ITEM 1. Description of Business
DESCRIPTION OF CNB CORPORATION
CNB Corporation (the "Company") is a South Carolina business corporation organized for the purpose of becoming a bank holding company for The Conway National Bank (the "Bank") under the Bank Holding Company Act. The Company was organized with $500 of capital on March 8, 1985; received approval from the Board of Governors of the Federal Reserve System on May 15, 1985, to become a bank holding company; and on June 10, 1985, acquired, in exchange for its own shares of common stock, substantially all of the common stock of the Bank. The activities of the Company are subject to the supervision of the Federal Reserve, and the Company may engage directly or through subsidiary corporations in those activities closely related to banking which are specifically permitted under the Bank Holding Company Act. See "Supervision and Regulation." Although the Company, after obtaining the requisite approval of the Federal Reserve and any other appropriate regulatory agency, may seek to enter businesses closely related to banking or to acquire existing businesses already engaged in such activities, the Company has not conducted, and has no present intent to conduct, negotiations for the acquisition or formation of any entities to engage in other permissible activities other than the acquisition of the Bank. There can be no assurance that the Company will form or acquire any other entity.
The Company and the Bank compete with those banks and other financial institutions that compete with the Bank. See "Competition." In addition, if the Company attempts to form or acquire other entities and engage in activities closely related to banking, the Company will be competing with other bank holding companies and companies currently engaged in lines of business or permissible activities in which the Company might engage, many of which have far greater assets and financial resources than the Company and a greater capacity to raise additional debt and equity capital than the Company.
DESCRIPTION OF THE SUBSIDIARY
The Bank is an independent community bank engaged in the general commercial banking business in Horry County, South Carolina. The Bank was organized on June 5, 1903 as the Bank of Horry located on Main Street in Conway, South Carolina. The Bank became a national bank operating as The Conway National Bank in 1914. On June 10, 1985, the Bank was reorganized into a bank holding company structure when substantially all of the common stock of the Bank was acquired by CNB Corporation in exchange for its own shares of common stock. In 1960, the Bank opened its first additional office at 1400 Third Avenue in Conway. Since that time, the following offices have been opened in Horry County: Coastal Centre in Conway (1969); Surfside in Surfside Beach (1971); Northside, north of Myrtle Beach (1977); Red Hill in Conway (1981); Socastee, in the southern portion of Myrtle Beach (1986); Aynor in the Town of Aynor (1991), and Myrtle Beach in the City of Myrtle Beach (1995). The Surfside office was enlarged in 1977 and 1984, and the Coastal Centre office was expanded in 1980. The Third Avenue office, which houses the Bank's administrative offices and data processing facilities was expanded in 1982 from 11,150 square feet to 33,616 square feet. The Bank employs approximately 180 full-time-equivalent employees at its principal office and eight branch offices.
The Bank performs the full range of normal commercial banking functions. Some of the major services provided include checking accounts, NOW accounts, money market deposit accounts, IRA accounts, savings and time deposits of various types and loans to individuals for personal use, home mortgages, home improvement, automobiles, real estate, agricultural purposes and business needs. Commercial lending operations include various types of credit for business, industry, and agriculture. In addition, the Bank offers safe deposit boxes, wire transfer services, bank money orders, 24-hour teller machines on the HONOR Network, direct deposits and a MasterCard/Visa program. Through a correspondent relationship the Bank offers discount brokerage services. The Bank does not provide trust services; does not sell annuities; and does not sell mutual funds.
The majority of the Bank's customers are individuals and small to medium-sized businesses headquartered within the Bank's service area. The Bank has no material concentration of deposits from any single customer or group of customers. No significant portion of the Bank's loans is concentrated within a single industry or group of related industries. There are no material seasonal factors that would have any adverse effect on the Bank nor does the Bank rely on foreign sources of funds or income.
COMPETITION
The Bank actively competes with other institutions in Horry County in providing customers with deposit, credit and other financial services. The principal competitors of the Bank include local offices of six regional banks, two state-wide banks, five locally owned banks in Horry County and various other financial and thrift institutions. The regional banks with offices in Horry County are Nationsbank of S.C., First Union National Bank of S.C., United Carolina Bank of S.C., First Citizens Bank and Trust Company, Branch Bank and Trust of S.C. and Wachovia, N.A. of S.C.. The statewide banks with offices in Horry County are National Bank of South Carolina and Carolina First Savings Bank. The locally owned banks having offices in Horry County are The Anchor Bank of Myrtle Beach, Anderson Brothers Bank, Coastal Federal Savings Bank, Horry County State Bank and First National South Bank. Beach First, N.A. received a bank charter in 1996 and will become another locally owned bank competing within the Myrtle Beach market. In addition, one thrift institution has offices in Horry County. The Bank also competes with credit unions, money market funds, brokerage houses, insurance companies, mortgage companies, leasing companies, consumer finance companies and other financial institutions. Significant competitive factors include interest rates on loans and deposits, prices and fees for services, office location, customer service, community reputation, and continuity of personnel. SUPERVISION AND REGULATION
General
The Company and the Bank are subject to an extensive collection of state and federal banking laws and regulations which impose specific requirements and restrictions on, and provide for general regulatory oversight with respect to, virtually all aspects of the Company's and the Bank's operations. The Company and the Bank are also affected by government monetary policy and by regulatory measures affecting the banking industry in general. The actions of the Federal Reserve System affect the money supply and, in general, the Bank's lending abilities in increasing or decreasing the cost and
availability of funds to the Bank. Additionally, the Federal Reserve System regulates the availability of bank credit in order to combat recession and curb inflationary pressures in the economy by open market operations in United States government securities, changes in the discount rate on member bank borrowings, changes in the reserve requirements against bank deposits and limitations on interest rates which banks may pay on time and savings deposits.
During 1989 and 1991, the United States Congress enacted two major pieces of banking legislation: The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). The FIRREA and FDICIA have significantly changed the commercial banking industry through, among other things, revising and limiting the types and amounts of investment authority, significantly increasing minimum regulatory capital requirements, and broadening the scope and power of federal bank and thrift regulators over financial institutions and affiliated persons in order to protect the deposit insurance funds and depositors. These laws, and the resulting implementing regulations, have subjected the Bank and the Company to extensive regulation, supervision and examination by the Office of the Comptroller of the Currency (OCC). This has resulted in increased administrative, professional and compensation expenses in complying with a substantially increased number of new regulations and policies. The regulatory structure created by these laws gives the regulatory authorities extensive authority in connection with their supervisory and enforcement activities and examination policies.
The following is a brief summary of certain statutes, rules and regulations affecting the Company and the Bank. This summary is qualified in its entirety by reference to the particular statutory and regulatory provisions referred to below and is not intended to be an exhaustive description of the statutes or regulations applicable to the business of the Company and the Bank. Any change in applicable laws or regulations may have a material adverse effect on the business and prospects of the Company and the Bank.
The Company
The Company is a bank holding company within the meaning of the Federal Bank Holding Company Act of 1956, as amended (the "BHCA") and is registered as such with the Federal Reserve. The Company is required to file annual reports and other information regarding its business operations and those of its subsidiaries. It is also subject to supervision and regular examinations.
The BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve Board before (i) it or any of its subsidiaries (other than a bank) acquires substantially all of the assets of any bank, (ii) it acquires ownership or control of any voting shares of any bank if after such acquisition it would own or control, directly or indirectly, more than 5% of the voting shares of such bank, or (iii) it merges or consolidates with any other bank holding company.
The BHCA and the Federal Change in Bank Control Act, together with regulations promulgated by the Federal Reserve Board, require that, depending on the particular circumstances, either the Federal Reserve Board's approval must be obtained or notice must be furnished to the Federal Reserve Board and not disapproved prior to any person or company acquiring control of a bank holding company, such as the Company, subject to certain exemptions for certain transactions.
Under the BHCA, a bank holding company is generally prohibited from engaging in, or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in, nonbanking activities, unless the Federal Reserve Board, by order or regulation, has found those activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the activities that the Federal Reserve Board has determined by regulation to be proper incidents to the business of a bank holding company include making or servicing loans and certain types of leases, engaging in certain insurance and discount brokerage activities, performing certain data processing services, acting in certain circumstances as a fiduciary or investment or financial adviser, owning savings associations and making investments in certain corporations or projects designed primarily to promote community welfare. The Company is also restricted in its activities by the provisions of the Glass-Stegall Act of 1933, which prohibits the Company from owning subsidiaries that are engaged principally in the issue, flotation, underwriting, public sale or distribution of securities. The regulatory requirements to which the Company is subject also set forth various conditions regarding the eligibility and qualifications of its directors and officers.
The Bank
The Bank is subject to regulation and supervision, of which regular bank examinations are a part, by the Comptroller of the Currency. The Bank is a member of the Federal Deposit Insurance Corporation (the "FDIC") which currently insures the deposits of each member bank to a maximum of $100,000 per depositor. For this protection, each bank pays a statutory assessment and is subject to the rules and regulations of the FDIC. The Company is an "affiliate" of the Bank within the meaning of the Federal Reserve Act and the Federal Deposit Insurance Act, which imposes restrictions on loans by any subsidiary bank to the Company, on investments by any subsidiary bank in the stock or securities of the Company and on the use of such stock or securities as collateral security for loans by any subsidiary bank to any borrower. The Company will also be subject to certain restrictions with respect to engaging in the business of issuing, underwriting and distributing securities.
DESCRIPTION OF BANK STOCK
The Bank is authorized to issue 199,536 shares and has outstanding 193,536 shares of Bank Stock. The holders of Bank Stock are entitled to one vote per share. Holders of shares of Bank Stock have preemptive rights to purchase additional shares of Bank Stock and have cumulative rights in the elections of directors of the Bank. The National Bank Act generally provides for a majority vote of the Bank Stock to approve an action by the Bank but a two- thirds vote of the outstanding shares of Bank Stock is required to approve certain fundamental changes.
The National Bank Act, 12 U.S.C. Section 55, provides for the pro rata assessment of holders of common stock of a national bank in the event that its capital becomes impaired, such assessment to be enforced by sale to the extent necessary of the stock of the stockholder failing to pay his assessment. However, the Company has been advised that the Comptroller of the Currency has not used this provision in recent years. Accordingly, the shares of Bank Stock are subject to such assessment. However, the Bank's management does not anticipate the Bank Stock being assessed in this manner in the foreseeable future.
The holders of Bank Stock are entitled to receive such dividends as may be declared by the Board of Directors of the Bank out of funds legally available therefor. National banking laws and regulations impose restrictions on the payment of dividends and other distributions to stockholders. The National Bank Act provides that a national bank cannot pay dividends or other distributions to stockholders out of any portion of its capital and surplus, and that no dividend shall be paid by a bank in an amount greater than its "net profits then on hand" (as defined in the National Bank Act), after deduction of statutory "bad debts." In addition, 12 U.S.C. Section 60 provides that the approval of the Comptroller of the Currency is required for the payment of dividends by a national bank if the total of all dividends declared by the bank in any calendar year shall exceed the total of its "net profits" of that year combined with its "retained net profits" of the preceding two years. The same section further provides that, until the surplus fund of a national bank shall equal its common capital, no dividends shall be declared unless there has been carried to the surplus fund not less than one-tenth part of the bank's net profits of the preceding half year in the case of quarterly or semiannual dividends, or not less than one-tenth part of its net dividends. Also, under 12 U.S.C. Section 1818, the Comptroller of the Currency can restrict a national bank's dividend payments if they are deemed an unsafe or unsound banking practice.
In the event of the liquidation, dissolution or winding-up of the affairs of the Bank, the holders of outstanding shares of Bank Stock will be entitled to share pro rata according to their respective interests in the Bank's assets and funds remaining after payment or provision for payment of all debts and other liabilities of the Bank.
DESCRIPTION OF COMPANY STOCK
General
The Company is authorized to issue 500,000 shares of Company Stock and as of December 31, 1996, has 479,093 shares issued and 478,018 shares outstanding. The holders of Company Stock are entitled to one vote per share. Holders of shares of Company Stock do not have pre-emptive rights to purchase any additional shares of Company Stock and do not have cumulative voting rights in the election of directors. Without pre-emptive rights, stockholders could experience dilution of their voting power and of their equity interest in the Company.
The ability of the Company to pay dividends to the holders of the Company Stock depends upon the amount of dividends paid by the Bank to the Company. The holders of shares of Company Stock will be entitled to receive such dividends as may be declared by the Board of Directors of the Company out of the funds legally available therefor. The payment of dividends by the company are subject to the restrictions of South Carolina laws applicable to the declaration of dividends by a business corporation. Under such provisions, dividends may be paid in cash or in property of the Company, including the shares of other corporations, except when the Company is insolvent or would thereby be made insolvent or when the declaration of payment thereof would be contrary to any restrictions in the Company Articles. Dividends may be declared and paid only out of the unreserved and unrestricted earned surplus of the Company.
In the event of the liquidation, dissolution or winding-up of the affairs of the Company, the holders of outstanding shares of Company Stock will be entitled to share pro rata according to their respective interests in the Company's assets and funds remaining after payment or provision for payment of all debts and other liabilities of the Company.
All shares of Company Stock are fully paid and nonassessable.
The Bank is the transfer agent for shares of Company Stock.
SUPPLEMENTARY DATA
QUARTERLY SHAREHOLDER INFORMATION
CNB CORPORATION QUARTERLY SHAREHOLDER INFORMATION (All Dollar Amounts, Except Per Share Data, in Thousands)
Summary of Operating Results by Quarter
SUPPLEMENTARY INFLATION ADJUSTED FINANCIAL DATA
Inflation-adjusted accounting has not been applied to the Company's financial information as management does not believe this type of analysis provides useful information within the financial services industry. The Company currently does not meet the asset size criteria which would make detailed disclosure of inflation adjusted data mandatory.
GUIDE 3. STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
The following tables present additional statistical information about CNB Corporation and its operation and financial condition and should be read in conjunction with the consolidated financial statements and related notes thereto contained elsewhere in this report.
DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL
The tables on the following 5 pages present selected financial data and an analysis of net interest income.
Ratios: Annualized return on average total assets 1.19% Annualized return on average stockholders' equity 12.15 Cash dividends declared as a percent of net income 35.09 Average stockholders' equity as a percent of: Average total assets 9.83 Average total deposits 12.67 Average loans, net of unearned income 19.80 Average earning assets as a percent of average total assets 93.17%
(2) The Company had no out-of-period adjustments or foreign activities. Loan fees of $0 are included in the above interest income. Loans on a non-accrual basis for the recognition of interest income totalling $377 as of December 31, 1996 are included in loans, net of unearned income, for purpose of this analysis.
CNB Corporation and Subsidiary Selected Financial Data
Twelve Months Ended 12/31/95 Average Interest Avg. Annual Balance Income/ Yield or Expense(2) Rate
Assets: Earning assets Loans, net of unearned income $149,940 $14,070 9.38% Investment securities: Taxable 114,685 6,755 5.89 Tax-exempt 14,525 1,344 9.25 Federal funds sold and securities purchased under agreement to resell 15,136 882 5.83
Other earning assets 116 7 6.03 Total earning assets $294,402 $23,058 7.83 Other assets 21,600 Total assets $316,002
Liabilities and stockholders' equity: Interest-bearing liabilities: Interest-bearing deposits $196,195 8,032 4.09 Federal funds purchased and securities sold under agreement to repurchase 39,332 2,002 5.09 Other short-term borrowings 1,439 81 5.63 Total interest-bearing liabilities $236,966 $10,115 4.27 Noninterest-bearing deposits 45,839 Other liabilities 2,084 Stockholders' equity 31,113 Total liabilities and stockholders' equity $316,002 Net interest income as a percent of total earning assets $294,402 $12,943 4.40%
(1) Tax-equivalent adjustment based on a 34% tax rate $ 457
Ratios: Annualized return on average total assets 1.19% Annualized return on average stockholders' equity 12.07 Cash dividends declared as a percent of net income 38.13 Average stockholders' equity as a percent of: Average total assets 9.85 Average total deposits 12.85 Average loans, net of unearned income 20.75 Average earning assets as a percent of average total assets 93.16%
(2) The Company had no out-of-period adjustments or foreign activities. Loan fees of $0 are included in the above interest income. Loans on a non-accrual basis for the recognition of interest income totalling $479 as of December 31, 1995 are included in loans, net of unearned income, for purpose of this analysis.
CNB Corporation and Subsidiary Selected Financial Data
Twelve Months Ended 12/31/94 Average Interest Avg.Annual Balance Income/ Yield or Expense(2) Rate Assets: Earning assets Loans, net of unearned income $140,104 $12,034 8.59%
Investment Securities: Taxable 107,891 6,240 5.78 Tax-exempt 16,098 1,518 9.43 Federal funds sold and securities purchased under agreement to resell 14,127 564 3.99 Other earning assets 116 7 6.03 Total earning assets $278,336 $20,363 7.32 Other assets 19,259 Total assets $297,595
Liabilities and stockholders' equity: Interest-bearing liabilities: Interest-bearing deposits $190,589 6,460 3.39 Federal funds purchased and securities sold under agreement to repurchase 35,037 1,111 3.17 Other short-term borrowings 1,163 42 3.61 Total interest-bearing liabilities $226,789 $ 7,613 3.36 Noninterest-bearing deposits 40,181 Other liabilities 2,167 Stockholders' equity 28,458 Total liabilities and stockholders' equity $297,595 Net interest income as a percent of total earning assets $278,336 $12,750 4.58%
(1) Tax-equivalent adjustment based on a 34% tax rate $ 516
Ratios: Annualized return on average total assets 1.18% Annualized return on average stockholders' equity 12.29 Cash dividends declared as a percent of net income 27.31 Average stockholders' equity as a percent of: Average total assets 9.56 Average total deposits 12.33 Average loans, net of unearned income 20.31 Average earning assets as a percent of average total assets 93.53%
(2) The Company had no out-of-period adjustments or foreign activities. Loan fees of $0 are included in the above interest income. Loans on a non-accrual basis for the recognition of interest income totalling $1,062 as of December 31, 1994 are included in loans, net of unearned income, for purpose of this analysis.
(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.
(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.
INVESTMENT SECURITIES
Investment securities with a par value of $55,665, $66,115, and $50,615 at December 31, 1996, 1995, and 1994, respectively, 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 on investment securities at December 31, 1996, 1995, and 1994.
December 31, 1996 Book Unrealized Fair Value Gains Losses Value Yield(1)
AVAILABLE FOR SALE United States Treasury Within one year $15,533 $ 52 $ 22 $15,563 5.95% One to five years 16,262 169 27 16,404 6.46%
31,795 221 49 31,967 6.21%
Federal agencies One to five years 29,072 48 169 28,951 6.04% After ten years 784 - 18 766 6.08%
29,856 48 187 29,717 6.04%
State, county and municipal One to five years 326 12 - 338 7.85%
Other-restricted Federal Reserve Bank Stock 116 - - 116 6.03%
Total available for sale $62,093 $ 281 $ 236 $62,138 6.14%
HELD TO MATURITY United States Treasury Within one year $17,066 $ 20 $ 30 $17,056 5.36% One to five years 23,703 154 176 23,681 5.67% 40,769 174 206 40,737 5.54%
Federal agencies One to five years 13,320 97 110 13,307 6.27% Six to ten years 2,002 - 35 1,967 6.40% 15,332 97 145 15,274 6.28%
State, county and municipal Within one year 1,112 2 2 1,112 8.87% One to five years 6,950 302 15 7,237 8.72% Six to ten years 5,626 20 75 5,571 6.98% After ten years 370 5 - 375 7.89% 14,058 329 92 14,295 8.01%
Total held to maturity $70,149 $ 600 $ 443 $70,306 6.20%
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended December 31, 1996, the Bank did not hold any securities of an issuer that exceeded 10% of stockholders' equity.
INVESTMENT SECURITIES, continued
December 31, 1995 Book Unrealized 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%
36,696 610 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%
Other-restricted Federal Revenue Bank Stock 116 - - 116 6.03%
Total available for sale $61,649 $ 809 $ 92 $62,366 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 14,811 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.
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 $11,566,000 and an unrealized loss of $68,000 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.
INVESTMENT SECURITIES, continued
December 31, 1994 Book Unrealized Fair Value Gains Losses Value Yield(1)
AVAILABLE FOR SALE United States Treasury Within one year $ 4,985 - 9 4,976 6.93% One to five years 31,304 - 944 30,360 6.34%
36,289 - 953 35,336 6.42%
Federal agencies Within one year 4,006 11 2 4,015 7.31% One to five years 2,523 12 2 2,533 6.62% After ten years 1,051 - 60 991 5.26%
7,580 23 64 7,539 6.80%
State, county and municipal Within one year 303 7 - 310 12.45% One to five years 326 7 - 333 7.85%
629 14 - 643 10.05%
Other-restricted Federal Reserve Bank Stock 116 - - 116 6.03%
Total available for sale $44,614 $ 37 $1,017 $43,634 6.53%
HELD TO MATURITY United States Treasury One to five years $58,669 $ 6 $3,132 $55,543 5.46%
Federal agencies Six to ten years 8,995 12 359 8,648 6.65% State, county and municipal Within one year 2,932 39 1 2,970 11.64% One to five years 5,611 101 54 5,658 9.10% Six to ten years 6,888 66 344 6,610 7.73%
15,431 206 399 15,238 8.97%
Total held to maturity $83,095 $ 224 $3,890 $79,429 6.25%
(1) Tax equivalent adjustment based on a 34% tax rate.
As of the quarter ended December 31, 1994, the Bank did not hold any securities of an issuer that exceeded 10% of stockholders' equity.
MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
The Company's loan portfolio consisted of approximately $129,456,000 and $105,744,000 in fixed rate loans as of December 31, 1996 and 1995, respectively. At December 31, 1996, and 1995, fixed rate loans with maturities in excess of one year amounted to approximately $93,017,000 and $75,380,000, respectively. Variable rate loans are those on which the interest rate can be adjusted to changes in the Bank's prime rate. Fixed rate loans are those on which the interest rate generally cannot be changed for the term of the loan.
RISK ELEMENTS
The following information relates to certain assets which are defined as risk elements by the Securities and Exchange Commission. All loans which meet the criteria set forth by the Securities and Exchange Commission are detailed below, regardless of the likelihood of collection in full or in part. All loans classified for regulatory purposes as loss, doubtful, substandard, or especially mentioned that have not been disclosed do not represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources or represent material credits about which management is aware of any information which causes management to have serious doubts as to the ability of such borrower to comply with the loan repayment terms. As a matter of practice, loans which management has serious concerns about the borrower being able to pay are put into a non-accrual status and disclosed under Risk Elements. Management reviews these loans periodically and feels that the current reserve for possible loan losses more than adequately provides coverage for actual loss potential. Other interest-bearing assets considered a risk element are also detailed in this section.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following schedule summarizes the amount of nonaccrual, past due, and restructured loans, in thousands of dollars, for the periods ended December 1996, 1995, 1994, 1993, 1992:
December 31, 1996 1995 1994 1993 1992 Nonaccrual loans $ 377 $ 479 $1,062 $1,015 $1,091
Accruing loans which are contractually past due 90 days or more as to principal or interest payments $ 77 $ 87 $ 55 $ 221 $ 318
Restructed trouble debt None None None None None
Information relating to interest income on nonaccrual and renegotiated loans outstanding for the year ended December 31, 1996, 1995, and 1994 is as follows:
1996 1995 1994
Interest included in income during the year $ 7 $ 2 $ 22
Interest which would have been included at the original contract rates $ 45 $ 60 $ 93
Loans are placed in a non-accrual status when, in the opinion of management, the collection of additional interest is questionable. Thereafter no interest is taken into income unless received in cash or until such time as the borrower demonstrates the ability to pay principal and interest.
POTENTIAL PROBLEM LOANS
In addition to those loans disclosed under "Risk Elements", there are certain loans in the portfolio which are presently current but about which management has concerns regarding the ability of the borrower to comply with present loan repayment terms. Management maintains a loan review of the total loan portfolio to identify loans where there is concern that the borrower will not be able to continue to satisfy present loan repayment terms. Such problem loan identification includes the review of individual loans, loss experience, and economic conditions. Problem loans include both current and past due loans.
As of December 31, 1996, loans which management had serious concerns about the borrower being able to repay were put into a non-accrual status which are disclosed under "Risk Elements".
FOREIGN OUTSTANDINGS
As of the year ended December 31, 1996, the Company had no foreign loans outstanding.
LOAN CONCENTRATIONS
As of the year ended December 31, 1996, the Company did not have any concentration of loans exceeding 10% of total loans which are not otherwise disclosed as a category of loans pursuant to Item III. A. of Guide 3.
OTHER INTEREST-BEARING ASSETS
The Bank maintains an investment in an executive life insurance program through Confederation Life Insurance and Annuity Company, Inc.. During 1994 the Michigan Insurance Commission seized control of this United States Corporation due to a similar action by the Canadian regulatory authorities over the company's parent corporation, Confederation Life Insurance Company. Regulatory oversight began as concerns regarding investment losses of the parent corporation developed during 1993 and 1994. Management determined that any impairment of the approximate $2,100,000 cash surrender value of the policies was remote due to the financial stability of the U.S. subsidiary. Subsequently, on October 23, 1996, a plan of Rehabilitation for Confederation Life Insurance Company (U.S.) was confirmed by the State of Michigan in the Circuit Court for the County of Ingham. The plan provides for the assumption of company owned life insurance policies (COLI), such as the Bank's, to be assumed by Pacific Mutual Life Insurance Company. Under the agreement, holders of COLI policies will have the option to have a policy reinsured by Pacific Mutual which is expected to have the same account value and substantially the same contract terms as the original policy or to receive the liquidation or "opt-out" value of the policy. Management anticipates the Bank's COLI policies to be reinsured by Pacific Mutual prior to year-end 1997.
The Bank's independent external auditors have revisited the facts and circumstances regarding the investment in the COLI program and have read the related guidance in SFAS No. 5 and SAB Topic 5(Y). There continues to be no significant uncertainties requiring the recognition of a loss contingency as of the date of this report.
As of December 31, 1996, the Company does not have any other interest-bearing assets that would be required to be disclosed under Item III. C. 1. or 2. if such assets were loans.
The reserve for loan losses is maintained at the greater of 1.20% of net loans or an amount that bears the same ratio to eligible loans as net charge-offs to average eligible loans over the past six years. In addition, the Asset/ Liability Management Committee and the Loan Committee review the adequacy of the reserve quarterly and make recommendations as to the desired amount of the reserve. Determination of the adequacy of the reserve is based on the above ratios and, but not limited to, considerations of classified and internally-identified problem loans, the current trend in delinquencies, the volume of past-due loans, and current or expected economic conditions. Based upon these factors, net charge-offs are anticipated to be approximately $300 during 1997.
DEPOSITS
AVERAGE DEPOSITS BY CLASSIFICATION
The following table sets forth the classification of average deposits for the indicated period, in the thousands of dollars:
Years Ended December 31, 1996 1995 1994
Noninterest bearing demand deposits 51,249 45,839 40,181 Interest bearing demand deposits 44,886 43,415 44,249 Savings deposits 31,375 33,512 41,870 Time deposits 137,733 119,268 104,470 Total deposits 265,443 242,034 230,770
AVERAGE RATES PAID ON DEPOSITS
The following table sets forth average rates paid on categories of interest-bearing deposits for the periods indicated:
Years Ended December 31,
1996 1995 1994
Interest bearing demand deposits 1.70% 2.12% 2.39% Savings deposits 2.79% 3.28% 3.88% Time deposits 5.06% 5.04% 3.71%
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
The following table sets forth the maturity of time deposits of $100,000 or more, in thousands of dollars, at December 31, 1996:
Time Certificates of Deposit Maturity within 3 months or less $13,033 Over 3 through 6 months 7,782 Over 6 through 12 months 8,421 Over 12 months 5,082 Total 34,318
RETURN ON EQUITY AND ASSETS
The following table presents certain ratios relating to the Company's equity and assets:
Year ended December 31,
1996 1995 1994
Return on average total assets 1.19% 1.19% 1.18% Return on average stockholders' equity 12.15% 12.07% 12.29% Cash dividend payout ratio 35.09% 38.13% 27.31% Average equity to average assets ratio 9.83% 9.85% 9.56%
SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under repurchase agreements are short-term borrowings which generally mature within 90 days from the dates of issuance. No other category of short-term borrowings had an average balance outstanding during the reported period which represented 30 percent or more of stockholders' equity at the end of the period.
The following is a summary of short-term borrowings at December 31 of each reported period, in thousands of dollars:
December 31, Federal funds purchased and securities sold under 1996 1995 1994 agreement to repurchase $33,018 $36,935 $29,236
The following information relates to short-term borrowings outstanding during 1996, 1995, and 1994:
Maximum Amount Weighted Average Outstanding in Any Interest Rate Month End at December 31, 1996 1995 1994 1996 1995 1994 Federal funds purchased and securities sold under agreement to repurchase $45,333 $47,707 $41,537 4.81% 5.10% 4.29%
Year ended December 31, 1996 1995 1994 Federal funds purchased and securities sold under agreement to repurchase- average daily amount outstanding $39,506 $39,332 $35,037 Weighted average interest rate paid 4.82% 5.09% 3.17%
ITEM 2.
ITEM 2. PROPERTIES
The Company's subsidiary, The Conway National Bank, has nine permanent offices in Horry County. The principal office, located at 1400 Third Avenue in Conway, houses the Bank's administrative offices and data processing facilities. This three-story structure, which was significantly expanded in 1982, contains approximately 33,616 square feet. In addition, the Bank has a 632 square foot building for express banking services adjacent to the principal office. The Bank has a two-story office on Main Street in Conway containing 8,424 square feet. Bank offices are housed in one-story facilities at the Coastal Centre in Conway (3,500 square feet with an adjacent 675 square foot building for express banking services), Red Hill in Conway (3,760 square feet), Surfside in Surfside Beach (6,339 square feet), Northside, north of Myrtle Beach (2,432 square feet), Socastee in the southern portion of Myrtle Beach (3,498 square feet), Aynor in The Town of Aynor (2,809 square feet), and Myrtle Beach in the City of Myrtle Beach (12,000 square feet). Of the nine offices, the bank owns the principal office, the office at Red Hill, Northside, Main Street, Socastee, Aynor, and Myrtle Beach. All other facilities are leased by the Bank under long-term leases with renewal options. In addition to the existing facilities, the Company has purchased approximately one and one-half acres of land as a future office site on Highway 17 south of Myrtle Beach in the Murrell's Inlet area which is not expected to be utilized within the next two years.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings against the Company or its subsidiary, The Conway National Bank, as of December 31, 1996.
There were no administrative or judicial proceedings arising under Section 8 of the Federal Deposit Insurance Act.
There were no material proceedings to which any director, officer, or owner of record of more than 5% of the voting securities of the Company or any associate is a party adverse to the Company.
There are other legal proceedings pending against the Company or its subsidiary, The Conway National Bank, in the ordinary course of business. In the opinion of management, based upon the opinion of counsel, liabilities arising from these proceedings, if any, would not have a material adverse effect on the financial position of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On April 9, 1996, at the Annual Meeting of CNB Corporation, the security holders:
1) Nominated and elected five directors to serve for a three-year term; and 2) Ratified the appointment of Elliott, Davis, and Company, Certified Public Accountants, as independent auditors for the Company and its subsidiary for the year ending December 31, 1996.
PART II
ITEM 5.
ITEM 5. MARKET PRICE OF REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
As of December 31, 1996, there were approximately 615 holders of record of Company stock. There is no established market for shares of Company stock and only limited trading in such shares has occurred since the formation of the Company on June 10, 1985. Most of the limited trading transactions have been effected through the efforts of officers of the Company in matching interested purchasers with shareholders who have expressed an interest in selling their shares of Company stock. Some private trading of Company stock has occurred without any participation in the transaction by the officers of the Company other than to effect the transfer on the Company's shareholder records. Accordingly, management of the Company is not aware of the prices at which all shares of Company stock have traded. The following table sets forth the prices known to management of the Company at which shares of Company stock have traded in each quarter within the two most recent fiscal years.
1996 1995 High Low High Low
First Quarter $88.75 $88.75 $66.25 $66.25 Second Quarter $93.25 $88.75 $79.75 $66.25 Third Quarter $93.25 $93.25 $79.75 $79.75 Fourth Quarter $96.00 $93.25 $88.75 $79.75
Holders of shares of Company stock are entitled to such dividends as may be declared from time to time by the Board of Directors of the Company. The Company paid an annual cash dividend of $3.00 per share in 1996 and 1995, $2.00 per share in 1994, 1993 and 1992, $1.50 per share in 1991, and $1.00 per share in the years 1985 through 1990. In addition, the Company may from time to time pay a stock dividend. The Company paid a 20% stock dividend in September, 1994, a 50% stock dividend in July, 1989, a 20% stock dividend in August, 1987 and a 15% stock dividend in November, 1985. There can be no assurance, however, as to the payment of dividends by the Company in the future since payment will be dependent upon the earnings and financial condition of the Company and the Bank and other related factors.
ITEM 7. 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 Company's financial condition, results of operations, liquidity, and capital resources. The following discussion should be read in conjunction with the Company's financial statements and notes thereto and other detailed information appearing elsewhere in this report.
Distribution of Assets and Liabilities
The Company maintains a conservative approach in determining the distribution of assets and liabilities. Loans, net of unearned income, increased 5.6% from $144,363 at December 31, 1994 to $152,404 at December 31, 1995; and 21.3% from December 31, 1995 to $184,875 at December 31, 1996. Loan growth is attributed to overall business development efforts to meet business and personal loan demand in our market area. Loan demand was relatively strong in our market area in 1995 and strong in 1996. During 1995, increased rate and term competition on commercial loans within our market area somewhat reduced the anticipated rate of loan growth. Loans, net of unearned income, decreased as a percentage of total assets from 48.6% at year-end 1994 to 46.9% at year-end 1995 but grew strongly to 54.1% at year-end 1996. Correspondingly, investment securities and federal funds sold increased as a percentage of total assets from 43.7% at year-end 1994 to 45.0% at year-end 1995 but shrank to 38.7% at year-end 1996 as funds have been utilized to balance the fluctuations in loan outstandings. Investments and federal funds sold provide for an adequate supply of secondary liquidity. Year-end other assets as a percentage of total assets increased from 7.7% in 1994 to 8.1% in 1995 due to the opening of a ninth banking office. This percentage dropped to 7.2% in 1996 as the Bank grew into its expanded infrastructure. Management has sought to build the deposit base with stable, relatively non-interest- rate sensitive deposits by offering the small to medium account holders a wide array of deposit instruments at competitve rates. Non-interest-bearing demand deposits remained flat as a percentage of total assets at 13.8% at December 31, 1994 and December 31, 1995, but grew to 14.6% at December 31, 1996. Demand deposits are expected to decline over the long-term as more customers utilize interest-bearing deposit and repo accounts. Interest- bearing liabilities as a percentage of total assets have declined from 75.7% at December 31, 1994 to 75.2% at December 31, 1995 to 74.3% at December 31, 1996.
The following table sets forth the percentage relationship to total assets of significant components of the Company's balance sheet as of December 31, 1996, 1995 and 1994:
Results of Operation
CNB Corporation and subsidiary experienced earnings in 1996, 1995 and 1994 of $4,084, $3,756 and $3,497, respectively, resulting in a return of average assets of 1.19%, 1.19%, and 1.18% and a return on average stockholders' equity of 12.15%, 12.07% and 12.29%. The earnings were primarily attributable to favorable 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). These strong earnings, coupled with a conservative dividend policy, have supplied the necessary capital funds to support bank operations. Total assets were $341,818 at December 31, 1996 as compared to $324,694 at December 31, 1995 and $297,120 at December 31, 1994. The following table sets forth the financial highlights for fiscal years 1996, 1995, and 1994.
(1) For the fiscal years ended December 31, 1996, 1995, and 1994, average total assets amounted to $342,182, $316,002, and $297,595 with average stockholders' equity totaling $33,620, $31,113, and $28,458, respectively.
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 investment securities, and interest paid on deposits and borrowed funds. Net interest income is affected by the interest rates earned or paid and by volume changes in loans, investment securities, deposits, and borrowed funds.
The Bank has maintained strong net interest margins in 1996, 1995 and 1994 by earning adequate yields on loans and investments and funding these assets with a favorable deposit and repurchase agreement mix. Fully-tax-equivalent net interest income has grown from $12,750 in 1994 and $12,943 in 1995 to $14,298 in 1996. During the three-year period, total fully-tax-equivalent interest income increased by 13.2% from $20,363 in 1994 to $23,058 in 1995 and increased 7.9% in 1996 to $24,877. Over the same period, total interest expense increased by 32.9% from $7,613 in 1994 to $10,115 in 1995 and increased 4.6% to $10,579 in 1996. The significant increase in 1995 interest income and expense reflected a rapid rise in market interest rates coupled with higher volumes of bank assets and liabilities while changes in 1996 were reflective of more modest interest rate and asset increases. Fully-tax-equivalent net interest income as a percentage of average total earning assets has moved in a narrow range from 4.6% in 1994 to 4.4% in 1995 and 4.5% in 1996.
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, 1995, and 1994. However, fluctuations in market interest rates do not necessarily have a significant impact on net interest income, depending on the Bank's rate sensitivity position. A rate sensitive asset (RSA) is any loan or investment that can be repriced 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 long-run earning power. The following table sets forth the Bank's rate sensitivity position at each of the time intervals indicated. The table illustrates the Bank's rate sensitivity position on specific dates and may not be indicative of the position at other points in time. Management believes that a rise or fall in interest rates will not materially effect earnings.
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 during the ongoing in-house problem loan identification process. The Company includes the provisions of SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", in the allowance for loan losses (see NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES). The provision for possible loan losses was $360 in 1996, $110 in 1995, and $295 in 1994. Net loan charge-offs totalled $232 in 1996, $88 in 1995, and $245 in 1994 with net charge-offs being centered in consumer purpose loans during each period. The reserve for possible loan losses as a percentage of net loans was 1.30% at December 31, 1996, 1.49% at December 31, 1995, and 1.56% at December 31, 1994.
Securities Transactions - Net unrealized gains/(losses) in the investment securities portfolio were $202 at December 31, 1996, $1,546 at December 31, 1995, and $(4,646) at December 31, 1994. The market value of investment securities declined during 1994 due to the rapid rise in overall market rates, rose again in 1995 as rates retreated, and declined modestly in 1996 as market rates rose somewhat. Security losses of $167 were taken in 1994 in transactions to sell short-term low-yielding bonds and re-investing in higher-yielding intermediate-term bonds. Security gains of $25 and $41 were taken in 1995 and 1996, respectively, when bonds were sold to provide additional primary liquidity and to manage the bank's interest rate sensitivity position.
Other Income - Other income, net of security sales, decreased by 1.7% from $2,981 in 1994 to $2,929 in 1995 and grew 1.5% from $2,929 in 1995 to $2,974 in 1996. Other income fell in 1995 due to lower service charge income booked on deposit accounts, offset somewhat by higher merchant discount income, but rose again in 1996 due to higher volumes in deposit and loan account activity.
Other Expenses - Other expenses increased by 2.1% from $9,599 in 1994 to $9,797 in 1995 and 6.1% from $9,797 in 1995 to $10,393 in 1996. The components of other expenses are salaries and employee benefits of $5,285, $5,695 and $6,166; occupancy and furniture and equipment expenses of $1,550, $1,504, and $1,759; and other operating expenses of $2,764, $2,598, and $2,468 for 1994, 1995, and 1996, respectively. The increase in salaries and employee benefits reflects compensation increments, the increased costs of providing employee benefits, and the 1995 addition of a 12-person Myrtle Beach office. The Myrtle Beach office also impacted 1996 occupancy and furniture and equipment expense as this was the first full year of operation. During the third quarter of 1995, the Federal Deposit Insurance Corporation (FDIC) announced that the bank insurance fund was fully capitalized and banks were due a rebate of excessive paid-in insurance premiums. The Conway National Bank received a $145 FDIC insurance premium rebate and is experiencing significantly lower premiums as is evidenced in the decline in 1995 and 1996 other operating expenses. Looking ahead, non-interest expense should grow at only a nominal rate during 1997 as no significant staffing and infrastructure expenditures are expected, but may increase in 1998 due to potential expansion in the bank's branch network.
Income Taxes - Provisions for income taxes increased 7.2% from $1,657 in 1994 to $1,777 in 1995 and 17.9% from $1,777 in 1995 to $2,095 in 1996. The increase in income taxes is primarily due to an increase in income before income taxes of 7.4% from $5,154 in 1994 to $5,533 in 1995 and 11.7% from $5,533 in 1995 to $6,179 in 1996. Also, the utilization of tax-free income as a percentage of income before income taxes declined in 1995 and 1996.
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. The Company has cash balances on hand of $3,078, $2,927, and $2,358 at December 31, 1996, 1995, and 1994 with liabilities, consisting of cash dividends payable, totalling $1,435, $1,432, and $955, respectively. Management feels that liquidity sources are more than adequate to meet funding needs.
CAPITAL RESOURCES
Total stockholders' equity was $34,496, $32,195, and $28,857 at December 31, 1996, 1995, and 1994, representing 10.09%, 9.92%, and 9.71% of total assets, respectively. At December 31, 1996, the Bank exceeds quantitative measures established by regulation to ensure capital adequacy (see NOTE 15 - REGULATORY MATTERS). Capital is considered sufficient by management to meet current and prospective capital requirements and to support anticipated growth in bank operations.
EFFECTS OF INFLATION
Inflation normally has the effect of accelerating the growth of both a bank's assets and liabilities. One result of this inflationary effect is an increased need for equity capital. Income is also affected by inflation. While interest rates have traditionally moved with inflation, the effect on net income is diminished because both interest earned on assets and interest paid on liabilities vary directly with each other. In some cases, however, rate increases are delayed on fixed-rate instruments. Loan demand normally declines during periods of high inflation. Inflation has a direct impact on the Bank's non-interest expense. The Bank responds to inflation changes through readjusting non-interest income by repricing services.
EFFECTS OF REGULATORY ACTION
The Federal Deposit Insurance Corporation (FDIC) reduced FDIC insurance premium rates during the third quarter of 1995. This decrease had a positive effect on earnings in 1995 and 1996 and should favorably impact future years income. (see NET INCOME - Other Expenses). The management of the Company and the Bank is not aware of any other current recommendations by the regulatory authorities which, if they were to be implemented, would have a material effect on liquidity, capital resources, or operations.
ITEM 8 - FINANCIAL STATEMENTS
CNB CORPORATION AND SUBSIDIARY
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
CNB CORPORATION AND SUBSIDIARY CONWAY, SOUTH CAROLINA
CONTENTS
PAGE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 33
FINANCIAL STATEMENTS
Consolidated balance sheets 34 Consolidated statements of income 35 Consolidated statements of changes in stockholders' equity 36 Consolidated statements of cash flow 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 38 - 52
Elliott, Davis & Company, L.L.P. Certified Public Accountants Members of the American Institute of Certified Public Accountants Greenville, S.C. Greenwood, S.C. Anderson, S.C. Aiken, S.C. Columbia, S.C.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Directors and Stockholders CNB Corporation Conway, South Carolina
We have audited the accompanying consolidated balance sheets of CNB Corporation and Subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CNB Corporation and Subsidiary at December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
Elliott, Davis & Company, L.L.P.
January 17, 1997
Internationally - Moore Stephens Elliott Davis, L.L.C. 870 S. Pleasantburg Drive Post Office Box 6286 Greenville, South Carolina 29606-6286 Telephone (864) 242-3370 Telefax (864) 232-7161
CNB CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (amounts, except share data, in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
See Notes to Consolidated Financial Statements which are an integral part of these statements.
CNB CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (amounts, except per share data, in thousands)
See Notes to Consolidated Financial Statements which are an integral part of these statements.
CNB CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the years ended December 31, 1996, 1995 and 1994 (amounts, except share data, in thousands)
See Notes to Consolidated Financial Statements which are an integral part of these statements.
CNB CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands)
See Notes to Consolidated Financial Statements which are an integral part of these statements.
CNB CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation and nature of operations The consolidated financial statements include the accounts of CNB Corporation ("the Company") and its majority-owned subsidiary, The Conway National Bank ("the Bank"). All significant intercompany balances and transactions have been eliminated. The Bank operates under a national bank charter and provides full banking services to customers. The Bank is subject to regulation of the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The Company is subject to regulation of the Federal Reserve Board.
Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the Consolidated Balance sheets and the Consolidated Statements of Income for the periods covered. Actual results could differ from those estimates.
Concentrations of credit risk The Company, through its subsidiary, makes commercial and personal loans to individuals and small businesses located primarily in the South Carolina coastal region. The Company has a diversified loan portfolio and the borrowers' ability to repay their loans is not dependent upon any specific economic sector.
Cash and cash equivalents For purposes of the statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption "Cash and Due from Banks". Cash and cash equivalents have an original maturity of three months or less.
Investment securities In 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Stockholders' equity at the beginning of 1994 was restated to reflect the effect of a change in accounting principle. Adoption of the standard had no effect on net income. Debt securities are classified upon purchase as available for sale, held to maturity or trading. Such assets classified as available for sale are carried at market value. Unrealized holding gains or losses are reported as a component of stockholders' equity net of deferred income taxes. Securities classified as held to maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts. In order to qualify as held to maturity the Company must have the intent and ability to hold the securities to maturity. Trading securities are carried at market value. The Company has no trading securities. Gains or losses on disposition of securities are based on the difference between the net proceeds and the adjusted carrying amount of the securities sold, using the specific identification method.
Loans and interest income Interest on loans is accrued and taken into income based upon the interest method. Interest on certain installment loans is accrued and taken into income based upon the sum-of-the-months-digits method. The results from the use of the sum-of-the-months-digits method are not materially different from those that would be obtained using the interest method.
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Loans and interest income, continued
The Company adopted SFAS No. 114, Accounting by Creditors for Impairment of a Loan on January 1, 1994. This standard requires that all creditors value loans at the loans fair value if it is probable that the creditor will be unable to collect all amounts due according to the terms of the loan agreement. Fair value may be determined based upon the present value of expected cash flows, market price of the loan, if available, or value of the underlying collateral. Expected cash flows are required to be discounted at the loans effective interest rate. SFAS No. 114 was amended by SFAS No. 118 to allow a creditor to use existing methods for recognizing interest income on an impaired loan and by requiring additional disclosures about how a creditor recognizes interest income on an impaired loan. The adoption of the standards required no increase in the allowance for loan losses and had no impact on net income for the year ended December 31, 1994.
Under SFAS No. 114, as amended by SFAS No. 118, when the ultimate collectibility of an impaired loan's principal is in doubt, wholly or partially, all cash receipts are applied to principal. When this doubt does not exist, cash receipts are applied under the contractual terms of the loan agreement first to principal then to interest income. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income, to the extent that any interest has been foregone. Further cash receipts are recorded as recoveries of any amounts previously charged off.
A loan is also considered impaired if its terms are modified in a troubled debt restructuring after January 1, 1994. For these accruing impaired loans, cash receipts are typically applied to principal and interest receivable in accordance with the terms of the restructured loan agreement. Interest income is recognized on these loans using the accrual method of accounting. As of December 31, 1996 and 1995, the Company had no impaired loans.
Allowance for loan losses
The allowance for loan losses is based on management's ongoing evaluation of the loan portfolio and reflects an amount that, in management's opinion, is adequate to absorb losses in the existing portfolio. In evaluating the portfolio, management takes into consideration numerous factors, including current economic conditions, prior loan loss experience, the composition of the loan portfolio, and management's estimate of anticipated credit losses. Loans are charged against the allowance at such time as they are determined to be losses. Subsequent recoveries are credited to the allowance. Management considers the year-end allowance appropriate and adequate to cover possible losses in the loan portfolio; however, management's judgment is based upon a number of assumptions about future events, which are believed to be reasonable, but which may or may not prove valid. Thus, there can be no assurance that charge-off's in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required.
Premises and equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed over the estimated useful lives of the assets using primarily accelerated methods. Additions to premises and equipment and major replacements or improvements are capitalized at cost. Maintenance, repairs and minor replacements are expensed when incurred. Gains and losses on routine dispositions are reflected in current operations.
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Non-performing assets Non-performing assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure, and loans on non-accrual status. Loans are placed on non-accrual status when, in the opinion of management, the collection of additional interest is questionable. Thereafter no interest is taken into income unless received in cash or until such time as the borrower demonstrates the ability to pay principal and interest.
Advertising expense Advertising, promotional, and other business development costs are generally expensed as incurred. External costs incurred in producing media advertising are expensed the first time the advertising takes place. External costs relating to direct mailing costs are expensed in the period in which the direct mailings are sent. Advertising, promotional, and other business development costs of $293,711, $349,805 and $242,138 were included in the Companys results of operations for 1996, 1995, and 1994, respectively.
Income taxes Income taxes are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax liabilities are recognized on all taxable temporary differences (reversing differences where tax deductions initially exceed financial statement expense, or income is reported for financial statement purposes prior to being reported for tax purposes). In addition, deferred tax assets are recognized on all deductible temporary differences (reversing differences where financial statements expense initially exceeds tax deductions, or income is reported for tax purposes prior to being reported for financial statements purposes) and operating loss and tax credit carryforwards. Valuation allowances are established to reduce deferred tax assets if it is determined to be more likely than not that all or some portion of the potential deferred tax asset will not be realized.
Net income per share Net income per share is computed on the basis of the weighted average number of common shares outstanding, 477,496 in 1996, 477,820 in 1995 and 476,370 in 1994. Per share data has been restated to reflect stock dividends.
Recently issued accounting standards Accounting standards that have been proposed or issued by standard-setting groups that do not require adoption until a future date will have no material impact on the financial statements upon adoption.
Fair values of financial instruments Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," as amended by SFAS No. 119, requires disclosure of fair value information for financial instruments, whether or not recognized in the balance sheet, when it is practicable to estimate the fair value. SFAS No. 107 defines a financial instrument as cash, evidence of an ownership interest in an entity or contractual obligations which require the exchange of cash or other financial instruments. Certain items are specifically excluded from the disclosure requirements, including the Company's common stock. In addition, other nonfinancial instruments such as premises and equipment and other assets and liabilities are not subject to the disclosure requirements.
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein:
Cash and due from banks - The carrying amounts of cash and due from banks (cash on hand, due from banks and interest bearing deposits with other banks) approximate their fair value.
Federal funds sold - The carrying amounts of federal funds sold approximate their fair value.
Investment securities held to maturity and available for sale - Fair values for investment securities are based on quoted market prices.
Loans - For variable rate loans that reprice frequently and for loans that mature within one year, fair values are based on carrying values. Fair values for all other loans are estimated using discounted cash flow analyses, with interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.
Deposits - The fair values disclosed for demand deposits are, by definition, equal to their carrying amounts. The carrying amounts of variable rate, fixed-term money market accounts and short-term certificates of deposit approximate their fair values at the reporting date. Fair values for long-term fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities.
Short-term borrowings - The carrying amounts of borrowings under repurchase agreements, federal funds purchased and U. S. Treasury demand notes approximate their fair values.
Off-balance sheet instruments - Fair values of off-balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing.
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 amounts of these reserve balances for the years ended December 31, 1996 and 1995 were approximately $5,112,000 and $4,306,000, respectively.
(Continued)
NOTE 3 - INVESTMENT SECURITIES
The book value and approximate fair value of investment securities are summarized as follows (amounts in thousands):
(Continued)
NOTE 3 - INVESTMENT SECURITIES, Continued
Investment securities with an aggregate par value of approximately $55,665,000 at December 31, 1996 and $66,115,000 at December 31, 1995 were pledged to secure public deposits and for other purposes.
On December 6, 1995, the Bank transferred certain securities from the held to maturity classification to the available for sale classification. These securities had an amortized cost of $11,566,000 and an unrealized loss of $68,000 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.
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Following is a summary of loans by major classification (amounts in thousands):
The Company's loan portfolio consisted of approximately $129,833,000 and $105,744,000 in fixed rate loans as of December 31, 1996 and 1995, respectively. At December 31, 1996, fixed rate loans with maturities in excess of one year amounted to approximately $93,017,000.
(Continued)
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, Continued Changes in the allowance for loan losses are summarized as follows (amounts in thousands):
At December 31, 1996 and 1995, non-accrual loans totaled $377,000 and $479,000, respectively. The total amount of interest earned on non-accrual loans was $7,000 in 1996, $2,000 in 1995 and $22,000 in 1994. The gross interest income which would have been recorded under the original terms of the non-accrual loans amounted to $45,000 in 1996, $60,000 in 1995 and $93,000 in 1994. As of December 31, 1996 and 1995, the Company had no impaired loans.
NOTE 5 - PREMISES AND EQUIPMENT Premises and equipment at December 31 is summarized as follows (amounts in thousands):
Depreciation and amortization of bank premises and equipment charged to operating expense totaled $757,000 in 1996, $666,000 in 1995 and $623,000 in 1994.
NOTE 6 - DEPOSITS
At December 31, 1996 and 1995, certificates of deposit of $100,000 or more totaled approximately $34,318,000 and $28,507,000, respectively. Interest expense on these deposits was approximately $1,639,000 in 1996, $1,182,000 in 1995 and $750,000 in 1994.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements are summarized as follows (amounts in thousands):
The Bank enters into sales of securities under agreements to repurchase. These obligations to repurchase securities sold are reflected as liabilities in the consolidated balance sheets. The dollar amount of securities underlying the agreements are book entry securities maintained at the Federal Reserve Bank of Richmond. The weighted-average interest rate of these agreements was 4.71 and 5.10 percent at December 31, 1996 and 1995, respectively. Securities sold under repurchase agreements averaged $39,440,000 and $39,332,000 during 1996 and 1995, respectively. The maximum amounts outstanding at any month-end were $45,333,000 and $47,707,000 during 1996 and 1995, respectively.
NOTE 8 - LINES OF CREDIT
At December 31, 1996, the Bank had unused short-term lines of credit totaling $17,000,000 to purchase Federal Funds from unrelated banks. 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 Company has a demand note through the U.S. Treasury, Tax and Loan system with the Federal Reserve Bank of Richmond. The Company may borrow up to $5,000,000 under the arrangement at an interest rate of 5.15%. The note is secured by U.S. Treasury Notes with a market value of $5,996,000 at December 31, 1996. The amount outstanding under the note totaled $2,319,000 and $766,000 at December 31, 1996 and 1995, respectively.
NOTE 9 - INCOME TAXES
The provision for income taxes is reconciled to the amount of income tax computed at the federal statutory rate on income before income taxes as follows (amounts in thousands):
(Continued)
NOTE 9 - INCOME TAXES, Continued
The following summary of the provision for income taxes includes tax deferrals which arise from temporary differences in the recognition of certain items of revenue and expense for tax and financial reporting purposes (amounts in thousands):
The sources and tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
A portion of the change in the net deferred tax liability relates to the change in unrealized net gains on securities available for sale. The related current period deferred tax credit of $268,800 has been recorded directly to stockholders' equity. The balance of the change in the net deferred tax liability results from the current period deferred tax expense.
(Continued)
NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statements of financial position. The contract amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on- balance-sheet instruments.
The contract value of the Company's off-balance-sheet financial instruments is as follows as of December 31, 1996 (amounts in thousands): Contract amount Commitments to extend credit $ 11,234 Standby letters of credit $ 906
Commitments to extend credit are agreements to lend as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on management's credit evaluation.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
At December 31, 1996, the Bank was obligated under a number of non- cancelable operating leases on equipment and land used for branch offices that had an initial or remaining term of more than one year. Future minimum rental payments under these leases at December 31, 1996 were (amounts in thousands):
Lease payments under all operating leases charged to expense totaled $61,000 in 1996, $23,000 in 1995 and $54,000 in 1994. The leases provide that the lessee pay property taxes, insurance and maintenance cost.
The Company is party to litigation and claims arising in the normal course of business. Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such litigation and claims will not be material to the Bank's financial position.
(Continued)
NOTE 12 - RESTRICTION ON DIVIDENDS
The ability of the Company to pay cash dividends is dependent upon receiving cash in the form of dividends from the Bank. Federal banking regulations restrict the amount of dividends that can be paid and such dividends are payable only from the retained earnings of the Bank. At December 31, 1996 the Bank's retained earnings were $28,698,000.
NOTE 13 - TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND ASSOCIATES
Directors and executive officers of the Company and the Bank and associates of such persons are customers of and had transactions with the Bank in the ordinary course of business. Additional transactions may be expected to take place in the future. Also, included in such transactions are outstanding loans and commitments, all of which were made on comparable terms, including interest rates and collateral, as those prevailing at the time for other customers of the Bank, and did not involve more than normal risk of collectibility or present other unfavorable features. Total loans to all executive officers and directors, including immediate family and business interests, at December 31, 1996 and 1995, were $1,895,000 and $2,025,000, respectively. During 1996, $259,000 of new loans were made to this group and repayments of $389,000 were received.
NOTE 14 - 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 years ended December 31, 1996, 1995 and 1994, $336,000, $266,000 and $295,000, respectively, was charged to operations under the plan.
Supplemental benefits are provided to certain key officers under The Conway National Bank Executive Supplemental Income Plan. This plan is not qualified under the Internal Revenue Code. The plan is unfunded. However, certain benefits are informally and indirectly funded by insurance policies on the lives of the covered employees.
NOTE 15 - 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 Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are 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 Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets. Management believes, as of December 31, 1996, that the Bank meets all capital adequacy requirements to which it is subject.
(Continued)
NOTE 15 - REGULATORY MATTERS, Continued
As of December 31, 1996, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category. The Bank's actual capital amounts and ratios and minimum regulatory amounts and ratios are presented as follows:
NOTE 16 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments were as follows at December 31 (amounts in thousands):
(Continued)
NOTE 17 - PARENT COMPANY INFORMATION Following is condensed financial information of CNB Corporation (parent company only) (amounts in thousands): CONDENSED BALANCE SHEETS
CONDENSED STATEMENTS OF INCOME
CONDENSED STATEMENTS OF CASH FLOWS
(Continued)
NOTE 17 - PARENT COMPANY INFORMATION, Continued
CONDENSED STATEMENTS OF CASH FLOWS, Continued
NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)
(Continued)
NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED), Continued
ITEM 9. - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
* Nominee for election to the Board of Directors.
Except as indicated below, each director or director nominee of the company has sole voting and investment power with respect to all shares of Company stock owned by such director or director nominee. The address of each director or director nominee is c/o The Conway National Bank, Post Office Drawer 320, 1400 Third Avenue, Conway, South Carolina 29526. All directors and officers of the Company and its subsidiary, The Conway National Bank, as a group (42 persons), own 119,983 (25.10%) shares of Company stock.
(1) Includes 10,190 shares held by Harriette B. Duncan (wife).
(2) Includes 358 shares held by Robin F. Duncan (wife); 1,669 shares held by Ann Louise Duncan (daughter); 1,669 shares held by Mary Kathryn Duncan (daughter); 1,669 shares by Willis Jennings Duncan, V (son); and 1,669 shares by Margaret Brunson Duncan (daughter).
(3) Includes 14,900 shares held by the Cushman Family Limited Partnership; 209 shares held by Dianne C. Cushman (wife); 753 shares held by Marion Shannon Cushman (son); 388 shares held by Frances Faison Cushman (daughter); 388 shares held by Harold G. Cushman, III (son); 50 shares held by Harold G. Cushman, IV; (grandson); 50 shares held by Kara Dawn Cushman (granddaughter); and 3,905 shares held by Harold Cushman Ward (nephew).
(4) Includes 10,159 shares held by Eugenia B. Cutts (wife).
(5) Includes 100 shares held by Jennifer S. Dusenbury (wife); 30 shares held by Elena Cox Dusenbury (daughter); and 30 shares held by Sarah Cherry Dusenbury (daughter).
(6) Includes 1,260 shares held by Marjorie R. Holliday Irrevocable Trust (wife); 3,304 shares held by M. Russell Holliday, Jr. (daughter); 1,978 shares held by Christian M. Holliday Douglas (daughter); 346 shares held by Christian M. H. Douglas, Jr. (granddaughter); 346 shares held by Marjorie Russell Douglas (granddaughter); 346 shares held by David Duvall Douglas, Jr. (grandson); and 484 shares held by David D. and Christian M.H. Douglas Trust (grandchildren).
(7) Includes 200 shares held by Willie Ann Hucks (wife); 20 shares held by Mariah J. Hucks (daughter); 50 shares held by Norah Leigh Hucks (daughter); and 150 shares held by Robert P. Hucks, II (son).
(8) Includes 216 shares held by Rebecca S. Lovelace (wife); 352 shares held by Richard Blake Lovelace (son); and 352 shares held by Macon B. Lovelace (son).
(9) Includes 1,058 shares held by Bertha T. Massey (wife).
Each director of the Company has been engaged in his principal occupation of employment as specified above for five (5) years or more unless otherwise indicated.
W. Jennings Duncan is Willis J. Duncan's son. Richard M. Lovelace, Jr. is Dr. R. C. Smith's son-in-law. No other family relationships exist among the above named directors or officers of the Company. None of the directors of the Company holds a directorship in any company with a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, or subject to the requirements of Section 15(d) of that act or in any company registered as an investment company under the Investment Company Act of 1940, as amended.
The Board of Directors of the Company, as originally constituted, was classified into three (3) classes with each class consisting of five (5) directors. Four (4) directors in Class III will be elected at the 1997 Annual Meeting to serve for a three (3) year term. Directors in Class I will be elected at the 1998 Annual Meeting to serve for a three (3) year term and Directors in Class II will be elected at the 1999 Annual Meeting to serve for a three (3) year term. Currently, there are twelve (12) Directors, with three (3) directors in Class III. The Board of Directors has passed a resolution increasing the total number of Directors from twelve (12) to thirteen (13).
The Board of Directors of the Company serves as the Board of Directors of its subsidiary, The Conway National Bank. The Company's Board of Directors meets as is necessary and the Bank's Board of Directors meets on a monthly basis.
The Board of Directors of the Bank has an Executive Committee that meets when necessary between scheduled meetings of the Board of Directors. The Executive Committee recommends to the Board of Directors the appointment of officers; determines officer compensation subject to Board approval; reviews employee salaries; considers any director nominee submitted by the shareholders; and addresses any other business as is necessary which does not come under the authority of other committees on the Board of Directors. The Executive Committee will consider any nominee to the Board of Directors submitted by the shareholders, provided shareholders intending to nominate director candidates for election deliver written notice thereof to the Secretary of the Company not later than (i) with respect to at election to be held at an Annual Meeting of shareholders, ninety (90) days prior to the anniversary date of the immediately preceding Annual Meeting of shareholders, and (ii) with respect to an election to be held at a special meeting of shareholders, the close of business on the tenth (10th) day following the date on which notice of such meeting is first given to shareholders. The Bylaws further provide that the notice shall set forth certain information concerning such shareholder and his nominee(s), including their names and addresses, a representation that the shareholder is entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, a description of all arrangements or understandings between the shareholder and each nominee, such other information as would be required to be included in a proxy statement soliciting proxies for the election of the nominees of such shareholder and the consent of each nominee to serve as Director of the Company is so elected. The Chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedures. The members of the Executive Committee are Charles C. Cutts, Willis J. Duncan, W. Jennings Duncan, and Dr. R. C. Smith.
In addition, the Board of Directors of the Bank has Audit, Loan, Public Relations, and Building Committees. The members of the Audit Committee are Charles C. Cutts, John Monroe J. Holliday, John K. Massey,
Howard B. Smith, III, and Dr. R. C. Smith. The members of the Loan Committee are James W. Barnette, Jr., Harold G. Cushman, Jr., Willis J. Duncan, W. Jennings Duncan, G. Heyward Goldfinch, Robert P. Hucks, and Richard M. Lovelace, Jr. The members of the Public Relations Committee are James W. Barnette, Jr., G. Heyward Goldfinch, and John K. Massey. The members of the Building Committee are James W. Barnette, Jr., Harold G. Cushman, Jr., Willis J. Duncan, W. Jennings Duncan, and Robert P. Hucks, Willis J. Duncan, Chairman of the Board, and W. Jennings Duncan, President, are ex officio members of each of these committees of the Board with the exception of the Audit Committee.
The function of the Audit Committee is to ensure that adequate accounting procedures are in existence and functioning in a manner adequate to safeguard the assets of the Bank. The Audit Committee also monitors internal and external audit activities. The function of the Loan Committee is to review and approve new loans and monitor the performance and quality of existing loans, as well as to ensure that sound policies and procedures exist in the Bank's lending operations.
During 1996, the Company's Board of Directors met two (2) times; the Bank's Board of Directors met twelve (12) times; the Executive Committee met eleven (11) times; the Audit Committee met nine (9) times; the Loan Committee met twelve (12) times; the Building Committee met one (1) time; and the Public Relations Committee did not meet. With the exceptions of John Monroe J. Holliday and Howard B. Smith, III, each Director attended at least 75% of the aggregate of (a) the total number of meetings of the Board of Directors held during the period for which he served as Director and (b) the total number of meetings held by all committees of the Board of Directors of which he served.
Executive Officers:
The Executive Officers and other officers of the Company are as follows: Position(s) Currently Name Age With The Company
Willis J. Duncan 69 Chairman of the Board (1)
W. Jennings Duncan 41 President and Director (1)
Robert P. Hucks 51 Executive Vice President and Director (1)
Verta Lee Chestnut 58 Secretary
Paul R. Dusenbury 38 Treasurer (1) (Chief Financial Officer and Chief Accounting Officer) _________________ (1) Executive Officer
All executive officers and other officers serve at the pleasure of the Board of Directors of the Company. Each executive officer and other officer of the Company has been an officer of the Company and/or the Bank for five (5) years.
ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Company pays no remuneration to its Directors and Executive Officers. All remuneration for services rendered are paid by the Company's subsidiary, The Conway National Bank, Conway, South Carolina ("the Bank").
Compensation Committee Report
The Executive Committee of the Bank recommends to the Board of Directors the appointment of officers; determines officer compensation subject to Board approval; and reviews employee salaries. The compensation of the President (Chief Executive Officer) and the other executive officers is not tied directly to corporate performance or any measure thereof. However, it would be deemed unacceptable by the Executive Committee, Board, and management to establish compensation levels that are not consistent with the performance of the Bank or return to shareholders. During the compensation decision process, much emphasis is placed on the Job Evaluation Salary Administration Program (JESAP) Committee. The "JESAP" Committee is charged with the responsibility of establishing job position descriptions; applying values to each job position in the form of a salary range; and obtaining salary surveys of a local, regional, and national level to determine that salary ranges are consistent with the industry and peers. The "JESAP" committee utilizes an independent management consulting firm to aid in this process. For each Bank employee, including the President (Chief Executive Officer) and all executive officers, a salary minimum, midpoint, and maximum is established. For fiscal 1996, all executive officer compensation levels were below the midpoint as established by the JESAP process.
(1) Cash value of personal use of automobile furnished by the Bank or automobile travel allowance. (2) Cash contributions made by the Bank to the Bank's contributory profit-sharing and savings defined contribution plan.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS (continued)
PENSION PLAN DISCLOSURE
The Bank has a defined contribution pension plan covering all employees who have attained age twenty-one and have a minimum 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 contributions of salary deferred and fifty percent of employee contributions in excess of one percent and up to six percent of salary deferred. For the years ended December 31, 1996, 1995, and 1994, $336,000, $266,000, and $295,000, respectively, was charged to operations under the plan.
The Board of Directors of the Bank have designed and implemented a non-qualified Executive Supplemental Income (ESI) Plan for Willis J. Duncan, W. Jennings Duncan, Robert P. Hucks, and Paul R. Dusenbury. Under the provisions of the ESI Plan, the Bank and the participating employees will execute agreements providing each employee (or his beneficiary, if applicable) with a pre-retirement death benefit and a post-retirement annuity benefit. The ESI Plan is designed to provide participating employees with a pre-retirement benefit based on a percentage of the employee's current compensation. The ESI agreement's post-retirement benefit is designed to supplement a participating employee's retirement benefits from Social Security in order to provide the employee with a certain percentage of his final average income at retirement age. While the employee is receiving benefits under the ESI Agreement, the agreement will prohibit the employee from competing with the Bank and will require the participating employee to be available for consulting work for the Bank. The ESI Agreement may be amended or revoked at any time prior to the participating employee's death or retirement, but only with the mutual written consent of the covered employee and the Bank. The ESI Agreements require that the participating employee be employed at the Bank at the earlier of death or retirement to be eligible to receive, or have his beneficiary receive, benefits under the agreement. The ESI Plan is an unfunded plan, although the Bank has the right to acquire investments to informally and indirectly provide funding for the benefits payable under the plan.
Performance Graphs
The performance graph shall be submitted in paper form under cover of Form SE as provided in Rule 304(d) of Regulation S-T.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS (continued)
Compensation Committee Interlocks and Insider Participation in Compensation Decisions
No Compensation Committee interlocks exist. The members of the Executive Committee of the Board, which serves as the Compensation Committee, are Charles C. Cutts (outside Director), Willis J. Duncan (Chairman of the Board and inside Director), W. Jennings Duncan (President and inside Director), and Dr. R.C. Smith (outside Director). Membership of the "JESAP" committee consists of six Bank officers.
Director Compensation
Directors who are not Bank officers receive $300 for each monthly meeting of the Board of Directors and an additional $100 for each committee meeting attended.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers and persons who own more than ten percent of a registered class of the Company's equity securities to file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers. Such officers, directors, and 10 percent shareholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) forms that they file.
Based solely on its review of copies of such reports received or written representations from certain reporting persons, the Company believes that during the fiscal year ended December 31, 1996, all Section 16(a) filing requirements applicable to its officers, directors, and 10 percent shareholders were complied with.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of December 31, 1996 certain information regarding the ownership of Company Stock of all officers and directors of the Company. No shareholder who is not an officer or director of the Company is known to the management of the Company to be the beneficial owner of more than five (5%) percent of the Company Stock. The Company Stock is the Company's only class of voting securities.
Name and Address Amount and Nature of Percent of Beneficial Owner Beneficial Ownership(1) of Class
Willis J. Duncan 28,313 5.9% 1400 Third Avenue Conway, South Carolina 29526
All Officers and Directors as a Group
(42 persons) (2) 119,983 25.1% _________________
(1) For a description of the amount and nature of ownership of the directors of the Company, see "Management of the Company -- Directors".
(2) Includes 28 officers of the subsidiary, The Conway National Bank, who are not officers of the Company.
ITEM 13. CERTAIN TRANSACTIONS
Directors, principal shareholders, and Executive Officers of the Company and the Bank are customers of and had transactions with the Bank in the ordinary course of business. Included in such transactions are outstanding loans and commitments, all of which were made on comparable terms, including interest rates and collateral as those prevailing at the time for other customers of the Bank, and did not involve more than normal risk of collectibility or present other unfavorable features.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following exhibits, financial statements and financial statement schedules are filed as part of this report:
FINANCIAL STATEMENTS
Report of Independent Public Accountants Consolidated Statements of Condition - December 31, 1996 and 1995 Consolidated Statements of Income - Years ended December 31, 1996, 1995, and 1994 Consolidated Statements of Changes in Stockholders' Equity - Years ended December 31, 1996, 1995, and 1994 Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995, and 1994 Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted from this Annual Report because the required information is presented in the financial statements or in the notes thereto or the required subject matter is not applicable.
EXHIBITS
See Exhibit Index appearing below.
(b) Reports on Form 8-K- No reports on Form 8-K were filed during the last quarter of the period covered by this report.
EXHIBIT INDEX Exhibit Number
3 Articles of Incorporation - A copy of the Articles of Incorporation of the Company is incorporated herein by reference to Exhibit 3(a) which was filed with a Form 10-K Annual Report dated March 28, 1986
By-laws of the Company - A copy of the By-laws of the Company is incorporated herein by reference to Exhibit 3(b) which was filed with a Form 10-K Annual Report dated March 28, 1986.
22 Subsidiaries of the Registrant - A copy of the subsidi- aries of the registrant is incorporated herein by refer- ence to Exhibit 22 which was filed with a Form 10-K Annual Report dated March 28, 1986.
27 Financial Data Schedule - Article 9 Financial Data Schedule for 10-k for electronic filers (pages 64 and 65).
All other exhibits, the filing of which are required with this Form, are not applicable.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
In addition to the Form 10-K Annual Report and related exhibits, the registrant has included the annual report to security holders covering the registrant's last fiscal year and the proxy statement, form of proxy and proxy soliciting material sent to the registrant's security holders with respect to the annual meeting. Such material is not deemed to be "filed" with the Commission or subject to the liabilities of Section 18 of the Act and is not incorporated into the Form 10-K Annual Report by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
W. Jennings Duncan, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in their capacities on March 17, 1997.
Signature Capacity
Willis J. Duncan Chairman of the Board
W. Jennings Duncan President and Director
Robert P. Hucks Executive Vice President and Director
Verta Lee Chestnut Secretary
Paul R. Dusenbury Treasurer (Chief Financial Officer and Chief Accounting Officer)
Dr. R. C. Smith Past Chairman of the Board and Director
James W. Barnette, Jr. Director
Harold G. Cushman, Jr. Director
Charles C. Cutts Director
G. Heyward Goldfinch Director
Richard M. Lovelace, Jr. Director
John K. Massey Director
Howard B. Smith, III Director
ITEM 7. 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 Company's financial condition, results of operations, liquidity, and capital resources. The following discussion should be read in conjunction with the Company's financial statements and notes thereto and other detailed information appearing elsewhere in this report.
Distribution of Assets and Liabilities
The Company maintains a conservative approach in determining the distribution of assets and liabilities. Loans, net of unearned income, increased 5.6% from $144,363 at December 31, 1994 to $152,404 at December 31, 1995; and 21.3% from December 31, 1995 to $184,875 at December 31, 1996. Loan growth is attributed to overall business development efforts to meet business and personal loan demand in our market area. Loan demand was relatively strong in our market area in 1995 and strong in 1996. During 1995, increased rate and term competition on commercial loans within our market area somewhat reduced the anticipated rate of loan growth. Loans, net of unearned income, decreased as a percentage of total assets from 48.6% at year-end 1994 to 46.9% at year-end 1995 but grew strongly to 54.1% at year-end 1996. Correspondingly, investment securities and federal funds sold increased as a percentage of total assets from 43.7% at year-end 1994 to 45.0% at year-end 1995 but shrank to 38.7% at year-end 1996 as funds have been utilized to balance the fluctuations in loan outstandings. Investments and federal funds sold provide for an adequate supply of secondary liquidity. Year-end other assets as a percentage of total assets increased from 7.7% in 1994 to 8.1% in 1995 due to the opening of a ninth banking office. This percentage dropped to 7.2% in 1996 as the Bank grew into its expanded infrastructure. Management has sought to build the deposit base with stable, relatively non-interest- rate sensitive deposits by offering the small to medium account holders a wide array of deposit instruments at competitve rates. Non-interest-bearing demand deposits remained flat as a percentage of total assets at 13.8% at December 31, 1994 and December 31, 1995, but grew to 14.6% at December 31, 1996. Demand deposits are expected to decline over the long-term as more customers utilize interest-bearing deposit and repo accounts. Interest- bearing liabilities as a percentage of total assets have declined from 75.7% at December 31, 1994 to 75.2% at December 31, 1995 to 74.3% at December 31, 1996.
The following table sets forth the percentage relationship to total assets of significant components of the Company's balance sheet as of December 31, 1996, 1995 and 1994:
Results of Operation
CNB Corporation and subsidiary experienced earnings in 1996, 1995 and 1994 of $4,084, $3,756 and $3,497, respectively, resulting in a return of average assets of 1.19%, 1.19%, and 1.18% and a return on average stockholders' equity of 12.15%, 12.07% and 12.29%. The earnings were primarily attributable to favorable 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). These strong earnings, coupled with a conservative dividend policy, have supplied the necessary capital funds to support bank operations. Total assets were $341,818 at December 31, 1996 as compared to $324,694 at December 31, 1995 and $297,120 at December 31, 1994. The following table sets forth the financial highlights for fiscal years 1996, 1995, and 1994.
(1) For the fiscal years ended December 31, 1996, 1995, and 1994, average total assets amounted to $342,182, $316,002, and $297,595 with average stockholders' equity totaling $33,620, $31,113, and $28,458, respectively.
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 investment securities, and interest paid on deposits and borrowed funds. Net interest income is affected by the interest rates earned or paid and by volume changes in loans, investment securities, deposits, and borrowed funds.
The Bank has maintained strong net interest margins in 1996, 1995 and 1994 by earning adequate yields on loans and investments and funding these assets with a favorable deposit and repurchase agreement mix. Fully-tax-equivalent net interest income has grown from $12,750 in 1994 and $12,943 in 1995 to $14,298 in 1996. During the three-year period, total fully-tax-equivalent interest income increased by 13.2% from $20,363 in 1994 to $23,058 in 1995 and increased 7.9% in 1996 to $24,877. Over the same period, total interest expense increased by 32.9% from $7,613 in 1994 to $10,115 in 1995 and increased 4.6% to $10,579 in 1996. The significant increase in 1995 interest income and expense reflected a rapid rise in market interest rates coupled with higher volumes of bank assets and liabilities while changes in 1996 were reflective of more modest interest rate and asset increases. Fully-tax-equivalent net interest income as a percentage of average total earning assets has moved in a narrow range from 4.6% in 1994 to 4.4% in 1995 and 4.5% in 1996.
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, 1995, and 1994. However, fluctuations in market interest rates do not necessarily have a significant impact on net interest income, depending on the Bank's rate sensitivity position. A rate sensitive asset (RSA) is any loan or investment that can be repriced 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 long-run earning power. The following table sets forth the Bank's rate sensitivity position at each of the time intervals indicated. The table illustrates the Bank's rate sensitivity position on specific dates and may not be indicative of the position at other points in time. Management believes that a rise or fall in interest rates will not materially effect earnings.
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 during the ongoing in-house problem loan identification process. The Company includes the provisions of SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", in the allowance for loan losses (see NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES). The provision for possible loan losses was $360 in 1996, $110 in 1995, and $295 in 1994. Net loan charge-offs totalled $232 in 1996, $88 in 1995, and $245 in 1994 with net charge-offs being centered in consumer purpose loans during each period. The reserve for possible loan losses as a percentage of net loans was 1.30% at December 31, 1996, 1.49% at December 31, 1995, and 1.56% at December 31, 1994.
Securities Transactions - Net unrealized gains/(losses) in the investment securities portfolio were $202 at December 31, 1996, $1,546 at December 31, 1995, and $(4,646) at December 31, 1994. The market value of investment securities declined during 1994 due to the rapid rise in overall market rates, rose again in 1995 as rates retreated, and declined modestly in 1996 as market rates rose somewhat. Security losses of $167 were taken in 1994 in transactions to sell short-term low-yielding bonds and re-investing in higher-yielding intermediate-term bonds. Security gains of $25 and $41 were taken in 1995 and 1996, respectively, when bonds were sold to provide additional primary liquidity and to manage the bank's interest rate sensitivity position.
Other Income - Other income, net of security sales, decreased by 1.7% from $2,981 in 1994 to $2,929 in 1995 and grew 1.5% from $2,929 in 1995 to $2,974 in 1996. Other income fell in 1995 due to lower service charge income booked on deposit accounts, offset somewhat by higher merchant discount income, but rose again in 1996 due to higher volumes in deposit and loan account activity.
Other Expenses - Other expenses increased by 2.1% from $9,599 in 1994 to $9,797 in 1995 and 6.1% from $9,797 in 1995 to $10,393 in 1996. The components of other expenses are salaries and employee benefits of $5,285, $5,695 and $6,166; occupancy and furniture and equipment expenses of $1,550, $1,504, and $1,759; and other operating expenses of $2,764, $2,598, and $2,468 for 1994, 1995, and 1996, respectively. The increase in salaries and employee benefits reflects compensation increments, the increased costs of providing employee benefits, and the 1995 addition of a 12-person Myrtle Beach office. The Myrtle Beach office also impacted 1996 occupancy and furniture and equipment expense as this was the first full year of operation. During the third quarter of 1995, the Federal Deposit Insurance Corporation (FDIC) announced that the bank insurance fund was fully capitalized and banks were due a rebate of excessive paid-in insurance premiums. The Conway National Bank received a $145 FDIC insurance premium rebate and is experiencing significantly lower premiums as is evidenced in the decline in 1995 and 1996 other operating expenses. Looking ahead, non-interest expense should grow at only a nominal rate during 1997 as no significant staffing and infrastructure expenditures are expected, but may increase in 1998 due to potential expansion in the bank's branch network.
Income Taxes - Provisions for income taxes increased 7.2% from $1,657 in 1994 to $1,777 in 1995 and 17.9% from $1,777 in 1995 to $2,095 in 1996. The increase in income taxes is primarily due to an increase in income before income taxes of 7.4% from $5,154 in 1994 to $5,533 in 1995 and 11.7% from $5,533 in 1995 to $6,179 in 1996. Also, the utilization of tax-free income as a percentage of income before income taxes declined in 1995 and 1996.
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. The Company has cash balances on hand of $3,078, $2,927, and $2,358 at December 31, 1996, 1995, and 1994 with liabilities, consisting of cash dividends payable, totalling $1,435, $1,432, and $955, respectively. Management feels that liquidity sources are more than adequate to meet funding needs.
CAPITAL RESOURCES
Total stockholders' equity was $34,496, $32,195, and $28,857 at December 31, 1996, 1995, and 1994, representing 10.09%, 9.92%, and 9.71% of total assets, respectively. At December 31, 1996, the Bank exceeds quantitative measures established by regulation to ensure capital adequacy (see NOTE 15 - REGULATORY MATTERS). Capital is considered sufficient by management to meet current and prospective capital requirements and to support anticipated growth in bank operations.
EFFECTS OF INFLATION
Inflation normally has the effect of accelerating the growth of both a bank's assets and liabilities. One result of this inflationary effect is an increased need for equity capital. Income is also affected by inflation. While interest rates have traditionally moved with inflation, the effect on net income is diminished because both interest earned on assets and interest paid on liabilities vary directly with each other. In some cases, however, rate increases are delayed on fixed-rate instruments. Loan demand normally declines during periods of high inflation. Inflation has a direct impact on the Bank's non-interest expense. The Bank responds to inflation changes through readjusting non-interest income by repricing services.
EFFECTS OF REGULATORY ACTION
The Federal Deposit Insurance Corporation (FDIC) reduced FDIC insurance premium rates during the third quarter of 1995. This decrease had a positive effect on earnings in 1995 and 1996 and should favorably impact future years income. (see NET INCOME - Other Expenses). The management of the Company and the Bank is not aware of any other current recommendations by the regulatory authorities which, if they were to be implemented, would have a material effect on liquidity, capital resources, or operations.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS
CNB CORPORATION AND SUBSIDIARY
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
CNB CORPORATION AND SUBSIDIARY CONWAY, SOUTH CAROLINA
CONTENTS
PAGE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 33
FINANCIAL STATEMENTS
Consolidated balance sheets 34 Consolidated statements of income 35 Consolidated statements of changes in stockholders' equity 36 Consolidated statements of cash flow 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 38 - 52
Elliott, Davis & Company, L.L.P. Certified Public Accountants Members of the American Institute of Certified Public Accountants Greenville, S.C. Greenwood, S.C. Anderson, S.C. Aiken, S.C. Columbia, S.C.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Directors and Stockholders CNB Corporation Conway, South Carolina
We have audited the accompanying consolidated balance sheets of CNB Corporation and Subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CNB Corporation and Subsidiary at December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
Elliott, Davis & Company, L.L.P.
January 17, 1997
Internationally - Moore Stephens Elliott Davis, L.L.C. 870 S. Pleasantburg Drive Post Office Box 6286 Greenville, South Carolina 29606-6286 Telephone (864) 242-3370 Telefax (864) 232-7161
CNB CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (amounts, except share data, in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
See Notes to Consolidated Financial Statements which are an integral part of these statements.
CNB CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (amounts, except per share data, in thousands)
See Notes to Consolidated Financial Statements which are an integral part of these statements.
CNB CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the years ended December 31, 1996, 1995 and 1994 (amounts, except share data, in thousands)
See Notes to Consolidated Financial Statements which are an integral part of these statements.
CNB CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands)
See Notes to Consolidated Financial Statements which are an integral part of these statements.
CNB CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation and nature of operations The consolidated financial statements include the accounts of CNB Corporation ("the Company") and its majority-owned subsidiary, The Conway National Bank ("the Bank"). All significant intercompany balances and transactions have been eliminated. The Bank operates under a national bank charter and provides full banking services to customers. The Bank is subject to regulation of the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The Company is subject to regulation of the Federal Reserve Board.
Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the Consolidated Balance sheets and the Consolidated Statements of Income for the periods covered. Actual results could differ from those estimates.
Concentrations of credit risk The Company, through its subsidiary, makes commercial and personal loans to individuals and small businesses located primarily in the South Carolina coastal region. The Company has a diversified loan portfolio and the borrowers' ability to repay their loans is not dependent upon any specific economic sector.
Cash and cash equivalents For purposes of the statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption "Cash and Due from Banks". Cash and cash equivalents have an original maturity of three months or less.
Investment securities In 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Stockholders' equity at the beginning of 1994 was restated to reflect the effect of a change in accounting principle. Adoption of the standard had no effect on net income. Debt securities are classified upon purchase as available for sale, held to maturity or trading. Such assets classified as available for sale are carried at market value. Unrealized holding gains or losses are reported as a component of stockholders' equity net of deferred income taxes. Securities classified as held to maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts. In order to qualify as held to maturity the Company must have the intent and ability to hold the securities to maturity. Trading securities are carried at market value. The Company has no trading securities. Gains or losses on disposition of securities are based on the difference between the net proceeds and the adjusted carrying amount of the securities sold, using the specific identification method.
Loans and interest income Interest on loans is accrued and taken into income based upon the interest method. Interest on certain installment loans is accrued and taken into income based upon the sum-of-the-months-digits method. The results from the use of the sum-of-the-months-digits method are not materially different from those that would be obtained using the interest method.
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Loans and interest income, continued
The Company adopted SFAS No. 114, Accounting by Creditors for Impairment of a Loan on January 1, 1994. This standard requires that all creditors value loans at the loans fair value if it is probable that the creditor will be unable to collect all amounts due according to the terms of the loan agreement. Fair value may be determined based upon the present value of expected cash flows, market price of the loan, if available, or value of the underlying collateral. Expected cash flows are required to be discounted at the loans effective interest rate. SFAS No. 114 was amended by SFAS No. 118 to allow a creditor to use existing methods for recognizing interest income on an impaired loan and by requiring additional disclosures about how a creditor recognizes interest income on an impaired loan. The adoption of the standards required no increase in the allowance for loan losses and had no impact on net income for the year ended December 31, 1994.
Under SFAS No. 114, as amended by SFAS No. 118, when the ultimate collectibility of an impaired loan's principal is in doubt, wholly or partially, all cash receipts are applied to principal. When this doubt does not exist, cash receipts are applied under the contractual terms of the loan agreement first to principal then to interest income. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income, to the extent that any interest has been foregone. Further cash receipts are recorded as recoveries of any amounts previously charged off.
A loan is also considered impaired if its terms are modified in a troubled debt restructuring after January 1, 1994. For these accruing impaired loans, cash receipts are typically applied to principal and interest receivable in accordance with the terms of the restructured loan agreement. Interest income is recognized on these loans using the accrual method of accounting. As of December 31, 1996 and 1995, the Company had no impaired loans.
Allowance for loan losses
The allowance for loan losses is based on management's ongoing evaluation of the loan portfolio and reflects an amount that, in management's opinion, is adequate to absorb losses in the existing portfolio. In evaluating the portfolio, management takes into consideration numerous factors, including current economic conditions, prior loan loss experience, the composition of the loan portfolio, and management's estimate of anticipated credit losses. Loans are charged against the allowance at such time as they are determined to be losses. Subsequent recoveries are credited to the allowance. Management considers the year-end allowance appropriate and adequate to cover possible losses in the loan portfolio; however, management's judgment is based upon a number of assumptions about future events, which are believed to be reasonable, but which may or may not prove valid. Thus, there can be no assurance that charge-off's in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required.
Premises and equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed over the estimated useful lives of the assets using primarily accelerated methods. Additions to premises and equipment and major replacements or improvements are capitalized at cost. Maintenance, repairs and minor replacements are expensed when incurred. Gains and losses on routine dispositions are reflected in current operations.
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Non-performing assets Non-performing assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure, and loans on non-accrual status. Loans are placed on non-accrual status when, in the opinion of management, the collection of additional interest is questionable. Thereafter no interest is taken into income unless received in cash or until such time as the borrower demonstrates the ability to pay principal and interest.
Advertising expense Advertising, promotional, and other business development costs are generally expensed as incurred. External costs incurred in producing media advertising are expensed the first time the advertising takes place. External costs relating to direct mailing costs are expensed in the period in which the direct mailings are sent. Advertising, promotional, and other business development costs of $293,711, $349,805 and $242,138 were included in the Companys results of operations for 1996, 1995, and 1994, respectively.
Income taxes Income taxes are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax liabilities are recognized on all taxable temporary differences (reversing differences where tax deductions initially exceed financial statement expense, or income is reported for financial statement purposes prior to being reported for tax purposes). In addition, deferred tax assets are recognized on all deductible temporary differences (reversing differences where financial statements expense initially exceeds tax deductions, or income is reported for tax purposes prior to being reported for financial statements purposes) and operating loss and tax credit carryforwards. Valuation allowances are established to reduce deferred tax assets if it is determined to be more likely than not that all or some portion of the potential deferred tax asset will not be realized.
Net income per share Net income per share is computed on the basis of the weighted average number of common shares outstanding, 477,496 in 1996, 477,820 in 1995 and 476,370 in 1994. Per share data has been restated to reflect stock dividends.
Recently issued accounting standards Accounting standards that have been proposed or issued by standard-setting groups that do not require adoption until a future date will have no material impact on the financial statements upon adoption.
Fair values of financial instruments Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," as amended by SFAS No. 119, requires disclosure of fair value information for financial instruments, whether or not recognized in the balance sheet, when it is practicable to estimate the fair value. SFAS No. 107 defines a financial instrument as cash, evidence of an ownership interest in an entity or contractual obligations which require the exchange of cash or other financial instruments. Certain items are specifically excluded from the disclosure requirements, including the Company's common stock. In addition, other nonfinancial instruments such as premises and equipment and other assets and liabilities are not subject to the disclosure requirements.
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein:
Cash and due from banks - The carrying amounts of cash and due from banks (cash on hand, due from banks and interest bearing deposits with other banks) approximate their fair value.
Federal funds sold - The carrying amounts of federal funds sold approximate their fair value.
Investment securities held to maturity and available for sale - Fair values for investment securities are based on quoted market prices.
Loans - For variable rate loans that reprice frequently and for loans that mature within one year, fair values are based on carrying values. Fair values for all other loans are estimated using discounted cash flow analyses, with interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.
Deposits - The fair values disclosed for demand deposits are, by definition, equal to their carrying amounts. The carrying amounts of variable rate, fixed-term money market accounts and short-term certificates of deposit approximate their fair values at the reporting date. Fair values for long-term fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities.
Short-term borrowings - The carrying amounts of borrowings under repurchase agreements, federal funds purchased and U. S. Treasury demand notes approximate their fair values.
Off-balance sheet instruments - Fair values of off-balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing.
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 amounts of these reserve balances for the years ended December 31, 1996 and 1995 were approximately $5,112,000 and $4,306,000, respectively.
(Continued)
NOTE 3 - INVESTMENT SECURITIES
The book value and approximate fair value of investment securities are summarized as follows (amounts in thousands):
(Continued)
NOTE 3 - INVESTMENT SECURITIES, Continued
Investment securities with an aggregate par value of approximately $55,665,000 at December 31, 1996 and $66,115,000 at December 31, 1995 were pledged to secure public deposits and for other purposes.
On December 6, 1995, the Bank transferred certain securities from the held to maturity classification to the available for sale classification. These securities had an amortized cost of $11,566,000 and an unrealized loss of $68,000 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.
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Following is a summary of loans by major classification (amounts in thousands):
The Company's loan portfolio consisted of approximately $129,833,000 and $105,744,000 in fixed rate loans as of December 31, 1996 and 1995, respectively. At December 31, 1996, fixed rate loans with maturities in excess of one year amounted to approximately $93,017,000.
(Continued)
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, Continued Changes in the allowance for loan losses are summarized as follows (amounts in thousands):
At December 31, 1996 and 1995, non-accrual loans totaled $377,000 and $479,000, respectively. The total amount of interest earned on non-accrual loans was $7,000 in 1996, $2,000 in 1995 and $22,000 in 1994. The gross interest income which would have been recorded under the original terms of the non-accrual loans amounted to $45,000 in 1996, $60,000 in 1995 and $93,000 in 1994. As of December 31, 1996 and 1995, the Company had no impaired loans.
NOTE 5 - PREMISES AND EQUIPMENT Premises and equipment at December 31 is summarized as follows (amounts in thousands):
Depreciation and amortization of bank premises and equipment charged to operating expense totaled $757,000 in 1996, $666,000 in 1995 and $623,000 in 1994.
NOTE 6 - DEPOSITS
At December 31, 1996 and 1995, certificates of deposit of $100,000 or more totaled approximately $34,318,000 and $28,507,000, respectively. Interest expense on these deposits was approximately $1,639,000 in 1996, $1,182,000 in 1995 and $750,000 in 1994.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements are summarized as follows (amounts in thousands):
The Bank enters into sales of securities under agreements to repurchase. These obligations to repurchase securities sold are reflected as liabilities in the consolidated balance sheets. The dollar amount of securities underlying the agreements are book entry securities maintained at the Federal Reserve Bank of Richmond. The weighted-average interest rate of these agreements was 4.71 and 5.10 percent at December 31, 1996 and 1995, respectively. Securities sold under repurchase agreements averaged $39,440,000 and $39,332,000 during 1996 and 1995, respectively. The maximum amounts outstanding at any month-end were $45,333,000 and $47,707,000 during 1996 and 1995, respectively.
NOTE 8 - LINES OF CREDIT
At December 31, 1996, the Bank had unused short-term lines of credit totaling $17,000,000 to purchase Federal Funds from unrelated banks. 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 Company has a demand note through the U.S. Treasury, Tax and Loan system with the Federal Reserve Bank of Richmond. The Company may borrow up to $5,000,000 under the arrangement at an interest rate of 5.15%. The note is secured by U.S. Treasury Notes with a market value of $5,996,000 at December 31, 1996. The amount outstanding under the note totaled $2,319,000 and $766,000 at December 31, 1996 and 1995, respectively.
NOTE 9 - INCOME TAXES
The provision for income taxes is reconciled to the amount of income tax computed at the federal statutory rate on income before income taxes as follows (amounts in thousands):
(Continued)
NOTE 9 - INCOME TAXES, Continued
The following summary of the provision for income taxes includes tax deferrals which arise from temporary differences in the recognition of certain items of revenue and expense for tax and financial reporting purposes (amounts in thousands):
The sources and tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
A portion of the change in the net deferred tax liability relates to the change in unrealized net gains on securities available for sale. The related current period deferred tax credit of $268,800 has been recorded directly to stockholders' equity. The balance of the change in the net deferred tax liability results from the current period deferred tax expense.
(Continued)
NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statements of financial position. The contract amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on- balance-sheet instruments.
The contract value of the Company's off-balance-sheet financial instruments is as follows as of December 31, 1996 (amounts in thousands): Contract amount Commitments to extend credit $ 11,234 Standby letters of credit $ 906
Commitments to extend credit are agreements to lend as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on management's credit evaluation.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
At December 31, 1996, the Bank was obligated under a number of non- cancelable operating leases on equipment and land used for branch offices that had an initial or remaining term of more than one year. Future minimum rental payments under these leases at December 31, 1996 were (amounts in thousands):
Lease payments under all operating leases charged to expense totaled $61,000 in 1996, $23,000 in 1995 and $54,000 in 1994. The leases provide that the lessee pay property taxes, insurance and maintenance cost.
The Company is party to litigation and claims arising in the normal course of business. Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such litigation and claims will not be material to the Bank's financial position.
(Continued)
NOTE 12 - RESTRICTION ON DIVIDENDS
The ability of the Company to pay cash dividends is dependent upon receiving cash in the form of dividends from the Bank. Federal banking regulations restrict the amount of dividends that can be paid and such dividends are payable only from the retained earnings of the Bank. At December 31, 1996 the Bank's retained earnings were $28,698,000.
NOTE 13 - TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND ASSOCIATES
Directors and executive officers of the Company and the Bank and associates of such persons are customers of and had transactions with the Bank in the ordinary course of business. Additional transactions may be expected to take place in the future. Also, included in such transactions are outstanding loans and commitments, all of which were made on comparable terms, including interest rates and collateral, as those prevailing at the time for other customers of the Bank, and did not involve more than normal risk of collectibility or present other unfavorable features. Total loans to all executive officers and directors, including immediate family and business interests, at December 31, 1996 and 1995, were $1,895,000 and $2,025,000, respectively. During 1996, $259,000 of new loans were made to this group and repayments of $389,000 were received.
NOTE 14 - 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 years ended December 31, 1996, 1995 and 1994, $336,000, $266,000 and $295,000, respectively, was charged to operations under the plan.
Supplemental benefits are provided to certain key officers under The Conway National Bank Executive Supplemental Income Plan. This plan is not qualified under the Internal Revenue Code. The plan is unfunded. However, certain benefits are informally and indirectly funded by insurance policies on the lives of the covered employees.
NOTE 15 - 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 Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are 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 Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets. Management believes, as of December 31, 1996, that the Bank meets all capital adequacy requirements to which it is subject.
(Continued)
NOTE 15 - REGULATORY MATTERS, Continued
As of December 31, 1996, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category. The Bank's actual capital amounts and ratios and minimum regulatory amounts and ratios are presented as follows:
NOTE 16 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments were as follows at December 31 (amounts in thousands):
(Continued)
NOTE 17 - PARENT COMPANY INFORMATION Following is condensed financial information of CNB Corporation (parent company only) (amounts in thousands): CONDENSED BALANCE SHEETS
CONDENSED STATEMENTS OF INCOME
CONDENSED STATEMENTS OF CASH FLOWS
(Continued)
NOTE 17 - PARENT COMPANY INFORMATION, Continued
CONDENSED STATEMENTS OF CASH FLOWS, Continued
NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)
(Continued)
NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED), Continued
ITEM 9.
ITEM 9. - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
* Nominee for election to the Board of Directors.
Except as indicated below, each director or director nominee of the company has sole voting and investment power with respect to all shares of Company stock owned by such director or director nominee. The address of each director or director nominee is c/o The Conway National Bank, Post Office Drawer 320, 1400 Third Avenue, Conway, South Carolina 29526. All directors and officers of the Company and its subsidiary, The Conway National Bank, as a group (42 persons), own 119,983 (25.10%) shares of Company stock.
(1) Includes 10,190 shares held by Harriette B. Duncan (wife).
(2) Includes 358 shares held by Robin F. Duncan (wife); 1,669 shares held by Ann Louise Duncan (daughter); 1,669 shares held by Mary Kathryn Duncan (daughter); 1,669 shares by Willis Jennings Duncan, V (son); and 1,669 shares by Margaret Brunson Duncan (daughter).
(3) Includes 14,900 shares held by the Cushman Family Limited Partnership; 209 shares held by Dianne C. Cushman (wife); 753 shares held by Marion Shannon Cushman (son); 388 shares held by Frances Faison Cushman (daughter); 388 shares held by Harold G. Cushman, III (son); 50 shares held by Harold G. Cushman, IV; (grandson); 50 shares held by Kara Dawn Cushman (granddaughter); and 3,905 shares held by Harold Cushman Ward (nephew).
(4) Includes 10,159 shares held by Eugenia B. Cutts (wife).
(5) Includes 100 shares held by Jennifer S. Dusenbury (wife); 30 shares held by Elena Cox Dusenbury (daughter); and 30 shares held by Sarah Cherry Dusenbury (daughter).
(6) Includes 1,260 shares held by Marjorie R. Holliday Irrevocable Trust (wife); 3,304 shares held by M. Russell Holliday, Jr. (daughter); 1,978 shares held by Christian M. Holliday Douglas (daughter); 346 shares held by Christian M. H. Douglas, Jr. (granddaughter); 346 shares held by Marjorie Russell Douglas (granddaughter); 346 shares held by David Duvall Douglas, Jr. (grandson); and 484 shares held by David D. and Christian M.H. Douglas Trust (grandchildren).
(7) Includes 200 shares held by Willie Ann Hucks (wife); 20 shares held by Mariah J. Hucks (daughter); 50 shares held by Norah Leigh Hucks (daughter); and 150 shares held by Robert P. Hucks, II (son).
(8) Includes 216 shares held by Rebecca S. Lovelace (wife); 352 shares held by Richard Blake Lovelace (son); and 352 shares held by Macon B. Lovelace (son).
(9) Includes 1,058 shares held by Bertha T. Massey (wife).
Each director of the Company has been engaged in his principal occupation of employment as specified above for five (5) years or more unless otherwise indicated.
W. Jennings Duncan is Willis J. Duncan's son. Richard M. Lovelace, Jr. is Dr. R. C. Smith's son-in-law. No other family relationships exist among the above named directors or officers of the Company. None of the directors of the Company holds a directorship in any company with a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, or subject to the requirements of Section 15(d) of that act or in any company registered as an investment company under the Investment Company Act of 1940, as amended.
The Board of Directors of the Company, as originally constituted, was classified into three (3) classes with each class consisting of five (5) directors. Four (4) directors in Class III will be elected at the 1997 Annual Meeting to serve for a three (3) year term. Directors in Class I will be elected at the 1998 Annual Meeting to serve for a three (3) year term and Directors in Class II will be elected at the 1999 Annual Meeting to serve for a three (3) year term. Currently, there are twelve (12) Directors, with three (3) directors in Class III. The Board of Directors has passed a resolution increasing the total number of Directors from twelve (12) to thirteen (13).
The Board of Directors of the Company serves as the Board of Directors of its subsidiary, The Conway National Bank. The Company's Board of Directors meets as is necessary and the Bank's Board of Directors meets on a monthly basis.
The Board of Directors of the Bank has an Executive Committee that meets when necessary between scheduled meetings of the Board of Directors. The Executive Committee recommends to the Board of Directors the appointment of officers; determines officer compensation subject to Board approval; reviews employee salaries; considers any director nominee submitted by the shareholders; and addresses any other business as is necessary which does not come under the authority of other committees on the Board of Directors. The Executive Committee will consider any nominee to the Board of Directors submitted by the shareholders, provided shareholders intending to nominate director candidates for election deliver written notice thereof to the Secretary of the Company not later than (i) with respect to at election to be held at an Annual Meeting of shareholders, ninety (90) days prior to the anniversary date of the immediately preceding Annual Meeting of shareholders, and (ii) with respect to an election to be held at a special meeting of shareholders, the close of business on the tenth (10th) day following the date on which notice of such meeting is first given to shareholders. The Bylaws further provide that the notice shall set forth certain information concerning such shareholder and his nominee(s), including their names and addresses, a representation that the shareholder is entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, a description of all arrangements or understandings between the shareholder and each nominee, such other information as would be required to be included in a proxy statement soliciting proxies for the election of the nominees of such shareholder and the consent of each nominee to serve as Director of the Company is so elected. The Chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedures. The members of the Executive Committee are Charles C. Cutts, Willis J. Duncan, W. Jennings Duncan, and Dr. R. C. Smith.
In addition, the Board of Directors of the Bank has Audit, Loan, Public Relations, and Building Committees. The members of the Audit Committee are Charles C. Cutts, John Monroe J. Holliday, John K. Massey,
Howard B. Smith, III, and Dr. R. C. Smith. The members of the Loan Committee are James W. Barnette, Jr., Harold G. Cushman, Jr., Willis J. Duncan, W. Jennings Duncan, G. Heyward Goldfinch, Robert P. Hucks, and Richard M. Lovelace, Jr. The members of the Public Relations Committee are James W. Barnette, Jr., G. Heyward Goldfinch, and John K. Massey. The members of the Building Committee are James W. Barnette, Jr., Harold G. Cushman, Jr., Willis J. Duncan, W. Jennings Duncan, and Robert P. Hucks, Willis J. Duncan, Chairman of the Board, and W. Jennings Duncan, President, are ex officio members of each of these committees of the Board with the exception of the Audit Committee.
The function of the Audit Committee is to ensure that adequate accounting procedures are in existence and functioning in a manner adequate to safeguard the assets of the Bank. The Audit Committee also monitors internal and external audit activities. The function of the Loan Committee is to review and approve new loans and monitor the performance and quality of existing loans, as well as to ensure that sound policies and procedures exist in the Bank's lending operations.
During 1996, the Company's Board of Directors met two (2) times; the Bank's Board of Directors met twelve (12) times; the Executive Committee met eleven (11) times; the Audit Committee met nine (9) times; the Loan Committee met twelve (12) times; the Building Committee met one (1) time; and the Public Relations Committee did not meet. With the exceptions of John Monroe J. Holliday and Howard B. Smith, III, each Director attended at least 75% of the aggregate of (a) the total number of meetings of the Board of Directors held during the period for which he served as Director and (b) the total number of meetings held by all committees of the Board of Directors of which he served.
Executive Officers:
The Executive Officers and other officers of the Company are as follows: Position(s) Currently Name Age With The Company
Willis J. Duncan 69 Chairman of the Board (1)
W. Jennings Duncan 41 President and Director (1)
Robert P. Hucks 51 Executive Vice President and Director (1)
Verta Lee Chestnut 58 Secretary
Paul R. Dusenbury 38 Treasurer (1) (Chief Financial Officer and Chief Accounting Officer) _________________ (1) Executive Officer
All executive officers and other officers serve at the pleasure of the Board of Directors of the Company. Each executive officer and other officer of the Company has been an officer of the Company and/or the Bank for five (5) years.
ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Company pays no remuneration to its Directors and Executive Officers. All remuneration for services rendered are paid by the Company's subsidiary, The Conway National Bank, Conway, South Carolina ("the Bank").
Compensation Committee Report
The Executive Committee of the Bank recommends to the Board of Directors the appointment of officers; determines officer compensation subject to Board approval; and reviews employee salaries. The compensation of the President (Chief Executive Officer) and the other executive officers is not tied directly to corporate performance or any measure thereof. However, it would be deemed unacceptable by the Executive Committee, Board, and management to establish compensation levels that are not consistent with the performance of the Bank or return to shareholders. During the compensation decision process, much emphasis is placed on the Job Evaluation Salary Administration Program (JESAP) Committee. The "JESAP" Committee is charged with the responsibility of establishing job position descriptions; applying values to each job position in the form of a salary range; and obtaining salary surveys of a local, regional, and national level to determine that salary ranges are consistent with the industry and peers. The "JESAP" committee utilizes an independent management consulting firm to aid in this process. For each Bank employee, including the President (Chief Executive Officer) and all executive officers, a salary minimum, midpoint, and maximum is established. For fiscal 1996, all executive officer compensation levels were below the midpoint as established by the JESAP process.
(1) Cash value of personal use of automobile furnished by the Bank or automobile travel allowance. (2) Cash contributions made by the Bank to the Bank's contributory profit-sharing and savings defined contribution plan.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS (continued)
PENSION PLAN DISCLOSURE
The Bank has a defined contribution pension plan covering all employees who have attained age twenty-one and have a minimum 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 contributions of salary deferred and fifty percent of employee contributions in excess of one percent and up to six percent of salary deferred. For the years ended December 31, 1996, 1995, and 1994, $336,000, $266,000, and $295,000, respectively, was charged to operations under the plan.
The Board of Directors of the Bank have designed and implemented a non-qualified Executive Supplemental Income (ESI) Plan for Willis J. Duncan, W. Jennings Duncan, Robert P. Hucks, and Paul R. Dusenbury. Under the provisions of the ESI Plan, the Bank and the participating employees will execute agreements providing each employee (or his beneficiary, if applicable) with a pre-retirement death benefit and a post-retirement annuity benefit. The ESI Plan is designed to provide participating employees with a pre-retirement benefit based on a percentage of the employee's current compensation. The ESI agreement's post-retirement benefit is designed to supplement a participating employee's retirement benefits from Social Security in order to provide the employee with a certain percentage of his final average income at retirement age. While the employee is receiving benefits under the ESI Agreement, the agreement will prohibit the employee from competing with the Bank and will require the participating employee to be available for consulting work for the Bank. The ESI Agreement may be amended or revoked at any time prior to the participating employee's death or retirement, but only with the mutual written consent of the covered employee and the Bank. The ESI Agreements require that the participating employee be employed at the Bank at the earlier of death or retirement to be eligible to receive, or have his beneficiary receive, benefits under the agreement. The ESI Plan is an unfunded plan, although the Bank has the right to acquire investments to informally and indirectly provide funding for the benefits payable under the plan.
Performance Graphs
The performance graph shall be submitted in paper form under cover of Form SE as provided in Rule 304(d) of Regulation S-T.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS (continued)
Compensation Committee Interlocks and Insider Participation in Compensation Decisions
No Compensation Committee interlocks exist. The members of the Executive Committee of the Board, which serves as the Compensation Committee, are Charles C. Cutts (outside Director), Willis J. Duncan (Chairman of the Board and inside Director), W. Jennings Duncan (President and inside Director), and Dr. R.C. Smith (outside Director). Membership of the "JESAP" committee consists of six Bank officers.
Director Compensation
Directors who are not Bank officers receive $300 for each monthly meeting of the Board of Directors and an additional $100 for each committee meeting attended.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers and persons who own more than ten percent of a registered class of the Company's equity securities to file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers. Such officers, directors, and 10 percent shareholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) forms that they file.
Based solely on its review of copies of such reports received or written representations from certain reporting persons, the Company believes that during the fiscal year ended December 31, 1996, all Section 16(a) filing requirements applicable to its officers, directors, and 10 percent shareholders were complied with.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of December 31, 1996 certain information regarding the ownership of Company Stock of all officers and directors of the Company. No shareholder who is not an officer or director of the Company is known to the management of the Company to be the beneficial owner of more than five (5%) percent of the Company Stock. The Company Stock is the Company's only class of voting securities.
Name and Address Amount and Nature of Percent of Beneficial Owner Beneficial Ownership(1) of Class
Willis J. Duncan 28,313 5.9% 1400 Third Avenue Conway, South Carolina 29526
All Officers and Directors as a Group
(42 persons) (2) 119,983 25.1% _________________
(1) For a description of the amount and nature of ownership of the directors of the Company, see "Management of the Company -- Directors".
(2) Includes 28 officers of the subsidiary, The Conway National Bank, who are not officers of the Company.
ITEM 13. CERTAIN TRANSACTIONS
Directors, principal shareholders, and Executive Officers of the Company and the Bank are customers of and had transactions with the Bank in the ordinary course of business. Included in such transactions are outstanding loans and commitments, all of which were made on comparable terms, including interest rates and collateral as those prevailing at the time for other customers of the Bank, and did not involve more than normal risk of collectibility or present other unfavorable features.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following exhibits, financial statements and financial statement schedules are filed as part of this report:
FINANCIAL STATEMENTS
Report of Independent Public Accountants Consolidated Statements of Condition - December 31, 1996 and 1995 Consolidated Statements of Income - Years ended December 31, 1996, 1995, and 1994 Consolidated Statements of Changes in Stockholders' Equity - Years ended December 31, 1996, 1995, and 1994 Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995, and 1994 Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted from this Annual Report because the required information is presented in the financial statements or in the notes thereto or the required subject matter is not applicable.
EXHIBITS
See Exhibit Index appearing below.
(b) Reports on Form 8-K- No reports on Form 8-K were filed during the last quarter of the period covered by this report.
EXHIBIT INDEX Exhibit Number
3 Articles of Incorporation - A copy of the Articles of Incorporation of the Company is incorporated herein by reference to Exhibit 3(a) which was filed with a Form 10-K Annual Report dated March 28, 1986
By-laws of the Company - A copy of the By-laws of the Company is incorporated herein by reference to Exhibit 3(b) which was filed with a Form 10-K Annual Report dated March 28, 1986.
22 Subsidiaries of the Registrant - A copy of the subsidi- aries of the registrant is incorporated herein by refer- ence to Exhibit 22 which was filed with a Form 10-K Annual Report dated March 28, 1986.
27 Financial Data Schedule - Article 9 Financial Data Schedule for 10-k for electronic filers (pages 64 and 65).
All other exhibits, the filing of which are required with this Form, are not applicable.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
In addition to the Form 10-K Annual Report and related exhibits, the registrant has included the annual report to security holders covering the registrant's last fiscal year and the proxy statement, form of proxy and proxy soliciting material sent to the registrant's security holders with respect to the annual meeting. Such material is not deemed to be "filed" with the Commission or subject to the liabilities of Section 18 of the Act and is not incorporated into the Form 10-K Annual Report by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
W. Jennings Duncan, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in their capacities on March 17, 1997.
Signature Capacity
Willis J. Duncan Chairman of the Board
W. Jennings Duncan President and Director
Robert P. Hucks Executive Vice President and Director
Verta Lee Chestnut Secretary
Paul R. Dusenbury Treasurer (Chief Financial Officer and Chief Accounting Officer)
Dr. R. C. Smith Past Chairman of the Board and Director
James W. Barnette, Jr. Director
Harold G. Cushman, Jr. Director
Charles C. Cutts Director
G. Heyward Goldfinch Director
Richard M. Lovelace, Jr. Director
John K. Massey Director
Howard B. Smith, III Director
ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Company pays no remuneration to its Directors and Executive Officers. All remuneration for services rendered are paid by the Company's subsidiary, The Conway National Bank, Conway, South Carolina ("the Bank").
Compensation Committee Report
The Executive Committee of the Bank recommends to the Board of Directors the appointment of officers; determines officer compensation subject to Board approval; and reviews employee salaries. The compensation of the President (Chief Executive Officer) and the other executive officers is not tied directly to corporate performance or any measure thereof. However, it would be deemed unacceptable by the Executive Committee, Board, and management to establish compensation levels that are not consistent with the performance of the Bank or return to shareholders. During the compensation decision process, much emphasis is placed on the Job Evaluation Salary Administration Program (JESAP) Committee. The "JESAP" Committee is charged with the responsibility of establishing job position descriptions; applying values to each job position in the form of a salary range; and obtaining salary surveys of a local, regional, and national level to determine that salary ranges are consistent with the industry and peers. The "JESAP" committee utilizes an independent management consulting firm to aid in this process. For each Bank employee, including the President (Chief Executive Officer) and all executive officers, a salary minimum, midpoint, and maximum is established. For fiscal 1996, all executive officer compensation levels were below the midpoint as established by the JESAP process.
(1) Cash value of personal use of automobile furnished by the Bank or automobile travel allowance. (2) Cash contributions made by the Bank to the Bank's contributory profit-sharing and savings defined contribution plan.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS (continued)
PENSION PLAN DISCLOSURE
The Bank has a defined contribution pension plan covering all employees who have attained age twenty-one and have a minimum 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 contributions of salary deferred and fifty percent of employee contributions in excess of one percent and up to six percent of salary deferred. For the years ended December 31, 1996, 1995, and 1994, $336,000, $266,000, and $295,000, respectively, was charged to operations under the plan.
The Board of Directors of the Bank have designed and implemented a non-qualified Executive Supplemental Income (ESI) Plan for Willis J. Duncan, W. Jennings Duncan, Robert P. Hucks, and Paul R. Dusenbury. Under the provisions of the ESI Plan, the Bank and the participating employees will execute agreements providing each employee (or his beneficiary, if applicable) with a pre-retirement death benefit and a post-retirement annuity benefit. The ESI Plan is designed to provide participating employees with a pre-retirement benefit based on a percentage of the employee's current compensation. The ESI agreement's post-retirement benefit is designed to supplement a participating employee's retirement benefits from Social Security in order to provide the employee with a certain percentage of his final average income at retirement age. While the employee is receiving benefits under the ESI Agreement, the agreement will prohibit the employee from competing with the Bank and will require the participating employee to be available for consulting work for the Bank. The ESI Agreement may be amended or revoked at any time prior to the participating employee's death or retirement, but only with the mutual written consent of the covered employee and the Bank. The ESI Agreements require that the participating employee be employed at the Bank at the earlier of death or retirement to be eligible to receive, or have his beneficiary receive, benefits under the agreement. The ESI Plan is an unfunded plan, although the Bank has the right to acquire investments to informally and indirectly provide funding for the benefits payable under the plan.
Performance Graphs
The performance graph shall be submitted in paper form under cover of Form SE as provided in Rule 304(d) of Regulation S-T.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS (continued)
Compensation Committee Interlocks and Insider Participation in Compensation Decisions
No Compensation Committee interlocks exist. The members of the Executive Committee of the Board, which serves as the Compensation Committee, are Charles C. Cutts (outside Director), Willis J. Duncan (Chairman of the Board and inside Director), W. Jennings Duncan (President and inside Director), and Dr. R.C. Smith (outside Director). Membership of the "JESAP" committee consists of six Bank officers.
Director Compensation
Directors who are not Bank officers receive $300 for each monthly meeting of the Board of Directors and an additional $100 for each committee meeting attended.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers and persons who own more than ten percent of a registered class of the Company's equity securities to file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers. Such officers, directors, and 10 percent shareholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) forms that they file.
Based solely on its review of copies of such reports received or written representations from certain reporting persons, the Company believes that during the fiscal year ended December 31, 1996, all Section 16(a) filing requirements applicable to its officers, directors, and 10 percent shareholders were complied with.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of December 31, 1996 certain information regarding the ownership of Company Stock of all officers and directors of the Company. No shareholder who is not an officer or director of the Company is known to the management of the Company to be the beneficial owner of more than five (5%) percent of the Company Stock. The Company Stock is the Company's only class of voting securities.
Name and Address Amount and Nature of Percent of Beneficial Owner Beneficial Ownership(1) of Class
Willis J. Duncan 28,313 5.9% 1400 Third Avenue Conway, South Carolina 29526
All Officers and Directors as a Group
(42 persons) (2) 119,983 25.1% _________________
(1) For a description of the amount and nature of ownership of the directors of the Company, see "Management of the Company -- Directors".
(2) Includes 28 officers of the subsidiary, The Conway National Bank, who are not officers of the Company.
ITEM 13.
ITEM 13. CERTAIN TRANSACTIONS
Directors, principal shareholders, and Executive Officers of the Company and the Bank are customers of and had transactions with the Bank in the ordinary course of business. Included in such transactions are outstanding loans and commitments, all of which were made on comparable terms, including interest rates and collateral as those prevailing at the time for other customers of the Bank, and did not involve more than normal risk of collectibility or present other unfavorable features.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following exhibits, financial statements and financial statement schedules are filed as part of this report:
FINANCIAL STATEMENTS
Report of Independent Public Accountants Consolidated Statements of Condition - December 31, 1996 and 1995 Consolidated Statements of Income - Years ended December 31, 1996, 1995, and 1994 Consolidated Statements of Changes in Stockholders' Equity - Years ended December 31, 1996, 1995, and 1994 Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995, and 1994 Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted from this Annual Report because the required information is presented in the financial statements or in the notes thereto or the required subject matter is not applicable.
EXHIBITS
See Exhibit Index appearing below.
(b) Reports on Form 8-K- No reports on Form 8-K were filed during the last quarter of the period covered by this report.
EXHIBIT INDEX Exhibit Number
3 Articles of Incorporation - A copy of the Articles of Incorporation of the Company is incorporated herein by reference to Exhibit 3(a) which was filed with a Form 10-K Annual Report dated March 28, 1986
By-laws of the Company - A copy of the By-laws of the Company is incorporated herein by reference to Exhibit 3(b) which was filed with a Form 10-K Annual Report dated March 28, 1986.
22 Subsidiaries of the Registrant - A copy of the subsidi- aries of the registrant is incorporated herein by refer- ence to Exhibit 22 which was filed with a Form 10-K Annual Report dated March 28, 1986.
27 Financial Data Schedule - Article 9 Financial Data Schedule for 10-k for electronic filers (pages 64 and 65).
All other exhibits, the filing of which are required with this Form, are not applicable.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
In addition to the Form 10-K Annual Report and related exhibits, the registrant has included the annual report to security holders covering the registrant's last fiscal year and the proxy statement, form of proxy and proxy soliciting material sent to the registrant's security holders with respect to the annual meeting. Such material is not deemed to be "filed" with the Commission or subject to the liabilities of Section 18 of the Act and is not incorporated into the Form 10-K Annual Report by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
W. Jennings Duncan, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in their capacities on March 17, 1997.
Signature Capacity
Willis J. Duncan Chairman of the Board
W. Jennings Duncan President and Director
Robert P. Hucks Executive Vice President and Director
Verta Lee Chestnut Secretary
Paul R. Dusenbury Treasurer (Chief Financial Officer and Chief Accounting Officer)
Dr. R. C. Smith Past Chairman of the Board and Director
James W. Barnette, Jr. Director
Harold G. Cushman, Jr. Director
Charles C. Cutts Director
G. Heyward Goldfinch Director
Richard M. Lovelace, Jr. Director
John K. Massey Director
Howard B. Smith, III Director