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, 2003
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 Ended June 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 .
State the number of shares outstanding of the issuers shares of common equity as of the latest practical date: 717,135 shares of common stock, par value $10 per share, July 31, 2003.
CNB Corporation
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2003,
December 31, 2002 and June 30, 2002
Consolidated Statement of Income for the Three Months
and Six Months Ended June 30, 2003 and 2002
Consolidated Statement of Comprehensive Income
for the Three Months and Six Months Ended
June 30, 2003 and 2002
Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 2003
and 2002
Consolidated Statement of Cash Flows for the Six Months
Ended June 30, 2003 and 2002
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
Submission of Matters to a Vote of Security Holders
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
CERTIFICATIONS |
Page
1
2
3
4
5
6-13
13-23
23
23
24
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
Interest bearing deposits with banks
Investment Securities
(Fair values of $9,904 at
June 30, 2003, $13,702 at
December 31, 2002, and $17,866
at June 30, 2002)
Securities Available for Sale
(Amortized cost of $156,562 at
June 30, 2003, $159,341 at
December 31, 2002, and $163,316
at June 30, 2002)
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
2003 and 2002; issued 718,246 in
2003 and 2002
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,
2003
$ 27,630
0
9,243
164,049
37,000
350,691
(4,564)
346,127
14,376
9,317
$607,742
$ 110,336
393,590
503,926
28,699
4,924
4,648
542,197
7,182
34,792
19,224
4,492
(145)
65,545
$607,742 | December 31,
2002
$ 25,217
0
13,105
165,914
22,000
325,622
(4,155)
321,467
12,449
9,338
$569,490
$ 100,225
368,084
468,309
26,219
6,509
7,328
508,365
7,182
34,783
15,318
3,944
(102)
61,125
$569,490 | June 30,
2002
$ 23,670
0
17,254
167,711
29,525
307,925
(3,984)
303,941
11,394
9,572
$563,067
$ 94,044
369,831
463,875
32,134
4,013
3,914
503,936
7,182
34,780
14,682
2,637
(150)
59,131
$563,067 |
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 June 30, | Six Months Ended
June 30, |
2003
$ 5,782
1,575
255
62
7,674
1,781
85
2
1,868
5,806
220
5,586
879
0
615
1,494
2,604
511
1,053
4,168
2,912
914
1,998
$ 2.78
$ 0
$ 91.41
718,002
717,073 | 2002
$ 5,580
1,886
286
120
7,872
2,143
142
30
2,315
5,557
215
5,342
793
0
507
1,300
2,357
482
913
3,752
2,890
889
2,001
$ 2.79
$ 0
$ 82.49
716,720
716,827 | 2003
$ 11,348
3,275
526
111
15,260
3,654
176
7
3,837
11,423
500
10,923
1,716
154
1,093
2,963
5,206
1,053
1,953
8,212
5,674
1,768
3,906
$ 5.44
$ 0
$ 91.41
718,002
717,073 | 2002
$ 11,151
3,615
571
183
15,520
4,318
278
65
4,661
10,859
490
10,369
1,570
183
899
2,652
4,720
969
1,748
7,437
5,584
1,727
3,857
$ 5.38
$ 0
$ 82.49
716,720
716,827 |
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, |
2003 | 2002 | 2003 | 2002 |
$1,998
|
$2,001
|
$3,906
|
$3,857
|
Other comprehensive income, net of tax
Unrealized gains/(losses)
on securities:
Unrealized holding gains/(losses)
during period |
378
|
2,203
|
548
|
1,202
|
Net Comprehensive Income
|
$2,376 |
$4,204 |
$4,454 |
$5,059 |
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, |
2003 | 2002 |
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
|
34,783
None
8
34,792
|
34,774
None
6
34,780
|
Undivided profits:
Balance, January 1
Net Income
Cash dividends declared
Balance at end of period
|
15,318
3,906
None
19,224
|
10,826
3,857
None
14,682
|
Net unrealized holding gains/(losses) on
Available-for-sale securities:
Balance, January 1
Change in net unrealized gains/(losses)
Balance at end of period
|
3,944
548
4,492
|
1,435
1,202
2,637
|
Treasury stock:
Balance, January 1
(951 shares in 2003; 2,134 shares in 2002)
Purchase of treasury stock
Reissue of treasury stock
Balance at end of period
(1,173 shares in 2003; 1,419 shares in 2002)
Total stockholders' equity
|
(102)
(194)
151
(145)
65,545
|
(221)
(64)
135
(150)
59,131
|
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,
2003 2002 |
$ 3,906
344
500
110
(154)
(2)
23
(590)
|
$ 3,857
319
490
(527)
183
(341)
(192)
(539)
|
Net cash provided by operating
activities |
4,137
|
3,250
|
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
|
6,529
3,862
34,486
0
(38,083)
0
(15,000)
(25,069)
(2,271)
|
6,017
3,005
13,696
0
(44,785)
0
(25,575)
(11,318)
(428)
|
Net cash provided by (used for)
investing activities
|
(35,546)
|
(59,388)
|
FINANCING ACTIVITIES
Dividends paid
Increase (Decrease) in deposits
(Decrease) increase in securities sold
under repurchase agreement
(Decrease) increase in other
short-term borrowings |
(2,690)
35,617
2,480
(1,585)
|
(2,507)
53,232
(687)
1,875
|
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, 2003 AND 2002
CASH PAID (RECEIVED) FOR:
Interest
Income taxes
|
33,822
2,413
25,217
$ 27,630
$ 3,993
$ 1,779
|
51,913
(4,225)
27,895
$ 23,670
$ 5,204
$ 1,734
|
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, 718,002 for the six-month period ended June 30, 2003 and 716,720 for the six-month period ended June 30, 2002.
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, 2003 and for the years ended December 31, 2002 and 2001 were approximately $10,907, $10,346, and $9,103, respectively.
6
NOTE 3 - INVESTMENT SECURITIES
Investment securities with a par value of approximately $83,821 at June 30, 2003 and $79,880 at December 31, 2002 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, 2003 and at December 31, 2002.
AVAILABLE FOR SALE
United States Treasury
| June 30, 2003
Book Unrealized Holding Fair
Value Gains Losses Value Yield(1) |
$ 0
|
$ -
|
$ -
|
$ 0
|
-
|
Federal agencies
Within one year
One to five years
Mortgage Backed Securities
Over ten years
|
5,005
133,486
138,491
1,111
|
113
5,896
6,009
-
|
- -
-
-
-
|
5,118
139,382
144,500
1,111
|
3.49%
4.37
4.33
3.73%
|
State, county and
municipal
Within one year
One to five years
Six to ten years
Other Securities
Total available for sale |
187
9,893
6,563
16,643
317
$156,562
|
4
704
770
1,478
-
$7,487
|
- -
- -
-
-
-
$ -
|
191
10,597
7,333
18,121
317
$164,049
|
7.00%
5.62
7.00
6.18
-
4.51%
|
HELD TO MATURITY
United States Treasury
|
$ 0
|
-
|
-
|
0
|
-%
|
Federal agencies
Within one year
|
2,001
2,001
|
112
112
|
-
-
|
2,113
2,113
|
6.44%
6.44
|
State, county and
municipal
Within one year
One to five years
Six to ten years
Total held to maturity |
1,800
3,854
1,588
7,242
$ 9,243
|
30
323
196
549
$ 661
|
- -
- -
-
-
$ -
|
1,830
4,177
1,784
7,791
$ 9,904
|
6.69%
7.31
7.00
7.09
6.95%
|
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended June 30, 2003, 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 $4,492 as of June 30, 2003.
7
NOTE 3 - INVESTMENT SECURITIES (Continued)
December 31, 2002
Book Unrealized Holding Fair
Value Gains Losses Value Yield(1) |
AVAILABLE FOR SALE
United States Treasury
|
$ 0
|
$ -
|
$ -
|
$ 0
|
-%
|
Federal agencies
Within one year
One to five years
Six to ten years
|
9,448
122,681
10,000
142,129
|
230
4,885
567
5,682
|
- -
- -
-
-
|
9,678
127,566
10,567
147,811
|
5.89
4.80
5.96
4.96
|
State, county and
municipal
One to five years
Six to ten years
Other -
CRA Qualified Investment
Fund
Total available for sale
|
8,192
8,722
16,914
298
$159,341
|
340
551
891
-
$6,573
|
- -
-
-
-
$ -
|
8,532
9,273
17,805
298
$165,914
|
5.22
6.40
5.83
-
5.05%
|
HELD TO MATURITY
United States Treasury
|
$ 0
|
-
|
-
|
0
|
-%
|
Federal agencies
Within one year
One to Five years
|
2,000
2,002
4,002
|
8
131
139
|
- -
-
-
|
2,008
2,133
4,141
|
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 |
2,675
4,592
1,836
9,103
$ 13,105
|
36
296
126
458
$ 597
|
- -
- -
-
-
$ -
|
2,711
4,888
1,962
9,561
$ 13,702
|
6.18%
6.70
6.60
6.53
6.49%
|
(1) Tax equivalent adjustment based on a 34% tax rate
As of the quarter ended December 31, 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 $3,944 as of December 31, 2002.
8
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans at June 30, 2003 and December 31, 2002 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,
2003 2002 |
$225,678
35,018
53,681
32,505
2,387
1,422
350,691
(4,564)
$346,127 | $214,554
28,297
47,631
31,953
1,674
1,513
325,622
(4,155)
$321,467 |
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, 2003 and 2002 and the year ended December 31, 2002 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,
2003 2002 2003 2002 2002 |
$ 4,377
19
39
72
$ 130
$ 25
5
67
$ 97
$ 33
$ 220
$ 4,564
|
$ 3,885
73
12
140
$ 225
$ 76
4
29
$ 109
$ 116
$ 215
$ 3,984
|
$ 4,155
49
44
163
$ 256
$ 58
8
99
$ 165
$ 91
$ 500
$ 4,564
|
$ 3,763
160
45
273
$ 478
$ 120
13
76
$ 209
$ 269
$ 490
$ 3,984
|
$ 3,763
412
97
447
$ 956
$ 191
30
142
$ 363
$ 593
$ 985
$ 4,155
|
Ratio of net charge-offs during the period
to average loans outstanding during the
period
|
.01%
|
.03%
|
.03%
|
.07%
|
.19%
|
The entire balance is available to absorb future loan losses.
At June 30, 2003 and December 31, 2002 loans on which no interest was being accrued totalled approximately $577 and $697, respectively and foreclosed real estate totalled $54 and $107, respectively; and loans 90 days past due and still accruing totalled $69 and $118, respectively.
OTHER INTEREST-BEARING ASSETS
As of June 30, 2003, 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, 2003 and December 31, 2002 is summarized as follows:
Land and buildings
Furniture, fixtures and equipment
Construction in progress
Less accumulated depreciation and
amortization
| June 30
2003
$ 14,969
6,882
2,386
$ 24,237
9,861
$ 14,376 | December 31,
2002
$ 14,735
6,635
596
$ 21,966
9,517
$ 12,449 |
Depreciation and amortization of bank premises and equipment charged to operating expense was $172 and $344 for the quarter ended and the six-month period ended June 30, 2003, respectively and $727 for the year ended December 31, 2002.
NOTE 6 - CERTIFICATES OF DEPOSIT IN EXCESS OF $100,000
At June 30, 2003 and December 31, 2002, certificates of deposit of $100,000 or more included in time deposits totaled approximately $92,735 and $84,729 respectively. Interest expense on these deposits was approximately $492 and $1,021 for the quarter ended and the six-month period ended June 30, 2003, respectively, and $2,448 for the year ended December 31, 2002.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At June 30, 2003 and December 31, 2002, securities sold under repurchase agreements totaled $28,699 and $26,219. U.S. Government securities with a book value of $27,158 ($29,102 market value) and $28,235 ($30,123 market value), respectively, are used as collateral for the agreements. The weighted-average interest rate of these agreements was .99 percent and 1.41 percent at June 30, 2003 and December 31, 2002.
NOTE 8 - LINES OF CREDIT
At June 30, 2003, the Bank had unused short-term lines of credit to purchase Federal Funds from unrelated banks totaling $27,000. 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 $6,429 at June 30, 2003. The amount outstanding under the note totaled $4,924 and $6,509 at June 30, 2003 and December 31, 2002, respectively.
The Bank also has a line of credit from the Federal Home Loan Bank of Atlanta for $90,900 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 $0 and $0 at June 30, 2003 and December 31, 2002, respectively.
NOTE 9 - INCOME TAXES
Income tax expense for the quarter ended June 30, 2003 and June 30, 2002 on pretax income of $2,912 and $2,890 totalled $914 and $889 respectively. Income tax expense for the six-month period ended June 30, 2003 and June 30, 2002 on pretax income of $5,674 and $5,584 totalled $1,768 and $1,727 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, 2003.
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, 2003, commitments to extend credit totalled $36,566; financial standby letters of credit totalled $708; and performance standby letters of credit totalled $94. 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 retail 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 six-month periods ended June 30, 2003 and years ended December 31, 2002, 2001 and 2000, $137, $274, $510, $426, and $404, 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, 2003:
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 |
$61,629
57,065
57,065 | 16.62%
15.39
9.99 | $29,668
14,834
22,846 | 8.0%
4.0
4.0 | $37,085
22,251
28,558 | 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, 2003
(Unaudited) |
ASSETS
Cash
Investment in subsidiary
Fixed assets
Other assets |
$ 2,945
61,557
1,006
37
$ 65,545
|
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liability
Stockholders' equity
|
$ 0
65,545
$ 65,545
|
CONDENSED STATEMENT OF INCOME
For the six-month period ended June 30, 2003
(Unaudited) |
EQUITY IN NET INCOME OF SUBSIDIARY
OTHER INCOME
OTHER EXPENSES
Net Income
|
$ 3,955
0
(49)
$ 3,906
|
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.
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 June 30, 2003 and for the three-month and six-month periods ending June 30, 2003 and 2002 have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financia l information 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.
13
DISTRIBUTION OF ASSETS AND LIABILITIES
The Company maintains a conservative approach in determining the distribution of assets and liabilities. Loans have increased 13.9% from $307,925 at June 30, 2002 to $350,691 at June 30, 2003 and have increased as a percentage of total assets from 54.7% to 57.7% over the same period as loan demand has strengthened in our market. Securities and federal funds sold have decreased as a percentage of total assets from 38.1% at June 30, 2002 to 34.6% at June 30, 2003 as lending has improved. 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 16.7% at June 30, 2002 to 18.2% at June 30, 2003. As more customers, both business and personal, are attract ed to interest-bearing deposit accounts, we expect the percentage of demand deposits to decline over the long-term. Interest-bearing deposits have decreased slightly from 65.7% of total assets at June 30, 2002 to 64.8% at June 30, 2003 while securities sold under agreement to repurchase have decreased from 5.7% to 4.7% 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, 2003 and 2002:
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
| June 30,
2003 2002 |
57.7%
1.5
27.0
6.1
92.3
7.7
100.0%
|
54.7%
3.1
29.8
5.2
92.8
7.2
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
|
64.8%
4.7
.8
70.3
18.2
..7
10.8
100.0%
|
65.7%
5.7
.7
72.1
16.7
..7
10.5
100.0%
|
14
RESULTS OF OPERATION
CNB Corporation experienced earnings for the three-month period ended June 30, 2003 and 2002 of $1,998 and $2,001, respectively, resulting in a return on average assets of 1.38% and 1.46% and a return on average stockholders' equity of 12.46% and 14.14%.
CNB Corporation experienced earnings for the six-month period ended June 30, 2003 and 2002 of $3,906 and $3,857, respectively, resulting in a return on average assets of 1.37% and 1.45% and a return on average stockholders' equity of 12.35% and 13.79%.
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 $44,675 or 7.9% from $563,067 at June 30, 2002 to $607,742 at June 30, 2003. The following table sets forth the financial highlights for the three-month and six-month periods ending June 30, 2003 and June 30, 2002:
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
| Three-Month Period
Ended June 30,
Percent
Increase
2003 2002 (Decrease) | Six-Month Period
Ended June 30,
Percent
Increase
2003 2002 (Decrease) |
5,586
2,912
1,998
2.78
0
0
607,742
503,926
350,691
173,292
65,545
91.41
1.38%
12.46%
|
5,342
2,890
2,001
2.79
0
0
563,067
463,875
307,925
184,965
59,131
82.49
1.46%
14.14%
|
4.6%
..8
(.1)
(.4)
- -
- -
7.9%
8.6
13.9
(6.3)
10.8
10.8
(5.5)%
(11.9)%
|
10,923
5,674
3,906
5.44
0
0
607,742
503,926
350,691
173,292
65,545
91.41
1.37%
12.35%
|
10,369
5,584
3,857
5.38
0
0
563,067
463,875
307,925
184,965
59,131
82.49
1.45%
13.79%
|
5.3%
1.6
1.3
1.1
- -
- -
7.9%
8.6
13.9
(6.3)
10.8
10.8
(5.5)%
(10.4)%
|
(1) For the three-month period ended June 30, 2003 and June 30, 2002, average total assets amounted to $579,362 and $546,582 with average stockholders' equity totaling $64,137 and $56,594, respectively. For the six-month period ended June 30, 2003 and June 30, 2002, average total assets amounted to $572,202 and $530,391 with average stockholders' equity totaling $63,249 and $55,922 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 2003 and 2002. 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 maintained net interest margins for the three-month and six-month periods ended June 30, 2003, of 4.40% and 4.38%, respectively, and 4.47% and 4.51%, respectively, for the same periods in 2002 as compared to management's long-term target of 4.50%. 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 widened in 2002 as liabilities were re-priced, but falling rates in the first half of 2003 have negatively impacted margins.
Fully-tax-equivalent net interest income showed a 4.1% increase from $5,704 for the three-month period ended June 30, 2002 to $5,937 for the three-month period ended June 30, 2003. During the same period, total fully-tax-equivalent interest income decreased by 2.7% from $8,019 to $7,805 and total interest expense decreased by 19.3% from $2,315 to $1,868. Fully-tax-equivalent net interest income as a percentage of total earning assets has shown a decrease of .07% from 4.47% for the three-month period ended June 30, 2002 to 4.40% for the three-month period ended June 30, 2003.
Fully-tax-equivalent net interest income showed a 4.9% increase from $11,153 for the six-month period ended June 30, 2002 to $11,694 for the six-month period ended June 30, 2003. During the same period, total fully-tax-equivalent interest income decreased by 1.8% from $15,814 to $15,531 and total interest expense decreased by 17.7% from $4,661 to $3,837. Fully-tax-equivalent net interest income as a percentage of total earning assets has shown a decrease of .13% from 4.51% for the six-month period ended June 30, 2002 to 4.38% for the six-month period ended June 30, 2003.
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 6/30/03 Three Months Ended 6/30/02
Avg. Interest Avg. Ann. Avg. Interest Avg. Ann.
Balance Income/ Yield or Balance Income/ Yield or
Expense Rate Expense(1) Rate |
$349,362
144,284
25,010
21,471
540,127
39,235
$579,362
$389,082
27,764
1,202
$418,048
92,387
4,790
64,137
$579,362
$540,127
|
$ 5,782
1,575
386
62
7,805
1,781
85
2
$ 1,868
$ 5,937
$ 131
|
6.62%
4.37
6.17
1.16
5.78
1.83
1.22
..67
1.79
4.40
|
$306,033
147,128
26,935
30,580
510,676
35,906
$546,582
$363,045
30,530
2,358
$395,933
90,404
3,651
56,594
$546,582
$510,676
|
$ 5,580
1,886
433
120
8,019
2,143
142
30
$ 2,315
$ 5,704
$ 147
|
7.29%
5.13
6.43
1.57
6.28
2.36
1.86
5.09
2.34
4.47
|
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
|
1.38
12.46
0
11.07
13.32
18.36
93.23
|
1.46
14.14
0
11.08
12.48
18.49
93.43
|
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
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 6/30/03 Six Months Ended 6/30/02
Avg. Interest Avg. Ann. Avg. Interest Avg. Ann.
Balance Income/ Yield or Balance Income/ Yield or
Expense Rate Expense(1) Rate |
$342,369
145,817
25,896
19,361
533,443
38,759
$572,202
$381,589
27,300
1,295
$410,184
93,823
4,946
63,249
$572,202
$533,443
|
$ 11,348
3,275
797
111
15,531
3,654
176
7
$ 3,837
$ 11,694
$ 271
|
6.63%
4.49
6.16
1.15
5.82
1.92
1.29
1.08
1.87
4.38
|
$303,713
139,794
26,805
24,667
494,979
35,412
$530,391
$351,370
29,922
3,171
$384,463
86,398
3,608
55,922
$530,391
$494,979
|
$ 11,151
3,615
865
183
15,814
4,318
278
65
$ 4,661
$ 11,153
$ 294
|
7.34%
5.17
6.45
1.48
6.39
2.46
1.86
4.10
2.42
4.51
|
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
|
1.37
12.35
0
11.05
13.30
18.47
93.23
|
1.45
13.79
0
10.54
12.77
18.41
93.32
|
18
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Three Months Ended June 30, 2003 and 2002
(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
2003
349,362
144,284
25,010
21,471
540,127
389,082
27,764
1,202
418,048
122,079
540,127
|
Average
Volume
2002
306,033
147,128
26,935
30,580
510,676
363,045
30,530
2,358
395,933
114,743
510,676
|
Yield/Rate
2003 (1)
6.62%
4.37%
6.17%
1.16%
5.78%
1.83%
1.22%
.67%
1.79%
1.38%
3.99%
.41%
4.40%
|
Yield/Rate
2002 (1)
7.29%
5.13%
6.43%
1.57%
6.28%
2.36%
1.86%
5.09%
2.34%
1.81%
3.94%
.53%
4.47%
|
Interest
Earned/Paid
2003 (1)
5,782
1,575
386
62
7,805
1,781
85
2
1,868
1,868
5,937
|
Interest
Earned/Paid
2002 (1)
5,580
1,886
433
120
8,019
2,143
142
30
2,315
2,315
5,704
|
Variance
202
(311)
(47)
(58)
(214)
(362)
(57)
(28)
(447)
(447)
|
Change
Due to
Rate
(513)
(280)
(18)
(31)
(842)
(481)
(49)
(26)
(556)
(556)
|
Change
Due to
Volume
790
(36)
(31)
(36)
687
153
(13)
(15)
125
125
| Change
Due to
Rate X
Volume
(75)
5
2
9
(59)
(34)
5
13
(16)
(16) |
(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, 2003 and 2002
(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
2003
342,369
145,817
25,896
19,361
533,443
381,589
27,300
1,295
410,184
123,259
533,443
|
Average
Volume
2002
303,713
139,794
26,805
24,667
494,979
351,370
29,922
3,171
384,463
110,516
494,979
|
Yield/Rate
2003 (1)
6.63%
4.49%
6.16%
1.15%
5.82%
1.92%
1.29%
1.08%
1.87%
1.44%
3.95%
.43%
4.38%
|
Yield/Rate
2002 (1)
7.34%
5.17%
6.45%
1.48%
6.39%
2.46%
1.86%
4.10%
2.42%
1.88%
3.97%
.54%
4.51%
|
Interest
Earned/Paid
2003 (1)
11,348
3,275
797
111
15,531
3,654
176
7
3,837
3,837
11,694
|
Interest
Earned/Paid
2002 (1)
11,151
3,615
865
183
15,814
4,318
278
65
4,661
4,661
11,153
|
Variance
197
(340)
(68)
(72)
(283)
(664)
(102)
(58)
(824)
(824)
|
Change
Due to
Rate
(1,078)
(475)
(39)
(41)
(1,633)
(949)
(85)
(48)
(1,082)
(1,082)
|
Change
Due to
Volume
1,419
156
(29)
(39)
1,507
372
(24)
(38)
310
310
| Change
Due to
Rate X
Volume
(144)
(21)
- -
8
(157)
(87)
7
28
(52)
(52) |
(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 $220 for the three-month period ended June 30, 2003 and $215 for the three-month period ended June 30, 2002. Net loan charge-offs/(recoveries) totaled $33 for the three-month period ended June 30, 2003 and $116 for the same period in 2002.
The provision for possible loan losses was $500 for the six-month period ended June 30, 2003 and $490 for the six-month period ended June 30, 2002. Net loan charge-offs/(recoveries) totaled $91 for the six-month period ended June 30, 2003 and $269 for the same period in 2002.
The reserve for possible loan losses as a percentage of net loans was 1.32% at June 30, 2003 and 1.31% at June 30, 2002. The increased provision during the six-month period ended June 30, 2003 was to reflect the growth in the loan portfolio.
Securities Transactions - Security gains of $154 were taken during the first quarter of 2003 and $183 during the first quarter of 2002 to take advantage of a steeply-sloping yield curve. At June 30, 2003, December 31, 2002, and June 30, 2002 market value appreciation/(depreciation) in the securities portfolio totaled $8,148, $7,170, and $5,007. As indicated, market values have remained strong due to lower market interest rates.
Other Income - Other income, net of any gains/losses on security transactions, increased by 14.9% from $1,300 for the three-month period ended June 30, 2002 to $1,494 for the three-month period ended June 30, 2003.
Other income, net of any gains/losses on security transactions, increased by 13.8% from $2,469 for the six-month period ended June 30, 2002 to $2,809 for the six-month period ended June 30, 2003.
This increase in the three-month and six-month period ended June 30, 2003 other income was due to an increase in deposit account volumes, higher merchant discount income, and an increase in refinancing volume in the mortgage loan department.
Other Expenses - Other expenses increased by 11.1% from $3,752 for the three-month period ended June 30, 2002 to $4,168 for the three-month period ended June 30, 2003. The major components of other expenses are salaries and employee benefits which increased 10.5% from $2,357 to $2,604; occupancy expense which increased 6.0% from $482 to $511; and other operating expenses which increased by 15.3% from $913 to $1,053.
Other expenses increased by 10.4% from $7,437 for the six-month period ended June 30, 2002 to $8,212 for the six-month period ended June 30, 2003. The major components of other expenses are salaries and employee benefits which increased 10.3% from $4,720 to $5,206; occupancy expense which increased 8.7% from $969 to $1,053; and other operating expense which increased by 11.7% from $1,748 to $1,953.
21
NET INCOME (continued)
The increase in the three-month and six-month period ended June 30, 2003 salaries and employee benefits was due to normal pay increments and the increased costs of providing employee benefits, particularly health insurance coverage, and the addition of the North Myrtle Beach Office. Looking ahead, occupancy expense will grow in late 2003 due to the construction of a new Main Office Banking Center.
Income Taxes - Provisions for income taxes increased 2.8% from $889 for the three-month period ended June 30, 2002 to $914 for the three-month period ended June 30, 2003. Income before income taxes less interest on tax-exempt investment securities increased by 2.0% from $2,604 for the three-month period ended June 30, 2002 to $2,657 for the same period in 2003. State tax liability increased as income before income taxes increased .8% from $2,890 to $2,912 during the same period.
Provisions for income taxes increased 2.4% from $1,727 for the six-month period ended June 30, 2002 to $1,768 for the six-month period ended June 30, 2003. Income before income taxes less interest on tax-exempt investment securities increased by 2.7% from $5,013 for the six-month period ended June 30, 2002 to $5,148 for the same period in 2003 and state tax liability increased as income before income taxes increased 1.6% from $5,584 to $5,674 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 $65,545, $61,125, $53,996 and $48,606 at June 30, 2003, December 31, 2002, December 31, 2001, and December 31, 2000, representing 10.79%, 10.73%, 10.68%, and 10.32% of total assets, respectively. At June 30, 2003, 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 other current recommendations by the regulatory authorities which, if they were to be implemented, would have a material effect on liquidity, capital resources, or operations.
ACCOUNTING ISSUES
Accounting standards that have been issued or proposed by the Financial Accounting Standards Board that 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.
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 August 12, 2003, 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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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 13, 2003.
The purpose of the Annual Meeting was to: (1) elect three Directors; and (2) ratify the appointment of Elliott Davis, LLC as the Company's independent public accountant for the fiscal year ending December 31, 2003.
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 502,504 of the 718,143 shares issued present or represented by proxy and the majority of 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, LLC as the Company's 2003 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)
/s/Paul R. Dusenbury
Paul R. Dusenbury
Treasurer
(Chief Financial and Accounting Officer)
Date: August 13, 2003
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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: August 13,2003
/s/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: August 13,2003
/s/Paul R. Dusenbury
Paul R. Dusenbury
Treasurer and Chief Financial Officer
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