FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
___________________
For Quarter EndedJune 30, 2001 Commission file number: 2-96350
CNB Corporation
(Exact name of registrant as specified in its charter)
South Carolina 57-0792402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 320, Conway, South Carolina 29528
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (803) 248-5721
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X . No .
The number of shares outstanding of the issuer's $10.00 par value common stock as of June 30, 2001 was 714,614.
CNB Corporation
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2001, 1
December 31, 2000 and June 30, 2000
Consolidated Statement of Income for the Three Months 2
and Six Months Ended June 30, 2001 and 2000
Consolidated Statement of Comprehensive Income 3
for the Three Months and Six Months Ended
June 30, 2001 and 2000
Consolidated Statement of Changes in Stockholders' 4
Equity for the Six Months Ended June 30, 2001
and 2000
Consolidated Statement of Cash Flows for the Six Months 5
Ended June 30, 2001 and 2000
Notes to Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis of Financial 14-23
Condition and Results of Operations
Item 3. Qualitative and Quantitative Disclosures About Market Risk 24
Item 4. Submission of Matters to a Vote of Security Holders 24
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURE 25
CNB Corporation and Subsidiary
Consolidated Balance Sheets
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
ASSETS:
Cash and due from banks
Interest bearing deposits with banks
Investment Securities
(Fair values of $30,287 at
June 30, 2001, $42,506 at
December 31, 2000, and $46,285
at June 30, 2000)
Securities Available for Sale
(Amortized cost of $110,486 at
June 30, 2001, $88,811 at
December 31, 2000, and $88,272
at June 30, 2000)
Federal Funds sold and securities
purchased under agreement
to resell
Loans:
Total loans
Less reserve for possible
loan losses
Net loans
Bank premises and equipment
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing
Interest-bearing
Total deposits
Federal funds purchased and
securities sold under agreement
to repurchase
Other short-term borrowings
Other liabilities
Total liabilities
Stockholders' equity:
Common stock, par value $10 per
share: Authorized 1,500,000 in
2001 and 2000; issued 598,681
in 2000 and 718,246 in 2001
Surplus
Undivided Profits
Net Unrealized Holding
Gains (Losses) on
Available-For-Sale Securities
Less: Treasury stock
Total stockholders' equity
Total liabilities
and stockholders' equity | June 30,
2001
$ 19,352
0
29,657
111,871
40,925
293,501
(3,762)
289,739
11,375
9,585 512,504
83,718
337,641
421,359
29,758
5,140
3,970
460,227
7,182
34,746
9,873
831
(355)
52,277
512,504 | December 31,
2000
$ 20,239
0
42,215
88,975
9,875
295,648
(3,782)
291,866
9,795
8,111
471,076
76,342
314,388
390,730
22,567
3,484
5,689
422,470
7,182
34,732
6,898
98
(304)
48,606
471,076 | June 30,
2000
$ 23,182
0
46,865
86,389
13,625
290,407
(3,828) 286,579
8,886
8,798
474,324
85,890
297,510
383,400
29,716
11,667
2,705
427,488
5,987
24,557
17,733
(1,130)
(311)
46,836
474,324 |
1
CNB Corporation and Subsidiary
Consolidated Statement of Income
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
Interest Income:
Interest and fees on loans
Interest on investment securities:
Taxable investment securities
Tax-exempt investment securities
Other securities
Interest on federal funds sold and securities
purchased under agreement to resell
Total interest income
Interest Expense:
Interest on deposits
Interest on federal funds purchased and securities
sold under agreement to repurchase
Interest on other short-term borrowings
Total interest expense
Net interest income
Provision for possible loan losses
Net interest income after provision for possible
loan losses
Other income:
Service charges on deposit accounts
Gains/(Losses) on available-for-sale securities
Other operating income
Total other income
Other expenses:
Salaries and employee benefits
Occupancy expense
Other operating expenses
Total operating expenses
Income before income taxes
Income tax provision
Net income
*Per share data:
Net income per weighted average shares
outstanding
Cash dividend paid per share
Book value per actual number of shares
outstanding
Weighted average number of shares outstanding
Actual number of shares outstanding
*Restated for a 20% stock dividend issued during
2000. | Three Months Ended June 30, | Six Months Ended
June 30, |
2001
$ 6,365
1,681
227
3
371
8,647
3,774
264
42
4,080
4,567
130
4,437
693
169
568
1,430
2,205
462
877
3,544
2,323
714
1,609
$ 2.25
$ 0
$ 73.15
714,702
714,614 | 2000
$ 6,448
1,758
192
50
43
8,491
3,045
343
113
3,501
4,990
240
4,750
685
0
459
1,144
2,015
474
890
3,379
2,515
814
1,701
$ 2.37
$ 0
$ 65.51
715,712
714,926 | 2001
$ 13,056
3,260
457
3
778
17,554
7,784
607
93
8,484
9,070
320
8,750
1,402
169
992
2,563
4,385
945
1,679
7,009
4,304
1,329
2,975
$ 4.16
$ 0
$ 73.15
714,702
714,614 | 2000
$ 12,581
3,623
385
50
153
16,792
6,110
672
139
6,921
9,871
480
9,391
1,368
0
803
2,171
4,046
925
1,740
6,711
4,851
1,585
3,266
$ 4.56
$ 0
$ 65.51
715,712
714,926 |
2
CNB Corporation and Subsidiary
Consolidated Statement of Comprehensive Income
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
Net Income
| Three Months
Ended
June 30, | Six Months
Ended
June 30, |
2001 | 2000 | 2001 | 2000 |
$1,609
|
$1,701
|
$2,975
|
$3,266
|
Other comprehensive income, net of tax
Unrealized gains/(losses)
on securities:
Unrealized holding gains/(losses)
during period |
89
|
91
|
733
|
(119)
|
Net Comprehensive Income
|
$1,698 |
$1,792 |
$3,708 |
$3,147 |
3
CNB Corporation and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity
(All Dollar Amounts in Thousands)
(Unaudited)
Common Stock:
($10 par value; 1,500,000 shares authorized)
Balance, January 1
Issuance of Common Stock
Balance at end of period
| Six Months Ended
June 30, |
2001 | 2000 |
7,182
None
7,182
|
5,987
None
5,987
|
Surplus:
Balance, January 1
Issuance of Common Stock
Gain on sale of Treasury stock
Balance at end of period
|
34,732
None
14
34,746
|
24,546
None
11
24,557
|
Undivided profits:
Balance, January 1
Net Income
Cash dividends declared
Balance at end of period
|
6,898
2,975
None
9,873
|
14,467
3,266
None
17,733
|
Net unrealized holding gains/(losses) on
Available-for-sale securities:
Balance, January 1
Change in net unrealized gains/(losses)
Balance at end of period
|
98
733
831
|
(1,011)
(119)
(1,130)
|
Treasury stock:
Balance, January 1
(3,256 shares in 2001; 2,722 shares in 2000)
Purchase of treasury stock
Reissue of treasury stock
Balance at end of period
(3,632 shares in 2001; 2,909 shares in 2000)
Total stockholders' equity
|
(304)
(156)
105
(355)
52,277
|
(277)
(127)
93
(311)
46,836
|
Note: Columns may not add due to rounding.
4
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
OPERATING ACTIVITIES
Net Income
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation
Provision for loan losses
Provision for deferred income taxes
Loss (gain) on sale of investment
securities
(Increase) decrease in accrued interest
receivable
(Increase) decrease in other assets
(Decrease) increase in other liabilities
| For the six-month period ended
June 30,
2001 2000 |
$ 2,975
303
320
404
169
(57)
(1,596)
(476)
|
$ 3,266
262
480
(231)
0
(524)
37
(655)
|
Net cash provided by operating
activities |
2,042
|
2,635
|
INVESTING ACTIVITIES
Proceeds from sale of investment securities
available for sale
Proceeds from maturities of investment
securities held to maturity
Proceeds from maturities of investment
securities available for sale
Purchase of investment securities held to
maturity
Purchase of investment securities
available for sale
Decrease (increase) in interest-bearing
deposits in banks
(Increase) decrease in federal funds sold
(Increase) decrease in loans
Premises and equipment expenditures
|
11,213
12,558
30,618
0
(63,505)
0
(31,050)
2,147
(1,883)
|
0
7,873
5,000
0
(2,108)
0
(2,475)
(23,266)
(644)
|
Net cash provided by (used for)
investing activities
|
(39,902)
|
(15,620)
|
FINANCING ACTIVITIES
Dividends paid
Increase (Decrease) in deposits
(Decrease) increase in securities sold
under repurchase agreement
(Decrease) increase in other
short-term borrowings |
(2,503)
30,629
7,191
1,656
|
(2,086)
7,897
2,239
7,858
|
Net cash provided by (used for)
financing activities
Net increase (decrease) in cash
and due from banks
CASH AND DUE FROM BANKS, BEGINNING OF YEAR
CASH AND DUE FROM BANKS, June 30, 2001 AND 2000
CASH PAID (RECEIVED) FOR:
Interest
Income taxes
|
36,973
(887)
20,239
$ 19,352
$ 8,209
$ 1,354
|
15,908
2,923
20,259
$ 23,182
$ 7,415
$ 1,550
|
5
CNB CORPORATION AND SUBSIDIARY (The "Corporation")
CNB CORPORATION (The "Parent")
THE CONWAY NATIONAL BANK (The "Bank")
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net income per share - Net income per share is computed on the basis of the weighted average number of common shares outstanding, 714,702 for the six-month period ended June 30, 2001 and 715,712 for the six-month period ended June 30, 2000 adjusted for the effect of a 20% stock dividend issued during 2000.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances either at the Bank or on deposit with the Federal Reserve Bank. The average amount of these reserve balances for the six-month period ended June 30, 2001 and for the years ended December 31, 2000 and 1999 were approximately $8,656, $8,852, and $8,300, respectively.
6
NOTE 3 - INVESTMENT SECURITIES
Investment securities with a par value of approximately $90,070 at June 30, 2001 and $90,870 at December 31, 2000 were pledged to secure public deposits and for other purposes required by law.
The following summaries reflect the book value, unrealized gains and losses, approximate market value, and tax-equivalent yields of investment securities at June 30, 2001 and at December 31, 2000.
AVAILABLE FOR SALE
United States Treasury
| June 30, 2001
Book Unrealized Holding Fair
Value Gains Losses Value Yield(1) |
$ 0
|
$ -
|
$ -
|
$ 0
|
-
|
Federal agencies
Within one year
One to five years
Six to ten years
|
15,923
75,940
10,000
101,863
|
109
903
126
1,138
|
- -
3
-
3
|
16,032
76,840
10,126
102,998
|
5.47%
5.68
6.13
5.69
|
State, county and
municipal
One to five years
Six to ten years
After ten years
Other Securities
Total available for sale |
1,018
6,485
856
8,359
264
$110,486
|
32
227
4
263
-
$1,401
|
- -
8
5
13
-
$ 16
|
1,050
6,704
855
8,609
264
$111,871
|
6.69%
6.61
6.34
6.59
-
5.76%
|
HELD TO MATURITY
United States Treasury
Within one year
|
1,003
|
10
|
-
|
1,013
|
5.76%
|
Federal agencies
Within one year
One to Five years
|
10,045
7,016
17,061
|
53
260
313
|
- -
-
-
|
10,098
7,276
17,374
|
5.97%
6.77
6.30
|
State, county and
municipal
Within one year
One to five years
Six to ten years
Total held to maturity |
1,340
6,823
3,430
11,593
$ 29,657
|
8
178
121
307
$ 630
|
- -
- -
-
-
$ -
|
1,348
7,001
3,551
11,900
$ 30,287
|
7.51%
6.25
6.46
6.46
6.35%
|
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended June 30, 2001, the Bank did not hold any securities of an issuer that exceeded 10% of stockholders' equity. The net unrealized holding gains/(losses) on available-for-sale securities component of capital is $831 as of June 30, 2001.
7
NOTE 3 - INVESTMENT SECURITIES (Continued)
AVAILABLE FOR SALE
United States Treasury
Within one year
| December 31, 2000
Book Unrealized Holding Fair
Value Gains Losses Value Yield(1) |
_______
$14,066
|
______
$ 65
|
______
$ -
|
_______
$14,131
|
_____
6.05%
|
Federal agencies
Within one year
One to five years
|
25,059
41,517
66,576
|
19
129
148
|
52
207
259
|
25,026
41,439
66,465
|
5.68
5.99
5.87
|
State, county and
municipal
One to five years
Six to ten years
After ten years
Other -restricted
Federal Reserve
Bank and FHLB Stock
CRA Qualified Investment
Fund
Total available for sale
|
453
4,711
1,357
6,521
1,394
254
1,648
$88,811
|
5
134
71
210
-
-
-
$ 423
|
- -
- -
-
-
-
-
-
$ 259
|
458
4,845
1,428
6,731
1,394
254
1,648
$88,975
|
6.65
6.54
7.40
6.73
-
-
-
5.96%
|
HELD TO MATURITY
United States Treasury
Within one year
|
1,006
|
1
|
-
|
1,007
|
5.76
|
Federal agencies
Within one year
One to Five years
|
13,026
15,082
28,108
|
23
129
152
|
2
22
24
|
13,047
15,189
28,236
|
6.45
6.27
6.36
|
State, county and
municipal
Within one year
One to five years
Six to ten years
Total held to maturity |
2,415
6,322
4,364
13,101
$42,215
|
11
50
112
173
$ 326
|
- -
4
7
11
$ 35
|
2,426
6,368
4,469
13,263
$42,506
|
7.42%
6.17
6.52
6.52
6.39%
|
(1) Tax equivalent adjustment based on a 34% tax rate
As of the quarter ended December 31, 2000, the Bank did not hold any securities of an issuer that exceeded 10% of stockholders' equity. The net unrealized holding gains/(losses) on available-for-sale securities component of capital is $98 as of December 31, 2000.
8
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans at June 30, 2001 and December 31, 2000 by major classification:
Real estate loans - mortage
- construction
Commercial and industrial loans
Loans to individuals for household,
family and other consumer expenditures
Agriculture
All other loans, including overdrafts
Gross loans
Less reserve for loan losses
Net loans
| June 30, December 31,
2001 2000 |
$177,164
29,987
49,511
32,497
2,372
1,970
293,501
(3,762)
289,739 | $191,329
20,590
45,929
34,726
1,376
1,698
295,648
(3,782)
291,866 |
9
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, continued
Changes in the reserve for loan losses for the quarter ended and six-month period ended June 30, 2001 and 2000 and the year ended December 31, 2000 are summarized as follows:
Balance, beginning of period
Charge-offs:
Commercial, financial, and agricultural
Real Estate - construction and mortgage
Loans to individuals
Total charge-offs
Recoveries:
Commercial, financial, and agricultural
Real Estate - construction and mortgage
Loans to individuals
Total recoveries
Net charge-offs/(recoveries)
Additions charge to operations
Balance, end of period
| Quarter Ended Six Months Ended December
June 30, June 30, 31,
2001 2000 2001 2000 2000 |
$ 3,816
140
4
121
$ 265
$ 33
0
48
$ 81
$ 184
$ 130
$ 3,762
|
$ 3,675
16
47
100
$ 163
$ 49
9
18
$ 76
$ 87
$ 240
$ 3,828
|
$ 3,782
183
29
255
$ 467
$ 44
2
81
$ 127
$ 340
$ 320
$ 3,762
|
$ 3,451
30
49
179
$ 258
$ 67
19
69
$ 155
$ 103
$ 480
$ 3,828
|
$ 3,451
186
134
426
$ 746
$ 92
19
146
$ 257
$ 489
$ 820
$ 3,782
|
Ratio of net charge-offs during the period
to average loans outstanding during the
period
|
.06%
|
.03%
|
.12%
|
.04%
|
.17%
|
The entire balance is available to absorb future loan losses.
At June 30, 2001 and December 31, 2000 loans on which no interest was being accrued totalled approximately $794 and $305, respectively and foreclosed real estate totalled $0 and $0, respectively; and loans 90 days past due and still accruing totalled $126 and $189, respectively.
OTHER INTEREST-BEARING ASSETS
As of June 30, 2001, 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.
10
NOTE 5 - PREMISES AND EQUIPMENT
Property at June 30, 2001 and December 31, 2000 is summarized as follows:
Land and buildings
Furniture, fixtures and equipment
Construction in progress
Less accumulated depreciation and
amortization
| June 30
2001
$ 14,149
5,765
122
$ 20,036
8,661
$ 11,375 | December 31,
2000
$ 12,267
5,826
61
$ 18,154
8,359
$ 9,795 |
Depreciation and amortization of bank premises and equipment charged to operating expense was $147 and $303 for the quarter ended and the six month period ended June 30, 2001, respectively and $586 for the year ended December 31, 2000.
NOTE 6 - CERTIFICATES OF DEPOSIT IN EXCESS OF $100,000
At June 30, 2001 and December 31, 2000, certificates of deposit of $100,000 or more included in time deposits totaled approximately $91,255 and $85,981 respectively. Interest expense on these deposits was approximately $1,367 and $2,866 for the quarter ended and the six-month period ended June 30, 2001 and $3,915 for the year ended December 31, 2000.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At June 30, 2001 and December 31, 2000, securities sold under repurchase agreements totaled approximately $29,758 and $22,567. U.S. Government securities with a book value of $32,539 ($33,129 market value) and $38,592 ($38,626 market value), respectively, are used as collateral for the agreements. The weighted-average interest rate of these agreements was 3.51 percent and 5.00 percent at June 30, 2001 and December 31, 2000.
NOTE 8 - LINES OF CREDIT
At June 30, 2001, the Bank had unused short-term lines of credit to purchase Federal Funds from unrelated banks totaling $23,000. These lines of credit are available on a one to seven day basis for general corporate purposes of the Bank. All of the lenders have reserved the right to withdraw these lines at their option.
The Bank has a demand note through the U.S. Treasury, Tax and Loan system with the Federal Reserve Bank of Richmond. The Bank may borrow up to $7,000 under the arrangement at a variable interest rate. The note is secured by U.S. Treasury and Agency Notes with a market value of $6,218 at June 30, 2001. The amount outstanding under the note totaled $3,572 and $1,834 at June 30, 2001 and December 31, 2000, respectively.
The Bank also has a line of credit from the Federal Home Loan Bank of Atlanta for $70,530 secured by a lien on the Bank's 1-4 family mortgages. Allowable terms range from overnight to 20 years at varying rates set daily by the FHLB. An advance of $1,568 and $1,650 was outstanding at June 30, 2001 and December 31, 2000, respectively.
NOTE 9 - INCOME TAXES
Income tax expense for the quarter ended June 30, 2001 and June 30, 2000 on pretax income of $2,323 and $2,515 totalled $714 and $814 respectively. Income tax expense for the six-month period ended June 30, 2001 and June 30, 2000 on pretax income of $4,304 and $4,851 totalled $1,329 and $1,585 respectively. The provision for federal income taxes is calculated by applying the 34% statutory federal income tax rate and increasing or reducing this amount due to any tax-exempt interest, state bank tax (net of federal benefit), business credits, surtax exemption, tax preferences, alternative minimum tax calculations, or other factor. A summary of income tax components and a reconciliation of income taxes to the federal statutory rate are included in fiscal year-end reports.
11
NOTE 9 - INCOME TAXES (Continued)
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES
From time to time the bank subsidiary is a party to various litigation, both as plaintiff and as defendant, arising from its normal operations. No material losses are anticipated in connection with any of these matters at June 30, 2001.
Also, in the normal course of business, the bank subsidiary has outstanding commitments to extend credit and other contingent liabilities, which are not reflected in the accompanying financial statements. At June 30, 2001, commitments to extend credit totalled $26,903; financial standby letters of credit totalled $719; and performance standby letters of credit totalled $137. In the opinion of management, no material losses or liabilities are expected as a result of these transactions.
NOTE 11 - EMPLOYEE BENEFIT PLAN
The Bank has a defined contribution pension plan covering all employees who have attained age twenty-one and have a minimum of one year of service. Upon ongoing approval of the Board of Directors, the Bank matches one hundred percent of employee contributions up to three percent of employee salary deferred and fifty percent of employee contributions in excess of three percent and up to five percent of salary deferred. The Board of Directors may also make discretionary contributions to the Plan. For the three-month and six month period ended June 30, 2001 and years ended December 31, 2000, 1999 and 1998, $122, $241, $404, $423, and $378, respectively, was charged to operations under the plan.
NOTE 12 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the financial statements. The regulations require the Bank to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Tier I capital to adjusted total assets (Leverage Capital ratio) and minimum ratios of Tier I and total capital to risk-weighted assets. To be considered adequately capitalized under the regulatory framework for prompt corrective action, the Bank must maintain minimum Tier I leverage, Tier I risk-based and total risked-based ratios as set forth in the table. The Bank's actual capital ratios are presented in the table below as of June 30, 2001:
Total Capital (to
risk weighted assets)
Tier I Capital (to
risk weighted assets)
Tier I Capital (to
avg.assets
| To be
well capitalized
For under prompt
Capital adequacy corrective action
Purposes provisions
Actual Minimum Minimum
Amount Ratio Amount Ratio Amount Ratio |
$51,978
48,216
48,216 | 16.66%
15.45
9.74 | $24,960
12,480
19,798 | 8.0%
4.0
4.0 | $31,200
18,720
24,747 | 10.0%
6.0
5.0 |
12
NOTE 13 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of CNB Corporation (parent company only):
CONDENSED BALANCED SHEET
JUNE 30, 2001
(Unaudited) |
ASSETS
Cash
Investment in subsidiary
Fixed assets
Other assets |
$ 2,187
49,047
1,006
37
$ 52,277
|
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liability
Stockholders' equity
|
$ 0
52,277
$ 52,277
|
CONDENSED STATEMENT OF INCOME
For the six-month period ended June 30, 2001
(Unaudited) |
EQUITY IN NET INCOME OF SUBSIDIARY
OTHER INCOME
OTHER EXPENSES
Net Income
|
$ 3,025
0
(50)
$ 2,975
|
DISCUSSION OF FORWARD-LOOKING STATEMENTS
Information in the enclosed report, other than historical information, may contain forward-looking statements that involve risks and uncertainties, including, but not limited to, timing of certain business initiatives of the Company, the Company's interest rate risk condition, and future regulatory actions of the Comptroller of the Currency and Federal Reserve System. It is important to note that the Company's actual results may differ materially and adversely from those discussed in forward-looking statements.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis is provided to afford a clearer understanding of the major elements of the corporation's results of operations, financial condition, liquidity, and capital resources. The following discussion should be read in conjunction with the corporation's financial statements and notes thereto and other detailed information appearing elsewhere in this report. In addition, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal and recurring nature.
DISTRIBUTION OF ASSETS AND LIABILITIES
The Company maintains a conservative approach in determining the distribution of assets and liabilities. Loans, net of unearned income, have only increased 1.1% from $290,407 at June 30, 2000 to $293,501 at June 30, 2001 and have decreased as a percentage of total assets from 61.2% to 57.3% over the same period as loan demand has lessened in our market. Securities and federal funds sold have increased as a percentage of total assets from 31.0% at June 30, 2000 to 35.6% at June 30, 2001 as lending has slowed. This level of investments and federal funds sold provides for a more than adequate supply of secondary liquidity. Management has sought to build the deposit base with stable, relatively non-interest-sensitive deposits by offering the small to medium deposit account holders a wide array of deposit instruments at competitive rates. Non-interest-bearing demand deposits decreased as a percentage of total assets from 18.1% at June 30, 2000 to 16.3% at June 30, 2001. As more customers, both business an d personal, are attracted to interest-bearing deposit accounts, we expect the percentage of demand deposits to decline over the long-term. Interest-bearing deposits have increased slightly from 62.7% of total assets at June 30, 2000 to 65.9% at June 30, 2001 while securities sold under agreement to repurchase have decreased from 6.3% to 5.8% over the same period.
The following table sets forth the percentage relationship to total assets of significant components of the corporation's balance sheet as of June 30, 2001 and 2000:
Assets:
Earning assets:
Loans
Investment securities
Securities Available for Sale
Federal funds sold and securities purchased
under agreement to resell
Other earning assets
Total earning assets
Other assets
Total assets
| June 30,
2001 2000 |
57.3%
5.8
21.8
8.0
-
92.9
7.1
100.0%
|
61.2%
9.9
18.2
2.9
-
92.2
7.8
100.0%
|
Liabilities and stockholder's equity:
Interest-bearing liabilities:
Interest-bearing deposits
Federal funds purchased and securities sold
under agreement to resell
Other short-term borrowings
Total interest-bearing liabilities
Noninterest-bearing deposits
Other liabilities
Stockholders' equity
Total liabilities and stockholders' equity
|
65.9%
5.8
1.0
72.7
16.3
.8
10.2
100.0%
|
62.7%
6.3
2.4
71.4
18.1
.6
9.9
100.0%
|
14
RESULTS OF OPERATION
CNB Corporation experienced earnings for the three-month period ended June 30, 2001 and 2000 of $1,609 and $1,701, respectively, resulting in a return on average assets of 1.28% and 1.48% and a return on average stockholders' equity of 12.58% and 14.83%.
CNB Corporation experienced earnings for the six-month period ended June 30, 2001 and 2000 of $2,975 and $3,266, respectively, resulting in a return on average assets of 1.20% and 1.43% and a return on average stockholders' equity of 11.83% and 14.44%.
The earnings were primarily attributable to net interest margins in each period (see Net Income-Net Interest Income). Other factors include management's ongoing effort to maintain other income at adequate levels (see Net Income - Other Income) and to control other expenses (see Net Income - Other Expenses). This level of earnings, coupled with a conservative dividend policy, have supplied the necessary capital funds to support the growth in total assets. Total assets have increased $38,180 or 8.0% from $474,324 at June 30, 2000 to $512,504 at June 30, 2001. The following table sets forth the financial highlights for the three-month and six-month periods ending June 30, 2001 and June 30, 2000:
CNB Corporation
CNB Corporation and Subsidiary
FINANCIAL HIGHLIGHTS
(All Dollar Amounts, Except Per Share Data, in Thousands)
|
Net interest income after provision
for loan losses
Income before income taxes
Net Income
Per Share*
Cash dividends declared
Per Share*
Total assets
Total deposits
Loans, net of unearned income
Investment securities and
securities available for sale
Stockholders' equity
Book value per share*
Ratios (1):
Annualized return on average total
assets
Annualized return on average
stockholders' equity
*Restated for a 20% stock dividend
issued during 2000.
| Three-Month Period
Ended June 30,
Percent
Increase
2001 2000 (Decrease) | Six-Month Period
Ended June 30,
Percent
Increase
2001 2000 (Decrease) |
4,437
2,323
1,609
2.25
0
0
512,504
421,359
293,501
141,528
52,277
73.15
1.28%
12.58% | 4,750
2,515
1,701
2.37
0
0
474,324
383,400
290,407
133,254
46,836
65.51
1.48%
14.83% | (6.6)%
(7.6)
(5.4)
(5.1)
- -
- -
8.0 %
9.9
1.1
6.2
11.6
11.7
(13.5)%
(15.2)% | 8,750
4,304
2,975
4.16
0
0
512,504
421,359
293,501
141,528
52,277
73.15
1.20%
11.83% | 9,391
4,851
3,266
4.56
0
0
474,324
383,400
290,407
133,254
46,836
65.51
1.43%
14.44% | (6.8)%
(11.3)
(8.9)
(8.8)
- -
- -
8.0 %
9.9
1.1
6.2
11.6
11.7
(16.1)%
(18.1)% |
(1) For the three-month period ended June 30, 2001 and June 30, 2000, average total assets amounted to $503,394 and $459,712 with average stockholders' equity totaling $51,158 and $45,871, respectively. For the six-month period ended June 30, 2001 and June 30, 2000, average total assets amounted to $495,982 and $456,148 with average stockholders' equity totaling $50,299 and $45,229 respectively.
15
NET INCOME
Net Interest Income - Earnings are dependent to a large degree on net interest income, defined as the difference between gross interest and fees earned on earning assets, primarily loans and securities, and interest paid on deposits and borrowed funds. Net interest income is effected by the interest rates earned or paid and by volume changes in loans, securities, deposits, and borrowed funds.
Interest rates paid on deposits and borrowed funds and earned on loans and investments have generally followed the fluctuations in market interest rates in 2001 and 2000. However, fluctuations in market interest rates do not necessarily have a significant impact on net interest income, depending on the bank's rate sensitivity position. A rate sensitive asset (RSA) is any loan or investment that can be repriced either up or down in interest rate within a certain time interval. A rate sensitive liability (RSL) is an interest paying deposit or other liability that can be repriced either up or down in interest rate within a certain time interval. When a proper balance between RSA and RSL exists, market interest rate fluctuations should not have a significant impact on earnings. The larger the imbalance, the greater the interest rate risk assumed by the bank and the greater the positive or negative impact of interest rate fluctuations on earnings. The bank seeks to manage its assets and liabilities in a mann er that will limit interest rate risk and thus stabilize long-run earning power. Management believes that a rise or fall in interest rates will not materially effect earnings.
The Bank has maintained adequate net interest margins for the three-month and six-month periods ended June 30, 2001 and 2000 by earning satisfactory yields on loans and securities and funding these assets with a favorable deposit mix containing a significant level of noninterest-bearing demand deposits.
Fully-tax-equivalent net interest income showed an 8.0% decrease from $5,089 for the three-month period ended June 30, 2000 to $4,684 for the three-month period ended June 30, 2001. During the same period, total fully-tax-equivalent interest income increased by 2.0% from $8,590 to $8,764 and total interest expense increased by 16.5% from $3,501 to $4,080. Fully-tax-equivalent net interest income as a percentage of total earning assets has shown a decrease of .77% from 4.79% for the three-month period ended June 30, 2000 to 4.02% for the three-month period ended June 30, 2001.
Fully-tax-equivalent net interest income showed a 7.6% decrease from $10,069 for the six-month period ended June 30, 2000 to $9,305 for the six-month period ended June 30, 2001. During the same period, total fully-tax-equivalent interest income increased by 4.7% from $16,990 to $17,789 and total interest expense increased by 22.6% from $6,921 to $8,484. Fully-tax-equivalent net interest income as a percentage of total earning assets has shown a decrease of .71% from 4.74% for the six-month period ended June 30, 2000 to 4.03% for the six-month period ended June 30, 2001.
The tables on the following four pages present selected financial data and an analysis of net interest income.
16
CNB Corporation and Subsidiary
Selected Financial Data
|
Assets:
Earning assets:
Loans, net of unearned
income
Securities:
Taxable
Tax-exempt
Federal funds sold and
securities purchased under agreement to resell
Other earning assets
Total earning assets
Other assets
Total assets
Liabilities and stockholder equity
Interest-bearing liabilities:
Interest-bearing deposits
Federal funds purchased and securities sold under agreement to repurchase
Other short-term borrowings
Total interest-bearing
liabilities
Noninterest-bearing deposits
Other liabilities
Stockholders' equity
Total liabilities and stockholders' equity
Net interest income as a percent of total earning assets
(1) Tax-equivalent adjustment based on a 34% tax rate
| Three Months Ended 6/30/01 Three Months Ended 6/30/00
Avg. Interest Avg. Ann. Avg. Interest Avg. Ann.
Balance Income/ Yield or Balance Income/ Yield or
Expense Rate Expense(1) Rate |
$295,999
115,301
19,661
35,632
0
466,593
36,801
$503,394
$338,174
27,298
2,991
$368,463
79,619
4,154
51,158
$503,394
$466,593
|
$ 6,365
1,684
344
371
0
8,764
3,774
264
42
$ 4,080
$ 4,684
$ 117
|
8.60%
5.84
7.00
4.16
- -
7.51
4.46
3.87
5.62
4.43
4.02
|
$285,963
119,929
16,203
2,803
0
424,898
34,814
$459,712
$291,881
28,716
8,545
$329,142
81,233
3,466
45,871
$459,712
$424,898
|
$ 6,448
1,808
291
43
0
8,590
$ 3,045
343
113
$ 3,501
$ 5,089
$ 99
|
9.02%
6.03
7.18
6.14
- -
8.09
4.17
4.78
5.29
4.25
4.79
|
Ratios:
Annualized return on average total assets
Annualized return on average stockholders' equity
Cash dividends declared as a percent of net income
Average stockholders' equity as a percent of:
Average total assets
Average total deposits
Average loans
Average earning assets as a percent of
average total assets
|
1.28
12.58
0
10.16
12.24
17.28
92.69
|
1.48
14.83
0
9.98
12.29
16.04
92.43
|
17
CNB Corporation and Subsidiary
Selected Financial Data
|
Assets:
Earning assets:
Loans, net of unearned income
Securities:
Taxable
Tax-exempt
Federal funds sold and
securities purchased under agreement to resell
Other earning assets
Total earning assets
Other assets
Total assets
Liabilities and stockholder equity
Interest-bearing liabilities:
Interest-bearing deposits
Federal funds purchased and securities sold under agreement to repurchase
Other short-term borrowings
Total interest-bearing liabilities
Noninterest-bearing deposits
Other liabilities
Stockholders' equity
Total liabilities and stockholders' equity
Net interest income as a percent of total earning assets
(1) Tax-equivalent adjustment based on a 34% tax rate
| Six Months Ended 6/30/01 Six Months Ended 6/30/00
Avg. Interest Avg. Ann. Avg. Interest Avg. Ann.
Balance Income/ Yield or Balance Income/ Yield or
Expense Rate Expense(1) Rate |
$296,474
112,177
19,717
32,920
0
461,288
34,694
$495,982
$334,567
27,795
3,124
$365,486
76,119
4,078
50,299
$495,982
$461,288
|
$ 13,056
3,263
692
778
0
17,789
7,784
607
93
$ 8,484
$ 9,305
$ 235
|
8.81%
5.82
7.02
4.73
- -
7.71
4.65
4.37
5.95
4.64
4.03
|
$278,918
123,951
16,203
5,398
0
424,470
31,678
$456,148
$296,540
28,864
5,070
$330,474
77,064
3,381
45,229
$456,148
$424,470
|
$ 12,581
3,673
583
153
0
16,990
$ 6,110
672
139
$ 6,921
$ 10,069
$ 198
|
9.02%
5.93
7.20
5.67
- -
8.01
4.12
4.66
5.48
4.19
4.74
|
Ratios:
Annualized return on average total assets
Annualized return on average stockholders' equity
Cash dividends declared as a percent of net income
Average stockholders' equity as a percent of:
Average total assets
Average total deposits
Average loans, net of unearned income
Average earning assets as a percent of
average total assets
|
1.20
11.83
0
10.14
12.25
16.97
93.00
|
1.43
14.44
0
9.92
12.11
16.22
93.06
|
18
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Three Months Ended June 30, 2001 and 2000
(Dollars in Thousands)
Earning Assets:
Loans, Net of unearned
Income (2)
Investment securities:
Taxable
Tax-exempt
Federal funds sold and
Securities purchased under
agreement to resell
Other earning assets
Total Earning Assets
Interest-bearing
Liabilities:
Interest-bearing deposits
Federal funds purchased and
securities sold under
agreement to repurchase
Other short-term borrowings
Total Interest-bearing
Liabilities
Interest-free Funds
Supporting Earning Assets
Total Funds Supporting
Earning Assets
Interest Rate Spread
Impact of Non-interest-
bearing Funds on Net Yield
on Earning Assets
Net Yield on Earning Assets
|
Average
Volume
2001
295,999
115,301
19,661
35,632
0
466,593
338,174
27,298
2,991
368,463
98,130
466,593
|
Average
Volume
2000
285,963
119,929
16,203
2,803
0
424,898
291,881
28,716
8,545
329,142
95,756
424,898
|
Yield/Rate
2001 (1)
8.60%
5.84%
7.00%
4.16%
-
7.51%
4.46%
3.87%
5.62%
4.43%
3.49%
3.08%
.94%
4.02%
|
Yield/Rate
2000 (1)
9.02%
6.03%
7.18%
6.14%
-
8.09%
4.17%
4.78%
5.29%
4.25%
3.30%
3.84%
.95%
4.79%
|
Interest
Earned/Paid
2001 (1)
6,365
1,684
344
371
0
8,764
3,774
264
42
4,080
4,080
4,684
|
Interest
Earned/Paid
2000 (1)
6,448
1,808
291
43
0
8,590
3,045
343
113
3,501
3,501
5,089
|
Variance
(83)
(124)
53
328
-
174
729
(79)
(71)
579
579
|
Change
Due to
Rate
(300)
(57)
(7)
(14)
-
(378)
212
(65)
7
154
154
|
Change
Due to
Volume
226
(70)
62
504
-
722
483
(17)
(73)
393
393
| Change
Due to
Rate X
Volume
(9)
3
(2)
(162)
-
(170)
34
3
(5)
32
32 |
(1) Tax-equivalent adjustment based on a 34% tax rate.
(2) Includes non-accruing loans which does not have a material effect on the Net Yield on Earning Assets.
19
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Six Months Ended June 30, 2001 and 2000
(Dollars in Thousands)
Earning Assets:
Loans, Net of unearned
Income (2)
Investment securities:
Taxable
Tax-exempt
Federal funds sold and
Securities purchased under
agreement to resell
Other earning assets
Total Earning Assets
Interest-bearing
Liabilities:
Interest-bearing deposits
Federal funds purchased and
securities sold under
agreement to repurchase
Other short-term borrowings
Total Interest-bearing
Liabilities
Interest-free Funds
Supporting Earning Assets
Total Funds Supporting
Earning Assets
Interest Rate Spread
Impact of Non-interest-
bearing Funds on Net Yield
on Earning Assets
Net Yield on Earning Assets
|
Average
Volume
2001
296,474
112,177
19,717
32,920
0
461,288
334,567
27,795
3,124
365,486
95,802
461,288
|
Average
Volume
2000
278,918
123,951
16,203
5,398
0
424,470
296,540
28,864
5,070
330,474
93,996
424,470
|
Yield/Rate
2001 (1)
8.81%
5.82%
7.02%
4.73%
-
7.71%
4.65%
4.37%
5.95%
4.64%
3.68%
3.07%
.96%
4.03%
|
Yield/Rate
2000 (1)
9.02%
5.93%
7.20%
5.67%
-
8.01%
4.12%
4.66%
5.48%
4.19%
3.27%
3.82%
.92%
4.74%
|
Interest
Earned/Paid
2001 (1)
13,056
3,263
692
778
0
17,789
7,784
607
93
8,484
8,484
9,305
|
Interest
Earned/Paid
2000 (1)
12,581
3,673
583
153
0
16,990
6,110
672
139
6,921
6,921
10,069
|
Variance
475
(410)
109
625
-
799
1,674
(65)
(46)
1,563
1,563
|
Change
Due to
Rate
(293)
(68)
(15)
(25)
-
(401)
786
(42)
12
756
756
|
Change
Due to
Volume
792
(349)
127
780
-
1,350
783
(25)
(53)
705
705
| Change
Due to
Rate X
Volume
(24)
7
(3)
(130)
-
(150)
105
2
(5)
102
102 |
(1) Tax-equivalent adjustment based on a 34% tax rate.
(2) Includes non-accruing loans which does not have a material effect on the Net Yield on Earning Assets.
20
NET INCOME (continued)
Provision for Possible Loan Losses - It is the policy of the bank to maintain the reserve for possible loan losses at the greater of 1.20% of net loans or the percentage based on the actual loan loss experience over the previous five years. In addition, management may increase the reserve to a level above these guidelines to cover potential losses identified in the portfolio.
The provision for possible loan losses was $130 for the three-month period ended June 30, 2001 and $240 for the three-month period ended June 30, 2000. Net loan charge-offs/(recoveries) totaled $184 for the three-month period ended June 30, 2001 and $87 for the same period in 2000.
The provision for possible loan losses was $320 for the six-month period ended June 30, 2001 and $480 for the six-month period ended June 30, 2000. Net loan charge-offs/(recoveries) totaled $340 for the six-month period ended June 30, 2001 and $103 for the same period in 2000.
The reserve for possible loan losses as a percentage of net loans was 1.30% at June 30, 2001 and 1.34% at June 30, 2000. The decreased provision during the six-month period ended June 30, 2001 was due to a decrease in the rate of loan growth.
Securities Transactions - The Bank had no security sales during the first half of 2000 or the first quarter of 2001. During the second quarter of 2001, the Bank sold $11,213 in available-for-sale short-term U.S. Treasury securities for a before-tax gain of $169. Due to the increased steepness of the Treasury yield curve, it was felt to be appropriate to take the gains on the Treasuries with a .8 year average life and reinvest in U.S. Agencies with an average life of 5.3 years. At June 30, 2001, December 31, 2000, and June 30, 2000 market value appreciation/(depreciation) in the securities portfolio totaled $2,015, $(127), and $(2,463). As indicated, market value has increased in 2001 due to falling market interest rates.
Other Income - Other income, net of any gains/losses on security transactions, increased by 10.2% from $1,144 for the three-month period ended June 30, 2000 to $1,261 for the three-month period ended June 30, 2001.
Other income, net of any gains/losses on security transactions, increased by 10.3% from $2,171 for the six-month period ended June 30, 2000 to $2,394 for the six-month period ended June 30, 2001.
This increase in the three-month and six-month period ended June 30, 2001 other income was due to an increase in deposit account volumes, higher merchant discount income and increased refinancing volume in the mortgage loan department. Effective July 1, 2001, overall service charge rates were increased which will correspondingly increase future non-interest income levels.
Other Expenses - Other expenses increased by 4.9% from $3,379 for the three-month period ended June 30, 2000 to $3,544 for the three-month period ended June 30, 2001. The major components of other expenses are salaries and employee benefits which increased 9.4% from $2,015 to $2,205; occupancy expense which decreased 2.5% from $474 to $462; and other operating expenses which decreased by 1.5% from $890 to $877.
Other expenses increased by 4.4% from $6,711 for the six-month period ended June 30, 2000 to $7,009 for the six-month period ended June 30, 2001. The major components of other expenses are salaries and employee benefits which increased 8.4% from $4,046 to $4,385; occupancy expense which increased 2.2% from $925 to $945; and other operating expense which decreased by 3.5% from $1,740 to $1,679.
21
The increase in the three-month and six-month period ended June 30, 2001 salaries and employee benefits and occupancy expense was due to normal pay increments and the increased costs of providing employee benefits, particularly health insurance coverage. Occupancy expense was impacted by costs associated with the new Murrells Inlet office and the purchase of the Surfside Office which was previously a leasehold interest. Other operating expenses have decreased due to lower credit card department related costs in the merchant discount income area.
Income Taxes - Provisions for income taxes decreased 12.3% from $814 for the three-month period ended June 30, 2000 to $714 for the three-month period ended June 30, 2001. Income before income taxes less interest on tax-exempt investment securities decreased by 9.8% from $2,323 for the three-month period ended June 30, 2000 to $2,096 for the same period in 2001. State tax liability decreased as income before income taxes decreased 7.6% from $2,515 to $2,323 during the same period.
Provisions for income taxes decreased 16.2% from $1,585 for the six-month period ended June 30, 2000 to $1,329 for the six-month period ended June 30, 2001. Income before income taxes less interest on tax-exempt investment securities decreased by 13.9% from $4,466 for the six-month period ended June 30, 2000 to $3,847 for the same period in 2001 and state tax liability decreased as income before income taxes decreased 11.3% from $4,851 to $4,304 during the same period.
LIQUIDITY
The bank's liquidity position is primarily dependent on short-term demands for funds caused by customer credit needs and deposit withdrawals and upon the liquidity of bank assets to meet these needs. The bank's liquidity sources include cash and due from banks, federal funds sold and short-term investments. In addition, the bank has established federal funds lines of credit from correspondent banks and has the ability to borrow funds from the Federal Reserve System and the Federal Home Loan Bank of Atlanta. Management feels that short-term and long-term liquidity sources are more than adequate to meet funding needs.
CAPITAL RESOURCES
Total stockholders' equity was $52,277, $48,606, $43,712 and $41,201 at June 30, 2001, December 31, 2000, December 31, 1999, and December 31, 1998, representing 10.20%, 10.32%, 9.59%, and 9.66% of total assets, respectively. At June 30, 2001, the Bank exceeds quantitative measures established by regulation to ensure capital adequacy (see NOTE 12 - REGULATORY MATTERS). Capital is considered sufficient by management to meet current and prospective capital requirements and to support anticipated growth in bank operations.
The Company paid an approximate 20% stock dividend on September 2000. The Board maintained the annual cash dividend at $3.50 per share which increased the cash dividend payout ratio and cash dividend yield.
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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 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 July 2001, the SEC issued Staff Accounting Bulletin (SAB) No. 102 - Selected Loan Loss Allowance Methodology and Documentation Issues. This staff accounting bulletin clearly defines the required development, documentation, and application of a systematic methodology for determining allowances for loan and lease losses in accordance with generally accepted accounting principles. The Company believes that it is in compliance with SAB 102.
In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards ('SFAS") No. 141 - Business Combinations. This SFAS addresses accounting and reporting for all business combinations and defines the purchase method as the only acceptable method. This statement is effective for all business combinations initiated after June 30, 2001.
In June 2001, the FASB issued SFAS No. 142 - Goodwill and Other Intangible Assets. This SFAS addresses how goodwill and other intangible assets should be accounted for at their acquisition (except for those acquired in a business combination) and after they have been initially recognized in the financial statements. The statement is effective for all fiscal years beginning after December 15, 2001. The Company believes the effect of this SFAS will not have a material impact on the financial position of the Company.
Additional accounting standards that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
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QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises principally from interest rate risk inherent in its lending, deposit and borrowing activities. Management actively monitors and manages its interest rate risk exposure. In addition to other risks which the Company manages in the normal course of business, such as credit quality and liquidity risk, management considers interest rate risk to be a significant market risk that could potentially have a material effect on the Company's financial condition and results of operations (See Net Income - Net Interest Income). Other types of market risks, such as foreign currency risk and commodity price risk, do not arise in the normal course of the Company's business activities.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of shareholders of CNB Corporation was held in the main office building of The Conway National Bank at 1400 Third Avenue, Conway, South Carolina, at 4:15 p.m., Conway, South Carolina time, on May 8, 2001.
The purpose of the Annual Meeting was to: (1) elect three Directors; and (2) ratify the appointment of Elliott Davis, LLP as the Company's independent public accountant for the fiscal year ending December 31, 2001.
Proxies for the meeting were solicited pursuant to Regulation 14 under the Act; there was no solicitation in opposition to the management's nominees as listed in the proxy statement; and all of such nominees were elected.
There were 506,503 of the 714,616 shares issued present or represented by proxy and all shares were voted for the election of the three Directors listed as management's nominees in the proxy statement; and for the ratification of Elliott Davis, LLP as the Company's 2001 independent public accountant.
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EXHIBITS AND REPORTS ON FORM 8-K
See Exhibit Index appearing below.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter covered by this report.
EXHIBIT INDEX
All exhibits, the filing of which are required with this Form, are not applicable.
CNB Corporation
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CNB Corporation
(Registrant)
Paul R. Dusenbury
_________________________________________
Paul R. Dusenbury
Treasurer
(Chief Financial and Accounting Officer)
Date: August 13, 2001
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