10-Q 1 k96957e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED JUNE 30, 2005 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2005 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] As of August 10, 2005 there were 1,236,566 shares of the issuer's common stock outstanding. ================================================================================ CNB CORPORATION Index PART I - FINANCIAL INFORMATION Item 1 - Financial Statements (Condensed): Consolidated Balance Sheets - June 30, 2005 and December 31, 2004 ............................... 3 Consolidated Statements of Income - Three and Six Months Ended June 30, 2005 and 2004 ............................................ 4 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2005 and 2004 ................. 5 Notes to Consolidated Financial Statements .................................................. 6 - 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations ...... 8 - 11 Item 3 - Quantitative and Qualitative Disclosures About Market Risk ..................................... 11 Item 4 - Controls and Procedures ........................................................................ 11 PART II - OTHER INFORMATION Item 1 - Legal Proceedings .............................................................................. 12 Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds .................................... 12 Item 3 - Defaults Upon Senior Securities ................................................................ 12 Item 4 - Submission of Matters to a Vote of Security Holders ............................................ 13 Item 5 - Other Information .............................................................................. 13 Item 6 - Exhibits and Reports on Form 8-K ............................................................... 13 Signatures ......................................................................................... 14 - 17 Exhibit Index ........................................................................................... 18
2 PART I - FINANCIAL INFORMATION ITEM 1-FINANCIAL STATEMENTS (CONDENSED) CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data)
June 30, December 31, 2005 2004 (Unaudited) ASSETS Cash and due from banks $ 10,075 $ 5,795 Interest-bearing deposits with other financial institutions - 2,000 Federal funds sold 1,659 4,900 -------------- -------------- Total cash and cash equivalents 11,734 12,695 Securities available for sale 78,897 78,280 Securities held to maturity (market value of $5,428 in 2005 and $4,663 in 2004) 5,383 4,621 Other securities 4,108 6,050 Loans, held for sale 541 - Loans, net of allowance for loan losses of $1,409 in 2005 and $1,350 in 2004 148,217 143,258 Premises and equipment, net 4,674 4,600 Other assets 5,072 4,590 -------------- -------------- Total assets $ 258,626 $ 254,094 ============== ============== LIABILITIES Deposits Noninterest-bearing $ 41,172 $ 37,289 Interest-bearing 188,251 188,122 -------------- -------------- Total deposits 229,423 225,411 Other liabilities 4,422 4,527 -------------- -------------- Total liabilities 233,845 229,938 SHAREHOLDERS' EQUITY Common stock - $2.50 par value; 2,000,000 shares authorized; and 1,237,027 and 1,237,994 shares issued and outstanding in 2005 and 2004 3,093 3,095 Additional paid-in capital 20,424 20,475 Retained earnings 1,759 1,010 Accumulated other comprehensive income, net of tax (495) (424) -------------- -------------- Total shareholders' equity 24,781 24,156 -------------- -------------- Total liabilities and shareholders' equity $ 258,626 $ 254,094 ============== ==============
See accompanying notes to consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data)
Three months ended Six months ended June 30, June 30, 2005 2004 2005 2004 (Unaudited) INTEREST INCOME Loans, including fees $ 2,575 $ 2,415 $ 5,024 $ 4,830 Securities Taxable 538 468 1,046 909 Tax exempt 152 168 304 355 Interest on federal funds sold 55 22 107 50 ------- -------- -------- -------- Total interest income 3,320 3,073 6,481 6,144 INTEREST EXPENSE ON DEPOSITS 726 714 1,379 1,470 ------- -------- -------- -------- NET INTEREST INCOME 2,594 2,359 5,102 4,674 Provision for loan losses 30 - 60 - ------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,564 2,359 5,042 4,674 ------- -------- -------- -------- NONINTEREST INCOME Service charges and fees 237 245 457 472 Net realized gains from sales of loans 60 125 112 187 Loan servicing fees, net of amortization 35 33 57 66 Other income 348 55 403 116 ------- -------- -------- -------- Total noninterest income 680 458 1,029 841 NONINTEREST EXPENSES Salaries and benefits 821 933 1,614 1,743 Deferred compensation 391 79 466 158 Pension 78 84 156 168 Hospitalization 134 110 263 227 Occupancy 207 193 419 395 Supplies 49 34 92 80 Legal and Professional 138 89 232 157 Other expenses 259 268 518 483 ------- -------- -------- -------- Total noninterest expense 2,077 1,790 3,760 3,411 ------- -------- -------- -------- INCOME BEFORE INCOME TAXES 1,167 1,027 2,311 2,104 Income tax expense 235 295 574 599 ------- -------- -------- -------- NET INCOME $ 932 $ 732 $ 1,737 $ 1,505 ======= ======== ======== ======== TOTAL COMPREHENSIVE INCOME $ 1,147 $ (220) $ 1,666 $ 709 ======= ======== ======== ======== Return on average assets (annualized) 1.45% 1.14% 1.35% 1.18% Return on average equity (annualized) 15.11% 11.51% 14.12% 11.81% Basic earnings per share $ 0.75 $ 0.59 $ 1.40 $ 1.21 Diluted earnings per share $ 0.75 $ 0.59 $ 1.40 $ 1.20 Dividends declared per share $ 0.40 $ 0.40 $ 0.80 $ 0.80
See accompanying notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands).
Six months ended June 30, 2005 2004 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 1,737 $ 1,505 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization 295 600 Provision for loan losses 60 - Loans originated for sale (5,862) (9,854) Proceeds from sales of loans originated for sale 5,380 9,952 Gain on sales of loans (112) (187) Increase in other assets (392) (200) Increase (decrease) in other liabilities 849 217 ---------- ---------- Total adjustments 218 528 ---------- ---------- Net cash provided by operating activities 1,955 2,033 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of securities available for sale 9,425 16,198 Purchase of securities available for sale (10,440) (21,809) Proceeds from maturities of securities held to maturity 688 1,064 Purchase of securities held to maturity (1,450) (1,785) Proceeds from maturities of other securities 2,000 140 Purchase of other securities (58) (319) Net change in portfolio loans (5,019) 1,678 Premises and equipment expenditures (305) (696) ---------- ---------- Net cash used in investing activities (5,159) (5,529) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 4,012 6,185 Dividends paid (1,716) (1,683) Net proceeds from exercise of stock options 11 46 Purchases of common stock (64) (413) ---------- ---------- Net cash provided by financing activities 2,243 4,135 ---------- ---------- Net change in cash and cash equivalents (961) 639 Cash and cash equivalents at beginning of year 12,695 17,065 ---------- ---------- Cash and cash equivalents at end of period $ 11,734 $ 17,704 ========== ========== Cash paid during the period for: Interest $ 1,351 $ 1,468 Income taxes $ 655 $ 721
See accompanying notes to consolidated financial statements. 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1-Basis of Presentation The consolidated financial statements include the accounts of CNB Corporation ("Company") and its wholly owned subsidiary, Citizens National Bank of Cheboygan ("Bank") and the Bank's wholly owned subsidiary CNB Mortgage Corporation. All significant intercompany accounts and transactions are eliminated in the consolidation process. 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 consolidated financial statements included in the CNB Corporation's Form 10-K for the year ended December 31, 2004. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America 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. Stock Compensation: The following proforma information presents net income and basic and diluted earnings per share had the fair value method been used to measure compensation for stock options granted. The exercise price of options granted is equivalent to the market price of the underlying stock at the stock grant date; therefore no compensation expense has been recorded for stock options granted. FAS123R will be effective in 2006 and requires companies to record compensation for stock options provided to employees in return for employee service. The cost is measured at the fair value of the options when granted, and this cost is expensed over the employee's service period, which is normally the vesting period of the options. This will apply to awards granted or modified adoption. Compensation cost will also be recorded for prior option grants that vest after the date of adoption. The effect on results of operations will depend on the level of future option grants and the calculation of the fair value of the options granted at such future date, as well as the vesting periods provided, and so cannot currently be predicted.
For the Three Months Ended For the Six Months Ended June 30, June 30, 2005 2004 2005 2004 ---- ---- ---- ---- Net income as reported $ 932 $ 732 $ 1,737 $ 1,505 Deduct: Stock based compensation expense determined under fair value method - (11) - (22) ----------- ----------- ---------- ---------- Proforma net income $ 932 $ 721 $ 1,737 $ 1,483 =========== =========== ========== ========== Basic earnings per share as reported $ 0.75 $ 0.59 $ 1.40 $ 1.21 Proforma basic earnings per share 0.75 0.58 1.40 1.19 Diluted earnings per share as reported 0.75 0.59 1.40 1.20 Proforma diluted earnings per share 0.75 0.58 1.40 1.19
There were no stock options granted during the three or six months ended June 30, 2005 and 2004. 6 In future years, as additional options are granted, the effect on net income and earnings per share may increase. Stock options are used to reward certain officers and provide them with an additional equity interest. Options are issued for 10 year periods and have varying vesting schedules. Information about options available for grant and options granted follows:
Weighted Average Available Options Exercise For Grant Outstanding Price Balance at January 1, 2005 9,952 27,839 $ 46.92 Options exercised - (300) 38.60 Options forfeited (525) 48.57 --------- ----------- Balance at June 30, 2005 9,952 27,014 $ 46.98 ========= ===========
At June 30, 2005 options outstanding had a weighted average remaining life of approximately 5.0 years. There were 27,014 options exercisable at June 30, 2005 with a weighted-average exercise price of $ 46.98. There have been no significant changes in the Company's critical accounting policies since December 31, 2004. Note 2-Earnings Per Share Basic earnings per share are 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, 2005 the weighted average shares outstanding in calculating basic earnings per share were 1,237,518 and 1,237,683 while the weighted average number of shares for diluted earnings per share were 1,239,342 and 1,240,520. As of June 30, 2005 there were 8,340 shares not considered in the earnings per share calculation because they were antidilutive. For the three and six month periods ending June 30, 2004 the weighted average shares outstanding in calculating basic earnings per share were 1,245,677 and 1,245,041 while the weighted average number of shares for diluted earnings per share were 1,248,925 and 1,249,848. 7 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 ("Company") and its wholly owned subsidiary, Citizens National Bank of Cheboygan ("Bank") and the Bank's wholly owned subsidiary CNB Mortgage Corporation for the three and six month periods ending June 30, 2005. FINANCIAL CONDITION The Company's balances of cash and cash equivalents decreased $961,000 or 7.6%. During the six month period ending June 30, 2005, nearly $2 million in cash was provided by operating activities. Investing activities utilized $5.2 million during the six months ended June 30, 2005, primarily due to origination of loans and financing activities provided $2.2 million. SECURITIES The securities portfolio increased $563,000 since December 31, 2004. The available for sale portfolio increased to 89.3% of the investment portfolio up from 88.0% at year-end. The fair values and related unrealized gains and losses for securities available for sale were as follows, in thousands of dollars:
Gross Gross Fair Unrealized Unrealized Value Gains Losses Available for Sale JUNE 30, 2005 U.S. Government agency $57,377 $ 7 $ (618) Mortgage-backed 6,486 3 (15) State and municipal 15,034 147 (22) ------- ------- ------- $78,897 $ 157 $ (655) ======= ======= ======= DECEMBER 31, 2004 U.S. Government agency $56,786 $ 20 $ (431) Mortgage-backed 3,149 8 - State and municipal 18,345 255 (17) ------- ------- ------- $78,280 $ 283 $ (448) ======= ======= =======
The carrying amount, unrecognized gains and losses, and fair value of securities held to maturity were as follows, in thousand of dollars:
Gross Gross Carrying Unrecognized Unrecognized Fair Amount Gains Losses Value ------ ----- ------ ----- Held to Maturity JUNE 30, 2005 State and municipal $ 5,383 $ 63 $ (18) $ 5,428 ========== ======= ======== ========== DECEMBER 31, 2004 State and municipal $ 4,621 $ 55 $ (13) $ 4,663 ========== ======= ======== ==========
8 The carrying amount and fair value of securities by contractual maturity at June 30, 2005 are shown below, in thousands of dollars.
Available for sale Held to Maturity Fair Carrying Fair Value Amount Value ----- ------ ----- Due in one year or less $ 27,411 $ 834 $ 836 Due from one to five years 49,500 2,727 2,757 Due from five to ten years 1,151 623 636 Due after ten years 835 1,199 1,199 --------- ------- ------- $ 78,897 $ 5,383 $ 5,428 ========= ======= =======
LOANS Net loans at June 30, 2005 increased $5 million from December 31, 2004. The table below shows total loans outstanding by type, in thousands of dollars, at June 30, 2005 and December 31, 2004 and their percentages of the total loan portfolio. All loans are domestic. A quarterly review of loan concentrations at June 30, 2005 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 14.1% of total loans.
June 30, 2005 December 31, 2004 Balance % of total Balance % of total ------- ---------- ------- ---------- Portfolio loans: Residential real estate $ 80,871 54.05% $ 83,364 57.64% Consumer 8,914 5.96% 8,699 6.02% Commercial real estate 49,235 32.90% 43,336 29.97% Commercial 10,615 7.09% 9,220 6.38% --------- ----- --------- ----- 149,635 100.00% 144,619 100.00% ====== ====== Deferred loan origination fees, net (9) (11) Allowance for loan losses (1,409) (1,350) --------- --------- Loans, net $ 148,217 $ 143,258 ========= =========
ALLOWANCE AND PROVISION FOR LOAN LOSSES An analysis of the allowance for loan losses, in thousands of dollars, for the six months ended June 30, follows:
2005 2004 ---- ---- Beginning balance $ 1,350 $ 1,575 Provision for loan losses 60 - Charge-offs (11) (108) Recoveries 10 6 --------- --------- Ending balance $ 1,409 $ 1,473 ========= =========
The Company had one impaired loan during 2004 with an average balance of approximately $100,000. The balance of this loan was zero at December 31, 2004. The Company had no impaired loans during the first six months of 2005. Since December 31, 2004, net loans have increased $5 million and the loan portfolio has undergone a shift in its composition over the past six months. Since December 31, 2004 commercial mortgages have increased $5.9 9 million while consumer mortgages have decreased $2.5 million. This is primarily due to a slow down in residential refinancing and a stronger emphasis on commercial lending. There has been no change in the bank's lending policies. The lending staff continues to be well-trained and experienced. The trend and volume of past due loans continues to be well-controlled and in line with peer averages. In response to the change in portfolio composition and loan growth management recorded a provision of $60,000 in the first six months of 2005 compared to $0 for 2004. CREDIT QUALITY The Company maintains a high level of asset quality as a result of actively managing delinquencies, nonperforming assets and potential loan problems. 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, 2005 2004 (dollars in thousands) Nonaccrual $ - $ - Loans past due 90 days or more 247 674 Troubled debt restructurings - - ----------- --------- Total nonperforming loans $ 247 $ 674 =========== ========= Percent of total loans 0.17% 0.47%
DEPOSITS Deposits at June 30, 2005 increased $4.0 million since December 31, 2004. Interest-bearing deposits increased $129,000 or less than 1% for the six months ended June 30, 2005, while noninterest -bearing deposits increased $3.9 million or 10.4%. This growth can be attributed to seasonal activity. LIQUIDITY AND FUNDS MANAGEMENT As of June 30, 2005, the Company had $1.7 million in federal funds sold, $78.9 million in securities available for sale and $834,000 in held to maturity securities maturing within one year. These sources of liquidity are supplemented by new deposits and loan payments received by customers. These short-term assets represent 35.5% of total deposits as of June 30, 2005. Total equity of the Company at June 30, 2005 was $24.8 million compared to $24.2 million at December 31, 2004. RESULTS OF OPERATIONS CNB Corporation's 2005 net income for the first six months was $1.7 million an increase of $232,000 compared to 2004 results. This increase can be attributed to an increase in net interest income resulting from the higher rate environment compared to 2004. Earnings also include $300,000 due to life insurance proceeds received due to death of a director. The proceeds were offset by additional expense of $315,000 to recognize the amount payable to the director upon death under the deferred compensation plan. Basic earnings per share and diluted earnings per share were $1.40 per share for 2005 compared to basic earnings per share of $1.21 10 and diluted earnings per share of $1.20 for 2004. The return on assets was 1.35% for the first six months of the year versus 1.18% for the same period in 2004. The return on equity was 14.12% compared to 11.81% for the same period last year. Net income for the three months ending June 30, 2005 was $932,000 compared to $732,000 for 2004. This was an increase of $200,000 or 27.3%. Basic and diluted earnings per share were $0.75 compared to $0.59 for 2004. The return on average assets was 1.45% compared to 1.14% for 2004. The return on average equity was 15.11% compared to 11.51% for 2004. These increases were primarily due to the same reasons noted above for the six month period. For the first six months of 2005, net interest income was $5.1 million representing an increase of 9.2% from the same period in 2004. This increase can be attributed to an increase in interest income compared to the first six months of 2004. The fully taxable equivalent net interest margin increased to 4.32% for the six month period ending June 30, 2005 compared to 4.02% for the same period ending June 30, 2004. This change can be attributable to an increase in overall interest rates from 2005 to 2004. In response to the change in the loan portfolio composition and loan growth management recorded a provision expense of $60,000 in the first six months in 2005 compared to $0 for the same period in 2004. Noninterest income for the six months ending June 30, 2005 was $1 million, an increase of $188,000 or 22.4% from the same period last year. The majority of this increase can be attributed to income from the life insurance proceeds as mentioned above. The increase in noninterest income due to the life insurance proceeds was offset, in part by a decline in gains on sales of loans due to the lesser amount of loans that were sold to the secondary market year-to-date 2005 as compared to the same period in 2004. Noninterest expense for the first six months of 2005 was $3.7 million compared to $3.4 million for the same period in 2004. This increase can largely be attributed to the increase in deferred compensation expense as noted above. The provision for federal income tax was 24.8% of pretax income for the six months ended June 30, 2005 as compared to 28.5% for the same period in 2004. The difference between the tax rate for the two periods is due to the unanticipated non-taxable income from insurance proceeds during 2005. The difference between the effective tax rate and the federal corporate tax rate of 34% is generally due to tax-exempt interest earned on investments and loans and other tax-related items. ITEM 3-QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary source of market risk for the financial instruments held by the Company is interest rate risk. That is, the risk that a 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 Company's net interest margin to swings in interest rates, to assuring sufficient capital and liquidity to support future balance sheet growth. The Company manages interest rate risk through the Asset Liability Committee. The Asset Liability Committee is comprised of bank officers from various disciplines. The Committee reviews policies and establishes 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 of shareholders' equity. Management believes that there has been no significant changes to the interest rate sensitivity since the presentation in the December 31, 2004 Management Discussion and Analysis appearing in the December 31, 2004 10K. 11 ITEM 4-CONTROLS AND PROCEDURES The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"). These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed summarized and reported within required time periods. Our Chief Executive Officer and Treasurer, who serves as the Company's CFO have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report (the "Evaluation Date"), and have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in providing them with material information relating to the Corporation which is required to be included in our periodic reports filed under the Exchange Act. The Bank hired Ms. Shanna Hanley as Vice President and Senior Controller in April. Ms. Hanley will be directly involved in the financial reporting aspect of the Bank and the Corporation. Ms. Hanley was appointed as treasurer of the Corporation at the May 17, 2005 annual meeting. PART II-OTHER INFORMATION ITEM 1-LEGAL PROCEEDINGS None ITEM 2- UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ISSUER PURCHASES OF EQUITY SECURITIES
PERIOD Total Approximate number dollar value of shares of shares Total Average purchased that may number of price as part of publicly be purchased shares paid per announced under the plans purchased share plans or programs or programs April, 2005 None May, 2005 396 $50.00 June, 2005 671 $50.00 Total $33,555
The Company adopted a Stock Redemption Program on November 14, 2002 with the provision that it would remain in effect for six months or until $1 million had been expended on the purchase of common stock, whichever shall occur first. The Company extended the program in May 2003 until November 2003. The Company reinstated the program on December 24, 2003 and it will remain in effect until the $1 million originally allocated for common stock purchases is met. As of June 30, 2005, the Company has $33,555 remaining to purchase stock. 12 ITEM 3-DEFAULTS UPON SENIOR SECURITIES None ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders of CNB Corporation was held on May 17, 2005. Elected as Directors for one year term were Steven J. Baker; 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: 903,486 Votes cast against: 5,092 Votes withheld: 203 Votes cast for were for all eight directors listed above with the exception of the votes cast against as noted. Votes cast against were 6 for Robert E. Churchill, 5,086 for John L. Ormsbee. Votes withheld were for all eight directors listed above. ITEM 5-OTHER INFORMATION Due to the passing of Chairman Robert E. Churchill on May 9, 2005, Mr. John P. Ward was elected by the Board of Directors at the May 17, 2005 annual meeting to serve as Chairman of the Board for the ensuing year. Mr. Ward retired from the Bank during 1998 and was the Secretary of the Corporation prior to this election. Due to Mr. Ward's appointment to Chairman, the position of Secretary of the Corporation was appointed to Ms. Susan A. Eno at the same meeting. Ms. Eno is an Executive Vice President of the Corporation; Executive Vice President and Cashier of the Bank. Ms. Eno has been an officer of the Corporation since 1996 and an employee of the Bank since 1971. She has been in her current position for more than 8 years. ITEM 6-EXHIBITS AND REPORTS OF FORM 8-K a.) Exhibits 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002 b.) Reports on Form 8-K A Current Report on Form 8-K was filed on July 11, 2005, with an accompanying letter to shareholders, disclosing the Corporation's financial performance for the first six months of 2005. 13 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) /s/ James C. Conboy, Jr. Date: August 12, 2005 ------------------------------ James C. Conboy, Jr. President and Chief Executive Officer /s/ Susan A. Eno Date: August 12, 2005 ------------------------------------ Susan A. Eno Executive Vice President 14 EXHIBIT INDEX Number Exhibit 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 15