-----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, BQAFLb4frvw9zGAvwx8fFXq6mQxq1kuKxoNBGtHa08o6rbk+OGFQM+u7UxMtyuuB 0o8F8vn6QTGQFhZ7atlGHA== 0000950124-99-003248.txt : 19990517 0000950124-99-003248.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950124-99-003248 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: SEC FILE NUMBER: 033-00737 FILM NUMBER: 99622169 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 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 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) (616) 627-7111 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) As of May 7, 1999 there were 1,079,580 shares of the issuer's common stock outstanding. 2 PART I - FINANCIAL INFORMATION ITEM 1- FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (in thousands) - --------------------------------------------------------------------------------
March December 31, 1999 31, 1998 ASSETS (unaudited) Cash and due from banks $ 5,081 $ 6,580 Federal funds sold 8,600 12,700 -------- --------- Total cash and cash equivalents 13,681 19,280 Securities available for sale 39,260 24,157 Securities held to maturity(market value of $ 30,724 in 1999 and $ 36,849 in 1998) 30,401 36,367 Other securities 752 752 Loans, net 108,077 108,987 Premises and equipment, net 3,177 3,196 Other assets 3,954 3,771 -------- --------- Total assets $199,302 $ 196,510 ======== ========= LIABILITIES Deposits Non-interest bearing $ 22,572 $ 26,044 Interest-bearing 154,841 148,417 -------- --------- Total deposits 177,413 174,461 Other liabilities 2,093 2,555 -------- --------- Total liabilities 179,506 177,016 -------- --------- SHAREHOLDERS' EQUITY Common stock, $2.50 par value, 2,000,000 shares authorized, shares outstanding 3/31/99-1,079,580; 12/31/98-1,027,701 2,699 2,569 Additional paid-in capital 11,686 8,597 Retained earnings 5,299 8,099 Unrealized gains on securities available for sale, net of tax 112 229 -------- --------- Total shareholders' equity 19,796 19,494 -------- --------- Total liabilities and shareholders' equity $199,302 $ 196,510 ======== =========
See accompanying notes to consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF INCOME (in thousands) - -------------------------------------------------------------------
Year to Date March 31, 1999 1998 INTEREST INCOME (unaudited) Loans, including fees $ 2,395 $ 2,412 Securities Taxable 736 814 Tax-exempt 150 108 Federal funds sold 169 178 ------- ------- Total interest income 3,450 3,512 ------- ------- INTEREST EXPENSE ON DEPOSITS 1,506 1,620 ------- ------- NET INTEREST INCOME 1,944 1,892 Provision for loan losses 30 25 ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,914 1,867 ------- ------- NON-INTEREST INCOME Service charges and fees 191 196 Net realized gains from sale of loans 23 25 Loan servicing fees, net of amortization 43 22 Other income 38 55 ------- ------- Total non-interest income 295 298 ------- ------- NON-INTEREST EXPENSES Salary and employee benefits 732 711 Occupancy 156 153 Supplies 51 51 Other expenses 204 162 ------- ------- Total non-interest expenses 1,143 1,077 ------- ------- INCOME BEFORE INCOME TAXES 1,066 1,088 Income tax expense 277 298 ------- ------- NET INCOME $ 789 $ 790 ======= ======= Other comprehensive income(loss) Change in unrealized gains (losses) on securities available for sale (178) 12 Tax effects 61 (4) ------- ------- Total other comprehensive income(loss) $ 672 $ 798 ======= ======= Return on average assets (annualized) 1.59% 1.66% Return on average equity (annualized) 15.98% 17.05% Basic earnings per share 0.73 0.73 Diluted earnings per share 0.72 0.73
All per share statistics have been retroactively adjusted to reflect the 5% stock dividends on February 20, 1998 and March 1, 1999. See accompanying notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY(in thousands) - -------------------------------------------------------------------------------- (unaudited)
Unrealized Gains(Losses) On Securities Available for Common Capital Retained Sale, Net of Stock Surplus Earnings Tax Total ----- ------- -------- --- ----- Balance-January 1, 1998 $ 2,443 $ 6,583 $ 9,066 $ 53 $ 18,145 Net Income, 1998 3,136 3,136 Cash dividends $ 1.86 per share(a) (2,002) (2,002) 5% stock dividend 121 1,968 (2,101) (12) Shares issued under stock plan,net 5 51 56 Purchase and retirement of common stock (5) (5) Net change in unrealized gains (losses) on securities available for sale, net of tax 176 176 ---------------------------------------------------------------------- Balance-December 31, 1998 2,569 8,597 8,099 229 19,494 Net Income YTD 1999 789 789 Cash dividends $ .35 per share (378) (378) 5% stock dividend 128 3,064 (3,211) (19) Shares issued under stock plan 2 28 30 Purchase and retirement of common stock (3) (3) Net change in unrealized gain (loss) on securities available for sale (117) (117) ---------------------------------------------------------------------- Balance-March 31, 1999 $ 2,699 $ 11,686 $ 5,299 $ 112 $ 19,796 ======================================================================
(a) All per share statistics have been retroactively adjusted to reflect the 5% stock dividends on February 20, 1998 and March 1, 1999. See accompanying notes to consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) - --------------------------------------------------------------------------------
Three months ended March 31, 1999 1998 (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 789 $ 790 Adjustments to reconcile net income to net cash from operating activities Depreciation 73 65 Accretion and amortization of investment securities, net 54 7 Provision for loan losses 30 25 Loans originated for sale (4,702) (3,295) Proceeds from sales of loans originated for sale 4,703 3,296 Gain on sales of loans (23) (25) (Increase)decrease in other assets (100) (53) Increase (decrease) in other liabilities 87 134 -------- -------- Total adjustments 122 154 -------- -------- Net cash from operating activities 911 944 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of securities available for sale 3,164 1,139 Purchase of securities available for sale (18,459) (6,999) Proceeds from maturites of securities held to maturity 5,926 5,164 Purchase of securities held to maturity - (3,214) Net (increase)decrease in portfolio loans 880 (1,346) Premises and equipment expenditures (54) (6) -------- -------- Net cash from investing activities (8,543) (5,262) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 2,952 663 Dividends paid (946) (831) Proceeds from exercise of stock options 30 3 Purchases of common stock (3) - -------- -------- Net cash from financing activities 2,033 (165) Net change in cash and cash equivalents (5,599) (4,483) Cash and cash equivalents at beginning of year 19,280 19,304 -------- -------- Cash and cash equivalents at end of period $ 13,681 $ 14,821 ======== ======== Cash paid during the period for Interest $ 1,480 $ 1,593 Income taxes $ 539 $ 597
See accompanying notes to consolidated financial statements. 6 NOTES TO FINANCIAL STATEMENTS Note 1-Basis of Presentation The consolidated financial statements include the accounts of CNB Corporation and its wholly-owned subsidiary, Citizens National Bank of Cheboygan, after elimination of significant inter-company transactions and accounts. The statements have been prepared by management without audit by independent certified public accountants. However, these statements reflect all adjustments (consisting of normal recurring accruals) and disclosures which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented and should be read in conjuction with the notes to the financial statements included in the CNB Corporation's Form 10-K for the year ended December 31, 1998. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Because the results of operations are so closely related to and responsive to changes in economic conditions, the results for any interim period are not necessarily indicative of the results that can be expected for the entire year. Note-2 Earnings Per Share Basic earnings per share is calculated solely on weighted-average common shares outstanding. Diluted earnings per share will reflect the potential dilution of stock options and other common stock equivalents. All prior calculations will be restated to be comparable to the new methods. The weighted average shares outstanding in calculating the basic earnings per share was 1,078,999 while the weighted average dilutive potential shares for the diluted earnings per share was 1,092,956. 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 and its subsidiary, Citizens National Bank of Cheboygan ("Bank") for the three month period ending March 31, 1999. FINANCIAL CONDITION CNB Corporation's 1999 first quarter earnings were $ 789,000, a slight decrease over 1998 first quarter results. Earnings per share remained unchanged from 1998 at $ 0.73. The return on assets was 1.59% for the quarter versus 1.66% for the same period in 1998. The return on equity was 15.98% compared to 17.05% for the same period last year. First quarter net interest income for 1999 and 1998 was $ 1.9 million. The net interest margin decreased to 4.16% in 1999 compared to 4.22% in 1998. This decrease can be attributable to a lower yield on an increasing volume on interest-earning assets. Non-interest income decreased to $ 295,000 from $ 298,000 for 1998, while non-interest expense remained unchanged at $ 1.1 million for both periods reported. There was no significant change in the income tax position of the Company during the first quarter of 1999. SECURITIES Securities increased $ 9.1 million or 15.1% since December 31, 1998. The available for sale portfolio increased to 56.4% up from 39.9% at year-end. The amortized cost and fair values of securities at March 31, were as follows:
Gross Gross Amortized Unrealized Unrealized Fair Available for sale Cost Gains Losses Value ------------------------------------------------------------ 1999 U.S. Government and agency $ 34,894 $ 130 $ (44) $ 34,980 State and municipal 4,197 89 (6) 4,280 ----------------------------------------------------------- $ 39,091 $ 219 $ (50) $ 39,260 =========================================================== 1998 U.S. Government and agency $ 22,072 $ 58 $ (9) $ 22,121 State and municipal 2,856 45 2,901 ----------------------------------------------------------- $ 24,928 $ 103 $ (9) $ 25,022 ===========================================================
8
Gross Gross Amortized Unrealized Unrealized Fair Held to maturity Cost Gains Losses Value ------------------------------------------------------------ 1999 U.S. Government and agency $ 9,016 $ 46 $ - $ 9,062 State and municipal 21,385 277 - 21,662 ------------------------------------------------------------ $ 30,401 $ 323 $ - $ 30,724 ============================================================ 1998 U.S. Government and agency $ 24,537 $ 133 $ (13) $ 24,657 State and municipal 16,002 162 (6) 16,158 ------------------------------------------------------------ $ 40,539 $ 295 $ (19) $ 40,815 ============================================================
The amortized cost and fair value of securities by contractual maturity at March 31, 1999 are shown below, in thousands of dollars.
Available for Sale Held to Maturity ------------------ ---------------- Amortized Fair Amortized Fair Cost Value Cost Value ---- ----- ---- ----- Due in one year or less $ 9,509 $ 9,559 $ 20,208 $ 20,279 Due after one year through five years 28,766 28,831 7,094 7,204 Due after five years through ten years 816 870 1,889 1,994 Due after ten years 1,210 1,247 ------------------------------------------------------------ Total $ 39,091 $ 39,260 $ 30,401 $ 30,724 ============================================================
LOANS Loans at March 31, 1999 decreased $ 910,000 from December 31, 1998. The table below shows total loans outstanding by type, in thousands of dollars, at March 31, 1999 and December 31, 1998, and their percentage of the total loan portfolio. All loans are domestic. A quarterly review of loan concentrations at March 31, 1998 indicates the pattern of loans in the portfolio has not changed. There is no individual industry with more than a 10% concentration. However, all tourism related businesses, when combined, total 9.6% of total loans.
March 31, 1999 December 31, 1998 Portfolio loans: Balance % of total Balance % of total ------- ---------- ------- ---------- Residential real estate $ 68,649 62.58% $ 69,319 62.68% Consumer 10,240 9.34% 10,229 9.25% Commercial real estate 19,836 18.08% 20,202 18.27% Commercial 10,968 10.00% 10,836 9.80% ------------------------------------------------------------ 109,693 100.00% 110,586 100.00% Deferred loan origination fees, net (70) (81) Allowance for loan losses (1,546) (1,518) -------------- ------------- $ 108,077 $108,987 ============== =============
9 ALLOWANCE FOR LOAN LOSSES An analysis of the allowance for loan losses, in thousands of dollars, for the three months ended March 31, follows:
1999 1998 ---- ---- Beginning balance $ 1,518 $ 1,442 Provision for loan losses 30 25 Charge-offs (6) (13) Recoveries 4 4 -------------- ------------- Ending balance $ 1,546 $ 1,458 ============== =============
The Company had no impaired loans for 1999 and 1998. CREDIT QUALITY The Company maintains a high level of asset quality as a result of actively managing delinquencies, nonperforming assets and potential problem loans. The Company performs an ongoing review of all large credits to watch for any deterioration in quality. Nonperforming loans are comprised of: (1) loans accounted for on a nonaccrual basis; (2) loans contractually past due 90 days or more as to interest or principal payments (but not included in nonaccrual loans in (1) above); and (3) other loans whose terms have been renegotiated to provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower (exclusive of loans in (1) or (2) above). The aggregate of nonperforming loans is shown in the table below.
March 31, December 31, 1999 1998 ---- ---- (In thousands) Nonaccrual $ - $ - Loans past due 90 days or more 291 62 Troubled debt restructurings --------------- -------------- Total nonperforming loans $ 291 $ 62 =============== ============== Percent of total loans 0.27% 0.06%
DEPOSITS Typically the Company's deposit activity is slow in the first quarter of the year because seasonal businesses are closed. Deposits at March 31, 1999 increased $ 3.0 million compared to December 31, 1998. 10 LIQUIDITY AND FUNDS MANAGEMENT For the first quarter of 1999, the Company's net income combined with net cash from operating activities provided $ 911,000 in liquidity. Deposits increased $3.0 million for the first quarter while loans decreased $ 910,000. The Company maintains a steady schedule of investment securities maturing each month to help meet with the anticipated liquidity needs. The Company does not anticipate any significant changes in its seasonal pattern. FUNDS MANAGEMENT The following chart shows the Company's interest rate sensitivity as of March 31, 1999 in thousands:
Up to 4 to 12 1 to 5 Over 3 Months Months Years 5 Years Total -------- ------ ----- ------- ----- Federal funds sold $ 8,600 $ - $ - $ - $ 8,600 Taxable investment securities 9,331 16,285 30,721 - 56,337 Non-taxable investment securities 1,876 4,557 4,352 2,539 13,324 Loans 26,620 23,185 35,137 24,681 109,623 ----------------------------------------------------------------------------- Total rate sensitive assets $ 46,427 $ 44,027 $ 70,210 $ 27,220 $ 187,884 ================= Interest-bearing demand deposits $ 1,542 $ 4,166 $ 9,720 $ - $ 15,428 Savings 5,760 5,185 12,100 - 23,045 Money market savings 24,265 7,936 18,517 - 50,718 Time deposits 21,826 25,211 18,613 - 65,650 ----------------------------------------------------------------------------- Total rate sensitive liabilities 53,393 42,498 58,950 - $ 154,841 ================= Gap $ (6,966) $ 1,529 $ 11,260 $ 27,220 ------------------------------------------------------------ Cumulative gap $ (6,966) $ (5,437) $ 5,823 $ 33,043 ============================================================ Cumulative ratio 86.95% 103.60% =============================
Management reviews the rate and term of any callable securities in the portfolio. The probability of call is used as the basis for determining a repricing date. Management believes that the difference between rate sensitive assets and rate sensitive liabilities ("Gap") overstates true interest sensitivity. Interest exposure is not as significant as expressed in the above schedule. Even though the Company has the contractual right to make a change in certain deposit rates, given its competitive position, management believes that liabilities do not need to be repriced as soon as rates begin to move. 11 CAPITAL RESOURCES The capital ratios of the Company and Bank exceed the regulatory guidelines for well capitalized institutions. The following table shows the Company's capital ratios and ratio calculations for the three months ended March 31. Dollars are shown in millions.
Minimum Required To Be Well Minimum Required Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Regulations ------------------------------------------------------------------------------------------ Amount Ratio Amount Ratio Amount Ratio 1999 Total capital (to risk weighted assets) Consolidated $ 21.0 19.4% $ 8.6 8.0% $ 10.8 10.0% Bank 21.0 19.4% 8.6 8.0% 10.8 10.0% Tier 1 capital (to risk weighted assets) Consolidated 19.7 18.2% 4.3 4.0% 6.5 6.0% Bank 19.6 18.2% 4.3 4.0% 6.5 6.0% Tier 1 capital (to average assets) Consolidated 19.7 9.9% 7.9 4.0% 9.9 5.0% Bank 19.6 9.9% 7.9 4.0% 9.9 5.0% 1998 Total capital (to risk weighted assets) Consolidated $ 19.8 18.8% $ 8.4 8.0% $ 10.5 10.0% Bank 19.9 18.3% 8.7 8.0% 10.8 10.0% Tier 1 capital (to risk weighted assets) Consolidated 18.5 17.6% 4.2 4.0% 6.3 6.0% Bank 18.5 17.1% 4.3 4.0% 6.5 6.0% Tier 1 capital (to average assets) Consolidated 18.5 9.8% 7.6 4.0% 9.5 5.0% Bank 18.5 9.7% 7.6 4.0% 9.5 5.0%
YEAR 2000 ISSUE This global issue poses a threat to businesses everywhere. The problems, which will evidence themselves in the year 2000, derive from a two digit limitation in source programming for calendar years. The Company has assembled an internal technology committee to thoroughly identify and correct any potential problems in this area well ahead of the year 2000. Our mission is to continue to offer continuous quality financial services, which meet the needs of the customers and communities we serve, into the next millennium. We are committed to allocating sufficient resources, capital and personnel to accomplish our mission. We will identify Y2K risks to the bank and holding company, develop plans and programs to lower risk to acceptable levels, develop 12 backup plans for failure and adhere to regulatory requirements. ITEM 3-QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary source of market risk for the financial instruments held by the Corporation is interest rate risk. That is, the risk that an adverse change in market rates will adversely affect the market value of the instruments. Generally, the longer the maturity, the higher the interest rate risk exposure. While maturity information does not necessarily present all aspects of exposure, it may provide an indication of where risks are prevalent. All financial institutions assume interest rate risk as an integral part of normal operations. Managing and measuring interest rate risk is a dynamic, multi-faceted process that ranges from reducing the exposure of the Corporation's net interest margin to swings in interest rates, to assuring sufficient capital and liquidity to support future balance sheet growth. The Corporation manages interest rate risk through the Asset/Liability Committee. The Asset/Liability Committee is comprised of bank officers from various disciplines. The Committee establishes policies and rates which lead to prudent investment of resources, the effective management of risks associated with changing interest rates, the maintenance of adequate liquidity, and the earning of an adequate return on shareholders' equity. Management believes that there has been no significant changes to the interest rate sensitivity since the presentation in the December 31, 1998 Management Discussion and Analysis appearing in the December 31, 1998 10K. PART II- OTHER INFORMATION ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 6- EXHIBITS AND REPORTS OF FORM 8-K a.) None b.) None 13 SIGNATURES 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: 5/11/99 /s/ ROBERT E. CHURCHILL ------------- --------------------------- Robert E. Churchill President and Chief Executive Officer Date: 5/11/99 /s/ SUSAN A. ENO ------------- --------------------------- Susan A. Eno Senior Vice President 14 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION - ----------- ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 5,081 0 8,600 0 39,260 30,401 30,724 109,623 1,546 199,302 177,413 0 2,093 0 0 0 2,699 17,097 199,302 2,395 1,055 0 3,450 1,506 1,506 1,944 30 0 1,143 1,066 1,066 0 0 789 .73 .72 4.16 0 291 0 0 1,518 6 4 1,546 421 0 1,125
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