SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000.
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 33-31013-A
COMMUNITY NATIONAL BANCORPORATION
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(Exact name of small business issuer as specified in its charter)
Georgia 58-1856963
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
561 E. Washington Avenue, P.O. Box 2619, Ashburn, Georgia 31714
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(Address of Principal Executive Offices)
(912) 567-9686
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(Issuer's Telephone Number, Including Area Code)
Not Applicable
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common equity as of the latest
practicable date.
Common stock, no par value per share, 1,743,833 shares outstanding as of
July 28, 2000.
(Page 1 of 16)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
-----------------------------
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
CONSOLIDATED BALANCE SHEETS
ASSETS
------
June 30, December 31,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
----------- -----------
Cash and due from banks $ 5,042,253 $ 2,568,037
Federal funds sold 12,745,000 8,540,000
----------- -----------
Total cash and cash equivalents $ 17,787,253 $ 11,108,037
Securities:
Available for sale, at fair values 15,447,713 9,708,104
Loans, net 138,536,456 98,895,489
Property and equipment, net 6,219,978 4,705,403
Other real estate owned 520,000 580,000
Goodwill, net 1,909,991 - -
Other assets 4,168,522 3,340,482
----------- -----------
Total Assets $184,589,913 $128,337,515
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 12,103,703 $ 6,411,554
Interest bearing deposits 148,359,441 107,918,532
----------- -----------
Total deposits $160,463,144 $114,330,086
Note payable 1,392,000 - -
FHLB borrowings 5,000,000 - -
Other liabilities 1,308,864 803,448
----------- -----------
Total liabilities $168,164,008 $115,133,534
----------- -----------
Commitments and contingencies
Shareholders' Equity:
Common stock, no par value, 50,000,000
shares authorized, 1,733,833 and 1,534,711
shares issued and outstanding at June 30,
2000 and December 31, 1999, respectively $ 10,596,886 $ 7,702,091
Retained earnings 6,076,871 5,731,110
Unrealized gain (loss) on securities, net (247,852) (229,220)
----------- -----------
Total Shareholders' Equity 16,425,905 $ 13,203,981
----------- -----------
Total liabilities and shareholders' equity $184,589,913 $128,337,515
=========== ===========
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
June 30,
2000 1999
---- ----
Interest income $3,818,408 $2,671,550
Interest expense 1,929,623 1,286,557
--------- ---------
Net interest income $1,888,785 $1,384,993
Provision for possible loan losses 195,000 295,000
--------- ---------
Net interest income after provision
for possible loan losses $1,693,785 $1,089,993
--------- ---------
Other income
Service charges $ 276,976 $ 143,623
Other fees 75,231 86,261
--------- ---------
Total other income $ 352,207 $ 229,884
--------- ---------
Salaries and benefits $ 776,590 $ 431,530
Advertising and business development 69,459 42,196
Repairs and maintenance 74,694 28,347
Depreciation and amortization 142,472 51,060
Legal and professional 123,123 66,929
Data processing 81,556 37,296
Regulatory fees and assessments 23,221 3,889
Other operating expenses 288,853 209,269
--------- ---------
Total operating expenses $1,579,968 $ 870,516
--------- ---------
Net income before taxes $ 466,024 $ 449,361
Provision for income taxes 184,260 128,000
--------- ---------
Net income after taxes $ 281,764 $ 321,361
========= =========
Basic income per share $ .16 $ .21
========= =========
Diluted income per share $ .14 $ .19
========= =========
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED
June 30,
2000 1999
---- ----
Interest income $7,251,697 $5,316,270
Interest expense 3,573,552 2,564,421
--------- ---------
Net interest income $3,678,145 $2,751,849
Provision for possible loan losses 440,000 460,000
--------- ---------
Net interest income after provision
for possible loan losses $3,238,145 $2,291,849
--------- ---------
Other income:
Service charges $ 518,065 $ 274,920
Other fees 150,030 119,362
--------- ---------
Total other income $ 668,095 $ 394,282
--------- ---------
Salaries and benefits $1,526,297 $ 830,720
Advertising and business development 107,828 76,300
Repairs and maintenance 125,350 55,450
Depreciation 255,813 100,320
Legal and professional 220,081 112,960
Data processing 158,698 76,846
Regulatory fees and assessments 45,750 33,578
Other operating expenses 604,369 365,504
--------- ---------
Total operating expenses $3,044,186 $1,651,678
--------- ---------
Net income before taxes $ 862,054 $1,034,453
Provision for income taxes 362,821 385,000
--------- ---------
Net income after taxes $ 499,233 $ 649,453
========= =========
Basic income per share $ .29 $ .43
========= =========
Diluted income per share $ .26 $ .38
========= =========
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six-month period
Ended June 30,
--------------------------
2000 1999
---- ----
Cash flows from operating activities: $ 909,681 $ 1,276,421
----------- -----------
Cash flows from investing activities:
Increase in goodwill purchased $ (1,953,000) $ - -
Purchase of fixed assets (1,727,378) (948,585)
Purchase of securities, AFS (6,010,502) (2,103,411)
Maturity and paydowns, AFS 275,000 1,487,921
(Increase) in loans, net (40,080,967) (11,487,574)
----------- -----------
Net cash used by investing activities $(49,496,847) $(13,051,649)
----------- -----------
Cash flows from financing activities:
Increase in borrowings $ 6,392,000 $ - -
Increase in deposits 46,133,058 (2,075,460)
Payment of cash dividends (153,471) (151,887)
Exercise of stock warrants 36,000 - -
Issuance of common stock 2,858,795 - -
----------- -----------
Net cash provided by financing activities $ 55,266,382 $ (2,227,347)
----------- -----------
Net increase in cash and cash equivalents $ 6,679,216 $(14,002,575)
Cash and cash equivalents,
beginning of period 11,108,037 19,247,203
----------- -----------
Cash and cash equivalents, end of period $ 17,787,253 $ 5,244,628
=========== ===========
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000
Accumulated
Common Stock Other
------------------ Paid in Retained Comprehensive
Shares Par Value Capital Earnings Income Total
------ --------- ------- -------- ------ -----
Balance,
Dec 31,
1998 1,518,871 $ - - $ 7,649,291 $4,829,006 $ 43,197 $12,521,494
--------- ---------- ---------- --------- -------- ----------
Comprehensive Income:
--------------------
Net income,
six-month
period ended
June 30, 1999 - - - - - - 649,453 - - 649,453
Net unrealized
(losses) on
securities,
six-month
period ended
June 30,.1999 - - - - - - - - (151,421) (151,421)
--------- ---------- ---------- --------- -------- ----------
Less: Distribution
of dividends - - - - - - (151,887) - - (151,887)
--------- ---------- ---------- --------- -------- ----------
Balance,
June 30,
1999 1,518,871 $ - - $ 7,649,291 $5,326,572 $(108,224) $12,867,639
========= ========== ========== ========= ======== ==========
Balance,
December 31,
1999 1,534,711 $ - - $ 7,702,091 $5,731,110 $(229,220) $13,203,981
--------- ---------- ---------- --------- -------- ----------
Common stock
issued 188,322 - - 2,858,795 - - - - 2,858,795
Stock warrants
exercised 10,800 - - 36,000 - - - - 36,000
Comprehensive Income:
---------------------
Net income,
six-month
period ended
June 30,
2000 - - - - - - 499,233 - - 499,233
Net unrealized
(losses) on
securities, six-
month period
ended June 30,
2000 - - - - - - - - (18,632) (18,632)
--------- ---------- ---------- --------- -------- ----------
Less: Distribution
of dividends - - - - - - (153,472) - - (153,472)
--------- ---------- ---------- --------- -------- ----------
Balance,
June 30,
2000 1,733,833 $ - - $10,596,886 $6,076,871 $(247,852) $16,425,905
========= ========== ========== ========= ======== ==========
Refer to notes to the consolidated financial statements.
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for
the three-month and six-month periods ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 2000. These statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto included in Form 10-KSB for the year ended December 31,
1999.
NOTE 2 - ORGANIZATION OF THE BUSINESS
Community National Bancorporation, Ashburn, Georgia (the
"Company") was organized in August, 1989 to serve as a holding
company for a proposed de novo bank, Community National Bank,
Ashburn, Georgia ("CNB Ashburn"). During 1998, the Company sold and
issued 400,000 shares of its common stock at $10.00 per share. This
public offering yielded approximately $4.0 million, all of which was
invested during 1999 in a de novo bank, Cumberland National Bank,
St. Marys, Georgia ("CNB St. Marys"). On February 24, 2000, the
Company acquired Tarpon Financial Corporation and its 100% owned
subsidiary bank, First National Bank, Tarpon Springs, Florida ("FNB
Tarpon Springs"). The above acquisition was effected through both
the exchange of shares and the payment of cash. CNB Ashburn, CNB
St. Marys and FNB Tarpon Springs (collectively, "the Banks") were
chartered by and are currently regulated by the Office of the
Comptroller of the Currency (the "OCC"). The Banks are primarily
engaged in the business of obtaining deposits and providing
commercial, consumer and real estate loans to the general public.
Bank deposits are each insured up to $100,000 by the Federal Deposit
Insurance Corporation (the "FDIC") subject to certain limitations
imposed by the FDIC.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
In March, 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for
Internal Use. SOP 98-1 provides guidance for capitalizing and
expensing the costs of computer software developed or obtained for
internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The adoption of SOP
98-1 did not have a material impact on the accompanying consolidated
financial statements.
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued in June, 1998 and is effective for
all calendar-year entities beginning in January, 2000. This
Statement applies to all entities and requires that all derivatives
be recognized as assets or liabilities in the balance sheet, at fair
values. Gains and losses of derivative instruments not designated
as hedges will be recognized in the income statement. Since the
Company does not invest in derivative instruments, the adoption of
SFAS No. 133 does not have a material impact on the financial
statements.
SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise" amends prior accounting standards,
primarily SFAS 65, with respect to the classification of retained
interests, such as mortgage-backed securities, following a
securitization of mortgage loans held for sale. This statement
became effective in the first quarter of 1999. Since the Company
does not securitize mortgage loans, no financial statement impact
has resulted from adopting this statement.
Item 2 - Management Discussion and Analysis of Financial Condition
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and Results of Operation.
------------------------
Liquidity and sources of capital
--------------------------------
Community National Bancorporation (the "Company") was
organized in August, 1989 and began banking operations through its
wholly owned subsidiary, Community National Bank ("CNB Ashburn"), on
August 6, 1990. Since then, CNB Ashburn established three
additional branches and has total assets approximating $137.0
million at June 30, 2000. During 1999, the Company sold additional
stock for approximately $4.0 million, utilizing the proceeds to
establish another subsidiary, Cumberland National Bank, St. Marys,
Georgia ("CNB St. Marys"). CNB St. Marys began operations in
October of 1999 and, as of June 30, 2000, had total assets of
approximately $25.8 million. On February 24, 2000, the Company
acquired Tarpon Financial Corporation and its 100% owned subsidiary,
First National Bank, Tarpon Springs, Florida ("FNB Tarpon Springs").
As of June 30, 2000, FNB Tarpon Springs had $20.4 million in total
assets.
The Company commenced operations in 1990 with $3.4 million in
its capital accounts. By June 30, 2000, the capital accounts had
increased to $16.4 million through the sale of additional stock and
through retained earnings. As evidenced by the table below, all
three subsidiary banks are well capitalized.
Minimum Risk Minimum
Leverage Regulatory Weighted Regulatory
Bank Ratio Guidelines Ratio Guidelines
---- ----- ---------- ----- ----------
CNB Ashburn 8.1% 4.0% 10.4% 8.0%
CNB St. Marys 12.2% 4.0% 19.2% 8.0%
FNB Tarpon Spgs 11.1% 4.0% 19.1% 8.0%
During the six-month period ended June 30, 2000, total assets
increased by $56.3 million to $184.6 million, representing an
increase of 43.9% in total resources. Of the $56.3 million increase
in total assets, approximately $19.2 million is due to the
acquisition of FNB Tarpon Springs. If one discounts the above
acquisition, assets grew by $37.1 million, or by an annualized rate
of 57.3%. During the six-month period ended June 30, 2000, cash and
cash equivalents increased by $6.7 million, securities increased by
$5.7 million, loans increased by $39.6 million, property and
equipment increased by $1.5 million, and other assets, including
goodwill, increased by $2.6 million. To fund the above growth,
deposits, borrowings and other liabilities increased by $46.1
million, $6.3 million and $.5 million, respectively. In addition,
the capital accounts, including retained earnings, increased by $3.2
million.
Liquidity is the Company's ability to meet all deposit
withdrawals immediately, while also providing for the credit needs
of customers. The June 30, 2000 financial statements evidence a
satisfactory liquidity position as total cash and cash equivalents
amounted to $17.8 million, representing 9.6% of total assets.
Investment securities amounted to $15.4 million, representing 8.3%
of total assets; these securities provide a secondary source of
liquidity since they can be converted into cash in a timely manner.
The subsidiary Banks are members of the Federal Reserve System and
are maintaining relationships with several correspondent banks;
accordingly, they could obtain funds on short notice. The Company's
management closely monitors and maintains appropriate levels of
interest earning assets and interest bearing liabilities, so that
maturities of assets are such that adequate funds are provided to
meet customer withdrawals and loan demand. The Company is not aware
of any trends, demands, commitments, events or uncertainties that
will result in or are reasonably likely to result in its liquidity
increasing or decreasing in any material way.
Results of Operations
---------------------
For the three-month periods ended June 30, 2000 and 1999, net
income amounted to $281,764 and $321,361, respectively. For the
three-month periods ended June 30, 2000 and 1999, diluted earnings
per share amounted to $.14 and $.19, respectively. Basic earnings
per share amounted to $.16 and $.21 for the three month periods
ended June 30, 2000 and 1999, respectively. In general, earnings
per share were lower during the three-month period ended June 30,
2000 when compared to the three-month period ended June 30, 1999.
The difference is due to the addition of two new subsidiary banks.
CNB St. Marys opened in October, 1999 and is expected to negatively
impact income until it reaches a point of critical mass and turns
profitable. The acquisition of FNB Tarpon Springs on February 24,
2000 also negatively impacted income because of the costs of
consummating the transaction. The Company continues to invest
heavily in CNB St. Marys and FNB Tarpon Springs to build up their
infrastructure in order to support the growth in assets. It is
believed that when the above two banks attain economies of scale,
operating expenses as a percent of total assets will decline,
resulting in conditions more conducive to attainment of
profitability.
For the six-month periods ended June 30, 2000 and 1999, net
income amounted to $499,233 and $649,453, respectively. On a per
share basis, diluted earnings per share declined from $.38 for the
six-month period ended June 30, 1999 to $.26 for the six-month
period ended June 30, 2000. Basic earnings per share declined from
$.43 for the six-month period ended June 30, 1999 to $.29 for the
six-month period ended June 30, 2000. As discussed above, the
decline in income is due to significantly higher operating expenses
associated with the establishment of CNB St. Marys and the
acquisition of FNB Tarpon Springs. In addition to the above,
earnings per share declined because the number of shares have
increased by 214,962, from 1,518,871 (06-30-99) to 1,733,833 (06-30-
00). Below is a more detailed discussion concerning results of
operations for the six-month periods ended June 30, 2000 and 1999.
a. Earning assets have increased from $110.0 million at June 30,
1999 to $169.1 million at June 30, 2000. As a consequence,
net interest income, which represents the difference between
interest received on interest earning assets and interest paid
on interest bearing liabilities, has increased from $2,751,849
to $3,678,145 for the same period one year later, representing
an increase of $926,296, or 33.7%.
b. Net yield on earning assets increased from 4.94% for the six-
month period ended June 30, 1999 to 5.06% for the six-month
period ended June 30, 2000. The reason for the increase in
the net yield on earning assets is twofold: (i) the yield on
earning assets increased by .7%, from 9.36% (06-30-99) to
10.06% (06-30-00), and (ii) the cost of funds increased by
.44%, from 4.52% (06-30-99) to 4.96% (06-30-00), an increase
(.44%) lower than the increase (.70%) in the yield on earning
assets.
c. Other income increased from $394,282 for the six-month period
ended June 30, 1999 to $668,095 for the six-month period ended
June 30, 2000. The above increase of $273,813 represents a
69.4% improvement. This increase is primarily due to
increased activity in transactional accounts due to a higher
deposit base, as well as to increases in the fee structure.
As a percent of total assets, other income increased from .66%
for the six-month period ended June 30, 1999 to .72% for the
six-month period ended June 30, 2000.
d. Other operating expenses increased from $1,651,678 for the
six-month period ended June 30, 1999 to $3,044,186 for the
six-month period ended June 30, 2000. The above increase
amounting to $1,392,508 represents an increase of 84.3%. The
primary reasons for the increase are expenses associated with
building the infrastructure necessary to support the growth
and profitability of CNB St. Marys and FNB Tarpon Springs. As
a percent of total assets, other operating expenses increased
from 2.74% for the six-month period ended June 30, 1999 to
3.30% for the six-month period ended June 30, 2000.
At June 30, 2000, the allowance for loan losses amounted to $2.44
million, or 1.73% of gross loans. At December 31, 1999, the
allowance amounted to $2.02 million, or 2.00% of gross loans.
Management considers the allowance for loan losses to be adequate
and sufficient to absorb possible future losses; however, there can
be no assurance that charge-offs in future periods will not exceed
the allowance for loan losses or that additional provisions to the
allowance will not be required.
The Company is not aware of any current recommendation by the
regulatory authorities which, if they were to be implemented, would
have a material effect on the Company's liquidity, capital
resources, or results of operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
There are no material pending legal proceedings to which the
Company or the subsidiary Banks are a party or of which any of their
property is the subject.
Item 2. Changes in Securities.
---------------------
(a) None.
(b) None.
Item 3. Defaults Upon Senior Securities.
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
At the annual meeting of the shareholders, which took place on May 10,
2000, the only matter voted upon was election of directors. Management
solicited proxies with respect to this matter, which solicitation was not
opposed. All of the incumbent directors were nominated and re-elected. The
number of votes cast for the election was 1,070,820, against the election was
23,459, with no abstentions and broker non-votes.
Item 5. Other Information.
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits:
27.1 - Financial data schedule (for SEC use only).
(b) Reports on Form 8-K. Registrant filed no report
on Form 8-K during the quarter ended June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
COMMUNITY NATIONAL BANCORPORATION
---------------------------------
(Registrant)
Date: August 4, 2000 BY: /s/ T. Brinson Brock
---------------- -------------------------------------
T. Brinson Brock
President and Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)
