CNB CORPORATION
and
THE CONWAY NATIONAL BANK
FINANCIAL REPORT
JUNE 30, 2008
www.conwaynationalbank.com
TO OUR SHAREHOLDERS AND FRIENDS:
Despite a declining economy and an especially difficult period for the banking industry, Conway National experienced solid financial performance in the first half of 2008. Net income for the six months ended June 30, 2008 totaled $4,677,000, down 5.9% from $4,971,000 earned for the same period in 2007. On a per share basis, earnings, adjusted for the effect of the 10% stock dividend distributed in September 2007, declined 3.5% from $5.76 in 2007 to $5.56 in 2008. Total assets grew to $858.3 million at June 30, 2008, with capital at $82.4 million.
As of June 30, 2008, total assets were $858,291,000, an increase of 1.9% over June 30, 2007; total deposits amounted to $713,722,000, an increase of 4.7% over the previous year; loans totaled $589,410,000, an increase of 6.2% from 2007; and investment securities were $192,325,000, a decrease of 6.3% from the prior year. Total federal funds purchased and securities sold under agreement to repurchase were $49,835,000 at June 30, 2008 as compared to $69,232,000 at June 30, 2007, a decline of 28.0%. Stockholders' equity totaled $82,439,000 at June 30, 2008, resulting in a book value of $98.90 per share.
Net income for the quarter ended June 30, 2008 of $4,677,000 represents an annualized return on average assets of 1.08% and an annualized return on average stockholders' equity of 11.17%, which compare very favorably to peer and industry performances but are lower than historical returns experienced by the Bank. Bank earnings are primarily the result of the Bank's net interest income, which increased 3.7% from $15,197,000 for the six- month period ended June 30, 2007 to $15,754,000 for the six-month period ended June 30, 2008. Other factors which affect earnings include the provision for possible loan losses, other expense, and other income. The provision for possible loan losses increased significantly, 136.6%, from $361,000 for the first six months of 2007 to $854,000 for the first six months of 2008. The allowance for loan losses, as a percentage of net loans, was held steady at 1.16% at June 30, 2007 and 2008. Noninterest expenses increased 8.1% from $10,606,000 to $11,461,000 and noninterest income increased 4.3% from $3,427,000 to $3,573,000 during the same period. Noninterest expenses increased overall due to additional staffing, increased compensation, fixed asset expenditures, increased health care costs, increased advertising expense, increased network and telecommunications expense, and a decline in deferred loan costs. Noninterest income increased due to an increase in service charges on deposit accounts and increased noninterest miscellaneous income.
Conway National maintained solid earnings for the first half of 2008. Although earnings declined for the first six months of 2008 compared to 2007 and historical returns, Conway National performed very well in comparison to peer banks and to other banks operating within our market. Local economic activity softened significantly during the second half of 2007 and declined further in the first half of 2008 resulting, in part, in an increase in loan losses, which remain well manageable. Additionally, the Bank has addressed significant declines in market interest rates, 325 basis points since the Federal Reserve began lowering rates in September of 2007, which generally negatively impacts earnings.
The banking industry is experiencing an unusually difficult period due to the general decline in the economy, swift and significant declines in market interest rates, and liquidity issues, in addition to mounting losses from the subprime mortgage market and substantial exposure to speculative real estate lending. Conway National has maintained a healthy liquidity position, has not participated in subprime mortgage lending, and does not have significant exposure in the speculative real estate market.
During the first half of 2008, we opened our newest banking facility, our Little River office located at the corner of Highways 9 and 57, implemented branch capture, and on June 2, 2008 moved the Bank's business day end from 2:00 p.m. to 5:00 p.m., all of which have been well received by the Bank's customers.
We are very appreciative of your continued support; and we look forward to the future and continuing to build your Bank steeped in our traditions of exceptional customer service, trust, and dedication to all of the communities we serve.
W. Jennings Duncan, President
CNB Corporation and The Conway National Bank
CNB CORPORATION AND SUBSIDIARY
Conway, South Carolina
CONSOLIDATED BALANCE SHEET
(Unaudited) |
|
ASSETS: | June 30, 2008 | June 30, 2007 |
Cash and due from banks................................................. | $ 21,694,000 | $ 31,217,000 |
Investment securities: | | |
Obligations of United States government
sponsored enterprises................................................. |
162,713,000
|
181,078,000
|
Obligations of states and political subdivisions................ | 27,223,000 | 22,279,000 |
Other securities............................................................. | 2,389,000 | 1,983,000 |
Total investment securities.................................... | 192,325,000 | 205,340,000 |
Federal funds sold and securities purchased under
agreement to resell........................................................ |
25,000,000
|
20,000,000
|
Loans.............................................................................. | 589,410,000 | 555,184,000 |
Less allowance for loan losses....................................... | (6,736,000) | (6,364,000) |
Net loans............................................................. | 582,674,000 | 548,820,000 |
Bank premises and equipment.......................................... | 23,265,000 | 22,671,000 |
Other assets.................................................................... | 13,333,000 | 14,174,000 |
Total assets....................................................... | $858,291,000 | $842,222,000 |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY: | | |
Liabilities: | | |
Deposits: | | |
Noninterest-bearing..................................................... | $118,222,000 | $136,098,000 |
Interest-bearing........................................................... | 595,500,000 | 545,759,000 |
Total deposits...................................................... | 713,722,000 | 681,857,000 |
| | |
Federal funds purchased and securities sold under
agreement to repurchase............................................. |
49,835,000
|
69,232,000
|
Other short-term borrowings............................................ | 4,464,000 | 2,049,000 |
Other liabilities................................................................. | 7,831,000 | 7,773,000 |
Total Liabilities................................................. | 775,852,000 | 760,911,000 |
| | |
Stockholders' Equity: | | |
Common stock, par value $10.00 per share:
Authorized 1,500,000; issued 789,774 in
2007 and 868,422 in 2008.......................................... |
8,684,000
|
7,898,000
|
Surplus.......................................................................... | 55,939,000 | 43,555,000 |
Undivided profits........................................................... | 23,724,000 | 31,989,000 |
Net unrealized holding losses on
available-for-sale securities.......................................... |
(312,000)
|
(1,303,000)
|
Less treasury stock..................................................... | (5,596,000) | (828,000) |
Total stockholders' equity................................ | 82,439,000 | 81,311,000 |
Total liabilities and stockholders' equity......... | $858,291,000 | $842,222,000 |
CNB CORPORATION AND SUBSIDIARY
Conway, South Carolina
CONSOLIDATED STATEMENT OF INCOME
(Unaudited) |
| Six Months Ended |
INTEREST INCOME | June 30, 2008 | June 30, 2007 |
Interest and fees on loans.................................................... | $ 20,739,000 | $ 21,877,000 |
Interest on investment securities: | | |
Taxable investment securities............................................ | 4,347,000 | 3,239,000 |
Tax-exempt investment securities...................................... | 547,000 | 437,000 |
Other securities................................................................ | 53,000 | 49,000 |
Interest on federal funds sold and securities
purchased under agreement to resell................................. |
422,000
|
743,000
|
Total interest income............................................. | 26,108,000 | 26,345,000 |
| | |
INTEREST EXPENSE: | | |
Interest on deposits | 9,468,000 | 9,785,000 |
Interest on federal funds purchased and securities
sold under agreement to repurchase ................................. |
756,000
|
1,327,000
|
Interest on other short-term borrowings............................... | 130,000 | 36,000 |
Total interest expense......................................... | 10,354,000 | 11,148,000 |
Net interest income.......................................................... | 15,754,000 | 15,197,000 |
Provision for loan losses...................................................... | 854,000 | 361,000 |
Net interest income after provision for loan losses........ | 14,900,000 | 14,836,000 |
Noninterest income: | | |
Service charges on deposit accounts.................................... | 1,911,000 | 1,788,000 |
Gains on securities............................................................... | 0 | 9,000 |
Other operating income....................................................... | 1,662,000 | 1,630,000 |
Total noninterest income..................................... | 3,573,000 | 3,427,000 |
Noninterest expenses: | | |
Salaries and employee benefits............................................ | 7,411,000 | 6,660,000 |
Occupancy expense............................................................ | 1,534,000 | 1,613,000 |
Other operating expenses.................................................... | 2,516,000 | 2,333,000 |
Total noninterest expenses..... ............................. | 11,461,000 | 10,606,000 |
Income before income taxes................................................ | 7,012,000 | 7,657,000 |
Income tax provision .......................................................... | 2,335,000 | 2,686,000 |
Net income........................................................................ | $ 4,677,000 | $ 4,971,000 |
| | |
Per share:* | | |
Net income per weighted average shares outstanding... | $ 5.56 | $ 5.76 |
| | |
Cash dividend paid per share........................................... | $ 0 | $ 0 |
| | |
Book value per actual number of shares outstanding..... | $ 98.90 | $ 94.24 |
| | |
Weighted average number of shares outstanding........... | 841,100 | 863,321 |
| | |
Actual number of shares outstanding.............................. | 833,566 | 862,853 |
| | |
*Adjusted for the effect of a 10% stock dividend during 2007. |
|
Member Federal Reserve System - Member FDIC |
