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, 1998
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:
926,399 shares of common stock, $5.00 par value per share (the "Common
Stock"), issued and outstanding as of June 30, 1998.
Transitional Small Business Disclosure Format (check one):Yes No X
Page 1 of 12. There are no Exhibits
_____________________________________________________________________________
CNB Holdings, Inc.
Form 10-QSB
Table of Contents
_____________________________________________________________________________
PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL INFORMATION
The financial statements of CNB Holdings, Inc. (the "Company") are set
forth in the following pages.
Consolidated Balance Sheets as of June 30, 1998 and
December 31,1997............................................................3
Consolidated Statements of Operations for the Six Months
Ended June 30, 1998 and 1997................................................4
Consolidated Statements of Operations for the Three Months
Ended June 30, 1998 and 1997................................................5
Consolidated Statements of Stockholders' Equity for the
Periods Ended June 30, 1998 and December 31, 1997...........................6
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997................................................7
Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 1998 and 1997................................................8
Notes to Consolidated Financial Statements...................................9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................11
Item 2. Changes in Securities..............................................11
Item 3. Defaults Upon Senior Securities....................................11
Item 4. Submission of Matters to a Vote of Security Holders................11
Item 5. Other Information..................................................11
Item 6. Exhibits and Reports on Form 8-K...................................11
SIGNATURES..................................................................12
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, 1998 and December 31, 1997
________________________________________________________________________________
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
____________ ____________
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,554,829 $ 2,290,840
Federal funds sold 3,148,000 1,021,000
Investment securities available for sale 12,944,283 11,736,737
Loans, net of allowance for loan losses
of $305,000 in 1998 and $270,000 in 1997 25,284,508 22,395,227
Property and equipment, net 1,962,276 1,853,855
Accrued income 277,165 241,318
Other assets 165,672 244,089
___________ ___________
Total assets 47,336,733 39,783,066
___________ ___________
Liabilities
Demand deposits 3,521,023 3,581,386
Interest-bearing demand deposits 11,487,695 11,192,361
Savings deposits 6,266,710 3,770,237
Large denomination time deposits 4,611,156 4,442,410
Other time deposits 15,085,048 13,607,494
___________ ___________
Total deposits 40,971,632 36,593,888
Accrued interest payable 79,370 55,448
Other liabilities 26,745 23,111
___________ ___________
Total liabilities 41,077,747 36,672,447
___________ ___________
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; 926,399 shares outstanding in 1998
and 546,399 shares outstanding in 1997 4,631,995 2,731,995
Surplus 2,819,060 1,609,748
Retained deficit (1,180,228) (1,209,973)
Unrealized appreciation (depreciation) on
investment securities available for sale (11,841) (21,151)
___________ ___________
Total stockholders' equity 6,258,986 3,110,619
___________ ___________
Total liabilities and stockholders'
equity $ 47,336,733 $ 39,783,066
___________ ___________
</TABLE>
See Notes to Consolidated Financial Statements 3
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the six months ended June 30, 1998 and 1997 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
_____________
1998 1997
____ ____
<S> <C> <C>
INTEREST INCOME:
Loans and fees on loans $1,090,367 $ 691,527
Interest on securities available for sale 354,130 357,277
Federal funds sold 91,224 14,695
_________ _________
Total interest income 1,535,721 1,063,499
INTEREST EXPENSE:
Deposits 824,391 580,224
Federal funds purchased 130 10,184
_________ _________
Total interest expense 824,521 590,408
_________ _________
Net interest income 711,200 473,091
PROVISION FOR CREDIT LOSSES 46,877 80,636
_________ _________
Net interest income after provision
for credit losses 664,323 392,455
_________ _________
OTHER INCOME:
Service charges on deposit accounts 81,508 49,705
Securities gains (losses) - (1,249)
Other income 35,702 18,714
Rent income 5,544 -
_________ _________
Total other income 122,754 67,170
OTHER EXPENSE:
Salaries and employee benefits 345,325 279,458
Occupancy expense 57,998 33,407
Equipment expense 68,639 40,232
Other expense 285,370 257,679
_________ _________
Total other expense 757,332 610,776
_________ _________
Net loss $ 29,745 $ (151,151)
_________ _________
NET INCOME (LOSS) PER SHARE $ .03 $ (.28)
_________ _________
WEIGHTED AVERAGE SHARES OUTSTANDING 926,399 546,497
_________ _________
</TABLE>
See Notes to Consolidated Financial Statements 4
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the three months ended June 30, 1998 and 1997 (unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION> Three Months
Ended
June 30,
____________
1998 1997
____ ____
<S> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 561,290 $ 383,440
Interest on securities
available for sale 174,564 184,548
Federal funds sold 60,320 11,019
___________ __________
Total interest income 796,174 579,007
INTEREST EXPENSE:
Deposits 422,021 320,131
Federal funds purchased - 7,557
___________ __________
Total interest expense 422,021 327,688
___________ __________
Net interest income 374,153 251,319
PROVISION FOR CREDIT LOSSES 26,858 62,023
___________ ___________
Net interest income after
provision for credit losses 347,295 189,296
___________ ___________
OTHER INCOME:
Service charges on deposit accounts 43,309 29,082
Securities gains (losses) - (1,249)
Other income 21,004 8,812
Rent income 2,147 -
___________ ___________
Total other income 66,460 36,645
OTHER EXPENSE:
Salaries and employee benefits 178,169 140,642
Occupancy expense 31,006 17,062
Equipment expense 29,814 21,379
Other expense 153,201 146,418
___________ ___________
Total other expense 392,190 325,501
___________ ___________
Net income (loss) $ 21,565 $ (99,560)
___________ ___________
NET INCOME (LOSS) PER SHARE $ .02 $ (.18)
___________ ___________
WEIGHTED AVERAGE SHARES OUTSTANDING 926,399 546,483
___________ ___________
</TABLE>
See Notes to Consolidated Financial Statements 5
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the year ended December 31, 1997 and the six months ended June 30,1998
________________________________________________________________________________
<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,
1996 437,225 $2,186,125 $2,156,782 $ (962,723) $(56,663)$3,323,521
Comprehensive income
Net loss - - - (247,250) - (247,250)
Net change in
unrealized
depreciation
on investment
securities
available
for sale - - - - 35,512 35,512
_________
Total comprehensive
income (211,738)
Stock dividend 109,306 546,530 (546,530) - - -
Reduction of
fractional
shares (132) (660) (504) - - (1,164)
_______ _________ _________ _________ _______ _________
December 31,
1997 546,399 2,731,995 1,609,748 (1,209,973) (21,151) 3,110,619
Comprehensive income
Net income - - - 29,745 - 29,745
Net change in
unrealized
depreciation
on investment
securities
available
for sale - - - - 9,310 9,310
_________
Total comprehensive
income 39,055
Common stock
sold 380,000 1,900,000 1,520,000 - - 3,420,000
Stock issuance
costs - - (310,688) - - (310,688)
_______ _________ _________ __________ _______ _________
June 30, 1998 926,399 $4,631,995 $2,819,060 $(1,180,228) $(11,841)$6,258,986
_______ _________ _________ __________ _______ _________
</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, 1998 and 1997 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION> Six Months
Ended
June 30,
1998 1997
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 29,745 $ (151,151)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation and amortization 55,642 52,222
Provision for credit losses 46,877 80,636
Net (gain) loss on sale of securities - 1,249
Accretion of discount on securities, net (3,997) (14,743)
Changes in assets and liabilities:
Accrued interest receivable (35,847) (5,867)
Other assets (48,025) 2,287
Accrued interest payable 23,922 33,695
Other liabilities 3,634 40,906
___________ ___________
Net cash used by operating activities 71,951 39,234
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal
funds sold (2,127,000) (1,056,000)
Purchases of securities available for sale (7,736,527) (4,534,878)
Maturities of securities available for sale 6,542,288 1,111,044
Sales of securities available for sale - 362,457
Net increase in loans (2,936,158) (5,000,009)
Purchases of properties and equipment (164,063) (179,149)
___________ ___________
Net cash used in investing activities (6,421,460) (9,296,535)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of common stock - (1,164)
Net increase in demand, NOW,
and savings deposits 2,731,444 3,360,242
Net increase in time deposits 1,646,300 7,220,978
Sale of common stock 3,235,754 -
___________ ___________
Net cash provided by financing activities 7,613,498 10,580,056
___________ ___________
Net increase in cash and cash equivalents 1,263,989 1,322,755
CASH AND CASH EQUIVALENTS, BEGINNING 2,290,840 1,188,999
___________ ___________
CASH AND CASH EQUIVALENTS, ENDING $ 3,554,829 $ 2,511,754
___________ ___________
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 800,599 $ 556,713
___________ __________
Income taxes paid $ - $ -
___________ __________
</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, 1998 and 1997 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION> Three Months
Ended
June 30,
1998 1997
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 21,565 $ (99,560)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation and ammortization 20,953 26,111
Provision for credit losses 26,858 62,023
Net gains on sale of securities - 1,249
Accretion of discount on securities,net (2,937) (11,988)
Changes in assets and liabilities:
Accrued interest receivable (21,836) (12,484)
Other assets (26,149) 26,224
Accrued interest payable 10,387 24,948
Other liabilities 8,599 32,330
____________ ____________
Net cash used by operating activities $ 37,440 $ 48,853
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal
funds sold 1,833,000 (1,458,000)
Purchases of securities available for sale (3,246,943) (4,534,878)
Maturities of securities available for sale 2,600,000 841,456
Sales of securities available for sale - 362,457
Net increase in loans (1,671,986) (3,396,103)
Purchases of properties and equipment (125,463) (139,679)
____________ ____________
Net cash used in investing activities (611,392) (8,324,747)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of common stock - (1,164)
Net decrease in federal funds purchased - (1,172,000)
Net increase in demand, NOW,
and savings deposits 1,612,797 4,152,057
Net increase in time deposits 836,592 5,913,870
____________ ____________
Net cash provided by financing activities 2,449,389 8,892,763
____________ ____________
Net increase (decrease) in cash and cash
equivalents 1,875,437 616,869
CASH AND CASH EQUIVALENTS, BEGINNING 1,679,392 1,894,885
____________ ____________
CASH AND CASH EQUIVALENTS, ENDING $ 3,554,829 $ 2,511,754
____________ ____________
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 411,634 $ 302,740
____________ ____________
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
CNB Holdings, Inc. (the Company) is a bank holding company incorporated
under the laws of Virginia on April 29, 1993. On August 29, 1994, the Company's
wholly owned subsidiary, 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. As an FDIC insured
subject to regulation by the Comptroller of the Currency. The Company is
regulated by the Federal Reserve.
BASIS OF PRESENTATION:
The consolidated financial statements as of June 30, 1998 and for the
periods ended June 30, 1998 and 1997 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 stockholders' 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 and the notes thereto as of December 31, 1997, included
in the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997.
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.
NOTE 3. SALE OF COMMON STOCK
After receiving approval in 1997 from the Securities and Exchange
Commission to sell an additional 380,000 shares of common stock, the
Company began offering this stock for sale in December, 1997. The entire
issue was fully subscribed by the offering cut-off date in February, 1998.
Net proceeds from this offering of approximately $3.2 million will be used
for general purposes and to fund future growth.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANACIAL CONDITION
AND RESULTS OF OPERATIONS.
The Company had a net income of $29,745 (or $.03 per share, based on
926,399 weighted average shares of Common Stock outstanding during the period)
for the six months ended June 30, 1998, compared with a loss of $99,560
(or $.18 per share, based on 546,483 weighted average shares of Common Stock
outstanding during the period) for the quarter ended June 30, 1997.
At June 30, 1998, the Company had total assets of approximately $47.3
million compared to $39.8 million at December 31, 1997. Total assets had a
positive increase of $7.5 million, or 18.8% since year end 1997. At June 30,
1998, assets were comprised principally of loans and investment securities.
Loans increased $2.9 million, or 13%, to $25.3 million at June 30, 1998, as
the Bank experienced loan growth in almost all categories. As loan demand
continues to develop, the bank will be in a position to invest more of its
excess funds into higher yielding loans instead of investment securities.
The Company's liabilities at June 30, 1998 were $41.1 million compared
to $36.7 million at December 31, 1997. These liabilities consisted almost
entirely of deposits for both periods. Interest-bearing demand deposits
increased by $295,000, or 2.6% to $11.5 million, and time deposits increased
$1.6 million, or 9.1%, to $19.7 million. At June 30, 1998, $3.5 million, or
8.6%, of total deposits were noninterest-bearing compared to $3.6 million,
or 9.8%, at December 31, 1997. The Bank offers competitive interest rates
in its local market and has been successful at attracting depositors.
At June 30, 1998 and December 31, 1997, the Company had stockholders'
equity of approximately $6.3 million and $3.1 million, respectively. Stock-
holders' equity was affected by the Company's first six months of 1998
net income of $29,745, stock sale proceeds of $3.2 million, and an $9,300
decrease in the unrealized depreciation on investment securities available
for sale. The Company believes the decrease is attributable to the uncertainty
in the current interest rate environment.
Management of the Company believes that the Bank has sufficient capital
to fund its operations until the Bank begins to gernerate profits on an
operating basis, but there can be no assurance that this will be the case.
The Bank has applied to become a member of the Federal Home Loan Bank system
which would provide the Bank with borrowing capacity to meet liquidity or
loan needs, however, management has not identified other sources of capital
for the Company or the Bank should they be needed.
At June 30, 1998, 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.
10
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.
11
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 12, 1998 By: Hiawatha Nicely, Jr.
Signature
President & Chief Executive 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 JUNE 30, 1998
AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30, 1998 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,554,829
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,148,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,944,283
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 25,284,508
<ALLOWANCE> (305,000)
<TOTAL-ASSETS> 47,336,733
<DEPOSITS> 40,971,632
<SHORT-TERM> 0
<LIABILITIES-OTHER> 106,115
<LONG-TERM> 0
0
0
<COMMON> 4,631,995
<OTHER-SE> 1,626,991
<TOTAL-LIABILITIES-AND-EQUITY> 47,336,733
<INTEREST-LOAN> 1,090,367
<INTEREST-INVEST> 354,130
<INTEREST-OTHER> 91,224
<INTEREST-TOTAL> 1,535,721
<INTEREST-DEPOSIT> 824,391
<INTEREST-EXPENSE> 824,521
<INTEREST-INCOME-NET> 711,200
<LOAN-LOSSES> 46,877
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 757,332
<INCOME-PRETAX> 29,745
<INCOME-PRE-EXTRAORDINARY> 29,745
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,745
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
<YIELD-ACTUAL> 3.72
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 270,000
<CHARGE-OFFS> 11,877
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 305,000
<ALLOWANCE-DOMESTIC> 305,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
