CNB News & Events

TO OUR SHAREHOLDERS AND FRIENDS | BACK OFFICE CONVERSION OF CHECKS | CNB EARNS 5-STAR RATING

TO OUR SHAREHOLDERS AND FRIENDS:

Conway National experienced solid financial performance through the first three quarters of 2007. Net income for the nine months ended September 30, 2007, totaled $7,517,000, down slightly, .8%, from $7,575,000 earned for the same period in 2006. On a per share basis, adjusted for the 10% stock dividend issued during September 2007, earnings declined .2% from $8.74 in 2006 to $8.72 in 2007. Total assets grew to $849.1 million at September 30, 2007, with capital at $84.7 million.

As of September 30, 2007, total assets were $849,066,000, an increase of .1% over September 30, 2006; total deposits amounted to $677,800,000, a decline of .3% from the previous year; loans totaled $562,457,000, a decrease of .8% from 2006; and investment securities were $208,590,000, an increase of 18.2% from the prior year. The lower level of growth in total assets, the decline in deposits, and the decline in loans are commensurate with the decline in the level of economic activity within the Bank's market area during the period, primarily associated with a slowing in the local real estate market. Also, in relation to deposit growth, the Federal Deposit Insurance Corporation recently released market share data for June 30, 2007, which indicated that Conway National Bank rose from third to second position in Horry County market share despite a minor decline in deposits. As well, stockholders' equity rose to $84,690,000 at September 30, 2007, an increase of 8.8% over the same period in 2006, resulting in a book value of $98.52 per share, net of the effect of the 10% stock dividend issued in September 2007.

Net income for the nine-month period ended September 30, 2007 of $7,517,000 represents an annualized return on average assets of 1.19% and an annualized return on average stockholders' equity of 12.47%, which compare favorably to peer and to historical returns experienced by the Bank. Bank earnings are primarily the result of the Bank's net interest income, which declined .3%, from $23,202,000 for the nine- month period ended September 30, 2006, to $23,121,000 for the nine-month period ended September 30, 2007. The decline in net interest income is attributable, in part, to the decline in economic activity as well as increased competition in the local market for both deposits and loans. Other factors which affect earnings include the provision for possible loan losses, other expense, and other income. The provision for possible loan losses decreased 34.6% from $888,000 to $581,000 for the nine-month periods ended September 30, 2006 and 2007, respectively. The decrease in the provision for possible loan losses is primarily due to weakened loan demand from the real estate sector. The allowance for loan losses, as a percentage of net loans, increased slightly from 1.15% at September 30, 2006 to 1.16% at September 30, 2007. Other expenses increased .6% from $16,212,000 to $16,309,000 and other income increased 1.5% from $5,085,000 to $5,160,000 during the same period. Non-interest expenses increased overall due to additional staffing, increased compensation, fixed asset expenditures, increased advertising, and increased health care costs. This increase in expenses was partially offset by a decline in the amount of expenses at the corporate level, as well as the impact of the Bank's revision of its FASB 91 accounting procedures and the consequent impact of net deferred loan costs on salaries expense. Non-interest income increased primarily due to increased service charge income on deposit accounts offset by the non-recurrence of extraordinary other income received in 2006.

Conway National Bank maintained solid earnings for the nine-month period ended September 30, 2007, despite the decline in economic activity during the period. During the third quarter of 2007 the Bank began clearing images with the Federal Reserve, thus completing the Check 21 conversion process. The construction of our fifteenth banking office, Little River, is well underway; and we anticipate its opening in the first quarter of 2008. Renovations to the third floor of our Operations and Administration building are near completion.

In recognition of continued strong performance, the Board of Directors declared a ten percent stock dividend at the end of the third quarter of 2007. Thank you for your continued support which makes the Bank's success and this stock dividend possible.

W. Jennings Duncan, President
CNB Corporation and The Conway National Bank

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BACK OFFICE CONVERSION OF CHECKS: What it Means to You!

On March 16, 2007, businesses were granted the right to implement "Back Office Conversion" (BOC), the latest check conversion method authorized by the National Automated Clearing House Association (NACHA). Under BOC, businesses are able to convert paper checks to Automated Clearing House (ACH) transactions in their "back office," or specifically in a centralized and coordinated manner at some time after the check has been taken.

To inform you that they may use BOC to convert your check, the businesses must prominently post notification signs and provide you with such notification either on your receipts or as separate takeaway documents. These notifications constitute your acceptance of the BOC conversion. You will be allowed to opt out of the BOC conversion, and in most cases will be allowed to select another method of payment instead of using a paper check.

When a business converts your paper check using BOC, you will no longer receive a check image in your bank statement. Your statement will continue to show you its information: the date, the amount, the name of the business you wrote it to, and the check number. It may, however, show it in a section of your statement other than the check listing. For example, it could be listed along with ATM withdrawals, Direct Payments, and other Electronic Funds Transfers (EFTs) instead.

Please note that when paper checks are converted to ACH transactions, they may clear your account more quickly than if they were handled entirely as paper checks. It is important to make sure you have the funds available in your account to cover your payment.

Should you have any questions about how BOC affects you, please do not hesitate to contact our offices.

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CNB Earns 5-Star Rating

CNB has earned another Five-Star Rating from Bauer Financial Reports, the nation's premier bank research agency. "The Conway National Bank is one of the strongest banks in the nation," says Paul A. Bauer, president of the research firm. "It not only follows the doctrines of the traditional community bank, it has also positioned itself as a true financial center for its customers." The Five-Star Rating is based on an analysis of current financial data as filed with Federal banking regulators and by historical data from the financial community.

Established in 1903, The Conway National Bank operates 14 locations in Horry and Georgetown Counties. "The Conway National Bank was chartered over a century ago, and has developed a reputation for customer service and community involvement," says Bauer. "The bank's consistent Five-Star Rating has been achieved through sound banking and service to its community."