U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
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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
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Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
None
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Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
Common Stock, No Par Value
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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,
1999 were $11,836,844.
The aggregate market value of the Common Stock of the Registrant
held by non-affiliates of the Registrant on March 24, 2000, was
$19,468,992. The aggregate market value of the Common Stock of
the Registrant held by non-affiliates was computed by reference
to the average ask and bid price of the Common Stock on the OTC
Bulletin Board as of such date (i.e., $15.50 per share). 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 24, 2000: 1,701,782 shares of no par value common
stock (the "Common Stock").
Transitional Small Business Disclosure Format:
Yes No X
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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 Banks (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 Banks
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 non-bank 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 capital stock
of Community National Bank ("CNB"), a national banking
association chartered under the laws of the United States. The
Company received approval to become a bank holding company from
the Board of Governors of the Federal Reserve System (the "Fed")
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 at $10.00 per share. The Company used
substantially all of the proceeds of its public offering to
purchase shares of capital stock of CNB. CNB 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, CNB 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, CNB 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, CNB received approval to open a
branch in Cordele, Crisp County, Georgia, which branch commenced
business on October 27, 1997. On November 20, 1997, CNB received
approval to open a second branch in Ashburn, Turner County, which
branch commenced business on September 28, 1998. On December 22,
1998, CNB received approval to open a second branch at 702 South
Pecan Street in Cordele, which branch commenced business on
February 10, 2000.
Effective March 10, 1998, the Company received regulatory
approval to open a branch in St. Marys, Camden County, Georgia,
and CNB purchased, on March 26, 1998, for $241,074, two parcels
of land, 11 acres in the aggregate, in St. Marys. The Company and
CNB determined to capitalize the St. Marys branch by means of the
proceeds of a 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 July 1, 1999, Georgia law was amended to allow a
bank holding company owning a bank that does a lawful business in
Georgia to acquire control of another bank in Georgia through the
formation of a de novo bank, provided that it obtains required
departmental approval and any required federal approval.
Pursuant to the new law and using the proceeds of the 1998
Offering, effective October 1, 1999, the Company capitalized and
opened for business Cumberland National Bank, a de novo national
bank ("Cumberland"), which assumed the operations of CNB's Camden
County branch on that date.
After the date of this report, on February 24, 2000, the
Company acquired all of the outstanding capital stock of Tarpon
Financial Corporation, a Florida corporation ("Tarpon") by way of
a merger of Tarpon into the Company. The Company paid $3.72
million in a combination of Common Stock and cash in such merger,
which was effected pursuant to a Proxy Statement/Prospectus on
SEC Form S-4, which became effective on January 27, 2000.
Pursuant to such merger, Tarpon's wholly-owned subsidiary, First
National Bank, Tarpon Springs, in Pinellas County, Florida, a
national bank with $1.8 million in capital and $20.7 in assets,
became the third wholly-owned banking subsidiary of the Company.
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. The Common Stock has since been trading on the OTC
Bulletin Board under the symbol "CBAC."
Pursuant to shareholder approval at the annual meeting on
May 12, 1999, the Company amended its Articles of Incorporation
to provide for three classes of directors with staggered terms,
so that in any given year no more than one-third of the total
Board membership stands for election; to require two-thirds vote
of the outstanding shares to approve certain transactions, amend
the Articles of Incorporation or remove a director; and to fix
its authorized capital stock at 50,000,000 shares of no par value
common stock and 10,000,000 shares of no par value preferred
stock, with the Board empowered to authorize the issuance and fix
the terms of any preferred stock in its sole discretion.
B. Business.
1. Services Offered by the Company's Subsidiaries.
CNB and Cumberland (collectively the "Banks"), conduct a
commercial banking business serving Turner, Crisp and Camden
Counties, Georgia. The Banks offer a full range of deposit
services, 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 and
retirement accounts such as IRA's (Individual Retirement
Accounts).
Other services of the Banks include safe deposit boxes,
travelers' checks, direct deposit of payroll and social security
checks, and automatic drafts for various accounts. The Banks are
members of the Star network of automated teller machines and each
of the Banks offers its own credit cards.
CNB 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. CNB is qualified to participate in
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. CNB offers real estate construction and acquisition
loans.
2. Market Area and Competition.
The Banks' primary service area includes all of the Georgia
counties of Turner, Crisp and Camden. CNB also extends credit to
qualified borrowers in the contiguous counties of Tift and Worth,
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. The U. S. Census Bureau estimates the
current population of Turner County at 9,249.
Turner County's economy is dependent on agriculture.
Management of CNB intends to continue to place a substantial
portion of CNB's assets in agricultural loans. This sector of
the economy is healthy and remains the largest single force in
CNB's market. A significant portion of the agricultural output
produced in the county is peanuts. Golden Peanut Company is
located in Ashburn, 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 have been contributing 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.
During 1999, there was one other bank in Turner County.
Management estimates that as of June 30, 1999, deposits in the
county totaled $188.5 million, with CNB having approximately 50%
of such deposits.
Crisp County is located contiguous to Turner County on its
northwest border. Although Crisp County is slightly smaller than
Turner County in total area, its population, currently estimated
at 20,637, is about twice that of Turner County. 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 Corporation and Serco Company are among
the largest non-governmental employers in the County.
Arabi and Cordele are the only two incorporated
municipalities in 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 1999 there were five banks and eight branches
represented in Crisp County. Management estimates that as of June
30, 1999, deposits in the county totaled $250.2 million, with
CNB's branch having approximately 6% 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 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 is
also a significant factor, due largely to the historic and
natural appeal of St. Marys and Cumberland Island. The current
population estimate for Camden County is 47,032.
The Company's management believes that Camden County
represents a significant growth opportunity for the Company.
Between 1992 and 1997 deposits in Camden County have increased
approximately $10 million each year. The county's population has
been growing at a steady rate during the 1990's, and Camden
County is expected to surpass neighboring Glynn County in
population by the year 2001, becoming the leading county in
coastal, southern Georgia. During 1999 there were five banks and
eleven bank branches in Camden County. Management estimates
that, as of June 30, 1999, deposits in the county totaled $165
million, with Cumberland having less than 1% of such deposits.
Historically, CNB's loan mix weighed heavily toward
agriculture related loans. By expanding into the Camden County
banking market, the Company now has the opportunity to lend to
many small commercial and light industrial customers and to the
many retirees purchasing homes in Camden County. The Company's
most recent expansion into the Pinellas County banking market on
the West Coast of Florida was also motivated by the desire to
diversify the loan portfolio of the Company.
Each of the Banks 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 Banks do not expect to provide in the
near future. By virtue of their greater total capitalization,
such institutions have substantially higher lending limits than
the Banks and substantial advertising and promotional budgets.
To compete, each of the Banks 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, 1999
and for the year ended December 31, 1998. This presentation
includes all major categories of interest-earning assets and
interest-bearing liabilities:
AVERAGE CONSOLIDATED ASSETS
Year Ended Year Ended
December 31, 1999 December 31, 1998
Cash and due from Banks $2,497,028 $2,644,046
Taxable securities 6,464,039 6,655,308
Non-taxable securities 2,240,975 1,204,634
Federal funds sold 5,455,154 5,446,079
Net Loans 97,982,769 86,359,442
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Total earning assets 112,142,936 99,665,463
Other assets 7,747,642 4,389,939
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Total assets $122,387,606 $106,699,448
============ ============
AVERAGE CONSOLIDATED
LIABILITIES AND STOCKHOLDERS' EQUITY
Year Ended Year Ended
December 31, 1999 December 31, 1998
Non interest bearing-deposits 5,536,020 5,745,532
NOW and money market deposits 16,908,263 12,582,343
Savings Deposits 1,569,808 1,294,713
Time Deposits 84,878,126 76,202,833
Federal funds purchased 58,219 211,397
Other Liabilities 705,170 1,100,759
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Total liabilities 109,655,606 97,137,577
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Common Stock 7,674,490 5,376,522
Treasury Stock - - (61,200)
Retained earnings 5,211,347 4,223,107
Unrealized gain/loss securities (153,837) 23,442
----------- -----------
Total stockholders' equity 12,732,000 9,561,871
Total liabilities and
stockholders' equity $122,387,606 $106,699,448
============ ============
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, 1999
----------------------------
Average
Average Yield/
Assets Amount Interest Rate
- ------ ------------ ------------ ---------
Taxable securities $ 6,464,039 395,664 6.12%
Non-taxable securities 2,240,974 101,237 6.84%(3)
Federal funds sold 5,455,154 267,535 4.90%
Net loans 97,982,769(1) 10,286,099(2) 10.50%
----------- ---------- -----
Total earning assets $112,142,936 $11,050,535 9.85%
============ =========== ======
Liabilities
- -----------
NOW and money market deposits 16,908,263 394,816 2.34%
Savings deposits 1,569,808 50,881 3.24%
Time deposits 84,878,126 4,893,990 5.77%
Federal funds purchased 58,219 4,086 7.02%
----------- -------- -----
Total interest bearing liabilities $103,414,416 $5,343,773 5.17%
============ ========== =====
Interest spread 4.68%
=====
Net interest income $5,706,762
==========
Net yield on interest earning assets 5.09%
=====
___________
(1) Net loans include $20,680 in loans that were placed on non-accrual
status. The Company would have earned an additional $14,649 (after tax)
had these loans accrued interest throughout 1999.
(2) Interest earned on net loans include $505,379 in loan fees.
(3) The yield on non-taxable securities is tax equivalent.
Year Ended December 31, 1998
----------------------------
Average
Average Yield/
Assets Amount Interest Rate
- ------ ------------ ------------ ---------
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%(3)
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 $190,476 in loans that were placed on non-accrual
status. The Company would have earned an additional $7,234 (after tax)
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.
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, 1999
Compared with Year Ended December 31, 1998
Increase (decrease) due to:
Interest earned on: Volume Rate Total
- ------------------ ------ ---- -----
Taxable securities (12,190) 4,909 (7,281)
Non-taxable securities 46,700 (2,426) 44,274
Federal funds sold 488 (28,598) (28,110)
Net loans 1,201,601 (351,227) 850,374
--------- -------- -------
Total Interest Income $1,236,599 $(377,342) $859,257
========== ========= ========
Interest paid on:
- -----------------
NOW and money market deposits $31,500 $(21,558) $9,942
Savings deposits 8,874 259 9,133
Time deposits 485,563 (163,497) 322,066
Federal funds purchased (11,756) 3,863 (7,893)
------- -------- -------
Total Interest Expense 514,181 (180,933) 333,248
------- -------- -------
Change in net interest income $722,418 $(196,409) $526,009
======== ========= ========
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
========== ========= ==========
5. Deposits Analysis.
The Banks offer 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 Banks' market
areas. Customers are obtained through personal solicitation,
direct mail solicitation and advertisements published in the
local media.
The Banks pay competitive interest rates on time and
savings deposits up to the maximum permitted by law or
regulation. In addition, they have implemented a service charge
fee schedule competitive with other financial institutions,
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, 1999
Deposit Category Average Amount Average Rate Paid
-------------- -----------------
Non interest bearing demand deposits $ 5,536,020 N/A
NOW and money market deposits 16,908,263 2.34%
Savings deposits 1,569,808 3.24%
Time deposits 84,878,126 5.77%
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%
The following table indicates amounts outstanding of time
certificates of deposit of $100,000 or more and respective
maturities at December 31, 1999:
Time Certificates of Deposit
----------------------------
3 months or less $ 6,421,714
3-6 months $ 5,060,926
6-12 months $ 13,577,366
over twelve months $ 5,088,896
Total $ 30,148,902
6. Loan Portfolio Analysis.
The Banks engage 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 Banks. These loans include loans obtained for a variety of
business purposes, and are made to individual, partnership or
corporate borrowers. The Banks place 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 Company's loan portfolio as of December 31, 1999
and 1998 and the total amount of all loans for such periods:
As of December 31
Type of Loan 1999 1998
Domestic:
Commercial, financial and agricultural $ 73,130,224 $67,929,551
Real estate-construction 1,004,377 652,185
Real estate mortgage 17,977,574 14,190,655
Installment and other loans to individuals 8,798,959 7,346,848
----------- -----------
Subtotal 100,911,134 90,119,239
Allowance for loan losses (2,015,645) (1,824,179)
----------- ----------
Total (net of allowance) $ 98,895,489 $88,295,060
============ ============
The following is a presentation of an analysis of
maturities of loans as of December 31, 1999 (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 $57,185 14,083 1,862 $73,130
Real estate-construction 627 377 - - 1,004
------ ------ ------ ------
Total $57,812 14,460 1,862 $74,134
======= ====== ====== =======
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, 1999
(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 $36,019 14,434 1,862 $52,315
Variable rate loans 21,793 26 - - 21,819
------ ------ ------ ------
Total $57,812 14,460 1,862 $74,134
======= ====== ===== =======
The following table presents information regarding non-
accrual, past due and restructured loans as of December 31, 1999
and 1998 (dollars in thousands):
As of December 31
1999 1998
Loans accounted for on a non-accrual basis:
Number: 11 2
Amount: $261 $46
Accruing loans which are contractually
past due 90 days or more as to principal
and interest payments:
Number: 0 3
Amount $0 $144
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: 17 5
Amount: $914 $791
As of December 31, 1999, 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, 1999, with the exception of the 11 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 Company's loss experience is furnished
in the following table for the years ended December 31, 1999 and
1998, as well as a breakdown of the allowance for possible loan
losses (in thousands):
Year Ended December 31
1999 1998
Balance at beginning of period 1,824 $1,566
Charge-offs (851) (572)
Recoveries 48 110
Provision charged to Operations 995 720
----- -----
Balance at end of period 2,016 $1,824
===== =====
Ratio of allowance for loan losses to total
loans outstanding during the period 2.00% 2.02%
===== =====
Net charge-offs to average loans .82% .53%
==== ====
As of December 31, 1999, the allowance for possible losses
was allocated as follows:
Percent of Loan
in Each
Loans Amount Category to Total
- -----
Commercial, financial and agricultural $1,522,000 72.5%
Real estate-Construction 28,000 1.0%
Real estate-Mortgage 268,000 18.8%
Installment and other loans
to individuals 175,000 8.7%
Unallocated 22,645 N/A
--------- ------
Total $2,015,645 100.0%
========== ======
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, 1999, 72.5% of outstanding loans were in the
category of commercial, financial and agricultural, loans.
Management generally regards these loans as riskier than other
categories of loans in the Company's loan portfolio. However,
93.0% of the outstanding loans in this category at December 31,
1999, 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, 1999, 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 17.8% 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 each of the Banks 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, 1999, the securities portfolio comprised
approximately 7.6% of the Company's assets, while loans comprised
approximately 77.1% of the Company's assets. The Banks invest
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, CNB and Cumberland enter 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 CNB or Cumberland
to another bank.
The following table presents, for the years ended December
31, 1999 and 1998, 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: 1999 1998
- ------------------- ---- ----
Obligations of U.S. Treasury
and other U.S. Agencies 6,750,460 $5,526,732
State, Municipal and County
Securities 2,359,154 2,136,025
FRB and FHLB Stock 598,490 373,600
--------- ---------
Total $9,708,104 $8,036,357
Held-to-Maturity:
- -----------------
As of December 31, 1999 and 1998, there were no securities
categorized as held-to-maturity.
The following table indicates, for the year ended December
31, 1999, 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 - -
Over 1 through 5 years 5,805,305 5.92%
Over 5 through 10 years 945,155 6.14%
State, Municipal and County Securities
0 to 1 year 275,196 7.20%
Over 1 through 5 years 571,916 6.76%
Over 5 through 10 years 992,896 6.13%
Over 10 years 591,146 6.47%
Other Securities
No maturity 598,490 6.26%
--------- -----
Total $9,708,104 6.14%
========== =====
Held-to-Maturity:
- -----------------
As of December 31, 1999, 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, 1999 and 1998
are as follows:
1999 1998
---- ----
Return on average assets 0.86% 1.13%
Return on average equity 8.28% 11.32%
Equity to assets ratio 10.40% 8.96%
Dividend payout ratio 14.4% 8.73%
11. Asset/Liability Management.
The Banks seek 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 their officers 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. Management seeks to stimulate asset growth
primarily through growth of core deposits of all categories made
by individuals, partnerships and corporations. The respective
managements of the Banks invest the largest portion of their
assets in commercial, consumer and real estate loans.
The management of each of the Banks monitors its
asset/liability mix on a daily basis. The Board of Directors of
each of the Banks receives a monthly report reflecting interest-
sensitive assets and interest-sensitive liabilities. 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 their respective earnings.
12. Employees.
As of March 24, 2000, the Banks employed 53 full-time and 3
part-time employees. The Company had no full-time equivalent
employees. Management of each of the Banks believes that its
employee relations are good. There are no collective bargaining
agreements covering any of the Banks' employees.
13. Supervision and Regulation.
The Company and the Banks 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 Banks are closely supervised by
a number of state and federal regulatory agencies, including the
Fed, the OCC, the Georgia Department and the Federal Deposit
Insurance Corporation ("FDIC").
The Company is regulated by the Fed under the Federal Bank
Holding Company Act of 1956, as amended, among other acts, by the
Financial Services Modernization Act of 1999 ("Bank Holding
Company Act"), which requires every bank holding company to
obtain the prior approval of the Fed 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 Fed (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 Fed policy, the Company may
be required to provide financial support to a subsidiary bank at
a time when, absent such Fed 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 Fed 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 10% 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 30%
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, Georgia 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, Georgia 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 that 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. Effective July 1, 1999, a Georgia bank holding
company owning a bank that does a lawful business in Georgia is
allowed 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. Under
this legislation, a bank holding company may merge or consolidate
a de novo bank that it had 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.
The Company is also subject to the reporting and other
requirements of the Securities Exchange Act of 1934, which
include the filing of annual, quarterly and other reports with
the Securities and Exchange Commission, as well as the proxy
rules under such Act.
As national banks, the Banks are subject to the supervision
of the OCC and, to a limited extent, the FDIC and the Fed. With
respect to expansion, national banks situated in the State of
Georgia are now allowed, with required regulatory approval, to
establish de novo branches in an unlimited number of counties
within the State of Georgia if they are subsidiary bank(s) of
bank holding companies then engaged in banking business in the
State of Georgia. As national banks, each of the Banks 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 Banks are required to comply with
capital adequacy standards established by the Fed in the case of
the Company, and the OCC, in the case of the Banks. The Fed 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, non-cumulative
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, 1999,
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 14.7% and 13.4% respectively.
In addition, the Fed 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, 1999 was 10.5%. 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.
Each of the Banks was in compliance with applicable minimum
capital requirements as of December 31, 1999. The Company has
not been advised by any federal regulator of any specific minimum
capital ratio requirement applicable to it or the Banks.
Failure to meet capital guidelines could subject the Banks
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.
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 national banks, the Banks are subject to examination and
review by the OCC. This examination is typically completed on-
site at least annually and is subject to off-site review as well.
The Banks submit to the OCC quarterly reports of condition, as
well as such additional reports as may be required by the
national banking laws.
As a bank holding company, the Company is required to file
with the Fed and the Georgia Department an annual report of its
operations at the end of each fiscal year and such additional
information as the Fed may require pursuant to the Act. The Fed
may also make examinations of the Company and each of its
subsidiaries.
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999, known as the Financial Services
Modernization Act of 1999, which repeals many of the Glass-
Steagall Act's restrictions on the activities of banks and bank
holding companies. The new law establishes two new structures --
"financial holding companies" and "financial subsidiaries"-- that
enable qualifying bank holding companies and banks to provide a
wide variety of financial services that formerly could be
performed only by insurance companies and securities firms. The
new law also permits bank affiliations with insurance and
securities firms.
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 Banks are affected by
credit policies of monetary authorities, particularly the Fed.
The instruments of monetary policy employed by the Fed 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 Fed, no prediction
can be made as to possible future changes in interest rates,
deposit levels, loan demand or the business and earnings of the
Banks.
Item 2. Description of Property.
CNB 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. CNB
invested approximately $1,141,396 in the construction of the
building, landscaping and the purchase of security devices, the
main vault, furniture and fixtures. CNB 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 branch. The lease
expires on September 19, 2002. For the purposes of opening its
second branch in Turner County, CNB purchased, in July 1998, for
$100,000, the real estate located at 131 Industrial Drive,
Ashburn. CNB subsequently subdivided the parcel and disposed of
a portion thereof, including a single family residence, for which
CNB had no use. On the remaining land, CNB constructed a 1,500
square foot branch building with three drive-through windows and
an automatic teller. The building opened on September 21, 1998.
On March 26, 1998, CNB purchased two parcels of land in St.
Marys, Camden County, Georgia, for $241,074 for construction of
its Camden County branch. The building was completed in
September 1999, and is now owned by Cumberland.
On July 2, 1998, CNB purchased a .5 acre parcel of land in
Cordele, Crisp County, Georgia, for $288,000. After receiving
approval for the opening of the second Crisp County branch, CNB
constructed a 5,600 square foot, two story, branch building,
which opened in February 2000.
Item 3. Legal Proceedings.
Neither the Company nor any of the Banks 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 Incorporation authorize it to
issue up to 10,000,000 shares of Common Stock. As of March 24,
2000, 1,701,782 shares of Common Stock were issued and
outstanding to 1,302 holders of record.
The Common Stock is traded on the OTC Bulletin Board. On
March 24, 2000, the average bid and ask price for the Common
Stock was $15.50 per share.
During the first quarter of 1999 the Company declared and
paid a dividend of $151,857.10, i.e., $0.10 per share. During
the first quarter of 1998, the Company declared and paid a
dividend of $105,426, i.e., $0.10 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 Banks and
the Company, and regulatory requirements.
The Banks are restricted in their 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' 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
Company 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, 1999 - Compared to Year Ended December 31, 1998
For the years ended December 31, 1999 and 1998, net income
amounted to $1,053,991 and $1,207,482 respectively. For 1999,
basic and diluted income per share of Common Stock was $.69 and
$.59, respectively; for 1998, basic and diluted income per share
of Common Stock amounted to $1.00 and $.85, respectively. Note
that during 1999 and 1998, the outstanding warrants and stock
options were dilutive (i.e., upon exercise, they diluted earnings
per share by more than 3.0%), thus necessitating the disclosure
of basic and diluted income per share. Net income in 1999
decreased by $153,491 due to significant increases in non-
interest expense. Non-interest expense increased in 1999 due to
expenses incurred in conjunction with the opening of a second
bank, Cumberland Bank. Below is a brief explanation concerning
revenue and expense items for the years ended December 31, 1999
and 1998:
a. Average earning assets for the year ended December 31, 1999
increased from $99.7 million to $112.1 million, representing an
increase of $12.4 million, or 12.4%. Below are various
components of average earning assets for the periods indicated:
December 31,
1999 1998
(in 000's)
Federal funds sold $5,455 $ 5,446
Securities 8,705 7,860
Net loans 97,983 86,359
------- ------
Total average earning assets $112,143 $99,665
======== =======
b. As a consequence of the increase in average earning assets,
the net interest income also increased from $5,180,753 for the
year ended December 31, 1998 to $5,706,762 for the year ended
December 31, 1999. Below are various components of interest
income and expense, as well as their yield/costs for the periods
indicated:
Years Ended: December 31, 1999 December 31, 1998
Interest Interest
Income Yield Income Yield
/Expense /Cost /Expense /Cost
Interest income:
- ----------------
Federal funds sold 267,535 4.90% $ 295,645 5.43%
Securities 496,901 6.14% 459,908 6.18%
Loans 10,286,099 10.50% 9,435,725 10.93%
---------- ----- ---------- ------
Total $11,050,535 9.85% $10,191,278 10.23%
=========== ===== =========== ======
Years Ended: December 31, 1999 December 31, 1998
Interest Interest
Income Yield Income Yield
/Expense /Cost /Expense /Cost
Interest expense:
- ----------------
NOW and money
market deposit 394,816 2.34% $ 384,874 3.06%
Savings Deposits 50,881 3.24% 41,748 3.22%
Time Deposits 4,893,990 5.77% 4,571,924 6.00%
Borrowings 4,086 7.02% 11,979 5.67%
--------- ----- --------- -----
Total 5,343,773 5.17% $5,010,525 5.55%
========= ===== ========== =====
Net interest income 5,706,762 $5,180,753
========= ==========
Net yield on
earning assets 5.09% 5.20%
===== =====
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 1999 was $5,706,762
as compared to $5,180,753 for 1998. Average yields on earning
assets were 9.85% and 10.23% for the years ended December 31,
1999 and 1998, respectively. The average costs of funds for 1999
decreased to 5.17% from the 1998 cost of 5.55%. 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, 1999 and 1998 amounted to 5.09% and 5.20%, respectively. The
decrease in net interest yield is due to the fact that the
decline in the yield on earning assets was of a higher magnitude
than the decline in the cost of funds. Net interest income for
1999 as compared to 1998, increased by $526,009. The increase is
due primarily to the growth in average earning assets from $99.7
million in 1998 to $112.1 million in 1999.
Non-Interest Income
- -------------------
Non-interest income for the years ended December 31, 1999
and 1998, amounted to $786,309 and $554,788, respectively. As a
percentage of average assets, non-interest income increased from
.52% in 1998 to .64% in 1999. The primary reason for the above
increase was due to higher revenues from deposit accounts
The following table summarizes the major components of non-
interest income for the periods therein indicated:
Non-Interest Income
Year Ended December 31,
1999 1998
Service fees on deposit accounts $612,938 $488,692
Gain on sale of securities 9,375 4,350
Miscellaneous, other 163,996 61,746
------- -------
Total non-interest income $786,309 $554,788
======== ========
Non-Interest Expense
- --------------------
Non-interest expense increased from $3,035,465 during 1998
to $3,884,803 in 1999. As a percentage of total average assets,
non-interest expense has increased from 2.84% in 1998 to 3.17% in
1999. The main reason for the above increase is associated with
the Company's efforts in opening its second bank, Cumberland
National Bank. Below are the components of non-interest expense
for the years 1998 and 1999:
Non-Interest Expense
Year Ended December 31,
1999 1998
Salaries and other personnel benefits $1,966,288 $1,438,874
Data processing charges 186,827 143,827
Depreciation 232,144 181,650
Professional Fees 312,129 173,319
Other expenses 1,187,415 1,097,795
--------- ---------
Total non-interest expense $3,884,803 $3,035,465
========== ==========
For the year ended December 31, 1999, the allowance for
loan losses increased from $1,824,179 to $2,015,645. As of
December 31, 1999, 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 re-pricing opportunities exist for
both assets and liabilities in roughly equivalent amounts at
approximately the same time intervals. Imbalances in these re-
pricing 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 1999 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 $43,355 $10,054 $14,015 $30,753 $2,734 $100,911
Securities 204 - - 71 6,569 2,844 9,708
Federal
funds
sold 8,540 - - - - - - - - 8,540
----- ------ ------ ------ ----- -------
Total
earning
assets $52,099 $10,054 $14,086 $37,322 $5,598 $119,159
======= ======= ======= ======= ====== ========
SUPPORTING
SOURCES OF FUNDS
Interest-bearing
demand deposits
and savings
$14,875 $ - - $ - - $ - - $ - - $14,875
Certificates,
Less than $100M
13,032 14,150 22,698 13,015 - - 62,895
Certificates,
$100M and over
6,422 5,061 13,577 5,089 - - 30,149
----- ------ ------ ------ ----- ------
Total interest-bearing
Liabilities
$34,329 $19,211 $36,275 $18,104 $ - - $107,919
======= ======= ======= ======= ======= ========
Interest rate
Sensitivity gap
$17,700 (9,157) (22,189) 19,218 5,598 11,240
Cumulative gap
17,770 8,613 (13,576) 5,642 11,240 11,240
Interest rate sensitivity gap ratio
1.52 .52 .39 2.06 N/A 1.10
Cumulative interest rate
sensitivity gap ratio
1.52 1.16 .85 1.05 1.10 1.10
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 re-priced 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 re-priced 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
Banks' Asset/Liability Committees meet on a quarterly basis and
develop 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 Banks.
Deposits grew by $5.9 million in 1999. Below are pertinent
liquidity balances and ratios for the years ended December 31,
1999 and 1998.
December, 31
1999 1998
---- ----
Cash and cash equivalents 11,108,037 $19,247,203
CDs, over $100,000 to total deposits ratio 26.4% 22.8%
Loan to deposit ratio 86.5% 81.5%
Securities to total assets ratio 7.6% 6.6%
Brokered deposits - - - -
As the above balances and ratios indicate, management
believes that the Company's 1999 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%, depending upon risk profiles and other factors.
A new rule was recently adopted by the Fed, 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, re-pricing 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 Banks' and Company's
regulatory capital ratios at December 31, 1999.
Minimum
December 31, Regulatory
Bank 1999 Requirement
- ----
Tier 1 Capital 13.0% 4.0%
Tier 2 Capital 1.2% N/A
----- ----
Total risk-based capital ratio 14.2% 8.0%
===== ====
Leverage ratio 10.3% 3.0%
===== ====
Minimum
December 31, Regulatory
Company - Consolidated 1999 Requirement
- ----------------------
Tier 1 Capital 13.4% 4.0%
Tier 2 Capital 1.2% N/A
----- ----
Total risk-based capital ratio 13.6% 8.0%
===== ====
Leverage ratio 10.5% 3.0%
===== ====
The above ratios indicate that the capital positions of the
Company and the Banks are sound and that the Company is well
positioned for future growth.
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, 1999 and 1998
Consolidated Statements of Income-for the years ended December 31, 1999
and 1998
Consolidated Statement of Changes in Stockholders' Equity- for the years
ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows-for the years ended December 31,
1999 and 1998
Notes to Consolidated Financial Statements
- ------------------------------------------------------------
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------
TABLE OF CONTENTS
-----------------
REPORT OF INDEPENDENT
ACCOUNTANTS........................................................38
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets....................................39
Consolidated Statements of Income..............................40
Consolidated Statements of Changes in Shareholders' Equity.....41
Consolidated Statements of Cash Flows..........................42
Notes to Consolidated Financial Statements.....................43
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 subsidiaries as of
December 31, 1999 and 1998, and the related consolidated
statements of income, changes in shareholders' equity and cash
flows for the two years in the period ended December 31, 1999.
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 subsidiaries at December 31, 1999 and 1998,
and the consolidated results of their operations and their cash
flows for each of the years in the two-year period ended December
31, 1999, in conformity with generally accepted accounting
principles.
/s/ Francis & Co., CPAs
Atlanta, Georgia
February 18, 2000
End page 1 of financials
- ------------------------
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Balance Sheets
ASSETS
------
As of December 31,
1999 1998
---- ----
Cash and due from banks $ 2,568,037 $ 3,397,203
Federal funds sold, net (Note 3) 8,540,000 15,850,000
--------- ----------
Total cash and cash equivalents $ 11,108,037 $19,247,203
Securities: (Notes 2 & 4)
Available-for-sale at fair value 9,708,104 8,036,357
Loans, net (includes loans of $4,120,083
(1999) and $3,413,215 (1998) to insiders)
(Notes 2, 5, 6, & 14) 98,895,489 88,295,060
Property and equipment, net (Notes 2 & 7) 4,705,403 2,406,538
Other real estate owned (Note 2) 580,000 650,000
Other assets 3,340,482 2,956,774
--------- ---------
Total Assets $128,337,515 $121,591,932
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
- ------------
Deposits
Non-interest bearing deposits $ 6,411,554 $10,478,489
Interest bearing deposits 107,918,532 97,903,091
----------- ----------
Total deposits (Note 9) $114,330,086 $108,381,580
Other liabilities 803,448 688,858
----------- -----------
Total Liabilities $115,133,534 $109,070,438
------------ ------------
Commitments and Contingencies (Note 8)
- -----------------------------
Shareholders' Equity: (Notes 1 & 10)
- ---------------------
Common stock, no par value, 50,000,000 shares
authorized, 1,534,711 (1999) and 1,518,871
(1998) shares issued and outstanding $ 7,702,091 $7,649,291
Retained earnings 5,731,110 4,829,006
Unrealized gain (loss) on securities, net (229,220) 43,197
-------------- ---------
Total Shareholders' Equity $ 13,203,981 $ 12,521,494
------------ -----------
Total Liabilities and Shareholders' Equity $128,337,515 $121,591,932
============ ============
Refer to notes to the consolidated financial statements.
End page 2 of financials
- ------------------------
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Income
Years Ended December 31,
1999 1998
Interest Income: ---- ----
- ----------------
Interest and fees on loans (Note 2) $ 10,286,099 $ 9,435,725
Interest on investment securities 496,901 459,908
Interest on federal funds sold 267,535 295,645
----------- ----------
Total interest income $ 11,050,535 $10,191,278
Interest Expense:
- -----------------
Interest on deposits and borrowings (Note 11)$ 5,343,773 $ 5,010,525
---------- -----------
Net interest income 5,706,762 5,180,753
Provision for possible loan losses (Note 6) 995,000 720,000
--------- -----------
Net interest income after provision for
possible loan losses $ 4,711,762 $ 4,460,753
---------- ----------
Other Income:
- -------------
Gain on sale/settlement of securities (Note 4)$ 9,375 $ 4,350
Service fees on deposit accounts 612,938 488,692
Miscellaneous, other 163,996 61,746
--------- -----------
Total other income $ 786,309 $ 554,788
--------- ----------
Other Expenses:
- ---------------
Salaries and benefits $1,966,288 $1,438,874
Data processing expense 186,827 143,827
Professional fees 312,129 173,319
Depreciation 232,144 181,650
Repairs and maintenance 168,470 123,630
Other operating expenses (Note 12) 1,018,945 974,165
--------- ---------
Total other expenses $3,884,803 $3,035,465
--------- ---------
Income before income tax $1,613,268 $1,980,076
Income tax (Notes 2 & 13) 559,277 772,594
--------- -----------
Net income $1,053,991 $1,207,482
========== ============
Basic earnings per share (Note 2) $ .69 $ 1.00
========== ============
Diluted earnings per share (Note 2) $ .59 $ .85
========== ============
Refer to notes to the consolidated financial statements.
End page 3 of financials
- ------------------------
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1999 and 1998
Common Stock Treasury Stock
Shares Amount Shares Amount
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 warrants/options 58,620 195,400 - - - -
Sale of stock 400,000 3,953,903 - - - -
Comprehensive income:
Net income - - - - - - - -
Unrealized gain, securities - - - - - - - -
------ -------- ------ ------
Balance, December 31, 1998 1,518,871 $7,649,29 - - $ - -
Dividends paid ($.1 per share) - - - - - - - -
Exercise of options 15,840 52,800 - - - -
Comprehensive income:
Net income - - - - - - - -
Unrealized (loss), securities - - - - - - - -
---- ---- ---- ----
Balance, December 31, 1999 1,534,711 $7,702,091 - - $ - -
========= ========= ==== ====
Accumulated
Other Total
Retained Comprehensive Shareholders'
Earnings Income Equity
-------- ------------- -------------
Balance, December 31, 1997 $3,726,950 $ 10,734 $ 7,177,672
--------- ---------- ----------
Dividends paid ($.1 per share) (105,426) - - (105,426)
Treasury stock sold - - - - 60,000
Exercise of warrants/options - - - - 195,400
Sale of stock - - - - 3,953,903
Comprehensive income:
Net income 1,207,482 - - 1,207,482
Unrealized gain, securities - - 32,463 32,463
--------- ------ ---------
Balance, December 31, 1998 $4,829,006 $ 43,197 $12,521,494
Dividends paid ($.1 per share) (151,887) - - (151,887)
Exercise of options - - - - 52,800
Comprehensive income:
Net income 1,053,991 - - 1,053,991
Unrealized (loss), securities - - (272,417) (272,417)
--------- --------- ----------
Balance, December 31, 1999 $5,731,110 $ (229,220) $13,203,981
========== ========== ===========
Refer to notes to the consolidated financial statements.
End page 4 of financials
- ------------------------
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Consolidated Statements of Cash Flows
Years Ended December 31,
Cash flows from operating activities: 1999 1998
- ------------------------------------- ---- ----
Net income $ 1,053,991 $ 1,207,482
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation $ 232,144 $ 181,650
Net accretion of discount on securities 5,599 10,422
(Gain) on sale or settlements of securities (9,375) (4,350)
Provisions for loan losses 995,000 720,000
(Increase) in other assets (313,708) (1,225,852)
Increase in liabilities 114,590 114,300
--------- ---------
Net cash provided by operating activities $ 2,078,241 $ 1,003,652
------------ ------------
Cash flows from investing activities:
- -------------------------------------
Proceeds from maturities and paydowns
of securities $ 1,500,000 $ 4,128,019
Purchase of investment securities (3,440,388) (5,060,076)
Net increase in loans (11,595,429) (13,224,000)
Purchase of property and equipment (2,531,009) (1,264,312)
------------ ------------
Net cash used in investing activities $(16,066,826) $(15,420,369)
------------ ------------
Cash flows from financing activities:
- -------------------------------------
Exercise of warrants, options $ 52,800 $ 195,400
Sale of stock - - 3,953,903
Sale/(purchase) of treasury stock - - 60,000
Payment of dividends (151,887) (105,425)
Increase in customer deposits 5,948,506 24,539,421
--------- ----------
Net cash provided by financing activities $ 5,849,419 $ 28,643,299
------------ -----------
Net (decrease) in cash and cash equivalents $ (8,139,166) $ 14,226,582
Cash and cash equivalents, beginning of year 19,247,203 5,020,621
------------ -----------
Cash and cash equivalents, end of year $ 11,108,037 $ 19,247,203
============ ============
Supplemental Information:
Income taxes paid $ 647,300 $ 879,000
============ ============
Interest paid $ 5,247,094 $ 3,845,696
============ ============
Refer to notes to the consolidated financial statements.
End of page 5 of financials
- ---------------------------
COMMUNITY NATIONAL BANCORPORATION
ASHBURN, GEORGIA
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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 "Community 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 $4 million, all
of which was invested in 1999, in a de novo bank, Cumberland
National Bank, St. Marys, Georgia (the "Cumberland Bank").
Community Bank and Cumberland Bank were both chartered by and are
currently regulated by the Office of the Comptroller of the
Currency ("OCC"). The subsidiary 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 2 - Summary of Significant Accounting Policies
Basis of Presentation and Reclassification.
-------------------------------------------
The consolidated financial statements include the accounts
of the Company and its subsidiary banks. 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 financial statements and income
and expenses during the reporting 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 foreclosure proceedings.
Investment Securities.
----------------------
Investment securities that the Company has the positive
intent and ability to hold to maturity are classified as held to
maturity and are reported at amortized cost. Investment
securities held for current resale are classified as trading
securities and are reported at fair value, with unrealized gains
and losses included in earnings. Investment securities not
classified either as securities held to maturity or trading
securities are classified as available for sale and reported at
fair value; net unrealized gains or losses (net of related taxes)
are excluded from earnings and reported as accumulated other
comprehensive income/(loss) within shareholders' equity. The
classification of investment securities as held to maturity,
trading or available for sale is determined at the date of
purchase.
Realized gains and losses from sales of investment
securities are determined based upon the specific identification
method. Premiums and discounts are amortized as an adjustment to
yield over the remaining lives of the securities using the level-
yield method.
Management periodically evaluates investment securities for
other than temporary declines in value and records losses, if
any, through an adjustment to earnings.
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.
Impaired loans are (i) non-performing loans that have been
placed on nonaccrual status and (ii) loans which are performing
according to all contractual terms of the loan agreement, but may
have substantive indication of potential credit weakness.
Accounting standards require impaired loans to be measured based
on (a) the present value of expected future cash flows discounted
at the loan's original effective interest rate, or (b) the loan's
observable market price, or (c) the fair value of the collateral
if the loan is collateral dependent.
Allowance for Loan Losses.
--------------------------
The allowance for loan losses (the "Allowance") is
established through provisions charged to operations. Loans
deemed to be uncollectible are charged against the Allowance, and
subsequent recoveries, if any, are credited to the Allowance.
The adequacy of the Allowance is 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. The evaluation for the adequacy of the Allowance is
inherently subjective as it requires material estimates,
including the amounts and timing of future cash flows expected to
be received on impaired loans that may be susceptible to
significant change. Various regulatory agencies, as an integral
part of their examination process, periodically review the
Company's Allowance. 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 proceedings. 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 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
the sale of the property and any subsequent adjustments to
reflect changes in fair value of the property are reflected in
the income statement. Recoverable costs relating to the
development and improvement of the property are capitalized
whereas routine holding costs are charged to expense.
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.
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.
Stock Options and Warrants.
---------------------------
There are two major accounting standards that address the
accounting for stock options/warrants. Entities are allowed to
freely choose between the two distinct standards. The first
standard, APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") measures stock options/warrants by the
intrinsic value method. Under the above method, if the exercise
price is the same or above the quoted market price at the date of
grant, no compensation expense is recognized. The second
standard, SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), may recognize a compensation expense even in cases
where the exercise price is the same or above the quoted market
price. SFAS 123 takes into account the time value of the
options/warrants; that is, the value of being able to defer a
decision on whether or not to exercise the option/warrants until
the expiration date. The Company follows the accounting
standards of APB 25. Had the Company followed the accounting
standards of SFAS 123, net income for the years ended December
31, 1999 and 1998 would have been reduced by $30,825 and zero,
respectively. On a per share basis, basic and diluted earnings
per share would have been reduced by $.02 in 1999 and by zero in
1998.
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, 1999, basic EPS and diluted
EPS were computed as follows:
Basic EPS Diluted EPS
Numerator Denominator Numerator Denominator
---------- ----------- ---------- -----------
Net income $1,053,991 $1,053,991
Weighted average shares 1,534,711 1,534,711
Options, warrants 247,077
--------- --------- --------- ---------
Totals $1,053,991 1,534,711 $1,053,991 1,781,788
========== ========= ========== =========
EPS $.69 $.59
==== ====
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
===== ====
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 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, SFAS 133 will not have a material impact
on the Company's financial statements.
SFAS 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 for the first quarter of 1999. Since
the Company does not securitize mortgage loans, no financial
statement impact has resulted from adopting this statement.
Note 3 - Federal Funds Sold
The subsidiary banks are required to maintain legal cash
reserves computed by applying prescribed percentages to their
various types of deposits. When the subsidiary banks' cash
reserves are in excess of the required amount, the subsidiary
banks may lend the excess to other banks on a daily basis. At
December 31, 1999 and 1998, the subsidiary banks sold $8,540,000
and $15,850,000, 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, 1999 follow:
Gross
Amortized Unrealized Estimated
Description Costs Gains Losses Market Values
U.S. Agency securities $ 6,993,944 $ - - $(243,484) $6,750,460
FRB & FHLB stock 598,490 - - - - 598,490
Municipal securities 2,462,973 5,285 (109,104) 2,359,154
--------- ----- -------- ---------
Total securities $10,055,407 $5,285 $(352,588) $9,708,104
=========== ====== ========== ==========
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 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 at December 31, 1999, 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 $ 275,011 $ 275,196
Due after one through five years 6,569,335 6,377,221
Due after five through ten years 2,042,427 1,938,051
Due after ten years 570,144 519,146
FRB and FHLB stock (no maturity) 598,490 598,490
---------- ---------
Total securities $10,055,407 $9,708,104
=========== ============
For the years ended December 31, 1999 and 1998, no
securities were sold by the Company. However, a gain of $9,375
and $4,350 was recorded for settlement of securities for the
years ended December 31, 1999 and 1998, respectively.
As of December 31, 1999, an aggregate amount of $4,350,000,
consisting of total or portions of eighteen securities, were
pledged as collateral for public funds deposits. 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.
Note 5 - Loans
The composition of net loans by major loan category, as of
December 31, 1999 and 1998, follows:
December 31,
1999 1998
Commercial, financial, agricultural $ 73,130,224 $ 67,929,551
Real estate - construction 1,004,377 652,185
Real estate - mortgage 17,977,574 14,190,655
Installment 8,798,959 7,346,848
----------- -----------
Loans, gross $100,911,134 $ 90,119,239
Deduct:
Allowance for loan losses (2,015,645) (1,824,179)
------------ ------------
Loans, net $ 98,895,489 $ 88,295,060
============ ============
The Company considers impaired loans to include all
restructured loans, loans on which the accrual of interest had
been discontinued and all other loans which are performing
according to the loan agreement, but may have substantive
indication of potential credit weakness. The Company's recorded
investment in impaired loans amounted to $914,453 and $791,126 at
December 31, 1999 and 1998, respectively. These loans had
related allowances for loan losses of approximately $142,300 and
$163,200, at December 31, 1999 and 1998, respectively. Non-
accruing loans, a loan category which is part of impaired loans,
amounted to $260,680 and $190,476 at December 31, 1999 and 1998,
respectively. Had interest been accrued on these loans at their
originally contracted rates, interest income would have been
increased by approximately $22,196 and $10,960 in the year ended
December 31, 1999 and 1998, respectively.
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 account for the years ended
December 31, 1999 and 1998 follows:
Years ended December 31,
1999 1998
Balance, beginning of year $ 1,824,179 $ 1,565,923
Add: Provision for loan losses 995,000 720,000
Add: Recoveries of previously charged
off amounts 48,486 110,033
--------- ---------
Total 2,867,665 2,395,956
Deduct: Amount charged-off (852,020) (571,777)
Balance, end of year $ 2,015,645 $ 1,824,179
=========== ===========
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, 1999 and 1998 follow:
December 31,
1999 1998
Land $ 809,461 $ 792,499
Leasehold improvements 166,500 166,500
Building 2,832,701 1,387,699
Furniture and equipment 1,316,156 922,458
Construction in progress 563,489 922,458
Property and equipment, gross $ 5,688,307 $ 3,269,156
Deduct:
Accumulated depreciation (982,904) (862,618)
----------- -----------
Property and equipment, net $ 4,705,403 $ 2,406,538
============ ============
Depreciation expense for the years ended December 31, 1999
and 1998 amounted to $232,144 and $181,650, 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, 1999
are show below:
Calendar Year Amount
2000 $ 25,000
2001 25,000
2002 18,500
--------
Total $ 68,500
=========
Note 9 - Deposits
The following details deposit accounts at December 31, 1999
and 1998:
December 31,
1999 1998
Non-interest bearing deposits $ 6,411,554 $ 10,478,489
Interest bearing deposits:
NOW accounts 7,676,882 7,721,624
Money market accounts 5,529,286 4,974,496
Savings 1,668,379 1,089,769
Time, less than $100,000 62,895,083 59,458,351
Time, $100,000 and over 30,148,902 24,658,851
----------- -----------
Total deposits $ 114,330,086 $ 108,381,580
================ =============
Note 10 - Shareholders' Equity
The Company currently has 50.0 million shares authorized:
1,534,711 and 1,518,871 shares outstanding at December 31, 1999
and 1998, respectively. In addition, the Company is authorized
to issue up to 10.0 million shares of no-par value preferred
stock. As of December 31, 1999 and 1998, no shares of preferred
stock were issued and outstanding.
As of December 31, 1999, there were 351,502 warrants
convertible into the Company's common stock on a one-to-one basis
upon surrender of warrants together with a cash consideration.
Of the 351,502 warrants above, 251,502 are exercisable at $3.33
per warrant and the remaining 100,000 are exercisable at $10.00
per warrant. No warrants were exercised during 1999. During
1998, 37,500 warrants were converted into the Company's common
stock upon their surrender together with $125,000. At December
31, 1999, there were 46,960 stock options convertible into the
Company's common stock on a one-to-one basis upon surrender of
stock options together with a cash consideration. Of the 46,960
stock options above, 36,960 are exercisable at $3.33 per stock
option and the remaining 10,000 are exercisable at $12.00 per
stock option. During 1999, 15,840 stock options were converted
into the Company's common stock upon their surrender together
with $52,800. During 1998, 21,120 stock options were converted
into the Company's common stock upon their surrender together
with $70,400.
On May 21, 1999, the Company amended its Articles of
Incorporation (the "Articles") and Bylaws to allow, among other
things, for the following:
(i) Increase the number of authorized common stock from 10.0 million
to 50.0 million.
(ii) Establish a new class of stock, preferred stock, and authorize the
issuance of up to 10.0 million shares of no-par value preferred
stock.
(iii) Establish three-classes of Board membership with each class
serving staggered three-year terms and expiring on each succeeding
year.
(iv) Establish a minimum of two-thirds of the votes of the issued and
outstanding shares of the Company in order to:
(a) Remove a member of the Company's Board of Directors,
(b) Approve any merger or consolidation of the Company with or
into another entity, and the sale or other disposition of all
or substantially all of the Company's assets, and,
(c) Alter, delete or rescind any provision of the Company's
amended Articles.
Note 11 - Interest on Deposits and Borrowings
A summary of interest expense for the years ended December
31, 1999 and 1998 follows:
December 31,
1999 1998
Interest on NOW accounts $ 204,537 $ 218,084
Interest on money market accounts 190,279 166,790
Interest on savings accounts 50,881 41,748
Interest on CDs under $100,000 3,319,667 3,440,968
Interest on CDs $100,000 and over 1,574,323 1,130,956
Interest on federal funds purchased 4,086 11,979
--------- ---------
Total interest on deposits and borrowings $5,343,773 $5,010,525
========== ==========
Note 12 - Other Operating Expenses
A summary of other operating expenses for the years ended
December 31, 1999 and 1998 follows:
December 31,
1999 1998
Stationary and supplies $ 167,017 $ 88,963
Regulatory fees 66,064 56,791
Courier & postage 75,145 58,341
Advertising & business development 168,057 105,728
Utilities and telephone 81,183 69,787
Directors' fees 90,300 88,450
Taxes and licenses 61,970 64,103
St. Marys expense - - 178,950
All other operating expenses 309,209 263,052
---------- ------------
Total other operating expense $ 1,018,945 $ 974,165
=========== =============
Note 13 - Income Taxes
As of December 31, 1999 and 1998, the Company's provision
for income taxes consisted of the following:
December 31,
1999 1998
Current $ 531,337 $ 684,787
Deferred 27,940 87,807
-------- --------
Federal income tax expense $ 559,277 $ 772,594
========= =========
Deferred income taxes consist of the following:
1999 1998
Provision for loan losses $ 65,098 $ 87,807
Valuation allowance (47,683) - -
Depreciation 10,525 - -
--------- --------
Total $ 27,940 $ 87,807
========= ========
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,
1999 1998
Income taxes at statutory rate $ 548,511 $ 673,226
State tax, net of Federal benefits 76,020 22,880
Change in valuation allowance (47,683) 87,807
Tax-exempt income (28,096) 87,807
Other 10,525 (11,319)
--------- ---------
Total $ 559,277 $ 772,594
========== ==========
The tax effects of the temporary differences that comprise
the net deferred tax assets at December 31, 1999 and 1998 are
presented below:
1999 1998
Deferred tax assets:
Allowance for loan losses $640,048 $574,950
Unrealized loss, securities 112,660 (22,253)
Deferred asset, depreciation 11,638 1,113
Valuation reserve (600,544) (552,861)
-------- --------
Net deferred tax asset $163,802 $ 949
======== ========
There was a net change in the valuation allowance during
1999 and 1998. 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, 1999.
Note 14 - Related Party Transactions
Stock Warrants and Options.
---------------------------
All outstanding warrants were issues to directors of either
the Company, Community Bank, or Cumberland Bank. During 1999,
100,000 sock warrants were granted to Organizers of Cumberland
Bank. Each warrant is convertible into one Company common stock
upon its surrender together with $10.00. The warrants vest
annually over a three year period and expire within seven years.
Please refer to Note 10 for additional information concerning
stock warrants.
All outstanding stock options were issued to executive
officers of either the Company, Community Bank, or Cumberland
Bank. During 1999, 10,000 stock options were granted to key
employees of the Company. Each stock option is convertible into
one Company common stock upon its surrender together with $12.00.
The stock options vest annually over a three year period and
expire within seven years after vesting. Please refer to Note 10
for additional information concerning stock options.
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 subsidiary banks in the ordinary course of
business. As of December 31, 1999 and 1998, loans outstanding to
directors, their related interests and executive officers
aggregated $4,120,083 and $3,413,215, 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 1999 and 1998
follows:
1999 1998
Balance, beginning of year $ 3,413,215 $ 3,191,232
New loans 3,211,002 1,914,320
Less: loan payments (2,504,134) (1,692,337)
------------ ------------
Balance, end of year $ 4,120,083 $ 3,413,215
============ ============
Deposits by directors and their related interests, at
December 31, 1999 and 1998, approximated $3,704,112 and
$3,123,604, respectively.
Total directors' fees aggregated $90,300 in 1999 and $88,450
in 1998.
Note 15 - Employee Benefit Plan
A profit sharing plan (the "Plan") was established by
Community 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, 1999 and 1998, Community Bank
contributed $126,000 and $119,350, 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, 1999 and 1998,
unfunded commitments to extend credit were $7,486,767 and
$7,184,960, 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, 1999 and 1998, commitments under letters of
credit aggregated approximately $280,905 and $639,000,
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, Crisp County, and Camden 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,
Crisp County, and Camden County Georgia.
Note 17 - Fair Value of Financial Instruments
The Company is required to disclose the fair value of its
financial instruments where it is practical to estimate that
value. The fair value estimates are made at a specific point in
time based on relevant market information. Where available,
quoted market prices are used to determine fair value. However,
since numerous financial instruments lack quoted market prices,
the Company utilized various estimation methodologies to
determine the fair value. These estimation methodologies
incorporate a significant number of assumptions based on
judgments regarding current economic conditions, risk
characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in the assumptions
could significantly affect the estimates.
The fair value estimates presented herein are based on
pertinent information available to management as of December 31,
1999. Such amounts have not been revalued for purposes of these
financial statements since December 31, 1999 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, 1999
Carrying Fair
Financial assets:
Cash and due from banks $ 2,568,037 $ 2,568,037
Federal funds sold 8,540,000 8,540,000
Securities, available for sale 9,708,104 9,708,104
Loans 98,895,489 8,355,677
Financial liabilities:
Deposits 114,330,086 14,560,043
Note 18 - Regulatory Matters
The Company and its subsidiary banks 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 its subsidiary banks
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 its subsidiary banks 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, 1999, that the Company and its subsidiary banks
meet all capital adequacy requirements to which they are subject.
As of December 31, 1999, the subsidiary banks were
considered to be Well Capitalized. To be categorized as
Adequately Capitalized or Well Capitalized, a bank must maintain
minimum total risk based, Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the table below. Please note that the
figures under "Bank" as of December 31, 1999 include the combined
capital position of the two subsidiary banks; (i) Community Bank
and (ii) Cumberland Bank which commenced operations in 1999. 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, 1999:
Total capital-risk-based
(to risk-weighted assets):
Bank $14,211 14.2% $8,009 > 8% $10,011 > 10%
- -
Consolidated 14,685 14.7% 8,015 > 8% N/A > N/A
- -
Tier 1 capital-risk-based
(to risk-weighted assets):
Bank $12,979 13.0% $4,004 > 4% $6,006 > 6%
- -
Consolidated 13,433 13.4% 4,007 > 4% N/A N/A
-
Tier 1 capital-leverage
(to average assets):
Bank $12,979 10.3% $5,046 > 4% $6,308 > 5%
- -
Consolidated 13,433 10.5% 5,133 > 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, 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
-
Note 19 - Dividends
The primary source of funds available to the Company to pay
shareholder dividends and other expenses is from its subsidiary
banks. Bank regulatory authorities impose restrictions on the
amounts of dividends that may be declared by banks. Further
restrictions could result from a review by regulatory authorities
of the subsidiary banks' capital adequacy. During 1999 and 1998,
dividends paid by the Company to its shareholders amounted to
$151,887 and $105,426, respectively. On a per share basis, the
above dividends amounted to $.10 for 1999 and 1998.
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 Sheets
-----------------------------
December 31,
Assets: 1999 1998
- ------ ---- ----
Cash $ 143,103 $ 3,614,210
Accounts receivable 318,042 125,446
Investment in CDs 60,000 102,000
Investment in the Bank 12,749,634 8,720,838
---------- ----------
Total Assets $13,270,779 $12,562,494
=========== ===========
Liabilities and Shareholders' Equity:
- -------------------------------------
Income taxes payable $ 5,741 $ - -
Other liabilities 61,057 41,000
---------- ----------
Total Liabilities $ 66,798 $ 41,000
---------- ----------
Common stock $ 7,702,091 $7,649,291
Retained earnings 5,731,110 4,829,006
Unrealized gain on securities (229,220) 43,197
---------- ----------
Total Shareholders' equity $13,203,981 $12,521,494
---------- ----------
Total Liabilities and Shareholders' equity $13,270,779 $12,562,494
=========== ===========
Parent Company Statements of Income
-----------------------------------
Years Ended December 31,
Revenues: 1999 1998
- --------- ---- ----
Interest income $ 99,110 $ 76,414
Dividends from Bank 700,000 175,000
---------- ----------
Total revenues $ 799,110 $ 251,414
---------- ----------
Expenses:
- ---------
Salaries and benefits $ 24,134 $ 60,184
Professional fees 182,577 131,561
Other expenses 55,144 16,250
---------- ----------
Total expenses $ 261,855 $ 207,995
---------- ----------
Income before taxes and equity in
undistributed earnings in Bank $ 537,255 $ 43,419
Tax (benefit) (215,523) (89,406)
---------- ----------
Income before equity in undistributed
earnings in Bank $ 752,778 $ 132,825
Equity in undistributed earnings of Bank 301,213 1,074,657
---------- ---------
Net Income $ 1,053,991 $1,207,482
=========== ===========
Parent Company Statements of Cash Flows
---------------------------------------
Years Ended December 31,
Cash flows from operating activities: 1999 1998
- ------------------------------------- ---- ----
Net income $ 1,053,991 $ 1,207,482
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings
of the Bank (301,213) (1,074,657)
(Increase) in receivables and other assets (192,596) (104,446)
Increase in payables 25,798 23,837
---------- ----------
Net cash provided by operating activities $ 585,980 $ 52,216
---------- ----------
Cash flows from investing activities:
- -------------------------------------
Investment in Bank $(4,000,000) $ (500,000)
(Increase) in investments 42,000 (42,000)
---------- ----------
Net cash provided by financing activities $(3,958,000) $ (542,000)
---------- ----------
Cash flows from financing activities:
- -------------------------------------
Exercise of warrants, options $ 52,800 $ 195,400
Sale of stock - - 3,953,903
Payment of cash dividends (151,887) (105,426)
Sale/purchase of treasury stock - - 60,000
---------- ----------
Net cash used by financing activities $ (99,087) $4,103,877
---------- ----------
Net increase in cash and cash equivalents $(3,471,107) $3,614,093
Cash and cash equivalents,
beginning of the year 3,614,210 117
---------- ----------
Cash and cash equivalents, end of year $ 143,103 $3,614,210
=========== ===========
Note 21 - Subsequent Events
Subsequent to December 31, 1999, 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.
During 1999, the Company reached an agreement to acquire
Tarpon Financial Corporation (the "Corporation"), a one-bank
holding company with respect to First National Bank, Tarpon
Springs, Florida. The Corporation's consolidated assets
approximate $21.0 million. The agreement states that no less
than 60% of the Corporation's common stock will be exchanged for
the Company's common stock on a basis of one Corporation's common
stock for 1.6 of the Company's common stock. Also, the Company
will acquire up to 40% of the Corporation's common stock
(representing 62,000 shares) for a cash consideration of $24.0
per Corporation's common stock. Consummation of the above
transaction was set for February 24, 2000.
Item 8. Changes in and Disagreements With Accountants and Financial
Disclosure.
The Registrant did not change accountants in 1999 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.
The following table provides biographical information for
each director and executive officer of the Registrant. The Board
is divided into three equal classes, with the term of each class
staggered so that in any given year no more than one-third of the
total Board membership shall stand for re-election. Board
members are elected for a three-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.
Name Age Position with Company and Bank and Principal
Occupation
Class I (Terms expiring in 2000)
T. Brinson
Brock, Sr. 43 Mr. Brock has served as the President and
Chief Executive Officer of the Company since June 8, 1999; as
Executive Vice President and Acting Chief Executive Officer
during March 24, 1998 and June 7, 1999, and as Secretary of the
Company during November 1989 and May 1998, a director of the
Company since August 1989, President and Chief Executive Officer
of the CNB since March 24, 1998, and a director and Secretary of
CNB since August 1990. 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 of Ashburn First Baptist Church.
Willis R.
Collins 54 Mr. Collins has served as a director of the
Company since August 1989, and of CNB 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 71 Mr. Crawford has served as a director of the
Company since August 1989, and of CNB since August 1990. For
over forty years Mr. Crawford has been active in developing
Crawford Cattle Company, a beef and feeder cattle production
business.
Donald M.
Crews 53 Mr. Crews has served as a director of the
Company since May 1999 and of Cumberland since October 1999. Mr.
Crews has been the owner and operator of Furniture Factory
Outlet, St. Marys, Georgia, since 1985. Mr. Crews also owns and
manages real estate. Mr. Crews is a past director of the
Camden/Kingsbay Chamber of Commerce and the Camden/Kingsbay Navy
League and has served for four years on the Better Business
Committee for Camden County.
Benny Warren
Denham 69 Mr. Denham has served as a director of the
Company since August 1989, and of CNB 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 and serves as its Vice-
Chairman. Mr. Denham serves on the Georgia Electric Membership
Corporation Executive Committee and is a past President. He is
also director of Irwin Electric Membership Corporation and served
as Chairman for several years. Mr. Denham served as a
Commissioner of Turner County, Georgia from 1980 to 1990.
Class II (Terms expiring in 2001)
Lloyd Greer
Ewing 55 Mr. Ewing has served as a director of the
Company since August 1989, and of CNB since August 1990. Mr.
Ewing joined Ewing Buick, Pontiac, GMC Trucks, Inc. in 1973 and
has held various positions in that 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.
Grady Elmer
Moore 65 Mr. Moore has served as a director of the
Company since August 1989, and of CNB 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 54 Mrs. Raines has served as the Chairman of the
Board of the Company and CNB since August 1998, and as a director
of the Company since August 1989, and of CNB since August 1990.
Mrs. Raines is the President of Raines Investment Group, Inc.,
which is a franchisee of Aaron's Rental Purchase Stores.
Joe Sheppard 66 Mr. Sheppard has served as a director of the
Company since May 1999 and of Cumberland since October 1999. He
has served as Chairman of the Board of Resource Systems, Inc., an
Atlanta-based company engaged in the telecommunications business,
for more than five years.
Class III (Terms expiring in 2002)
Bobby Y.
Franklin 54 Mr. Franklin has served as a director of the
Company since May 1999 and of Cumberland since October 1999. Mr.
Franklin has been the owner and operator of B&D Tire Company in
Kingsland, Georgia, since 1979 and the owner of Franklin
Properties in Hilliard, Florida, since 1979. Mr. Franklin serves
as director of the Georgia Tire and Retreaders Dealers
Association.
Benjamin E.
Walker 69 Mr. Walker has served as a director of the
Company since August 1989, and of CNB 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 SWS
Garment, Inc., a uniform manufacturing company in Fitzgerald,
Georgia.
Jimmie Ann
Ward 62 Mrs. Ward has served as a director of the
Company since August 1989, and of CNB since August 1990. Mrs.
Ward is Vice President of Ward Land Company and is a community
volunteer in Turner County.
Freddie J.
Weston, Jr. 62 Mr. Weston has served as a director of the
Company since August 1989, and of CNB 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.
B. Executive Officers.
T. Brinson
Brock, Sr. 43 Mr. Brock has served as the President and
Chief Executive Officer of the Company since June 8, 1999; as
Executive Vice President and Acting Chief Executive Officer
during March 24, 1998 and June 7, 1999 and as Secretary of the
Company during November 1989 and May 1998, a director of the
Company since August 1989, President and Chief Executive Officer
of the CNB since March 24, 1998, and a director and Secretary of
CNB since August 1990. 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 of Ashburn First Baptist Church.
Ava Lovett 55 Ms. Lovett has served as the Secretary of the
Company since May 1998 and as the Senior Vice President and Chief
Financial Officer of CNB since March 24, 1998, and Vice President
and Cashier of CNB 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).
C. Compliance with Section 16(a)
Section 16(a) of the Exchange Act and related regulations
require the Company's executive officers and directors and
certain persons who own more than 10% of the Company's Common
Stock to file reports of their holdings and transactions in the
Company's Common Stock with the SEC. Based on the Company's
records and other information, the Company believes that all
filing requirements applicable to such persons were complied with
in 1999.
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)
T. Brinson Brock, Sr., 1999 $115,000 $35,000 $44,349(1)
President and Chief 1998 $113,233 $27,500 $44,981(2)
Executive Officer 1997 $ 89,000 $27,000 $38,967(3)
of the Company
Ava Lovett, Secretary 1999 $ 85,000 $30,000 $21,408(4)
of the Company and 1998 $ 80,222 $25,000 $21,063(5)
Senior Vice President and 1997 n/a
Chief Financial Officer
of CNB
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)
T. Brinson Brock, Sr., $0 0 $0 $0
President and Chief Executive $0 0 $0 $0
Officer of the Company $0 0 $0 $0
Ava Lovett, Secretary of the $0 5,000 $0 $0
Company and Senior Vice President
and Chief Financial Officer of CNB
_____________________________
(1) Includes $18,907 in profit sharing contributions.
(2) Includes $21,035 in profit sharing contributions.
(3) Includes $17,255 in profit sharing contributions.
(4) Includes $14,031 in profit sharing contributions.
(5) Includes $15,783 in profit sharing contributions.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
In 1999, the Company granted the following stock options to
a named executive officer:
Number of Percent of
Securities Total Options/
Underlying SARs Granted
Options/SAR's to Employees Exercise or Expiration
Name Granted in Fiscal Year Base Price Date
(a) (b) (c) (d) (e)
Ava Lovett 5,000 50% $12.00(1) October 1, 2009(1)
(1) One-third of the options vests on October 1, 2000, October 1,
2001, and October 1, 2002, respectively, and expires on October
1, 2007, October 1, 2008 and October 1, 2009, respectively. On
the date of the grant, the market price of the underlying
security was $15.00 per share.
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)
T. Brinson Brock, Sr. 5,280 $61,617.60 15,840/0 $184,852.80/0
Ave Lovett 0 0 0/5,000 $0/$15,000
(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, 1999 (i.e., $15.00 per
share) and the exercise price of the various options.
B. Directors.
Each director of the CNB received $500 for each meeting of
the Board of Directors that he or she attended. In addition,
each director who was a member of CNB's Loan Committee received
$100 per month and $100 for each Loan Committee meeting that he
or she attended. In December 1999, each director of CNB received
a $2,500 holiday bonus.
In addition, three of the directors, Messrs. Crews,
Franklin and Sheppard, were granted 15,000, 16,000 and 11,000
warrants, respectively, to purchase shares of Common Stock. This
grant was made, effective October 1, 1999, to these directors in
connection with the organization of Cumberland and as part of
total grant of 100,000 warrants to the ten organizers of
Cumberland. One third of these warrants will vest on each of
October 1, 2000, October 1, 2001 and October 1, 2002,
respectively, if the grantee satisfies minimum attendance at
meetings of the Cumberland Board of Directors. All unexercised
warrants expire on October 1, 2006.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
On March 24, 2000, the Company had 1,302 shareholders ofrecord.
The following table sets forth share ownership information
as of March 24, 2000, with respect to the Common Stock, with
respect to any person known to the Registrant to be a beneficial
owner of more than 5% of the 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. 90,182(2) 5.19%
1252 Brock Road
Arabi, Georgia 31712
Willis R. Collins 92,165(3) 5.34%
9655 Georgia Highway 112 East
Rebecca, Georgia 31783
Gene Stallings Crawford 111,452(4) 6.44%
56 South Academy Street
Rebecca, Georgia 31783
____________________________
* 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 1,701,782 shares of Common Stock
outstanding, plus shares of Common Stock that may be acquired by
the beneficial owner within 60 days of March 24, 2000, by
exercise of options and/or warrants.
(2) Includes 1045 shares held as custodian for Brent Brock, 1000
shares held as custodian for Kristen Brock, 910 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 15,840 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.
The following table sets forth share ownership information
as of March 24, 2000 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. 90,182(2) 5.19%
1252 Brock Road
Arabi, Georgia 31712
Willis R. Collins 92,165(3) 5.33%
9655 GA Hwy.112 East
Rebecca, Georgia 31783
Gene Stallings Crawford 111,452(4) 6.44%
56 South Academy Street
Rebecca, Georgia 31783
Donald W. Crews 16,510 0.97%
2001 Osborn Road
St. Marys, Georgia 31558
Benny Warren Denham 38,000(5) 2.21%
424 East Inaha Road
Sycamore, Georgia 31790
Lloyd Greer Ewing 36,211(6) 2.11%
545 East Monroe
Ashburn, Georgia 31714
Bobby Y. Franklin 12,500 0.73%
Route 3, Box 6560
Hilliard, Florida 32046
Ava Lovett 81(7) --
401 East Highway 32
Sycamore, Georgia 31790
Grady Elmer Moore 81,050(8) 4.66%
5580 Highway 33 North
Arabi, Georgia 31712
Sara Ruth Raines 70,359(9) 4.06%
130 Lamont Street
Ashburn, Georgia 31714
Joe S. Sheppard 11,000 0.65%
555 Charlie Smith, Sr. Highway
St. Marys, Georgia 31558
Benjamin E. Walker 79,861(10) 4.61%
P.O. Box 185
Ashburn, Georgia 31714
Jimmie Ann Ward 45,000(11) 2.60%
1330 Warwick Highway
Ashburn, Georgia 31714
Freddie J. Weston, Jr. 15,000 0.88%
828 West Madison Avenue
Ashburn, Georgia 31714
All directors and named
executive officers
as a group(12) 699,371 shares 35.68%
(14 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 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 1,701,782 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 March 24, 2000, 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 1045 shares held as custodian for Brent Brock, 1000
shares held as custodian for Kristen Brock, 910 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 15,840 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 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 and 3,000 shares owned by his son, Lloyd Scott 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, as to all of which Ms. Raines disclaims
beneficial ownership. Also includes the right to acquire 30,000
shares pursuant to currently exercisable warrants.
(10) 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.
(11) Includes the right to acquire 30,000 shares pursuant to
currently exercisable warrants.
(12) Warrants to purchase Common Stock of the Company at the
original offering price were issued to each director of the
Company and CNB 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 Common Stock at $3.33 per share at any time during the
term of the particular warrant. One-third of each director's
warrants became vested on August 6, 1990 (the date CNB opened for
business), an additional one-third became vested on August 6,
1991, and the final one-third became vested on August 6, 1992.
One-third of the warrants expires on the tenth anniversary of
these dates, i.e. on August 6, 2000, August 6, 2001 and August 6,
2002, respectively. The warrants exercisable on or after August
6, 1992, are reflected in the beneficial ownership table.
Item 12. Certain Relationships and Related Transactions.
During 1999, CNB 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) Amended and Restated Articles of Incorporation of
Registrant, incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4, File 333-92407, which
became effective on January 27, 2000.
3(ii) Bylaws of Registrant, incorporated by reference to Exhibit
4.2 to the Registration Statement on Form S-4,
File 333-92407, which became effective on January 27, 2000.
10 Agreement and Plan of Merger, incorporated by reference to
Exhibit 2 to the Registration Statement on Form S-4, File
333-92407, which became effective on January 27, 2000.
21 Subsidiaries of Registrant
27 Financial Data Schedule
B. Reports on Form 8-K.
The Company filed a report on Form 8-K on October 12, 1999,
reporting, in Item 5(1) thereof, that (a) the Company had
acquired all of the outstanding capital stock of Cumberland
National Bank, a de novo national bank; (b) the Company had
entered into an Agreement and Plan of Merger, effective October
8, 1999, to acquire all of the issued and outstanding capital
stock of Tarpon Financial Corporation, a Florida corporation; and
(c) the Company's Common Stock had been trading on the OTC
Bulletin Board under the symbol "CBAC" since July 1999.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
COMMUNITY NATIONAL BANCORPORATION
(Registrant)
BY: /S/ T. Brinson Brock Sr.
------------------------------------------
T. Brinson Brock, President, Principal
Executive Officer, PrincipalFinancial Officer
Date: March 27, 2000
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:
Signature Title Date
/S/ T. Brinson Brock, Sr.
- -------------------------------------- Director March 27, 2000
T. Brinson Brock, Sr.
/S/ Willis R. Collins
- -------------------------------------- Director March 27, 2000
Willis R. Collins
/S/ Gene Stallings Crawford
- -------------------------------------- Director March 27, 2000
Gene Stallings Crawford
/S/ Donald M. Crews
- -------------------------------------- Director March 27, 2000
Donald M. Crews
/S/ Benny Warren Denham
- -------------------------------------- Director March 27, 2000
Benny Warren Denham
/S/ Lloyd Greer Ewing
- -------------------------------------- Director March 27, 2000
Lloyd Greer Ewing
/S/ Bobby Y. Franklin
- -------------------------------------- Director March 27, 2000
Bobby Y. Franklin
/S/ Grady Elmer Moore
- -------------------------------------- Director March 27, 2000
Grady Elmer Moore
/S/Sara Ruth Raines
- -------------------------------------- Director March 27, 2000
Sara Ruth Raines
/S/ Joe S. Sheppard
- -------------------------------------- Director March 27, 2000
Joe S. Sheppard
/S/ Benjamin E. Walker
- -------------------------------------- Director March 27, 2000
Benjamin E. Walker
/S/ Jimmie Ann Ward
- -------------------------------------- Director March 27, 2000
Jimmie Ann Ward
/S/ Freddie J. Weston, Jr.
- -------------------------------------- Director March 27, 2000
Freddie J. Weston, Jr.
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
COMMUNITY NATIONAL BANK
561 East Washington Avenue
Ashburn, Georgia 31714
CUMBERLAND NATIONAL BANK
392 Charlie Smith, Sr., Highway
St. Mary's, Georgia 31558
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, 1999 to December
31, 1999, and is qualified in its entirety by reference to such
financial statements.
12-MOS
FISCAL-YEAR-END DEC-31-1999
PERIOD START JAN-1-1999
PERIOD END DEC-31-1999
CASH 2,568,037
INT-BEARING-DEPOSITS -0-
FED-FUNDS-SOLD 8,540,000
TRADING-ASSETS -0-
INVESTMENTS-HELD-FOR-SALE 9,708,104
INVESTMENTS-CARRYING -0-
INVESTMENTS-MARKET -0-
LOANS 100,911,134
ALLOWANCE 2,015,645
TOTAL-ASSETS 128,337,515
DEPOSITS 114,330,086
SHORT-TERM -0-
LIABILITIES-OTHER 803,448
LONG-TERM -0-
PREFERRED-MANDATORY -0-
PREFERRED -0-
COMMON 7,702,091
OTHER-SE 5,501,890
TOTAL-LIABILITIES-AND-EQUITY 128,337,515
INTEREST-LOAN 10,286,099
INTEREST-INVEST 764,436
INTEREST-OTHER -0-
INTEREST-TOTAL 11,050,535
INTEREST-DEPOSIT 5,339,687
INTEREST-BORROWINGS 4,086
INTEREST-EXPENSE 5,343,773
INTEREST-INCOME-NET 5,706,762
LOAN-LOSSES 995,000
SECURITIES-GAINS 9,375
EXPENSE-OTHER 3,884,803
INCOME-PRETAX 1,613,268
INCOME-PRE-EXTRAORDINARY 1,613,268
EXTRAORDINARY -0-
CHANGES -0-
NET-INCOME 1,053,991
EPS-BASIC .69
EPS-DILUTED .59
YIELD-ACTUAL 5.09%
LOANS-NON 260,680
LOANS-PAST -0-
LOANS-TROUBLED -0-
LOANS-PROBLEM 941,453
ALLOWANCE-OPEN 1,824,179
CHARGE-OFFS 852,020
RECOVERIES 48,486
ALLOWANCE-CLOSE 2,015,645
ALLOWANCE-DOMESTIC 1,993,000
ALLOWANCE-FOREIGN -0-
ALLOWANCE-UNALLOCATED 22,645
