<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 June 30, 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. 0-25988
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 July
31, 1996 was 1,639,733 shares, $0.01 par value per share.
<PAGE>
CNB, INC.
FINANCIAL REPORT ON FORM 10-QSB
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). 6
Consolidated Statement of Cash Flows (Unaudited) ........... 7
Notes to Consolidated Financial Statements (Unaudited) ..... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Consolidated Financial Highlights .......................... 9
Overview ................................................... 10
Results of Operations ...................................... 10
Earning Assets ............................................. 14
Funding Sources ............................................ 18
Interest Rate Sensitivity/Liquidity ........................ 18
Capital Resources .......................................... 20
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ........... 21
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CNB, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30,
1996
--------------
(thousands)
<S> <C>
ASSETS
Cash and Due From Banks $ 7,870
Federal Funds Sold 9,200
Interest Bearing Deposits 389
-----------
Cash and Cash Equivalents 17,459
Securities Available for Sale 33,644
Securities Held to Maturity 12,206
Loans:
Commercial, Financial & Agricultural 51,121
Real Estate - Construction 2,782
Real Estate - Residential 37,639
Installment & Consumer Lines 17,041
-----------
Total Loans, net of unearned discount 108,583
Less: Allowance for Loan Losses (994)
-----------
Net Loans 107,589
Premises and Equipment, net 6,474
Other Assets 2,978
-----------
TOTAL ASSETS $ 180,350
===========
LIABILITIES
Non-Interest Bearing Deposits $ 20,520
Interest Bearing Deposits:
Savings,Time & Demand 128,765
Time, $100,000 & Over 13,459
-----------
Total Deposits 162,744
Note Payable 350
Other Liabilities 1,474
-----------
Total Liabilities 164,568
-----------
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 5,895
Net Unrealized Loss on Securities Available for Sale (187)
-----------
Total Shareholders' Equity 15,508
-----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 180,350
===========
</TABLE>
3
<PAGE>
CNB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
------------ ----------
(thousands)
<S> <C> <C>
INTEREST INCOME:
Interest on Loans $ 5,013 $ 4,318
Interest on Securities Held to Maturity 350 1,123
Interest on Securities Available for Sale 1,086 454
Interest on Federal Funds Sold 216 244
Interest on Interest Bearing Deposits 12 11
---------- ----------
Total Interest Income 6,677 6,150
INTEREST EXPENSE:
Interest on Deposits 2,895 2,803
Other Interest Expense 45 88
---------- ----------
Total Interest Expense 2,940 2,891
---------- ----------
NET INTEREST INCOME 3,737 3,259
Provision for Loan Losses 205 120
---------- ----------
Net Interest Income After Loan Loss Provision 3,532 3,139
NON-INTEREST INCOME:
Service Charges 601 560
Other Fees and Charges 220 125
---------- ----------
Total Non-Interest Income 821 685
---------- ----------
NON-INTEREST EXPENSES:
Salaries and Employee Benefits 1,385 1,357
Occupancy and Equipment Expenses 415 394
Other Operating Expenses 845 867
---------- ----------
Total Non-Interest Expenses 2,645 2,618
---------- ----------
Realized Losses on Securities Available For Sale (25) -
---------- ----------
Income Before Income Taxes 1,683 1,206
Income Taxes 591 422
---------- ----------
NET INCOME $ 1,092 $ 784
========== ==========
Net Income Per Common Share $ 0.66 $ 0.48
========== ==========
Average Common Shares Outstanding 1,639,733 1,639,733
========== ==========
</TABLE>
4
<PAGE>
CNB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1996 1995
---------- ----------
(thousands)
<S> <C> <C>
INTEREST INCOME:
Interest on Loans $ 2,549 $ 2,243
Interest on Securities Held to Maturity 171 589
Interest on Securities Available for Sale 517 206
Interest on Federal Funds Sold 124 136
Interest on Interest Bearing Deposits 6 7
---------- ----------
Total Interest Income 3,367 3,181
INTEREST EXPENSE:
Interest on Deposits 1,430 1,490
Other Interest Expense 19 43
---------- ----------
Total Interest Expense 1,449 1,533
---------- ----------
NET INTEREST INCOME 1,918 1,648
Provision for Loan Losses 90 50
---------- ----------
Net Interest Income after Loan Loss Provision 1,828 1,598
NON-INTEREST INCOME:
Service Charges 311 277
Other Fees and Charges 84 58
---------- ----------
Total Non-interest Income 395 335
---------- ----------
NON-INTEREST EXPENSES:
Salaries and Employee Benefits 703 693
Occupancy and Equipment Expenses 209 205
Other Operating Expenses 420 447
---------- ----------
Total Non-interest Expenses 1,332 1,345
---------- ----------
Realized Losses on Securities Available For Sale (25) -
---------- ----------
Income Before Taxes 866 588
Income Taxes 305 206
---------- ----------
NET INCOME $ 561 $ 382
========== ==========
Net Income per common share $ 0.34 $ 0.23
========== ==========
Average common shares outstanding 1,639,733 1,639,733
========== ==========
</TABLE>
5
<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 Six Months
Ended June 30, 1995 - - 784 784
Cash Dividends - - (131) (131)
Change in Unrealized Loss on Securities
Available for Sale, net of taxes - - - 277
-------- -------- ------- --------
Balance at June 30, 1995 $ 16 $ 9,784 $ 4,073 $ 13,857
======== ======== ======= ========
Balance at December 31, 1995 $ 16 $ 9,784 $ 4,967 $ 14,754
Net Income for the Six Months
Ended June 30, 1996 - - 1,092 1,092
Cash Dividends - - (164) (164)
Change in Unrealized Loss on Securities
Available for Sale, net of taxes - - - (174)
-------- -------- ------- --------
Balance at June 30, 1996 $ 16 $ 9,784 $ 5,895 $ 15,508
======== ======== ======= ========
</TABLE>
6
<PAGE>
CNB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
----------- ----------
(thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,092 $ 784
Adjustments to Reconcile Net Income to
Cash Provided By(Used In) Operating
Activities :
Depreciation and Amortization 249 257
Provision for Loan Loss 205 120
Security Amortization, net 132 128
Changes In Period-End Balances of:
Other Assets (100) (514)
Other Liabilities (278) 467
--------- ---------
Net Cash Provided By
Operating Activities 1,300 1,242
--------- ---------
INVESTING ACTIVITIES
Purchases of Securities Available for Sale (3,995) (2,032)
Purchases of Securities Held to Maturity - (6,548)
Maturities of Securities Available for Sale 1,000 5,350
Sales of Securities Available for Sale 4,039 1,500
Securities Available for Sale Called by Issuer 2,500 -
Securities Held to Maturity Called by Issuer - 8,000
Mortgage Backed Securities - Principal Payments 3,281 1,206
Net Increase in Loans (6,391) (6,068)
Net Increase in Premises & Equipment (224) (177)
--------- ---------
Net Cash Provided By
Investing Activities 210 1,231
--------- ---------
FINANCING ACTIVITIES
Net Increase In Deposits 3,741 3,324
Repayment of Note Payable (600) (300)
Cash Dividend(s) (164) (131)
--------- ---------
Net Cash Provided By
Financing Activities 2,977 2,893
--------- ---------
Net Increase in Cash
and Cash Equivalents 4,487 5,366
Beginning Balance 12,972 12,266
--------- ---------
Cash & Cash Equivalents at End of Period $ 17,459 $ 17,632
========= =========
SUPPLEMENTAL DISCLOSURES:
Interest Paid $ 3,152 $ 2,641
========= =========
Taxes Paid $ 560 $ 470
========= =========
</TABLE>
7
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 six months ended June 30, 1996
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996.
NOTE 3. ACQUISITIONS
On July 19, 1996 the Securities and Exchange Commission declared effective
the Company's registration statement filed May 3, 1996 on Form S-4, as
amended. The registration statement disclosed the Company's intent to
acquire Riherd Banking Company of Lake Butler, Florida. This acquisition
will add approximately $48 million in assets and should be consummated during
the third quarter 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.
8
<PAGE>
CNB INC. AND SUBSIDIARY
Selected Financial Data
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995 CHANGE%
----------- ----------- -------
DOLLARS IN THOUSANDS EXCEPT PER SHARE INFORMATION.
===================================================================================
<S> <C> <C> <C>
SUMMARY OF OPERATIONS:
Total Interest Income $ 6,677 $ 6,150 9 %
Total Interest Expense (2,940) (2,891) 2
----------- -----------
Net Interest Income 3,737 3,259 15
Provision for Loan Losses (205) (120) 71
----------- -----------
Net Interest Income After
Loan Loss Provision 3,532 3,139 13
Non-Interest Income 821 685 20
Non-Interest Expense (2,645) (2,618) 1
----------- -----------
Realized Losses on Securities
Available For Sale (25) -
----------- -----------
Income Before Taxes 1,683 1,206 40
Income Taxes (591) (422) 40
----------- -----------
Net Income $ 1,092 $ 784 39
=========== ===========
===================================================================================
PER COMMON SHARE:
Net Income Per Common Share $ 0.66 $ 0.48 38 %
Book Value 9.46 8.45 12
Dividends 0.10 0.08 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 1.23 % 0.93 % 32 %
Return on Average Shareholder's Equity 14.42 11.74 23
Dividend Payout-computed on a per share basis 15.15 16.67 (9)
Overhead Ratio 60.76 68.45 (11)
Total Risk-Based Capital Ratio 15.13 15.30 (1)
Average Shareholders Equity to Assets 8.50 7.89 8
Tier 1 Leverage 8.27 7.49 10
===================================================================================
FINANCIAL CONDITION AT PERIOD END:
Assets $ 180,350 $ 172,932 4 %
Total Loans, net of unearned discount 108,583 92,056 18
Total Deposits 162,744 155,936 4
Common Shareholders' Equity 15,508 13,857 12
</TABLE>
9
<PAGE>
OVERVIEW
Earnings for the six months ended June 30, 1996 were $1.1 million, or
$0.66 per share, representing a 39.3% increase when compared to $784,000, or
$0.48 per share, for the same period in 1995. The improved earnings have
produced a return on average shareholders' equity and return on average
assets of 14.42% and 1.23%, respectively, compared to 11.74% and 0.93%, one
year ago. Total assets were up 4.3% to $180.3 million on June 30, 1996,
compared to $172.9 million on June 30, 1995. Total loans and deposits were
also up 18.0% and 4.4% to $108.6 million and $162.7 million, respectively.
Shareholders' equity was $15.5 million at June 30, 1996, up 11.9% from the
same period ended in 1995 due mainly to the retention of earnings.
Improved earnings for the first half of 1996 are mainly attributable to
a 14.7% increase in net interest income to $3.7 million, from $3.2 million
for the comparable period in 1995. The increased net interest income is
primarily a result of loan growth and improved interest margins. Provision
for loan losses for the period was $205,000 compared to $120,000 in 1995, an
increase of $85,000, or 70.8%, due mainly to loan growth and a low provision
requirement in the first half of 1995. Non-interest expenses, net of
non-interest income, decreased $109,000, or 5.6%, during the first six months
of 1996 compared to 1995. The provision for income taxes for 1996 was
$591,000 compared to $422,000 in 1995, representing an increase of 40.0%, due
solely to the increased net earnings.
Cash dividends paid for the first six months of 1996 were $0.10 per
share, a 25% increase, when compared to $0.08 per share for the comparable
period in 1995. The Board of Directors has declared a cash dividend payable
on August 5, 1996 of $0.06 per share, an increase of 20% from last quarter.
On July 19, 1996 the Securities and Exchange Commission declared
effective the Company's registration statement filed May 3, 1996 on Form
S-4, as amended. The registration statement disclosed the Company's intent
to acquire Riherd Banking Company of Lake Butler, Florida. This acquisition
will add approximately $48 million in assets and should be consummated during
the third quarter of 1996.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, the primary source of revenue for the Bank, was
$3.7 million for the first six months of 1996, an increase of $.5 million,
or 14.7%, compared to the same period last year. This increase was primarily
a result of loan growth and a higher net interest margin. The earning asset
yield has grown at a rate of 3.1% while the funding liability cost decreased
1.4%. The Company's net interest margin, which increased 8.8%, was insulated
by loan growth coupled with a $2.3 million, or 12.5%, increase in
non-interest bearing deposits. Total loans have averaged 64.4% of earning
assets, up from 57.2% for the same period in 1995. The improved loan ratio
is a result of increasing total loans by $16.5 million, or 18.0%, while
earning assets have increased by $6.0 million, or 3.8%. 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 six
months of 1996 and 1995.
The net interest margin for the first six months of 1996 increased to
4.58% from 4.21% a year ago and 4.49% last quarter. The 37 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. The 19 basis point decrease in the loan portfolio's yield
is due mainly to lower market rates in the first half of 1996 compared to the
same period in 1995. Also, average time deposits in this period represented
52.0% of total average deposits, compared to 52.6% a year earlier. Money
market deposits increased to $20.9 million on June 30, 1996 from $14.0
million in 1995. The change in interest bearing deposit mix for the
comparative period resulted in only a 6 basis point decrease in the cost of
funding sources. 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.
10
<PAGE>
TABLE 1: AVERAGE BALANCES AND RATES
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1996 June 30, 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 $ 8,500 $ 216 5.11% $ 8,372 $ 244 5.88 %
Securities Available for Sale 36,622 1,086 5.96 18,029 454 5.08
Securities Held to Maturity 12,837 350 5.48 40,074 1,123 5.65
Loans, net unearned (1) 105,646 5,013 9.54 89,452 4,318 9.73
Interest Bearing Deposits 404 12 5.98 354 11 6.27
-------- ------ ----- -------- ------ -----
TOTAL EARNING ASSETS 164,009 6,677 8.19 156,281 6,150 7.94
All Other Assets 15,191 14,483
-------- --------
TOTAL ASSETS $179,200 $170,764
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Deposits:
NOW & Money Markets $ 44,086 582 2.65 $ 42,691 554 2.62
Savings 12,768 132 2.09 12,139 169 2.81
Time Deposits 83,740 2,181 5.24 81,015 2,080 5.18
Notes Payable & Debentures 974 45 9.22 1,849 88 9.52
-------- ------ ----- -------- ------ -----
TOTAL INTEREST BEARING
LIABILITIES 141,568 2,940 4.18 137,694 2,891 4.24
Demand Deposits 20,595 18,312
Other Liabilities 1,807 1,288
Shareholders' Equity 15,230 13,470
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $179,200 $170,764
======== ========
----- -----
INTEREST SPREAD (2) 4.01% 3.70 %
===== =====
------ ------
NET INTEREST INCOME $3,737 $3,259
====== ======
NET INTEREST MARGIN (3) 4.58% 4.21 %
===== =====
</TABLE>
- ---------------
(1) Interest income on average loans includes loan fee recognition of
$183,000 and $187,000 in 1996 and 1995 respectively.
(2) Represents the average rate earned minus averageate rate paid.
(3) Represents net interest income divided by total earning assets.
11
<PAGE>
TABLE 1A: ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
(Unaudited)
<TABLE>
<CAPTION>
NET CHANGE JUNE 30, NET CHANGE JUNE 30,
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 $ 4 (32) (28) $ 8 93 101
Securities Available for Sale 471 161 632 (231) 46 (185)
Securities Held to Maturity (763) (10) (773) 161 131 292
Loans 793 (98) 695 660 518 1,178
Interest Bearing Deposits 2 (1) 1 4 3 7
------ ------ ----- ------ ------ ------
Total $ 507 20 527 $ 602 791 1,393
INTEREST EXPENSE:
Deposits:
NOW & Money Markets $ 21 7 28 $ (3) 72 69
Savings 9 (46) (37) 3 43 46
Time Deposits 77 24 101 140 488 628
Notes Payable & Debentures (41) (2) (43) (17) 20 3
------ ------ ----- ------ ------ ------
Total 66 (17) 49 123 623 746
------ ------ ----- ------ ------ ------
Net Interest Income $ 441 37 478 $ 479 168 647
====== ====== ===== ====== ====== ======
</TABLE>
- ---------------
(1) The volume variance reflects the change in the average balance
outstanding multiplied 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.
12
<PAGE>
PROVISION FOR LOAN LOSSES
The Allowance for Loan Losses represents a reserve for potential losses
in the loan portfolio. The Provision for Loan Losses 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 $85,000,
or 70.8%, to $205,000 during the first half of 1996 as compared to $120,000
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 June 30, 1996 was $821,000, an increase of
$136,000, or 19.9%, 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 0.92% for the first six months of 1996 from 0.81%
for 1995.
NON-INTEREST EXPENSE
Non-interest expense increased by only $27,000, or 1.0% for the first
six months of 1996 as compared to 1995. Salaries and Employee Benefits
increased 2.1%, due mainly to additional staff and wage increases. Full-time
equivalent employees were up 4.2% at June 30, 1996, compared to one year ago.
Occupancy and Equipment expenses had increased 5.3% due mainly to higher
property insurance and increased depreciation expense due to renovation of an
office. Other Operating Expenses were 2.5% less in 1996 primarily due to
the decrease in FDIC assessment expense and amortization of intangible
assets. At June 30, 1996 and 1995, non-interest expenses as a percentage of
average total assets were 3.0% and 3.1% respectively.
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 60.8% from 68.5% for the six months ended June 30, 1996,
compared to 1995.
TABLE 2: OTHER OPERATING EXPENSES
<TABLE>
<CAPTION>
Six months Ended June 30,
1996 1995
------- --------
(thousands)
<S> <C> <C>
Advertising and Promotion $137 $ 97
Data Processing 109 106
Regulatory Fees 102 200
Loan Expenses 47 40
Amortization of Intangible Assets 69 75
Postage and Delivery 64 68
Supplies 67 54
Telephone 46 47
Administrative 42 40
Legal and Professional 56 52
Courier 35 30
Other 71 58
---- ----
Total Other Operating Expenses $845 $867
==== ====
</TABLE>
13
<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 half of 1996, average loans were $105.6 million and
were 64.4% of average earning assets, compared to $89.5 million and 57.2% for
1995. Total loans have increased by $16.5 million, or 18.0%, since June 30,
1995. As a result, the Company's loan-to-deposit ratio has increased to
66.7% at June 30, 1996, compared to 59.0% at the end of comparable period in
1995. The following table compares the composition of the Company's loan
portfolio as of June 30, 1996, to 1995. Management expects this loan
portfolio composition to stay approximately the same throughout 1996.
TABLE 3: LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
June 30,
Types of Loans 1996 1995
-------- --------
(thousands)
<S> <C> <C>
Commercial, Financial and Agricultural $ 51,121 $ 38,660
Real Estate - Construction 2,782 2,020
Real Estate - Residential 37,639 36,531
Installment and Consumer Lines 17,041 14,845
-------- --------
Total Loans, Net of Unearned Discount 108,583 92,056
Less: Allowance for Loan Losses 994 888
-------- --------
Net Loans $107,589 $ 91,168
======== ========
</TABLE>
The following table sets forth the maturity distribution for selected
components of the Company's loan portfolio on June 30, 1996. Loan maturity
is based upon scheduled principal payments.
TABLE 4: MATURITY SCHEDULE OF SELECTED LOANS
June 30, 1996
<TABLE>
<CAPTION>
0-12 1-5 Over 5
Months Years Years Total
--------- --------- -------- --------
(thousands)
<S> <C> <C> <C> <C>
All Loans Other Than Construction $12,473 $48,676 $44,797 $105,946
Real Estate - Construction 2,782 - - 2,782
------- ------- ------- --------
Total $15,255 $48,676 $44,797 $108,728
======= ======= ======= ========
Fixed Interest Rate $ 6,574 $28,312 $ 8,457 $ 43,343
Variable Interest Rate $ 8,681 $20,364 $36,340 $ 65,385
</TABLE>
LOAN QUALITY. The allowance for loan losses on June 30, 1996, was 0.92% of
total loans, compared to 0.96% on June 30, 1995. Table 5 Allocation of
Allowance for Loan Losses, set forth below, indicates the specific reserves
allocated by loan type.
14
<PAGE>
TABLE 5: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
June 30,
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)
<S> <C> <C> <C> <C>
Commercial, Financial
and Agricultural $539 47% $496 42%
Real Estate - Construction 8 2% 3 2%
Real Estate- Residential 79 35% 72 40%
Consumer 345 16% 313 16%
Unallocated 23 - 4 -
---- ---- ---- ----
Total $994 100% $888 100%
==== ==== ==== ====
</TABLE>
Total non-performing assets have decreased $96,000, or 16.7% to $478,000
on June 30, 1996 from $574,000 on June 30, 1995. Net charge-offs increased
$98,000 to $157,000 for the first half of 1996 from $59,000 for the same
period of 1995. The increased net charge-offs are mainly attributable to the
charge-off of a single commercial loan in the first quarter of 1996.
TABLE 6: NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
June 30, Year-end
1996 1995 1995
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Non-Accrual Loans $253 $330 $372
Past Due Loans 90 Days or
More and Still Accruing 47 204 159
Other Real Estate Owned 178 40 126
---- ---- ----
Total Non-Performing Assets $478 $574 $657
==== ==== ====
Percent of Total Assets 0.27% 0.33% 0.37%
Percent Covered by the
Allowance for Loan Losses 208% 155% 144%
</TABLE>
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 six month period of 1996 as compared to 1995.
15
<PAGE>
TABLE 7: ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
-------- --------
Allowance for loan loss balance applicable to: (dollars in thousands)
<S> <C> <C>
Balance at beginning of year $ 946 $ 827
Loans charged-off:
Commercial,financial and agricultural 56 -
Real estate construction - -
Real estate residential 1 -
Consumer 111 88
-------- --------
Total Loans Charged-Off 168 88
-------- --------
Recoveries on loans previously charged-off:
Commercial, financial and agricultural 3 6
Real estate construction - -
Real estate residential 1 -
Consumer 7 23
-------- --------
Total Loan Recoveries 11 29
-------- --------
Net loans charged-off 157 59
-------- --------
Provision for loan losses charged to expense 205 120
-------- --------
Ending balance $ 994 $ 888
======== ========
Total loans outstanding $108,583 $ 92,056
Average loans outstanding $105,646 $ 89,452
Allowance for loan losses to loans outstanding 0.92% 0.96%
Net charge-offs to average loans outstanding 0.15% 0.07%
</TABLE>
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.
16
<PAGE>
The following tables set forth the maturity distribution of securities
held to maturity and available for sale, and the weighted average yields of
the Company's total investment portfolio.
TABLE 8: MATURITY DISTRIBUTION OF SECURITIES HELD TO MATURITY
and Securities Available for Sale (1)
June 30, 1996
<TABLE>
<CAPTION>
Securities Held to Maturity 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 $ - $ - $ 3,531 $ 3,518
Over One Through Five Years - - 9,024 8,937
Over Five Through Ten Years - - - -
Over Ten Years - - - -
------- ------- ------- -------
Total U.S. Treasury $ - $ - $12,555 $12,455
U.S. Government Agencies and Corporations:
One Year or Less $ 1,231 $ 1,229 $ 3,010 $ 3,016
Over One Through Five Years 10,871 10,391 9,647 9,477
Over Five Through Ten Years 104 108 999 993
Over Ten Years (4) - - 6,747 6,723
------- ------- ------- -------
Total U.S. Government Agencies $12,206 $11,728 $20,403 $20,209
and Corporations
Other securities
One Year or Less (2) $ - $ - $ 311 $ 310
Over One Through Five Years (2) - - 78 76
Over Five Through Ten Years - - - -
Over Ten Years (3) - - 985 980
------- ------- ------- -------
Total Other Securities $ - $ - $ 1,374 $ 1,366
------- ------- ------- -------
Total Securities $12,206 $11,728 $34,332 $34,030
======= ======= ======= =======
</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
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1996 June 30, 1995
------------- ----------------- -------------
<S> <C> <C> <C>
One Year or Less 6.16 % 5.83 % 4.49 %
Over One through Five Years 5.76 % 5.63 % 5.53 %
Over Five through Ten Years 8.07 % 7.80 % 5.88 %
Over Ten Years (1) 7.03 % 6.23 % 6.21 %
</TABLE>
___________________________
(1) Represents adjustable rate mortgage-backed securities which are
repriceable within one year.
17
<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
(Federal Funds Sold) to larger, well capitalized banking institutions. If
these funds become excessive, management determines what portion, if any, of
the liquidity may be placed 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 June 30, 1996 and 1995.
TABLE 10: TOTAL DEPOSITS
<TABLE>
<CAPTION>
June 30,
1996 1995
-------- --------
(thousands)
<S> <C> <C>
Non-Interest Bearing:
Demand Checking $ 20,520 $ 18,174
Interest Bearing:
NOW Checking 23,466 27,110
Money Market Checking 20,899 13,973
Savings 12,912 12,649
Certificates of Deposit 84,947 84,030
-------- --------
Total Deposits $162,744 $155,936
======== ========
</TABLE>
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 $1.1 million decrease in outstanding balance when comparing June 30,
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 June 30, 1996, the Company had a liability sensitive gap (more
liabilities than assets subject to repricing within the stated timeframe) of
$14.5 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.
18
<PAGE>
TABLE 11: RATE SENSITIVITY ANALYSIS
June 30, 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 $ 9,200 $ - $ - $ - $ - $ 9,200
Securities Held to Maturity 314 - 917 10,871 104 12,206
Securities Available for Sale (1,2) 2,213 3,559 8,177 18,249 2,182 34,380
Loans (3) 39,043 7,505 15,685 39,101 7,394 108,728
------- -------- -------- ------- -------- --------
Total Earning Assets $50,770 $ 11,064 $ 24,779 $68,221 $ 9,680 $164,514
INTEREST BEARING LIABILITIES:
NOW & Money Market(4) $25,598 $ - $ - $ - $ 18,768 $ 44,366
Savings(4) 3,874 - - - 9,038 12,912
Time Deposits 23,214 19,723 28,110 13,881 19 84,947
Notes Payable & Debentures 350 274 - - - 624
------- -------- -------- ------- -------- --------
Total Interest Bearing $53,036 $ 19,997 $ 28,110 $13,881 $ 27,825 $142,849
Int. Rate Sens. Gap $(2,266) $ (8,933) $ (3,331) $54,340 $(18,145) $ 21,665
Cum. Int. Rate Sens. Gap $(2,266) $(11,199) $(14,530) $39,810 $ 21,665 $ 21,665
Int. Rate Sens. Gap Ratio 0.96 0.55 0.88 4.91 0.35 1.15
Cum. Int. Rate Sens. Gap Ratio 0.96 0.85 0.86 1.35 1.15 1.15
Ratio of Cumulative Gap to
Total Earning Assets:
June 30, 1996 (1.38) (6.81) (8.83) 24.20 13.17
June 30, 1995 1.16 (1.96) (6.00) 20.57 12.03
</TABLE>
- -----------------------------
(1) Includes Interest Bearing Deposits of 389,000.
(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 $299,000.
(3) Total Loans including Unearned Discount of $145,000.
(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 (25.73) for the
catetory at June 30, 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 $52.3 million and represented 32.5%
19
<PAGE>
of average total deposits during the first half of 1996, compared to $33.2
million and 21.6% for 1995. 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 65.5% and 58.0% of average deposits for the six month
period ended June 30, 1996 and 1995, respectively. As noted in Table 3 -
"Loan Portfolio Composition", approximately $91.5 million, or 84.3%, of the
loan portfolio consisted of commercial loans, real estate residential loans
and real estate construction loans and approximately 14.0% of the total loan
portfolio matures within one year, see Table 4 - "Maturity Schedule of
Selected Loans".
Core deposits, which represent all deposits other than time deposits in
excess of $100,000, were 91.7% of total deposits at the end of the first six
months of 1996 and 91.5% for 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
June 30, 1996
<TABLE>
<CAPTION>
Amount
(thousands)
<S> <C>
Three Months or Less $ 3,348
Three Through Six Months 3,184
Six Through Twelve Months 4,931
Over Twelve Months 1,996
-------
Total $13,459
=======
</TABLE>
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 June 30, 1996 compared to
1995 are as follows:
TABLE 13: CAPITAL RATIOS
<TABLE>
<CAPTION>
June 30, Well Capitalized Regulatory
1996 1995 Requirements Minimums
------ ------ ---------------- ----------
<S> <C> <C> <C> <C>
Risk Based Capital Ratios:
Tier 1 Capital Ratio 13.9% 14.0% 6.0% 4.0%
Total Capital to
Risk-Weighted Assets 15.1% 15.3% 10.0% 8.0%
Tier 1 Leverage Ratio 8.3% 7.5% 5.0% 4.0%
</TABLE>
20
<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 - 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 June 30, 1996.
21
<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: August 9, 1996
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,870
<INT-BEARING-DEPOSITS> 389
<FED-FUNDS-SOLD> 9,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,644
<INVESTMENTS-CARRYING> 12,206
<INVESTMENTS-MARKET> 11,728
<LOANS> 108,583
<ALLOWANCE> 994
<TOTAL-ASSETS> 180,350
<DEPOSITS> 162,744
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,474
<LONG-TERM> 350
0
0
<COMMON> 16
<OTHER-SE> 15,492
<TOTAL-LIABILITIES-AND-EQUITY> 180,350
<INTEREST-LOAN> 5,013
<INTEREST-INVEST> 1,436
<INTEREST-OTHER> 228
<INTEREST-TOTAL> 6,677
<INTEREST-DEPOSIT> 2,895
<INTEREST-EXPENSE> 2,940
<INTEREST-INCOME-NET> 3,737
<LOAN-LOSSES> 205
<SECURITIES-GAINS> (25)
<EXPENSE-OTHER> 2,645
<INCOME-PRETAX> 1,683
<INCOME-PRE-EXTRAORDINARY> 1,092
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,092
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66
<YIELD-ACTUAL> 4.58
<LOANS-NON> 253
<LOANS-PAST> 47
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 946
<CHARGE-OFFS> 168
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 994
<ALLOWANCE-DOMESTIC> 971
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 23
</TABLE>
