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, 1997.
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 May 6, 1997
Transitional Small Business Disclosure Format (check one):Yes No X
Page 1 of 11. There are no Exhibits
CNB Holdings, Inc.
Form 10-QSB
INDEX
________________________________________________________________________________
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The financial statements of CNB Holdings, Inc. (the "Company") are set forth
in the following pages.
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996...........................................................3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1997 and 1996...............................................4
Consolidated Statements of Stockholders' Equity for the
Three Months Ended March 31, 1997 and the Year
Ended December 31, 1996....................................................5
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1996.....................................................6
Notes to Consolidated Financial Statements...................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.............................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................10
Item 2. Changes in Securities.............................................10
Item 3. Defaults Upon Senior Securities...................................10
Item 4. Submission of Matters to a Vote of Security Holders...............10
Item 5. Other Information.................................................10
Item 6. Exhibits and Reports on Form 8-K..................................10
SIGNATURES..................................................................11
All schedules have been omitted because they are inapplicable or the
required information is provided in the financial statements, including the
notes thereto.
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996
________________________________________________________________________________
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
____________ ____________
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,894,885 $ 1,188,999
Federal funds sold - 402,000
Investment securities available for sale 10,953,010 11,312,764
Loans, net of allowance for loan losses
of $179,000 in 1997 and $155,000 in 1996 14,308,158 12,722,865
Properties and equipment, net 1,431,356 1,408,596
Accrued income 254,931 261,548
Other assets 135,087 120,551
____________ ____________
Total assets $ 28,977,427 $ 27,417,323
____________ ____________
LIABILITIES
Demand deposits 2,371,185 2,629,100
Interest-bearing demand deposits 7,218,318 8,266,172
Savings deposits 2,853,362 2,339,408
Large denomination time deposits 3,162,239 3,079,169
Other time deposits 8,950,891 7,726,853
___________ ___________
Total deposits 24,555,995 24,040,702
Federal funds purchased 1,172,000 -
Accrued interest payable 45,359 36,612
Other liabilities 25,064 16,488
___________ ___________
Total liabilities 25,798,418 24,093,802
___________ ___________
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 shares outstanding in
1997 and 1996 2,186,125 2,186,125
Surplus 2,156,782 2,156,782
Retained deficit (1,014,314) (962,723)
Unrealized depreciation on investment
securities available for sale (149,584) (56,663)
___________ ___________
Total stockholders' equity 3,179,009 3,323,521
___________
Total liabilities and stockholders'
equity $ 28,977,427 $ 27,417,323
____________ ____________
</TABLE>
See Notes to Consolidated Financial Statements 3
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the three months ended March 31, 1997 and 1996 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
_____________
(Unaudited)
1997 1996
____ ____
<S> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 308,087 $ 175,682
Interest on securities available for sale 172,729 109,651
Federal funds sold 3,676 15,975
_________ _________
Total interest income 484,492 301,308
_________ _________
INTEREST EXPENSE:
Deposits 260,093 162,135
Federal funds purchased 2,627 -
_________ _________
Total interest expense 262,720 162,135
_________ _________
Net interest income 221,772 139,173
PROVISION FOR CREDIT LOSSES 18,613 27,322
_________ _________
Net interest income after provision
for credit losses 203,159 111,851
OTHER INCOME:
Service charges on deposit accounts 20,623 16,169
Securities gains - 9,351
Other income 9,902 6,004
_________ _________
Total other income 30,525 31,524
OTHER EXPENSE:
Salaries and employee benefits 138,816 85,583
Occupancy expense 16,345 24,758
Equipment expense 18,853 16,449
Other expense 111,261 89,258
_________ _________
Total other expense 285,275 216,048
_________ _________
Net loss $ (51,591) $ (72,673)
_________ _________
NET LOSS PER SHARE $ (.12) $ (.17)
_________ _________
WEIGHTED AVERAGE SHARES OUTSTANDING 437,225 437,225
_________ _________
</TABLE>
See Notes to Consolidated Financial Statements 4
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the year ended December 31, 1996 and the three months ended March 31,1997
________________________________________________________________________________
<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 437,042 $2,185,210 $2,155,867 $ (777,078) $ 58,803 $3,622,802
Net loss - - - (185,645) - (185,645)
Common stock
issued 183 915 915 - - 1,830
Net change in unrealized
depreciation on investment
securities available
for sale - - - - (115,466)
(115,466)
_______ _________ _________ __________ ________ _________
December 31,
1996 437,225 $2,186,125 $2,156,782 $ (962,723) $ (56,663)
$3,323,521
Net loss for the three months
ended March 31,
1997 - - - (51,591) -
(51,591)
Net change in depreciation
on investment securities
available for sale - - - - (92,921)
(92,921)
_______ _________ _________ __________ ________
________
BALANCE
MARCH 31,
1997 437,225 $2,186,125 $2,156,782 $(1,014,314) $(149,584)
$3,179,009
_______ _________ _________ _________ ________ _________
</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, 1997 and 1996 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
(Unaudited)
1997 1996
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (51,591) $ (72,673)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation and amortization 26,111 21,255
Provision for credit losses 18,613 27,322
Net realized gain on sale of securities - (9,351)
Accretion of discount on securities, net (2,755) (3,305)
Changes in assets and liabilities:
Accrued interest receivable 6,617 (62,470)
Other assets (23,937) (6,067)
Accrued interest payable 8,747 16,600
Other liabilities 8,576 5,240
___________ ___________
Net cash used by operating activities (9,619) (83,449)
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in federal funds sold 402,000 457,000
Purchases of securities available for sale - (4,834,890)
Maturities of securities available for sale 269,588 400,000
Sales of securities available for sale - 1,255,318
Net increase in loans (1,603,906) (1,668,096)
Purchases of properties and equipment (39,470) (107,812)
___________ ___________
Net cash used in investing activities (971,788) (4,498,480)
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW,
and savings deposits (791,815) 802,957
Net increase in time deposits 1,307,108 3,591,488
Net increase in federal funds purchased 1,172,000 -
___________ __________
Net cash provided by financing activities 1,687,293 4,394,445
___________ __________
Net increase in cash and cash equivalents 705,886 (187,484)
CASH AND CASH EQUIVALENTS, BEGINNING 1,188,999 1,143,478
___________ ___________
CASH AND CASH EQUIVALENTS, ENDING $ 1,894,885 $ 955,994
___________ ___________
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 253,973 $ 145,535
___________ ___________
Income taxes paid $ --- $ ---
___________ ___________
</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, 1997 and for the
periods ended March 31, 1997 and 1996 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, 1996, included
in the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996.
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 $51,591 (or $.12 per share, based on
437,225 weighted average shares of Common Stock outstanding during the period)
for the three months ended March 31, 1997, compared with a loss of $72,673
(or $.17 per share, based on 437,225 weighted average shares of Common Stock
outstanding during the period) for the quarter ended March 31, 1996. These
results compare with a net loss of $84,464 (or $.19 per share on 437,225
weighted average shares of Common Stock outstanding during the period) for the
quarter ended March 31, 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 to conducting business. The
Company's losses in the quarter ending March 31, 1997 reflect three months
of solid growth in deposits and earning assets for the Bank. Net interest
income is approximately 71% 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, 1997, the Company had total assets of approximately $29.0
million compared to $27.4 million at December 31, 1996. Total assets had a
positive increase of $1.6 million, or 5.8% since year end 1996. At March 31,
1997, assets were comprised principally of loans and investment securities.
Loans increased $1.6 million, or 12.5%, to approximately $14.3 million at March
31, 1997, as the Bank experienced loan growth in almost all categories.
Investment securities decreased $360 thousand, or 3.2%, as management continued
to invest deposits flowing into the Bank in loans. 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, 1997 were $25.8 million compared
to 24 million at December 31, 1996. These liabilities consisted almost
entirely of deposits for both periods. However, the Bank purchased Federal
funds for the first time in the first quarter of 1997. Interest-bearing demand
deposits decreased $1 million, or 12.7% to $7.2 million, and time deposits
increased $1.3 million, or 12%, to $12.1 million. At March 31, 1997, $2.3
million, or 9.6%, of total deposits were noninterest-bearing compared to $2.6
million, or 10.7%, at December 31, 1996. The Bank offers competitive interest
rates in its local market and has been successful at attracting depositors.
At March 31, 1997 and December 31, 1996, the Company had stockholders'
equity of approximately $3.2 million and $3.3 million, respectively. Stock-
holders' equity was affected by the Company's first three months of 1996
operating loss of $51,591 and a substantial increase in the unrealized
depreciation on investment securities available for sale of approximately
$93,000. The Company believes the increase is attributable to depreciation
in bond prices driven by market anticipation of higher interest rates.
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 captial for the Company or the Bank should they be
needed.
At March 31, 1997, 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 Securites
(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 17, 1997, 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 therefore until their successors have been elected and have
qualified:
Name Votes for Votes witheld
_________________ _______ _____________
Jack W. Bowling 268,776 201
Jackson M. Bruce 268,776 201
Nathaniel R. Tuck 268,776 201
Sybil S. Atkinson, Wayne L. Carpenter, Randolph V. Christley, Hiawatha Nicely,
Jr., A. Carole Pratt, David W. Ratcliff, Jr., James L. Webb, Jr., and J. David
Wine continue to service as directors after the Annual Meeting under terms
which did not expire at the Annual Meeting.
Item 5. Other Information
Stock Dividend: Shareholders' of record as of May 1, 1997 will
receive a 25% stock dividend. The effective date
will be on or about May 30, 1997.
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: May 9, 1997 By: s/Wayne L. Carpenter
__________________________________
Wayne L. Carpenter
President, Chief Executive Officer
and Principal Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CNB
HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET AT MARCH 31, 1997
AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> $ 1,894,885
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,953,010
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 14,487,158
<ALLOWANCE> 179,000
<TOTAL-ASSETS> 28,977,427
<DEPOSITS> 24,555,995
<SHORT-TERM> 1,172,000
<LIABILITIES-OTHER> 70,423
<LONG-TERM> 0
0
0
<COMMON> 2,186,125
<OTHER-SE> 992,884
<TOTAL-LIABILITIES-AND-EQUITY> 28,977,427
<INTEREST-LOAN> 308,087
<INTEREST-INVEST> 172,729
<INTEREST-OTHER> 3,676
<INTEREST-TOTAL> 484,492
<INTEREST-DEPOSIT> 260,093
<INTEREST-EXPENSE> 262,720
<INTEREST-INCOME-NET> 221,772
<LOAN-LOSSES> 18,613
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 285,275
<INCOME-PRETAX> (51,591)
<INCOME-PRE-EXTRAORDINARY> (51,591)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (51,591)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
<YIELD-ACTUAL> 4.15
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 155,000
<CHARGE-OFFS> 0
<RECOVERIES> 5,387
<ALLOWANCE-CLOSE> 179,000
<ALLOWANCE-DOMESTIC> 179,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
