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, 1997
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, 1997 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, 1997 was 598,538.
<PAGE>
CNB Corporation
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1997, 1
December 31, 1996 and September 30, 1996
Consolidated Statement of Income for the Three Months 2
and Nine Months Ended September 30, 1997 and 1996
Consolidated Statement of Changes in Stockholders' 3
Equity for the Nine Months Ended September 30, 1997
and 1996
Consolidated Statement of Cash Flows for the Nine Months 4
Ended September 30, 1997 and 1996
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,
1997 1996 1996
ASSETS:
<S> <C> <C> <C>
Cash and due from banks $ 16,294 $ 14,350 $ 14,702
Interest bearing deposits with banks 0 0 0
Investment Securities 70,749 70,149 75,340
(Fair values of $71,249 at
September 30, 1997, $70,306 at
December 31, 1996, and $74,877
at September 30, 1996)
Securities Available for Sale 60,383 62,138 63,757
(Amortized cost of $60,168 at
September 30, 1997, $62,093 at
December 31, 1996, and $64,130
at September 30, 1996)
Federal Funds sold and securities
purchased under agreement
to resell 19,000 0 9,100
Loans:
Gross Loans 213,196 185,933 176,045
Less unearned income (1,163) (1,058) (1,059)
Loans, net of unearned income 212,033 184,875 174,986
Less reserve for possible
loan losses (2,905) (2,370) (2,359)
Net loans 209,128 182,505 172,627
Bank premises and equipment 6,998 6,866 6,946
Other assets 6,118 5,810 6,046
Total assets 388,670 341,818 348,518
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing 65,035 49,885 55,864
Interest-bearing 240,282 218,528 219,665
Total deposits 305,317 268,413 275,529
Federal funds purchased and
securities sold under agreement
to repurchase 37,922 33,018 33,396
Other short-term borrowings 4,303 2,319 2,911
Obligations under mortgages and
capital leases 0 6 7
Other liabilities 2,662 3,541 2,000
Minority interest in subsidiary 27 25 24
Total liabilities 350,231 307,322 313,867
Stockholders' equity:
Common stock, par value $10 per
share: Authorized 1,500,000 in
1997 and 500,000 in 1996; issued
598,681 in 1997 and 479,093 in
1996; 5,987 4,791 4,791
Surplus 24,551 15,697 15,695
Undivided Profits 7,784 14,082 14,335
Net Unrealized Holding 129 27 (224)
Gains (Losses) on
Available-For-Sale Securities
Less: Treasury stock 12 (101) (146)
Total stockholders' equity 38,439 34,496 34,651
Total liabilities
and stockholders' equity 388,670 341,818 348,518
</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,
1997 1996 1997 1996
Interest Income:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 4,904 $ 4,033 $ 14,103 $ 11,629
Interest on investment securities:
Taxable investment securities 1,792 1,904 5,374 5,657
Tax-exempt investment securities 179 185 535 556
Other securities 0 0 3 3
Interest on federal funds sold and securities
purchased under agreement to resell 283 120 582 348
Total interest income 7,158 6,242 20,597 18,193
Interest Expense:
Interest on deposits 2,539 2,176 7,414 6,392
Interest on federal funds purchased and
securities sold under agreement to
repurchase 462 436 1,272 1,501
Interest on other short-term borrowings 21 18 56 47
Interest on obligation under mortgages and
capital leases 0 0 0 0
Total interest expense 3,022 2,630 8,742 7,940
Net interest income 4,136 3,612 11,855 10,253
Provision for possible loan losses 150 90 600 230
Net interest income after provision for
possible loan losses 3,986 3,522 11,255 10,023
Other income:
Service charges on deposit accounts 583 490 1,643 1,442
Gains/(Losses) on securities 0 0 0 38
Other operating income 360 309 839 704
Total other income 943 799 2,482 2,184
Other expenses:
Minority interest in income of subsidiary 1 1 3 2
Salaries and employee benefits 1,535 1,492 4,611 4,426
Occupancy expense 380 375 1,224 1,285
Other operating expenses 705 621 2,011 1,831
Total operating expenses 2,621 2,489 7,849 7,544
Income before income taxes 2,308 1,832 5,888 4,663
Income tax provision 805 611 2,120 1,559
Net Income 1,503 1,221 3,768 3,104
Per share data (1):
Net income per weighted average shares
outstanding $ 2.51 $ 2.05 $ 6.30 $ 5.20
Cash dividend paid per share $ 0 $ 0 $ 0 $ 0
Book value per actual number of shares
outstanding $ 64.22 $ 58.05 $ 64.22 $ 58.05
Weighted average number of shares outstanding 598,486 596,630 598,486 596,630
Actual number of shares outstanding 598,538 596,886 598,538 596,886
</TABLE>
(1) Adjusted for the effect of a 25% stock dividend issued during the third
quarter of 1997.
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,
1997 1996
<S> <C> <C>
Common Stock:
$10 par value; 1,500,000 shares authorized
in 1997 and 500,000 in 1996;
Balance, January 1 4,791 4,791
Issuance of Common Stock None None
Stock Dividend 1,196 None
Balance at end of period 5,987 4,791
Surplus:
Balance, January 1 15,697 15,676
Issuance of Common Stock None None
Stock Dividend 8,850 None
Gain on sale of treasury stock 4 19
Balance at end of period 24,551 15,695
Undivided profits:
Balance, January 1 14,082 11,431
Net Income 3,768 3,104
Stock Dividend (10,066) None
Cash dividends declared None None
Balance at end of period 7,784 14,535
Net unrealized holding gains/(losses) on
available-for-sale securities:
Balance, January 1 27 430
Change in net unrealized gains/(Losses) 102 (654)
Balance at end of period 129 (224)
Treasury stock:
Balance, January 1 (101) (133)
Purchase of treasury stock (34) (213)
Reissue of treasury stock 123 200
Balance at end of period (12) (146)
Total stockholders' equity 38,439 34,651
</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,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,768 $ 3,104
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 482 585
Provision for loan losses 600 230
Provision for deferred income taxes 157 (243)
Loss (gain) on sale of investment
securities 0 (38)
(Increase) decrease in accrued interest
receivable (337) (305)
(Increase) decrease in other assets 29 68
(Decrease) increase in other liabilities 507 (657)
Increase in minority interest in
subsidiary 2 1
Net cash provided by operating
activities 5,208 2,745
INVESTING ACTIVITIES
Proceeds from sale of investment securities
available for sale 0 2,000
Proceeds from maturities of investment
securities held to maturity 15,130 19,935
Proceeds from maturities of investment
securities available for sale 12,301 4,465
Purchase of investment securities held to
maturity (15,730) (15,895)
Purchase of investment securities
available for sale (10,546) (10,950)
Decrease (increase) in interest-bearing
deposits in banks 0 0
(Increase) decrease in federal funds sold (19,000) (1,800)
(Increase) decrease in loans (27,158) (22,582)
Premises and equipment expenditures (614) (365)
Net cash provided by (used for)
investing activities (45,617) (25,192)
FINANCING ACTIVITIES
Dividends paid (1,433) (1,432)
Increase (Decrease) in deposits 36,904 24,373
(Decrease) increase in securities sold
under repurchase agreement (4,904) (3,539)
(Decrease) increase in other
short-term borrowings 1,984 2,145
Increase (decrease)in obligation under
mortgages and capital leases (6) (3)
Net cash provided by (used for)
financing activities 42,353 21,544
Net increase (decrease) in cash
and due from banks 1,944 (903)
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 14,350 15,605
CASH AND DUE FROM BANKS, SEPT. 30, 1997 AND 1996 $16,294 $14,702
CASH PAID (RECEIVED) FOR:
Interest $ 8,401 $ 7,952
Income taxes $ 2,117 $ 1,567
</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 adjusted for the
effect of a 25% stock dividend paid during the third quarter of 1997,
598,486 for the nine-month period ended September 30, 1997 and 596,630 for
the nine-month period ended September 30, 1996.
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, 1997
and for the years ended December 31, 1996 and 1995 were approximately
$5,848, $5,112, and $4,306, respectively.
5
<PAGE>
NOTE 3 - INVESTMENT SECURITIES
Investment securities with a par value of approximately $78,231 at September
30, 1997 and $55,665 at December 31, 1996 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, 1997 and at December 31, 1996.
<TABLE>
<CAPTION>
September 30, 1997
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 $12,958 $ 71 $ 2 $13,027 6.40%
One to five years 13,277 117 10 13,384 6.25
26,235 188 12 26,411 6.32
Federal agencies
Within one year 3,993 0 13 3,980 4.92
One to five years 28,791 116 59 28,848 6.23
After ten years 707 1 15 693 6.28
33,491 117 87 33,521 6.10
State, county and
municipal
Within one year 0 0 0 0 -
One to five years 326 9 0 335 7.85
326 9 0 335 7.85
Other Securities(Equity) 116 0 0 116 -
Total available for sale $60,168 $ 314 $ 99 $60,383 6.21%
HELD TO MATURITY
United States Treasury
Within one year 16,015 8 37 15,986 5.29%
One to five years 15,672 136 37 15,771 6.10
31,687 144 74 31,757 5.66
Federal agencies
Within one year 0 0 0 0 -
One to five years 23,222 167 49 23,340 6.35
Six to ten years 2,002 0 18 1,984 6.40
25,224 167 67 25,324 6.35
State, county and
municipal
Within one year 1,425 9 1 1,433 8.67%
One to five years 6,127 237 6 6,358 8.52
Six to ten years 6,037 96 8 6,125 6.99
Over ten years 249 3 0 252 7.43
13,838 345 15 14,168 7.85
Total held to maturity $70,749 $ 656 $ 156 $71,249 6.35%
</TABLE>
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended September 30, 1997, 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 $129 as of September 30, 1997.
6
<PAGE>
NOTE 3 - INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
December 31, 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 $15,533 $ 52 $ 22 $15,563 5.95%
One to five years 16,262 169 27 16,404 6.46
31,795 221 49 31,967 6.21
Federal agencies
Within one year 0 0 0 0 -
One to five years 29,072 48 169 28,951 6.08
After ten years 784 0 18 766 6.08
29,856 48 187 29,717 6.04
State, county and
municipal
One to five years 326 12 0 338 7.85
326 12 0 338 7.85
Other Securities (Equity) 116 - - 116 -
Total available for sale $62,093 $ 281 $ 236 $62,138 6.14%
HELD TO MATURITY
United States Treasury
Within one year 17,066 20 30 17,056 5.36%
One to five years 23,703 154 176 23,681 5.67
40,769 174 206 40,737 5.54
Federal agencies
Within one year 0 0 0 0 -
One to five years 13,320 97 110 13,307 6.27
Six to ten years 2,002 0 35 1,967 6.40%
15,322 97 145 15,274 6.28
State, county and
municipal
Within one year 1,112 2 2 1,112 8.87
One to five years 6,950 302 15 7,237 8.72
Six to ten years 5,626 20 75 5,571 6.98
After ten years 370 5 0 375 7.89
14,058 329 92 14,295 8.01
Total held to maturity $70,149 $ 600 $ 443 $70,306 6.20%
</TABLE>
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended December 31, 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 $27 as of December 31, 1996.
7
<PAGE>
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans at September 30, 1997 and December
31, 1996 by major classification:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
Real estate loans - mortgage $ 131,412 $ 111,474
- construction 16,598 15,148
Commercial and industrial loans 32,914 28,105
Loans to individuals for household,
family and other consumer expenditures 30,342 29,642
Agriculture 1,825 1,328
All other loans, including overdrafts 105 236
Gross loans 213,196 185,933
Less unearned income (1,163) (1,058)
Less reserve for loan losses (2,905) (2,370)
Net loans 209,128 182,505
</TABLE>
Changes in the reserve for loan losses for the quarter ended and nine-
month period ended September 30, 1997 and 1996 and the year ended December
31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended December
September 30, September 30,
1997 1996 1997 1996 1996
<C> <C> <C> <C> <C>
Balance, beginning of period $ 2,707 $ 2,321 $ 2,370 $ 2,242 $ 2,242
Charge-offs:
Commercial, financial,
and agricultural 20 0 84 41 108
Real Estate - construction
and mortgage 0 0 4 3 22
Loans to individuals 99 77 256 216 299
Total charge-offs $ 119 $ 77 $ 344 $ 260 $ 429
Recoveries:
Commercial, financial, and
agricultural $ 45 $ 3 $ 67 $ 42 $ 47
Real Estate - construction
and mortgage 92 4 106 10 15
Loans to individuals 30 18 106 95 135
Total recoveries $ 167 $ 25 $ 279 $ 147 $ 197
Net charge-offs/(recoveries) $ (48) $ 52 $ 65 $ 113 $ 232
Additions charge to operations $ 150 $ 90 $ 600 $ 230 $ 360
Balance, end of period $ 2,905 $ 2,359 $ 2,905 $ 2,359 $ 2,370
Ratio of net charge-offs during
the period to average loans
outstanding during the period - % .03% .03% .07% .14%
</TABLE>
The entire balance is available to absorb future loan losses.
At September 30, 1997 and December 31, 1996 loans on which no interest was
being accrued totalled approximately $16 and $377, respectively and
foreclosed real estate totalled $16 and $0, respectively; and loans 90 days
past due and still accruing totalled $139 and $77, 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.
Subsequently, on October 23, 1996, a plan of Rehabilitation for Confederation
Life Insurance Company (U.S.) was confirmed by the State of Michigan in the
Circuit Court for the County of Ingham. 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. The Bank's COLI policies
have been reinsured by Pacific Mutual during the third quarter of 1997 with
total cash surrender values totalling approximately $112,000 above the
$2,100,000 carrying value on the Bank's books. Management is awaiting
official permission from the Office of the Comptroller of the Currency to
return this asset to accrual status and to adjust the carrying value. Notice
is anticipated during the fourth quarter of 1997 or, at the latest, the first
quarter of 1998.
The Bank's independent external auditors have revisited the facts and
circumstances regarding the investment in the COLI program and have read the
significant uncertainties requiring the recognition of a loss contingency as
of the date of this report.
As of September 30, 1997, the Company does not have any other interest-
bearing assets that would be required to be disclosed under Item III.C.1. or
2. if such assets were loans.
NOTE 5 - PREMISES AND EQUIPMENT
Property at September 30, 1997 and December 31, 1996 is summarized as
follows:
September 30, December 31,
1997 1996
Land and buildings $ 8,841 $ 8,358
Furniture, fixtures and equipment 5,297 5,404
Construction in progress 12 45
$ 14,150 $ 13,807
Less accumulated depreciation and
amortization 7,152 6,941
$ 6,998 $ 6,866
Depreciation and amortization of bank premises and equipment charged to
operating expense was $158 and $482 for the quarter ended and the nine month
period ended September 30, 1997, respectively and $757 for the year ended
December 31, 1996.
9
<PAGE>
NOTE 6 - CERTIFICATES OF DEPOSIT IN EXCESS OF $100,000
At September 30, 1997 and December 31, 1996, certificates of deposit of
$100,000 or more included in time deposits totaled approximately $48,971 and
$34,318 respectively. Interest expense on these deposits was approximately
$695 and $2,052 for the quarter ended and the nine-month period ended
September 30, 1997 and $1,639 for the year ended December 31, 1996.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At September 30, 1997 and December 31, 1996, securities sold under
repurchase agreements totaled approximately $37,922 and $29,018. U.S.
Government securities with a book value of $45,481 ($45,700 market value) and
$42,181 ($42,174 market value), respectively, are used as collateral for the
agreements. The weighted-average interest rate of these agreements was 4.60
percent and 4.71 percent at September 30, 1997 and December 31, 1996.
NOTE 8 - LINES OF CREDIT
At September 30, 1997 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 $5,639 at September 30,
1997. The amount outstanding under the note totaled $4,303 and $2,319 at
September 30, 1997 and December 31, 1996, respectively.
NOTE 9 - INCOME TAXES
Income tax expense for the quarter ended September 30, 1997 and
September 30, 1996 on pretax income of $2,308 and $1,832 totalled $805 and
$611 respectively. Income tax expense for the nine-month period ended
September 30, 1997 and September 30, 1996 on pretax income of $5,888 and
$4,663 totalled $2,120 and $1,559 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, 1997.
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, 1997, commitments to extend credit totalled $22,782; financial
standby letters of credit totalled $74; and performance standby letters of
credit totalled $1,451. 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, 1997 and years ended December 31, 1996, 1995
and 1994, $92, $270, $336, $266, and $295, 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, 1997:
To be
well capitalized
For under prompt
capital adequacy corrective action
purposes provisions
Actual Minimum Minimum
Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk $39,110 17.81% $17,569 8.0% $21,962 10.0%
weighted assets)
Tier I Capital (to risk 36,365 16.56 8,785 4.0 13,177 6.0
weighted assets)
Tier I Capital (to avg. 36,365 9.74 14,933 4.0 18,666 5.0
assets)
11
<PAGE>
NOTE 13 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of CNB Corporation (parent
company only):
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
(Unaudited)
ASSETS
Cash $ 1,184
Investment in subsidiary 36,467
Fixed assets 751
Other assets 37
$ 38,439
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liability $ 0
Stockholders' equity 38,439
$ 38,439
CONDENSED STATEMENT OF INCOME
For the nine-month period ended September 30, 1997
(Unaudited)
EQUITY IN NET INCOME OF SUBSIDIARY $ 3,794
OTHER INCOME 0
OTHER EXPENSES (26)
Net Income $ 3,768
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 21.2% from $174,986 at September 30, 1996 to $212,033 at September
30, 1997 and have increased as a percentage of total assets from 50.2% to
54.6% over the same period as loan demand has remained strong in our market.
Correspondingly, securities and federal funds sold have decreased as a
percentage of total assets from 42.5% at September 30, 1996 to 38.6% at
September 30, 1997. 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 16.0% at September 30, 1996 to 16.7% at September 30, 1997.
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 decreased
from 63.0% of total assets at September 30, 1996 to 61.8% at September 30,
1997 while securities sold under agreement to repurchase have increased from
9.6% to 9.8% over the same period. Some migration from term repurchase
agreements to certificates of deposits occurred during 1996 and 1997 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, 1997 and 1996:
<TABLE>
<CAPTION>
September 30,
<S> <C> <C>
Assets: 1997 1996
Earning assets:
Loans, net of unearned income 54.6% 50.2%
Investment securities 18.2 21.6
Securities Available for Sale 15.5 18.3
Federal funds sold and securities purchased
under agreement to resell 4.9 2.6
Other earning assets - -
Total earning assets 93.2 92.7
Other assets 6.8 7.3
Total assets 100.0% 100.0%
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits 61.8% 63.0%
Federal funds purchased and securities sold
under agreement to repurchase 9.8 9.6
Other short-term borrowings 1.1 .8
Obligations under mortgages and capital leases - -
Total interest-bearing liabilities 72.7 73.4
Noninterest-bearing deposits 16.7 16.0
Other liabilities .7 .7
Stockholders' equity 9.9 9.9
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, 1997 and 1996 of $1,503 and $1,221, respectively, resulting in
a return on average assets of 1.55% and 1.40% and a return on average
stockholders' equity of 16.02% and 14.42%.
CNB Corporation experienced earnings for the nine-month period ended
September 30, 1997 and 1996 of $3,768 and $3,104, respectively, resulting in
a return on average assets of 1.35% and 1.21% and a return on average
stockholders' equity of 14.05% and 12.34%.
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 $40,152 or 11.5% from
$348,518 at September 30, 1996 to $388,670 at September 30, 1997. The
following table sets forth the financial highlights for the three-month and
nine-month periods ending September 30, 1997 and September 30, 1996:
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
1997 1996 (Decrease) 1997 1996 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Net interest income after
provision for loan losses 3,986 3,522 13.2% 11,255 10,023 12.3%
Income before income taxes 2,308 1,832 26.0 5,888 4,663 26.3
Net Income 1,503 1,221 23.1 3,768 3,104 21.4
Per Share (1) 2.51 2.05 22.4 6.30 5.20 21.2
Cash dividends declared 0 0 - 0 0 -
Per Share (1) 0 0 - 0 0 -
Total assets 388,670 348,518 11.5% 388,670 348,518 11.5%
Total deposits 305,317 275,529 10.8 305,317 275,529 10.8
Loans, net of unearned income 212,033 174,986 21.2 212,033 174,986 21.2
Investment securities and
securities available for
sale 131,132 139,097 (5.7) 131,132 139,097 (5.7)
Stockholders' equity 38,439 34,651 10.9 38,439 34,651 10.9
Book value per share(1) 64.22 58.05 10.6 64.22 58.05 10.6
Ratios (2):
Annualized return on average
total assets 1.55% 1.40% 10.7% 1.35% 1.21% 11.6
Annualized return on average
stockholders' equity 16.02% 14.42% 11.1% 14.05% 12.34% 13.9%
</TABLE>
(1) Adjusted for the effect of a 25% stock dividend issued during the third
quarter of 1997.
(2) For the three-month period ended September 30, 1997 and September 30,
1996, average total assets amounted to $388,016 and $348,487 with
average stockholders' equity totaling $37,524 and $33,878, respectively.
For the nine-month period ended September 30, 1997 and September 30,
1996, average total assets amounted to $373,326 and $340,707 with average
stockholders' equity totaling $35,748 and $33,130, 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 1997 and 1996. 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, 1997 and 1996 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 14.1% increase from $3,707
for the three-month period ended September 30, 1996 to $4,229 for the
three-month period ended September 30, 1997. During the same period, total
fully-tax-equivalent interest income increased by 14.4% from $6,337 to
$7,251 and total interest expense increased by 14.9% from $2,630 to $3,022.
Fully-tax-equivalent net interest income as a percentage of total
earning assets has shown an increase of .10% from 4.57% for the three-month
period ended September 30, 1996 to 4.67% for the three-month period ended
September 30, 1997.
Fully-tax-equivalent net interest income showed a 15.1% increase from $10,539
for the nine-month period ended September 30, 1996 to $12,131 for the nine-
month period ended September 30, 1997. During the same period, total fully-
tax-equivalent interest income increased by 13.0% from $18,479 to $20,873 and
total interest expense increased by 10.1% from $7,940 to $8,742. Fully-tax-
equivalent net interest income as a percentage of total earning assets has
shown an increase of .21% from 4.43% for the nine-month period ended
September 30, 1996 to 4.64% for the nine-month period ended September 30,
1997.
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 9/30/97 Three Months Ended 9/30/96
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 $209,965 $ 4,904 9.34% $173,342 $ 4,033 9.31%
Securities:
Taxable 118,336 1,792 6.06 127,011 1,904 6.00
Tax-exempt 13,879 272 7.84 14,201 280 7.89
Federal funds sold and
securities purchased under
agreement to resell 20,400 283 5.55 9,830 120 4.88
Other earning assets 0 0 - 0 0 -
Total earning assets 362,580 7,251 8.00 324,384 6,337 7.81
Other assets 25,436 24,103
Total assets $388,016 $348,487
Liabilities and stockholders'equity
Interest-bearing liabilities:
Interest-bearing deposits $240,732 2,539 4.22 $216,475 $ 2,176 4.02
Federal funds purchased and
securities sold under
agreement to repurchase 38,553 462 4.79 36,402 436 4.79
Other short-term borrowings 1,612 21 5.21 1,335 18 5.39
Obligations under mortgages
and capitalized leases 0 0 - 6 0 8.00
Total interest-bearing
liabilities $280,897 $ 3,022 4.30 $254,218 $ 2,630 4.14
Noninterest-bearing deposits 65,621 55,277
Other liabilities 3,974 5,114
Stockholders' equity 37,524 33,878
Total liabilities and
stockholders' equity $388,016 $348,487
Net interest income as a percent
of total earning assets $362,580 $ 4,229 4.67 $324,384 $ 3,707 4.57
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 93 $ 95
</TABLE>
<TABLE>
<S> <C> <C>
Ratios:
Annualized return on average total assets 1.55 1.40
Annualized return on average stockholders' equity 16.02 14.42
Cash dividends declared as a percent of net income 0 0
Average stockholders' equity as a percent of:
Average total assets 9.67 9.72
Average total deposits 12.25 12.47
Average loans, net of unearned income 17.87 19.54
Average earning assets as a percent of
average total assets 93.44 93.08
</TABLE>
16
<PAGE>
CNB Corporation and Subsidiary
Selected Financial Data
<TABLE>
<CAPTION>
Nine Months Ended 9/30/97 Nine Months Ended 9/30/96
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 $201,261 $14,103 9.34% $166,574 $11,629 9.31%
Securities:
Taxable 119,100 5,377 6.02 127,665 5,660 5.91
Tax-exempt 13,791 811 7.84 13,973 842 8.03
Federal funds sold and
securities purchased under
agreement to resell 14,552 582 5.33 9,124 348 5.09
Other earning assets 0 0 - 0 0 -
Total earning assets 348,704 20,873 7.98 317,336 18,479 7.76
Other assets 24,622 23,371
Total assets $373,326 $340,707
Liabilities and stockholders'equity
Interest-bearing liabilities:
Interest-bearing deposits $238,686 7,414 4.14 $211,485 $ 6,392 4.03
Federal funds purchased and
securities sold under
agreement to repurchase 36,099 1,272 4.70 41,270 1,501 4.85
Other short-term borrowings 1,470 56 5.08 1,113 47 5.63
Obligations under mortgages
and capitalized leases 0 0 - 8 0 8.00
Total interest-bearing
liabilities $276,255 $ 8,742 4.22 $253,876 $ 7,940 4.17
Noninterest-bearing deposits 58,073 51,379
Other liabilities 3,250 2,322
Stockholders' equity 35,748 33,130
Total liabilities and
stockholders' equity $373,326 $340,707
Net interest income as a percent
of total earning assets $348,704 $12,131 4.64 $317,336 $10,539 4.43
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 276 $ 286
</TABLE>
<TABLE>
<S> <C> <C>
Ratios:
Annualized return on average total assets 1.35 1.21
Annualized return on average stockholders' equity 14.05 12.49
Cash dividends declared as a percent of net income 0 0
Average stockholders' equity as a percent of:
Average total assets 9.58 9.72
Average total deposits 12.05 12.60
Average loans, net of unearned income 17.76 19.89
Average earning assets as a percent of
average total assets 93.40 93.14
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Three Months Ended September 30, 1997 and 1996
(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
1997 1996 1997 (1) 1996 (1) 1997 (1) 1996 (1) Variance Rate Volume Volume
Earning Assets:
Loans, Net of unearned
income (2) 209,965 173,342 9.34% 9.31% 4,904 4,033 871 13 852 6
Investment securities:
Taxable 118,336 127,011 6.06% 6.00% 1,792 1,904 (112) 19 (130) (1)
Tax-exempt 13,879 14,201 7.84% 7.89% 272 280 (8) (2) (6) -
Federal funds sold and
securities purchased under
agreement to resell 20,400 9,830 5.55% 4.88% 283 120 163 16 129 18
Other earning assets 0 0 - - 0 0 0 - - -
Total Earning Assets 362,580 324,384 8.00% 7.81% 7,251 6,337 914 46 845 23
Interest-bearing Liabilities:
Interest-bearing deposits 240,732 216,475 4.22% 4.02% 2,539 2,176 363 108 244 11
Federal funds purchased and
securities sold under
agreement to repurchase 38,553 36,402 4.79% 4.79% 462 436 26 - 26 -
Other short-term borrowings 1,612 1,335 5.21% 5.39% 21 18 3 (1) 4 -
Mortgage indebtedness and
obligations under capital-
ized leases 0 6 - 8.00% 0 0 0 - - -
Total Interest-bearing
Liabilities 280,897 254,218 4.30% 4.14% 3,022 2,630 392 107 274 11
Interest-free Funds
Supporting Earning Assets 81,683 70,166
Total Funds Supporting
Earning Assets 362,580 324,384 3.33% 3.24% 3,022 2,630 392 107 274 11
Interest Rate Spread 3.70% 3.67%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .97% .90%
Net Yield on Earning Assets 4.67% 4.57% 4,229 3,707
</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, 1997 and 1996
(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
1997 1996 1997 (1) 1996 (1) 1997 (1) 1996 (1) Variance Rate Volume Volume
Earning Assets:
Loans, Net of unearned
income (2) 201,261 166,574 9.34% 9.31% 14,103 11,629 2,474 37 2,422 15
Investment securities:
Taxable 119,100 127,665 6.02% 5.91% 5,377 5,660 (283) 105 (380) (8)
Tax-exempt 13,791 13,973 7.84% 8.03% 811 842 (31) (20) (11) -
Federal funds sold and
securities purchased under
agreement to resell 14,552 9,124 5.33% 5.09% 582 348 234 16 207 11
Other earning assets 0 0 - - 0 0 0 - - -
Total Earning Assets 348,704 317,336 7.98% 7.76% 20,873 18,479 2,394 138 2,238 18
Interest-bearing Liabilities:
Interest-bearing deposits 238,686 211,485 4.14% 4.03% 7,414 6,392 1,022 174 822 26
Federal funds purchased and
securities sold under
agreement to repurchase 36,099 41,270 4.70% 4.85% 1,272 1,501 (229) (46) (188) 5
Other short-term borrowings 1,470 1,113 5.08% 5.63% 56 47 9 (4) 15 (2)
Mortgage indebtedness and
obligations under capital-
ized leases 0 8 - 8.00% 0 0 0 - - -
Total Interest-bearing
Liabilities 276,255 253,876 4.22% 4.17% 8,742 7,940 802 124 649 29
Interest-free Funds
Supporting Earning Assets 72,449 63,460
Total Funds Supporting
Earning Assets 348,704 317,336 3.34% 3.33% 8,742 7,940 802 124 649 29
Interest Rate Spread 3.76% 3.59%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .88% .84%
Net Yield on Earning Assets 4.64% 4.43% 12,131 10,539
</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 $150 for the three-month period
ended September 30, 1997 and $90 for the three-month period ended September
30, 1996. Net loan charge-offs/(recoveries) totaled $(48) for the
three-month period ended September 30, 1997 and $52 for the same period in
1996.
The provision for possible loan losses was $600 for the nine-month period
ended September 30, 1997 and $230 for the nine-month period ended September
30, 1996. Net loan charge-offs/(recoveries) totaled $65 for the nine-month
period ended September 30, 1997 and $113 for the same period in 1996.
The reserve for possible loan losses as a percentage of net loans was 1.39%
at September 30, 1997 and 1.37% at September 30, 1996. The increased
provision during the three-month and nine-month period ended September 30,
1997 was due to the increased level of net loan growth. Continued low net
charge-offs through the remainder of 1997 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. There
were no security sales during the second or third quarters of 1996 or during
the nine-month period ending September 30, 1997. Management sold
approximately $2 million in treasury bonds to fund loan growth and to adjust
the Bank's interest sensitivity position. At September 30, 1997, December 31,
1996, and September 30, 1996 market value appreciation/(depreciation) in the
securities portfolio totaled $715, $202, and $(836). As indicated, market
value has increased in 1997 due to falling market interest rates.
Other Income - Other income, net of any gains/losses on security
transactions, increased by 18.0% from $799 for the three-month period ended
September 30, 1996 to $943 for the three-month period ended September 30,
1997.
Other income, net of any gains/losses on security transactions, increased by
15.7% from $2,146 for the nine-month period ended September 30, 1996 to
$2,482 for the nine-month period ended September 30, 1997.
The increase in the three-month and nine-month period ended September 30,
1997 was primarily due to an increase in deposit account volumes; higher
merchant discount income, and a June 1, 1997 increase in overall service
charge rates.
Other Expenses - Other expenses increased by 5.3% from $2,489 for the three-
month period ended September 30, 1996 to $2,621 for the three-month period
ended September 30, 1997. The major components of other expenses are
salaries and employee benefits which increased 2.9% from $1,492 to $1,535;
occupancy expense which increased 1.3% from $375 to $380; and other operating
expenses which increased by 13.5% from $621 to $705.
Occupancy expense has remained flat as depreciation expense has decreased
7.6% from $171 during the third quarter of 1996 to $158 for the same period
in 1997.
20
<PAGE>
Other Expenses (continued) - Other expenses increased by 4.0% from $7,544 for
the nine-month period ended September 30, 1996 to $7,849 for the nine-month
period ended September 30, 1997. The major components of other expenses are
salaries and employee benefits which increased 4.2% from $4,426 to $4,611;
occupancy expense which decreased 4.7% from $1,285 to $1,224; and other
operating expense which increased by 9.8% from $1,831 to $2,011. Occupancy
expense has declined as depreciation expense has decreased 17.6% from $585
during the first three quarters of 1996 to $482 for the same period in 1997.
Income Taxes - Provisions for income taxes increased 31.8% from $611 for the
three-month period ended September 30, 1996 to $805 for the three-month
period ended September 30, 1997. Income before income taxes less interest on
tax-exempt investment securities increased by 29.3% from $1,647 for the
three-month period ended September 30, 1996 to $2,129 for the same period in
1997. State tax liability increased as income before income taxes increased
26.0% from $1,832 to $2,308 during the same period.
Provisions for income taxes increased 36.0% from $1,559 for the nine-month
period ended September 30, 1996 to $2,120 for the nine-month period ended
September 30, 1997. Income before income taxes less interest on tax-exempt
investment securities increased by 30.3% from $4,107 for the nine-month
period ended September 30, 1996 to $5,353 for the same period in 1997 and
state tax liability increased as income before income taxes increased 26.3%
from $4,663 to $5,888 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 $38,439, $34,496, $32,195, and $28,857 at
September 30, 1997, December 31, 1996, December 31, 1995, and December 31,
1994, representing 9.89%, 10.09%, 9.91%, and 9.71% of total assets,
respectively. At September 30, 1997, 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.
The company paid an approximate 25% stock dividend on September 12, 1997. It
is the Board's intention to continue paying a $3.00 per share annual cash
dividend on the increased number of outstanding shares which will have the
effect of increasing the cash dividend payout ratio and cash dividend yield.
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>
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
_________________________________________
Paul R. Dusenbury
Treasurer
(Chief Financial and Accounting Officer)
Date: November 13, 1997
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,294
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 19,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,383
<INVESTMENTS-CARRYING> 70,749
<INVESTMENTS-MARKET> 71,249
<LOANS> 212,033
<ALLOWANCE> 2,905
<TOTAL-ASSETS> 388,670
<DEPOSITS> 305,317
<SHORT-TERM> 42,225
<LIABILITIES-OTHER> 2,689
<LONG-TERM> 0
0
0
<COMMON> 5,987
<OTHER-SE> 32,452
<TOTAL-LIABILITIES-AND-EQUITY> 388,670
<INTEREST-LOAN> 14,103
<INTEREST-INVEST> 5,912
<INTEREST-OTHER> 582
<INTEREST-TOTAL> 20,597
<INTEREST-DEPOSIT> 7,414
<INTEREST-EXPENSE> 8,742
<INTEREST-INCOME-NET> 11,855
<LOAN-LOSSES> 600
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,849
<INCOME-PRETAX> 5,888
<INCOME-PRE-EXTRAORDINARY> 3,768
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,768
<EPS-PRIMARY> 6.30<F1>
<EPS-DILUTED> 6.30<F1>
<YIELD-ACTUAL> 4.64<F1>
<LOANS-NON> 16
<LOANS-PAST> 139
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,030<F2>
<ALLOWANCE-OPEN> 2,370
<CHARGE-OFFS> 344
<RECOVERIES> 279
<ALLOWANCE-CLOSE> 2,905
<ALLOWANCE-DOMESTIC> 2,905
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>MULTIPLIER IS NOT APPLICABLE TO EPS FIGURES OR YIELD
<F2>INCLUDES NON-ACCRUAL LOANS OF $16 AND CONFEDERATED LIFE CLASSIFIED
ASSET OF $2,014
</FN>
</TABLE>
