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SECURITIES
AND EXCHANGE COMMISSION
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Washington,
D.C. 20549
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FORM
10-Q
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(Mark One)
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[
X
]
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For
the quarterly period ended
March
31, 2009
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OR
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[ ]
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from
to
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Commission file number:
000-24523
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CNB
Corporation
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(Exact name of registrant as specified in its charter)
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South Carolina
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57-0792402
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(State or
other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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1400 Third Avenue, Conway, S.C.
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29526
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(Address of
principal executive offices)
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(Zip
Code)
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(Registrant's telephone number, including area
code):
(843)
248-5721
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Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
X
. No
.
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Indicate by check mark
whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes [ ] No
[ ]
(Not yet applicable to Registrant)
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Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions
of "large accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer [ ]
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Accelerated filer [
X
]
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Non-accelerated filer [ ](Do not check if a smaller reporting company)
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Smaller Reporting Company [ ]
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Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).[ ] Yes [
X
] No.
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State the number of shares
outstanding of each of the issuer's classes of common equity as of the latest
practical date: 834,757 shares of common stock, par value $10 per share, May
1, 2009.
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CNB
Corporation
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Page
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Forward-Looking
Statements
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1
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PART
I. FINANCIAL INFORMATION
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Item
1. Financial Statements:
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Condensed
Consolidated Balance Sheets as of March 31, 2009,
December 31, 2008, and March 31, 2008
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2
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Condensed
Consolidated Statements of Income for the Three
Months Ended March 31, 2009 and 2008
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3
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Condensed
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 2009 and 2008
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4
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Condensed
Consolidated Statements of Changes in Stockholders' Equity
for the Three Months Ended March 31, 2009 and 2008
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5
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Condensed
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2009 and 2008
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6
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Notes
to Consolidated Financial Statements
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7-16
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Item
2. Management's Discussion and Analysis of
Financial
Condition
and Results of Operations
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16-24
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Item
3. Quantitative and Qualitative Disclosures
About Market Risk
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24
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Item
4. Controls and Procedures
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24
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PART
II. OTHER INFORMATION
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Item
2. Unregistered Sales of Equity Securities and
Use of Proceeds
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25
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Item
6. Exhibits
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25
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SIGNATURE
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25
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CAUTIONARY
NOTICE WITH RESPECT TO
FORWARD LOOKING STATEMENTS
This
report contains "forward-looking statements" within the meaning of
the securities laws. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order
to comply with the terms of the safe harbor, the Company notes that a variety
of factors could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in the
Company's forward-looking statements.
All
statements that are not historical facts are statements that could be "forward-looking
statements." You can identify these forward-looking statements through the
use of words such as "may," "will," "should," "could,"
"would," "expect," "anticipate," "assume,"
"indicate," "contemplate," "seek," "plan,"
"predict," "target," "potential," "believe,"
"intend," "estimate," "project," "continue,"
or other similar words. Forward-looking statements include, but are
not limited to, statements regarding the Company's future business prospects,
revenues, working capital, liquidity, capital needs, interest costs, income,
business operations and proposed services.
These
forward-looking statements are based on current expectations, estimates and
projections about the banking industry and the economy, management's beliefs,
and assumptions made by management. Such information includes,
without limitation, discussions as to estimates, expectations, beliefs, plans,
strategies, and objectives concerning future financial and operating
performance. These statements are not guarantees of future
performance and are subject to risks, uncertainties and assumptions that are
difficult to predict. Therefore, actual results may differ materially from
those expressed or forecasted in such forward-looking statements. The
risks and uncertainties include, but are not limited to:
●
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future
economic and business conditions;
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●
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lack
of sustained growth and disruptions in the economies of the Company's market
areas;
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government
monetary and fiscal policies;
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the
effects of changes in interest rates on the levels, composition and costs of
deposits, loan demand, and the values of loan collateral, securities, and
interest sensitive assets and liabilities;
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●
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the
effects of competition from a wide variety of local, regional, national and
other providers of financial, investment, and insurance services, as well as
competitors that offer banking products and services by mail, telephone,
computer and/or the Internet;
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●
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credit
risks;
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higher
than anticipated levels of defaults on loans;
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perceptions
by depositors about the safety of their deposits;
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●
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ability
to weather the current economic downturn;
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●
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loss
of consumer or investor confidence;
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●
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the
failure of assumptions underlying the establishment of the allowance for loan
losses and other estimates, including the value of collateral securing loans;
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●
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the
risks of opening new offices, including, without limitation, the related
costs and time of building customer relationships and integrating
operations as part of these endeavors and the failure to achieve
expected gains, revenue growth and/or expense savings from such
endeavors;
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●
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increases
in deposit insurance premiums;
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●
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changes
in laws and regulations, including tax, banking and securities laws and
regulations;
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●
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changes
in accounting policies, rules and practices;
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●
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changes
in technology or products may be more difficult or costly, or less effective,
than anticipated;
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●
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the
effects of war or other conflicts, acts of terrorism or other catastrophic
events that may affect general economic conditions and economic
confidence; and
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●
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other
factors and information described in this report and in any of the other
reports that we file with the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
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All
forward-looking statements are expressly qualified in their entirety by this
cautionary notice. The Company has no obligation, and does not
undertake, to update, revise or correct any of the forward-looking statements
after the date of this report. The Company has expressed its
expectations, beliefs and projections in good faith and believes they have a
reasonable basis. However, there is no assurance that these
expectations, beliefs or projections will result or be achieved or
accomplished.
-1-
PART
I.
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Item
1. Financial Statements
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CNB Corporation and Subsidiary
Condensed Consolidated Balance Sheets
(All Dollar Amounts, Except Per Share Data, in Thousands)
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ASSETS:
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March 31,
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December 31,
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March 31,
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2009
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2008
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2008
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(Unaudited)
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(Unaudited)
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Cash
and due from banks
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$ 36,548
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$ 19,259
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$ 19,068
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Investment
securities held to maturity
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9,218
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9,758
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8,305
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(Fair
values of $9,147 at March 31, 2009,
$9,570 at December 31, 2008, and $8,411
at
March 31, 2008)
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Investment
securities available for sale
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199,884
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194,178
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196,320
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(Amortized
cost of $198,233 at March 31,
2009, $191,680 at December 31, 2008,
and
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$192,843
at March 31, 2008
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Federal
funds sold and securities purchased
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under
agreement to resell
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18,000
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21,000
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17,500
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Other
investments
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3,041
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3,024
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1,675
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Loans:
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Total
loans
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597,763
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598,281
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583,759
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Less
allowance for possible loan losses
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(6,965)
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(7,091)
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(6,639)
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Net
loans
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590,798
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591,190
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577,120
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Bank
premises and equipment
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23,852
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23,403
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23,078
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Other
assets
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13,204
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12,813
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11,168
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Total
assets
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$894,545
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$874,625
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$854,234
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LIABILITIES AND STOCKHOLDERS' EQUITY:
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Deposits:
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Non-interest
bearing
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$107,497
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$100,560
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$113,733
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Interest-bearing
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566,434
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578,659
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596,365
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Total
deposits
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673,931
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679,219
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710,098
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Federal funds purchased
and securities sold under
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agreement
to repurchase
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96,688
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67,415
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49,508
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United
States Treasury demand notes
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1,497
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2,672
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1,430
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Federal
Home Loan Bank advances
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30,000
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30,000
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0
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Short
term note payable
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1,120
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1,120
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0
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Other
liabilities
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6,449
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10,673
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9,345
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Total
liabilities
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809,685
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791,099
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770,381
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Stockholders'
equity:
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Common
stock
, par value $10 per share:
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8,289
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8,295
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8,407
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Authorized
1,500,000 in 2009 and 2008; issued
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828,892
at March 31, 2009, 829,518 at December
31, 2008,
and 840,661 at March 31, 2008.
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Capital
in excess of par value of stock
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49,992
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50,085
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51,773
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Retained
earnings
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25,588
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23,648
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21,587
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Accumulated
other comprehensive income
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991
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1,498
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2,086
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Total
stockholders' equity
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84,860
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83,526
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83,853
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Total
liabilities and stockholders' equity
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$894,545
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$874,625
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$854,234
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See Notes to Consolidated
Financial Statements
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-2-
CNB Corporation and Subsidiary
Condensed Consolidated Statement of Income
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
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Three Months Ended
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March 31,
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2009
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2008
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Interest
Income:
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Interest and fees on
loans
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$9,378
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$10,587
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Interest on
investment securities:
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Taxable
investment securities
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1,569
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2,500
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Tax-exempt
investment securities
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285
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273
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Interest on federal
funds sold and securities
purchased under agreement to resell
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16
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320
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Other Interest Income
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6
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0
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Total
interest income
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11,254
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13,680
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Interest
Expense:
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Interest on deposits
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2,990
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5,103
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Interest on federal
funds purchased and securities
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sold
under agreement to repurchase
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288
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479
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Interest on other
short-term borrowings
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108
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112
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Total
interest expense
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3,386
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5,694
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Net
interest income
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7,868
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7,986
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Provision
for loan losses
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1,231
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359
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Net
interest income after provision for loan losses
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6,637
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7,627
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Noninterest
income:
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Service
charges on deposit accounts
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819
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940
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Gains on
sale of securities
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477
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0
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Other
operating income
|
596
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|
905
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Total
noninterest income
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1,892
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1,845
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Noninterest
expenses:
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Salaries
and employee benefits
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3,568
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3,721
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Occupancy
expense
|
790
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|
839
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Other
operating expenses
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1,313
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|
1,077
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Total
noninterest expenses
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5,671
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5,637
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Income
before income taxes
|
2,858
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|
3,835
|
|
Income
tax provision
|
920
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|
1,295
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Net
income
|
1,938
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|
2,540
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Per
Share Data
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Net
income per weighted average shares outstanding
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$ 2.34
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$ 3.00
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Cash
dividend paid per share
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$ 0
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$ 0
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Book
value per actual number of shares outstanding
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$102.38
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$ 99.75
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Weighted
average number of shares outstanding
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829,187
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847,936
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Actual
number of shares outstanding
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828,892
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840,661
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See Notes to Consolidated
Financial Statements
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-3-
CNB Corporation and Subsidiary
Condensed Consolidated Statements of Comprehensive Income
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)
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Three Months Ended
March 31,
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2009
|
2008
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Net
Income
|
$ 1,938
|
$ 2,540
|
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Other
comprehensive income, net of tax
|
|
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Unrealized
gains on securities:
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|
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Unrealized
holding gains/(losses) during period
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(207)
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1,061
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Reclassification adjustment for
gains included in net income
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(300)
|
-
|
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Net
Comprehensive Income
|
$ 1,431
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$ 3,601
|
See Notes to
Consolidated Financial Statements
-4-
CNB Corporation and Subsidiary
Condensed Consolidated Statements of Changes in Stockholders' Equity
(All Dollar Amounts in Thousands)
(Unaudited)
|
|
Three
Months Ended
March
31,
|
|
2009
|
2008
|
Common
Stock:
|
|
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|
($10
par value; 1,500,000 shares authorized)
|
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Balance,
January 1
|
$ 8,295
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$ 8,521
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Issuance
of Common Stock
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4
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None
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Repurchase
of Common Stock
|
(10)
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(114)
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Balance
at end of period
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8,289
|
8,407
|
|
|
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Surplus:
|
|
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Balance,
January 1
|
50,085
|
53,519
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|
Issuance
of Common Stock
|
59
|
None
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Repurchase
of Common Stock
|
(152)
|
(1,746)
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|
Balance
at end of period
|
49,992
|
51,773
|
|
|
|
|
|
Undivided
profits:
|
|
|
|
Balance,
January 1
|
23,650
|
19,047
|
|
Net
Income
|
1,938
|
2,540
|
|
Cash
dividends declared
|
None
|
None
|
|
Balance
at end of period
|
25,588
|
21,587
|
|
|
|
|
|
Net
unrealized holding gains/(losses) on securities:
|
|
|
|
Balance,
January 1
|
1,498
|
1,025
|
|
Change
in net unrealized gains/losses
|
(507)
|
1,061
|
|
Balance
at end of period
|
991
|
2,086
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
$84,860
|
$83,853
|
|
|
|
|
|
Note: Columns
may not add due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to
Consolidated Financial Statements
-5-
CNB CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(All Dollar Amounts in Thousands)
(Unaudited)
|
|
For the Three months ended
March
31,
|
|
2009
|
2008
|
|
OPERATING
ACTIVITIES
|
|
|
|
Net
Income
|
$ 1,938
|
$ 2,540
|
|
Adjustments
to reconcile net income to net cash provided by operating activities
|
|
|
|
Depreciation
and amortization
|
330
|
356
|
|
Provision
for loan losses
|
1,231
|
359
|
|
Provision
for deferred income taxes
|
261
|
36
|
|
Discount
accretion and premium amortization on investment securities
|
121
|
(615)
|
|
Gain
on sale of investment securities
|
(477)
|
-
|
|
Decrease
in accrued interest receivable
|
694
|
348
|
|
Increase
in other assets
|
23
|
746
|
|
Decrease
in other liabilities
|
135
|
896
|
|
|
|
|
|
Net
cash provided by operating activities
|
4,256
|
4,666
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
Proceeds
from sale of investment securities available for sale
|
9,281
|
-
|
|
Proceeds
from maturities/calls of investment securities held to maturity
|
535
|
250
|
|
Proceeds
from maturities/calls of investment securities available for sale
|
40,781
|
72,655
|
|
Purchase
of investment securities available for sale
|
(56,252)
|
(60,455)
|
|
Purchase
of investment securities held to maturity
|
-
|
(847)
|
|
Proceeds
from sale of foreclosed assets
|
36
|
-
|
|
Net
decrease in federal funds sold
|
3,000
|
8,500
|
|
Net
increase in loans
|
(1,906)
|
(10,235)
|
|
Net
proceeds from sales and purchases of equity securities
|
(17)
|
-
|
|
Premises
and equipment expenditures
|
(779)
|
(506)
|
|
|
|
|
|
Net
cash provided/(used) for investing activities
|
(5,321)
|
9,362
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
Dividends
paid
|
(4,357)
|
(4,475)
|
|
Net
increase/(decrease) in deposits
|
(5,288)
|
17,809
|
|
Net
increase/(decrease) in securities sold under repurchase agreement
|
29,273
|
(11,428)
|
|
Net
decrease in other short-term borrowings
|
(1,175)
|
(15,947)
|
|
Common
Shares Purchased
|
(162)
|
(1,860)
|
|
Common
Shares Sold
|
63
|
-
|
|
|
|
|
|
Net
cash provided/(used) by financing activities
|
18,354
|
(15,901)
|
|
|
|
|
|
Net
increase/(decrease) in cash and due from banks
|
17,289
|
(1,873)
|
|
|
|
|
|
CASH
AND DUE FROM BANKS, BEGINNING OF YEAR
|
19,259
|
20,941
|
|
|
|
|
|
CASH
AND DUE FROM BANKS, END OF PERIOD
|
$36,548
|
$19,068
|
|
|
|
|
|
CASH
PAID FOR:
|
|
|
|
Interest
|
$ 4,192
|
$ 5,991
|
|
Income
taxes
|
$ 345
|
$ 125
|
|
See Notes to
Consolidated Financial Statements
-6-
CNB
CORPORATION AND SUBSIDIARY (The "Company")
CNB CORPORATION (The "Parent")
THE CONWAY NATIONAL BANK (The "Bank")
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net income per share
- Net income per share is computed on the basis of the weighted
average number of common shares outstanding resulting in 829,187 shares for the
three-month period ended March 31, 2009 and 847,936 shares for the three-month
period ended March 31, 2008.
Recently
Issued Accounting Pronouncements
- The following is a summary of recent authoritative pronouncements that could
impact the accounting, reporting, and/or disclosure of financial information by
the Company.
FSP
EITF 99-20-1, "Amendments to the Impairment Guidance of EITF Issue No. 99-20,"
("FSP EITF 99-20-1") was issued in January 2009. Prior to the FSP,
other-than-temporary impairment was determined by using either Emerging Issues
Task Force ("EITF") Issue No. 99-20, "Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests that
Continue to be Held by a Transferor in Securitized Financial Assets," ("EITF
99-20") or SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," ("SFAS 115") depending on the type of security. EITF 99-20 required
the use of market participant assumptions regarding future cash flows regarding
the probability of collecting all cash flows previously projected. SFAS 115
determined impairment to be other than temporary if it was probable that the
holder would be unable to collect all amounts due according to the contractual
terms. To achieve a more consistent determination of other-than-temporary
impairment, the FSP amends EITF 99-20 to determine any other-than-temporary
impairment based on the guidance in SFAS 115, allowing management to use more
judgment in determining any other-than-temporary impairment. The FSP was
effective for reporting periods ending after December 15, 2008. Management has
reviewed the Company's security portfolio and evaluated the portfolio for any
other-than-temporary impairments.
On April 9, 2009, the FASB issued three staff positions related to fair value
which are discussed below.
FSP SFAS 115-2 and SFAS 124-2, "Recognition and Presentation of
Other-Than-Temporary Impairments," ("FSP SFAS 115-2 and SFAS 124-2")
categorizes losses on debt securities available-for-sale or held-to-maturity
determined by management to be other-than-temporarily impaired into losses due
to credit issues and losses related to all other factors. Other-than-temporary
impairment (OTTI) exists when it is more likely than not that the security will
mature or be sold before its amortized cost basis can be recovered. An OTTI
related to credit losses should be recognized through earnings. An OTTI
related to other factors should be recognized in other comprehensive income.
The FSP does not amend existing recognition and measurement guidance related to
other-than-temporary impairments of equity securities. Annual disclosures
required in SFAS 115 and FSP SFAS 115-1 and SFAS 124-1 are also required for
interim periods (including the aging of securities with unrealized losses).
FSP SFAS 157-4, "Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That are Not Orderly" recognizes that quoted prices may not be
determinative of fair value when the volume and level of trading activity has
significantly decreased. The evaluation of certain factors may necessitate
that fair value be determined using a different valuation technique. Fair
value should be the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction, not a forced liquidation or
distressed sale. If a transaction is considered to not be orderly, little, if
any, weight should be placed on the transaction price. If there is not
sufficient information to conclude as to whether or not the transaction is
orderly, the transaction price should be considered when estimating fair value.
An entity's intention to hold an asset or liability is not relevant in
determining fair value. Quoted prices provided by pricing services may still
be used when estimating fair value in accordance with SFAS 157; however, the
entity should evaluate whether the quoted prices are based on current
information and orderly transactions. Inputs and valuation techniques are
required to be disclosed in addition to any changes in valuation techniques.
-7-
Recently
Issued Accounting Pronouncements - Continued
FSP SFAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial
Instruments" requires disclosures about the fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements and also requires those disclosures in summarized
financial information at interim reporting periods A
publicly traded company includes any company whose securities trade in a public
market on either a stock exchange or in the over-the-counter market, or any
company that is a conduit bond obligor. Additionally, when a company makes a
filing with a regulatory agency in preparation for sale of its securities in a
public market it is considered a publicly traded company for this purpose.
The three staff positions are effective for periods ending after June 15, 2009,
with early adoption permitted for periods ending after March 15, 2009, in which
case all three must be adopted. The Company will adopt the staff positions for
its second quarter 10-Q but does not expect the staff positions to have a
material impact on the consolidated financial statements.
The Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin
("SAB") No. 111 on April 9, 2009 to amend Topic 5.M., "Other Than Temporary
Impairment of Certain Investments in Debt and Equity Securities" and to
supplement FSP SFAS 115-2 and SFAS 124-2. SAB 111 maintains the staff's
previous views related to equity securities; however debt securities are
excluded from its scope. The SAB provides that "other-than-temporary"
impairment is not necessarily the same as "permanent" impairment and unless
evidence exists to support a value equal to or greater than the carrying value
of the equity security investment, a write-down to fair value should be
recorded and accounted for as a realized loss. The SAB was effective upon
issuance and had no impact on the Company's financial position.
Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies are not expected to have a material impact on
the Company's financial position, results of operations and cash flows.
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 three-month period ended March 31, 2009 and for the year ended
December 31, 2008 were approximately $1,406 and $2,638, respectively.
-8-
NOTE
3 - INVESTMENT SECURITIES
Investment securities with a par value of approximately $198,003 at March 31,
2009 and $174,673 at December 31, 2008 were pledged to secure public deposits
and for other purposes required by law.
The following summaries reflect the book value, unrealized gains and losses,
approximate market value, and tax-equivalent yields of investment securities listed
by type of issuer and maturity at March 31, 2009 and at December 31, 2008.
|
March
31, 2009
|
|
(Dollars in Thousands)
|
|
Book
|
Unrealized Holding
|
Fair
|
|
|
Value
|
Gains
|
Losses
|
Value
|
Yield(1)
|
|
|
|
|
|
|
AVAILABLE
FOR SALE
|
|
|
|
|
|
|
|
|
|
|
|
Government
Sponsored Enterprises
|
|
|
|
|
|
Within
one year
|
1,725
|
11
|
-
|
1,736
|
4.00%
|
One
to five years
|
154,617
|
1,483
|
138
|
155,962
|
3.26
|
Six
to ten years
|
12,145
|
205
|
9
|
12,341
|
3.98
|
|
168,487
|
1,699
|
147
|
170,039
|
3.32
|
Mortgage
Backed Securities
|
|
|
|
|
|
Six
to ten years
|
1,710
|
18
|
4
|
1,724
|
2.43%
|
Over
ten years
|
6,958
|
106
|
-
|
7,064
|
3.98
|
|
8,668
|
124
|
4
|
8,788
|
3.68
|
State,
county and municipal
|
|
|
|
|
|
Within
one year
|
1,350
|
31
|
-
|
1,381
|
7.34%
|
One
to five years
|
3,203
|
136
|
-
|
3,339
|
6.60
|
Six
to ten years
|
13,496
|
70
|
249
|
13,317
|
5.37
|
Over
ten years
|
2,286
|
10
|
19
|
2,277
|
5.45
|
|
20,335
|
247
|
268
|
20,314
|
5.71
|
|
|
|
|
|
|
Other
Investments
|
|
|
|
|
|
CRA
Qualified Investment Fund
|
733
|
-
|
-
|
733
|
-
|
Mastercard
International Stock
|
10
|
-
|
-
|
10
|
-
|
|
743
|
-
|
-
|
743
|
-
|
|
|
|
|
|
|
Total
available for sale
|
$198,233
|
$ 2,070
|
$ 419
|
$199,884
|
3.58%
|
|
|
|
|
|
|
HELD
TO MATURITY
|
|
|
|
|
|
|
|
|
|
|
|
State,
county and municipal
|
|
|
|
|
|
Within
one year
|
$ 744
|
$ 18
|
$ -
|
$ 762
|
7.37%
|
One
to five years
|
994
|
6
|
-
|
1,000
|
4.44
|
Six
to ten years
|
4,914
|
34
|
67
|
4,881
|
5.51
|
Over
ten years
|
2,566
|
11
|
73
|
2,504
|
5.78
|
|
|
|
|
|
|
Total
held to maturity
|
$ 9,218
|
$ 69
|
$ 140
|
$ 9,147
|
5.62%
|
|
|
|
|
|
|
(1) Tax
equivalent adjustment based on a 34% tax rate.
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009, the Bank did not hold any securities of an issuer that
exceeded 10% of stockholders' equity. The net unrealized holding gains on
available-for-sale securities component of capital was $991 as of March 31,
2009.
-9-
NOTE
3 - INVESTMENT SECURITIES (Continued)
|
December
31, 2008
|
|
|
(Dollars in
Thousands)
|
|
|
Book
|
Unrealized
Holding
|
Fair
|
|
|
|
Value
|
Gains
|
Losses
|
Value
|
Yield(1)
|
|
AVAILABLE FOR SALE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Sponsored Enterprises
|
|
|
|
|
|
|
Within one year
|
3,725
|
41
|
-
|
3,766
|
4.56%
|
|
One to five years
|
151,174
|
2,030
|
-
|
153,204
|
3.66%
|
|
Six to ten years
|
14,522
|
583
|
-
|
15,105
|
4.84%
|
|
|
169,421
|
2,654
|
-
|
172,075
|
3.78%
|
|
Mortgage Backed Securities
|
|
|
|
|
|
|
Six to ten years
|
507
|
18
|
-
|
525
|
4.91%
|
|
Over ten years
|
3,021
|
63
|
-
|
3,084
|
4.65%
|
|
|
3,528
|
81
|
-
|
3,609
|
4.66%
|
|
State, county and municipal
|
|
|
|
|
|
|
Within one year
|
1,370
|
15
|
-
|
1,385
|
7.11%
|
|
One to five years
|
4,243
|
133
|
-
|
4,376
|
7.03%
|
|
Six to ten years
|
11,271
|
16
|
362
|
10,925
|
5.57%
|
|
Over ten years
|
1,115
|
-
|
39
|
1,076
|
5.91%
|
|
|
17,999
|
164
|
401
|
17,762
|
6.05%
|
|
Other Investments
|
|
|
|
|
|
|
CRA Qualified Investment
Fund
|
721
|
-
|
-
|
721
|
-%
|
|
Mastercard International
Stock
|
11
|
-
|
-
|
11
|
-%
|
|
|
732
|
-
|
-
|
732
|
-%
|
|
|
|
|
|
|
|
|
Total available for sale
|
$191,680
|
$ 2,899
|
$ 401
|
$194,178
|
4.01%
|
|
|
|
|
|
|
|
|
HELD TO MATURITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal
|
|
|
|
|
|
|
Within one year
|
$ 795
|
$ 11
|
$ -
|
$ 806
|
6.71%
|
|
One to five years
|
1,481
|
9
|
8
|
1,482
|
5.40%
|
|
Six to ten years
|
4,589
|
12
|
70
|
4,531
|
5.51%
|
|
Over ten years
|
2,893
|
-
|
142
|
2,751
|
5.75%
|
|
|
|
|
|
|
|
|
Total held to maturity
|
$ 9,758
|
$ 32
|
$ 220
|
$ 9,570
|
5.66%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Tax equivalent adjustment based on a 34% tax rate
As of December 31, 2008, the Bank did not hold any securities of an issuer that
exceeded 10% of stockholders' equity. The net unrealized holding gains on
available-for-sale securities component of capital was $1,498 as of December
31, 2008.
-10-
NOTE 4 - LOANS AND ALLOWANCE FOR
LOAN LOSSES
The following is a summary of loans at March 31,
2009 and December 31, 2008 by major classification:
|
March
31,
|
December 31,
|
|
2009
|
2008
|
|
|
|
|
Real
estate loans
-
mortgage
|
$ 369,453
|
$ 366,948
|
|
- construction
|
92,161
|
92,010
|
|
Agricultural
loans
|
3,168
|
3,119
|
|
Commercial
and industrial loans
|
87,915
|
89,348
|
|
Loans
to individuals for household,
|
|
|
|
family
and other consumer expenditures
|
44,622
|
46,278
|
|
All
other loans, including overdrafts and
|
|
|
|
deferred
loan costs
|
444
|
578
|
|
Gross
loans
|
$ 597,763
|
$ 598,281
|
|
Less
allowance for loan losses
|
(6,965)
|
(7,091)
|
|
Net
loans
|
$ 590,798
|
$ 591,190
|
|
|
|
|
|
|
Changes
in the allowance for loan losses for the quarters ended March 31, 2009 and 2008,
and the year ended December 31, 2008 are summarized as follows:
|
Quarter
Ended
|
Year Ended
|
|
|
March 31,
|
December 31,
|
|
2009
|
2008
|
|
2008
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
$ 7,091
|
$ 6,507
|
|
$ 6,507
|
|
Charge-offs:
|
|
|
|
|
|
Commercial,
financial, and agricultural
|
359
|
85
|
|
896
|
|
Real
Estate - construction and mortgage
|
921
|
103
|
|
750
|
|
Loans
to individuals
|
249
|
157
|
|
836
|
|
Total
charge-offs
|
$ 1,529
|
$ 345
|
|
$ 2,482
|
|
Recoveries:
|
|
|
|
|
|
Commercial,
financial, and agricultural
|
$ 96
|
$ 39
|
|
$ 278
|
|
Real
Estate - construction and mortgage
|
0
|
0
|
|
44
|
|
Loans
to individuals
|
76
|
79
|
|
211
|
|
Total
recoveries
|
$ 172
|
$ 118
|
|
$ 533
|
|
Net
charge-offs/(recoveries)
|
$ 1,357
|
$ 227
|
|
$ 1,949
|
|
Additions
charged to operations
|
$ 1,231
|
$ 359
|
|
$ 2,533
|
|
Balance,
end of period
|
$ 6,965
|
$ 6,639
|
|
$ 7,091
|
|
|
|
|
|
|
|
Ratio
of net charge-offs during the period
|
.23%
|
.04%
|
|
.33%
|
|
to
average loans outstanding during the
period
|
|
|
|
|
|
The
entire balance of the allowance for loan losses is available to absorb future
loan losses.
At March 31, 2009, March 31,
2008, and December 31, 2008 loans on which no interest was being accrued
totaled $4,915, $885, and $2,990, respectively. A portion of the loans on
which no interest was being accrued as well as other loans identified by
management are classified as impaired. Impaired loans at March 31, 2009, March
31, 2008, and December 31, 2008, were $4,974, $385, and $4,158, respectively. The
Company had $1,670 of foreclosed real estate at March 31, 2009, $64 of
foreclosed real estate at March 31, 2008, and $639 of foreclosed real estate at
December 31, 2008. Loans 90 days past due and still accruing interest totaled
$275, $323, and $608 at March 31, 2009, March 31, 2008, and December 31, 2008,
respectively.
At March 31, 2009, March
31, 2008, and December 31, 2008 classified assets, the majority consisting of
classified loans, were $24,740, $16,678, and $18,170, respectively. At March
31, 2009, March 31, 2008, and December 31, 2008 classified assets represented 26.80%,
18.55%, and 19.99% of total capital (the sum of Tier 1 Capital and the
Allowance for Loan Losses), respectively.
-11-
NOTE 5 -
PREMISES AND EQUIPMENT
Property at March 31, 2009 and December 31, 2008
is summarized as follows:
|
March 31,
|
December 31,
|
|
2009
|
2008
|
|
|
|
Land
and buildings
|
$ 26,262
|
$ 26,262
|
|
Furniture,
fixtures and equipment
|
9,486
|
8,811
|
|
Construction
in progress
|
223
|
119
|
|
|
$ 35,971
|
$ 35,192
|
|
|
|
|
|
Less
accumulated depreciation and amortization
|
12,119
|
11,789
|
|
|
$ 23,852
|
$ 23,403
|
|
|
|
|
|
|
Depreciation and amortization of bank premises
and equipment charged to operating expense was $330 for the three-month period
ended March 31, 2009, and $1,330 for the year ended December 31, 2008. The
construction in progress is primarily related to the renovation of the
Company's Surfside branch office located in Conway, South Carolina and land
improvements and installation of an automated teller machine (ATM) at the
Company's Carolina Forest site located in Myrtle Beach, South Carolina. Remaining
construction and equipment costs associated with the Surfside branch office and
the Carolina Forest ATM are estimated at approximately $61 and $82, respectively.
NOTE 6 - CERTIFICATES OF DEPOSIT IN EXCESS OF $100,000
At March 31, 2009 and December 31, 2008, certificates
of deposit of $100 or more included in time deposits totaled approximately $194,918
and $210,669, respectively. Interest expense on these deposits was
approximately $1,440 for the three-month period ended March 31, 2009 and $8,110
for the year ended December 31, 2008.
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At March 31, 2009 and December 31, 2008,
securities sold under repurchase agreements totaled $96,688 and $67,415,
respectively. Securities with a book value of $103,414 ($104,119 fair value)
and $71,752 ($72,845 fair value), respectively, were used as collateral for the
agreements. The weighted-average interest rate of these agreements was 1.32
percent and 2.41 percent at March 31, 2009 and December 31, 2008, respectively.
NOTE 8 - LINES OF CREDIT
At March 31, 2009, the Bank had unused short-term
lines of credit to purchase Federal Funds from unrelated banks totaling $33,500.
These lines of credit are available on a one to seven day basis for general
corporate purposes of the Bank. All of the lenders have reserved the right to
withdraw these lines at their option.
The Bank has a demand note through the U.S.
Treasury, Tax and Loan system with the Federal Reserve Bank of Richmond. The Bank may borrow up to $7,000 under the arrangement at a variable interest
rate. The note is secured by bonds with a market value of $1,995 at March 31, 2009.
The amount outstanding under the note totaled $1,497 and $2,672 at March
31, 2009 and December 31, 2008, respectively.
The Bank also has a line of credit from the
Federal Home Loan Bank of Atlanta for $88,034 secured by a lien on the Bank's
1-4 family mortgages. Allowable terms range from overnight to twenty years at
varying rates set daily by the FHLB. There were $30,000 in borrowings under
the agreement at March 31, 2009 and $30,000 at December 31, 2008.
-12-
NOTE 9 - INCOME TAXES
Income tax expense for the quarters ended March
31, 2009 and March 31, 2008 on pretax income of $2,858 and $3,835 totaled $920
and $1,295, respectively. The provision for federal income taxes is
calculated by applying the 34% statutory federal income tax rate and increasing
or reducing this amount due to any tax-exempt interest, state bank tax (net of
federal benefit), business credits, surtax exemption, tax preferences,
alternative minimum tax calculations, or other factors. A summary of income
tax components and a reconciliation of income taxes to the federal statutory
rate are included in fiscal year-end reports.
The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," and FASB Interpretation No. 48 (FIN48),
Accounting for Uncertainty in Income Taxes - an Interpretation of SFAS No.
109."
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES
From
time to time the Bank is a party to various litigation matters, both as
plaintiff and as defendant, arising from its normal operations. No material
losses are anticipated in connection with any of these matters at March 31,
2009.
In the normal course of business, the Bank is a party
to financial instruments with off-balance-sheet risk including commitments to extend
credit and standby letters of credit. Such instruments have elements of credit
risk in excess of the amount recognized in the balance sheet. The exposure to
credit loss in the event of nonperformance by the other parties to the
financial instruments for commitments to extend credit and standby letters of
credit is represented by the contractual notional amount of those instruments.
Generally, the same credit policies used for on-balance-sheet instruments, such
as loans, are used in extending loan commitments and standby letters of credit.
Following are the off-balance-sheet financial
instruments whose contract amounts represent credit risk:
|
March
31, 2009
|
Loan
Commitments
|
$ 49,354
|
Standby
letters of credits
|
2,501
|
Loan commitments involve agreements to lend to a
customer 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 some involve payment of a fee. Many of the commitments are
expected to expire without being fully drawn. Therefore, the total amount of
loan commitments does not necessarily represent future cash requirements. Each
customer's creditworthiness is evaluated on a case-by-case basis. The amount
of collateral obtained, if any, upon extension of credit is based on
management's credit evaluation of the borrower. Collateral held varies but may
include certificates of deposit or other negotiable collateral, commercial and
residential real properties, accounts receivable, inventory and equipment.
Standby letters of credit are conditional
commitments to guarantee the performance of a customer to a third party. The
credit risk involved in issuing standby letters of credit is the same as that
involved in making loan commitments to customers. Many letters of credit will
expire without being drawn upon and do not necessarily represent future cash
requirements.
Management believes that its various sources of
liquidity provide the resources necessary for the bank subsidiary to fund the
loan commitments and to perform under standby letters of credit, if the need
arises. Neither the Company nor the Bank are involved in other off-balance sheet
contractual relationships or transactions that could result in liquidity needs
or other commitments or significantly impact earnings.
NOTE 11 - EMPLOYEE BENEFIT PLAN
The Bank has a defined contribution pension plan
covering all employees who have attained age twenty-one and have a minimum of
one year of service. Upon ongoing approval of the Board of Directors, the Bank
matches one-hundred percent of employee contributions up to three percent of
employee salary deferred and fifty percent of employee contributions in excess
of three percent and up to five percent of salary deferred. The Board of
Directors may also make discretionary contributions to the Plan. For the three-month
period ended March 31, 2009 and the year ended December 31, 2008, $100 and $579,
respectively, was charged to operations under the plan.
-13-
NOTE
12 - REGULATORY MATTERS
The
Bank and the Company are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. The regulations require the Bank and
the Company to meet specific capital adequacy guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The capital
classification is also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation
to ensure capital adequacy require the maintenance of minimum amounts and
ratios (set forth in the tables below) of Tier 1 capital to adjusted total
assets (Leverage Capital ratio) and minimum ratios of Tier 1 and total capital
to risk-weighted assets. To be considered adequately capitalized under the
regulatory framework for prompt corrective action, the Company and the Bank
must maintain minimum Tier 1 leverage, Tier 1 risk-based and total risked-based
ratios as set forth in the tables below. The Company's and the Bank's actual
capital ratios are presented in the tables below as of March 31, 2009:
Company
|
|
|
|
|
|
|
|
|
|
For
|
|
|
|
Capital adequacy
|
|
|
|
Purposes
|
|
|
Actual
|
Minimum
|
|
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|
|
|
|
|
|
|
|
|
Total
Capital (to risk weighted assets)
|
$90,834
|
14.78%
|
$49,176
|
8.0%
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 Capital (to risk weighted assets)
|
83,869
|
13.64
|
24,588
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 Capital (to average assets)
|
83,869
|
9.41
|
35,635
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
To be
|
|
|
|
Well capitalized
|
|
|
For
|
under prompt
|
|
|
Capital adequacy
|
corrective action
|
|
|
Purposes
|
provisions
|
|
Actual
|
Minimum
|
Minimum
|
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|
|
|
|
|
|
|
Total
Capital (to risk weighted assets)
|
$91,314
|
14.86%
|
$49,173
|
8.0%
|
$61,467
|
10.0%
|
|
Tier
1 Capital (to risk weighted assets)
|
84,349
|
13.72
|
24,587
|
4.0
|
36,880
|
6.0
|
|
Tier
1 Capital (to average assets)
|
84,349
|
9.47
|
35,634
|
4.0
|
44,543
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-14-
NOTE 13 - FAIR VALUE MEASUREMENTS
Effective
January 1, 2008, the Company adopted SFAS No. 157, "Fair Value
Measurements" ("SFAS 157") which provides a framework for
measuring and disclosing fair value under generally accepted accounting
principles. SFAS 157 requires disclosures about the fair value of assets and
liabilities recognized in the balance sheet in periods subsequent to initial
recognition, whether the measurements are made on a recurring basis (for
example, available-for-sale investment securities) or on a nonrecurring basis
(for example, impaired loans).
SFAS
157 defines fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. SFAS 157 also establishes
a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard describes three levels of inputs that may be used to
measure fair value:
Level 1
|
Quoted
prices in active markets for identical assets or liabilities. Level 1 assets
and liabilities include debt and equity securities and derivative contracts
that are traded in an active exchange market, as well as U.S. Treasuries and
money market funds.
|
Level 2
|
Observable
inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities. Level 2 assets and
liabilities include debt securities with quoted prices that are traded less
frequently than exchange-traded instruments, mortgage backed securities,
municipal bonds, corporate debt securities, and derivative contracts whose
value is determined using a pricing model with inputs that are observable in
the market or can be derived principally from or corroborated by observable
market data. This category generally includes certain derivative contracts
and impaired loans.
|
Level 3
|
Unobservable
inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. Level 3 assets
and liabilities include financial instruments whose value is determined using
pricing models, discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of fair value requires
significant management judgment or estimation. For example, this category
generally includes certain private equity investments, retained residual
interests in securitizations, residential mortgage servicing rights, and highly-structured
or long-term derivative contracts.
|
The
Company has no assets or liabilities whose fair values are measured using Level
1 inputs.
The
Company's available-for-sale investment securities ($199,884 at March 31, 2009)
include debt securities of U.S. government sponsored enterprises, municipal
bonds, and mortgage backed securities. The Company considers the market quoted
prices of these instruments to be equivalent to debt securities that are traded
less frequently than exchange-traded instruments and therefore classifies them
as Level 2 inputs. The Company predominantly makes loans for the purposes of
real estate acquisition, construction, agriculture, commercial and industrial
needs, and consumer expenditures. The majority of the Company's loans
are real estate secured. Loans which are deemed to be impaired are
primarily valued at the fair values of the underlying real estate collateral. Such
fair values are obtained using independent appraisals, which the Company
considers to be Level 2 inputs. The aggregate carrying amount of impaired loans
at March 31, 2009 was $4,974. The Company also generally acquires other real
estate owned through foreclosure of debts previously contracted. Other real
estate owned is valued at fair value. Fair values for other real estate owned
are obtained using independent appraisals, which the Company considers to be Level
2 inputs. The aggregate carrying amount of other real estate owned at March
31, 2009 was $1,670.
The
Company's available-for-sale investment securities, impaired loans, and other
real estate owned are the only assets whose fair values the Company measures
using level 2 inputs. The Company has no liabilities whose fair values are
measured using Level 2 inputs.
The
Company has no assets or liabilities whose fair values are measured using Level
3 inputs.
The
Company does not have goodwill, other intangible assets, other assets acquired
through foreclosure, or other non-financial assets.
-15-
NOTE
14 - CONDENSED FINANCIAL INFORMATION
Following is condensed financial information of
CNB Corporation (parent company only):
CONDENSED
BALANCE SHEET
(Unaudited)
|
|
March 31,
|
ASSETS
|
2009
|
2008
|
Cash
|
$ 616
|
$ 548
|
Investment in subsidiary
|
85,340
|
83,269
|
Fixed Assets
|
0
|
0
|
Other assets
|
37
|
36
|
|
$ 85,993
|
$ 83,853
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
Short-term note payable
|
$ 1,120
|
$ 0
|
Other liabilities
|
13
|
0
|
Stockholders' equity
|
84,860
|
83,853
|
|
$ 85,993
|
$ 83,853
|
|
|
|
|
|
|
CONDENSED
STATEMENT OF INCOME
(Unaudited)
|
|
For the three-month
period ended
March 31,
|
|
2009
|
2008
|
Equity in net income of subsidiary
|
$ 2,012
|
$ 2,603
|
Other income
|
0
|
0
|
Other expenses
|
(74)
|
(63)
|
NET INCOME
|
$ 1,938
|
$ 2,540
|
|
|
|
|
|
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(All dollar amounts in thousands, except per share data.)
Management's Discussion and
Analysis is provided to afford a clearer understanding of the major elements of
the Company's results of operations, financial condition, 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. In addition, the results of
operations for the interim periods shown in this report are not necessarily
indicative of results to be expected for the fiscal year. The accompanying consolidated
financial statements include all accounts of the Company and the Bank. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The accompanying unaudited consolidated financial statements at
March 31, 2009 and for the three-month periods ending March 31, 2009 and 2008 have
been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and with the instructions
to Form 10-Q of the Securities and Exchange Commission. Accordingly, they do
not include all information and footnotes required by GAAP for complete
financial statements. However, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included.
-16-
DISTRIBUTION
OF ASSETS AND LIABILITIES
The Company has historically maintained a conservative approach in determining
the distribution of assets and liabilities. Loans increased 2.4% from $583,759
at March 31, 2008 to $597,763 at March 31, 2009, and decreased .1%, from $598,281
at December 31, 2008 to $597,763 at March 31, 2009. Loans decreased as a
percentage of total assets from 68.3% to 66.8% from March 31, 2008 to March 31,
2009 and decreased from 68.4% to 66.8% from December 31, 2008 to March 31, 2009.
Loan demand in our market area slowed to a moderate pace during 2007. This
trend has continued throughout 2008, into 2009, and is expected to continue
through the remainder of 2009. Securities and federal funds sold decreased as
a percentage of total assets from 26.2% at March 31, 2008 to 25.7% at March 31,
2009, and decreased from 26.1% of total assets at December 31, 2008 to 25.7% at
March 31, 2009, a reflection of continued moderate loan demand coupled with
lower levels of deposits. The level of investments and federal funds sold
provides for a more than adequate supply of liquidity.
Management has sought to build the deposit base with stable, relatively
non-interest-sensitive deposits by offering the small to medium deposit account
holders a wide array of deposit instruments at competitive rates.
Non-interest-bearing demand deposits decreased as a percentage of total assets
from 13.3% at March 31, 2008 to 12.0% at March 31, 2009, and increased from 11.5%
at December 31, 2008 to 12.0% at March 31, 2009. As more customers, both
business and personal, are attracted to interest-bearing deposit accounts, we
expect the percentage of non-interest bearing demand deposits to decline over
the long-term. Interest-bearing deposits decreased from 69.8% of total assets
at March 31, 2008 to 63.3% at March 31, 2009, and decreased from 66.2% at
December 31, 2008 to 63.3% at March 31, 2009. Securities sold under agreement
to repurchase increased from 5.8% at March 31, 2008 to 10.8% at March 31, 2009,
and increased from 7.7% of total assets at December 31, 2008 to 10.8% at March
31, 2009. Other short-term borrowings decreased from 3.9% of total assets at
December 31, 2008 to 3.7% at March 31, 2009. Other short-term borrowings increased
from .2% at March 31, 2008 to 3.7% at March 31, 2009.
The following table sets forth the percentage relationship to total assets of
significant components of the Company's balance sheets as of March 31, 2009 and
March 31, 2008 and December 31, 2008:
|
March 31,
|
December 31,
|
|
2009
|
2008
|
2008
|
Assets:
|
|
|
|
Earning
assets:
|
|
|
|
Loans
|
66.8%
|
68.3%
|
68.4%
|
|
Securities
held to maturity
|
1.0
|
1.0
|
1.1
|
|
Securities
available for sale
|
22.7
|
23.2
|
22.6
|
|
Federal
funds sold and securities purchased under agreement to resell
|
2.0
|
2.0
|
2.4
|
|
Total
earning assets
|
92.5
|
94.5
|
94.5
|
|
Other
assets
|
7.5
|
5.5
|
5.5
|
|
Total
assets
|
100.0%
|
100.0%
|
100.0%
|
|
|
|
|
|
|
Liabilities
and stockholder's equity:
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
Interest-bearing
deposits
|
63.3%
|
69.8%
|
66.2%
|
|
Federal
funds purchased and securities sold under agreement to repurchase
|
10.8
|
5.8
|
7.7
|
|
Other
short-term borrowings
|
3.7
|
.2
|
3.9
|
|
Total
interest-bearing liabilities
|
77.8
|
75.8
|
77.8
|
|
Noninterest-bearing
deposits
|
12.0
|
13.3
|
11.5
|
|
Other
liabilities
|
.7
|
1.1
|
1.2
|
|
Stockholders'
equity
|
9.5
|
9.8
|
9.5
|
|
Total
liabilities and stockholders' equity
|
100.0%
|
100.0%
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-17-
RESULTS
OF OPERATIONS
Earnings for the three-month periods ended March 31, 2009 and 2008 were $1,938 and
$2,540, respectively, resulting in a return on average assets of .87% and 1.16%
and a return on average stockholders' equity of 9.05% and 12.24%, respectively.
The earnings were primarily attributable to net interest income in each period
(see Net Income-Net Interest Income). Other factors include management's ongoing
effort to maintain noninterest income at adequate levels (see Net Income -
Noninterest Income) and to control noninterest expenses (see Net Income -
Noninterest Expenses). This level of earnings, coupled with a moderate dividend
policy, has supplied the necessary capital funds to support growth in total
assets. Total assets increased $40,311 or 4.7% to $894,545 at March 31, 2009 from
$854,234 at March 31, 2008. The following table sets forth the financial
highlights for the three-month periods ending at March 31, 2009 and March 31,
2008:
CNB
Corporation and Subsidiary
FINANCIAL HIGHLIGHTS
(All Dollar Amounts, Except Per Share Data, in Thousands)
|
|
|
|
|
|
Three-Month
Period Ended
March 31,
|
|
|
|
|
|
|
|
|
2009
|
2008
|
Percent
Increase
(Decrease)
|
|
|
Net
interest income after provision for
loan losses
|
$ 6,637
|
$ 7,627
|
(13.0)%
|
|
|
Income
before income taxes
|
2,858
|
3,835
|
(25.5)
|
|
|
Net
Income
|
1,938
|
2,540
|
(23.7)
|
|
|
Per
Share
|
2.34
|
3.00
|
(22.0)
|
|
|
Cash
dividends declared
|
0
|
0
|
-
|
|
|
Per
Share
|
0
|
0
|
-
|
|
|
Total
assets
|
894,545
|
854,234
|
4.7%
|
|
|
Total
deposits
|
673,931
|
710,098
|
(5.1)
|
|
|
Loans
|
597,763
|
583,759
|
2.4
|
|
|
Investment securities and securities available for sale
|
209,102
|
204,625
|
2.2
|
|
|
Stockholders' equity
|
84,860
|
83,853
|
1.2
|
|
|
Book value per share
|
102.38
|
99.75
|
2.6
|
|
|
Ratios:
|
|
|
|
|
|
Annualized return on average total assets(1)
|
.87%
|
1.16%
|
(25.0)%
|
|
|
Annualized return on average stockholders' equity(1)
|
9.05%
|
12.24%
|
(26.1)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) For the three-month period ended March
31, 2009, average total assets amounted to $890,887 with average stockholders
equity
totaling
$85,704 for the same period.
-18-
NET INCOME
Net Interest Income - Earnings are dependent to a large degree on net
interest income, defined as the difference between gross interest and fees
earned on earning assets, primarily loans and securities, and interest paid on
deposits and borrowed funds. Net interest income is affected by the interest
rates earned or paid and by volume changes in loans, securities, deposits, and
borrowed funds.
Interest
rates paid on deposits and borrowed funds and earned on loans and investments
have generally followed the fluctuations in market interest rates in 2009 and
2008. 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
on which the interest rate can be re-priced either up or down within a certain
time interval. A rate sensitive liability (RSL) is an interest paying deposit
or other liability on which the interest rate can be re-priced either up or down
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-term earning power. Management believes that a 200 basis point rise or
fall in interest rates will have less than a 10 percent effect on before-tax net
interest income over a one-year period, which is within Bank guidelines.
The
Bank maintained net interest margins for the three-month periods ended March
31, 2009 and March 31, 2008, of 3.79% and 3.93%, respectively, as compared to
management's long-term target of 4.20%. Net interest margins have been
compressed for the Bank and industry-wide for several years for a variety of
reasons. Dramatic decreases in market interest rates by the Federal Reserve during
the first quarter of 2008 and additional decreases in market rates during 2008
placed further significant pressure on net interest margins for the industry as
a whole. The resulting more historically typical upward-sloping yield curve would
generally enhance the Bank's net interest margin. However, interest rates have
been reduced to historically low levels. An extremely low interest rate
environment is not one which enhances net interest margin. As well,
competition in the Bank's specific market remains significant, as new
competitors seek market share and other competitors attempt to reduce their
dependence on brokered deposits. These factors tend to compress margins by
driving the cost of deposits upward while driving the yields on loans downward.
Fully-tax-equivalent net interest income for the three-month period ended March
31, 2009 was $8,015, a decrease of 1.4% from the $8,127 attained for the three-month
period ended March 31, 2008. During the same period, total
fully-tax-equivalent interest income decreased by 17.5% to $11,401 from $13,821
and total interest expense decreased by 40.5% to $3,386 from $5,694. Fully-tax-equivalent
net interest income as a percentage of average total earning assets decreased .14%
to 3.79% for the three-month period ended March 31, 2009 from 3.93% for the three-month
period ended March 31, 2008.
The tables on the following four pages present an analysis of average balances,
yields and rates for the interest sensitive segments of the Company's balance
sheets for the three-month periods ended March 31, 2009 and 2008, and a summary
of changes in net interest income resulting from changes in volume and changes
in rate between the three-month periods ended March 31, 2009 and 2008.
-19-
|
CNB Corporation and Subsidiary
Average Balances, Yields, and Rates
(Dollars in Thousands)
|
|
|
|
Three Months Ended 3/31/09
|
Three Months Ended 3/31/08
|
|
|
Interest
|
Avg. Ann.
|
|
Interest
|
Avg. Ann.
|
|
Avg.
|
Income/
|
Yield or
|
Avg.
|
Income/
|
Yield or
|
|
Balance
|
Expense
|
Rate
|
Balance
|
Expense
|
Rate
|
Assets:
|
|
|
|
|
|
|
|
Earning
assets:
|
|
|
|
|
|
|
|
Loans,
net of unearned income (1)
|
$598,200
|
$ 9,378
|
6.27%
|
$580,223
|
$ 10,587
|
7.30%
|
|
Securities:
|
|
|
|
|
|
|
|
Taxable
|
177,948
|
1,569
|
3.53
|
179,516
|
2,500
|
5.57
|
|
Tax-exempt
|
29,846
|
432
|
(2) 5.79
|
27,637
|
414
|
(2) 5.99
|
|
Federal
funds sold and securities purchased under
|
|
|
|
|
|
|
|
agreement
to resell
|
26,663
|
16
|
.24
|
39,716
|
320
|
3.22
|
|
Other
earning assets
|
12,784
|
6
|
.19
|
0
|
0
|
0.00
|
|
Total
earning assets
|
845,441
|
11,401
|
5.39
|
827,092
|
13,821
|
6.68
|
|
Other
assets
|
45,446
|
|
|
52,207
|
|
|
|
Total
assets
|
$890,887
|
|
|
$879,299
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholder equity
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
Interest-bearing
deposits
|
$575,550
|
2,990
|
2.08
|
$570,687
|
5,103
|
3.58
|
|
Federal
funds purchased and securities sold under
|
|
|
|
|
|
|
|
agreement
to repurchase
|
83,771
|
288
|
1.38
|
62,116
|
479
|
3.08
|
|
Other
short-term borrowings
|
32,036
|
108
|
1.35
|
7,163
|
112
|
6.25
|
|
Total
interest-bearing liabilities
|
$691,357
|
$ 3,386
|
1.96
|
$639,966
|
$ 5,694
|
3.56
|
|
Noninterest-bearing
deposits
|
107,625
|
|
|
119,002
|
|
|
|
Other
liabilities
|
6,201
|
|
|
37,308
|
|
|
|
Stockholders'
equity
|
85,704
|
|
|
83,023
|
|
|
|
Total
liabilities and stockholders' equity
|
$890,887
|
|
|
$879,299
|
|
|
|
Net
interest income as a percent of total
|
|
|
|
|
|
|
|
earning
assets
|
$845,441
|
$ 8,015
|
3.79
|
$827,092
|
$ 8,127
|
3.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
Annualized
return on average total assets
|
|
|
.87
|
|
|
1.16
|
|
Annualized
return on average stockholders' equity
|
|
|
9.05
|
|
|
12.24
|
|
Cash
dividends declared as a percent of net income
|
|
|
0
|
|
|
0
|
|
Average
stockholders' equity as a percent of:
|
|
|
|
|
|
|
|
Average
total assets
|
|
|
9.62
|
|
|
9.44
|
|
Average
total deposits
|
|
|
12.54
|
|
|
12.04
|
|
Average
loans
|
|
|
14.33
|
|
|
14.31
|
|
Average
earning assets as a percent of
|
|
|
|
|
|
|
|
average
total assets
|
|
|
94.90
|
|
|
92.64
|
|
|
|
|
|
|
|
|
|
(1) The
Company had no out-of-period adjustments or foreign activities. Loan fees of
$138 and $163 are included in the above interest income for March 31, 2009
and 2008, respectively. Loans on a non-accrual basis for the recognition of
interest income totaling $4,915 and $885 for March 31, 2009 and 2008,
respectively, are included in loans for the purpose of this analysis.
|
|
|
|
|
|
|
|
|
|
(2) Tax-exempt
income is presented on a tax-equivalent basis using a 34% tax rate. The
amounts shown include tax-equivalent adjustments of $147 and $141 for March
31, 2009 and 2008, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-20-
The
table "Rate/Volume Variance Analysis" provides a summary of changes in net
interest income resulting from changes in rate and changes in volume. The
changes due to rate are calculated as the difference between the current and
prior year's rates multiplied by the prior year's volume. The changes due
to volume are calculated as the difference between the current and prior
year's volume multiplied by the current rates earned or paid (this
calculation effectively allocates all rate/volume variances to volume
variances).
CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Three Months Ended March 31, 2009 and 2008
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
Average
|
|
|
Interest
|
Interest
|
|
Change
|
Change
|
|
|
Volume
|
Volume
|
Yield/Rate
|
Yield/Rate
|
Earned/Paid
|
Earned/Paid
|
|
Due to
|
Due to
|
|
|
2009
|
2008
|
2009(3)
|
2008(3)
|
2009
|
2008
|
Variance
|
Rate
|
Volume
|
|
Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
Loans
, Net of unearned Income (1)
|
$598,200
|
$580,223
|
6.27%
|
7.30%
|
$9,378
|
$10,587
|
$(1,209)
|
$(1,491)
|
$ 282
|
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
177,948
|
179,516
|
3.53%
|
5.57%
|
1,569
|
2,500
|
(931)
|
(917)
|
(14)
|
|
Tax-exempt
(2)
|
29,846
|
27,637
|
5.79%
|
5.99%
|
432
|
414
|
18
|
(14)
|
32
|
|
Federal
funds sold and Securities
|
|
|
|
|
|
|
|
|
|
|
purchased
under agreement to resell
|
26,663
|
39,716
|
.24%
|
3.22%
|
16
|
320
|
(304)
|
(296)
|
(8)
|
|
Other
Earning Assets
|
12,784
|
0
|
.19%
|
0.00%
|
6
|
0
|
6
|
0
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Earning Assets
|
$845,441
|
$827,092
|
5.39%
|
6.68%
|
$11,401
|
$13,821
|
$(2,420)
|
$(2,718)
|
$ 298
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits
|
$575,550
|
$570,687
|
2.08%
|
3.58%
|
$ 2,990
|
$ 5,103
|
$(2,113)
|
$(2,138)
|
$ 25
|
|
Federal
funds purchased and securities
|
|
|
|
|
|
|
|
|
|
|
sold
under agreement to repurchase
|
83,771
|
62,116
|
1.38%
|
3.08%
|
288
|
479
|
(191)
|
(265)
|
74
|
|
Other
short-term borrowings
|
32,036
|
7,163
|
1.35%
|
6.25%
|
108
|
112
|
(4)
|
(88)
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest-bearing Liabilities
|
691,357
|
639,966
|
1.96%
|
3.56%
|
3,386
|
5,694
|
(2,308)
|
(2,491)
|
183
|
|
Interest-free
Funds Supporting
|
|
|
|
|
|
|
|
|
|
|
Earning
Assets
|
154,084
|
187,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Funds Supporting Earning Assets
|
$845,441
|
$827,092
|
1.60%
|
2.75%
|
$ 3,386
|
$ 5,694
|
$ (2,308)
|
$(2,491)
|
$ 183
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Spread
|
|
|
3.43%
|
3.12%
|
|
|
|
|
|
|
Impact
of Non-interest-bearing Funds
|
|
|
|
|
|
|
|
|
|
|
on
Net Yield on Earning Assets
|
|
|
.36%
|
.81%
|
|
|
|
|
|
|
Net
Yield on Earning Assets
|
|
|
3.79%
|
3.93%
|
$ 8,015
|
$ 8,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes non-accruing loans which does not have a material
effect on the Net Yield on Earning Assets.
(2) Tax-equivalent adjustment based on a 34% tax rate.
(3) Annualized
-21-
NET INCOME (continued)
Provision for Loan Losses - The allowance for loan losses is maintained at
an amount based on considerations of classified and internally-identified
problem loans, the current trend in delinquencies, the volume of past-due
loans, historical loss experience, current economic conditions, over-margined
real estate loans, if any, the effects of changes in risk selection or
underwriting practices, the experience, ability and depth of lending management
and staff, industry conditions, the effect of changes in concentrations of
credit, and loan administration risks.
The provision for loan losses was $1,231 for the three-month period ended March
31, 2009 and $359 for the three-month period ended March 31, 2008. Net loan
charge-offs/(recoveries) totaled $1,357 for the three-month period ended March
31, 2009 and $227 for the same period in 2008. The increased provisions during
the three-month period ended March 31, 2009 reflects moderate growth in the
loan portfolio compared to the 2008 period and a higher level of net charge-offs
during the 2009 period. The allowance for loan losses as a percentage of net
loans was 1.18 at March 31, 2009 and was 1.15% at March 31, 2008.
The levels of loans on which no interest was being accrued, impaired loans,
foreclosed real estate, and classified assets at March 31, 2009 and 2008 are
outlined in the notes to the consolidated unaudited financial statements (See
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES). All of these measurements
increased during 2008, some markedly, and remained above levels historically
experienced by the Company at March 31, 2009. Although increased, management
considers all such levels well manageable, within guidelines previously
established by the Company, and well below current industry averages. However,
management recognizes the potential for further deterioration of economic
conditions in the Company's market areas in the short-term, especially with
respect to real estate related activities and real property values.
Consequently, management anticipates the Company will continue to incur above
average provisions for the first half of 2009, and possibly further into the
future.
Securities
Transactions - At March 31, 2009, December 31, 2008, and March 31, 2008 total market
value appreciation in the investment portfolio totaled $1,580, $2,310, and $3,583,
respectively. As indicated, market values decreased from March 31, 2008 to
December 31, 2008, and from December 31, 2008 to March 31, 2009. Bond values
have fluctuated during 2008 due to variances in the slope of the yield curve because
of instability in new issue coupon rates and intermittent movement of funds
between the bond market and the stock market. However, the yield curve
generally normalized over the period. The decline in the total market value
appreciation during the periods is also attributable to numerous bond calls
experienced by the Company and the consequent reinvestment of those funds at
currently lower market interest rates. As well, the decline in the total
market value appreciation declined due to the sale of securities. The changes
in market value appreciation/(depreciation) in the investment portfolio do not generally
directly affect operating results since the Company does not acquire investment
securities for trading. However, the changes in the market value
appreciation/(depreciation) in the investment portfolio for the three periods
ended March 31, 2009 and March 31, 2008 are a component of Comprehensive Income
and are set forth in the Condensed Consolidated Statements of Comprehensive Income
contained herein.
Noninterest Income - Noninterest income increased by 2.5% to $1,892 for the three-month
period ended March 31, 2009 from $1,845 for the three-month period ended March
31, 2008. The increase in noninterest income for the three-month period ended
March 31, 2009, was primarily due to realized gains from the sale of investment
securities, $477. These gains were offset by decreased service charges on
deposit accounts, down $121 or 12.9% to $819, and decreased other operating income,
down $309 or 34.1% to $596.
Noninterest Expenses - Noninterest expenses increased by .6% to $5,671 for the three-month
period ended March 31, 2009 from $5,637 for the three-month period ended March
31, 2008. The major components of noninterest expenses are salaries and
employee benefits, which decreased 4.1% to $3,568 from $3,721; occupancy
expense which decreased 5.8% to $790 from $839; and other operating expenses
which increased by 21.9% to $1,313 from $1,077. Occupancy expense generally continues
to grow due to the addition of new banking facilities. However, the decrease
in occupancy expense and the increase in other operating expense is primarily
due to the reclassification of a portion of utilities expense and
telecommunications expense to other operating expense.
Income Taxes -
Provisions for income taxes decreased 29.0% to $920 for the three-month period
ended March 31, 2009 from $1,295 for the three-month period ended March 31,
2008. Income before income taxes less interest on tax-exempt investment
securities decreased 27.8% to $2,573 for the three-month period ended March 31,
2009 from $3,562 for the same period in 2008.
-22-
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
liquidation of bank assets to meet these needs. The Bank's liquidity sources
include cash and due from banks, federal funds sold, and short-term
investments. In addition, the Bank has established federal funds lines of
credit from correspondent banks and has the ability to borrow funds from the
Federal Reserve System and the Federal Home Loan Bank of Atlanta. Management
feels that short-term and long-term liquidity sources are more than adequate to
meet funding needs, including the funding of off-balance sheet loan commitments
and standby letters of credit, if the need arises. Although the Bank has not
experienced heavy liquidity pressures, there can be no assurance that such
pressures could not be felt in the future. Neither the Company nor the Bank is
involved in other off-balance sheet contractual relationships or transactions
that could result in liquidity needs or other commitments or significantly
impact earnings.
The
table below summarizes future contractual obligation as of March 31, 2009 (in
thousands).
|
At March 31, 2009
|
|
Payments Due by Period
|
|
Within One
Year
|
Over One to
Two Years
|
Over Two to
Three Years
|
Over Three to
Five Years
|
Over Five
Years
|
Total
|
Certificates of Deposit
|
293,514
|
38,980
|
6,556
|
7,430
|
-
|
346,480
|
Borrowings
|
116,689
|
11,120
|
-
|
-
|
-
|
127,809
|
|
|
|
|
|
|
|
Total
|
410,203
|
50,100
|
6.556
|
7,430
|
-
|
474,289
|
CAPITAL
RESOURCES
Total stockholders' equity was $84,860 and $83,526 at March 31, 2009 and December
31, 2008, representing 9.49% and 9.55% of total assets, respectively. At March
31, 2009, the Company and the Bank exceeded quantitative measures established
by regulation to ensure capital adequacy (see NOTE 12 to the consolidated
unaudited financial statements - REGULATORY MATTERS). Capital is considered
sufficient by management to meet current and prospective capital requirements
and to support anticipated growth in Bank operations.
CRITICAL ACCOUNTING POLICIES
We have adopted various accounting policies which govern the application of
accounting principles generally accepted in the United States of America in the
preparation of our financial statements. Our significant accounting policies
are described in the notes to the consolidated financial statements at December
31, 2008 as filed in our Annual Report on Form 10-K. Certain accounting
policies involve significant judgments and assumptions by us which have a
material impact on the carrying value of certain assets and liabilities. We
consider these accounting policies to be critical accounting policies. The
judgments and assumptions we use are based on historical experience and other
factors, which we believe to be reasonable under the circumstances. Because of
the nature of the judgments and assumptions we make, actual results could
differ from these judgments and estimates that could have a major impact on our
carrying values of assets and liabilities and our results of operations.
We believe the allowance for loan losses is a critical accounting policy that
requires the most significant judgments and estimates used in preparation of
our consolidated financial statements. Refer to the portions of our 2008
Annual Report on Form 10-K and this Form 10-Q that address our allowance for
loan losses for description of our processes and methodology for determining
our allowance for loan losses.
-23-
RISKS AND UNCERTAINTIES
In the normal course of its business, the Company encounters two significant
types of risks: economic and regulatory. There are three main components of
economic risk: interest rate risk, credit risk and market risk. The Company is
subject to interest rate risk to the degree that its interest-bearing
liabilities mature or re-price at different speeds, or on different basis, than
its interest-earning assets. Credit risk is the risk of default on the
Company's loan portfolio that results from borrower's inability or
unwillingness to make contractually required payments. Market risk, as it
relates to lending and real estate held for operating locations, results from
potential changes in the value of collateral underlying loans receivable and
the market value of real estate held by the Company.
The Company is subject to the regulations of various governmental agencies.
These regulations can and do change significantly from period to period. The
Company also undergoes periodic examinations by the regulatory agencies, which
may subject it to further changes with respect to asset valuations, amounts of
required loss allowances and operating restrictions from the regulators'
judgments based on information available to them at the time of their
examination.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk, in regard to interest rate risk, is the risk of loss from adverse
changes in market prices and rates. The Company's market risk arises
principally from the interest rate risk inherent in its lending, deposit, and
borrowing activities. Management actively monitors and manages its interest
rate risk exposure. In addition to other risks which the Company manages in
the normal course of business, such as credit quality and liquidity risk,
management considers interest rate risk to be a significant market risk that
could potentially have a material effect on the Company's financial condition
and results of operations (See MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Net Income - Net Interest
Income). Other types of market risks, such as foreign currency risk and
commodity price risk, do not arise in the normal course of the Company's
business activities.
Item 4. CONTROLS AND PROCEDURES
Based on the evaluation required by 17 C.F.R. Section 240.13a-15(b) or
240.15d-15(b) of the Company's disclosure controls and procedures (as defined
in 17 C.F.R. Sections 240.13a-15(e) and 240.15d-15(e), the Company's chief
executive officer and chief financial officer concluded that such controls and
procedures, as of the end of the period covered by this quarterly report, were
effective.
There has been no change in
the Company's internal control over financial reporting during the most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
-24-
Item
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER SALES OF EQUITY SECURITIES
The
Company began a limited offering of up to 25,000 shares of the Company's
Common Stock, $10.00 par value per share, in March, 2009. The offering price
is $158.00 per share with a minimum purchase of 25 shares, or $3,950, and an
aggregate offering amount of $3,950,000. Through March 31, 2009, the Company
had sold 400 shares for $63,200. Through May 1, 2009, total sales (including
sales in March, 2009) equaled 7,385 shares, or $1,166,830. There were no
underwriting discounts or commissions. The shares were offered to and
purchased by selected accredited investors and nonaccredited investors
employed by or having a business relationship with the Company (limited to 35
purchasers). The shares were offered in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933 and Rule
506 thereunder.
ISSUER
PURCHASES OF EQUITY SECURITIES
|
Period
|
(a) Total Number
of Shares
Purchased (1)
|
(b) Average
Price Paid per
Share
|
(c) Total Number
of Shares
Purchased as
Part of Publicly
Announced
Program
|
(d) Maximum
Number of
Shares that May
Yet Be Purchased
Under the
Program
|
January 1 - January 31, 2009
|
-
|
$
|
-
|
-
|
February 1 - February 28, 2009
|
826
|
158.00
|
-
|
-
|
March 1 - March 31, 2009
|
200
|
158.00
|
-
|
-
|
Total
|
1,026
|
$158.00
|
-
|
-
|
(1) During the period
covered by this report, the Company purchased 1,026 shares of stock from
shareholders, at the request of the shareholders, which are held by the Company
as authorized and unissued shares. These shares were purchased on a
case-by-case basis and not pursuant to any formal program.
Item 6. EXHIBITS
|
|
All
exhibits, the filing of which are required with this Form, are listed below
|
|
31.1
|
Certification
of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Certification
of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
Certification of Chief
Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.2
|
Certification of Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
CNB Corporation
|
|
(Registrant)
|
|
|
|
/s/L. Ford Sanders, II
|
|
L. Ford Sanders, II
|
|
Executive Vice President,
|
|
Treasurer, and Chief Financial
Officer
|
Date: May
11, 2009
-25-
EXHIBIT INDEX
|
|
31.1
|
Certification
of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Certification
of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
Certification of Chief
Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.2
|
Certification of Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
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