<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 March 31, 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 May 5, 2000 there were 1,136,138 shares of the issuer's
common stock outstanding.
<PAGE> 2
ITEM 1- FINANCIAL STATEMENTS (CONDENSED)
CONSOLIDATED BALANCE SHEETS (in thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March December
31, 2000 31, 1999
ASSETS (unaudited)
<S> <C> <C>
Cash and due from banks $ 7,556 $ 8,573
Federal funds sold 2,050 6,300
-------------- -----------------
Total cash and cash equivalents 9,606 14,873
Securities available for sale 51,798 44,479
Securities held to maturity(market value of
$12,681 in 2000 and $15,022 in 1999) 12,786 15,116
Other securities 4,926 5,726
Loans, net 119,768 117,708
Premises and equipment, net 2,983 3,016
Other assets 4,491 4,347
-------------- -----------------
Total assets $ 206,358 $ 205,265
============== =================
LIABILITIES
Deposits
Non-interest bearing $ 24,353 $ 26,158
Interest-bearing 159,506 156,426
-------------- -----------------
Total deposits 183,859 182,584
Other liabilities 2,322 2,763
-------------- -----------------
Total liabilities 186,181 185,347
-------------- -----------------
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value, 2,000,000
shares authorized, shares outstanding
3/31/00-1,135,587; 12/31/99-1,081,639 2,839 2,704
Additional paid-in capital 15,580 11,694
Retained earnings 2,189 5,902
Unrealized (losses) on securities
available for sale, net of tax (431) (382)
-------------- -----------------
Total shareholders' equity 20,177 19,918
-------------- -----------------
Total liabilities and shareholders' equity $ 206,358 $ 205,265
============== =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME (in thousands)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year to Date
March 31,
2000 1999
(Unaudited)
<S> <C> <C>
INTEREST INCOME $ 3,721 $ 3,450
INTEREST EXPENSE ON DEPOSITS 1,618 1,506
-------------- -----------------
NET INTEREST INCOME 2,103 1,944
Provision for loan losses 28 30
-------------- -----------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,075 1,914
-------------- -----------------
NON-INTEREST INCOME 325 295
NON-INTEREST EXPENSES 1,302 1,119
INCOME BEFORE INCOME TAXES 1,098 1,090
Income tax expense 336 285
-------------- -----------------
NET INCOME $ 762 $ 805
============== =================
TOTAL COMPREHENSIVE INCOME $ 762 $ 805
============== =================
Return on average assets (annualized) 1.47% 1.62%
Return on average equity (annualized) 15.31% 16.31%
Basic earnings per share 0.67 0.71
Diluted earnings per share 0.66 0.70
</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.
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 762 $ 805
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 74 73
Accretion and amortization of investment securities, net 15 54
Provision for loan losses 28 30
Loans originated for sale (743) (2,884)
Proceeds from sales of loans originated for sale 743 2,885
Gain on sales of loans (6) (23)
(Increase) decrease in other assets (115) (92)
Increase (decrease) in other liabilities 136 87
-------------- -----------------
Total adjustments 132 130
-------------- -----------------
Net cash from operating activities 894 935
-------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 3,425 3,164
Purchase of securities available for sale (10,827) (18,459)
Proceeds from maturities of securities held to maturity 2,324 5,926
Purchase of securities held to maturity - -
Proceeds from maturities of other securities 1,300
Purchase of other securities (500) -
Net (increase) decrease in portfolio loans (2,087) 880
Premises and equipment expenditures (41) (54)
-------------- -----------------
Net cash from investing activities (6,406) (8,543)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 1,275 2,952
Dividends paid (999) (946)
Proceeds from exercise of stock options 3 6
Purchases of common stock (34) (3)
-------------- -----------------
Net cash from financing activities 245 2,009
Net change in cash and cash equivalents (5,267) (5,599)
Cash and cash equivalents at beginning of year 14,873 19,280
-------------- -----------------
Cash and cash equivalents at end of period $ 9,606 $ 13,681
============== =================
Cash paid during the period for
Interest $ 1,634 $ 1,480
Income taxes $ 388 $ 384
</TABLE>
See accompanying notes to consolidated financial statements.
<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. All prior calculations will be
restated to be comparable to the new methods. At March 31, 2000 the weighted
average shares outstanding in calculating the basic earnings per share was
1,135,460 while the weighted average dilutive potential shares for the diluted
earnings per share was 1,149,472. At March 31, 1999 the weighted average shares
outstanding in calculating the basic earnings per share was 1,132,949 while the
weighted average dilutive potential shares for the diluted earnings per share
was 1,147,603.
<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 month period ending March 31,
2000.
FINANCIAL CONDITION
The Company's balances of cash and cash equivalents decreased $5.3 million or
35.4%. During the period ending March 31, 2000, $1.1 million of cash was
provided from operating and financing activities due to net income and an
increase in deposits. Investing activities utilized $6.4 million during the
period ending March 1, 2000.
SECURITIES
Securities increased $5.0 million or 8.4% since December 31, 1999. The
available for sale portfolio increased to 80.2% of the investment portfolio up
from 74.6% at year-end.
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>
MARCH 31, 2000
U.S. Government and agency $ 45,562 $ 6 $ (562) $ 45,006
State and municipal 6,889 1 (98) 6,792
--------------------------------------------------------
$ 52,451 $ 7 $ (660) $ 51,798
========================================================
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>
<PAGE> 7
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, 2000
U.S. Government and agency $ - $ - $ - $ -
State and municipal 12,786 16 (121) 12,681
----------------------------------------------------------
$ 12,786 $ 16 $ (121) $ 12,681
==========================================================
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 March
31, 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 $ 14,518 $ 14,449 $ 5,261 $ 5,239
Due after one year through five years 37,057 36,481 5,089 5,037
Due after five years through ten years 876 868 1,216 1,197
Due after ten years 1,220 1,208
--------------------------------------------------------------
Total $ 52,451 $ 51,798 $ 12,786 $ 12,681
==============================================================
</TABLE>
LOANS
Loans at March 31, 2000 increased $2.1 million from December 31, 1999. The
table below shows total loans outstanding by type, in thousands of dollars, at
March 31, 2000 and December 31, 1999, and their percentage of the total loan
portfolio. All loans are domestic. A quarterly review of loan concentrations at
March 31, 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 10.6% of total loans.
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
Portfolio loans: Balance % of total Balance % of total
- ---------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Residential real estate $ 71,957 59.27% $ 71,709 60.08%
Consumer 11,081 9.13% 10,891 9.13%
Commercial real estate 25,874 21.31% 24,810 20.79%
Commercial 12,488 10.29% 11,939 10.00%
------------------------------------------------------------
121,400 100.00% 119,349 100.00%
Deferred loan origination fees, net (53) (58)
Allowance for loan losses (1,579) (1,583)
--------------- --------------
$ 119,768 $117,708
=============== ==============
</TABLE>
<PAGE> 8
ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses, in thousands of dollars, for the
three months ended March 31, follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Beginning balance $ 1,583 $ 1,518
Provision for loan losses 28 30
Charge-offs (54) (6)
Recoveries 22 4
--------------- --------------
Ending balance $ 1,579 $ 1,546
=============== ==============
</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 amount of nonperforming loans is shown in the table below.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Nonaccrual $ 181 $ 181
Loans past due 90 days or more 447 59
Troubled debt restructurings
--------------- --------------
Total nonperforming loans $ 628 $ 240
=============== ==============
Percent of total loans 0.52% 0.20%
</TABLE>
DEPOSITS
Deposits at March 31, 2000 increased $1.3 million since December 31, 1999.
Interest-bearing deposits increased $3.1 million or 2.0% for the three months
ended March 31, 2000, while non-interest bearing decreased $1.8 million or
6.9%.
<PAGE> 9
LIQUIDITY AND FUNDS MANAGEMENT
As of March 31, 2000 the Company had $2.1 million in federal funds sold, $51.8
million in securities available for sale and $5.3 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 32.2% of total deposits as of March 31, 2000.
Total equity for the Company at March 31, 2000 was $20.2 million compared to
$19.9 million at December 31, 1999.
RESULTS OF OPERATIONS
CNB Corporation's 2000 earnings for the first three months were $762,000 a
decrease of $43,000 compared to 1999 results. Earnings per share for 2000 was
$.67 per share compared to $.71 for 1999. The return on assets was 1.47% for the
three months of the year versus 1.62% for the same period in 1999. The return on
equity was 15.31% compared to 16.31% for the same period last year.
For the first three months of 2000 net interest income was $2.1 million a
slight increase over the $1.9 million for the same period in 1999. The net
interest margin increased to 4.31% from 4.16% in 1999. This increase can be
attributable to a higher yield on an increasing volume on interest-earning
assets.
Non-interest income was $325,000 a $30,000 increase or 10.2% over the same
period last year. Non-interest expense was $1.3 million, an increase of $183,000
or 16.4% over last year. There was no significant change in the income tax
position for the Company during the first three months 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 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.
<PAGE> 10
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
<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: May 10, 2000 /s/Robert E. Churchill
------------------ ----------------------------------------
Robert E. Churchill
President and Chief Executive Officer
Date: May 10, 2000 /s/James C. Conboy, Jr.
------------------ ---------------------------------------
James C. Conboy, Jr.
Executive Vice President
<PAGE> 12
Exhibit Index
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,556
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,050
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,798
<INVESTMENTS-CARRYING> 12,786
<INVESTMENTS-MARKET> 12,681
<LOANS> 121,347
<ALLOWANCE> 1,579
<TOTAL-ASSETS> 206,358
<DEPOSITS> 183,859
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,322
<LONG-TERM> 0
0
0
<COMMON> 2,839
<OTHER-SE> 17,338
<TOTAL-LIABILITIES-AND-EQUITY> 206,358
<INTEREST-LOAN> 2,627
<INTEREST-INVEST> 1,019
<INTEREST-OTHER> 75
<INTEREST-TOTAL> 3,721
<INTEREST-DEPOSIT> 1,618
<INTEREST-EXPENSE> 1,618
<INTEREST-INCOME-NET> 2,103
<LOAN-LOSSES> 28
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,302
<INCOME-PRETAX> 1,098
<INCOME-PRE-EXTRAORDINARY> 1,098
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 762
<EPS-BASIC> .67
<EPS-DILUTED> .66
<YIELD-ACTUAL> 4.31
<LOANS-NON> 181
<LOANS-PAST> 447
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,583
<CHARGE-OFFS> 54
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 1,579
<ALLOWANCE-DOMESTIC> 397
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,182
</TABLE>
