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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
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1934 for the quarterly period ended September 30, 2000.
Or
Transition Report under Section 13 or 15 (d) of the Securities Exchange Act
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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
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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 November 9, 2000.
Transitional Small Business Disclosure Format (check one): Yes No X
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1
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CNB Holdings, Inc.
Form 10-QSB
INDEX
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PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
The financial statements of CNB Holdings, Inc. (the "Company") are set forth in
the following pages.
<TABLE>
<S> <C>
Consolidated Balance Sheets as of September 30, 2000 and
December 31,1999........................................................ 3
Consolidated Statements of Operations for the Nine Months
Ended September 30, 2000 and 1999....................................... 4
Consolidated Statements of Operations for the Three Months
Ended September 30, 2000 and 1999....................................... 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999....................................... 6
Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 2000 and 1999....................................... 7
Notes to Consolidated Financial Statements................................. 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................... 9
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................................................................. 10
</TABLE>
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
September 30, 2000 and December 31, 1999
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<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Assets
Cash and due from banks $ 3,311,034 $ 2,896,627
Federal funds sold - 760,000
Investment securities available for sale 13,749,102 14,188,398
Loans, net of allowance for loan losses
of $379,682 in 2000 and $321,574 in 1999 31,780,625 31,570,674
Property and equipment, net 1,936,686 1,994,281
Accrued income 333,594 307,451
Other assets 96,485 60,900
----------- -----------
Total assets $51,207,526 $51,778,331
=========== ===========
Liabilities
Demand deposits $ 4,354,836 $ 3,507,508
Interest-bearing demand deposits 11,511,402 15,923,772
Savings deposits 9,894,088 6,805,463
Large denomination time deposits 4,133,723 4,041,584
Other time deposits 14,646,640 15,491,406
----------- -----------
Total deposits 44,540,689 45,769,733
Federal funds purchased 192,000 -
Other borrowed funds 121,826 126,570
Accrued interest payable 83,841 61,095
Other liabilities 31,367 27,954
----------- -----------
Total liabilities 44,969,723 45,985,352
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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 2000 and 1999 4,631,995 4,631,995
Surplus 2,803,782 2,803,782
Retained deficit (821,468) (1,156,366)
Unrealized depreciation on investment
securities available for sale (376,506) (486,432)
----------- -----------
Total stockholders' equity 6,237,803 5,792,979
----------- -----------
Total liabilities and stockholders' equity $51,207,526 $51,778,331
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
3
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CNB Holdings, Inc. and Subsidiary
Consolidated Statements of Operations
Nine months ended September 30, 2000 and 1999
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<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
2000 1999
---------- ----------
<S> <C> <C>
Interest income:
Loans and fees on loans $2,085,218 $2,116,199
Federal funds sold 18,255 46,995
Taxable investment securities 704,327 576,937
---------- ----------
Total interest income 2,807,800 2,740,131
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Interest expense:
Deposits 1,400,892 1,379,072
Federal funds purchased 9,496 5,624
Other borrowed funds 5,293 5,554
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Total interest expense 1,415,681 1,390,250
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Net interest income 1,392,119 1,349,881
Provision for loan losses 88,750 166,638
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Net interest income after provision for loan losses 1,303,369 1,183,243
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Noninterest income:
Service charges on deposit accounts 136,553 121,462
Net realized gains on sales of securities - -
Other income 108,346 76,713
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Total noninterest income 244,899 198,175
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Noninterest expense:
Salaries and employee benefits 554,696 598,610
Occupancy expense 102,233 109,825
Equipment expense 74,534 82,555
Other expense 481,907 609,384
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Total noninterest expense 1,213,370 1,400,374
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Net income (loss) $ 334,898 $ (18,956)
========== ==========
Basic earnings per share $ .36 $ (.02)
========== ==========
Weighted average shares outstanding $ 926,399 926,399
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
4
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CNB Holdings, Inc. and Subsidiary
Consolidated Statements of Operations
Three months ended September 30, 2000 and 1999
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<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Interest income:
Loans and fees on loans $714,299 $711,640
Federal funds sold 9,429 7,621
Taxable investment securities 247,019 196,162
-------- --------
Total interest income 970,747 915,423
-------- --------
Interest expense:
Deposits 492,746 444,961
Federal funds purchased 2,573 2,493
Other borrowed funds 1,742 1,830
-------- --------
Total interest expense 497,061 449,284
-------- --------
Net interest income 473,686 466,139
Provision for loan losses 60,000 141,149
-------- --------
Net interest income after provision for loan losses 413,686 324,990
-------- --------
Noninterest income:
Service charges on deposit accounts 42,172 39,186
Net realized gains on sales of securities - -
Other income 21,448 13,870
-------- --------
Total noninterest income 63,620 53,056
-------- --------
Noninterest expense:
Salaries and employee benefits 189,918 166,947
Occupancy expense 37,383 38,559
Equipment expense 22,837 25,580
Other expense 146,292 229,036
-------- --------
Total noninterest expense 396,430 460,122
-------- --------
Net income $ 80,876 $(82,076)
======== ========
Basic earnings per share $ .09 $ .(09)
======== ========
Weighted average shares outstanding $926,399 926,399
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
5
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CNB Holdings, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Nine months ended September 30, 2000 and 1999
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<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
2000 1999
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 334,898 $ (18,956)
Adjustments to reconcile net income (loss)
to net cash used by operations:
Depreciation and amortization 91,276 100,728
Provision for loan losses 88,750 166,638
Accretion of discount on securities, net 15,124 50,700
Changes in assets and liabilities:
Accrued income (26,143) 96,573
Other assets (35,585) (54,119)
Accrued interest payable 22,746 21,138
Other liabilities 3,413 24,568
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Net cash flows provided by operating activities 494,479 387,270
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Cash flows from investing activities:
Net (increase) decrease in federal funds sold 760,000 (1,011,000)
Purchases of investment securities (18,107,508) (7,005,397)
Sales of available for sale securities - 3,499,463
Maturities of investment securities 18,641,606 8,081,996
Net (increase) decrease in loans (298,701) (789,322)
Purchases of property and equipment (33,681) (130,092)
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Net cash flows provided by investing activities 961,716 2,645,648
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Cash flows from financing activities:
Net decrease in demand, NOW, and savings deposits (476,417) (604,343)
Net increase (decrease) in time deposits (752,627) (834,031)
Net increase (decrease) in federal funds purchased 192,000 (851,000)
Repayment of borrowed funds (4,744) (4,483)
------------ -----------
Net cash flows used by financing activities (1,041,788) (2,293,857)
------------ -----------
Net increase in cash and cash equivalents 414,407 739,061
Cash and cash equivalents, beginning 2,896,627 2,925,106
------------ -----------
Cash and cash equivalents, ending $ 3,311,034 $ 3,664,167
============ ===========
Supplemental disclosure of cash flow information:
Interest paid $ 1,392,935 $ 1,369,112
============ ===========
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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================================================================================
CNB Holdings, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Three months ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 80,876 $ (82,076)
Adjustments to reconcile net income (loss)
to net cash used by operations:
Depreciation and amortization 30,425 34,684
Provision for loan losses 60,000 141,149
Accretion of discount on securities, net 3,786 15,755
Changes in assets and liabilities:
Accrued income (17,049) 32,518
Other assets (40,776) (28,438)
Accrued interest payable 23,919 10,488
Other liabilities 12,720 26,113
----------- -----------
Net cash flows provided by operating activities 153,901 150,193
----------- -----------
Cash flows from investing activities:
Net (increase) decrease in federal funds sold - (695,000)
Purchases of investment securities (2,120,174) (100,000)
Sales of available for sale securities - 1,000,747
Maturities of investment securities 5,258,097 3,493,566
Net (increase) decrease in loans (293,928) 402,189
Purchases of property and equipment - (111,299)
----------- -----------
Net cash flows provided by investing activities 2,843,995 3,990,203
----------- -----------
Cash flows from financing activities:
Net increase in demand, NOW, and savings deposits (3,713,991) (713,146)
Net increase (decrease) in time deposits 265,573 (2,146,992)
Net increase (decrease) in federal funds purchased 97,000 -
Repayment of borrowed funds (1,604) (1,516)
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Net cash flows used by financing activities (3,353,022) (2,861,654)
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Net increase (decrease) in cash and cash equivalents (355,126) 1,278,742
Cash and cash equivalents, beginning 3,666,160 2,385,425
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Cash and cash equivalents, ending $ 3,311,034 $ 3,664,167
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 473,142 $ 428,146
=========== ===========
Income taxes paid $ - $ -
=========== ===========
Supplemental disclosure of noncash investing activities:
Other real estate acquired in settlement of loans $ $ -
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
7
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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 September 30, 2000 and for the
periods ended September 30, 2000 and 1999 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, 1999, included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999.
The accounting and reporting policies of the Company and the Bank follow
generally accepted accounting principles and general practices within the
financial services industry. All significant inter-company accounts have been
eliminated during consolidation.
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.
Merger Related Expenses
On July 11, 2000, the Company announced plans to affiliate with FNB,
Corporation, a Bank Holding Company headquartered in Christiansburg, Virginia.
The proposed affiliation must be approved by the shareholders of CNB Holdings,
Inc. The Bank retained the services of an investment firm to advise on matters
related to the merger. The investment firm is to receive a fee, contingent on
shareholder approval of the affiliation, of approximately $168,000.
In addition, if the proposed affiliation is approved, management expects to
cancel a data processing contract. Under terms of the contract, there is an
early cancellation fee based on when the contract is cancelled. It is not known
exactly when the cancellation will occur, but management expects the fee to be
between $80,000 and $100,000. Due to uncertainty regarding these two items,
neither is recorded in the financial statements as of September 30, 2000.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANACIAL CONDITION AND
RESULTS OF OPERATIONS.
Discussion of Operations
The Company had net income of $335,000 (or $.36 per share, based on 926,399
weighted average shares of common stock outstanding during the period) for the
nine months ended September 30, 2000, compared with a loss of $19,000 (or $.02
per share) for the nine months ended September 30, 1999.
At September 30, 2000, the Company had total assets of approximately $51.2
million compared to $51.8 million at December 31, 1999. Total assets had a
decrease of $571,000, or 1.1% since year end 1999. At September 30, 2000, assets
were comprised principally of loans and investment securities. Loans increased
slightly, to $31.9 million at September 30, 2000. Loans were $31.6 million at
December 31, 1999. Investment securities decreased $439,000, or 3.1%. As
quality 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 September 30, 2000 were $45.0 million compared to
$46.0 million at December 31, 1999. These liabilities consisted almost entirely
of deposits for both periods. Demand and saving deposits decreased by $476,000,
or 1.8% to $26.3 million, and time deposits decreased $753,000, or 3.4%, to
$19.5 million. At September 30, 2000, $4.4 million, or 9.8%, of total deposits
were non interest-bearing compared to $3.5 million, or 7.7%, at December 31,
1999. The Bank offers competitive interest rates in its local market and has
been successful at attracting depositors.
At September 30, 2000 and December 31, 1999, the Company had stockholders'
equity of approximately $6.2 million and $5.8 million, respectively. Stock-
holders' equity was affected by the Company's first nine months of 2000 income
of $335,000, and a $110,000 increase in the market value of investment
securities available for sale.
Management of the Company believes that the Bank has sufficient capital to fund
its operations until the Bank begins to generate profits on a more consistent
basis, but there can be no assurance that this will be the case. During the
first quarter of 1999 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 September 30, 2000, 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
The Company experienced no problems related to Y2K. The Company incurred no Y2K
related expenses in the nine months ended September 30, 2000 and no future Y2K
expenses are anticipated. Y2K related expense was $28,000 in the first nine
months of 1999.
9
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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
27. Financial Data Schedule.
(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: November 9, 2000 By: /s/ Phillip M. Baker
______________________________
Phillip M. Baker
Chief Financial Officer
10
