements of historical fact. The Company and the Bank (each as
later defined in this Report) caution readers that the following
important factors, among others, could cause the Company's actual
results to differ materially from the forward-looking statement
contained in this Report: (i) the effect of changes in laws and
regulations, including federal and state banking laws and
regulations, with which the Company or the Bank 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 THE
COMPANY OR ITS AGENTS MAY MAKE FROM TIME TO TIME.
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 was opened for business
on September 22, 1998.
Effective March 10, 1998, the Company received regulatory
approval to open a branch in St. Marys, Camden County, Georgia,
and the Bank purchased, on March 26, 1998, for $241,074, two
parcels of land, 11 acres in the aggregate, in St. Marys on which
construction of the branch building is under way. Pending
completion of the construction, the branch is conducting business
from a temporary structure on the site. The Company and the Bank
determined to capitalize the St. Marys branch by means of the
proceeds of a secondary public offering. To effect the public
offering, the Company filed a Registration Statement on SEC Form
SB-2 on May 11, 1998 (the "1998 Offering"). The Company completed
the 1998 Offering on December 31, 1998, raising $4,000,000 from
the sale of 400,000 shares of its common stock at $10 per share.
Effective March 24, 1998, T. Brinson Brock, Sr. was elected
Executive Vice President and Acting Chief Executive Officer of
the Company, 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 ceased being employed on
a full-time basis by the Bank and the Company and has rendered
services to the Company on a part-time, as needed basis.
The Company registered its common stock pursuant to Section
12(g) of the Securities and Exchange Act of 1934 by filing a Form
8-A with the Securities and Exchange Commission on February 24,
1999. On March 17, 1999, the Company filed with NASDAQ an
Application for Public Securities and a Listing Agreement
designed to obtain a listing for the Company's Common Stock on
the NASDAQ National Market.
On March 15, 1999, the Georgia legislature passed House Bill
297, which would, among other things, permit a bank holding
company owning a bank that does a lawful business in Georgia to
acquire control of a bank through formation of a de novo bank in
Georgia, provided that it obtains required departmental approval
and any required federal approval. Upon Governor Barnes signing
House Bill 297 into law, the Company intends to file an
application with the OCC for a charter for a de novo national
bank and, upon receipt of such charter, to convert the Bank's
Camden County branch into a wholly-owned national bank subsidiary
of the Company.
B. Business.
1. Services Offered by the Bank.
The Bank conducts a commercial banking business serving
Turner, Crisp and Camden 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.
2. Market Area and Competition.
The Bank's primary service area includes all of the Georgia
counties of Turner, and Crisp and Camden. The Bank also extends
credit to qualified borrowers in the contiguous counties of Tift
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 significant portion of the agricultural
output produced in the county is peanuts. Golden Peanut Company
is located in Ashburn, and is where it operates 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
management cannot guarantee 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 1998, there was one other bank in Turner County.
Management estimates that as of June 30, 1998, deposits in the
county totaled $171 million, with the Bank having
approximately 53.0% of such deposits.
Crisp County is located contiguous to Turner County on its
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 1994 was $16,856 compared to
$20,198 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
Corporati1on and Serco Company are among the largest non-
governmental employers in the County.
Arabi and Cordele are the only two incorporated
municipalities in the Crisp 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
former President 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 1998 there were five banks and eight
branches represented in Crisp County. Management estimates that
as of January 30, 1998, deposits in the county totaled
$230 million, with the Bank's branch having approximately 4.0%
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
currently includes ten submarines. 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 1997,
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 1998,
was 4.7%, which is .1% higher than the state average.
The Camden County Branch will be located approximately 150
miles from the Bank's main banking facility in Ashburn, Georgia.
The Bank and the Company believe that Camden County represents a
significant growth opportunity for the Bank. Between 1992 and
1997 deposits in Camden County have increased approximately $10
million each year. Presently there are five banks and eleven bank
branches in Camden County. Management estimates that there are a
total of $165 million in total deposits in the county, with the
Bank currently having less than 1% of the above deposits. The
county's population has been growing at a steady rate during the
1980's and 1990's and Camden County is expected to surpass that
of Glynn County by the year 2001. Glynn County is immediately
north of Camden County and has historically been the leading
county in coastal, southern Georgia.
Having entered the Camden County market, the Bank intends to
methodically increase its market share. The Bank's current loan
mix weighs heavily toward agriculture related loans. By expanding
into the Camden County banking market, the Bank has the
opportunity to lend to many small commercial and light industrial
customers and to the many retirees purchasing homes in Camden
County. Accordingly, the Bank believes that it will achieve a
more diversified loan portfolio and will be able to better manage
the risk inherent in the loan portfolio through the operation of
the Camden County Branch.
The Company and the Bank have taken the steps described
below to generate community support and deposit and loan business
for the Camden County Branch:
a. Established an Advisory Board for the Camden County
Branch consisting of the ten original subscribers to
the 1998 Offering (the "Camden County Promoters"),
whose mission is to promote the branch both as a viable
banking alternative and as a participant in the growth
of the community.
b. Nominated three of the Camden County Promoters to the
Company's Board of Directors.
c. As part of the 1998 Offering, sold 201,485 shares (or
more than 50% of the total shares sold) within Camden
County. The Company expects that these new shareholders
will provide a customer base in the Camden County
community from which the Bank can successfully expand
its deposit base and operations.
d. Entered into an employment agreement, on December 29,
1997, with Rowland T. Eskeridge, Sr., one of the Camden
County Promoters, to serve as Vice President of
Business Development with primary responsibility for
developing business for the Camden County Branch.
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,
1998 and for the year ended December 31, 1997. This
presentation includes all major categories of interest-earning
assets and interest-bearing liabilities:
AVERAGE CONSOLIDATED ASSETS
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Cash and due from banks $2,644,046 $ 1,719,415
Interest bearing bank balances -- 93,500
Taxable securities 6,655,308 6,041,608
Non-taxable securities 1,204,634 1,553,045
Federal funds sold 5,446,079 2,753,055
Net Loans 86,359,442 69,756,028
---------- ----------
Total earning assets 99,665,463 80,197,236
Other assets 4,389,939 2,818,044
----------- -----------
Total assets $106,699,448 $84,734,695
============ ===========
AVERAGE CONSOLIDATED
LIABILITIES AND STOCKHOLDERS' EQUITY
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Non interest bearing-deposits $ 5,745,532 $ 4,855,539
NOW and money market deposits 12,582,343 11,338,648
Savings Deposits 1,294,713 1,291,136
Time Deposits 76,202,833 59,828,302
Borrowings (lease) -- 2,241
Federal funds purchased 211,397 12,918
Other Liabilities 1,100,759 709,486
---------- ----------
Total liabilities 97,137,577 78,038,270
---------- ----------
Common Stock 5,376,522 3,479,988
Treasury Stock (61,200) (8,850)
Retained earnings 4,223,107 3,236,509
Unrealized gain/loss securities 23,442 (11,222)
---------- ----------
Total stockholders' equity 9,561,871 6,696,425
Total liabilities and ---------- ----------
stockholders' equity $106,699,448 $84,734,695
============ ===========
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, 1998
----------------------------
Average
Average Yield/
Assets Amount Interest Rate
- ------ ------- -------- -------
Interest bearing bank balances ---
Taxable securities $ 6,655,308 $ 402,945 6.05%
Non-taxable securities 1,204,634 56,963 7.16%
Federal funds sold 5,446,079 295,645 5.43%
Net loans 86,359,442(1) 9,435,725(2) 10.93%
----------- --------- -----
Total earning assets $99,665,463 $10,191,278 10.23%
=========== =========== =====
Liabilities
NOW and money market deposits $12,582,343 $ 384,874 3.06%
Savings deposits 1,294,713 41,748 3.22%
Time deposits 76,202,833 4,571,924 6.00%
Borrowings (lease) ---
Federal funds purchased 211,397 11,979 5.67%
---------- --------- ----
Total interest bearing
liabilities $90,291,286 $5,010,525 5.55%
=========== ========== ====
Interest spread 4.68%
=====
Net interest income $5,180,753
==========
Net yield on interest
earning assets 5.20%(3
=====
_____________________________________
(1) Net loans include $46,488 in loans that were placed on non-
accrual status. The Company would have earned an additional
$1,649 had these loans accrued interest throughout 1998.
(2) Interest earned on net loans included $452,398 in loan fees.
(3) The yield on non-taxable securities is tax-equivalent.
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%(3)
====
____________________________________
(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.
(3) The yield on non-taxable securities is tax-equivalent.
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, 1998
Compared with Year Ended December 31, 1997
------------------------------------------
Increase (decrease) due to:
Interest earned on: Volume Rate Total
- ------------------- ------ ---- -----
Interest bearing bank balances $ (5,352) $ --- $ (5,352)
Taxable securities 58,343 (35,094) 23,249
Non-taxable securities (16,479) 213 (16,266)
Federal funds sold 146,301 5,054 151,355
Net loans 1,816,984 (80,257) 1,736,727
--------- --------- ---------
Total Interest Income $1,999,797 $(110,084) $1,889,713
========== ========== ==========
Interest paid on:
- -----------------
NOW and money market deposits $ 250,279 $(230,572) $ 19,707
Savings deposits 173 --- 173
Time deposits 984,899 29,043 1,013,942
Borrowings (226) --- (226)
Federal funds purchased 11,243 57 11,300
---------- -------- ---------
Total Interest Expense $1,246,368 $(201,472) $1,044,896
========== ========== ==========
Change in net interest income $ 753,429 $ 91,388 $ 844,817
========== ========= ==========
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
========== ========= ==========
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, 1998
----------------------------
Deposit Category Average Amount Average Rate Paid
- ---------------- -------------- -----------------
Non interest bearing
demand deposits $ 5,745,532 N/A
NOW and money market deposits 12,582,343 3.06%
Savings deposits 1,294,713 3.22%
Time deposits 76,202,833 6.00%
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%
The following table indicates amounts outstanding of time
certificates of deposit of $100,000 or more and respective
maturities at December 31, 1998:
Time Certificates of Deposit
----------------------------
3 months or less $ 6,378,716
3-6 months $ 3,681,903
6-12 months $ 12,884,448
over twelve months $ 1,713,784
Total $ 24,658,851
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,
1998 and 1997 and the total amount of all loans for such periods:
As of December 31
Type of Loan 1998 1997
- ------------ ---- ----
Domestic:
Commercial, financial
and agricultural $67,929,551 $56,442,799
Real estate-construction 652,185 188,759
Real estate mortgage 14,190,655 13,049,306
Installment and other
loans to individuals 7,346,848 7,676,118
---------- ----------
Subtotal 90,119,239 77,356,982
Allowance for loan losses (1,824,179) (1,565,923)
---------- ----------
Total (net of allowance) $88,295,060 $75,791,059
=========== ===========
The following is a presentation of an analysis of maturities
of loans as of December 31, 1998 (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 $53,113 $13,413 $1,404 $67,930
Real estate-construction 652 --- --- 652
------- ------- ------ -------
Total $53,765 $13,413 $1,404 $68,582
======= ======= ====== =======
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,
19971998 (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 $17,464 $3,802 $1,404 $22,670
Variable rate loans 36,301 9,611 --- 45,912
------- ------ ------ -------
Total $53,765 $13,413 $1,404 $68,582
======= ======= ====== =======
The following table presents information regarding
nonaccrual, past due and restructured loans as of December 31,
19971998 and 19961997 (dollars in thousands):
As of December 31
1998 1997
---- ----
Loans accounted for on
a non-accrual basis:
Number: 2 2
Amount: $46 $17
Accruing loans which are contractually
past due 90 days or more as to principal
and interest payments:
Number: 3 1
Amount $144 $46
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 0
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: 3 0
Amount: $572 $0
As of December 31, 1998, 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, 1998, 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, 19971998 and
19961997, as well as a breakdown of the allowance for possible
loan losses (in thousands):
Year Ended December 31
1998 1997
---- ----
Balance at beginning of period $1,566 $1,200
Charge-offs (572) (476)
Recoveries 110 107
Provision charged to Operations 720 735
----- ------
Balance at end of period $1,824 $1,566
====== ======
Ratio of allowance for loan
losses to total loans outstanding
during the period 2.02% 2.02%
===== =====
Net charge-offs to average loans .53% .53%
==== ====
As of December 31, 1998, the allowance for possible
losses was allocated as follows:
Percent of Loan
in Each
Loans Amount Category to Total
- ----- ------ -----------------
Commercial, financial and
agricultural $1,392,000 75.4%
Real estate-Construction 20,000 .7%
Real estate-Mortgage 230,000 15.7%
Installment and other loans
to individuals 158,000 8.2%
Unallocated 24,179 -.-
---------- -----
Total $1,824,179 100.0%
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, 1998, 75.4% 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, 92.0% of the outstanding loans in this
category at December 31, 1998, 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, 1998, 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 15.7% 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, 1998, the securities portfolio
comprised approximately 6.6% of the Company's assets, while loans
comprised approximately 72.6% 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, 1998 and 1997, 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: 1998 1997
- ------------------- ---- ----
Obligations of U.S. Treasury
and other U.S. Agencies $5,526,732 $5,480,504
State, Municipal and County
Securities 2,136,025 1,187,667
Mortgage-Backed Securities --- 19,388
Federal Reserve Bank Stock 99,000 99,000
Federal Home Loan Bank Stock 274,600 231,400
Other Securities --- 60,000
---------- ----------
Total $8,036,357 $7,077,909
Held-to-Maturity:
- -----------------
As of December 31, 1998 and 1997, there were no securities
categorized as held-to-maturity.
The following table indicates, for the year ended December
31, 1998, 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. Agencies
0 to 1 year $ --- N/A
Over 1 through 5 years $4,523,792 5.95%
Over 5 through 10 years $1,002,940 6.14%
State, Municipal and County Securities
0 to 1 year $ --- N/A
Over 1 through 5 years $ 763,508 6.74%
Over 5 through 10 years $ 802,591 6.09%
Over 10 years $ 569,926 6.49%
Mortgage backed Securities
0 to 1 year $ --- N/A
Other Securities
No maturity $ 373,600 6.40%
---------- -----
Total $8,036,357 6.14%
========== =====
Held-to-Maturity:
- -----------------
As of December 31, 1998, 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, 1998 and 1997 are as follows:
1998 1997
---- ----
Return on average assets 1.13% 1.23%
Return on average equity 11.32% 15.56%
Equity to assets ratio 8.96% 7.90%
Dividend payout ratio 8.73% 9.50%
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 22, 1999, the Bank employed 35 full-time
equivalent employees, and the Company employed one full-time
equivalent employee. 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 Office of the Comptroller of the
Currency ("OCC"), the Georgia Department of Banking and Finance
(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,
1998, 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, 1998 that expressly
prohibits mergers involving out-of-state banks or (ii) permit
such merger transactions prior to June 1, 1998. 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.
In response to the Riegle-Neal Act, the Georgia legislature
adopted the Georgia Interstate Banking Act, effective July 1,
1995. The Georgia Interstate Banking Act provides that (i)
interstate acquisitions of institutions located in Georgia will
be permitted in states which also allow national interstate
acquisitions, and (ii) interstate acquisitions of institutions
located in Georgia will be permitted by institutions located in
states which allot national interstate acquisitions.
Additionally, in February 1996, the Georgia legislature
adopted the "Georgia Interstate Branching Act" which permits
Georgia-based banks and bank holding companies owning or
acquiring banks outside of Georgia and all non-Georgia banks and
bank holding companies owning or acquiring banks in Georgia the
right to merge any lawfully-acquired bank into an interstate
branch network. The Georgia Interstate Branching Act also allows
banks to establish de novo branches on a limited basis beginning
July 1, 1996. Beginning July 1, 1998, the number of de novo
branches which may be established is no longer limited, as
described below.
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.
Moreover, on March 15, 1999, the Georgia legislature passed
legislation that would permit a bank holding company owning a
bank that does a lawful business in Georgia to acquire control of
a bank through formation of a de novo bank in Georgia, provided
that it obtains required departmental approval and any required
federal approval. The legislation further provides that a bank
holding company may merge or consolidate a de novo bank that is
established, notwithstanding that it is less than five years old,
into another bank owned by that holding company. However, no out-
of-state bank holding company may enter Georgia to do banking
business through the formation of a de novo bank. Governor Barnes
is expected to sign the bill into law.
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, 1997, 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.
The Company and the Bank are required to comply with capital
adequacy standards established by the Federal Reserve in the case
of the Company, and the appropriate federal banking regulator in
the case of the Bank. The Federal Reserve has promulgated two
basic measures of capital adequacy for bank holding companies: a
risk-based measure and a leverage measure. All applicable capital
standards must be satisfied for a bank holding company to be
considered in compliance.
The risk-based capital standards are designed to make
regulatory capital requirements more sensitive to differences in
risk profile among banks and bank holding companies, to account
for off-balance-sheet-exposure, and to minimize disincentives for
holding liquid assets. Assets and off balance-sheet items are
assigned to broad risk categories, each with appropriate weights.
The resulting capital ratios represent capital as a percentage of
total risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based
Capital Ratio") of total capital ("Total Capital") to risk-
weighted assets (including certain off-balance-sheet items, such
as standby letters of credit) is 8%. At least half of Total
Capital must be comprised of common stock, minority interests in
the equity accounts of consolidated subsidiaries, noncumulative
perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less goodwill and certain other
intangible assets ("Tier 1 Capital"). The remainder may consist
of subordinated debt, other preferred stock, and a limited amount
of loan loss reserves ("Tier 2 Capital"). At December 31, 1998,
the Company's consolidated Total Risk-Based Ratio and its Tier 1
Risk-Based Capital Ratio (i.e., the ratio of Tier 1 Capital to
risk-weighted assets) were 15.1% and 13.8% respectively.
In addition, the Federal Reserve has established minimum
leverage ratio guidelines for bank holding companies. These
guidelines provide for a minimum ratio (the :Leverage Ratio") of
Tier 1 Capital to average assets, less goodwill and certain other
intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including those having the highest
regulatory rating. All other bank holding companies generally are
required to maintain a Leverage Ratio of at least 3%, plus an
additional cushion of 100 to 200 basis points. The Company's
Leverage Ratio at December 31, 1998 was 11.9%. The guidelines
also provide that bank holding companies experiencing internal
growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve has indicated that it will
consider a "tangible Tier 1 Capital Leverage Ratio" (deducting
all intangibles) and other indicia of capital strength in
evaluating proposals for expansion or new activities.
The Bank was in compliance with applicable minimum capital
requirements as of December 31, 1998. The Company has not been
advised by any federal regulator of any specific minimum capital
ratio requirement applicable to it or the Bank.
Failure to meet capital guidelines could subject the Bank to
a variety of enforcement remedies, including issuance of a
capital directive, the termination of deposit insurance by the
FDIC, a prohibition on the taking of brokered deposits and
certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon FDIC-
insured depository institutions that fail to meet applicable
capital requirements.
The federal bank regulators continue to indicate their
desire to raise capital requirements applicable to banking
institutions beyond their current levels. In this regard, the
Federal Reserve and the FDIC have, pursuant to Federal Deposit
Insurance Corporation Improvement Act of 1991, proposed an
amendment to the risk-based capital standards that would
calculate the change in an institution's net economic value
attributable to increases and decreases in market interest rates
and would require banks with excessive rate risk exposure to hold
additional amounts of capital against such exposures.
Under Federal Reserve policy, the Company is expected to act
as a source of financial strength for, and to commit resources to
support, each of its banking subsidiaries. This support may be
required at times when, absent such federal Reserve policy, the
Company may not be inclined to provide it. In addition, any
capital loans by a bank holding company to nay of its banking
subsidiaries are subordinate in right of payment to deposits and
to certain other indebtedness of such banks. In the event of a
bank holding company's bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to maintain
the capital of a banking subsidiary will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a
depository institution insured by the FDIC can be held liable for
any loss incurred by, or reasonably expected to be incurred by,
the FDIC after August 9, 1989, in connection with (i) the default
of a commonly controlled FDIC-insured depository institution or
(ii) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution "in danger of
default." "Default" is defined generally as the appointment of a
conservator or receiver, and "in danger of default" is defined
generally as the existence of certain conditions indicating that
a default is likely to occur in the absence of regulatory
assistance. The FDIC's claim for damages is superior to claims of
shareholders of the insured depository institution or its
holding company, but is subordinate to claims of depositors,
secured creditors and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository
institution. As a result, any loss suffered by the FDIC in
respect of any of these subsidiaries would likely result in
assertion of the cross-guarantee provisions, the assessment of
such estimated losses against the depository institution's
banking or thrift affiliates, and a potential loss of the
investment in such other subsidiary depository institution.
FDICIA establishes a system of prompt corrective action to
resolve the problems of undercapitalized institutions. Under this
system, which became effective in December 1992, the federal
banking regulators are required to establish five capital
categories well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
under-capitalized) and to take certain mandatory supervisory
actions, and are authorized to take other discretionary actions,
with respect to institutions in the three undercapitalized
categories, the severity of which will depend upon the capital
category in which the institution is placed. Generally, subject
to a narrow exception, FDICIA requires the banking regulator to
appoint a receiver or conservator for an institution that is
critically undercapitalized. The federal banking regulators have
specified by regulation the relevant capital level for such
category.
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.
The United States Congress and the Georgia General Assembly
have periodically considered and adopted legislation that has
resulted in, and could further result in, deregulation of both
banks and other financial institutions. Such legislation could
modify or eliminate geographic restrictions on banks and bank
holding companies and current prohibitions against banks engaging
in certain nonbanking activities. Such legislative changes could
place the Company in more direct competition with other financial
institutions including mutual funds, securities brokerage firms,
insurance companies and investment banking firms. The effect of
any such legislation on the business of the Company cannot be
accurately predicted. The Company cannot predict what other
legislation might be enacted or what other regulations might be
adopted, or if enacted or adopted, the effect thereof.
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 that 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 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. The Bank received
regulatory approval to open a branch location in Ashburn,
Georgia, on November 30, 1998. For this purpose, the Bank
purchased, for $100,000, the real estate located at 131
Industrial Drive, Ashburn, Georgia on July 8, 1998. The Bank
subsequently subdivided the parcel and disposed of a portion
thereof, including a single family residence, for which the Bank
had no use. The Bank intends to construct a 1,500 square foot
branch building on the remaining real estate. This second Ashburn
Branch will have three drive-through windows and an automatic
teller.
On March 26, 1998, the Bank purchased two parcels of land in
St. Marys, Camden County, Georgia, for $241,074 for construction
of its Camden County Branch. Pending the completion of the
permanent building, the Bank is operating the Camden County
Branch in a temporary structure located near the construction
site.
On July 2, 1998, the Bank purchased a .5 acre parcel of land
in Cordele, Crisp County, Georgia, for $288,000, intended for
future construction of a stand-alone branch facility in Crisp
County.
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 Iincorporation authorize it to
issue up to 10,000,000 shares of common stock, no par value per
share. As of March 22, 1999, 1,518,871 shares of the
Registrant's common stock were issued and outstanding to 1,210
holders of record.
There is no established public trading market in the stock.
In the 1998 Offering, the Registrant sold 400,000 shares of its
common stock at a price of $10.00 per share. The Registrant is
aware of isolated private sales which that have occurred during
the year ended December 31, 1998, in all of which the per
share price was $10.00.
During the first quarter of 1998 the Company declared
and paid a dividend of $105,426, i.e., $0.10 per share.
During the first quarter of 1997, the Company declared and
paid a dividend of $98,957, i.e., $0.0933 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.
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.
A. Results of Operations.
Year Ended December 31, 1998 - Compared to Year Ended December 31, 1997
- -----------------------------------------------------------------------
For the years ended December 31, 1998 and 1997, net income
amounted to $1,207,482 and $1,041,943 respectively. For 1998,
basic and diluted income per share of common stock was $1.00
and $.85, respectively; for 1997, basic and diluted income per
share of common stock amounted to $.98 and $.81, respectively.
Note that during 1998 and 1997, the outstanding warrants and
stock options were dilutive (i.e., upon exercise, they diluted
earnings per share by more than 3.03%), thus necessitating the
disclosure of basic and diluted income per share. Net income in
1998 increased by $165,539 primarily due to the following reasons:
a. Average earning assets for the year ended December 31,
1998 increased from $80.2 million to $99.7 million,
representing an increase of $19.5 million, or 24.3%. Below
are various components of average earning assets for the
periods indicated:
December 31,
1998 1997
---- ----
(in 000's)
Federal funds sold $ 5,446 $ 2,753
Securities 7,860 7,688
Net loans 86,359 69,756
------- -------
Total average earning assets $99,665 $80,197
======= =======
b. As a consequence of the increase in average earning assets,
the net interest income also increased from $4,335,936 for
the year ended December 31, 1997 to $5,180,753 for the
year ended December 31, 1998. Below are various
components of interest income and expense, as well as their
yield/costs for the periods indicated:
Years Ended: December 31, 1998 December 31, 1997
----------------- -----------------
Interest Interest
Income Yield Income Yield
/Expense /Cost /Expense /Cost
-------- ----- -------- ------
Interest income:
Federal funds sold $ 295,645 5.43% $ 144,290 5.24%
Securities 459,908 6.18% 458,277 5.96%
Loans 9,435,725 10.93% 7,698,998 11.04%
----------- ------ --------- ------
Total $10,191,278 10.23% $8,301,565 10.35%
=========== ====== ========== ======
Years Ended: December 31, 1998 December 31, 1997
----------------- -----------------
Interest Interest
Income Yield Income Yield
/Expense /Cost /Expense /Cost
-------- ----- -------- -----
Interest expense:
NOW and money
market deposit $ 384,874 3.06% $ 365,167 3.22%
Savings Deposits 41,748 3.22% 41,575 3.22%
Time Deposits 4,571,924 6.00% 3,557,982 5.95%
Borrowings 11,979 5.67% 905 5.97%
---------- ----- ---------- -----
Total $5,010,525 5.55% $3,965,629 5.47%
========== ===== ========== =====
Net interest income $5,180,753 $4,335,936
========== ==========
Net yield on
earning assets 5.20% 5.41%
===== =====
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 1998 was $5,180,753
as compared to $4,335,936 for 1997. Average yields on earning
assets were 10.23% and 10.35% for the years ended December 31,
1998 and 1997, respectively. The average costs of funds for 1998
increased to 5.55% from the 1997 cost of 5.47%. 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, 1998 and 1997 amounted to 5.20%% and 5.41%, respectively.
The decrease in net interest yield is due to two factors:
(i) during 1998, the yield on earning assets declined by .12%
and (ii) during 1998, the cost of funds increased by .08%.
Net interest income for 1998 as compared to 1997, increased by
$844,817. The increase is due primarily to the growth in average
earning assets from $80.2 million in 1997 to $99.7 million in 1998.
Non-Interest Income
- -------------------
Non-interest income for the years ended December 31,
1998 and 1997, amounted to $554,788 and $504,158, respectively.
As a percentage of average assets, non-interest income decreased
from .59% in 1997 to .52% in 1998. The primary reason for the above
decrease is due to the fact that the fee schedule on deposit accounts
remained virtually identical in 1998 as compared to 1997, and income
from miscellaneous services and products decreased during 1998.
The following table summarizes the major components of non-
interest income for the periods therein indicated:
Non-Interest Income
Year Ended December 31,
1998 1997
Service fees on deposit accounts $488,692 $418,012
Gain on sale of securities 4,350 4,773
Miscellaneous, other 61,746 81,373
-------- --------
Total non-interest income $554,788 $504,158
======== ========
Non-Interest Expense
- --------------------
Non-interest expense increased from $2,227,859 during
1997 to $3,035,465 in 1998. As a percent of total
average assets, non-interest expense has increased from 2.63% in
1997 to 2.84% in 1998. The main reason for the above
increase is associated with the Company's efforts in opening the
second branch in Ashburn, Georgia and its first branch in St.
Marys, Georgia. Below are the components of non-interest expense
for the years 1998 and 1997.
Non-Interest Expense
Year Ended December 31,
1998 1997
---- ----
Salaries and other
personnel benefits $1,438,874 $1,106,062
Data processing charges 143,827 111,377
Depreciation 181,650 130,746
Professional Fees 173,319 141,246
Other expenses 1,097,795 738,428
---------- ----------
Total non-interest expense $3,035,465 $2,227,859
========== ==========
For the year ended December 31, 1998, the allowance for
loan losses increased from $1,565,923 to $1,824,179. The
allowance for loan losses as a percent of gross loans was
identical, at 2.02%, as of December 31, 1997 and December 31,
1998. As of December 31, 1998, 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 19971998 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 $37,744 $9,113 $13,927 $27,505 $1,830 $90,119
Securities --- --- --- 5,287 2,749 8,036
Federal funds sold 15,850 --- --- --- --- 15,850
------- ------ ------- ------- ------ -------
Total earning assets $53,594 $9,113 $13,927 $32,792 $4,579 $114,005
======= ====== ======= ======= ====== ========
SUPPORTING
SOURCES OF FUNDS
Interest-bearing
demand deposits
and savings $13,786 $ --- $ --- $ --- $ --- $13,786
Certificates,
Less than $100M 21,487 11,903 20,642 5,426 --- 59,458
Certificates,
$100M and over 6,379 3,682 12,884 1,714 --- 24,659
------- ------- ------- ------- ----- -------
Total interest-bearing
liabilities $41,652 $15,585 $33,526 $7,140 $ --- $97,903
======= ======= ======= ====== ====== =======
Interest rate
Sensitivity gap $11,942 (6,472) (19,599) 25,652 4,579 16,102
Cumulative gap 11,942 5,470 (14,129) 11,523 16,102 16,102
Interest rate
sensitivity gap
ratio 1.29 .58 .42 4.59 N/A 1.16
Cumulative interest
rate sensitivity
gap ratio 1.29 1.10 .84 1.12 1.16 1.16
As evidenced by the table above, the Company is asset
sensitive from zero to six months, liability sensitive from six
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 six months and from one year on; it would reduce
income from six months through one year. Conversely, a decline
in interest rates would reduce income from zero through six
months, and from one year on; it would increase income from six
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 $24.6 million in 19971998. Below are pertinent
liquidity balances and ratios for the years ended December 31,
1998 and 1997.
December, 31
1998 1997
---- ----
Cash and cash equivalents $19,247,203 $5,020,621
CDs, over $100,000
to total deposits ratio 22.8% 18.6%
Loan to deposit ratio 81.5% 90.4%
Securities to total assets ratio 6.6% 7.7%
Brokered deposits --- ---
As the above balances and ratios indicate, management
believes that the Company's 1998 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, 1998.
Minimum
December 31, Regulatory
Bank 1998 Requirement
- ---- ------------ -----------
Tier 1 Capital 9.6% 4.0%
Tier 2 Capital 1.2% N/A
---- ----
Total risk-based capital ratio 10.8% 8.0%
===== ====
Leverage ratio 8.3% 3.0%
==== ====
Minimum
December 31, Regulatory
Company - Consolidated 1998 Requirement
- ---------------------- ------------ -----------
Tier 1 Capital 13.8% 4.0%
Tier 2 Capital 1.3% N/A
----- ----
Total risk-based capital ratio 15.1% 8.0%
===== ====
Leverage ratio 11.9% 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.
B. Year 2000 Remediation.
Computer programs that have time-sensitive software may not
correctly recognize dates beginning in the year 2000. This
problem (the "Year 2000 Issue") could result in miscalculations
or system failures.
The Company has conducted a review of both its information
technology and non-information technology systems, and has
determined that all such systems are adequately Year 2000
compliant. The Company incurred expenses of $13,000 in
connection with such review in 1998, and it expects to incur
additional related expenses of $30,000 during 1999. As part of
routine systems maintenance, the Company replaced or upgraded
certain systems, but in no case did the Company replace or
upgrade a system solely because of the Year 2000 Issue.
Accordingly, the Company does not believe that the replacement
and upgrading costs are specifically related to the Year 2000
Issue.
The Company believes that its most likely worst case
scenario arising from the Year 2000 Issue would be a power
failure. It is also possible, if the Company's material vendors
and contractors do not successfully complete their remediation
efforts, that the Company may experience disruptions to its
business that could have a material adverse effect on its results
of operations. The Company could also be materially affected by
widespread economic or financial market disruption or by the
failure or malfunctioning of government computer systems. The
Company has developed a contingency plan that it believes will
prevent disruption of its business by the Year 2000 Issue in the
event that its remediation efforts are not successful.
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,
1998 and 1997
Consolidated Statements of Income-for the years
ended December 31, 1998 and 1997
Consolidated Statement of Changes in Stockholders'
Equity-for the years ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows-for the
years ended December 31, 1998 and 1997
Notes to Consolidated Financial Statements
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
TABLE OF CONTENTS
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 44
Report of Independent Accountants
Board of Directors
Community National Bancorporation
Ashburn, Georgia
We have audited the accompanying consolidated balance
sheets of Community National Bancorporation and subsidiary as of
December 31, 1998 and 1997, 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 audit 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, 1998 and 1997, and
the consolidated results of their operations and their cash flows
for each of the years in the two-year period ended December 31,
1998, in conformity with generally accepted accounting
principles.
Atlanta, Georgia
February 28, 1999
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
ASSETS
As of December 31,
1998 1997
---- ----
Cash and due from banks $3,397,203 $2,770,621
Federal funds sold, net (Note 3) 15,850,000 2,250,000
---------- ----------
Total cash and cash equivalents $19,247,203 $5,020,621
Securities: (Notes 2 & 4)
Available-for-sale at fair value 8,036,357 7,077,909
Loans, net (includes loans of $3,413,215
(1998) and $3,191,232 (1997) to insiders)
(Notes 2, 5, 6, & 14) 88,295,060 75,791,059
Property and equipment, net (Notes 2 & 7) 2,406,538 1,323,876
Other assets 3,606,774 2,380,922
---------- ----------
Total Assets $121,591,932 $91,594,387
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
- ------------
Deposits
Non-interest bearing deposits $10,478,489 $ 7,488,707
Interest bearing deposits 97,903,091 76,353,452
---------- ----------
Total deposits (Note 9) $108,381,580 $83,842,159
Other liabilities 688,858 574,556
----------- ----------
Total Liabilities $109,070,438 $84,416,715
----------- ----------
Commitments and Contingencies (Note 8)
- -----------------------------
Shareholders' Equity: (Notes 1 & 10)
- ---------------------
Common stock, no par value, 10,000,000
shares authorized, 1,518,871 (1998)
and 1,060,251 (1997) shares issued;
1,518,871 (1998) and 1,054,251 (1997)
shares outstanding $ 7,649,291 $ 3,479,988
Treasury stock - - (40,000)
Retained earnings 4,829,006 3,726,950
Unrealized gain (loss) on securities, net 43,197 10,734
------------ -----------
Total Shareholders' Equity $ 12,521,494 $ 7,177,672
------------ -----------
Total Liabilities and
Shareholders' Equity $121,591,932 $91,594,387
============ ===========
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Income
Years Ended December 31,
Interest Income: 1998 1997
- ---------------- ---- ----
Interest and fees on loans (Note 2) $ 9,435,725 $7,698,998
Interest on investment securities 459,908 458,277
Interest on federal funds sold 295,645 144,290
----------- ----------
Total interest income $10,191,278 $8,301,565
Interest Expense:
- -----------------
Interest on deposits and
borrowings(Note 11) $ 5,010,525 $3,965,629
------------ ----------
Net interest income 5,180,753 4,335,936
Provision for possible
loan losses (Note 6) 720,000 735,300
------------ ----------
Net interest income after provision
for possible loan losses $ 4,460,753 $3,600,636
------------ ----------
Other Income:
- -------------
Gain on sale/settlement of
securities (Note 4) $ 4,350 $ 4,773
Service fees on deposit accounts 488,692 418,012
Miscellaneous, other 61,746 81,373
------------ ----------
Total other income $ 554,788 $ 504,158
------------ ----------
Other Expenses:
- ---------------
Salaries and benefits $ 1,438,874 $1,106,062
Data processing expense 143,827 111,377
Professional fees 173,319 141,246
Depreciation 181,650 130,746
Repairs and maintenance 123,630 124,152
Other operating expenses (Note 12) 974,165 614,276
----------- ----------
Total other expenses $ 3,035,465 $2,227,859
----------- ----------
Income before income tax $ 1,980,076 $1,876,935
Income tax (Notes 2 & 13) 772,594 834,992
----------- ----------
Net income $ 1,207,482 $1,041,943
------------ ----------
Other comprehensive income, net of tax
Unrealized holding gains, securities 32,463 19,409
------------ ----------
Comprehensive income $ 1,239,945 $1,061,352
============ ==========
Basic earnings per share (Note 2) $ 1.00 $ .98
============ ==========
Diluted earnings per share (Note 2) $ .85 $ .81
============ ==========
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, 1998 and 1997
Common Stock Treasury Stock
Shares Amount Shares Amount
------ ------ ------ ------
Balance, December 31, 1995 353,417 $3,479,988 - - $ - -
------- ---------- ------ ------
Dividends paid - - - - - - - -
Net income, 1996 - - - - - - - -
Unrealized (loss) on
securities - - - - - - - -
------- ---------- ------ ------
Balance, December 31, 1996 353,417 $3,479,988 - - $ - -
------- ---------- ------ ------
Stock splin (3:1) 709,834 - - - - - -
Dividens 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 $(40,000)
--------- ---------- ------ --------
Dividends paid
($.1 per share) - - - - - - - -
Treasury stock sold - - 20,000 (6,000) 40,000
Exercise of options 58,620 195,400 - - - -
Sale of stock 400,000 3,953,903 - - - -
Net income - - - - - - - -
Unrealized gain,
securities - - - - - - - -
--------- --------- ------ -------
Balance, December 31, 1998 1,518,871 $7,649,291 - - $ - -
========= ========== ====== ========
Unrealized Total
Retained Gain on Shareholders'
Earnings Securities Equity
-------- ---------- -------------
Balance, December 31, 1995 $ 1,905,021 $ 24,079 $ 5,409,088
----------- ---------- ------------
Dividends paid (63,615) - - (63,615)
Net income 942,558 - - 942,558
Unrealized (loss) on
securities - - (32,754) (32,754)
----------- ---------- ------------
Balance, December 31, 1996 $ 2,783,964 $ (8,675) $ 6,255,277
----------- ---------- ------------
Stock split (3:1) - - - - - -
Dividends paid
(.0933 per share) (98,957) - - (98,957)
Purchase of stock - - - - (40,000)
Net incoem, 1997 1,041,943 - - 1,041,943
Unrealized gain, securities - - 19,409 19,409
----------- ---------- ------------
Balance, December 31, 1997 $ 3,726,950 $ 10,734 $ 7,177,672
----------- ---------- ------------
Dividends paid
($.1 per share) (105,526) - - (105,426)
Treasury stock sold - - - - 60,000
Exercise of options - - - - 195,400
Sale of stock - - - - 3,953,400
Net income 1,207,482 - - 1,207,482
Unrealized gains, securities - - 32,463 32,463
----------- ---------- ------------
Balance, December 31, 1998 $ 4,829,006 $ 43,197 $ 12,521,494
=========== ========== ============
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Cash Flows
Years Ended December 31,
Cash flows from operating activities: 1998 1997
- ------------------------------------- ---- ----
Net income $ 1,207,482 $1,041,943
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation $ 181,650 $ 130,746
Net amortization of premiums
on securities 10,422 3,184
(Gain) on sale or settlements
of securities (4,350) (4,773)
Provisions for loan losses 720,000 735,300
(Increase) in other assets (1,225,852) (385,558)
Increase in liabilities 114,300 (317,382)
Net cash provided by operating ------------ ----------
activities $ 1,003,652 $1,203,460
------------ ----------
Cash flows from investing activities:
- -------------------------------------
Proceeds from maturities and paydowns
of securities $ 4,128,019 $3,632,000
Proceeds from sales of securities - - 496,626
Purchase of investment securities (5,060,076) (3,584,688)
Net increase in loans (13,224,000) (15,996,672)
Purchase of property and equipment (1,264,312) (437,412)
----------- ----------
Net cash used in investing activities $(15,420,369) $(15,890,146)
----------- ----------
Cash flows from financing activities:
- -------------------------------------
Exercise of warrants, options $ 195,400 $ - -
Sale of stock 3,953,903 - -
Sale/(purchase) of treasury stock 60,000 (40,000)
Payment of dividends (105,425) (98,957)
(Decrease) in lease obligations - - (15,186)
Increase in customer deposits 24,539,421 13,748,631
Net cash provided from financing ------------- -------------
activities $ 28,643,299 $ 13,594,488
------------- -------------
Net increase in cash and cash
equivalents $ 14,226,582 $ (1,092,198)
Cash and cash equivalents,
beginning of year 5,020,621 6,112,819
------------- -------------
Cash and cash equivalents,
end of year $ 19,247,203 $ 5,020,621
============= =============
Supplemental Information:
Income taxes paid $ 879,000 $ 800,125
============= =============
Interest paid $ 3,845,696 $ 3,908,406
============= =============
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to onsolidated Financial Statements
December 31, 1998 and 1997
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 ("OCC") and its deposits are each insured up to $100,000
by the Federal Deposit Insurance Corporation. The Bank has two
offices in Ashburn, Georgia and one office in Cordele, Georgia.
Two other offices, one in St. Marys, Georgia and the other in
Cordele, Georgia were approved by the OCC to operate as branches
of the Bank.
During 1998, the Company issued and sold 400,000 shares of
its common stock at $10.00 per share. The public offering
yielded approximately $3,954,000, the substantial majority of
which will be utilized for expansion.
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, 1998
and 1997, 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, 1998 and 1997, 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 accreted 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. As of December 31, 1998 and 1997, other real estate
amounted to $650,000 and zero, respectively.
Income Taxes. Income tax expense consists of current and
deferred taxes. Current income tax provisions approximate taxes
to be paid or refunded for the applicable year. Deferred tax
assets and liabilities are recognized on the temporary
differences between the bases of assets and liabilities as
measured by tax laws and their bases as reported in the financial
statements. Deferred tax expense or benefit is then recognized
for the change in deferred tax assets or liabilities between
periods.
Recognition of deferred tax balance sheet amounts is based
on management's belief that it is more likely than not that the
tax benefit associated with certain temporary differences, tax
operating loss carryforwards, and tax credits will be realized.
A valuation allowance is recorded for those deferred tax items
for which it is more likely than not that realization will not
occur.
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, 1998 and 1997 were approximately $240,000 and $199,000,
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, 1998, basic EPS and diluted
EPS were computed as follows :
Basic EPS Diluted EPS
Numerator Denominator Numerator Denominator
--------- ----------- --------- -----------
Net income $1,207,482 $1,207,482
Weighted average
shares 1,211,976 1,211,976
Options, warrants 202,868
---------- --------- ---------- ---------
Totals $1,207,482 1,211,976 $1,207,482 1,414,844
========== ========= ========== =========
EPS $1.00 $.85
===== ====
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 in $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
==== ====
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 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits" revises and standardizes certain
disclosures which were required under SFAS 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 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 133 will have on its financial
statements.
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, 1998 and 1997, the Bank sold
$15,850,000 and $2,250,000, 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, 1998 follow:
Gross
Amortized Unrealized Estimated
Description Costs Gains Losses Market Values
- ----------- --------- ------------------- -------------
U.S. Agency
securities $ 5,487,337 $ 39,825 $ (430) $ 5,526,732
FRB & FHLB stock 373,600 - - - - 373,600
Municipal
securities 2,109,971 26,058 (4) 2,136,025
------------ -------- --------- -------------
Total securities $ 7,970,908 $ 65,883 $ (434) $ 8,036,357
============ ======== ========= =============
The amortized costs and estimated market values of
securities available-for-sale as of December 31, 1997 follow:
Gross
Amortized Unrealized Estimated
Description Costs Gains Losses Market Values
- ----------- --------- ------------------- -------------
U.S. Agency
securities $ 5,484,327 $ 7,92 $(11,746) $ 5,480,504
FRB & FHLB stock 330,400 - - - - 330,400
Municipal
securities 1,167,580 20,701 (614) 1,187,667
Mortgage backed
securities 19,33 - - - - 19,338
CDs at other banks 60,000 - - - - 60,000
----------- -------- -------- ------------
Total securities $ 7,061,645 $ 28,624 $(12,360) $ 7,077,909
=========== ======== ======== ============
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, 1998, 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.
Amortized Estimated
Costs Market Values
---------- -------------
Due in one year or less $ - - $ - -
Due after one through five years 5,239,181 5,287,300
Due after five through ten years 1,788,197 1,805,531
Due after ten years 569,930 569,926
FRB and FHLB stock (no maturity) 373,600 373,600
---------- ----------
Total securities $7,970,908 $8,036,357
========== ==========
For the year ended December 31, 1998, no securities were
sold by the Company. Proceeds from sales of securities during
1997 were $496,626. Net gains of $4,773 were realized on those
sales.
As of December 31, 1998, an aggregate amount of $3,705,000,
consisting of total or portions of twelve securities, were
pledged as collateral for public funds deposits. 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.
Note 5 - Loans
The composition of net loans by major loan category, as of
December 31, 1998 and 1997, follows:
December 31,
1998 1997
---- ----
Commercial, financial, agricultural $ 67,929,551 $ 56,442,799
Real estate - construction 652,185 188,759
Real estate - mortgage 14,190,655 13,049,306
Installment 7,346,848 7,676,118
------------- -------------
Loans, gross $ 90,119,239 $ 77,356,982
Deduct:
Allowance for loan losses (1,824,179) (1,565,923)
------------- -------------
Loans, net $ 88,295,060 $ 75,791,059
============= =============
The Company had no loans which it considered to be impaired
other than the loans on which the accrual of interest had been
discontinued or loans that are over 90 days past due. Total
recorded investment in impaired loans was $190,476 and $16,600 at
December 31, 1998 and 1997, respectively. These loans had
related allowances for loan losses of approximately $28,500 and
$2,500 at December 31, 1998 and 1997, respectively. The average
recorded investment in impaired loans during 1998 and 1997 was
approximately $263,411 and $211,520, respectively. No
significant amount of interest income was recognized on impaired
loans in 1998 or 1997.
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, 1998 and 1997 follows:
Years ended December 31,
1998 1997
---- ----
Balance, beginning of year $1,565,923 $1,200,398
Add: Provision for loan losses 720,000 735,300
Add: Recoveries of previously charged
off amounts 110,033 106,337
---------- ----------
Total $2,395,956 $2,042,035
Deduct: Amount charged-off (571,777) (476,112)
---------- ----------
Balance, end of year $1,824,179 $1,565,923
========== ==========
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, 1998 and 1997 follow:
December 31,
------------------------
1998 1997
---- ----
Land $ 792,499 $ 155,018
Land improvements - - 43,111
Leasehold improvements 166,500 166,500
Building 1,387,699 939,338
Furniture and equipment 922,458 851,461
---------- ----------
Property and equipment, gross $3,269,156 $2,155,428
Deduct:
Accumulated depreciation (862,618) (831,552)
---------- ----------
Property and equipment, net $2,406,538 $1,323,876
========== ==========
Depreciation expense for the years ended December 31, 1998
and 1997 amounted to $181,650 and $130,746, 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
------------- ------------- -------------------
Furniture and equipment 1 to 7 Straight-line
Buildings 32, 39 Straight-line
Leasehold improvements 5 Straight-line
Note 8 - Commitments and Contingencies
Please refer to Note 14 concerning warrants and options
earned by directors and executive officers.
Please refer to Note 16 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, 1998
are show below:
Calendar Year Amount
------------- ------
1999 $ 25,000
2000 25,000
2001 25,000
2002 18,500
---------
Total $ 93,500
=========
Note 9 - Deposits
The following details deposit accounts at December 31, 1998
and 1997:
December 31,
---------------------------
1998 1997
---- ----
Non-interest bearing deposits $10,478,489 $7,488,707
Interest bearing deposits:
NOW accounts 7,721,624 6,585,459
Money market accounts 4,974,496 4,456,079
Savings 1,089,769 1,259,557
Time, less than $100,000 59,458,351 48,487,604
Time, $100,000 and over 24,658,851 15,564,753
---------- ----------
Total deposits $108,381,580 $ 83,842,159
============ ============
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: 1,518,871 and
1,054,251 shares outstanding at December 31, 1998 and 1997,
respectively. There are 251,502 warrants and 52,800 options
outstanding at December 31, 1998. 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, 1998 and 1997 follows:
December 31,
-------------------------------
1998 1997
---- ----
Interest on NOW accounts $ 218,084 $ 211,537
Interest on money market accounts 166,790 153,630
Interest on savings accounts 41,748 41,575
Interest on CDs under $100,000 3,440,968 2,658,701
Interest on CDs $100,000 and over 1,130,956 899,281
Interest on federal funds purchased 11,979 679
Interest, other borrowings - - 226
---------- ----------
Total interest on deposits and
borrowings $5,010,525 $3,965,629
========== ==========
Note 12 - Other Operating Expenses
A summary of other operating expenses for the years ended
December 31, 1998 and 1997 follows:
December 31,
-------------------------------
1998 1997
---- ----
Stationary and supplies $ 88,963 $ 68,050
Regulatory fees 56,791 50,058
Courier & postage 58,341 39,258
Advertising & business development 105,728 85,831
Utilities and telephone 69,787 47,834
Directors' fees 88,450 90,700
Taxes and licenses 64,103 60,309
St. Marys expense 178,950 - -
All other operating expenses 263,052 172,236
---------- ----------
Total other operating expenses $ 974,165 $ 614,276
========== ==========
Note 13 - Income Taxes
As of December 31, 1998 and 1997, the Company's provision
for income taxes consisted of the following:
December 31,
------------------------------
1998 1997
---- ----
Current $ 684,787 $ 735,153
Deferred 87,807 99,839
---------- ----------
Federal income tax expense $ 772,594 $ 834,992
========== ==========
Deferred income taxes consist of the following:
1998 1997
---- ----
Provision for loan losses $ 87,807 $ 124,278
Other real estate - - (30,600)
Other - - 6,161
---------- ----------
Total $ 87,807 $ 99,839
========== ==========
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,
----------------------------------
1998 1997
---- ----
Income taxes at statutory rate $ 673,226 $ 638,160
State tax, net of Federal benefits 22,880 80,011
Change in valuation allowance 87,807 124,278
Other (11,319) (7,457)
---------- ----------
Total $ 772,594 $ 834,992
========== ==========
The tax effects of the temporary differences that comprise
the net deferred tax assets at December 31, 1998 and 1997 are
presented below:
1998 1997
Deferred tax assets: ---- ----
Allowance for loan losses $ 574,950 $ 487,143
Unrealized gain, securities (22,253) (5,530)
Deferred asset, depreciation 1,113 3,278
Valuation reserve (552,861) (465,054)
---------- ---------
Net deferred tax asset $ 949 $ 19,837
========== ==========
There was a net change in the valuation allowance during
1998 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, 1998.
Note 14 - 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, 1998 and 1997,
there remained 251,502 and 289,002 outstanding warrants,
respectively.
The former president and current president each have earned
options to purchase 42,240 and 31,680 shares of the Company's
common stock, respectively. The options are excercisable at
$3.33 per share and mature at the end of seven years from the
date of grant. As of December 31, 1998 and 1997, there remained
52,800 and 73,920 outstanding options, respectively.
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, 1998 and 1997, loans outstanding to directors,
their related interests and executive officers aggregated
$3,413,215 and $3,191,232, 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 1998 and 1997
follows:
1998 1997
---- ----
Balance, beginning of year $3,191,232 $1,579,651
New loans 1,914,320 2,218,615
Less: loan payments (1,692,337) (607,034)
---------- ----------
Balance, end of year $3,413,215 $3,191,232
========== ==========
Deposits by directors and their related interests, at
December 31, 1998 and 1997, approximated $3,123,604 and
$3,464,115, respectively.
Total directors' fees aggregated $88,450 in 1998 and $90,700
in 1997.
Note 15 - 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, 1998 and 1997, the Bank contributed $119,350 and
$109,247, respectively, to the Plan.
Note 16 - 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, 1998 and 1997,
unfunded commitments to extend credit were $7,184,960 and
$5,955,959, 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, 1998 and 1997, commitments under letters of
credit aggregated approximately $639,000 and $235,000,
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 and Crisp 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 and Crisp
County, Georgia.
Note 17 - Fair Value of Financial Instruments
The following methods and assumptions were used by the
Company in estimating its fair value disclosures for financial
instruments. In cases where quoted market prices are not
available, fair values are based on estimates using discounted
cash flow methods. Those methods are significantly affected by
the assumptions used, including the discount rates and estimates
of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instrument. The use of different methodologies
may have a material effect on the estimated fair market value
accounts. Also, the fair value estimates presented herein are
based on pertinent information available to management as of
December 31, 1998. Such amounts have not been revalued for
purposes of these financial statements since those dates and,
therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
The following methods and assumptions were used by the
Company in estimating fair values of financial instruments as
disclosed herein:
Cash and Due from Banks, Interest-Bearing Deposits with
Banks and Federal Funds Sold. The carrying amounts of cash and
due from banks, interest-bearing deposits with banks, and Federal
funds sold approximate their fair value.
Available for Sale and Held to Maturity Securities. Fair
values for securities are based on quoted market prices.
Loans. For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based
on carrying values. For other loans, the fair values are
estimated using discounted cash flow methods, using interest
rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Fair values for impaired
loans are estimated using discounted cash flow methods or
underlying collateral values.
Deposits. The carrying amounts of demand deposits and
savings deposits approximate their fair values. Fair values for
certificates of deposit are estimated using discounted cash flow
methods, using interest rates currently being offered on
certificates.
Off-Balance Sheet Instruments. Fair values of the Company's
off-balance sheet financial instruments are based on fees charged
to enter into similar agreements. However, commitments to extend
credit and standby letters of credit do not represent a
significant value to the Company until such commitments are
funded. The Company has determined that these instruments do not
have a distinguishable fair value and no fair value has been
assigned.
The estimated fair values of the Company's financial
instruments were as follows:
December 31, 1998
--------------------------
Carrying Fair
Financial assets: -------- ----
Cash and due from banks $3,397,203 $3,397,203
Securities, available for sale 8,036,357 8,036,357
Loans 88,295,060 88,157,918
Financial liabilities:
Deposits 108,381,580 108,453,654
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,
1998, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1998, 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,
1998:
Total capital-
risk-based (to risk-
weighted assets):
Bank $ 9,807 10.8% $7,222 > 8% $9,028 > 10%
- -
Consolidated 13,607 15.1% 7,224 > 8% N/A N/A
-
Tier 1 capital-risk-based
(to risk-weighted assets):
Bank $ 8,678 9.6% $3,611 > 4% $5,417 > 6%
- -
Consolidated 12,478 13.8% 3,612 > 4% N/A N/A
-
Tier 1 capital-leverage
(to average assets):
Bank $ 8,678 8.3% $4,192 > 4% $5,240 > 5%
- -
Consolidated 12,478 11.9% 4,193 > 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, 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
-
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. During 1998 and 1997, dividends paid by
the Company to its shareholders amounted to $105,426 and $98,957,
respectively. On a per share basis, the above dividends amounted
to $.10 for 1998 and $.093 for 1997.
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 Sheet
----------------------------
December 31,
-------------------------
Assets: 1998 1997
- ------- ---- ----
Cash $3,614,210 $ 117
Accounts receivable 125,446 21,000
Investment in CDs 102,000 60,000
Investment in the Bank 8,720,838 7,113,719
----------- ----------
Total Assets $12,562,494 $7,194,836
=========== ==========
Liabilities and Shareholders' Equity:
- -------------------------------------
Income taxes payable $ - - $ 4,664
Other liabilities 41,000 12,500
---------- ----------
Total Liabilities $ 41,000 $ 17,164
---------- ----------
Common stock $7,649,291 $3,479,988
Treasury stock - - (40,000)
Retained earnings 4,829,006 3,726,950
Unrealized gain on securities 43,197 10,734
----------- ----------
Total Shareholders' equity $12,521,494 $7,177,672
Total Liabilities and ----------- ----------
Shareholders' equity $12,562,494 $7,194,836
=========== ==========
Parent Company Statements of Income
-----------------------------------
Years Ended December 31,
------------------------
Revenues: 1998 1997
- --------- ---- ----
Interest income $ 76,414 $ 5,352
Dividends from Bank 175,000 185,000
---------- ----------
Total revenues $ 251,414 $ 190,352
========== ==========
Expenses:
- ---------
Salaries and benefits $ 60,184 $ - -
Professional fees 131,561 61,013
Other expenses 16,250 11,471
---------- ----------
Total expenses $ 207,995 $ 72,484
---------- ----------
Income before taxes and equity in
undistributed earnings in Bank $ 43,419 $ 117,868
Tax (benefit) (89,406) (21,000)
---------- ----------
Income before equity in undistributed
earnings in Bank $ 132,825 $ 138,868
Equity in undistributed earnings
of Bank 1,074,657 903,075
--------- ----------
Net Income $1,207,482 $1,041,943
========== ==========
Parent Company Statements of Cash Flows
---------------------------------------
Years Ended December 31,
--------------------------
Cash flows from operating activities: 1998 1997
- ------------------------------------- ---- ----
Net income $1,207,482 $1,041,943
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed earnings
of the Bank (1,074,657) (903,075)
(Increase) in receivables and other
assets (104,446) 15,259
Increase in payables 23,837 (69,104)
--------- ---------
Net cash provided by operating
activities $ 52,216 $ 85,023
--------- ---------
Cash flows from investing activities:
- -------------------------------------
Investment in Bank $(500,000) $ - -
(Increase) in investments (42,000) 40,000
Net cash provided by financing --------- ---------
activities $(542,000) $ 40,000
--------- ---------
Cash flows from financing activities:
- -------------------------------------
Exercise of warrants, options $ 195,400 $ - -
Sale of stock 3,953,903 - -
Payment of cash dividends (105,426) (98,957)
Sale/purchase of treasury stock 60,000 (40,000)
---------- ---------
Net cash used by financing activities $4,103,877 $(138,957)
---------- ---------
Net increase in cash and cash
equivalents $3,614,093 $ (13,934)
Cash and cash equivalents,
beginning of the year 117 14,051
---------- ---------
Cash and cash equivalents,
end of year $3,614,210 $ 117
========== =========
Note 21 - Subsequent Events
Subsequent to December 31, 1998, 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 19971998 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.
-------------------------------------------------------
A. 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.
Position with Company and
Name Age Bank and Principal Occupation
- --------------------- --- ----------------------------------------------------
T. Brinson Brock, Sr. 42 Mr. Brock has been involved in lending to the
agricultural sector for the past twenty years.
He has served as Executive Vice President and
Acting Chief Executive Officer of the Company
since March 24, 1998, Secretary of the Company
since November 1989, a director of the Company
since August 1989, President and Chief Executive
Officer of the Bank since March 24, 1998, and a
director and Secretary of the Bank since
August 1990. Prior to his promotion, Mr. Brock
served as the Bank's Executive Vice President in
charge of the Bank's lending, business and
professional development activities. Mr. Brock
raises beef cattle out of which he places many
FFA and 4H show calves for club members across
the state. He also raises quarter and registered
miniature horses which his children show and sell.
He serves as Vice President of the Turner County
Cattlemen's Association. He is an active member
of Georgia Banker's Association Agricultural
Committee and is an instructor in various AIB
and bank training programs. Mr. Brock is a
member of both the Turner and Crisp County
Chambers of Commerce. He is a deacon, and he
and his family are active members, of Ashburn
First Baptist Church.
Willis R. Collins 53 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 70 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 68 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 54 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 Senior Vice
President and Chief Financial Officer of the
Bank since March 24, 1998, and 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 64 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 51 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 56 Mr. Reed has been President and a
director of the Company since November 1989.
Prior to March 24, 1998, he also served as
Chief Executive Officer of the Company, and
between August 1990 and March 24, 1998, he
also served as President, Chief Executive
Officer and a director of the Bank. Mr. Reed
was employed by the Ashburn Bank from 1965
until his resignation in April 1989. He
served as President and Chief Executive
Officer 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 68 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 61 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. 61 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.
B. Compliance with Section 16(a)
Because the Company had no class of equity securities
registered pursuant to Section 12 of the Exchange Act during the
period covered by this report, its securities were 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 1998 $ 38,000 0 $ 9,390(1)
of the Company 1997 $100,000 $27,500 $39,381(2)
1996 $100,000 $27,500 $34,726(3)
T. Brinson Brock, Sr., 1998 $113,233 $27,500 $44,981(4)
Executive Vice President and 1997 $ 89,000 $27,000 $38,967(5)
Secretary of the Company 1996 $ 84,000 $23,500 $33,053(6)
Ava Lovett, Senior Vice 1998 $ 80,222 $25,000 $21,063(7)
President and Chief Financial 1997 n/a
Officer of Bank 1996 n/a
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
of the Company $0 0 $0 $0
$0 0 $0 $0
T. Brinson Brock, Sr., $0 0 $0 $0
Executive Vice President, $0 0 $0 $0
Acting Chief Executive $0 0 $0 $0
Officer and Secretary
of the Company
Ava Lovett, Senior Vice $0 0 $0 $0
President and Chief Financial
Officer of Bank
(1) Includes $4,250 in profit sharing contributions.
(2) Includes $18,959 in profit sharing contributions.
(3) Includes $17,155 in profit sharing contributions.
(4) Includes $21,035 in profit sharing contributions.
(5) Includes $17,255 in profit sharing contributions.
(6) Includes $14,521 in profit sharing contributions.
(7) Includes 15,783 in profit sharing contributions.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The Company granted no stock options or warrants during
fiscal year 1998.
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 10,560 $70,435 31,680/0 $231,305/$0
T. Brinson Brock, Sr.10,560 $70,435 21,120/0 $140,870/$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, 1998 (i.e.,
$10.00 per share) and the exercise price of such options
(i.e., $3.33).
B. Directors.
Each director of the Company received $500 for each meeting
of the Board of Directors that he or she attended. In addition,
each director of the Company who was a member of the Bank's Loan
Committee received $100 per month and $150 for each Loan
Committee meeting that he or she attended. In December 1998,
each director of the Bank received a $2,000 holiday bonus.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
On December 31, 1998, the Company had 1,210 shareholders of
record.
The following table sets forth share ownership information
as of March 22, 1999, 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. 84,636(2) 5.4%
1252 Brock Road
Arabi, Georgia 31712
Willis R. Collins 92,165(3) 5.9%
9655 Georgia Highway 112 East
Rebecca, Georgia 31783
Gene Stallings Crawford 111,452(4) 7.1%
56 South Academy Street
Rebecca, Georgia 31783
Grady Elmer Moore 81,050(5) 5.2%
5580 Highway 33 North
Arabi, Georgia 31712
Benjamin E. Walker 79,861(6) 5.1%
P.O. Box 185
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 1,518,871 shares of common
stock outstanding, plus shares of Common Stock that may be
acquired by the beneficial owner within 60 days of April 6,
1999, by exercise of options and/or warrants.
(2) Includes 935 shares held as custodian for Brent Brock, 921
shares held as custodian for Kristen Brock, 600 shares held
as custodian for Hunter Chess Brock, and 1,024 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
21,120 shares pursuant to currently exercisable options.
(3) Includes 40,411 shares owned by Mr. Collins's 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 5,000 shares owned by Mr. Moore's wife, as to which
he disclaims beneficial ownership. Also includes the right
to acquire 36,750 shares pursuant to currently exercisable
warrants.
(6) 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.
The following table sets forth share ownership information
as of March 22, 1999 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. 84,636(2) 5.4%
1252 Brock Road
Arabi, Georgia 31712
Willis R. Collins 92,165(3) 5.9%
9655 GA Hwy.112 East
Rebecca, Georgia 31783
Gene Stallings Crawford 111,452(4) 7.1%
56 South Academy Street
Rebecca, Georgia 31783
Benny Warren Denham 38,700(5) 2.5%
424 East Inaha Road
Sycamore, Georgia 31790
Lloyd Greer Ewing 39,211(6) 2.5%
545 East Monroe
Ashburn, Georgia 31714
Ava Lovett 81(7)
401 East Highway 32
Sycamore, Georgia 31790
Grady Elmer Moore 81,050(8) 5.2%
5580 Highway 33 North
Arabi, Georgia 31712
Sara Ruth Raines 70,359(9) 4.5%
130 Lamont Street
Ashburn, Georgia 31714
Theron G. Reed 72,363(10) 4.6%
2945 GA Hwy.90 West
Rebecca, Georgia 31783
Benjamin E. Walker 79,861(11) 5.1%
P.O. Box 185
Ashburn, Georgia 31714
Jimmie Ann Ward 75,000(12) 4.8%
1330 Warwick Highway
Ashburn, Georgia 31714
Freddie J. Weston, Jr. 15,000 0.9%
828 West Madison Avenue
Ashburn, Georgia 31714
All directors and named
executive officers
as a group(13) 761,597 shares 41.7%
(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 1,518,871 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 April 6, 1999, 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.
(2) Includes 935 shares held as custodian for Brent Brock, 921
shares held as custodian for Kristen Brock, 600 shares held
as custodian for Hunter Chess Brock, and 1,024 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
21,120 shares pursuant to currently exercisable options.
(3) Includes 40,411 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 81 shares owned by Mrs. Lovett's daughter, as to
which Mrs. Lovett disclaims beneficial ownership
(8) Includes 5,000 shares owned by Mr. Moore's wife as to which
he disclaims beneficial ownership. Also includes the right
to acquire 36,750 shares pursuant to currently exercisable
warrants.
(9) Includes 1,500 shares owned by Ruth's of Ashburn, Inc., 900
shares owned by Georgia Produce EXC, Inc. and 24,119 shares
owned by Mrs. Raines's husband, 1,200 shares owned by Mrs.
Raines's 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.
(10) 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 31,680 shares pursuant to
currently exercisable options and the right to acquire
15,000 shares pursuant to currently exercisable warrants.
(11) 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.
(12) 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.
(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 1998 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.
Exhibit
Number Sequential Description
3(i) Articles of Incorporation of Registrant as Amended
on November 21, incorporated by reference to Exhibit 3(a)
of Registrant's Annual Report on Form 10-KSB, filed on
March 31, 1998).
3(ii) Bylaws of Registrant (incorporated by reference to Exhibit
3(b) of Registration Statement on Form S-18, File No.
33-31013-A.
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, 1998.
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: _____________________________________________________
T. Brinson Brock, Executive Vice President, Principal
Executive Officer, Principal Financial Officer
Date: March 30, 1999
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
______________________________________Director March 30, 1999
T. Brinson Brock, Sr.
______________________________________Director March 30, 1999
Willis R. Collins
______________________________________Director March 30, 1999
Gene Stallings Crawford
______________________________________Director March 30, 1999
Benny Warren Denham
______________________________________Director March 30, 1999
Lloyd Greer Ewing
______________________________________Director March 30, 1999
Grady Elmer Moore
______________________________________Director March 30, 1999
Sara Ruth Raines
______________________________________Director, March 30, 1999
Theron G. Reed President
______________________________________Director March 30, 1999
Benjamin E. Walker
______________________________________Director March 30, 1999
Jimmie Ann Ward
______________________________________Director March 30, 1999
Freddie J. Weston, Jr.
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
COMMUNITY NATIONAL BANK
561 East Washington Avenue
Ashburn, Georgia 31714
EXHIBIT 27
Exhibit 27 - Financial Data Schedule
This schedule contains summary financial information extracted
from the financial statements of Community National
Bancorporation for the period from January 1, 1998 to December
31, 1998, and is qualified in its entirety by reference to such
financial statements.
12-MOS
FISCAL-YEAR-END DEC-31-1998
PERIOD START JAN-1-1998
PERIOD END DEC-31-1998
CASH 3,397,203
INT-BEARING-DEPOSITS -0-
FED-FUNDS-SOLD 15,850,000
TRADING-ASSETS 0
INVESTMENTS-HELD-FOR-SALE 8,036-357
INVESTMENTS-CARRYING 0
INVESTMENTS-MARKET 0
LOANS 90,119,239
ALLOWANCE 1,824,179
TOTAL-ASSETS 121,591,932
DEPOSITS 180,381,580
SHORT-TERM 0
LIABILITIES-OTHER 688,858
LONG-TERM 0
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 7,649,291
OTHER-SE 4,872,203
TOTAL-LIABILITIES-AND-EQUITY 121,591,932
INTEREST-LOAN 9,435,725
INTEREST-INVEST 459,908
INTEREST-OTHER 295,645
INTEREST-TOTAL 10,191,278
INTEREST-DEPOSIT 4,998,546
INTEREST-BORROWINGS 11,979
INTEREST-EXPENSE 5,010,525
INTEREST-INCOME-NET 5,180,753
LOAN-LOSSES 720,000
SECURITIES-GAINS 4,350
EXPENSE-OTHER 3,035,465
INCOME-PRETAX 1,980,076
INCOME-PRE-EXTRAORDINARY 1,980,076
EXTRAORDINARY 0
CHANGES 0
NET-INCOME 1,207,482
EPS-BASIC 1.00
EPS-DILUTED .85
YIELD-ACTUAL 5.20%
LOANS-NON 46,488
LOANS-PAST 1143,988
LOANS-TROUBLED 0
LOANS-PROBLEM 572,000
ALLOWANCE-OPEN 1,565,922
CHARGE-OFFS 571,777
RECOVERIES 110,033
ALLOWANCE-CLOSE 1,824,179
ALLOWANCE-DOMESTIC 1,800,000
ALLOWANCE-FOREIGN 0
ALLOWANCE-UNALLOCATED 24,179
