10-K/A 1 k90714e10vkza.txt AMENDMENT NO. 1 TO FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A AMENDMENT NO.1 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 Commission file number 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) Registrant's telephone number (231) 627-7111 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $ 2.50 PER SHARE (Title of Class) 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) Indicate by check mark if registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes [ ] No [X] Aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2003 was $ 53,894,800. As of March 17, 2004 there were outstanding 1,243,652 shares of the registrant's common stock, $ 2.50 par value. DOCUMENTS INCORPORATED BY REFERENCE Specified portions of the registrant's annual report to security holders for fiscal year ended December 31, 2003 are incorporated by reference in Part I and Part II of this report. EXPLANATORY NOTE We are filing this Amendment No.1 to our Annual Report on Form 10-K, originally filed with the Securities and Exchange Commission on March 30, 2004, solely for the purpose of including herein the information required in Part III and to file amended bylaws. New certifications by the Chief Executive Officer and Chief Financial Officer are also included as Exhibits 31.1 and 31.2, respectively, pursuant to Rule 12b-15. Except as specifically indicated herein, no other information included in our Annual Report on Form 10-K is amended by this Form 10-K/A. PART I 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 materially 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 to the date made, and advise readers that various factors, including regional and national economic conditions, substantial changes in levels of market 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 materially 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. ITEM 1- BUSINESS CNB Corporation (the Company) was incorporated in June, 1985 as a business corporation under the Michigan Business Corporation Act, pursuant to the authorization and direction of the Board of Directors of the Citizens National Bank of Cheboygan (the Bank). The Company is a bank holding company registered with the Board of Governors of the Federal Reserve System (the Federal Reserve Board) under the Bank Holding Company Act with the Bank as its only wholly-owned subsidiary. The Bank was acquired by the Company effective December 31, 1985. The Company has corporate power to engage in such activities as permitted to business corporations under the Michigan Business Corporation Act, subject to the limitations of the Bank Holding Company Act and regulations of the Federal Reserve Board. In general, the Bank Holding Company Act and regulations restrict the Company with respect to its own activities and activities of any subsidiaries to the business of banking or such other activities which are closely related to the business of banking. During 2001, the Company, through its subsidiary, the Bank, formed the CNB Mortgage Corporation. Residential mortgages were transferred to the new subsidiary in October, 2001. The change had no impact on our customers who will continue to have their loans serviced locally by our Bank. The Bank offers a full range of banking services to individuals, partnerships, corporations, and other entities. Banking services include checking, NOW accounts, savings, time deposit accounts, money market deposit accounts, safe deposit facilities and money transfers. The Bank's lending function provides a full range of loan products. These include real estate mortgages, secured and unsecured commercial and consumer loans, check credit loans, lines of credit, home equity loans and construction financing. The Bank also participates in specialty loan programs through the Michigan State Housing Development Authority, Small Business Administration, Federal Home Loan Mortgage Corporation, Farm Service Agency and Mortgage Guaranty Insurance Corporation. Through correspondent relationships, the Bank also 2 makes available credit cards and student loans. The Bank's loan portfolio is over 62% residential real estate mortgages on both primary and secondary homes. The borrower base is very diverse and loan to value ratios are generally 80% or less. The commercial loan portfolio accounts for approximately 6% of total loans. Agricultural lending is minimal and secured by real estate. Construction lending is predominately residential, with only an occasional "spec" home or commercial building. Unsecured lending is very limited and personal guarantees are required on most commercial loans. The Bank makes first and second mortgage loans to its customers for the purchase of residential and commercial properties. Historically, the Bank has sold its long term fixed rate residential mortgage loans qualifying for the secondary market to the Federal Home Loan Mortgage Corporation (FHLMC). The mortgage loan portfolio serviced by the Bank for the FHLMC totaled approximately $ 61 million at December 31, 2003. Banking services are delivered through five full-service banking offices and three drive-in branches plus nine automated teller machines in Cheboygan, Emmet and Presque Isle Counties, Michigan. The business base of the counties is primarily tourism with light manufacturing. The Bank maintains correspondent bank relationships with several larger banks, which involve check clearing operations, transfer of funds, loan participation, and the purchase and sale of federal funds and other similar services. Under various agency relationships, the Bank provides trust and discount brokerage services and mutual fund, annuity and life insurance products to its customers. In its primary market, which includes Cheboygan County and parts of Emmet, Mackinac, Presque Isle and Montmorency Counties, the Bank is one of three principal banking institutions located within this market. One is a member of a multi-bank holding company with substantially more assets than the Company, while the other is an independent community bank. There are also two credit unions, one savings and loan association and a brokerage firm. As of December 31, 2003, the Bank employed 67 full-time and 17 part-time employees. This compares to 68 full-time and 15 part-time employees as of December 31, 2002. Neither the Company or CNB Mortgage Corporation have any full-time employees. Their operation and business are carried out by officers and employees of the Bank who are not compensated by the Company. SECURITIES The year end fair values and related gross unrealized gains and losses for securities available for sale, were as follows: AVAILABLE FOR SALE
Gross Gross Fair Unrealized Unrealized Value Gains Losses ----- ----- ------ (In thousands) 2003 U.S. government and agency $ 48,802 $ 363 $ (28) State and municipal 26,915 638 (8) ------------ ------------ ------------- $ 75,717 $ 1,001 $ (36) ============ ============ ============= 2002 U.S. government and agency $ 26,989 $ 687 $ - State and municipal 30,544 866 (41) ------------ ------------ ------------- $ 57,533 $ 1,553 $ (41) ============ ============ ============= 2001 U.S. government and agency $ 33,057 $ 986 $ - State and municipal 28,061 432 (53) ------------ ------------ ------------- $ 61,118 $ 1,418 $ (53) ============ ============ =============
3 The year end carrying amount, unrecognized gains and losses, and fair value of securities held to maturity were as follows: HELD TO MATURITY
Gross Gross Carrying Unrecognized Unrecognized Fair Amount Gains Losses Value ------ ----- ------ ----- (In thousands) 2003 State and municipal $4,892 $ 117 $ - $5,009 ====== ====== ====== ====== 2002 State and municipal $5,615 $ 140 $ - $5,755 ====== ====== ====== ====== 2001 State and municipal $7,168 $ 132 $ (186) $7,114 ====== ====== ====== ======
Scheduled maturities of the fair value of securities available for sale and the carrying amount of held to maturity securities at December 31, 2003, were as follows:
Due in Due from Due from Due one year one to five to after ten or less five years ten years years Total ------- ---------- --------- ----- ----- (Dollars in thousands) U.S. Government and agencies $ 3,055 $ 45,747 $ - $ - $ 48,802 State and municipal 8,257 17,463 2,300 3,787 31,807 ---------- ------------ ------------ ------------- ----------- $ 11,312 $ 63,210 $ 2,300 $ 3,787 $ 80,609 ========== ============ ============ ============= =========== Yield 3.93% 2.96% 4.04% 3.27% 3.14%
LOANS The following is a summary of loans at December 31:
2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- (In thousands) Residential real estate $ 89,042 $ 92,653 $ 84,588 $ 77,823 $ 71,709 Consumer 9,660 11,270 11,767 12,155 10,891 Commercial real estate 35,258 31,581 26,536 26,571 24,810 Commercial 9,540 10,824 11,912 11,193 11,939 --------- --------- --------- --------- --------- 143,500 146,328 134,803 127,742 119,349 Deferred loan origination fees, net (15) (22) (30) (41) (58) Allowance for loan losses (1,575) (1,669) (1,667) (1,652) (1,583) --------- --------- --------- --------- --------- $ 141,910 $ 144,637 $ 133,106 $ 126,049 $ 117,708 ========= ========= ========= ========= =========
4 Maturity and Rate Sensitivity of Selected Loans The following table presents the remaining maturity of total loans outstanding excluding residential real estate and consumer loans at December 31, 2003, according to scheduled repayments of principal. The amounts due after one year are classified according to the sensitivity of changes in interest rates.
Total -------------- (In thousands) In one year or less $ 14,832 After one year but within five years Interest rates are floating or adjustable 4,248 Interest rates are fixed or predetermined 17,088 After five years Interest rates are floating or adjustable 2,953 Interest rates are fixed or predetermined 5,677 -------- $ 44,798 ========
Summary of loan loss experience is as follows: Additional information relative to the allowance for loan losses is presented in the following table. This table summarizes loan balances at the end of each period and daily average balances, changes in the allowance for loan losses arising from loans charged off and recoveries on loans previously charged off by loan category, and additions to the allowance for loan losses through provisions charged to expense.
2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- (Dollars in thousands) Balance at the beginning of the period $ 1,669 $ 1,667 $ 1,652 $ 1,583 $ 1,518 Less Charge-offs: Residential real estate 8 - - - - Consumer 98 49 84 86 40 Commercial real estate - - - - - Commercial - 1 3 - 3 -------- -------- -------- -------- -------- Total charge-offs 106 50 87 86 43 -------- -------- -------- -------- -------- Recoveries: Residential real estate 1 - 3 14 1 Consumer 11 52 15 28 7 Commercial real estate - - - 2 - Commercial - - 1 1 - -------- -------- -------- -------- -------- Total recoveries 12 52 19 45 8 -------- -------- -------- -------- -------- Provision charged to expense - - 83 110 100 -------- -------- -------- -------- -------- Allowance for loan losses, end of period $ 1,575 $ 1,669 $ 1,667 $ 1,652 $ 1,583 ======== ======== ======== ======== ======== Total loans outstanding at end of period $143,500 $146,328 $134,803 $127,742 $119,349
5 Average total loans outstanding for the year $146,330 $143,840 $128,913 $124,732 $114,042 Ratio of net charge-offs to daily average loans outstanding 0.06% 0.00% 0.05% 0.03% 0.03% Ratio of net charge-offs to total loans outstanding 0.07% 0.00% 0.05% 0.03% 0.03%
The allocation of the allowance for loan losses for the years ended December 31 is:
Residential Commercial Real Estate Consumer Real Estate Commercial Unallocated Total ----------- -------- ----------- ---------- ----------- ----- (Dollars in thousands) 2003 Allowance amount $ 258 $ 48 $ 88 $ 49 $ 1,132 $1,575 % of Total loans 62.1% 6.7% 24.6% 6.6% 100.0% 2002 Allowance amount $ 244 $ 32 $ 79 $ 45 $ 1,269 $1,669 % of Total loans 61.8% 7.7% 23.1% 7.4% 100.0% 2001 Allowance amount $ 219 $ 44 $ 65 $ 30 $ 1,309 $1,667 % of Total loans 62.8% 8.7% 19.7% 8.8% 100.0% 2000 Allowance amount $ 218 $ 79 $ 67 $ 64 $ 1,224 $1,652 % of Total loans 60.9% 9.5% 20.8% 8.8% 100.0% 1999 Allowance amount $ 224 $ 35 $ 77 $ 29 $ 1,218 $1,583 % of Total loans 60.1% 9.1% 20.8% 10.0% 100.0%
The review of the loan portfolio revealed no undue concentrations of credit, however, the portfolio continues to be concentrated in residential real estate mortgages and highly dependent upon the tourist industry for the source of repayment. Because the reliance on tourism is both primary, (i.e. loans to motels, hotels and restaurants, etc.) and secondary (i.e. loans to employees of tourist related businesses), it is difficult to assess a specific dollar amount of inherent loss potential. Likewise, the residential real estate market has been stable or increasing, so inherent loss potential in this concentration is also difficult to reasonably assess. Therefore, the tourism industry and residential real estate mortgage concentrations are considered in establishing the allowance for loan loss. The following is a summary of nonaccrual, past due and restructured loans as of December 31:
2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- (In thousands) Nonaccrual loans $ - $ - $ - $181 $181 Loans past due 90 days or more 408 114 647 81 59 Troubled debt restructurings - - - - - ---- ---- ---- ---- ---- $408 $114 $647 $262 $240 ==== ==== ==== ==== ====
6 DEPOSITS The following table presents the remaining maturity of time deposits individually exceeding $ 100,000 at December 31, 2003. Dollars are reported in thousands. Up to 3 Months $ 1,078 3 to 6 Months 2,619 7 to 12 Months 7,447 Over 12 Months 4,409 -------- $ 15,553 ========
SUPERVISION AND REGULATION As a bank holding company within the meaning of the Bank Holding Company Act, the Company is required by said Act to file annual reports of its operations and such additional information as the Federal Reserve Board may require and is subject, along with its subsidiary, to examination by the Federal Reserve Board. The Federal Reserve Board is the primary regulator of the Company. The Bank Holding Company Act requires every bank holding company to obtain prior approval of the Federal Reserve Board before it may merge with or consolidate into another bank holding company, acquire substantially all the assets of any bank, or acquire ownership or control of any voting shares of any bank if after such acquisition it would own or control, directly or indirectly, more than 5% of the voting shares of such bank holding company or bank. The Bank Holding Company Act also prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. However, holding companies may engage in, and may own shares of companies engaged in, certain businesses found by the Federal Reserve Board to be so closely related to banking or the management or control of banks as to be a proper incident thereto. Under current regulations of the Federal Reserve Board, a holding company and its nonbank subsidiaries are permitted, among other activities, to engage, subject to certain specified limitations, in such banking related business ventures as consumer finance, equipment leasing, computer service bureau and software operations, data processing, discount securities brokerage, mortgage banking and brokerage, sale and leaseback, and other forms of real estate banking. The Bank Holding Company Act does not place territorial restrictions on the activities of nonbank subsidiaries of bank holding companies. In addition, Federal legislation prohibits acquisition of "control" of a bank or bank holding company without prior notice to certain federal bank regulators. "Control" in certain cases may include the acquisition of as little as 10% of the outstanding shares of capital stock. The Company's cash revenues are derived primarily from dividends paid by the Bank. National banking laws restrict the payment of cash dividends by a national bank by providing, subject to certain exceptions, that dividends may be paid only out of net profits then on hand after deducting therefrom its losses and bad debts, and no dividends may be paid unless the bank will have a surplus amounting to not less than one hundred percent (100%) of its common capital stock. The Bank is a national banking association and as such is subject to the regulations of, and supervision and regular examination by, the Office of the Comptroller of the Currency ("OCC"). Deposit accounts of the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC"). Requirements and restrictions under the laws of the State of Michigan and Title 12 of the United 7 States Code include the requirements that banks maintain reserves against deposits, restrictions on the nature and amount of loans which may be made by a bank, and the interest that may be charged thereon, restrictions on the payment of interest on certain deposits, and restrictions relating to investments and other activities of a bank. The Federal Reserve Board has established guidelines for risk based capital by bank holding companies. These guidelines establish a risk adjusted ratio relating capital to risk-weighted assets and off-balance sheet exposures. These capital guidelines primarily define the components of capital, categorize assets into different risk classes, and include certain off-balance-sheet items in the calculation of capital requirements. An analysis of the Company's regulatory capital requirements at December 31, 2003 is presented on page 23 of the Registrant's 2003 Annual Report in Note 14 Regulatory Capital to the Company's consolidated financial statements, which is incorporated herein by reference. ITEM 2- PROPERTIES. The Company and the Bank have their primary office at 303 North Main Street, Cheboygan, Michigan. In addition, the Bank owns and operates the following facilities: Onaway Office, 20581 W. State Street, Onaway; Mackinaw City Office, 580 S. Nicolet Street, Mackinaw City; Pellston Office, 200 Stimpson, Pellston; Indian River Office, 3990 Straits Highway, Indian River; South Side drive-in, 991 1/2 South Main Street, Cheboygan; Downtown drive-in, 414 Division Street, Cheboygan; and East Side drive-in, 816 East State Street, Cheboygan. All properties are owned by the Bank free of any mortgages or encumbrances. ITEM 3- LEGAL PROCEEDINGS. Neither the Company nor the Bank are a party to any pending legal proceedings other than the routine litigation that is incidental to the business of lending. ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no matters submitted to a vote of security holders during the fourth quarter of 2003. PART II ITEM 5-MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The common stock of the Company has no public trading market. All trades are handled on a direct basis between buyer and seller. The Bank acts as the Company's transfer agent. The principal market for the Company's stock consists of existing shareholders, family members of existing shareholders and individuals in its service area. The information detailing the range of high and low bid information for the Company's common stock and cash dividends declared for each full quarterly period within the two most recent fiscal years can be found under the caption "Financial Highlights" of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 2003, which is hereby incorporated by reference. 8 The information which indicates the amount of common stock that is subject to outstanding options or warrants to purchase, or securities convertible into, common equity of the registrant can be found in Note 8 on page 18 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 2003, which is hereby incorporated by reference. There are no public offerings pending. There are approximately 907 shareholders of record of the common stock of the Company as of January 31, 2004. During 2003, the Company declared regular dividends of $ 1.53 per share plus a special dividend of $ .57 per share. In 2002, the Company declared regular dividends of $ 1.47 plus a special dividend of $ .57. These per share statistics have been restated to reflect the 5% stock dividend paid March 12, 2004. The information detailing the cash dividends declared within the two most recent fiscal years can be found under the caption "Financial Highlights" of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 2003, which is hereby incorporated by reference. These have resulted in a dividend payout ratio averaging 65.5% for the past three years. The Federal Reserve Board's Policy on the Payment of Cash Dividends by Bank Holding Companies restricts the payment of cash dividends based on the following criteria: (1) The Company's net income from operations over the past year must be sufficient to fully fund the dividend and (2) the prospective rate of earnings retention must be consistent with the Company's capital needs, asset quality and overall financial condition. ITEM 6-SELECTED FINANCIAL DATA. The information required by this item is included on Page 1 under the caption "Financial Highlights" of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 2003, which is hereby incorporated by reference. ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The information required by this item is included on pages 28 through 39 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 2003, which is hereby incorporated by reference. ITEM 7A-QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is included on pages 32 through 33 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 2003, which is hereby incorporated by reference. ITEM 8-FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. This information is included on pages 2 through 26 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 2003, which is hereby incorporated by reference. 9 ITEM 9-CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A-CONTROLS AND PROCEDURES. As of the end of the period covered by this report (the "Evaluation Date") an evaluation was carried out under the supervision and with the participation of the Company's management, including our Chief Executive Officer and Treasurer who serves as our Chief Financial and Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Treasurer have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures are, to the best of their knowledge, effective to ensure that material information relating to the Company known to others within the Company required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. There has been no change in the Company's internal control over financial reporting that occurred during the quarter ended December 31, 2003 that materially affected, or is reasonably likely to materially affect the Company's internal control over financial reporting. PART III ITEM 10-DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. INFORMATION ABOUT THE DIRECTORS OF THE COMPANY IS SET FORTH BELOW. The following table sets forth certain information regarding each director and nominee for director, including name, age, principal occupation for the past five years, and term of service as a director of the Company. The information set forth in the table is based in part on information provided by each director. There are no family relationships between or among any of the directors, nominees or executive officers of the Company.
HAS SERVED AS A NAME AND AGE PRINCIPAL OCCUPATION DIRECTOR SINCE Steven J. Baker, D.V.M., 52(2) Doctor of Veterinary Medicine, Indian 2000(3) River Veterinary Clinic. Robert E. Churchill, 63 Chairman of the Board & Chief Executive 1983 Officer of the Company. Chairman of the Board & Chief Executive Officer of the Bank. James C. Conboy, Jr., 56 President & Chief Operating Officer of the Company. 1983 President & Chief Operating Officer of the Bank. Former Attorney/Partner, Bodman, Longley & Dahling LLP.
10 Kathleen M. Darrow, 61(2) President/Co-owner of Darrow Bros. Excavating, Inc. 1996 Retired Group Sales & Special Events Coordinator for the Mackinac State Historic Parks. Thomas J. Ellenberger, 53(2) Part Owner, Vice President & Secretary of Albert 1996(5) Ellenberger Lumber Co. (retail lumber sales). Vincent J. Hillesheim, 53(2) President of Crusoe's Rivertown Motors, Inc. 1994 Co-Manager of Crusoe Enterprises, LLC. John L. Ormsbee, 65(2) Sole proprietor of Jack's Sales (auctioneering services). 1980 Francis J. Van Antwerp, Jr., 59(2) Vice President of Durocher Marine Division- 1990 Kokosing Construction Company, Inc. (marine construction). John P. Ward, 67 Secretary of the Company. 1994 Retired Senior Vice President of the Company and Senior Vice President & Cashier of the Bank.
(1) Any service as a director prior to 1985, the year the Company was formed, would have been as a director of the Bank. Since 1985, all directors of the Company also have been directors of the Bank. (2) Member of the Audit Committee. (3) Director of the Bank since December, 1999. (4) Director of the Bank since January, 1996. (5) Director of the Bank since August, 1995. INFORMATION ABOUT THE EXECUTIVE OFFICERS OF THE COMPANY IS SET FORTH BELOW.
Name and Age Position ------------ -------- Robert E. Churchill, 63 Chairman and Chief Executive Officer of the Company and Citizens National Bank of Cheboygan. Mr. Churchill has been an officer of the Company since its inception in 1985 and an employee of the Bank since 1975. He has been in his current position for more than 15 years. James C. Conboy, Jr., 56 President and Chief Operating Officer of the Company and Citizens National Bank of Cheboygan. Mr. Conboy joined the Company and the Bank during 1998. He has been in his current position for more than 5 years. Susan A. Eno, 49 Executive Vice President of the Company; Executive Vice President and Cashier of Citizens National Bank of Cheboygan. Ms. Eno has been an officer of the Company since 1996 and an employee of the Bank since 1971. She has been in her current position for more than 7 years. Douglas W. Damm, 50 Senior Vice President of the Company and Citizens National Bank of Cheboygan. Mr. Damm has been an officer of the Company since 2003 and an employee of the Bank since 1987. He has been in his current position for more than 16 years.
11 John F. Ekdahl, 53 Senior Vice President of the Company and Citizens National Bank of Cheboygan. Mr. Ekdahl has been an officer of the Company since 1993 and an employee of the Bank since 1987. He has been in his current position for more than 10 years. John P. Ward, 67 Secretary of the Company. Mr. Ward retired from the Bank during 1998. Irene M. English, 44 Treasurer of the Company; Vice President and Controller of Citizens National Bank of Cheboygan. Ms. English was appointed an officer of the Company during 1998 and has been an employee of the Bank since 1985.
AUDIT COMMITTEE. The Board of Directors of the Company has an Audit Committee. Its membership is comprised of Directors Hillesheim (who serves as Chairman), Baker, Darrow, Ellenberger, Ormsbee and Van Antwerp. All members qualify as "independent directors" under the NYSE listing standards. Under the Sarbanes-Oxley Act of 2002 and implementing Securities and Exchange Commission rules, the Company is required to disclose whether the Audit Committee has at least one member who qualifies as an "audit committee financial expert" as that term is defined in the rules. Based on the exacting criteria set forth in the Securities and Exchange Commission rules, the Board of Directors has determined that no independent member of the Board of Directors qualifies as an "audit committee financial expert". The present members of the Audit Committee have 66 years of combined service on the Audit Committee. All of the members are financially literate and at least one of the members has expertise in accounting and other aspects of financial management. Considering this experience and expertise and other relevant issues, the Board of Directors believes that the Audit Committee can effectively fulfill its duties and obligations and has determined that appointing an additional director or retaining an individual who would meet the qualifications of an "audit committee financial expert" is neither necessary nor reasonable at this time. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of the Securities Exchange Act of 1934 requires directors, executive officers, and any persons beneficially owing more than 10% of the Company's common stock to file reports of ownership and changes in ownership of shares of common stock with the Securities and Exchange Commission. Based upon a review of the Forms 3 and 4 and amendments thereto furnished to the Company during 2003 and Form 5 and amendments thereto furnished to the Company with respect to 2003, and written representations by each director and executive officer, the Company believes that all of the required reports were filed by such persons during 2003. CODE OF ETHICS. The Company has adopted a Senior Financial Officers Code of Ethics that applies to the Company's chief executive officer, treasurer, controller or other senior officers performing similar functions. A copy of the Senior Financial Officers Code of Ethics will be furnished without charge upon written request to: Corporate Secretary, CNB Corporation, 303 N. Main Street, Cheboygan, Michigan 49721. NOMINATION FOR DIRECTORS. In March 2004, the Board of Directors adopted a bylaw provision for the nomination of directors. Beginning with the 2005 Annual Meeting of Shareholders, only persons who are nominated in accordance with that bylaw provision shall be eligible for election as directors. That provision is as follows: 12 "Article III" "Directors" "Section 2. NOMINATION OF DIRECTORS. Nominations of persons for election to the board of directors may be made by or at the direction of the board of directors, by any nominating committee or person appointed by the board of directors, or by any shareholder entitled to vote at a meeting at which one or more directors will be elected who submits timely written notice of any nomination to the secretary of the corporation. "To be timely, a shareholder's notice shall be delivered to, or mailed and received at, the principal business office of the company not less than ninety (90) days nor more than one hundred twenty (120) days prior to the scheduled date of the annual meeting of shareholders, regardless of any postponements, deferrals or adjournments of that meeting to a later date. To be timely in the case of a special meeting of the shareholders or in the event that the date of the applicable annual meeting is changed by more than thirty (30) days from its scheduled date, a shareholder's notice must be received no later than the close of business on the tenth (10th) day following the earlier of the day on which notice of the meeting date was mailed or the day public disclosure of the meeting was made. "To be in proper written form, a shareholder's notice must set forth or include (1) the name and address, as they appear on the records of the corporation, of the shareholder giving the notice and of the beneficial owner, if any, on whose behalf the nomination is made; (2) a representation that the shareholder giving the notice is a holder of record entitled to vote as such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (3) the class and number of shares of the capital stock of the corporation beneficially owned and of record by the shareholder giving the notice and by the beneficial owner, if any, on whose behalf the nomination is made; (4)any material interest or relationship that the shareholder giving the notice and/or the beneficial owner, if any, on whose behalf the nomination is made may have with each proposed nominee; (5) the name, address age, principal occupation or employment, as such other information for each proposed nominee as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the board of directors; and (6) a signed consent of each proposed nominee to serve as a director of the corporation is so elected. "No person shall be eligible for election as a director unless such person has been nominated in accordance with the procedures prescribed herein. If the facts warrant, the person presiding at the meeting will determine and declare to the meeting that a nomination does not satisfy the foregoing requirements and the defective nomination shall be disregarded. Nothing in this Section shall be construed to affect the requirement for proxy statements of the corporation under Regulation 14A of the Securities Exchange Act of 1934, as amended." ITEM 11-EXECUTIVE COMPENSATION. COMPENSATION OF EXECUTIVE OFFICERS SUMMARY COMPENSATION TABLE The following table sets forth the compensation received by the named executives for each of the calendar years shown. ANNUAL COMPENSATION
Name and Principal 401 (k) Other Position Year Salary Bonus Match Compensation Robert E. Churchill 2003 $170,000(1) $117,256 $9,465 $8,178 Chairman & Chief 2002 $165,000(1) $103,016 $8,128 $6,487 Executive Officer 2001 $160,000(1) $ 88,912 $6,690 $5,317 James C. Conboy, Jr. 2003 $135,000(1) $ 39,085 $5,203 $7,139 President & Chief 2002 $129,000(1) $ 20,603 $4,593 $7,076 Operating Officer 2001 $124,000(1) $ 17,782 $4,102 $6,652 Susan A. Eno 2003 $ 88,500 $ 15,000 $3,136 $1,410 Executive Vice President & Cashier
(1)Included compensation and $4,000 deferred annual director fee. 13 Pension Plan Table The defined benefit retirement plan covers employees over 20 years of age with more than six months of eligible service. Normal retirement age is 65. Participants receive credit for 1.1% of average compensation multiplied by years of credited benefit service, plus .65% of average compensation in excess of covered compensation multiplied by years of credited benefit service (maximum of 35 years). YEARS OF SERVICE
Remuneration 15 20 25 30 35 100,000 19,986 26,648 33,310 39,972 46,634 125,000 26,548 35,398 44,247 53,097 61,946 150,000 33,111 44,148 55,185 66,222 77,259 175,000 39,673 52,898 66,122 79,347 92,571 200,000 46,236 61,648 77,060 92,472 107,884 225,000 46,236 61,648 77,060 92,472 107,884
The law in effect throughout 2003 limited remuneration considered for benefit purposes to $200,000. Covered remuneration for the named executives who participated in the plan is $200,000 for Mr. Churchill, $170,085 for Mr. Conboy and $103,500 for Mrs. Eno. As of December 31, 2003, Mr. Churchill was credited with 28.83 years of service, Mr. Conboy was credited with 5 years of service and Mrs. Eno was credited with 32.08 years of service. The annual benefit is based upon a 10-year period certain and life annuity and is not subject to any deduction for Social Security or other offset amounts. OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
% of Total Potential Realized Options/ Value at Assumed Number of SARs Annual Rates of Securities Granted to Stock Price Underlying Employees Exercise or Appreciation for Options/SAR in Fiscal Base Expire. Option Term Name Granted Year Price Date 5% 10% James C. Conboy, Jr. 1,050 12.60% $51 12/24/13 56,228 58,905 Susan A. Eno 945 11.30% $51 12/24/13 50,605 53,014
14 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values The following table sets forth the options exercised by the named executives under the CNB Corporation 1996 Stock Option Plan during the fiscal year ended December 31, 2003 and the value of unexercised options as of such date.
NUMBER OF SECURITIES VALUE OF SHARES UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY ACQUIRED OPTIONS AT FISCAL OPTIONS AT FISCAL YEAR ON VALUE YEAR END(1) END(2) NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE Robert E. Churchill Chairman & Chief Executive Officer 0 0 5,149 0 $54,311 $0 James C. Conboy, Jr. President & Chief Operating Officer 0 0 4,882 1,050 $(1,529) $2,551 Susan A. Eno Executive Vice President 0 0 3,983 945 $57,702 $2,296
(1)The number of shares shown have been adjusted to reflect three 5% stock dividends. (2)The value shown is calculated by determining the difference between the fair market value of the common stock and the exercise price of the options (adjusted for stock dividends) at fiscal year end. For purposes of this value, fair market value is deemed to be $51.00 per share, the price at which the stock last traded on or before December 31, 2003. Report on Executive Compensation The Company's compensation program for executive officers is administered by the entire Board of Directors, including Robert E. Churchill, Chairman & Chief Executive Officer; James C. Conboy, Jr., President & Chief Operating Officer; and John P. Ward, Secretary. At present, all officers of the Company, with the exception of Mr. Ward, the Company's Secretary, are also officers of the Bank, and although they receive compensation from the Bank in their capacity as officers of the Bank, they receive no separate cash compensation from the Company. Mr. Ward receives no compensation as Secretary of the Company. The Board of Directors has developed and implemented compensation plans which seek to align the financial interests of the Company's senior officers with those of its shareholders. The Company's executive compensation program is comprised of three primary components: base salary, annual cash incentive bonus opportunities and longer-term incentive opportunities in the form of stock option awards. Executives also participate in the Bank's 401(k) Savings Plan and Pension Plan and are eligible to participate in the Bank's 1997 Deferred Compensation Plan. To attract and retain officers with exceptional abilities and talent, annual base salaries are set to provide competitive levels of compensation recognizing individual performance and achievements. Annual cash incentive bonuses are used to reward senior officers and other key employees for individual performance, accomplishments and achievement of annual business targets. A significant portion of career compensation for senior officers is linked to corporate performance through stock option awards. The Board of Directors determines the annual base salary, incentive bonus and stock option awards for the Chief Executive Officer. Annual base salary, incentive bonus and stock option awards with respect to the Company's other senior officers are recommended by the Chief Executive Officer to, and ultimately determined by, the Board of Directors. All recommendations of the Chief Executive Officer were approved by the Board of Directors for the most recent calendar year. 15 In evaluating the performance of and determining the annual base salary, incentive bonus and stock option awards for the Chief Executive Officer and other senior management, the Board of Directors takes into account management's contribution to the long-term success of the Company. The Board of Directors considers return to shareholders to be primary in measuring financial performance. The mission of the Company is to maximize long-term return to shareholders consistent with its commitments to maintain the safety and soundness of the Company and the Bank and provide the highest possible service at a fair price to the customers and communities that it serves. The Board of Directors has taken these subjective and qualitative factors into account, along with other quantitative measures of corporate performance, in establishing the base salary, incentive bonus and stock option awards for the Chief Executive Officer and the Company's other senior management, giving at least equal weight to the subjective and qualitative factors and no particular weight to any given factor. The determination of the size of stock option awards is based upon a subjective analysis of each recipient's position within the organization, his or her individual performance and his or her growth potential within the organization. The Board of Directors primarily considers five quantitative measures of corporate performance in establishing the compensation to be paid to the Chief Executive Officer and the Company's other senior management. These measures of corporate performance are: (i)after-tax earnings and earnings growth; (ii)capital position; (iii)quality of the Bank's loan portfolio; (iv)targeted as compared to actual operating performance; and (v)the Company's performance and financial condition as compared to that of its Federal Reserve Bank peer group. These measures were considered by the Board of Directors in determining each component of executive compensation, with particular weight being given to after-tax earnings and earnings growth. The Board of Directors also takes into consideration compensation levels at comparable financial institutions based on various general and targeted compensation surveys of peer group commercial banks with total assets between $100 and $500 million located in the Midwest United States and the state of Michigan. Submitted by the Board of Directors: Steven J. Baker Robert E. Churchill James C. Conboy, Jr. Kathleen M. Darrow Thomas J. Ellenberger Vincent J. Hillesheim John L. Ormsbee Francis J. Van Antwerp, Jr. John P. Ward Compensation of Directors All directors initially elected prior to January 1, 1994 participate in the Citizens National Bank of Cheboygan 1985 Directors' Deferred Compensation plan in lieu of current payment of director fees. The plan was adopted by the Bank in 1985 and in 1993 participation in the plan was closed to directors initially elected after January 1, 1994. The plan provides for retirement and death benefits to be paid to the participating directors by the Bank over a minimum of fifteen years. The Bank is the owner and beneficiary of life insurance policies which are structured to fund the Bank's obligations under the terms of the plan. Directors initially elected after January 1, 1994, may participate in the Citizens National Bank of Cheboygan 1997 Deferred Compensation Plan. The plan was adopted by the Bank effective September 1, 1997. The plan permits deferral of all or any portion of your current director fees. Amounts deferred are credited with interest at a rate equal to the Bank's "yield on earning assets" as calculated at year end of the prior year. Upon separation for any reason of the services of a participating director from the Bank, the director will be entitled to receive the balance of his or her account either in a lump sum or in approximately equal installments over a period of ten years. During 2003 directors participating in the 1985 Directors' Deferred Compensation Plan received a deferred annual retainer of $4,000 for services on the Board of Directors of the Company and the Bank. Directors not eligible to participate in the 1985 Directors' Deferred Compensation Plan received a quarterly retainer of $2,250 for service on the two Boards. Directors are not compensated for attendance at Board or Committee meetings, but are reimbursed for travel expenses for meetings attended. 16 Performance Graph Set forth below is a line graph comparing yearly percentage change in the cumulative total shareholder return on the Company Common Stock (based on the last reported sales price of the respective year) with the cumulative total return of the NASDAQ Stock Market Index(United States stock only) and the NASDAQ Bank Stock Index. The following information is based on an investment of $100 on December 31, 1998, with dividends reinvested quarterly.
1998 1999 2000 2001 2002 2003 CNB Corporation $100 $172 $136 $142 $134 $142 NASDAQ Stock Market 100 185 112 89 61 92 NASDAQ Bank Stock 100 96 110 119 122 157
[LINE CHART] ITEM 12-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The following table sets forth certain information as of March 19, 2004, with respect to those persons known by the Corporation to be the beneficial owner of more than five percent(5%) of the Corporation's outstanding common stock. AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)
Sole Voting Shared Voting Total Name and Address of and Dispositive or Dispositive Beneficial Percent of Beneficial Owner Power Power(2) Ownership Class Dessie M. Ormsbee P.O. Box 5157 Cheboygan, MI 49721 37,279 37,279 74,558 5.99%
(1) The number of shares stated include shares personally owned of record by that person and shares which, under applicable regulations, are considered to be otherwise beneficially owned by that person. Under these regulations, a beneficial owner of a security includes any person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power or dispositive power with respect to the security. Voting power includes the power to vote or direct the voting of the security. Dispositive power includes the power to dispose or direct the disposition of the security. A person will also be considered the beneficial owner of a security if the person has a right to acquire beneficial ownership of the security within 60 days. 17 (2)These numbers include shares over which the listed person is legally entitled to share voting or dispositive power by reason of joint ownership, trust, or other contract or property right, and shares held by spouses and children over whom the listed person may have substantial influence by reason of relationship. The following table sets forth certain information as of March 19, 2004, as to the common stock of the Company owned beneficially by each director and nominee for director, each named executive officer, and by all directors and executive officers of the Company as a group. AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)
SOLE VOTING SHARED VOTING TOTAL NAME OF AND/OR AND/OR BENEFICIAL PERCENT OF BENEFICIAL OWNER DISPOSITIVE POWER DISPOSITIVE POWER(2) OWNERSHIP CLASS Steven J. Baker 1,716 1,716 * Robert E. Churchill 17,563 22,712 (3) 1.42% James C. Conboy, Jr. 9,006 14,938 (3) * Kathleen M. Darrow 2,415 2,415 * Thomas J. Ellenberger 3,379 10,086 13,465 1.08% Vincent J. Hillesheim 23,829 1,179 25,008 2.01% John L. Ormsbee 14,681 14,681 29,362 2.36% Francis J. Van Antwerp, Jr. 736 7,217 7,953 * John P. Ward 3,919 3,919 * All directors and officers as a group (12 persons) 45,995 69,591 126,667 (4) 10.17%
* Less than 1% (1)The number of shares stated include shares personally owned of record by that person and shares which, under applicable regulations, are considered to be otherwise beneficially owned by that person. Under these regulations, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power or dispositive power with respect to the security. Voting power includes the power to vote or direct the voting of the security. Dispositive power includes the power to dispose or direct the disposition of the security. A person will also be considered the beneficial owner of security if the person has the right to acquire beneficial ownership of the security within 60 days. (2)These numbers include shares over which the listed person is legally entitled to share voting or dispositive power by reason of joint ownership, trust, or other contract or property right, and shares held by spouses and children over whom the listed person may have substantial influence by reason of relationship. (3)Includes 5.149 shares and 5,932 shares that may be acquired within 60 days by Mr. Churchill and Mr. Conboy, respectively, through the exercise of stock options. (4)Includes 22,991 shares that may be acquired within 60 days by executive officers of the Company through the exercise of stock options. 18 SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
(c) (a) Number of Number of (b) securities remaining securities to Weighted-average available for be issued exercise price future issuance upon exercise of outstanding under equity of outstanding options, warrants compensation plans options, warrants and rights (excluding securities Plan Category and rights reflected in column (a)) Equity compensation 39,342 $44.10 9,952 plans approved by security holders Equity compensation None plans not approved by security holders Total 39,342 $44.10 9,952
ITEM 13-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Directors and officers of the Corporation, as well as members of their immediate families and the companies, organizations an other entities with which they are associated, have had, and are expected to have in the future, transactions with the Bank. All such transactions are made in the ordinary course of business and on substantially the same terms, including interest rates and collateral requirements on loan transactions, as those prevailing at the same time for comparable transactions with other persons. All such loan transactions do not involve more than normal risk of collectibility or present other unfavorable features and, when required, are approved by the Board of Directors. Director Conboy serves of counsel to the law firm of Bodman, Longley & Dahling LLP which provided legal services to the Corporation and the Bank during 2003. It is anticipated that Bodman, Longley & Dahling LLP will continue to furnish legal services in the future. Director Ward served as a consultant to, and worked on various projects for, the Bank during 2003 and was compensated $7,200 for his services. ITEM 14-PRINCIPAL ACCOUNTANT FEES AND SERVICES. In 2003, Crowe Chizek and Company LLC performed audit and audit related services for the Company and the Bank, which included examination of the consolidated financial statements of the Company and consultation on accounting and reporting matters. 19 Crowe Chizek and Company LLC has served as the independent internal external auditors for the Bank since 1980 and for the Company since its formation in 1985 and the Audit Committee has selected Crowe Chizek and Company LLC to serve as the Company's independent external auditors for 2004. Aggregate fees billed to the Company by Crowe Chizek and Company LLC, for the years ended December 31, 2003 and 2002 were as follows:
2003 2002 Audit Fees $42,754.00 $39,377.00 Audit-Related Fees 0.00 0.00 Tax Fees 7,000.00 6,900.00 All Other Fees 1,000.00 0.00
Tax fees relate to tax return preparation and tax consulting. All other fees for 2003 were for determination of expense under the 1985 Directors Deferred Compensation Plan. All of the services provided by the Company's independent external auditors set forth above were approved by the Audit Committee. The Audit Committee will annually review and pre-approve the services that may by provided by the independent external auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee may change the list of general pre-approved services from time to time based on subsequent determinations. Under no circumstances will the Audit Committee delegate its authority or responsibilities to pre-approve services performed by the independent external auditors to management. PART IV ITEM 15-EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) (1) Financial Statements. The following financial statements, notes to financial statements and independent auditor's report of CNB Corporation and its subsidiary are incorporated by reference in Item 8 of this report: Consolidated Balance Sheets-December 31, 2003 and 2002. Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2003, 2002 and 2001. Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2003, 2002 and 2001. Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001. Notes to Consolidated Financial Statements. Independent Auditor's Report dated February 12, 2004. (2) Financial Statement Schedules. Not applicable 20 (3) Exhibits. (3a) Articles of Incorporation. Previously filed as exhibit to the registrant's Form 10-KSB filed April 26, 1996 and hereby incorporated by reference. (3b) By-laws as amended through March 25, 2004 (filed herewith). (11) Statement regarding computation per share earnings. This information is disclosed in Note 10 to the Company's Financial Statements for the year ended December 31, 2003, which was previously filed as Exhibit 13 to the Company's Form 10-K for the fiscal year ended December 31, 2003 filed March 30, 2004, and is hereby incorporated by reference. (13) Annual report to shareholders for the year ended December 31, 2003. Previously filed as as Exhibit 13 to the Company's Form 10-K for the fiscal year ended December 31, 2003 filed March 30, 2004, and hereby incorporated by reference. (21) Subsidiaries of the Company. Previously filed as Exhibit 21 to the Company's Form 10-K for the fiscal year ended December 31, 2004 filed March 30, 2004, and hereby incorporated by reference. (23) Consent of Independent Auditors. Previously filed as Exhibit 23 to the Company's Form 10-K for the fiscal year ended December 31, 2003 filed March 30, 2004, and hereby incorporated by reference. (31.1) Certification of Chief Executive Officer (filed herewith). (31.2) Certification of Chief Financial Officer (filed herewith). (32.1) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last calendar quarter of the year covered by this report. (c) See Item 15(a) (3) (d) Financial Statement Schedules. Not applicable. 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 December 20, 2004 /s/ James C. Conboy, Jr. -------------------------------------- James C. Conboy, Jr. President and Chief Executive Officer EXHIBIT INDEX (3a) Articles of Incorporation. Previously filed as an exhibit to the registrant's Form 10-KSB filed April 26, 1996 and hereby incorporated by reference. (3b) By-laws as amended through March 25, 2004 (filed herewith). (11) Statement regarding computation per share earnings. This information is disclosed in Note 10 to the Company's Financial Statements for the year ended December 31, 2003 contained in its annual report to shareholders for the year ended December 31, 2003, which was previously filed as Exhibit 11 to the Company's Form 10-K for the fiscal year ended December 31, 2003 filed March 30, 2004, and is hereby incorporated by reference. (13) Annual report to shareholders for the year ended December 31, 2003. Previously filed as Exhibit 13 to the Company's Form 10-K for the fiscal year ended December 31, 2003 filed March 30, 2004, and hereby incorporated by reference. (21) Subsidiaries of the Company. Previously filed as Exhibit 21 to the Comapany's Form 10-K for the fiscal year ended December 31, 2003 filed March 30, 2004, and hereby incorporated by reference. (23) Consent of Independent Auditors. Previously filed as Exhibit 23 to the Company's Form 10-K for the fiscal year ended December 31, 2003 filed March 30, 2004, and hereby incorporated by reference. (31.1) Certification of Chief Executive Officer (filed herewith). (31.2) Certification of Chief Financial Officer (filed herewith). (32.1) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).