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 June 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 June 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): (803) 248-5721
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X . No .
The number of shares outstanding of the issuer's $10.00 par value common
stock as of June 30, 1999 was 597,386.
<PAGE>
CNB Corporation
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1999, 1
December 31, 1998 and June 30, 1998
Consolidated Statement of Income for the Three Months 2
and Six Months Ended June 30, 1999 and 1998
Consolidated Statement of Comprehensive Income 3
for the Three Months and Six Months Ended
June 30, 1999 and 1998
Consolidated Statement of Changes in Stockholders' 4
Equity for the Six Months Ended June 30, 1999
and 1998
Consolidated Statement of Cash Flows for the Six Months 5
Ended June 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
Item 4. Submission of Matters to a Vote of Security Holders 25
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>
June 30, December 31, June 30,
1999 1998 1998
ASSETS:
<S> <C> <C> <C>
Cash and due from banks $ 16,962 $ 17,864 $ 16,057
Interest bearing deposits with banks 0 0 0
Investment Securities 59,216 60,648 62,304
(Fair values of $59,323 at
June 30, 1999, $61,928 at
December 31, 1998, and $63,056
at June 30, 1998)
Securities Available for Sale 92,261 80,582 65,240
(Amortized cost of $93,303 at
June 30, 1999, $79,874 at
December 31, 1998, and $64,895
at June 30, 1998)
Federal Funds sold and securities
purchased under agreement
to resell 32,950 27,100 30,825
Loans:
Gross Loans 252,321 230,099 233,613
Less unearned income (586) (970) (1,112)
Loans, net of unearned income 251,735 229,129 232,501
Less reserve for possible
loan losses (3,377) (3,132) (3,094)
Net loans 248,358 225,997 229,407
Bank premises and equipment 8,203 7,258 6,816
Other assets 7,900 6,910 7,043
Total assets 465,850 426,359 417,692
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing 76,852 66,303 68,590
Interest-bearing 310,060 279,809 269,150
Total deposits 386,912 346,112 337,740
Federal funds purchased and
securities sold under agreement
to repurchase 29,647 32,518 31,898
Other short-term borrowings 3,496 1,148 4,503
Other liabilities 2,601 5,380 3,081
Total liabilities 422,656 385,158 377,222
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 24,552
Undivided Profits 13,414 10,448 9,812
Net Unrealized Holding (625) 425 206
Gains (Losses) on
Available-For-Sale Securities
Less: Treasury stock (128) (197) (87)
Total stockholders' equity 43,194 41,201 40,470
Total liabilities
and stockholders' equity 465,850 426,359 417,692
</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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Interest Income:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 5,362 $ 5,250 $ 10,459 $ 10,343
Interest on investment securities:
Taxable investment securities 1,918 1,762 3,847 3,449
Tax-exempt investment securities 174 170 354 349
Other securities 3 3 3 3
Interest on federal funds sold and securities
purchased under agreement to resell 343 369 625 597
Total interest income 7,800 7,554 15,288 14,741
Interest Expense:
Interest on deposits 2,852 2,876 5,661 5,618
Interest on federal funds purchased and
securities sold under agreement to
repurchase 335 389 672 787
Interest on other short-term borrowings 16 17 30 43
Total interest expense 3,203 3,282 6,363 6,448
Net interest income 4,597 4,272 8,925 8,293
Provision for possible loan losses 180 175 330 365
Net interest income after provision for
possible loan losses 4,417 4,097 8,595 7,928
Other income:
Service charges on deposit accounts 627 556 1,239 1,146
Gains/(Losses) on securities 0 0 0 0
Other operating income 389 407 683 633
Total other income 1,016 963 1,922 1,779
Other expenses:
Salaries and employee benefits 1,866 1,703 3,709 3,364
Occupancy expense 446 394 835 817
Other operating expenses 812 661 1,542 1,331
Total operating expenses 3,124 2,758 6,086 5,512
Income before income taxes 2,309 2,302 4,431 4,195
Income tax provision 771 756 1,465 1,413
Net Income 1,538 1,546 2,966 2,782
Per share data:
Net income per weighted average shares
outstanding $ 2.58 $ 2.58 $ 4.97 $ 4.65
Cash dividend paid per share $ 0 $ 0 $ 0 $ 0
Book value per actual number of shares
outstanding $ 72.31 $ 67.71 $ 72.31 $ 67.71
Weighted average number of shares outstanding 597,275 597,933 597,275 597,933
Actual number of shares outstanding 597,386 597,727 597,386 597,727
</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 Six Months
Ended Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Income $1,538 $1,546 $2,966 $2,782
Other comprehensive income, net of tax
Unrealized gains/(losses)
on securities:
Unrealized holding gains/(losses) (647) (49) (1,050) 9
during period
Net Comprehensive Income $ 891 $1,497 $1,916 $2,791
</TABLE>
3
<PAGE>
CNB Corporation and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity
(All Dollar Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 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
Balance at end of period 5,987 5,987
Surplus:
Balance, January 1 24,538 24,552
Issuance of Common Stock None None
Gain on sale of treasury stock 8 None
Balance at end of period 24,546 24,552
Undivided profits:
Balance, January 1 10,448 7,030
Net Income 2,966 2,782
Cash dividends declared None None
Balance at end of period 13,414 9,812
Net unrealized holding gains/(losses) on
available-for-sale securities:
Balance, January 1 425 197
Change in net unrealized gains/(Losses) (1,050) 9
Balance at end of period (625) 206
Treasury stock:
Balance, January 1 (197) (49)
Purchase of treasury stock (70) (160)
Reissue of treasury stock 139 122
Balance at end of period (128) (87)
Total stockholders' equity 43,194 40,470
</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 six-month period ended June 30,
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,966 $ 2,782
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 263 329
Provision for loan losses 330 365
Provision for deferred income taxes (1,088) (136)
Loss (gain) on sale of investment
securities 0 0
(Increase) decrease in accrued interest
receivable (537) (670)
(Increase) decrease in other assets 18 (38)
(Decrease) increase in other liabilities (1,130) 98
Net cash provided by operating
activities 822 2,730
INVESTING ACTIVITIES
Proceeds from sale of investment securities
available for sale 0 0
Proceeds from maturities of investment
securities held to maturity 4,742 11,715
Proceeds from maturities of investment
securities available for sale 8,321 4,944
Purchase of investment securities held to
maturity (3,310) (3,780)
Purchase of investment securities
available for sale (20,000) (17,000)
Decrease (increase) in interest-bearing
deposits in banks 0 0
(Increase) decrease in federal funds sold (5,850) (19,450)
(Increase) decrease in loans (22,606) (10,780)
Premises and equipment expenditures (1,208) (347)
Net cash provided by (used for)
investing activities (39,911) (34,698)
FINANCING ACTIVITIES
Dividends paid (2,090) (1,794)
Increase (Decrease) in deposits 40,800 36,413
(Decrease) increase in securities sold
under repurchase agreement (2,871) (468)
(Decrease) increase in other
short-term borrowings 2,348 (497)
Net cash provided by (used for)
financing activities 38,187 33,654
Net increase (decrease) in cash
and due from banks (902) 1,686
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 17,864 14,371
CASH AND DUE FROM BANKS, JUNE 30, 1999 AND 1998 $16,962 $16,057
CASH PAID (RECEIVED) FOR:
Interest $ 6,506 $ 6,285
Income taxes $ 1,431 $ 1,344
</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, 597,275 for the
six-month period ended June 30, 1999 and 597,933 for the six-month period
ended June 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 six-month period ended June 30, 1999 and
for the years ended December 31, 1998 and 1997 were approximately $7,768,
$6,839, and $5,909, respectively.
6
<PAGE>
NOTE 3 - INVESTMENT SECURITIES
Investment securities with a par value of approximately $74,400 at June 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 June 30, 1999 and at December 31, 1998.
<TABLE>
<CAPTION>
June 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 $ 4,002 $ 13 $ - $ 4,015 6.43%
One to five years 13,107 38 45 13,100 6.09
17,109 51 45 17,115 6.17
Federal agencies
Within one year 7,174 16 3 7,187 6.16
One to five years 67,301 57 1,119 66,239 5.75
74,475 73 1,122 73,426 5.79
State, county and
municipal
One to five years 325 1 - 326 7.90
325 1 - 326 7.90
Other Securities(Equity) 1,394 - - 1,394 -
Total available for sale $93,303 $ 125 $1,167 $92,261 5.87%
HELD TO MATURITY
United States Treasury
Within one year 7,003 37 - 7,040 6.67%
One to five years 1,014 - 7 1,007 5.76
8,017 37 7 8,047 6.55
Federal agencies
Within one year 4,613 16 1 4,628 6.16%
One to five years 31,709 119 154 31,674 6.37
36,322 135 155 36,302 6.34
State, county and
municipal
Within one year 1,285 21 - 1,306 8.42%
One to five years 8,015 93 11 8,097 6.70
Six to ten years 5,247 59 50 5,256 6.64
After ten years 330 - 15 315 6.03
14,877 173 76 14,974 6.82
Total held to maturity $59,216 $ 345 $ 238 $59,323 6.49%
</TABLE>
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended June 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 $(625) as of June 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 June 30, 1999 and December 31,
1998 by major classification:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
<S> <C> <C>
Real estate loans - mortgage $ 154,385 $ 142,039
- construction 16,533 15,560
Commercial and industrial loans 44,116 36,393
Loans to individuals for household,
family and other consumer expenditures 32,732 32,669
Agriculture 2,937 1,487
All other loans, including overdrafts 1,618 1,951
Gross loans 252,321 230,099
Less unearned income (586) (970)
Less reserve for loan losses (3,377) (3,132)
Net loans 248,358 225,997
</TABLE>
9
<PAGE>
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, continued
Changes in the reserve for loan losses for the quarter ended and six-
month period ended June 30, 1999 and 1998 and the year ended December 31,
1998 are summarized as follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended December
June 30, June 30, 31,
1999 1998 1999 1998 1998
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 3,199 $ 3,014 $ 3,132 $ 2,879 $ 2,879
Charge-offs:
Commercial, financial,
and agricultural 61 25 84 71 189
Real Estate - construction
and mortgage 0 9 0 10 14
Loans to individuals 77 109 220 225 553
Total charge-offs $ 138 $ 143 $ 304 $ 306 $ 756
Recoveries:
Commercial, financial, and
agricultural $ 48 $ 4 $ 82 $ 34 $ 89
Real Estate - construction
and mortgage 11 3 11 4 5
Loans to individuals 77 41 126 118 235
Total recoveries $ 136 $ 48 $ 219 $ 156 $ 329
Net charge-offs/(recoveries) $ 2 $ 95 $ 85 $ 150 $ 427
Additions charge to operations $ 180 $ 175 $ 330 $ 365 $ 680
Balance, end of period $ 3,377 $ 3,094 $ 3,377 $ 3,094 $ 3,132
Ratio of net charge-offs during
the period to average loans
outstanding during the period .00% .05% .04% .07% .19%
</TABLE>
The entire balance is available to absorb future loan losses.
At June 30, 1999 and December 31, 1998 loans on which no interest was being
accrued totalled approximately $421 and $422, respectively and foreclosed
real estate totalled $0 and $0, respectively; and loans 90 days past due and
still accruing totalled $65 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 June 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 June 30, 1999 and December 31, 1998 is summarized as
follows:
June 30, December 31,
1999 1998
Land and buildings $ 10,402 $ 9,581
Furniture, fixtures and equipment 5,590 5,188
Construction in progress 4 19
$ 15,996 $ 14,788
Less accumulated depreciation and
amortization 7,793 7,530
$ 8,203 $ 7,258
Depreciation and amortization of bank premises and equipment charged to
operating expense was $132 and $263 for the quarter ended and the six month
period ended June 30, 1999, respectively and $693 for the year ended
December 31, 1998.
NOTE 6 - CERTIFICATES OF DEPOSIT IN EXCESS OF $100,000
At June 30, 1999 and December 31, 1998, certificates of deposit of
$100,000 or more included in time deposits totaled approximately $78,597 and
$61,328 respectively. Interest expense on these deposits was approximately
$842 and $1,683 for the quarter ended and the six-month period ended June
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 June 30, 1999 and December 31, 1998, securities sold under
repurchase agreements totaled approximately $29,647 and $32,518. U.S.
Government securities with a book value of $34,072 ($33,977 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
4.15 percent and 4.12 percent at June 30, 1999 and December 31, 1998.
NOTE 8 - LINES OF CREDIT
At June 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 $7,849 at
June 30, 1999. The amount outstanding under the note totaled $3,496 and
$1,148 at June 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 June 30, 1999, no borrowings were
outstanding under the agreement.
NOTE 9 - INCOME TAXES
Income tax expense for the quarter ended June 30, 1999 and June 30,
1998 on pretax income of $2,309 and $2,302 totalled $771 and $756
respectively. Income tax expense for the six-month period ended June 30,
1999 and June 30, 1998 on pretax income of $4,431 and $4,195 totalled $1,465
and $1,413 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
June 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 June
30, 1999, commitments to extend credit totalled $24,012; financial standby
letters of credit totalled $177; and performance standby letters of credit
totalled $395. 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 six month period ended June 30, 1999 and years ended
December 31, 1998, 1997 and 1996, $100, $201, $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 June 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 $44,484 16.53% $21,523 8.0% $26,903 10.0%
weighted assets)
Tier I Capital (to risk 41,121 15.28 10,761 4.0 16,142 6.0
weighted assets)
Tier I Capital (to avg. 41,121 9.34 17,605 4.0 22,006 5.0
assets)
12
<PAGE>
NOTE 13 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of CNB Corporation (parent
company only):
CONDENSED BALANCE SHEET
JUNE 30, 1999
(Unaudited)
ASSETS
Cash $ 1,875
Investment in subsidiary 40,496
Fixed assets 786
Other assets 37
$ 43,194
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liability $ 0
Stockholders' equity 43,194
$ 43,194
CONDENSED STATEMENT OF INCOME
For the six-month period ended June 30, 1999
(Unaudited)
EQUITY IN NET INCOME OF SUBSIDIARY $ 3,003
OTHER INCOME 0
OTHER EXPENSES (37)
Net Income $ 2,966
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 8.3% from $232,501 at June 30, 1998 to $251,735 at June 30, 1999
but have decreased as a percentage of total assets from 55.7% to 54.0% over
the same period as loan demand has moderated in our market. Securities and
federal funds sold have increased as a percentage of total assets from 37.9%
at June 30, 1998 to 39.6% at June 30, 1999 as we have utilized funds in the
investment 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 16.4% at June 30, 1998 to 16.5% at June 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
increased from 64.5% of total assets at June 30, 1998 to 66.5% at June 30,
1999 while securities sold under agreement to repurchase have decreased from
7.6% to 6.4% 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 June 30,
1999 and 1998:
<TABLE>
<CAPTION>
June 30,
<S> <C> <C>
Assets: 1999 1998
Earning assets:
Loans, net of unearned income 54.0% 55.7%
Investment securities 12.7 14.9
Securities Available for Sale 19.8 15.6
Federal funds sold and securities purchased
under agreement to resell 7.1 7.4
Other earning assets - -
Total earning assets 93.6 93.6
Other assets 6.4 6.4
Total assets 100.0% 100.0%
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits 66.5% 64.5%
Federal funds purchased and securities sold
under agreement to repurchase 6.4 7.6
Other short-term borrowings .8 1.1
Total interest-bearing liabilities 73.7 73.2
Noninterest-bearing deposits 16.5 16.4
Other liabilities .5 .7
Stockholders' equity 9.3 9.7
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
June 30, 1999 and 1998 of $1,538 and $1,546, respectively, resulting in a
return on average assets of 1.37% and 1.50% and a return on average
stockholders' equity of 14.35% and 15.57%.
CNB Corporation experienced earnings for the six-month period ended June 30,
1999 and 1998 of $2,966 and $2,782, respectively, resulting in a return on
average assets of 1.35% and 1.38% and a return on average stockholders'
equity of 14.01% and 14.25%.
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 $48,158 or 11.5% from
$417,692 at June 30, 1998 to $465,850 at June 30, 1999. The following table
sets forth the financial highlights for the three-month and six-month
periods ending June 30, 1999 and June 30, 1998:
CNB Corporation
CNB Corporation and Subsidiary
FINANCIAL HIGHLIGHTS
(All Dollar Amounts, Except Per Share Data, in Thousands)
<TABLE>
<CAPTION>
Three-Month Period Six-Month Period
Ended June 30, Ended June 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 4,417 4,097 7.8% 8,595 7,928 8.4%
Income before income taxes 2,309 2,302 .3 4,431 4,195 5.6
Net Income 1,538 1,546 (.5) 2,966 2,782 6.6
Per Share 2.58 2.58 - 4.97 4.65 6.9
Cash dividends declared 0 0 - 0 0 -
Per Share 0 0 - 0 0 -
Total assets 465,850 417,692 11.5% 465,850 417,692 11.5%
Total deposits 386,912 337,740 14.6 386,912 337,740 14.6
Loans, net of unearned income 251,735 232,501 8.3 251,735 232,501 8.3
Investment securities and
securities available for
sale 151,477 127,544 18.8 151,477 127,544 18.8
Stockholders' equity 43,194 40,470 6.7 43,194 40,470 6.7
Book value per share 72.31 67.71 6.8 72.31 67.71 6.8
Ratios (1):
Annualized return on average
total assets 1.37% 1.50% (8.7)% 1.35% 1.38% (2.2)%
Annualized return on average
stockholders' equity 14.35% 15.57% (7.8)% 14.01% 14.25% (1.7)%
</TABLE>
(1) For the three-month period ended June 30, 1999 and June 30, 1998,
average total assets amounted to $448,423 and $412,179 with average
stockholders' equity totaling $42,880 and $39,714, respectively. For
the six-month period ended June 30, 1999 and June 30, 1998, average
total assets amounted to $440,680 and $403,115 with average
stockholders' equity totaling $42,317 and $39,049, 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 six-month periods ended June 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 a 7.5% increase from $4,360
for the three-month period ended June 30, 1998 to $4,686 for the three-month
period ended June 30, 1999. During the same period, total
fully-tax-equivalent interest income increased by 3.2% from $7,642 to $7,889
and total interest expense decreased by 2.4% from $3,282 to $3,203.
Fully-tax-equivalent net interest income as a percentage of total earning
assets has shown a decrease of .06% from 4.52% for the three-month period
ended June 30, 1998 to 4.46% for the three-month period ended June 30, 1999.
Fully-tax-equivalent net interest income showed a 7.5% increase from $8,473
for the six-month period ended June 30, 1998 to $9,107 for the six-month
period ended June 30, 1999. During the same period, total fully-tax-
equivalent interest income increased by 3.7% from $14,921 to $15,470 and
total interest expense decreased by 1.3% from $6,448 to $6,363. Fully-tax-
equivalent net interest income as a percentage of total earning assets has
shown a decrease of .07% from 4.49% for the six-month period ended June 30,
1998 to 4.42% for the six-month period ended June 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 6/30/99 Three Months Ended 6/30/98
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 $245,927 $ 5,362 8.72% $230,100 $ 5,250 9.13%
Securities:
Taxable 131,552 1,921 5.84 115,790 1,765 6.10
Tax-exempt 14,568 263 7.22 13,381 258 7.71
Federal funds sold and
securities purchased under
agreement to resell 28,216 343 4.86 26,840 369 5.50
Other earning assets 0 0 - 0 0 -
Total earning assets 420,263 7,889 7.51 386,111 7,642 7.92
Other assets 28,160 26,068
Total assets $448,423 $412,179
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits $296,121 2,852 3.85 $266,926 $ 2,876 4.31
Federal funds purchased and
securities sold under
agreement to repurchase 32,479 335 4.13 34,561 389 4.50
Other short-term borrowings 1,558 16 4.11 1,661 17 4.09
Total interest-bearing
Liabilities $330,158 $ 3,203 3.88 $303,148 $ 3,282 4.33
Noninterest-bearing deposits 74,829 65,777
Other liabilities 556 3,540
Stockholders' equity 42,880 39,714
Total liabilities and
stockholders' equity $448,423 $412,179
Net interest income as a percent
of total earning assets $420,263 $ 4,686 4.46 $386,111 $ 4,360 4.52
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 89 $ 88
</TABLE>
<TABLE>
<S> <C> <C>
Ratios:
Annualized return on average total assets 1.37 1.50
Annualized return on average stockholders' equity 14.35 15.57
Cash dividends declared as a percent of net income 0 0
Average stockholders' equity as a percent of:
Average total assets 9.56 9.64
Average total deposits 11.56 11.94
Average loans, net of unearned income 17.44 17.26
Average earning assets as a percent of
average total assets 93.72 93.68
</TABLE>
17
<PAGE>
CNB Corporation and Subsidiary
Selected Financial Data
<TABLE>
<CAPTION>
Six Months Ended 6/30/99 Six Months Ended 6/30/98
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 $239,738 $10,459 8.73% $227,016 $10,343 9.11%
Securities:
Taxable 131,621 3,850 5.85 113,842 3,452 6.06
Tax-exempt 14,657 536 7.31 13,612 529 7.77
Federal funds sold and
securities purchased under
agreement to resell 26,145 625 4.78 23,157 597 5.16
Other earning assets 0 0 - 0 0 -
Total earning assets 412,161 15,470 7.51 377,627 14,921 7.90
Other assets 28,519 25,488
Total assets $440,680 $403,115
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits $291,218 5,661 3.89 $262,355 $ 5,618 4.28
Federal funds purchased and
securities sold under
agreement to repurchase 32,803 672 4.10 34,912 787 4.51
Other short-term borrowings 1,311 30 4.58 1,566 43 5.49
Total interest-bearing
liabilities $325,332 $ 6,363 3.91 $298,833 $ 6,448 4.32
Noninterest-bearing deposits 70,650 61,792
Other liabilities 2,381 3,441
Stockholders' equity 42,317 39,049
Total liabilities and
stockholders' equity $440,680 $403,115
Net interest income as a percent
of total earning assets $412,161 $ 9,107 4.42 $377,627 $ 8,473 4.49
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 182 $ 180
</TABLE>
<TABLE>
<S> <C> <C>
Ratios:
Annualized return on average total assets 1.35 1.38
Annualized return on average stockholders' equity 14.01 14.25
Cash dividends declared as a percent of net income 0 0
Average stockholders' equity as a percent of:
Average total assets 9.60 9.69
Average total deposits 11.69 12.05
Average loans, net of unearned income 17.65 17.20
Average earning assets as a percent of
average total assets 93.53 93.68
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Three Months Ended June 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) 245,927 230,100 8.72% 9.13% 5,362 5,250 112 (235) 361 (14)
Investment securities:
Taxable 131,552 115,790 5.84% 6.10% 1,921 1,765 156 (75) 240 (9)
Tax-exempt 14,568 13,381 7.22% 7.71% 263 258 5 (16) 23 (2)
Federal funds sold and
securities purchased under
agreement to resell 28,216 26,840 4.86% 5.50% 343 369 (26) (43) 19 (2)
Other earning assets 0 0 - - 0 0 - - - -
Total Earning Assets 420,263 386,111 7.51% 7.92% 7,889 7,642 247 (369) 643 (27)
Interest-bearing Liabilities:
Interest-bearing deposits 296,121 266,926 3.85% 4.31% 2,852 2,876 (24) (307) 314 (31)
Federal funds purchased and
securities sold under
agreement to repurchase 32,479 34,561 4.13% 4.50% 335 389 (54) (32) (23) 1
Other short-term borrowings 1,558 1,661 4.11% 4.09% 16 17 (1) - (1) -
Total Interest-bearing
Liabilities 330,158 303,148 3.88% 4.33% 3,203 3,282 (79) (339) 290 (30)
Interest-free Funds
Supporting Earning Assets 90,105 82,963
Total Funds Supporting
Earning Assets 420,263 386,111 3.05% 3.40% 3,203 3,282 (79) (339) 290 (30)
Interest Rate Spread 3.63% 3.59%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .83% .93%
Net Yield on Earning Assets 4.46% 4.52% 4,686 4,360
</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 Six Months Ended June 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) 239,738 227,016 8.73% 9.11% 10,459 10,343 116 (431) 579 (32)
Investment securities:
Taxable 131,621 113,842 5.85% 6.06% 3,850 3,452 398 (119) 538 (21)
Tax-exempt 14,657 13,612 7.31% 7.77% 536 529 7 (31) 40 (2)
Federal funds sold and
securities purchased under
agreement to resell 26,145 23,157 4.78% 5.16% 625 597 28 (44) 77 (5)
Other earning assets 0 0 - - 0 0 - - - -
Total Earning Assets 412,161 377,627 7.51% 7.90% 15,470 14,921 549 (625) 1,234 (60)
Interest-bearing Liabilities:
Interest-bearing deposits 291,218 262,355 3.89% 4.28% 5,661 5,618 43 (511) 617 (63)
Federal funds purchased and
securities sold under
agreement to repurchase 32,803 34,912 4.10% 4.51% 672 787 (115) (71) (47) 3
Other short-term borrowings 1,311 1,566 4.58% 5.49% 30 43 (13) (7) (7) 1
Total Interest-bearing
Liabilities 325,332 298,833 3.91% 4.32% 6,363 6,448 (85) (589) 563 (59)
Interest-free Funds
Supporting Earning Assets 86,829 78,794
Total Funds Supporting
Earning Assets 412,161 377,627 3.09% 3.41% 6,363 6,448 (85) (589) 563 (59)
Interest Rate Spread 3.60% 3.58%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .82% .91%
Net Yield on Earning Assets 4.42% 4.49% 9,107 8,473
</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 $180 for the three-month period
ended June 30, 1999 and $175 for the three-month period ended June 30,
1998. Net loan charge-offs/(recoveries) totaled $2 for the three-month
period ended June 30, 1999 and $95 for the same period in 1998.
The provision for possible loan losses was $330 for the six-month period
ended June 30, 1999 and $365 for the six-month period ended June 30, 1998.
Net loan charge-offs/(recoveries) totaled $85 for the six-month period ended
June 30, 1999 and $150 for the same period in 1998.
The reserve for possible loan losses as a percentage of net loans was
1.36% at June 30, 1999 and 1.35% at June 30, 1998. The decreased provision
during the six-month period ended June 30, 1999 was due to moderate net
charge-offs during 1999.
Securities Transactions - The Bank had no security sales during the first
half of 1999 or 1998. At June 30, 1999, December 31, 1998, and June 30,
1998 market value appreciation/(depreciation) in the securities portfolio
totaled $(935), $1,988, and $1,097. 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, increased by 5.5% from $963 for the three-month period ended
June 30, 1998 to $1,016 for the three-month period ended June 30, 1999.
Other income, net of any gains/losses on security transactions, increased by
8.0% from $1,779 for the six-month period ended June 30, 1998 to $1,922 for
the six-month period ended June 30, 1999.
This increase in the three-month and six-month period ended June 30, 1999
was due to an increase in deposit account volumes and higher merchant
discount income.
Other Expenses - Other expenses increased by 13.3% from $2,758 for the
three-month period ended June 30, 1998 to $3,124 for the three-month period
ended June 30, 1999. The major components of other expenses are salaries
and employee benefits which increased 9.6% from $1,703 to $1,866;
occupancy expense which increased 13.2% from $394 to $446; and other
operating expenses which increased by 22.8% from $661 to $812.
Other expenses increased by 10.4% from $5,512 for the six-month period ended
June 30, 1998 to $6,086 for the six-month period ended June 30, 1999. The
major components of other expenses are salaries and employee benefits which
increased 10.3% from $3,364 to $3,709; occupancy expense which increased
2.2% from $817 to $835; and other operating expense which increased by 15.9%
from $1,331 to $1,542.
21
<PAGE>
The increase in the three-month and six-month period ended June 30, 1999
salaries and employee benefits and occupancy expense was due to the opening
of the new "West Conway Office" in the late fall of 1998. Full-time-
equivalent employees have increased from 196 at June 30, 1998 to 208 at June
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 2.0% from $756 for the
three-month period ended June 30, 1998 to $771 for the three-month period
ended June 30, 1999. Income before income taxes less interest on tax-exempt
investment securities increased by .1% from $2,132 for the three-month
period ended June 30, 1998 to $2,135 for the same period in 1999. State tax
liability increased as income before income taxes increased .3% from $2,302
to $2,309 during the same period.
Provisions for income taxes increased 3.7% from $1,413 for the six-month
period ended June 30, 1998 to $1,465 for the six-month period ended June 30,
1999. Income before income taxes less interest on tax-exempt investment
securities increased by 6.0% from $3,846 for the six-month period ended June
30, 1998 to $4,077 for the same period in 1999 and state tax liability
increased as income before income taxes increased 5.6% from $4,195 to $4,431
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 $43,194, $41,201, $37,717 and $34,496 at June
30, 1999, December 31, 1998, December 31, 1997, and December 31, 1996,
representing 9.27%, 9.66%, 9.90%, and 10.09% of total assets, respectively.
At June 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 interim financial
23
<PAGE>
ACCOUNTING ISSUES (continued)
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.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of shareholders of CNB Corporation was held in the main
office building of The Conway National Bank at 1400 Third Avenue, Conway,
South Carolina, at 4:15 p.m., Conway, South Carolina time, on May 11, 1999.
The purpose of the Annual Meeting was to: (1) elect five Directors; and (2)
ratify the appointment of Elliott, Davis, and Company, Certified Public
Accountants, as the Company's independent public accountant for the fiscal
year ending December 31, 1999.
Proxies for the meeting were solicited pursuant to Regulation 14 under the
Act; there was no solicitation in opposition to the management's nominees as
listed in the proxy statement; and all of such nominees were elected.
There were 425,493 of the 597,375 shares issued present or represented by
proxy and all shares were voted for the election of the five Directors
listed as management's nominees in the proxy statement; and for the
ratification of Elliott, Davis, and Company as the Company's 1999
independent public accountant.
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: August 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> 1000
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
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0
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