<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, 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 November 7, 2000 there were 1,135,478 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>
September December
30, 2000 31, 1999
ASSETS (unaudited)
<S> <C> <C>
Cash and due from banks $ 11,493 $ 8,573
Federal funds sold 6,000 6,300
--------- ---------
Total cash and cash equivalents 17,493 14,873
Securities available for sale 50,563 44,479
Securities held to maturity (market value of
$ 9,763 in 2000 and $ 15,022 in 1999) 9,779 15,116
Other securities 4,853 5,726
Loans, net 125,391 117,708
Premises and equipment, net 3,273 3,016
Other assets 4,958 4,347
--------- ---------
Total assets $ 216,310 $ 205,265
========= =========
LIABILITIES
Deposits
Non-interest bearing $ 30,214 $ 26,158
Interest-bearing 162,194 156,426
--------- ---------
Total deposits 192,408 182,584
Other liabilities 2,573 2,763
--------- ---------
Total liabilities 194,981 185,347
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value, 2,000,000
shares authorized, shares outstanding
9/30/00-1,135,550; 12/31/99-1,081,639 2,839 2,704
Additional paid-in capital 15,554 11,694
Retained earnings 3,109 5,902
Unrealized gains (losses) on securities
available for sale, net of tax (173) (382)
--------- ---------
Total shareholders' equity 21,329 19,918
--------- ---------
Total liabilities and shareholders' equity $ 216,310 $ 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 Nine months ended
September 30, September 30,
2000 1999 2000 1999
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME $ 4,042 $ 3,657 $11,618 $10,615
INTEREST EXPENSE ON DEPOSITS 1,742 1,531 5,004 4,530
------- ------- ------- -------
NET INTEREST INCOME 2,300 2,126 6,614 6,085
Provision for loan losses 27 22 82 77
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,273 2,104 6,532 6,008
------- ------- ------- -------
NON-INTEREST INCOME 332 353 982 963
NON-INTEREST EXPENSES 1,327 1,261 3,936 3,673
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 1,278 1,196 3,578 3,298
Income tax expense 392 369 1,099 952
------- ------- ------- -------
NET INCOME $ 886 $ 827 $ 2,479 $ 2,346
======= ======= ======= =======
TOTAL COMPREHENSIVE INCOME $ 1,109 $ 809 $ 2,688 $ 1,931
======= ======= ======= =======
Return on average assets (annualized) 1.64% 1.63% 1.57% 1.54%
Return on average equity (annualized) 16.76% 16.55% 16.11% 15.65%
Basic earnings per share $ 0.78 $ 0.73 $ 2.18 $ 2.07
Diluted earnings per share 0.77 0.72 2.16 2.03
</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>
Nine months ended September 30,
2000 1999
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,479 $ 2,346
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 221 220
Accretion and amortization of investment securities, net (2) 103
Provision for loan losses 82 77
Loans originated for sale (2,336) (8,070)
Proceeds from sales of loans originated for sale 2,336 8,071
Gain on sales of loans (18) (48)
(Increase) decrease in other assets (719) (214)
Increase (decrease) in other liabilities 387 369
-------- --------
Total adjustments (49) 508
-------- --------
Net cash from operating activities 2,430 2,854
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 10,176 7,254
Purchase of securities available for sale (15,935) (30,815)
Proceeds from maturities of securities held to maturity 6,694 19,433
Purchase of securities held to maturity (1,363) (5,777)
Proceeds from maturities of other securities 1,400 --
Purchase of other securities (527) (74)
Net (increase) decrease in portfolio loans (7,747) (8,237)
Premises and equipment expenditures (478) (117)
-------- --------
Net cash from investing activities (7,780) (18,333)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 9,824 10,891
Dividends paid (1,794) (1,702)
Proceeds from exercise of stock options 17 37
Purchases of common stock (77) (30)
-------- --------
Net cash from financing activities 7,970 9,196
Net change in cash and cash equivalents 2,620 (6,283)
Cash and cash equivalents at beginning of year 14,873 19,280
-------- --------
Cash and cash equivalents at end of period $ 17,493 $ 12,997
======== ========
Cash paid during the period for
Interest $ 5,014 $ 4,522
Income taxes $ 1,081 $ 972
</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 conjunction 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 nine month period
ending September 30, 2000, the weighted average shares outstanding in
calculating the basic earnings per share was 1,135,706 while the weighted
average dilutive potential shares for the diluted earnings per share was
1,148,124. For the nine month period ending September 30, 1999, the weighted
average shares outstanding in calculating the basic earnings per share was
1,079,540 while the average dilutive potential shares for the duluted earnings
per share was 1,101,768.
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 nine month period ending
September 30, 2000.
FINANCIAL CONDITION
The Company's cash balances of cash and cash equivalents increased $ 2.6 million
or 17.6% for the nine months ending September 30, 2000. During the period ending
September 30, 2000, $ 8.0 million of cash was provided from financing activities
due to increases in deposits. Investing activities utilized $ 7.8 million of
cash during the period ending September 30, 2000.
SECURITIES
Securities increased $ 747,000 or 1.3% since December 31, 1999. The available
for sale portfolio increased to 83.8% up from 74.6% at year-end.
The amortized cost and fair values of securities at September 30, 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, 2000
U.S. Government and agency $ 39,827 $ 52 $ (308) $ 39,571
State and municipal 10,999 40 (47) 10,992
-------- -------- -------- --------
$ 50,826 $ 92 $ (355) $ 50,563
======== ======== ======== ========
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>
SEPTEMBER 30, 2000
U.S. Government and agency $ -- $ -- $ -- $ --
State and municipal 9,779 30 (46) 9,763
-------- -------- -------- --------
$ 9,779 $ 30 $ (46) $ 9,763
======== ======== ======== ========
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
September 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 $19,483 $19,391 $ 3,170 $ 3,163
Due after one year through five years 30,382 30,189 4,169 4,161
Due after five years through ten years 961 983 1,205 1,208
Due after ten years 1,235 1,231
------- ------- ------- -------
Total $50,826 $50,563 $ 9,779 $ 9,763
======= ======= ======= =======
</TABLE>
LOANS
Loans at September 30, 2000 increased $ 7.7 million or 6.5% from December 31,
1999. The table below shows total loans outstanding by type, in thousands of
dollars, at September 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 September 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
10.2% of total loans.
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
Portfolio loans: Balance % of total Balance % of total
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Residential real estate $ 76,315 60.06% $ 71,709 60.08%
Consumer 12,409 9.77% 10,891 9.13%
Commercial real estate 26,629 20.96% 24,810 20.79%
Commercial 11,715 9.22% 11,939 10.00%
--------- ------ ----------- ------
127,068 100.00% 119,349 100.00%
Deferred loan origination fees, net (46) (58)
Allowance for loan losses (1,631) (1,583)
--------- -----------
$ 125,391 $ 117,708
========= ===========
</TABLE>
6
<PAGE> 8
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>
2000 1999
------- -------
<S> <C> <C>
Beginning balance $ 1,583 $ 1,518
Provision for loan losses 82 77
Charge-offs (64) (25)
Recoveries 30 7
------- -------
Ending balance $ 1,631 $ 1,577
======= =======
</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>
September 30, December 31,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Nonaccrual $181 $181
Loans past due 90 days or more 106 59
Troubled debt restructurings
---- ----
Total nonperforming loans $287 $240
==== ====
Percent of total loans 0.23% 0.20%
</TABLE>
DEPOSITS
Deposits at September 30, 2000 increased $ 9.8 million or 5.4% from December 31,
1999. Non-interest bearing deposits increased $ 4.1 million or 15.5% for the
nine months ended September 30, 2000, while interest-bearing deposits increased
$ 5.8 million or 3.7%.
7
<PAGE> 9
LIQUIDITY AND FUNDS MANAGEMENT
As of September 30, 2000 the Company had $ 6.0 million in federal funds sold, $
50.6 million in securities available for sale and $ 3.2 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 31.1% of total deposits as of September 30, 2000.
Total equity for the Company at September 30, 2000 was $ 21.3 million compared
to $ 19.9 million at December 31, 1999. The Company has realized $ 2.5 million
in income and declared $ 1.2 million in dividends for the period ended September
30, 2000.
RESULTS OF OPERATIONS
CNB Corporation's 2000 earnings for the first nine months of the year were $
2,479,000, an increase compared to 1999 results. Basic earnings per share for
2000 was $ 2.18 per share compared to $ 2.07 from 1999. The return on assets was
1.57% for the first nine months of the year versus 1.54% for the same period in
1999. The return on average equity was 16.11% compared to 15.65% for the same
period last year.
For the quarter ending September 30, 2000 earnings were $ 886,000 compared to $
827,000 for the same period last year. Basic earnings per share for the quarter
ending September 30, 2000 was $ 0.78 compared to $ 0.73 for the same period last
year.
For the first nine months of 2000 net interest income was $ 6.5 million an
increase over the $ 6.0 million for the same period last year. For the period
ending September 30, 2000, the net interest margin increased to 4.46% 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 September 30, 2000 was $ 2.3 million
an increase of 8.2% over the same period last year.
Non-interest income increased to $ 982,000 from $ 963,000 for 1999, while
non-interest expense increased to $ 3.9 million, or 7.2% from $ 3.7 million
reported for the nine month period ending September 30, 1999. For the quarter
ending September 30, 2000 non-interest income was reported at $ 332,000 compared
to $ 353,000 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 nine months of 2000.
FORWARD-LOOKING STATEMENTS
When used in this filing and in future filings involving the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases, "anticipate",
"would be", "will allow", "intends to", "will likely result", "are expected to",
"will continue", "is anticipated", "estimated", "project", or similar
expressions are intended to identify, "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to risks and uncertainties, including but not limited to changes in
economic conditions in the Company's market area, and competition, all or some
of which could cause actual results to differ materiality from historical
earnings and those presently anticipated or projected.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and advise
readers that various factors, including regional and national economic
conditions, substantial changes in levels of market
8
<PAGE> 10
interest rates, credit and other risks of lending and investing activities, and
competitive and regulatory factors, could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materiality from those anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation, to
update any forward- looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 138,
requires derivative instruments to be carried at fair value on the balance
sheet. The statement continues to allow derivative instruments to be used to
hedge various risks and sets forth specific criteria to be used to determine
when hedge accounting can be used. The statement also provides for offsetting
changes in fair value or cash flows of both the derivative and the hedged asset
or liability to be recognized in earnings in the same period; however, any
changes in fair value of cash flow that represent the ineffective portion of a
hedge are required to be recognized in earnings and cannot be deferred. For
derivative instruments not accounted for as hedges, changes in fair value are
required to be recognized in earnings. The adoption of this statement on January
1, 2001, is not expected to have a material effect on the consolidated financial
statements.
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 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: November 9, 2000 /s/ Robert E. Churchill
-------------------- -------------------------------------
Robert E. Churchill
Chairman and Chief Executive Officer
Date: November 9, 2000 /s/ James C. Conboy, Jr.
-------------------- -------------------------------------
James C. Conboy, Jr.
President and Chief Operating Officer
10
<PAGE> 12
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>