<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 June 30, 2000
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)
(231) 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 August 9, 2000 there were 1,135,613 shares of the issuer's common stock
outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June December
30, 2000 31, 1999
ASSETS (unaudited)
<S> <C> <C>
Cash and due from banks $ 8,637 $ 8,573
Federal funds sold 4,600 6,300
-------------- --------------
Total cash and cash equivalents 13,237 14,873
Securities available for sale 48,993 44,479
Securities held to maturity(market value of
$ 11,223 in 2000 and $ 15,022 in 1999) 11,310 15,116
Other securities 4,953 5,726
Loans, net 125,156 117,708
Premises and equipment, net 2,918 3,016
Other assets 4,799 4,347
-------------- --------------
Total assets $ 211,366 $ 205,265
============== ==============
LIABILITIES
Deposits
Non-interest bearing $ 30,770 $ 26,158
Interest-bearing 157,493 156,426
-------------- --------------
Total deposits 188,263 182,584
Other liabilities 2,455 2,763
-------------- --------------
Total liabilities 190,718 185,347
-------------- --------------
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value, 2,000,000
shares authorized, shares outstanding
6/30/00-1,135,977; 12/31/99-1,081,639 2,840 2,704
Additional paid-in capital 15,581 11,694
Retained earnings 2,623 5,902
Unrealized gains (losses) on securities
available for sale, net of tax (396) (382)
-------------- --------------
Total shareholders' equity 20,648 19,918
-------------- --------------
Total liabilities and shareholders' equity $ 211,366 $ 205,265
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME $ 3,855 $ 3,508 $ 7,576 $ 6,958
INTEREST EXPENSE ON DEPOSITS 1,644 1,493 3,262 2,999
-------------------------------------------------------------
NET INTEREST INCOME 2,211 2,015 4,314 3,959
Provision for loan losses 27 25 55 55
-------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,184 1,990 4,259 3,904
-------------------------------------------------------------
NON-INTEREST INCOME 325 315 650 610
NON-INTEREST EXPENSES 1,307 1,269 2,609 2,388
INCOME BEFORE INCOME TAXES 1,202 1,036 2,300 2,126
Income tax expense 371 306 707 591
-------------------------------------------------------------
NET INCOME $ 831 $ 730 $ 1,593 $ 1,535
=============================================================
TOTAL COMPREHENSIVE INCOME $ 867 $ 450 $ 1,579 $ 1,138
=============================================================
Return on average assets (annualized) 1.60% 1.46% 1.53% 1.52%
Return on average equity (annualized) 16.46% 14.69% 15.77% 15.44%
Basic earnings per share 0.73 0.65 1.40 1.34
Diluted earnings per share 0.72 0.64 1.38 1.32
</TABLE>
All per share statistics have been retroactively adjusted to reflect the 5%
stock dividends on March 1, 1999 and March 1, 2000. See accompanying notes to
consolidated financial statements.
2
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended June 30,
2000 1999
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,593 $ 1,535
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 147 147
Accretion and amortization of investment securities, net 7 110
Provision for loan losses 55 55
Loans originated for sale (1,343) (6,686)
Proceeds from sales of loans originated for sale 1,343 6,687
Gain on sales of loans (10) (36)
(Increase)decrease in other assets (435) (458)
Increase (decrease) in other liabilities 269 313
-------------- --------------
Total adjustments 33 132
-------------- --------------
Net cash from operating activities 1,626 1,667
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 8,125 4,239
Purchase of securities available for sale (12,662) (25,101)
Proceeds from maturites of securities held to maturity 4,897 13,653
Purchase of securities held to maturity (1,096) (1,400)
Proceeds from maturites of other securities 1,300 -
Purchase of other securities (527) (74)
Net (increase)decrease in portfolio loans (7,503) (3,330)
Premises and equipment expenditures (49) (102)
-------------- --------------
Net cash from investing activities (7,515) (12,115)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 5,679 9,022
Dividends paid (1,397) (1,324)
Proceeds from exercise of stock options 17 32
Purchases of common stock (46) (12)
-------------- --------------
Net cash from financing activities 4,253 7,718
Net change in cash and cash equivalents (1,636) (2,730)
Cash and cash equivalents at beginning of year 14,873 19,280
-------------- --------------
Cash and cash equivalents at end of period $ 13,237 $ 16,550
============== ==============
Cash paid during the period for
Interest $ 3,258 $ 2,991
Income taxes $ 713 $ 602
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
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 inter-company 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 conjuction with the notes to the
financial statements included in the CNB Corporation's Form 10-K for the year
ended December 31, 1999.
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. For the six month period
ending June 30, 2000, the weighted average shares outstanding in calculating the
basic earnings per share was 1,135,719 while the weighted average dilutive
potential shares for the diluted earnings per share was 1,153,300.
4
<PAGE> 6
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 and its subsidiary, Citizens
National Bank of Cheboygan ("Bank") for the three and six month period ending
June 30, 2000.
FINANCIAL CONDITION
The Company's cash balances of cash and cash equivalents decreased $ 1.6 million
or 11.0%. During the period ending June 30, 2000, $ 4.3 million of cash was
provided from financing activities due to increases in deposits. Investing
activities utilized $ 7.5 million of cash during the period ending June 30,
2000.
SECURITIES
Securities increased $ 708,000 or 1.2% since December 31, 1999. The available
for sale portfolio increased to 81.2% up from 74.6% at year-end.
The amortized cost and fair values of securities at June 30, were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
------------------------------------------------------------
<S> <C> <C> <C> <C>
JUNE 30, 2000
U.S. Government and agency $ 41,818 $ - $ (511) $ 41,307
State and municipal 7,775 (89) 7,686
------------------------------------------------------------
$ 49,593 $ - $ (600) $ 48,993
============================================================
DECEMBER 31, 1999
U.S. Government and agency $ 38,725 $ 1 $ (484) $ 38,242
State and municipal 6,333 1 (97) 6,237
------------------------------------------------------------
$ 45,058 $ 2 $ (581) $ 44,479
============================================================
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
------------------------------------------------------------
<S> <C> <C> <C> <C>
JUNE 30, 2000
U.S. Government and agency $ - $ - $ - $ -
State and municipal 11,310 16 (103) 11,223
------------------------------------------------------------
$ 11,310 $ 16 $ (103) $ 11,223
============================================================
DECEMBER 31, 1999
U.S. Government and agency $ - $ - $ - $ -
State and municipal 15,116 20 (114) 15,022
------------------------------------------------------------
$ 15,116 $ 20 $ (114) $ 15,022
============================================================
</TABLE>
The amortized cost and fair value of securities by contractual maturity at June
30, 2000 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 $ 13,968 $ 13,890 $ 4,535 $ 4,515
Due after one year through five years 34,599 34,082 4,344 4,303
Due after five years through ten years 1,026 1,021 1,184 1,170
Due after ten years 1,247 1,235
----------------------------------------------------------
Total $ 49,593 $ 48,993 $ 11,310 $ 11,223
==========================================================
</TABLE>
LOANS
Loans at June 30, 2000 increased $ 7.5 million or 6.3% from December 31, 1999.
The table below shows total loans outstanding by type, in thousands of dollars,
at June 30, 2000 and December 31, 1999, and their percentage of the total loan
portfolio. All loans are domestic. A quarterly review of loan concentrations at
June 30, 2000 indicates 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 11.0% of total loans.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
Portfolio loans: Balance % of total Balance % of total
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Residential real estate $ 74,608 58.83% $ 71,709 60.08%
Consumer 11,859 9.35% 10,891 9.13%
Commercial real estate 28,028 22.10% 24,810 20.79%
Commercial 12,322 9.72% 11,939 10.00%
---------------------------------------------------------
126,817 100.00% 119,349 100.00%
Deferred loan origination fees, net (51) (58)
Allowance for loan losses (1,610) (1,583)
------------- --------------
$ 125,156 $ 117,708
============= ==============
</TABLE>
6
<PAGE> 8
ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses, in thousands of dollars, for the
six months ended June 30, follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Beginning balance $ 1,583 $ 1,518
Provision for loan losses 55 55
Charge-offs (56) (16)
Recoveries 28 5
---------------- --------------
Ending balance $ 1,610 $ 1,562
================ ==============
</TABLE>
The Company had no impaired loans for 2000 and 1999.
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 of nonperforming loans is shown in the table below.
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Nonaccrual $ 181 $ 181
Loans past due 90 days or more 585 59
Troubled debt restructurings
-------------- --------------
Total nonperforming loans $ 766 $ 240
============== ==============
Percent of total loans 0.60% 0.20%
</TABLE>
DEPOSITS
Deposits at June 30, 2000 increased $ 5.7 million or 3.1% from December 31,
1999. Non-interest bearing deposits increased $ 4.6 million or 17.6% for the six
months ended June 30, 2000, while interest-bearing deposits increased $ 1.1
million.
7
<PAGE> 9
LIQUIDITY AND FUNDS MANAGEMENT
As of June 30, 2000 the Company had $ 4.6 million in federal funds sold, $ 14.0
million in securities available for sale and $ 4.5 million in held to maturity
maturing within one year. These sources of liquidity are supplemented by new
deposits and by loan payments received by customers. These short-term assets
represents 12.3% of total deposits as of June 30, 2000.
Total equity for the Company at June 30, 2000 was $ 20.6 million compared to $
19.9 million at December 31, 1999. The Company has realized $ 1.6 million in
income and paid out $ 795,000 in dividends for the period ended June 30, 2000.
RESULTS OF OPERATIONS
CNB Corporation's 2000 earnings for the first half of the year were $ 1,593,000,
an increase compared to 1999 results. Basic earnings per share for 2000 was $
1.40 per share compared to $ 1.34 from 1999. The return on assets was 1.53% for
the first half of the year versus 1.52% for the same period in 1999. The return
on average equity was 15.77% compared to 15.44% for the same period last year.
For the quarter ending June 30, 2000 earnings were $ 831,000 compared to $
730,000 for the same period last year. Basic earnings per share for the quarter
ending June 30, 2000 was $ 0.73 compared to $ 0.65 for the same period last
year.
For the first half of 2000 net interest income was $ 4.3 million an increase
over the $ 4.0 million for the first half of 1999. For the period ending June
30, 2000, the net interest margin increased to 4.33% from 4.23% in 1999. This
increase can be attributable to a higher yield on an increasing volume on
interest-earning assets.
Net interest income for the quarter ending June 30, 2000 was $ 2.2 million an
increase of 9.7% over the same period last year.
Non-interest income increased slightly to $ 650,000 from $ 610,000 for 1999,
while non-interest expense increased to $ 2.6 million, or 9.3% from $ 2.4
million reported for the six month period ending June 30, 1999. For the quarter
ending June 30, 2000 non-interest income was reported at $ 325,000 compared to
$315,000 for the same period last year. Non-interest expense for the quarter
ending remained unchanged at $ 1.3 million compared to the same period last
year. There was no significant change in the income tax position for the Company
during the first half of 2000.
ITEM 3-QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary source of market risk for the financial instruments held by the
Corporation is interest rate risk. That is, the risk that an adverse change in
market rates will adversely affect the market value of the instruments.
Generally, the longer the maturity, the higher the interest rate risk exposure.
While maturity information does not necessarily present all aspects of exposure,
it may provide an indication of where risks are prevalent.
All financial institutions assume interest rate risk as an integral part of
normal operations. Managing and measuring interest rate risk is a dynamic,
multi-faceted process that ranges from reducing the exposure of the
Corporation's net interest margin to swings in interest rates, to assuring
sufficient capital and liquidity to support future balance sheet growth. The
Corporation manages interest rate risk through the Asset/Liability Committee.
The Asset/Liability Committee
8
<PAGE> 10
is comprised of bank officers from various disciplines. The Committee
establishes policies and rates which lead to prudent investment of resources,
the effective management of risks associated with changing interest rates, the
maintenance of adequate liquidity, and the earning of an adequate return on
shareholders' equity.
Management believes that there has been no significant changes to the interest
rate sensitivity since the presentation in the December 31, 1999 Management
Discussion and Analysis appearing in the December 31, 1999 10K.
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
9
<PAGE> 11
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNB Corporation
------------------------------
(Registrant)
Date: August 10, 2000 /S/ Robert E. Churchill
----------------------------- --------------------------------------
Robert E. Churchill
Chairman and Chief Executive Officer
Date: August 10, 2000 /S/ Susan A. Eno
----------------------------- --------------------------------------
Susan A. Eno
Senior Vice President
10
<PAGE> 12
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
