SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 1996
or
_____Transition Report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the transition period from__________________ to __________________.
Commission File No. 33-69326
CNB HOLDINGS, INC.
(Exact name of the registrant as specified in its charter)
Virginia 54-1663340
(State of Incorporation) (I.R.S. Employer Identification No.)
P.O. Box 1060, 900 Memorial Drive, Pulaski, Virginia 24301
(Address of principal executive offices)
(540) 994-0831
(Issuer's telephone number, including area code)
_________________________________________________________________
(Former name, former address, and former fiscal year, if changed since
last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
437,225 shares of common stock, $5.00 par value per share (the "Common
Stock"), issued and outstanding as of November 1, 1996.
Transitional Small Business Disclosure Format (check one):Yes No X
Page 1 of 12. There are no Exhibits
PART I
FINANCIAL INFORMATION
_____________________________________________________________________________
ITEM 1. FINANCIAL STATEMENT
The financial statements of CNB Holdings, Inc. (the "Company") are set forth
in the following pages.
Consolidated Balance Sheets as of September 30, 1996 and
December 31,1995............................................................3
Consolidated Statements of Operations for the Nine Months
Ended September 30, 1996 and 1995...........................................4
Consolidated Statements of Operations for the Three Months
Ended September 30, 1996 and 1995...........................................5
Consolidated Statements of Stockholders' Equity for the
Periods Ended September 30, 1996 and December 31, 1995......................6
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995...........................................7
Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 1996 and 1995...........................................8
Notes to Consolidated Financial Statements...................................9
All schedules have been omitted because they are inapplicable or the
required information is provided in the financial statements, including the
notes thereto.
2
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
________________________________________________________________________________
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
____________ ____________
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,257,451 $ 1,143,478
Federal funds sold 2,076,000 694,000
Investment securities available for sale 10,087,574 5,465,263
Loans 10,958,675 6,771,153
Less: Allowance for credit losses (138,000) (81,202)
___________ ___________
Net loans 10,820,675 6,689,951
Properties and equipment 1,422,991 1,328,951
Accrued interest receivable 209,558 116,099
Other assets 178,724 163,371
___________ ___________
Total assets $ 26,052,973 $ 15,601,113
Liabilities
Demand deposits 2,374,588 1,556,534
Interest-bearing demand deposits 6,761,275 1,900,877
Savings deposits 2,902,017 1,329,739
Large denomination time deposits 2,641,517 1,450,468
Other time deposits 8,035,576 5,699,077
___________ ___________
Total deposits 22,714,973 11,936,695
Accrued interest payable 70,753 24,198
Other liabilities 18,085 17,418
___________ ___________
Total liabilities 22,803,811 11,978,311
___________ ___________
Commitments and contingencies
STOCKHOLDERS'EQUITY:
Preferred stock, $1 par value; 1,000,000 shares
authorized; none outstanding - -
Common stock, $5 par value; 10,000,000 shares
authorized; 437,225 and 437,042 shares
issued and outstanding 2,186,125 2,185,210
Surplus 2,156,782 2,155,867
Retained deficit (895,249) (777,078)
Unrealized appreciation (depreciation) on
investment securities available for sale (198,496) 58,803
___________ ___________
Total stockholders' equity 3,249,162 3,622,802
___________ ___________
Total liabilities and stockholders'
equity $ 26,052,973 $ 15,601,113
___________ ___________
</TABLE>
See Notes to Consolidated Financial Statements 3
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the nine months ended September 30, 1996 and 1995 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
______________
1996 1995
____ ____
<S> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 647,510 $ 228,477
Interest on securities available for sale 425,415 284,927
Federal funds sold 40,215 38,647
_________ _________
Total interest income 1,113,140 552,051
INTEREST EXPENSE ON DEPOSITS 604,181 221,427
_________ _________
Net interest income 508,959 330,624
PROVISION FOR CREDIT LOSSES 79,745 51,089
_________ _________
Net interest income after provision
for credit losses 429,214 279,535
OTHER INCOME:
Service charges on deposit accounts 62,719 22,384
Securities gains 22,837 ---
Other income 19,646 17,269
_________ _________
Total other income 105,202 39,653
OTHER EXPENSE:
Salaries and employee benefits 274,043 237,986
Occupancy expense 48,667 44,453
Equipment expense 46,661 26,334
Other expense 283,216 255,010
_________ _________
Total other expense 652,587 563,783
_________ _________
Net loss $ (118,171) $ (244,595)
_________ _________
NET LOSS PER SHARE $ (.27) $ (.56)
_________ _________
WEIGHTED AVERAGE SHARES OUTSTANDING 437,103 437,042
</TABLE>
See Notes to Consolidated Financial Statements 4
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the three months ended September 30, 1996 and 1995 (unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION> Three Months
Ended
September 30,
____________
1996 1995
____ ____
<S> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 251,678 $ 114,929
Interest on securities
available for sale 190,298 102,899
Federal funds sold 16,741 13,841
___________ __________
Total interest income 458,717 231,669
INTEREST EXPENSE ON DEPOSITS 257,017 105,620
___________ ___________
Net interest income 201,700 126,049
PROVISION FOR CREDIT LOSSES 11,664 21,709
___________ ___________
Net interest income after
provision for credit losses 190,036 104,340
OTHER INCOME:
Service charges on deposit accounts 24,057 12,165
Securities gains 5,483 ---
Other income 8,332 14,174
___________ ___________
Total other income 37,872 26,339
OTHER EXPENSE:
Salaries and employee benefits 100,411 86,847
Occupancy expense 11,282 17,199
Equipment expense 15,665 10,842
Other expense 101,678 89,389
___________ ___________
Total other expense 229,036 204,277
___________ ___________
Net Loss $ (1,128) $ (73,598)
___________ ___________
NET LOSS PER SHARE $ (-) $ (.17)
___________ ___________
WEIGHTED AVERAGE SHARES OUTSTANDING 437,225 437,042
</TABLE>
See Notes to Consolidated Financial Statements 5
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the year ended December 31, 1995 and the nine months ended September 30,1996
________________________________________________________________________________
<TABLE>
<CAPTION>
UNREALIZED TOTAL
RETAINED APPRECIATION STOCK-
COMMON STOCK EARNINGS (DEPRECIATION) HOLDERS
SHARES AMOUNT SURPLUS (DEFICIT) SECURITIES EQUITY
______ ______ _______ _________ _____________ ________
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995
December 31, 1994 437,042 $2,185,210 $2,155,867 $(445,496) $(47,769) $3,847,812
Net loss - - - (331,582) - (331,582)
Net change in unrealized
depreciation on investment
securities available
for sale - - - - 106,572 106,572
_______ _________ _________ _________ ________ __________
December 31, 1995 437,042 $2,185,210 $2,155,867 $(777,078) $ 58,803 $3,622,802
September 30, 1996 (UNAUDITED)
Net loss for the nine months
ended Sept. 30, 1996 - - - (118,171) - (118,171)
Common stock issued 183 915 915 1,830
Net change in appreciation
on investment securities
available for sale - - - - (257,299) (257,299)
_______ _________ _________ ________ _______ _________
BALANCE
JUNE 30, 1996 437,225 $2,186,125 $2,156,782 $(895,249)$(198,496) $3,249,162
</TABLE>
See Notes to Consolidated Financial Statements 6
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1996 and 1995 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1996 1995
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (118,171) $ (244,595)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation and amortization 63,761 45,926
Provision for credit losses 79,745 51,089
Net realized gain on sale of securities (22,837) ---
Accretion of discount on securities, net (12,090) (10,057)
Changes in assets and liabilities:
Accrued interest receivable (93,459) (83,986)
Other assets (37,764) (10,737)
Accrued interest payable 46,555 13,976
Other liabilities 667 11,137
___________ ___________
Net cash used by operating activities (93,593) (227,247)
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in federal funds sold (1,382,000) (570,000)
Purchases of securities available for sale (12,465,306) (4,076,294)
Maturities of securities available for sale 426,514 1,200,000
Sales of securities available for sale 7,194,109 1,991,518
Net increase in loans (4,210,469) (3,759,354)
Purchases of properties and equipment (135,390) (415,857)
___________ ___________
Net cash used in investing activities (10,572,542) (5,629,987)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW,
and savings deposits 7,250,730 1,551,004
Net increase in time deposits 3,527,548 4,754,005
Proceeds from sale of stock 1,830 ---
___________ ___________
Net cash provided by financing activities 10,780,108 6,305,009
___________ ___________
Net increase in cash and cash equivalents 113,973 447,775
CASH AND CASH EQUIVALENTS, BEGINNING 1,143,478 390,690
___________ ___________
CASH AND CASH EQUIVALENTS, ENDING $ 1,257,451 $ 838,465
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 557,626 $ 207,451
___________ __________
Income taxes paid $ --- $ 209
___________ __________
</TABLE>
See Notes to Consolidated Financial Statements 7
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the three months ended September 30, 1996 and 1995 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION> THREE MONTHS
ENDED
SEPTEMBER 30,
1996 1995
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,128) $ (73,598)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation and ammortization 21,253 11,451
Provision for credit losses 11,664 21,709
Net gains on sale of securities (5,483) ---
Accretion of discount on securities,net (7,072) 3,998
Changes in assets and liabilities:
Accrued interest receivable 20,386 (38,873)
Other assets (40,708) (26,966)
Accrued interest payable 20,964 5,643
Other liabilities 3,979 6,238
____________ ____________
Net cash used by operating activities 23,855 (90,398)
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase(decrease) in federal funds sold (2,076,000) (661,000)
Purchases of securities available for sale (4,981,051) (1,617,337)
Maturities of securities available for sale 26,514 900,000
Sales of securities available for sale 4,882,666 991,518
Net increase in loans (1,144,478) (1,788,681)
Purchases of properties and equipment (4,312) (222,158)
____________ ____________
Net cash used in investing activities (3,296,661) (2,397,658)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW,
and savings deposits 4,851,949 746,956
Net increase in time deposits (2,522,236) 1,816,341
Proceeds from sale of common stock 1,830 ---
____________ ____________
Net cash provided by financing activities 2,331,543 2,563,297
____________ ____________
Net increase (decrease) in cash and cash
equivalents (941,263) 75,241
CASH AND CASH EQUIVALENTS, BEGINNING 2,198,714 763,224
____________ ____________
CASH AND CASH EQUIVALENTS, ENDING $ 1,257,451 $ 838,465
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 260,251 $ 99,977
____________ ____________
Income taxes paid $ --- $ ---
____________ ____________
</TABLE>
See Notes to Consolidated Financial Statements 8
CNB HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
________________________________________________________________________________
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
BASIS OF PRESENTATION:
The consolidated financial statements as of September 30, 1996 and for
the periods ended September 30, 1996 and 1995 included herein, have been
prepared by CNB Holdings, Inc., without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the information furnished in the interim consolidated financial
statements reflects all adjustments necessary to present fairly the Company's
consolidated financial position, results of operations, changes in stock-
holders' equity and cash flows for such interim periods. Management believes
that all interim period adjustments are of a normal recurring nature. These
consolidated financial statements should be read in conjunction with the
Company's audited financial statements and the notes thereto as of December 31,
1995, included in the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995.
CNB Holdings, Inc. (the Company) is a bank holding company incorporated
under the laws of Virginia on April 29, 1993. From March 8, 1993 (date of
inception) through August 28, 1994 the Company's activities consisted of
organizational items. On August 29, 1994, the Company's wholly owned subsidi-
ary, Community National Bank (the Bank), was chartered as an FDIC insured
National Banking Association under the laws of the United States and the Bank
opened for business in Pulaski, Virginia. Accordingly, as of August 29, 1994,
the Company was no longer in the development stage.
The accounting and reporting policies of the Company and the Bank follow
generally accepted accounting principles and general practices within the
financial services industry.
NOTE 2. COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending other loan facilities to customers. Collateral held
varies as specified above and is required in instances which the Bank deems
necessary.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANACIAL CONDITION
AND RESULTS OF OPERATIONS.
The Company had a net loss of $118,171 (or $.27 per share, based on
437,103 weighted average shares of Common Stock outstanding during the period)
for the nine months ended September 30, 1996, compared with a loss of $244,595
(or $.56 per share, based on 437,042 weighted average shares of Common Stock
outstanding during the period) for the nine months ended September 30, 1995.
The last three months of operating results reflect a moderate net loss of
1,128.
Community National Bank, the Company's banking subsidiary (the "Bank"),
commenced operations on August 29, 1994 (the "Opening Date"), pursuant to an
approval from the Office of Comptroller of the Currency (the "OCC"). Prior to
that time, the Company and the Bank had no operations and their activities
consisted primarily of organizing the Company and the Bank and securing the
approvals necessary for the Bank to begin conducting business. The Company's
losses in the quarter ending September 30, 1996 reflect nine months of solid
growth in deposits and earning assets for the Bank. Net interest income after
provision for credit losses is approximately 66% of the Bank's overhead and
other expenses. Growth in the Bank's earning assets are approaching a level
sufficient to generate substantial interest income which, combined with other
income of the Bank, exceeds other Bank expenses.
Management of the Company and the Bank continues to aggressively market
its loans in the local community, and seek high earning investment assets and
deposits to provide the foundation for continued growth. While management is
anxious to see the bank profitable on an operational basis, it recognizes that
sacrificing loan and investment quality for quantity in order to post an
operating profit earlier is contrary to the long-term profitability of the
Company and the best interests of its shareholders. For this reason, the
Company's credit standards will likely constrain the rate at which it increases
its investment in loans and other higher returning assets.
At September 30, 1996, the Company had total assets of approximately $26
million compared to $15.6 million at December 31, 1995. Total assets had a
positive increase of $10 million, or 67% since year end 1995. At September 30,
1996, assets were comprised principally of loans and investment securities.
Net loans increased $4.2 million, or 61.8%, to approximately $11 million at
September 30, 1996 as the Bank experienced loan growth in almost all
categories. Investment securities increased $4.6 million, or 85%, as manage-
ment continued to invest deposits in investment securities until they could
be absorbed by loan demand. The Bank will continue to seek opportunity in its
local market to develop a quality loan portfolio.
The Company's liabilities at September 30,1996 were $22.8 million
compared to $12 million at December 31, 1995. These liabilities consisted
almost entirely of deposits for both periods, which posted increases in all
categories during the first three quarters of 1996. Interest-bearing demand
deposits increased 4.9 million, or 255.7%, to $6.8 million as a result of the
Banks's successful bid for a local municipality's banking services contract.
Time deposits increased $3.5 million, or 49.3%, to $10.7 million. At September
30, 1996, about $2.4 million, or 10.5%, of the Bank's deposits were non-
interest-bearing compared to $1.6 million, or 13.0%, at December 31, 1995.
Interest-bearing demand deposits were 29.8% of total deposits at September 30,
1996, compared to 15.9% at December 31, 1995. The Bank offers competitive
interest rates in its local market and has been successful at attracting
depositors.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED.
At September 30, 1996 and December 31, 1995, the Company had stock-
holders' equity of approximately $3.2 million and $3.6 million, respectively.
The Company's first nine months of 1996 resulted in an operating loss of
$118,171 and a substantial increase in the unrealized depreciation on
investment securities available for sale of approximately $257,000.
Management of the Company believes that the Bank has sufficient capital
to fund its activities until the bank begins to generate profits on an
operating basis, but there can be no assurance that this will be the case.
Management has not identified any additional sources of capital for the
Company or the Bank should they be needed. At September 30, 1996, the Bank
was in compliance with all regulatory capital requirements. Management
believes that the Bank has sufficient liquidity on a short-term basis to meet
any funding needs it may have, and expects that its long term liquidity needs
can be achieved through deposit growth, however there can be no assurance that
such growth will develop.
11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no matters pending legal proceedings to which the Company or any
of its subsidiaries is a party or of which any of their property is 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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on 8-K
None.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CNB HOLDINGS, INC.
Date: November 4, 1996 By: Wayne L. Carpenter
Signature
President, Chief Executive Officer
and Principal Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CNB
HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996
AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,257,451
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,076,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,087,574
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 10,958,675
<ALLOWANCE> (138,000)
<TOTAL-ASSETS> 26,052,973
<DEPOSITS> 22,714,973
<SHORT-TERM> 0
<LIABILITIES-OTHER> 88,838
<LONG-TERM> 0
0
0
<COMMON> 2,186,125
<OTHER-SE> 1,063,037
<TOTAL-LIABILITIES-AND-EQUITY> 26,052,973
<INTEREST-LOAN> 647,510
<INTEREST-INVEST> 425,415
<INTEREST-OTHER> 40,215
<INTEREST-TOTAL> 1,113,140
<INTEREST-DEPOSIT> 604,181
<INTEREST-EXPENSE> 604,181
<INTEREST-INCOME-NET> 508,959
<LOAN-LOSSES> 79,745
<SECURITIES-GAINS> 22,837
<EXPENSE-OTHER> 652,587
<INCOME-PRETAX> (118,171)
<INCOME-PRE-EXTRAORDINARY> (118,171)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (118,171)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
<YIELD-ACTUAL> 3.76
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 81,202
<CHARGE-OFFS> 29,283
<RECOVERIES> 6,336
<ALLOWANCE-CLOSE> 138,000
<ALLOWANCE-DOMESTIC> 138,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
