UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996.
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the Transition Period From ___________ to ___________.
Commission file number 2-96350
CNB CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0792402
(State of incorporation) (I.R.S. Employer Identification No.)
1400 Third Avenue, 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
Securities registered pursuant to section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class of which registered
Common Stock, par value $10.00 per share...............................None
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
As of February 28, 1997, 478,623 shares of Common Stock of CNB
Corporation were outstanding and the aggregate market value of such Common
Stock held by nonaffiliates (based upon the price at which stock was sold
during the 60 days prior to the date of filing) was approximately
$45,947,808.
No Documents have been incorporated by reference.
<PAGE>
TABLE OF CONTENTS
PART I
Page
ITEM 1. Description of Business and Supplementary Data 1-21
ITEM 2. Properties 22
ITEM 3. Legal Proceedings 22
ITEM 4. Submission of Matters to a Vote of Security Holders 23
PART II
ITEM 5. Market for the Registrant's Common Stock and Related 23
Security Holder Matters
ITEM 6. Selected Financial Data 24
ITEM 7. Management's Discussion and Analysis of Financial 25-30
Condition and Results of Operations
ITEM 8. Financial Statements 31-52
ITEM 9. Disagreements on Accounting and Financial Disclosure 52
PART III
ITEM 10. Directors and Executive Officers of the Registrant 53-57
ITEM 11. Executive Compensation 58-60
ITEM 12. Security Ownership of Certain Beneficial Owners 61
and Management
ITEM 13. Certain Relationships and Related Transactions 61
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, Notes to 62
Financial Statements, and Reports on Form 8-K
<PAGE>
PART I
ITEM 1. Description of Business
DESCRIPTION OF CNB CORPORATION
CNB Corporation (the "Company") is a South Carolina business corporation
organized for the purpose of becoming a bank holding company for The Conway
National Bank (the "Bank") under the Bank Holding Company Act. The Company
was organized with $500 of capital on March 8, 1985; received approval from
the Board of Governors of the Federal Reserve System on May 15, 1985, to
become a bank holding company; and on June 10, 1985, acquired, in exchange
for its own shares of common stock, substantially all of the common stock of
the Bank. The activities of the Company are subject to the supervision of
the Federal Reserve, and the Company may engage directly or through
subsidiary corporations in those activities closely related to banking which
are specifically permitted under the Bank Holding Company Act. See
"Supervision and Regulation." Although the Company, after obtaining the
requisite approval of the Federal Reserve and any other appropriate
regulatory agency, may seek to enter businesses closely related to banking or
to acquire existing businesses already engaged in such activities, the
Company has not conducted, and has no present intent to conduct, negotiations
for the acquisition or formation of any entities to engage in other
permissible activities other than the acquisition of the Bank. There can be
no assurance that the Company will form or acquire any other entity.
The Company and the Bank compete with those banks and other financial
institutions that compete with the Bank. See "Competition." In addition,
if the Company attempts to form or acquire other entities and engage in
activities closely related to banking, the Company will be competing with
other bank holding companies and companies currently engaged in lines of
business or permissible activities in which the Company might engage, many
of which have far greater assets and financial resources than the Company and
a greater capacity to raise additional debt and equity capital than the
Company.
DESCRIPTION OF THE SUBSIDIARY
The Bank is an independent community bank engaged in the general commercial
banking business in Horry County, South Carolina. The Bank was organized on
June 5, 1903 as the Bank of Horry located on Main Street in Conway, South
Carolina. The Bank became a national bank operating as The Conway National
Bank in 1914. On June 10, 1985, the Bank was reorganized into a bank
holding company structure when substantially all of the common stock of the
Bank was acquired by CNB Corporation in exchange for its own shares of common
stock. In 1960, the Bank opened its first additional office at 1400 Third
Avenue in Conway. Since that time, the following offices have been opened
in Horry County: Coastal Centre in Conway (1969); Surfside in Surfside Beach
(1971); Northside, north of Myrtle Beach (1977); Red Hill in Conway (1981);
Socastee, in the southern portion of Myrtle Beach (1986); Aynor in the Town
of Aynor (1991), and Myrtle Beach in the City of Myrtle Beach (1995). The
Surfside office was enlarged in 1977 and 1984, and the Coastal Centre office
was expanded in 1980. The Third Avenue office, which houses the Bank's
administrative offices and data processing facilities was expanded in 1982
from 11,150 square feet to 33,616 square feet. The Bank employs
approximately 180 full-time-equivalent employees at its principal office and
eight branch offices.
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The Bank performs the full range of normal commercial banking functions.
Some of the major services provided include checking accounts, NOW accounts,
money market deposit accounts, IRA accounts, savings and time deposits of
various types and loans to individuals for personal use, home mortgages,
home improvement, automobiles, real estate, agricultural purposes and
business needs. Commercial lending operations include various types of
credit for business, industry, and agriculture. In addition, the Bank
offers safe deposit boxes, wire transfer services, bank money orders, 24-hour
teller machines on the HONOR Network, direct deposits and a MasterCard/Visa
program. Through a correspondent relationship the Bank offers discount
brokerage services. The Bank does not provide trust services; does not sell
annuities; and does not sell mutual funds.
The majority of the Bank's customers are individuals and small to
medium-sized businesses headquartered within the Bank's service area. The
Bank has no material concentration of deposits from any single customer or
group of customers. No significant portion of the Bank's loans is
concentrated within a single industry or group of related industries. There
are no material seasonal factors that would have any adverse effect on the
Bank nor does the Bank rely on foreign sources of funds or income.
COMPETITION
The Bank actively competes with other institutions in Horry County in
providing customers with deposit, credit and other financial services. The
principal competitors of the Bank include local offices of six regional
banks, two state-wide banks, five locally owned banks in Horry County and
various other financial and thrift institutions. The regional banks with
offices in Horry County are Nationsbank of S.C., First Union National Bank of
S.C., United Carolina Bank of S.C., First Citizens Bank and Trust Company,
Branch Bank and Trust of S.C. and Wachovia, N.A. of S.C.. The statewide
banks with offices in Horry County are National Bank of South Carolina and
Carolina First Savings Bank. The locally owned banks having offices in Horry
County are The Anchor Bank of Myrtle Beach, Anderson Brothers Bank, Coastal
Federal Savings Bank, Horry County State Bank and First National South Bank.
Beach First, N.A. received a bank charter in 1996 and will become another
locally owned bank competing within the Myrtle Beach market. In addition,
one thrift institution has offices in Horry County. The Bank also competes
with credit unions, money market funds, brokerage houses, insurance
companies, mortgage companies, leasing companies, consumer finance companies
and other financial institutions. Significant competitive factors include
interest rates on loans and deposits, prices and fees for services, office
location, customer service, community reputation, and continuity of
personnel.
SUPERVISION AND REGULATION
General
The Company and the Bank are subject to an extensive collection of state and
federal banking laws and regulations which impose specific requirements and
restrictions on, and provide for general regulatory oversight with respect
to, virtually all aspects of the Company's and the Bank's operations. The
Company and the Bank are also affected by government monetary policy and by
regulatory measures affecting the banking industry in general. The actions
of the Federal Reserve System affect the money supply and, in general,
the Bank's lending abilities in increasing or decreasing the cost and
2
<PAGE>
availability of funds to the Bank. Additionally, the Federal Reserve System
regulates the availability of bank credit in order to combat recession and
curb inflationary pressures in the economy by open market operations in
United States government securities, changes in the discount rate on member
bank borrowings, changes in the reserve requirements against bank deposits
and limitations on interest rates which banks may pay on time and savings
deposits.
During 1989 and 1991, the United States Congress enacted two major pieces of
banking legislation: The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). The FIRREA and FDICIA have
significantly changed the commercial banking industry through, among other
things, revising and limiting the types and amounts of investment authority,
significantly increasing minimum regulatory capital requirements, and
broadening the scope and power of federal bank and thrift regulators over
financial institutions and affiliated persons in order to protect the deposit
insurance funds and depositors. These laws, and the resulting implementing
regulations, have subjected the Bank and the Company to extensive regulation,
supervision and examination by the Office of the Comptroller of the Currency
(OCC). This has resulted in increased administrative, professional and
compensation expenses in complying with a substantially increased number of
new regulations and policies. The regulatory structure created by these laws
gives the regulatory authorities extensive authority in connection with their
supervisory and enforcement activities and examination policies.
The following is a brief summary of certain statutes, rules and regulations
affecting the Company and the Bank. This summary is qualified in its
entirety by reference to the particular statutory and regulatory provisions
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the business of the Company and the
Bank. Any change in applicable laws or regulations may have a material
adverse effect on the business and prospects of the Company and the Bank.
The Company
The Company is a bank holding company within the meaning of the Federal Bank
Holding Company Act of 1956, as amended (the "BHCA") and is registered as
such with the Federal Reserve. The Company is required to file annual
reports and other information regarding its business operations and those of
its subsidiaries. It is also subject to supervision and regular
examinations.
The BHCA requires every bank holding company to obtain the prior approval of
the Federal Reserve Board before (i) it or any of its subsidiaries (other
than a bank) acquires substantially all of the assets of any bank, (ii) it
acquires ownership or control of any voting shares of any bank if after such
acquisition it would own or control, directly or indirectly, more than 5% of
the voting shares of such bank, or (iii) it merges or consolidates with any
other bank holding company.
The BHCA and the Federal Change in Bank Control Act, together with
regulations promulgated by the Federal Reserve Board, require that, depending
on the particular circumstances, either the Federal Reserve Board's approval
must be obtained or notice must be furnished to the Federal Reserve Board and
not disapproved prior to any person or company acquiring control of a bank
holding company, such as the Company, subject to certain exemptions for
certain transactions.
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<PAGE>
Under the BHCA, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of more than 5% of the voting
shares of any company engaged in, nonbanking activities, unless the Federal
Reserve Board, by order or regulation, has found those activities to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve Board has
determined by regulation to be proper incidents to the business of a bank
holding company include making or servicing loans and certain types of
leases, engaging in certain insurance and discount brokerage activities,
performing certain data processing services, acting in certain circumstances
as a fiduciary or investment or financial adviser, owning savings
associations and making investments in certain corporations or projects
designed primarily to promote community welfare. The Company is also
restricted in its activities by the provisions of the Glass-Stegall Act of
1933, which prohibits the Company from owning subsidiaries that are engaged
principally in the issue, flotation, underwriting, public sale or
distribution of securities. The regulatory requirements to which the Company
is subject also set forth various conditions regarding the eligibility and
qualifications of its directors and officers.
The Bank
The Bank is subject to regulation and supervision, of which regular bank
examinations are a part, by the Comptroller of the Currency. The Bank is a
member of the Federal Deposit Insurance Corporation (the "FDIC") which
currently insures the deposits of each member bank to a maximum of $100,000
per depositor. For this protection, each bank pays a statutory assessment
and is subject to the rules and regulations of the FDIC. The Company is an
"affiliate" of the Bank within the meaning of the Federal Reserve Act and the
Federal Deposit Insurance Act, which imposes restrictions on loans by any
subsidiary bank to the Company, on investments by any subsidiary bank in the
stock or securities of the Company and on the use of such stock or securities
as collateral security for loans by any subsidiary bank to any borrower. The
Company will also be subject to certain restrictions with respect to engaging
in the business of issuing, underwriting and distributing securities.
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DESCRIPTION OF BANK STOCK
The Bank is authorized to issue 199,536 shares and has outstanding 193,536
shares of Bank Stock. The holders of Bank Stock are entitled to one vote per
share. Holders of shares of Bank Stock have preemptive rights to purchase
additional shares of Bank Stock and have cumulative rights in the elections
of directors of the Bank. The National Bank Act generally provides for a
majority vote of the Bank Stock to approve an action by the Bank but a two-
thirds vote of the outstanding shares of Bank Stock is required to approve
certain fundamental changes.
The National Bank Act, 12 U.S.C. Section 55, provides for the pro rata
assessment of holders of common stock of a national bank in the event that
its capital becomes impaired, such assessment to be enforced by sale to the
extent necessary of the stock of the stockholder failing to pay his
assessment. However, the Company has been advised that the Comptroller of
the Currency has not used this provision in recent years. Accordingly, the
shares of Bank Stock are subject to such assessment. However, the Bank's
management does not anticipate the Bank Stock being assessed in this manner
in the foreseeable future.
The holders of Bank Stock are entitled to receive such dividends as may be
declared by the Board of Directors of the Bank out of funds legally available
therefor. National banking laws and regulations impose restrictions on the
payment of dividends and other distributions to stockholders. The National
Bank Act provides that a national bank cannot pay dividends or other
distributions to stockholders out of any portion of its capital and surplus,
and that no dividend shall be paid by a bank in an amount greater than its
"net profits then on hand" (as defined in the National Bank Act), after
deduction of statutory "bad debts." In addition, 12 U.S.C. Section 60
provides that the approval of the Comptroller of the Currency is required for
the payment of dividends by a national bank if the total of all dividends
declared by the bank in any calendar year shall exceed the total of its "net
profits" of that year combined with its "retained net profits" of the
preceding two years. The same section further provides that, until the
surplus fund of a national bank shall equal its common capital, no dividends
shall be declared unless there has been carried to the surplus fund not less
than one-tenth part of the bank's net profits of the preceding half year in
the case of quarterly or semiannual dividends, or not less than one-tenth
part of its net dividends. Also, under 12 U.S.C. Section 1818, the
Comptroller of the Currency can restrict a national bank's dividend payments
if they are deemed an unsafe or unsound banking practice.
In the event of the liquidation, dissolution or winding-up of the affairs of
the Bank, the holders of outstanding shares of Bank Stock will be entitled to
share pro rata according to their respective interests in the Bank's assets
and funds remaining after payment or provision for payment of all debts and
other liabilities of the Bank.
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DESCRIPTION OF COMPANY STOCK
General
The Company is authorized to issue 500,000 shares of Company Stock and as of
December 31, 1996, has 479,093 shares issued and 478,018 shares outstanding.
The holders of Company Stock are entitled to one vote per share. Holders of
shares of Company Stock do not have pre-emptive rights to purchase any
additional shares of Company Stock and do not have cumulative voting rights
in the election of directors. Without pre-emptive rights, stockholders could
experience dilution of their voting power and of their equity interest in the
Company.
The ability of the Company to pay dividends to the holders of the Company
Stock depends upon the amount of dividends paid by the Bank to the Company.
The holders of shares of Company Stock will be entitled to receive such
dividends as may be declared by the Board of Directors of the Company out of
the funds legally available therefor. The payment of dividends by the
company are subject to the restrictions of South Carolina laws applicable to
the declaration of dividends by a business corporation. Under such
provisions, dividends may be paid in cash or in property of the Company,
including the shares of other corporations, except when the Company is
insolvent or would thereby be made insolvent or when the declaration of
payment thereof would be contrary to any restrictions in the Company
Articles. Dividends may be declared and paid only out of the unreserved and
unrestricted earned surplus of the Company.
In the event of the liquidation, dissolution or winding-up of the affairs of
the Company, the holders of outstanding shares of Company Stock will be
entitled to share pro rata according to their respective interests in the
Company's assets and funds remaining after payment or provision for payment
of all debts and other liabilities of the Company.
All shares of Company Stock are fully paid and nonassessable.
The Bank is the transfer agent for shares of Company Stock.
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SUPPLEMENTARY DATA
QUARTERLY SHAREHOLDER INFORMATION
CNB CORPORATION
QUARTERLY SHAREHOLDER INFORMATION
(All Dollar Amounts, Except Per Share Data, in Thousands)
Summary of Operating Results by Quarter
<TABLE>
<CAPTION>
Quarter Ended
1996 March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Interest income $ 5,841 $ 6,012 $ 6,196 $ 6,447
Interest expense 2,675 2,634 2,631 2,639
Net interest income 3,166 3,378 3,565 3,808
Provision for loan losses 50 90 90 130
Net interest income after
provision for loan losses 3,116 3,288 3,475 3,678
Other income 742 740 846 687
Other expenses 2,481 2,574 2,489 2,849
Income before income taxes 1,377 1,454 1,832 1,516
Income taxes 450 498 611 536
Net income $ 927 $ 956 $ 1,221 $ 980
Net income per share $ 1.94 $ 2.00 $ 2.56 $ 2.05
Weighted average shares outstanding 477,241 477,257 477,304 478,182
1995
Interest income $ 5,396 $ 5,649 $ 5,736 $ 5,820
Interest expense 2,296 2,542 2,619 2,058
Net interest income 3,100 3,107 3,117 3,162
Provision for loan losses 65 15 25 5
Net interest income after
provision for loan losses 3,035 3,092 3,092 3,157
Other income 663 710 789 790
Other expenses 2,355 2,550 2,330 2,560
Income before income taxes 1,343 1,252 1,551 1,387
Income taxes 414 415 486 462
Net income $ 929 $ 837 $ 1,065 $ 925
Net income per share $ 1.94 $ 1.75 $ 2.23 $ 1.94
Weighted average shares outstanding 477,953 478,045 477,945 477,820
</TABLE>
SUPPLEMENTARY INFLATION ADJUSTED FINANCIAL DATA
Inflation-adjusted accounting has not been applied to the Company's financial
information as management does not believe this type of analysis provides
useful information within the financial services industry. The Company
currently does not meet the asset size criteria which would make detailed
disclosure of inflation adjusted data mandatory.
GUIDE 3. STATISTICAL DISCLOSURE BY BANK
HOLDING COMPANIES
The following tables present additional statistical information about CNB
Corporation and its operation and financial condition and should be read in
conjunction with the consolidated financial statements and related notes
thereto contained elsewhere in this report.
DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL
The tables on the following 5 pages present selected financial data and an
analysis of net interest income.
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<TABLE>
<CAPTION>
CNB Corporation and Subsidiary
Selected Financial Data
Twelve Months Ended 12/31/96
Average Interest Avg. Annual
Balance Income/ Yield or
Expense(2) Rate
<S> <C> <C> <C>
Assets:
Earning assets
Loans, net of
unearned income $169,815 $15,808 9.31%
Investment securities:
Taxable 126,252 7,481 5.93
Tax-exempt 13,999 1,121 8.01
Federal funds sold and
securities purchased under
agreement to resell 8,626 460 5.33
Other earning assets 116 7 6.03
Total earning assets $318,808 $24,877 7.80
Other assets 23,374
Total assets $342,182
Liabilities and stockholders'equity:
Interest-bearing liabilities:
Interest-bearing deposits $214,194 8,610 4.02
Federal funds purchased and
securities sold under
agreement to repurchase 39,506 1,906 4.82
Other short-term borrowings 1,164 63 5.41
Total interest-bearing
liabilities $254,864 $10,579 4.15
Noninterest-bearing deposits 51,249
Other liabilities 2,449
Stockholders' equity 33,620
Total liabilities and
stockholders' equity $342,182
Net interest income as a
percent of total
earning assets $318,808 $14,298 4.48%
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 381
</TABLE>
Ratios:
Annualized return on average total assets 1.19%
Annualized return on average stockholders' equity 12.15
Cash dividends declared as a percent of net income 35.09
Average stockholders' equity as a percent of:
Average total assets 9.83
Average total deposits 12.67
Average loans, net of unearned income 19.80
Average earning assets as a percent of
average total assets 93.17%
(2) The Company had no out-of-period adjustments or foreign activities.
Loan fees of $0 are included in the above interest income. Loans on
a non-accrual basis for the recognition of interest income totalling
$377 as of December 31, 1996 are included in loans, net of unearned
income, for purpose of this analysis.
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CNB Corporation and Subsidiary
Selected Financial Data
Twelve Months Ended 12/31/95
Average Interest Avg. Annual
Balance Income/ Yield or
Expense(2) Rate
Assets:
Earning assets
Loans, net of
unearned income $149,940 $14,070 9.38%
Investment securities:
Taxable 114,685 6,755 5.89
Tax-exempt 14,525 1,344 9.25
Federal funds sold and
securities purchased under
agreement to resell 15,136 882 5.83
Other earning assets 116 7 6.03
Total earning assets $294,402 $23,058 7.83
Other assets 21,600
Total assets $316,002
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits $196,195 8,032 4.09
Federal funds purchased and
securities sold under
agreement to repurchase 39,332 2,002 5.09
Other short-term borrowings 1,439 81 5.63
Total interest-bearing
liabilities $236,966 $10,115 4.27
Noninterest-bearing deposits 45,839
Other liabilities 2,084
Stockholders' equity 31,113
Total liabilities and
stockholders' equity $316,002
Net interest income as a
percent of total
earning assets $294,402 $12,943 4.40%
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 457
Ratios:
Annualized return on average total assets 1.19%
Annualized return on average stockholders' equity 12.07
Cash dividends declared as a percent of net income 38.13
Average stockholders' equity as a percent of:
Average total assets 9.85
Average total deposits 12.85
Average loans, net of unearned income 20.75
Average earning assets as a percent of
average total assets 93.16%
(2) The Company had no out-of-period adjustments or foreign activities.
Loan fees of $0 are included in the above interest income. Loans on
a non-accrual basis for the recognition of interest income totalling
$479 as of December 31, 1995 are included in loans, net of unearned
income, for purpose of this analysis.
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CNB Corporation and Subsidiary
Selected Financial Data
Twelve Months Ended 12/31/94
Average Interest Avg.Annual
Balance Income/ Yield or
Expense(2) Rate
Assets:
Earning assets
Loans, net of
unearned income $140,104 $12,034 8.59%
Investment Securities:
Taxable 107,891 6,240 5.78
Tax-exempt 16,098 1,518 9.43
Federal funds sold and
securities purchased under
agreement to resell 14,127 564 3.99
Other earning assets 116 7 6.03
Total earning assets $278,336 $20,363 7.32
Other assets 19,259
Total assets $297,595
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits $190,589 6,460 3.39
Federal funds purchased and
securities sold under
agreement to repurchase 35,037 1,111 3.17
Other short-term borrowings 1,163 42 3.61
Total interest-bearing
liabilities $226,789 $ 7,613 3.36
Noninterest-bearing deposits 40,181
Other liabilities 2,167
Stockholders' equity 28,458
Total liabilities and
stockholders' equity $297,595
Net interest income as a
percent of total
earning assets $278,336 $12,750 4.58%
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 516
Ratios:
Annualized return on average total assets 1.18%
Annualized return on average stockholders' equity 12.29
Cash dividends declared as a percent of net income 27.31
Average stockholders' equity as a percent of:
Average total assets 9.56
Average total deposits 12.33
Average loans, net of unearned income 20.31
Average earning assets as a percent of
average total assets 93.53%
(2) The Company had no out-of-period adjustments or foreign activities.
Loan fees of $0 are included in the above interest income. Loans on
a non-accrual basis for the recognition of interest income totalling
$1,062 as of December 31, 1994 are included in loans, net of unearned
income, for purpose of this analysis.
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<TABLE>
<CAPTION>
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Twelve Months Ended December 31, 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) 169,815 149,940 9.31% 9.38% 15,808 14,070 1,738 (105) 1,857 (14)
Investment securities:
Taxable 126,252 114,685 5.93% 5.89% 7,481 6,755 726 46 675 5
Tax-exempt 13,999 14,525 8.01% 9.25% 1,121 1,344 (223) (180) (50) 7
Federal funds sold and
securities purchased under
agreement to resell 8,626 15,136 5.33% 5.83% 460 882 (422) (76) (379) 33
Other earning assets 116 116 6.03% 6.03% 7 7 - - - -
Total Earning Assets 318,808 294,402 7.80% 7.83% 24,877 23,058 1,819 (315) 2,103 31
Interest-bearing Liabilities
Interest-bearing deposits 214,194 196,195 4.02% 4.09% 8,610 8,032 578 (137) 728 (13)
Federal funds purchased and
securities sold under
agreement to repurchase 39,506 39,332 4.82% 5.09% 1,906 2,002 (96) (106) 10 -
Other short-term borrowings 1,164 1,439 5.41% 5.63% 63 81 (18) (3) (16) 1
Total Interest-bearing
Liabilities 254,864 236,966 4.15% 4.27% 10,579 10,115 464 (246) 722 (12)
Interest-free Funds
Supporting Earning Assets 63,944 57,436
Total Funds Supporting
Earning Assets 318,808 294,402 3.32% 3.43% 10,579 10,115 464 (246) 722 (12)
Interest Rate Spread 3.65% 3.56%
Impact of Non-interest-
bearing Funds on Net Yield
on Earning Assets .83% .84%
Net Yield on Earning Assets 4.48% 4.40% 14,298 12,943
</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.
11
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<TABLE>
<CAPTION>
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Twelve Months Ended December 31, 1995 and 1994
(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 DueTo Rate X
1995 1994 1995 (1) 1994 (1) 1995 (1) 1994 (1) Variance Rate Volume Volume
Earning Assets:
Loans, Net of unearned
income (2) 149,940 140,104 9.38% 8.59% 14,070 12,034 2,036 1,111 847 78
Investment securities:
Taxable 114,685 107,891 5.89% 5.78% 6,755 6,240 515 118 390 7
Tax-exempt 14,525 16,098 9.25% 9.43% 1,344 1,518 (174) (29) (148) 3
Federal funds sold and
securities purchased under
agreement to resell 15,136 14,127 5.83% 3.99% 882 564 318 260 40 18
Other earning assets 116 116 6.03% 6.03% 7 7 - - - -
Total Earning Assets 294,402 278,336 7.83% 7.32% 23,058 20,363 2,695 1,460 1,129 106
Interest-bearing Liabilities:
Interest-bearing deposits 196,195 190,589 4.09% 3.39% 8,032 6,460 1,572 1,340 193 39
Federal funds purchased and
securities sold under
agreement to repurchase 39,332 35,037 5.09% 3.17% 2,002 1,111 891 673 136 82
Other short-term borrowings 1,439 1,163 5.63% 3.61% 81 42 39 23 10 6
Total Interest-bearing
Liabilities 236,966 226,789 4.27% 3.36% 10,115 7,613 2,502 2,036 339 127
Interest-free Funds
Supporting Earning Assets 57,436 51,547
Total Funds Supporting
Earning Assets 294,402 278,336 3.43% 2.74% 10,115 7,613 2,502 2,036 339 127
Interest Rate Spread 3.56% 3.96%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .84% .62%
Net Yield on Earning Assets 4.40% 4.58% 12,943 12,750
</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.
12
<PAGE>
INVESTMENT SECURITIES
Investment securities with a par value of $55,665, $66,115, and $50,615
at December 31, 1996, 1995, and 1994, respectively, 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 on investment
securities at December 31, 1996, 1995, and 1994.
December 31, 1996
Book Unrealized Fair
Value Gains Losses Value Yield(1)
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
One to five years 29,072 48 169 28,951 6.04%
After ten years 784 - 18 766 6.08%
29,856 48 187 29,717 6.04%
State, county and municipal
One to five years 326 12 - 338 7.85%
Other-restricted
Federal Reserve
Bank Stock 116 - - 116 6.03%
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
One to five years 13,320 97 110 13,307 6.27%
Six to ten years 2,002 - 35 1,967 6.40%
15,332 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 - 375 7.89%
14,058 329 92 14,295 8.01%
Total held to maturity $70,149 $ 600 $ 443 $70,306 6.20%
(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.
13
<PAGE>
INVESTMENT SECURITIES, continued
December 31, 1995
Book Unrealized Fair
Value Gains Losses Value Yield(1)
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%
36,696 610 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%
Other-restricted
Federal Revenue
Bank Stock 116 - - 116 6.03%
Total available
for sale $61,649 $ 809 $ 92 $62,366 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 14,811 8.19%
Total held to maturity $76,402 $1,023 $ 194 $77,231 6.27%
(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.
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 $11,566,000 and an unrealized loss of
$68,000 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.
14
<PAGE>
INVESTMENT SECURITIES, continued
December 31, 1994
Book Unrealized Fair
Value Gains Losses Value Yield(1)
AVAILABLE FOR SALE
United States Treasury
Within one year $ 4,985 - 9 4,976 6.93%
One to five years 31,304 - 944 30,360 6.34%
36,289 - 953 35,336 6.42%
Federal agencies
Within one year 4,006 11 2 4,015 7.31%
One to five years 2,523 12 2 2,533 6.62%
After ten years 1,051 - 60 991 5.26%
7,580 23 64 7,539 6.80%
State, county and
municipal
Within one year 303 7 - 310 12.45%
One to five years 326 7 - 333 7.85%
629 14 - 643 10.05%
Other-restricted
Federal Reserve
Bank Stock 116 - - 116 6.03%
Total available
for sale $44,614 $ 37 $1,017 $43,634 6.53%
HELD TO MATURITY
United States Treasury
One to five years $58,669 $ 6 $3,132 $55,543 5.46%
Federal agencies
Six to ten years 8,995 12 359 8,648 6.65%
State, county and
municipal
Within one year 2,932 39 1 2,970 11.64%
One to five years 5,611 101 54 5,658 9.10%
Six to ten years 6,888 66 344 6,610 7.73%
15,431 206 399 15,238 8.97%
Total held to maturity $83,095 $ 224 $3,890 $79,429 6.25%
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended December 31, 1994, the Bank did not hold any
securities of an issuer that exceeded 10% of stockholders' equity.
15
<PAGE>
<TABLE>
<CAPTION>
LOAN PORTFOLIO
CLASSIFICATION OF LOANS
The following is a summary of loans, in thousands of dollars, at December 31, 1996,
1995, 1994, 1993, and 1992 by major classification:
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Real estate Loans - mortgage $111,474 $ 95,451 $ 89,728 $ 84,806 $ 84,298
- construction 15,148 5,453 6,328 4,051 5,768
Loans to farmers 1,328 1,032 1,180 971 881
Commercial and industrial loans 28,105 23,133 17,472 14,612 15,102
Loans to individuals for household
family and other consumer
expenditure 29,642 28,095 30,700 28,493 27,039
All other loans, including
overdrafts 236 334 186 87 89
Gross Loans 185,933 153,498 145,594 133,020 133,177
Less unearned income (1,058) (1,094) (1,231) (1,286) (1,554)
Less reserve
for loan losses (2,370) (2,242) (2,220) (2,170) (2,029)
Net loans $182,505 $150,162 $142,143 $129,564 $129,594
</TABLE>
MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
The Company's loan portfolio consisted of approximately $129,456,000 and
$105,744,000 in fixed rate loans as of December 31, 1996 and 1995,
respectively. At December 31, 1996, and 1995, fixed rate loans with
maturities in excess of one year amounted to approximately $93,017,000 and
$75,380,000, respectively. Variable rate loans are those on which the
interest rate can be adjusted to changes in the Bank's prime rate. Fixed
rate loans are those on which the interest rate generally cannot be changed
for the term of the loan.
16
<PAGE>
RISK ELEMENTS
The following information relates to certain assets which are defined as
risk elements by the Securities and Exchange Commission. All loans which
meet the criteria set forth by the Securities and Exchange Commission are
detailed below, regardless of the likelihood of collection in full or in
part. All loans classified for regulatory purposes as loss, doubtful,
substandard, or especially mentioned that have not been disclosed do not
represent or result from trends or uncertainties which management reasonably
expects will materially impact future operating results, liquidity, or
capital resources or represent material credits about which management is
aware of any information which causes management to have serious doubts as to
the ability of such borrower to comply with the loan repayment terms. As a
matter of practice, loans which management has serious concerns about the
borrower being able to pay are put into a non-accrual status and disclosed
under Risk Elements. Management reviews these loans periodically and feels
that the current reserve for possible loan losses more than adequately
provides coverage for actual loss potential. Other interest-bearing assets
considered a risk element are also detailed in this section.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following schedule summarizes the amount of nonaccrual, past due, and
restructured loans, in thousands of dollars, for the periods ended December
1996, 1995, 1994, 1993, 1992:
December 31,
1996 1995 1994 1993 1992
Nonaccrual loans $ 377 $ 479 $1,062 $1,015 $1,091
Accruing loans which are
contractually past due
90 days or more as to
principal or interest
payments $ 77 $ 87 $ 55 $ 221 $ 318
Restructed trouble debt None None None None None
Information relating to interest income on nonaccrual and renegotiated loans
outstanding for the year ended December 31, 1996, 1995, and 1994 is as
follows:
1996 1995 1994
Interest included in income during the
year $ 7 $ 2 $ 22
Interest which would have been included
at the original contract rates $ 45 $ 60 $ 93
Loans are placed in a non-accrual status when, in the opinion of management,
the collection of additional interest is questionable. Thereafter no
interest is taken into income unless received in cash or until such time as
the borrower demonstrates the ability to pay principal and interest.
17
<PAGE>
POTENTIAL PROBLEM LOANS
In addition to those loans disclosed under "Risk Elements", there are certain
loans in the portfolio which are presently current but about which management
has concerns regarding the ability of the borrower to comply with present
loan repayment terms. Management maintains a loan review of the total loan
portfolio to identify loans where there is concern that the borrower will not
be able to continue to satisfy present loan repayment terms. Such problem
loan identification includes the review of individual loans, loss experience,
and economic conditions. Problem loans include both current and past due
loans.
As of December 31, 1996, loans which management had serious concerns about
the borrower being able to repay were put into a non-accrual status which are
disclosed under "Risk Elements".
FOREIGN OUTSTANDINGS
As of the year ended December 31, 1996, the Company had no foreign loans
outstanding.
LOAN CONCENTRATIONS
As of the year ended December 31, 1996, the Company did not have any
concentration of loans exceeding 10% of total loans which are not otherwise
disclosed as a category of loans pursuant to Item III. A. of Guide 3.
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 was 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 have 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 the policy. Management anticipates the
Bank's COLI policies to be reinsured by Pacific Mutual prior to year-end
1997.
The Bank's independent external auditors have revisited the facts and
circumstances regarding the investment in the COLI program and have read the
related guidance in SFAS No. 5 and SAB Topic 5(Y). There continues to be no
significant uncertainties requiring the recognition of a loss contingency as
of the date of this report.
As of December 31, 1996, 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.
18
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
Loan loss experience for each reported period, in thousands of dollars, is
summarized as follows:
Year Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Loans (net of unearned income):
Average loans outstanding for
the period $169,815 $149,940 $140,104 $131,599 $128,859
Reserve for loan losses:
Balance at beginning
of period $ 2,242 $ 2,220 $ 2,170 $ 2,029 $ 1,814
Charge-offs:
Commercial, financial, and
agricultural 111 133 122 174 226
R.E. - construction
and mortgage 22 3 57 211 207
Loans to individuals 296 313 277 222 270
Total charge-offs $ 429 $ 449 $ 456 $ 607 $ 703
Recoveries:
Commercial, financial, and
agricultural 47 166 58 96 58
Real estate-construction
and mortgage 15 44 35 108 2
Loans to individuals 135 151 118 99 113
Total recoveries $ 197 $ 361 $ 211 $ 303 $ 173
Net charge-offs $ 232 $ 88 $ 245 $ 304 $ 530
Additions charged
to operations $ 360 $ 110 $ 295 $ 445 $ 745
Balance at end of period $ 2,370 $ 2,242 $ 2,220 $ 2,170 $ 2,029
Ratio of net charge-offs
during the period to
average loans outstanding
during the period. 14% .06% .17% .23% .41%
</TABLE>
The reserve for loan losses is maintained at the greater of 1.20% of net
loans or an amount that bears the same ratio to eligible loans as net
charge-offs to average eligible loans over the past six years. In addition,
the Asset/ Liability Management Committee and the Loan Committee review the
adequacy of the reserve quarterly and make recommendations as to the desired
amount of the reserve. Determination of the adequacy of the reserve is based
on the above ratios and, but not limited to, considerations of classified and
internally-identified problem loans, the current trend in delinquencies, the
volume of past-due loans, and current or expected economic conditions. Based
upon these factors, net charge-offs are anticipated to be approximately $300
during 1997.
19
<PAGE>
DEPOSITS
AVERAGE DEPOSITS BY CLASSIFICATION
The following table sets forth the classification of average deposits for the
indicated period, in the thousands of dollars:
Years Ended December 31,
1996 1995 1994
Noninterest bearing demand deposits 51,249 45,839 40,181
Interest bearing demand deposits 44,886 43,415 44,249
Savings deposits 31,375 33,512 41,870
Time deposits 137,733 119,268 104,470
Total deposits 265,443 242,034 230,770
AVERAGE RATES PAID ON DEPOSITS
The following table sets forth average rates paid on categories of
interest-bearing deposits for the periods indicated:
Years Ended December 31,
1996 1995 1994
Interest bearing demand deposits 1.70% 2.12% 2.39%
Savings deposits 2.79% 3.28% 3.88%
Time deposits 5.06% 5.04% 3.71%
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
The following table sets forth the maturity of time deposits of $100,000 or
more, in thousands of dollars, at December 31, 1996:
Time Certificates of Deposit
Maturity within 3 months or less $13,033
Over 3 through 6 months 7,782
Over 6 through 12 months 8,421
Over 12 months 5,082
Total 34,318
20
<PAGE>
RETURN ON EQUITY AND ASSETS
The following table presents certain ratios relating to the Company's equity
and assets:
Year ended December 31,
1996 1995 1994
Return on average total assets 1.19% 1.19% 1.18%
Return on average stockholders' equity 12.15% 12.07% 12.29%
Cash dividend payout ratio 35.09% 38.13% 27.31%
Average equity to average assets ratio 9.83% 9.85% 9.56%
SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under repurchase agreements are
short-term borrowings which generally mature within 90 days from the dates of
issuance. No other category of short-term borrowings had an average balance
outstanding during the reported period which represented 30 percent or more
of stockholders' equity at the end of the period.
The following is a summary of short-term borrowings at December 31 of each
reported period, in thousands of dollars:
December 31,
Federal funds purchased
and securities sold under 1996 1995 1994
agreement to repurchase $33,018 $36,935 $29,236
The following information relates to short-term borrowings outstanding during
1996, 1995, and 1994:
Maximum Amount Weighted Average
Outstanding in Any Interest Rate
Month End at December 31,
1996 1995 1994 1996 1995 1994
Federal funds
purchased and
securities sold
under agreement
to repurchase $45,333 $47,707 $41,537 4.81% 5.10% 4.29%
Year ended December 31,
1996 1995 1994
Federal funds purchased and
securities sold under
agreement to repurchase-
average daily amount outstanding $39,506 $39,332 $35,037
Weighted average interest rate paid 4.82% 5.09% 3.17%
21
<PAGE>
ITEM 2. PROPERTIES
The Company's subsidiary, The Conway National Bank, has nine permanent
offices in Horry County. The principal office, located at 1400 Third Avenue
in Conway, houses the Bank's administrative offices and data processing
facilities. This three-story structure, which was significantly expanded
in 1982, contains approximately 33,616 square feet. In addition, the Bank
has a 632 square foot building for express banking services adjacent to the
principal office. The Bank has a two-story office on Main Street in Conway
containing 8,424 square feet. Bank offices are housed in one-story
facilities at the Coastal Centre in Conway (3,500 square feet with an
adjacent 675 square foot building for express banking services), Red Hill in
Conway (3,760 square feet), Surfside in Surfside Beach (6,339 square feet),
Northside, north of Myrtle Beach (2,432 square feet), Socastee in the
southern portion of Myrtle Beach (3,498 square feet), Aynor in The Town of
Aynor (2,809 square feet), and Myrtle Beach in the City of Myrtle Beach
(12,000 square feet). Of the nine offices, the bank owns the principal
office, the office at Red Hill, Northside, Main Street, Socastee, Aynor, and
Myrtle Beach. All other facilities are leased by the Bank under long-term
leases with renewal options. In addition to the existing facilities, the
Company has purchased approximately one and one-half acres of land as a
future office site on Highway 17 south of Myrtle Beach in the Murrell's Inlet
area which is not expected to be utilized within the next two years.
ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings against the Company or its
subsidiary, The Conway National Bank, as of December 31, 1996.
There were no administrative or judicial proceedings arising under Section 8
of the Federal Deposit Insurance Act.
There were no material proceedings to which any director, officer, or owner
of record of more than 5% of the voting securities of the Company or any
associate is a party adverse to the Company.
There are other legal proceedings pending against the Company or its
subsidiary, The Conway National Bank, in the ordinary course of business. In
the opinion of management, based upon the opinion of counsel, liabilities
arising from these proceedings, if any, would not have a material adverse
effect on the financial position of the Company.
22
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On April 9, 1996, at the Annual Meeting of CNB Corporation, the security
holders:
1) Nominated and elected five directors to serve for a three-year
term; and
2) Ratified the appointment of Elliott, Davis, and Company,
Certified Public Accountants, as independent auditors for the
Company and its subsidiary for the year ending December 31,
1996.
PART II
ITEM 5. MARKET PRICE OF REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
As of December 31, 1996, there were approximately 615 holders of record of
Company stock. There is no established market for shares of Company stock
and only limited trading in such shares has occurred since the formation of
the Company on June 10, 1985. Most of the limited trading transactions have
been effected through the efforts of officers of the Company in matching
interested purchasers with shareholders who have expressed an interest in
selling their shares of Company stock. Some private trading of Company stock
has occurred without any participation in the transaction by the officers of
the Company other than to effect the transfer on the Company's shareholder
records. Accordingly, management of the Company is not aware of the prices
at which all shares of Company stock have traded. The following table sets
forth the prices known to management of the Company at which shares of
Company stock have traded in each quarter within the two most recent fiscal
years.
1996 1995
High Low High Low
First Quarter $88.75 $88.75 $66.25 $66.25
Second Quarter $93.25 $88.75 $79.75 $66.25
Third Quarter $93.25 $93.25 $79.75 $79.75
Fourth Quarter $96.00 $93.25 $88.75 $79.75
Holders of shares of Company stock are entitled to such dividends as may be
declared from time to time by the Board of Directors of the Company.
The Company paid an annual cash dividend of $3.00 per share in 1996 and 1995,
$2.00 per share in 1994, 1993 and 1992, $1.50 per share in 1991, and $1.00
per share in the years 1985 through 1990. In addition, the Company may
from time to time pay a stock dividend. The Company paid a 20% stock
dividend in September, 1994, a 50% stock dividend in July, 1989, a 20% stock
dividend in August, 1987 and a 15% stock dividend in November, 1985. There
can be no assurance, however, as to the payment of dividends by the Company
in the future since payment will be dependent upon the earnings and
financial condition of the Company and the Bank and other related factors.
23
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
CNB Corporation
FINANCIAL SUMMARY
(All Dollar Amounts, Except Per Share Data, in Thousands)
The following table sets forth certain selected financial data relating
to the Company and subsidiary and is qualified in its entirety by
reference to the more detailed financial statements of the Company and
subsidiary and notes thereto included elsewhere in this report.
Year Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Selected Income Statement Data:
Total Interest Income $ 24,496 $ 22,601 $ 19,847 $ 18,719 $ 19,244
Total Interest Expense 10,579 10,115 7,613 7,369 8,666
Net Interest Income 13,917 12,486 12,234 11,350 10,578
Provision for Possible Loan Lossess 360 110 295 445 745
Net Interest Income after
Provision for Possible Loan
Losses 13,557 12,376 11,939 10,905 9,833
Total Other Operating Income 3,015 2,954 2,814 2,735 2,564
Total Other Operating Expense 10,393 9,797 9,599 8,850 8,461
Income Before Income Taxes 6,179 5,533 5,154 4,790 3,936
Income Taxes 2,095 1,777 1,657 1,493 1,030
Net Income $ 4,084 $ 3,756 $ 3,497 $ 3,297 $ 2,906
Per Share:
Net Income Per Weighted Average
Shares Outstanding* $ 8.55 $ 7.86 $ 7.34 $ 6.92 $ 6.09
Cash Dividend Paid Per Share $ 3.00 $ 3.00 $ 2.00 $ 2.00 $ 2.00
Weighted Average Shares
Outstanding* 477,496 477,820 476,370 476,546 477,389
*Restated for stock dividend
Selected Balance Sheet Data:
Assets $341,818 $324,694 $297,120 $283,380 $268,078
Net Loans 182,505 150,162 142,143 129,564 129,594
Investment Securities 132,287 138,768 126,613 116,185 101,703
Federal Funds Sold - 7,300 3,125 14,400 16,125
Deposits:
Non-Interest-Bearing $ 49,885 $ 44,723 $ 40,986 $ 35,369 $ 30,973
Interest-Bearing 218,528 206,433 193,207 183,933 177,866
Total Deposits $268,413 $251,156 $234,193 $219,302 $208,839
Stockholders' Equity $ 34,496 $ 32,195 $ 28,857 $ 26,820 $ 24,443
</TABLE>
24
<PAGE>
ITEM 7. 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 Company's financial
condition, results of operations, liquidity, and capital resources. The
following discussion should be read in conjunction with the Company's
financial statements and notes thereto and other detailed information
appearing elsewhere in this report.
Distribution of Assets and Liabilities
The Company maintains a conservative approach in determining the distribution
of assets and liabilities. Loans, net of unearned income, increased 5.6%
from $144,363 at December 31, 1994 to $152,404 at December 31, 1995; and
21.3% from December 31, 1995 to $184,875 at December 31, 1996. Loan growth
is attributed to overall business development efforts to meet business and
personal loan demand in our market area. Loan demand was relatively strong
in our market area in 1995 and strong in 1996. During 1995, increased rate
and term competition on commercial loans within our market area somewhat
reduced the anticipated rate of loan growth. Loans, net of unearned income,
decreased as a percentage of total assets from 48.6% at year-end 1994 to
46.9% at year-end 1995 but grew strongly to 54.1% at year-end 1996.
Correspondingly, investment securities and federal funds sold increased as a
percentage of total assets from 43.7% at year-end 1994 to 45.0% at year-end
1995 but shrank to 38.7% at year-end 1996 as funds have been utilized to
balance the fluctuations in loan outstandings. Investments and federal funds
sold provide for an adequate supply of secondary liquidity. Year-end other
assets as a percentage of total assets increased from 7.7% in 1994 to 8.1% in
1995 due to the opening of a ninth banking office. This percentage dropped
to 7.2% in 1996 as the Bank grew into its expanded infrastructure. Management
has sought to build the deposit base with stable, relatively non-interest-
rate sensitive deposits by offering the small to medium account holders a
wide array of deposit instruments at competitve rates. Non-interest-bearing
demand deposits remained flat as a percentage of total assets at 13.8% at
December 31, 1994 and December 31, 1995, but grew to 14.6% at December 31,
1996. Demand deposits are expected to decline over the long-term as more
customers utilize interest-bearing deposit and repo accounts. Interest-
bearing liabilities as a percentage of total assets have declined from 75.7%
at December 31, 1994 to 75.2% at December 31, 1995 to 74.3% at December 31,
1996.
The following table sets forth the percentage relationship to total assets of
significant components of the Company's balance sheet as of December 31,
1996, 1995 and 1994:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
<S> <C> <C> <C>
Assets:
Earning assets
Loans, net of
unearned income 54.1% 46.9% 48.6%
Investment securities:
Taxable 34.6 38.3 37.1
Tax-exempt 4.1 4.4 5.5
Federal funds sold and securities
purchased under agreement to resell - 2.3 1.1
Other earning assets - - -
Total earning assets 92.8 91.9 92.3
Other assets 7.2 8.1 7.7
Total assets 100.0% 100.0% 100.0%
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits 63.9% 63.6% 65.0%
Federal funds purchased and securities
sold under agreement to repurchase 9.7 11.4 9.9
Other short-term borrowings .7 .2 .8
Total interest-bearing liabilities 74.3 75.2 75.7
Non-interest-bearing deposits 14.6 13.8 13.8
Other liabilities 1.0 1.1 .8
Stockholders' equity 10.1 9.9 9.7
Total liabilities and stockholders'equity 100.0% 100.0% 100.0%
</TABLE>
25
<PAGE>
Results of Operation
CNB Corporation and subsidiary experienced earnings in 1996, 1995 and 1994 of
$4,084, $3,756 and $3,497, respectively, resulting in a return of average
assets of 1.19%, 1.19%, and 1.18% and a return on average stockholders'
equity of 12.15%, 12.07% and 12.29%. The earnings were primarily attributable
to favorable 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). These strong
earnings, coupled with a conservative dividend policy, have supplied the
necessary capital funds to support bank operations. Total assets were
$341,818 at December 31, 1996 as compared to $324,694 at December 31,
1995 and $297,120 at December 31, 1994. The following table sets forth the
financial highlights for fiscal years 1996, 1995, and 1994.
26
<PAGE>
<TABLE>
<CAPTION>
CNB Corporation and Subsidiary
FINANCIAL HIGHLIGHTS
(All Dollar Amounts, Except Per Share Data, in Thousands)
December 31, 1995 to 1996 December 31, 1994 to 1995 December 31,
1996 Percent 1995 Percent 1994
Increase Increase
(Decrease) (Decrease)
<S> <C> <C> <C> <C> <C>
Net interest
income after
provision for
loan losses $ 13,557 9.5% $ 12,376 3.7% $ 11,939
Income before
income taxes 6,179 11.7 5,533 7.4 5,154
Net Income 4,084 8.7 3,756 7.4 3,497
Per share
(weighted
average of
shares
outstanding) $ 8.55 8.8 $ 7.86 7.1 $ 7.34
Cash dividends
declared 1,433 .1 1,432 49.9 955
Per share $ 3.00 - $ 3.00 50.0 $ 2.00
Total assets $341,818 5.3% $324,694 9.3% $297,120
Total deposits 268,413 6.9 251,156 7.2 234,193
Loans, net of
unearned income 184,875 21.3 152,404 5.6 144,363
Investment
securities 132,287 (4.7) 138,768 9.6 126,613
Stockholders'
equity 34,496 7.1 32,195 11.6 28,857
Book value per
share - actual
number of
shares outstanding $ 72.16 7.0 $ 67.43 11.5 $ 60.46
Ratios(1):
Returns on
average total
assets 1.19% - 1.19% .8 1.18%
Return on
average
stockholders'
equity 12.15% .7 12.07% (1.8) 12.29%
</TABLE>
(1) For the fiscal years ended December 31, 1996, 1995, and 1994, average
total assets amounted to $342,182, $316,002, and $297,595 with average
stockholders' equity totaling $33,620, $31,113, and $28,458, respectively.
27
<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 investment securities, and
interest paid on deposits and borrowed funds. Net interest income is
affected by the interest rates earned or paid and by volume changes in
loans, investment securities, deposits, and borrowed funds.
The Bank has maintained strong net interest margins in 1996, 1995
and 1994 by earning adequate yields on loans and investments and funding
these assets with a favorable deposit and repurchase agreement mix.
Fully-tax-equivalent net interest income has grown from $12,750 in 1994 and
$12,943 in 1995 to $14,298 in 1996. During the three-year period, total
fully-tax-equivalent interest income increased by 13.2% from $20,363 in
1994 to $23,058 in 1995 and increased 7.9% in 1996 to $24,877. Over the
same period, total interest expense increased by 32.9% from $7,613 in 1994 to
$10,115 in 1995 and increased 4.6% to $10,579 in 1996. The significant
increase in 1995 interest income and expense reflected a rapid rise in market
interest rates coupled with higher volumes of bank assets and liabilities
while changes in 1996 were reflective of more modest interest rate and asset
increases. Fully-tax-equivalent net interest income as a percentage of
average total earning assets has moved in a narrow range from 4.6% in 1994 to
4.4% in 1995 and 4.5% in 1996.
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, 1995, and 1994. 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 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 long-run earning power. The
following table sets forth the Bank's rate sensitivity position at each of
the time intervals indicated. The table illustrates the Bank's rate
sensitivity position on specific dates and may not be indicative of the
position at other points in time. Management believes that a rise or fall in
interest rates will not materially effect earnings.
<TABLE>
<CAPTION>
Interest Rate Sensitivity Analysis
Over 1 to 5 Over 5
1 Day 90 Days 180 Days 365 Days Years Years
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets (RSA)
Federal Funds Sold 0 0 0 0 0 0
Investment Securities 0 9,569 8,305 16,635 89,664 7,998
Loans(net of non
-accruals $377) 56,100 17,093 6,669 12,677 62,254 30,763
Total, RSA 56,100 26,662 14,974 29,312 151,918 38,761
Rate Sensitive
Liabilities (RSL)
Deposits:
Certificates of
Deposit of 0 13,033 7,782 8,421 5,082 0
$100,000 or more
All Other Time
Deposits 0 37,258 27,212 21,757 9,510 0
Money Market
Deposit Accounts 13,159 0 0 0 0 0
Securities Sold
Under Repurchase 26,415 488 0 765 5,350 0
Agreements
Total, RSL 39,574 50,779 34,994 30,943 19,942 0
RSA-RSL 16,526 (24,117) (20,020) (1,631) 131,976 38,761
Cumulative RSA-RSL 16,526 (7,591) (27,611) (20,242) 102,734 141,495
Cumulative RSA/RSL 1.42 .92 .78 .81 1.58 1.80
</TABLE>
28
<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 during
the ongoing in-house problem loan identification process. The Company
includes the provisions of SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan", in the allowance for loan losses (see NOTE 1 - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES). The provision for possible loan losses
was $360 in 1996, $110 in 1995, and $295 in 1994. Net loan charge-offs
totalled $232 in 1996, $88 in 1995, and $245 in 1994 with net charge-offs
being centered in consumer purpose loans during each period. The reserve for
possible loan losses as a percentage of net loans was 1.30% at December 31,
1996, 1.49% at December 31, 1995, and 1.56% at December 31, 1994.
Securities Transactions - Net unrealized gains/(losses) in the investment
securities portfolio were $202 at December 31, 1996, $1,546 at December 31,
1995, and $(4,646) at December 31, 1994. The market value of investment
securities declined during 1994 due to the rapid rise in overall market
rates, rose again in 1995 as rates retreated, and declined modestly in 1996
as market rates rose somewhat. Security losses of $167 were taken in 1994 in
transactions to sell short-term low-yielding bonds and re-investing in
higher-yielding intermediate-term bonds. Security gains of $25 and $41 were
taken in 1995 and 1996, respectively, when bonds were sold to provide
additional primary liquidity and to manage the bank's interest rate
sensitivity position.
Other Income - Other income, net of security sales, decreased by 1.7% from
$2,981 in 1994 to $2,929 in 1995 and grew 1.5% from $2,929 in 1995 to $2,974
in 1996. Other income fell in 1995 due to lower service charge income booked
on deposit accounts, offset somewhat by higher merchant discount income, but
rose again in 1996 due to higher volumes in deposit and loan account
activity.
Other Expenses - Other expenses increased by 2.1% from $9,599 in 1994 to
$9,797 in 1995 and 6.1% from $9,797 in 1995 to $10,393 in 1996. The
components of other expenses are salaries and employee benefits of $5,285,
$5,695 and $6,166; occupancy and furniture and equipment expenses of $1,550,
$1,504, and $1,759; and other operating expenses of $2,764, $2,598, and
$2,468 for 1994, 1995, and 1996, respectively. The increase in salaries and
employee benefits reflects compensation increments, the increased costs of
providing employee benefits, and the 1995 addition of a 12-person Myrtle
Beach office. The Myrtle Beach office also impacted 1996 occupancy and
furniture and equipment expense as this was the first full year of operation.
During the third quarter of 1995, the Federal Deposit Insurance Corporation
(FDIC) announced that the bank insurance fund was fully capitalized and banks
were due a rebate of excessive paid-in insurance premiums. The Conway
National Bank received a $145 FDIC insurance premium rebate and is
experiencing significantly lower premiums as is evidenced in the decline in
1995 and 1996 other operating expenses. Looking ahead, non-interest expense
should grow at only a nominal rate during 1997 as no significant staffing and
infrastructure expenditures are expected, but may increase in 1998 due to
potential expansion in the bank's branch network.
Income Taxes - Provisions for income taxes increased 7.2% from $1,657 in
1994 to $1,777 in 1995 and 17.9% from $1,777 in 1995 to $2,095 in 1996.
The increase in income taxes is primarily due to an increase in income before
income taxes of 7.4% from $5,154 in 1994 to $5,533 in 1995 and 11.7% from
$5,533 in 1995 to $6,179 in 1996. Also, the utilization of tax-free income
as a percentage of income before income taxes declined in 1995 and 1996.
29
<PAGE>
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. The Company has cash
balances on hand of $3,078, $2,927, and $2,358 at December 31, 1996, 1995,
and 1994 with liabilities, consisting of cash dividends payable, totalling
$1,435, $1,432, and $955, respectively. Management feels that liquidity
sources are more than adequate to meet funding needs.
CAPITAL RESOURCES
Total stockholders' equity was $34,496, $32,195, and $28,857 at December
31, 1996, 1995, and 1994, representing 10.09%, 9.92%, and 9.71% of total
assets, respectively. At December 31, 1996, the Bank exceeds quantitative
measures established by regulation to ensure capital adequacy (see NOTE 15 -
REGULATORY MATTERS). Capital is considered sufficient by management to meet
current and prospective capital requirements and to support anticipated
growth in bank operations.
EFFECTS OF INFLATION
Inflation normally has the effect of accelerating the growth of both
a bank's assets and liabilities. One result of this inflationary effect is
an increased need for equity capital. Income is also affected by inflation.
While interest rates have traditionally moved with inflation, the effect on
net income is diminished because both interest earned on assets and interest
paid on liabilities vary directly with each other. In some cases,
however, rate increases are delayed on fixed-rate instruments. Loan demand
normally declines during periods of high inflation. Inflation has a direct
impact on the Bank's non-interest expense. The Bank responds to inflation
changes through readjusting non-interest income by repricing services.
EFFECTS OF REGULATORY ACTION
The Federal Deposit Insurance Corporation (FDIC) reduced FDIC insurance
premium rates during the third quarter of 1995. This decrease had a positive
effect on earnings in 1995 and 1996 and should favorably impact future years
income. (see NET INCOME - Other Expenses). The management of the Company and
the Bank is not aware of any other current recommendations by the regulatory
authorities which, if they were to be implemented, would have a material
effect on liquidity, capital resources, or operations.
30
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS
CNB CORPORATION AND SUBSIDIARY
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
31
<PAGE>
CNB CORPORATION AND SUBSIDIARY
CONWAY, SOUTH CAROLINA
CONTENTS
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 33
FINANCIAL STATEMENTS
Consolidated balance sheets 34
Consolidated statements of income 35
Consolidated statements of changes in stockholders' equity 36
Consolidated statements of cash flow 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 38 - 52
32
<PAGE>
Elliott, Davis & Company, L.L.P.
Certified Public Accountants
Members of the American Institute of Certified Public Accountants
Greenville, S.C.
Greenwood, S.C.
Anderson, S.C.
Aiken, S.C.
Columbia, S.C.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Directors and Stockholders
CNB Corporation
Conway, South Carolina
We have audited the accompanying consolidated balance sheets of CNB
Corporation and Subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CNB
Corporation and Subsidiary at December 31, 1996 and 1995 and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Elliott, Davis & Company, L.L.P.
January 17, 1997
Internationally - Moore Stephens Elliott Davis, L.L.C.
870 S. Pleasantburg Drive
Post Office Box 6286
Greenville, South Carolina 29606-6286
Telephone (864) 242-3370 Telefax (864) 232-7161
33
<PAGE>
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(amounts, except share data, in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS - Notes 2 and 16 $ 14,350 $ 15,605
FEDERAL FUNDS SOLD - Note 16 - 7,300
INVESTMENT SECURITIES HELD TO MATURITY
(fair value $70,306 in 1996 and $77,231
in 1995) - Notes 3 and 16 70,149 76,402
INVESTMENT SECURITIES AVAILABLE FOR SALE - Notes 3 and 16 62,138 62,366
LOANS - Notes 4 and 16 185,933 153,498
Less unearned income (1,058) (1,094)
Less allowance for loan losses (2,370) (2,242)
Net loans 182,505 150,162
PREMISES AND EQUIPMENT - Note 5 6,866 7,166
ACCRUED INTEREST RECEIVABLE 3,325 3,287
OTHER ASSETS 2,485 2,406
$ 341,818 $ 324,694
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits - Notes 6 and 16
Noninterest-bearing $ 49,885 $ 44,723
Interest-bearing 218,528 206,433
Total deposits 268,413 251,156
Securities sold under
repurchase agreements - Notes 7 and 16 29,018 36,935
Federal Funds purchased - Note 16 4,000 -
United States Treasury demand notes - Note 16 2,319 766
Other liabilities 3,547 3,619
Minority interest in consolidated subsidiary 25 23
Total liabilities 307,322 292,499
COMMITMENTS AND CONTINGENT LIABILITIES - Notes 10 and 11
STOCKHOLDERS' EQUITY
Common stock - $10 par value; authorized 500,000 shares;
issued 479,093 shares 4,791 4,791
Capital in excess of par value of stock 15,697 15,676
Retained earnings 14,082 11,431
Net unrealized holding gain on investment
securities available for sale 27 430
34,597 32,328
Less 1,075 shares and 1,640 shares held in Treasury at cost (101) (133)
Total stockholders' equity 34,496 32,195
$ 341,818 $ 324,694
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
34
<PAGE>
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(amounts, except per share data, in thousands)
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans $ 15,808 $ 14,070 $ 12,034
Investment securities
Taxable 7,481 6,755 6,240
Nontaxable 740 887 1,002
Total interest on investment securities 8,221 7,642 7,242
Federal funds sold 460 882 564
Other 7 7 7
Total interest income 24,496 22,601 19,847
INTEREST EXPENSE
Deposits 8,610 8,032 6,460
Securities sold under repurchase agreements 1,906 2,002 1,111
United States Treasury demand notes 63 81 42
Total interest expense 10,579 10,115 7,613
Net interest income 13,917 12,486 12,234
PROVISION FOR LOAN LOSSES 360 110 295
Net interest income after provision for loan losses 13,557 12,376 11,939
NONINTEREST INCOME
Service charges on deposit accounts 1,956 1,795 1,844
Other service and exchange charges 1,018 1,134 1,137
Gain (loss) on sale of investment securities available for sale 41 25 (167)
Total noninterest income 3,015 2,954 2,814
NONINTEREST EXPENSES
Salaries and wages 5,031 4,552 4,214
Pensions and other employee benefits 1,135 1,143 1,071
Occupancy 737 568 600
Furniture and equipment 1,022 936 950
Liability insurance 79 310 592
Office supplies 290 304 260
Credit card operations 569 528 563
Other operating expenses 1,527 1,453 1,346
Minority interest in income of subsidiary 3 3 3
Total noninterest expenses 10,393 9,797 9,599
Income before provision for income taxes 6,179 5,533 5,154
PROVISION FOR INCOME TAXES - Note 9 2,095 1,777 1,657
Net income $ 4,084 $ 3,756 $ 3,497
NET INCOME PER SHARE OF COMMON STOCK $ 8.55 $ 7.86 $ 7.34
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
35
<PAGE>
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
(amounts, except share data, in thousands)
<TABLE>
<CAPTION>
Net unrealized
holding gain
Capital in (loss) on
excess of securities Total
Common par value Retained Treasury available S.E.
Shares stock of stock earnings stock for sale equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 399,353 $ 3,994 $ 11,338 $ 11,678 $ (190) $ 571 $ 27,391
1994
Net income - - - 3,497 - - 3,497
Cash dividend, $2.00 per share - - - (955) - - (955)
Stock dividend 79,740 797 4,306 (5,113) - - (10)
Treasury stock transactions (net) - - - - 78 - 78
Gain on sale of treasury stock - - 15 - - - 15
Net change in unrealized holding
gain, net of income taxes of $731 - - - - - (1,159) (1,159)
BALANCE, DECEMBER 31, 1994 479,093 4,791 15,659 9,107 (112) (588) 28,857
1995
Net income - - - 3,756 - - 3,756
Cash dividend, $3.00 per share - - - (1,432) - - (1,432)
Treasury stock transactions (net) - - - - (21) - (21)
Gain on sale of treasury stock - - 17 - - - 17
Net change in unrealized holding
loss, net of income taxes of $678 - - - - - 1,018 1,018
BALANCE, DECEMBER 31, 1995 479,093 4,791 15,676 11,431 (133) 430 32,195
1996
Net income - - - 4,084 - - 4,084
Cash dividend, $3.00 per share - - - (1,433) - - (1,433)
Treasury stock transactions (net) - - - - 32 - 32
Gain on sale of treasury stock - - 21 - - - 21
Net change in unrealized holding gain,
net of income taxes of $269 - - - - - (403) (403)
BALANCE, DECEMBER 31, 1996 479,093 $ 4,791 $ 15,697 $ 14,082 $ (101) $ 27 $ 34,496
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part
of these statements.
36
<PAGE>
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,084 $ 3,756 $ 3,497
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation 757 666 623
Provision for loan losses 360 110 295
Provision for deferred income taxes 89 134 30
Loss on sale of premises and equipment - - 107
Changes in assets and liabilities:
Increase in accrued interest receivable (38) (367) (302)
Increase in other assets (79) (65) (71)
Increase (decrease) in other liabilities 106 9 (407)
Increase in minority interest in subsidiary 2 3 1
Net cash provided by operating activities 5,281 4,246 3,773
INVESTING ACTIVITIES
Proceeds from sale of investment securities available for sale 3,932 4,973 14,672
Proceeds from maturities of investment securities held to maturity 19,670 3,474 17,627
Proceeds from maturities of investment securities available for sale 11,546 9,755 3,828
Purchases of investment securities available for sale (15,921) (20,198) (20,379)
Purchases of investment securities held to maturity (13,418) (8,346) (27,156)
Net (increase) decrease in federal funds sold 7,300 (4,175) 11,275
Net increase in loans (32,702) (8,129) (12,874)
Proceeds received from sale of premises and equipment - - 3
Premises and equipment expenditures (457) (2,522) (1,026)
Net cash used for investing activities (20,050) (25,168) (14,030)
FINANCING ACTIVITIES
Dividends paid (1,432) (955) (794)
Net increase in deposits 17,257 16,963 14,891
Increase (decrease) in securities sold under repurchase agreements (7,917) 7,699 (2,583)
Increase in federal funds purchased 4,000 - -
Increase (decrease) in United States Treasury demand notes 1,553 (1,728) 2
Treasury stock transactions (net) 53 (4) 83
Net cash provided by financing activities 13,514 21,975 11,599
Net increase (decrease) in cash and due from banks (1,255) 1,053 1,342
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 15,605 14,552 13,210
CASH AND DUE FROM BANKS, END OF YEAR $ 14,350 $ 15,605 $ 14,552
CASH PAID FOR
Interest $ 10,580 $ 9,772 $ 8,002
Income taxes $ 1,915 $ 1,727 $ 1,611
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part
of these statements.
37
<PAGE>
CNB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation and nature of operations
The consolidated financial statements include the accounts of CNB
Corporation ("the Company") and its majority-owned subsidiary, The Conway
National Bank ("the Bank"). All significant intercompany balances and
transactions have been eliminated. The Bank operates under a national bank
charter and provides full banking services to customers. The Bank is subject
to regulation of the Office of the Comptroller of the Currency and the
Federal Deposit Insurance Corporation. The Company is subject to regulation
of the Federal Reserve Board.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the dates of the
Consolidated Balance sheets and the Consolidated Statements of Income for the
periods covered. Actual results could differ from those estimates.
Concentrations of credit risk
The Company, through its subsidiary, makes commercial and personal loans
to individuals and small businesses located primarily in the South Carolina
coastal region. The Company has a diversified loan portfolio and the
borrowers' ability to repay their loans is not dependent upon any specific
economic sector.
Cash and cash equivalents
For purposes of the statements of cash flows, cash and cash equivalents are
defined as those amounts included in the balance sheet caption "Cash and Due
from Banks". Cash and cash equivalents have an original maturity of three
months or less.
Investment securities
In 1994, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Stockholders' equity at the beginning of 1994 was restated to
reflect the effect of a change in accounting principle. Adoption of the
standard had no effect on net income.
Debt securities are classified upon purchase as available for sale, held
to maturity or trading. Such assets classified as available for sale are
carried at market value. Unrealized holding gains or losses are reported as
a component of stockholders' equity net of deferred income taxes. Securities
classified as held to maturity are carried at cost, adjusted for the
amortization of premiums and the accretion of discounts. In order to qualify
as held to maturity the Company must have the intent and ability to hold the
securities to maturity. Trading securities are carried at market value. The
Company has no trading securities. Gains or losses on disposition of
securities are based on the difference between the net proceeds and the
adjusted carrying amount of the securities sold, using the specific
identification method.
Loans and interest income
Interest on loans is accrued and taken into income based upon the interest
method. Interest on certain installment loans is accrued and taken into
income based upon the sum-of-the-months-digits method. The results from the
use of the sum-of-the-months-digits method are not materially different from
those that would be obtained using the interest method.
(Continued)
38
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Loans and interest income, continued
The Company adopted SFAS No. 114, Accounting by Creditors for Impairment
of a Loan on January 1, 1994. This standard requires that all creditors
value loans at the loans fair value if it is probable that the creditor will
be unable to collect all amounts due according to the terms of the loan
agreement. Fair value may be determined based upon the present value of
expected cash flows, market price of the loan, if available, or value of the
underlying collateral. Expected cash flows are required to be discounted at
the loans effective interest rate. SFAS No. 114 was amended by SFAS No. 118
to allow a creditor to use existing methods for recognizing interest income
on an impaired loan and by requiring additional disclosures about how a
creditor recognizes interest income on an impaired loan. The adoption of the
standards required no increase in the allowance for loan losses and had no
impact on net income for the year ended December 31, 1994.
Under SFAS No. 114, as amended by SFAS No. 118, when the ultimate
collectibility of an impaired loan's principal is in doubt, wholly or
partially, all cash receipts are applied to principal. When this doubt does
not exist, cash receipts are applied under the contractual terms of the loan
agreement first to principal then to interest income. Once the recorded
principal balance has been reduced to zero, future cash receipts are applied
to interest income, to the extent that any interest has been foregone.
Further cash receipts are recorded as recoveries of any amounts previously
charged off.
A loan is also considered impaired if its terms are modified in a troubled
debt restructuring after January 1, 1994. For these accruing impaired loans,
cash receipts are typically applied to principal and interest receivable in
accordance with the terms of the restructured loan agreement. Interest
income is recognized on these loans using the accrual method of accounting.
As of December 31, 1996 and 1995, the Company had no impaired loans.
Allowance for loan losses
The allowance for loan losses is based on management's ongoing evaluation
of the loan portfolio and reflects an amount that, in management's opinion,
is adequate to absorb losses in the existing portfolio. In evaluating the
portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, the composition of
the loan portfolio, and management's estimate of anticipated credit losses.
Loans are charged against the allowance at such time as they are determined
to be losses. Subsequent recoveries are credited to the allowance.
Management considers the year-end allowance appropriate and adequate to cover
possible losses in the loan portfolio; however, management's judgment is
based upon a number of assumptions about future events, which are believed to
be reasonable, but which may or may not prove valid. Thus, there can be no
assurance that charge-off's in future periods will not exceed the allowance
for loan losses or that additional increases in the allowance for loan losses
will not be required.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed over the estimated
useful lives of the assets using primarily accelerated methods. Additions to
premises and equipment and major replacements or improvements are capitalized
at cost. Maintenance, repairs and minor replacements are expensed when
incurred. Gains and losses on routine dispositions are reflected in current
operations.
(Continued)
39
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Non-performing assets
Non-performing assets include real estate acquired through foreclosure or
deed taken in lieu of foreclosure, and loans on non-accrual status. Loans
are placed on non-accrual status when, in the opinion of management, the
collection of additional interest is questionable. Thereafter no interest is
taken into income unless received in cash or until such time as the borrower
demonstrates the ability to pay principal and interest.
Advertising expense
Advertising, promotional, and other business development costs are
generally expensed as incurred. External costs incurred in producing media
advertising are expensed the first time the advertising takes place. External
costs relating to direct mailing costs are expensed in the period in which
the direct mailings are sent. Advertising, promotional, and other business
development costs of $293,711, $349,805 and $242,138 were included in the
Companys results of operations for 1996, 1995, and 1994, respectively.
Income taxes
Income taxes are accounted for in accordance with SFAS No. 109, Accounting
for Income Taxes. Under SFAS No. 109, deferred tax liabilities are
recognized on all taxable temporary differences (reversing differences where
tax deductions initially exceed financial statement expense, or income is
reported for financial statement purposes prior to being reported for tax
purposes). In addition, deferred tax assets are recognized on all deductible
temporary differences (reversing differences where financial statements
expense initially exceeds tax deductions, or income is reported for tax
purposes prior to being reported for financial statements purposes) and
operating loss and tax credit carryforwards. Valuation allowances are
established to reduce deferred tax assets if it is determined to be more
likely than not that all or some portion of the potential deferred tax asset
will not be realized.
Net income per share
Net income per share is computed on the basis of the weighted average
number of common shares outstanding, 477,496 in 1996, 477,820 in 1995 and
476,370 in 1994. Per share data has been restated to reflect stock
dividends.
Recently issued accounting standards
Accounting standards that have been proposed or issued by standard-setting
groups that do not require adoption until a future date will have no material
impact on the financial statements upon adoption.
Fair values of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," as amended by SFAS No. 119, requires
disclosure of fair value information for financial instruments, whether or
not recognized in the balance sheet, when it is practicable to estimate the
fair value. SFAS No. 107 defines a financial instrument as cash, evidence of
an ownership interest in an entity or contractual obligations which require
the exchange of cash or other financial instruments. Certain items are
specifically excluded from the disclosure requirements, including the
Company's common stock. In addition, other nonfinancial instruments such as
premises and equipment and other assets and liabilities are not subject to
the disclosure requirements.
(Continued)
40
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:
Cash and due from banks - The carrying amounts of cash and due from banks
(cash on hand, due from banks and interest bearing deposits with other banks)
approximate their fair value.
Federal funds sold - The carrying amounts of federal funds sold approximate
their fair value.
Investment securities held to maturity and available for sale - Fair values
for investment securities are based on quoted market prices.
Loans - For variable rate loans that reprice frequently and for loans that
mature within one year, fair values are based on carrying values. Fair
values for all other loans are estimated using discounted cash flow analyses,
with interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Fair values for impaired loans are
estimated using discounted cash flow analyses or underlying collateral
values, where applicable.
Deposits - The fair values disclosed for demand deposits are, by
definition, equal to their carrying amounts. The carrying amounts of
variable rate, fixed-term money market accounts and short-term certificates
of deposit approximate their fair values at the reporting date. Fair values
for long-term fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly
maturities.
Short-term borrowings - The carrying amounts of borrowings under repurchase
agreements, federal funds purchased and U. S. Treasury demand notes
approximate their fair values.
Off-balance sheet instruments - Fair values of off-balance sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing.
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 amounts of
these reserve balances for the years ended December 31, 1996 and 1995 were
approximately $5,112,000 and $4,306,000, respectively.
(Continued)
41
<PAGE>
NOTE 3 - INVESTMENT SECURITIES
The book value and approximate fair value of investment securities are
summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
1996
Amortized Unrealized Holding Fair
cost Gains Losses value
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
United States Treasury
Within one year $ 15,533 $ 52 $ 22 $ 15,563
One to five years 16,262 169 27 16,404
31,795 221 49 31,967
Federal agencies
One to five years 29,072 48 169 28,951
After ten years 784 - 18 766
29,856 48 187 29,717
State, county and municipal
One to five years 326 12 - 338
Other - restricted
Federal Reserve Bank stock 116 - - 116
Total available for sale $ 62,093 $ 281 $ 236 $ 62,138
HELD TO MATURITY
United States Treasury
Within one year $ 17,066 $ 20 $ 30 $ 17,056
One to five years 23,703 154 176 23,681
40,769 174 206 40,737
Federal agencies
One to five years 13,320 97 110 13,307
Six to ten years 2,002 - 35 1,967
15,322 97 145 15,274
State, county and municipal
Within one year 1,112 2 2 1,112
One to five years 6,950 302 15 7,237
Six to ten years 5,626 20 75 5,571
After ten years 370 5 - 375
14,058 329 92 14,295
Total held to maturity $ 70,149 $ 600 $ 443 $ 70,306
1995
AVAILABLE FOR SALE
United States Treasury
Within one year $ 11,022 $ 19 $ 21 $ 11,020
One to five years 28,674 591 37 29,228
39,696 610 58 40,248
Federal agencies
Within one year 417 3 - 420
One to five years 20,181 179 19 20,341
After ten years 913 1 15 899
21,511 183 34 21,660
State, county and municipal
One to five years 326 16 - 342
Other - restricted
Federal Reserve Bank stock 116 - - 116
Total available for sale $ 61,649 $ 809 $ 92 $ 62,366
</TABLE>
(Continued)
42
<PAGE>
NOTE 3 - INVESTMENT SECURITIES, Continued
<TABLE>
<CAPTION>
1995
Amortized Unrealized Holding Fair
cost Gains Losses value
<S> <C> <C> <C> <C>
HELD TO MATURITY
United States Treasury
Within one year $ 13,077 $ 59 $ 5 $ 13,131
One to five years 38,875 378 145 39,108
51,952 437 150 52,239
Federal agencies
Within one year 5,007 69 - 5,076
One to five years 3,004 65 - 3,069
Six to ten years 2,002 34 - 2,036
10,013 168 - 10,181
State, county and municipal
Within one year 1,674 17 1 1,690
One to five years 6,216 273 8 6,481
Six to ten years 6,069 120 35 6,154
After ten years 478 8 - 486
14,437 418 44 14,811
Total held to maturity $ 76,402 $ 1,023 $ 194 $ 77,231
</TABLE>
Investment securities with an aggregate par value of approximately
$55,665,000 at December 31, 1996 and $66,115,000 at December 31, 1995 were
pledged to secure public deposits and for other purposes.
On December 6, 1995, the Bank transferred certain securities from the
held to maturity classification to the available for sale classification.
These securities had an amortized cost of $11,566,000 and an unrealized loss
of $68,000 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.
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Following is a summary of loans by major classification (amounts in
thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Real estate - mortgage $ 111,474 $ 95,451
Real estate - construction 15,148 5,453
Commercial and industrial 28,105 23,133
Loans to individuals for household, family and
other consumer expenditures 29,642 28,095
Agriculture 1,328 1,032
All other loans, including overdrafts 236 334
$ 185,933 $ 153,498
</TABLE>
The Company's loan portfolio consisted of approximately $129,833,000 and
$105,744,000 in fixed rate loans as of December 31, 1996 and 1995,
respectively. At December 31, 1996, fixed rate loans with maturities in
excess of one year amounted to approximately $93,017,000.
(Continued)
43
<PAGE>
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, Continued
Changes in the allowance for loan losses are summarized as follows
(amounts in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance, beginning of year $ 2,242 $ 2,220 $ 2,170
Recoveries of loans previously charged
against the allowance 197 361 211
Provided from current year's income 360 110 295
Loans charged against the allowance (429) (449) (456)
Balance, end of year $ 2,370 $ 2,242 $ 2,220
</TABLE>
At December 31, 1996 and 1995, non-accrual loans totaled $377,000 and
$479,000, respectively. The total amount of interest earned on non-accrual
loans was $7,000 in 1996, $2,000 in 1995 and $22,000 in 1994. The gross
interest income which would have been recorded under the original terms of
the non-accrual loans amounted to $45,000 in 1996, $60,000 in 1995 and
$93,000 in 1994. As of December 31, 1996 and 1995, the Company had no
impaired loans.
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment at December 31 is summarized as follows (amounts in
thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land and buildings $ 8,358 $ 8,175
Furniture, fixtures and equipment 5,404 5,454
13,762 13,629
Less accumulated depreciation and amortization 6,941 6,463
6,821 7,166
Construction in progress 45 -
$ 6,866 $ 7,166
</TABLE>
Depreciation and amortization of bank premises and equipment charged to
operating expense totaled $757,000 in 1996, $666,000 in 1995 and $623,000 in
1994.
NOTE 6 - DEPOSITS
At December 31, 1996 and 1995, certificates of deposit of $100,000 or more
totaled approximately $34,318,000 and $28,507,000, respectively. Interest
expense on these deposits was approximately $1,639,000 in 1996, $1,182,000
in 1995 and $750,000 in 1994.
44
<PAGE>
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements are summarized as follows
(amounts in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
U. S. Government securities with a book value of $42,181
($42,174 market value) and $52,193 ($52,543 market
value) at December 31, 1996 and 1995, respectively,
are used as collateral for the agreements. $ 29,018 $ 36,935
</TABLE>
The Bank enters into sales of securities under agreements to repurchase.
These obligations to repurchase securities sold are reflected as liabilities
in the consolidated balance sheets. The dollar amount of securities
underlying the agreements are book entry securities maintained at the Federal
Reserve Bank of Richmond. The weighted-average interest rate of these
agreements was 4.71 and 5.10 percent at December 31, 1996 and 1995,
respectively. Securities sold under repurchase agreements averaged
$39,440,000 and $39,332,000 during 1996 and 1995, respectively. The maximum
amounts outstanding at any month-end were $45,333,000 and $47,707,000 during
1996 and 1995, respectively.
NOTE 8 - LINES OF CREDIT
At December 31, 1996, the Bank had unused short-term lines of credit
totaling $17,000,000 to purchase Federal Funds from unrelated banks. 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 Company has a demand note through the U.S. Treasury, Tax and Loan
system with the Federal Reserve Bank of Richmond. The Company may borrow up
to $5,000,000 under the arrangement at an interest rate of 5.15%. The note
is secured by U.S. Treasury Notes with a market value of $5,996,000 at
December 31, 1996. The amount outstanding under the note totaled $2,319,000
and $766,000 at December 31, 1996 and 1995, respectively.
NOTE 9 - INCOME TAXES
The provision for income taxes is reconciled to the amount of income tax
computed at the federal statutory rate on income before income taxes as
follows (amounts in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rate $2,101 34.0% $1,881 34.0% $1,752 34.0%
Increase (decrease) in taxes resulting from:
Tax exempt interest (253) (4.1) (293) (5.3) (330) (6.4)
State bank tax (net of federal benefit) 121 2.0 115 2.1 158 3.0
Other - net 126 2.0 74 1.3 77 1.5
Tax provision $ 2,095 33.9% $1,777 32.1% $1,657 32.1%
</TABLE>
(Continued)
45
<PAGE>
NOTE 9 - INCOME TAXES, Continued
The following summary of the provision for income taxes includes tax
deferrals which arise from temporary differences in the recognition of
certain items of revenue and expense for tax and financial reporting purposes
(amounts in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Income taxes currently payable
Federal $ 1,828 $ 1,484 $1,469
State 178 159 158
2,006 1,643 1,627
Tax consequences of differences
Loan losses (43) (7) 47
Depreciation 39 80 (57)
Change of accounting method - (13) (17)
Accretion on investments 20 63 8
Other 73 11 49
Provision $ 2,095 $ 1,777 $1,657
</TABLE>
The sources and tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
are as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses deferred
for tax purposes $ 806 $ 762
Other 16 16
Gross deferred tax assets 822 778
Less valuation allowance (799) (679)
Net deferred tax assets 23 99
Deferred tax liabilities:
Unrealized net gains on securities
available for sale (18) (287)
Accumulated discount accretion (150) (130)
Depreciation for income tax reporting
in excess of amount
for financial reporting (349) (356)
Gross deferred tax liabilities (517) (773)
Net deferred tax liability $(494) $(674)
</TABLE>
A portion of the change in the net deferred tax liability relates to the
change in unrealized net gains on securities available for sale. The related
current period deferred tax credit of $268,800 has been recorded directly to
stockholders' equity. The balance of the change in the net deferred tax
liability results from the current period deferred tax expense.
(Continued)
46
<PAGE>
NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the statements of financial position. The contract amounts of
those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it does for on-
balance-sheet instruments.
The contract value of the Company's off-balance-sheet financial instruments
is as follows as of December 31, 1996 (amounts in thousands):
Contract
amount
Commitments to extend credit $ 11,234
Standby letters of credit $ 906
Commitments to extend credit are agreements to lend as long as there is
no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Bank upon extension of credit
is based on management's credit evaluation.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
At December 31, 1996, the Bank was obligated under a number of non-
cancelable operating leases on equipment and land used for branch offices
that had an initial or remaining term of more than one year. Future minimum
rental payments under these leases at December 31, 1996 were (amounts in
thousands):
<TABLE>
<CAPTION>
Payable in year ending Amount
<S> <C>
1997 $ 53
1998 55
1999 56
2000 57
2001 8
2002 and thereafter 59
Total future minimum payments required $ 288
</TABLE>
Lease payments under all operating leases charged to expense totaled
$61,000 in 1996, $23,000 in 1995 and $54,000 in 1994. The leases provide
that the lessee pay property taxes, insurance and maintenance cost.
The Company is party to litigation and claims arising in the normal course
of business. Management, after consultation with legal counsel, believes
that the liabilities, if any, arising from such litigation and claims will
not be material to the Bank's financial position.
(Continued)
47
<PAGE>
NOTE 12 - RESTRICTION ON DIVIDENDS
The ability of the Company to pay cash dividends is dependent upon
receiving cash in the form of dividends from the Bank. Federal banking
regulations restrict the amount of dividends that can be paid and such
dividends are payable only from the retained earnings of the Bank. At
December 31, 1996 the Bank's retained earnings were $28,698,000.
NOTE 13 - TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND ASSOCIATES
Directors and executive officers of the Company and the Bank and associates
of such persons are customers of and had transactions with the Bank in the
ordinary course of business. Additional transactions may be expected to take
place in the future. Also, included in such transactions are outstanding
loans and commitments, all of which were made on comparable terms, including
interest rates and collateral, as those prevailing at the time for other
customers of the Bank, and did not involve more than normal risk of
collectibility or present other unfavorable features. Total loans to all
executive officers and directors, including immediate family and business
interests, at December 31, 1996 and 1995, were $1,895,000 and $2,025,000,
respectively. During 1996, $259,000 of new loans were made to this group and
repayments of $389,000 were received.
NOTE 14 - 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 years ended December
31, 1996, 1995 and 1994, $336,000, $266,000 and $295,000, respectively, was
charged to operations under the plan.
Supplemental benefits are provided to certain key officers under The
Conway National Bank Executive Supplemental Income Plan. This plan is not
qualified under the Internal Revenue Code. The plan is unfunded. However,
certain benefits are informally and indirectly funded by insurance policies
on the lives of the covered employees.
NOTE 15 - 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
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are 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 Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital to risk-weighted assets, and of Tier
I capital to average assets. Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is subject.
(Continued)
48
<PAGE>
NOTE 15 - REGULATORY MATTERS, Continued
As of December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have
changed the institution's category. The Bank's actual capital amounts and
ratios and minimum regulatory amounts and ratios are presented as follows:
<TABLE>
<CAPTION>
To be well capitalized
For Capital under prompt corrective
adequacy purposes action provisions
Actual Minimum Minimum
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996 (amounts in $000)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk
weighted assets) $ 34,932 18.47 % $ 15,132 8.0% $ 18,915 10.0%
Tier I Capital (to risk
weighted assets) 32,568 17.22 7,566 4.0 11,349 6.0
Tier I Capital (to
average assets) 32,568 9.53 13,676 4.0 17,095 5.0
As of December 31, 1995
Total Capital (to risk
weighted assets) 32,030 19.83 12,923 8.0 16,154 10.0
Tier I Capital (to risk
weighted assets) 30,011 18.58 6,462 4.0 9,692 6.0
Tier I Capital (to
average assets) 30,011 9.51 12,629 4.0 15,786 5.0
</TABLE>
NOTE 16 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments were as
follows at December 31 (amounts in thousands):
<TABLE>
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
amount value amount value
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks $ 14,350 $ 14,350 $ 15,605 $ 15,605
Federal funds sold - - 7,300 7,300
Investment securities
held to maturity 70,149 70,306 76,402 77,231
Investment securities
available for sale 62,138 62,138 62,250 62,250
Loans 185,933 184,065 153,498 153,301
FINANCIAL LIABILITIES
Deposits 268,413 268,514 251,156 251,266
Securities sold under
repurchase agreements 29,018 29,173 36,935 37,093
Federal funds purchased 4,000 4,000 - -
U. S. Treasury demand notes 2,319 2,319 766 766
OFF-BALANCE-SHEET INSTRUMENTS
Commitments to extend credit 11,234 11,234 12,323 12,323
Standby letters of credit 906 906 1,313 1,313
</TABLE>
(Continued)
49
<PAGE>
NOTE 17 - PARENT COMPANY INFORMATION
Following is condensed financial information of CNB Corporation
(parent company only) (amounts in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
ASSETS
Cash $ 3,078 $ 2,927
Investment in subsidiary 32,571 30,418
Land 245 245
Other assets 37 37
$ 35,931 $ 33,627
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends payable $ 1,435 $ 1,432
Stockholders' equity (net of $101
and $133 of treasury stock) 34,496 32,195
$ 35,931 $ 33,627
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INCOME
Dividend from bank subsidiary $ 1,548 $ 1,549 $ 1,161
Other income 11 2 -
1,559 1,551 1,161
EXPENSES
Sundry 30 22 21
Income before equity in
undistributed net income
of bank subsidiary 1,529 1,529 1,140
EQUITY IN UNDISTRIBUTED NET INCOME
OF SUBSIDIARY 2,555 2,227 2,357
Net income $ 4,084 $ 3,756 $ 3,497
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,084 $ 3,756 $ 3,497
Adjustments to reconcile net
income to net cash provided
by operating activities
Equity in undistributed net
income of bank subsidiary (2,555) (2,227) (2,357)
Change in other assets - - (30)
Net cash provided by
operating activities 1,529 1,529 1,110
</TABLE>
(Continued)
50
<PAGE>
NOTE 17 - PARENT COMPANY INFORMATION, Continued
CONDENSED STATEMENTS OF CASH FLOWS, Continued
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INVESTING ACTIVITIES
Proceeds received
from sale of land - - 242
FINANCING ACTIVITIES
Dividends paid (1,432) (955) (794)
Sale (purchase) of
treasury stock - net 54 (5) 83
Net cash used for
financing activities (1,378) (960) (711)
Net increase in cash 151 569 641
CASH, BEGINNING OF YEAR 2,927 2,358 1,717
CASH, END OF YEAR $ 3,078 $ 2,927 $ 2,358
</TABLE>
NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Unaudited condensed financial data by quarter for 1996 and 1995 is as follows
(amounts, except per share data, in thousands):
Quarter ended
1996 March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Interest income $ 5,841 $ 6,012 $ 6,196 $ 6,447
Interest expense 2,675 2,634 2,631 2,639
Net interest income 3,166 3,378 3,565 3,808
Provision for loan losses 50 90 90 130
Net interest income after
provision for loan losses 3,116 3,288 3,475 3,678
Noninterest income 742 740 846 687
Noninterest expenses 2,481 2,574 2,489 2,849
Income before income taxes 1,377 1,454 1,832 1,516
Income taxes 450 498 611 536
Net income $ 927 $ 956 $ 1,221 $ 980
Net income per share $ 1.94 $ 2.00 $ 2.56 $ 2.05
Weighted average shares outstanding 477,241 477,257 477,304 477,496
</TABLE>
(Continued)
51
<PAGE>
NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED), Continued
<TABLE>
<CAPTION>
Quarter ended
1995 March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Interest income $ 5,396 $ 5,649 $ 5,736 $ 5,820
Interest expense 2,296 2,542 2,619 2,658
Net interest income 3,100 3,107 3,117 3,162
Provision for loan losses 65 15 25 5
Net interest income after
provision for loan losses 3,035 3,092 3,092 3,157
Noninterest income 663 710 789 792
Noninterest expenses 2,355 2,550 2,330 2,558
Income before income taxes 1,343 1,252 1,551 1,387
Income taxes 414 415 486 462
Net income $ 929 $ 837 $ 1,065 $ 925
Net income per share $ 1.94 $ 1.75 $ 2.23 $ 1.94
Weighted average shares outstanding 477,953 478,045 477,945 477,820
</TABLE>
ITEM 9. - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
52
<PAGE>
<TABLE>
<CAPTION>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT OF THE COMPANY
Directors
The Directors and Nominees for election to the Board of Directors of the Company are as follows:
Proposed Present Company
Director Term Principal Stock Owned
Name (Age) Since Expires Occupation Number %
<S> <C> <C> <C> <C>
*Willis J. Duncan
(69) 1958 2000 Chairman of the Board 28,313(1) 5.92
The President of the
Bank from November
1985 to February
1988.
W. Jennings Duncan
(41) 1984 1998 President. Executive 13,440(2) 2.81
Vice President of the
Bank from November
1985 to February 1988.
Dr. R. C. Smith
(82) 1959 1998 Past Chairman of the 2,492 .52
Board.Chairman of the
Board from 1979 to
1985, when he became
Vice Chairman.
Chairman of the
Board from November
1985 to February 1988.
Retired in 1985 as a
physician with Conway
Internists, P.A. of
Conway,South Carolina.
James W. Barnette, Jr.
(51) 1984 1998 President of Surfside 3,887 .81
Rent Mart,Inc., a
general rental company
located in Surfside
Beach, S.C., since
1992. Private real
estate investor from
1988 to 1991.
Previously, Mr.
Barnette was General
Manager of Coastal
Golf Corp., Burning
Ridge Corp., and
Indian Wells Golf
Club, which own and
operate golf courses
in the Myrtle Beach,
South Carolina area.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT OF THE COMPANY (continued)
Proposed Present Company
Director Term Principal Stock Owned
Name (Age) Since Expires Occupation Number %
<S> <C> <C> <C> <C>
Harold G. Cushman, Jr.
(67) 1963 1999 Retired in 1995 as 20,229(3) 4.23
President of Dargan
Construction Company,
Inc.
Charles C. Cutts 1945 1999 Retired. 16,969(4) 3.55
(91)
*Paul R. Dusenbury Has not 2000 Treasurer.Vice President 670(5) .14
(38) served on and Cashier of the Bank
the Board since 1988.
of Directors.
G. Heyward Goldfinch
(78) 1976 1999 Retired. Director 1,550 .32
of Goldfinch's, Inc.,
a funeral home, and of
Hillcrest Cemetery of
Conway, Incorporated.
*John Monroe J. Holliday
(80) 1969 2000 President of Palmetto 12,189(6) 2.55
Farms Corp. and partner
in Holliday Associates,
diversified agricul-
tural, real estate
development, and retail
companies headquartered
in Horry County, South
Carolina.
Robert P. Hucks 1993 1999 Executive Vice President 1,420(7) .30
(51) Served as Vice President
and Cashier of the Bank
from 1985 to 1988.
*Richard M. Lovelace, Jr.
(50) 1984 2000 Attorney in private 1,280(8) .27
practice with Lovelace
& Rogers, P.A. in
Conway, South Carolina.
John K. Massey
(82) 1959 1998 Retired. 3,778(9) .79
Howard B. Smith, III
(48) 1993 1999 Practicing certified 1,915 .40
public accountant with
Smith, Sapp, Bookhout,
Crumpler & Calliham,
P.A. in Myrtle Beach,
South Carolina.
</TABLE>
* Nominee for election to the Board of Directors.
54
<PAGE>
Except as indicated below, each director or director nominee of the
company has sole voting and investment power with respect to all shares of
Company stock owned by such director or director nominee. The address of
each director or director nominee is c/o The Conway National Bank, Post
Office Drawer 320, 1400 Third Avenue, Conway, South Carolina 29526. All
directors and officers of the Company and its subsidiary, The Conway National
Bank, as a group (42 persons), own 119,983 (25.10%) shares of Company stock.
(1) Includes 10,190 shares held by Harriette B. Duncan (wife).
(2) Includes 358 shares held by Robin F. Duncan (wife); 1,669
shares held by Ann Louise Duncan (daughter); 1,669 shares held by Mary
Kathryn Duncan (daughter); 1,669 shares by Willis Jennings Duncan, V
(son); and 1,669 shares by Margaret Brunson Duncan (daughter).
(3) Includes 14,900 shares held by the Cushman Family Limited
Partnership; 209 shares held by Dianne C. Cushman (wife); 753 shares held
by Marion Shannon Cushman (son); 388 shares held by Frances Faison Cushman
(daughter); 388 shares held by Harold G. Cushman, III (son); 50 shares held
by Harold G. Cushman, IV; (grandson); 50 shares held by Kara Dawn Cushman
(granddaughter); and 3,905 shares held by Harold Cushman Ward (nephew).
(4) Includes 10,159 shares held by Eugenia B. Cutts (wife).
(5) Includes 100 shares held by Jennifer S. Dusenbury (wife); 30
shares held by Elena Cox Dusenbury (daughter); and 30 shares held by Sarah
Cherry Dusenbury (daughter).
(6) Includes 1,260 shares held by Marjorie R. Holliday Irrevocable
Trust (wife); 3,304 shares held by M. Russell Holliday, Jr. (daughter);
1,978 shares held by Christian M. Holliday Douglas (daughter); 346 shares
held by Christian M. H. Douglas, Jr. (granddaughter); 346 shares held by
Marjorie Russell Douglas (granddaughter); 346 shares held by David Duvall
Douglas, Jr. (grandson); and 484 shares held by David D. and Christian M.H.
Douglas Trust (grandchildren).
(7) Includes 200 shares held by Willie Ann Hucks (wife); 20
shares held by Mariah J. Hucks (daughter); 50 shares held by Norah Leigh
Hucks (daughter); and 150 shares held by Robert P. Hucks, II (son).
(8) Includes 216 shares held by Rebecca S. Lovelace (wife); 352
shares held by Richard Blake Lovelace (son); and 352 shares held by Macon B.
Lovelace (son).
(9) Includes 1,058 shares held by Bertha T. Massey (wife).
Each director of the Company has been engaged in his principal
occupation of employment as specified above for five (5) years or more unless
otherwise indicated.
W. Jennings Duncan is Willis J. Duncan's son. Richard M.
Lovelace, Jr. is Dr. R. C. Smith's son-in-law. No other family relationships
exist among the above named directors or officers of the Company. None
of the directors of the Company holds a directorship in any company
with a class of securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended, or subject to the requirements of Section
15(d) of that act or in any company registered as an investment company
under the Investment Company Act of 1940, as amended.
55
<PAGE>
The Board of Directors of the Company, as originally constituted, was
classified into three (3) classes with each class consisting of five (5)
directors. Four (4) directors in Class III will be elected at the 1997
Annual Meeting to serve for a three (3) year term. Directors in Class I will
be elected at the 1998 Annual Meeting to serve for a three (3) year term and
Directors in Class II will be elected at the 1999 Annual Meeting to serve for
a three (3) year term. Currently, there are twelve (12) Directors, with
three (3) directors in Class III. The Board of Directors has passed a
resolution increasing the total number of Directors from twelve (12) to
thirteen (13).
The Board of Directors of the Company serves as the Board of Directors
of its subsidiary, The Conway National Bank. The Company's Board of
Directors meets as is necessary and the Bank's Board of Directors meets on a
monthly basis.
The Board of Directors of the Bank has an Executive Committee that
meets when necessary between scheduled meetings of the Board of Directors.
The Executive Committee recommends to the Board of Directors the appointment
of officers; determines officer compensation subject to Board approval;
reviews employee salaries; considers any director nominee submitted by the
shareholders; and addresses any other business as is necessary which does not
come under the authority of other committees on the Board of Directors. The
Executive Committee will consider any nominee to the Board of Directors
submitted by the shareholders, provided shareholders intending to nominate
director candidates for election deliver written notice thereof to the
Secretary of the Company not later than (i) with respect to at election to be
held at an Annual Meeting of shareholders, ninety (90) days prior to the
anniversary date of the immediately preceding Annual Meeting of shareholders,
and (ii) with respect to an election to be held at a special meeting of
shareholders, the close of business on the tenth (10th) day following the
date on which notice of such meeting is first given to shareholders. The
Bylaws further provide that the notice shall set forth certain information
concerning such shareholder and his nominee(s), including their names and
addresses, a representation that the shareholder is entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice, a description of all
arrangements or understandings between the shareholder and each nominee,
such other information as would be required to be included in a proxy
statement soliciting proxies for the election of the nominees of such
shareholder and the consent of each nominee to serve as Director of the
Company is so elected. The Chairman of the meeting may refuse to acknowledge
the nomination of any person not made in compliance with the foregoing
procedures. The members of the Executive Committee are Charles C. Cutts,
Willis J. Duncan, W. Jennings Duncan, and Dr. R. C. Smith.
In addition, the Board of Directors of the Bank has Audit, Loan,
Public Relations, and Building Committees. The members of the Audit
Committee are Charles C. Cutts, John Monroe J. Holliday, John K. Massey,
56
<PAGE>
Howard B. Smith, III, and Dr. R. C. Smith. The members of the Loan
Committee are James W. Barnette, Jr., Harold G. Cushman, Jr., Willis J.
Duncan, W. Jennings Duncan, G. Heyward Goldfinch, Robert P. Hucks, and
Richard M. Lovelace, Jr. The members of the Public Relations Committee are
James W. Barnette, Jr., G. Heyward Goldfinch, and John K. Massey. The
members of the Building Committee are James W. Barnette, Jr., Harold G.
Cushman, Jr., Willis J. Duncan, W. Jennings Duncan, and Robert P. Hucks,
Willis J. Duncan, Chairman of the Board, and W. Jennings Duncan,
President, are ex officio members of each of these committees of the Board
with the exception of the Audit Committee.
The function of the Audit Committee is to ensure that adequate
accounting procedures are in existence and functioning in a manner adequate
to safeguard the assets of the Bank. The Audit Committee also monitors
internal and external audit activities. The function of the Loan Committee
is to review and approve new loans and monitor the performance and quality of
existing loans, as well as to ensure that sound policies and procedures
exist in the Bank's lending operations.
During 1996, the Company's Board of Directors met two (2) times; the
Bank's Board of Directors met twelve (12) times; the Executive Committee met
eleven (11) times; the Audit Committee met nine (9) times; the Loan
Committee met twelve (12) times; the Building Committee met one (1) time;
and the Public Relations Committee did not meet. With the exceptions of
John Monroe J. Holliday and Howard B. Smith, III, each Director attended at
least 75% of the aggregate of (a) the total number of meetings of the Board
of Directors held during the period for which he served as Director and (b)
the total number of meetings held by all committees of the Board of
Directors of which he served.
Executive Officers:
The Executive Officers and other officers of the Company are
as follows:
Position(s) Currently
Name Age With The Company
Willis J. Duncan 69 Chairman of the Board (1)
W. Jennings Duncan 41 President and Director (1)
Robert P. Hucks 51 Executive Vice President and
Director (1)
Verta Lee Chestnut 58 Secretary
Paul R. Dusenbury 38 Treasurer (1)
(Chief Financial Officer and
Chief Accounting Officer)
_________________
(1) Executive Officer
All executive officers and other officers serve at the pleasure
of the Board of Directors of the Company. Each executive officer and other
officer of the Company has been an officer of the Company and/or the Bank for
five (5) years.
57
<PAGE>
ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Company pays no remuneration to its Directors and Executive
Officers. All remuneration for services rendered are paid by the Company's
subsidiary, The Conway National Bank, Conway, South Carolina ("the Bank").
Compensation Committee Report
The Executive Committee of the Bank recommends to the Board of
Directors the appointment of officers; determines officer compensation
subject to Board approval; and reviews employee salaries. The compensation
of the President (Chief Executive Officer) and the other executive officers
is not tied directly to corporate performance or any measure thereof.
However, it would be deemed unacceptable by the Executive Committee, Board,
and management to establish compensation levels that are not consistent with
the performance of the Bank or return to shareholders. During the
compensation decision process, much emphasis is placed on the Job Evaluation
Salary Administration Program (JESAP) Committee. The "JESAP" Committee is
charged with the responsibility of establishing job position descriptions;
applying values to each job position in the form of a salary range; and
obtaining salary surveys of a local, regional, and national level to
determine that salary ranges are consistent with the industry and peers. The
"JESAP" committee utilizes an independent management consulting firm to aid
in this process. For each Bank employee, including the President (Chief
Executive Officer) and all executive officers, a salary minimum, midpoint,
and maximum is established. For fiscal 1996, all executive officer
compensation levels were below the midpoint as established by the JESAP
process.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
Awards Payouts
Long-
Rest- Stock Term
Other ricted Options Incentive
Name and ($) ($) Annual(1) Stock($) /SAR'S Payout All Other(2)
Principal Position Year Salary Bonus Compensation Awards (#) ($) Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. Jennings Duncan 1996 121,740 15,640 2,985 0 0 0 9,131
President and 1995 110,145 865 2,570 0 0 0 7,159
Director of Bank 1994 101,256 944 2,072 0 0 0 7,594
Robert P. Hucks 1996 107,628 13,960 6,000 0 0 0 8,072
Executive Vice 1995 98,010 865 750 0 0 0 6,371
President and 1994 90,600 944 0 0 0 0 6,795
Director of Bank
Paul R. Dusenbury 1996 99,780 13,000 6,000 0 0 0 7,484
Vice President and 1995 90,380 865 750 0 0 0 5,875
Cashier of Bank 1994 83,100 944 0 0 0 0 6,233
</TABLE>
(1) Cash value of personal use of automobile furnished by the Bank or
automobile travel allowance.
(2) Cash contributions made by the Bank to the Bank's contributory
profit-sharing and savings defined contribution plan.
58
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS (continued)
PENSION PLAN DISCLOSURE
The Bank has a defined contribution pension plan
covering all employees who have attained age twenty-one and have a
minimum 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 contributions of salary
deferred and fifty percent of employee contributions in excess of one
percent and up to six percent of salary deferred. For the years ended
December 31, 1996, 1995, and 1994, $336,000, $266,000, and $295,000,
respectively, was charged to operations under the plan.
The Board of Directors of the Bank have designed and
implemented a non-qualified Executive Supplemental Income (ESI) Plan
for Willis J. Duncan, W. Jennings Duncan, Robert P. Hucks, and Paul R.
Dusenbury. Under the provisions of the ESI Plan, the Bank and the
participating employees will execute agreements providing each
employee (or his beneficiary, if applicable) with a pre-retirement
death benefit and a post-retirement annuity benefit. The ESI Plan is
designed to provide participating employees with a pre-retirement
benefit based on a percentage of the employee's current compensation.
The ESI agreement's post-retirement benefit is designed to supplement a
participating employee's retirement benefits from Social Security in order
to provide the employee with a certain percentage of his final average
income at retirement age. While the employee is receiving benefits
under the ESI Agreement, the agreement will prohibit the employee from
competing with the Bank and will require the participating
employee to be available for consulting work for the Bank. The ESI
Agreement may be amended or revoked at any time prior to the participating
employee's death or retirement, but only with the mutual written consent
of the covered employee and the Bank. The ESI Agreements require that
the participating employee be employed at the Bank at the earlier of
death or retirement to be eligible to receive, or have his beneficiary
receive, benefits under the agreement. The ESI Plan is an unfunded plan,
although the Bank has the right to acquire investments to informally
and indirectly provide funding for the benefits payable under the plan.
Performance Graphs
The performance graph shall be submitted in paper form under cover of Form
SE as provided in Rule 304(d) of Regulation S-T.
59
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS (continued)
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
No Compensation Committee interlocks exist. The members of the
Executive Committee of the Board, which serves as the Compensation Committee,
are Charles C. Cutts (outside Director), Willis J. Duncan (Chairman of the
Board and inside Director), W. Jennings Duncan (President and inside
Director), and Dr. R.C. Smith (outside Director). Membership of the "JESAP"
committee consists of six Bank officers.
Director Compensation
Directors who are not Bank officers receive $300 for each monthly
meeting of the Board of Directors and an additional $100 for each committee
meeting attended.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities to file
reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with
the Securities and Exchange Commission (the "SEC") and the National
Association of Securities Dealers. Such officers, directors, and 10 percent
shareholders are also required by SEC rules to furnish the Company with
copies of all Section 16(a) forms that they file.
Based solely on its review of copies of such reports received or written
representations from certain reporting persons, the Company believes that
during the fiscal year ended December 31, 1996, all Section 16(a) filing
requirements applicable to its officers, directors, and 10 percent
shareholders were complied with.
60
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of December 31, 1996 certain
information regarding the ownership of Company Stock of all officers and
directors of the Company. No shareholder who is not an officer or director
of the Company is known to the management of the Company to be the beneficial
owner of more than five (5%) percent of the Company Stock. The Company Stock
is the Company's only class of voting securities.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership(1) of Class
Willis J. Duncan 28,313 5.9%
1400 Third Avenue
Conway, South Carolina 29526
All Officers and Directors as a Group
(42 persons) (2) 119,983 25.1%
_________________
(1) For a description of the amount and nature of ownership of the
directors of the Company, see "Management of the Company -- Directors".
(2) Includes 28 officers of the subsidiary, The Conway National Bank,
who are not officers of the Company.
ITEM 13. CERTAIN TRANSACTIONS
Directors, principal shareholders, and Executive Officers of the Company
and the Bank are customers of and had transactions with the Bank in the
ordinary course of business. Included in such transactions are outstanding
loans and commitments, all of which were made on comparable terms, including
interest rates and collateral as those prevailing at the time for other
customers of the Bank, and did not involve more than normal risk of
collectibility or present other unfavorable features.
61
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The following exhibits, financial statements and financial
statement schedules are filed as part of this report:
FINANCIAL STATEMENTS
Report of Independent Public Accountants
Consolidated Statements of Condition - December 31, 1996 and 1995
Consolidated Statements of Income - Years ended December 31, 1996,
1995, and 1994
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows - Years Ended December 31,
1996, 1995, and 1994
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted from this Annual
Report because the required information is presented in the
financial statements or in the notes thereto or the required
subject matter is not applicable.
EXHIBITS
See Exhibit Index appearing below.
(b) Reports on Form 8-K- No reports on Form 8-K were filed
during the last quarter of the period covered by this report.
EXHIBIT INDEX
Exhibit
Number
3 Articles of Incorporation - A copy of the Articles of
Incorporation of the Company is incorporated herein
by reference to Exhibit 3(a) which was filed with a
Form 10-K Annual Report dated March 28, 1986
By-laws of the Company - A copy of the By-laws of the
Company is incorporated herein by reference to Exhibit
3(b) which was filed with a Form 10-K Annual Report
dated March 28, 1986.
22 Subsidiaries of the Registrant - A copy of the subsidi-
aries of the registrant is incorporated herein by refer-
ence to Exhibit 22 which was filed with a Form 10-K
Annual Report dated March 28, 1986.
27 Financial Data Schedule - Article 9 Financial Data
Schedule for 10-k for electronic filers (pages 64 and 65).
All other exhibits, the filing of which are required with this Form,
are not applicable.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
In addition to the Form 10-K Annual Report and related exhibits,
the registrant has included the annual report to security
holders covering the registrant's last fiscal year and the proxy
statement, form of proxy and proxy soliciting material sent to the
registrant's security holders with respect to the annual meeting.
Such material is not deemed to be "filed" with the Commission or
subject to the liabilities of Section 18 of the Act and is not
incorporated into the Form 10-K Annual Report by reference.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
W. Jennings Duncan, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant and in their capacities on March
17, 1997.
Signature Capacity
Willis J. Duncan Chairman of the Board
W. Jennings Duncan President and Director
Robert P. Hucks Executive Vice President and
Director
Verta Lee Chestnut Secretary
Paul R. Dusenbury Treasurer
(Chief Financial Officer
and Chief Accounting Officer)
Dr. R. C. Smith Past Chairman of the Board
and Director
James W. Barnette, Jr. Director
Harold G. Cushman, Jr. Director
Charles C. Cutts Director
G. Heyward Goldfinch Director
Richard M. Lovelace, Jr. Director
John K. Massey Director
Howard B. Smith, III Director
63
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,350
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 62,138
<INVESTMENTS-CARRYING> 70,149
<INVESTMENTS-MARKET> 70,306
<LOANS> 184,875
<ALLOWANCE> 2,370
<TOTAL-ASSETS> 341,818
<DEPOSITS> 268,413
<SHORT-TERM> 35,337
<LIABILITIES-OTHER> 3,572
<LONG-TERM> 0
0
0
<COMMON> 4,791
<OTHER-SE> 29,705
<TOTAL-LIABILITIES-AND-EQUITY> 341,818
<INTEREST-LOAN> 15,808
<INTEREST-INVEST> 8,221
<INTEREST-OTHER> 467
<INTEREST-TOTAL> 24,496
<INTEREST-DEPOSIT> 8,610
<INTEREST-EXPENSE> 10,579
<INTEREST-INCOME-NET> 13,917
<LOAN-LOSSES> 360
<SECURITIES-GAINS> 41
<EXPENSE-OTHER> 10,393
<INCOME-PRETAX> 6,179
<INCOME-PRE-EXTRAORDINARY> 4,084
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,084
<EPS-PRIMARY> 8.55<F1>
<EPS-DILUTED> 8.55<F1>
<YIELD-ACTUAL> 4.48<F1>
<LOANS-NON> 377
<LOANS-PAST> 77
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,477<F2>
<ALLOWANCE-OPEN> 2,242
<CHARGE-OFFS> 429
<RECOVERIES> 197
<ALLOWANCE-CLOSE> 2,370
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>1,000 MULTIPLIER DOES NOT APPLY TO EARNINGS PER SHARE DATA OR YIELDS.
<F2>INCLUDES NON-ACCRUAL LOANS PLUS CONFEDERATED LIFE.
</FN>
</TABLE>
