SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 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:
437,042 shares of common stock, $5.00 par value per share (the "Common
Stock"), issued and outstanding as of August 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 June 30, 1996 and
December 31,1995............................................................3
Consolidated Statements of Operations for the Six Months
Ended June 30, 1996 and 1995................................................4
Consolidated Statements of Operations for the Three Months
Ended June 30, 1996 and 1995................................................5
Consolidated Statements of Stockholders' Equity for the
Periods Ended June 30, 1996 and December 31, 1995...........................6
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1996 and 1995................................................7
Consolidated Statements of Cash Flows for the Three Months
Ended June 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
June 30, 1996 and December 31, 1995
________________________________________________________________________________
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
____________ ____________
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,198,714 $ 1,143,478
Federal funds sold - 694,000
Investment securities available for sale 9,913,055 5,465,263
Loans 9,807,861 6,771,153
Less: Allowance for credit losses (120,000) (81,202)
___________ ___________
Net loans 9,687,861 6,689,951
Properties and equipment 1,432,461 1,328,951
Accrued interest receivable 229,944 116,099
Other assets 145,487 163,371
___________ ___________
Total assets $ 23,607,522 $ 15,601,113
Liabilities
Demand deposits 2,090,534 1,556,534
Interest-bearing demand deposits 2,499,906 1,900,877
Savings deposits 2,595,491 1,329,739
Large denomination time deposits 5,621,278 1,450,468
Other time deposits 7,578,051 5,699,077
___________ ___________
Total deposits 20,385,260 11,936,695
Accrued interest payable 49,789 24,198
Other liabilities 14,106 17,418
___________ ___________
Total liabilities 20,449,155 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; 437,042 shares issued
and outstanding 2,185,210 2,185,210
Surplus 2,155,867 2,155,867
Retained deficit (894,121) (777,078)
Unrealized appreciation (depreciation) on
investment securities available for sale (288,589) 58,803
___________ ___________
Total stockholders' equity 3,158,367 3,622,802
___________ ___________
Total liabilities and stockholders'
equity $ 23,607,522 $ 15,601,113
___________ ___________
</TABLE>
See Notes to Consolidated Financial Statements 3
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the six months ended June 30, 1996 and 1995 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
_____________
1996 1995
____ ____
<S> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 395,832 $ 113,548
Interest on securities available for sale 235,117 182,028
Federal funds sold 23,474 24,806
_________ _________
Total interest income 654,423 320,382
INTEREST EXPENSE ON DEPOSITS 347,164 115,807
_________ _________
Net interest income 307,259 204,575
PROVISION FOR CREDIT LOSSES 68,081 29,380
_________ _________
Net interest income after provision
for credit losses 239,178 175,195
OTHER INCOME:
Service charges on deposit accounts 38,662 10,219
Securities gains 17,354 ---
Other income 11,314 3,095
_________ _________
Total other income 67,330 13,314
OTHER EXPENSE:
Salaries and employee benefits 173,632 151,139
Occupancy expense 37,385 27,254
Equipment expense 30,996 15,492
Other expense 181,538 165,621
_________ _________
Total other expense 423,551 359,506
_________ _________
Net loss $ (117,043) $ (170,997)
_________ _________
NET LOSS PER SHARE $ (.27) $ (.39)
_________ _________
WEIGHTED AVERAGE SHARES OUTSTANDING 437,042 437,042
</TABLE>
See Notes to Consolidated Financial Statements 4
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the three months ended June 30, 1996 and 1995 (unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION> Three Months
Ended
June 30,
____________
1996 1995
____ ____
<S> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 220,150 $ 75,137
Interest on securities
available for sale 125,466 98,060
Federal funds sold 7,499 14,515
___________ __________
Total interest income 353,115 187,712
INTEREST EXPENSE ON DEPOSITS 185,029 74,929
___________ ___________
Net interest income 168,086 112,783
PROVISION FOR CREDIT LOSSES 40,759 20,830
___________ ___________
Net interest income after
provision for credit losses 127,327 91,953
OTHER INCOME:
Service charges on deposit accounts 22,493 6,468
Securities gains 8,003 ---
Other income 5,310 2,424
___________ ___________
Total other income 35,806 8,892
OTHER EXPENSE:
Salaries and employee benefits 88,049 74,256
Occupancy expense 12,627 12,555
Equipment expense 14,547 8,213
Other expense 92,280 92,354
___________ ___________
Total other expense 207,503 187,378
___________ ___________
Net Loss $ (44,370) $ (86,533)
___________ ___________
NET LOSS PER SHARE $ (.10) $ (.20)
___________ ___________
WEIGHTED AVERAGE SHARES OUTSTANDING 437,042 437,042
</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 six months ended June 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
June 30, 1996 (UNAUDITED)
Net loss for the six months
ended June 30, 1996 - - - (117,043) - (117,043)
Net change in appreciation
on investment securities
available for sale - - - - (347,392) (347,392)
_______ _________ _________ ________ _______ _________
BALANCE
JUNE 30, 1996 437,042 $2,185,210 $2,155,867 $(894,121)$(288,589) $3,158,367
</TABLE>
See Notes to Consolidated Financial Statements 6
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the six months ended June 30, 1996 and 1995 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1996 1995
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (117,043) $ (170,997)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation and amortization 42,508 34,475
Provision for credit losses 68,081 29,380
Net realized gain on sale of securities (17,354) ---
Accretion of discount on securities, net (5,018) (14,055)
Changes in assets and liabilities:
Accrued interest receivable (113,845) (45,113)
Other assets 2,944 16,229
Accrued interest payable 25,591 8,333
Other liabilities (3,312) 4,899
___________ ___________
Net cash used by operating activities (117,448) (136,849)
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in federal funds sold 694,000 91,000
Purchases of securities available for sale (7,484,255) (2,458,957)
Maturities of securities available for sale 400,000 300,000
Sales of securities available for sale 2,311,443 1,000,000
Net increase in loans (3,065,991) (1,970,673)
Purchases of properties and equipment (131,078) (193,699)
___________ ___________
Net cash used in investing activities (7,275,881) (3,232,329)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW,
and savings deposits 2,398,781 804,048
Net increase in time deposits 6,049,784 2,937,664
___________ ___________
Net cash provided by financing activities 8,448,565 3,741,712
___________ ___________
Net increase in cash and cash equivalents 1,055,236 372,534
CASH AND CASH EQUIVALENTS, BEGINNING 1,143,478 390,690
___________ ___________
CASH AND CASH EQUIVALENTS, ENDING $ 2,198,714 $ 763,224
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 321,573 $ 107,474
___________ __________
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 June 30, 1996 and 1995 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION> THREE MONTHS
ENDED
JUNE 30,
1996 1995
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (44,370) $ (86,533)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation and ammortization 21,253 19,167
Provision for credit losses 40,759 20,830
Net gains on sale of securities (8,003) ---
Accretion of discount on securities,net (1,713) (8,602)
Changes in assets and liabilities:
Accrued interest receivable (51,375) (21,774)
Other assets 9,011 13,939
Accrued interest payable 8,991 6,203
Other liabilities (8,552) (3,514)
____________ ____________
Net cash used by operating activities $ (33,999) $ (60,284)
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in federal funds sold 237,000 (158,000)
Purchases of securities available for sale (2,649,365) (1,864,139)
Maturities of securities available for sale --- 300,000
Sales of securities available for sale 1,056,125 1,000,000
Net increase in loans (1,397,895) (1,152,769)
Purchases of properties and equipment (23,266) (171,069)
____________ ____________
Net cash used in investing activities (2,777,401) (2,045,977)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW,
and savings deposits 1,595,824 185,739
Net increase in time deposits 2,458,296 1,880,482
____________ ____________
Net cash provided by financing activities 4,054,120 2,066,221
____________ ____________
Net increase (decrease) in cash and cash
equivalents 1,242,720 (40,040)
CASH AND CASH EQUIVALENTS, BEGINNING 955,994 803,264
____________ ____________
CASH AND CASH EQUIVALENTS, ENDING $ 2,198,714 $ 763,224
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 176,038 $ 68,726
____________ ____________
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 June 30, 1996 and for the
periods ended June 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 fi-
nancial position, results of operations, changes in stockholders' equity and
cash flows for such interim periods. Management believes that all interim
period adjustments are of a normal recurring nature. These consolidated fi-
nancial 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 $117,043 (or $.27 per share, based on
437,042 weighted average shares of Common Stock outstanding during the period)
for the six months ended June 30, 1996, compared with a loss of $170,997
(or $.39 per share, based on 437,042 weighted average shares of Common Stock
outstanding during the period) for the six months ended June 30, 1995.
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 six months ending June 30, 1996 reflect six months of solid
growth in deposits and earning assets for the Bank. Net interest income after
provision for credit losses is approximately 56% of the Bank's overhead and
other expenses. Until the Bank's earning assets grow to a level sufficient
to generate substantial interest income which, combined with other income of
the Bank, exceeds other Bank expenses, the Company and the Bank will likely
experience net losses.
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.
During the first quarter of 1995, the Bank launched its Visa credit card
program. In the second quarter of 1995, a Visa debit card was introduced to
the local market. The Company broke ground on its new headquarters facility on
March 28, 1995. During the first quarter of 1996, the bank held ribbon
cutting and building dedication ceremonies to celebrate the attractive new
brick colonial-style structure which offers the bank much needed office space,
2 additional drive-through lanes, a drive-through automated teller machine and
night depository, and safe deposit boxes.
At June 30, 1996, the Company had total assets of approximately $23.6
million compared to $15.6 million at December 31, 1995. Total assets had a
positive increase of $8 million, or 51% since year end 1995. At June 30,
1996, assets were comprised principally of loans and investment securities.
Net loans increased $3 million, or 44.3%, to approximately $9.7 million at
June 30, 1996, as the Bank experienced loan growth in almost all categories.
Investment securities increased $4.4 million, or 80%, as management continued
to invest deposits flowing into the Bank in temporary investments until they
could be invested in loans and other higher yielding investments. As loan
demand develops, the bank will be able to invest more of its funds into higher
yielding loans and less in investment securities.
10
The Company's liabilities at June 30,1996 were $20.4 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 half of 1996. Interest-bearing demand deposits increased $599,000,
or 31.5% to $2.5 million, and time deposits increased $6 million, or 83.9%, to
$13.2 million. At June 30, 1996, about $2.1 million, or 10%, of total deposits
were noninterest-bearing compared to $1.6 million, or 13.0%, at December 31,
1995. Interest-bearing demand deposits were 12% of total deposits at June 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.
At June 30, 1996 and December 31, 1995, the Company had stockholders'
equity of approximately $3.2 million and $3.6 million, respectively. The
Company's first six months of 1996 resulted in an operating loss of $117,043
and a substantial increase in the unrealized depreciation on investment
securities available for sale of approximately $347,000.
Management of the Company believes that the Bank has sufficient capital
to fund its activities during the initial stages of operation and 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 June 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.
12
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: August 7, 1996 By: Wayne L. Carpenter
Signature
President, Chief Executive Officer
and Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CNB
HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996
AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,198,714
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,913,055
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 9,807,861
<ALLOWANCE> (120,000)
<TOTAL-ASSETS> 23,607,522
<DEPOSITS> 20,385,260
<SHORT-TERM> 0
<LIABILITIES-OTHER> 63,895
<LONG-TERM> 0
0
0
<COMMON> 2,185,210
<OTHER-SE> 973,157
<TOTAL-LIABILITIES-AND-EQUITY> 23,607,522
<INTEREST-LOAN> 395,832
<INTEREST-INVEST> 235,117
<INTEREST-OTHER> 23,474
<INTEREST-TOTAL> 654,423
<INTEREST-DEPOSIT> 347,164
<INTEREST-EXPENSE> 347,164
<INTEREST-INCOME-NET> 307,259
<LOAN-LOSSES> 68,081
<SECURITIES-GAINS> 17,354
<EXPENSE-OTHER> 423,551
<INCOME-PRETAX> (117,043)
<INCOME-PRE-EXTRAORDINARY> (117,043)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (117,043)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
<YIELD-ACTUAL> 3.86
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 81,202
<CHARGE-OFFS> 29,283
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 120,000
<ALLOWANCE-DOMESTIC> 120,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
