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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.
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
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
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
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
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
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
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
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
First Quarter Second Quarter Third Quarter Fourth Quarter
1999 1998 1999 1998 1999 1998 1999 1998
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
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
CNB Corporation and Subsidiary
Selected Financial Data
Twelve Months Ended 12/31/99
Average Interest Avg. Annual
Balance Income/ Yield or
Expense(2) Rate
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
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
CNB Corporation and Subsidiary
Selected Financial Data
Twelve Months Ended 12/31/98
Average Interest Avg. Annual
Balance Income/ Yield or
Expense(2) Rate
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
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
CNB Corporation and Subsidiary
Selected Financial Data
Twelve Months Ended 12/31/97
Average Interest Avg. Annual
Balance Income/ Yield or
Expense(2) Rate
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
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
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Twelve Months Ended December 31, 1999 and 1998
(Dollars in Thousands)
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
(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
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Twelve Months Ended December 31, 1998 and 1997
(Dollars in Thousands)
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
(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
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Twelve Months Ended December 31, 1997 and 1996
(Dollars in Thousands)
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
(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
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
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
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
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
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
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
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
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
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
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%
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
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
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
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
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
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
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
25
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:
December 31,
1999 1998 1997
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%
26
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
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)
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
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%
(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
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.
Interest Rate Sensitivity Analysis
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
29
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
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
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
ITEM 8 - FINANCIAL STATEMENTS
CNB CORPORATION AND SUBSIDIARY
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
-33-
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-
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-
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(amounts, except share data, in thousands)
December 31,
1999 1998
ASSETS
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
The accompanying notes are an integral part of these consolidated financial
statements.
36
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(amounts, except per share data, in thousands)
For the years ended December 31,
1999 1998 1997
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
The accompanying notes are an integral part of these consolidated financial
statements.
37
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
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
-38-
The accompanying notes are an integral part of these consolidated financial
statements.
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in thousands)
For the years ended December 31,
1999 1998 1997
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
-39-
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
For the years ended December 31,
1999 1998 1997
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 secur