-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WNPjQAumEcFTPDfnrfhRLJP1Ie/D1v1JGdjkMZqzU7FGSJI6DRyKQvILgCeldN7m 0J+So0MenfFEQkRv1FTLvg== 0000950124-07-004266.txt : 20070814 0000950124-07-004266.hdr.sgml : 20070814 20070814150701 ACCESSION NUMBER: 0000950124-07-004266 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070814 DATE AS OF CHANGE: 20070814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CNB CORP /MI/ CENTRAL INDEX KEY: 0000779125 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 362662386 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-00737 FILM NUMBER: 071054352 BUSINESS ADDRESS: STREET 1: PO BOX 10 CITY: CHEBOYGAN STATE: MI ZIP: 49721 BUSINESS PHONE: 6166277111 MAIL ADDRESS: STREET 1: P O BOX 10 CITY: CHEBOYGAN STATE: MI ZIP: 49721 10-Q 1 k17827e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED JUNE 30, 2007 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, 2007 Commission file # 033-00737 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 Exchange Act). Yes [ ] No [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and larger accelerated filer" in Rule 12b-2 or the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes [ ] No [X] As of August 7, 2008 there were 1,230,497 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, 2007 and December 31, 2006 .. 3 Consolidated Statements of Income - Six Months Ended June 30, 2007 and 2006 ........................................................ 4 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2007 and 2006 .......................................... 5 Notes to Consolidated Financial Statements ......................... 6 - 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations .......................................... 8 - 13 Item 3 - Quantitative and Qualitative Disclosures About Market Risk ... 13 Item 4 - Controls and Procedures ...................................... 13 PART II - OTHER INFORMATION Item 1 - Legal Proceedings ............................................ 14 Item 1A - Risk Factors ................................................ 14 Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds .. 14 Item 3 - Defaults Upon Senior Securities .............................. 14 Item 4 - Submission of Matters to a Vote of Security Holders .......... 14 Item 5 - Other Information ............................................ 15 Item 6 - Exhibits and Reports on Form 8-K ............................. 15 Signatures ............................................................ 16 - 19 Exhibit Index ......................................................... 20
2 PART I - FINANCIAL INFORMATION ITEM 1-FINANCIAL STATEMENTS (CONDENSED) CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data)
June 30, December 31, 2007 2006 ----------- ------------ (Unaudited) ASSETS Cash and due from banks $ 6,548 $ 8,444 Interest-bearing deposits with other financial institutions 1,246 -- Federal funds sold 7,328 6,368 -------- -------- Total cash and cash equivalents 15,122 14,812 Securities available for sale 51,813 51,331 Securities held to maturity (market value of $5,472 in 2007 and $4,582 in 2006) 5,431 4,543 Other securities 1,008 1,008 Loans, held for sale 1,127 -- Loans, net of allowance for loan losses of $1,606 in 2007 and $1,498 in 2006 171,517 165,730 Premises and equipment, net 6,483 6,626 Other assets 8,656 7,850 -------- -------- Total assets $261,157 $251,900 ======== ======== LIABILITIES Deposits Noninterest-bearing $ 41,643 $ 39,620 Interest-bearing 188,907 181,745 -------- -------- Total deposits 230,550 221,365 Other liabilities 5,179 5,537 -------- -------- Total liabilities 235,729 226,902 SHAREHOLDERS' EQUITY Common stock - $2.50 par value; 2,000,000 shares authorized; and 1,239,497 and 1,239,512 shares issued and outstanding in 2007 and 2006 3,099 3,099 Additional paid-in capital 20,482 20,482 Retained earnings 2,624 2,235 Accumulated other comprehensive loss, net of tax (777) (818) -------- -------- Total shareholders' equity 25,428 24,998 -------- -------- Total liabilities and shareholders' equity $261,157 $251,900 ======== ========
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, ------------------ ---------------- 2007 2006 2007 2006 ------ ------ ------ ------ (Unaudited) INTEREST INCOME Loans, including fees $3,254 $3,007 $6,386 $5,829 Securities Taxable 505 453 932 909 Tax exempt 111 110 238 237 Other interest income 207 58 450 160 ------ ------ ------ ------ Total interest income 4,077 3,628 8,006 7,135 INTEREST EXPENSE ON DEPOSITS 1,518 1,131 2,986 2,126 ------ ------ ------ ------ NET INTEREST INCOME 2,559 2,497 5,020 5,009 Provision for loan losses 69 30 138 60 ------ ------ ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,490 2,467 4,882 4,949 ------ ------ ------ ------ NONINTEREST INCOME Service charges and fees 299 244 572 469 Net realized gains from sales of loans 36 32 67 82 Loan servicing fees, net of amortization 45 30 63 59 Gain on sale of premises and equipment -- 509 -- 509 Other income 78 52 136 92 ------ ------ ------ ------ Total noninterest income 458 867 838 1,211 NONINTEREST EXPENSES Salaries and employee benefits 899 869 1,813 1,749 Deferred compensation 79 79 160 160 Pension 32 65 67 129 Hospitalization 135 144 249 285 Occupancy 275 268 586 537 Supplies 61 77 113 111 Legal and professional 112 97 217 195 Other expenses 246 298 523 621 ------ ------ ------ ------ Total noninterest expense 1,839 1,897 3,728 3,787 ------ ------ ------ ------ INCOME BEFORE INCOME TAXES 1,109 1,437 1,992 2,373 Income tax expense 308 441 561 683 ------ ------ ------ ------ NET INCOME $ 801 $ 996 $1,431 $1,690 ====== ====== ====== ====== TOTAL COMPREHENSIVE INCOME $ 745 $ 985 $1,472 $1,772 ====== ====== ====== ====== Return on average assets (annualized) 1.24% 1.60% 1.11% 1.34% Return on average equity (annualized) 12.56% 15.89% 11.29% 13.57% Basic earnings per share $ 0.65 $ 0.80 $ 1.15 $ 1.37 Diluted earnings per share $ 0.65 $ 0.80 $ 1.15 $ 1.36 Dividends declared per share $ 0.42 $ 0.42 $ 0.84 $ 0.84
See accompanying notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands).
Six months ended June 30, ------------------------- 2007 2006 -------- -------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 1,431 $ 1,690 Adjustments to reconcile net income to net cash from operating activities Depreciation, amortization and accretion, net (291) 72 Provision for loan losses 138 60 Loans originated for sale (2,363) (3,867) Proceeds from sales of loans originated for sale 1,257 3,542 Gain on sales of loans (67) (82) Gain on sales of premisis and equipment -- (509) Increase in other assets (248) (297) Increase in other liabilities 372 867 -------- -------- Total adjustments (1,202) (214) -------- -------- Net cash provided by operating activities 229 1,476 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of securities available for sale 17,647 16,360 Purchase of securities available for sale (17,465) (4,697) Proceeds from maturities of securities held to maturity 1,273 709 Purchase of securities held to maturity (2,161) (1,435) Net change in portfolio loans (6,458) (8,683) Premises and equipment expenditures (168) (609) Proceeds from sale of premises and equipment -- 542 -------- -------- Net cash (used in) provided by investing activities (7,332) 2,187 CASH FLOWS FROM FINANCING ACTIVITIES Net increase(decrease) in deposits 9,185 (2,016) Dividends paid (1,772) (1,756) Net proceeds from exercise of stock options -- 37 Purchases of common stock -- (5) -------- -------- Net cash provided by (used in) financing activities 7,413 (3,740) -------- -------- Net change in cash and cash equivalents 310 (77) Cash and cash equivalents at beginning of year 14,812 11,943 -------- -------- Cash and cash equivalents at end of period $ 15,122 $ 11,866 ======== ======== Cash paid during the period for: Interest $ 2,949 $ 2,079 Income taxes 623 186 Non-cash transactions: Transfer from loans to other real estate owned 533 35
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, 2006. 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 Options The Company adopted a stock option plan in May 1996 under which the stock options may be issued at market prices to employees. The plan states that no grant or award shall be made under the plan more than ten years from the date of adoption of the plan and therefore the plan ended in 2006. Stock options were used to reward certain officers and provide them with an additional equity interest. Options were issued for 10 year periods and have varying vesting schedules. The exercise price of options granted is equivalent to the market value of underlying stock at the grant date. The Company has a policy of issuing new shares to satisfy option exercises. There were no modification of awards during the periods ended June 30, 2007 and 2006. Due to the plan end date, there are no options available for grant as of June 30, 2007 and there were no stock options granted during the six months ended June 30, 2006. Information about options outstanding and options exercisable follows:
Weighted Weighted Average Average Remaining Aggregate Options Exercise Contractual Intrinsic Outstanding Price Term Value ----------- -------- ----------- --------- Balance at January 1, 2007 23,438 $49.00 Options exercised -- -- Balance at June 30, 2007 23,438 $49.00 3.5 years $25,718 ======
The aggregate intrinsic value of options exercised for the three and six months ended June 30, 2007 was $0. The aggregate intrinsic value of option exercised for the three and six months ended June 30, 2006 was approximately $24,000 and $28,000, respectively. There were no shares vested for the same periods. Cash received from option exercises for the three and six month periods ending June 30, 2007 was $0 and for the three and six month periods ending June 30, 2006 was approximately $29,000 and $37,000, respectively. There was no tax benefit realized from option exercises during the same periods. There have been no significant changes in the Company's critical accounting policies since December 31, 2006. 6 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, 2007 the weighted average shares outstanding in calculating basic earnings per share were 1,239,504 and 1,239,507 while the weighted average number of shares for diluted earnings per share were 1,239,876 and 1,240,371. As of June 30, 2007 there were 19,407 options not considered in the three and six month earnings per share calculations because they were antidilutive. For the three and six month periods ending June 30, 2006 the weighted average shares outstanding in calculating basic earnings per share were 1,238,088 and 1,237,763 while the weighted average number of shares for diluted earnings per share were 1,239,378 and 1,239,601. As of June 30, 2006 there were 19,707 options not considered in the three and six month earnings per share calculations because they were antidilutive. 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 six month period ending June 30, 2007. CRITICAL ACCOUNTING POLICIES Certain of the Company's accounting policies are important to the portrayal of the Company's financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in fact and circumstances. Facts and circumstances which could affect these judgments include, but without limitation, changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses and determining the fair value of securities. The Company's critical accounting policies are described in the Management Discussion and Analysis section of its 2006 Annual Report. FINANCIAL CONDITION As of June 30, 2007 total assets of the company were $261.2 million which represents an increase of $9.3 million or 3.7% from December 31, 2006. The Company recognized an increase in the loan portfolio of $5.9 million or 3.5% while deposits increased $9.2 million or 4.1% since December 31, 2006. SECURITIES The total securities portfolio increased $1.4 million since December 31, 2006. The available for sale portfolio decreased marginally to 88.9% of the investment portfolio down from 90.2% at year-end even though the total amount of the available for sale portfolio increased $482,000. The reason for the marginal decrease of the available for sale portfolio in relation to the total investment portfolio is due to the increase in the held to maturity securities. Held to maturity securities increased $888,000 and is now 9.3% of the investment portfolio up from 8.0% at year-end. The remaining small percentage of the investment portfolio is the Other Securities category made up of Federal Home Loan Bank and Federal Reserve Bank Stock which are required holds to have a correspondent bank relationship with these entities. The fair values and related unrealized gains and losses for securities available for sale were as follows, in thousands of dollars: 8
Gross Gross Fair Unrealized Unrealized Value Gains Losses ------- ---------- ---------- Available for Sale JUNE 30, 2007 U.S. Government agency $20,834 $ 0 $ (74) Mortgage-backed 11,458 0 (102) State and municipal 5,521 65 (17) Money market preferred stocks 14,000 -- -- ------- --- ----- $51,813 $65 $(193) ======= === ===== DECEMBER 31, 2006 U.S. Government agency $21,307 $ 8 $(125) Mortgage-backed 10,491 4 (107) State and municipal 8,549 59 (13) Money market preferred stocks 10,984 -- (16) ------- --- ----- $51,331 $71 $(261) ======= === =====
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, 2007 State and municipal $5,431 $51 $(10) $5,472 ====== === ==== ====== DECEMBER 31, 2006 State and municipal $4,543 $54 $(15) $4,582 ====== === ==== ======
The carrying amount and fair value of securities by contractual maturity at June 30, 2007 are shown below, in thousands of dollars.
Available Held to Maturity for sale ----------------- Fair Carrying Fair Value Amount Value ------- -------- ------ Due in one year or less $25,950 $ 690 $ 691 Due from one to five years 24,608 2,315 2,348 Due from five to ten years 555 1,556 1,563 Due after ten years 700 870 870 ------- ------ ------ $51,813 $5,431 $5,472 ======= ====== ======
LOANS Net loans at June 30, 2007 increased $5.8 million from December 31, 2006. The table below shows total loans outstanding by type, in thousands of dollars, at June 30, 2007 and December 31, 2006 and their percentages of the total loan portfolio. All loans are domestic. A quarterly review of loan concentrations at June 30, 2007 9 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 13.0% of total loans.
June 30, 2007 December 31, 2006 --------------------- --------------------- Balance % of total Balance % of total -------- ---------- -------- ---------- Portfolio loans: Residential real estate $ 82,027 47.38% $ 82,842 49.53% Consumer 9,111 5.26% 9,444 5.65% Commercial real estate 67,705 39.11% 61,740 36.92% Commercial 14,284 8.25% 13,208 7.90% -------- ------ -------- ------ 173,127 100.00% 167,234 100.00% ====== ====== Deferred loan origination fees, net (4) (6) Allowance for loan losses (1,606) (1,498) -------- -------- Loans, net $171,517 $165,730 ======== ========
ALLOWANCE AND PROVISION FOR LOAN LOSSES An analysis of the allowance for loan losses, in thousands of dollars, for the three months ended June 30, follows:
2007 2006 ------ ------ Beginning balance $1,498 $1,456 Provision for loan losses 138 60 Charge-offs (43) (47) Recoveries 13 18 ------ ------ Ending balance $1,606 $1,487 ====== ======
The Company had impaired loans of $636,000 during the first six months of 2007 and no impaired loans during the first six months of 2006. Since December 31, 2006 commercial real estate mortgages have increased $6.0 million while consumer mortgages have decreased $815,000. 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 $138,000 in the first six months of 2007 and $60,000 in the first six months of 2006. 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. 10
June 30, December 31, 2007 2006 -------- ------------ (dollars in thousands) Nonaccrual $ 636 $ -- Loans past due 90 days or more 191 177 Troubled debt restructurings -- -- ----- ----- Total nonperforming loans $ 827 $ 177 ===== ===== Percent of total loans 0.48% 0.11%
At June 30, 2007, total nonperforming assets increased by $650,000 from December 31, 2006. The Bank is closely monitoring and managing nonperforming loans. Nonaccrual loans increased to $636,000 since December 31, 2006. This amount is from three loans and is a combination of one that went on nonaccrual status in March 2007 and two loans that went on nonaccrual status in June 2007. Loans past due 90 days and still accruing are loans that management considers to be collectable including accrued interest. The increase in nonperforming loans was primarily in construction and commercial loans and management believes the Bank is adequately reserved on these loans. Management fully expects that diligent servicing of these loans will minimize losses. Although uncertain overall economic conditions have negatively affected Michigan, the Company's marketplace remains relatively stable. The Company expects the amount of nonperforming loans to remain elevated into the foreseeable future, as the Bank works with these few customers who have felt the economic pressures of the overall Michigan economy. The Bank maintains an active loan collection process to mitigate loan losses. Loan quality is continually and systematically monitored and review by management. In addition to nonperforming loans, the Company has Other Real Estate Owned totaling $1.4 million as of June 30, 2007 as compared to $1 million at December 31, 2006. The Company has acquired these properties due to foreclosures or deeds in lieu of payment. DEPOSITS Deposits at June 30, 2007 increased $9.2 million since December 31, 2006. This increase is due, in part, to a deposit promotion the bank offered in the first quarter of 2007 and in part to the new branch location that opened in January 2007. Interest-bearing deposits increased $7.2 million or 3.9% for the six months ended June 30, 2007, while noninterest-bearing deposits increased $2.0 million or 5.1%. The Bank expects to continue this trend of offering deposit promotions as it see opportunities to attract new customers. LIQUIDITY AND FUNDS MANAGEMENT The Company's balances of cash and cash equivalents increased $310,000 or 2.1%. During the six month period ending June 30, 2007, $229,000 in cash was provided by operating activities. Investing activities used $7.3 million during the six months ended June 30, 2007, primarily due to the purchase of securities and financing activities provided $7.4 million. As of June 30, 2007, the Company had $7.3 million in federal funds sold, $51.8 million in securities available for sale and $690,000 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 26.0% of total deposits as of June 30, 2007. The Company's liquidity position is adequate to respond to extensions of credit, short-term demand for funds caused by withdrawals from deposit accounts and for the payment of operating expenses. Total equity of the Company at June 30, 2007 was $25.4 million compared to $25.0 million at December 31, 2006. The Company's equity including Risk Based Capital and Leverage Ratio are above the "Well Capitalized" status for regulatory guidelines. 11 RESULTS OF OPERATIONS CNB Corporation's 2007 net income for the first six months was $1.4 million, a decrease of $259,000 compared to 2006 results. This decrease in 2007 net income can be attributed to a one time gain on sale of $509,000 that occurred in June 2006. Basic and diluted earnings per share were $1.15 for 2007 compared to Basic and diluted earnings per share of $1.37 and $1.36 for 2006. The return on assets was 1.11% for the first six months of the year versus 1.34% for the same period in 2006. The return on equity was 11.29% compared to 13.57% for the same period last year. Net income for the three months ending June 30, 2007 was $801,000 compared to $996,000 for 2006. This was a decrease of $195,000 or 19.6%. Basic and diluted earnings per share were $0.65 compared to $0.80 for 2006. The return on average assets was 1.24% compared to 1.60% for 2006. The return on average equity was 12.56% compared to 15.89% for 2006. Interest income for the first six months of 2007 was $8.0 million, an increase of $871,000 or 12.2% compared to 2006 results. The majority of this increase can be attributed to the Company's loan growth. Interest income for the quarter ending June 30, 2007 was $4.1 million compared to $3.6 million from the same period last year. Interest expense for the first six months of 2007 was $3.0 million, an increase of $860,000 or 40.5% compared to 2006 results. This increase is attributable to not only growth in total deposits, but also the change in deposit mix as customer transfer money from their lower yielding savings account into higher yielding certificates of deposit. The Bank has also offered a few higher than average rate deposit promotions in the first six months of 2007 in order to draw attention to our new branch location and to attract new customers. Interest expense for the quarter ending June 30, 2007 was $1.5 million compared to $1.1 million for the same period last year. This increase is attributable to the same reasons as noted above for the year to date time period. For the first six months of 2007, net interest income was $5.0 million representing an increase of 0.2% from the same period in 2006. The fully taxable equivalent net interest margin increased to 4.38% for the six month period ending June 30, 2007 compared to 4.35% for the same period ending June 30, 2006. This marginal change can be attributable to a flat interest rate environment during 2006 and so far in 2007. In response to the change in the loan portfolio composition and loan growth, management recorded a provision expense of $138,000 in the first six months in 2007 and $60,000 in the first six months in 2006. Noninterest income for the six months ending June 30, 2007 was $838,000, a decrease of $373,000 or 30.8% from the same period last year. This change between the two periods is attributed, in part, due to a gain on the sale of premises and equipment in the amount of $509,000 in 2006 and in 2007 an increase in our per item NSF fee effective June 2006 and an Overdraft Privilege program that was introduced to our customers in the beginning of August 2006. Noninterest income for the quarter ending June 30, 2007 was $458,000 compared to $867,000 from the same period last year. This represents a decrease of $409,000 or 47.2% from the same period last year. This change between the two periods is for the same reasons as noted above for the six month period. Noninterest income for the second quarter of 2006 includes $509,000 as a gain on the sale of property as mentioned above. Noninterest expense for the first six months of 2007 and 2006 was $3.7 million and $3.8 million, respectively. Although the noninterest expense remained at relatively the same level during the two periods, the expense mix did change slightly between the periods. The increase in occupancy expense can largely be attributed to increases in depreciation expense due to the purchase of new processing equipment in the second quarter of 2006 and a new branch facility in Alanson opened in January 2007. Hospitalization expense decreased due to a change in benefit coverage. Also, other expenses for 2006, includes $51,000 of expense due to the recognition of loss on sale or write-down of other real estate properties owned. 12 The provision for federal income tax was 28.2% of pretax income for the six months ended June 30, 2007 as compared to 28.8% for the same period in 2006. 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. The effect of the future Michigan Business Tax as the replacement for the Michigan Single Business Tax has been calculation based on preliminary guidance to date. The effect of the new tax appears to provide the Company with similar tax level as the outgoing Single Business Tax. 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, 2006 Management Discussion and Analysis appearing in the December 31, 2006 10K. 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. 13 PART II-OTHER INFORMATION ITEM 1-LEGAL PROCEEDINGS None ITEM 1A.-RISK FACTORS There have been no material changes to the risk factors disclosed in Item 1A Part I of the Company's 2006 10K. ITEM 2- UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ISSUER PURCHASES OF EQUITY SECURITIES PERIOD
Approximate Total 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 --------- -------- ------------------- --------------- June, 2007 None Total $1,000,00
The Company adopted a Stock Redemption Plan on June 14, 2007 with the provision that it would remain in effect until $1 million had been expended on the purchase of common stock. As of June 30, 2007, the Company has not repurchased any stock under the plan. 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 15, 2007. Elected as Directors for one year term were Steven J. Baker; James C. Conboy, Jr.; Kathleen M. Darrow; Thomas J. Ellenberger; Vincent J. Hillesheim; Kathleen A. Lieder; John L. Ormsbee; R. Jeffery Swadling; and Francis J. VanAntwerp Jr.. Votes cast for: 833,574 Votes cast against: 7,360 Votes withheld: 2,150 Votes cast for were for all nine directors listed above with the exception of the votes cast against as noted. Votes cast against were 300 for Steven J. Baker, 467 for Kathleen M. Darrow and 6,593 for John L. Ormsbee. Votes withheld were for all nine directors listed above. 14 ITEM 5-OTHER INFORMATION None 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 June 14, 2007 announcing the approval of a stock repurchase plan. A Current Report on Form 8-K was filed on July 10, 2007 announcing the Corporations dividend declared. A Current Report on Form 8-K was filed on July 19, 2007, with an accompanying letter to shareholders, disclosing the Corporation's financial performance for the first six months of 2007 and the retirement of the President & Chief Executive Officer effective December 31, 2007. A Current Report on Form 8-K was filed on July 30, 2007 announcing shares repurchased under the Corporations stock repurchase plan. A Current Report on Form 8-K was filed on July 31, 2007 announcing the second share repurchase under the Corporations stock repurchase plan. A Current Report of Form 8-K was filed on August 10, 2007 announcing the third share repurchase under the Corporations stock repurchase plan. 15 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 14, 2007 /s/ James C. Conboy, Jr. ---------------------------------------- James C. Conboy, Jr. President and Chief Executive Officer Date: August 14, 2007 /s/ Susan A. Eno ---------------------------------------- Susan A. Eno Executive Vice President 16 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
20 EX-31.1 2 k17827exv31w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER I, James C. Conboy, Jr., President and Chief Executive Officer, certify that: 1) I have reviewed this quarterly report on Form 10-Q of CNB Corporation; 2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter(the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2007 /s/ James C. Conboy, Jr. - ------------------------------------- James C. Conboy, Jr President and Chief Executive Officer 18 EX-31.2 3 k17827exv31w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Shanna L. Hanley, Treasurer, certify that: 1) I have reviewed this quarterly report on Form 10-Q of CNB Corporation; 2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter(the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2007 /s/ Shanna L. Hanley - -------------------- Shanna L. Hanley Treasurer 19 EX-32.1 4 k17827exv32w1.txt CERTIFICATIONS PURSUANT TO SECTION 906 EXHIBIT 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 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, 2007 ("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/ James C. Conboy, Jr. ------------------------------------- James C. Conboy, Jr. President and Chief Executive Officer Date: August 14, 2007 By: /s/ Shanna L. Hanley ------------------------------------- Shanna L. Hanley Treasurer (Chief Financial Officer) 17 -----END PRIVACY-ENHANCED MESSAGE-----