10-Q/A 1 k71503e10vqza.txt AMENDMENT NO. 1 TO FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A AMENDMENT NO. 1 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 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 July 24, 2002 there were 1,193,060 shares of the issuer's common stock outstanding. 1 INSERT EXPLANATORY NOTE This Amendment No. 1 to the Registrant's Quarterly Report on Form 10-Q for the period ending June 30, 2002 is being filed solely to include information under Part II, Item 4-Submissions of Matters To A Vote of Security Holders, which was inadvertently omitted. No revisions have been made to the Registrant's financial statements or any other disclosure contained in such Quarterly Report. 2 ITEM 1- FINANCIAL STATEMENTS (CONDENSED) CONSOLIDATED BALANCE SHEETS (in thousands) --------------------------------------------------------------------------------
June December 30, 2002 31, 2001 ASSETS (unaudited) Cash and due from banks $ 7,902 $ 9,229 Interest-bearing deposits with other financial institutions 5,006 2,718 Federal funds sold 3,000 4,900 -------- -------- Total cash and cash equivalents 15,908 16,847 Securities available for sale 58,809 61,118 Securities held to maturity (fair value of $6,454 in 2002 and $7,114 in 2001) 6,333 7,168 Other securities 3,152 4,810 Loans, net 144,902 133,106 Premises and equipment, net 3,478 3,592 Other assets 4,945 4,390 -------- -------- Total assets $237,527 $231,031 ======== ======== LIABILITIES Deposits Non-interest bearing $ 32,878 $ 32,919 Interest-bearing 177,361 171,670 -------- -------- Total deposits 210,239 204,589 Other liabilities 2,887 3,065 -------- -------- Total liabilities 213,126 207,654 -------- -------- SHAREHOLDERS' EQUITY Common stock, $2.50 par value, 2,000,000 shares authorized, shares outstanding 6/30/02-1,193,072; 12/31/01-1,193,415 2,983 2,984 Additional paid-in capital 18,492 18,509 Retained earnings 2,015 983 Accumulated other comprehensive income, net of tax 911 901 -------- -------- Total shareholders' equity 24,401 23,377 -------- -------- Total liabilities and shareholders' equity $237,527 $231,031 ======== ========
See accompanying notes to consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF INCOME (in thousands) --------------------------------------------------------------------------------
Three months ended Six Months Ended June 30, June 30, 2002 2001 2002 2001 ---- ---- ---- ---- (Unaudited) INTEREST INCOME $3,701 $3,968 $7,415 $7,985 INTEREST EXPENSE ON DEPOSITS 1,444 1,765 2,907 3,614 ------ ------ ------ ------ NET INTEREST INCOME 2,257 2,203 4,508 4,371 Provision for loan losses -- 27 -- 55 ------ ------ ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,257 2,176 4,508 4,316 ------ ------ ------ ------ NON-INTEREST INCOME 456 421 930 765 NON-INTEREST EXPENSES 1,449 1,399 2,778 2,737 ------ ------ ------ ------ INCOME BEFORE INCOME TAXES 1,264 1,198 2,660 2,344 Income tax expense 356 341 722 679 ------ ------ ------ ------ NET INCOME $ 908 $ 857 $1,938 $1,665 ====== ====== ====== ====== TOTAL COMPREHENSIVE INCOME $1,178 $ 920 $1,948 $2,101 ====== ====== ====== ====== Basic earnings per share $ 0.76 $ 0.72 $ 1.62 $ 1.40 Diluted earnings per share $ 0.76 $ 0.71 $ 1.62 $ 1.39 Return on average assets (annualized) 1.55% 1.56% 1.65% 1.52% Return on average equity (annualized) 15.16% 15.11% 16.18% 14.90%
See accompanying notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) --------------------------------------------------------------------------------
Six months ended June 30, 2002 2001 (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 1,938 $ 1,665 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization 305 106 Provision for loan losses -- 55 Loans originated for sale (10,399) (7,865) Proceeds from sales of loans originated for sale 10,600 7,979 Gain on sales of loans (201) (114) (Increase) decrease in other assets (560) (866) Increase (decrease) in other liabilities (157) 376 -------- -------- Total adjustments (412) (329) -------- -------- Net cash from operating activities 1,526 1,336 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of securities available for sale 8,809 18,063 Purchase of securities available for sale (6,595) (22,595) Proceeds from maturities of securities held to maturity 1,400 1,813 Purchase of securities held to maturity (565) (2,620) Proceeds from maturities of other securities 2,700 -- Purchase of other securities (1,042) (257) Net (increase) decrease in portfolio loans (11,796) (1,028) Premises and equipment expenditures (81) (96) -------- -------- Net cash from investing activities (7,170) (6,720) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 5,650 3,993 Dividends paid (927) (1,487) Purchases of common stock (18) (74) -------- -------- Net cash from financing activities 4,705 2,432 Net change in cash and cash equivalents (939) (2,952) Cash and cash equivalents at beginning of year 16,847 23,310 -------- -------- Cash and cash equivalents at end of period $ 15,908 $ 20,358 ======== ======== Cash paid during the period for: Interest $ 2,925 $ 3,589 Income taxes $ 742 $ 723
See accompanying notes to consolidated financial statements. 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 and the Bank's wholly-owned subsidiary CNB Mortgage Corporation. All significant inter-company accounts and transactions are eliminated in consolidation. The statements have been prepared by management without an 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, 2001. 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 three and six month periods ending June 30, 2002 the weighted average shares outstanding in calculating basic earnings per share were 1,193,163 and 1,193,203 while the weighted average number of shares for the diluted earnings per share were 1,198,622 and 1,198,662. For the three and six month periods ending June 30, 2001 the weighted average shares outstanding in calculating basic earnings per share were 1,191,233 and 1,191,706 while the weighted average number of shares for the diluted earnings per share were 1,199,442 and 1,200,132. 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, 2002. FINANCIAL CONDITION The Company's balances of cash and cash equivalents decreased $ 939,000 or 5.6%. During the period ending June 30, 2002, $ 1.5 million of cash was provided from operating activities. Investing activities utilized $ 7.2 million during the period ending June 30, 2002 and financing activities provided $ 4.7 million due to an increase in deposits. SECURITIES Securities decreased $ 3.1 million or 4.6% since December 31, 2001. The available for sale portfolio increased to 90.3% of the investment portfolio up from 89.5% at year-end. The amortized cost and fair values of securities were as follows, in thousands of dollars:
Gross Gross Amortized Unrealized Unrealized Fair Available for sale Cost Gains Losses Value -------------------------------------------------- JUNE 30, 2002 U.S. Government agency $ 29,118 $ 734 $ -- $ 29,852 State and municipal 28,311 652 (6) 28,957 -------------------------------------------------- $ 57,429 $ 1,386 $ (6) $ 58,809 ================================================== DECEMBER 31, 2001 U.S. Government agency $ 32,071 $ 986 $ -- $ 33,057 State and municipal 27,682 432 (53) 28,061 -------------------------------------------------- $ 59,753 $ 1,418 $ (53) $ 61,118 ==================================================
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Gross Gross Amortized Unrealized Unrealized Fair Held to maturity Cost Gains Losses Value ------------------------------------------------- JUNE 30, 2002 State and municipal $ 6,333 $ 122 $ (1) $ 6,454 ================================================= $ 6,333 $ 122 $ (1) $ 6,454 ================================================= DECEMBER 31, 2001 State and municipal $ 7,168 $ 132 $ (186) $ 7,114 ----------------------------------------------- $ 7,168 $ 132 $ (186) $ 7,114 =================================================
The amortized cost and fair value of securities by contractual maturity at June 30, 2002 are shown below, in thousands of dollars.
Available for Sale Held to Maturity ------------------ ---------------- Amortized Fair Amortized Fair Cost Value Cost Value ---- ----- ---- ----- Due in one year or less $20,357 $20,636 $ 1,102 $ 1,110 Due after one year through five years 36,249 37,301 2,730 2,805 Due after five years through ten years 823 872 878 916 Due after ten years -- -- 1,623 1,623 ---------------------------------------------- Total $57,429 $58,809 $ 6,333 $ 6,454 ==============================================
LOANS Loans at June 30, 2002 increased $ 11.8 million from December 31, 2001. The table below shows total loans outstanding by type, in thousands of dollars, at June 30, 2002 and December 31, 2001, and their percentage of the total loan portfolio. All loans are domestic. A quarterly review of loan concentrations at June 30, 2002 indicates the pattern of loans in the portfolio has not changed significantly. There is no individual industry with more than a 10% concentration. However, all tourism related businesses, when combined, total 11.1% of total loans.
June 30, 2002 December 31, 2001 Portfolio loans: Balance % of total Balance % of total ------- ---------- ------- ---------- Residential real estate $ 86,234 58.82% $ 84,588 62.75% Consumer 11,378 7.76% 11,767 8.73% Commercial real estate 37,550 25.61% 26,536 19.69% Commercial 11,454 7.81% 11,912 8.83% ------------------------------------ 146,616 100.00% 134,803 100.00% Deferred loan origination fees, net (26) (30) Allowance for loan losses (1,688) (1,667) --------- --------- $ 144,902 $ 133,106 ========= =========
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:
2002 2001 ---- ---- Beginning balance $ 1,667 $ 1,652 Provision for loan losses - 55 Charge-offs (30) (11) Recoveries 51 10 ------- ------- Ending balance $ 1,688 $ 1,706 ======= =======
The Company has had no impaired loans during 2002 and 2001. 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.
June 30, December 31, 2002 2001 ---- ---- (In thousands) Nonaccrual $ - $ - Loans past due 90 days or more 11 647 Troubled debt restructurings - - ------ ------ Total nonperforming loans $ 11 $ 647 ====== ====== Percent of total loans 0.01% 0.48%
DEPOSITS Deposits at June 30, 2002 increased $ 5.7 million since December 31, 2001. Interest-bearing deposits increased $ 5.7 million for the six months ended June 30, 2002, while non-interest bearing deposits remained relatively unchanged. 9 LIQUIDITY AND FUNDS MANAGEMENT As of June 30, 2002 the Company had $ 3.0 million in federal funds sold, $ 58.8 million in securities available for sale and $ 1.1 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 represent 29.9% of total deposits as of June 30, 2002. Total equity of the Company at June 30, 2002 was $ 24.4 million compared to $23.4 million at December 31, 2001. RESULTS OF OPERATIONS CNB Corporation's 2002 earnings for the first six months were $ 1.9 million an increase of $ 273,000 compared to 2001 results. This increase can be partially attributed to life insurance proceeds, which amounted to $ 105,000. Income, not including life insurance proceeds, for the first six months of 2002 was $ 1.8 million compared to $ 1.7 million last year or a 10.1% increase. Basic earnings per share were $ 1.62 per share for 2002 compared to $ 1.40 for 2001. The return on assets was 1.65% for the first six months of the year versus 1.52% for the same period in 2001. The return on equity was 16.18% compared to 14.90% for the same period last year. For the quarter ending June 30, 2002, earnings were $ 908,000 compared to $857,000 for the same period last year. Basic earnings per share for the quarter ending June 30, 2002 was $ 0.76 compared to $ 0.72 for the same period last year. For the first six months of 2002, net interest income was $ 4.5 million representing a slight increase over the same period in 2001. The net interest margin decreased to 4.07% from the 4.24% reported in 2001. This decrease can be attributed to the declining rate environment. Net interest income for the quarter ending June 30, 2002 was $ 2.3 million which is slightly higher than the same period last year. This can be attributed to the Company's growth in interest-earning assets and interest-bearing liabilities. Non-interest income for the six months ending June 30, 2002 was $ 930,000 an increase of $ 165,000 or 21.6% over the same period last year. The increase can be attributed to an increase in the volume of loans sold to the secondary market and life insurance proceeds received. For the quarter ending June 30, 2002 non-interest income was reported at $ 456,000 compared to $ 421,000 for the same period last year. Non-interest expense for the first six months of 2002 was $2.8 million compared to $ 2.7 million for 2001. Non-interest expense for the quarter ending June 30, 2002 remained relatively unchanged at $ 1.4 million compared to the same period last year. There was no significant change in the income tax position for the Company during the first six months of 2002. 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, 2001 Management Discussion and Analysis appearing in the December 31, 2001 10K. 10 PART II- OTHER INFORMATION ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders of CNB Corporation was held on May 21, 2002. Elected as Directors for one year term were Steven J. Baker; Robert E. Churchill; James C. Conboy, Jr.; Kathleen M. Darrow; Thomas J. Ellenberger; Vincent J. Hillesheim; John L. Ormsbee; Francis J. VanAntwerp, Jr.; and John P. Ward. Votes cast for: 889,222 Votes cast against: 0 Votes withheld: 9,119
Votes cast for were for all nine directors listed above. Votes withheld were 9,096 for John L. Ormsbee and 23 for Kathleen M. Darrow. ITEM 6- EXHIBITS AND REPORTS OF FORM 8-K a.) None b.) None 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 21, 2002 /s/ Robert E. Churchill ------------------- ------------------------------------- Robert E. Churchill Chairman and Chief Executive Officer Date: August 21, 2002 /s/ James C. Conboy, Jr. ------------------- ------------------------------------- James C. Conboy, Jr. President and Chief Operating Officer 11 CERTIFICATION The undersigned hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002 ("Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the registrant. CNB CORPORATION (Registrant) By: /s/ Robert E. Churchill --------------------------------------- Robert E. Churchill Chairman and Chief Executive Officer By: /s/ Irene M. English --------------------------------------- Irene M. English Treasurer Date: August 21, 2002