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, 1999.
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)
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(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 May 6, 1999.
Transitional Small Business Disclosure Format (check one): Yes No X
There are no Exhibits
<PAGE>
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, 1999 and
December 31,1998 ............................................................3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1999 and 1998...............................................4
Consolidated Statements of Stockholders' Equity for the
Three Months Ended March 31, 1999 and the Year
Ended December 31, 1998......................................................5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998...............................................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......................................................9
Item 2. Changes in Securities..................................................9
Item 3. Defaults Upon Senior Securities........................................9
Item 4. Submission of Matters to a Vote of Security Holders................... 9
Item 5. Other Information.....................................................10
Item 6. Exhibits and Reports on Form 8-K..................................... 10
SIGNATURES....................................................................10
All schedules have been omitted because they are inapplicable or the required
information is provided in the financial statements, including the notes
thereto.
2
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CNB HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
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MARCH 31, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,269,414 $ 2,925,106
Federal funds sold 2,246,000 495,000
Investment securities available for sale 12,864,535 16,427,685
Loans, net of allowance for loan losses
of $389,518 in 1999 and $372,574 in 1998 33,063,880 31,108,102
Property and equipment, net 1,938,499 1,952,346
Accrued income 334,392 425,640
Other assets 88,995 94,836
------------- -------------
Total assets $ 53,805,715 $ 53,428,715
============= =============
LIABILITIES
Demand deposits $ 3,316,411 $ 3,595,984
Interest-bearing demand deposits 14,051,545 14,235,369
Savings deposits 7,808,452 6,629,166
Large denomination time deposits 4,750,331 4,456,768
Other time deposits 17,546,213 17,200,180
------------- -------------
Total deposits 47,472,952 46,117,467
Federal funds purchased - 851,000
Other borrowed funds 131,117 132,590
Accrued interest payable 77,250 72,786
Other liabilities 15,584 15,140
------------- -------------
Total liabilities 47,696,903 47,188,983
------------- -------------
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 1999 and 1998, respectively 4,631,995 4,631,995
Surplus 2,803,782 2,803,782
Retained deficit (1,204,156) (1,185,804)
Unrealized depreciation on investment
securities available for sale (122,809) (10,241)
------------- -------------
Total stockholders' equity 6,108,812 6,239,732
------------- -------------
Total liabilities and stockholders' equity $ 53,805,715 $ 53,428,715
============= =============
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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CNB HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
- ----------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
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<S> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 702,062 $ 529,077
Federal funds sold 13,754 30,904
Taxable investment securities 189,921 179,566
------------- -------------
Total interest income 905,737 739,547
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INTEREST EXPENSE:
Deposits 465,031 402,370
Federal funds purchased - 130
Other borrowed funds 1,873 -
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Total interest expense 466,904 402,500
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Net interest income 438,833 337,047
PROVISION FOR LOAN LOSSES 25,076 20,019
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Net interest income after provision for loan losses 413,757 317,028
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NONINTEREST INCOME:
Service charges on deposit accounts 39,743 38,199
Net realized gains on sales of securities - -
Other income 33,800 18,095
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Total noninterest income 73,543 56,294
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NONINTEREST EXPENSE:
Salaries and employee benefits 234,298 167,156
Occupancy expense 37,800 26,992
Equipment expense 30,867 38,825
Other expense 202,687 132,169
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Total noninterest expense 505,652 365,142
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Net income (loss) $ (18,352)$ 8,180
============= =============
BASIC EARNINGS PER SHARE $ (.02)$ .01
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 926,399 790,309
============= =============
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
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CNB HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1998 AND THE THREE MONTHS ENDED MARCH 31, 1999
- ----------------------------------------------------------------------------------------------
ACCUMULATED
RETAINED OTHER
COMMON STOCK EARNINGS COMPREHENSIVE
SHARES AMOUNT SURPLUS (DEFICIT) INCOME (LOSS) TOTAL
--------- --------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997 546,399 $2,731,995 $1,609,748 $(1,209,973) $ (21,151) $3,110,619
--------- ---------- ---------- ----------- ---------- ----------
COMPREHENSIVE INCOME
Net income - - - 24,169 - 24,169
Net change in unrealized
depreciation on investment
securities available for sale - - - - 10,910 10,910
----------
TOTAL COMPREHENSIVE INCOME 35,079
Proceeds from sale of
common stock 380,000 1,900,000 1,520,000 - - 3,420,000
Costs related to sale of
common stock - - (325,966) - - (325,966)
--------- ---------- ---------- ----------- ---------- -----------
DECEMBER 31, 1998 926,399 $4,631,995 $2,803,782 $(1,185,804) $ (10,241) $6,239,732
COMPREHENSIVE INCOME
Net loss - - - (18,352) - (18,352)
Net change in unrealized
depreciation on investment
securities available for sale - - - - (112,568) (112,568)
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TOTAL COMPREHENSIVE INCOME (130,920)
--------- ---------- ---------- ----------- ---------- ----------
MARCH 31, 1999 926,399 $4,631,995 $2,803,782 $(1,204,156) $ (122,809) $6,108,812
========= ========== ========== =========== ========== ==========
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
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CNB HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
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THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (18,352)$ 8,180
Adjustments to reconcile net income (loss)
to net cash used by operations:
Depreciation and amortization 33,090 34,689
Provision for loan losses 25,076 20,019
Accretion of discount on securities, net 19,481 (1,060)
Changes in assets and liabilities:
Accrued income 91,248 (14,011)
Other assets 2,233 (21,876)
Accrued interest payable 4,464 13,535
Other liabilities 444 (4,965)
------------- -------------
Net cash flows from operating activities 157,684 34,511
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal funds sold (1,751,000) (3,960,000)
Purchases of investment securities (2,971,994) (4,489,584)
Sales of available for sale securities 2,498,716 -
Maturities of investment securities 3,904,379 3,942,288
Net increase in loans (1,980,854) (1,264,172)
Purchases of property and equipment (15,635) (38,600)
------------- -------------
Net cash used in investing activities (316,388) (5,810,068)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW, and savings deposits 715,889 1,118,647
Net increase in time deposits 639,596 809,708
Net increase in federal funds purchased (851,000) -
Repayment of borrowed funds (1,473)
Issuance of common stock - 3,235,754
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Net cash provided by financing activities 503,012 5,164,109
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Net increase in cash and cash equivalents 344,308 (611,448)
CASH AND CASH EQUIVALENTS, BEGINNING 2,925,106 2,290,840
------------- -------------
CASH AND CASH EQUIVALENTS, ENDING $ 3,269,414 $ 1,679,392
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 462,440 $ 388,965
============= =============
Income taxes paid $ - $ -
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Other real estate acquired in settlement of loans $ - $ -
============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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 National
Banking Association, the Bank operates two banking offices and is 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 March 31, 1999 and for the periods
ended March 31, 1999 and 1998 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 should be read in conjunction with the Company's audited financial
statements and the notes thereto as of December 31, 1998, included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998.
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.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANACIAL CONDITION AND
RESULTS OF OPERATIONS.
DISCUSSION OF OPERATIONS
The Company had a net loss of $18,352 (or $.02 per share, based on 926,399
weighted average shares of Common Stock outstanding during the period) for the
three months ended March 31, 1999, compared with an income of $8,180 (or $.01
per share, based on 790,309 weighted average shares of Common Stock outstanding
during the period) for the quarter ended March 31, 1998.
At March 31, 1999, the Company had total assets of approximately $53.8 million
compared to $53.4 million at December 31, 1998. Total assets had a positive
increase of $377,000, or 0.7% since year end 1998. At March 31,1998, assets were
comprised principally of loans and investment securities. Loans increased $2.0
million, or 6.3%, to $33.1 million at March 31, 1999, as the Bank experienced
loan growth in almost all categories. Investment securities decreased $3.6
million, or 21.7%, as several investments matured near the end of March and were
invested in federal funds sold. 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 March 31, 1999 were $47.5 million compared to $46.1
million at December 31, 1998. These liabilities consisted almost entirely of
deposits for both periods. Demand deposits decreased by $463,000, or 2.6% to
$17.4 million, and time deposits increased $640,000, or 2.9%, to $22.3 million.
At March 31, 1999, $3.3 million, or 6.7%, of total deposits were non
interest-bearing compared to $3.6 million, or 7.7%, at December 31, 1998. The
Bank offers competitive interest rates in its local market and has been
successful at attracting depositors.
At March 31, 1999 and December 31, 1998, the Company had stockholders' equity of
approximately $6.1 million and $6.2 million, respectively. Stock-holders' equity
was affected by the Company's first three months of 1999 loss of $18,352, stock
sale proceeds of $3.2 million, and an $112,000 decrease in the market value of
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 generate profits on an operating basis,
but there can be no assurance that this will be the case. During the first
quarter the Bank became 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 March 31, 1999, 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.
YEAR 2000 COMPLIANCE
Like most financial service providers, the Company and the operations of the
Bank may be significantly affected by the Y2K issue due to its dependence on
technology and sensitive data. Computer software, hardware and other equipment,
both within and outside the Bank's direct control, and third parties with whom
the Bank electronically or operationally interfaces (including without
limitation its customers and third party vendors) are likely to be affected. If
computer systems are not modified in order to be able to identify the year 2000,
many computer applications could fail or could adversely affect the viability of
the Bank's suppliers and creditors and the creditworthiness of its borrowers.
Thus, if not adequately addressed, the Y2K issue could result in a significant
adverse impact of the Bank's operations and, in turn, the financial condition
and results of operations of the Company.
8
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Management has formulated a Y2K Team, a significant part of the team's efforts
has been to monitor the Bank's data processor's Y2K project closely. The data
processor had substantially completed renovating and testing its
mission-critical mainframe and PC-based applications by year-end 1998 as
planned. The Bank actively participated in testing the significant loan and
deposit systems. Integration testing is scheduled to be completed in second
quarter 1999, and the Bank expects to be Y2K ready by the end of June 1999.
Management expects to be ready for the year 2000, but there are certain factors
beyond the Bank's control that could cause disruption, including the failure of
vendors of mission critical systems. As the Bank uses a single data processor to
process customer banking transactions, the Company cannot assure that there will
be no disruption to operations as a result of the year 2000. However, the
Company has developed a Year 2000 Business Resumption Contingency Plan designed
to resume operations in the event of a Year 2000 related disruption to mission
critical systems and continues to refine its Contingency Plan.
Y2K related expense was $4,075 in the first quarter of 1999. Because the Bank
used a third party data processor, management believes that future Y2K expenses
will not be material to operations and have budgeted $50,000 towards these
expenses in 1999.
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 15, 1999, 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
Wayne L. Carpenter 672,613 2,032
Hiawatha Nicely, Jr. 671,258 3,387
A. Carole Pratt 672,813 1,832
David W. Ratcliff, Jr. 672,813 1,832
Sybil S. Atkinson, Jack W. Bowling, Jackson M. Bruce, Randolph V. Christley, J.
David Wine, and Nathaniel R. Tuck, continue to service as directors after the
Annual Meeting under terms which did not expire at the Annual Meeting.
9
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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: May 14, 1999 By: s/Wayne L. Carpenter.
------------------------------
Wayne L. Carpenter
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,269,414
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,245,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,864,535
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 33,063,880
<ALLOWANCE> 389,518
<TOTAL-ASSETS> 53,805,715
<DEPOSITS> 47,472,952
<SHORT-TERM> 0
<LIABILITIES-OTHER> 92,834
<LONG-TERM> 131,117
0
0
<COMMON> 4,631,995
<OTHER-SE> 1,476,817
<TOTAL-LIABILITIES-AND-EQUITY> 53,805,715
<INTEREST-LOAN> 702,062
<INTEREST-INVEST> 189,921
<INTEREST-OTHER> 13,754
<INTEREST-TOTAL> 905,737
<INTEREST-DEPOSIT> 465,031
<INTEREST-EXPENSE> 466,904
<INTEREST-INCOME-NET> 438,833
<LOAN-LOSSES> 25,076
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 505,652
<INCOME-PRETAX> (18,352)
<INCOME-PRE-EXTRAORDINARY> (18,352)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,352)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
<YIELD-ACTUAL> 3.64
<LOANS-NON> 314,483
<LOANS-PAST> 33,279
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 372,574
<CHARGE-OFFS> 8,132
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 389,518
<ALLOWANCE-DOMESTIC> 389,518
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
