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,
2003.
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 29528
(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. [ ]
Indicate by check mark whether the registrant is
an accelerated filer (as defined
in Rule 12 b-2 of the Exchange
Act). Yes___. No X .
As of February 29, 2004, 717,657 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 $73,320,564.
No Documents have been incorporated by reference.
TABLE OF CONTENTS
PART I
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Page |
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ITEM 1 |
Description of Business
and Supplementary Data |
1-23 |
PART II
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ITEM 5 |
Market for the
Registrant's Common Stock and Related |
25 |
PART III
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ITEM 10 |
Directors and Executive
Officers of the Registrant |
59-63 |
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Signature |
71 |
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Audit Committee Report |
72 |
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 and Georgetown
Counties, 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: Coastal Centre in
Conway, Horry County, (1969); Surfside
in Surfside Beach, Horry County, (1971);
Northside, north of Myrtle Beach, Horry
County, (1977); Red Hill in Conway,
Horry County, (1981); Socastee, in the southern
portion of Myrtle Beach, Horry
County, (1986); Aynor in the Town of Aynor, Horry County,
(1991), Myrtle Beach
in the City of Myrtle Beach, Horry County, (1995), West Conway,
in Conway,
Horry County, (1998), Murrells Inlet in Murrells Inlet, Georgetown County,
(2000) and North Myrtle Beach in the City of North Myrtle Beach, Horry County,
(2002).
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 224 full-time-equivalent
employees at its principal
office and eleven 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, internet banking, 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
and the Waccamaw
Neck region of Georgetown County in providing customers with deposit, credit and
other
financial services. The principal competitors of the Bank include local
offices of
six regional banks, three state-wide banks, ten locally owned banks
in Horry and
Georgetown Counties and various other financial and thrift
institutions. The regional
banks are Bank of America, RBC Centura, First
Citizens Bank and Trust Company, Branch
Bank and Trust, Carolina First Savings
Bank, and Wachovia, N.A. The statewide banks
are National Bank of South
Carolina, First Federal Savings Bank, and First Palmetto
Savings Bank. The
locally owned banks are Anderson Brothers Bank, Coastal Federal
Savings Bank,
Horry County State Bank, Sandhills Bank, Beach First National Bank,
Plantation
Federal Savings Bank, Carolina Bank and Trust, Citizens Bank of Olanta,
Crescent Bank, and Sunbank, N.A. 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 Gramm-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 Gramm-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, 2003, has 718,246 shares issued and 717,409 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
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First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
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2003 |
2002 |
2003 |
2002 |
2003 |
2002 |
2003 |
2002 |
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
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CNB Corporation and Subsidiary |
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Twelve Months Ended 12/31/03 |
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(2) The
Company had no out-of-period adjustments or foreign activities.
Loan fees of $282 are included in the above interest income. Loans
on a non-accrual basis for the recognition of interest income
totalling $351 as of December 31, 2003 are included in loans, net
of unearned income, for purpose of this analysis.
8
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CNB Corporation and Subsidiary |
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Twelve Months Ended 12/31/02 |
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(2) The
Company had no out-of-period adjustments or foreign activities.
Loan fees of $284 are included in the above interest income. Loans
on a non-accrual basis for the recognition of interest income
totalling $697 as of December 31, 2002 are included in loans, net
of unearned income, for purpose of this analysis.
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CNB Corporation and Subsidiary
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Twelve Months Ended 12/31/01 |
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(2) The
Company had no out-of-period adjustments or foreign activities.
Loan fees of $295 are included in the above interest income. Loans
on a non-accrual basis for the recognition of interest income
totalling $633 as of December 31, 2001 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, 2003 and 2002
(Dollars in Thousands)
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Change |
(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, 2002 and 2001
(Dollars in Thousands)
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Change |
(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, 2001 and 2000
(Dollars in Thousands)
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Change |
(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
The purpose of the investment policy of the Bank is to ensure that the investment securities portfolio shall be managed to maximize portfolio yield over the long term in a manner that is consistent with liquidity needs, pledging requirements, asset/liability strategies, and safety/soundness concerns. Specific investment objectives include the desire to: ensure adequate liquidity for loan demand, deposit fluctuations, and other changes in balance sheet mix; manage interest rate risk; maximize the institution's overall return; ensure collateral is available for pledging; and manage asset-quality diversification of the bank's assets. During 2002, investment securities grew as a percentage of total assets due to weakened loan demand within our market. However, loan demand began to increase during the fourth quarter of 2002 and throughout 2003. At December 31, 2003 and 2002, the Loans/Total Assets ratios were 60.3% and 57.2%, respectively, as compared to 58.6% at December 31, 2001. Investment securities and federal funds sold have correspondingly risen and fallen as a percentage of total assets.
Investment securities with a par value of $85,195, $79,880, and $76,640 at December 31, 2003, 2002, and 2001, 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, 2003, 2002, and 2001.
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December 31, 2003 |
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agencies |
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county and |
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MATURITY |
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(1) Tax equivalent adjustment
based on a 34% tax rate.
As of the quarter ended December 31, 2003, the Bank did not hold any securities
of an
issuer that exceeded 10% of stockholders' equity.
14
INVESTMENT SECURITIES, continued
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December 31, 2002 |
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agencies |
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