<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file # 0-28388
CNB CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-2662386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
303 North Main Street, Cheboygan, MI 49721
(Address of principal executive offices, including Zip Code)
(616) 627-7111
(Registrant's telephone number, including area code)
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 ( )
As of October 31, 1998 there were 1,026,716 shares of the issuer's common stock
outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (in thousands)
- ------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
ASSETS (UNAUDITED)
<S> <C> <C>
Cash and due from banks $ 5,165 $ 6,004
Federal funds sold 11,950 13,300
----------- ------------
Total cash and cash equivalents 17,115 19,304
Interest-earning deposits 1,000
Securities available for sale 24,145 19,162
Securities held to maturity (market value of
$ 41,342 in 1998 and $ 42,718 in 1997) 40,909 42,483
Other securities 753 716
Loans, net 106,640 101,797
Premises and equipment, net 2,900 2,686
Other assets 3,970 3,674
----------- ------------
Total assets $ 196,432 $ 190,822
=========== ============
LIABILITIES
Deposits
Non-interest bearing $ 27,644 $ 23,769
Interest-bearing 147,123 146,557
----------- ------------
Total deposits 174,767 170,326
Other liabilities 2,123 2,351
----------- ------------
Total liabilities 176,890 172,677
----------- ------------
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value, 2,000,000
shares authorized, shares outstanding
09/30/98-1,026,716; 12/31/97-977,289 2,567 2,443
Additional paid-in capital 8,571 6,583
Retained earnings 8,190 9,066
Unrealized gains(losses) on securities
available for sale, net of tax 214 53
----------- ------------
Total shareholders' equity 19,542 18,145
----------- ------------
Total liabilities and shareholders' equity $ 196,432 $ 190,822
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME(in thousands)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
(UNAUDITED)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $2,525 $2,495 $7,423 $7,127
Securities
Taxable 832 834 2,532 2,393
Tax-exempt 129 95 351 279
Federal funds sold 162 153 447 354
------------------------------------------------------------------
Total interest income 3,648 3,577 10,753 10,153
------------------------------------------------------------------
INTEREST EXPENSE ON DEPOSITS 1,616 1,580 4,844 4,485
------------------------------------------------------------------
NET INTEREST INCOME 2,032 1,997 5,909 5,668
Provision for loan losses 25 25 75 75
------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,007 1,972 5,834 5,593
------------------------------------------------------------------
NON-INTEREST INCOME
Service charges and fees 236 238 654 608
Loan sales and servicing fees 60 20 166 106
Other income 47 122 157 215
------------------------------------------------------------------
Total non-interest income 343 380 977 929
------------------------------------------------------------------
NON-INTEREST EXPENSES
Salary and employee benefits 781 717 2,171 2,113
Occupancy 155 164 462 469
Supplies 49 36 148 124
Other expenses 282 289 776 800
------------------------------------------------------------------
Total non-interest expenses 1,267 1,206 3,557 3,506
------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,083 1,146 3,254 3,016
Income tax expense 325 358 951 926
------------------------------------------------------------------
NET INCOME $758 $788 $2,303 $2,090
==================================================================
Other comprehensive income, net of tax:
Change in unrealized gains (losses)
On Securities 146 5 161 28
------------------------------------------------------------------
Comprehensive income $904 $793 $2,464 $2,118
==================================================================
Return on average assets (annualized) 1.56% 1.75% 1.58% 1.55%
Return on average equity (annualized) 16.02% 17.83% 16.22% 15.76%
Basic earnings per share $.73 $.69 $2.24 $2.20
Diluted earnings per share $.73 $.69 $2.23 $2.20
</TABLE>
All per share statistics have been retroactively adjusted to reflect the 5%
stock dividends on June 25, 1997 and February 20, 1998.
See accompanying notes to consolidated financial statements.
<PAGE> 4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY(in thousands)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gains(Losses)
On Securities
Available for
Common Capital Retained Sale, Net of
Stock Surplus Earnings Tax Total
------ ------- -------- ------------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance-January 1, 1997 $2,327 $4,979 $9,749 $(2) $17,053
Net Income, 1997 2,880 2,880
Cash dividends $ 1.79 per share (1,841) (1,841)
5% stock dividend (a) 116 1,599 (1,722) (7)
Shares issued under stock
plan 5 5
Net change in unrealized
gains (losses) on securities
Available for sale, net of tax 55 55
-------------------------------------------------------------------------------
Balance-December 31, 1997 2,443 6,583 9,066 53 18,145
Net Income YTD 1998 2,303 2,303
Cash dividends $ 1.05 per share (1,078) (1,078)
5% stock dividend (a) 122 1,968 (2,101) (11)
Shares issued under stock
plan 2 20 22
Net change in unrealized
gains (losses) on securities
Available for sale, net of tax 161 161
-------------------------------------------------------------------------------
Balance-September 30, 1998 $2,567 $8,571 $8,190 $214 $19,542
===============================================================================
</TABLE>
(a) All per share statistics have been retroactively adjusted to reflect the 5%
stock dividends on June 25, 1997 and February 20, 1998.
See accompanying notes to consolidated financial statements.
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
- ----------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended
September 30,
1998 1997
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $2,303 $2,090
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 197 215
Accretion and amortization of investment securities, net 28 102
Provision for loan losses 75 75
Loans originated for sale (9,473) (4,036)
Proceeds from sales of loans originated for sale 9,479 4,040
Gain on sales of loans (6) (4)
Increase in other assets (379) (311)
Increase in other liabilities 243 286
---------- ----------
Total adjustments 164 367
---------- ----------
Net cash from operating activities 2,467 2,457
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 5,228 3,000
Purchase of securities available for sale (10,041) (10,633)
Proceeds from maturities of securities held to maturity 14,045 18,427
Purchase of securities held to maturity (12,462) (12,198)
Proceeds of other securities 1,000
Net increase in portfolio loans (4,918) (7,495)
Premises and equipment expenditures (411) (79)
---------- ----------
Net cash from investing activities (7,559) (8,978)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 4,441 15,591
Dividends paid (1,544) (1,459)
Proceeds from exercise of stock options 6
---------- ----------
Net cash from financing activities 2,903 14,132
Net change in cash and cash equivalents (2,189) 7,611
Cash and cash equivalents at beginning of year 19,304 10,104
---------- ----------
Cash and cash equivalents at end of period $ 17,115 $ 17,715
========== ==========
Cash paid during the period for
Interest $4,887 $4,441
Income taxes $967 $1,016
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The consolidated financial statements include the accounts of CNB Corporation
and its wholly owned subsidiary, Citizens National Bank of Cheboygan, after
elimination of significant intercompany transactions and accounts. The
statements have been prepared by management without audit by independent
certified public accountants. However, these statements reflect all adjustments
(consisting of normal recurring accruals) and disclosures which are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods presented and should be read in conjunction with the notes to
the financial statements included in the CNB Corporation's Form 10-K for the
year ended December 31, 1997.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission.
Because the results of operations are so closely related to and responsive to
changes in economic conditions, the results for any interim period are not
necessarily indicative of the results that can be expected for the entire year.
Note-2 Earnings Per Share
Basic earnings per share is calculated solely on weighted-average common shares
outstanding. Diluted earnings per share will reflect the potential dilution of
stock options and other common stock equivalents. All prior calculations will be
restated to be comparable to the new methods.
<PAGE> 7
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion provides information about the consolidated financial condition
and results of operations of CNB Corporation ("Company") and its subsidiary,
Citizens National Bank of Cheboygan ("Bank") for the nine-month period ending
September 30, 1998.
FINANCIAL CONDITION
CNB Corporation's earnings for the nine-month period ending September 30, 1998
were $2.3 million, a 10.2% increase over the same period last year. Earnings for
the quarter ending September 30 were $758,000 compared to $788,000 for the same
period last year. The increase can be attributed to an increase in interest as
well as non-interest income. Earnings per share increased to $2.24 per share in
1998 from $2.20 per share in 1997. Return on average assets for the nine-month
period ending September 30, 1998 was 1.58% compared to 1.55% for the same period
last year. Return on average equity was 16.22% compared to 15.76% last year.
Net interest income for the nine months ending September 30, 1998 was $5.9
million compared to $5.7 million in 1997. For the quarter ending September 30,
1998, net interest income was $2.0 million the same as that period last year.
The increases can be attributed to an increase in volume of interest-earning
assets.
For the nine months ending September 30, 1998 the Bank has sold $9.5 million to
the secondary market compared to $ 4.0 million sold in 1997. Non-interest income
increased 5.2% to $977,000 from the same period last year, which is a result of
the Bank selling more residential real estate to the secondary market.
Non-interest expenses increased slightly for the nine months ending September
30, 1998 compared to 1997 while the quarter to quarter comparison saw an
increase of 5.1%. There was no significant change in the income tax position of
the Company during the first nine months of 1998 with the increase corresponding
to an increase in pre-tax income.
SECURITIES
Securities increased $3.4 million or 5.5% since December 31, 1997. The available
for sale portfolio increased to 37.1% up from 31.1% at year-end. Currently, the
Company primarily maintains a short-term securities portfolio.
The amortized cost and fair values of securities were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1998
U.S. Government and agency $21,057 $186 $(1) $21,242
State and municipal 2,765 138 2,903
-------------------------------------------------------------
$23,822 $324 $(1) $24,145
=============================================================
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. Government and agency $16,085 $39 $(8) $16,116
State and municipal 2,997 49 3,046
-------------------------------------------------------------------
$19,082 $88 $(8) $19,162
===================================================================
Held to maturity
SEPTEMBER 30, 1998
U.S. Government and agency $19,050 $125 $19,175
State and municipal 21,859 309 (1) 22,167
-------------------------------------------------------------------
$40,909 $434 $(1) $41,342
===================================================================
Held to maturity
DECEMBER 31, 1997
U.S. Government and agency $28,529 $137 $(26) $28,640
State and municipal 13,954 135 (11) 14,078
-------------------------------------------------------------------
$42,483 $272 $(37) $42,718
===================================================================
</TABLE>
The amortized cost and fair value of securities by contractual maturity at
current date 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 $ 7,225 $ 7,260 $26,420 $26,504
Due after one year through five years 15,767 15,963 12,782 13,011
Due after five years through ten years 830 922 1,432 1,514
Due after ten years 275 313
--------------------------------------------------------------
Total $23,822 $24,145 $40,909 $41,342
==============================================================
</TABLE>
LOANS
Net loans at September 30, 1998 increased $4.8 million or 4.8% from December 31,
1997. Residential real estate mortgages increased for the period by $5.6 million
or 9.1% as the Company continues to retain, rather than sell on the secondary
market, residential mortgages of 15 years or less. As the yield on these loans
is greater than the yield available on the types of securities the Company
invests in, this increase will help to maintain the net interest margin of the
Company.
The table below shows total loans outstanding by type, in thousands of dollars,
at September 30, 1998 and December 31, 1997, and their percentage of the total
loan portfolio. All loans are domestic. A quarterly review of loan
concentrations at September 30, 1998 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
9.8% of total loans.
<PAGE> 9
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
Portfolio loans: Balance % of total Balance % of total
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Residential real estate $ 66,308 61.26% $ 60,754 58.78%
Consumer 10,695 9.88% 10,009 9.68%
Commercial real estate 19,893 18.38% 20,899 20.22%
Commercial 11,346 10.48% 11,705 11.32%
----------------------------------------------------------------
108,242 100.00% 103,367 100.00%
Deferred loan origination fees, net (98) (128)
Allowance for loan losses (1,504) (1,442)
----------- -----------
$ 106,640 $ 101,797
=========== ===========
</TABLE>
ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses, in thousands of dollars, for the
nine months ended September 30, follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Beginning balance $ 1,442 $ 1,361
Provision for loan losses 75 75
Charge-offs (38) (16)
Recoveries 25 16
---------- ----------
Ending balance $ 1,504 $ 1,436
========== ==========
</TABLE>
The Company had no impaired loans for 1998 and 1997.
CREDIT QUALITY
The Company maintains a high level of asset quality as a result of actively
managing delinquencies, nonperforming assets and potential problem loans. The
Company performs an 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 nonaccrual loans
in (1) above); and (3) other loans whose terms have been renegotiated to provide
a reduction or deferral 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 is shown in the table below.
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Nonaccrual $ $ 21
Loans past due 90 days or more 328 78
Troubled debt restructurings
--------- ---------
Total nonperforming loans $ 328 $ 99
========= =========
Percent of total loans 0.30% 0.10%
</TABLE>
<PAGE> 10
DEPOSITS
The Company's deposit activity increased $4.4 million or 2.6% since December 31,
1997. The majority of the Company's deposits are derived from core customers,
relating to long term relationships with local personal, business and public
customers. Deposit rates are monitored continually to assure that the Company
pays a competitive rate.
LIQUIDITY AND FUNDS MANAGEMENT
For the nine months of 1998, the Company's net cash from operating activities as
well as financing activities allowed the $4.9 million dollar growth in our loan
portfolio. The Company maintains a steady schedule of investment securities
maturing each month to help meet liquidity needs. The Company does not
anticipate any significant changes in its seasonal pattern.
FUNDS MANAGEMENT
The following chart shows the Company's interest rate sensitivity as of
September 30, 1998, in thousands:
<TABLE>
<CAPTION>
Up to 4 to 12 1 to 5 Over
3 Months Months Years 5 Years Total
-------- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C>
Federal funds sold $11,950 $ $ $ $ 11,950
Taxable investment securities 8,196 18,927 25,084 52,207
Non-taxable investment
securities 550 6,086 3,833 2,378 12,847
Loans 29,131 25,138 34,417 19,458 108,144
------------------------------------------------------------------------
Total rate sensitive assets $49,827 $50,151 $63,334 $21,836 $185,148
========
Interest-bearing demand
deposits $ 1,494 $4,038 $9,420 $ $14,952
Savings 6,066 5,460 12,735 24,261
Money market savings 17,670 7,919 18,474 44,063
Time deposits 18,436 26,641 18,753 17 63,847
------------------------------------------------------------------------
Total rate sensitive liabilities 43,666 44,058 59,382 17 $147,123
========
Gap $ 6,161 $ 6,093 $ 3,952 $ 21,819
--------------------------------------------------------
Cumulative gap $6,161 $12,254 $16,206 $ 38,025
========================================================
Cumulative ratio 114.11% 113.97%
=======================
</TABLE>
Management reviews the rate and term of any callable security in the portfolio.
The probability of call is used as the basis for determining a repricing date.
Management believes that the difference between rate sensitive assets and rate
sensitive liabilities ("Gap") overstates true interest rate sensitivity.
Interest exposure is not as significant as expressed in the above schedule. Even
though the Company has the contractual right to make a change in certain deposit
rates, given its competitive position, management believes that liabilities do
not need to be repriced as soon as rates begin to move.
<PAGE> 11
CAPITAL RESOURCES
The capital ratios of the Company and Bank exceed the regulatory guidelines for
well-capitalized institutions. The following table shows the Company's capital
ratios and ratio calculations for the periods ended. Dollars are shown in
millions.
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
---------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1998
Total capital (to risk weighted assets)
Consolidated $20.2 19.0% $8.5 8.0% $10.6 10.0%
Bank 20.6 19.6% 8.4 8.0% 10.5 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated 18.9 17.8% 4.3 4.0% 6.4 6.0%
Bank 19.3 18.3% 4.2 4.0% 6.3 6.0%
Tier 1 capital (to average assets)
Consolidated 18.9 9.8% 7.7 4.0% 9.7 5.0%
Bank 19.3 9.7% 7.9 4.0% 9.9 5.0%
DECEMBER 31, 1997
Total capital (to risk weighted assets)
Consolidated $18.9 19.0% $8.0 8.0% $10.0 10.0%
Bank 18.9 19.0% 8.0 8.0% 10.0 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated 17.7 17.7% 4.0 4.0% 6.0 6.0%
Bank 17.7 17.7% 4.0 4.0% 6.0 6.0%
Tier 1 capital (to average assets)
Consolidated 17.7 9.9% 7.1 4.0% 8.9 5.0%
Bank 17.7 9.9% 7.1 4.0% 8.9 5.0%
</TABLE>
<PAGE> 12
NET INTEREST INCOME
The following table shows the daily average Consolidated Balance Sheet, revenue
on earning assets (on a pre-tax basis), expense on interest-bearing liabilities,
and the annualized effective rate or yield for the nine month periods ending
September 30, in thousands:
<TABLE>
<CAPTION>
1998 1997
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning
deposits $ 714 $ 31 5.79% $ $
Federal funds sold 10,363 447 5.75% 8,209 354 5.75%
Total securities 65,744 2,852 5.78% 59,848 2,672 5.95%
Loans 105,383 7,423 9.39% 100,757 7,127 9.43%
------------------------- -------------------------
Total interest-
earning assets 182,204 10,753 7.87% 168,814 10,153 8.02%
----------------------- ---------------------------
Cash and due from
banks 6,381 5,849
Premises and
Equipment, net 2,815 2,616
Other assets 2,414 2,434
--------- ---------
Total $ 193,814 $ 179,713
========= =========
Interest-bearing liabilities:
Interest-bearing
demand deposits $14,675 262 2.38% $13,797 246 2.38%
Savings 68,047 1,941 3.80% 62,830 1,767 3.75%
Time deposits 65,317 2,641 5.39% 61,623 2,472 5.35%
------------------------- -------------------------
Total interest-
bearing deposits 148,039 4,844 4.36% 138,250 4,485 4.33%
----------------------- ---------------------------
Non-interest
bearing deposits 24,969 22,076
Other liabilities 1,883 1,704
Shareholders' equity 18,923 17,683
--------- ---------
Total $ 193,814 $ 179,713
========= =========
Net interest income $ 5,909 $ 5,668
=============== =================
Net interest spread 3.51% 3.69%
============== =================
Net yield on interest-
earning assets 4.32% 4.48%
============== =================
</TABLE>
<PAGE> 13
YEAR 2000 ISSUE
The year 2000 issue poses a threat to businesses everywhere. The problems, which
will evidence themselves in the year 2000, derive from a two-digit limitation in
source programming for calendar years. The Company has assembled an internal
technology committee to thoroughly identify and correct any potential problems
in this area well ahead of the year 2000. Our mission is to continue to offer
continuous quality financial services, which meet the needs of the customers and
communities we serve, into the next millennium. We are committed to allocating
sufficient resources, capital, and personnel to accomplish our mission. We will
identify Y2K risks to the bank and holding company, develop plans and programs
to lower risk to acceptable levels, develop backup plans for failure and adhere
to regulatory requirements.
The Company is currently in phase 4 of a 5-phase plan to prepare for the year
2000 issue. In the first phase, the awareness phase, the Company established a
committee to develop a strategy to test our in-house system, service bureaus for
systems that are outsourced, vendors, auditors, customers and suppliers. The
Company also approved a budget for any year 2000 issues. The budget for 1998 is
$ 28,400 and for 1999 a projected budget of $38,775. In addition, the Board of
Directors approved the purchase of a new in-house computer mainframe costing $
321,707 that was purchased and installed in 1998 as well as various surety
agreement options for an additional $ 111,120. Our regulators have established
several deadlines for financial institutions to comply with the year 2000 issue.
In addition, the Company has reviewed the year 2000 issue with its board of
directors, staff and customers.
Phase 2 is an assessment phase and general risk control phase during which the
committee assessed the size and complexity of the year 2000 issue. This phase
must identify all hardware, software, networks, and automated teller machines,
other various processing platforms, customer and vendor interdependencies
affected by the year 2000 change. The Company's committee identified each item
in terms of business risk it poses and assigned one of four risk categories:
mission critical, mission necessary, mission desirable and mission unrelated.
Phase 3 is a renovation phase, which is changing the lines of computer code to
eliminate the year 2000 problem. This phase includes code enhancements, hardware
and software upgrades, system replacements, vendor certification, and other
associated changes. Also the testing of all internal and external applications.
Testing will be substantially completed by year-end 1998.
Phase 4 is the validation phase, which is the phase of testing by institutions
relying on service providers for mission critical systems. The Company is
tentatively scheduled to complete testing on year 2000 by April 15, 1999.
Phase 5 is the implementation phase. In this phase, systems should be certified
as year 2000 compliant and be accepted by business users.
ACCOUNTING CHANGES
In 1998, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", which
requires that financial statements include comprehensive income in addition to
net income. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997, beginning with the first interim period.
<PAGE> 14
PART II- OTHER INFORMATION
ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6- EXHIBITS AND REPORTS OF FORM 8-K
a.) None
b.) None
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.
<TABLE>
<S> <C>
CNB Corporation
---------------------------------------------------
(Registrant)
Date: November 11, 1998 /s/ Robert E. Churchill
-------------------------------------- ---------------------------------------------------
Robert E. Churchill
President and Chief Executive Officer
Date: November 11, 1998 /s/ James C. Conboy, Jr.
-------------------------------------- ---------------------------------------------------
James C. Conboy, Jr.
Executive Vice President
Date: November 11, 1998 /s/ John F. Ekdahl
-------------------------------------- ---------------------------------------------------
John F. Ekdahl
Senior Vice President
Date: November 11, 1998 /s/ Susan A. Eno
-------------------------------------- ---------------------------------------------------
Susan A. Eno
Senior Vice President
</TABLE>
<PAGE> 15
EXHIBIT INDEX
Exhibit
Number Description
- ------- ---------------------
29 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,165
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,145
<INVESTMENTS-CARRYING> 40,909
<INVESTMENTS-MARKET> 41,342
<LOANS> 108,144
<ALLOWANCE> 1,472
<TOTAL-ASSETS> 196,432
<DEPOSITS> 174,767
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,123
<LONG-TERM> 0
0
0
<COMMON> 2,567
<OTHER-SE> 16,975
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<INTEREST-TOTAL> 10,753
<INTEREST-DEPOSIT> 4,844
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<INTEREST-INCOME-NET> 5,909
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<INCOME-PRE-EXTRAORDINARY> 3,254
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<EPS-PRIMARY> 2.24
<EPS-DILUTED> 2.23
<YIELD-ACTUAL> 4.32
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<ALLOWANCE-DOMESTIC> 1,504
<ALLOWANCE-FOREIGN> 0
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</TABLE>
