CNB CORPORATION
and
THE CONWAY NATIONAL BANK
FINANCIAL REPORT
DECEMBER 31, 2008
www.conwaynationalbank.com
TO OUR SHAREHOLDERS AND FRIENDS:
The 2008 operating year proved to be an especially difficult period for the banking industry. At present, our recessionary economy, the significant decline in real estate markets, and several financial institution, thrift, and investment bank failures have been met with unprecedented and historical measures undertaken by Congress, the Administration, the Board of Governors of the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC). Throughout these difficulties, Conway National has experienced solid financial performance.
Although earnings declined for 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. Net income for the year ended December 31, 2008 totaled $8,957,000, down 7.9% from $9,720,000 earned for 2007. On a per share basis, earnings declined 5.1% from $11.29 in 2007 to $10.71 in 2008. Total assets grew to $874.6 million at December 31, 2008, with capital at $83.5 million.
As of December 31, 2008, total assets were $874,625,000, an increase of 1.0% over December 31, 2007; total deposits amounted to $679,220,000, a decrease of 1.9% over the previous year; loans totaled $598,281,000, an increase of 4.3% from 2007; and investment securities were $206,960,000, a decrease of 4.2% from the prior year. Total federal funds purchased and securities sold under agreement to repurchase were $67,415,000 at December 31, 2008 as compared to $60,936,000 at December 31, 2007, an increase of 10.6%. Stockholders' equity totaled $83,526,000 at December 31, 2008, resulting in a book value of $100.69 per share.
Net income for the year ended December 31, 2008 of $8,957,000 represents an annualized return on average assets of 1.04% and an annualized return on average stockholders' equity of 10.65%, 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 3.2% from $30,897,000 for the year ended December 31, 2007 to $31,898,000 for the year ended December 31, 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, 121.2%, from $1,145,000 for 2007 to $2,533,000 for 2008. The allowance for loan losses, as a percentage of net loans, was increased to 1.20% at December 31, 2008 as compared to 1.15% at December 31, 2007. Noninterest expenses increased 5.0% from $22,019,000 to $23,109,000 from 2007 to 2008; and noninterest income increased 2.7% from $7,002,000 to $7,189,000 from 2007 to 2008. Noninterest expense increased overall due to additional staffing, increased compensation, increased health care costs, increased FDIC insurance premiums, and a decline in deferred loan costs. Noninterest income increased due to increased service charge income on deposit accounts.
Local economic activity declined dramatically throughout 2008, resulting, in part, in an increase in loan losses, which continue to remain well manageable. Additionally, the Bank has addressed significant declines in market interest rates, which generally negatively impact earnings. Market interest rates presently stand at historical lows. Also during 2008, the U.S. Congress, to address growing financial concerns, passed the Emergency Economic Stabilization Act. This Act created the Troubled Asset Relief Program, commonly referred to as the TARP. The TARP provides, among other measures, for the purchase of troubled assets, for the insurance for troubled assets, and for direct investment by the U.S. Federal Government in financial institutions through the purchase of preferred stock. Conway National has not made any application for consideration under the TARP as the Bank has no need for such assistance. Other negative features include the costs involved and contractual terms associated with the program.
Throughout this difficult period, Conway National has continued firm and strong, maintaining a healthy liquidity position, above average profitability, and a substantial capital position. Conway National did opt to participate in a portion of the FDIC's Temporary Liquidity Guarantee Program. This being the Transaction Account Guarantee Program, which provides unlimited deposit insurance for transaction accounts, as defined under the program. Our participation in this program has been well received by the Bank's customers.
As our area and our country continue to weather this economic downturn into 2009, Conway National will remain steadfast to its conservative and prudent banking practices; and, as always, we are very appreciative of your continued support. 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: | Dec. 31, 2008 | Dec. 31, 2007 |
Cash and due from banks.................................................. | $ 19,259,000 | $ 20,941,000 |
Investment securities: | | |
Obligations of United States government sponsored enterprises.................................................. | 175,684,000
| 186,154,000
|
Obligations of states and political subdivisions.................. | 27,520,000 | 26,978,000 |
Other securities............................................................... | 3,756,000 | 3,009,000 |
Total investment securities...................................... | 206,960,000 | 216,141,000 |
Federal funds sold and securities purchased under agreement to resell.......................................................... | 21,000,000
| 26,000,000
|
Loans................................................................................ | 598,281,000 | 573,751,000 |
Less allowance for loan losses......................................... | (7,091,000) | (6,507,000) |
Net loans............................................................... | 591,190,000 | 567,244,000 |
Bank premises and equipment............................................ | 23,403,000 | 22,928,000 |
Other assets....................................................................... | 12,813,000 | 12,384,000 |
Total assets............................................................ | $874,625,000 | $865,638,000 |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY: | | |
Liabilities: | | |
Deposits: | | |
Noninterest-bearing...................................................... | $100,560,000 | $112,450,000 |
Interest-bearing............................................................. | 578,660,000 | 579,839,000 |
Total deposits........................................................ | 679,220,000 | 692,289,000 |
| | |
Federal funds purchased and securities sold under agreement to repurchase............................................... | 67,415,000
| 60,936,000
|
Other short-term borrowings.............................................. | 33,792,000 | 17,377,000 |
Other liabilities................................................................... | 10,672,000 | 12,924,000 |
Total Liabilities....................................................... | 791,099,000 | 783,526,000 |
| | |
Stockholders' Equity: | | |
Common stock, par value $10.00 per share: Authorized 1,500,000; issued 829,518 in 2008 and 852,106 in 2007.................................................... |
8,295,000
|
8,521,000
|
Capital in excess of par value of stock............................. | 50,085,000 | 53,519,000 |
Retained earnings............................................................ | 23,648,000 | 19,047,000 |
Accumulated other comprehensive income....................... | 1,498,000 | 1,025,000 |
Total stockholders' equity....................................... | 83,526,000 | 82,112,000 |
Total liabilities and stockholders' equity................... | $874,625,000 | $865,638,000 |
CNB CORPORATION AND SUBSIDIARY
Conway, South Carolina
CONSOLIDATED STATEMENT OF INCOME (Unaudited) |
| Twelve Months Ended |
INTEREST INCOME | Dec. 30, 2008 | Dec. 30, 2007 |
Interest and fees on loans..................................................... | $ 40,431,000 | $ 43,878,000 |
Interest on investment securities: | | |
Taxable investment securities............................................. | 7,916,000 | 7,313,000 |
Nontaxable investment securities...................................... | 1,080,000 | 901,000 |
Other securities................................................................. | 111,000 | 128,000 |
Interest on federal funds sold and securities purchased under agreement to resell.................................. | 581,000
| 1,536,000
|
Total interest income................................................ | 50,119,000 | 53,756,000 |
| | |
INTEREST EXPENSE: | | |
Interest on deposits | 16,538,000 | 19,977,000 |
Interest on federal funds purchased and securities sold under agreement to repurchase .................................. | 1,421,000
| 2,800,000
|
Interest on other short-term borrowings................................ | 262,000 | 82,000 |
Total interest expense............................................... | 18,221,000 | 22,859,000 |
Net interest income.............................................................. | 31,898,000 | 30,897,000 |
Provision for loan losses....................................................... | 2,533,000 | 1,145,000 |
Net interest income after provision for loan losses................. | 29,365,000 | 29,752,000 |
Noninterest income: | | |
Service charges on deposit accounts................................. | 3,810,000 | 3,621,000 |
Gains on securities............................................................ | 0 | 9,000 |
Other operating income..................................................... | 3,379,000 | 3,372,000 |
Total noninterest income........................................... | 7,189,000 | 7,002,000 |
Noninterest expenses: | | |
Salaries and employee benefits.......................................... | 14,865,000 | 14,044,000 |
Occupancy expense.......................................................... | 3,048,000 | 3,338,000 |
Other operating expenses.................................................. | 5,196,000 | 4,637,000 |
Total noninterest expenses......................................... | 23,109,000 | 22,019,000 |
Income before income taxes................................................. | 13,445,000 | 14,735,000 |
Income tax provision ........................................................... | 4,488,000 | 5,015,000 |
Net income.......................................................................... | $ 8,957,000 | $ 9,720,000 |
| | |
Per share: | | |
| | |
Net income per weighted average shares outstanding............ | $ 10.71 | $ 11.29 |
| | |
Cash dividend paid per share................................................ | $ 5.25 | $ 5.25 |
| | |
Book value per actual number of shares outstanding.............. | $ 100.69 | $ 96.36 |
| | |
Weighted average number of shares outstanding................... | 836,283 | 852,106 |
| | |
Actual number of shares outstanding..................................... | 829,518 | 859,617 |
| | |
Member Federal Reserve System - Member FDIC |