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 March 31, 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 May 6, 1996
Transitional Small Business Disclosure Format (check one):Yes No X
Page 1 of 11. 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 March 31, 1996 and
December 31,1995............................................................3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1996 and 1995...............................................4
Consolidated Statements of Stockholders' Equity for the
Periods Ended March 31, 1996 and December 31, 1995..........................5
Consolidated Statements of Cash Flows for the Periods Ended
March 31, 1996 and 1995.....................................................6
Notes to Consolidated Financial Statements...................................7
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
March 31, 1996 and December 31, 1995
________________________________________________________________________________
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
____________ ____________
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 955,994 $ 1,143,478
Federal funds sold 237,000 694,000
Investment securities available for sale 8,507,595 5,465,263
Loans 8,430,725 6,771,153
Less: Allowance for credit losses (100,000) (81,202)
___________ ___________
Net loans 8,330,725 6,689,951
Properties and equipment 1,422,978 1,328,951
Accrued interest receivable 178,569 116,099
Other assets 161,968 163,371
___________ ___________
Total assets $ 19,794,829 $ 15,601,113
Liabilities
Demand deposits 1,959,308 1,556,534
Interest-bearing demand deposits 1,619,438 1,900,877
Savings deposits 2,011,361 1,329,739
Large denomination time deposits 3,449,293 1,450,468
Other time deposits 7,291,740 5,699,077
___________ ___________
Total deposits 16,331,140 11,936,695
Accrued interest payable 40,798 24,198
Other liabilities 22,658 17,418
___________ ___________
Total liabilities 16,394,596 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 (849,751) (777,078)
Unrealized appreciation (depreciation) on
investment securities available for sale (91,093) 58,803
___________ ___________
Total stockholders' equity 3,400,233 3,622,802
___________ ___________
Total liabilities and stockholders'
equity $ 19,794,829 $ 15,601,113
___________ ___________
</TABLE>
See Notes to Consolidated Financial Statements 3
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the three months ended March 31, 1996 and 1995 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
_____________
1996 1995
____ ____
<S> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 175,682 $ 38,411
Interest on securities available for sale 109,651 83,968
Federal funds sold 15,975 10,291
_________ _________
Total interest income 301,308 132,670
INTEREST EXPENSE ON DEPOSITS 162,135 40,878
_________ _________
Net interest income 139,173 91,792
PROVISION FOR CREDIT LOSSES 27,322 8,550
_________ _________
Net interest income after provision
for credit losses 111,851 83,242
OTHER INCOME:
Service charges on deposit accounts 16,169 3,751
Securities Gains 9,351 ---
Other income 6,004 671
_________ _________
Total other income 31,524 4,422
OTHER EXPENSE:
Salaries and employee benefits 85,583 76,883
Occupancy expense 24,758 14,699
Equipment expense 16,449 7,279
Other expense 89,258 73,267
_________ _________
Total other expense 216,048 172,128
_________ _________
Net loss $ (72,673) $ (84,464)
_________ _________
NET LOSS PER SHARE $ (.17) $ (.19)
_________ _________
WEIGHTED AVERAGE SHARES OUTSTANDING 437,042 437,042
</TABLE>
See Notes to Consolidated Financial Statements 4
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the year ended December 31, 1995 and the three months ended March 31,1996
________________________________________________________________________________
<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
MARCH 31, 1996 (UNAUDITED)
Net loss for the three months
ended March 31, 1996 - - - (72,673) - (72,673)
Net change in appreciation
on investment securities
available for sale - - - - (149,896) (149,896)
_______ _________ _________ ________ _______ _________
BALANCE
MARCH 31, 1996 437,042 $2,185,210 $2,155,867 $(849,751) $(91,093) $3,400,233
</TABLE>
See Notes to Consolidated Financial Statements 5
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the three months ended March 31, 1996 and 1995 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1996 1995
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (72,673) $ (84,464)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation and amortization 21,255 15,308
Provision for credit losses 27,322 8,550
Net realized gain on sale of securities (9,351) -
Accretion of discount on securities, net (3,305) (8,292)
Changes in assets and liabilities:
Accrued interest receivable (62,470) (23,339)
Other assets (6,067) 2,290
Accrued interest payable 16,600 2,130
Other liabilities 5,240 8,413
___________ ___________
Net cash used by operating activities (83,449) (79,404)
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in federal funds sold 457,000 249,000
Purchases of securities available for sale (4,834,890) (591,979)
Maturities of securities available for sale 400,000 -
Sales of securities available for sale 1,255,318 -
Net increase in loans (1,668,096) (817,904)
Purchases of properties and equipment (107,812) (22,630)
___________ ___________
Net cash used in investing activities (4,498,480) (1,183,513)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW,
and savings deposits 802,957 618,309
Net increase in time deposits 3,591,488 1,057,182
___________ ___________
Net cash provided by financing activities 4,394,445 1,675,491
___________ ___________
Net increase in cash and cash equivalents (187,484) 412,574
CASH AND CASH EQUIVALENTS, BEGINNING 1,143,478 390,690
___________ ___________
CASH AND CASH EQUIVALENTS, ENDING $ 955,994 $ 803,264
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 145,535 $ 38,748
___________ __________
Income taxes paid $ --- $ 209
___________ __________
</TABLE>
See Notes to Consolidated Financial Statements 6
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 March 31, 1996 and for the
periods ended March 31, 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.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANACIAL CONDITION
AND RESULTS OF OPERATIONS.
The Company had a net loss of $72,673 (or $.17 per share, based on
437,042 weighted average shares of Common Stock outstanding during the period)
for the three months ended March 31, 1996, compared with a loss of $84,464
(or $.19 per share, based on 437,042 weighted average shares of Common Stock
outstanding during the period) for the quarter ended March 31, 1995. These
results compare with a net loss of $42,657 (or $3,877.91 per share on 11
weighted average shares of Common Stock outstanding during the period) for the
quarter ended March 31, 1994.
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 to conducting business. The
Company's losses in the quarter ending March 31, 1996 reflect three months
of solid growth in deposits and earning assets for the Bank. Net interest
income is approximately 52% 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. 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 March 31, 1996, the Company had total assets of approximately $19.8
million compared to $15.6 million at December 31, 1995. Total assets had a
positive increase of $4.2 million, or 26.9% since year end 1995. At March 31,
1996, assets were comprised principally of loans and investment securities.
Loans increased $1.7 million, or 24.5%, to approximately $8.4 million at March
31, 1996, as the Bank experienced loan growth in almost all categories.
Investment securities increased $3 million, or 55.7%, 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.
8
The Company's liabilities at March 31,1996 were $16 million compared to
$12 million at December 31, 1995. These liabilities consisted almost entirely
of deposits for both periods, which posted increases in almost all categories
except interest-bearing demand during the first quarter of 1996. Interest-
bearing demand deposits decreased $281,000, or 14.8% to $1.6 million, and time
deposits increased $3.6 million, or 50.2%, to $10.7 million. At March 31,
1996, about $2 million, or 12.0%, of total deposits were noninterest-bearing
compared to $1.6 million, or 13.0%, at December 31, 1995. The Bank offers
competitive interest rates in its local market and has been successful at
attracting depositors.
At March 31, 1996 and December 31, 1995, the Company had stockholders'
equity of approximately $3.4 million and $3.6 million, respectively. Stock-
holders' equity was affected by the Company's first three months of 1996
operating loss of $72,673 and a substantial increase in the unrealized
depreciation on investment securities available for sale of approximately
$150,000. The Company believes the increase is attributable to depreciation
in bond prices driven by market anticipation of a tighter monetary policy and
a corresponding uptick in the economy.
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 March 31, 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.
9
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
At the Company's Annual Meeting of Shareholders held on April 11, 1996,
the shareholders of the Company voted upon the following matters with the
following results:
(1) The election of the following persons as directors of the Company to
serve until the third annual meeting following their election and thereafter
until their successors have been elected and have qualified:
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES WITHHELD
<S> <C> <C>
Wayne L. Carpenter 247,782 19,030
Hiawatha Nicely, Jr. 241,994 24,810
A. Carole Pratt, D.D.S. 252,082 14,730
David W. Ratcliffe, Jr. 253,838 12,974
</TABLE>
Sybil S. Atkinson, Jack W. Bowling, Jackson M. Bruce, Randolph V.
Chrisley, Nathaniel R. Tuck, James L. Webb, Jr., and J. David Wine continue to
serve as directors after the Annual Meeting under terms which did not expire
at the Annual Meeting.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on 8-K
None.
10
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: April 30, 1996 By: Wayne L. Carpenter
Signature
President, Chief Executive Officer
and Principal Financial Officer
11
