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, 1996
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, 1996 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, 1996 was 477,233.
CNB Corporation
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1996, 1
December 31, 1995 and March 31, 1995
Consolidated Statement of Income for the Three Months 2
Ended March 31, 1996 and 1995
Consolidated Statement of Changes in Stockholders' 3
Equity for the Three Months Ended March 31, 1996
and 1995
Consolidated Statement of Cash Flows for the Three Months 4
Ended March 31, 1996 and 1995
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,
1996 1995 1995
ASSETS:
Cash and due from banks $ 13,714 $ 15,605 $ 11,113
Interest bearing deposits with banks 0 0 0
Investment Securities 75,982 76,402 82,486
(Fair values of $75,981 at
March 31, 1996, $77,231 at
December 31, 1995, and $80,881
at March 31, 1995)
Securities Available for Sale 64,833 62,250 39,898
(Amortized cost of $64,683 at
March 31, 1996, $61,533 at
December 31, 1995, and $40,106
at March 31, 1995)
Federal Funds sold and securities
purchased under agreement
to resell 6,600 7,300 10,900
Loans:
Gross Loans 164,168 153,498 150,041
Less unearned income (1,089) (1,094) (1,164)
Loans, net of unearned income 163,079 152,404 148,877
Less reserve for possible
loan losses (2,267) (2,242) (2,310)
Net loans 160,812 150,162 146,567
Bank premises and equipment 6,965 7,166 5,663
Other assets 6,013 5,809 5,414
Total assets 334,919 324,694 302,041
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest bearing 46,637 44,723 42,070
Interest-bearing 208,918 206,433 188,277
Total deposits 255,555 251,156 230,347
Federal funds purchased and
securities sold under agreement
to repurchase 42,373 36,935 38,681
Other short-term borrowings 1,981 766 767
Obligations under mortgages and
capital leases 9 10 15
Other liabilities 2,215 3,609 1,911
Minority interest in subsidiary 23 23 21
Total liabilities 302,156 292,499 271,742
Stockholders' equity:
Common stock, par value $10 per
share: Authorized 500,000;
issued 479,093 shares 4,791 4,791 4,791
Surplus 15,685 15,676 15,662
Undivided Profits 12,359 11,431 10,036
Net Unrealized Holding 90 430 (125)
Gains (Losses) on
Available-For-Sale Securities
Less: Treasury stock (162) (133) (65)
Total stockholders' equity 32,763 32,195 30,299
Total liabilities
and stockholders' equity 334,919 324,694 302,041
1
CNB Corporation and Subsidiary
Consolidated Statement of Income
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Interest Income:
Interest and fees on loans $ 3,708 $ 3,470
Interest on investment securities:
Taxable investment securities 1,872 1,642
Tax-exempt investment securities 190 230
Other securities 0 0
Interest on federal funds sold and securities
purchased under agreement to resell 124 99
Total interest income 5,894 5,441
Interest Expense:
Interest on deposits 2,108 1,850
Interest on federal funds purchased and securities
sold under agreement to repurchase 550 423
Interest on other short-term borrowings 17 23
Interest on obligation under mortgages and
capital leases 0 0
Total interest expense 2,675 2,296
Net interest income 3,219 3,145
Provision for possible loan losses 50 65
Net interest income after provision for possible
loan losses 3,169 3,080
Other income:
Service charges on deposit accounts 484 447
Gains/(Losses) on securities 38 26
Other operating income 168 146
Total other income 690 619
Other expenses:
Minority interest in income of subsidiary 1 1
Salaries and employee benefits 1,431 1,342
Occupancy expense 462 366
Other operating expenses 588 647
Total operating expenses 2,482 2,356
Income before income taxes 1,377 1,343
Income tax provision 450 414
Net Income 927 929
Per share data:
Net income per weighted average shares outstanding $ 1.94 $ 1.94
Cash dividend paid per share $ 0 $ 0
Book value per actual number of shares outstanding $ 68.65 $ 63.38
Weighted average number of shares outstanding 477,241 477,953
Actual number of shares outstanding 477,233 478,080
2
CNB Corporation and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity
(All Dollar Amounts in Thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Common Stock:
($10 par value; 500,000 shares authorized)
Balance, January 1 4,791 4,791
Issuance of Common Stock None None
Balance at end of period 4,791 4,791
Surplus:
Balance, January 1 15,676 15,659
Issuance of Common Stock None None
Gain on sale of treasury stock 9 3
Balance at end of period 15,685 15,662
Undivided profits:
Balance, January 1 11,431 9,107
Net Income 927 929
Cash dividends declared None None
Balance at end of period 12,359 10,036
Net unrealized holding gains/(losses) on
available-for-sale securities:
Balance, January 1 430 (588)
Change in net unrealized gains/(Losses) (340) 463
Balance at end of period 90 (125)
Treasury stock:
Balance, January 1 (133) (112)
Purchase of treasury stock (97) (17)
Reissue of treasury stock 69 64
Balance at end of period (162) (65)
Total stockholders' equity 32,763 30,299
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,
1996 1995
OPERATING ACTIVITIES
Net income $ 927 $ 929
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 243 151
Provision for loan losses 50 65
Provision for deferred income taxes (34) 306
Loss (gain) on sale of investment
securities 38 26
(Increase) decrease in accrued interest
receivable (339) (116)
(Increase) decrease in other assets 135 (232)
(Decrease) increase in other liabilities 133 193
Increase in minority interest in
subsidiary 1 1
Net cash provided by operating
activities 1,154 1,323
INVESTING ACTIVITIES
Proceeds from sale of investment securities
available for sale 2,000 3,117
Proceeds from maturities of investment
securities held to maturity 4,819 500
Proceeds from maturities of investment
securities available for sale 1,000 1,500
Purchase of investment securities held to
maturity (6,600) 0
Purchase of investment securities
available for sale (3,950) 0
Decrease (increase) in interest-bearing
deposits in banks 0 0
(Increase) decrease in federal funds sold 700 (7,775)
(Increase) decrease in loans (10,675) (4,514)
Premises and equipment expenditures 42 (504)
Net cash provided by (used for)
investing activities (12,664) (7,676)
FINANCING ACTIVITIES
Dividends paid (1,432) (955)
Increase (Decrease) in deposits 4,399 (3,846)
(Decrease) increase in securities sold
under repurchase agreement 5,438 9,445
(Decrease) increase in other
short-term borrowings 1,215 (1,727)
Increase (decrease)in obligation under
mortgages and capital leases (1) (3)
Net cash provided by (used for)
financing activities 9,619 2,914
Net increase (decrease) in cash
and due from banks (1,891) (3,439)
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 15,605 14,552
CASH AND DUE FROM BANKS, MARCH 31, 1996 AND 1995 $13,714 $11,113
CASH PAID (RECEIVED) FOR:
Interest $ 2,564 $ 2,334
Income taxes $ 487 $ 64
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, 477,241 for the
three-month period ended March 31, 1996 and 477,953 for the three-month
period ended March 31, 1995.
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, 1996 and
for the years ended December 31, 1995 and 1994 were approximately $4,309,
$4,306, and $3,988, respectively.
5
NOTE 3 - INVESTMENT SECURITIES
Investment securities with a par value of approximately $65,115 at March 31,
1996 and $66,115 at December 31, 1995 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, 1996 and at December 31, 1995.
March 31, 1996
Book Unrealized Holding Fair
Value Gains Losses Value Yield(1)
AVAILABLE FOR SALE
United States Treasury
Within one year $13,533 $ 43 $ 19 $13,557 5.33%
One to five years 26,287 351 81 26,557 6.25
39,820 394 100 40,114 5.96
Federal agencies
Within one year 377 0 1 376 7.98
One to five years 23,156 14 156 23,014 5.89
After ten years 888 2 17 873 6.31
24,421 16 174 24,263 5.94
State, county and
municipal
One to five years 326 14 0 340 7.85
326 14 0 340 7.85
Other Securities(Equity) 116 0 0 116 -
Total available for sale $64,683 $ 424 $ 274 $64,833 5.95%
HELD TO MATURITY
United States Treasury
Within one year 15,108 46 32 15,122 5.67%
One to five years 33,765 181 315 33,631 5.51
48,873 227 347 48,753 5.56
Federal agencies
Within one year 3,005 38 0 3,043 7.92%
One to five years 6,863 0 96 6,767 5.81
Six to ten years 3,083 1 59 3,025 6.15
12,951 39 155 12,835 6.39
State, county and
municipal
Within one year 1,881 20 0 1,901 9.70%
One to five years 6,374 249 14 6,609 8.69
Six to ten years 5,656 66 88 5,634 7.17
After ten years 247 2 0 249 7.70
14,158 337 102 14,393 8.20
Total held to maturity $75,982 $ 603 $ 604 $75,981 6.19%
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended March 31, 1996, 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 $90 as of March 31, 1996.
6
NOTE 3 - INVESTMENT SECURITIES (Continued)
1995
Book Unrealized Holding Fair
Value Gains Losses Value Yield(1)
AVAILABLE FOR SALE
United States Treasury
Within one year $11,022 $ 19 $ 21 $11,020 5.04%
One to five years 28,674 591 37 29,228 6.31
39,696 610 58 40,248 5.96
Federal agencies
Within one year 417 3 - 420 7.98
One to five years 20,181 179 19 20,341 5.94
After ten years 913 1 15 899 6.34
21,511 183 34 21,660 6.00
State, county and
municipal
One to five years 326 16 - 342 7.85
326 16 - 342 7.85
Total available for sale $61,533 $ 809 $ 92 $62,250 5.98%
HELD TO MATURITY
United States Treasury
Within one year 13,077 59 5 13,131 5.85%
One to five years 38,875 378 145 39,108 5.48
51,952 437 150 52,239 5.57
Federal agencies
Within one year 5,007 69 - 5,076 8.04%
One to five years 3,004 65 - 3,069 6.12
Six to ten years 2,002 34 - 2,036 6.40
10,013 168 - 10,181 7.14
State, county and
municipal
Within one year 1,674 17 1 1,690 9.33
One to five years 6,216 273 8 6,481 8.81
Six to ten years 6,069 120 35 6,154 7.28
After ten years 478 8 - 486 7.61
14,437 418 44 4,811 8.19
Total held to maturity $76,402 $1,023 $ 194 $77,231 6.27%
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended December 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 $430 as of December 31, 1995.
On December 6, 1995, the Bank transferred a portion of the portfolio from
securities held to maturity to the available for sale classification.
These securities had an amortized cost of $11,566 and an unrealized loss
of $68 on the date of transfer. This one-time reassessment of securities
was done in compliance with the "Guide to Implementation of Statement 115
on Accounting for Certain Investments in Debt and Equity Securities,"
issued by the Financial Accounting Standards Board.
7
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans at March 31, 1996 and December 31,
1995 by major classification:
March 31, December 31,
1996 1995
Real estate loans - mortgage $ 100,393 $ 95,451
- construction 7,232 5,453
Commercial and industrial loans 26,487 23,133
Loans to individuals for household,
family and other consumer expenditures 27,863 28,095
Agriculture 1,927 1,032
All other loans, including overdrafts 266 334
Gross loans 164,168 153,498
Less unearned income (1,089) (1,094)
Less reserve for loan losses (2,267) (2,242)
Net loans 160,812 150,162
8
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, continued
Changes in the reserve for loan losses for the quarter ended March 31,
1996 and 1995 and the year ended December 31, 1995 are summarized as follows:
Quarter Ended
March 31, December 31,
1996 1995 1995
Balance, beginning of period $ 2,242 $ 2,220 $ 2,220
Charge-offs:
Commercial, financial, and agricultural 30 55 133
Real Estate - construction and mortgage 0 3 3
Loans to individuals 60 53 313
Total charge-offs $ 90 $ 111 $ 449
Recoveries:
Commercial, financial, and agricultural $ 24 $ 104 $ 166
Real Estate - construction and mortgage 3 4 44
Loans to individuals 38 28 151
Total recoveries $ 65 $ 136 $ 361
Net charge-offs/(recoveries) $ 25 $ (25) $ 88
Additions charge to operations $ 50 $ 65 $ 110
Balance, end of period $ 2,267 $ 2,310 $ 2,242
Ratio of net charge-offs during the period
to average loans outstanding during the
period .02% - .06%
The entire balance is available to absorb future loan losses.
At March 31, 1996 and December 31, 1995 loans on which no interest was being
accrued totalled approximately $436 and $479, respectively and foreclosed
real estate totalled $3 and $0, respectively.
NOTE 5 - PREMISES AND EQUIPMENT
Property at March 31, 1996 and December 31, 1995 is summarized as
follows:
March 31, December 31,
1996 1995
Land and buildings $ 8,175 $ 8,175
Furniture, fixtures and equipment 5,218 5,454
Construction in progress - -
$ 13,393 $ 13,629
Less accumulated depreciation and
amortization 6,428 6,463
$ 6,965 $ 7,166
Depreciation and amortization of bank premises and equipment charged to
operating expense was $243 for the quarter ended March 31, 1996 and $666 for
the year ended December 31, 1995.
9
NOTE 6 - CERTIFICATES OF DEPOSIT IN EXCESS OF $100,000
At March 31, 1996 and December 31, 1995, certificates of deposit of
$100,000 or more included in time deposits totaled approximately $29,149 and
$28,507 respectively. Interest expense on these deposits was approximately
$375 for the quarter ended March 31, 1996 and $1,182 for the year ended
December 31, 1995.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At March 31, 1996 and December 31, 1995, securities sold under
repurchase agreements totaled approximately $42,373 and $36,935. U.S.
Government securities with a book value of $51,217 ($51,174 market value) and
$52,193 ($52,543 market value), respectively, are used as collateral for the
agreements. The weighted-average interest rate of these agreements was 4.94
percent and 5.10 percent at March 31, 1996 and December 31, 1995.
NOTE 8 - LINES OF CREDIT
At March 31, 1996, 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 $5,977 at March 31,
1996. The amount outstanding under the note totaled $1,981 and $766 at March
31, 1996 and December 31, 1995, respectively.
NOTE 9 - INCOME TAXES
Income tax expense for the quarter ended March 31, 1996 and March 31,
1995 on pretax income of $1,377 and $1,343 totalled $450 and $414
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, 1996.
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, 1996, commitments to extend credit totalled $13,418; financial standby
letters of credit totalled $685; and performance standby letters of credit
totalled $831. 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 quarter ended March
31, 1996 and years ended December 31, 1995, 1994 and 1993, $81, $266, $295,
and $273, 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 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, 1996:
Conway National Bank
Ratios
Required
Minimum Actual
Tier I Leverage Capital 4.0% 9.3%
Tier I Risk-based Capital 4.0% 17.9%
Total Risk-based Capital 8.0% 19.2%
11
NOTE 13 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of CNB Corporation (parent
company only):
CONDENSED BALANCE SHEET
MARCH 31, 1996
(Unaudited)
ASSETS
Cash $ 1,449
Investment in subsidiary 31,032
Fixed assets 245
Other assets 37
$ 32,763
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liability $ 0
Stockholders' equity 32,763
$ 32,763
CONDENSED STATEMENT OF INCOME
For the three-month period ended March 31, 1996
(Unaudited)
EQUITY IN NET INCOME OF SUBSIDIARY $ 954
OTHER INCOME 0
OTHER EXPENSES (27)
Net Income $ 927
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 9.5% from $148,877 at March 31, 1995 to $163,079 at March 31, 1996
but have decreased slightly as a percentage of total assets from 49.3% to
48.7% over the same period as loan demand has remained strong in our market.
Securities and federal funds sold have remained relatively constant as a
percentage of total assets from 44.1% at March 31, 1995 to 44.0% at March
31, 1996. 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 remained constant as a percentage of total assets from
13.9% at March 31, 1995 to 13.9% at March 31, 1996. 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 not changed
from 62.3% of total assets at March 31, 1995 to 62.3% at March 31, 1996 while
securities sold under agreement to repurchase have decreased slightly from
12.8% to 12.7% 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,
1996 and 1995:
March 31,
Assets: 1996 1995
Earning assets:
Loans, net of unearned income 48.7% 49.3%
Investment securities 22.7 27.3
Securities Available for Sale 19.3 13.2
Federal funds sold and securities purchased
under agreement to resell 2.0 3.6
Other earning assets - -
Total earning assets 92.7 93.4
Other assets 7.3 6.6
Total assets 100.0% 100.0%
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits 62.3% 62.3%
Federal funds purchased and securities sold
under agreement to repurchase 12.7 12.8
Other short-term borrowings .6 .3
Obligations under mortgages and capital leases - -
Total interest-bearing liabilities 75.6 75.4
Noninterest-bearing deposits 13.9 13.9
Other liabilities .7 .7
Stockholders' equity 9.8 10.0
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, 1996 and 1995 of $927 and $929, respectively, resulting in a return
on average assets of 1.12% and 1.24% and a return on average stockholders'
equity of 11.39% and 12.64%.
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 $32,878 or 10.9% from
$302,041 at March 31, 1995 to $334,919 at March 31, 1996. The following
table sets forth the financial highlights for the three-month periods ending
March 31, 1996 and March 31, 1995:
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
1996 1995 (Decrease)
Net interest income after provision for
loan losses 3,169 3,080 2.9%
Income before income taxes 1,377 1,343 2.5
Net Income 927 929 (.2)
Per Share (1) 1.94 1.94 0
Cash dividends declared 0 0 0
Per Share (1) 0 0 0
Total assets 334,919 302,041 10.9%
Total deposits 255,555 230,347 10.9
Loans, net of unearned income 163,079 148,877 9.5
Investment securities 140,815 122,384 15.1
Stockholders' equity 32,763 30,299 8.1
Book value per share 68.65 63.38 8.3
Ratios (1):
Annualized return on average total assets 1.12% 1.24% (9.7)%
Annualized return on average stockholders'
equity 11.39% 12.64% (9.9)%
(1) For the three-month period ended March 31, 1996 and March 31, 1995,
average total assets amounted to $332,090 and $298,990 with average
stockholders' equity totaling $32,555 and $29,389, 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 1996 and 1995. 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, 1996 and 1995 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 1.7% increase from $3,263
for the three-month period ended March 31, 1995 to $3,317 for the
three-month period ended March 31, 1996. During the same period, total
fully-tax-equivalent interest income increased by 7.8% from $5,559 to $5,992
and total interest expense increased by 16.5% from $2,296 to $2,675.
Fully-tax-equivalent net interest income as a percentage of total
earning assets has shown a decrease of .39% from 4.68% for the three-month
period ended March 31, 1995 to 4.29% for the three-month period ended March
31, 1996.
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 3/31/96 Three Months Ended 3/31/95
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 $158,008 $ 3,708 9.39% $146,821 $ 3,470 9.45%
Securities:
Taxable 128,170 1,872 5.84 110,050 1,642 5.97
Tax-exempt 14,293 288 8.06 15,479 348 8.99
Federal funds sold and
securities purchased under
agreement to resell 9,052 124 5.48 6,806 99 5.82
Other earning assets 0 0 - 0 0 -
Total earning assets 309,523 5,992 7.74 279,156 5,559 7.97
Other assets 22,567 19,834
Total assets $332,090 $298,990
Liabilities and stockholder equity
Interest-bearing liabilities:
Interest-bearing deposits $206,390 2,108 4.09 $191,322 $ 1,850 3.87
Federal funds purchased and
securities sold under
agreement to repurchase 44,812 550 4.91 35,071 423 4.82
Other short-term borrowings 996 17 6.83 1,647 23 5.59
Obligations under mortgages
and capitalized leases 9 0 8.00 17 0 8.00
Total interest-bearing
liabilities $252,207 $ 2,675 4.24 $228,057 $ 2,296 4.03
Noninterest-bearing deposits 46,285 39,938
Other liabilities 1,043 1,606
Stockholders' equity 32,555 29,389
Total liabilities and
stockholders' equity $332,090 $298,990
Net interest income as a percent
of total earning assets $309,523 $ 3,317 4.29 $279,156 $ 3,263 4.68
(1) Tax-equivalent adjustment
based on a 34% tax rate $ 98 $ 118
Ratios:
Annualized return on average total assets 1.12 1.24
Annualized return on average stockholders' equity 11.39 12.64
Cash dividends declared as a percent of net income 0 0
Average stockholders' equity as a percent of:
Average total assets 9.80 9.83
Average total deposits 12.88 12.71
Average loans, net of unearned income 20.60 20.02
Average earning assets as a percent of
average total assets 93.20 93.37
16
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Three Months Ended March 31, 1996 and 1995
(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
1996 1995 1996 (1) 1995 (1) 1996 (1) 1995 (1) Variance Rate Volume Volume
Earning Assets:
Loans, Net of unearned
income (2) 158,008 146,821 9.39% 9.45% 3,708 3,470 238 (22) 262 (2)
Investment securities:
Taxable 128,170 110,050 5.84% 5.97% 1,872 1,642 230 (36) 270 (4)
Tax-exempt 14,293 15,479 8.06% 8.99% 288 348 (60) (36) (27) 3
Federal funds sold and
securities purchased under
agreement to resell 9,052 6,806 5.48% 5.82% 124 99 25 (6) 33 (2)
Other earning assets 0 0 - - 0 0 0 - - -
Total Earning Assets 309,523 279,156 7.74% 7.97% 5,992 5,559 433 (100) 538 (5)
Interest-bearing Liabilities:
Interest-bearing deposits 206,390 191,322 4.09% 3.87% 2,108 1,850 258 105 146 7
Federal funds purchased and
securities sold under
agreement to repurchase 44,812 35,071 4.91% 4.82% 550 423 127 8 117 2
Other short-term borrowings 996 1,647 6.83% 5.59% 17 23 (6) 5 (9) (2)
Mortgage indebtedness and
obligations under capital-
ized leases 9 17 8.00% 8.00% 0 0 0 - - -
Total Interest-bearing
Liabilities 252,207 228,057 4.24% 4.03% 2,675 2,296 379 118 254 7
Interest-free Funds
Supporting Earning Assets 57,316 51,099
Total Funds Supporting
Earning Assets 309,523 279,156 3.45% 3.29% 2,675 2,296 379 118 254 7
Interest Rate Spread 3.50% 3.94%
Impact of Non-interest-
bearing Funds on Net Yield
on Earning Assets .79% .74%
Net Yield on Earning Assets 4.29% 4.68% 3,317 3,263
(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 $50 for the three-month period
ended March 31, 1996 and $65 for the three-month period ended March 31,
1995. Net loan charge-offs totaled $25 for the three-month period ended
March 31, 1996 and $(25) for the same period in 1995.
The reserve for possible loan losses as a percentage of net loans was 1.41%
at March 31, 1996 and 1.58% at March 31, 1995. The continued modest
provisions during the three-month periods ended March 31, 1996 and 1995 are
due to continued low net loan charge-off experience.
Securities Transactions - The bank recognized a gain on security transactions
for the three-month period ended March 31, 1996 of $38 and recognized a $26
gain during the first quarter of 1995. Management sold approximately $2
million and $3 million, respectively in treasury bonds to fund loan growth
and to adjust the Bank's interest rate sensitivity position. At March 31,
1996, December 31, 1995, and March 31, 1995 market value appreciation/
(depreciation) in the investment portfolio totaled $149, $1,546, and
$(1,813), respectively. As indicated, market value was sharply increased due
to falling market interest rates in 1995 but has declined somewhat in 1996.
Other Income - Other income, net of any gains/losses on security
transactions, increased by 9.9% from $593 for the three-month period ended
March 31, 1995 to $652 for the three-month period ended March 31, 1996
primarily due to an increase in deposit account volumes and higher merchant
discount income.
Other Expenses - Other expenses increased by 5.3% from $2,356 for the
three-month period ended March 31, 1995 to $2,482 for the three-month period
ended March 31, 1996. The major components of other expenses are salaries
and employee benefits which increased 6.6% from $1,342 to $1,431; occupancy
expense which increased 26.2% from $366 to $462; and other operating
expenses which decreased by 9.1% from $647 to $588. As anticipated, overhead
expenses associated with substantial 1994-1995 purchases of electronic data
processing equipment and drive-up automated teller machines, as well as the
construction, equipping, and staffing of the Myrtle Beach Office, continue to
impact earnings. However, total operating expense growth has been offset
somewhat by a decrease of $132 in FDIC insurance premium expense as reflected
in the decline in other operating expense.
Income Taxes - Provisions for income taxes increased 8.7% from $414 for the
three-month period ended March 31, 1995 to $450 for the three-month period
ended March 31, 1996. Income before income taxes less interest of
tax-exempt investment securities increased by 6.6% from $1,113 for the
three-month period ended March 31, 1995 to $1,187 for the same period in
1996. State tax liability increased as income before income taxes increased
2.5% from $1,343 to $1,377 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 $32,763, $32,195, $28,857, and $26,820 at
March 31, 1996, December 31, 1995, December 31, 1994, and December 31, 1993,
representing 9.78%, 9.92%, 9.71%, and 9.46% of total assets, respectively.
At March 31, 1996, 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.
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.
In 1994, the Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Stockholders' equity has been
restated in the consolidated statement of changes in stockholders' equity to
reflect the effect of the change in accounting principle. Adoption of the
standard had no effect on net income.
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.
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 9, 1996
20