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 September 30, 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 September 30, 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 September 30, 1995 was 477,339.
CNB Corporation
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1995, 1
December 31, 1994 and September 30, 1994
Consolidated Statement of Income for the Three Months 2
and Nine Months Ended September 30, 1995 and 1994
Consolidated Statement of Changes in Stockholders' 3
Equity for the Nine Months Ended September 30, 1995
and 1994
Consolidated Statement of Cash Flows for the Nine Months 4
Ended September 30, 1995 and 1994
Notes to Consolidated Financial Statements 5-12
Item 2. Management's Discussion and Analysis of Financial 13-22
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURE 23
CNB Corporation and Subsidiary
Consolidated Balance Sheets
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
Sept. 30, December 31, Sept. 30,
1995 1994 1994
ASSETS:
Cash and due from banks $ 13,304 $ 14,552 $ 11,240
Interest bearing deposits with banks 0 0 0
Investment Securities 80,429 83,094 83,211
(Fair values of $80,363 at
September 30, 1995, $79,429 at
December 31, 1994, and $81,125
at September 30, 1994)
Securities Available for Sale 51,169 43,635 42,804
(Amortized cost of $50,866 at
September 30, 1995, $44,615 at
December 31, 1994, and $43,288
at September 30, 1994)
Federal Funds sold and securities
purchased under agreement
to resell 24,400 3,125 14,375
Loans:
Gross Loans 151,406 145,594 143,746
Less unearned income (1,093) (1,231) (1,199)
Loans, net of unearned income 150,313 144,363 142,547
Less reserve for possible
loan losses (2,295) (2,220) (2,159)
Net loans 148,018 142,143 140,388
Bank premises and equipment 7,279 5,310 5,478
Other assets 5,608 5,261 5,495
Total assets 330,207 297,120 302,991
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing 48,989 40,986 42,616
Interest-bearing 202,628 193,207 195,019
Total deposits 251,617 234,193 237,635
Federal funds purchased and
securities sold under agreement
to repurchase 40,861 29,236 32,938
Other short-term borrowings 3,195 2,494 1,325
Obligations under mortgages and
capital leases 13 18 21
Other liabilities 2,052 2,302 1,558
Minority interest in subsidiary 23 20 21
Total liabilities 297,761 268,263 273,498
Stockholders' equity:
Common stock, par value $10 per
share: Authorized 500,000;
issued 479,093 shares 4,791 4,791 4,791
Surplus 15,666 15,659 15,658
Undivided Profits 11,938 9,107 9,468
Net Unrealized Holding 182 (588) (290)
Gains (Losses) on
Available-For-Sale Securities
Less: Treasury stock (131) (112) (134)
Total stockholders' equity 32,446 28,857 29,493
Total liabilities
and stockholders' equity 330,207 297,120 302,991
1
CNB Corporation and Subsidiary
Consolidated Statement of Income
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Interest Income:
Interest and fees on loans $ 3,564 $ 3,263 $ 10,676 $ 9,048
Interest on investment securities:
Taxable investment securities 1,710 1,545 4,942 4,628
Tax-exempt investment securities 220 235 670 739
Other securities 0 0 3 3
Interest on federal funds sold and securities
purchased under agreement to resell 286 171 624 406
Total interest income 5,780 5,214 16,915 14,824
Interest Expense:
Interest on deposits 2,091 1,665 5,910 4,613
Interest on federal funds purchased and
securities sold under agreement to
repurchase 500 300 1,482 909
Interest on other short-term borrowings 28 12 65 32
Interest on obligation under mortgages and
capital leases 0 0 0 1
Total interest expense 2,619 1,977 7,457 5,555
Net interest income 3,161 3,237 9,458 9,269
Provision for possible loan losses 25 60 105 160
Net interest income after provision for
possible loan losses 3,136 3,177 9,353 9,109
Other income:
Service charges on deposit accounts 434 432 1,334 1,390
Gains/(Losses) on securities (1) 0 25 (25)
Other operating income 311 278 669 692
Total other income 744 710 2,028 2,057
Other expenses:
Minority interest in income of subsidiary 1 1 2 2
Salaries and employee benefits 1,364 1,284 4,128 3,874
Occupancy expense 367 364 1,104 1,053
Other operating expenses 597 713 2,001 1,974
Total operating expenses 2,329 2,362 7,235 6,903
Income before income taxes 1,551 1,525 4,146 4,263
Income tax provision 486 468 1,315 1,359
Net Income 1,065 1,057 2,831 2,904
Per share data:
Net income per weighted average shares
outstanding $ 2.23 $ 2.22 $ 5.92 $ 6.10
Cash dividend paid per share $ 0 $ 0 $ 0 $ 0
Book value per actual number of shares
outstanding $ 67.97 $ 61.83 $ 67.97 $ 61.83
Weighted average number of shares outstanding 477,945 476,117 477,945 476,117
Actual number of shares outstanding 477,339 476,987 477,339 476,987
2
CNB Corporation and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity
(All Dollar Amounts in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1995 1994
Common Stock:
($10 par value; 500,000 shares authorized)
Balance, January 1 4,791 3,994
Issuance of Common Stock None None
Stock Dividend None 797
Balance at end of period 4,791 4,791
Surplus:
Balance, January 1 15,659 11,338
Issuance of Common Stock None None
Stock Dividend None 4,306
Gain on sale of treasury stock 7 14
Balance at end of period 15,666 15,658
Undivided profits:
Balance, January 1 9,107 11,678
Net Income 2,831 2,904
Stock Dividend None (5,114)
Cash dividends declared None None
Balance at end of period 11,938 9,468
Net unrealized holding gains/(losses) on
available-for-sale securities:
Balance, January 1 (588) 0
Change in net unrealized gains/(Losses) 770 (290)
Balance at end of period 182 (290)
Treasury stock:
Balance, January 1 (112) (190)
Purchase of treasury stock (111) (379)
Reissue of treasury stock 92 435
Balance at end of period (131) (134)
Total stockholders' equity 32,446 29,493
Note: Columns may not add due to rounding.
3
CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the nine-month period ended Sept. 30,
1995 1994
OPERATING ACTIVITIES
Net income $ 2,831 $ 2,904
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 493 382
Provision for loan losses 105 160
Provision for deferred income taxes 511 159
Loss (gain) on sale of investment
securities 25 (25)
(Increase) decrease in accrued interest
receivable (285) (277)
(Increase) decrease in other assets (257) (330)
(Decrease) increase in other liabilities (191) (770)
Increase in minority interest in
subsidiary 3 2
Net cash provided by operating
activities 3,235 2,205
INVESTING ACTIVITIES
Proceeds from sale of investment securities
available for sale 5,117 8,000
Proceeds from maturities of investment
securities held to maturity 2,230 1,365
Proceeds from maturities of investment
securities available for sale 5,000 9,525
Purchase of investment securities held to
maturity (470) (10,594)
Purchase of investment securities
available for sale (15,463) (18,325)
Decrease (increase) in interest-bearing
deposits in banks 0 0
(Increase) decrease in federal funds sold (21,275) 25
(Increase) decrease in loans (5,950) (10,813)
Premises and equipment expenditures (2,462) (843)
Net cash provided by (used for)
investing activities (33,273) (21,660)
FINANCING ACTIVITIES
Dividends paid (955) (794)
Increase (Decrease) in deposits 17,424 18,333
(Decrease) increase in securities sold
under repurchase agreement 11,625 1,119
(Decrease) increase in other
short-term borrowings 701 (1,167)
Increase (decrease)in obligation under
mortgages and capital leases (5) (6)
Net cash provided by (used for)
financing activities 28,790 17,485
Net increase (decrease) in cash
and due from banks (1,248) (1,970)
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 14,552 13,210
CASH AND DUE FROM BANKS, SEPT. 30, 1995 AND 1994 $13,304 $11,240
CASH PAID (RECEIVED) FOR:
Interest $ 7,343 $ 5,781
Income taxes $ 1,206 $ 1,265
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, 477,945 for the nine-
month period ended September 30, 1995 and 476,117 for the nine-month period
ended September 30, 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 nine-month period ended September 30, 1995
and for the years ended December 31, 1994 and 1993 were approximately
$4,395, $3,988, and $3,592, respectively.
5
NOTE 3 - INVESTMENT SECURITIES
Investment securities with a par value of approximately $68,288 at September
30, 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 September 30, 1995 and at December 31, 1994.
September 30, 1995
Book Unrealized Holding Fair
Value Gains Losses Value Yield(1)
AVAILABLE FOR SALE
United States Treasury
Within one year $ 7,978 $ 10 $ 21 $ 7,967 6.02%
One to five years 29,375 417 86 29,706 6.37
37,353 427 107 37,673 6.30
Federal agencies
Within one year 447 5 0 452 7.98
One to five years 10,874 8 28 10,854 6.19
Five to ten years 471 3 0 474 6.45
After ten years 978 0 20 958 6.32
12,770 16 48 12,738 6.27
State, county and
municipal
Within one year 301 0 0 301 12.45
One to five years 326 15 0 341 7.85
627 15 0 642 10.05
Other Securities(Equity) 116 0 0 116 -
Total available for sale $50,866 $ 458 $ 155 $51,169 6.34%
HELD TO MATURITY
United States Treasury
Within one year 14,151 11 55 14,107 5.14%
One to five years 44,229 231 564 43,896 5.57
58,380 242 619 58,003 5.47
Federal agencies
Within one year 2,998 41 0 3,039 8.09%
One to five years 5,990 41 82 5,949 5.93
8,988 82 82 8,988 6.65
State, county and
municipal
Within one year 1,775 11 1 1,785 10.15%
One to five years 6,696 295 18 6,973 8.91
Six to ten years 4,343 106 80 4,369 7.57
After ten years 247 0 2 245 7.70
13,061 412 101 13,372 8.61
Total held to maturity $80,429 $ 736 $ 802 $80,363 6.11%
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended September 30, 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 $182 as of September 30, 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 September 30, 1995 and December
31, 1994 by major classification:
September 30, December 31,
1995 1994
Real estate loans - mortgage $ 96,729 $ 89,728
- construction 5,156 6,328
Commercial and industrial loans 20,912 17,472
Loans to individuals for household,
family and other consumer expenditures 27,078 30,700
Agriculture 1,251 1,180
All other loans, including overdrafts 280 186
Gross loans 151,406 145,594
Less unearned income (1,093) (1,231)
Less reserve for loan losses (2,295) (2,220)
Net loans 148,018 142,143
8
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, continued
Changes in the reserve for loan losses for the quarter ended and nine-
month period ended September 30, 1995 and the year ended December 31, 1994
are summarized as follows:
Quarter Ended Nine Months Ended December
September 30, September 30, 31,
1995 1994 1995 1994 1994
Balance, beginning of period $ 2,327 $ 2,124 $ 2,220 $ 2,170 $ 2,170
Charge-offs:
Commercial, financial, and agricultural 63 34 120 64 122
Real Estate - construction and mortgage 0 0 3 42 57
Loans to individuals 57 76 201 117 277
Total charge-offs $ 120 $ 110 $ 324 $ 223 $ 456
Recoveries:
Commercial, financial, and agricultural $ 31 $ 24 $ 145 $ 28 $ 58
Real Estate - construction and mortgage 10 11 22 19 35
Loans to individuals 22 20 127 55 118
Total recoveries $ 63 $ 55 $ 294 $ 102 $ 211
Net charge-offs/(recoveries) $ 57 $ 55 $ 30 $ 121 $ 245
Additions charge to operations $ 25 $ 80 $ 105 $ 100 $ 295
Balance, end of period $ 2,295 $ 2,149 $ 2,295 $ 2,149 $ 2,220
Ratio of net charge-offs during the period
to average loans outstanding during the
period .04% .04% .02% .07% .17%
The entire balance is available to absorb future loan losses.
At September 30, 1995 and December 31, 1994 loans on which no interest was
being accrued totalled approximately $559 and $1,062, respectively and
foreclosed real estate totalled $0 and $0, respectively.
NOTE 5 - PREMISES AND EQUIPMENT
Property at September 30, 1995 and December 31, 1994 is summarized as
follows:
September 30, December 31,
1995 1994
Land and buildings $ 6,069 $ 6,250
Furniture, fixtures and equipment 4,898 4,653
Construction in progress 2,602 316
$ 13,569 $ 11,219
Less accumulated depreciation and
amortization 6,290 5,909
$ 7,279 $ 5,310
Depreciation and amortization of bank premises and equipment charged to
operating expense was $173 and $493 for the quarter ended and the nine month
period ended September 30, 1995, respectively and $623 for the year ended
December 31, 1994.
9
NOTE 6 - CERTIFICATES OF DEPOSIT IN EXCESS OF $100,000
At September 30, 1995 and December 31, 1994, certificates of deposit of
$100,000 or more included in time deposits totaled approximately $23,795 and
$21,008 respectively. Interest expense on these deposits was approximately
$318 and $834 for the quarter ended and the nine-month period ended September
30, 1995 and $750 for the year ended December 31, 1994.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At September 30, 1995 and December 31, 1994, securities sold under
repurchase agreements totaled approximately $40,861 and $29,236. U.S.
Government securities with a book value of $52,273 ($52,139 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 5.15
percent and 4.29 percent at September 30, 1995 and December 31, 1994.
NOTE 8 - LINES OF CREDIT
At September 30, 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 $5,959 at September 30,
1995. The amount outstanding under the note totaled $3,195 and $2,494 at
September 30, 1995 and December 31, 1994, respectively.
NOTE 9 - INCOME TAXES
Income tax expense for the quarter ended September 30, 1995 and
September 30, 1994 on pretax income of $1,551 and $1,525 totalled $486 and
$468 respectively. Income tax expense for the nine-month period ended
September 30, 1995 and September 30, 1994 on pretax income of $4,146 and
$4,263 totalled $1,315 and $1,359 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
September 30, 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
September 30, 1995, commitments to extend credit totalled $13,290; financial
standby letters of credit totalled $772; and performance standby letters of
credit totalled $700. In the opinion of management, no material losses or
liabilities are expected as a result of these transactions.
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 three-month and nine
month period ended September 30, 1995 and years ended December 31, 1994, 1993
and 1992, $33, $186, $295, $273, and $218, respectively, was charged to
operations under the plan.
NOTE 12 - REGULATORY MATTERS
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, 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 presented in the table below as of September 30, 1995:
Conway National Bank
Ratios
Required
Minimum Actual
Tier I Leverage Capital 4.0% 9.3%
Tier I Risk-based Capital 4.0% 19.1%
Total Risk-based Capital 8.0% 20.4%
11
NOTE 13 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of CNB Corporation (parent
company only):
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
(Unaudited)
ASSETS
Cash $ 1,375
Investment in subsidiary 30,789
Fixed assets 245
Other assets 37
$ 32,446
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liability $ 0
Stockholders' equity 32,446
$ 32,446
CONDENSED STATEMENT OF INCOME
For the nine-month period ended September 30, 1995
(Unaudited)
EQUITY IN NET INCOME OF SUBSIDIARY $ 2,848
OTHER INCOME 2
OTHER EXPENSES (19)
Net Income $ 2,831
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 5.4% from $142,547 at September 30, 1994 to $150,313 at September
30, 1995 and have decreased as a percentage of total assets from 47.1% to
45.5% over the same period as moderate loan demand has not kept pace with
asset growth in our market. Correspondingly, securities and federal funds
sold have increased as a percentage of total assets from 46.3% at September
30, 1994 to 47.3% at September 30, 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 14.1% at September 30, 1994 to 14.8% at
September 30, 1995. However, as more customers, both business and personal,
are attracted to interest-bearing deposit accounts, we expect a decline in
the percentage of demand deposits over the long-term. Interest-bearing
deposits have decreased from 64.4% of total assets at September 30, 1994 to
61.4% at September 30, 1995 while securities sold under agreement to
repurchase have increased from 10.9% to 12.4% 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 September
30, 1995 and 1994:
September 30,
Assets: 1995 1994
Earning assets:
Loans, net of unearned income 45.5% 47.1%
Investment securities 24.4 27.5
Securities Available for Sale 15.5 14.1
Federal funds sold and securities purchased
under agreement to resell 7.4 4.7
Other earning assets - -
Total earning assets 92.8 93.4
Other assets 7.2 6.6
Total assets 100.0% 100.0%
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits 61.4% 64.4%
Federal funds purchased and securities sold
under agreement to repurchase 12.4 10.9
Other short-term borrowings 1.0 .4
Obligations under mortgages and capital leases - -
Total interest-bearing liabilities 74.8 75.7
Noninterest-bearing deposits 14.8 14.1
Other liabilities .6 .5
Stockholders' equity 9.8 9.7
Total liabilities and stockholders' equity 100.0% 100.0%
13
RESULTS OF OPERATION
CNB Corporation experienced earnings for the three-month period ended
September 30, 1995 and 1994 of $1,065 and $1,057, respectively, resulting in
a return on average assets of 1.32% and 1.41% and a return on average
stockholders' equity of 13.45% and 14.72%.
CNB Corporation experienced earnings for the nine-month period ended
September 30, 1995 and 1994 of $2,831 and $2,904, respectively, resulting in
a return on average assets of 1.21% and 1.31% and a return on average
stockholders' equity of 12.34% and 13.75%.
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 $27,216 or 9.0% from
$302,991 at September 30, 1994 to $330,207 at September 30, 1995. The
following table sets forth the financial highlights for the three-month and
nine-month periods ending September 30, 1995 and September 30, 1994:
CNB Corporation
CNB Corporation and Subsidiary
FINANCIAL HIGHLIGHTS
(All Dollar Amounts, Except Per Share Data, in Thousands)
Three-Month Period Nine-Month Period
Ended September 30, Ended September 30,
Percent Percent
Increase Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
Net interest income after
provision for loan losses 3,136 3,177 (1.3)% 9,353 9,109 2.7%
Income before income taxes 1,551 1,525 1.7 4,146 4,263 (2.7)
Net Income 1,065 1,057 .8 2,831 2,904 (2.5)
Per Share 2.23 2.22 .5 5.93 6.10 (2.8)
Cash dividends declared 0 0 - 0 0 -
Per Share 0 0 - 0 0 -
Total assets 330,207 302,991 9.0% 330,207 302,991 9.0%
Total deposits 251,617 237,635 5.9 251,617 237,635 5.9
Loans, net of unearned income 150,313 142,547 5.4 150,313 142,547 5.4
Investment securities and
securities available for
sale 131,598 126,015 4.4 131,598 126,015 4.4
Stockholders' equity 32,446 29,493 10.0 32,446 29,493 10.0
Book value per share 67.97 61.83 9.9 67.97 61.83 9.9
Ratios (1):
Annualized return on average
total assets 1.32% 1.41% (6.4)% 1.21% 1.31% (7.6)%
Annualized return on average
stockholders' equity 13.45% 14.72% (8.6)% 12.34% 13.75%(10.3)%
(1) For the three-month period ended September 30, 1995 and September 30,
1994, average total assets amounted to $323,895 and $300,914 with
average stockholders' equity totaling $31,674 and $28,728, respectively.
For the nine-month period ended September 30, 1995 and September 30,
1994, average total assets amounted to $311,769 and $296,324 with average
stockholders' equity totaling $30,592 and $28,152, 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 and
nine-month periods ended September 30, 1995 and 1994 by earning satisfactory
yields on loans and securities 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 2.5% decrease from $3,358
for the three-month period ended September 30, 1994 to $3,274 for the
three-month period ended September 30, 1995. During the same period, total
fully-tax-equivalent interest income increased by 10.5% from $5,335 to
$5,893 and total interest expense increased by 32.5% from $1,977 to $2,619.
Fully-tax-equivalent net interest income as a percentage of total
earning assets has shown a decrease of .42% from 4.77% for the three-month
period ended September 30, 1994 to 4.35% for the three-month period ended
September 30, 1995.
Fully-tax-equivalent net interest income showed a 1.6% increase from $9,650
for the nine-month period ended September 30, 1994 to $9,803 for the nine-
month period ended September 30, 1995. During the same period, total fully-
tax-equivalent interest income increased by 13.5% from $15,205 to $17,260 and
total interest expense increased by 34.2% from $5,555 to $7,457. Fully-tax-
equivalent net interest income as a percentage of total earning assets has
shown a decrease of .14% from 4.64% for the nine-month period ended September
30, 1994 to 4.50% for the nine-month period ended September 30, 1995.
The tables on the following four pages present selected financial data and
an analysis of net interest income.
15
CNB Corporation and Subsidiary
Selected Financial Data
Three Months Ended 9/30/95 Three Months Ended 9/30/94
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 $150,845 $ 3,564 9.45% $142,882 $ 3,263 9.13%
Securities:
Taxable 116,145 1,710 5.89 107,319 1,545 5.76
Tax-exempt 14,143 333 9.42 15,727 356 9.05
Federal funds sold and
securities purchased under
agreement to resell 19,702 286 5.81 15,880 171 4.31
Other earning assets 0 0 - 0 0 -
Total earning assets 300,835 5,893 7.84 281,808 5,335 7.57
Other assets 23,060 19,106
Total assets $323,895 $300,914
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits $199,264 2,091 4.20 $192,661 $ 1,665 3.46
Federal funds purchased and
securities sold under
agreement to repurchase 38,880 500 5.14 30,819 300 3.89
Other short-term borrowings 2,022 28 5.54 943 12 5.09
Obligations under mortgages
and capitalized leases 13 0 8.00 22 0 8.00
Total interest-bearing
liabilities $240,179 $ 2,619 4.36 $224,445 $ 1,977 3.52
Noninterest-bearing deposits 49,956 44,074
Other liabilities 2,086 3,667
Stockholders' equity 31,674 28,728
Total liabilities and
stockholders' equity $323,895 $300,914
Net interest income as a percent
of total earning assets $300,835 $ 3,274 4.35 $281,808 $ 3,358 4.77
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 113 $ 121
Ratios:
Annualized return on average total assets 1.32 1.41
Annualized return on average stockholders' equity 13.45 14.72
Cash dividends declared as a percent of net income 0 0
Average stockholders' equity as a percent of:
Average total assets 9.78 9.55
Average total deposits 12.71 12.14
Average loans, net of unearned income 21.00 20.11
Average earning assets as a percent of
average total assets 92.88 93.65
16
CNB Corporation and Subsidiary
Selected Financial Data
Nine Months Ended 9/30/95 Nine Months Ended 9/30/94
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 $149,789 $10,676 9.50% $139,166 $ 9,048 8.67%
Securities:
Taxable 111,301 4,945 5.92 107,183 4,631 5.76
Tax-exempt 14,889 1,015 9.09 16,215 1,120 9.21
Federal funds sold and
securities purchased under
agreement to resell 14,462 624 5.75 14,720 406 3.68
Other earning assets 0 0 - 0 0 -
Total earning assets 290,441 17,260 7.92 277,284 15,205 7.31
Other assets 21,328 19,040
Total assets $311,769 $296,324
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits $193,248 5,910 4.08 $188,585 $ 4,613 3.26
Federal funds purchased and
securities sold under
agreement to repurchase 38,848 1,482 5.09 36,039 909 3.36
Other short-term borrowings 1,544 65 5.61 1,145 32 3.73
Obligations under mortgages
and capitalized leases 15 0 8.00 24 1 8.00
Total interest-bearing
liabilities $233,655 $ 7,457 4.26 $225,793 $ 5,555 3.28
Noninterest-bearing deposits 45,502 40,090
Other liabilities 2,020 2,289
Stockholders' equity 30,592 28,152
Total liabilities and
stockholders' equity $311,769 $296,324
Net interest income as a percent
of total earning assets $290,441 $ 9,803 4.50 $277,284 $ 9,650 4.64
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 345 $ 381
Ratios:
Annualized return on average total assets 1.21 1.31
Annualized return on average stockholders' equity 12.34 13.75
Cash dividends declared as a percent of net income 0 0
Average stockholders' equity as a percent of:
Average total assets 9.81 9.50
Average total deposits 12.81 12.31
Average loans, net of unearned income 20.42 20.23
Average earning assets as a percent of
average total assets 93.16 93.57
17
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Three Months Ended September 30, 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) 150,845 142,882 9.45% 9.13% 3,564 3,263 301 114 182 5
Investment securities:
Taxable 116,145 107,319 5.89% 5.76% 1,710 1,545 165 35 127 3
Tax-exempt 14,143 15,727 9.42% 9.05% 333 356 (23) 14 (36) (1)
Federal funds sold and
securities purchased under
agreement to resell 19,702 15,880 5.81% 4.31% 286 171 115 60 41 14
Other earning assets 0 0 - - 0 0 0 - - -
Total Earning Assets 300,835 281,808 7.84% 7.57% 5,893 5,335 558 223 314 21
Interest-bearing Liabilities:
Interest-bearing deposits 199,264 192,661 4.20% 3.46% 2,091 1,665 426 356 57 13
Federal funds purchased and
securities sold under
agreement to repurchase 38,880 30,819 5.14% 3.89% 500 300 200 96 78 26
Other short-term borrowings 2,022 943 5.54% 5.09% 28 12 16 1 14 1
Mortgage indebtedness and
obligations under capital-
ized leases 13 22 8.00% 8.00% 0 0 0 - - -
Total Interest-bearing
Liabilities 240,179 224,445 4.36% 3.52% 2,619 1,977 642 453 149 40
Interest-free Funds
Supporting Earning Assets 60,656 57,363
Total Funds Supporting
Earning Assets 300,835 281,808 3.48% 2.81% 2,619 1,977 642 453 149 40
Interest Rate Spread 3.48% 4.05%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .87% .72%
Net Yield on Earning Assets 4.35% 4.77% 3,274 3,358
(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.
18
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Nine Months Ended September 30, 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) 149,789 139,166 9.50% 8.67% 10,676 9,048 1,628 866 690 72
Investment securities:
Taxable 111,301 107,183 5.92% 5.76% 4,945 4,631 314 129 177 8
Tax-exempt 14,889 16,215 9.09% 9.21% 1,015 1,120 (105) (15) (92) 2
Federal funds sold and
securities purchased under
agreement to resell 14,462 14,720 5.75% 3.68% 624 406 218 229 (7) (4)
Other earning assets 0 0 - - 0 0 0 - - -
Total Earning Assets 290,441 277,284 7.92% 7.31% 17,260 15,205 2,055 1,209 768 78
Interest-bearing Liabilities:
Interest-bearing deposits 193,248 188,585 4.08% 3.26% 5,910 4,613 1,297 1,160 114 23
Federal funds purchased and
securities sold under
agreement to repurchase 38,848 36,039 5.09% 3.36% 1,482 909 573 468 71 34
Other short-term borrowings 1,544 1,145 5.61% 3.73% 65 32 33 16 11 6
Mortgage indebtedness and
obligations under capital-
ized leases 15 24 8.00% 8.00% 0 1 (1) - (1) -
Total Interest-bearing
Liabilities 233,655 225,793 4.26% 3.28% 7,457 5,555 1,902 1,644 195 63
Interest-free Funds
Supporting Earning Assets 56,786 51,491
Total Funds Supporting
Earning Assets 290,441 277,284 3.42% 2.67% 7,457 5,555 1,902 1,644 195 63
Interest Rate Spread 3.66% 4.03%
Impact of Non-interest-bearing
Funds on Net Yield on Earning
Assets .84% .61%
Net Yield on Earning Assets 4.50% 4.64% 9,803 9,650
(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.
19
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 $25 for the three-month period
ended September 30, 1995 and $60 for the three-month period ended September
30, 1994. Net loan charge-offs/(recoveries) totaled $57 for the three-month
period ended September 30, 1995 and $50 for the same period in 1994.
The provision for possible loan losses was $105 for the nine-month period
ended September 30, 1995 and $160 for the nine-month period ended September
30, 1994. Net loan charge-offs/(recoveries) totaled $30 for the nine-month
period ended September 30, 1995 and $171 for the same period in 1994.
The reserve for possible loan losses as a percentage of net loans was 1.55%
at September 30, 1995 and 1.54% at September 30, 1994. The decreased
provision during the three-month and nine-month period ended September 30,
1995 was due to the decreased level of net loan charge-offs and to the
expectation of continued low net charge-offs through the fourth quarter of
1995.
Securities Transactions - The bank recognized a loss on security transactions
for the three-month and nine-month period ended September 30, 1994 of $25.
During the second quarter of 1994, management sold approximately $8 million
in treasury bonds at a net loss and reinvested in longer maturities to take
advantage of the steeply-sloped treasury curve. The bank recognized a net
gain on security transactions for the nine-month period ended September 30,
1995 of $25. During the first quarter of 1995, management sold at a $26 gain
approximately $3 million in treasury bonds to fund loan growth and to adjust
the Bank's interest rate sensitivity position. During the third quarter of
1995, management sold at a $1 loss approximately $2 million in variable-rate
agencies in anticipation of falling interest rates. At September 30, 1995,
December 31, 1994, and September 30, 1994 market value appreciation/
(depreciation) in the securities portfolio totaled $237, $(4,645), and
$(2,570). As indicated, market value was sharply reduced due to rising
market interest rates in 1994 but has recovered in 1995.
Other Income - Other income, net of any gains/losses on security
transactions, increased by 4.9% from $710 for the three-month period ended
September 30, 1994 to $745 for the three-month period ended September 30,
1995.
Other income, net of any gains/losses on security transactions, decreased by
3.8% from $2,082 for the nine-month period ended September 30, 1994 to $2,003
for the nine-month period ended September 30, 1995.
The decrease in the nine-month period ended September 30, 1995 was primarily
due to flat deposit-related service charge rates and also an increase in the
earnings allowance rate used to offset service charges on commercial
accounts. The increase in the three-month period ended September 30, 1995
was due to increased merchant discount income due to a higher revised rate
structure.
Other Expenses - Other expenses decreased by 1.4% from $2,362 for the three-
month period ended September 30, 1994 to $2,329 for the three-month period
ended September 30, 1995. The major components of other expenses are
salaries and employee benefits which increased 6.2% from $1,284 to $1,364;
occupancy expense which increased slightly from $364 to $367; and other
operating expenses which decreased by 16.3% from $713 to $597.
20
Other Expenses (continued) - Other expenses increased by 4.8% from $6,903 for
the nine-month period ended September 30, 1994 to $7,235 for the nine-month
period ended September 30, 1995. The major components of other expenses are
salaries and employee benefits which increased 6.6% from $3,874 to $4,128;
occupancy expense which increased 4.8% from $1,053 to $1,104; and other
operating expense which increased by 1.4% from $1,974 to $2,001.
The increase in the three-month and nine-month period ended September 30,
1995 salaries and employee benefits expense is attributed to normal salary
adjustments, an increase in the cost of providing health care insurance, and
increased staffing for the new Myrtle Beach office. The increase in
occupancy expense is primarily due to the costs of upgrading EDP facilities.
The increase in other operating costs for the nine-month period ended
September 30, 1995 is due to increased account volumes, slight inflationary
pressure, and an increase in the cost of providing credit card and merchant
discount services but has been offset somewhat by reduced FDIC insurance
premium costs. Other expenses declined during the third quarter due to a
$145 FDIC insurance premium rebate (see - EFFECTS OF REGULATORY ACTION).
Income Taxes - Provisions for income taxes increased 3.8% from $468 for the
three-month period ended September 30, 1994 to $486 for the three-month
period ended September 30, 1995. Income before income taxes less interest on
tax-exempt investment securities increased by 3.2% from $1,290 for the
three-month period ended September 30, 1994 to $1,331 for the same period in
1995. State tax liability increased as income before income taxes increased
1.7% from $1,525 to $1,551 during the same period.
Provisions for income taxes decreased 3.2% from $1,359 for the nine-month
period ended September 30, 1994 to $1,315 for the nine-month period ended
September 30, 1995. Income before income taxes less interest on tax-exempt
investment securities decreased by 1.4% from $3,524 for the nine-month period
ended September 30, 1994 to $3,476 for the same period in 1995 and state tax
liability decreased as income before income taxes decreased 2.7% from $4,263
to $4,146 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.
CAPITAL RESOURCES
Total stockholders' equity was $32,446, $28,857, $26,820, and $23,443 at
September 30, 1995, December 31, 1994, December 31, 1993, and December 31,
1992, representing 9.83%, 9.71%, 9.46%, and 9.12% of total assets,
respectively. At September 30, 1995, the Bank exceeds quantitative measures
established by regulation to ensure capital adequacy (see NOTE 12 -REGULATION
MATTERS). Capital is considered sufficient by management to meet current and
prospective capital requirements and to support anticipated growth in bank
operations.
21
EFFECTS OF REGULATORY ACTION
During the third quarter of 1995, the Federal Deposit Insurance Corporation
(FDIC) announced that the bank insurance fund was fully capitalized and banks
were due a rebate of excessive paid-in insurance premiums. The Bank received
a $145 FDIC insurance premium rebate and will experience significantly lower
rates going forward. For the remainder of 1995, monthly FDIC insurance costs
have declined from $43 to $8m, which indicates an annual cost reduction of
approximately $420.
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 1995, the Bank completed construction of a ninth
banking office on 21st Avenue North in Myrtle Beach, South Carolina. The
"Myrtle Beach Office" opened on August 7, 1995 and is 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 $2.6 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.
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 24 and 25).
All other exhibits, the filing of which are required with this Form, are not
applicable.
22
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: November 10, 1995
23