FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
___________________
For Quarter Ended September 30, 1999 Commission file number: 2-96350
CNB Corporation
(Exact name of registrant as specified in its charter)
South Carolina 57-0792402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 320, Conway, South Carolina 29526
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (843) 248-5721
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X . No .
The number of shares outstanding of the issuer's $10.00 par value common
stock as of September 30, 1999 was 596,203.
<PAGE>
CNB Corporation
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1999, 1
December 31, 1998 and September 30, 1998
Consolidated Statement of Income for the Three Months 2
and Nine Months Ended September 30, 1999 and 1998
Consolidated Statement of Comprehensive Income 3
for the Three Months and Nine Months Ended
September 30, 1999 and 1998
Consolidated Statement of Changes in Stockholders' 4
Equity for the Nine Months Ended September 30, 1999
and 1998
Consolidated Statement of Cash Flows for the Nine Months 5
Ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis of Financial 14-25
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURE 26
<PAGE>
CNB Corporation and Subsidiary
Consolidated Balance Sheets
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Sept. 30, December 31, Sept. 30,
1999 1998 1998
ASSETS:
<S> <C> <C> <C>
Cash and due from banks $ 17,252 $ 17,864 $ 16,684
Interest bearing deposits with banks 0 0 0
Investment Securities 59,024 60,648 66,012
(Fair values of $59,075 at
Sept. 30, 1999, $61,928 at
December 31, 1998, and $67,383
at Sept. 30, 1998)
Securities Available for Sale 88,863 80,582 72,893
(Amortized cost of $89,760 at
Sept. 30, 1999, $79,874 at
December 31, 1998, and $71,955
at Sept. 30, 1998)
Federal Funds sold and securities
purchased under agreement
to resell 35,925 27,100 25,875
Loans:
Gross Loans 257,120 230,099 228,309
Less unearned income (410) (970) (1,099)
Loans, net of unearned income 256,710 229,129 227,210
Less reserve for possible
loan losses (3,433) (3,132) (3,160)
Net loans 253,277 225,997 224,050
Bank premises and equipment 8,217 7,258 7,156
Other assets 7,563 6,910 6,817
Total assets 470,121 426,359 419,487
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing 77,157 66,303 64,048
Interest-bearing 304,384 279,809 276,145
Total deposits 381,541 346,112 340,193
Federal funds purchased and
securities sold under agreement
to repurchase 36,183 32,518 32,137
Other short-term borrowings 5,091 1,148 1,390
Other liabilities 2,407 5,380 3,337
Total liabilities 425,222 385,158 377,057
Stockholders' equity:
Common stock, par value $10 per
share: Authorized 1,500,000 in
1999 and 1998; issued 598,687
in 1999 and 1998 5,987 5,987 5,987
Surplus 24,546 24,538 24,553
Undivided Profits 15,156 10,448 11,498
Net Unrealized Holding (539) 425 562
Gains (Losses) on
Available-For-Sale Securities
Less: Treasury stock (251) (197) (170)
Total stockholders' equity 44,899 41,201 42,430
Total liabilities
and stockholders' equity 470,121 426,359 419,497
</TABLE>
1
<PAGE>
CNB Corporation and Subsidiary
Consolidated Statement of Income
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Interest Income:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 5,589 $ 5,293 $ 16,048 $ 15,636
Interest on investment securities:
Taxable investment securities 1,974 1,787 5,821 5,236
Tax-exempt investment securities 178 170 532 519
Other securities 14 0 17 3
Interest on federal funds sold and securities
purchased under agreement to resell 428 487 1,053 1,084
Total interest income 8,183 7,737 23,471 22,478
Interest Expense:
Interest on deposits 3,025 2,926 8,686 8,544
Interest on federal funds purchased and
securities sold under agreement to
repurchase 334 375 1,006 1,162
Interest on other short-term borrowings 21 23 51 66
Total interest expense 3,380 3,324 9,743 9,772
Net interest income 4,803 4,413 13,728 12,706
Provision for possible loan losses 200 160 530 525
Net interest income after provision for
possible loan losses 4,603 4,253 13,198 12,181
Other income:
Service charges on deposit accounts 634 660 1,873 1,806
Gains/(Losses) on securities 0 0 0 0
Other operating income 492 501 1,175 1,134
Total other income 1,126 1,161 3,048 2,940
Other expenses:
Salaries and employee benefits 1,852 1,697 5,561 5,063
Occupancy expense 401 425 1,236 1,242
Other operating expenses 891 784 2,433 2,113
Total operating expenses 3,144 2,906 9,230 8,418
Income before income taxes 2,585 2,508 7,016 6,703
Income tax provision 843 821 2,308 2,234
Net Income 1,742 1,687 4,708 4,469
Per share data:
Net income per weighted average shares
Outstanding $ 2.91 $ 2.83 $ 7.88 $ 7.48
Cash dividend paid per share $ 0 $ 0 $ 0 $ 0
Book value per actual number of shares
Outstanding $ 75.31 $ 71.09 $ 75.31 $ 71.09
Weighted average number of shares outstanding 597,108 597,708 597,108 597,708
Actual number of shares outstanding 596,203 596,857 596,203 596,857
</TABLE>
2
<PAGE>
CNB Corporation and Subsidiary
Consolidated Statement of Comprehensive Income
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Income $1,742 $1,687 $4,708 $4,469
Other comprehensive income, net of tax
Unrealized gains/(losses)
on securities:
Unrealized holding gains/(losses) 86 356 (964) 365
during period
Net Comprehensive Income $1,828 $2,043 $3,744 $4,834
</TABLE>
3
<PAGE>
CNB Corporation and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity
(All Dollar Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
<S> <C> <C>
Common Stock:
$10 par value; 500,000 shares authorized
Balance, January 1 5,987 5,987
Issuance of Common Stock None None
Stock Dividend None None
Balance at end of period 5,987 5,987
Surplus:
Balance, January 1 24,538 24,552
Issuance of Common Stock None None
Stock Dividend None None
Gain on sale of treasury stock 8 1
Balance at end of period 24,546 24,553
Undivided profits:
Balance, January 1 10,448 7,030
Net Income 4,708 4,469
Stock Dividend None None
Cash dividends declared None None
Balance at end of period 15,156 11,498
Net unrealized holding gains/(losses) on
Available-for-sale securities:
Balance, January 1 425 197
Change in net unrealized gains/(Losses) (964) 365
Balance at end of period (539) 562
Treasury stock:
Balance, January 1
(2,066 shares in 1999, 539 shares in 1998) (197) (49)
Purchase of treasury stock (193) (278)
Reissue of treasury stock 139 157
Balance at end of period
(2,478 shares in 1999; 1,824 shares in 1998) (251) (170)
Total stockholders' equity 44,899 42,430
</TABLE>
Note: Columns may not add due to rounding.
4
<PAGE>
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine-month period ended Sept. 30,
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,708 $ 4,469
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 394 486
Provision for loan losses 530 525
Provision for deferred income taxes (1,030) 102
Loss (gain) on sale of investment
securities 0 0
(Increase) decrease in accrued interest
receivable (315) (367)
(Increase) decrease in other assets 75 (115)
(Decrease) increase in other liabilities (1,505) 295
Net cash provided by operating
activities 2,857 5,395
INVESTING ACTIVITIES
Proceeds from sale of investment securities
available for sale 0 0
Proceeds from maturities of investment
securities held to maturity 10,294 17,032
Proceeds from maturities of investment
securities available for sale 13,719 12,341
Purchase of investment securities held to
maturity (8,670) (12,805)
Purchase of investment securities
available for sale (22,000) (32,050)
Decrease (increase) in interest-bearing
deposits in banks 0 0
(Increase) decrease in federal funds sold (8,825) (14,500)
(Increase) decrease in loans (27,581) (5,489)
Premises and equipment expenditures (1,353) (844)
Net cash provided by (used for)
investing activities (44,416) (36,315)
FINANCING ACTIVITIES
Dividends paid (2,090) (1,794)
Increase (Decrease) in deposits 35,429 38,866
(Decrease) increase in securities sold
under repurchase agreement 3,665 (229)
(Decrease) increase in other
short-term borrowings 3,943 (3,610)
Net cash provided by (used for)
financing activities 40,947 33,233
Net increase (decrease) in cash
and due from banks (612) 2,313
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 17,864 14,371
CASH AND DUE FROM BANKS, SEPT. 30, 1999 AND 1998 $17,252 $16,684
CASH PAID (RECEIVED) FOR:
Interest $ 9,736 $ 9,600
Income taxes $ 2,310 $ 2,215
</TABLE>
5
<PAGE>
CNB CORPORATION AND SUBSIDIARY (The "Corporation")
CNB CORPORATION (The "Parent")
THE CONWAY NATIONAL BANK (The "Bank")
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net income per share - Net income per share is computed on the basis of the
weighted average number of common shares outstanding, 597,108 for the nine-
month period ended September 30, 1999 and 597,708 for the nine-month period
ended September 30, 1998.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances either at the Bank
or on deposit with the Federal Reserve Bank. The average amount of these
reserve balances for the nine-month period ended September 30, 1999 and for
the years ended December 31, 1998 and 1997 were approximately $8,106,
$6,839, and $5,909, respectively.
6
<PAGE>
NOTE 3 - INVESTMENT SECURITIES
Investment securities with a par value of approximately $85,910 at September
30, 1999 and $74,500 at December 31, 1998 were pledged to secure public
deposits and for other purposes required by law.
The following summaries reflect the book value, unrealized gains and losses,
approximate market value, and tax-equivalent yields of investment securities
at September 30, 1999 and at December 31, 1998.
<TABLE>
<CAPTION>
September 30, 1999
Book Unrealized Holding Fair
Value Gains Losses Value Yield(1)
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
United States Treasury
Within one year $ 4,997 $ 23 $ - $ 5,020 6.49%
One to five years 11,103 45 16 11,132 6.00
16,100 68 16 16,152 6.15
Federal agencies
Within one year 6,011 7 5 6,013 6.12
One to five years 66,255 43 994 65,304 5.73
72,266 50 999 71,317 5.76
State, county and
municipal
One to five years 0 - - 0 -
Other Securities(Equity) 1,394 - - 1,394 -
Total available for sale $89,760 $ 118 $1,015 $88,863 5.83%
HELD TO MATURITY
United States Treasury
Within one year 6,001 23 - 6,024 6.57%
One to five years 1,013 - 2 1,011 5.76
7,014 23 2 7,035 6.46
Federal agencies
Within one year 7,605 13 1 7,617 6.26%
One to five years 29,221 123 145 29,199 6.35
36,826 136 146 36,816 6.33
State, county and
municipal
Within one year 1,760 21 - 1,781 8.59%
One to five years 7,833 73 12 7,894 6.58
Six to ten years 4,693 34 60 4,667 6.61
After ten years 898 5 21 882 5.89
15,184 133 93 15,224 6.78
Total held to maturity $59,024 $ 292 $ 241 $59,075 6.46%
</TABLE>
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended September 30, 1999, the Bank did not hold any
securities of an issuer that exceeded 10% of stockholders' equity. The
net unrealized holding gains/(losses) on available-for-sale securities
component of capital is $(539) as of September 30, 1999.
7
<PAGE>
NOTE 3 - INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
December 31, 1998
Book Unrealized Holding Fair
Value Gains Losses Value Yield(1)
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
United States Treasury
Within one year $ 8,011 $ 59 $ - $ 8,070 6.28%
One to five years 5,962 179 - 6,141 6.09%
13,973 238 - 14,211 6.20%
Federal agencies
Within one year 5,171 30 - 5,201 6.20%
One to five years 60,289 520 87 60,722 5.77%
65,460 550 87 65,923 5.81%
State, county and
municipal
One to five years 325 7 - 332 7.90%
Other - restricted
Federal Reserve
Bank Stock 116 - - 116 6.03%
Total available for sale $79,874 $ 795 $ 87 $80,582 5.88%
HELD TO MATURITY
United States Treasury
Within one year 6,995 81 - 7,076 6.56%
One to five years 4,019 76 - 4,095 6.05%
11,014 157 - 11,171 6.38%
Federal agencies
Within one year 2,036 6 - 2,042 5.50%
One to five years 33,350 615 - 33,965 6.14%
35,386 621 - 36,007 6.10%
State, county and
Municipal
Within one year 1,236 11 - 1,247 9.57%
One to five years 8,430 260 - 8,690 7.69%
Six to ten years 4,582 231 - 4,813 7.56%
14,248 502 - 14,750 7.81%
Total held to maturity $60,648 $1,280 $ - $61,928 6.56%
</TABLE>
(1) Tax equivalent adjustment based on a 34% tax rate
As of the quarter ended December 31, 1998, the Bank did not hold any
securities of an issuer that exceeded 10% of stockholders' equity. The
net unrealized holding gains/(losses) on available-for-sale securities
component of capital is $425 as of December 31, 1998.
8
<PAGE>
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans at September 30, 1999 and December
31, 1998 by major classification:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
Real estate loans - mortgage $ 157,608 $ 142,039
- construction 18,578 15,560
Commercial and industrial loans 44,141 36,393
Loans to individuals for household,
family and other consumer expenditures 32,881 32,669
Agriculture 2,298 1,487
All other loans, including overdrafts 1,614 1,951
Gross loans 257,120 230,099
Less unearned income (410) (970)
Less reserve for loan losses (3,433) (3,132)
Net loans 253,277 225,997
</TABLE>
9
<PAGE>
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, continued
Changes in the reserve for loan losses for the quarter ended and nine-
month period ended September 30, 1999 and 1998 and the year ended December
31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended December
Sept. 30, Sept. 30, 31,
1999 1998 1999 1998 1998
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 3,377 $ 3,094 $ 3,132 $ 2,879 $ 2,879
Charge-offs:
Commercial, financial,
and agricultural 105 40 189 111 189
Real Estate - construction
and mortgage 0 1 0 11 14
Loans to individuals 110 132 330 357 553
Total charge-offs $ 215 $ 173 $ 519 $ 479 $ 756
Recoveries:
Commercial, financial, and
Agricultural $ 17 $ 29 $ 99 $ 63 $ 89
Real Estate - construction
and mortgage 10 0 21 4 5
Loans to individuals 44 50 170 168 235
Total recoveries $ 71 $ 79 $ 290 $ 235 $ 329
Net charge-offs/(recoveries) $ 144 $ 94 $ 229 $ 244 $ 427
Additions charge to operations $ 200 $ 160 $ 530 $ 525 $ 680
Balance, end of period $ 3,433 $ 3,160 $ 3,433 $ 3,160 $ 3,132
Ratio of net charge-offs during
the period to average loans
outstanding during the period .06% .04% .10% .11% .19%
</TABLE>
The entire balance is available to absorb future loan losses.
At September 30, 1999 and December 31, 1998 loans on which no interest was
being accrued totalled approximately $610 and $422, respectively and
foreclosed real estate totalled $0 and $0, respectively; and loans 90 days
past due and still accruing totalled $143 and $100, respectively.
OTHER INTEREST-BEARING ASSETS
The Bank maintained 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
provided 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 had the option to have a policy
reinsured by Pacific Mutual which was 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.
The Bank's independent external auditors revisited the facts and circumstances
regarding the investment in the COLI program and 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.
The Bank's COLI policies were reinsured by Pacific Mutual during the third
quarter of 1997. Management received permission from the Office of the
Comptroller of the Currency to return this asset to accrual status and to adjust
the carrying value during the first quarter of 1998 with the total cash
surrender values totalling approximately $85,000 above the carrying value on the
bank's books.
As of September 30, 1999, 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.
10
<PAGE>
NOTE 5 - PREMISES AND EQUIPMENT
Property at September 30, 1999 and December 31, 1998 is summarized as
follows:
Sept. 30, December 31,
1999 1998
Land and buildings $ 10,426 $ 9,581
Furniture, fixtures and equipment 5,614 5,188
Construction in progress 101 19
$ 16,141 $ 14,788
Less accumulated depreciation and
amortization 7,924 7,530
$ 8,217 $ 7,258
Depreciation and amortization of bank premises and equipment charged to
operating expense was $131 and $394 for the quarter ended and the nine month
period ended September 30, 1999, respectively and $693 for the year ended
December 31, 1998.
NOTE 6 - CERTIFICATES OF DEPOSIT IN EXCESS OF $100,000
At September 30, 1999 and December 31, 1998, certificates of deposit of
$100,000 or more included in time deposits totaled approximately $72,213 and
$61,328 respectively. Interest expense on these deposits was approximately
$952 and $2,635 for the quarter ended and the nine-month period ended
September 30, 1999 and $3,455 for the year ended December 31, 1998. On June
30, 1999, the Bank purchased $12 million in large public fund certificates
with maturities in early 2000 to provide for potential Y2K liquidity needs
at year-end 1999.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At September 30, 1999 and December 31, 1998, securities sold under
repurchase agreements totaled approximately $36,183 and $32,518. U.S.
Government securities with a book value of $37,106 ($36,939 market value)
and $35,127 ($35,672 market value), respectively, are used as collateral for
the agreements. The weighted-average interest rate of these agreements was
4.20 percent and 4.12 percent at September 30, 1999 and December 31, 1998.
NOTE 8 - LINES OF CREDIT
At September 30, 1999, the Bank had unused short-term lines of credit
to purchase Federal Funds from unrelated banks totaling $23,000. These
lines of credit are available on a one to seven day basis for general
corporate purposes of the Bank. All of the lenders have reserved the right
to withdraw these lines at their option.
The Bank has a demand note through the U.S. Treasury, Tax and Loan
system with the Federal Reserve Bank of Richmond. The Bank may borrow up to
$7,000 under the arrangement at a variable interest rate. The note is
secured by U.S. Treasury and Agency Notes with a market value of $7,809 at
September 30, 1999. The amount outstanding under the note totaled $5,091
and $1,148 at September 30, 1999 and December 31, 1998, respectively.
The Bank also has a line of credit from the Federal Home Loan Bank of
Atlanta for $67 million secured by a lien on the Bank's 1-4 family
mortgages. Allowable terms range from overnight to 20 years at varying
rates set daily by the FHLB. At September 30, 1999, no borrowings were
outstanding under the agreement.
NOTE 9 - INCOME TAXES
Income tax expense for the quarter ended September 30, 1999 and
September 30, 1998 on pretax income of $2,585 and $2,508 totalled $843 and
$821 respectively. Income tax expense for the nine-month period ended
September 30, 1999 and September 30, 1998 on pretax income of $7,016 and
$6,703 totalled $2,308 and $2,234 respectively. The provision for federal
income taxes is calculated by applying the 34% statutory federal income tax
rate and increasing or reducing this amount due to any tax-exempt interest,
state bank tax (net of federal benefit), business credits, surtax exemption,
tax preferences, alternative minimum tax calculations, or other factor. A
summary of income tax components and a reconciliation of income taxes to the
federal statutory rate are included in fiscal year-end reports.
11<PAGE>
NOTE 9 - INCOME TAXES (Continued)
Effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes". SFAS 109 replaces SFAS 96 beginning in 1993, with early
implementation permitted. The impact of the adoption of SFAS 109 is not
considered to be material.
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES
From time to time the bank subsidiary is a party to various litigation,
both as plaintiff and as defendant, arising from its normal operations. No
material losses are anticipated in connection with any of these matters at
September 30, 1999.
Also, in the normal course of business, the bank subsidiary has
outstanding commitments to extend credit and other contingent liabilities,
which are not reflected in the accompanying financial statements. At
September 30, 1999, commitments to extend credit totalled $25,440; financial
standby letters of credit totalled $192; and performance standby letters of
credit totalled $658. In the opinion of management, no material losses or
liabilities are expected as a result of these transactions.
NOTE 11 - EMPLOYEE BENEFIT PLAN
The Bank has a defined contribution pension plan covering all employees
who have attained age twenty-one and have a minimum of one year of service.
Upon ongoing approval of the Board of Directors, the Bank matches one
hundred percent of employee contributions up to three percent of employee
salary deferred and fifty percent of employee contributions in excess of
three percent and up to five percent of salary deferred. The Board of
Directors may also make discretionary contributions to the Plan. For the
three-month and nine month period ended September 30, 1999 and years ended
December 31, 1998, 1997 and 1996, $111, $312, $378, $361, and $336,
respectively, was charged to operations under the plan.
NOTE 12 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary - actions by regulators that, if undertaken, could have a
direct material effect on the financial statements. The regulations require
the Bank to meet specific capital adequacy guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The capital
classification is also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the maintenance of minimum amounts and ratios (set forth in
the table below) of Tier I capital to adjusted total assets (Leverage
Capital ratio) and minimum ratios of Tier I and total capital to risk-
weighted assets. To be considered adequately capitalized under the
regulatory framework for prompt corrective action, the Bank must maintain
minimum Tier I leverage, Tier I risk-based and total risked-based ratios as
set forth in the table. The Bank's actual capital ratios are presented in
the table below as of September 30, 1999:
To be
well capitalized
For under prompt
capital adequacy corrective action
purposes provisions
Actual Minimum Minimum
Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk $46,291 16.89% $21,932 8.0% $27,415 10.0%
weighted assets)
Tier I Capital (to risk 42,864 15.64 10,966 4.0 16,449 6.0
weighted assets)
Tier I Capital (to avg. 42,864 9.13 18,772 4.0 23,465 5.0
assets)
12
<PAGE>
NOTE 13 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of CNB Corporation (parent
company only):
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
(Unaudited)
ASSETS
Cash $ 1,751
Investment in subsidiary 42,325
Fixed assets 786
Other assets 37
$ 44,899
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liability $ 0
Stockholders' equity 44,899
$ 44,899
CONDENSED STATEMENT OF INCOME
For the nine-month period ended September 30, 1999
(Unaudited)
EQUITY IN NET INCOME OF SUBSIDIARY $ 4,746
OTHER INCOME 0
OTHER EXPENSES 38
Net Income $ 4,708
DISCUSSION OF FORWARD-LOOKING STATEMENTS
Information in the enclosed report, other than historical information, may
contain forward-looking statements that involve risks and uncertainties,
including, but not limited to, timing of certain business initiatives of the
Company, the Company's interest rate risk condition, and future regulatory
actions of the Comptroller of the Currency and Federal Reserve System. It
is important to note that the Company's actual results may differ materially
and adversely from those discussed in forward-looking statements.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis is provided to afford a clearer
understanding of the major elements of the corporation's results of
operations, financial condition, liquidity, and capital resources. The
following discussion should be read in conjunction with the corporation's
financial statements and notes thereto and other detailed information
appearing elsewhere in this report. In addition, the results of operations
for the interim periods shown in this report are not necessarily indicative
of results to be expected for the fiscal year. In the opinion of
management, the information contained herein reflects all adjustments
necessary to make the results of operations for the interim periods a fair
statement of such operations. All such adjustments are of a normal and
recurring nature.
DISTRIBUTION OF ASSETS AND LIABILITIES
The Company maintains a conservative approach in determining the
distribution of assets and liabilities. Loans, net of unearned income, have
increased 13.0% from $227,210 at September 30, 1998 to $256,710 at September
30, 1999 and have increased as a percentage of total assets from 54.2% to
54.6% over the same period as loan demand has remained stable in our market.
Securities and federal funds sold have decreased slightly as a percentage of
total assets from 39.3% at September 30, 1998 to 39.1% at September 30, 1999
as we have deployed funds in the lending area. This level of investments
and federal funds sold provides for a more than adequate supply of secondary
liquidity. Management has sought to build the deposit base with stable,
relatively non-interest-sensitive deposits by offering the small to medium
deposit account holders a wide array of deposit instruments at competitive
rates. Non-interest-bearing demand deposits increased as a percentage of
total assets from 15.3% at September 30, 1998 to 16.4% at September 30,
1999. However, as more customers, both business and personal, are attracted
to interest-bearing deposit accounts, we expect the percentage of demand
deposits to decline over the long-term. Interest-bearing deposits have
decreased from 65.8% of total assets at September 30, 1998 to 64.7% at
September 30, 1999 while securities sold under agreement to repurchase have
remained constant at 7.7% over the same period.
The following table sets forth the percentage relationship to total assets
of significant components of the corporation's balance sheet as of September
30, 1999 and 1998:
<TABLE>
<CAPTION>
September 30,
<S> <C> <C>
Assets: 1999 1998
Earning assets:
Loans, net of unearned income 54.6% 54.2%
Investment securities 12.6 15.7
Securities Available for Sale 18.9 17.4
Federal funds sold and securities purchased
under agreement to resell 7.6 6.2
Other earning assets - -
Total earning assets 93.7 93.5
Other assets 6.3 6.5
Total assets 100.0% 100.0%
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits 64.7% 65.8%
Federal funds purchased and securities sold
under agreement to repurchase 7.7 7.7
Other short-term borrowings 1.1 .3
Total interest-bearing liabilities 73.5 73.8
Noninterest-bearing deposits 16.4 15.3
Other liabilities .5 .8
Stockholders' equity 9.6 10.1
Total liabilities and stockholders' equity 100.0% 100.0%
</TABLE>
14
<PAGE>
RESULTS OF OPERATION
CNB Corporation experienced earnings for the three-month period ended
September 30, 1999 and 1998 of $1,742 and $1,687, respectively, resulting in
a return on average assets of 1.48% and 1.57% and a return on average
stockholders' equity of 15.89% and 16.32%.
CNB Corporation experienced earnings for the nine-month period ended
September 30, 1999 and 1998 of $4,708 and $4,469, respectively, resulting
in a return on average assets of 1.39% and 1.45% and a return on average
stockholders' equity of 14.66% and 14.96%.
The earnings were primarily attributable to net interest margins in each
period (see Net Income-Net Interest Income). Other factors include
management's ongoing effort to maintain other income at adequate levels (see
Net Income - Other Income) and to control other expenses (see Net Income -
Other Expenses). This level of earnings, coupled with a conservative
dividend policy, have supplied the necessary capital funds to support the
growth in total assets. Total assets have increased $50,634 or 12.1% from
$419,487 at September 30, 1998 to $470,121 at September 30, 1999. The
following table sets forth the financial highlights for the three-month and
nine-month periods ending September 30, 1999 and September 30, 1998:
CNB Corporation
CNB Corporation and Subsidiary
FINANCIAL HIGHLIGHTS
(All Dollar Amounts, Except Per Share Data, in Thousands)
<TABLE>
<CAPTION>
Three-Month Period Nine-Month Period
Ended September 30, Ended September 30,
Percent Percent
Increase Increase
1999 1998 (Decrease) 1999 1998 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Net interest income after
provision for loan losses 4,603 4,253 8.2% 13,198 12,181 8.3%
Income before income taxes 2,585 2,508 3.1 7,016 6,703 4.7
Net Income 1,742 1,687 3.3 4,708 4,469 5.3
Per Share 2.91 2.83 2.8 7.88 7.48 5.3
Cash dividends declared 0 0 - 0 0 -
Per Share 0 0 - 0 0 -
Total assets 470,121 419,487 12.1% 470,121 419,487 12.1%
Total deposits 381,541 340,193 12.2 381,541 340,193 12.2
Loans, net of unearned income 256,710 227,210 13.0 256,710 227,210 13.0
Investment securities and
securities available for
sale 147,887 138,905 6.5 147,887 138,905 6.5
Stockholders' equity 44,899 42,430 5.8 44,899 42,430 5.8
Book value per share 75.31 71.09 5.9 75.31 71.09 5.9
Ratios (1):
Annualized return on average
total assets 1.48% 1.57% (5.7)% 1.39% 1.45% (4.1)%
Annualized return on average
stockholders' equity 15.89% 16.32% (2.6)% 14.66% 14.96% (2.0)%
</TABLE>
(1) For the three-month period ended September 30, 1999 and September 30,
1998, average total assets amounted to $471,703 and $429,596 with average
stockholders' equity totaling $43,856 and $41,356, respectively. For the
nine-month period ended September 30, 1999 and September 30, 1998,
average total assets amounted to $451,021 and $411,942 with average
stockholders' equity totaling $42,830 and $39,818, respectively.
15
<PAGE>
NET INCOME
Net Interest Income - Earnings are dependent to a large degree on net
interest income, defined as the difference between gross interest and fees
earned on earning assets, primarily loans and securities, and interest paid
on deposits and borrowed funds. Net interest income is effected by the
interest rates earned or paid and by volume changes in loans, securities,
deposits, and borrowed funds.
Interest rates paid on deposits and borrowed funds and earned on loans and
investments have generally followed the fluctuations in market interest
rates in 1999 and 1998. However, fluctuations in market interest rates do
not necessarily have a significant impact on net interest income, depending
on the bank's rate sensitivity position. A rate sensitive asset (RSA) is
any loan or investment that can be repriced either up or down in interest
rate within a certain time interval. A rate sensitive liability (RSL) is an
interest paying deposit or other liability that can be repriced either up or
down in interest rate within a certain time interval. When a proper balance
between RSA and RSL exists, market interest rate fluctuations should not
have a significant impact on earnings. The larger the imbalance, the greater
the interest rate risk assumed by the bank and the greater the positive or
negative impact of interest rate fluctuations on earnings. The bank seeks
to manage its assets and liabilities in a manner that will limit interest
rate risk and thus stabilize longrun-earning power. Management believes
that a rise or fall in interest rates will not materially effect earnings.
The Bank has maintained adequate net interest margins for the three-month
and nine-month periods ended September 30, 1999 and 1998 by earning
satisfactory yields on loans and securities and funding these assets with a
favorable deposit mix containing a significant level of noninterest-bearing
demand deposits.
Fully-tax-equivalent net interest income showed an 8.8% increase from $4,500
for the three-month period ended September 30, 1998 to $4,895 for the three-
month period ended September 30, 1999. During the same period, total fully-
tax-equivalent interest income increased by 5.8% from $7,824 to $8,275 and
total interest expense increased by 1.7% from $3,324 to $3,380. Fully-tax-
equivalent net interest income as a percentage of total earning assets has
shown a decrease of .09% from 4.54% for the three-month period ended
September 30, 1998 to 4.45% for the three-month period ended September 30,
1999.
Fully-tax-equivalent net interest income showed a 7.9% increase from $12,973
for the nine-month period ended September 30, 1998 to $14,002 for the nine-
month period ended September 30, 1999. During the same period, total fully-
tax-equivalent interest income increased by 4.4% from $22,745 to $23,745 and
total interest expense decreased by .3% from $9,772 to $9,743. Fully-tax-
equivalent net interest income as a percentage of total earning assets has
shown a decrease of .08% from 4.51% for the nine-month period ended
September 30, 1998 to 4.43% for the nine-month period ended September 30,
1999.
The tables on the following four pages present selected financial data and
an analysis of net interest income.
16
<PAGE>
CNB Corporation and Subsidiary
Selected Financial Data
<TABLE>
<CAPTION>
Three Months Ended 9/30/99 Three Months Ended 9/30/98
Avg. Interest Avg. Ann. Avg. Interest Avg.Ann
Balance Income/ Yield or Balance Income/ Yield or
Expense(1) Rate Expense(1) Rate
<S> <C> <C> <C> <C> <C> <C>
Assets:
Earning assets:
Loans, net of unearned income $253,589 $ 5,589 8.82% $229,926 $ 5,293 9.21%
Securities:
Taxable 135,443 1,988 5.87 117,565 1,787 6.08
Tax-exempt 14,882 270 7.26 13,636 257 7.54
Federal funds sold and
securities purchased under
agreement to resell 36,198 428 4.73 35,127 487 5.55
Other earning assets 0 0 - 0 0 -
Total earning assets 440,112 8,275 7.52 396,254 7,824 7.90
Other assets 31,591 33,342
Total assets $471,703 $429,596
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits $311,450 3,025 3.89 $272,783 $ 2,926 4.29
Federal funds purchased and
securities sold under
agreement to repurchase 32,260 334 4.14 34,048 375 4.41
Other short-term borrowings 1,932 21 4.35 1,533 23 6.00
Total interest-bearing
Liabilities $345,642 $ 3,380 3.91 $308,364 $ 3,324 4.31
Noninterest-bearing deposits 79,476 70,228
Other liabilities 2,729 9,648
Stockholders' equity 43,856 41,356
Total liabilities and
stockholders' equity $471,703 $429,596
Net interest income as a percent
of total earning assets $440,112 $ 4,895 4.45 $396,254 $ 4,500 4.54
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 92 $ 87
</TABLE>
<TABLE>
<S> <C> <C>
Ratios:
Annualized return on average total assets 1.48 1.57
Annualized return on average stockholders' equity 15.89 16.32
Cash dividends declared as a percent of net income 0 0
Average stockholders' equity as a percent of:
Average total assets 9.30 9.63
Average total deposits 11.22 12.06
Average loans, net of unearned income 17.29 17.99
Average earning assets as a percent of
average total assets 93.30 92.24
</TABLE>
17
<PAGE>
CNB Corporation and Subsidiary
Selected Financial Data
<TABLE>
<CAPTION>
Nine Months Ended 9/30/99 Nine Months Ended 9/30/98
Avg. Interest Avg. Ann. Avg. Interest Avg.Ann.
Balance Income/ Yield or Balance Income/ Yield or
Expense(1) Rate Expense(1) Rate
<S> <C> <C> <C> <C> <C> <C>
Assets:
Earning assets:
Loans, net of unearned income $244,355 $16,048 8.76% $227,986 $15,636 9.14%
Securities:
Taxable 132,895 5,838 5.86 115,083 5,239 6.07
Tax-exempt 14,732 806 7.29 13,620 786 7.69
Federal funds sold and
securities purchased under
agreement to resell 29,496 1,053 4.76 27,147 1,084 5.32
Other earning assets 0 0 - 0 0 -
Total earning assets 421,478 23,745 7.51 383,836 22,745 7.90
Other assets 29,543 28,106
Total assets $451,021 $411,942
Liabilities and stockholders equity
Interest-bearing liabilities:
Interest-bearing deposits $297,962 8,686 3.89 $265,831 $ 8,544 4.29
Federal funds purchased and
securities sold under
agreement to repurchase 32,622 1,006 4.11 34,624 1,162 4.47
Other short-term borrowings 1,518 51 4.48 1,555 66 5.66
Total interest-bearing
liabilities $332,102 $ 9,743 3.91 $302,010 $ 9,772 4.31
Noninterest-bearing deposits 73,592 64,604
Other liabilities 2,497 5,510
Stockholders' equity 42,830 39,818
Total liabilities and
stockholders' equity $451,021 $411,942
Net interest income as a percent
of total earning assets $421,478 $14,002 4.43 $383,836 $12,973 4.51
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 274 $ 267
</TABLE>
<TABLE>
<S> <C> <C>
Ratios:
Annualized return on average total assets 1.39 1.45
Annualized return on average stockholders' equity 14.66 14.96
Cash dividends declared as a percent of net income 0 0
Average stockholders' equity as a percent of:
Average total assets 9.50 9.67
Average total deposits 11.53 12.05
Average loans, net of unearned income 17.53 17.47
Average earning assets as a percent of
average total assets 93.45 93.18
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Three Months Ended September 30, 1999 and 1998
(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
1999 1998 1999 (1) 1998 (1) 1999 (1) 1998 (1) Variance Rate Volume Volume
Earning Assets:
Loans, Net of unearned
income (2) 253,589 229,926 8.82% 9.21% 5,589 5,293 296 (224) 545 (25)
Investment securities:
Taxable 135,443 117,565 5.87% 6.08% 1,988 1,787 201 (62) 272 (9)
Tax-exempt 14,882 13,636 7.26% 7.54% 270 257 13 (10) 23 -
Federal funds sold and
securities purchased under
agreement to resell 36,198 35,127 4.73% 5.55% 428 487 (59) (72) 15 (2)
Other earning assets 0 0 - - 0 0 0 - - -
Total Earning Assets 440,112 396,254 7.52% 7.90% 8,275 7,824 451 (368) 855 (36)
Interest-bearing Liabilities:
Interest-bearing deposits 311,450 272,783 3.89% 4.29% 3,025 2,926 99 (273) 415 (43)
Federal funds purchased and
securities sold under
agreement to repurchase 32,260 34,048 4.14% 4.41% 334 375 (41) (23) (20) 2
Other short-term borrowings 1,932 1,533 4.35% 6.00% 21 23 (2) (6) 6 (2)
Total Interest-bearing
Liabilities 345,642 308,364 3.91% 4.31% 3,380 3,324 56 (302) 401 (43)
Interest-free Funds
Supporting Earning Assets 94,470 87,890
Total Funds Supporting
Earning Assets 440,112 396,254 3.07% 3.36% 3,380 3,324 56 (302) 401 (43)
Interest Rate Spread 3.61% 3.59%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .84% .95%
Net Yield on Earning Assets 4.45% 4.54% 4,895 4,500
</TABLE>
(1) Tax-equivalent adjustment based on a 34% tax rate.
(2) Includes non-accruing loans which does not have a material effect on the
Net Yield on Earning Assets.
19
<PAGE>
<TABLE>
<CAPTION>
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Nine Months Ended September 30, 1999 and 1998
(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
1999 1998 1999 (1) 1998 (1) 1999 (1) 1998 (1) Variance Rate Volume Volume
Earning Assets:
Loans, Net of unearned
income (2) 244,355 227,986 8.76% 9.14% 16,048 15,636 412 (650) 1,122 (60)
Investment securities:
Taxable 132,895 115,083 5.86% 6.07% 5,838 5,239 599 (181) 811 (31)
Tax-exempt 14,732 13,620 7.29% 7.69% 806 786 20 (41) 64 (3)
Federal funds sold and
securities purchased under
agreement to resell 29,496 27,147 4.76% 5.32% 1,053 1,084 (31) (114) 94 (11)
Other earning assets 0 0 - - 0 0 - - - -
Total Earning Assets 421,478 383,836 7.51% 7.90% 23,745 22,745 1,000 (986) 2,091 (105)
Interest-bearing Liabilities:
Interest-bearing deposits 297,962 265,831 3.89% 4.29% 8,686 8,544 142 (797) 1,034 (95)
Federal funds purchased and
securities sold under
agreement to repurchase 32,622 34,624 4.11% 4.47% 1,006 1,162 (156) (93) (67) 4
Other short-term borrowings 1,518 1,555 4.48% 5.66% 51 66 (15) (14) (1) -
Total Interest-bearing
Liabilities 332,102 302,010 3.91% 4.31% 9,743 9,772 (29) (904) 966 (91)
Interest-free Funds
Supporting Earning Assets 89,376 81,826
Total Funds Supporting
Earning Assets 421,478 383,836 3.08% 3.39% 9,743 9,772 (29) (904) 966 (91)
Interest Rate Spread 3.60% 3.59%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .83% .92%
Net Yield on Earning Assets 4.43% 4.51% 14,002 12,973
</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.
20
<PAGE>
NET INCOME (continued)
Provision for Possible Loan Losses - It is the policy of the bank to
maintain the reserve for possible loan losses at the greater of 1.20% of net
loans or the percentage based on the actual loan loss experience over the
previous five years. In addition, management may increase the reserve to a
level above these guidelines to cover potential losses identified in the
portfolio.
The provision for possible loan losses was $200 for the three-month period
ended September 30, 1999 and $160 for the three-month period ended September
30, 1998. Net loan charge-offs/(recoveries) totaled $144 for the three-month
period ended September 30, 1999 and $94 for the same period in 1998.
The provision for possible loan losses was $530 for the nine-month period
ended September 30, 1999 and $525 for the nine-month period ended September
30, 1998. Net loan charge-offs/(recoveries) totaled $229 for the nine-month
period ended September 30, 1999 and $244 for the same period in 1998.
The reserve for possible loan losses as a percentage of net loans was 1.36%
at September 30, 1999 and 1.41% at September 30, 1998. The provisions
during the nine-month periods ended September 30, 1999 and 1998 have
remained at a moderate level due to relatively low net loan charge-offs.
Securities Transactions - The Bank had no security sales during the first
three quarters of 1999 or 1998. At September 30, 1999, December 31, 1998,
and September 30, 1998 market value appreciation/(depreciation) in the
securities portfolio totaled $(846), $1,988, and $2,309. As indicated,
market value has decreased in 1999 due to rising market interest rates.
Other Income - Other income, net of any gains/losses on security
transactions, decreased by 3.0% from $1,161 for the three-month period ended
September 30, 1998 to $1,126 for the three-month period ended September 30,
1999.
Other income, net of any gains/losses on security transactions, increased by
8.0% from $1,134 for the nine-month period ended September 30, 1998 to
$1,175 for the nine-month period ended September 30, 1999.
This decrease in the three-month period ended September 30, 1999 was due to
a decrease in mortgage origination fees due to higher mortgage rates slowing
volume. The overall nine-month period ended September 30, 1999 increase was
due primarily to higher merchant discount income.
Other Expenses - Other expenses increased by 8.2% from $2,906 for the three-
month period ended September 30, 1998 to $3,144 for the three-month period
ended September 30, 1999. The major components of other expenses are
salaries and employee benefits which increased 9.1% from $1,697 to $1,852;
occupancy expense which decreased 5.6% from $425 to $401; and other
operating expenses which increased by 13.6% from $784 to $891.
Other expenses increased by 9.6% from $8,418 for the nine-month period ended
September 30, 1998 to $9,230 for the nine-month period ended September 30,
1999. The major components of other expenses are salaries and employee
benefits which increased 9.8% from $5,063 to $5,561; occupancy expense which
decreased .5% from $1,242 to $1,236; and other operating expense which
increased by 15.1% from $2,113 to $2,433.
21<PAGE>
The increase in the three-month and nine-month period ended September 30,
1999 salaries and employee benefits was due to the opening of the new "West
Conway Office" in the late fall of 1998. Full-time-equivalent employees
have increased from 197 at September 30, 1998 to 207 at September 30, 1999.
Other operating expenses have shown an increase due to higher credit card
department related costs to support the strong growth in merchant discount
income.
Income Taxes - Provisions for income taxes increased 2.7% from $821 for the
three-month period ended September 30, 1998 to $843 for the three-month
period ended September 30, 1999. Income before income taxes less interest
on tax-exempt investment securities increased by 3.0% from $2,338 for the
three-month period ended September 30, 1998 to $2,407 for the same period in
1999. State tax liability increased as income before income taxes increased
3.1% from $2,508 to $2,585 during the same period.
Provisions for income taxes increased 3.3% from $2,234 for the nine-month
period ended September 30, 1998 to $2,308 for the nine-month period ended
September 30, 1999. Income before income taxes less interest on tax-exempt
investment securities increased by 4.9% from $6,184 for the nine-month
period ended September 30, 1998 to $6,484 for the same period in 1999 and
state tax liability increased as income before income taxes increased 4.7%
from $6,703 to $7,016 during the same period.
LIQUIDITY
The bank's liquidity position is primarily dependent on short-term demands
for funds caused by customer credit needs and deposit withdrawals and upon
the liquidity of bank assets to meet these needs. The bank's liquidity
sources include cash and due from banks, federal funds sold and short-term
investments. In addition, the bank has established federal funds lines of
credit from correspondent banks and has the ability to borrow funds from the
Federal Reserve System and the Federal Home Loan Bank of Atlanta. Management
feels that short-term and long-term liquidity sources are more than adequate
to meet funding needs.
CAPITAL RESOURCES
Total stockholders' equity was $44,899, $41,201, $37,717 and $34,496 at
September 30, 1999, December 31, 1998, December 31, 1997, and December 31,
1996, representing 9.55%, 9.66%, 9.90%, and 10.09% of total assets,
respectively. At September 30, 1999, the Bank exceeds quantitative measures
established by regulation to ensure capital adequacy (see NOTE 12 -
REGULATORY MATTERS). Capital is considered sufficient by management to meet
current and prospective capital requirements and to support anticipated
growth in bank operations.
The Company paid an approximate 25% stock dividend on September 12, 1997.
The Board increased the $3.00 per share annual cash dividend paid at year-
end 1997 to $3.50 per share at year-end 1998 which increased the cash
dividend payout ratio and cash dividend yield.
22
<PAGE>
EFFECTS OF REGULATORY ACTION
The management of the Company and the Bank is not aware of any current
recommendations by the regulatory authorities which, if they were to be
implemented, would have a material effect on liquidity, capital resources,
or operations.
ACCOUNTING ISSUES
In an effort to simplify the current standards in the United States for
computing earnings per share ("EPS") and make them more compatible with
international standards, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" in February 1997. SFAS
128 applies to entities with publicly traded common stock or potential
common stock and is effective for financial statements for periods ending
after December 15, 1997, including interim periods. SFAS 128 simplifies the
standards for computing EPS previously found in APB Opinion 15, "Earnings
per Share." It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all companies with
complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. The Company does not have any
dilutive common stock or equivalents and accordingly the adoption of SFAS
had no effect on earnings per share computations.
The FASB also issued SFAS No. 129, "Disclosure of Information about Capital
Structure" in February 1997. The purpose of SFAS 129 is to consolidate
existing disclosure requirements for ease of retrieval. SFAS 129 contains
no change in disclosure requirements for companies that were subject to the
previously existing requirements. It applies to all entities and is
effective for Financial Statements for periods ending after December 15,
1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general purpose financial statements. SFAS 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 requires that companies (i) classify items of other
comprehensive income by their nature in a financial statement and (ii)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of the statement of financial condition. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comprehensive purposes is
required. The adoption of SFAS 130 had no affect on the Company's net income
or stockholders' equity.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS 131 establishes
standards for the way public enterprises are to report information about
operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in
23<PAGE>
ACCOUNTING ISSUES (continued)
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. SFAS 131 supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS 131 becomes
effective for financial statements for periods beginning after December 15,
1997, and requires that comparative information from earlier years be
restated to conform to its requirements. The adoption of the provisions of
SFAS 131 is not expected to have a material impact on the Company.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instrument and Hedging Activities". All derivatives are to be measured at
fair value and recognized in the balance sheet as assets or liabilities. The
statement is effective for fiscal years and quarters beginning after June
15, 1999. Because the Company does not use derivative transactions at this
time, management does not expect that this standard will have a significant
effect on the Company.
YEAR 2000
The Year 2000 poses a significant challenge for financial institutions
because of the way date fields have been historically handled. Older
versions of software used a two digit year date field and assumed the first
two digits of the year date to be "19". All software applications using
this dating method must be replaced or modified to avoid computer systems
reverting to the year date of 1900 in the year 2000.
The Board of Directors early in 1997 assigned Year 2000 Project
implementation responsibility to the Electronic Data Processing (EDP)
Steering Committee. The EDP Steering Committee is comprised of the
following members: President, Executive Vice President, Vice President and
Cashier, Vice President-Systems, Vice President-Data Processing, and
Assistant Vice President-Systems. The committee meets at least quarterly
with the meetings being reviewed by the Board Audit Committee and progress
reports made to the full Board. The CPA firm of Tourville, Simpson, &
Henderson has been engaged to assist in Year 2000 Plan development,
implementation, and examination.
All systems used by the bank have been identified and prioritized with a
time line established for projected dates of upgrades, replacement,
certification, and testing. Anticipated Year 2000 costs are projected to be
approximately $276,000. The majority of this amount has been spent on
capital expenditures to be expensed over the next four years. Twenty
thousand dollars will be spent in 1999 on public information and education.
All mission critical systems have been replaced or upgraded to Year 2000
compliance. All mission critical systems have been tested to ensure Year
2000 functionality. Further testing will be conducted during 1999 as deemed
appropriate. The bank has in place a Business Interruption Plan in case of
unforeseen problems or failures.
24
<PAGE>
YEAR 2000 (continued)
In June of 1999, The Conway National Bank and The Conway Chamber of Commerce
sponsored a Year 2000 Community Forum. Participants included local
utilities, city and county governments, social security, health services,
the post office and educational institutions. The public received progress
reports on participants' Year 2000 projects.
The bank has completed its Year 2000 Contingency Plan for cash services.
This plan will anticipate and provide for the increased demand for extra
cash by customers as we approach year-end.
EXHIBITS AND REPORTS ON FORM 8-K
See Exhibit Index appearing below.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter covered by this report.
EXHIBIT INDEX
Exhibit
Number
27 Financial Data Schedule - Article 9 Financial Data Schedule for
10-Q for electronic filers (pages 27 and 28).
All other exhibits, the filing of which are required with this Form, are not
applicable.
25
<PAGE>
CNB Corporation
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNB Corporation
(Registrant)
Paul R. Dusenbury
_________________________________________
Paul R. Dusenbury
Treasurer
(Chief Financial and Accounting Officer)
Date: November 11, 1999
26
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MORE
DETAILED FINANCIAL STATEMENTS OF THE COMPANY AND SUBSIDIARY AND NOTES THERETO
INCLUDED ELSEWHERE IN THIS REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIALS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 17,252
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 35,925
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,863
<INVESTMENTS-CARRYING> 59,024
<INVESTMENTS-MARKET> 59,075
<LOANS> 256,710
<ALLOWANCE> 3,433
<TOTAL-ASSETS> 470,121
<DEPOSITS> 381,541
<SHORT-TERM> 41,274
<LIABILITIES-OTHER> 2,407
<LONG-TERM> 0
0
0
<COMMON> 5,987
<OTHER-SE> 38,912
<TOTAL-LIABILITIES-AND-EQUITY> 470,121
<INTEREST-LOAN> 16,048
<INTEREST-INVEST> 6,370
<INTEREST-OTHER> 1,053
<INTEREST-TOTAL> 23,471
<INTEREST-DEPOSIT> 8,686
<INTEREST-EXPENSE> 9,743
<INTEREST-INCOME-NET> 13,728
<LOAN-LOSSES> 530
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,230
<INCOME-PRETAX> 7,016
<INCOME-PRE-EXTRAORDINARY> 4,708
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,708
<EPS-BASIC> 7.88<F1>
<EPS-DILUTED> 7.88<F1>
<YIELD-ACTUAL> 4.43<F1>
<LOANS-NON> 610
<LOANS-PAST> 143
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 610
<ALLOWANCE-OPEN> 3,132
<CHARGE-OFFS> 519
<RECOVERIES> 290
<ALLOWANCE-CLOSE> 3,433
<ALLOWANCE-DOMESTIC> 3,433
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>MULTIPLIER DOES NOT APPLY TO EPS AND YIELD DATA.
</FN>
</TABLE>
