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 September 30, 2002
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 EndedSeptember 30, 2002 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 .
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 .
The number of shares outstanding of the issuer's $10.00 par value common stock as of September 30, 2002 was 716,794.
CNB Corporation
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 2002,
December 31, 2001 and September 30, 2001
Consolidated Statements of Income for the Three Months
and Nine Months Ended September 30, 2002 and 2001
Consolidated Statements of Comprehensive Income
for the Three Months and Nine Months Ended
September 30, 2002 and 2001
Consolidated Statements of Changes in Stockholders'
Equity for the Nine Months Ended September 30, 2002
and 2001
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2002 and 2001
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 5. Exhibits and Reports on Form 8-K
SIGNATURE
CERTIFICATIONS | Page
1
2
3
4
5
6-13
14-23
24
24
25
25
25
26-27 |
CNB Corporation and Subsidiary
Consolidated Balance Sheets
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
ASSETS:
Cash and due from banks
Investment Securities
(Fair values of $14,775 at
September 30, 2002, $21,312 at
December 31, 2001, and $22,795
at September 30, 2001)
Securities Available for Sale
(Amortized cost of $173,770 at
September 30, 2002, $137,615 at
December 31, 2001, and $125,415
at September 30, 2001)
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
2002 and 2001; issued 718,246 in 2002 and 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 | Sept. 30,
2002
$ 22,824
14,069
179,904
17,900
314,031
(4,109)
309,922
12,022
9,148
565,789
97,486
369,968
467,454
24,007
7,052
4,655
503,168
7,182
34,780
16,712
4,101
(154)
62,621
565,789 | December 31,
2001
$ 27,895
20,705
140,007
3,950
296,607
(3,763)
292,844
11,285
9,039
505,725
88,995
321,648
410,643
32,821
2,138
6,127
451,729
7,182
34,774
10,826
1,435
(221)
53,996
505,725 | Sept. 30,
2001
$ 18,579
21,972
129,520
34,000
292,194
(3,773)
288,421
11,262
9,301
513,055
82,195
327,577
409,772
36,702
6,260
4,536
457,270
7,182
34,746
11,766
2,464
(373)
55,785
513,055 |
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
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
| Three Months Ended Sept. 30, | Nine Months Ended
Sept. 30, |
2002
$ 5,623
2,006
283
124
8,036
2,147
124
32
2,303
5,733
270
5,463
818
0
638
1,456
2,394
510
1,010
3,914
3,005
976
2,029
$ 2.83
$ 0
$ 87.36
716,746
716,794 | 2001
$ 6,104
1,759
225
335
8,423
3,144
268
43
3,455
4,968
210
4,758
788
0
634
1,422
2,145
443
898
3,486
2,694
800
1,894
$ 2.65
$ 0
$ 78.08
714,626
714,448 | 2002
$ 16,774
5,621
854
307
23,556
6,465
402
97
6,964
16,592
760
15,832
2,388
183
1,537
4,108
7,114
1,479
2,758
11,351
8,589
2,703
5,886
$ 8.21
$ 0
$ 87.36
716,746
716,794 | 2001
$ 19,160
5,022
682
1,113
25,977
10,928
875
136
11,939
14,038
530
13,508
2,190
169
1,626
3,985
6,530
1,388
2,577
10,495
6,998
2,129
4,869
$ 6.81
$ 0
$ 78.08
714,626
714,448 |
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
Sept. 30, | Nine Months
Ended
Sept. 30, |
2002 | 2001 | 2002 | 2001 |
$2,029
|
$1,894
|
$5,886
|
$4,869
|
Other comprehensive income, net of tax
Unrealized gains/(losses)
on securities:
Unrealized holding gains/(losses)
during period |
1,464
|
1,633
|
2,666
|
2,366
|
Net Comprehensive Income
|
$3,493 |
$3,527 |
$8,552 |
$7,235 |
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
| Nine Months Ended
Sept. 30, |
2002 | 2001 |
7,182
None
7,182
|
7,182
None
7,182
|
Surplus:
Balance, January 1
Issuance of Common Stock
Gain on sale of Treasury stock
Balance at end of period
|
34,774
None
6
34,780
|
34,732
None
14
34,746
|
Undivided profits:
Balance, January 1
Net Income
Cash dividends declared
Balance at end of period
|
10,826
5,886
None
16,712
|
6,898
4,869
None
11,766
|
Net unrealized holding gains/(losses) on
Available-for-sale securities:
Balance, January 1
Change in net unrealized gains/(losses)
Balance at end of period
|
1,435
2,666
4,101
|
98
2,366
2,464
|
Treasury stock:
Balance, January 1
(2,134 shares in 2002; 3,256 shares in 2001)
Purchase of treasury stock
Reissue of treasury stock
Balance at end of period
(1,452 shares in 2002; 3,798 shares in 2001)
Total stockholders' equity
|
(221)
(68)
135
(154)
62,621
|
(304)
(174)
105
(373)
55,785
|
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 nine-month period ended
Sept. 30,
2002 2001 |
$ 5,886
479
760
(1,503)
183
85
(194)
755 | $ 4,869
450
530
1,348
169
400
(1,769)
(2,160) |
Net cash provided by operating
activities |
6,451
|
3,837
|
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
available for sale
(Increase) decrease in federal funds sold
(Increase) decrease in loans
Premises and equipment expenditures
|
6,017
6,636
25,131
(67,120)
(13,950)
(17,424)
(1,216)
|
11,213
20,243
37,320
(85,135)
(24,125)
3,454
(1,917)
|
Net cash provided by (used for)
investing activities
|
(61,926)
|
(38,947)
|
FINANCING ACTIVITIES
Dividends paid
Increase (decrease) in deposits
(Decrease) increase in securities sold
under repurchase agreement
(Decrease) increase in other
short-term borrowings |
(2,507)
56,811
(8,814)
4,914
|
(2,503)
19,042
14,135
2,776
|
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, SEPT. 30, 2002 AND 2001
CASH PAID (RECEIVED) FOR:
Interest
Income taxes
|
50,404
(5,071)
27,895
$ 22,824
$ 7,800
$ 2,697
|
33,450
(1,660)
20,239
$ 18,579
$ 12,181
$ 2,155
|
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, 716,746 for the nine-month period ended September 30, 2002 and 714,626 for the nine-month period ended September 30, 2001.
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 nine-month period ended September 30, 2002 and for the year ended December 31, 2001 were approximately $10,821, and $9,103, respectively.
6
NOTE 3 - INVESTMENT SECURITIES
Investment securities with a par value of approximately $87,000 at September 30, 2002 and $76,640 at December 31, 2001 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 September 30, 2002 and at December 31, 2001.
AVAILABLE FOR SALE
United States Treasury
| September 30, 2002
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
|
11,452
135,095
10,000
156,547
|
317
4,212
556
5,085
|
- -
- -
-
-
|
11,769
139,307
10,556
161,632
|
5.74%
4.93
5.96
5.05
|
State, county and
municipal
One to five years
Six to ten years
Other Securities
Total available for sale |
8,199
8,728
16,927
296
$173,770
|
366
683
1,049
-
$6,134
|
- -
-
-
-
$ -
|
8,565
9,411
17,976
296
$179,904
|
5.21%
6.40
5.82
-
5.13%
|
HELD TO MATURITY
United States Treasury
|
$ 0
|
-
|
-
|
0
|
-%
|
Federal agencies
Within one year
One to Five years
|
2,002
2,002
4,004
|
30
144
174
|
- -
-
-
|
2,032
2,146
4,178
|
6.38%
6.44
6.41
|
State, county and
municipal
Within one year
One to five years
Six to ten years
Total held to maturity |
2,755
5,465
1,845
10,065
$ 14,069
|
25
368
139
532
$ 706
|
- -
- -
-
-
$ -
|
2,780
5,833
1,984
10,597
$ 14,775
|
6.04%
6.61
6.60
6.45
6.44%
|
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended September 30, 2002, 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 $4,101 as of September 30, 2002.
7
NOTE 3 - INVESTMENT SECURITIES (Continued)
AVAILABLE FOR SALE
United States Treasury
Within one year
| December 31, 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
|
9,927
96,652
14,612
121,191
|
173
2,050
328
2,551
|
- -
174
-
174
|
10,100
98,528
14,940
123,568
|
5.60
5.46
5.76
5.51
|
State, county and
municipal
One to five years
Six to ten years
After ten years
Other -
CRA Qualified Investment
Fund
Total available for sale
|
3,652
11,640
854
16,146
278
$137,615
|
48
149
3
200
-
$2,751
|
29
146
10
185
-
$ 359
|
3,671
11,643
847
16,161
278
$140,007
|
5.38
5.89
6.34
5.80
-
5.54%
|
HELD TO MATURITY
United States Treasury
|
$ 0
|
-
|
-
|
0
|
-%
|
Federal agencies
Within one year
One to Five years
|
3,013
7,011
10,024
|
31
295
326
|
- -
-
-
|
3,044
7,306
10,350
|
5.07
6.77
6.26
|
State, county and
municipal
Within one year
One to five years
Six to ten years
Total held to maturity |
1,570
5,931
3,180
10,681
$20,705
|
20
187
80
287
$ 613
|
- -
- -
6
6
$ 6
|
1,590
6,118
3,254
10,962
$21,312
|
5.88%
6.39
6.39
6.31
6.29%
|
(1) Tax equivalent adjustment based on a 34% tax rate
As of the quarter ended December 31, 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 $1,435 as of December 31, 2001.
8
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans at September 30, 2002 and December 31, 2001 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
| Sept. 30, December 31,
2002 2001 |
$205,519
26,606
47,017
31,671
1,615
1,603
314,031
(4,109)
309,922 | $187,808
28,324
44,351
32,008
1,316
2,800
296,607
(3,763)
292,844 |
9
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, continued
Changes in the allowance for loan losses for the quarter ended and nine-month period ended September 30, 2002 and 2001 and the year ended December 31, 2001 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 Nine Months Ended December
Sept. 30, Sept. 30, 31,
2002 2001 2002 2001 2001 |
$ 3,984
163
36
45
$ 244
$ 54
16
29
$ 99
$ 145
$ 270
$ 4,109
|
$ 3,762
98
67
101
$ 266
$ 38
0
29
$ 67
$ 199
$ 210
$ 3,773
|
$ 3,763
323
81
318
$ 722
$ 174
29
105
$ 308
$ 414
$ 760
$ 4,109
|
$ 3,782
281
96
356
$ 733
$ 82
2
110
$ 194
$ 539
$ 530
$ 3,773
|
$ 3,782
383
96
470
$ 949
$ 106
31
168
$ 305
$ 644
$ 625
$ 3,763
|
Ratio of net charge-offs during the period
to average loans outstanding during the
period
|
.05%
|
.07%
|
.13%
|
.19%
|
.22%
|
The entire balance is available to absorb future loan losses.
At September 30, 2002 and December 31, 2001 loans on which no interest was being accrued totalled approximately $547 and $633, respectively and foreclosed real estate totalled $87 and $64, respectively; and loans 90 days past due and still accruing totalled $92 and $138, respectively.
OTHER INTEREST-BEARING ASSETS
As of September 30, 2002, 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 September 30, 2002 and December 31, 2001 is summarized as follows:
Land and buildings
Furniture, fixtures and equipment
Construction in progress
Less accumulated depreciation and
amortization
| Sept. 30
2002
$ 14,110
6,343
1,041
$ 21,494
9,472
$ 12,022 | December 31,
2001
$ 14,097
6,175
5
$ 20,277
8,992
$ 11,285 |
Depreciation and amortization of bank premises and equipment charged to operating expense was $160 and $479 for the quarter ended and the nine-month period ended September 30, 2002, respectively and $650 for the year ended December 31, 2001.
NOTE 6 - CERTIFICATES OF DEPOSIT IN EXCESS OF $100,000
At September 30, 2002 and December 31, 2001, certificates of deposit of $100,000 or more included in time deposits totaled approximately $83,179 and $68,608 respectively. Interest expense on these deposits was approximately $628 and $1,898 for the quarter ended and the nine-month period ended September 30, 2002, respectively, and $4,627 for the year ended December 31, 2001.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At September 30, 2002 and December 31, 2001, securities sold under repurchase agreements totaled $24,007 and $32,821. U.S. Government securities with a book value of $30,474 ($32,211 market value) and $37,599 ($38,631 market value), respectively, are used as collateral for the agreements. The weighted-average interest rate of these agreements was 1.67 percent and 1.91 percent at September 30, 2002 and December 31, 2001.
NOTE 8 - LINES OF CREDIT
At September 30, 2002, 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 $6,420 at September 30, 2002. The amount outstanding under the note totaled $5,650 and $653 at September 30, 2002 and December 31, 2001, respectively.
The Bank also has a line of credit from the Federal Home Loan Bank of Atlanta for $84,712 secured by a lien on the Bank's 1-4 family mortgages. Allowable terms range from overnight to twenty years at varying rates set daily by the FHLB. The amount outstanding under the agreement totalled $1,403 and $1,485 at September 30, 2002 and December 31, 2001, respectively.
NOTE 9 - INCOME TAXES
Income tax expense for the quarter ended September 30, 2002 and September 30, 2001 on pretax income of $3,005 and $2,694 totalled $976 and $800 respectively. Income tax expense for the nine-month period ended September 30, 2002 and September 30, 2001 on pretax income of $8,589 and $6,998 totalled $2,703 and $2,129 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 September 30, 2002.
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 September 30, 2002, commitments to extend credit totalled $33,868; financial standby letters of credit totalled $631; and performance standby letters of credit totalled $237. In the opinion of management, no material losses or liabilities are expected as a result of these transactions.
Additionally, the bank subsidiary has an outstanding commitment for the construction of a new main banking office in Conway, S.C. in the amount of $5,093.
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 nine-month periods ended September 30, 2002 and year ended December 31, 2001, $127, $379, and $426, 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 September 30, 2002:
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 |
$58,822
54,713
54,713 | 17.44%
16.22
10.12 | $26,990
13,495
21,635 | 8.0%
4.0
4.0 | $33,738
20,243
27,043 | 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
SEPTEMBER 30, 2002
(Unaudited) |
ASSETS
Cash
Investment in subsidiary
Fixed assets
Other assets |
$ 2,764
58,814
1,006
37
$ 62,621
|
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liability
Stockholders' equity
|
$ 0
62,621
$ 62,621
|
CONDENSED STATEMENT OF INCOME
For the nine-month period ended September 30, 2002
(Unaudited) |
EQUITY IN NET INCOME OF SUBSIDIARY
OTHER INCOME
OTHER EXPENSES
Net Income
|
$ 5,936
0
(50)
$ 5,886
|
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. The accompanying consolidated financial statements include all accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements at September 30, 2002 and for the nine-month periods ending September 30, 2002 and 2001 have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial i nformation and with the instructions to Form 10-Q for the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
DISTRIBUTION OF ASSETS AND LIABILITIES
The Company maintains a conservative approach in determining the distribution of assets and liabilities. Loans, net of unearned income, have increased 7.5% from $292,194 at September 30, 2001 to $314,031 at September 30, 2002 and have decreased as a percentage of total assets from 57.0% to 55.5% over the same period as loan demand has been moderate in our market. Securities and federal funds sold have increased as a percentage of total assets from 36.1% at September 30, 2001 to 37.5% at September 30, 2002 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 increased as a percentage of total assets from 16.0% at September 30, 2001 to 17.2% at September 30, 2002. As more customers, both business and personal, are attracted to interest-bearing deposit accounts, we expect the percentage of demand deposits to decline over the long-ter m. Interest-bearing deposits have increased from 63.8% of total assets at September 30, 2001 to 65.4% at September 30, 2002 while securities sold under agreement to repurchase have decreased from 7.2% to 4.2% 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 September 30, 2002 and 2001:
Assets:
Earning assets:
Loans
Investment securities
Securities Available for Sale
Federal funds sold and securities purchased
under agreement to resell
Total earning assets
Other assets
Total assets
| Sept. 30,
2002 2001 |
55.5%
2.5
31.8
3.2
93.0
7.0
100.0%
|
57.0%
4.3
25.2
6.6
93.1
6.9
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
|
65.4%
4.2
1.3
70.9
17.2
..8
11.1
100.0%
|
63.8%
7.2
1.2
72.2
16.0
..9
10.9
100.0%
|
14
RESULTS OF OPERATION
CNB Corporation experienced earnings for the three-month period ended September 30, 2002 and 2001 of $2,029 and $1,894, respectively, resulting in a return on average assets of 1.44% and 1.48% and a return on average stockholders' equity of 13.34% and 14.18%.
CNB Corporation experienced earnings for the nine-month period ended September 30, 2002 and 2001 of $5,886 and $4,869, respectively, resulting in a return on average assets of 1.45% and 1.30% and a return on average stockholders' equity of 13.63% and 12.65%.
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 $52,734 or 10.3% from $513,055 at September 30, 2001 to $565,789 at September 30, 2002. The following table sets forth the financial highlights for the three-month and nine-month periods ending September 30, 2002 and September 30, 2001:
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
Total Loans
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
| Three-Month Period
Ended Sept. 30,
Percent
Increase
2002 2001 (Decrease) | Nine-Month Period
Ended Sept. 30,
Percent
Increase
2002 2001 (Decrease) |
5,463
3,005
2,029
2.83
0
0
565,789
467,454
314,031
193,973
62,621
87.36
1.44%
13.34%
|
4,758
2,694
1,894
2.65
0
0
513,055
409,772
292,194
151,492
55,785
78.08
1.48%
14.18%
|
14.8%
11.5
7.1
6.8
- -
- -
10.3%
14.1
7.5
28.0
12.3
11.9
(2.7)%
(5.9)%
|
15,832
8,589
5,886
8.21
0
0
565,789
467,454
314,031
193,973
62,621
87.36
1.45%
13.63%
|
13,508
6,998
4,869
6.81
0
0
513,055
409,772
292,194
151,492
55,785
78.08
1.30%
12.65%
|
17.2%
22.7
20.9
20.6
- -
- -
10.3%
14.1
7.5
28.0
12.3
11.9
11.5%
7.8%
|
(1) For the three-month period ended September 30, 2002 and September 30, 2001, average total assets amounted to $564,936 and $511,450 with average stockholders' equity totaling $60,848 and $53,419, respectively. For the nine-month period ended September 30, 2002 and September 30, 2001, average total assets amounted to $541,906 and $501,138 with average stockholders' equity totaling $57,564 and $51,339 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 2002 and 2001. 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 net interest margins for the three-month and nine-month periods ended September 30, 2002, of 4.5% and 4.5%, respectively, and 4.2% and 4.1% for the same periods in 2001, as compared to management's long-term target of 4.5%. Net interest margins fell in 2001 due to an unusually rapid decline in market interest rates lowering returns available on loans and investments while interest costs on liabilities did not decline as quickly due to competitive pressure. Margins have widened in 2002 as liabilities have been re-priced, but falling rates may again negatively impact margins in late 2002 and fiscal 2003.
Fully-tax-equivalent net interest income showed a 15.6% increase from $5,084 for the three-month period ended September 30, 2001 to $5,879 for the three-month period ended September 30, 2002. During the same period, total fully-tax-equivalent interest income decreased by 4.2% from $8,539 to $8,182 and total interest expense decreased by 33.3% from $3,455 to $2,303. Fully-tax-equivalent net interest income as a percentage of total earning assets has shown an increase of .22% from 4.24% for the three-month period ended September 30, 2001 to 4.46% for the three-month period ended September 30, 2002.
Fully-tax-equivalent net interest income showed an 18.4% increase from $14,389 for the nine-month period ended September 30, 2001 to $17,032 for the nine-month period ended September 30, 2002. During the same period, total fully-tax-equivalent interest income decreased by 8.9% from $26,328 to $23,996 and total interest expense decreased by 41.7% from $11,939 to $6,964. Fully-tax-equivalent net interest income as a percentage of total earning assets has shown an increase of .39% from 4.10% for the nine-month period ended September 30, 2001 to 4.49% for the nine-month period ended September 30, 2002.
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
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 9/30/02 Three Months Ended 9/30/01
Avg. Interest Avg. Ann. Avg. Interest Avg. Ann.
Balance Income/ Yield or Balance Income/ Yield or
Expense Rate Expense(1) Rate |
$310,670
161,649
27,003
28,018 527,340
37,596
$564,936
$371,533
27,336
3,867
$402,736
96,670
4,682
60,848
$564,936
$527,340
|
$ 5,623
2,006
429
124
8,182
2,147
124
32
$ 2,303
$ 5,879
$ 146
|
7.24%
4.96
6.35
1.77
6.21
2.31
1.81
3.31
2.29
4.46
|
$292,331
130,543
19,693
37,501
480,068
31,382
$511,450
$330,679
33,570
3,478
$367,727
86,169
4,135
53,419
$511,450
$480,068
|
$ 6,104
1,759
341
335
8,539
3,144
268
43
$ 3,455
$ 5,084
$ 116
|
8.35%
5.39
6.93
3.57
7.11
3.80
3.19
4.95
3.76
4.24
|
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
|
1.44
13.34
0
10.77
13.00
19.59
93.35
|
1.48
14.18
0
10.45
12.81
18.27
93.86
|
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
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
| Nine Months Ended 9/30/02 Nine Months Ended 9/30/01
Avg. Interest Avg. Ann. Avg. Interest Avg. Ann.
Balance Income/ Yield or Balance Income/ Yield or
Expense Rate Expense(1) Rate |
$306,032
147,079
26,871
25,784
505,766
36,140
$541,906
$358,091
29,060
3,403
$390,554
89,822
3,966
57,564
$541,906
$505,766
|
$ 16,774
5,621
1,294
307
23,996
6,465
402
97
$ 6,964
$ 17,032
$ 440
|
7.31%
5.10
6.42
1.59
6.33
2.41
1.84
3.80
2.38
4.49
|
$295,093
118,299
19,709
34,447
467,548
33,590
$501,138
$333,271
29,720
3,242
$366,233
79,469
4,097
51,339
$501,138
$467,548
|
$ 19,160
5,022
1,033
1,113
26,328
10,928
875
136
$ 11,939
$ 14,389
$ 351
|
8.66%
5.66
6.99
4.31
7.51
4.37
3.93
5.59
4.35
4.10
|
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
|
1.45
13.63
0
10.62
12.85
18.81
93.33
|
1.30
12.65
0
10.24
12.44
17.40
93.30
|
18
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Three Months Ended September 30, 2002 and 2001
(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
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
2002
310,670
161,649
27,003
28,018
527,340
371,533
27,336
3,867
402,736
124,604
527,340
|
Average
Volume
2001
292,331
130,543
19,693
37,501
480,068
330,679
33,570
3,478
367,727
112,341
480,068
|
Yield/Rate
2002 (1)
7.24%
4.96%
6.35%
1.77%
6.21%
2.31%
1.81%
3.31%
2.29%
1.75%
3.92%
.54%
4.46%
|
Yield/Rate
2001 (1)
8.35%
5.39%
6.93%
3.57%
7.11%
3.80%
3.19%
4.95%
3.76%
2.87%
3.35%
.89%
4.24%
|
Interest
Earned/Paid
2002 (1)
5,623
2,006
429
124
8,182
2,147
124
32
2,303
2,303
5,879
|
Interest
Earned/Paid
2001 (1)
6,104
1,759
341
335
8,539
3,144
268
43
3,455
3,455
5,084
|
Variance
(481)
247
88
(211)
(357)
(997)
(144)
(11)
(1,152)
(1,152)
|
Change
Due to
Rate
(811)
(140)
(29)
(169)
(1,149)
(1,232)
(116)
(14)
(1,362)
(1,362)
|
Change
Due to
Volume
383
419
127
(85)
844
388
(50)
5
343
343
| Change
Due to
Rate X
Volume
(53)
(32)
(10)
43
(52)
(153)
22
(2)
(133)
(133) |
(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 Nine Months Ended September 30, 2002 and 2001
(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
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
2002
306,032
147,079
26,871
25,784
505,766
358,091
29,060
3,403
390,554
115,212
505,766
|
Average
Volume
2001
295,093
118,299
19,709
34,447
467,548
333,271
29,720
3,242
366,233
101,315
467,548
|
Yield/Rate
2002 (1)
7.31%
5.10%
6.42%
1.59%
6.33%
2.41%
1.84%
3.80%
2.38%
1.84%
3.95%
.54%
4.49%
|
Yield/Rate
2001 (1)
8.66%
5.66%
6.99%
4.31%
7.51%
4.37%
3.93%
5.59%
4.35%
3.41%
3.16%
.94%
4.10%
|
Interest
Earned/Paid
2002 (1)
16,774
5,621
1,294
307
23,996
6,465
402
97
6,964
6,964
17,032
|
Interest
Earned/Paid
2001 (1)
19,160
5,022
1,033
1,113
26,328
10,928
875
136
11,939
11,939
14,389
|
Variance
(2,386)
599
261
(806)
(2,332)
(4,463)
(473)
(39)
(4,975)
(4,975)
|
Change
Due to
Rate
(2,987)
(497)
(84)
(703)
(4,271)
(4,899)
(466)
(44)
(5,409)
(5,409)
|
Change
Due to
Volume
710
1,222
375
(280)
2,027
813
(19)
7
801
801
| Change
Due to
Rate X
Volume
(109)
(126)
(30)
177
(88)
(377)
12
(2)
(367)
(367) |
(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 $270 for the three-month period ended September 30, 2002 and $210 for the three-month period ended September 30, 2001. Net loan charge-offs/(recoveries) totaled $145 for the three-month period ended September 30, 2002 and $199 for the same period in 2001.
The provision for possible loan losses was $760 for the nine-month period ended September 30, 2002 and $530 for the nine-month period ended September 30, 2001. Net loan charge-offs/(recoveries) totaled $414 for the nine-month period ended September 30, 2002 and $539 for the same period in 2001.
The reserve for possible loan losses as a percentage of net loans was 1.33% at September 30, 2002 and 1.31% at September 30, 2001. The increased provision during the nine-month period ended September 30, 2002 was to maintain the reserve at the previous year's level.
Securities Transactions - Security gains of $183 were realized during the first quarter of 2002 and $169 during the second quarter of 2001. 2002 gains were taken to supplement liquidity and 2001 gains were taken while selling securities near maturity and investing further out on a steeply-sloping yield curve. At September 30, 2002, December 31, 2001, and September 30, 2001 market value appreciation/(depreciation) in the securities portfolio totaled $6,840, $2,999, and $4,928. As indicated, market value has increased in 2002 due to falling market interest rates.
Other Income - Other income, net of any gains/losses on security transactions, increased by 2.4% from $1,422 for the three-month period ended September 30, 2001 to $1,456 for the three-month period ended September 30, 2002.
Other income, net of any gains/losses on security transactions, increased by 2.9% from $3,816 for the nine-month period ended September 30, 2001 to $3,925 for the nine-month period ended September 30, 2002.
This increase in the three-month and nine-month period ended September 30, 2002 other income was due to an increase in deposit account volumes and higher merchant discount income, offset by a slow-down in the 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 12.3% from $3,486 for the three-month period ended September 30, 2001 to $3,914 for the three-month period ended September 30, 2002. The major components of other expenses are salaries and employee benefits which increased 11.6% from $2,145 to $2,394; occupancy expense which increased 15.1% from $443 to $510; and other operating expenses which increased by 12.5% from $898 to $1,010.
Other expenses increased by 8.2% from $10,495 for the nine-month period ended September 30, 2001 to $11,351 for the nine-month period ended September 30, 2002. The major components of other expenses are salaries and employee benefits which increased 8.9% from $6,530 to $7,114; occupancy expense which increased 6.6% from $1,388 to $1,479; and other operating expense which increased by 7.0% from $2,577 to $2,758.
21
NET INCOME (continued)
The increase in the three-month and nine-month period ended September 30, 2002 salaries and employee benefits was due to normal pay increments, the increased costs of providing employee benefits, particularly health insurance coverage, and an increase of full-time-equivalent employees from 207 at September 30, 2001 to 225 at September 30, 2002. Looking ahead, occupancy expense will grow in the fourth quarter of 2002 due to the addition of the North Myrtle Beach Office, and in 2003 due to the construction of a new $5.3 million dollar Main Banking Office.
Income Taxes - Provisions for income taxes increased 22.0% from $800 for the three-month period ended September 30, 2001 to $976 for the three-month period ended September 30, 2002. Income before income taxes less interest on tax-exempt investment securities increased by 10.2% from $2,469 for the three-month period ended September 30, 2001 to $2,722 for the same period in 2002. State tax liability increased as income before income taxes increased 11.5% from $2,694 to $3,005 during the same period.
Provisions for income taxes increased 27.0% from $2,129 for the nine-month period ended September 30, 2001 to $2,703 for the nine-month period ended September 30, 2002. Income before income taxes less interest on tax-exempt investment securities increased by 22.5% from $6,316 for the nine-month period ended September 30, 2001 to $7,735 for the same period in 2002 and state tax liability increased as income before income taxes increased 22.7% from $6,998 to $8,589 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 $62,621 and $53,996 at September 30, 2002 and December 31, 2001, representing 11.1% and 10.7% of total assets, respectively. At September 30, 2002, 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.
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EFFECTS OF REGULATORY ACTION
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
Accounting standards that have been issued or proposed by the Financial Accounting Standards Board and do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
RISKS AND UNCERTAINTIES
In the normal course of its business the Company encounters two significant types of risks: economic and regulatory. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different basis, than its interest-earning assets. Credit risk is the risk of default on the Company's loan portfolio that results from borrower's inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of collateral underlying loans receivable and the valuation of real estate held by the Company.
The Company is subject to the regulations of various governmental agencies. These regulations can and do change significantly from period to period. The Company also undergoes periodic examinations by the regulatory agencies, which may subject it to further changes with respect to asset valuations, amounts of required loss allowances and operating restrictions from the regulators' judgments based on information available to them at the time of their examination.
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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.
CONTROLS AND PROCEDURES
(a) Based on their evaluation of the Company's disclosure controls and procedures as of October 8, 2002, the Company's chief executive officer and chief financial officer concluded that the effectiveness of such controls and procedures was adequate.
(b) There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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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: November 14, 2002
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CERTIFICATION
I, W. Jennings Duncan, Chief Executive Officer, certify that;
1. I have reviewed this annual report on Form 10-Q of CNB Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 W. Jennings Duncan
W. Jennings Duncan
President and Chief Executive Officer
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CERTIFICATION
I, Paul R Dusenbury, Chief Financial Officer, certify that;
1. I have reviewed this annual report on Form 10-Q of CNB Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 Paul R. Dusenbury
Paul R. Dusenbury
Treasurer and Chief Financial Officer
27
