CNB CORPORATION
and
THE CONWAY NATIONAL BANK
FINANCIAL REPORT
JUNE 30, 2011
www.conwaynationalbank.com
TO OUR SHAREHOLDERS AND FRIENDS:
The U.S. national economic recovery continued through the second quarter of 2011, although at a less than desirable pace. The Bureau of Economic Analysis, a division of the U.S. Department of Commerce, has indicated in its Second Estimate that real gross domestic product (GDP) increased at an annual rate of 1.0% for the second quarter of 2011, up from an annual rate of .4% for the first quarter of 2011. Locally, the real estate sector fell in the second quarter of 2011 with the total number of real estate transactions decreasing approximately 4% as compared to the second quarter of 2010. This is a slight improvement from the approximate 5% decline experienced for the first quarter of 2011. The banking industry continues to experience significant difficulties, with 48 bank failures occurring nationally in the first half of 2011. However, the number of bank failures declined 44% in the first half of 2011 from 86 for the same period in 2010.
The Company's net income for the six months ended June 30, 2011 totaled $412,000, up 256.7% from the net loss of $(263,000) incurred for the six months ended June 30, 2010, for a return on average assets of .09%. Although the Company continued to experience low profitability for the first six months of 2011, the Bank performed well in comparison to the same period for 2010 and in comparison to the combined operating results of all South Carolina banks, which posted a combined return on average assets of (.14)% for the same period. On a per share basis, earnings increased 256.3% from $(.16) for the first six months of 2010 to $.25 for the same period in 2011, representing a return on average assets of .09% and a return on average equity of .94% as compared to (.06)% and (.60)%, respectively, for the same period in 2010.
Total assets declined to $913.4 million at June 30, 2011, a decrease of 2.2% from June 30, 2010, and capital stood at $88.3 million at June 30, 2011 compared to $87.4 million at June 30, 2010. Total deposits were $736.8 million at June 30, 2011, an increase of .8% from $730.8 million at June 30, 2010. The Bank experienced a decrease in repurchase agreements, which decreased 17.5% from $100.1 million at June 30, 2010 to $82.6 million at June 30, 2011. This decrease is attributable to the implementation of a new wholesale funding policy during the period. Loans totaled $512.9 million at June 30, 2011, a decrease of 9.1% from June 30, 2010; and investment securities were $279.7 million, an increase of 6.4% from June 30, 2010.
Net income for the six months ended June 30, 2011 of $412,000 represents an improvement in comparison to the operating results for the same period in 2010. However, operating results remain significantly lower than historical returns experienced by the Bank. Bank earnings are primarily the result of the Bank's net interest income, which decreased slightly, .6%, to $15,156,000 for the first half of 2011 from $15,250,000 for the same period in 2010. Other factors which affect earnings include the provision for possible loan losses, noninterest expense, and noninterest income. The provision for possible loan losses decreased significantly, 31.6%, from $7,569,000 for the first half of 2010 to $5,177,000 for the first half of 2011. The allowance for loan losses, as a percentage of gross loans, was increased to 2.37% at June 30, 2011 as compared to 2.04% at June 30, 2010. Noninterest expense increased 7.6% from $11,575,000 for the first half of 2010 to $12,459,000 for the first half of 2011; and noninterest income decreased 10.3% from $3,234,000 to $2,902,000 for the same period, respectively. Noninterest expense increased primarily due to increased examination and professional fees, FDIC deposit insurance assessments, and the net cost of holding other real estate owned. Noninterest income decreased due to decreased service charges on deposit accounts and decreased gains on sales of investment securities.
With the national and local economies expected to remain subdued through the remainder of 2011, we anticipate that profitability will remain below historical levels, but should improve moderately from 2010 levels; and, at the same time, we expect that the Bank will continue to grow, further strengthen, and generally prosper. Although the Bank's credit concerns have remained moderate in comparison to the magnitude of non-performing assets in the industry and local markets, we will continue to address credit concerns during 2011. Loan losses leveled in the third quarter of 2010 and began to decline in the fourth quarter of 2010. Loan losses are expected to remain above historical levels during 2011, but at levels lower than those experienced during 2010.
The national and local economies continue to slowly strengthen. Still, much uncertainty remains about the sustainability and speed of the current recovery. However, we are confident that your bank will continue steadfast and strong through, what is hoped to be, the closing year of this difficult period. The Bank has been well positioned and prepared to meet future demands and opportunities.
Like most national banks headquartered in South Carolina, in June of this year, the Bank entered into a formal agreement with the Office of the Comptroller of the Currency. The actions outlined in the agreement are designed to strengthen the Bank's ability to deal with economic conditions of the sort that have recently been experienced. The Board of Directors and management are diligently working to develop and implement the required plans, policies, and associated procedures necessary to comply with the provisions of this agreement. To date, much has been accomplished; and it is the intention of the Board and management to continue to work with regulatory authorities to bring about full compliance with the provisions of this agreement.
Recently, the Board of Directors regretfully accepted the resignation of Edward T. Kelaher, Director, who has been called by his church to serve in Washington D.C. Mr. Kelaher has made substantial contributions to the Board of Directors during his tenure. He has served the Board in various capacities and most recently as Chairman of the Governance, Nominating, and Compensation Committee and Chairman of the Compliance Committee. The Board of Directors and management congratulate Mr. Kelaher on his new appointment and extend their most grateful appreciation to Mr. Kelaher for his many contributions to the Bank and the Board.
W. Jennings Duncan, President
CNB Corporation and The Conway National Bank
CNB CORPORATION AND SUBSIDIARY
Conway, South Carolina
CONSOLIDATED BALANCE SHEETS
(Unaudited) |
|
ASSETS: | June 30, 2011 | June 30, 2010 |
Cash and cash equivalents: | | |
Cash and due from banks.............................................. | $ 25,015,000 | $ 24,973,000 |
Due from Federal Reserve Bank, balance in excess
of requirement........................................................... |
40,854,000 |
37,646,000 |
Federal funds sold......................................................... | 24,000,000 | 14,000,000 |
Total cash and cash equivalents.............................. | 89,869,000 | 76,619,000 |
Investment securities available for sale
(amortized cost of $260,070,000 in 2011 and
$223,588,000 in 2010)............................................... | 262,391,000 | 226,046,000 |
Investment securities held to maturity
(fair value $15,389,000 in 2011 and
$34,227,000 in 2010) ................................................ |
15,029,000
|
33,831,000
|
Other investments, at cost.................................................. | 2,302,000 | 3,041,000 |
Loans................................................................................ | 512,886,000 | 564,004,000 |
Less allowance for loan losses.......................................... | (12,143,000) | (11,506,000) |
Net loans............................................................... | 500,743,000 | 552,498,000 |
Premises and equipment..................................................... | 21,689,000 | 22,775,000 |
Other real estate owned..................................................... | 7,147,000 | 3,226,000 |
Accrued interest receivable................................................ | 3,973,000 | 5,235,000 |
Other assets...................................................................... | 10,228,000 | 10,847,000 |
Total assets........................................................... | $ 913,371,000 | $ 934,118,000 |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY: | | |
Liabilities: | | |
Deposits: | | |
Noninterest-bearing....................................................... | $ 122,506,000 | $ 111,760,000 |
Interest-bearing.............................................................. | 614,340,000 | 619,059,000 |
Total deposits........................................................ | 736,846,000 | 730,819,000 |
| | |
Securities sold under agreement to repurchase.................. | 82,626,000 | 100,112,000 |
United States Treasury demand notes............................... | 1,444,000 | 498,000 |
Federal Home Loan Bank advances................................. | - | 10,000,000 |
Other liabilities................................................................. | 4,183,000 | 5,242,000 |
Total Liabilities....................................................... | 825,099,000 | 846,671,000 |
| | |
Stockholders' Equity: | | |
Common stock, $5 par value; authorized 3,000,000;
outstanding 1,664,614 in 2011 and
1,674,870 in 2010......................................................... |
8,323,000
|
8,374,000
|
Capital in excess of par value of stock.............................. | 50,485,000 | 51,240,000 |
Retained earnings............................................................. | 28,072,000 | 26,358,000 |
Accumulated other comprehensive income........................ | 1,392,000 | 1,475,000 |
Total stockholders' equity....................................... | 88,272,000 | 87,447,000 |
Total liabilities and stockholders' equity................... | $ 913,371,000 | $ 934,118,000 |
CNB CORPORATION AND SUBSIDIARY
Conway, South Carolina
CONSOLIDATED STATEMENTS OF INCOME/(LOSS)
(Unaudited) |
| |
| Six Months Ended |
INTEREST INCOME: | June 30, 2011 | June 30, 2010 |
Interest and fees on loans.............................................................. | $ 15,894,000 | $ 17,556,000 |
Interest on investment securities: | | |
Taxable investment securities...................................................... | 1,704,000 | 2,251,000 |
Nontaxable investment securities................................................ | 547,000 | 613,000 |
Other securities.......................................................................... | 14,000 | 8,000 |
Interest on federal funds sold and Federal Reserve Bank
balances in excess of required balance........................................ |
68,000
|
77,000
|
Total interest income......................................................... | 18,227,000 | 20,505,000 |
| | |
INTEREST EXPENSE: | | |
Interest on deposits....................................................................... | 2,911,000 | 4,681,000 |
Interest on securities sold under agreement to repurchase............... | 160,000 | 470,000 |
Interest on other short-term borrowings......................................... | - | 104,000 |
Total interest expense........................................................ | 3,071,000 | 5,255,000 |
Net interest income....................................................................... | 15,156,000 | 15,250,000 |
Provision for loan losses................................................................ | 5,177,000 | 7,569,000 |
Net interest income after provision for loan losses.......................... | 9,979,000 | 7,681,000 |
Noninterest income: | | |
Service charges on deposit accounts............................................ | 1,612,000 | 1,806,000 |
Gains on sales of securities.......................................................... | - | 156,000 |
Other operating income............................................................... | 1,290,000 | 1,272,000 |
Total noninterest income.................................................... | 2,902,000 | 3,234,000 |
Noninterest expense: | | |
Salaries and employee benefits.................................................... | 6,619,000 | 6,758,000 |
Occupancy expense.................................................................... | 1,655,000 | 1,616,000 |
Examination and professional fees................................................ | 547,000 | 392,000 |
FDIC deposit insurance assessments........................................... | 708,000 | 579,000 |
Net cost of operation of other real estate owned.......................... | 842,000 | 116,000 |
Other operating expenses............................................................ | 2,088,000 | 2,114,000 |
Total noninterest expense................................................... | 12,459,000 | 11,575,000 |
Income/(loss) before income taxes................................................. | 422,000 | (660,000) |
Income tax provision/(benefit)....................................................... | 10,000 | (397,000) |
Net income/(loss)......................................................................... | $ 412,000 | $ (263,000) |
| | |
Per share: | | |
| | |
Net income/(loss) per weighted average shares outstanding.......... | $ .25 | $ (.16) |
| | |
Book value per actual number of shares outstanding..................... | $ 53.03 | $ 52.21 |
| | |
Weighted average number of shares outstanding.......................... | 1,664,617 | 1,676,187 |
| | |
Actual number of shares outstanding............................................ | 1,664,614 | 1,674,870 |
|
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Member Federal Reserve System - Member FDIC |
