CNB CORPORATION
and
THE CONWAY NATIONAL BANK
FINANCIAL REPORT
MARCH 31, 2010
www.conwaynationalbank.com
TO OUR SHAREHOLDERS AND FRIENDS:
The U.S. national economy emerged from a state of recession during the third quarter of 2009 and recovery continued through the fourth quarter of 2009 and the first quarter of 2010. The Bureau of Economic Analysis, a division of the U.S. Department of Commerce, indicated that real gross domestic product (GDP) increased at an annual rate of 2.2% and 5.6% for the third and fourth quarters of 2009, respectively. The Advance Estimate for the first quarter of 2010 indicates that GDP increased at an annual rate of 3.2%. The first quarter increase reflects increases in personal consumption expenditures, private inventory investment, exports, and nonresidential fixed investment that were partly offset by decreases in state and local government spending, decreases in residential fixed investment, and increased imports. Locally, the real estate sector posted gains in the first quarter of 2010 and the fourth quarter of 2009 with the total number of real estate transactions increasing approximately 35% and 33% as compared to the first quarter of 2009 and the fourth quarter of 2008, respectively. This is an improvement from the approximate 11%, 21%, and 44% declines experienced for the third, second, and first quarters of 2009, respectively, in comparison to the same periods in 2008. Despite these improvements, the banking industry has continued to experience significant difficulties with 41 bank failures occurring in the first quarter of 2010, as compared to 21 in the first quarter of 2009, and 2 in the first quarter of 2008. In total, there were 140 bank failures in 2009 and 25 in 2008. During the first quarter of 2010, Conway National maintained a solid financial position. However, operating results weakened, as expected.
The net loss for the first quarter of 2010 totaled ($43,000), down 102.2% from the net income of $1,939,000 earned for the first quarter of 2009. Although the Company incurred a minor loss for the first quarter of 2010, the Bank performed well in comparison to the combined operating results of all South Carolina banks, which posted a combined return on average assets of (.08)%. On a per share basis, earnings declined 102.6% from $1.17 for the first quarter of 2009, adjusted for the effect of a two-for-one stock split in 2009, to ($.03) for the first quarter of 2010 representing a return on average assets of (.02)% and a return on average equity of (.20)% as compared to .87% and 9.05%, respectively, for the first quarter of 2009.
Total assets grew to $931.1 million at March 31, 2010, an increase of 4.1% over March 31, 2009, and capital stood at $87.4 million at March 31, 2010 compared to $84.9 million at March 31, 2009. Total deposits were $724.3 million at March 31, 2010, an increase of 7.5% from $673.9 million for the previous year. As well, the Bank experienced an increase in repurchase agreements, which increased 7.0% from $96.7 million at March 31, 2009 to $103.5 million at March 31, 2010. Loans totaled $567.7 million at March 31, 2010, a decrease of 5.0% from March 31, 2009; and investment securities were $252.9 million, an increase of 19.2% from the prior year.
The net loss for the first quarter of 2010 of ($43,000) is significantly lower than historical returns experienced by the Bank. Bank earnings are primarily the result of the Bank's net interest income, which decreased 2.6% to $7,667,000 for the first quarter of 2010 from $7,868,000 for the first quarter of 2009. Other factors which affect earnings include the provision for possible loan losses, noninterest expense, and noninterest income. The provision for possible loan losses increased significantly, 205.7% from $1,231,000 for the first quarter of 2009 to $3,763,000 for the first quarter of 2010. The allowance for loan losses, as a percentage of net loans, was increased to 1.85% at March 31, 2010 as compared to 1.18% at March 31, 2009. Noninterest expense decreased 1.5% from $5,671,000 for the first quarter of 2009 to $5,586,000 for the first quarter of 2010; and noninterest income decreased 25.4% from $1,892,000 to $1,412,000 for the same periods, respectively. Noninterest expense decreased due to decreased salaries and employee benefits expense and other operating expenses, which decreased 4.4% and 9.7% for the three months ended March 31, 2009 and 2010, respectively. These expense reductions were partially offset by substantially increased FDIC deposit insurance expense which increased 158.6% from $111,000 to $287,000 for the same period. Noninterest income decreased primarily due to decreased gains on sales of investment securities, partially offset by an increase in service charge income on deposit accounts.
With the national and local economies expected to remain subdued through much of 2010, we anticipate that profitability will remain below historical levels while, at the same time, expect that the Bank will continue to grow, further strengthen, and generally prosper. Although the Bank's credit concerns have been relatively minor in terms of the magnitude of non-performing assets in the industry and local markets, we will continue to address credit concerns through the first six months of 2010. Loan losses have leveled, but will remain at historically high levels during the first half of 2010. Loan losses are expected to begin a downward trend in the third quarter of 2010. However, the Bank will continue to incur significant FDIC insurance premiums through 2012.
Although the national and local economies have begun to show some strengthening, much uncertainty remains about the sustainability and speed of the current recovery. However, we are confident that your bank will continue steadfast and strong throughout this difficult period. At the same time, the Bank has been positioned and prepared to meet future demands and opportunities.
Conway National continues to maintain a substantial financial position and profitability which compare favorably to local markets. Conway National remains dedicated 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: | March 31, 2010 | March 31, 2009 |
Cash and due from banks.............................................. | $ 22,305,000 | $ 36,548,000 |
Due from Federal Reserve Bank, balance in excess
of requirement............................................................ |
43,661,000
|
0
|
Total cash and due from banks.......................... | $ 65,966,000 | $ 36,548,000 |
Investment securities: | | |
Obligations of United States government sponsored
enterprises.............................................................. |
216,144,000
|
178,827,000
|
Obligations of states and political subdivisions............. | 32,910,000 | 29,532,000 |
Other securities.......................................................... | 3,872,000 | 3,784,000 |
Total investment securities................................. | 252,926,000 | 212,143,000 |
Federal funds sold......................................................... | 14,000,000 | 18,000,000 |
Loans........................................................................... | 567,702,000 | 597,763,000 |
Less allowance for loan losses.................................... | (10,310,000) | (6,965,000) |
Net loans.......................................................... | 557,392,000 | 590,798,000 |
Bank premises and equipment....................................... | 23,045,000 | 23,852,000 |
Other assets.................................................................. | 17,803,000 | 13,204,000 |
Total assets....................................................... | $ 931,132,000 | $ 894,545,000 |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY: | | |
Liabilities: | | |
Deposits: | | |
Noninterest-bearing.................................................. | $ 104,072,000 | $ 107,497,000 |
Interest-bearing........................................................ | 620,196,000 | 566,434,000 |
Total deposits.................................................... | 724,268,000 | 673,931,000 |
| | |
Securities sold under agreement to repurchase............. | 103,498,000 | 96,688,000 |
Other short-term borrowings....................................... | 10,678,000 | 32,617,000 |
Other liabilities............................................................ | 5,315,000 | 6,449,000 |
Total Liabilities................................................... | 843,759,000 | 809,685,000 |
| | |
Stockholders' Equity: | | |
Common stock, par value $5.00 per share in 2010
and $10.00 per share in 2009; authorized 3,000,000
shares in 2010 and 1,500,000 shares in 2009;
issued 1,676,524 in 2010 and 828,892 in 2009........ |
8,383,000
|
8,289,000
|
Capital in excess of par value of stock.......................... | 51,364,000 | 49,992,000 |
Retained earnings......................................................... | 26,577,000 | 25,588,000 |
Accumulated other comprehensive income.................... | 1,049,000 | 991,000 |
Total stockholders' equity................................... | 87,373,000 | 84,860,000 |
Total liabilities and stockholders' equity............... | $ 931,132,000 | $ 894,545,000 |
CNB CORPORATION AND SUBSIDIARY
Conway, South Carolina
CONSOLIDATED STATEMENT OF INCOME
(Unaudited) |
| Three Months Ended |
INTEREST INCOME: | March 31, 2010 | March 31, 2009 |
Interest and fees on loans.................................................. | $ 8,935,000 | $ 9,378,000 |
Interest on investment securities: | | |
Taxable investment securities.......................................... | 1,102,000 | 1,554,000 |
Nontaxable investment securities.................................... | 312,000 | 285,000 |
Other securities.............................................................. | 5,000 | 15,000 |
Interest on federal funds sold and Federal Reserve Bank balances in excess of required balance............................... |
36,000
|
22,000
|
Total interest income............................................. | 10,390,000 | 11,254,000 |
| | |
INTEREST EXPENSE: | | |
Interest on deposits | 2,417,000 | 2,990,000 |
Interest on securities sold under agreement
to repurchase ............................................................... |
249,000
|
288,000
|
Interest on other short-term borrowings............................ | 57,000 | 108,000 |
Total interest expense........................................... | 2,723,000 | 3,386,000 |
Net interest income.......................................................... | 7,667,000 | 7,868,000 |
Provision for loan losses................................................... | 3,763,000 | 1,231,000 |
Net interest income after provision for loan losses............. | 3,904,000 | 6,637,000 |
Noninterest income: | | |
Service charges on deposit accounts.............................. | 878,000 | 819,000 |
Gains on sale of securities.............................................. | 0 | 477,000 |
Other operating income................................................. | 534,000 | 596,000 |
Total noninterest income...................................... | 1,412,000 | 1,892,000 |
Noninterest expense: | | |
Salaries and employee benefits...................................... | 3,411,000 | 3,568,000 |
Occupancy expense...................................................... | 802,000 | 790,000 |
FDIC deposit insurance assessments............................. | 287,000 | 111,000 |
Other operating expenses.............................................. | 1,086,000 | 1,202,000 |
Total noninterest expense..................................... | 5,586,000 | 5,671,000 |
Income before income taxes............................................ | (270,000) | 2,858,000 |
Income tax provision/(benefit).......................................... | (227,000) | 920,000 |
Net income/(loss)............................................................ | $ (43,000) | $ 1,938,000 |
| | |
*Per share: | | |
| | |
Net income/(loss) per weighted average shares outstanding.................................................................. |
$ (.03)
|
$ 1.17
|
| | |
Cash dividend paid per share......................................... | $ 0 | $ 0 |
| | |
Book value per actual number of shares outstanding....... | $ 52.12 | $ 51.19 |
| | |
Weighted average number of shares outstanding............. | 1,676,890 | 1,658,374 |
| | |
Actual number of shares outstanding............................... | 1,676,524 | 1,657,784 |
|
*Adjusted for the effect of a two-for-one stock split during 2009. |
|
Member Federal Reserve System - Member FDIC |
