UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999.
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the Transition Period From ___________ to ___________.
Commission file number 2-96350
CNB CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0792402
(State of incorporation) (I.R.S. Employer Identification No.)
1400 Third Avenue, P.O. Box 320, Conway, South Carolina 29526
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (843) 248-5721
Securities registered pursuant to section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class of which registered
Common Stock, par value $10.00 per share...................None
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
As of February 29, 2000, 596,720 shares of Common Stock of CNB
Corporation were outstanding and the aggregate market value of such Common
Stock held by nonaffiliates (based upon the price at which stock was sold
during the 60 days prior to the date of filing) was approximately
$65,340,840.
No Documents have been incorporated by reference.
<PAGE>
TABLE OF CONTENTS
PART I
Page
ITEM 1. Description of Business and Supplementary Data 1-22
ITEM 2. Properties 23
ITEM 3. Legal Proceedings 23
ITEM 4. Submission of Matters to a Vote of Security Holders 24
PART II
ITEM 5. Market for the Registrant's Common Stock and Related 24
Security Holder Matters
ITEM 6. Selected Financial Data 25
ITEM 7. Management's Discussion and Analysis of Financial 26-32
Condition and Results of Operations
ITEM 8. Financial Statements 33-55
ITEM 9. Disagreements on Accounting and Financial Disclosure 55
PART III
ITEM 10. Directors and Executive Officers of the Registrant 56-60
ITEM 11. Executive Compensation 61-63
ITEM 12. Security Ownership of Certain Beneficial Owners 64
and Management
ITEM 13. Certain Relationships and Related Transactions 64
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, Notes to 65
Financial Statements, and Reports on Form 8-K
<PAGE>
PART I
ITEM 1. Description of Business
DESCRIPTION OF CNB CORPORATION
CNB Corporation (the "Company") is a South Carolina business corporation
organized for the purpose of becoming a bank holding company for The Conway
National Bank (the "Bank") under the Bank Holding Company Act. The Company
was organized with $500 of capital on March 8, 1985; received approval from
the Board of Governors of the Federal Reserve System on May 15, 1985, to
become a bank holding company; and on June 10, 1985, acquired, in exchange
for its own shares of common stock, substantially all of the common stock of
the Bank. The activities of the Company are subject to the supervision of
the Federal Reserve, and the Company may engage directly or through
subsidiary corporations in those activities closely related to banking which
are specifically permitted under the Bank Holding Company Act and Gramm-
Leach-Bliley Act of 1999. See "Supervision and Regulation." Although the
Company, after obtaining the requisite approval of the Federal Reserve and
any other appropriate regulatory agency, may seek to enter businesses
closely related to banking or to acquire existing businesses already
engaged in such activities, the Company has not conducted, and has no
present intent to conduct, negotiations for the acquisition or formation of
any entities to engage in other permissible activities other than the
acquisition of the Bank. There can be no assurance that the Company will
form or acquire any other entity.
The Company and the Bank compete with those banks and other financial
institutions that compete with the Bank. See "Competition." In addition,
if the Company attempts to form or acquire other entities and engage in
activities closely related to banking, the Company will be competing with
other bank holding companies, financial holding companies, and companies
currently engaged in lines of business or permissible activities in which
the Company might engage, many of which have far greater assets and
financial resources than the Company and a greater capacity to raise
additional debt and equity capital than the Company.
DESCRIPTION OF THE SUBSIDIARY
The Bank is an independent community bank engaged in the general commercial
banking business in Horry County, South Carolina. The Bank was organized on
June 5, 1903 as the Bank of Horry located on Main Street in Conway, South
Carolina. The Bank became a national bank operating as The Conway National
Bank in 1914. On June 10, 1985, the Bank was reorganized into a bank
holding company structure when substantially all of the common stock of the
Bank was acquired by CNB Corporation in exchange for its own shares of
common stock. In 1960, the Bank opened its first additional office at 1400
Third Avenue in Conway. Since that time, the following offices have been
opened in Horry County: Coastal Centre in Conway (1969); Surfside in
Surfside Beach (1971); Northside, north of Myrtle Beach (1977); Red Hill in
Conway (1981); Socastee, in the southern portion of Myrtle Beach (1986);
Aynor in the Town of Aynor (1991), Myrtle Beach in the City of Myrtle Beach
(1995), and West Conway in Conway (1998). The Surfside office was enlarged
in 1977 and 1984, and the Coastal Centre office was expanded in 1980. The
Third Avenue office, which houses the Bank's administrative offices and data
processing facilities was expanded in 1982 from 11,150 square feet to 33,616
square feet. The Bank employs approximately 202 full-time-equivalent
employees at its principal office and nine branch offices.
1
<PAGE>
The Bank performs the full range of normal commercial banking functions.
Some of the major services provided include checking accounts, NOW accounts,
money market deposit accounts, IRA accounts, savings and time deposits of
various types and loans to individuals for personal use, home mortgages home
improvement, automobiles, real estate, agricultural purposes and business
needs. Commercial lending operations include various types of credit for
business, industry, and agriculture. In addition, the Bank offers safe
deposit boxes, wire transfer services, bank money orders, 24-hour teller
machines on the STAR Network, direct deposits and a MasterCard/Visa program.
Through a correspondent relationship the Bank offers discount brokerage
services. The Bank does not provide trust services; does not sell
annuities; and does not sell mutual funds.
The majority of the Bank's customers are individuals and small to medium-
sized businesses headquartered within the Bank's service area. The Bank has
no material concentration of deposits from any single customer or group of
customers. No significant portion of the Bank's loans is concentrated
within a single industry or group of related industries. There are no
material seasonal factors that would have any adverse effect on the Bank nor
does the Bank rely on foreign sources of funds or income.
COMPETITION
The Bank actively competes with other institutions in Horry County in
providing customers with deposit, credit and other financial services. The
principal competitors of the Bank include local offices of five regional
banks, two state-wide banks, five locally owned banks in Horry County and
various other financial and thrift institutions. The regional banks with
offices in Horry County are Bank of America, First Union National Bank,
First Citizens Bank and Trust Company, Branch Bank and Trust and Wachovia,
N.A.. The statewide banks with offices in Horry County are National Bank of
South Carolina and Carolina First Savings Bank. The locally owned banks
having offices in Horry County are The Anchor Bank of Myrtle Beach, Anderson
Brothers Bank, Coastal Federal Savings Bank, Horry County State Bank, and
Beach First National Bank. In addition, two thrift institutions have
offices in Horry County. The Bank also competes with credit unions, money
market funds, brokerage houses, insurance companies, mortgage companies,
leasing companies, consumer finance companies and other financial
institutions. Significant competitive factors include interest rates on
loans and deposits, prices and fees for services, office location, customer
service, community reputation, and continuity of personnel.
SUPERVISION AND REGULATION
General
The Company and the Bank are subject to an extensive collection of state and
federal banking laws and regulations which impose specific requirements and
restrictions on, and provide for general regulatory oversight with respect
to, virtually all aspects of the Company's and the Bank's operations. The
Company and the Bank are also affected by government monetary policy and by
regulatory measures affecting the banking industry in general. The actions
of the Federal Reserve System affect the money supply and, in general,
the Bank's lending abilities in increasing or decreasing the cost and
availability of funds to the Bank. Additionally, the Federal Reserve System
regulates the availability of bank credit in order to combat recession and
curb inflationary pressures in the economy by open market operations in
United States government securities, changes in the discount rate on member
bank borrowings, and changes in the reserve requirements against bank
deposits.
2
<PAGE>
During 1989 and 1991, the United States Congress enacted two major pieces of
banking legislation: The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). The FIRREA and FDICIA have
significantly changed the commercial banking industry through, among other
things, revising and limiting the types and amounts of investment authority,
significantly increasing minimum regulatory capital requirements, and
broadening the scope and power of federal bank and thrift regulators over
financial institutions and affiliated persons in order to protect the
deposit insurance funds and depositors. These laws, and the resulting
implementing regulations, have subjected the Bank and the Company to
extensive regulation, supervision and examination by the Office of the
Comptroller of the Currency (OCC). This has resulted in increased
administrative, professional and compensation expenses in complying with a
substantially increased number of new regulations and policies. The
regulatory structure created by these laws gives the regulatory authorities
extensive authority in connection with their supervisory and enforcement
activities and examination policies.
The Omnibus Consolidated Appropriations Act was enacted on September 30,
1996. Among the law's many provisions is a resolution of the BIF-SAIF
deposit insurance premium disparity, many regulatory burden relief
provisions and other bank-related legislation. The BIF-SAIF provisions are
contained in the Deposit Insurance Funds Act of 1996.
The Gramn-Leach-Bliley Financial Modernization Act of 1999, effective March
11, 2000, allows bank holding companies to elect to be treated as financial
holding companies. Financial holding companies may engage in a broad range
of securities, insurance, and other financial activities.
The following is a brief summary of certain statutes, rules and regulations
affecting the Company and the Bank. This summary is qualified in its
entirety by reference to the particular statutory and regulatory provisions
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the business of the Company and the
Bank. Any change in applicable laws or regulations may have a material
adverse effect on the business and prospects of the Company and the Bank.
The Company
The Company is a bank holding company within the meaning of the Federal Bank
Holding Company Act of 1956, as amended (the "BHCA") and is registered as
such with the Federal Reserve. The Company is required to file annual
reports and other information regarding its business operations and those of
its subsidiaries. It is also subject to supervision and regular
examinations.
The BHCA requires every bank holding company to obtain the prior approval of
the Federal Reserve Board before (i) it or any of its subsidiaries (other
than a bank) acquires substantially all of the assets of any bank, (ii) it
acquires ownership or control of any voting shares of any bank if after such
acquisition it would own or control, directly or indirectly, more than 5%
of the voting shares of such bank, or (iii) it merges or consolidates with
any other bank holding company.
3
<PAGE>
The BHCA and the Federal Change in Bank Control Act, together with
regulations promulgated by the Federal Reserve Board, require that,
depending on the particular circumstances, either the Federal Reserve
Board's approval must be obtained or notice must be furnished to the Federal
Reserve Board and not disapproved prior to any person or company acquiring
control of a bank holding company, such as the Company, subject to certain
exemptions for certain transactions.
Under the BHCA, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of more than 5% of the voting
shares of any company engaged in, nonbanking activities, unless the Federal
Reserve Board, by order or regulation, has found those activities to be so
closely related to banking or managing or controlling banks as to be a
proper incident thereto. Some of the activities that the Federal Reserve
Board has determined by regulation to be proper incidents to the business
of a bank holding company include making or servicing loans and certain
types of leases, engaging in certain insurance and discount brokerage
activities, performing certain data processing services, acting in certain
circumstances as a fiduciary or investment or financial adviser, owning
savings associations and making investments in certain corporations or
projects designed primarily to promote community welfare. The Company is
also restricted in its activities by the provisions of the Glass-Stegall Act
of 1933, which prohibits the Company from owning subsidiaries that are
engaged principally in the issue, flotation, underwriting, public sale or
distribution of securities. The regulatory requirements to which the
Company is subject also set forth various conditions regarding the
eligibility and qualifications of its directors and officers.
Under the Gramn-Leach-Bliley Act, the Company may elect to be treated as a
financial holding company which would allow the Company to engage in a broad
range of securities, insurance, and other financial activities.
The Bank
The Bank is subject to regulation and supervision, of which regular bank
examinations are a part, by the Comptroller of the Currency. The Bank is a
member of the Federal Deposit Insurance Corporation (the "FDIC") which
currently insures the deposits of each member bank to a maximum of $100,000
per depositor. For this protection, each bank pays a statutory assessment
and is subject to the rules and regulations of the FDIC. The Company is an
"affiliate" of the Bank within the meaning of the Federal Reserve Act and
the Federal Deposit Insurance Act, which imposes restrictions on loans by
any subsidiary bank to the Company, on investments by any subsidiary bank in
the stock or securities of the Company and on the use of such stock or
securities as collateral security for loans by any subsidiary bank to any
borrower. The Company will also be subject to certain restrictions with
respect to engaging in the business of issuing, underwriting and
distributing securities.
4
<PAGE>
DESCRIPTION OF BANK STOCK
The Bank is authorized to issue 199,536 shares and has outstanding 193,536
shares of Bank Stock. The holders of Bank Stock are entitled to one vote
per share. Holders of shares of Bank Stock have preemptive rights to
purchase additional shares of Bank Stock and have cumulative rights in the
elections of directors of the Bank. The National Bank Act generally
provides for a majority vote of the Bank Stock to approve an action by the
Bank but a two-thirds vote of the outstanding shares of Bank Stock is
required to approve certain fundamental changes.
The National Bank Act, 12 U.S.C. Section 55, provides for the pro rata
assessment of holders of common stock of a national bank in the event that
its capital becomes impaired, such assessment to be enforced by sale to the
extent necessary of the stock of the stockholder failing to pay his
assessment. However, the Company has been advised that the Comptroller of
the Currency has not used this provision in recent years. Accordingly, the
shares of Bank Stock are subject to such assessment. However, the Bank's
management does not anticipate the Bank Stock being assessed in this manner
in the foreseeable future.
The holders of Bank Stock are entitled to receive such dividends as may be
declared by the Board of Directors of the Bank out of funds legally
available therefor. National banking laws and regulations impose
restrictions on the payment of dividends and other distributions to
stockholders. The National Bank Act provides that a national bank cannot
pay dividends or other distributions to stockholders out of any portion of
its capital and surplus, and that no dividend shall be paid by a bank in an
amount greater than its "net profits then on hand" (as defined in the
National Bank Act), after deduction of statutory "bad debts." In addition,
12 U.S.C. Section 60 provides that the approval of the Comptroller of the
Currency is required for the payment of dividends by a national bank if the
total of all dividends declared by the bank in any calendar year shall
exceed the total of its "net profits" of that year combined with its
"retained net profits" of the preceding two years. The same section further
provides that, until the surplus fund of a national bank shall equal its
common capital, no dividends shall be declared unless there has been carried
to the surplus fund not less than one-tenth part of the bank's net profits
of the preceding half year in the case of quarterly or semiannual dividends,
or not less than one-tenth part of its net dividends. Also, under 12 U.S.C.
Section 1818, the Comptroller of the Currency can restrict a national bank's
dividend payments if they are deemed an unsafe or unsound banking practice.
In the event of the liquidation, dissolution or winding-up of the affairs of
the Bank, the holders of outstanding shares of Bank Stock will be entitled
to share pro rata according to their respective interests in the Bank's
assets and funds remaining after payment or provision for payment of all
debts and other liabilities of the Bank.
5
<PAGE>
DESCRIPTION OF COMPANY STOCK
General
The Company is authorized to issue 1,500,000 shares of Company Stock and as
of December 31, 1999, has 598,681 shares issued and 595,959 shares
outstanding. The holders of Company Stock are entitled to one vote per
share. Holders of shares of Company Stock do not have pre-emptive rights
to purchase any additional shares of Company Stock and do not have
cumulative voting rights in the election of directors. Without pre-emptive
rights, stockholders could experience dilution of their voting power and of
their equity interest in the Company.
The ability of the Company to pay dividends to the holders of the Company
Stock depends upon the amount of dividends paid by the Bank to the Company.
The holders of shares of Company Stock will be entitled to receive such
dividends as may be declared by the Board of Directors of the Company out of
the funds legally available therefor. The payment of dividends by the
company are subject to the restrictions of South Carolina laws applicable to
the declaration of dividends by a business corporation. Under such
provisions, dividends may be paid in cash or in property of the Company,
including the shares of other corporations, except when the Company is
insolvent or would thereby be made insolvent or when the declaration of
payment thereof would be contrary to any restrictions in the Company
Articles. Dividends may be declared and paid only out of the unreserved and
unrestricted earned surplus of the Company.
In the event of the liquidation, dissolution or winding-up of the affairs of
the Company, the holders of outstanding shares of Company Stock will be
entitled to share pro rata according to their respective interests in the
Company's assets and funds remaining after payment or provision for payment
of all debts and other liabilities of the Company.
All shares of Company Stock are fully paid and nonassessable.
The Bank is the transfer agent for shares of Company Stock.
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.
6
<PAGE>
SUPPLEMENTARY DATA
QUARTERLY SHAREHOLDER INFORMATION
CNB CORPORATION
QUARTERLY SHAREHOLDER INFORMATION
(All Dollar Amounts, Except Per Share Data, in Thousands)
Summary of Operating Results by Quarter
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
1999 1998 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $7,488 $7,187 $7,800 $7,554 $8,183 $7,737 $8,272 $7,565
Total interest expense 3,160 3,166 3,203 3,282 3,380 3,324 3,301 3,258
Net interest income 4,328 4,021 4,597 4,272 4,803 4,413 4,971 4,307
Provision for possible
loan losses 150 190 180 175 200 160 265 155
Total other operating income 906 816 1,016 963 1,126 1,161 1,259 992
Total other operating expenses 2,962 2,754 3,124 2,758 3,144 2,906 3,800 3,518
Income before income taxes 2,122 1,893 2,309 2,302 2,585 2,508 2,165 1,626
Income taxes 694 657 771 756 843 821 768 587
Net income $1,428 $1,236 $1,538 $1,546 $1,742 $1,687 $1,397 $1,039
Net income per weighted
average shares outstanding $ 2.39 $ 2.07 $ 2.58 $ 2.58 $ 2.91 $ 2.83 $ 2.35 $ 1.74
</TABLE>
SUPPLEMENTARY INFLATION ADJUSTED FINANCIAL DATA
Inflation-adjusted accounting has not been applied to the Company's
financial information as management does not believe this type of analysis
provides useful information within the financial services industry. The
Company currently does not meet the asset size criteria which would make
detailed disclosure of inflation adjusted data mandatory.
GUIDE 3. STATISTICAL DISCLOSURE BY BANK
HOLDING COMPANIES
The following tables present additional statistical information about CNB
Corporation and its operation and financial condition and should be read in
conjunction with the consolidated financial statements and related notes
thereto contained elsewhere in this report.
DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL
The tables on the following 5 pages present selected financial data and an
analysis of net interest income.
7
<PAGE>
CNB Corporation and Subsidiary
Selected Financial Data
<TABLE>
<CAPTION>
Twelve Months Ended 12/31/99
Average Interest Avg. Annual
Balance Income/ Yield or
Expense(2) Rate
<S> <C> <C> <C>
Assets:
Earning assets
Loans, net of
unearned income $248,616 $21,869 8.80%
Investment securities:
Taxable 132,136 7,754 5.87
Tax-exempt 14,980 1,089 7.27
Federal funds sold and
securities purchased under
agreement to resell 27,883 1,401 5.02
Total earning assets $423,615 $32,113 7.58
Other assets 29,956
Total assets $453,571
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits $298,789 11,616 3.89
Federal funds purchased and
securities sold under
agreement to repurchase 32,555 1,351 4.15
Other short-term borrowings 1,644 77 4.68
Total interest-bearing
liabilities $332,988 $13,044 3.92
Noninterest-bearing deposits 74,385
Other liabilities 3,052
Stockholders' equity 43,146
Total liabilities and
stockholders' equity $453,571
Net interest income as a
percent of total
earning assets $423,615 $19,069 4.50%
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 370
</TABLE>
Ratios:
Annualized return on average total assets 1.35%
Annualized return on average stockholders' equity 14.15
Cash dividends declared as a percent of net income 34.17
Average stockholders' equity as a percent of:
Average total assets 9.51
Average total deposits 11.56
Average loans, net of unearned income 17.35
Average earning assets as a percent of
average total assets 93.40%
(2) The Company had no out-of-period adjustments or foreign activities.
Loan fees of $0 are included in the above interest income. Loans on
a non-accrual basis for the recognition of interest income totalling
$527 as of December 31, 1999 are included in loans, net of unearned
income, for purpose of this analysis.
8
<PAGE>
CNB Corporation and Subsidiary
Selected Financial Data
<TABLE>
<CAPTION>
Twelve Months Ended 12/31/98
Average Interest Avg. Annual
Balance Income/ Yield or
Expense(2) Rate
<S> <C> <C> <C>
Assets:
Earning assets
Loans, net of
unearned income $228,057 $20,755 9.10%
Investment securities:
Taxable 118,941 7,187 6.04
Tax-exempt 13,771 1,053 7.65
Federal funds sold and
securities purchased under
agreement to resell 26,890 1,406 5.23
Total earning assets $387,659 $30,401 7.84
Other assets 26,219
Total assets $413,878
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits $273,469 11,432 4.18
Federal funds purchased and
securities sold under
agreement to repurchase 34,274 1,514 4.42
Other short-term borrowings 1,514 84 5.55
Total interest-bearing
liabilities $309,257 $13,030 4.21
Noninterest-bearing deposits 62,582
Other liabilities 1,841
Stockholders' equity 40,198
Total liabilities and
stockholders' equity $413,878
Net interest income as a
percent of total
earning assets $387,659 $17,371 4.48%
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 358
</TABLE>
Ratios:
Annualized return on average total assets 1.33%
Annualized return on average stockholders' equity 13.70
Cash dividends declared as a percent of net income 37.94
Average stockholders' equity as a percent of:
Average total assets 9.71
Average total deposits 11.96
Average loans, net of unearned income 17.63
Average earning assets as a percent of
average total assets 93.67%
(2) The Company had no out-of-period adjustments or foreign activities.
Loan fees of $0 are included in the above interest income. Loans on
a non-accrual basis for the recognition of interest income totalling
$422 as of December 31, 1998 are included in loans, net of unearned
income, for purpose of this analysis.
9
<PAGE>
CNB Corporation and Subsidiary
Selected Financial Data
<TABLE>
<CAPTION>
Twelve Months Ended 12/31/97
Average Interest Avg. Annual
Balance Income/ Yield or
Expense(2) Rate
<S> <C> <C> <C>
Assets:
Earning assets
Loans, net of
unearned income $204,987 $19,110 9.32%
Investment securities:
Taxable 118,900 7,191 6.05
Tax-exempt 13,841 1,083 7.82
Federal funds sold and
securities purchased under
agreement to resell 13,730 743 5.41
Total earning assets $351,458 $28,127 8.00
Other assets 24,531
Total assets $375,989
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits $241,009 10,009 4.15
Federal funds purchased and
securities sold under
agreement to repurchase 36,148 1,676 4.64
Other short-term borrowings 1,562 79 5.06
Total interest-bearing
liabilities $278,719 $11,764 4.22
Noninterest-bearing deposits 57,645
Other liabilities 3,130
Stockholders' equity 36,495
Total liabilities and
stockholders' equity $375,989
Net interest income as a
percent of total
earning assets $351,458 $16,363 4.66%
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 368
</TABLE>
Ratios:
Annualized return on average total assets 1.28%
Annualized return on average stockholders' equity 13.17
Cash dividends declared as a percent of net income 37.32
Average stockholders' equity as a percent of:
Average total assets 9.71
Average total deposits 12.22
Average loans, net of unearned income 17.80
Average earning assets as a percent of
average total assets 93.48%
(2) The Company had no out-of-period adjustments or foreign activities.
Loan fees of $0 are included in the above interest income. Loans on
a non-accrual basis for the recognition of interest income totalling
$24 as of December 31, 1997 are included in loans, net of unearned
income, for purpose of this analysis.
10
<PAGE>
<TABLE>
<CAPTION>
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Twelve Months Ended December 31, 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) 248,616 228,057 8.80% 9.10% 21,869 20,755 1,114 (684) 1,871 (73)
Investment securities:
Taxable 132,136 118,941 5.87% 6.04% 7,754 7,187 567 (202) 797 (28)
Tax-exempt 14,980 13,771 7.27% 7.65% 1,089 1,053 36 (52) 92 (4)
Federal funds sold and
securities purchased under
agreement to resell 27,883 26,890 5.02% 5.23% 1,401 1,406 (5) (56) 52 (1)
Total Earning Assets 423,615 387,659 7.58% 7.84% 32,113 30,401 1,712 (994) 2,812 (106)
Interest-bearing Liabilities:
Interest-bearing deposits 298,789 273,469 3.89% 4.18% 11,616 11,432 184 (793) 1,058 (81)
Federal funds purchased and
securities sold under
agreement to repurchase 32,555 34,274 4.15% 4.42% 1,351 1,514 (163) (93) (76) 6
Other short-term borrowings 1,644 1,514 4.68% 5.55% 77 84 (7) (13) 7 (1)
Total Interest-bearing
Liabilities 332,988 309,257 3.92% 4.21% 13,044 13,030 14 (899) 989 (76)
Interest-free Funds
Supporting Earning Assets 90,627 78,402
Total Funds Supporting
Earning Assets 423,615 387,659 3.08% 3.36% 13,044 13,030 14 (899) 989 (76)
Interest Rate Spread 3.66% 3.63%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .84% .85%
Net Yield on Earning Assets 4.50% 4.48% 19,069 17,371
</TABLE>
(1) Tax-equivalent adjustment based on a 34% tax rate.
(2) Includes non-accruing loans which does not have a material effect on the
Net Yield on Earning Assets.
11
<PAGE>
<TABLE>
<CAPTION>
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Twelve Months Ended December 31, 1998 and 1997
(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
1998 1997 1998 (1) 1997 (1) 1998 (1) 1997 (1) Variance Rate Volume Volume
Earning Assets:
Loans, Net of unearned
income (2) 228,057 204,987 9.10% 9.32% 20,755 19,110 1,645 (451) 2,147 (51)
Investment securities:
Taxable 118,941 118,900 6.04% 6.05% 7,187 7,191 (4) (7) 3 -
Tax-exempt 13,771 13,841 7.65% 7.82% 1,053 1,083 (30) (24) (6) -
Federal funds sold and
securities purchased under
agreement to resell 26,890 13,730 5.23% 5.41% 1,406 743 663 (25) 712 (24)
Total Earning Assets 387,659 351,458 7.84% 8.00% 30,401 28,127 2,274 (507) 2,856 (75)
Interest-bearing Liabilities:
Interest-bearing deposits 273,469 241,009 4.18% 4.15% 11,432 10,009 1,423 72 1,342 9
Federal funds purchased and
securities sold under
agreement to repurchase 34,274 36,148 4.42% 4.64% 1,514 1,676 (162) (80) (86) 4
Other short-term borrowings 1,514 1,562 5.55% 5.06% 84 79 5 8 (3) -
Total Interest-bearing
Liabilities 309,257 278,719 4.21% 4.22% 13,030 11,764 1,266 - 1,253 13
Interest-free Funds
Supporting Earning Assets 78,402 72,739
Total Funds Supporting
Earning Assets 387,659 351,458 3.36% 3.34% 13,030 11,764 1,266 - 1,253 13
Interest Rate Spread 3.63% 3.78%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .85% .88%
Net Yield on Earning Assets 4.48% 4.66% 17,371 16,363
</TABLE>
(1) Tax-equivalent adjustment based on a 34% tax rate.
(2) Includes non-accruing loans which does not have a material effect on the
Net Yield on Earning Assets.
12
<PAGE>
<TABLE>
<CAPTION>
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Twelve Months Ended December 31, 1997 and 1996
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Change
Average Average Interest Interest Change Change Due To
Volume Volume Yield/Rate Yield/Rate Earned/Paid Earned/Paid Due to Due To Rate X
1997 1996 1997 (1) 1996 (1) 1997 (1) 1996 (1) Variance Rate Volume Volume
Earning Assets:
Loans, Net of unearned
income (2) 204,987 169,815 9.32% 9.31% 19,110 15,808 3,302 17 3,281 4
Investment securities:
Taxable 118,900 126,368 6.05% 5.93% 7,191 7,488 (297) 152 (440) (9)
Tax-exempt 13,841 13,999 7.82% 8.01% 1,083 1,121 (38) (26) (13) 1
Federal funds sold and
securities purchased under
agreement to resell 13,730 8,626 5.41% 5.33% 743 460 283 7 272 4
Total Earning Assets 351,458 318,808 8.00% 7.80% 28,127 24,877 3,250 150 3,100 -
Interest-bearing Liabilities:
Interest-bearing deposits 241,009 214,194 4.15% 4.02% 10,009 8,610 1,399 278 1,086 35
Federal funds purchased and
securities sold under
agreement to repurchase 36,148 39,506 4.64% 4.82% 1,676 1,906 (230) (71) (165) 6
Other short-term borrowings 1,562 1,164 5.06% 5.41% 79 63 16 (4) 21 (1)
Total Interest-bearing
Liabilities 278,719 254,864 4.22% 4.15% 11,764 10,579 1,185 203 942 40
Interest-free Funds
Supporting Earning Assets 72,739 63,944
Total Funds Supporting
Earning Assets 351,458 318,808 3.34% 3.32% 11,764 10,579 1,185 203 942 40
Interest Rate Spread 3.78% 3.65%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .88% .83%
Net Yield on Earning Assets 4.66% 4.48% 16,363 14,298
</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.
13
<PAGE>
INVESTMENT SECURITIES
Investment securities with a par value of $82,325, $74,500, and $69,965 at
December 31, 1999, 1998, and 1997, respectively, were pledged to secure
public deposits and for other purposes required by law.
The following summaries reflect the book value, unrealized gains and losses,
approximate market value, and tax-equivalent yields on investment securities
at December 31, 1999, 1998, and 1997.
December 31, 1999
Book Unrealized Fair
Value Gains Losses Value Yield(1)
AVAILABLE FOR SALE
United States Treasury
Within one year $ 4,984 $ 11 $ 10 $ 4,985 6.38%
One to five years 10,117 0 114 10,003 5.99%
15,101 11 124 14,988 6.12%
Federal agencies
Within one year 11,461 0 38 11,423 5.96%
One to five years 61,746 5 1,533 60,218 5.79%
73,207 5 1,571 71,641 5.82%
State, county and municipal
Six to ten years 1,132 1 5 1,128 6.96%
Other-restricted
Federal Reserve &
Federal Home Loan
Bank Stock 1,394 - - 1,394 6.96%
Total available
for sale $90,834 $ 17 $1,700 $89,151 5.80%
HELD TO MATURITY
United States Treasury
Within one year $ 3,000 $ 5 $ - $ 3,005 6.54%
One to five years 1,012 - 14 998 5.76%
4,012 5 14 4,003 6.35%
Federal agencies
Within one year 7,613 - 11 7,602 6.30%
One to five years 28,188 25 368 27,845 6.36%
35,801 25 379 35,447 6.35%
State, county and municipal
Within one year 1,759 12 - 1,771 8.60%
One to five years 8,342 42 49 8,335 6.50%
Six to ten years 4,315 17 78 4,254 6.69%
After ten years 639 1 20 620 5.56%
15,055 72 147 14,980 6.76%
Total held to maturity $54,868 $ 102 $ 540 $54,430 6.46%
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended December 31, 1999, the Bank did not hold any
securities of an issuer that exceeded 10% of stockholders' equity.
14
<PAGE>
INVESTMENT SECURITIES, continued
December 31, 1998
Book Unrealized Fair
Value Gains Losses Value Yield(1)
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
Within one year 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 $ - $61,298 6.56%
(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.
15
<PAGE>
INVESTMENT SECURITIES, continued
December 31, 1997
Book Unrealized Fair
Value Gains Losses Value Yield(1)
AVAILABLE FOR SALE
United States Treasury
Within one year $10,252 $ 52 $ 8 $10,296 6.53%
One to five years 11,987 125 - 12,112 6.30%
22,239 177 8 22,408 6.41%
Federal agencies
Within one year 4,995 1 12 4,984 5.11%
One to five years 23,805 158 18 23,945 6.26%
After ten years 1,375 21 - 1,396 6.90%
30,175 180 30 30,325 6.10%
State, county and municipal
One to five years 325 10 - 335 7.85%
Other-restricted
Federal Reserve
Bank Stock 116 - - 116 6.03%
Total available
for sale $52,855 $ 367 $ 38 $53,184 6.24%
HELD TO MATURITY
United States Treasury
Within one year $17,703 $ 11 $ 49 $17,665 5.14%
One to five years 9,977 131 - 10,108 6.46%
27,680 142 49 27,773 5.62%
Federal agencies
One to five years 28,235 216 45 28,406 6.34%
State, county and municipal
Within one year 1,540 9 - 1,549 8.88%
One to five years 6,436 214 1 6,649 8.71%
Six to ten years 5,746 157 - 5,903 7.39%
After ten years 602 11 - 613 7.39%
14,324 391 1 14,714 8.14%
Total held to maturity $70,239 $ 749 $ 95 $70,893 6.42%
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended December 31, 1997, the Bank did not hold any
securities of an issuer that exceeded 10% of stockholders' equity.
16
<PAGE>
<TABLE>
<CAPTION>
LOAN PORTFOLIO
CLASSIFICATION OF LOANS
The following is a summary of loans, in thousands of dollars, at December
31, 1999, 1998, 1997, 1996, and 1995 by major classification:
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Real estate Loans - mortgage $163,614 $142,039 $136,441 $111,474 $ 95,451
- construction 21,013 15,560 19,653 15,148 5,453
Loans to farmers 1,447 1,487 1,214 1,328 1,032
Commercial and industrial loans 45,742 36,393 34,606 28,105 23,133
Loans to individuals for household
family and other consumer
expenditure 33,864 32,669 30,772 29,642 28,095
All other loans, including
Overdrafts 1,736 1,951 140 236 334
Gross Loans 267,416 230,099 222,826 185,933 153,498
Less unearned income (275) (970) (1,105) (1,058) (1,094)
Less reserve for loan losses (3,451) (3,132) (2,879) (2,370) (2,242)
Net loans $263,690 $225,997 $218,842 $182,505 $150,162
</TABLE>
MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
The Company's loan portfolio consisted of approximately $203,304 and
$178,510 in fixed rate loans as of December 31, 1999 and 1998, respectively.
At December 31, 1999, and 1998, fixed rate loans with maturities in excess
of one year amounted to approximately $153,767 and $137,928, respectively.
Variable rate loans are those on which the interest rate can be adjusted to
changes in the Bank's prime rate. Fixed rate loans are those on which the
interest rate generally cannot be changed for the term of the loan.
17
<PAGE>
RISK ELEMENTS
The following information relates to certain assets which are defined as
risk elements by the Securities and Exchange Commission. All loans which
meet the criteria set forth by the Securities and Exchange Commission are
detailed below, regardless of the likelihood of collection in full or in
part. All loans classified for regulatory purposes as loss, doubtful,
substandard, or especially mentioned that have not been disclosed do
not represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results,
liquidity, or capital resources or represent material credits about which
management is aware of any information which causes management to have
serious doubts as to the ability of such borrower to comply with the loan
repayment terms. As a matter of practice, loans which management has
serious concerns about the borrower being able to pay are put into a non-
accrual status and disclosed under Risk Elements. Management reviews these
loans periodically and feels that the current reserve for possible loan
losses adequately provides coverage for actual loss potential. Other
interest-bearing assets considered a risk element, if any, are also detailed
in this section.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following schedule summarizes the amount of nonaccrual, past due, and
restructured loans, in thousands of dollars, for the periods ended December
1999, 1998, 1997, 1996, 1995:
December 31,
1999 1998 1997 1996 1995
Nonaccrual loans $ 527 $ 422 $ 24 $ 377 $ 479
Accruing loans which are
contractually past due
90 days or more as to
principal or interest
payments $ 142 $ 100 $ 135 $ 77 $ 87
Restructed trouble debt None None None None None
Information relating to interest income on nonaccrual and renegotiated loans
outstanding for the year ended December 31, 1999, 1998, and 1997 is as
follows:
1999 1998 1997
Interest included in income during the
year $ 26 $ 16 $ 1
Interest which would have been included
at the original contract rates $ 46 $ 40 $ 3
Loans are placed in a non-accrual status when, in the opinion of management,
the collection of additional interest is questionable. Thereafter no
interest is taken into income unless received in cash or until such time
as the borrower demonstrates the ability to pay principal and interest.
18
<PAGE>
POTENTIAL PROBLEM LOANS
In addition to those loans disclosed under "Risk Elements", there are
certain loans in the portfolio which are presently current but about which
management has concerns regarding the ability of the borrower to comply with
present loan repayment terms. Management maintains a loan review of the
total loan portfolio to identify loans where there is concern that the
borrower will not be able to continue to satisfy present loan repayment
terms. Such problem loan identification includes the review of individual
loans, loss experience, and economic conditions. Problem loans include both
current and past due loans.
As of December 31, 1999, loans which management had serious concerns about
the borrower being able to repay were put into a non-accrual status which
are disclosed under "Risk Elements".
FOREIGN OUTSTANDINGS
As of the year ended December 31, 1999, the Company had no foreign loans
outstanding.
LOAN CONCENTRATIONS
As of the year ended December 31, 1999, the Company did not have any
concentration of loans exceeding 10% of total loans which are not otherwise
disclosed as a category of loans pursuant to Item III. A. of Guide 3.
OTHER INTEREST-BEARING ASSETS
The Bank maintains an investment in an executive life insurance program
through Confederation Life Insurance and Annuity Company, Inc.. During 1994
the Michigan Insurance Commission seized control of this United States
Corporation due to a similar action by the Canadian regulatory authorities
over the company's parent corporation, Confederation Life Insurance Company.
Regulatory oversight began as concerns regarding investment losses of the
parent corporation developed during 1993 and 1994. Management determined
that any impairment of the approximate $2,100,000 cash surrender value of
the policies is remote due to the financial stability of the U.S.
subsidiary. Subsequently, on October 23, 1996, a plan of Rehabilitation for
Confederation Life Insurance Company (U.S.) was confirmed by the State of
Michigan in the Circuit Court for the County of Ingham. The plan provides
for the assumption of company owned life insurance policies (COLI), such as
the Bank's, to be assumed by Pacific Mutual Life Insurance Company. Under
the agreement, holders of COLI Policies will have the option to have a
policy reinsured by Pacific Mutual which is expected to have the same
account value and substantially the same contract terms as the original
policy or to receive the liquidation or "opt-out" value of the policy.
The Bank's independent external auditors have revisited the facts and
circumstances regarding the investment in the COLI program and have read the
significant uncertainties requiring the recognition of a loss contingency as
of the date of this report.
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 December 31, 1999, the Company does not have any interest-bearing
assets that would be required to be disclosed under Item III. C. 1. or 2. if
such assets were loans.
19
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
Loan loss experience for each reported period, in thousands of dollars, is
summarized as follows:
Year Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Loans (net of unearned income):
Average loans outstanding for
the period $248,616 $228,057 $204,987 $169,815 $149,940
Reserve for loan losses:
Balance at beginning
of period $ 3,132 $ 2,879 $ 2,370 $ 2,242 $ 2,220
Charge-offs:
Commercial, financial, and
agricultural 254 189 238 111 133
Real Estate - construction
and mortgage 3 14 5 22 3
Loans to individuals 559 553 399 296 313
Total charge-offs $ 816 $ 756 $ 642 $ 429 $ 449
Recoveries:
Commercial, financial, and
Agricultural 103 89 100 47 166
Real estate-construction
and mortgage 21 5 106 15 44
Loans to individuals 216 235 145 135 151
Total recoveries $ 340 $ 329 $ 351 $ 197 $ 361
Net charge-offs $ 476 $ 427 $ 291 $ 232 $ 88
Additions charged to operations $ 795 $ 680 $ 800 $ 360 $ 110
Balance at end of period $ 3,451 $ 3,132 $ 2,879 $ 2,370 $ 2,242
Ratio of net charge-offs during
the period to average loans
outstanding during the period .19% .19% .14% .14% .06%
</TABLE>
The reserve for loan losses is maintained at the greater of 1.20% of net
loans or an amount that bears the same ratio to eligible loans as net
charge-offs to average eligible loans over the past six years. In addition,
the Asset/ Liability Management Committee and the Loan Committee review the
adequacy of the reserve quarterly and make recommendations as to the desired
amount of the reserve. Determination of the adequacy of the reserve is
based on the above ratios and, but not limited to, considerations of
classified and internally-identified problem loans, the current trend in
delinquencies, the volume of past-due loans, and current or expected
economic conditions. Based upon these factors, net charge-offs are
anticipated to be approximately $540 during 2000.
20
<PAGE>
DEPOSITS
AVERAGE DEPOSITS BY CLASSIFICATION
The following table sets forth the classification of average deposits for
the indicated period, in the thousands of dollars:
Years Ended December 31,
1999 1998 1997
Noninterest bearing demand deposits 74,385 62,582 57,645
Interest bearing demand deposits 52,195 47,249 45,844
Savings deposits 28,594 28,428 29,894
Time deposits 218,000 197,792 165,271
Total deposits 373,174 336,051 298,654
AVERAGE RATES PAID ON DEPOSITS
The following table sets forth average rates paid on categories of interest-
bearing deposits for the periods indicated:
Years Ended December 31,
1999 1998 1997
Interest bearing demand deposits 1.06% 1.49% 1.70%
Savings deposits 2.51% 2.69% 2.70%
Time deposits 4.74% 5.04% 5.10%
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
The following table sets forth the maturity of time deposits of $100,000 or
more, in thousands of dollars, at December 31, 1999:
Maturity within 3 months or less $37,360
Over 3 through 6 months 19,526
Over 6 through 12 months 8,439
Over 12 months 5,984
Total 71,309
21
<PAGE>
RETURN ON EQUITY AND ASSETS
The following table presents certain ratios relating to the Company's equity
and assets:
Year ended December 31,
1999 1998 1997
Return on average total assets 1.35% 1.33% 1.28%
Return on average stockholders' equity 14.15% 13.70% 13.17%
Cash dividend payout ratio 34.17% 37.94% 37.32%
Average equity to average assets ratio 9.51% 9.71% 9.71%
SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under repurchase agreements are
short-term borrowings which generally mature within 90 days from the dates
of issuance. No other category of short-term borrowings had an average
balance outstanding during the reported period which represented 30 percent
or more of stockholders' equity at the end of the period.
The following is a summary of short-term borrowings at December 31 of each
reported period, in thousands of dollars:
December 31,
Federal funds purchased
and securities sold under 1999 1998 1997
agreement to repurchase $27,477 $32,518 $32,366
The following information relates to short-term borrowings outstanding
during 1999, 1998, and 1997:
Maximum Amount Weighted Average
Outstanding in Any Interest Rate
Month End at December 31,
1999 1998 1997 1999 1998 1997
Federal funds
purchased and
securities sold
under agreement
to repurchase $36,183 $39,678 $49,506 4.34% 4.12% 4.61%
Year ended December 31,
1999 1998 1997
Federal funds purchased and
securities sold under
agreement to repurchase-
average daily amount outstanding $32,555 $34,274 $36,148
Weighted average interest rate paid 4.15% 4.42% 4.64%
22
<PAGE>
ITEM 2. PROPERTIES
The Company's subsidiary, The Conway National Bank, has ten permanent
offices in Horry County. The principal office, located at 1400 Third Avenue
in Conway, houses the Bank's administrative offices and data processing
facilities. This three-story structure, which was significantly expanded in
1982, contains approximately 33,616 square feet. In addition, the Bank has
a 632 square foot building for express banking services adjacent to the
principal office. The Bank has a two-story office on Main Street in Conway
containing 8,424 square feet. Bank offices are housed in one-story
facilities at the Coastal Centre in Conway (3,500 square feet with an
adjacent 675 square foot building for express banking services), Red Hill in
Conway (3,760 square feet) West Conway in Conway (3,286 square feet)
Surfside in Surfside Beach (6,339 square feet), Northside, north of Myrtle
Beach (2,432 square feet), Socastee in the southern portion of Myrtle Beach
(3,498 square feet), Aynor in The Town of Aynor (2,809 square feet),and
Myrtle Beach in the City of Myrtle Beach (12,000 square feet). Of the ten
offices, the bank owns the principal office, the office at Red Hill, West
Conway, Northside, Main Street, Socastee, Aynor, and Myrtle Beach. All
other facilities are leased by the Bank under long-term leases with renewal
options. In addition to the existing facilities, the Company has purchased
three future office sites. The sites consist of approximately 1.5 acres on
Highway 17 south of Myrtle Beach in Murrells Inlet, 1.1 acres on Highway 701
north of Conway, and 1.0 acres on Highway 17 in North Myrtle Beach. An
office is scheduled to be completed and opened on the Murrells Inlet
property during the first quarter of 2000. The company also anticipates
building offices on the other sites within the next two to five years,
depending on market conditions.
ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings against the Company or its
subsidiary, The Conway National Bank, as of December 31, 1999.
There were no administrative or judicial proceedings arising under Section 8
of the Federal Deposit Insurance Act.
There were no material proceedings to which any director, officer, or owner
of record of more than 5% of the voting securities of the Company or any
associate is a party adverse to the Company.
There are other legal proceedings pending against the Company or its
subsidiary, The Conway National Bank, in the ordinary course of business. In
the opinion of management, based upon the opinion of counsel, liabilities
arising from these proceedings, if any, would not have a material adverse
effect on the financial position of the Company.
23
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On May 11, 1999, at the Annual Meeting of CNB Corporation, the security holders:
1) Nominated and elected five directors to serve for a three-year term; and
2) Ratified the appointment of Elliott, Davis, and Company, Certified Public
Accountants, as independent auditors for the Company and its subsidiary
for the year ending December 31, 1999.
PART II
ITEM 5. MARKET PRICE OF REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
As of December 31, 1999, there were approximately 672 holders of record of
Company stock. There is no established market for shares of Company stock
and only limited trading in such shares has occurred since the formation of
the Company on June 10, 1985. Most of the limited trading transactions have
been effected through the efforts of officers of the Company in matching
interested purchasers with shareholders who have expressed an interest in
selling their shares of Company stock. Some private trading of Company
stock has occurred without any participation in the transaction by the
officers of the Company other than to effect the transfer on the Company's
shareholder records. Accordingly, management of the Company is not aware of
the prices at which all shares of Company stock have traded. The following
table sets forth the prices known to management of the Company at which
shares of Company stock have traded in each quarter within the two most
recent fiscal years.
1999 1998
High Low High Low
First Quarter $ 99.00 $ 99.00 $90.00 $90.00
Second Quarter $104.00 $ 99.00 $94.00 $90.00
Third Quarter $104.00 $104.00 $94.00 $94.00
Fourth Quarter $109.50 $104.00 $99.00 $94.00
Holders of shares of Company stock are entitled to such dividends as may be
declared from time to time by the Board of Directors of the Company. The
Company paid an annual cash dividend of $3.50 per share in 1999 and 1998,
$3.00 per share in 1997, 1996 and 1995, $2.00 per share in 1994, 1993 and
1992, $1.50 per share in 1991, and $1.00 per share in the years 1985 through
1990. In addition, the Company may from time to time pay a stock dividend.
The Company paid a 25% stock dividend in September, 1997, a 20% stock
dividend in September, 1994, a 50% stock dividend in July, 1989, a 20% stock
dividend in August, 1987 and a 15% stock dividend in November, 1985. There
can be no assurance, however, as to the payment of dividends by the Company
in the future since payment will be dependent upon the earnings and
financial condition of the Company and the Bank and other related factors.
24
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
CNB Corporation
FINANCIAL SUMMARY
(All Dollar Amounts, Except Per Share Data, in Thousands)
The following table sets forth certain selected financial data relating to the
Company and subsidiary and is qualified in its entirety by reference to the more
detailed financial statements of the Company and subsidiary and notes thereto
included elsewhere in this report.
Year Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Selected Income Statement Data:
Total Interest Income $ 31,743 $ 30,043 $ 27,759 $ 24,496 $ 22,601
Total Interest Expense 13,044 13,030 11,764 10,579 10,115
Net Interest Income 18,699 17,013 15,995 13,917 12,486
Provision for Possible Loan Losses 795 680 800 360 110
Net Interest Income after Provision ________ ________ ________ ________ ________
for Possible Loan Losses 17,904 16,333 15,195 13,557 12,376
Total Other Operating Income 4,307 3,932 3,413 3,015 2,954
Total Other Operating Expense 13,030 11,936 11,041 10,393 9,797
Income Before Income Taxes 9,181 8,329 7,567 6,179 5,533
Income Taxes 3,076 2,821 2,760 2,095 1,777
Net Income $ 6,105 $ 5,508 $ 4,807 $ 4,084 $ 3,756
Per Share:
Net Income Per Weighted Average
Shares Outstanding* $ 10.23 $ 9.22 $ 8.03 $ 6.84 $ 6.29
Cash Dividend Paid Per Share $ 3.50 $ 3.50 $ 3.00 $ 3.00 $ 3.00
Weighted Average Shares
Outstanding* 596,841 597,452 598,435 596,870 597,275
*Restated for a 25% stock dividend issued during 1997.
Selected Balance Sheet Data:
Assets $455,702 $426,359 $381,144 $341,818 $324,694
Net Loans 263,690 225,997 218,842 182,505 150,162
Investment Securities 144,019 141,230 123,423 132,287 138,768
Federal Funds Sold 11,150 27,100 11,375 - 7,300
Deposits:
Non-Interest-Bearing $ 72,728 $ 66,303 $ 55,422 $ 49,911 $ 44,723
Interest-Bearing 302,775 279,809 245,905 218,502 206,433
Total Deposits $375,503 $346,112 $301,327 $268,413 $251,156
Stockholders' Equity $ 43,712 $ 41,201 $ 37,717 $ 34,496 $ 32,195
</TABLE>
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis" is provided to afford a clearer
understanding of the major elements of the Company's financial condition,
results of operations, liquidity, and capital resources. The following
discussion should be read in conjunction with the Company's financial
statements and notes thereto and other detailed information appearing
elsewhere in this report.
Distribution of Assets and Liabilities
The Company maintains a conservative approach in determining the
distribution of assets and liabilities. Loans, net of unearned income,
increased 3.3% from $221,721 at December 31, 1997 to $229,129 at December
31, 1998; and 16.6% from December 31, 1998 to $267,141 at December 31, 1999.
Loan growth is attributed to overall business development efforts to meet
business and personal loan demand in our market area. Loan demand was strong
in our market area in 1997 and 1999 due to a strong local economy but was
somewhat slow in 1998. Loans, net of unearned income, decreased as a
percentage of total assets from 58.2% at year-end 1997 to 53.7% at year-end
1998 and increased to 58.6% at year-end 1999. Correspondingly, investment
securities and federal funds sold increased as a percentage of total assets
from 35.3% at year-end 1997 to 39.5% at year-end 1998 and decreased to 34.1%
at year-end 1999 as investments have been utilized to balance the growth in
loan outstandings. Investments and federal funds sold provide for an
adequate supply of secondary liquidity. Year-end other assets as a
percentage of total assets increased from 6.5% in 1997 to 6.8% in 1998 and
7.3% in 1999 due to a branch office addition in 1998, approximately $276,000
in Y2K-related hardware and software purchases, and the beginning of
construction of another branch office in late 1999. Management has sought to
build the deposit base with stable, relatively non-interest-rate sensitive
deposits by offering the small to medium account holders a wide array of
deposit instruments at competitive rates. Non-interest-bearing demand
deposits have grown from 14.5% at December 31, 1997 to 15.6% at December 31,
1998 and 16.0% at December 31, 1999. Demand deposits are expected to
decline over the long-term as more customers utilize interest-bearing
deposit and repo accounts. Interest-bearing liabilities as a percentage of
total assets have declined from 74.3% at December 31, 1997 to 73.5% at
December 31, 1998 and 73.3% at December 31, 1999.
The following table sets forth the percentage relationship to total assets
of significant components of the Company's balance sheet as of December 31,
1999, 1998 and 1997:
<TABLE>
<CAPTION> December 31,
1999 1998 1997
<S> <C> <C> <C>
Assets:
Earning assets
Loans, net of unearned income 58.6% 53.7% 58.2%
Investment securities:
Taxable 28.0 29.8 28.6
Tax-exempt 3.6 3.3 3.7
Federal funds sold and securities
purchased under agreement to resell 2.5 6.4 3.0
Other earning assets - - -
Total earning assets 92.7 93.2 93.5
Other assets 7.3 6.8 6.5
Total assets 100.0% 100.0% 100.0%
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits 66.5% 65.6% 64.5%
Federal funds purchased and securities
sold under agreement to repurchase 6.0 7.6 8.5
Other short-term borrowings .8 .3 1.3
Total interest-bearing liabilities 73.3 73.5 74.3
Non-interest-bearing deposits 16.0 15.6 14.5
Other liabilities 1.1 1.2 1.3
Stockholders' equity 9.6 9.7 9.9
Total liabilities and stockholders' equity 100.0% 100.0% 100.0%
</TABLE>
26
<PAGE>
Results of Operation
CNB Corporation and subsidiary experienced earnings in 1999, 1998 and 1997
of $6,105, $5,508,and $4,807, respectively, resulting in a return of average
assets of 1.35%, 1.33%, and 1.28% and a return on average stockholders'
equity of 14.15%, 13.70% and 13.17%. The earnings were primarily
attributable to favorable net interest margins in each period (see Net
Income-Net Interest Income). Other factors include management's ongoing
effort to maintain other income at adequate levels (see Net Income - Other
Income) and to control other expenses (see Net Income - Other Expenses).
These strong earnings, coupled with a conservative dividend policy, have
supplied the necessary capital funds to support bank operations. Total
assets were $455,702 at December 31, 1999 as compared to $426,359 at
December 31, 1998 and $381,144 at December 31, 1997. The following table
sets forth the financial highlights for fiscal years 1999, 1998, and 1997.
27
<PAGE>
<TABLE>
<CAPTION>
CNB Corporation and Subsidiary
FINANCIAL HIGHLIGHTS
(All Dollar Amounts, Except Per Share Data, in Thousands)
December 31, 1998 to 1999 December 31, 1997 to 1998 December 31,
1999 Percent 1998 Percent 1997
Increase Increase
(Decrease) (Decrease)
<S> <C> <C> <C> <C> <C>
Net interest income after
provision for loan losses $ 17,904 9.6% $ 16,333 7.5% $ 15,195
Income before income taxes 9,181 10.2 8,329 10.1 7,567
Net Income 6,105 10.8 5,508 14.6 4,807
Per share (weighted average
of shares outstanding) $ 10.23 11.0 $ 9.22 14.8 $ 8.03
Cash dividends declared 2,086 (.2) 2,090 16.5 1,794
Per Share $ 3.50 - $ 3.50 16.7 $ 3.00
Total assets $455,702 6.9% $426,359 11.9% $381,144
Total deposits 375,503 8.5 346,112 14.9 301,327
Loans, net of unearned income 267,141 16.6 229,129 3.3 221,721
Investment securities 144,019 2.0 141,230 14.4 123,423
Stockholders' equity 43,712 6.1 41,201 9.2 37,717
Book value per share
(actual number of shares
outstanding) $ 73.35 6.2 $ 69.06 9.5 $ 63.06
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratios(1):
Returns on average total assets 1.35% 1.5 1.33% 3.9 1.28%
Return on average stockholders'
equity 14.15% 3.3 13.70% 4.0 13.17%
</TABLE>
(1) For the fiscal years ended December 31, 1999, 1998, and 1997, average total
assets amounted to $453,571, $413,878, and $375,989 with average stockholders'
equity totaling $43,146, $40,198, and $36,495, respectively.
28
<PAGE>
NET INCOME
Net Interest Income - Earnings are dependent to a large degree on net
interest income, defined as the difference between gross interest and fees
earned on earning assets, primarily loans and investment securities, and
interest paid on deposits and borrowed funds. Net interest income is
affected by the interest rates earned or paid and by volume changes in
loans, investment securities, deposits, and borrowed funds.
The Bank has maintained strong net interest margins in 1999, 1998 and 1997
by earning adequate yields on loans and investments and funding these assets
with a favorable deposit and repurchase agreement mix. Fully-tax-equivalent
net interest income has grown from $16,363 in 1997 and $17,371 in 1998 to
$19,069 in 1999. During the three-year period, total fully-tax-equivalent
interest income increased by 8.1% from $28,127 in 1997 to $30,401 in 1998
and increased 5.6% in 1999 to $32,114. Over the same period, total interest
expense increased by 10.8% from $11,764 in 1997 to $13,030 in 1998 and
increased .1% to $13,044 in 1999. Fully-tax-equivalent net interest income
as a percentage of average total earning assets decreased from 4.7% in 1997
to 4.5% in 1998 and 1999. The decrease was reflective of strong competition
within our market.
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, 1998, and 1997. However, fluctuations in market interest
rates do not necessarily have a significant impact on net interest income,
depending on the Bank's rate sensitivity position. A rate sensitive asset
(RSA) is any loan or investment that can be repriced up or down in interest
rate within a certain time interval. A rate sensitive liability (RSL) is an
interest paying deposit or other liability that can be repriced either up or
down in interest rate within a certain time interval. When a proper balance
between RSA and RSL exists, market interest rate fluctuations should not
have a significant impact on earnings. The larger the imbalance, the
greater the interest rate risk assumed by the Bank and the greater the
positive or negative impact of interest rate fluctuations on earnings. The
Bank seeks to manage its assets and liabilities in a manner that will limit
interest rate risk and thus stabilize long-run earning power. The following
table sets forth the Bank's static gap rate sensitivity position at each of
the time intervals indicated. The table illustrates the Bank's rate
sensitivity position on specific dates and may not be indicative of the
position at other points in time. Management believes that a rise or fall in
interest rates will not materially effect earnings.
<TABLE>
<CAPTION>
Interest Rate Sensitivity Analysis
<S> <C> <C> <C> <C> <C> <C>
1 Day 90 Days 180 Days 365 Days 5 Years 5 Years
Rate Sensitive Assets (RSA)
Federal Funds Sold 11,150 0 0 0 0 0
Investment Securities 0 5,931 7,020 16,020 107,761 5,893
Loans (net of non-accruals $527) 64,112 21,481 12,728 14,801 106,570 47,197
Total, RSA 75,262 27,412 19,748 30,821 214,331 53,090
Rate Sensitive Liabilities (RSL)
Deposits:
Certificates of Deposit of 0 37,360 19,526 8,439 5,984 0
$100,000 or more
All Other Time Deposits 0 41,188 31,818 28,193 7,102 161
Federal Funds Purchased and 25,398 79 0 0 2,000 0
Securities Sold Under
Repurchase Agreements
Total RSL 25,398 78,627 51,344 36,632 15,086 161
RSA-RSL 49,864 (51,215) (31,596) (5,811) 199,245 52,929
Cumulative RSA-RSL 49,864 (1,351) (32,947) (38,758) 160,487 213,416
Cumulative RSA/RSL 2.96 .99 .79 .80 1.77 2.03
</TABLE>
29
<PAGE>
NET INCOME (continued)
Provision for Possible Loan Losses - It is the policy of the bank to
maintain the reserve for possible loan losses at the greater of 1.20% of net
loans or the percentage based on the actual loan loss experience over the
previous five years. In addition, management may increase the reserve to a
level above these guidelines to cover potential losses identified during the
ongoing in-house problem loan identification process. The Company includes
the provisions of SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan", in the allowance for loan losses (see NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES). The provision for possible loan losses was $795 in
1999, $680 in 1998 and $800 in 1997. Net loan charge-offs totalled $476 in
1999, $427 in 1998, and $291 in 1997 with net charge-offs being centered in
consumer purpose loans during each period. The reserve for possible loan
losses as a percentage of net loans was 1.31% at December 31, 1999, 1.39% at
December 31, 1998, and 1.32% at December 31, 1997.
Securities Transactions - Net unrealized gains/(losses) in the investment
securities portfolio were $(2,121) at December 31, 1999, $1,358 at December
31, 1998, and $983 at December 31, 1997. The market value of investment
securities rose in 1997 and 1998 as overall market rates declined, but
declined in 1999 as market interest rates increased significantly. Security
losses of $(28) were taken in 1997 when bonds were sold to provide
additional primary liquidity and to manage the Bank's interest rate
sensitivity position. No security gains/(losses) were taken in 1998 or
1999.
Other Income - Other income, net of security sales, increased by 14.3%
from $3,441 in 1997 to $3,932 in 1998 and grew 9.5% from $3,932 in 1998 to
$4,307 in 1999. Other income rose significantly in 1997 and 1998 due to
continued growth in deposit and loan account activity compounded by a June
1, 1997 increase in overall service charge rates. Also, 1998 other income
was enhanced by the start-up of an in-house mortgage loan department
dedicated to the origination of mortgage loans for the secondary market.
During 1999, mortgage-related other income declined due to a slow-down in
home re-financing but other income related to merchant discount processing
was strong.
Other Expenses - Other expenses increased by 8.1% from $11,041 in 1997 to
$11,936 in 1998 and 9.2% from $11,936 in 1998 to $13,030 in 1999. The
components of other expenses are salaries and employee benefits of $6,591,
$7,259, and $8,024; occupancy and furniture and equipment expenses of
$1,698, $1,704, and $1,719; and other operating expenses of $2,752, $2,973,
and $3,287 for 1997, 1998, and 1999, respectively. The increase in
salaries and employee benefits reflects compensation increments, the
increased costs of providing employee benefits, and an increase from 182 to
202 full-time equivalent employees over the three-year period. The addition
of the Myrtle Beach office in 1995 and the West Conway office in 1998
impacted occupancy and furniture and equipment expense. Also, approximately
$106 of the budgeted "Year 2000" costs of $276 were expensed during 1998.
Looking ahead, non-interest expense should grow due to the addition of the
Murrells Inlet office to the bank's branch network during the first quarter
of 2000 and the remaining "Year 2000" expenditures.
Income Taxes - Provisions for income taxes increased 2.2% from $2,760 in
1997 to $2,821 in 1998 and 9.0% from $2,821 in 1998 to $3,076 in 1999. The
increase in income taxes is primarily due to an increase in income before
income taxes of 10.1% from $7,567 in 1997 to $8,329 in 1998 and 10.2% from
$8,329 in 1998 to $9,181 in 1999. Also, the utilization of tax-free income
as a percentage of income before income taxes declined in 1998 and 1999.
30
<PAGE>
LIQUIDITY
The bank's liquidity position is primarily dependent on short-term demands for
funds caused by customer credit needs and deposit withdrawals and upon the
liquidity of bank assets to meet these needs. The bank's liquidity sources
include cash and due from banks, federal funds sold and short-term investments.
In addition, the bank has established federal funds lines of credit from
correspondent banks; has the ability, on a short-term basis, to borrow funds
from the Federal Reserve System; and has a line of credit from the Federal Home
Loan Bank of Atlanta. The Company has cash balances on hand of $4,241, $4,467,
and $3,480 at December 31, 1999, 1998, and 1997 with liabilities, consisting of
cash dividends payable, totalling $2,086, $2,090, and $1,794, respectively.
Management feels that liquidity sources are more than adequate to meet funding
needs.
CAPITAL RESOURCES
Total stockholders' equity was $43,712, $41,201, and $37,717 at December 31,
1999, 1998, and 1997, representing 9.59%, 9.66%, and 9.90% of total assets,
respectively. At December 31, 1999, the Bank exceeds quantitative measures
established by regulation to ensure capital adequacy (see NOTE 15 - REGULATORY
MATTERS). Capital is considered sufficient by management to meet current and
prospective capital requirements and to support anticipated growth in bank
operations.
EFFECTS OF INFLATION
Inflation normally has the effect of accelerating the growth of both a bank's
assets and liabilities. One result of this inflationary effect is an increased
need for equity capital. Income is also affected by inflation. While interest
rates have traditionally moved with inflation, the effect on net income is
diminished because both interest earned on assets and interest paid on
liabilities vary directly with each other. In some cases, however, rate
increases are delayed on fixed-rate instruments. Loan demand normally declines
during periods of high inflation. Inflation has a direct impact on the Bank's
non-interest expense. The Bank responds to inflation changes through readjusting
non-interest income by repricing services.
EFFECTS OF REGULATORY ACTION
The Federal Deposit Insurance Corporation (FDIC) reduced FDIC insurance premium
rates during the third quarter of 1995 which has had a positive effect on
subsequent earnings and should favorably impact future year's income. Effective
March 11, 2000, the Gramm-Leach-Bliley Act of 1999 allows bank holding companies
to elect to be treated as financial holding companies which may engage in a
broad range of securities, insurance, and other financial activities. At this
time, neither the Company nor the Bank plan to enter these new lines of
business. The management of the Company and the Bank is not aware of any other
current recommendations by the regulatory authorities which, if they were to be
implemented, would have a material effect on liquidity, capital resources, or
operations.
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.
31
<PAGE>
ACCOUNTING ISSUES (continued)
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 effect 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 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, 2000 (as
amended by SFAS No. 137). 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 date change posed a unique challenge to the banking industry.
This technical problem posed not only a physical system threat but also a threat
to the public's confidence in the banking industry. The Conway National Bank's
investment of its staff and financial resources to address operational issues
and to maintain the confidence of our customers resulted in an uneventful but
successful Year 2000 date change.
32
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS
CNB CORPORATION AND SUBSIDIARY
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
-33-
<PAGE>
CNB CORPORATION AND SUBSIDIARY
CONWAY, SOUTH CAROLINA
CONTENTS
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 35
FINANCIAL STATEMENTS
Consolidated balance sheets 36
Consolidated statements of income 37
Consolidated statements of changes in stockholders' equity 38
Consolidated statements of comprehensive income 39
Consolidated statements of cash flows 40
NOTES TO FINANCIAL STATEMENTS 41 -55
-34-
<PAGE>
ELLIOTT, DAVIS & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
GREENVILLE, S.C.
GREENWOOD, S.C.
ANDERSON, S.C.
AIKEN, S.C.
COLUMBIA, S.C.
AUGUSTA, GA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Directors and Stockholders
CNB Corporation
Conway, South Carolina
We have audited the accompanying consolidated balance sheets of CNB
Corporation and Subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity,
comprehensive income and cash flows for each of the three years in the period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CNB
Corporation and Subsidiary at December 31, 1999 and 1998 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
Elliott, Davis & Company, LLP
January 14, 2000
Internationally - Moore Stephens Elliott Davis, LLC
870 S. Pleasantburg Drive
Post Office Box 6286 Greenville, South Carolina 29606-6286
Telephone (864) 242-3370 Telefax (864) 232-7161
-35-
<PAGE>
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(amounts, except share data, in thousands)
<TABLE>
<CAPTION>
December 31,
1999 1998
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS $ 20,259 $ 17,864
FEDERAL FUNDS SOLD 11,150 27,100
INVESTMENT SECURITIES HELD TO MATURITY
(fair value $54,430 in 1999 and $61,928 in 1998) 54,868 60,648
INVESTMENT SECURITIES AVAILABLE FOR SALE 89,151 80,582
LOANS 267,416 230,099
Less unearned income (275) (970)
Less allowance for loan losses (3,451) (3,132)
Net loans 263,690 225,997
PREMISES AND EQUIPMENT 8,504 7,258
ACCRUED INTEREST RECEIVABLE 4,466 4,102
OTHER ASSETS 3,614 2,808
$455,702 $426,359
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Noninterest-bearing $ 72,728 $ 66,303
Interest-bearing 302,775 279,809
Total deposits 375,503 346,112
Securities sold under repurchase agreements 27,477 32,518
United States Treasury demand notes 3,809 1,148
Other liabilities 5,201 5,380
Total liabilities 411,990 385,158
COMMITMENTS AND CONTINGENT LIABILITIES - Notes 10 and 11
STOCKHOLDERS' EQUITY
Common stock - $10 par value; authorized 1,500,000 shares;
issued 598,681 shares in 1999 and 598,681 shares in 1998 5,987 5,987
Capital in excess of par value of stock 24,546 24,538
Retained earnings 14,467 10,448
Accumulated other comprehensive income (1,011) 425
43,989 41,398
Less 2,722 shares and 2,066 shares held in Treasury at cost (277) (197)
Total stockholders' equity 43,712 41,201
$455,702 $426,359
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE>
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(amounts, except per share data, in thousands)
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans $ 21,869 $20,755 $19,110
Investment securities
Taxable 7,754 7,187 7,191
Nontaxable 719 695 715
Total interest on investment securities 8,473 7,882 7,906
Federal funds sold 1,401 1,406 743
Total interest income 31,743 30,043 27,759
INTEREST EXPENSE
Deposits 11,616 11,432 10,009
Securities sold under repurchase agreements 1,351 1,514 1,676
United States Treasury demand notes 77 84 79
Total interest expense 13,044 13,030 11,764
Net interest income 18,699 17,013 15,995
PROVISION FOR LOAN LOSSES 795 680 800
Net interest income after provision for loan losses 17,904 16,333 15,195
NONINTEREST INCOME
Service charges on deposit accounts 2,563 2,449 2,246
Other service and exchange charges 1,744 1,483 1,195
Loss on sale of investment securities available for sale - - (28)
Total noninterest income 4,307 3,932 3,413
NONINTEREST EXPENSES
Salaries and wages 6,387 5,857 5,328
Pensions and other employee benefits 1,637 1,402 1,263
Occupancy 755 690 670
Furniture and equipment 964 1,014 1,028
Liability insurance 110 103 105
Office supplies 490 407 366
Credit card operations 862 737 624
Other operating expenses 1,825 1,726 1,657
Total noninterest expenses 13,030 11,936 11,041
Income before provision for income taxes 9,181 8,329 7,567
PROVISION FOR INCOME TAXES 3,076 2,821 2,760
Net income $ 6,105 $ 5,508 $ 4,807
NET INCOME PER SHARE OF COMMON STOCK $ 10.23 $ 9.22 $ 8.03
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE>
<TABLE>
<CAPTION>
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1999, 1998 and 1997
(amounts, except share data, in thousands)
Capital in Accumulated
excess of other Total
Common stock par value Retained comprehensive Treasury stockholders
Shares Amount of stock earnings income stock equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 479,093 $ 4,791 $ 15,697 $ 14,082 $ 27 $ (101) $ 34,496
1997
Net income - - - 4,807 - - 4,807
Cash dividend, $3.00 per share - - - (1,794) - - (1,794)
Stock dividend 119,588 1,196 8,850 (10,046) - - -
Cash in lieu of fractional shares on stock dividend - - - (19) - - (19)
Treasury stock transactions (net) - - - - - 52 52
Gain on sale of treasury stock - - 5 - - - 5
Net change in unrealized holding gain,
net of income taxes of $114 - - - - 170 - 170
BALANCE, DECEMBER 31, 1997 598,681 5,987 24,552 7,030 197 (49) 37,717
1998
Net income - - - 5,508 - - 5,508
Cash dividend, $3.50 per share - - - (2,090) - - (2,090)
Treasury stock transactions (net) - - - - - (148) (148)
Gain on sale of treasury stock - - 6 - - - 6
Minority interest purchase premium - - (20) - - - (20)
Net change in unrealized holding gain,
net of income taxes of $152 - - - - 228 - 228
BALANCE, DECEMBER 31, 1998 598,681 5,987 24,538 10,448 425 (197) 41,201
1999
Net income - - - 6,105 - - 6,105
Cash dividend, $3.50 per share - - - (2,086) - - (2,086)
Treasury stock transactions (net) - - - - - (80) (80)
Gain on sale of treasury stock - - 8 - - - 8
Net change in unrealized holding gain,
net of income taxes of $957 - - - - (1,436) - (1,436)
BALANCE, DECEMBER 31, 1999 598,681 $ 5,987 $ 24,546 $ 14,467 $ (1,011) $ (277) $ 43,712
</TABLE>
-38-
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in thousands)
For the years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
NET INCOME $ 6,105 $ 5,508 $ 4,807
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding (losses) gains on investment
securities available for sale (1,436) 228 198
Reclassification adjustments for gains
included in net income - - (28)
COMPREHENSIVE INCOME $ 4,669 $ 5,736 $ 4,977
</TABLE>
-39-
<PAGE>
<TABLE>
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
For the years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,105 $ 5,508 $ 4,807
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation 576 693 700
Provision for loan losses 795 680 800
Provision for deferred income taxes (112) (292) 50
(Gain) loss on disposal of equipment (2) 78 51
Changes in assets and liabilities:
Increase in accrued interest receivable (365) (422) (355)
Increase in other assets (77) (153) (170)
Decrease in other liabilities 164 787 998
Net cash provided by operating activities 7,084 6,879 6,881
INVESTING ACTIVITIES
Proceeds from sale of investment securities available for sale - - 4,707
Proceeds from maturities of investment securities held to maturity 14,450 22,676 17,776
Proceeds from maturities of investment securities available for sale 17,454 17,474 18,832
Purchases of investment securities available for sale (28,416) (44,493) (14,301)
Purchases of investment securities held to maturity (8,670) (13,085) (17,866)
Net (increase) decrease in federal funds sold 15,950 (15,725) (11,375)
Net increase in loans (38,489) (7,835) (37,137)
Premises and equipment expenditures (1,820) (1,231) (683)
Net cash used for investing activities (29,541) (42,219) (40,047)
FINANCING ACTIVITIES
Dividends paid (2,086) (2,090) (1,794)
Net increase in deposits 29,390 44,785 32,914
Increase (decrease) in securities sold under repurchase agreements (5,041) 152 3,348
Decrease in federal funds purchased - - (4,000)
Increase (decrease) in United States Treasury demand notes 2,661 (3,852) 2,681
Treasury stock transactions (net) (72) (162) 57
Cash in lieu of fractional shares on stock dividend - - (19)
Net cash provided by financing activities 24,852 38,833 33,187
Net increase in cash and due from banks 2,395 3,493 21
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 17,864 14,371 14,350
CASH AND DUE FROM BANKS, END OF YEAR $ 20,259 $ 17,864 $ 14,371
CASH PAID FOR
Interest $ 12,759 $ 12,744 $ 11,233
Income taxes $ 3,408 $ 2,935 $ 2,665
</TABLE>
-40-
<PAGE>
CNB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
Principles of consolidation and nature of operations
The consolidated financial statements include the accounts of CNB Corporation
("the Company") and its wholly-owned subsidiary, The Conway National Bank
("the Bank"). The Company operates as one business segment. All significant
intercompany balances and transactions have been eliminated. The Bank
operates under a national bank charter and provides full banking services to
customers. The Bank is subject to regulation by the Office of the
Comptroller of the Currency and the Federal Deposit Insurance Corporation.
The Company is subject to regulation by the Federal Reserve Board.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the dates of the consolidated balance
sheets and the consolidated statements of income for the periods covered.
Actual results could differ from those estimates.
Concentrations of credit risk
The Company, through its subsidiary, makes commercial and personal loans to
individuals and small businesses located primarily in the South Carolina
coastal region. The Company has a diversified loan portfolio and the
borrowers' ability to repay their loans is not dependent upon any specific
economic sector.
Cash and cash equivalents
For purposes of the statements of cash flows, cash and cash equivalents are
defined as those amounts included in the balance sheet caption "Cash and Due
from Banks". Cash and cash equivalents have an original maturity of three
months or less.
Investment securities
The Company accounts for investment securities in accordance with Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." This statement requires that the
Company classify debt securities upon purchase as available for sale, held to
maturity or trading. Such assets classified as available for sale are
carried at fair value. Unrealized holding gains or losses are reported as a
component of stockholders' equity (accumulated other comprehensive income)
net of deferred income taxes. Securities classified as held to maturity are
carried at cost, adjusted for the amortization of premiums and the accretion
of discounts. To qualify as held to maturity the Company must have the
intent and ability to hold the securities to maturity. Trading securities
are carried at market value. The Company has no trading securities. Gains
or losses on disposition of securities are based on the difference between
the net proceeds and the adjusted carrying amount of the securities sold,
using the specific identification method.
Loans and interest income
Interest on loans is accrued and taken into income based upon the interest
method. Interest on certain installment loans is accrued and taken into
income based upon the sum-of-the-months-digits method. The results from the
use of the sum-of-the-months-digits method are not materially different from
those that would be obtained using the interest method.
(Continued)
-41-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued
Loans and interest income, continued
The Company accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This standard requires
that all creditors value loans at the loan's fair value if it is probable
that the creditor will be unable to collect all amounts due according to the
terms of the loan agreement. Fair value may be determined based upon the
present value of expected cash flows, market price of the loan, if available,
or value of the underlying collateral. Expected cash flows are required to
be discounted at the loan's effective interest rate. SFAS No. 114 was
amended by SFAS No. 118 to allow a creditor to use existing methods for
recognizing interest income on an impaired loan and by requiring additional
disclosures about how a creditor recognizes interest income on an impaired
loan.
Under SFAS No. 114, as amended by SFAS 118, when the ultimate collectibility
of an impaired loan's principal is in doubt, wholly or partially, all cash
receipts are applied to principal. When this doubt does not exist, cash
receipts are applied under the contractual terms of the loan agreement first
to principal then to interest income. Once the reported principal balance has
been reduced to zero, future cash receipts are applied to interest income, to
the extent that any interest has been foregone. Further cash receipts are
recorded as recoveries of any amounts previously charged off.
A loan is also considered impaired if its terms are modified in a troubled
debt restructuring. For these accruing impaired loans, cash receipts are
typically applied to principal and interest receivable in accordance with the
terms of the restructured loan agreement. Interest income is recognized on
these loans using the accrual method of accounting. As of December 31, 1999
and 1998, the Company had no impaired loans.
Allowance for loan losses
The allowance for loan losses is based on management's ongoing evaluation of
the loan portfolio and reflects an amount that, in management's opinion, is
adequate to absorb losses in the existing portfolio. In evaluating the
portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, the composition of
the loan portfolio, and management's estimate of anticipated credit losses.
Loans are charged against the allowance at such time as they are determined
to be losses. Subsequent recoveries are credited to the allowance.
Management considers the year-end allowance appropriate and adequate to cover
possible losses in the loan portfolio; however, management's judgment is
based upon a number of assumptions about future events, which are believed to
be reasonable, but which may or may not prove valid. Thus, there can be no
assurance that charge-offs in future periods will not exceed the allowance
for loan losses or that additional increases in the allowance for loan losses
will not be required.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed over the estimated
useful lives of the assets using primarily the straight-line method.
Additions to premises and equipment and major replacements or improvements
are capitalized at cost. Maintenance, repairs and minor replacements are
expensed when incurred. Gains and losses on routine dispositions are
reflected in current operations.
Non-performing assets
Non-performing assets include real estate acquired through foreclosure or
deed taken in lieu of foreclosure, and loans on non-accrual status. Loans
are placed on non-accrual status when, in the opinion of management, the
collection of additional interest is questionable. Thereafter no interest is
taken into income unless received in cash or until such time as the borrower
demonstrates the ability to pay principal and interest.
(Continued)
-42-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued
Advertising expense
Advertising, promotional and other business development costs are generally
expensed as incurred. External costs incurred in producing media advertising
are expensed the first time the advertising takes place. External costs
relating to direct mailing costs are expensed in the period in which the
direct mailings are sent. Advertising, promotional and other business
development costs of $285,000, $295,000, and $338,000 were included in the
Company's results of operations for 1999, 1998 and 1997, respectively.
Income taxes
Income taxes are accounted for in accordance with SFAS No. 109, "Accounting
for Income Taxes". Under SFAS No. 109, deferred tax liabilities are
recognized on all taxable temporary differences (reversing differences where
tax deductions initially exceed financial statement expense, or income is
reported for financial statement purposes prior to being reported for tax
purposes). In addition, deferred tax assets are recognized on all deductible
temporary differences (reversing differences where financial statements
expense initially exceeds tax deductions, or income is reported for tax
purposes prior to being reported for financial statement purposes). Valuation
allowances are established to reduce deferred tax assets if it is determined
to be "more likely than not" that all or some portion of the potential
deferred tax assets will not be realized.
Net income per share
The Company computes net income per share in accordance with SFAS No. 128,
"Earnings Per Share." Net income per share is computed on the basis of the
weighted average number of common shares outstanding, 596,841 in 1999,
597,452 in 1998, and 598,435 in 1997. The Company does not have any dilutive
instruments and therefore only basic net income per share is presented.
In September of 1997, the Company's Board of Directors declared a
five-for-four stock split effected in the form of a 25 percent common stock
dividend. This stock was issued on September 30, 1997, to common
stockholders of record on September 12, 1997. Share and per share data have
been restated to reflect this stock split.
Fair values of financial instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," as
amended by SFAS No. 119, requires disclosure of fair value information for
financial instruments, whether or not recognized in the balance sheet, when
it is practicable to estimate the fair value. SFAS No. 107 defines a
financial instrument as cash, evidence of an ownership interest in an entity
or contractual obligations which require the exchange of cash or other
financial instruments. Certain items are specifically excluded from the
disclosure requirements, including the Company's common stock. In addition,
other nonfinancial instruments such as premises and equipment and other
assets and liabilities are not subject to the disclosure requirements.
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:
Cash and due from banks - The carrying amounts of cash and due from banks
(cash on hand, due from banks and interest bearing deposits with other
banks) approximate their fair value.
Federal funds sold - The carrying amounts of federal funds sold
approximate their fair value.
Investment securities held to maturity and available for sale - Fair
values for investment securities are based on quoted market prices.
(Continued)
-43-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued
Fair values of financial instruments
Loans - For variable rate loans that reprice frequently and for loans that
mature within one year, fair values are based on carrying values. Fair
values for all other loans are estimated using discounted cash flow
analyses, with interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flow analyses or
underlying collateral values, where applicable.
Deposits - The fair values disclosed for demand deposits are, by
definition, equal to their carrying amounts. The carrying amounts of
variable rate, fixed-term money market accounts and short-term
certificates of deposit approximate their fair values at the reporting
date. Fair values for long-term fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule of aggregated
expected monthly maturities.
Short-term borrowings - The carrying amounts of borrowings under
repurchase agreements, federal funds purchased and U. S. Treasury demand
notes approximate their fair values.
Off balance sheet instruments - Fair values of off balance sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the counterparties' credit standing.
Recently issued accounting standards
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments 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,
2000 (as amended by SFAS No. 137). 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.
Risks and Uncertainties
In the normal course of its business the Company encounters two significant
types of risks: economic and regulatory. There are three main components of
economic risk: interest rate risk, credit risk and market risk. The Company
is subject to interest rate risk to the degree that its interest-bearing
liabilities mature or reprice at different speeds, or on different bases,
than its interest-earning assets. Credit risk is the risk of default on the
Company's loan portfolio that results from borrower's inability or
unwillingness to make contractually required payments. Market risk reflects
changes in the value of collateral underlying loans receivable and the
valuation of real estate held by the Company.
The Company is subject to the regulations of various governmental agencies.
These regulations can and do change significantly from period to period. The
Company also undergoes periodic examinations by the regulatory agencies,
which may subject it to further changes with respect to asset valuations,
amounts of required loss allowances and operating restrictions from the
regulators' judgments based on information available to them at the time of
their examination.
-44-
<PAGE>
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances either at the Bank
or on deposit with the Federal Reserve Bank. The average amounts of these
reserve balances for the years ended December 31, 1999 and 1998 were
approximately $8,300,000 and $6,839,000, respectively.
NOTE 3 - INVESTMENT SECURITIES
The book value and approximate fair value of investment securities are
summarized as follows (tabular amounts in thousands):
December 31, 1999
Amortized Unrealized Holding Fair
AVAILABLE FOR SALE cost Gains Losses value
United States Treasury
Within one year $ 4,984 $ 11 $ 10 $ 4,985
One to five years 10,117 - 114 10,003
15,101 11 124 14,988
Federal agencies
Within one year 11,461 - 38 11,423
One to five years 61,746 5 1,533 60,218
73,207 5 1,571 71,641
State, county and municipal
Six to ten years 1,132 1 5 1,128
Other - restricted
Federal Reserve Bank and Federal
Home Loan Bank (FHLB) stock 1,394 - - 1,394
Total available for sale $90,834 $ 17 $1,700 $89,151
HELD TO MATURITY
United States Treasury
Within one year $ 3,000 $ 5 $ - $ 3,005
One to five years 1,012 - 4 998
4,012 5 14 4,003
Federal agencies
Within one year 7,613 - 11 7,602
One to five years 28,188 25 368 27,845
35,801 25 379 35,447
State, county and municipal
Within one year 1,759 12 - 1,771
One to five years 8,342 42 49 8,335
Six to ten years 4,315 17 78 4,254
After ten years 639 1 20 620
15,055 72 147 14,980
Total held to maturity $54,868 $102 $ 540 $54,430
(Continued)
-45-
<PAGE>
NOTE 3 - INVESTMENT SECURITIES, Continued
December 31, 1998
Amortized Unrealized Holding Fair
Cost Gains Losses value
AVAILABLE FOR SALE
United States Treasury
Within one year $ 8,011 $ 59 $ - $ 8,070
One to five years 5,962 179 - 6,141
13,973 238 - 14,211
Federal agencies
Within one year 5,171 30 - 5,201
One to five years 60,289 520 87 60,722
65,460 550 87 65,923
State, county and municipal
Within one year 325 7 - 332
Other - restricted
Federal Reserve Bank stock 116 - - 116
Total available for sale $79,874 $ 795 $87 $80,582
HELD TO MATURITY
United States Treasury
Within one year $ 6,995 $ 81 $ - $ 7,076
One to five years 4,019 76 - 4,095
11,014 157 - 11,171
Federal agencies
Within one year 2,036 6 - 2,042
One to five years 33,350 615 - 33,965
35,386 621 - 36,007
State, county and municipal
Within one year 1,236 11 - 1,247
One to five years 8,430 260 - 8,690
Six to ten years 4,582 231 - 4,813
14,248 502 - 14,750
Total held to maturity $60,648 $1,280 $ - $61,298
Investment securities with an aggregate par value of $82,325,000 at December
31, 1999 and $74,500,000 at December 31, 1998 were pledged to secure public
deposits and for other purposes.
-46-
<PAGE>
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Following is a summary of loans by major classification (tabular amounts in
thousands):
December 31,
1999 1998
Real estate - mortgage $163,615 $142,039
Real estate - construction 21,013 15,560
Commercial and industrial 45,742 36,393
Loans to individuals for household, family and
other consumer expenditures 33,864 32,669
Agriculture 1,447 1,487
All other loans, including overdrafts 1,736 1,951
$267,417 $230,099
The Bank's loan portfolio consisted of $203,304,000 and $178,510,000 in fixed
rate loans as of December 31, 1999 and 1998, respectively. At December 31,
1999, fixed rate loans with maturities in excess of one year amounted to
$153,767,000.
Changes in the allowance for loan losses are summarized as follows (tabular
amounts in thousands):
1999 1998 1997
Balance, beginning of year $3,132 $2,879 $2,370
Recoveries of loans previously charged
against the allowance 340 329 351
Provided from current year's income 795 680 800
Loans charged against the allowance (816) (756) (642)
Balance, end of year $3,451 $3,132 $2,879
At December 31, 1999 and 1998, non-accrual loans totaled $527,000 and
$422,000, respectively. The total amount of interest earned on non-accrual
loans was $26,000 in 1999, $16,000 in 1998, and $1,000 in 1997. The gross
interest income which would have been recorded under the original terms of the
non-accrual loans amounted to $46,000 in 1999, $40,000 in 1998, and $3,000 in
1997. As of December 31, 1999 and 1998, the Company had no impaired loans.
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment at December 31 is summarized as follows (tabular
amounts in thousands):
1999 1998
Land and buildings $10,460 $ 9,581
Furniture, fixtures and equipment 5,635 5,188
16,095 14,769
Less accumulated depreciation and amortization 8,060 7,530
8,035 7,239
Construction in progress 469 19
$ 8,504 $ 7,258
(Continued)
-47-
<PAGE>
NOTE 5 - PREMISES AND EQUIPMENT, Continued
Depreciation and amortization of premises and equipment charged to operating
expense totaled $576,000 in 1999, $693,000 in 1998, and $700,000 in 1997.
NOTE 6 - DEPOSITS
At December 31, 1999 and 1998, certificates of deposit of $100,000 or
more totaled $71,309,000 and $61,328,000, respectively. Interest expense on
these deposits was $3,513,000 in 1999, $3,455,000 in 1998, and $2,815,000 in
1997.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements are summarized as follows (tabular
amounts in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
U. S. Government securities with a book value of $34,588
(34,121 fair value) and $35,127 ($35,672 fair value)
at December 31, 1999 and 1998, respectively, are used as
collateral for the agreements. $27,477 $32,518
</TABLE>
The Bank enters into sales of securities under agreements to repurchase. These
obligations to repurchase securities sold are reflected as liabilities in the
consolidated balance sheets. The dollar amount of securities underlying the
agreements are book entry securities maintained at the Federal Reserve Bank of
Richmond. The weighted average interest rate of these agreements was 4.34 and
4.12 percent at December 31, 1999 and 1998, respectively. Securities sold under
repurchase agreements averaged $32,555,000 and $34,274,000 during 1999 and 1998,
respectively. The maximum amounts outstanding at any month-end were $36,183,000
and $39,678,000 during 1999 and 1998, respectively.
NOTE 8 - LINES OF CREDIT
At December 31, 1999, the Bank had unused short-term lines of credit totaling
$23,000,000 to purchase Federal Funds from unrelated banks. These lines of
credit are available on a one to seven day basis for general corporate purposes
of the Bank. All of the lenders have reserved the right to withdraw these lines
at their option.
The 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 $7,000,000
under the arrangement at an interest rate of 4.52%. The note is secured by U.S.
Treasury Notes with a market value of $7,792,000 at December 31, 1999. The
amount outstanding under the note totaled $3,809,000 and $1,148,000 at December
31, 1999 and 1998, respectively.
The Bank also has a line of credit from the Federal Home Loan Bank of Atlanta
for $67,000,000 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 December 31, 1999, no borrowings were outstanding under the agreement.
-48-
<PAGE>
NOTE 9 - INCOME TAXES
The provision for income taxes is reconciled to the amount of income
tax computed at the federal statutory rate on income before income taxes as
follows (amounts in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
Amount % Amount % Amount %
<S> <C> <C> <C> <C>
Tax expense at statutory rate $ 3,122 34.0% $ 2,832 34.0% $ 2,573 34.0%
Increase (decrease) in taxes resulting from:
Tax exempt interest (242) (2.6) (213) (2.6) (219) (2.9)
State bank tax (net of federal benefit) 183 2.0 166 2.0 132 1.8
Other - net 13 .1 36 0.5 74 3.6
Tax provision $ 3,076 33.5% $ 2,821 33.9% $ 2,760 36.5%
The sources and tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
are as follows:
December 31,
1999 1998
Deferred tax assets:
Allowance for loan losses deferred for tax purposes $1,168 $1,065
Unrealized net losses on securities available for sale 674 -
Other 167 125
Gross deferred tax assets 2,009 1,190
Less valuation allowance 824 1,072
Net deferred tax assets 1,185 118
Deferred tax liabilities:
Unrealized net gains on securities available for sale - (283)
Depreciation for income tax reporting in excess of amount
for financial reporting (307) (312)
Gross deferred tax liabilities (307) (595)
Net deferred tax asset (liability) $ 878 $ (477)
A portion of the change in net deferred taxes relates to the change in
unrealized net gains and losses on securities available for sale. The related
1999 deferred tax benefit of $957,000 and the 1998 deferred tax provision of
$151,000 has been recorded directly to stockholders' equity. The balance of the
change in net deferred taxes results from the current period deferred tax
benefit.
(Continued)
-49-
<PAGE>
NOTE 9 - INCOME TAXES, Continued
The following summary of the provision for income taxes includes tax deferrals
which arise from temporary differences in the recognition of certain items of
revenue and expense for tax and financial reporting purposes (amounts in
thousands):
1999 1998 1997
Income taxes currently payable
Federal $2,910 $2,864 $2,487
State 278 249 223
3,188 3,113 2,710
Tax consequences of differences
Loan losses (103) (86) (173)
Depreciation (5) (18) (15)
Accretion on investments - (125) 22
Other (4) (63) 216
Provision $3,076 $2,821 $2,760
NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK
The Bank is a party to financial instruments with off balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
statements of financial position. The contract amounts of those instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on balance sheet
instruments.
The contract value of the Bank's off balance sheet financial instruments is as
follows as of December 31, 1999 (amounts in thousands):
Contract
amount
Commitments to extend credit $ 25,412
Standby letters of credit $ 1,000
Commitments to extend credit are agreements to lend as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained if deemed necessary by
the Bank upon extension of credit is based on management's credit evaluation.
-50-
<PAGE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Bank was obligated under a number of non-cancelable
operating leases on land used for branch offices and a computer maintenance
contract that had initial or remaining terms of more than one year. Future
minimum payments under these agreements at December 31, 1999 were (tabular
amounts in thousands):
Payable in year ending Amount
2000 $ 77
2001 7
2002 5
2003 5
2004 and thereafter 20
Total future minimum payments required $114
Lease payments under all operating leases charged to expense totaled $92,900
in 1999, $56,000 in 1998, and $78,000 in 1997. The leases provide that the
lessee pay property taxes, insurance and maintenance cost.
The Company is party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the Company's financial position.
NOTE 12 - RESTRICTION ON DIVIDENDS
The ability of the Company to pay cash dividends is dependent upon receiving
cash in the form of dividends from the Bank. Federal banking regulations
restrict the amount of dividends that can be paid and such dividends are payable
only from the retained earnings of the Bank. At December 31, 1999 the Bank's
retained earnings were $37,836,000.
NOTE 13 - TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND ASSOCIATES
Directors and executive officers of the Company and the Bank and associates of
such persons are customers of and had transactions with the Bank in the ordinary
course of business. Additional transactions may be expected to take place in
the future. Also, included in such transactions are outstanding loans and
commitments, all of which were made on comparable terms, including interest
rates and collateral, as those prevailing at the time for other customers of the
Bank, and did not involve more than normal risk of collectibility or present
other unfavorable features. Total loans to all executive officers and
directors, including immediate family and business interests, at December 31,
1999 and 1998, were $1,213,000 and $1,085,000, respectively. During 1999,
$307,000 of new loans were made to this group and repayments of $179,000 were
received.
NOTE 14 - EMPLOYEE BENEFIT PLAN
The Bank has a defined contribution pension plan covering all employees who
have attained age twenty-one and have a minimum of one year of service. Upon
ongoing approval of the Board of Directors, the Bank matches one-hundred percent
of employee contributions up to 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 years ended December 31, 1999,
1998 and 1997, $423,000, $378,000, and $361,000, respectively, were charged to
operations under the plan.
(Continued)
-51-
<PAGE>
NOTE 14 - EMPLOYEE BENEFIT PLAN, Continued
Supplemental benefits are provided to certain key officers under The Conway
National Bank Executive Supplemental Income Plan (ESI) and the Long-Term
Deferred Compensation Plan (LTDC). These plans are not qualified under the
Internal Revenue Code. The plans are unfunded. However, certain benefits under
the ESI Plan are informally and indirectly funded by insurance policies on the
lives of the covered employees.
NOTE 15 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets. Management believes, as of December 31, 1999, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the Bank's
category. The Bank's actual capital amounts and ratios and minimum regulatory
amounts and ratios are presented as follows (dollar amounts in thousands):
To be well capitalized
For capital under prompt corrective
adequacy purposes action provisions
Actual Minimum Minimum
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999
Total Capital (to risk
weighted assets) $45,195 16.21% $22,037 8.00% $27,884 10.00%
Tier I Capital (to risk
weighted assets) 41,744 14.97 11,154 4.00 16,730 6.00
Tier I Capital (to average assets) 41,744 9.22 18,118 4.00 22,648 5.00
As of December 31, 1998
Total Capital (to risk
weighted assets) $41,177 16.82% $19,586 8.00% $24,483 10.00%
Tier I Capital (to risk
weighted assets) 38,117 15.57 9,793 4.00 14,690 6.00
Tier I Capital (to average assets) 38,117 9.22 16,541 4.00 20,677 5.00
-52-
<PAGE>
NOTE 16 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments were as
follows at December 31 (amounts in thousands):
</TABLE>
<TABLE>
<CAPTION>
1999 1998
Carrying Fair Carrying Fair
amount value amount value
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks $ 20,259 $ 20,259 $ 17,864 $ 17,864
Federal funds sold 11,150 11,150 27,100 27,100
Investment securities held to maturity 54,868 54,430 60,648 61,928
Investment securities available for sale 89,151 89,151 80,582 80,582
Loans 267,416 260,296 230,099 227,831
FINANCIAL LIABILITIES
Deposits 375,503 375,463 346,112 346,460
Securities sold under repurchase agreements 27,477 27,495 32,518 32,602
U. S. Treasury demand notes 3,809 3,809 1,148 1,148
OFF BALANCE SHEET INSTRUMENTS
Commitments to extend credit 25,412 25,412 20,637 20,637
Standby letters of credit 1,000 1,000 710 710
</TABLE>
NOTE 17 - PARENT COMPANY INFORMATION
<TABLE>
<CAPTION>
Following is condensed financial information of CNB Corporation (parent
company only) (amounts in thousands):
CONDENSED BALANCE SHEETS
December 31,
1999 1998
<S> <C> <C>
ASSETS
Cash $ 4,241 $ 4,467
Investment in subsidiary 40,734 38,542
Land 786 245
Other assets 37 37
$45,798 $43,291
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends payable $ 2,086 $ 2,090
Stockholders' equity (net of $277 and $197 of treasury stock) 43,712 41,201
$45,798 $43,291
</TABLE>
-53-
<PAGE>
NOTE 17 - PARENT COMPANY INFORMATION, Continued
CONDENSED STATEMENTS OF INCOME
For the years ended December 31,
1999 1998 1997
INCOME
Dividend from bank subsidiary $2,515 $2,903 $1,934
EXPENSES
Sundry 38 38 34
Income before equity in undistributed
net income of bank subsidiary 2,477 2,865 1,900
EQUITY IN UNDISTRIBUTED NET INCOME OF
SUBSIDIARY 3,628 2,643 2,904
Net income $6,105 $5,508 $4,804
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $6,105 $5,508 $4,804
Adjustments to reconcile net income to net cash provided
by operating activities
Equity in undistributed net income of bank subsidiary (3,628) (2,643) (2,904)
Net cash provided by operating activities 2,477 2,865 1,900
INVESTING ACTIVITIES
Purchase of land (786) (122) (103)
Proceeds from the sale of land 245 200 -
Net cash provided by (used for) investing activities (541) 78 (103)
FINANCING ACTIVITIES
Dividends paid (2,090) (1,794) (1,433)
Cash in lieu of fractional shares on stock dividend - - (19)
Treasury stock transactions (net) (72) (162) 57
Net cash used for financing activities (2,162) (1,956) (1,395)
Net increase (decrease) in cash (226) 987 402
CASH, BEGINNING OF YEAR 4,467 3,480 3,078
CASH, END OF YEAR $4,241 $4,467 $3,480
</TABLE>
-54-
<PAGE>
NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Unaudited condensed financial data by quarter for 1999 and 1998 is as follows
(amounts, except per share data, in thousands):
Quarter ended
1999 March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Interest income $ 7,488 $ 7,800 $ 8,183 $ 8,272
Interest expense 3,160 3,203 3,380 3,301
Net interest income 4,328 4,597 4,803 4,971
Provision for loan losses 150 180 200 265
Net interest income after
provision for loan losses 4,178 4,417 4,603 4,706
Noninterest income 906 1,016 1,126 1,259
Noninterest expenses 2,962 3,124 3,144 3,800
Income before income taxes 2,122 2,309 2,585 2,165
Income taxes 694 771 843 768
Net income $ 1,428 $ 1,538 $ 1,742 $ 1,397
Net income per share $ 2.39 $ 2.58 $ 2.91 $ 2.35
Weighted average shares outstanding 597,180 597,275 597,108 595,801
</TABLE>
<TABLE>
<CAPTION>
Quarter ended
1998 March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Interest income $ 7,187 $ 7,554 $ 7,737 $ 7,565
Interest expense 3,166 3,282 3,324 3,258
Net interest income 4,021 4,272 4,413 4,307
Provision for loan losses 190 175 160 155
Net interest income after
provision for loan losses 3,831 4,097 4,253 4,152
Noninterest income 816 963 1,161 992
Noninterest expenses 2,754 2,758 2,906 3,518
Income before income taxes 1,893 2,302 2,508 1,626
Income taxes 657 756 821 587
Net income $ 1,236 $ 1,546 $ 1,687 $ 1,039
Net income per share $ 2.07 $ 2.58 $ 2.83 $ 1.74
Weighted average shares outstanding 598,098 597,768 597,258 596,684
</TABLE>
ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-55-
<PAGE>
<TABLE>
<CAPTION>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT OF THE COMPANY
Directors
The Directors and Nominees for election to the Board of Directors of
the Company are as follows:
Proposed Present Company
Director Term Principal Stock Owned
Name (Age) Since Expires Occupation Number %
<S> <C> <C> <C> <C>
*Willis J. Duncan
(72) 1958 2003 Chairman of the Board. 29,340(1) 4.92
The President of the
Bank from November
1985 to February 1988.
W. Jennings Duncan
(44) 1984 2001 President. Executive 20,434(2) 3.43
Vice President of the
Bank from November
1985 to February 1988.
Dr. R. C. Smith
(85) 1959 2001 Past Chairman of the 1,867 .31
Board. Chairman of the
Board from 1979 to
1985, when he became
Vice Chairman.
Chairman of the Board
from November 1985 to
February 1988.
Retired in 1985 as a
physician with Conway
Internists, P.A. of
Conway,South Carolina.
James W. Barnette, Jr.
(54) 1984 2001 President of Surfside 4,858(3) .82
Rent Mart, Inc., a
general rental company
located in Surfside
Beach, S.C., since
1992. Private real
estate investor from
1988 to 1991.
Previously, Mr.
Barnette was General
Manager of Coastal
Golf Corp., Burning
Ridge Corp., and
Indian Wells Golf
Club, which own and
operate golf courses
in the Myrtle Beach,
South Carolina, area.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT OF THE COMPANY (continued)
Proposed Present Company
Director Term Principal Stock Owned
Name (Age) Since Expires Occupation Number %
<S> <C> <C> <C> <C>
Harold G. Cushman, Jr.
(70) 1963 2002 Retired in 1995 as 20,403(4) 3.42
President of Dargan
Construction Company,
Inc.
Charles C. Cutts 1945 2002 Retired. 14,821(5) 2.49
(94)
*Paul R. Dusenbury 1997 2003 Treasurer. Vice 836(6) .14
(41) President and Cashier
of the Bank since 1988.
G. Heyward Goldfinch
(81) 1976 2002 Retired. Director 1,937 .33
of Goldfinch's, Inc.,
a funeral home, and of
Hillcrest Cemetery of
Conway, Incorporated.
*John Monroe J. Holliday
(83) 1969 2003 President of Palmetto 15,025(7) 2.52
Farms Corp. and partner
in Holliday Associates,
diversified agricul-
tural, real estate
development, and retail
companies headquartered
in Horry County, South
Carolina.
Robert P. Hucks 1993 2002 Executive Vice 1,774(8) .30
(54) President. Served as
Vice President and
Cashier of the Bank
from 1985 to 1988.
*Richard M. Lovelace,Jr.
(53) 1984 2003 Attorney in private 1,912(9) .32
practice with Lovelace
& Rogers, PA in Conway,
South Carolina.
John K. Massey
(85) 1959 2001 Retired. 4,722(10) .79
Howard B. Smith, III
(51) 1993 2002 Asst. Professor of 3,027 .51
Accounting with Coastal
Carolina University
since January, 1998.
Previously, Mr. Smith
was a practicing
certified public
accountant with Smith,
Sapp, Bookhout,Crumpler,
& Callihan,P.A. in
Myrtle Beach, South
Carolina.
</TABLE>
* Nominee for election to the Board of Directors.
57
<PAGE>
Except as indicated below, each director or director nominee of the
company has sole voting and investment power with respect to all shares of
Company stock owned by such director or director nominee. Each director
resides in Conway, South Carolina with the exceptions of Harold G. Cushman,
Paul R. Dusenbury, J.M.J. Holliday, and Dr. R.C. Smith who reside in Myrtle
Beach, Aynor, Galivants Ferry, and Murrells Inlet, respectively, which are
within Horry and Georgetown Counties, South Carolina. The address of each
director or director nominee is c/o The Conway National Bank, Post Office
Drawer 320, 1400 Third Avenue, Conway, South Carolina 29526. All Directors
and officers of the Company and its subsidiary, The Conway National Bank, as
a group (40 persons), own 153,710 (25.79%) shares of Company stock.
(1) Includes 10,527 shares held by Harriette B. Duncan (wife).
(2) Includes 1,053 shares held by Robin F. Duncan (wife); 2,692
shares held by Ann Louise Duncan (daughter); 2,692 shares held by Mary
Kathryn Duncan (daughter); 2,692 shares by Willis Jennings Duncan, V (son);
and 2,692 shares by Margaret Brunson Duncan (daughter).
(3) Includes 4,022 shares held by Janet J. Barnette (wife).
(4) Includes 17,500 shares held by the Cushman Family Limited
partnership; 261 shares held by Dianne C. Cushman (wife); 941 shares held by
Marion Shannon Cushman (son); 485 shares held by Frances Faison Cushman
(daughter); 485 shares held by Harold G. Cushman, III (son); 62 shares held
by Harold G. Cushman, IV (grandson); and 62 shares held by Kara Dawn
Cushman (granddaughter).
(5) Includes 7,157 shares held by Eugenia B. Cutts (wife).
(6) Includes 125 shares held by Jennifer S. Dusenbury (wife); 37
shares held by Elena Cox Dusenbury (daughter); and 37 shares held by Sarah
Cherry Dusenbury (daughter).
(7) Includes 4,918 shares held by M. Russell Holliday, Jr.
(daughter); 3,259 shares held by Christian M. Holliday Douglas (daughter);
432 shares held by Christian M. H. Douglas, Jr. (granddaughter); 432 shares
held by Marjorie Russell Douglas (granddaughter); 432 shares held by David
Duvall Douglas, Jr. (grandson); and 605 shares held by David D. and
Christian M.H. Douglas Trust (grandchildren).
(8) Includes 250 shares held by Willie Ann Hucks (wife); 25 shares
held by Mariah J. Hucks (daughter); 62 shares held by Norah Leigh Hucks
(daughter); and 187 shares held by Robert P. Hucks, II (son).
(9) Includes 362 shares held by Rebecca S. Lovelace (wife); 432
shares held by Richard Blake Lovelace (son); and 353 shares held by Macon B.
Lovelace (son).
(10) Includes 1,322 shares held by Bertha T. Massey (wife).
Each director of the Company has been engaged in his principal
occupation of employment as specified above for five (5) years or more
unless otherwise indicated.
W. Jennings Duncan is Willis J. Duncan's son. Richard M. Lovelace,
Jr. is Dr. R. C. Smith's son-in-law. No other family relationships exist
among the above named directors or officers of the Company. No director owns
25% or more of a publicly traded company. None of the directors of the Company
holds a directorship in any company with a class of securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended, or subject to
the requirements of Section 15(d) of that act or in any company registered as
an investment company under the Investment Company Act of 1940, as amended.
58
<PAGE>
The Board of Directors of the Company, as originally constituted, was
classified into three (3) classes with each class consisting of five (5)
directors. Four (4) directors in Class III will be elected at the 2000
Annual Meeting to serve for a three (3) year term. Directors in Class I
will be elected at the 2001 Annual Meeting to serve for a three (3) year
term and Directors in Class II will be elected at the 2002 Annual Meeting to
serve for a three (3) year term. Currently, there are thirteen (13)
Directors, with four (4) directors in Class III. The Board of Directors has
passed a resolution fixing the total number of Directors at thirteen (13).
The Board of Directors of the Company serves as the Board of
Directors of its subsidiary, The Conway National Bank. The Company's Board
of Directors meets as is necessary and the Bank's Board of Directors meets
on a monthly basis.
The Board of Directors of the Bank has an Executive Committee that
meets when necessary between scheduled meetings of the Board of Directors.
The Executive Committee recommends to the Board of Directors the appointment
of officers; determines officer compensation subject to Board approval;
reviews employee salaries; considers any director nominee submitted by the
shareholders; and addresses any other business as is necessary which does
not come under the authority of other committees on the Board of Directors.
The Executive Committee will consider any nominee to the Board of Directors
submitted by the shareholders, provided shareholders intending to nominate
director candidates for election deliver written notice thereof to the
Secretary of the Company not later than (i) with respect to at election to
be held at an Annual Meeting of shareholders, ninety (90) days prior to the
anniversary date of the immediately preceding Annual Meeting of
shareholders, and (ii) with respect to an election to be held at a special
meeting of shareholders, the close of business on the tenth (10th) day
following the date on which notice of such meeting is first given to
shareholders. The Bylaws further provide that the notice shall set forth
certain information concerning such shareholder and his nominee(s),
including their names and addresses, a representation that the shareholder
is entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the
notice, a description of all arrangements or understandings between the
shareholder and each nominee, such other information as would be required to
be included in a proxy statement soliciting proxies for the election of the
nominees of such shareholder and the consent of each nominee to serve as
Director of the Company if so elected. The Chairman of the meeting may
refuse to acknowledge the nomination of any person not made in compliance
with the foregoing procedures. The members of the Executive Committee are
Charles C. Cutts, Willis J. Duncan, W. Jennings Duncan, and Dr. R. C. Smith.
In addition, the Board of Directors of the Bank has Audit, Loan,
Public Relations, and Building Committees. The members of the Audit
Committee are James W. Barnette, Jr., Charles C. Cutts, John Monroe J.
Holliday, John K. Massey, Howard B. Smith, III, and Dr. R. C. Smith. The
members of the Loan Committee are Harold G. Cushman, Jr., Willis J. Duncan,
W. Jennings Duncan, Paul R. Dusenbury, G. Heyward Goldfinch, Robert P.
Hucks, and Richard M. Lovelace, Jr. The members of the Public Relations
Committee are James W. Barnette, Jr., G. Heyward Goldfinch, and John K.
Massey. The members of the Building Committee are James W. Barnette, Jr.,
Harold G. Cushman, Jr., Willis J. Duncan, W. Jennings Duncan, and Robert P.
Hucks. Willis J. Duncan, Chairman of the Board, and W. Jennings Duncan,
President, are ex officio members of each of these committees of the Board
with the exception of the Audit Committee.
59
<PAGE>
The function of the Audit Committee is to ensure that adequate
accounting procedures are in existence and functioning in a manner adequate
to safeguard the assets of the Bank. The Audit Committee also monitors
internal and external audit activities. The function of the Loan Committee
is to review and ratify new loans and monitor the performance and quality of
existing loans, as well as to ensure that sound policies and procedures
exist in the Bank's lending operations.
During 1999, the Company's Board of Directors met five (5) times; the
Bank's Board of Directors met twelve (12) times; the Executive Committee met
eleven (11) times; the Audit Committee met ten (10) times; the Loan
Committee met twelve (12) times; the Building Committee met one (1) time;
and the Public Relations Committee did not meet. Each Director attended at
least 75% of the aggregate of (a) the total number of meetings of the Board
of Directors held during the period for which he served as Director and (b)
the total number of meetings held by all committees of the Board of
Directors of which he served.
Executive Officers:
The Executive Officers and other officers of the Company are
as follows:
Position(s) Currently
Name Age With The Company
Willis J. Duncan 72 Chairman of the Board (1)
W. Jennings Duncan 44 President and Director (1)
Robert P. Hucks 54 Executive Vice President and
Director (1)
Paul R. Dusenbury 42 Treasurer and Director (1)
(Chief Financial Officer and
Chief Accounting Officer)
Virginia B. Hucks 50 Secretary
_________________
(1) Executive Officer
All executive officers and other officers serve at the pleasure of
the Board of Directors of the Company. Each executive officer and other
officer of the Company has been employed by the Company and/or the Bank for
five (5) years.
60
<PAGE>
ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Company pays no remuneration to its Directors and Executive
Officers. All remuneration for services rendered are paid by the Company's
subsidiary, The Conway National Bank, Conway, South Carolina ("the Bank").
Compensation Committee Report
The Executive Committee of the Bank recommends to the Board of
Directors the appointment of officers; determines officer compensation
subject to Board approval; and reviews employee salaries. The compensation
of the President (Chief Executive Officer) and the other executive officers
is not tied directly to corporate performance or any measure thereof.
However, it would be deemed unacceptable by the Executive Committee, Board,
and management to establish compensation levels that are not consistent with
the performance of the Bank or return to shareholders. During the
compensation decision process, much emphasis is placed on the Job Evaluation
Salary Administration Program (JESAP) Committee. The "JESAP" Committee is
charged with the responsibility of establishing job position descriptions;
applying values to each job position in the form of a salary range; and
obtaining salary surveys of a local, regional, and national level to
determine that salary ranges are consistent with the industry and peers.
The "JESAP" committee utilizes an independent management consulting firm to
aid in this process. For each Bank employee, including the President (Chief
Executive Officer) and all executive officers, a salary minimum, midpoint,
and maximum is established. For fiscal 1999, all executive officer salary
levels were below the midpoint as established by the JESAP process.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term
Compensation
Awards Payouts
Stock Long-Term
Other Restricted Options Incentive
Name and ($) ($) Annual(1) Stock($) /SAR'S Payout All Other(2)
Principal Position Year Salary Bonus Compensation Awards (#) ($) Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. Jennings Duncan 1999 142,632 31,309 3,543 0 0 0 11,232
President and 1998 135,504 29,900 4,361 0 0 0 10,163
Director of Bank 1997 128,136 25,000 3,386 0 0 0 9,610
Robert P. Hucks 1999 126,096 27,795 6,000 0 0 0 9,930
Executive Vice 1998 119,796 26,500 6,000 0 0 0 8,985
President and 1997 113,280 22,188 6,000 0 0 0 8,496
Director of Bank
Paul R. Dusenbury 1999 116,904 25,842 6,000 0 0 0 9,206
Vice President and 1998 111,060 24,588 6,000 0 0 0 8,330
Cashier of Bank 1997 105,024 20,688 6,000 0 0 0 7,877
</TABLE>
(1) Cash value of personal use of automobile furnished by the Bank or
automobile travel allowance.
(2) Cash contributions made by the Bank to the Bank's contributory
profit-sharing and savings defined contribution plan.
61
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS (continued)
PENSION PLAN DISCLOSURE
The Bank has a defined contribution pension plan covering all
employees who have attained age twenty-one and have a minimum one year of
service. Upon ongoing approval of the Board of Directors, the Bank matches
one hundred percent of employee contributions up to one percent of employee
contributions of salary deferred and fifty percent of employee contributions
in excess of one percent and up to six percent of salary deferred. For the
years ended December 31, 1999, 1998, and 1997, $423,000, $378,000, and
$361,000, respectively, was charged to operations under the plan.
The Board of Directors of the Bank provides supplemental benefits to
certain key officers, including Willis J. Duncan, W. Jennings Duncan, Robert
P. Hucks, and Paul R. Dusenbury, under The Conway National Bank Executive
Supplemental Income (ESI) Plan and a Long-Term Deferred Compensation (LTDC)
Plan. These plans are not qualified under the Internal Revenue Code. These
plans are unfunded, however, certain benefits under the ESI Plan are
informally and indirectly funded by insurance policies on the lives of the
covered employees. Under the provisions of the ESI Plan, the Bank and the
participating employees will execute agreements providing each employee (or
his beneficiary, if applicable) with a pre-retirement death benefit and a
post-retirement annuity benefit. The ESI Plan is designed to provide
participating employees with a pre-retirement benefit based on a percentage
of the employee's current compensation. The ESI agreement's post-retirement
benefit is designed to supplement a participating employee's retirement
benefits from Social Security in order to provide the employee with a
certain percentage of his final average income at retirement age. While the
employee is receiving benefits under the ESI Agreement, the agreement will
prohibit the employee from competing with the Bank and will require the
participating employee to be available for consulting work for the Bank.
The ESI Agreement may be amended or revoked at any time prior to the
participating employee's death or retirement, but only with the mutual
written consent of the covered employee and the Bank. The ESI Agreements
require that the participating employee be employed at the Bank at the
earlier of death or retirement to be eligible to receive, or have his
beneficiary receive, benefits under the agreement. Under the LTDC Plan,
certain key employees and the Board of Directors may defer a portion of
their compensation for their retirement and purchase units which are
equivalent in value to one share of the Company's stock at market value.
The employee or Director receives appreciation, if any, in the market value
of the unit as compared to the initial value per unit.
Performance Graphs
The performance graph shall be submitted in paper form under cover of Form
SE as provided in Rule 304(d) of Regulation S-T.
62
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS (continued)
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
No Compensation Committee interlocks exist. The members of the
Executive Committee of the Board, which serves as the Compensation
Committee, are Charles C. Cutts (outside Director), Willis J. Duncan
(Chairman of the Board and inside Director), W. Jennings Duncan (President
and inside Director), and Dr. R.C. Smith (outside Director). Membership of
the "JESAP" Committee consists of six Bank officers.
Director Compensation
Directors who are not Bank officers received $400 for each monthly
meeting of the Board of Directors and an additional $150 for each committee
meeting attended in 1999. Effective February, 2000, Director compensation
for each committee meeting attended was increased to $500.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities to file
reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with
the Securities and Exchange Commission (the "SEC") and the National
Association of Securities Dealers. Such officers, directors, and 10 percent
shareholders are also required by SEC rules to furnish the Company with
copies of all Section 16(a) forms that they file.
Based solely on its review of copies of such reports received or
written representations from certain reporting persons, the Company believes
that during the fiscal year ended December 31, 1999, all Section 16(a)
filing requirements applicable to its officers, directors, and 10 percent
shareholders were complied with.
63
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of December 31, 1999, certain
information regarding the ownership of Company Stock of all officers and
directors of the Company. No shareholder is known to the management of the
Company to be the beneficial owner of more than five (5%) percent of the
Company Stock. The Company Stock is the Company's only class of voting
securities.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership(1) of Class
All Officers and Directors as a Group
(40 persons) (2) 153,710 25.8%
_________________
(1) For a description of the amount and nature of ownership of the
directors of the Company, see "Management of the Company -Directors".
(2) Includes 27 officers of the subsidiary, The Conway National Bank,
who are not officers of the Company.
ITEM 13. CERTAIN TRANSACTIONS
Directors, principal shareholders, and Executive Officers of the
Company and the Bank are customers of and had transactions with the Bank in
the ordinary course of business. Included in such transactions are
outstanding loans and commitments, all of which were made on comparable
terms, including interest rates and collateral as those prevailing at the
time for other customers of the Bank, and did not involve more than normal
risk of collectibility or present other unfavorable features.
64
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The following exhibits, financial statements and financial
statement schedules are filed as part of this report:
FINANCIAL STATEMENTS
Report of Independent Public Accountants
Consolidated Statements of Condition - December 31, 1999 and 1998
Consolidated Statements of Income - Years ended December 31, 1999,
1998, and 1997
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 1999, 1998, and 1997
Consolidated Statements of Comprehensive Income - Years ended
December 31,
1999, 1998, and 1997.
Consolidated Statements of Cash Flows - Years Ended December 31,
1999, 1998, and 1997
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted from this
Annual Report because the required information is presented in the
financial statements or in the notes thereto or the required
subject matter is not applicable.
EXHIBITS
See Exhibit Index appearing below.
Reports on Form 8-K - No reports on Form 8-K were filed
during the last quarter of the period covered by this report.
EXHIBIT INDEX
Exhibit
Number
3 Articles of Incorporation - A copy of the Articles of
Incorporation of the Company is incorporated herein
by reference to Exhibit 3(a) which was filed with a
Form 8-A dated June 24, 1998
By-laws of the Company - A copy of the By-laws of the
Company is incorporated herein by reference to Exhibit
3(b) which was filed with a Form 10-Q Quarterly
Report dated June 30, 1997.
22 Subsidiaries of the Registrant - A copy of the subsidi-
aries of the registrant is incorporated herein by refer-
ence to Exhibit 22 which was filed with a Form 10-K
Annual Report dated March 28, 1986.
27 Financial Data Schedule - Article 9 Financial Data
Schedule for 10-k for electronic filers (pages 67 and 68).
All other exhibits, the filing of which are required with this Form,
are not applicable.
65
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CNB Corporation
W. Jennings Duncan, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in their capacities on March 14, 2000.
Signature Capacity
Willis J. Duncan Chairman of the Board
W. Jennings Duncan President and Director
Robert P. Hucks Executive Vice President and
Director
Paul R. Dusenbury Treasurer and Director
(Chief Financial Officer
and Chief Accounting Officer)
Virginia B. Hucks Secretary
Harold G. Cushman, Jr. Director
Charles C. Cutts Director
G. Heyward Goldfinch Director
J.M.J Holliday Director
John K. Massey Director
Howard B. Smith, III Director
66
<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
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 20,259
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 89,151
<INVESTMENTS-CARRYING> 54,868
<INVESTMENTS-MARKET> 54,430
<LOANS> 267,141
<ALLOWANCE> 3,451
<TOTAL-ASSETS> 455,702
<DEPOSITS> 375,503
<SHORT-TERM> 31,286
<LIABILITIES-OTHER> 5,201
<LONG-TERM> 0
0
0
<COMMON> 5,987
<OTHER-SE> 37,725
<TOTAL-LIABILITIES-AND-EQUITY> 455,702
<INTEREST-LOAN> 21,869
<INTEREST-INVEST> 8,473
<INTEREST-OTHER> 1,401
<INTEREST-TOTAL> 31,743
<INTEREST-DEPOSIT> 11,616
<INTEREST-EXPENSE> 13,044
<INTEREST-INCOME-NET> 18,699
<LOAN-LOSSES> 795
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 13,030
<INCOME-PRETAX> 9,181
<INCOME-PRE-EXTRAORDINARY> 6,105
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,105
<EPS-BASIC> 10.23<F1>
<EPS-DILUTED> 10.23<F1>
<YIELD-ACTUAL> 4.50<F1>
<LOANS-NON> 527
<LOANS-PAST> 142
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 527
<ALLOWANCE-OPEN> 3,132
<CHARGE-OFFS> 816
<RECOVERIES> 340
<ALLOWANCE-CLOSE> 3,451
<ALLOWANCE-DOMESTIC> 3,451
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>MULTIPLIER DOES NOT APPLY TO EPS AND YIELD DATA.
</FN>
</TABLE>
