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SCRIPT: CNB SHAREHOLDER BRIEFING
INTRODUCTION
Since the change in management initiated in June 2005, Conway National
Bank has been busy working to ensure a smooth transition and implement
many new policies that will make CNB competitive and profitable. We
want to update you about the lawsuit challenging our actions and talk
to you about the upcoming shareholders meeting.
GOALS
The change in management was initiated with three goals in mind:
First, to BANK ON THE FUTURE. We want to position Conway National Bank
to be a strong competitor and improve shareholder value;
Second, to BANK IN THE SUNSHINE. We are initiating modern standards of
best corporate practices; and
Third, to BANK ON TRADITION. We are dedicated to making Conway National
Bank a leader in the state and southeast while maintaining our
commitment to our community, our employees and our traditional values.
BANKING ON THE FUTURE
Goal 1: More Competitive and Growth in Value
The overwhelming development of the coastal region of South Carolina
has presented many challenges and opportunities. For CNB, it has been
an opportunity to grow our bank. If you just look at our ranking for
returning shareholder value, you might take pride in our
accomplishments.
In 2001, a hypothetical $100 investment in CNB Corporation stock in
2000 had grown in value to $111 and by 2005 that value had improved to
$199.
But when you look at our return to shareholders compared to other
banks, it is evident that we are being outperformed.
In 2001, while the value of an investment in our stock had grown to
$111, the average value for a hypothetical $100 investment made in 2000
in the stock of the Carson Medlin Independent Bank Index was $124. That
Index covers 25 independent community banks in the southeast. So in
2001 our performance gap was $13 behind the average index bank. Not
bad, but still below average.
By 2005, while the value of an investment in CNB stock had increased to
$199, the independent community bank average investment value had
leaped to $252. Our performance gap had grown to $53.
While our growth numbers look good in isolation, when compared with the
potential and our competitors, we have fallen behind. That $53 gap
represents business that CNB could potentially have had. The gap
1
represents customers for which we could have and should have competed
IF we had only competed hard enough just to be average! And this, of
course, would have meant higher returns on your investment as a
shareholder.
A majority of the Directors of the bank knew it was their
responsibility to ask the tough questions. So management was asked, why
aren't we doing better? We're doing OK. But could we be doing better?
Satisfactory answers were not forthcoming.
CNB had become a 20th century dinosaur in a 21st century market.
o There was no comprehensive strategic plan.
o CNB was two decades behind in technology. Employees not only didn't
have direct e-mail access, they were without telephone voice mail. This
increased the perception that CNB was out of touch and hampered
communications with customers.
o Our loan officers did not have adequate authority to make decisions and
total loans to a single customer were limited to $5 million. This
unduly restrictive and bureaucratic policy crippled our ability to
compete. And CNB's refusal to partner with other small banks to seize
opportunity meant we were losing opportunity.
o The Board's Credit Committee, established to review loans of more than
$300,000, did not review any loans for approval from June 2004 to June
2005.
o According to annual surveys comparing compensation among financial
institutions in the region, CNB's employee compensation lagged far
behind. This trend pointed to a future that would make it hard to hold
and attract good financial talent.
The South Carolina Business Corporation Act specifies the legal role of
directors as follows:
"the business and affairs of a corporation must be
managed under the direction of a board of directors."
Code of Laws of South Carolina, 1976, as amended, Section
33-8-101(c)
Simply put, this means that corporations are run by their directors who
are ultimately responsible for the corporations' actions and for the
success or failure of the corporation. When the directors concluded
that the senior management of the bank (Willis and Jennings Duncan) did
not share their goals and concerns and were not willing to change their
management practices, a change in management had to be initiated.
Under new management since June of last year, lending policies have
been modernized, technology has been upgraded and CNB's salary
2
structure has been brought to market to help us attract and retain
great employees and the best and brightest financial minds. We have
instituted a number of new policies to poise us for great progress.
And it's working. All of these innovations have made a difference. Over
the last year our growth rates have improved for net income, assets,
total loans and deposits. [SEE 2005 FINANCIAL REPORT BROCHURE FOR BAR
CHARTS] CNB is poised for great growth in a very exciting market. We
believe we can become one of the best banks in the region with
improving return on investment for you.
BANKING IN THE SUNSHINE
Goal 2. Ensure Management Accountability and Shareholder Access to
Governance and Performance Information.
Besides concerns about the financial competitiveness of the bank, the
independent directors grew more and more concerned about the way CNB
was being governed.
In the wake of the Enron scandal, Congress passed a new law that sets
new standards of governance for public corporations. This law,
Sarbanes-Oxley, emphasizes accountability, openness and sunshine on
corporate governance practices. It is clear that directors of
corporations should always avoid conflicts of interests and put the
corporations' interest ahead of their own personal interest. This is
particularly true for financial institutions, like banks.
The Sarbanes-Oxley law has changed the climate for doing business and
makes it clear that the broad responsibility for setting corporate
policy and culture rests with the Directors.
Our independent Directors repeatedly asked questions that arose from
concerns about governance. They were particularly concerned with the
structure of CNB's board and the procedures that were followed in
conducting meetings.
The Executive Committee, which was authorized to act for the board in
between board meetings, was not making timely reports on its actions to
the Board. Minutes were not distributed appropriately and its actions
were neither approved nor reviewed by the full Board.
Against recommendations of the Comptroller of the Currency, the primary
federal regulator for national banks, the Compensation Committee was
composed of one outside director (independent director) and two inside
directors (the then Chairman and President). This means the Chairman
and President were in a position of conflict of interest when
establishing salaries and benefits for themselves.
3
The Board has now reorganized and formed a Governance Committee and
Compensation Committee that have taken the place of the old Executive
Committee. The new Compensation Committee is made up entirely of
independent Directors, so no inside Director has a role in setting his
employee compensation. The Governance Committee is also made up wholly
of independent Directors and serves as the nominating committee for
Board seats.
Issues about proper governance and competitiveness were repeatedly
raised with management and answers were either not forthcoming or given
token attention without any remedial action being taken. This was
simply not acceptable. After months of raising these issues with senior
management with unsatisfactory responses and seeing no other
alternative, a majority of the board of directors reluctantly decided
that management would have to be replaced.
BANKING ON TRADITION
Goal 3. Maintain Traditional Values. That brings us to our third goal -
maintaining traditional values.
No one set out with a goal to change management. But, in the end, that
became a necessary step to accomplish the goals of governance in the
sunshine and growing shareholder value.
Every effort was made to proceed in an honorable fashion. An attorney
who had worked with the bank in the past was consulted for legal
advice. The Chairman and President were informed that they would be
replaced prior to the board meeting.
At the June 2005 Board meeting when the vote was taken to install new
leadership, Mr. Willis Duncan and Mr. Jennings Duncan left immediately
after the vote. They were treated with all due respect as they exited
and the Security Guard on duty politely opened the door for them as he
does for all Board members who leave the building.
This was a very difficult situation and it is important for you to know
that every effort was made to manage it as fairly and courteously as
possible.
THE FUTURE - SHAREHOLDERS MEETING
As we look to the future of CNB Corporation, we hope you will support
us by electing directors who share these goals: positioning the bank to
succeed in a growing and competitive market, ensuring compliance with
governance best practices, and holding onto our traditional values.
We are asking you to help us improve the return on your investment in
CNB by electing four directors who share our goals: Billy Benson, Paul
Dusenbury, George Goldfinch, and Russell Holliday.
4
This outstanding slate of candidates is the perfect blend of progress
and tradition. Each is steeped in our community and traditional values
but also has outstanding financial skills and business experience. CNB
can look forward to an exciting and profit oriented future under their
leadership.
William R. Benson (Billy) knows banking thoroughly. He's been a banker
for thirty years and currently manages CNB's largest loan portfolio. He
graduated from the National Commercial Lending School of the University
of Oklahoma and from the Graduate School of Banking of the South at
LSU.
His knowledge of banking is only matched by his knowledge of this
region. Mr. Benson grew up in Conway and has led the Horry County
United Way and Conway Rotary Club and currently serves as a Trustee at
the Conway Hospital.
Paul Dusenbury is the current Chief Financial Officer and Treasurer of
CNB and has been employed by CNB for twenty-four years. Prior to
joining the bank, he worked for the Office of the Comptroller of the
Currency as a bank examiner. Paul brings his expertise in regulatory
compliance along with his financial skills to the Board of Directors.
After graduating from Conway High School, Paul earned a degree in
Financial Management from Clemson University and has received extensive
training in banking schools and professional seminars.
Paul has given back to our community applying his management skills to
such civic endeavors as past Chair of the Conway Hospital and current
participation in the Horry County Comprehensive Plan Steering
Committee.
George Heyward Goldfinch, Jr. has led Goldfinch Funeral Services, Inc.
and Hillcrest Cemetery for almost a decade. The business has grown to
become the largest funeral business in the Grand Strand market with
offices in Conway, Murrells Inlet and Pawleys Island. CNB has long
enjoyed a successful relationship with Goldfinch Funeral Services and
will certainly benefit from Mr. Goldfinch's perspective as a customer
that he will bring to his directorship.
Mr. Goldfinch also enjoys a family history with CNB. His father served
as a director for 25 years. He appreciates the traditional values
represented through his 75 year old family business and gives back to
our community through leadership of our Conway Hospital Foundation,
Chamber of Commerce, and his Methodist church.
M. Russell Holliday, Jr. has an extensive background in marketing and
finance with work experience ranging from being a registered stock
broker with Morgan Stanley to marketing with Town and Country and
Redbook magazines. She is currently president of Monroe Management, an
asset management company.
Russell is just as committed to our community as was her father who
also served as a Director of CNB, Corporation. Russell is known for her
5
work in health and education as well as for her athletic prowess. She
is an intense competitor in tennis, golf and game hunting and we know
she will bring that spirit of competition to CNB.
SHAREHOLDERS MEETING
We will be meeting May 9 to elect our directors and it is very
important that you have all the reasonable information you feel you
need to make a decision.
You will receive a packet of information in the mail that will contain
a `proxy statement'. This statement will give required information
about the meeting and ask you for your proxy to vote for the four
candidates nominated by the Board of Directors. This information is
important so please read it carefully.
I hope you will mark, sign and date the proxy and return it to CNB
Corporation.
Or you can come to the meeting and cast your vote directly.
ASSESSMENT/CLOSURE
Please feel free to contact me any time during the coming month to
discuss any issues or answer any questions. Do you have any questions
now?
Have you decided to support our nominees for the Board? If undecided,
what information do you need to help you make up your mind?
I appreciate your time and look forward to working with you to keep
Conway National thriving. This election is not about who is good and
who is bad - it's about whether Conway National Bank will be run like a
small, family owned bank of the early 20th century owned by a handful
of people or whether it will compete on modern terms in one of the
hottest banking markets in the country. I hope you'll decide it's time
to compete and profit.
Note: The following pages contain a description of slides used in connection
with the oral presentation. Each page contains the logo of The Conway
National Bank which is the following text displayed in various fonts:
CNB
The Conway National Bank
Serving Our Community Since 1903
Member FDIC
The logo is indicated on the following pages as [LOGO].
[LOGO]
Shareholder Briefing
Purpose of Meeting
o Overview of situation
o Lawsuit update
o Shareholder meeting
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
Board Goals
o Bank on the Future
- Competitive bank
- Improve shareholder value
o Bank in the Sunshine
- Best practices for accountability and transparency
o Bank on Tradition
- Leadership
- Community
- History
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
Goal I: Bank on the Future
o Competitiveness
o Shareholder value
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
Goal I: Bank on the Future
o Competitiveness
o Shareholder value
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
PERFORMANCE
Shareholder Value
$100 ==> CNB $111 ==> $199
Invested
2000 2001 2005
Source: The Carson Medlin Company's Independent Bank Index
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
PERFORMANCE
Shareholder Value
Comparison
$100 ==> CNB $111 ==> $199
$100 ==> Independent $124 ==> $252
SE Bank
Invested
2000 2001 2005
PERFORMANCE GAP $13 $53
Source: The Carson Medlin Company's Independent Bank Index
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
Problems
o No comprehensive strategic plan
o Old technology
o Lagging compensation plan
o Obsolete lending policies
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
SC Business Corporation Act
" ... The business and affairs of a corporation must be managed under the
direction of a board of directors."
- -Code of Laws of SC, 1976, as amended section 33-8-101(c)
DIRECTORS ARE RESPONSIBLE
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
Only Option:
Change Leadership
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
Solutions
o Strategic Plan
o Technology
o Compensation Plan
o Lending Policies
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
Growth Rates
Net Income Total Loans
8.05% 14.44% 12.42% 23.82%
----- ------ ------ ------
2004 2005 2004 2005
Assets Deposits
11.93% 18.13% 11.38% 19.05%
------ ------ ------ ------
2004 2005 2004 2005
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
Goal II: Bank in the Sunshine
Sarbanes-Oxley Act of 2002
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
Governance Issues
Executive Committee - majority inside directors
(Nominating and compensation functions)
Governance Committee (Nominating)
independent directors Compensation Committee independent
directors
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
Only Option:
Change Leadership
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
Goal III: Bank on Tradition
o Respect and fairness
o Communications
o Attorney consultation
o Meeting with management
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
The Future
Elect Directors who share our goals
o Bank on the Future: Position CNB to succeed.
o Bank in the Sunshine: Ensure governance based on best practices.
o Bank on Tradition: Sustain values that have made us strong.
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
CNB Nominees
Billy Benson has been a banker for 30 years and currently manages CNB's largest
loan portfolio as a CNB Senior Vice President. He holds degrees from USC, the
National Commercial Lending School of the University of Oklahoma and from the
Graduate School of Banking of the South from LSU. Billy has led the Horry County
United Way and Conway Rotary Club and currently serves as a trustee at the
Conway Medical Center. [Photo of Mr. Benson]
[Photo of Mr. Dusenbury] Paul Dusenbury is the current Chief Financial Officer
and Treasurer of CNB and has been employed by CNB for twenty-five years. Paul
earned a degree in financial management from Clemson University and was formerly
employed as a national bank examiner. He has served as a chair of the Conway
Hospital and currently participates on the Horry County Comprehensive Plan
Steering Committee.
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
George Heyward Goldfinch heads Goldfinch Funeral Service, Inc. and Hillcrest
Cemetery. He is a graduate of USC and the Gupton Jones College of Mortuary
Science. George chairs the Conway Hospital Foundation, is vice president of the
Chamber of Commerce and is a director of Conway Medical Center. His father was a
CNB director [Photo of Mr. Goldfinch]
[Photo of Ms. Holliday] M. Russell Holliday, Jr., since 1985, has been active in
management of various Holliday family interests and is currently president of
Monroe Management, an asset management company. She is a Converse College
graduate and member of The Citadel Foundation board of directors and the Medical
University of South Carolina Hollings Cancer Center. Her father also served as a
director of CNB.
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
Shareholders Meeting: May 9, 2006
o Voting Options
- Return proxy form
- Attend meeting and vote in person
o Show support for current board and its vision
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]
Q & A
Bank on the Future | Bank in the Sunshine | Bank on Tradition [LOGO]