<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (no fee required)
For the quarterly period ended March 31, 1996
-----------------
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (no fee required)
For the transition period from ________ to ________
Commission File No. 33-29695-A
CNB, INC.
-------------------------------
(Name of Small Business Issuer)
FLORIDA 59-2958616
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Post Office Box 3239
201 North Marion Street
Lake City, Florida 32056
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 755-3240
Indicate by check mark 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 12 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 _X_ No ___
The number of shares of the registrant's common stock outstanding as of April
30, 1996 was 1,639,733 shares, $0.01 par value per share.
<PAGE>
CNB, INC.
FINANCIAL REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited). . . . . . . . . . . . 3
Consolidated Statements of Income (Unaudited). . . . . . . . . 4
Consolidated Statements of Shareholders' Equity (Unaudited). . 5
Consolidated Statement of Cash Flows (Unaudited) . . . . . . . 6
Notes to Consolidated Financial Statements (Unaudited) . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Consolidated Financial Highlights. . . . . . . . . . . . . . . 8
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Results of Operations. . . . . . . . . . . . . . . . . . . . . 9
Earning Assets . . . . . . . . . . . . . . . . . . . . . . . .13
Funding Sources. . . . . . . . . . . . . . . . . . . . . . . .17
Interest Rate Sensitivity / Liquidity. . . . . . . . . . . . .17
Capital Ratios . . . . . . . . . . . . . . . . . . . . . . . .19
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. . . . . .20
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CNB, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
1996
-----------
(thousands)
ASSETS
Cash and Due From Banks $ 8,578
Federal Funds Sold 11,100
Interest Bearing Deposits 387
--------
Cash and Cash Equivalents 20,065
Securities Available for Sale 35,681
Investment Securities 12,840
Loans:
Commercial, Financial & Agricultural 49,709
Real Estate - Construction 2,478
Real Estate - Mortgage 36,176
Installment & Consumer Lines 16,594
--------
Total Loans, net of unearned discount 104,957
Less: Allowance for Loan Losses (928)
--------
Net Loans 104,029
Premises and Equipment, net 6,405
Other Assets 2,724
--------
TOTAL ASSETS $181,744
========
LIABILITIES
Non-Interest Bearing Deposits $ 21,566
Interest Bearing Deposits:
Savings,Time & Demand 129,587
Time, $100,000 & Over 12,670
--------
Total Deposits 163,823
Note Payable 650
Other Liabilities 1,825
--------
Total Liabilities 166,298
--------
Mandatory Convertible Subordinated Debentures 274
--------
SHAREHOLDERS' EQUITY
Common Stock -
$.01 par value, 10,000,000 shares authorized;
1,639,733 shares issued and outstanding 16
Additional Paid-In Capital 9,784
Retained Earnings 5,416
Net Unrealized Loss on Securities Available for Sale (44)
--------
Total Shareholders' Equity 15,172
--------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $181,744
========
3
<PAGE>
CNB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
1996 1995
---------- ----------
(thousands)
INTEREST INCOME:
Interest on Loans $ 2,464 $ 2,075
Interest on Investment Securities 179 534
Interest on Securities Available for Sale 569 248
Interest on Federal Funds Sold 92 108
Interest on Interest Bearing Deposits 6 4
---------- ----------
Total Interest Income 3,310 2,969
INTEREST EXPENSE:
Interest on Deposits 1,465 1,313
Other Interest Expense 26 45
---------- ----------
Total Interest Expense 1,491 1,358
---------- ----------
NET INTEREST INCOME 1,819 1,611
Provision for Loan Loss 115 70
---------- ----------
Net Interest Income After Loan Loss Provision 1,704 1,541
NON-INTEREST INCOME:
Service Charges 290 283
Other Fees and Charges 136 67
---------- ----------
Total Non-Interest Income 426 350
---------- ----------
NON-INTEREST EXPENSES:
Salaries and Employee Benefits 682 664
Occupancy and Equipment Expenses 206 189
Other Operating Expenses 425 420
---------- ----------
Total Non-Interest Expenses 1,313 1,273
---------- ----------
Income Before Income Taxes 817 618
Income Taxes 286 216
---------- ----------
NET INCOME $ 531 $ 402
========== ==========
Net Income Per Common Share $ 0.32 $ 0.25
========== ==========
Average Common Shares Outstanding 1,639,733 1,639,733
========= =========
4
<PAGE>
CNB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Shareholders'
Stock Capital Earnings Equity
------ ---------- -------- -------------
(thousands)
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $16 $9,784 $3,420 $12,927
Net Income for the Three Months
Ended March 31, 1995 -- -- 402 402
Cash Dividends -- -- (66) (66)
Change in Unrealized Loss on Securities
Available for Sale, net of taxes -- -- -- 204
--- ------ ------ -------
Balance at March 31, 1995 $16 $9,784 $3,756 $13,467
=== ====== ====== =======
Balance at December 31, 1995 $16 $9,784 $4,967 $14,754
Net Income for the Three Months
Ended March 31, 1996 -- -- 531 531
Cash Dividends -- -- (82) (82)
Change in Unrealized Loss on Securities
Available for Sale, net of taxes -- -- -- (31)
--- ------ ------ -------
Balance at March 31, 1996 $16 $9,784 $5,416 $15,172
=== ====== ====== =======
</TABLE>
5
<PAGE>
CNB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
---- ----
(thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 531 $ 402
Adjustments to Reconcile Net Income to
Cash Provided By(Used In) Operating
Activities:
Depreciation and Amortization 126 136
Provision for Loan Loss 115 70
Security Amortization, net 68 64
Changes In Period-End Balances of:
Other Assets 101 (375)
Other Liabilities 73 404
------- -------
Net Cash Provided By
Operating Activities 1,014 701
------- -------
INVESTING ACTIVITIES
Purchases of Securities Available for Sale (37) (15)
Securities Available for Sale Called by Issuer 2,500 --
Maturities of Investment Securities -- 4,650
Mortgage Backed Securities - Principal Payments 1,984 3,379
Net Increase in Loans 2,741) (3,293)
Net Increase in Premises & Equipment (65) (132)
------- -------
Net Cash Provided By
Investing Activities 1,641 4,589
------- -------
FINANCING ACTIVITIES
Net Increase In Deposits 4,820 4,512
Repayment of Note Payable (300) (150)
Cash Dividend(s) (82) (66)
------- -------
Net Cash Provided By
Financing Activities 4,438 4,296
------- -------
Net Increase in Cash
and Cash Equivalents 7,093 9,586
Beginning Balance 12,972 12,266
------- -------
Cash & Cash Equivalents at End of Period $20,065 $21,852
======= =======
SUPPLEMENTAL DISCLOSURES:
Interest Paid $ 1,613 $ 1,254
======= =======
Taxes Paid $ 3 $ --
======= =======
</TABLE>
6
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
NOTE 1. CONSOLIDATION
The consolidated financial statements include the accounts of CNB, Inc. and
its subsidiary bank, CNB National Bank. All significant intercompany accounts
and transactions have been eliminated.
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB which do not require all
information and footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. In the opinion of management, such financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the results for the interim
periods presented. Operating results for the three months ended March 31,
1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996.
NOTE 3. ACQUISITIONS
On February 26, 1996 the Company reached a definitive agreement to acquire
all of the outstanding stock of Riherd Bank Holding Company (Riherd), which
operates the Farmers and Dealers Bank, consideration for which would consist
of Company stock and cash. Riherd is headquartered in Lake Butler with two
branch offices in Gainesville, Florida. This acquisition will add
approximately $48 million in assets and, subject to regulatory approval,
should be concluded in the second half of 1996.
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Bank's FDIC deposit insurance premium on those accounts insured by the
Bank Insurance Fund was reduced from an annual $0.23 to $0.04 per $100 for
the second half of 1995. At the end of 1995, $65.3 million of "adjustable
attributable deposits", resulting from thrift acquisitions, were insured
through the Savings Association Insurance Fund (SAIF). These deposits
maintained their $0.23 per $100 assessment; however, legislation has been
proposed which would reduce the SAIF assessment to $0.04 for well-capitalized
institutions. The current legislation, if enacted, would result in a
one-time assessment of approximately 80 basis points to be charged on 80% of
SAIF deposits. Any assessment will depend on enactment of final legislation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following tables and discussion set forth certain selected
financial information and should be read in conjunction with the consolidated
financial statements (unaudited) of the Company and the Bank included in
"Item 1. Financial Statements" above. The Company has no foreign operations;
accordingly, there are no assets or liabilities attributable to foreign
operations.
7
<PAGE>
CNB INC. AND SUBSIDIARY
Selected Financial Data
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995 Change%
---- ---- -------
Dollars in thousands except per share information.
- - ------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS:
Total Interest Income $ 3,310 $ 2,969 11%
Total Interest Expense (1,491) (1,358) 10
---------- ----------
Net Interest Income 1,819 1,611 13
Provision for Loan Loss (115) (70) 64
---------- ----------
Net Interest Income After
Loan Loss Provision 1,704 1,541 11
Non-Interest Income 426 350 22
Non-Interest Expense (1,313) (1,273) 3
---------- ----------
Income Before Taxes 817 618 32
Income Taxes (286) (216) 32
---------- ----------
Net Income $ 531 $ 402 32
========== ==========
- - ------------------------------------------------------------------------
PER COMMON SHARE:
Net Income Per Common Share $ 0.32 $ 0.25 28%
Book Value 9.25 8.21 13
Dividends 0.05 0.04 25
Shares Outstanding 1,639,733 1,639,733 --
Weighted Average Shares Outstanding 1,639,733 1,639,733 --
- - ------------------------------------------------------------------------
KEY RATIOS:
Return on Average Assets 1.20% 0.96% 25%
Return on Average Shareholders' Equity 14.17 12.37 15
Dividend Payout-computed on a per
share basis 15.63 16.00 (2)
Overhead Ratio 61.66 67.32 (8)
Total Risk-Based Capital Ratio 14.88 15.01 (1)
Average Shareholders Equity to Assets 8.46 7.76 9
Tier 1 Leverage 8.07 7.19 12
- - ------------------------------------------------------------------------
FINANCIAL CONDITION AT PERIOD END:
Assets $ 181,744 $ 173,818 5%
Total Loans, net of unearned discount 104,957 89,290 18
Total Deposits 163,823 157,124 4
Common Shareholders' Equity 15,172 13,467 13
</TABLE>
8
<PAGE>
OVERVIEW
Earnings at March 31, 1996 were $531,000, or $0.32 per share,
representing a 32.1% increase when compared to $402,000, or $0.25 per share,
for the same quarter in 1995. The improved earnings have produced a return
on average shareholders' equity and return on average assets of 14.17% and
1.20%, respectively, compared to 12.37% and 0.96%, one year ago. Total
assets were up 4.6% to $181.7 million at the end of the first quarter of
1996, compared to $173.8 million at March 31, 1995. Total loans and deposits
were also up 17.5% and 4.3% to $105.0 million and $163.8 million,
respectively. Shareholders' equity was $15.2 million at March 31, 1996, up
12.7% from the same period ended in 1995 due mainly to the retention of
earnings.
Improved earnings for the first quarter of 1996 are mainly attributable
to a 12.9% increase in net interest income to $1.8 million, from $1.6 million
for the comparable period in 1995. The increased net interest income
reflects loan growth and improved interest margins. Provision for loan
losses also increased $45,000, or 64.3%, due mainly to loan growth and a low
provision requirement in the first quarter of 1995. Non-interest expenses,
net of non-interest income, decreased $36,000, or 3.9%, during the first
three months of 1996 compared to 1995. Accordingly, the provision for income
taxes have increased 32.4%, which corresponds to the increased earnings.
On February 26, 1996 the Company reached a definitive agreement to
acquire all of the outstanding stock of Riherd Bank Holding Company (Riherd),
which operates the Farmers and Dealers Bank, consideration for which would
consist of Company stock and cash. Riherd is headquartered in Lake Butler
with two branch offices in Gainesville, Florida. This acquisition will add
approximately $48 million in assets and, subject to regulatory approval,
should be concluded in the second half of 1996.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, the primary source of revenue for the Bank, was
$1.8 million for the first quarter of 1996, an increase of $.2 million, or
12.9%, from last year. This increase was primarily a result of loan growth
and a higher net interest margin. Total loans have averaged 63.8% of earning
assets during this quarter, up from 56.7% for the same three months in 1995.
The improved loan ratio is a result of increasing total loans by $15.7
million, or 17.5%, while earning assets have increased by $6.9 million, or
4.4%. Table 1: "Average Balances - Yields and Rates", below, indicates the
Company's average volume of interest earning assets and interest bearing
liabilities for the first three months of 1996 and 1995.
The net interest margin increased to 4.49% from 4.26% a year ago and
4.43% last quarter. The 23 basis point improvement over last year is due
mainly to the increase in loans as a percentage of earning assets combined
with favorable repricing of adjustable rate mortgage-back securities which
more than offset the slight decrease in total loan yield and the increase in
costs of funding sources. The 18 basis point decrease in the loan
portfolio's yield is due mainly to lower market rates in the first quarter of
1996 compared to the first quarter of 1995. Also, average time deposits in
this period represented 52.4% of total average deposits, compared to 51.9% a
year earlier. The modest shift in deposit mix in the first quarter of 1996
compared to 1995 resulted in the 23 basis point increase in the cost of
interest bearing deposits. Accordingly, the earning asset yield has grown at
a rate of 4.1% while the funding liability cost reflects an increase of 5.7%.
In spite of this condition, the Company's net interest margin was insulated
by loan growth and rose 5.4%. Table 1a: "Analysis of Changes in Interest
Income and Expense", below, indicates that the change in interest income was
due mainly to volume increases in the loan portfolio, while the change in
interest expense was primarily due to increased average rates paid on time
deposit accounts.
9
<PAGE>
TABLE 1: AVERAGE BALANCES - YIELDS AND RATES
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
-------------------------------- -------------------------------
Interest Interest
Average Income or Average Average Income or Average
Balance Expense Rate Balance Expense Rate
------- --------- ------- ------- --------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal Funds Sold $ 6,913 $ 92 5.35% $ 7,732 $ 108 5.66%
Securities Available for Sale 38,501 569 5.94 19,469 248 5.17
Investment Securities 13,100 179 5.50 39,104 534 5.54
Loans, net unearned (1) 103,845 2,464 9.54 86,588 2,075 9.72
Interest Bearing Deposits 421 6 5.73 354 4 4.59
-------- ------ ----- -------- ------ ----
TOTAL EARNING ASSETS 162,780 3,310 8.18 153,247 2,969 7.86
All Other Assets 15,390 16,624
-------- --------
TOTAL ASSETS $178,170 $169,871
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Deposits:
NOW & Money Markets $ 43,427 282 2.62 $ 43,467 282 2.63
Savings 12,526 66 2.11 12,056 82 2.76
Time Deposits 83,934 1,117 5.35 79,116 949 4.86
Notes Payable & Debentures 1,024 26 10.15 1,874 45 9.74
-------- ------ ----- -------- ------ ----
TOTAL INTEREST BEARING
LIABILITIES 140,911 1,491 4.26 136,513 1,358 4.03
Demand Deposits 20,230 17,787
Other Liabilities 1,954 2,396
Shareholders' Equity 15,075 13,175
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $178,170 $169,871
======== ========
----- ----
INTEREST SPREAD (2) 3.92% 3.83%
===== ====
------ ------
NET INTEREST INCOME $1,819 $1,611
====== ======
NET INTEREST MARGIN (3) 4.49% 4.26%
==== ====
</TABLE>
- - ------------------------------
(1) Interest income on average loans includes loan fee recognition of $85,000
and $94,000 in 1996 and 1995 respectively.
(2) Represents the average rate earned minus average rate paid.
(3) Represents net interest income divided by total earning assets.
10
<PAGE>
TABLE 1A: ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
(Unaudited)
<TABLE>
<CAPTION>
NET CHANGE MARCH 31, NET CHANGE MARCH 31,
1995-1996 ATTRIBUTABLE TO: 1994-1995 ATTRIBUTABLE TO:
-------------------------- --------------------------
Net Net
Volume(1) Rate(2) Change Volume(1) Rate(2) Change
--------- ------- ------ --------- ------- ------
(thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Federal Funds Sold $ (11) (5) (16) $ 13 49 62
Securities Available for Sale 247 74 321 (89) 36 (53)
Investment Securities (353) (1) (354) 67 41 108
Loans 435 (46) 389 402 247 649
Interest Bearing Deposits 1 1 2 -- 4 4
--------- ------- ------ --------- ------- ------
Total $ 319 23 342 $ 393 377 770
INTEREST EXPENSE:
Deposits:
NOW & Money Markets $ 1 (1) -- $ 19 42 61
Savings 3 (19) (16) 3 23 26
Time Deposits 67 101 168 77 181 258
Notes Payable & Debentures (20) 1 (19) (7) 12 5
--------- ------- ------ --------- ------- ------
Total 51 82 133 92 258 350
--------- ------- ------ --------- ------- ------
Net Interest Income $ 268 (59) 209 $ 301 119 420
========= ======= ====== ========= ======= ======
</TABLE>
- - ------------------------------
(1) The volume variance reflects the change in the average balance
outstanding multipllied by the actual average rate during the prior period.
(2) The rate variance reflects the change in the actual average rate
multiplied by the average balance outstanding during the prior period.
Also includes changes in interest income and expense not due soley to
volume or rate changes.
11
<PAGE>
PROVISION FOR LOAN LOSS
The Allowance for Loan Losses represents a reserve for potential losses
in the loan portfolio. The Provision for Loan Loss is a charge to earnings
in the current period to maintain the allowance at a level management has
determined to be adequate. Management periodically evaluates the adequacy of
the allowance for loan losses based on a review of all significant loans,
with a particular emphasis on past due and other loans that management
believes require attention. The provision for loan losses increased $45,000,
or 64.3%, to $115,000 during the first quarter of 1996 as compared to $70,000
for the comparable period in 1995. This increase is primarily a result of
loan growth and a low provision requirement in the first quarter of 1995.
NON-INTEREST INCOME
Non-interest income at March 31, 1996 was $426,000, an increase of
$76,000, or 21.7%, from one year earlier. This increase is due mainly to
deposit service charges, other deposit related fees and safe deposit box
rental income. As a result, non-interest income as a percentage of average
total assets increased to 0.96% for the first quarter of 1996 from 0.84% for
1995.
NON-INTEREST EXPENSE
Non-interest expense increased by only $40,000, or 3.1% for the first
three months of 1996 as compared to 1995. Salaries and Employee Benefits
increased 2.7%, due mainly to additional staff and wage increases. Full-time
equivalent employees were up 5.0% at March 31, 1996, compared to one year
ago. Occupancy and Equipment expenses had increased 9.0% due mainly to
higher property insurance and utilities expense. The increased occupancy
expenses more than offset decreases in total equipment expense due to certain
assets having fully depreciated. Other Operating Expenses were relatively
unchanged due to the decrease in FDIC assessment expense and amortization of
intangible assets offsetting increases in advertising and loan expenses.
With the Bank's ten year anniversary in April 1996, management has
anticipated the increased advertising expense in 1996, as well as the
increased loan expenses due to paying closing costs as part of promoting the
Bank's home equity loan product. At March 31, 1996 and 1995, non-interest
expenses as a percentage of average total assets were unchanged at 3.0%.
The overhead efficiency ratio, which is the percentage of overhead
expense to total revenue less interest expense and provision for loan losses,
has improved to 61.6% from 67.3% for the quarter ended March 31, 1996,
compared to 1995
TABLE 2: OTHER OPERATING EXPENSES
Three Months Ended March 31,
1996 1995
---- ----
(thousands)
Advertising and Promotion $ 60 $ 45
Data Processing 55 52
Regulatory Fees 49 100
Loan Expenses 38 16
Amortization of Intangible Assets 34 41
Postage and Delivery 33 32
Supplies 29 25
Telephone 23 21
Administrative 21 19
Legal and Professional 19 18
Courier 16 15
Other 48 36
---- ----
Total Other Operating Expenses $425 $420
==== ====
12
<PAGE>
INCOME TAXES
The Company's income tax expense in interim reporting periods is
determined by estimating the combined federal and state effective tax rate
for the year and applying this rate to taxable income. The Company's
estimated tax rate for 1996 is 35%.
EARNING ASSETS
LOANS
During the first quarter of 1996, average loans were $103.8 million and
were 63.8% of average earning assets, compared to $86.6 million and 56.7% for
1994. Total loans have increased by $15.7 million, or 17.5%, since March 31,
1995. As a result, the Company's loan-to-deposit ratio has climbed to 64.1%
at March 31, 1996, compared to 56.8% at the end of comparable period in 1995.
The following table compares the composition of the Company's loan portfolio
as of March 31, 1996, to 1995. Management expects this loan portfolio
composition to stay roughly the same throughout 1996.
TABLE 3: LOAN PORTFOLIO COMPOSITION
March 31,
Types of Loans 1996 1995
---- ----
(thousands)
Commercial, Financial and Agricultural $ 49,709 $37,716
Real Estate - Construction 2,478 2,181
Real Estate - Mortgage 36,176 35,215
Installment and Consumer Lines 16,594 14,178
-------- -------
Total Loans, Net of Unearned Discount 104,957 89,290
Less: Allowance for Loan Losses 928 847
-------- -------
Net Loans $104,029 $88,443
======== =======
The following table sets forth the maturity distribution for selected
components of the Company's loan portfolio including unearned discounts of
$189,000 on March 31, 1996. Demand loans and overdrafts are reported as due
in one year or less, and loan maturity is based upon scheduled principal
payments.
TABLE 4: MATURITY SCHEDULE OF SELECTED LOANS
March 31, 1996
0-12 1-5 Over 5
Months Years Years Total
------- ------- ------- --------
(thousands)
All Loans Other Than Construction $12,352 $47,675 $42,641 $102,668
Real Estate - Construction 2,478 -- -- 2,478
------- ------- ------- --------
Total $14,830 $47,675 $42,641 $105,146
======= ======= ======= ========
Fixed Interest Rate $ 6,095 $27,324 $ 6,985 $ 40,404
Variable Interest Rate $ 8,735 $20,351 $35,656 $ 64,742
LOAN QUALITY. The allowance for loan losses on March 31, 1996, was 0.88% of
total loans, compared to 0.95% one year earlier. Table 5 Allocation of
Allowance for Loan Losses, set forth below, indicates the specific reserves
allocated by loan type.
13
<PAGE>
TABLE 5: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
March 31,
1996 1995
---------------------- ----------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ------------- ------ -------------
(dollars in thousands)
Commercial, Financial
and Agricultural $525 47% $485 42%
Real Estate - Construction 5 2% 3 2%
Real Estate- Mortgage 71 35% 63 40%
Consumer 323 16% 286 16%
Unallocated 4 -- 10 --
------ ------------- ------ -------------
Total $928 100% $847 100%
====== ============= ====== =============
Comparing the first quarter of 1996 to 1995, total non-performing
assets have increased $58,000, or 9.6% and net charge-offs increased $83,000.
The increased net charge-offs are mainly attributable to the charge-off of a
single commercial loan in the first quarter of 1996. Loans which were past
due less than 90 days had decreased $448,000, or 36.5%.
TABLE 6: NON-PERFORMING ASSETS
March 31, Year-end
1996 1995 1995
---- ---- ----
(dollars in thousands)
Non-Accrual Loans $505 $299 $372
Past Due Loans 90 Days or
More and Still Accruing 102 242 159
Other Real Estate Owned 54 62 126
---- ---- ----
Total Non-Performing Assets $661 $603 $657
==== ==== ====
Percent of Total Assets 0.36% 0.35% 0.37%
Percent Covered by the
Allowance for Loan Losses 140% 140% 144%
The determination of the reserve level rests upon management's judgment
about factors affecting loan quality and assumptions about the economy.
Management considers the period-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 to be 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 allowance for
loan losses will not be required. Table 7: Activity in Allowance for Loan
Losses, below, indicates activity in the allowance for loan losses for the
first three month period of 1996 as compared to 1995.
14
<PAGE>
TABLE 7: ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
Three Months Ended March 31,
1996 1995
---- ----
Allowance for loan loss balance applicable to: (dollars in thousands)
Balance at beginning of year $ 946 $ 827
Loans charged-off:
Commercial,financial and agricultural 56 --
Real estate construction -- --
Real estate mortgage 1 --
Consumer 84 53
----------- -----------
Total Loans Charged-Off 141 53
----------- -----------
Recoveries on loans previously charged-off:
Commercial, financial and agricultural 2 1
Real estate construction -- --
Real estate mortgage 1 --
Consumer 5 2
----------- -----------
Total Loan Recoveries 8 3
----------- -----------
Net loans charged-off 133 50
----------- -----------
Provision for loan losses charged to expense 115 70
----------- -----------
Ending balance $ 928 $ 847
=========== ===========
Total loans outstanding $ 104,957 $ 89,290
Average loans outstanding $ 103,845 $ 86,588
Allowance for loan losses to loans outstanding 0.88% 0.95%
Net charge-offs to average loans outstanding 0.13% 0.06%
SECURITIES
When the Company's liquidity position exceeds expected loan demand,
other investments are considered by management as a secondary earnings
alternative. Typically, management remains short-term (under 5 years) in its
decision to invest in certain securities and always strives to ensure a
portion of its investment portfolio to be maturing in the next quarter. As
these investments mature, they will be used to meet cash needs or will be
reinvested to maintain a desired liquidity position. A portion of the
investment portfolio is also designated as available for sale in case an
immediate need for liquidity arises. The Federal Reserve Bank and the Federal
Home Loan Bank also require equity investments to be maintained by the Bank
as a member of their services.
15
<PAGE>
The following tables set forth the maturity distribution and the
weighted average yields of the Company's investment portfolio by those
securities held to maturity and available for sale.
TABLE 8: MATURITY DISTRIBUTION OF SECURITIES HELD TO MATURITY
AND SECURITIES AVAILABLE FOR SALE (1)
MARCH 31, 1996
<TABLE>
<CAPTION>
Investment Securities Securities Available for Sale
------------------------ -----------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
--------- ------------ --------- ------------
(thousands)
<S> <C> <C> <C> <C>
U.S. Treasury
One Year or Less $ - $ - $ 6,552 $ 6,545
Over One Through Five Years - - 7,116 7,029
Over Five Through Ten Years - - - -
Over Ten Years - - - -
--------- ------------ --------- ------------
Total U.S. Treasury $ - $ - $ 13,668 $ 13,574
U.S. Government Agencies and Corporations:
One Year or Less $ 1,381 $ 1,397 $ 3,015 $ 3,033
Over One Through Five Years 11,344 11,034 9,650 9,631
Over Five Through Ten Years 115 120 999 1,030
Over Ten Years (4) - - 7,435 7,433
--------- ------------ --------- ------------
Total U.S. Government Agencies $ 12,840 $ 12,551 $ 21,099 $ 21,127
and Corporations
Other securities
One Year or Less (2) $ - $ - $ 31 $ 31
Over One Through Five Years (2) - - 356 356
Over Five Through Ten Years - - - -
Over Ten Years (3) - - 985 980
--------- ------------ --------- ------------
Total Other Securities $ - $ - $ 1,372 $ 1,367
--------- ------------ --------- ------------
Total Securities $ 12,840 $ 12,551 $ 36,139 $ 36,068
========= ============ ========= =============
</TABLE>
- - ------------------------------
(1) All securities are taxable.
(2) Represents Interest-bearing deposits in other banks.
(3) Represents investment in Federal Reserve Bank and Federal Home Loan Bank
stock and other marketable equity securities.
(4) Represents investments in mortgage-backed securities which are subject to
early repayment.
TABLE 9: WEIGHTED AVERAGE YIELD BY RANGE OF MATURITIES
March 31, 1996 December 31, 1995 March 31, 1995
-------------- ----------------- -------------
One Year or Less 5.72 % 5.83 % 4.67 %
Over One through Five Years 5.58 % 5.63 % 5.31 %
Over Five through Ten Years 8.07 % 7.80 % 5.59 %
Over Ten Years (1) 7.08 % 6.23 % 5.92 %
- - ------------------------------
(1) Represents adjustable rate mortgage-backed securities which are repriceable
within one year.
16
<PAGE>
OTHER EARNING ASSETS
Temporary investment needs are created in the day-to-day liquidity
movement of the Bank and are satisfied by selling excess funds overnight
(Fed Funds Sold) to larger, well capitalized banking institutions. If these
funds become excessive, management determines what portion, if any, of the
liquidity may be rolled into longer term investments as securities.
FUNDING SOURCES
DEPOSITS
The Bank does not rely on purchased or brokered deposits as a source of
funds. Instead, competing for deposits within its market area serves as the
Bank's fundamental tool in providing a source of funds to be invested
primarily in loans. In October 1995, the Bank introduced a premier money
market product to compete directly with other ready asset investments offered
by non-banking institutions. The following table sets forth certain deposit
categories for the periods ended March 31, 1996 and 1995.
TABLE 10: TOTAL DEPOSITS
March 31,
1996 1995
--------- ---------
(thousands)
Non-Interest Bearing:
Demand Checking $ 21,566 $ 19,923
Interest Bearing:
NOW Checking 23,997 28,227
Money Market Checking 21,677 14,892
Savings 13,011 12,308
Certificates of Deposit 83,572 81,774
--------- ---------
Total Deposits $ 163,823 $ 157,124
========= =========
NOTE PAYABLE
During the past year, the Company has continued to voluntarily
accelerate principal payments on its note payable. This effort is reflected
by the $.9 million decrease in outstanding balance when comparing March 31,
1996 to 1995.
INTEREST RATE SENSITIVITY/LIQUIDITY
Net interest income, the Company's primary source of revenue, is
affected by changes in interest rates as well as levels and mix of earning
assets and interest-bearing liabilities. The impact on net interest income
as a result of changes in interest rate and balance sheet mix constitutes the
Company's interest rate sensitivity. The interest rate sensitivity position
at the end of the first quarter of 1996 is presented in Table 11 - "Rate
Sensitivity Analysis." The difference between rate-sensitive assets and
rate-sensitive liabilities, or the interest rate sensitivity gap, is shown at
the bottom of the table.
The Company would benefit from increasing market rates when it is asset
sensitive and would benefit from decreasing market rates when it is liability
sensitive. At March 31, 1996, the Company had a liability sensitive gap
(more liabilities than assets subject to repricing within the stated
timeframe) of $9.7 million within a one-year period. This suggests that if
interest rates should decline over this period, the net interest margin
should improve, and if interest rates should increase, the net interest
margin should decline. Since all interest rates and yields do not adjust at
the same velocity, the gap is only a general indicator of rate sensitivity.
17
<PAGE>
TABLE 11: RATE SENSITIVITY ANALYSIS
March 31, 1996
<TABLE>
<CAPTION>
0-3 4-6 7-12 1-5 Over 5
Months Months Months Years Years Total
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Federal Funds Sold $ 11,100 $ - $ - $ - $ - $ 11,100
Securities Held to Maturity - 402 979 11,344 115 12,840
Securities Available for Sale (1,2) 2,260 2,352 12,955 16,344 2,228 36,139
Loans (3) 38,006 8,413 15,141 36,601 6,985 105,146
-------- -------- -------- -------- -------- ---------
Total Earning Assets $ 51,366 $ 11,167 $ 29,075 $ 64,289 $ 9,328 $ 165,225
INTEREST BEARING LIABILITIES:
NOW & Money Market(4) $ 26,411 $ - $ - $ - $ 19,263 $ 45,674
Savings(4) 3,903 - - - 9,108 13,011
Time Deposits 24,303 21,046 24,761 13,435 27 83,572
Notes Payable & Debentures 650 274 - - - 924
-------- -------- -------- -------- -------- ---------
Total Interest Bearing $ 55,267 $ 21,320 $ 24,761 $ 13,435 $ 28,398 $ 143,181
Int. Rate Sens. Gap $ (3,901) $(10,153) $ 4,314 $ 50,854 $(19,070) $ 22,044
Cum. Int. Rate Sens. Gap $ (3,901) $(14,054) $ (9,740) $ 41,114 $ 22,044 $ 22,044
Int. Rate Sens. Gap Ratio 0.93 0.52 1.17 4.79 0.33 1.15
Cum. Int. Rate Sens. Gap Ratio 0.93 0.82 0.90 1.36 1.15 1.15
Ratio of Cumulative Gap to
Total Earning Assets:
March 31, 1996 (2.36) (8.51) (5.89) 24.88 13.34
March 31, 1995 4.47 (0.86) (0.50) 21.78 12.44
</TABLE>
- - ------------------------------
(1) Includes Interest Bearing Deposits of $387,000.
(2) Includes equity in Federal Home Loan Bank of $586,000 and Federal Reserve
Bank of $351,000. Securities are shown at their amortized cost, excluding
market value adjustment for unrealized losses of $71,000.
(3) Total Loans including Unearned Discount of $189,000.
(4) Certain deposit accounts are included in the After Five Years category.
If they had been included in the Within Three Months category, the
ratio of cumulative gap to total earning assets would have been (23.07) for
the category at March 31, 1996.
The Bank's interest rate sensitivity, gap and liquidity positions are
formally reviewed quarterly by management to determine whether or not changes
in policies and procedures are necessary to achieve financial goals.
Included in the review is an internal analysis of the possible impact on net
interest income due to market rate changes of plus and minus 1%. In the rate
sensitivity analysis, current average rates within the repricing periods of
affected balance sheet categories are adjusted to an historical percentage of
market change according to each rate shock scenario. The adjusted rates are
then substituted in interest computations and compared to actual results.
These efforts will continue to provide the tools necessary in the Company's
attempt to maximize its primary earnings factor: net interest income.
Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities, as well as to provide 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. Average liquid assets (cash and amounts due from
banks, interest bearing deposits in other banks, federal funds sold and
securities available for sale) totaled $52.8 million and represented 33.0%
18
<PAGE>
of average total deposits during the first quarter of 1996, compared to $34.3
million and 22.5% for 1994. At the end of 1995 banks were granted an
opportunity to restructure their securities portfolios according to
availability for sale. The Bank, thereby, reclassed $30.1 million of its
securities held to maturity as those available for sale, in effect increasing
its liquidity position in anticipation of the need for future loan demand.
Average loans were 64.9% and 56.8% of average deposits for the three month
period ended March 31, 1996 and 1995, respectively. As noted in Table 3 -
"Loan Portfolio Composition", approximately $88.4 million, or 84.2%, of the
loan portfolio consisted of commercial loans, real estate mortgage loans and
real estate construction loans. Approximately 14.1% of the portfolio matures
within one year.
Core deposits, which represent all deposits other than time deposits in
excess of $100,000, were 92.3% of total deposits in the first quarter of 1996
and 92.0% in the comparable period in 1995. The Bank closely monitors its
reliance on time deposits in excess of $100,000, which are generally
considered less stable and less reliable than core deposits. Table 12,
below, sets forth the amounts of time deposits with balances of $100,000 or
more that mature within indicated periods. The Bank does not nor has it ever
solicited brokered deposits.
TABLE 12: MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
March 31, 1996
Amount
(thousands)
Three Months or Less $ 3,436
Three Through Six Months 3,092
Six Through Twelve Months 4,442
Over Twelve Months 1,700
-------
Total $12,670
=======
CAPITAL RESOURCES
The OCC regulates risk based capital guidelines for national banks.
These guidelines are intended to provide an additional measure of a bank's
capital adequacy by assigning weighted levels of risk to asset categories.
Banks are also required to systematically hold capital against such "off
balance sheet" activities as loans sold with recourse, loan commitments,
guarantees and standby letters of credit. These guidelines are intended to
strengthen the quality of capital by increasing the emphasis on common equity
and restricting the amount of loss reserves and other forms of equity such as
preferred stock that may be included in capital.
Under the terms of the guidelines, banks must meet minimum capital
adequacy based upon both total assets and risk adjusted assets. All banks
are required to maintain a minimum ratio of total capital to risk-weighted
assets of 8% and a minimum ratio of Tier 1 capital to risk-weighted assets of
4%. Adherence to these guidelines has not had an adverse impact on the
Company or the Bank. Selected capital ratios at March 31, 1996 compared to
1995 are as follows:
TABLE 13: CAPITAL RATIOS
March 31, Well Capitalized Regulatory
1996 1995 Requirements Minimums
----- ----- ---------------- ----------
Risk Based Capital Ratios:
Tier 1 Capital Ratio 13.7% 13.8% 6.0% 4.0%
Total Capital to
Risk-Weighted Assets 14.9% 15.0% 10.0% 8.0%
Tier 1 Leverage Ratio 8.1% 7.2% 5.0% 4.0%
19
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - There are no material pending legal
proceedings to which the Company or any of its subsidiaries
is a party or of which any of their property is the subject.
Item 2. Changes in Securities -
(a) Not applicable.
(b) Not applicable.
Item 3. Defaults Upon Senior Securities - Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders - There were
no matters submitted to a vote of security holders during the
three months ended March 31, 1996. On April 17, 1996, the Company
held its Annual Meeting of Shareholders, whereby the Board of
Directors (Thomas R. Andrews, C. Lavoye Boggus, Audrey S. Bullard,
Seymour Chotiner, Roy C. Dicks, Marvin H. Pritchett, Helen B.
Real, A. Leonard Schloffman, Jimmie L. Scott, T. Allison Scott,
William Streicher and K. C. Trowell) was elected. The total vote
consisted of 1,305,489 votes FOR the election of directors and
5,056 votes AGAINST certain directorship nominees. Of the
1,639,733 total outstanding shares of the Company common stock,
there were 1,343,236 shares, or 81.92%, represented at the
meeting; 1,298,372 votes, or 79.18% were made by the Company's
solicitation of proxies, and 44,864 votes, or 2.74% were made in
person.
Item 5. Other Information - Not applicable.
Item 6. Exhibits and Reports on Form 8-K -
(a) Exhibits
None
(b) Reports on Form 8-K - No reports on Form 8-K were filed by the
registrant during the three month period ended March 31, 1996.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNB, INC.
------------------------------
(Registrant)
By: /s/ K. C. Trowell
------------------------------
K. C. Trowell
President, Principal Executive
Officer, and Chief Financial
Officer
Date: May 13, 1996
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,578
<INT-BEARING-DEPOSITS> 387
<FED-FUNDS-SOLD> 11,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,681
<INVESTMENTS-CARRYING> 12,840
<INVESTMENTS-MARKET> 12,551
<LOANS> 104,957
<ALLOWANCE> 928
<TOTAL-ASSETS> 181,744
<DEPOSITS> 163,823
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,099
<LONG-TERM> 650
0
0
<COMMON> 16
<OTHER-SE> 15,156
<TOTAL-LIABILITIES-AND-EQUITY> 181,744
<INTEREST-LOAN> 2,464
<INTEREST-INVEST> 748
<INTEREST-OTHER> 98
<INTEREST-TOTAL> 3,310
<INTEREST-DEPOSIT> 1,465
<INTEREST-EXPENSE> 1,491
<INTEREST-INCOME-NET> 1,819
<LOAN-LOSSES> 115
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,313
<INCOME-PRETAX> 817
<INCOME-PRE-EXTRAORDINARY> 817
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 531
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 4.49
<LOANS-NON> 505
<LOANS-PAST> 102
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 946
<CHARGE-OFFS> 141
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 928
<ALLOWANCE-DOMESTIC> 924
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4
</TABLE>
