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 March 31, 1995
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 March 31, 1995 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 29526
(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 .
The number of shares outstanding of the issuer's $10.00 par value common
stock as of March 31, 1995 was 478,080.
CNB Corporation
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1995, 1
December 31, 1994 and March 31, 1994
Consolidated Statement of Income for the Three Months 2
Ended March 31, 1995 and 1994
Consolidated Statement of Changes in Stockholders' 3
Equity for the Three Months Ended March 31, 1995
and 1994
Consolidated Statement of Cash Flows for the Three Months 4
Ended March 31, 1995 and 1994
Notes to Consolidated Financial Statements 5-12
Item 2. Management's Discussion and Analysis of Financial 13-19
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE 20
CNB Corporation and Subsidiary
Consolidated Balance Sheets
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
March 31, December 31, March 31,
1995 1994 1994
ASSETS:
Cash and due from banks $ 11,113 $ 14,552 $ 11,756
Interest bearing deposits with banks 0 0 0
Investment Securities 82,486 83,094 74,863
(Fair values of $80,881 at
March 31, 1995, $79,429 at
December 31, 1994, and $74,991
at March 31, 1994)
Securities Available for Sale 39,898 43,635 49,392
(Amortized cost of $40,106 at
March 31, 1995, $44,615 at
December31, 1994, and $49,060
at March 31, 1994)
Federal Funds sold and securities
purchased under agreement
to resell 10,900 3,125 14,875
Loans:
Gross Loans 150,041 145,594 137,526
Less unearned income (1,164) (1,231) (1,255)
Loans, net of unearned income 148,877 144,363 136,271
Less reserve for possible
loan losses (2,310) (2,220) (2,124)
Net loans 146,567 142,143 134,147
Bank premises and equipment 5,663 5,310 5,000
Other assets 5,414 5,261 5,414
Total assets 302,041 297,120 295,748
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing 42,070 40,986 35,804
Interest-bearing 188,277 193,207 186,403
Total deposits 230,347 234,193 222,207
Federal funds purchased and
securities sold under agreement
to repurchase 38,681 29,236 41,536
Other short-term borrowings 767 2,494 1,867
Obligations under mortgages and
capital leases 15 18 25
Other liabilities 1,911 2,302 2,128
Minority interest in subsidiary 21 20 20
Total liabilities 271,742 268,263 267,783
Stockholders' equity:
Common stock, par value $10 per
share: Authorized 500,000;
issued 479,093, 479,093 and
399,353 shares 4,791 4,791 3,994
Surplus 15,662 15,659 11,345
Undivided Profits 10,036 9,107 12,578
Net Unrealized Holding (125) (588) 199
Gains (Losses) on
Available-For-Sale Securities
Less: Treasury stock (65) (112) (151)
Total stockholders' equity 30,299 28,857 27,965
Total liabilities
and stockholders' equity 302,041 297,120 295,748
1
CNB Corporation and Subsidiary
Consolidated Statement of Income
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
Three Months Ended
March 31,
1995 1994
Interest Income:
Interest and fees on loans $ 3,470 $ 2,776
Interest on investment securities:
Taxable investment securities 1,642 1,497
Tax-exempt investment securities 230 256
Other securities 0 0
Interest on federal funds sold and securities
purchased under agreement to resell 99 141
Total interest income 5,441 4,670
Interest Expense:
Interest on deposits 1,850 1,450
Interest on federal funds purchased and securities
sold under agreement to repurchase 423 308
Interest on other short-term borrowings 23 10
Interest on obligation under mortgages and
capital leases 0 1
Total interest expense 2,296 1,769
Net interest income 3,145 2,901
Provision for possible loan losses 65 20
Net interest income after provision for possible
loan losses 3,080 2,881
Other income:
Service charges on deposit accounts 447 469
Gains/(Losses) on securities 26 0
Other operating income 146 173
Total other income 619 642
Other expenses:
Minority interest in income of subsidiary 1 1
Salaries and employee benefits 1,342 1,276
Occupancy expense 366 352
Other operating expenses 647 586
Total operating expenses 2,356 2,215
Income before income taxes 1,343 1,308
Income tax provision 414 407
Net Income 929 901
Per share data (1):
Net income per weighted average shares outstanding $ 1.94 $ 1.89
Cash dividend paid per share $ 0 $ 0
Book value per actual number of shares outstanding $ 63.38 $ 58.66
Weighted average number of shares outstanding 477,953 476,512
Actual number of shares outstanding 478,080 476,735
(1) Adjusted for the effect of a 20% stock dividend issued during the third
quarter of 1994.
2
CNB Corporation and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity
(All Dollar Amounts in Thousands)
(Unaudited)
Three Months Ended
March 31,
1995 1994
Common Stock:
($10 par value; 500,000 shares authorized)
Balance, January 1 4,791 3,994
Issuance of Common Stock None None
Balance at end of period 4,791 3,994
Surplus:
Balance, January 1 15,659 11,338
Issuance of Common Stock None None
Gain on sale of treasury stock 3 7
Balance at end of period 15,662 11,345
Undivided profits:
Balance, January 1 9,107 11,678
Net Income 929 901
Cash dividends declared None None
Balance at end of period 10,036 12,578
Net unrealized holding gains/(losses) on
available-for-sale securities:
Balance, January 1 (588) 0
Change in net unrealized gains/(Losses) 463 199
Balance at end of period (125) 199
Treasury stock:
Balance, January 1 (112) (190)
Purchase of treasury stock (17) 0
Reissue of treasury stock 64 39
Balance at end of period (65) (151)
Total stockholders' equity 30,299 27,965
Note: Columns may not add due to rounding.
3
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the three-month period ended March 31,
1995 1994
OPERATING ACTIVITIES
Net income $ 929 $ 901
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 151 134
Provision for loan losses 65 20
Provision for deferred income taxes 306 167
Loss (gain) on sale of investment
securities 26 0
(Increase) decrease in accrued interest
receivable (116) (195)
(Increase) decrease in other assets (232) (632)
(Decrease) increase in other liabilities 193 (167)
Increase in minority interest in
subsidiary 1 1
Net cash provided by operating
activities 1,323 229
INVESTING ACTIVITIES
Proceeds from sale of investment securities
available for sale 3,117 0
Proceeds from maturities of investment
securities held to maturity 500 450
Proceeds from maturities of investment
securities available for sale 1,500 6,215
Purchase of investment securities held to
maturity 0 (3,920)
Purchase of investment securities
available for sale 0 (10,500)
Decrease (increase) in interest-bearing
deposits in banks 0 0
(Increase) decrease in federal funds sold (7,775) (475)
(Increase) decrease in loans (4,514) (4,537)
Premises and equipment expenditures (504) (117)
Net cash provided by (used for)
investing activities (7,676) (12,884)
FINANCING ACTIVITIES
Dividends paid (955) (794)
Increase (Decrease) in deposits (3,846) 2,905
(Decrease) increase in securities sold
under repurchase agreement 9,445 9,717
(Decrease) increase in other
short-term borrowings (1,727) (625)
Increase (decrease)in obligation under
mortgages and capital leases (3) (2)
Net cash provided by (used for)
financing activities 2,914 11,201
Net increase (decrease) in cash
and due from banks (3,439) (1,454)
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 14,552 13,210
CASH AND DUE FROM BANKS, MARCH 31, 1995 AND 1994 $11,113 $11,756
CASH PAID (RECEIVED) FOR:
Interest $ 2,334 $ 1,915
Income taxes $ 64 $ 99
4
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 adjusted for the
effect of a 20% stock dividend issued during the third quarter of 1994,
477,953 for the three-month period ended March 31, 1995 and 476,512 for the
three-month period ended March 31, 1994.
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 three-month period ended March 31, 1995 and
for the years ended December 31, 1994 and 1992 were approximately $3,732,
$3,988, and $3,592, respectively.
5
NOTE 3 - INVESTMENT SECURITIES
Investment securities with a par value of approximately $59,898 at March 31,
1995 and $50,615 at December 31, 1994 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 March 31, 1995 and at December 31, 1994.
March 31, 1995
Book Unrealized Holding Fair
Value Gains Losses Value Yield(1)
AVAILABLE FOR SALE
United States Treasury
Within one year $ 5,988 $ 20 $ 13 $ 5,995 6.61%
One to five years 27,341 100 316 27,125 6.26
33,329 120 329 33,120 6.32
Federal agencies
Within one year 2,501 11 0 2,512 7.43
One to five years 2,500 9 0 2,509 6.62
After ten years 1,032 0 33 999 5.48
6,033 20 33 6,020 6.77
State, county and
municipal
Within one year 302 7 0 309 12.45
One to five years 326 7 0 333 7.85
628 14 0 642 10.05
Other Securities(Equity) 116 0 0 116 -
Total available for sale $40,106 $ 154 $ 362 $39,898 6.43%
HELD TO MATURITY
United States Treasury
Within one year 3,064 0 29 3,035 5.19%
One to five years 55,509 43 1,600 53,952 5.45
58,573 43 1,629 56,987 5.44
Federal agencies
Within one year 2,004 25 0 2,029 7.90%
One to five years 6,987 49 222 6,814 6.20
8,991 74 222 8,843 6.58
State, county and
municipal
Within one year 2,704 30 2 2,732 11.00%
One to five years 6,279 188 36 6,431 9.14
Six to ten years 5,939 131 182 5,888 7.55
14,922 349 220 15,051 8.84
Total held to maturity $82,486 $ 466 $2,071 $80,881 6.18%
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended March 31, 1995, 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 $(125) as of March 31, 1995.
6
NOTE 3 - INVESTMENT SECURITIES (Continued)
1994
Book Unrealized Holding Fair
Value Gains Losses Value Yield(1)
AVAILABLE FOR SALE
United States Treasury
Within one year $ 4,985 $ - $ 9 $ 4,976 6.93%
One to five years 31,304 - 944 30,360 6.34
36,289 - 953 35,336 6.42
Federal agencies
Within one year 4,006 11 2 4,015 7.31
One to five years 2,523 12 2 2,533 6.62
After ten years 1,051 - 60 991 5.26
7,580 23 64 7,539 6.80
State, county and
municipal
Within one year 303 7 - 310 12.45
One to five years 326 7 - 333 7.85
629 14 - 643 10.05
Total available for sale $44,498 $ 37 $ 1,017 $43,518 6.53%
HELD TO MATURITY
United States Treasury
One to five years 58,668 6 3,131 55,543 5.46
Federal agencies
Six to ten years 8,995 12 359 8,648 6.65%
State, county and
municipal
Within one year 2,932 39 1 2,970 11.64
One to five years 5,611 101 54 5,658 9.10
Six to ten years 6,888 66 344 6,610 7.73
15,431 206 399 15,238 8.97
Total held to maturity $83,094 $ 224 $ 3,889 $79,429 6.25%
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended December 31, 1994, 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 $(588) as of December 31, 1994.
7
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans at March 31, 1995 and December 31,
1994 by major classification:
March 31, December 31,
1995 1994
Real estate loans - mortgage $ 95,271 $ 89,728
- construction 4,905 6,328
Commercial and industrial loans 21,118 17,472
Loans to individuals for household,
family and other consumer expenditures 27,091 30,700
Agriculture 1,390 1,180
All other loans, including overdrafts 266 186
Gross loans 150,041 145,594
Less unearned income (1,164) (1,231)
Less reserve for loan losses (2,310) (2,220)
Net loans 146,567 142,143
8
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, continued
Changes in the reserve for loan losses for the quarter ended March 31,
1995 and 1994 and the year ended December 31, 1994 are summarized as follows:
Quarter Ended
March 31, December 31,
1995 1994 1994
Balance, beginning of period $ 2,220 $ 2,170 $ 2,170
Charge-offs:
Commercial, financial, and agricultural 55 30 122
Real Estate - construction and mortgage 3 42 57
Loans to individuals 53 41 277
Total charge-offs $ 111 $ 113 $ 456
Recoveries:
Commercial, financial, and agricultural $ 104 $ 4 $ 58
Real Estate - construction and mortgage 4 8 35
Loans to individuals 28 35 118
Total recoveries $ 136 $ 47 $ 211
Net charge-offs/(recoveries) $ (25) $ 66 $ 245
Additions charge to operations $ 65 $ 20 $ 295
Balance, end of period $ 2,310 $ 2,124 $ 2,220
Ratio of net charge-offs during the period
to average loans outstanding during the
period - .05% .17%
The entire balance is available to absorb future loan losses.
At March 31, 1995 and December 31, 1994 loans on which no interest was being
accrued totalled approximately $1,073 and $1,062, respectively and foreclosed
real estate totalled $0 and $0, respectively.
NOTE 5 - PREMISES AND EQUIPMENT
Property at March 31, 1995 and December 31, 1994 is summarized as
follows:
March 31, December 31,
1995 1994
Land and buildings $ 6,014 $ 6,250
Furniture, fixtures and equipment 4,844 4,653
Construction in progress 879 316
$ 11,737 $ 11,219
Less accumulated depreciation and
amortization 6,074 5,909
$ 5,663 $ 5,310
Depreciation and amortization of bank premises and equipment charged to
operating expense was $151 for the quarter ended March 31, 1995 and $623 for
the year ended December 31, 1994.
9
NOTE 6 - CERTIFICATES OF DEPOSIT IN EXCESS OF $100,000
At March 31, 1995 and December 31, 1994, certificates of deposit of
$100,000 or more included in time deposits totaled approximately $20,343 and
$21,008 respectively. Interest expense on these deposits was approximately
$241 for the quarter ended March 31, 1995 and $750 for the year ended
December 31, 1994.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At March 31, 1995 and December 31, 1994, securities sold under
repurchase agreements totaled approximately $38,681 and $29,236. U.S.
Government securities with a book value of $41,842 ($40,894 market value) and
$35,875 ($34,249 market value), respectively, are used as collateral for the
agreements. The weighted-average interest rate of these agreements was 5.22
percent and 4.29 percent at March 31, 1995 and December 31, 1994.
NOTE 8 - LINES OF CREDIT
At March 31, 1995, the Bank had unused short-term lines of credit to
purchase Federal Funds from unrelated banks totaling $17,000. 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
$5,000 under the arrangement at a variable interest rate. The note is
secured by U.S. Treasury Notes with a market value of $5,821 at March 31,
1995. The amount outstanding under the note totaled $767 and $2,494 at March
31, 1995 and December 31, 1994, respectively.
NOTE 9 - INCOME TAXES
Income tax expense for the quarter ended March 31, 1995 and March 31,
1994 on pretax income of $1,343 and $1,308 totalled $414 and $407
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
is included in fiscal year-end reports.
Effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". SFAS 109 replaces SFAS 96 beginning in 1993, with early
implementation permitted. The impact of the adoption of SFAS 109 is not
considered to be material.
10
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
March 31, 1995.
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 March
31, 1995, commitments to extend credit totalled $13,473; financial standby
letters of credit totalled $850; and performance standby letters of credit
totalled $1,143. In the opinion of management, no material losses or
liabilities are expected as a result of these transactions.
As of March 31, 1995, the Bank has entered into a contract for the
construction of a new branch office for $1,686,000. Construction of the
branch is expected to be completed by June, 1995. Total cost of the project
is expected to be $2.4 million.
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 one percent of employee salary
deferred and fifty percent of employee contributions in excess of one percent
and up to six percent of salary deferred. The Board of Directors may also
make discretionary contributions to the Plan. For the quarter ended March
31, 1995 and years ended December 31, 1994, 1993 and 1992, $76, $295, $273,
and $218, respectively, was charged to operations under the plan.
NOTE 12 - REGULATORY RESTRICTIONS
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 also presented in the table
below as of March 31, 1995:
Conway National Bank
Ratios
Required
Minimum Actual
Tier I Leverage Capital 4.0% 9.5%
Tier I Risk-based Capital 4.0% 18.7%
Total Risk-based Capital 8.0% 20.0%
11
NOTE 13 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of CNB Corporation (parent
company only):
CONDENSED BALANCE SHEET
MARCH 31, 1995
(Unaudited)
ASSETS
Cash $ 1,437
Investment in subsidiary 28,580
Fixed assets 245
Other assets 37
$ 30,299
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liability $ 0
Stockholders' equity 30,299
$ 30,299
CONDENSED STATEMENT OF INCOME
For the three-month period ended March 31, 1995
(Unaudited)
EQUITY IN NET INCOME OF SUBSIDIARY $ 945
OTHER INCOME 2
OTHER EXPENSES (18)
Net Income $ 929
12
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. In the opinion of management,
the information contained herein reflects all adjustments necessary to make
the results of operations for the interim periods a fair statement of such
operations. All such adjustments are of a normal recurring nature.
DISTRIBUTION OF ASSETS AND LIABILITIES
The Company maintains a conservative approach in determining the
distribution of assets and liabilities. Loans, net of unearned income, have
increased 9.3% from $136,271 at March 31, 1994 to $148,877 at March 31, 1995
and have increased as a percentage of total assets from 46.1% to 49.3% over
the same period as loan demand has strengthened in our market.
Correspondingly, securities and federal funds sold have decreased as a
percentage of total assets from 47.0% at March 31, 1994 to 44.1% at March
31, 1995. 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 12.1% at
March 31, 1994 to 13.9% at March 31, 1995. However, as more customers, both
business and personal, are attracted to interest-bearing deposit accounts, we
expect the decline in the percentage of demand deposits to continue over the
long-term. Interest-bearing deposits have decreased from 63.0% of total
assets at March 31, 1994 to 62.3% at March 31, 1995 while securities sold
under agreement to repurchase have decreased from 14.1% to 12.8% over the
same period.
The following table sets forth the percentage relationship to total assets of
significant component's of the corporation's balance sheet as of March 31,
1995 and 1994:
March 31,
Assets: 1995 1994
Earning assets:
Loans, net of unearned income 49.3% 46.1%
Investment securities 27.3 25.3
Securities Available for Sale 13.2 16.7
Federal funds sold and securities purchased
under agreement to resell 3.6 5.0
Other earning assets - -
Total earning assets 93.4 93.1
Other assets 6.6 6.9
Total assets 100.0% 100.0%
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits 62.3% 63.0%
Federal funds purchased and securities sold
under agreement to repurchase 12.8 14.1
Other short-term borrowings .3 .6
Obligations under mortgages and capital leases - -
Total interest-bearing liabilities 75.4 77.6
Noninterest-bearing deposits 13.9 12.1
Other liabilities .7 .7
Stockholders' equity 10.0 9.5
Total liabilities and stockholders' equity 100.0% 100.0%
13
RESULTS OF OPERATION
CNB Corporation experienced earnings for the three-month period ended
March 31, 1995 and 1994 of $929 and $901, respectively, resulting in a return
on average assets of 1.24% and 1.22% and a return on average stockholders'
equity of 12.64% and 13.02%.
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 $6,293 or 2.1% from
$295,748 at March 31, 1994 to $302,041 at March 31, 1995. The following
table sets forth the financial highlights for the three-month periods ending
March 31, 1995 and March 31, 1994:
CNB Corporation
CNB Corporation and Subsidiary
FINANCIAL HIGHLIGHTS
(All Dollar Amounts, Except Per Share Data, in Thousands)
Three-Month Period Ended March 31,
Percent
Increase
1995 1994 (Decrease)
Net interest income after provision for
loan losses 3,080 2,881 6.9%
Income before income taxes 1,343 1,308 2.7
Net Income 929 901 3.1
Per Share (1) 1.94 1.89 2.6
Cash dividends declared 0 0 0
Per Share (1) 0 0 0
Total assets 302,041 295,748 2.1%
Total deposits 230,347 222,207 3.7
Loans, net of unearned income 148,877 136,271 9.3
Investment securities 122,384 124,255 (1.5)
Stockholders' equity 30,299 27,965 8.3
Book value per share (1) 63.38 58.66 8.0
Ratios (2):
Annualized return on average total assets 1.24% 1.22% 1.6%
Annualized return on average stockholders'
equity 12.64% 13.02% (2.9)%
(1) Adjusted for the effect of a 20% stock dividend issued during the third
quarter of 1994.
(2) For the three-month period ended March 31, 1995 and March 31, 1994,
average total assets amounted to $298,990 and $295,702 with average
stockholders' equity totaling $29,389 and $27,679, respectively.
14
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 1995 and 1994. 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 manner that will limit interest rate
risk and thus stabilize longrun earning power. Management believes that a
rise or fall in interest rates will not materially effect earnings.
The Bank has maintained adequate net interest margins for the three-month
period ended March 31, 1995 and 1994 by earning satisfactory yields on
loans and investments and funding these assets with a favorable deposit mix
containing a significant level of noninterest-bearing demand deposits.
Fully-tax-equivalent net interest income showed a 7.6% increase from $3,033
for the three-month period ended March 31, 1994 to $3,263 for the
three-month period ended March 31, 1995. During the same period, total
fully-tax-equivalent interest income increased by 15.8% from $4,802 to
$5,559 and total interest expense increased by 29.8% from $1,769 to $2,296.
Fully-tax-equivalent net interest income as a percentage of total
earning assets has shown an increase of .26% from 4.42% for the three-month
period ended March 31, 1994 to 4.68% for the three-month period ended March
31, 1995.
The tables on the following two pages present selected financial data and
an analysis of net interest income.
15
CNB Corporation and Subsidiary
Selected Financial Data
Three Months Ended 3/31/95 Three Months Ended 3/31/94
Avg. Interest Avg. Ann. Avg. Interest Avg.Ann.
Balance Income/ Yield or Balance Income/ Yield or
Expense(1) Rate Expense(1) Rate
Assets:
Earning assets:
Loans, net of unearned income $146,821 $ 3,470 9.45% $134,517 $ 2,776 8.25%
Securities:
Taxable 110,050 1,642 5.97 104,911 1,497 5.71
Tax-exempt 15,479 348 8.99 16,352 388 9.49
Federal funds sold and
securities purchased under
agreement to resell 6,806 99 5.82 18,414 141 3.06
Other earning assets 0 0 - 0 0 -
Total earning assets 279,156 5,559 7.97 274,194 4,802 7.00
Other assets 19,834 21,508
Total assets $298,990 $295,702
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits $191,322 1,850 3.87 $185,127 $ 1,450 3.13
Federal funds purchased and
securities sold under
agreement to repurchase 35,071 423 4.82 40,558 308 3.04
Other short-term borrowings 1,647 23 5.59 1,288 10 3.11
Obligations under mortgages
and capitalized leases 17 0 8.00 25 1 8.00
Total interest-bearing
liabilities $228,057 $ 2,296 4.03 $226,998 $ 1,769 3.12
Noninterest-bearing deposits 39,938 36,355
Other liabilities 1,606 4,670
Stockholders' equity 29,389 27,679
Total liabilities and
stockholders' equity $298,990 $295,702
Net interest income as a percent
of total earning assets $279,156 $ 3,263 4.68 $274,194 $ 3,033 4.42
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 118 $ 132
Ratios:
Annualized return on average total assets 1.24 1.22
Annualized return on average stockholders' equity 12.64 13.02
Cash dividends declared as a percent of net income 0 0
Average stockholders' equity as a percent of:
Average total assets 9.83 9.36
Average total deposits 12.71 12.50
Average loans, net of unearned income 20.02 20.58
Average earning assets as a percent of
average total assets 93.37 92.73
16
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Three Months Ended March 31, 1995 and 1994
(Dollars in Thousands)
Change
Average Average Interest Interest Change Change Due To
Volume Volume Yield/Rate Yield/Rate Earned/Paid Earned/Paid Due to Due To Rate X
1995 1994 1995 (1) 1994 (1) 1995 (1) 1994 (1) Variance Rate Volume Volume
Earning Assets:
Loans, Net of unearned
income (2) 146,821 134,517 9.45% 8.25% 3,470 2,776 694 403 254 37
Investment securities:
Taxable 110,050 104,911 5.97% 5.71% 1,642 1,497 145 68 73 4
Tax-exempt 15,479 16,352 8.99% 9.49% 348 388 (40) (20) (20) -
Federal funds sold and
securities purchased under
agreement to resell 6,806 18,414 5.82% 3.06% 99 141 (42) 127 (89) (80)
Other earning assets 0 0 - - 0 0 0 - - -
Total Earning Assets 279,156 274,194 7.97% 7.00% 5,559 4,802 757 578 218 (39)
Interest-bearing Liabilities:
Interest-bearing deposits 191,322 185,127 3.87% 3.13% 1,850 1,450 400 342 48 10
Federal funds purchased and
securities sold under
agreement to repurchase 35,071 40,558 4.82% 3.04% 423 308 115 180 (41) (24)
Other short-term borrowings 1,647 1,288 5.59% 3.11% 23 10 13 8 3 2
Mortgage indebtedness and
obligations under capital-
ized leases 17 25 8.00% 8.00% 0 1 (1) - (1) -
Total Interest-bearing
Liabilities 228,057 226,998 4.03% 3.12% 2,296 1,769 527 530 9 (12)
Interest-free Funds
Supporting Earning Assets 51,099 47,196
Total Funds Supporting
Earning Assets 279,156 274,194 3.29% 2.58% 2,296 1,769 527 530 9 (12)
Interest Rate Spread 3.94% 3.88%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .74% .54%
Net Yield on Earning Assets 4.68% 4.42% 3,263 3,033
(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.
17
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 $65 for the three-month period
ended March 31, 1995 and $20 for the three-month period ended March 31,
1994. Net loan charge-offs totaled $(25) for the three-month period ended
March 31, 1995 and $66 for the same period in 1994.
The reserve for possible loan losses as a percentage of net loans was 1.58%
at March 31, 1995 and 1.58% at March 31, 1994. The increased provision
during the three-month period ended March 31, 1995 is due to strong loan
growth expectations.
Securities Transactions - The bank did not recognize a gain or a loss on
security transactions for the three-month period ended March 31, 1994 but
recognized a $26 gain during the first quarter of 1995. Management sold
approximately $3 million in treasury bonds to fund loan growth and to adjust
the Bank's interest rate sensitivity position. At March 31, 1995, December
31, 1994, and March 31, 1994 market value appreciation/(depreciation) in the
investment portfolio totaled $(1,813), $(4,645), and $460, respectively. As
indicated, market value was sharply reduced due to rising market interest
rates but has recovered somewhat in 1995.
Other Income - Other income, net of any gains/losses on security
transactions, decreased by 7.6% from $642 for the three-month period ended
March 31, 1994 to $593 for the three-month period ended March 31, 1995
primarily due to flat deposit-related service charge rates, an increase in
the earnings allowance rate used to offset service charges on commercial
accounts, and lower merchant discount income.
Other Expenses - Other expenses increased by 6.4% from $2,215 for the
three-month period ended March 31, 1994 to $2,356 for the three-month period
ended March 31, 1995. The major components of other expenses are salaries
and employee benefits which increased 5.2% from $1,276 to $1,342; occupancy
expense which increased 4.0% from $352 to $366; and other operating
expenses which increased by 10.4% from $586 to $647. The increase in the
three-month period ended March 31, 1995 other operating expense is attributed
to an increase in the cost of providing credit card and merchant discount
services.
Income Taxes - Provisions for income taxes increased 1.7% from $407 for the
three-month period ended March 31, 1994 to $414 for the three-month period
ended March 31, 1995. Income before income taxes less interest of
tax-exempt investment securities increased by 5.8% from $1,052 for the
three-month period ended March 31, 1994 to $1,113 for the same period in
1995. State tax liability increased as income before income taxes increased
2.7% from $1,308 to $1,343 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, on a short-term basis,
to borrow funds from the Federal Reserve System. Management feels that
liquidity sources are more than adequate to meet funding needs.
18
CAPITAL RESOURCES
Total stockholders' equity was $30,299, $28,857, $26,820, and $23,443 at
March 31, 1995, December 31, 1994, December 31, 1993, and December 31, 1992,
representing 10.03%, 9.71%, 9.46%, and 9.12% of total assets, respectively.
At March 31, 1995, the Bank exceeds quantitative measures established by
regulation to ensure capital adequacy (see NOTE 12 - REGULATION
RESTRICTIONS). Capital is considered sufficient by management to meet
current and prospective capital requirements and to support anticipated
growth in bank operations.
EFFECTS OF REGULATORY ACTION
The management of the Company and the Bank is not aware of any current
recommendations by the regulatory authorities which, if they were to be
implemented, would have a material effect on liquidity, capital
resources, or operations.
Effective January 1, 1994, the Company adopted the provisions of SFAS No.
114, "Accounting by Creditors for Impairment of a Loan." SFAS No. 114, as
amended by SFAS No. 118, requires that impaired loans be measured based on
the present value of expected future cash flows or the underlying collateral
values as defined in the pronouncement. The adoption of SFAS No. 114 had no
effect on the balance sheet or income statement of the Company. The Company
includes the provisions of SFAS No. 114 in the allowance for loan losses.
EFFECTS OF PLANNED EXPANSION
During the third quarter of 1994, the Bank requested and received approval to
build a ninth banking office on 21st Avenue North in Myrtle Beach, South
Carolina. This office will be approximately 12,000 square feet with long-
term expansion capabilities of up to 18,000 square feet. Serving as a
regional office in the Myrtle Beach market, the cost to build and equip the
office at approximately $2.4 million is considerably higher than our other
branch offices. Depreciation, staffing, and additional overhead costs will
impact earnings over the short term. But, as the office develops, additional
revenue streams should offset costs and provide an adequate return on
investment. Construction began in November, 1994 and should be completed in
June, 1995.
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
Exhibit
Number
27 Financial Data Schedule - Article 9 Financial Data Schedule for
10-Q for electronic filers (pages 21 and 22).
All other exhibits, the filing of which are required with this Form, are not
applicable.
19
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)
Paul R. Dusenbury
_________________________________________
Paul R. Dusenbury
Treasurer
(Chief Financial and Accounting Officer)
Date: May 11, 1995
20