<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[ x ] QUARTERLY REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File # 0-28388
CNB CORPORATION
(Exact name of small business issuer as specified in its charter)
MICHIGAN 38-2662386
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
303 NORTH MAIN STREET, CHEBOYGAN, MI 49721
(Address of principal executive offices, including Zip code)
(616) 627-7111
Issuer's telephone number, including area code
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ----
As of September 30, 1996, there were outstanding 930,772 shares of the issuer's
common stock, $2.50
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
Part I - Financial Information
<S> <C>
Item 1. Financial Statements
(a) Consolidated Balance Sheet 2
(b) Consolidated Statement of Income 3
(c) Consolidated Statement of Changes in Shareholder's Equity 4
(d) Consolidated Statement of Cash Flows 5
(e) Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation
Financial Condition 8
Liquidity and Funds Management 9
Results of Operations 11
Part II - Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Signatures 15
</TABLE>
Page 1
<PAGE> 3
PART I
Financial Information
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(a) Consolidated Balance Sheet (unaudited)
- ---------------------------------------------------------------------------------------------------------
September 30 December 31
In thousands of dollars 1996 1995
==========================================================================================================
<S> <C> <C>
Assets
Cash and demand balances in other banks $ 6,883 $ 7,340
Federal funds sold 3,000 7,950
- ---------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 9,883 15,290
Securities available for sale 11,240 11,821
Securities held to maturity (fair value of
$53,920 and $47,325 respectively) 53,958 47,011
- ---------------------------------------------------------------------------------------------------------
Total securities 65,198 58,832
Total loans 95,504 88,147
Less: allowance for loan losses (1,339) (1,306)
- ---------------------------------------------------------------------------------------------------------
94,165 86,841
Premises and equipment, net 1,908 1,945
Accrued interest receivable and other assets 4,459 3,652
- ---------------------------------------------------------------------------------------------------------
Total Assets $175,613 $166,560
=========================================================================================================
Liabilities
Deposits
Noninterest bearing $ 23,399 $ 20,778
Interest bearing 133,179 127,371
- ---------------------------------------------------------------------------------------------------------
Total deposits 156,578 148,149
Accrued interest payable and other liabilities 1,884 2,160
- ---------------------------------------------------------------------------------------------------------
Total liabilities 158,462 150,309
Shareholders' Equity
Common stock, $2.50 par value; 1,000,000 shares authorized;
930,772 shares issued and outstanding 2,327 2,327
Capital surplus 4,979 4,979
Retained earnings 9,870 8,893
Unrealized gain (loss) on securities available for sale,
net of tax of ($18) and $27 respectively (25) 52
- ---------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 17,151 16,251
- ---------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $175,613 $166,560
=========================================================================================================
</TABLE>
(a) All per share statistics have been retroactively adjusted to reflect the 2
for 1 stock split of May 31, 1996.
See Notes to consolidated financial statements.
Page 2
<PAGE> 4
(b) Consolidated Statement of Income (unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
In thousands of dollars 1996 1995 1996 1995
=================================================================================================
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $2,274 $2,159 $6,657 $6,270
Interest on securities
Taxable 858 770 2,464 2,063
Tax exempt 103 25 302 172
Interest on federal funds sold 87 161 252 377
- ------------------------------------------------------------------------------------------------
Total interest income 3,322 3,115 9,675 8,882
Interest on Deposits 1,459 1,337 4,271 3,747
Net Interest income 1,863 1,778 5,404 5,135
Provision for loan losses 25 25 75 75
- ------------------------------------------------------------------------------------------------
Net Interest Income after Provision for
Loan Losses 1,838 1,753 5,329 5,060
Other Income
Service charges on deposit accounts 158 134 472 435
Other service charges 14 31 63 67
Other income 101 112 239 248
- ------------------------------------------------------------------------------------------------
Total other income 273 277 774 750
Other Expense
Salaries and employee benefits 751 718 2,037 1,947
Occupancy and equipment expense 66 57 172 166
Federal deposit insurance premiums 1 (10) 1 143
Furniture & equipment expense 82 73 243 228
Other expense 227 208 885 872
- ------------------------------------------------------------------------------------------------
Total other expense 1,127 1,046 3,338 3,356
- ------------------------------------------------------------------------------------------------
Income Before Federal Income Tax 984 984 2,765 2,454
Federal income tax 298 299 834 741
- ------------------------------------------------------------------------------------------------
Net Income $ 686 $ 685 $1,931 $1,713
=================================================================================================
Net income per share of common stock (a) $ 0.74 $ 0.74 $ 2.07 $ 1.84
Cash dividends declared per share of
common stock (a) $0.350 $0.325 $1.025 $0.875
Return on average assets (annualized) 1.54% 1.66% 1.50% 1.45%
Return on average equity (annualized) 16.06% 16.88% 15.32% 14.42%
</TABLE>
(a) All per share statistics have been retroactively adjusted to reflect the 2
for 1 stock split of May 31, 1996.
See Notes to consolidated financial statements.
Page 3
<PAGE> 5
(c) Statement of Changes in Shareholders' Equity (unaudited)
<TABLE>
<CAPTION>
Common Capital Retained
In thousands of dollars Stock Surplus Earnings (a) Total
====================================================================================================
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $2,327 $4,979 $8,110 $(115) $15,301
Net income, 1995 2,365 2,365
Cash dividends declared, $1.70 per share (b) (1,582) (1,582)
Net change in unrealized gain (loss)
on securities available for sale 167 167
- ----------------------------------------------------------------------------------------------------
Balance, December 31, 1995 2,327 4,979 8,893 52 $16,251
Net Income YTD 1996 1,931 1,931
Cash dividends declared, $1.025 per share (b) (954) (954)
Net change in unrealized gain (loss)
on securities available for sale (77) (77)
- ----------------------------------------------------------------------------------------------------
Balance, September 30, 1996 $2,327 $4,979 $9,870 $(25) $17,151
====================================================================================================
</TABLE>
(a) Net Unrealized Appreciation (Depreciation) on Securities Available For Sale
Net of Taxes
(b) All per share statistics have been retroactively adjusted to reflect the 2
for 1 stock split of May 31, 1996.
See Notes to consolidated financial statements.
Page 4
<PAGE> 6
(d) Year to Date Consolidated Statement of Cash Flows (unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
- -------------------------------------------------------------------------------------
In thousands of dollars 1996 1995
=====================================================================================
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $1,931 $ 1,713
- -------------------------------------------------------------------------------------
Adjustments to Reconcile Net Income to Net Cash from
Operating Activities
Depreciation 188 168
Accretion/amortization on securities 657 594
Provision for loan losses 75 75
Loans originated for sale (3,040) (3,186)
Proceeds from sales of loans originated for sale 3,050 3,204
Gain on sales of loans (10) (18)
Change in income taxes receivable (62) 5
Change in interest receivable (50) (50)
Change in interest payable 9 61
Change in other assets (653) (61)
Change in other liabilities 156 178
- -------------------------------------------------------------------------------------
Total adjustments 320 970
- -------------------------------------------------------------------------------------
Net cash from operating activities 2,251 2,683
- -------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Proceeds from maturities of securities available for sale 3,485 0
Purchase of securities available for sale (3,049) (1,990)
Proceeds from maturities of securities held to maturity 28,801 22,853
Purchase of securities held to maturity (36,378) (23,413)
Net increase in portfolio loans (7,398) (3,318)
Premises and equipment expenditures, net (152) (106)
- -------------------------------------------------------------------------------------
Net cash from investing activities (14,691) (5,974)
- -------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net change in deposits 8,429 10,799
Cash dividends paid (1,396) (974)
- -------------------------------------------------------------------------------------
Net cash from financing activities 7,033 9,825
- -------------------------------------------------------------------------------------
Net change in cash and cash equivalents (5,407) 6,534
- -------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 15,290 9,298
- -------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $9,883 $15,832
=====================================================================================
Cash Paid During the Period for
Interest $4,262 $ 3,686
Income taxes $1,870 $ 1,718
=====================================================================================
</TABLE>
See Notes to consolidated financial statements.
Page 5
<PAGE> 7
(e) Notes to Financial Statements (unaudited)
Note 1 - Basis of Presentation
The unaudited condensed consolidated financial statements of CNB Corporation
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial statements. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine month period ending September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Registration of Securities on
Form 10-SB/X Amendment No. 1 as of December 31, 1995.
Note 2 - Securities
The amortized cost and fair value of securities at September 30, 1996 are shown
below in thousands of dollars.
<TABLE>
<CAPTION>
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Securities Available for Sale
U.S. Treasury and agency securities $ 9,982 $ 16 $ 58 $ 9,940
Tax-exempt obligations of states and
political subdivisions 1,116 4 1,120
Other securities 180 180
-----------------------------------------------------
Total $11,278 $ 20 $ 58 $11,240
=====================================================
Securities Held to Maturity
U.S. Treasury and agency securities $44,061 $ 92 $197 $43,956
Tax-exempt obligations of states and
political subdivisions 7,769 43 32 7,780
Other securities 2,128 56 2,184
-----------------------------------------------------
Total $53,958 $191 $229 $53,920
=====================================================
</TABLE>
The amortized cost and fair value of securities by contractual maturity at
September 30, 1996 are shown below, in thousands of dollars
<TABLE>
<CAPTION>
------------------------- ------------------------
Available for Sale Held to Maturity
------------------------- ------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------------------- ------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 5,280 $ 5,295 $15,600 $15,527
Due after one year through five years 5,998 5,945 36,759 36,737
Due after five years through ten years 1,051 1,043
Due after ten years 518 508
------------------------- ------------------------
Total $11,278 $11,240 $53,928 $53,815
========================= ========================
</TABLE>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties. Equity securities are included with securities available
for sale due in one year or less.
Page 6
<PAGE> 8
There were no sales of securities for the period ending September 30, 1996 and
1995.
Securities carried at $985,625 as of September 30, 1996 were pledged to secure
deposits of public funds and for other purposes as required by law.
Note 3 - Allowance for Loan Losses
An analysis of the allowance for loan losses, in thousands of dollars, for the
nine months ended September 30, 1996 and 1995, follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Balance at beginning of period $1,306 $1,246
Loans charged off (53) (53)
Recoveries credited to allowance 11 12
Provision charged to operations 75 75
------- -------
Balance at end of period $1,339 $1,280
======= =======
</TABLE>
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," ("SFAS No. 114") at January
1, 1995. Under this standard, the carrying value of loans considered to be
impaired is reduced to the present value of expected future cash flows or to
the fair value of the collateral by allocating a portion of the allowance for
loan losses to such loans. If these allocations cause the allowance for loan
losses to require an increase, such increase is reported as bad debt expense.
The impact of SFAS No. 114 on the Company's financial position or results of
operations has not been material.
Note 4 - Per share calculations
Earnings per share is calculated on the weighted average number of shares
outstanding during the period, giving retroactive effect for the 2 for 1 stock
split to shareholders of record as of May 31, 1996.
Note 5 - Commitments, Contingencies and Financial Instruments
The following table shows the commitments to make loans and the unused lines of
credit, in thousands of dollars, available to Bank customers at September 30.
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Outstanding commitments to make fixed rate loans $ 3,385 $ 2,634
Outstanding commitments to make variable rate loans 6,659 5,514
Unused lines of credit - variable rate 3,812 3,484
Standby letters of credit - variable rate 29 39
------- -------
$13,885 $11,671
======= =======
</TABLE>
Page 7
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
OR PLAN OF OPERATION
This discussion provides information about the consolidated financial condition
and results of operations of CNB Corporation and its subsidiary, Citizens
National Bank of Cheboygan ("Bank") for the nine month period ending September
30, 1996.
Financial Condition
Securities
Investment balances increased $2.2 million during the third quarter as seasonal
deposit growth exceeded seasonal loan demand. Securities available-for-sale
represent 17.11% of the portfolio. Since the Bank maintains a short term
securities portfolio, not many securities are needed in the available-for-sale
portfolio to meet anticipated liquidity needs. The Asset/Liability Committee
has decided to purchase longer term securities in an attempt to increase the
overall investment yield. As the amount of securities maturing on a regular
monthly basis decreases, liquidity will be maintained by adding to the
available-for-sale portfolio.
Loans
Total loans increased $517 thousand during the third quarter. A decrease of
$2.4 million for the quarter in commercial loans and commercial mortgages is
typical for this time of year as seasonal businesses make annual principal
reductions. Residential mortgages increased for the quarter by $3.3 million as
the Bank continues to retain, rather than sell on the secondary market,
residential mortgages of 15 years or less. This pattern is expected to
continue throughout the year. As the yield on these loans is greater than the
yield available on the types of security that the Bank typically invests in,
this increase in mortgages will help to increase the Bank's net interest
margin.
The table below shows total portfolio loans outstanding, in thousands of
dollars, at December 31 and September 30, and their percentage of the total
loan portfolio. All loans are domestic. A semi-annual review of loan
concentrations at June 30, 1996 indicates that the pattern of loans in the
portfolio has not changed. There is no individual industry with more than a
10% concentration. However, all tourism related businesses, when combined,
total 13.67% of total loans.
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
Portfolio loans: Balance % of total Balance % of total
--------------------------- -----------------------
<S> <C> <C> <C> <C>
Commercial & Agriculture $29,491 30.88% $30,017 34.05%
Real estate - mortgage 54,412 56.97% 46,506 52.76%
Real estate - construction 2,498 2.62% 2,229 2.53%
Installment loans to
individuals 9,103 9.53% 9,395 10.66%
----------------------------------------------------------
$95,504 100.00% $88,147 100.00%
==========================================================
</TABLE>
Credit Quality
The Company continues to maintain a high level of asset quality as a result of
actively monitoring delinquencies, nonperforming assets and potential problem
loans. The Bank performs ongoing review of all large credits to watch for any
deterioration in quality. Nonperforming loans are comprised of (1) loans
accounted for on a nonaccrual basis; (2) loans contractually past due 90 days
or more as to interest or principal payments (but not included in the
nonaccrual loans in (1) above); and (3) other loans whose terms have been
renegotiated to provide a reduction or deferral
Page 8
<PAGE> 10
of interest or principal because of a deterioration in the financial position
of the borrower (exclusive of loans in (1) or (2) above). The aggregate
amount of nonperforming loans, in thousands of dollars, is shown in the table
below.
<TABLE>
<CAPTION>
9/30/96 12/31/95 9/30/95
------------ ------------ -----------
<S> <C> <C> <C>
Nonaccrual loans $ 24 $ 0 $ 26
Loans past due 90 days or more 231 80 75
Troubled debt restructurings 0 0 0
----- ----- -----
Total nonperforming loans $ 255 $ 80 $ 101
----- ----- -----
Percent of total loans 0.27% 0.09% 0.12%
===== ===== =====
</TABLE>
Deposits
Typically the Bank's deposit activity starts to pick up late in the second
quarter as summer businesses in the area prepare to reopen for the season.
Deposits at September 30, 1996 were up by $3.0 million as compared to June 30,
1996 and $9.8 million from one year ago. Growth for the quarter was in nearly
every category of deposit with the exception of municipal deposits. The
increase in noninterest bearing deposits will help the net interest margin over
the summer months, but is not expected to continue past fall. Management
anticipates that deposit growth during the balance of 1996 will continue to be
steady with part of this growth coming through increased market share.
Liquidity and Funds Management
Liquidity
Both loan and deposit growth continued during the third quarter of 1996.
Typically the September balance represents the annual peak in deposits from
summer businesses. The Bank maintains a steady schedule of investment
securities maturing each month to meet anticipated decline in deposits through
next spring when deposits are again expected to increase. The security
portfolio continues to have short maturities, adding to available liquidity.
The loan to deposit ratio was 60.99% at September 30, 1996. Management would
like to continue to increase loans until the Bank reaches a loan to deposit
ratio of at least 65%. This change in the mix from investments to loans will
help to increase the net interest margin over time.
Funds Management
The following chart shows the Bank's interest rate sensitivity as of September
30, 1996 in thousands of dollars
Page 9
<PAGE> 11
<TABLE>
<CAPTION>
up to 4 to 12 1 to 5 over
3 months months years 5 years
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal funds sold $ 3,000
Taxable investment securities 4,000 14,443 $35,601
Non-taxable investment securities 312 3,403 5,587 $1,672
Loans 30,911 33,485 24,411 6,019
---------------------------------------------------------------
Total Rate Sensitive Assets 38,223 51,331 65,599 7,691
Interest bearing demand deposits 13,925
Money market savings 33,509
Other time deposits 18,799 26,454 14,115
---------------------------------------------------
Total Rate Sensitive Liabilities $ 66,233 $26,454 $14,115
---------------------------------------------------
Gap $(28,010) $24,877 $51,484 $ 7,691
---------------------------------------------------------------
Cumulative Gap $(28,010) $(3,133) $48,351 $56,042
===============================================================
Cumulative Ratio 57.71% 96.62%
===============================
</TABLE>
Management believes that the Gap overstates true interest sensitivity.
Interest exposure is not as significant as expressed in the above schedule as
rates on interest-bearing liabilities may not reprice on an "instant basis"
even though the Bank has the contractual right to make a change. Management
believes liabilities do not need to be repriced as soon as rates begin to move.
In actuality, these rates typically remain unchanged for years at a time.
Capital Resources
The capital ratios of the Company exceed the regulatory guidelines for well
capitalized institutions. The following table shows the Company's capital
ratios and ratio calculations at September 30, 1996 and 1995 and December 31,
1995. Dollars are shown in thousands.
<TABLE>
<CAPTION>
Regulatory guidelines CNB Corporation
Adequate Well 9/30/96 12/31/95 9/30/95
-------- ---- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Tier 1 leverage ratio 4.00% 5.00% 9.77% 9.76% 9.90%
Tier 1 risk adjusted capital ratio 4.00% 6.00% 19.73% 18.88% 19.18%
Total risk adjusted capital ratio 8.00% 10.00% 18.48% 20.13% 20.43%
Total shareholders' equity $17,151 $16,251 $16,321
Unrealized gain (loss) on securities available
for sale, net of tax (25) 52 6
------------------------------------
Tier 1 capital 17,176 16,199 16,315
Qualifying loan loss reserves 1,164 1,075 1,066
------------------------------------
Tier 2 capital $18,340 $17,274 $17,381
====================================
</TABLE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income continued to increase during the third quarter of 1996 due
to the increase in interest earning assets despite a decrease in the net
interest spread. The Bank continues to experience pressure for lower interest
rates on loan products and higher interest rates on deposit products as
competition increases. The net spread at September 30, 1996 was 3.44%
Page 10
<PAGE> 12
compared to 3.64% at September 30, 1995.
The table below shows the year to date daily average Consolidated Balance
Sheet, revenue on earning assets,(on a pre-tax basis) or expense of interest
bearing liabilities, and the annualized effective rate or yield for the period
ending September 30,1996 and 1995.
YIELD ANALYSIS OF CONSOLIDATED AVERAGE ASSETS AND LIABILITIES
in thousands of dollars
<TABLE>
<CAPTION>
Nine months ended Sept 30, 1996 Nine months ended Sept 30, 1995
-------------------------------- ---------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ----- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets
Time deposits in other banks $ 332 $ 15 6.02% $ 454 $19 5.58%
Federal funds sold 5,737 252 5.86% 8,168 377 6.15%
Taxable securities 54,591 2,449 5.98% 49,504 2,044 5.51%
Tax exempt securities 8,313 302 4.84% 4,413 172 5.20%
Taxable loans 90,967 6,303 9.24% 84,341 5,968 9.43%
Tax exempt loans 1,215 52 5.71% 1,403 60 5.70%
--------------------- -----------------------
Total int. earning assets 161,155 $9,373 7.75% 148,283 $8,640 7.77%
--------------------- -----------------------
Cash and due from banks 5,479 5,209
Premises and equipment, net 1,941 1,992
Other assets 3,856 3,677
Unrealized gain securities-AFS 17 (77)
Less allowance for loan losses (1,329) (1,285)
-------- --------
Total Assets $171,119 $157,799
======== ========
Liabilities and Shareholders' Equity
Interest bearing liabilities
Interest bearing demand
deposits $ 13,974 $ 251 2.39% $13,293 $239 2.40%
Savings deposits 25,631 553 2.88% 26,937 579 2.87%
CDs $100,000 and over 10,242 421 5.48% 7,492 302 5.37%
Other interest bearing deposits 82,245 3,046 4.94% 73,268 2,627 4.78%
--------------------- ----------------------
Total int bearing deposits 132,092 4,271 4.31% 120,990 3,747 4.13%
Noninterest bearing deposits 20,582 19,432
Other liabilities 1,643 1,544
Shareholders' equity 16,802 15,834
-------- --------
Total Liabilities and
Shareholders' Equity $171,119 $157,800
======== ========
Net interest income $5,102 $4,893
Net spread 3.44% 3.64%
Net yield on interest earning assets 4.22% 4.40%
Ratio of interest earning assets to
interest bearing liabilities 1.22 1.23
</TABLE>
Page 11
<PAGE> 13
The table below shows the effect of volume and rate changes on net interest
income for the nine months ended September 30, on a pre-tax basis, in thousands
of dollars.
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
----------------------------------- ------------------------------------
Volume Rate Net Volume Rate Net
------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Time deposits in other banks $ (5) $ 1 $ (4) $ 10 $ 10 $ 19
Federal funds sold (109) (16) (125) 175 79 254
Taxable securities 219 186 405 (53) 328 275
Tax exempt securities 147 (17) 130 23 0 23
Taxable loans 464 (129) 335 158 673 831
Tax exempt loans (8) 0 (8) (45) 15 (30)
--------------------------------------------------------------------------------------
Total interest income $ 708 $ 25 $ 733 $ 268 $ 1,105 $ 1,372
======================================================================================
Interest bearing demand
deposits $ 12 $ (0) $ 12 $ (7) $ (1) $ (8)
Savings deposits (28) 2 (26) (64) 0.0 (64)
CDs $100,000 and over 112 7 119 87 69 156
Other interest bearing deposits 327 92 419 154 570 724
--------------------------------------------------------------------------------------
Total interest expense $ 423 $ 101 $ 524 $ 170 $ 638 $ 808
======================================================================================
Net change in net interest
income (a) $ 285 $ (76) $ 209 $ 98 $ 467 $ 564
</TABLE>
(a) The net change in interest due to both rate and volume has been allocated
to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
Other Income
Noninterest income continues to improve, although at a slower rate than in
previous periods. Year to date figures are up 3.20%. The Company continues to
search for new opportunities for noninterest income.
Other Expenses
Most categories of other expense showed minimal change from last year. All
noninterest expenses, exclusive of FDIC premiums paid, increased 3.86% from
September 30, 1995 to September 30, 1996. A change in the FDIC premium rates
reduced this expense from $143 thousand to $1 thousand during this same nine
month period leaving the Company with a net reduction in noninterest expense of
0.54%.
Federal Income Tax
There was no significant change in the income tax position of the Company
during the first nine months of 1996.
Net Income
Year to date consolidated net income for the third quarter was $1,931,000
compared to $1,713,000 for 1995. Improved net interest income, combined with
improved noninterest income and a reduction in noninterest expense have
contributed to this improvement. Net income for the quarter is unchanged
compared to the same period one year ago while year to date net income is up
12.73%. Return on consolidated average assets for the quarter was 1.54%,
compared to 1.66% for the third quarter of 1995. The Bank's income for the
third quarter of 1995 included a refund of previously paid FDIC assessments
which increased income for the third quarter.
Page 12
<PAGE> 14
ACCOUNTING CHANGES
Effective January 1, 1996, the Company adopted Financial Accounting Standards
Board Statement 122, Accounting for Mortgage Servicing Rights. The Statement
requires that the Company recognize mortgage servicing rights on loans it
purchases or originates with the intent to sell as an asset. Capitalized
mortgage servicing rights are included in other assets and are not material at
September 30, 1996.
CURRENT ACCOUNTING ISSUES
Several new accounting standards have been issued by the FASB that will apply
for the year ending December 31, 1996. SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of,"
requires a review of long-term assets for impairment of recorded value and
resulting write-downs if the value is impaired. SFAS No. 122, "Accounting for
Mortgage Servicing Rights," requires recognition of an asset when servicing
rights are retained on in-house originated loans that are sold. SFAS No. 123,
"Accounting for Stock-Based Compensation," encourages, but does not require,
entities to use a "fair value based method" to account for stock-based
compensation plans and requires disclosure of the pro forma effect on net
income and on earnings per share had the accounting been adopted. SFAS No.
125, "Accounting for Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities," provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
and requires a consistent application of a financial-components approach that
focuses on control. Under that approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred and derecognizes liabilities when extinguished.
SFAS No. 125 also supersedes SFAS No. 122, and requires that servicing assets
and liabilities be subsequently measures by amortization in proportion to and
over the period of estimated net servicing income or loss and requires
assessment for asset impairment or increased obligation based on their fair
values. SFAS No. 125 applies to transfers and extinguishments occurring after
December 31, 1996, and early or retroactive application is not permitted. Upon
adoption, these statements are not expected to have a material effect on the
Company's consolidated financial position or results of operations.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
Page 13
<PAGE> 15
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits (numbered as in Item 601 of Regulation S-B):
10(D)(ii)(A) CNB Corporation 1996 Stock Option Plan and Agreement
27 Financial Data Schedule
(b) The Company has filed no reports on Form 8-K during the quarter ended
September 30, 1996.
Page 14
<PAGE> 16
SIGNATURES
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
November 13, 1996
/s/ Robert E. Churchill /s/ Jean K. Hunt
- ------------------------------------- ------------------------------------
Robert E. Churchill Jean K. Hunt
President and Chief Executive Officer Treasurer (Chief Accounting Officer)
Page 15
<PAGE> 17
EXHIBIT INDEX
Exhibit No. Description Page No.
- ------------ ------------ --------
10(D)(ii)(A) Stock Option Plan
27 Financial Data Schedule 12
<PAGE> 1
EXHIBIT 10(D)(ii)(A)
CNB CORPORATION
1996 STOCK OPTION PLAN
I. PURPOSE.
The purpose of this 1996 Stock Option Plan (the "Plan") is to reward
certain key executives (the "Participants") of CNB Corporation, a
Michigan corporation (the "Company") or its Subsidiaries, for their past
contributions to the Company's goals by allowing these key executives to
gain a proprietary interest in the Company through ownership of shares of
the Company's common stock, $2.50 par value ("Common Stock").
II. PARTICIPANTS.
Participants will consist of such key executives of the Company or any or
all of its present or future Subsidiaries as the Board of Directors of
the Company (the "Board") or the Committee, as defined in Section III
herein, in its sole discretion, determines to be mainly responsible for
the success, future growth and profitability of the Company and whom the
Board or the Committee may designate from time to time to receive Awards
under the Plan. Awards may be granted under this Plan to persons who
have previously received Awards or other benefits under this or other
plans of the Company.
III. ADMINISTRATION.
A. The Plan shall be administered by a committee (the "Committee")
appointed by the Board. The Committee shall be composed of not
fewer than two members of the Board who are not employed by the
Company. No member of the Committee may exercise discretion with
respect to, or participate in, the administration of the Plan if,
at any time, during the twelve-month period prior to such exercise
or participation, he or she has been granted or awarded stock,
stock options or any other derivative security of any Company or an
affiliate thereof under this Plan or any similar plan of the
Company except as permitted in Rule 16b-3(c)(2)(i)(A) through (D)
under the Securities Exchange Act of 1934. In the event the
Company's Common Stock is registered under the Securities Exchange
Act of 1934, as amended, members of the Committee shall be subject
to any additional restrictions necessary to satisfy the
requirements for disinterested administration of the Plan as set
forth in Rule 16b-3, as it may be amended from time to time. No
member of the Board or the Committee shall be liable for any action
taken, or determination made, hereunder in good faith. Service on
the Committee shall constitute service as a director of the Company
so
<PAGE> 2
that members of the Committee shall be entitled to indemnification and
reimbursement as directors of the Company pursuant to its bylaws.
B. POWERS. Within the limits of the express provisions of the Plan,
the Committee shall determine:
1. The Participants to whom Awards shall be granted;
2. The time or times at which such Awards shall be granted;
3. The form and amount of the Awards; and
4. The limitations, restrictions and conditions applicable to any such
Award.
In making such determinations, the Committee may take into account the
nature of the services rendered by such Participants, or classes of
Participants, their present and potential contributions to the Company's
success and such other factors as the Committee, in its discretion, shall
deem relevant. All Awards are subject to the approval of the Board.
C. INTERPRETATIONS. Subject to the express provisions of the Plan, the
Committee may interpret the Plan, prescribe, amend and rescind rules
and regulations relating to it, determine the terms and provisions of the
respective Awards and make all other determinations it deems necessary or
advisable for the administration of the Plan.
D. DETERMINATIONS. The determinations of the Committee, unless otherwise
determined by the Board, on all matters regarding the Plan shall be
conclusive and binding.
E. NONUNIFORM DETERMINATIONS. The Committee's determinations under the Plan
including, without limitation, determinations as to the Participants to
receive Awards, the terms and provisions of such awards and the agreements
evidencing the same, need not be uniform and may be made by it selectively
among Participants who receive or are eligible to receive awards under the
Plan, whether or not such Participants are similarly situated.
F. A majority of the Committee shall constitute a quorum, and the acts
approved by a majority of the members present at any meeting at
which a quorum is present or acts approved in writing or by a majority of
the Committee, shall be acts of the Committee.
2
<PAGE> 3
IV. AWARDS UNDER THE PLAN.
The following provisions shall apply to each award under the Plan. Awards
shall be in such form and upon such terms and conditions as the Committee
shall from time to time determine, subject to the following:
A. MAXIMUM LIMITATIONS. The aggregate number of shares of Common
Stock which will be available for grant under the Plan is 50,000,
subject to adjustment pursuant to Section IV.C., below. The
maximum number of shares which may be issued to a single individual
is 25,000. Shares of Common Stock issued pursuant to the Plan
shall be authorized but unissued shares, or, if permitted under the
Michigan Business Corporation Act, shares held in the treasury of
the Company. In the event that, prior to the end of the period
during which Stock Options may be granted under the Plan, any Stock
Option expires unexercised or is terminated, surrendered or
canceled without being exercised or vested, in whole or in part,
for any reason, the number of shares subject to such Award or the
unexercised, terminated, forfeited or unearned portion thereof,
shall be added to the remaining number of shares of Common Stock
available for award under the Plan, including a grant to a former
holder of such Award, upon such terms and conditions as the
Committee shall determine, which terms may be more or less
favorable than those applicable to such former Stock Option.
B. FORM. Awards under the Plan shall be granted in either or both
of the following forms:
1. Nonstatutory stock options (NSOs);
2. Incentive stock options ("ISOs).
Unless otherwise expressly provided at the time of grant, Options
granted under the Plan will not be NSOs.
C. ADJUSTMENT PROVISIONS. The aggregate number of shares of Common
Stock with respect to which awards shall be made, the aggregate
number of shares of Common Stock subject to each outstanding Stock
Option and the exercise price per share of each such Stock Option
may all be appropriately adjusted as the Committee may determine
for any increase or decrease in the number of shares of issued
Common Stock resulting from a subdivision or consolidation of
shares, whether through reorganization, recapitalization, stock
split-up, stock distribution or combination of shares, or the
payment of a share dividend or other increase or decrease in the
number of such shares outstanding effected without receipt of
consideration by the Company. Adjustments under this Section IV.C.
shall be made according to the sole discretion of the Committee,
and its decisions shall be binding and conclusive.
3
<PAGE> 4
D. WITHHOLDING TAXES. Whenever the Company is required to issue or
transfer shares of Common Stock to a Participant under the Plan, the
Company shall have the right to require the Participant to remit to the
Company an amount sufficient to satisfy all federal, state and local
withholding tax requirements prior to the delivery of any certificate
or certificates for such shares. Whenever payments under the Plan are
to be made to a Participant in cash, such payments shall be net of the
amount sufficient to satisfy all federal, state and local withholding
tax requirements.
E. CONDITIONS OF GRANT. The Committee, in its discretion, may, as
a condition to the grant of an Award under the Plan, require a
Participant who is the recipient of such Award to enter into a
covenant not to compete with the Company and its subsidiaries, which
shall become effective on the date of termination of employment of the
Participant with the Company, or any other date designated by the
Committee, and which shall contain such terms and conditions as shall
be specified by the Committee.
If the Participant shall fail to enter into any such agreement at the
request of the Committee, then no Award shall be made hereunder to such
Participant and the number of shares of Common Stock that would
have been subject to such Award shall be added to the remaining number
of shares available for grant as an Award under the Plan.
F. INVESTMENT REPRESENTATION. If the Committee, in its discretion,
determines that as a matter of law such procedure is or may be
desirable, it may require a Participant upon the exercise of an Option
or any other acquisition of stock pursuant to the Plan to execute and
deliver to the Secretary of the Company, the Investment Purpose
Statement. This statement warrants that the shares are for the
Participant's own account, for investment and not with a view to the
resale or distribution thereof and that subsequent offer of sale or
sale of any of the shares will be made either pursuant to:
1. A Registration Statement on the appropriate form
under the Securities Act of 1933 (the "Securities Act") and
any applicable state securities laws, which Registration
Statement has become effective and is current with respect to
the shares being offered and sold; or
2. A specific exemption from the registration requirements of
the Securities Act and any applicable state
securities laws. The Company may endorse an appropriate
legend referring to the foregoing restriction upon the
certificate or certificates representing any shares awarded
under the Plan or issued or transferred to the Participant
upon the exercise of an Option.
4
<PAGE> 5
G. ISSUANCE OF STOCK CERTIFICATE. The Company shall issue, in the name of
the Participant, stock certificates representing the total number of
shares of Common Stock issuable pursuant to the exercise of any Stock
Option ("Option Shares") as soon as reasonably practicable after such
exercise. If such shares have not been registered under the Securities
Act and any applicable state securities laws, the certificates will
bear the following legend:
"The shares represented by this certificate have not been registered
under the Federal Securities Act of 1933, as amended, or state
securities or Blue Sky laws and may not be sold or transferred in the
absence of an effective registration statement thereunder or an opinion
of counsel satisfactory to the Company that such registration is not
required."
V. STOCK OPTIONS
A. OPTION AGREEMENT. Stock Options granted under this Plan shall
be subject to such terms and conditions, shall be exercisable at
such time or times, and shall be evidenced by such form of written
option agreement (the "Option Agreement") between the Participant and
the Company, in form of Exhibit A attached hereto or such other form as
the Committee shall determine; provided that such determinations are
not inconsistent with the other provisions of the Plan, or with Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") for
qualification as an ISO.
B. EXERCISE OF STOCK OPTIONS.
1. EXERCISE PRICE. The per share exercise price of each
Stock Option shall be fixed by the Committee in the Option
Agreement, but shall not be less than 100% of the Fair Market
Value (as defined in Section XII.G.) of the Common Stock
subject to such Stock Option on the date of grant.
2. MANNER OF EXERCISE OF OPTIONS AND PAYMENT FOR STOCK.
Any Stock Option granted under the Plan may be exercised by
the Participant, a legatee or legatees of such Stock Option
under the Participant's last will, or by his or her
executors, personal representatives or distributees.
a. NOTICE. The Option may be exercised by
delivering to the Secretary of the Company written
notice of the number of shares of Common Stock with
respect to which the Stock Option is being exercised.
5
<PAGE> 6
b. PAYMENT. Except as otherwise provided in the Plan or in any Option
Agreement, the purchase price of Common Stock upon exercise of any
Stock Option by a Participant shall be paid in full as follows:
1) in cash or certified check by the Participant;
2) by a broker-dealer to whom the Participant has submitted an
exercise notice consisting of a fully endorsed Stock Option;
3) in Common Stock valued at its Fair Market Value on the date
of exercise;
4) by agreeing to surrender Stock Options then exercisable by
him or her valued at the excess of the aggregate Fair Market
Value of the Common Stock subject to such Stock Options on
the date of exercise over the aggregate option exercise
prices of such Common Stock;
5) by directing the Company to withhold such number of shares
of Common Stock otherwise issuable upon exercise of such
Stock Option having an aggregate Fair Market Value on the
date of exercise equal to the exercise price of the Stock
Option; or
6) by such other medium of payment as the Committee, in its
discretion, shall authorize, or by any combination of 1),
2), 3), 4) or 5) above, at the discretion of the Committee.
In the case of payment pursuant to 2), 3), 4), 5) or 6) above, the
Participant's election must be made on or prior to the date of
exercise of the Stock Option and must be irrevocable. In the case
of a Participant who is an insider subject to Section 16 of the
Securities Exchange Act of 1934 and who elects payment pursuant to
5) above, the election must be made in writing either within ten
(10) business days beginning on the third (3rd) business day
following release of the Company's quarterly or annual summary of
earnings and ending on the twelfth (12th) business day following
such day, or at least six (6) months prior to the date of exercise
of such Stock Option.
C. TERM OF STOCK OPTIONS. Each Stock Option shall become exercisable at the
time, and for the number of shares of Common Stock fixed by the Committee
in the Stock Option Agreement. Each Stock Option shall expire and all
rights to purchase Common Stock thereunder shall cease on the date fixed
by the Committee in the Option Agreement, which shall not be later than
ten (10) years from the date such Stock Option is granted.
D. PROVISIONS SPECIFICALLY APPLICABLE TO INCENTIVE STOCK OPTIONS (ISOS). It
is intended that ISOs granted under the Plan shall constitute Incentive
Stock Options
6
<PAGE> 7
within the meaning of Section 422 of the Code. ISOs may be granted
under the Plan for the purchase of shares of Common Stock.
Notwithstanding any other provision herein contained, ISOs shall be
in such form and upon such conditions as the Board shall from time
to time determine, subject to the following:
1. TERM OF OPTIONS. No Incentive Stock Option shall be
exercisable prior to the date one year, or after the date ten
years, from the date such ISO is granted.
2. LIMITATION ON AMOUNTS. The aggregate Fair Market Value
(determined with respect to each ISO as of the time such ISO
is granted) of the Common Stock with respect to which ISOs are
exercisable for the first time by an employee during any
calendar year (under this Plan or any other plan of the
Company or Subsidiary) shall not exceed $100,000.
3. TEN PERCENT SHAREHOLDER. No employee may receive an ISO under
the Plan if such employee at the time the award is granted,
owns (as defined in Section 424(d) of the Code) stock
possessing more than 10% of the total combined voting power of
all classes of stock of the Company, its parent or any
Subsidiary, unless the option price for such ISO is at least
110% of the Fair Market Value of the Common Stock subject to
such ISO on the date of grant and such Option is not
exercisable after the date five years from the date such
Option is granted.
VI. TRANSFERABILITY.
No Award made under the Plan may be transferred, assigned, pledged or
hypothecated (whether by operation of law or otherwise), except to a
grantor trust (as defined in Sections 671-7 of the Code) or as provided
by will or the applicable laws of descent or distribution, and no Award
shall be subject to execution, attachment or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other
disposition of an Award, or levy of attachment or similar process upon
the Award not specifically permitted herein shall be null and void and
without effect. A Stock Option may be exercised only by the Participant
during his or her lifetime, or pursuant to Section IX.C., by his or her
estate or the person who acquires the right to exercise such Stock Option
upon his or her death by bequest or inheritance.
VII. DISSOLUTION.
Upon the dissolution or liquidation of the Company, each Stock Option
granted hereunder shall expire as of the effective date of such
transaction.
7
<PAGE> 8
VIII. EFFECTIVE DATE AND CONDITIONS SUBSEQUENT TO EFFECTIVE DATE.
A. The Plan shall become effective on the date of the
approval of the Plan by the Board provided that the
shareholders of the Company approve the Plan within 12 months
thereafter, and the Plan shall be null and void and of no
effect if such condition is not fulfilled. Stock Options may
be granted or awarded before shareholder approval of the Plan
but each such Stock Option granted or awarded hereunder shall
be subject to shareholder approval of the Plan and if such
approval is not obtained, such grants will be null and void
and of no effect.
B. No grant or award shall be made under the Plan more
than ten (10) years from the date of adoption of the Plan by
the Board; provided, however, that the Plan and all Awards
made under the Plan prior to such date shall remain in effect
and subject to adjustment and amendment as herein provided
until they have been satisfied or terminated in accordance
with the terms of the respective grants or awards and the
related Agreements.
IX. TERMINATION OF EMPLOYMENT.
Each Stock Option shall, unless sooner expired pursuant to Section IX.A,
B, or C below, expire on the first to occur of the tenth (10th)
anniversary of the date of grant thereof or the expiration date set forth
in the applicable Option Agreement.
A. OTHER THAN FOR CAUSE, DEATH, OR DISABILITY. If the
Participant's employment with the Company and its Subsidiaries is
terminated for any reason other than cause, death or disability (as
determined solely by the Board), the Participant will have the
right for a period of thirty (30) days following such termination,
or for a period determined at the discretion of the Committee, to
exercise that portion of the Option, if any, which was exercisable
by the Participant on the date of termination of employment. In no
event shall the Participant have the right to exercise an Option
subsequent to the expiration date of the Option.
B. CAUSE. If the Participant's employment is terminated for cause,
as determined by the Board, all Stock Options shall expire on the
first to occur of the expiration date set forth in the applicable
Option Agreement, or the date and time of termination of
employment.
C. DEATH OR DISABILITY. If the employment of a Participant with
the Company and all Subsidiaries terminates by reason of disability
(as determined by the Board) or death, the Participant or the
Participant's legal representative or legatees will have the right
for a period of six (6) months following such termination, or for a
period determined
8
<PAGE> 9
at the discretion of the Committee, to exercise that portion of the
Option, if any, which was exercisable by the Participant on the
date of termination of employment. In no event shall the
Participant have the right to exercise an Option subsequent to the
expiration date of the Option.
X. CHANGE IN CONTROL.
Any unexercisable Stock Option will become immediately exercisable and
any stock restrictions will immediately lapse in the event that a change
of control occurs as defined in each applicable Agreement.
XI. POSTPONEMENT OF EXERCISE.
The Committee may postpone any exercise of a Stock Option for such time
as the Committee, in its sole discretion, may deem necessary in order to
permit the Company to:
A. Effect, amend or maintain any necessary registration of the Plan
or the shares of Common Stock issuable upon the exercise of a Stock
Option under the Securities Act of 1933, as amended, or the
securities laws of any applicable jurisdiction;
B. Permit any action to be taken in order to:
1. List such shares of Common Stock on a stock exchange
if shares of Common Stock are then listed on such exchange;
or
2. Comply with restrictions or regulations incident to
the maintenance of a public market for its shares of Common
Stock, including any rules or regulations of any stock
exchange on which the shares of Common Stock are listed; or
C. Determine that such shares of Common Stock and the Plan are
exempt from such registration or that no action of the kind
referred to in XI.B above needs to be taken; and the Company shall
not be obligated by virtue of any terms and conditions of any
Option Agreement or any provision of the Plan to recognize the
exercise of a Stock Option, or to sell or issue shares of Common
Stock in violation of the Securities Act or the law of any
government having jurisdiction thereof. Any such postponement
shall not extend the terms of a Stock Option and neither the
Company nor its directors or officers shall have any obligation or
liability to any Participant or any other person with respect to
any shares of Common Stock as to which the Stock Option shall lapse
because of such postponement.
9
<PAGE> 10
XII. MISCELLANEOUS.
A. NO OBLIGATION TO EXERCISE OPTIONS. The granting of a Stock Option
shall impose no obligation upon a Participant to exercise such Stock
Option.
B. TERMINATION AND AMENDMENT OF PLAN. The Board, without further
action on the part of the shareholders of the Company, may from time
to time alter, amend or suspend the Plan or any Stock Option granted
hereunder or may at any time terminate the Plan, except that, it may
not without approval of the shareholders of the Company (except to
the extent provided in Section IV.C. hereof):
1. Materially increase the total number of shares of
Common Stock available for grant to Section 16 insiders under
the Plan;
2. Materially increase benefits to Participants under
the Plan;
3. Effect a change relating to ISOs granted hereunder
which is inconsistent with Section 422 of the Code or
regulations issued thereunder; or
4. Change the class of persons eligible to be
Participants.
No action taken by the Board, with or without shareholder approval,
under this Section may materially and adversely affect any
outstanding Award without the consent of the holder thereof.
C. APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of Common Stock pursuant to the Plan will be used for
general corporate purposes.
D. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or any agreement
entered into pursuant to the Plan shall confer upon any Participant
the right to continue in the employment of the Company or any
Subsidiary or affect any right which the Company or any Subsidiary
may have to terminate the employment of such Participant.
E. RIGHTS AS A SHAREHOLDER. No Participant shall have any right or
privilege as a shareholder unless and until certificates for shares
of Common Stock are issuable to him or her.
F. LEAVES OF ABSENCE AND DISABILITY. The Committee shall be entitled
to make such rules, regulations and determinations as it deems
appropriate under the Plan in respect of any leave of absence taken
by or disability of any Participant. Without limiting the generality
of the foregoing, the Committee shall be entitled to determine:
10
<PAGE> 11
1. Whether or not any such leave of absence shall constitute a
termination of employment within the meaning of the Plan;
and
2. The impact, if any, of any such leave of absence on Awards
under the Plan theretofore made to any Participant who
takes such leave of absence.
G. FAIR MARKET VALUE. Whenever the Fair Market Value of Common
Stock is to be determined under the Plan as of a given date,
such Fair Market Value shall be:
1. If the Common Stock is principally traded on an exchange
or market in which prices are reported on a bid and asked
basis, the average of the mean between the bid and the
asked price for the Common Stock at the close of trading
for the 10 consecutive trading days immediately preceding
such given date;
2. If the Common Stock is principally listed on a national
securities exchange, the average of the closing prices of
the Common Stock on the Composite Tape for the 10
consecutive trading, days immediately preceding such given
date; or
3. If the Common Stock is neither traded on the over the
counter market nor listed on a national securities
exchange, such value as the Board, in good faith, shall
determine.
H. NOTICES. Every direction, revocation or notice authorized or
required by the Plan shall be deemed delivered to the Company:
1. On the date it is personally delivered to the Secretary of
the Company at its principal executive offices; or
2. Three business days after it is sent by registered or
certified mail; postage prepaid, addressed to the Secretary
at such offices.
and to a Participant:
3. On the date it is personally delivered to him or her; or
4. Three business days after it is sent by registered or
certified mail, postage prepaid, addressed to him or her at
the last address shown for him or her on the records of the
Company.
I. ELIMINATION OF FRACTIONAL SHARES. If under any provision of
the Plan that requires a computation of the number of shares of
Common Stock subject to an Award, the number so computed is not
a whole number of shares of Common Stock, such number of shares
shall be rounded down to the next whole number.
11
<PAGE> 12
J. GOVERNING LAW. All questions pertaining to the validity,
construction and administration of the plan and Awards granted
hereunder shall be determined in conformity with the laws of the
State of Michigan.
12
<PAGE> 13
EXHIBIT A
CNB CORPORATION
1996 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
A(n) incentive/non-statutory stock option ("Stock Option") is hereby granted by
CNB Corporation, a Michigan corporation ("Company"), to the Participant named
below ("Participant"), for and with respect to $2.50 par value common stock of
the Company ("Common Stock"), subject to the following terms and conditions:
1. GRANT. Subject to the provisions set forth herein and the terms and
conditions of the CNB Corporation 1996 Stock Option Plan (the "Plan"), the
terms of which are hereby incorporated by reference, and in consideration
of the agreements of the Participant herein provided, the Company hereby
grants to the Participant a Stock Option (intended to be an ISO within the
meaning of Section 422 of the Internal Revenue Code) to purchase from the
Company the number of shares of Common Stock, at the purchase price per
share, and on the schedule, all as set forth below. At the time of
exercise of the Stock Option, payment of the purchase price must be made
in one of the following methods:
A) in cash or certified check by the Participant
B) by a broker-dealer to whom the Participant has submitted an
exercise notice consisting of a fully endorsed Stock Option,
C) in Common Stock valued at its Fair Market Value on the date of
exercise,
D) by agreeing to surrender Stock Options then exercisable by
him or her valued at the excess of the aggregate Fair Market Value
of the Common Stock subject to such Stock Options on the date of
exercise over the aggregate option exercise prices of such Common
Stock,
E) by directing the Company to withhold such number of shares of
Common Stock otherwise issuable upon exercise of such Stock Option
having an aggregate Fair Market Value on the date of exercise equal
to the exercise price of the Stock Option, or
F) by such other medium of payment as the Committee, in its
discretion, shall authorize, or by any combination of 1), 2), 3), 4)
or 5) above, at the discretion of the Committee.
In the case of payment pursuant to B), C), D), E) or F) above, the
Participant's election must be made on or prior to the date of exercise of the
Stock Option and must be irrevocable. In the case of a Participant who is an
insider subject to Section 16 of the Securities Exchange Act of 1934 and who
1
<PAGE> 14
elects payment pursuant to E) above, the election must be made in writing
either within ten (10) business days beginning on the third (3rd) business day
following release of the Company's quarterly or annual summary of earnings and
ending on the twelfth (12th) business day following such day, or at least six
(6) months prior to the date of exercise of such Stock Option.
Upon the exercise of a Stock Option, the Committee shall have the right to
require the Participant to remit to the Company, in any such manner or
combination of manners permitted under the terms of the Plan, an amount
sufficient to satisfy all federal, state and local withholding tax requirements
prior to the delivery by the Company of any certificate for shares of Common
Stock.
NAME OF PARTICIPANT:______________________________________________________
NUMBER OF SHARES SUBJECT TO STOCK OPTION:___________________________________
EXERCISE PRICE PER SHARE:________________________________DATE OF GRANT:________
EXERCISE SCHEDULE
NUMBER OF SHARES SUBJECT COMMENCEMENT EXPIRATION
TO STOCK OPTION DATE DATE
_____________________ ____________ ___________
2. TERMS & CONDITIONS. The exercise of the Stock Option is conditioned upon
the acceptance by the Participant of the terms hereof as evidenced by his
or her execution of this Agreement and the return of an executed copy to
the Secretary of the Company no later than______________________________.
3. TERMINATION OF EMPLOYMENT.
A. OTHER THAN FOR CAUSE, DISABILITY OR DEATH. If Participant's
employment with the Company and all subsidiaries is terminated for
any reason, other than cause, disability (as determined solely by
the Board), or death the Stock Option shall expire on the earlier of
thirty (30) days after such termination of employment or the date
the Stock Option expires in accordance with the Exercise Schedule
shown in paragraph 1 above. During such periods the Stock Option
may be exercised by the Participant with respect to the same number
of shares of Common Stock, in the same manner, and to the same
extent as if the Participant had continued employment during such
period, and any unexercised Stock Options remaining at the end of
this period shall be canceled with respect to all remaining shares
of Common Stock.
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<PAGE> 15
B. CAUSE. If the Participant's employment with the Company and all
Subsidiaries is terminated for cause, as determined solely by the
Board, the Stock Option shall expire on the earlier of the date
and time of termination or the date the Stock Option expires in
accordance with the Exercise Schedule shown in paragraph 1 above.
C. DISABILITY OR DEATH. If the Participant's employment with
the Company and all Subsidiaries is terminated due to disability (as
determined solely by the Board) or death, and the Stock Option or a
portion thereof was exercisable on the date of employment
termination, the Stock Option shall expire on the earlier of six (6)
months after such termination of employment or the date the Stock
Option expires in accordance with the Exercise Schedule shown in
paragraph 1 above. During such period, the Stock Option may be
exercised the by Participant or the Participant's legal
representative or legatee with respect to the same number of shares
of Common Stock, in the same manner, and to the same extent as if
the Participant had continued employment during such period and any
unexercised Stock Options remaining at the end of this period shall
be canceled with respect to all remaining shares of Common Stock.
4. CHANGE OF CONTROL. In the event of a change of control, as defined
below, all Stock Options will become immediately exercisable. A Change of
Control is defined as the occurrence of either of the following events:
A. Any person (as such term is used in Section 13 of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder and including any Affiliate or Associate of such person,
as defined in Rule 12b-2 under said Act, and any person acting in
concert with such person), who is not approved by the then current
Board of Directors, directly or indirectly acquires or otherwise
becomes entitled to vote more than
1) 50% of the voting power of all classes of Company stock or
2) 50% of the outstanding shares of stock; or
B. The stockholders approve any merger or consolidation of the
Company, or any sale, lease or exchange of all or any substantial
part of the consolidated assets of the Company and its subsidiaries
to any other person in which the Company is not the continuing or
surviving corporation.
5. NOTICE. Written notice of an election to exercise any portion of the
Stock Option, specifying the portion thereof being exercised and the
exercise date, shall be given by the Participant, or his or her personal
representative or legatee in the event of Participant's disability or
death, (i) by delivering such notice at the principal executive offices of
the Company no later than the exercise date, or (ii) by mailing such
notice, postage prepaid, addressed to the Secretary
3
<PAGE> 16
of the Company at the principal executive offices of the Company at least
three business days prior to the exercise date.
6. NON-TRANSFERABILITY. The Stock Option may be exercised only by the
Participant during his or her lifetime and may not be transferred except
to a grantor trust (as defined in Sections 671-7 of the Internal Revenue
Code of 1986, as amended) or by will or the applicable laws of descent or
distribution. The Stock Option shall not otherwise be transferred,
assigned pledged or hypothecated for any purpose whatsoever and is not
subject, in whole or in part, to execution, attachment, or similar
process. Any attempted assignment, transfer, pledge or hypothecation or
other disposition of the Stock Option, other than in accordance with the
terms set forth herein, shall be void and of no effect.
7. SHAREHOLDER RIGHTS. Neither the Participant nor any other person
entitled to exercise the Stock Option under the terms hereof shall be, or
have any of the rights or privileges of a shareholder of the Company in
respect of any of the shares of Common Stock issuable on exercise of the
Stock Option, unless and until the purchase price for such shares shall
have been paid in full.
8. AGREEMENT SURRENDER. In the event the Stock Option shall be exercised in
whole, this Agreement shall be surrendered to the Company for cancellation
or a superseding agreement shall be signed. In the event the Stock Option
shall be exercised in part, or a change in the number or designation of
the Common Stock shall be made, this Agreement shall be delivered by the
Participant to the Company for the purpose of making appropriate notation
thereon, or of otherwise reflecting in such manner as the Company shall
determine, the partial exercise or change in the number or designation of
the Common Stock.
9. ADMINISTRATION. The Stock Option shall be exercised in accordance with
such administrative regulations as the Committee shall from time to time
adopt.
10. PARTICIPANT BOUND BY PLAN. The Participant hereby acknowledges receipt
of a copy of the Plan and agrees to be bound by all the terms and
provisions thereof.
4
<PAGE> 17
11. GOVERNING LAW. The Stock Option and this Agreement shall be construed
and governed in all respects under and by the laws of the State of
Michigan.
CNB CORPORATION
By:_________________________ _____________________
Date
Its:________________________
The undersigned hereby accepts the foregoing Stock Option and the terms and
conditions hereof.
____________________________ _____________________
Participant Date
5
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