FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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For Quarter Ended June 30, 2002 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 29528
(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 June 30, 2002 was 716,827.
CNB Corporation
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2002, 1
December 31, 2001 and June 30, 2001
Consolidated Statement of Income for the Three Months 2
and Six Months Ended June 30, 2002 and 2001
Consolidated Statement of Comprehensive Income 3
for the Three Months and Six Months Ended
June 30, 2002 and 2001
Consolidated Statement of Changes in Stockholders' 4
Equity for the Six Months Ended June 30, 2002
and 2001
Consolidated Statement of Cash Flows for the Six Months 5
Ended June 30, 2002 and 2001
Notes to Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis of Financial 14-23
Condition and Results of Operations
Item 3. Qualitative and Quantitative Disclosures About Market Risk 24
Item 4. Submission of Matters to a Vote of Security Holders 24
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURE 25
CNB Corporation and Subsidiary
Consolidated Balance Sheets
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
ASSETS: |
June 30, (150) 59,131 563,067 |
December 31, (221) 53,996 505,725 |
June 30, (355) 52,277 512,504 |
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CNB Corporation and Subsidiary
Consolidated Statement of Income
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
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Three Months Ended June 30, |
Six Months Ended |
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2002 |
2001 |
2002 |
2001 |
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CNB Corporation and Subsidiary
Consolidated Statement of Comprehensive Income
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
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Six Months |
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2002 |
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2002 |
2001 |
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Other comprehensive income, net of tax |
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CNB Corporation and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity
(All Dollar Amounts in Thousands)
(Unaudited)
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Six Months Ended |
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2002 |
2001 |
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Note: Columns may not add due to rounding.
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CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
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For the six-month period ended |
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Net cash provided by operating |
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FINANCING ACTIVITIES |
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(4,225) 27,895 $ 23,670 $ 5,204 $ 1,734 |
(887) 20,239 $ 19,352 $ 8,209 $ 1,354 |
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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, 716,720 for the six-month period ended June 30, 2002 and 714,702 for the six-month period ended June 30, 2001.
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 six-month period ended June 30, 2002 and for the years ended December 31, 2001 and 2000 were approximately $9,933, $9,103, and $8,852, respectively.
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NOTE 3 - INVESTMENT SECURITIES
Investment securities with a par value of approximately $90,500 at June 30, 2002 and $76,640 at December 31, 2001 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 June 30, 2002 and at December 31, 2001.
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June 30, 2002 Value Gains Losses Value Yield(1) |
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(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended June 30, 2002, 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 $2,637 as of June 30, 2002.
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NOTE 3 - INVESTMENT SECURITIES (Continued)
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December 31, 2001 Value Gains Losses Value Yield(1) |
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(1) Tax equivalent adjustment based on a 34% tax rate
As of the quarter ended December 31, 2001, 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 $1,435 as of December 31, 2001.
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NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans at June 30, 2002 and December 31, 2001 by major classification:
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June 30, December 31, |
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$203,609 |
$187,808 |
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NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, continued
Changes in the reserve for loan losses for the quarter ended and six-month period ended June 30, 2002 and 2001 and the year ended December 31, 2001 are summarized as follows:
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Quarter Ended Six Months Ended December |
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73 12 140 $ 225 $ 76 4 29 $ 109 $ 116 $ 215 $ 3,984 |
4 121 $ 265 $ 33 0 48 $ 81 $ 184 $ 130 $ 3,762 |
160 45 273 $ 478 $ 120 13 76 $ 209 $ 269 $ 490 $ 3,984 |
183 29 255 $ 467 $ 44 2 81 $ 127 $ 340 $ 320 $ 3,762 |
383 96 470 $ 949 $ 106 31 168 $ 305 $ 644 $ 625 $ 3,763 |
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The entire balance is available to absorb future loan losses.
At June 30, 2002 and December 31, 2001 loans on which no interest was being accrued totalled approximately $805 and $633, respectively and foreclosed real estate totalled $40 and $64, respectively; and loans 90 days past due and still accruing totalled $111 and $138, respectively.
OTHER INTEREST-BEARING ASSETS
As of June 30, 2002, the Company does not have any interest-bearing assets that would be required to be disclosed under Item III.C.1. or 2. if such assets were loans.
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NOTE 5 - PREMISES AND EQUIPMENT
Property at June 30, 2002 and December 31, 2001 is summarized as follows:
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June 30 |
December 31, |
Depreciation and amortization of bank premises and equipment charged to operating expense was $159 and $319 for the quarter ended and the six-month period ended June 30, 2002, respectively and $650 for the year ended December 31, 2001.
NOTE 6 - CERTIFICATES OF DEPOSIT IN EXCESS OF $100,000
At June 30, 2002 and December 31, 2001, certificates of deposit of $100,000 or more included in time deposits totaled approximately $94,618 and $68,608 respectively. Interest expense on these deposits was approximately $647 and $1,270 for the quarter ended and the six-month period ended June 30, 2002, respectively, and $4,627 for the year ended December 31, 2001.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At June 30, 2002 and December 31, 2001, securities sold under repurchase agreements totaled $32,134 and $32,821. U.S. Government securities with a book value of $33,498 ($34,307 market value) and $37,599 ($38,631 market value), respectively, are used as collateral for the agreements. The weighted-average interest rate of these agreements was 1.82 percent and 1.91 percent at June 30, 2002 and December 31, 2001.
NOTE 8 - LINES OF CREDIT
At June 30, 2002, the Bank had unused short-term lines of credit to purchase Federal Funds from unrelated banks totaling $23,000. 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 $7,000 under the arrangement at a variable interest rate. The note is secured by U.S. Treasury and Agency Notes with a market value of $6,329 at June 30, 2002. The amount outstanding under the note totaled $2,611 and $653 at June 30, 2002 and December 31, 2001, respectively.
The Bank also has a line of credit from the Federal Home Loan Bank of Atlanta for $84,304 secured by a lien on the Bank's 1-4 family mortgages. Allowable terms range from overnight to twenty years at varying rates set daily by the FHLB. The amount outstanding under the agreement totalled $1,403 and $1,485 at June 30, 2002 and December 31, 2001, respectively.
NOTE 9 - INCOME TAXES
Income tax expense for the quarter ended June 30, 2002 and June 30, 2001 on pretax income of $2,890 and $2,323 totalled $889 and $714 respectively. Income tax expense for the six-month period ended June 30, 2002 and June 30, 2001 on pretax income of $5,584 and $4,304 totalled $1,727 and $1,329 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 are included in fiscal year-end reports.
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NOTE 9 - INCOME TAXES (Continued)
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
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 June 30, 2002.
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 June 30, 2002, commitments to extend credit totalled $30,814; financial standby letters of credit totalled $817; and performance standby letters of credit totalled $458. In the opinion of management, no material losses or liabilities are expected as a result of these transactions.
Additionally, the bank subsidiary has outstanding commitments for the construction of a new branch facility located in North Myrtle Beach, S.C. in the amount of $601 and for the construction of a new main retail office in Conway, S.C. in the amount of $5,093.
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 three percent of employee salary deferred and fifty percent of employee contributions in excess of three percent and up to five percent of salary deferred. The Board of Directors may also make discretionary contributions to the Plan. For the three-month and six-month periods ended June 30, 2002 and years ended December 31, 2001, 2000 and 1999, $128, $252, $426, $404, and $423, 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 presented in the table below as of June 30, 2002:
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To be |
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$56,667 |
17.06% |
$26,579 |
8.0% |
$33,224 |
10.0% |
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NOTE 13 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of CNB Corporation (parent company only):
CONDENSED BALANCED SHEET |
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ASSETS |
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CONDENSED STATEMENT OF INCOME |
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DISCUSSION OF FORWARD-LOOKING STATEMENTS
Information in the enclosed report, other than historical information, may contain forward-looking statements that involve risks and uncertainties, including, but not limited to, timing of certain business initiatives of the Company, the Company's interest rate risk condition, and future regulatory actions of the Comptroller of the Currency and Federal Reserve System. It is important to note that the Company's actual results may differ materially and adversely from those discussed in forward-looking statements.
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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. The accompanying consolidated financial statements include all accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements at June 30, 2002 and for the six-month periods ending June 30, 2002 and 2001 have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial inf ormation and with the instructions to Form 10-Q for the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
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 only increased 4.9% from $293,501 at June 30, 2001 to $307,925 at June 30, 2002 and have decreased as a percentage of total assets from 57.3% to 54.7% over the same period as loan demand has lessened in our market. Securities and federal funds sold have increased as a percentage of total assets from 35.6% at June 30, 2001 to 38.1% at June 30, 2002 as lending has slowed. 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 16.3% at June 30, 2001 to 16.7% at June 30, 2002. As more customer s, both business and personal, are attracted to interest-bearing deposit accounts, we expect the percentage of demand deposits to decline over the long-term. Interest-bearing deposits have decreased slightly from 65.9% of total assets at June 30, 2001 to 65.7% at June 30, 2002 while securities sold under agreement to repurchase have decreased from 5.8% to 5.7% over the same period.
The following table sets forth the percentage relationship to total assets of significant components of the corporation's balance sheet as of June 30, 2002 and 2001:
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RESULTS OF OPERATION
CNB Corporation experienced earnings for the three-month period ended June 30, 2002 and 2001 of $2,001 and $1,609, respectively, resulting in a return on average assets of 1.46% and 1.28% and a return on average stockholders' equity of 14.14% and 12.58%.
CNB Corporation experienced earnings for the six-month period ended June 30, 2002 and 2001 of $3,857 and $2,975, respectively, resulting in a return on average assets of 1.45% and 1.20% and a return on average stockholders' equity of 13.79% and 11.83%.
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 $50,563 or 9.9% from $512,504 at June 30, 2001 to $563,067 at June 30, 2002. The following table sets forth the financial highlights for the three-month and six-month periods ending June 30, 2002 and June 30, 2001:
CNB Corporation |
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(1) For the three-month period ended June 30, 2002 and June 30, 2001, average total assets amounted to $546,582 and $503,394 with average stockholders' equity totaling $56,594 and $51,158, respectively. For the six-month period ended June 30, 2002 and June 30, 2001, average total assets amounted to $530,391 and $495,982 with average stockholders' equity totaling $55,922 and $50,299 respectively.
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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 2002 and 2001. 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 mann er that will limit interest rate risk and thus stabilize long-run earning power. Management believes that a rise or fall in interest rates will not materially effect earnings.
The Bank maintained net interest margins for the three-month and six-month periods ended June 30, 2002, of 4.47% and 4.51%, respectively, and 4.02% and 4.03%, respectively, for the same periods in 2001. 2002 margins meet or exceed management's long-term target of 4.50%, but 2001 net interest margins fell due to an unusually rapid decline in market interest rates lowering returns available on loans and investments while interest costs on liabilities did not decline as quickly due to strong competitive pressure.
Fully-tax-equivalent net interest income showed a 21.8% increase from $4,684 for the three-month period ended June 30, 2001 to $5,704 for the three-month period ended June 30, 2002. During the same period, total fully-tax-equivalent interest income decreased by 8.5% from $8,764 to $8,019 and total interest expense decreased by 43.3% from $4,080 to $2,315. Fully-tax-equivalent net interest income as a percentage of total earning assets has shown an increase of .45% from 4.02% for the three-month period ended June 30, 2001 to 4.47% for the three-month period ended June 30, 2002.
Fully-tax-equivalent net interest income showed a 19.9% increase from $9,305 for the six-month period ended June 30, 2001 to $11,153 for the six-month period ended June 30, 2002. During the same period, total fully-tax-equivalent interest income decreased by 11.1% from $17,789 to $15,814 and total interest expense decreased by 45.1% from $8,484 to $4,661. Fully-tax-equivalent net interest income as a percentage of total earning assets has shown an increase of .48% from 4.03% for the six-month period ended June 30, 2001 to 4.51% for the six-month period ended June 30, 2002.
The tables on the following four pages present selected financial data and an analysis of net interest income.
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CNB Corporation and Subsidiary |
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Three Months Ended 6/30/02 Three Months Ended 6/30/01 |
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CNB Corporation and Subsidiary |
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Six Months Ended 6/30/02 Six Months Ended 6/30/01 |
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CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Three Months Ended June 30, 2002 and 2001
(Dollars in Thousands)
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(785) 202 89 (251) (745) (1,631) (122) (12) (1,765) (1,765) |
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(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.
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CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Six Months Ended June 30, 2002 and 2001
(Dollars in Thousands)
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(1,905) 352 173 (595) (1,975) (3,466) (329) (28) (3,823) (3,823) |
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(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.
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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 $215 for the three-month period ended June 30, 2002 and $130 for the three-month period ended June 30, 2001. Net loan charge-offs/(recoveries) totaled $116 for the three-month period ended June 30, 2002 and $184 for the same period in 2001.
The provision for possible loan losses was $490 for the six-month period ended June 30, 2002 and $320 for the six-month period ended June 30, 2001. Net loan charge-offs/(recoveries) totaled $269 for the six-month period ended June 30, 2002 and $340 for the same period in 2001.
The reserve for possible loan losses as a percentage of net loans was 1.31% at June 30, 2002 and 1.30% at June 30, 2001. The increased provision during the six-month period ended June 30, 2002 was to maintain the reserve at the previous year's level.
Securities Transactions - Security gains of $183 were taken during the first quarter of 2002 and $169 during the second quarter of 2001. 2002 gains were taken to supplement liquidity and 2001 gains were taken while selling securities near maturity and investing further out on a steeply-sloping yield curve. At June 30, 2002, December 31, 2001, and June 30, 2001 market value appreciation/(depreciation) in the securities portfolio totaled $5,027, $2,999, and $2,015. As indicated, market value has increased in 2002 due to falling market interest rates.
Other Income - Other income, net of any gains/losses on security transactions, increased by 3.1% from $1,261 for the three-month period ended June 30, 2001 to $1,300 for the three-month period ended June 30, 2002.
Other income, net of any gains/losses on security transactions, increased by 3.1% from $2,394 for the six-month period ended June 30, 2001 to $2,469 for the six-month period ended June 30, 2002.
This increase in the three-month and six-month period ended June 30, 2002 other income was due to an increase in deposit account volumes and higher merchant discount income, offset by a slow-down in the refinancing volume in the mortgage loan department. Effective July 1, 2001, overall service charge rates were increased which will correspondingly increase future non-interest income levels.
Other Expenses - Other expenses increased by 5.9% from $3,544 for the three-month period ended June 30, 2001 to $3,752 for the three-month period ended June 30, 2002. The major components of other expenses are salaries and employee benefits which increased 6.9% from $2,205 to $2,357; occupancy expense which increased 4.3% from $462 to $482; and other operating expenses which increased by 4.1% from $877 to $913.
Other expenses increased by 6.1% from $7,009 for the six-month period ended June 30, 2001 to $7,437 for the six-month period ended June 30, 2002. The major components of other expenses are salaries and employee benefits which increased 7.6% from $4,385 to $4,720; occupancy expense which increased 2.5% from $945 to $969; and other operating expense which increased by 4.1% from $1,679 to $1,748.
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The increase in the three-month and six-month period ended June 30, 2002 salaries and employee benefits was due to normal pay increments and the increased costs of providing employee benefits, particularly health insurance coverage. Looking ahead, occupancy expense will grow in the second half of 2002 due to the addition of the North Myrtle Beach Office, and in 2003 due to the construction of a new $5.3 million dollar Main Office Retail Center.
Income Taxes - Provisions for income taxes increased 24.5% from $714 for the three-month period ended June 30, 2001 to $889 for the three-month period ended June 30, 2002. Income before income taxes less interest on tax-exempt investment securities increased by 24.2% from $2,096 for the three-month period ended June 30, 2001 to $2,604 for the same period in 2002. State tax liability increased as income before income taxes increased 24.4% from $2,323 to $2,890 during the same period.
Provisions for income taxes increased 29.9% from $1,329 for the six-month period ended June 30, 2001 to $1,727 for the six-month period ended June 30, 2002. Income before income taxes less interest on tax-exempt investment securities increased by 30.3% from $3,847 for the six-month period ended June 30, 2001 to $5,013 for the same period in 2002 and state tax liability increased as income before income taxes increased 29.7% from $4,304 to $5,584 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 to borrow funds from the Federal Reserve System and the Federal Home Loan Bank of Atlanta. Management feels that short-term and long-term liquidity sources are more than adequate to meet funding needs.
CAPITAL RESOURCES
Total stockholders' equity was $59,131, $53,996, $48,606 and $43,712 at June 30, 2002, December 31, 2001, December 31, 2000, and December 31, 1999, representing 10.50%, 10.68%, 10.32%, and 9.59% of total assets, respectively. At June 30, 2002, the Bank exceeds quantitative measures established by regulation to ensure capital adequacy (see NOTE 12 - REGULATORY MATTERS). Capital is considered sufficient by management to meet current and prospective capital requirements and to support anticipated growth in bank operations.
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EFFECTS OF REGULATORY ACTION
The Federal Deposit Insurance Corporation (FDIC) reduced FDIC insurance premium rates during 1995 which has had a positive effect on subsequent earnings and should favorably impact future year's income. Effective March 11, 2000, the Gramm-Leach-Bliley Act of 1999 allows bank holding companies to elect to be treated as financial holding companies which may engage in a broad range of securities, insurance, and other financial activities. At this time, neither the Company nor the Bank plan to enter these new lines of business. 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.
ACCOUNTING ISSUES
Accounting standards that have been issued or proposed by the Financial Accounting Standards Board and do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
RISKS AND UNCERTAINTIES
In the normal course of its business the Company encounters two significant types of risks: economic and regulatory. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different basis, than its interest-earning assets. Credit risk is the risk of default on the Company's loan portfolio that results from borrower's inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of collateral underlying loans receivable and the valuation of real estate held by the Company.
The Company is subject to the regulations of various governmental agencies. These regulations can and do change significantly from period to period. The Company also undergoes periodic examinations by the regulatory agencies, which may subject it to further changes with respect to asset valuations, amounts of required loss allowances and operating restrictions from the regulators' judgments based on information available to them at the time of their examination.
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Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises principally from interest rate risk inherent in its lending, deposit and borrowing activities. Management actively monitors and manages its interest rate risk exposure. In addition to other risks which the Company manages in the normal course of business, such as credit quality and liquidity risk, management considers interest rate risk to be a significant market risk that could potentially have a material effect on the Company's financial condition and results of operations (See Net Income - Net Interest Income). Other types of market risks, such as foreign currency risk and commodity price risk, do not arise in the normal course of the Company's business activities.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of shareholders of CNB Corporation was held in the main office building of The Conway National Bank at 1400 Third Avenue, Conway, South Carolina, at 4:15 p.m., Conway, South Carolina time, on May 14, 2002.
The purpose of the Annual Meeting was to: (1) elect five Directors; and (2) ratify the appointment of Elliott Davis, LLC as the Company's independent public accountant for the fiscal year ending December 31, 2002.
Proxies for the meeting were solicited pursuant to Regulation 14 under the Act; there was no solicitation in opposition to the management's nominees as listed in the proxy statement; and all of such nominees were elected.
There were 483,473 of the 716,727 shares issued present or represented by proxy and all shares were voted for the election of the five Directors listed as management's nominees in the proxy statement; and for the ratification of Elliott Davis, LLC as the Company's 2002 independent public accountant.
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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
All exhibits, the filing of which are required with this Form, are not applicable.
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: August 13, 2002
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