FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
___________________
For Quarter Ended September 30, 1996 Commission file number: 2-96350
CNB Corporation
(Exact name of registrant as specified in its charter)
South Carolina 57-0792402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 320, Conway, South Carolina 29526
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (803) 248-5721
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 .
The number of shares outstanding of the issuer's $10.00 par value common
stock as of September 30, 1996 was 477,509.
<PAGE>
CNB Corporation
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1996, 1
December 31, 1995 and September 30, 1995
Consolidated Statement of Income for the Three Months 2
and Nine Months Ended September 30, 1996 and 1995
Consolidated Statement of Changes in Stockholders' 3
Equity for the Nine Months Ended September 30, 1996
and 1995
Consolidated Statement of Cash Flows for the Nine Months 4
Ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements 5-12
Item 2. Management's Discussion and Analysis of Financial 13-22
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURE 23
<PAGE>
CNB Corporation and Subsidiary
Consolidated Balance Sheets
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Sept. 30, December 31, Sept. 30,
1996 1995 1995
ASSETS:
<S> <C> <C> <C>
Cash and due from banks $ 14,702 $ 15,605 $ 13,304
Interest bearing deposits with banks 0 0 0
Investment Securities 75,340 76,402 80,429
(Fair values of $74,877 at
September 30, 1996, $77,231 at
December 31, 1995, and $80,363
at September 30, 1995)
Securities Available for Sale 63,757 62,250 51,169
(Amortized cost of $64,130 at
September 30, 1996, $61,533 at
December 31, 1995, and $50,866
at September 30, 1995)
Federal Funds sold and securities
purchased under agreement
to resell 9,100 7,300 24,400
Loans:
Gross Loans 176,045 153,498 151,406
Less unearned income (1,059) (1,094) (1,093)
Loans, net of unearned income 174,986 152,404 150,313
Less reserve for possible
loan losses (2,359) (2,242) (2,295)
Net loans 172,627 150,162 148,018
Bank premises and equipment 6,946 7,166 7,279
Other assets 6,046 5,809 5,608
Total assets 348,518 324,694 330,207
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing 55,864 44,723 48,989
Interest-bearing 219,665 206,433 202,628
Total deposits 275,529 251,156 251,617
Federal funds purchased and
securities sold under agreement
to repurchase 33,396 36,935 40,681
Other short-term borrowings 2,911 766 3,195
Obligations under mortgages and
capital leases 7 10 13
Other liabilities 2,000 3,609 2,052
Minority interest in subsidiary 24 23 23
Total liabilities 313,867 292,499 297,761
Stockholders' equity:
Common stock, par value $10 per
share: Authorized 500,000;
issued 479,093 shares 4,791 4,791 4,791
Surplus 15,695 15,676 15,666
Undivided Profits 14,535 11,431 11,938
Net Unrealized Holding (224) (430) 182
Gains (Losses) on
Available-For-Sale Securities
Less: Treasury stock (146) (133) (131)
Total stockholders' equity 34,651 32,195 32,446
Total liabilities
and stockholders' equity 348,518 324,694 330,207
</TABLE> 1
<PAGE> CNB Corporation and Subsidiary
Consolidated Statement of Income
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Interest Income:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 4,033 $ 3,564 $ 11,629 $ 10,676
Interest on investment securities:
Taxable investment securities 1,904 1,710 5,657 4,942
Tax-exempt investment securities 185 220 556 670
Other securities 0 0 3 3
Interest on federal funds sold and securities
purchased under agreement to resell 120 286 348 624
Total interest income 6,242 5,780 18,193 16,915
Interest Expense:
Interest on deposits 2,176 2,091 6,392 5,910
Interest on federal funds purchased and
securities sold under agreement to
repurchase 436 500 1,501 1,482
Interest on other short-term borrowings 18 28 47 65
Interest on obligation under mortgages and
capital leases 0 0 0 0
Total interest expense 2,630 2,619 7,940 7,457
Net interest income 3,612 3,161 10,253 9,458
Provision for possible loan losses 90 25 230 105
Net interest income after provision for
possible loan losses 3,522 3,136 10,023 9,353
Other income:
Service charges on deposit accounts 490 434 1,442 1,334
Gains/(Losses) on securities 0 (1) 38 25
Other operating income 309 311 704 669
Total other income 799 744 2,184 2,028
Other expenses:
Minority interest in income of subsidiary 1 1 2 2
Salaries and employee benefits 1,492 1,364 4,426 4,128
Occupancy expense 375 367 1,285 1,104
Other operating expenses 621 597 1,831 2,001
Total operating expenses 2,489 2,329 7,544 7,235
Income before income taxes 1,832 1,551 4,663 4,146
Income tax provision 611 486 1,559 1,315
Net Income 1,221 1,065 3,104 2,831
Per share data:
Net income per weighted average shares
outstanding $ 2.55 $ 2.23 $ 6.50 $ 5.92
Cash dividend paid per share $ 0 $ 0 $ 0 $ 0
Book value per actual number of shares
outstanding $ 72.57 $ 67.97 $ 72.57 $ 67.97
Weighted average number of shares outstanding 477,304 477,945 477,304 477,945
Actual number of shares outstanding 477,509 477,339 477,509 477,339
</TABLE>
2
<PAGE> CNB Corporation and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity
(All Dollar Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Common Stock:
($10 par value; 500,000 shares authorized)
Balance, January 1 4,791 4,791
Issuance of Common Stock None None
Balance at end of period 4,791 4,791
Surplus:
Balance, January 1 15,676 15,659
Issuance of Common Stock None None
Gain on sale of treasury stock 19 7
Balance at end of period 15,695 15,666
Undivided profits:
Balance, January 1 11,431 9,107
Net Income 3,104 2,831
Cash dividends declared None None
Balance at end of period 14,535 11,938
Net unrealized holding gains/(losses) on
available-for-sale securities:
Balance, January 1 430 (588)
Change in net unrealized gains/(Losses) (654) 770
Balance at end of period (224) 182
Treasury stock:
Balance, January 1 (133) (112)
Purchase of treasury stock (213) (111)
Reissue of treasury stock 200 92
Balance at end of period (146) (131)
Total stockholders' equity 34,651 32,446
</TABLE>
Note: Columns may not add due to rounding.
3
<PAGE> CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine-month period ended Sept. 30,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,104 $ 2,831
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 585 493
Provision for loan losses 230 105
Provision for deferred income taxes (243) 511
Loss (gain) on sale of investment
securities (38) 25
(Increase) decrease in accrued interest
receivable (305) (285)
(Increase) decrease in other assets 68 (257)
(Decrease) increase in other liabilities (657) (191)
Increase in minority interest in
subsidiary 1 3
Net cash provided by operating
activities 2,745 3,235
INVESTING ACTIVITIES
Proceeds from sale of investment securities
available for sale 2,000 5,117
Proceeds from maturities of investment
securities held to maturity 19,935 2,230
Proceeds from maturities of investment
securities available for sale 4,465 5,000
Purchase of investment securities held to
maturity (15,895) (470)
Purchase of investment securities
available for sale (10,950) (15,463)
Decrease (increase) in interest-bearing
deposits in banks 0 0
(Increase) decrease in federal funds sold (1,800) (21,275)
(Increase) decrease in loans (22,582) (5,950)
Premises and equipment expenditures (365) (2,462)
Net cash provided by (used for)
investing activities (25,192) (33,273)
FINANCING ACTIVITIES
Dividends paid (1,432) (955)
Increase (Decrease) in deposits 24,373 17,424
(Decrease) increase in securities sold
under repurchase agreement (3,539) 11,625
(Decrease) increase in other
short-term borrowings 2,145 701
Increase (decrease)in obligation under
mortgages and capital leases (3) (5)
Net cash provided by (used for)
financing activities 21,544 28,790
Net increase (decrease) in cash
and due from banks (903) (1,248)
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 15,605 14,552
CASH AND DUE FROM BANKS, SEPT. 30, 1996 AND 1995 $14,702 $13,304
CASH PAID (RECEIVED) FOR:
Interest $ 7,952 $ 7,343
Income taxes $ 1,567 $ 1,206
</TABLE> 4
<PAGE>CNB CORPORATION AND SUBSIDIARY (The "Corporation")
CNB CORPORATION (The "Parent")
THE CONWAY NATIONAL BANK (The "Bank")
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net income per share - Net income per share is computed on the basis of the
weighted average number of common shares outstanding, 477,304 for the nine-
month period ended September 30, 1996 and 477,945 for the nine-month period
ended September 30, 1995.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances either at the
Bank or on deposit with the Federal Reserve Bank. The average amount of
these reserve balances for the nine-month period ended September 30, 1996
and for the years ended December 31, 1995 and 1994 were approximately
$4,999, $4,306, and $3,988, respectively.
5
<PAGE>NOTE 3 - INVESTMENT SECURITIES
Investment securities with a par value of approximately $59,665 at September
30, 1996 and $66,115 at December 31, 1995 were pledged to secure public
deposits and for other purposes required by law.
The following summaries reflect the book value, unrealized gains and losses,
approximate market value, and tax-equivalent yields of investment securities
at September 30, 1996 and at December 31, 1995.
<TABLE>
<CAPTION>
September 30, 1996
Book Unrealized Holding Fair
Value Gains Losses Value Yield(1)
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
United States Treasury
Within one year $13,531 $ 34 $ 26 $13,539 5.99%
One to five years 21,272 137 114 21,295 6.32
34,803 171 140 34,834 6.19
Federal agencies
Within one year 0 0 0 0 -
One to five years 28,081 8 396 27,693 6.00
After ten years 804 0 24 780 6.08
28,885 8 420 28,473 6.00
State, county and
municipal
Within one year 0 0 0 0 -
One to five years 326 8 0 334 7.85
326 8 0 334 7.85
Other Securities(Equity) 116 0 0 116 -
Total available for sale $64,130 $ 187 $ 560 $63,757 6.12%
HELD TO MATURITY
United States Treasury
Within one year 16,077 17 41 16,053 5.66%
One to five years 27,728 77 333 27,472 5.64
43,805 94 374 43,525 5.65
Federal agencies
Within one year 2,001 5 0 2,006 7.97%
One to five years 13,337 18 218 13,137 6.29
Six to ten years 2,003 0 67 1,936 6.40
17,341 23 285 17,079 6.50
State, county and
municipal
Within one year 1,716 5 1 1,720 9.31%
One to five years 6,706 239 20 6,925 8.80
Six to ten years 5,652 1 146 5,507 6.93
Over ten years 120 1 0 121 8.06
14,194 246 167 14,273 8.11
Total held to maturity $75,340 $ 363 $ 826 $74,877 6.31%
</TABLE>
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended September 30, 1996, the Bank did not hold any
securities of an issuer that exceeded 10% of stockholders' equity. The net
unrealized holding gains/(losses) on available-for-sale securities component
of capital is $(224) as of September 30, 1996.
6
<PAGE>NOTE 3 - INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
December 31, 1995
Book Unrealized Holding Fair
Value Gains Losses Value Yield(1)
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
United States Treasury
Within one year $11,022 $ 19 $ 21 $11,020 5.04%
One to five years 28,674 591 37 29,228 6.31
39,696 610 58 40,248 5.96
Federal agencies
Within one year 417 3 - 420 7.98
One to five years 20,181 179 19 20,341 5.94
After ten years 913 1 15 899 6.34
21,511 183 34 21,660 6.00
State, county and
municipal
One to five years 326 16 - 342 7.85
326 16 - 342 7.85
Total available for sale $61,533 $ 809 $ 92 $62,250 5.98%
HELD TO MATURITY
United States Treasury
Within one year 13,077 59 5 13,131 5.85%
One to five years 38,875 378 145 39,108 5.48
51,952 437 150 52,239 5.57
Federal agencies
Within one year 5,007 69 - 5,076 8.04%
One to five years 3,004 65 - 3,069 6.12
Six to ten years 2,002 34 - 2,036 6.40%
10,013 168 - 10,181 7.14
State, county and
municipal
Within one year 1,674 17 1 1,690 9.33
One to five years 6,216 273 8 6,481 8.81
Six to ten years 6,069 120 35 6,154 7.28
After ten years 478 8 - 486 7.61
14,437 418 44 4,811 8.19
Total held to maturity $76,402 $1,023 $ 194 $77,231 6.27%
</TABLE>
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended December 31, 1995, the Bank did not hold any
securities of an issuer that exceeded 10% of stockholders' equity. The
net unrealized holding gains/(losses) on available-for-sale securities
component of capital is $430 as of December 31, 1995.
On December 6, 1995, the Bank transferred a portion of the portfolio from
securities held to maturity to the available for sale classification.
These securities had an amortized cost of $11,566 and an unrealized loss
of $68 on the date of transfer. This one-time reassessment of securities
was done in compliance with the "Guide to Implementation of Statement 115
on Accounting for Certain Investments in Debt and Equity Securities,"
issued by the Financial Accounting Standards Board.
7
<PAGE>NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans at September 30, 1996 and December
31, 1995 by major classification:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
Real estate loans - mortgage $ 108,411 $ 95,451
- construction 11,205 5,453
Commercial and industrial loans 26,167 23,133
Loans to individuals for household,
family and other consumer expenditures 28,222 28,095
Agriculture 1,849 1,032
All other loans, including overdrafts 191 334
Gross loans 176,045 153,498
Less unearned income (1,059) (1,094)
Less reserve for loan losses (2,359) (2,242)
Net loans 172,627 150,162
</TABLE>
Changes in the reserve for loan losses for the quarter ended and nine-
month period ended September 30, 1996 and the year ended December 31, 1995
are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended December
September 30, September 30, 31,
1996 1995 1996 1995 1995
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 2,321 $ 2,327 $ 2,242 $ 2,220 $ 2,220
Charge-offs:
Commercial, financial, and agricultural 0 63 41 120 133
Real Estate - construction and mortgage 0 0 3 3 3
Loans to individuals 77 57 216 201 313
Total charge-offs $ 77 $ 120 $ 260 $ 324 $ 449
Recoveries:
Commercial, financial, and agricultural $ 3 $ 31 $ 42 $ 145 $ 166
Real Estate - construction and mortgage 4 10 10 22 44
Loans to individuals 18 22 95 127 151
Total recoveries $ 25 $ 63 $ 147 $ 294 $ 361
Net charge-offs/(recoveries) $ 52 $ 57 $ 113 $ 30 $ 88
Additions charge to operations $ 90 $ 25 $ 230 $ 105 $ 110
Balance, end of period $ 2,359 $ 2,295 $ 2,359 $ 2,295 $ 2,242
Ratio of net charge-offs during the period
to average loans outstanding during the
period .03% .04% .07% .02% .06%
</TABLE>
The entire balance is available to absorb future loan losses.
At September 30, 1996 and December 31, 1995 loans on which no interest was
being accrued totalled approximately $406 and $479, respectively; foreclosed
real estate totalled $0 and $0, respectively; and loans 90 days past due and
still accruing totalled $47 and $87, respectively.
8
<PAGE>
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, continued
OTHER INTEREST BEARING ASSETS
The Bank maintains an investment in an executive life insurance program
through Confederation Life Insurance and Annuity Company, Inc. During 1994
the Michigan Insurance Commission seized control of this United States
Corporation due to a similar action by the Canadian regulatory authorities
over the company's parent corporation, Confederation Life Insurance Company.
Regulatory oversight began as concerns regarding investment losses of the
parent corporation developed during 1993 and 1994. Management determined
that any impairment of the approximate $2,100,000 cash surrender value of the
policies is remote due to the financial stability of the U.S. subsidiary and
no loss contingency has been provided.
On October 23, 1996, a plan of Rehabilitation for Confederation Life
Insurance Company (U.S.) has been confirmed by the Court. The plan provides
for the assumption of company owned life insurance policies (COLI), such as
the Bank's, to be assumed by Pacific Mutual Life Insurance Company. Under the
agreement, holders of COLI Policies will have the option to receive a policy
reinsured by Pacific Mutual which is expected to have the same account value
and substantially the same contract terms as the original policy or to
receive the liquidation or "opt-out" value of that policy.
Given the facts and circumstances given above regarding the investment
in an executive life insurance program and having read the related guidance
in SFAS No. 5 and SAB Topic 5(Y) as it relates to the recovery of receivable
balances, there continues to be no significant uncertainties regarding the
recognition of a loss contingency.
NOTE 5 - PREMISES AND EQUIPMENT
Property at September 30, 1996 and December 31, 1995 is summarized as
follows:
September 30, December 31,
1996 1995
Land and buildings $ 8,357 $ 8,175
Furniture, fixtures and equipment 5,358 5,454
Construction in progress - -
$ 13,715 $ 13,629
Less accumulated depreciation and
amortization 6,769 6,463
$ 6,946 $ 7,166
Depreciation and amortization of bank premises and equipment charged to
operating expense was $171 and $585 for the quarter ended and the nine month
period ended September 30, 1996, respectively and $666 for the year ended
December 31, 1995.
9
<PAGE>NOTE 6 - CERTIFICATES OF DEPOSIT IN EXCESS OF $100,000
At September 30, 1996 and December 31, 1995, certificates of deposit of
$100,000 or more included in time deposits totaled approximately $33,690 and
$28,507 respectively. Interest expense on these deposits was approximately
$432 and $1,199 for the quarter ended and the nine-month period ended
September 30, 1996 and $1,182 for the year ended December 31, 1995.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At September 30, 1996 and December 31, 1995, securities sold under
repurchase agreements totaled approximately $33,396 and $36,935. U.S.
Government securities with a book value of $46,204 ($45,875 market value) and
$52,193 ($52,543 market value), respectively, are used as collateral for the
agreements. The weighted-average interest rate of these agreements was 4.92
percent and 5.10 percent at September 30, 1996 and December 31, 1995.
NOTE 8 - LINES OF CREDIT
At September 30, 1996 the Bank had unused short-term lines of credit to
purchase Federal Funds from unrelated banks totaling $17,000. These lines of
credit are available on a one to seven day basis for general corporate
purposes of the Bank. All of the lenders have reserved the right to withdraw
these lines at their option.
The Bank has a demand note through the U.S. Treasury, Tax and Loan
system with the Federal Reserve Bank of Richmond. The Bank may borrow up to
$5,000 under the arrangement at a variable interest rate. The note is
secured by U.S. Treasury Notes with a market value of $5,952 at September 30,
1996. The amount outstanding under the note totaled $2,911 and $766 at
September 30, 1996 and December 31, 1995, respectively.
NOTE 9 - INCOME TAXES
Income tax expense for the quarter ended September 30, 1996 and
September 30, 1995 on pretax income of $1,832 and $1,551 totalled $611 and
$486 respectively. Income tax expense for the nine-month period ended
September 30, 1996 and September 30, 1995 on pretax income of $4,663 and
$4,146 totalled $1,559 and $1,315 respectively. The provision for federal
income taxes is calculated by applying the 34% statutory federal income tax
rate and increasing or reducing this amount due to any tax-exempt interest,
state bank tax (net of federal benefit), business credits, surtax exemption,
tax preferences, alternative minimum tax calculations, or other factor. A
summary of income tax components and a reconciliation of income taxes to the
federal statutory rate is included in fiscal year-end reports.
Effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". SFAS 109 replaces SFAS 96 beginning in 1993, with early
implementation permitted. The impact of the adoption of SFAS 109 is not
considered to be material.
10
<PAGE>NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES
From time to time the bank subsidiary is a party to various litigation,
both as plaintiff and as defendant, arising from its normal operations. No
material losses are anticipated in connection with any of these matters at
September 30, 1996.
Also, in the normal course of business, the bank subsidiary has
outstanding commitments to extend credit and other contingent liabilities,
which are not reflected in the accompanying financial statements. At
September 30, 1996, commitments to extend credit totalled $13,210; financial
standby letters of credit totalled $564; and performance standby letters of
credit totalled $830. In the opinion of management, no material losses or
liabilities are expected as a result of these transactions.
NOTE 11 - EMPLOYEE BENEFIT PLAN
The Bank has a defined contribution pension plan covering all employees
who have attained age twenty-one and have a minimum of one year of service.
Upon ongoing approval of the Board of Directors, the Bank matches one-hundred
percent of employee contributions up to one percent of employee salary
deferred and fifty percent of employee contributions in excess of one percent
and up to six percent of salary deferred. The Board of Directors may also
make discretionary contributions to the Plan. For the three-month and nine
month period ended September 30, 1996 and years ended December 31, 1995, 1994
and 1993, $84, $250, $266, $295, and $273, respectively, was charged to
operations under the plan.
NOTE 12 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory -and possibly additional
discretionary - actions by regulators that, if undertaken, could have a
direct material effect on the financial statements. The regulations require
the Bank to meet specific capital adequacy guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The capital
classification is also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the maintenance of minimum amounts and ratios (set forth in
the table below) of Tier I capital to adjusted total assets (Leverage Capital
ratio) and minimum ratios of Tier I and total capital to risk-weighted
assets. To be considered adequately capitalized under the regulatory
framework, the Bank must maintain minimum Tier I leverage, Tier I risk-based
and total risked-based ratios as set forth in the table. The Bank's actual
capital ratios are presented in the table below as of September 30, 1996:
Conway National Bank
Ratios
Required
Minimum Actual
Tier I Leverage Capital 4.0% 9.5%
Tier I Risk-based Capital 4.0% 18.0%
Total Risk-based Capital 8.0% 19.2%
11
<PAGE>NOTE 13 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of CNB Corporation (parent
company only):
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(Unaudited)
ASSETS
Cash $ 1,474
Investment in subsidiary 32,895
Fixed assets 245
Other assets 37
$ 34,651
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liability $ 0
Stockholders' equity 34,651
$ 34,651
CONDENSED STATEMENT OF INCOME
For the nine-month period ended September 30, 1996
(Unaudited)
EQUITY IN NET INCOME OF SUBSIDIARY $ 3,131
OTHER INCOME 0
OTHER EXPENSES (27)
Net Income $ 3,104
12
<PAGE>MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis is provided to afford a clearer
understanding of the major elements of the corporation's results of
operations, financial condition, liquidity,and capital resources. The
following discussion should be read in conjunction with the corporation's
financial statements and notes thereto and other detailed information
appearing elsewhere in this report. In addition, the results of operations
for the interim periods shown in this report are not necessarily indicative
of results to be expected for the fiscal year. In the opinion of management,
the information contained herein reflects all adjustments necessary to make
the results of operations for the interim periods a fair statement of such
operations. All such adjustments are of a normal and recurring nature.
DISTRIBUTION OF ASSETS AND LIABILITIES
The Company maintains a conservative approach in determining the
distribution of assets and liabilities. Loans, net of unearned income, have
increased 16.4% from $150,313 at September 30, 1995 to $174,986 at September
30, 1996 and have increased as a percentage of total assets from 45.5% to
50.2% over the same period as moderate loan demand has been very strong in
our market. Correspondingly, securities and federal funds sold have
decreased as a percentage of total assets from 47.3% at September 30, 1995 to
42.5% at September 30, 1996. This level of investments and federal funds
sold provides for a more than adequate supply of secondary liquidity.
Management has sought to build the deposit base with stable, relatively
non-interest-sensitive deposits by offering the small to medium deposit
account holders a wide array of deposit instruments at competitive rates.
Non-interest-bearing demand deposits increased as a percentage of total
assets from 14.8% at September 30, 1995 to 16.0% at September 30, 1996.
However, as more customers, both business and personal, are attracted to
interest-bearing deposit accounts, we expect a decline in the percentage of
demand deposits over the long-term. Interest-bearing deposits have increased
from 61.4% of total assets at September 30, 1995 to 63.0% at September 30,
1996 while securities sold under agreement to repurchase have decreased from
12.4% to 9.6% over the same period. Some migration from term repurchase
agreements to certificates of deposits occurred during 1996 due to lower FDIC
premium levels.
The following table sets forth the percentage relationship to total assets of
significant component's of the corporation's balance sheet as of September
30, 1996 and 1995:
<TABLE>
<CAPTION>
September 30,
<S> <C> <C>
Assets: 1996 1995
Earning assets:
Loans, net of unearned income 50.2% 45.5%
Investment securities 21.6 24.4
Securities Available for Sale 18.3 15.5
Federal funds sold and securities purchased
under agreement to resell 2.6 7.4
Other earning assets - -
Total earning assets 92.7 92.8
Other assets 7.3 7.2
Total assets 100.0% 100.0%
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits 63.0% 61.4%
Federal funds purchased and securities sold
under agreement to repurchase 9.6 12.4
Other short-term borrowings .8 1.0
Obligations under mortgages and capital leases - -
Total interest-bearing liabilities 73.4 74.8
Noninterest-bearing deposits 16.0 14.8
Other liabilities .7 .6
Stockholders' equity 9.9 9.8
Total liabilities and stockholders' equity 100.0% 100.0%
</TABLE> 13 <PAGE>
RESULTS OF OPERATION
CNB Corporation experienced earnings for the three-month period ended
September 30, 1996 and 1995 of $1,221 and $1,065, respectively, resulting in
a return on average assets of 1.40% and 1.32% and a return on average
stockholders' equity of 14.42% and 13.45%.
CNB Corporation experienced earnings for the nine-month period ended
September 30, 1996 and 1995 of $3,104 and $2,831, respectively, resulting in
a return on average assets of 1.21% and 1.21% and a return on average
stockholders' equity of 12.34% and 12.49%.
The earnings were primarily attributable to net interest margins in
each period (see Net Income-Net Interest Income). Other factors include
management's ongoing effort to maintain other income at adequate levels (see
Net Income - Other Income) and to control other expenses (see Net Income -
Other Expenses). This level of earnings, coupled with a conservative
dividend policy, have supplied the necessary capital funds to support the
growth in total assets. Total assets have increased $18,311 or 5.5% from
$330,207 at September 30, 1995 to $348,518 at September 30, 1996. The
following table sets forth the financial highlights for the three-month and
nine-month periods ending September 30, 1996 and September 30, 1995:
CNB Corporation
CNB Corporation and Subsidiary
FINANCIAL HIGHLIGHTS
(All Dollar Amounts, Except Per Share Data, in Thousands)
<TABLE>
<CAPTION>
Three-Month Period Nine-Month Period
Ended September 30, Ended September 30,
Percent Percent
Increase Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Net interest income after
provision for loan losses 3,522 3,136 12.3% 10,023 9,353 7.2%
Income before income taxes 1,832 1,551 18.1 4,663 4,146 12.5
Net Income 1,221 1,065 14.6 3,104 2,831 9.6
Per Share 2.55 2.23 14.3 6.50 5.92 9.8
Cash dividends declared 0 0 - 0 0 -
Per Share 0 0 - 0 0 -
Total assets 348,518 330,207 5.5% 348,518 330,207 5.5%
Total deposits 275,529 251,617 9.5 275,529 251,617 9.5
Loans, net of unearned income 174,986 150,313 16.4 174,986 150,313 16.4
Investment securities and
securities available for
sale 139,097 131,598 5.7 139,097 131,598 5.7
Stockholders' equity 34,651 32,446 6.8 34,651 32,446 6.8
Book value per share 72.57 67.97 6.8 72.57 67.97 6.8
Ratios (1):
Annualized return on average
total assets 1.40% 1.32% 6.1% 1.21% 1.21% -
Annualized return on average
stockholders' equity 14.42% 13.45% 7.2% 12.34% 12.49% (1.2)%
</TABLE>
(1) For the three-month period ended September 30, 1996 and September 30,
1995, average total assets amounted to $348,487 and $323,895 with
average stockholders' equity totaling $33,878 and $31,674, respectively.
For the nine-month period ended September 30, 1996 and September 30,
1995, average total assets amounted to $340,707 and $311,769 with average
stockholders' equity totaling $33,130 and $30,592, respectively.
14
<PAGE>NET INCOME
Net Interest Income - Earnings are dependent to a large degree on net
interest income, defined as the difference between gross interest and fees
earned on earning assets, primarily loans and securities, and interest paid
on deposits and borrowed funds. Net interest income is effected by the
interest rates earned or paid and by volume changes in loans, securities,
deposits, and borrowed funds.
Interest rates paid on deposits and borrowed funds and earned on loans and
investments have generally followed the fluctuations in market interest rates
in 1996 and 1995. However, fluctuations in market interest rates do not
necessarily have a significant impact on net interest income, depending on
the bank's rate sensitivity position. A rate sensitive asset (RSA) is any
loan or investment that can be repriced either up or down in interest rate
within a certain time interval. A rate sensitive liability (RSL) is an
interest paying deposit or other liability that can be repriced either up or
down in interest rate within a certain time interval. When a proper balance
between RSA and RSL exists, market interest rate fluctuations should not
have a significant impact on earnings. The larger the imbalance, the greater
the interest rate risk assumed by the bank and the greater the positive or
negative impact of interest rate fluctuations on earnings. The bank seeks to
manage its assets and liabilities in a manner that will limit interest rate
risk and thus stabilize longrun earning power. Management believes that a
rise or fall in interest rates will not materially effect earnings.
The Bank has maintained adequate net interest margins for the three-month and
nine-month periods ended September 30, 1996 and 1995 by earning satisfactory
yields on loans and securities and funding these assets with a favorable
deposit mix containing a significant level of noninterest-bearing demand
deposits.
Fully-tax-equivalent net interest income showed a 13.2% increase from $3,274
for the three-month period ended September 30, 1995 to $3,707 for the
three-month period ended September 30, 1996. During the same period, total
fully-tax-equivalent interest income increased by 7.5% from $5,893 to $6,337
and total interest expense increased by .4% from $2,619 to $2,630.
Fully-tax-equivalent net interest income as a percentage of total
earning assets has shown an increase of .22% from 4.35% for the three-month
period ended September 30, 1995 to 4.57% for the three-month period ended
September 30, 1996.
Fully-tax-equivalent net interest income showed a 7.5% increase from $9,803
for the nine-month period ended September 30, 1995 to $10,539 for the nine-
month period ended September 30, 1996. During the same period, total fully-
tax-equivalent interest income increased by 7.1% from $17,260 to $18,479 and
total interest expense increased by 6.5% from $7,457 to $7,940. Fully-tax-
equivalent net interest income as a percentage of total earning assets has
shown a decrease of .07% from 4.50% for the nine-month period ended September
30, 1995 to 4.43% for the nine-month period ended September 30, 1996.
The tables on the following four pages present selected financial data and
an analysis of net interest income.
15
<PAGE> CNB Corporation and Subsidiary
Selected Financial Data
<TABLE>
<CAPTION>
Three Months Ended 9/30/96 Three Months Ended 9/30/95
Avg. Interest Avg. Ann. Avg. Interest Avg.Ann.
Balance Income/ Yield or Balance Income/ Yield or
Expense(1) Rate Expense(1) Rate
<S> <C> <C> <C> <C> <C> <C>
Assets:
Earning assets:
Loans, net of unearned income $173,342 $ 4,033 9.31% $150,845 $ 3,564 9.45%
Securities:
Taxable 127,011 1,904 6.00 116,145 1,710 5.89
Tax-exempt 14,201 280 7.89 14,143 333 9.42
Federal funds sold and
securities purchased under
agreement to resell 9,830 120 4.88 19,702 286 5.81
Other earning assets 0 0 - 0 0 -
Total earning assets 324,384 6,337 7.81 300,835 5,893 7.84
Other assets 24,103 23,060
Total assets $348,487 $323,895
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits $216,475 2,176 4.02 $199,264 $ 2,091 4.20
Federal funds purchased and
securities sold under
agreement to repurchase 36,402 436 4.79 38,880 500 5.14
Other short-term borrowings 1,335 18 5.39 2,022 28 5.54
Obligations under mortgages
and capitalized leases 6 0 8.00 13 0 8.00
Total interest-bearing
liabilities $254,218 $ 2,630 4.14 $240,179 $ 2,619 4.36
Noninterest-bearing deposits 55,277 49,956
Other liabilities 5,114 2,086
Stockholders' equity 33,878 31,674
Total liabilities and
stockholders' equity $348,487 $323,895
Net interest income as a percent
of total earning assets $324,384 $ 3,707 4.57 $300,835 $ 3,274 4.35
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 95 $ 113
Ratios:
Annualized return on average total assets 1.40 1.32
Annualized return on average stockholders' equity 14.42 13.45
Cash dividends declared as a percent of net income 0 0
Average stockholders' equity as a percent of:
Average total assets 9.72 9.78
Average total deposits 12.47 12.71
Average loans, net of unearned income 19.54 21.00
Average earning assets as a percent of
average total assets 93.08 92.88
</TABLE>
16
<PAGE> CNB Corporation and Subsidiary
Selected Financial Data
<TABLE>
<CAPTION>
Nine Months Ended 9/30/96 Nine Months Ended 9/30/95
Avg. Interest Avg. Ann. Avg. Interest Avg.Ann.
Balance Income/ Yield or Balance Income/ Yield or
Expense(1) Rate Expense(1) Rate
<S> <C> <C> <C> <C> <C> <C>
Assets:
Earning assets:
Loans, net of unearned income $166,574 $11,629 9.31% $149,789 $10,676 9.50%
Securities:
Taxable 127,665 5,660 5.91 111,301 4,945 5.92
Tax-exempt 13,973 842 8.03 14,889 1,015 9.09
Federal funds sold and
securities purchased under
agreement to resell 9,124 348 5.09 14,462 624 5.75
Other earning assets 0 0 - 0 0 -
Total earning assets 317,336 18,479 7.76 290,441 17,260 7.92
Other assets 23,371 21,328
Total assets $340,707 $311,769
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits $211,485 6,392 4.03 $193,248 $ 5,910 4.08
Federal funds purchased and
securities sold under
agreement to repurchase 41,270 1,501 4.85 38,848 1,482 5.09
Other short-term borrowings 1,113 47 5.63 1,544 65 5.61
Obligations under mortgages
and capitalized leases 8 0 8.00 15 0 8.00
Total interest-bearing
liabilities $253,876 $ 7,940 4.17 $233,655 $ 7,457 4.26
Noninterest-bearing deposits 51,379 45,502
Other liabilities 2,322 2,020
Stockholders' equity 33,130 30,592
Total liabilities and
stockholders' equity $340,707 $311,769
Net interest income as a percent
of total earning assets $317,336 $10,539 4.43 $290,441 $ 9,803 4.50
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 286 $ 345
Ratios:
Annualized return on average total assets 1.21 1.21
Annualized return on average stockholders' equity 12.49 12.34
Cash dividends declared as a percent of net income 0 0
Average stockholders' equity as a percent of:
Average total assets 9.72 9.81
Average total deposits 12.60 12.81
Average loans, net of unearned income 19.89 20.42
Average earning assets as a percent of
average total assets 93.14 93.16
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Three Months Ended September 30, 1996 and 1995
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Change
Average Average Interest Interest Change Change Due To
Volume Volume Yield/Rate Yield/Rate Earned/Paid Earned/Paid Due to Due To Rate X
1996 1995 1996 (1) 1995 (1) 1996 (1) 1995 (1) Variance Rate Volume Volume
Earning Assets:
Loans, Net of unearned
income (2) 173,342 150,845 9.31% 9.45% 4,033 3,564 469 (53) 531 (9)
Investment securities:
Taxable 127,011 116,145 6.00% 5.89% 1,904 1,710 194 32 160 2
Tax-exempt 14,201 14,143 7.89% 9.42% 280 333 (53) (54) 1 -
Federal funds sold and
securities purchased under
agreement to resell 9,830 19,702 4.88% 5.81% 120 286 (166) (46) (143) 23
Other earning assets 0 0 - - 0 0 0 - - -
Total Earning Assets 324,384 300,835 7.81% 7.84% 6,337 5,893 444 (121) 549 16
Interest-bearing Liabilities:
Interest-bearing deposits 216,475 199,264 4.02% 4.20% 2,176 2,091 85 (90) 181 (6)
Federal funds purchased and
securities sold under
agreement to repurchase 36,402 38,880 4.79% 5.14% 436 500 (64) (34) (32) 2
Other short-term borrowings 1,335 2,022 5.39% 5.54% 18 28 (10) (1) (10) 1
Mortgage indebtedness and
obligations under capital-
ized leases 6 13 8.00% 8.00% 0 0 0 - - -
Total Interest-bearing
Liabilities 254,218 240,179 4.14% 4.36% 2,630 2,619 11 (125) 139 (3)
Interest-free Funds
Supporting Earning Assets 70,166 60,656
Total Funds Supporting
Earning Assets 324,384 300,835 3.24% 3.48% 2,630 2,619 11 (125) 139 (3)
Interest Rate Spread 3.67% 3.48%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .90% .87%
Net Yield on Earning Assets 4.57% 4.35% 3,707 3,274
</TABLE>
(1) Tax-equivalent adjustment based on a 34% tax rate.
(2) Includes non-accruing loans which does not have a material effect on the
Net Yield on Earning Assets.
18
<PAGE>
<TABLE>
<CAPTION>
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Nine Months Ended September 30, 1996 and 1995
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Change
Average Average Interest Interest Change Change Due To
Volume Volume Yield/Rate Yield/Rate Earned/Paid Earned/Paid Due to Due To Rate X
1996 1995 1996 (1) 1995 (1) 1996 (1) 1995 (1) Variance Rate Volume Volume
Earning Assets:
Loans, Net of unearned
income (2) 166,574 149,789 9.31% 9.50% 11,629 10,676 953 (213) 1,195 (29)
Investment securities:
Taxable 127,665 111,301 5.91% 5.92% 5,660 4,945 715 (8) 724 (1)
Tax-exempt 13,973 14,889 8.03% 9.09% 842 1,015 (173) (118) (62) 7
Federal funds sold and
securities purchased under
agreement to resell 9,124 14,462 5.09% 5.75% 348 624 (276) (71) (230) 25
Other earning assets 0 0 - - 0 0 0 - - -
Total Earning Assets 317,336 290,441 7.76% 7.92% 18,479 17,260 1,219 (410) 1,627 2
Interest-bearing Liabilities:
Interest-bearing deposits 211,485 193,248 4.03% 4.08% 6,392 5,910 482 (72) 558 (4)
Federal funds purchased and
securities sold under
agreement to repurchase 41,270 38,848 4.85% 5.09% 1,501 1,482 19 (70) 92 (3)
Other short-term borrowings 1,113 1,544 5.63% 5.61% 47 65 (18) - (18) -
Mortgage indebtedness and
obligations under capital-
ized leases 8 15 8.00% 8.00% 0 0 0 - - -
Total Interest-bearing
Liabilities 253,876 233,655 4.17% 4.26% 7,940 7,457 483 (142) 632 (7)
Interest-free Funds
Supporting Earning Assets 63,460 56,786
Total Funds Supporting
Earning Assets 317,336 290,441 3.33% 3.42% 7,940 7,457 483 (142) 632 (7)
Interest Rate Spread 3.59% 3.66%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .84% .84%
Net Yield on Earning Assets 4.43% 4.50% 10,539 9,803
</TABLE>
(1) Tax-equivalent adjustment based on a 34% tax rate.
(2) Includes non-accruing loans which does not have a material effect on the
Net Yield on Earning Assets.
19
<PAGE>
NET INCOME (continued)
Provision for Possible Loan Losses - It is the policy of the bank to maintain
the reserve for possible loan losses at the greater of 1.20% of net loans or
the percentage based on the actual loan loss experience over the previous
five years. In addition, management may increase the reserve to a level
above these guidelines to cover potential losses identified in the portfolio.
The provision for possible loan losses was $90 for the three-month period
ended September 30, 1996 and $25 for the three-month period ended September
30, 1995. Net loan charge-offs/(recoveries) totaled $52 for the three-month
period ended September 30, 1996 and $57 for the same period in 1995.
The provision for possible loan losses was $230 for the nine-month period
ended September 30, 1996 and $105 for the nine-month period ended September
30, 1995. Net loan charge-offs/(recoveries) totaled $113 for the nine-month
period ended September 30, 1996 and $30 for the same period in 1995.
The reserve for possible loan losses as a percentage of net loans was 1.37%
at September 30, 1996 and 1.55% at September 30, 1995. The increased
provision during the three-month and nine-month period ended September 30,
1996 was due to the increased level of net loan growth. Continued low net
charge-offs through the remainder of 1996 are anticipated by management.
Securities Transactions - The bank recognized a gain on available-for-sale
security transactions for the quarter ended March 31, 1996 of $38 and
recognized a $26 gain during the first quarter of 1995. There were no
security sales during the second quarter of 1996 or 1995. Management sold
approximately $2 million and $3 million, respectively, in treasury bonds to
fund loan growth and to adjust the Bank's interest sensitivity position.
During the third quarter of 1995, management sold at a $1 loss approximately
$2 million in variable-rate agencies in anticipation of falling interest
rates. No sales were conducted during the third quarter of 1996. At
September 30, 1996, December 31, 1995, and September 30, 1995 market value
appreciation/(depreciation) in the securities portfolio totaled $(836),
$1,546, and $237. As indicated, market value has been reduced due to rising
market interest rates in 1996.
Other Income - Other income, net of any gains/losses on security
transactions, increased by 7.2% from $745 for the three-month period ended
September 30, 1995 to $799 for the three-month period ended September 30,
1996.
Other income, net of any gains/losses on security transactions, increased by
7.1% from $2,003 for the nine-month period ended September 30, 1995 to $2,146
for the nine-month period ended September 30, 1996.
The increase in the three-month and nine-month period ended September 30,
1996 was primarily due to an increase in deposit account volumes and higher
merchant discount income.
Other Expenses - Other expenses increased by 6.9% from $2,329 for the three-
month period ended September 30, 1995 to $2,489 for the three-month period
ended September 30, 1996. The major components of other expenses are
salaries and employee benefits which increased 9.4% from $1,364 to $1,492;
occupancy expense which increased 2.2% from $367 to $375; and other operating
expenses which increased by 4.0% from $597 to $621.
20
<PAGE>
Other Expenses (continued) - Other expenses increased by 4.3% from $7,235 for
the nine-month period ended September 30, 1995 to $7,544 for the nine-month
period ended September 30, 1996. The major components of other expenses are
salaries and employee benefits which increased 7.2% from $4,128 to $4,426;
occupancy expense which increased 16.4% from $1,104 to $1,285; and other
operating expense which decreased by 8.5% from $2,001 to $1,831.
As anticipated, overhead expenses associated with substantial 1994-1995
purchases of electronic data processing equipment and drive-up automated
teller machines, as well as the construction, equipping, and staffing of the
Myrtle Beach Office, continue to impact earnings. However, total operating
expense growth has been offset somewhat by a year-to-date decrease of $391 in
FDIC insurance premium expense as reflected in the decline in other operating
expense.
Income Taxes - Provisions for income taxes increased 25.7% from $486 for the
three-month period ended September 30, 1995 to $611 for the three-month
period ended September 30, 1996. Income before income taxes less interest on
tax-exempt investment securities increased by 23.7% from $1,331 for the
three-month period ended September 30, 1995 to $1,647 for the same period in
1996. State tax liability increased as income before income taxes increased
18.1% from $1,551 to $1,832 during the same period.
Provisions for income taxes increased 18.6% from $1,315 for the nine-month
period ended September 30, 1995 to $1,559 for the nine-month period ended
September 30, 1996. Income before income taxes less interest on tax-exempt
investment securities increased by 18.2% from $3,476 for the nine-month
period ended September 30, 1995 to $4,107 for the same period in 1996 and
state tax liability increased as income before income taxes increased 12.5%
from $4,146 to $4,663 during the same period.
LIQUIDITY
The bank's liquidity position is primarily dependent on short-term demands
for funds caused by customer credit needs and deposit withdrawals and upon
the liquidity of bank assets to meet these needs. The bank's liquidity
sources include cash and due from banks, federal funds sold, and short-term
investments. In addition, the bank has established federal funds lines of
credit from correspondent banks and has the ability, on a short-term basis,
to borrow funds from the Federal Reserve System. Management feels that
liquidity sources are more than adequate to meet funding needs.
CAPITAL RESOURCES
Total stockholders' equity was $34,651, $32,195, $28,857, and $26,820 at
September 30, 1996, December 31, 1995, December 31, 1994, and December 31,
1993, representing 9.94%, 9.91%, 9.71%, and 9.46% of total assets,
respectively. At September 30, 1996, the Bank exceeds quantitative measures
established by regulation to ensure capital adequacy (see NOTE 12 -REGULATION
MATTERS). Capital is considered sufficient by management to meet current and
prospective capital requirements and to support anticipated growth in bank
operations.
21
<PAGE>
EFFECTS OF REGULATORY ACTION
The management of the Company and the Bank are not aware of any current
recommendations by the regulatory authorities which, if they were to be
implemented, would have a material effect on liquidity, capital resources, or
operations.
In March 1995, the FASB issued SFAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The
statement requires that long-lived assets and certain identified intangibles
to be held and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. The statement is effective for the Company for the
fiscal year ending December 31, 1996 and does not have a significant impact
on the Company's financial statements.
In May 1995, the FASB issued SFAS 122, "Accounting For Mortgage
Servicing Rights," which amends SFAS No. 65, "Accounting For Mortgage Banking
Activities." This statement allows the capitalization of servicing-related
costs associated with mortgage loans that are originated for sale, and to
create servicing assets for such loans. Prior to this statement, originated
mortgage servicing rights were generally accorded off-balance sheet
treatment. The statement is effective for the Company for the fiscal year
ending December 31, 1996. The adoption will have no material effect on the
Company's financial condition or results of operations.
The FASB issued SFAS No. 123, "Accounting For Stock-based Compensation,"
in October 1995. This statement supersedes APB Opinion No. 25, "Accounting
For Stock Issued to Employees" and established financial accounting and
reporting standards for stock-based employee compensation plans. Those plans
include all arrangements by which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. The
statement also applies to transactions in which an entity issues its equity
instruments to acquire goods or services from nonemployees. This
pronouncement does not apply to the Company and therefore will have no effect
upon adoption.
In June 1996, the FASB issued SFAS 125 "Accounting For Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." FASB's
objective is to develop consistent accounting standards for such
transactions, including determining when financial assets should be
considered sold and removed from the statement of financial position and when
related revenues and expenses should be recognized. This approach focuses on
analyzing the components of financial asset transfers and requires each party
to a transfer to recognize the financial assets it controls and liabilities
it has incurred and remove such assets from the statement of financial
position when control over them has been relinquished. The statement is not
expected to have a significant impact on the accounting practices of the
Company and is generally effective for transactions entered into after
December 31, 1996.
EXHIBITS AND REPORTS ON FORM 8-K
See Exhibit Index appearing below.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter covered by this report.
EXHIBIT INDEX
Exhibit
Number
27 Financial Data Schedule - Article 9 Financial Data Schedule for
10-Q for electronic filers (pages 24 and 25).
All other exhibits, the filing of which are required with this Form, are not
applicable.
22
PAGE
<PAGE>
CNB Corporation
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNB Corporation
(Registrant)
_________________________________________
Paul R. Dusenbury
Treasurer
(Chief Financial and Accounting Officer)
Date: November 14, 1996
23
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MORE
DETAILED FINANCIAL STATEMENTS OF THE COMPANY AND SUBSIDIARY AND NOTES THERETO
INCLUDED ELSEWHERE IN THIS REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIALS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,702
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63,757
<INVESTMENTS-CARRYING> 75,340
<INVESTMENTS-MARKET> 74,877
<LOANS> 174,986
<ALLOWANCE> 2,359
<TOTAL-ASSETS> 348,518
<DEPOSITS> 275,529
<SHORT-TERM> 36,307
<LIABILITIES-OTHER> 2,031
<LONG-TERM> 0
0
0
<COMMON> 4,791
<OTHER-SE> 29,860
<TOTAL-LIABILITIES-AND-EQUITY> 348,518
<INTEREST-LOAN> 11,629
<INTEREST-INVEST> 6,216
<INTEREST-OTHER> 348
<INTEREST-TOTAL> 18,193
<INTEREST-DEPOSIT> 6,392
<INTEREST-EXPENSE> 7,940
<INTEREST-INCOME-NET> 10,253
<LOAN-LOSSES> 230
<SECURITIES-GAINS> 38
<EXPENSE-OTHER> 7,544
<INCOME-PRETAX> 4,663
<INCOME-PRE-EXTRAORDINARY> 3,104
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,104
<EPS-PRIMARY> 6.50
<EPS-DILUTED> 6.50
<YIELD-ACTUAL> 4.43
<LOANS-NON> 406
<LOANS-PAST> 47
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,420<F1>
<ALLOWANCE-OPEN> 2,242
<CHARGE-OFFS> 260
<RECOVERIES> 147
<ALLOWANCE-CLOSE> 2,359
<ALLOWANCE-DOMESTIC> 2,359
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>INCLUDES NON-ACCRUAL LOANS OF 406 PLUS CONFERATION LIFE 2,014.
</FN>
</TABLE>
