EXHIBIT 13
CNB CORPORATION
ANNUAL REPORT
December 31, 2002, 2001 and 2000
CNB CORPORATION
ANNUAL REPORT
December 31, 2002, 2001 and 2000
CONTENTS
FINANCIAL HIGHLIGHTS ....................................................................................... 1
CONSOLIDATED BALANCE SHEETS ................................................................................ 2
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME..................................................................................... 3
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY ................................................. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS ...................................................................... 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................................................................. 6
INDEPENDENT AUDITOR'S REPORT................................................................................ 26
MANAGEMENT'S DISCUSSION AND ANALYSIS........................................................................ 27
OFFICERS, COMMUNITY ADVISORS AND STAFF...................................................................... 38
DIRECTORS AND DIRECTORS EMERITI............................................................................. 39
CNB CORPORATION
FINANCIAL HIGHLIGHTS
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(In thousands, except per share data)
OPERATING STATISTICS
Interest income $ 14,820 $ 15,788 $ 15,685 $ 14,296 $ 14,321
Interest expense 5,300 6,900 6,820 6,077 6,359
Net interest income 9,520 8,888 8,865 8,219 7,962
Income before income taxes 5,703 4,910 4,882 4,459 4,445
Net income 4,094 3,501 3,386 3,145 3,136
Basic earnings per share (1) 3.43 2.94 2.84 2.64 2.64
Diluted earnings per share (1) 3.42 2.92 2.81 2.61 2.61
Return on average assets (ROA) 1.71% 1.56% 1.60% 1.54% 1.61%
Return on average
shareholders' equity (ROE) 16.65% 15.24% 16.25% 15.63% 16.38%
BALANCE SHEET STATISTICS
Securities $ 63,148 $ 68,286 $ 55,851 $ 59,595 $ 57,824
Total loans 146,328 134,803 127,742 119,349 110,586
Deposits 216,444 204,589 193,091 182,584 174,461
Total assets 245,512 231,031 217,725 205,265 196,510
CAPITAL STATISTICS
Shareholders' equity $ 24,737 $ 23,377 $ 21,615 $ 19,918 $ 19,494
Book value per share (1) 20.82 19.59 19.04 17.54 17.21
Cash dividend per share (1) 2.14 1.97 1.88 1.77 1.69
Dividend payout ratio 62.25% 67.15% 66.39% 67.00% 63.84%
Average equity to average
total assets 10.25% 10.23% 9.84% 9.86% 9.86%
CREDIT STATISTICS
Net charge-offs to total loans .00% .05% .03% .03% .02%
Nonperforming loans
to total loans .08% .48% .21% .20% .06%
Allowance for loan losses
to total loans 1.14% 1.24% 1.29% 1.33% 1.37%
Allowance for loan losses
to nonperforming loans 14.64x 2.58x 6.31x 6.60x 24.48x
PRICE RANGE FOR COMMON STOCK
The following table shows the high and low selling prices of known transactions
in common stock of the Company for each quarter of 2002 and 2001. The Company
had 890 shareholders as of December 31, 2002. The prices and dividends per share
have been restated to reflect the 5% stock dividends declared in 2001 and 2000.
2 0 0 2 2 0 0 1
------- -------
Cash Cash
Market Price Dividends Market Price Dividends
Quarter High Low Declared High Low Declared
- ------- ---- --- --------- ---- --- ---------
1st $56.00 $50.00 $ .38 $60.00 $54.29 $ .36
2nd 55.00 50.00 .38 58.10 56.19 .36
3rd 54.00 50.00 .38 57.14 53.33 .36
4th 52.00 48.00 1.00 54.29 51.43 .89
(1) All share and per share data have been restated to reflect the 5% stock
dividends declared in 2001 and 2000.
1.
CNB CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
2002 2001
---- ----
(In thousands)
ASSETS
Cash and due from banks $ 7,026 $ 9,229
Interest-bearing deposits with other financial institutions 8,007 2,718
Federal funds sold 7,700 4,900
------------ ------------
Total cash and cash equivalents 22,733 16,847
Securities available for sale 57,533 61,118
Securities held to maturity (market value of
$5,755 in 2002 and $7,114 in 2001) 5,615 7,168
Other securities 6,252 4,810
Loans, net of allowance for loan losses of $1,669
in 2002 and $1,667 in 2001 144,637 133,106
Premises and equipment, net 3,442 3,592
Other assets 5,300 4,390
------------ ------------
Total assets $ 245,512 $ 231,031
============ ============
LIABILITIES
Deposits
Noninterest-bearing $ 32,281 $ 32,919
Interest-bearing 184,163 171,670
------------ ------------
Total deposits 216,444 204,589
Other liabilities 4,331 3,065
------------ ------------
Total liabilities 220,775 207,654
------------ ------------
SHAREHOLDERS' EQUITY
Common stock - $2.50 par value; 2,000,000 shares
authorized; 1,188,372 and 1,193,415 shares issued
and outstanding in 2002 and 2001 2,971 2,984
Additional paid-in capital 18,240 18,509
Retained earnings 2,529 983
Accumulated other comprehensive income, net of tax 997 901
------------ ------------
Total shareholders' equity 24,737 23,377
------------ ------------
Total liabilities and shareholders' equity $ 245,512 $ 231,031
============ ============
2.
CNB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years ended December 31, 2002, 2001 and 2000
2002 2001 2000
---- ---- ----
(In thousands, except per share data)
INTEREST INCOME
Loans, including fees $ 11,385 $ 11,446 $ 11,244
Securities
Taxable 2,321 2,895 3,395
Tax-exempt 922 834 491
Other interest income 192 613 555
------------ ------------ ------------
Total interest income 14,820 15,788 15,685
INTEREST EXPENSE ON DEPOSITS 5,300 6,900 6,820
------------ ------------ ------------
NET INTEREST INCOME 9,520 8,888 8,865
Provision for loan losses - 83 110
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 9,520 8,805 8,755
------------ ------------ ------------
NONINTEREST INCOME
Service charges and fees 1,004 1,024 945
Net realized gains from sale of loans 651 357 77
Loan servicing fees, net of amortization (20) 45 95
Other income 201 244 219
------------ ------------ ------------
Total noninterest income 1,836 1,670 1,336
------------ ------------ ------------
NONINTEREST EXPENSES
Salaries and employee benefits 3,608 3,333 3,052
Occupancy 774 673 670
Supplies 150 156 161
Other expenses 1,121 1,403 1,326
------------ ------------ ------------
Total noninterest expenses 5,653 5,565 5,209
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 5,703 4,910 4,882
Income tax expense 1,609 1,409 1,496
------------ ------------ ------------
NET INCOME 4,094 3,501 3,386
Other comprehensive income
Net change in unrealized gains on
securities available for sale 147 960 984
Tax effects (51) (327) (334)
------------ ------------ ------------
Total other comprehensive income 96 633 650
------------ ------------ ------------
COMPREHENSIVE INCOME $ 4,190 $ 4,134 $ 4,036
============ ============ ============
Basic earnings per share $ 3.43 $ 2.94 $ 2.84
Diluted earnings per share 3.42 2.92 2.81
3.
CNB CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 2002, 2001 and 2000
Accumulated
Other
Additional Comprehensive Total
Outstanding Common Paid-In Retained Income (Loss), Shareholders'
Shares Stock Capital Earnings Net of Tax Equity
------ ----- ------- -------- ---------- ------
(Dollars in thousands, except per share data)
Balance - January 1, 2000 1,081,639 $ 2,704 $ 11,694 $ 5,902 $ (382) $ 19,918
Net income 3,386 3,386
Cash dividends - $1.88 per share (2,248) (2,248)
5% stock dividend 53,741 135 3,897 (4,057) (25)
Shares issued under stock option plan, net 1,277 3 38 (24) 17
Purchase and retirement of common stock (1,196) (3) (80) (83)
Net change in unrealized gains (losses) on
securities available for sale 650 650
----------- ------------ ------------ ----------- -------------- -------------
Balance - December 31, 2000 1,135,461 2,839 15,549 2,959 268 21,615
Net income 3,501 3,501
Cash dividends - $1.97 per share (2,351) (2,351)
5% stock dividend 56,461 141 2,964 (3,126) (21)
Shares issued under stock option plan, net 2,799 7 71 78
Purchase and retirement of common stock (1,306) (3) (75) (78)
Net change in unrealized gains (losses) on
securities available for sale 633 633
----------- ------------ ------------ ----------- ------------- ------------
Balance - December 31, 2001 1,193,415 2,984 18,509 983 901 23,377
Net income 4,094 4,094
Cash dividends - $2.14 per share (2,548) (2,548)
Shares issued under stock option plan, net 1,274 3 29 32
Purchase and retirement of common stock (6,317) (16) (298) (314)
Net change in unrealized gains (losses) on
securities available for sale 96 96
----------- ------------ ------------ ----------- ------------- ------------
Balance - December 31, 2002 1,188,372 $ 2,971 $ 18,240 $ 2,529 $ 997 $ 24,737
=========== ============ ============ =========== ============= ============
4.
CNB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2002, 2001 and 2000
2002 2001 2000
---- ---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,094 $ 3,501 $ 3,386
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 700 364 289
Provision for loan losses - 83 110
Loans originated for sale (35,554) (21,750) (4,568)
Proceeds from sales of loans originated for sale 36,277 21,940 4,571
Gain on sales of loans (651) (357) (77)
Increase in other assets (961) (89) (581)
Increase in other liabilities 1,156 23 175
------------ ------------ ------------
Total adjustments 967 214 (81)
------------ ------------ ------------
Net cash from operating activities 5,061 3,715 3,305
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities
available for sale 23,211 29,323 14,826
Purchase of securities available for sale (19,770) (41,519) (17,309)
Proceeds from maturities of securities held
to maturity 2,252 4,445 8,591
Purchase of securities held to maturity (699) (3,731) (1,363)
Proceeds from other securities 2,700 1,000 1,600
Purchase of other securities (4,142) (1,157) (527)
Net increase in portfolio loans (11,603) (6,973) (8,411)
Premises and equipment expenditures (259) (715) (524)
------------ ------------ ------------
Net cash from investing activities (8,310) (19,327) (3,117)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 11,855 11,498 10,507
Dividends paid (2,438) (2,349) (2,192)
Proceeds from exercise of stock options 32 78 17
Purchases of common stock (314) (78) (83)
------------ ------------ ------------
Net cash from financing activities 9,135 9,149 8,249
------------ ------------ ------------
Net change in cash and cash equivalents 5,886 (6,463) 8,437
Cash and cash equivalents at beginning of year 16,847 23,310 14,873
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 22,733 $ 16,847 $ 23,310
============ ============ ============
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ 5,382 $ 6,949 $ 6,786
Income taxes 1,624 1,423 1,442
5.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include CNB
Corporation (the Company) and its wholly-owned subsidiary, Citizens National
Bank of Cheboygan and the Bank's wholly-owned subsidiary CNB Mortgage
Corporation (collectively referred to as the Bank). All significant intercompany
accounts and transactions are eliminated in consolidation.
Nature of Operations and Concentrations of Credit Risk: The Company is a
one-bank holding company which conducts no direct business activities. All
business activities are performed by the Bank.
The Bank provides a full range of banking services to individuals, agricultural
businesses, commercial businesses and light industries located in its service
area. It maintains a diversified loan portfolio, including loans to individuals
for home mortgages, automobiles, personal expenditures and loans to business
enterprises for current operations and expansion. The Bank offers a variety of
deposit accounts, including checking, savings, money market, individual
retirement accounts and certificates of deposit.
The principal markets for the Bank's financial services are the Michigan
communities in which the Bank is located and the area immediately surrounding
these communities. The Bank serves these markets through eight offices located
in Cheboygan, Presque Isle and Emmet Counties in northern lower Michigan.
Use of Estimates: To prepare financial statements in conformity with accounting
principles generally accepted in the United States of America, management makes
estimates and assumptions based on available information. These estimates and
assumptions affect the amounts reported in the financial statements and the
disclosures provided, and future results could differ. The allowance for loan
losses, value of mortgage servicing rights, and fair values of financial
instruments are particularly subject to change in the near term.
Cash Flow Reporting: Cash and cash equivalents include cash and due from banks
and federal funds sold. Net cash flows are reported for customer loan and
deposit transactions.
Securities: Securities classified as held to maturity are carried at amortized
cost when management has the positive intent and ability to hold them to
maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported in shareholders' equity, net
of tax. Realized gains and losses are based on specific identification of
amortized cost. Securities are written down to fair value when a decline in fair
value is not temporary. Interest income includes amortization of purchase
premium and discount.
(Continued)
6.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other securities, which include Federal Reserve Bank stock, Federal Home Loan
Bank stock and other taxable securities that are not readily marketable, are
carried at cost.
Loans: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of unearned interest, deferred loan fees and costs, and
an allowance for loan losses. Loans held for sale are reported at the lower of
cost or market, on an aggregate basis.
Loan Income: Interest income is earned on the interest method and includes
amortization of net deferred loan fees and costs over the loan term. Interest
income is not reported when full loan repayment is in doubt, typically when the
loan is impaired or payments are past due over 90 days (180 days for residential
mortgages).
All interest accrued but not received for loans placed on nonaccrual is reversed
against interest income. Interest received on such loans is accounted for on the
cash-basis or cost-recovery method, until qualifying for return to accrual.
Loans are returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably
assured.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required using past loan loss experience, the nature and
volume of the portfolio, information about specific borrower situations and
estimated collateral values, economic conditions, and other factors. Allocations
of the allowance may be made for specific loans, but the entire allowance is
available for any loan that, in management's judgment, should be charged-off.
Loan losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral.
Premises and Equipment: Land is carried at cost. Premises and equipment are
stated at cost less accumulated depreciation. Depreciation is computed on the
straight-line method over the assets useful lives. These assets are reviewed for
impairment when events indicate the carrying amount may not be recoverable.
Maintenance and repairs are charged to expense and improvements are capitalized.
(Continued)
7.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Real Estate Owned: Real estate properties acquired through, or in lieu of,
loan foreclosure are initially recorded at the lower of the loan carrying amount
and fair value at acquisition. Any reduction to fair value from the carrying
value of the related loan is accounted for as a loan loss. After acquisition, a
valuation allowance reduces the reported amount to the lower of the initial
amount or fair value less costs to sell. Expenses, gains and losses on
disposition, and changes in the valuation allowance are reported in other
expenses.
Servicing Rights: Servicing rights represent the allocated value of servicing
rights retained on loans sold. Servicing rights are expensed in proportion to,
and over the period of, estimated net servicing revenues. Impairment is
evaluated based on the fair value of the rights, using groupings of the
underlying loans as to interest rates and then, secondarily, as to geographic
and prepayment characteristics. Any impairment of a grouping is reported as a
valuation allowance.
Company Owned Life Insurance: The Company has purchased life insurance policies
on certain key executives. Company owned life insurance is recorded at its cash
surrender value, or the amount that can be realized.
Employee Benefits: A defined benefit pension plan covers substantially all
employees, with benefits based on years of service and compensation prior to
retirement. Contributions to the plan are based on the maximum amount deductible
for income tax purposes. A 401(k) savings and retirement plan has also been
established and covers substantially all employees. Contributions to the 401(k)
plan are made and expensed annually.
Stock Compensation: Employee compensation expense under stock options is
reported using the intrinsic value method. Options granted vest over one year
and have a maximum term of ten years. No stock-based compensation cost is
reflected in net income, as all options granted had an exercise price equal to
or greater than the market price of the underlying common stock at date of
grant. The following table illustrates the effect on net income and earnings per
share if expense was measured using the fair value recognition provisions of
FASB Statement No. 123, Accounting for Stock-Based Compensation.
2002 2001 2000
---- ---- ----
(In thousands, except per share data)
Net income as reported $ 4,094 $ 3,501 $ 3,386
Deduct: Stock-based compensation expense
determined under fair value based method - - (59)
-------------- -------------- --------------
Pro forma net income $ 4,094 $ 3,501 $ 3,327
(Continued)
8.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Compensation (Continued): 2002 2001 2000
- ------------------------------ ---- ---- ----
(In thousands, except per share data)
Basic earnings per share as reported $ 3.43 $ 2.94 $ 2.84
Pro forma basic earnings per share 3.43 2.94 2.79
Diluted earnings per share as reported $ 3.42 $ 2.92 $ 2.81
Pro forma diluted earnings per share 3.42 2.92 $ 2.76
The pro forma effects are computed using option pricing models. There were no
stock options granted during the years 2002, 2001 and 2000. The pro forma effect
is expected to increase in the future as additional options are granted.
Income Taxes: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Earnings Per Share: Basic earnings per share is based on the net income divided
by the weighted average number of shares outstanding during the period. Diluted
earnings per share shows the dilutive effect of additional potential shares
issuable under stock options.
Stock Splits and Stock Dividends: Dividends issued in stock are reported by
transferring the market value of the stock issued from retained earnings to
common stock and additional paid-in capital. Stock splits are recorded by
adjusting par value. Fractional shares are paid in cash for all stock splits and
dividends. Basic earnings per share, diluted earnings per share and dividends
per share have been restated for all stock splits and stock dividends, including
the five percent stock dividends declared in 2001 and 2000.
Financial Instruments with Off-Balance-Sheet Risk: The Company, in the normal
course of business, makes commitments to extend credit which are not reflected
in the consolidated financial statements. A summary of these commitments is
disclosed in Note 12.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes the net change in
unrealized gains (losses) on securities available for sale, net of tax, which is
also recognized as a separate component of shareholders' equity.
(Continued)
9.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Values of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions. Fair value
estimates involve uncertainties and matters of significant judgment regarding
interest rates, credit risk, prepayments, and other factors, especially in the
absence of broad markets for particular items. Changes in assumptions or in
market conditions could significantly affect the estimates. The fair value
estimates of existing on- and off-balance-sheet financial instruments do not
include the value of anticipated future business or the values of assets and
liabilities not considered financial instruments.
Reclassification: Some items in prior financial statements have been
reclassified to conform with the current presentation.
Newly Issued But Not Yet Effective Accounting Standards: New accounting
standards on asset retirement obligations, restructuring activities and exit
costs, operating leases, and early extinguishment of debt were issued in 2002.
Management determined that when the new accounting standards are adopted in 2003
they will not have a material impact on the Company's financial condition or
results of operations.
NOTE 2 - SECURITIES
The year end fair values and related gross unrealized gains and losses for
securities available for sale, were as follows:
Gross Gross
Fair Unrealized Unrealized
Available for sale Value Gains Losses
----- ----- ------
(In thousands)
2002
U.S. Government and agency $ 26,989 $ 687 $ -
State and municipal 30,544 866 (41)
------------ ------------ ------------
$ 57,533 $ 1,553 $ (41)
============ ============ ============
2001
U.S. Government and agency $ 33,057 $ 986 $ -
State and municipal 28,061 432 (53)
------------ ------------ ------------
$ 61,118 $ 1,418 $ (53)
============ ============ ============
(Continued)
10.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 2 - SECURITIES (Continued)
The year end carrying amount, unrecognized gains and losses, and fair value of
securities held to maturity were as follows:
Gross Gross
Carrying Unrecognized Unrecognized Fair
Amount Gains Losses Value
------ ----- ------ -----
(In thousands)
Held to maturity
2002
State and municipal $ 5,615 $ 140 $ - $ 5,755
============ ============ ============ ===========
2001
State and municipal $ 7,168 $ 132 $ (186) $ 7,114
============ ============ ============ ===========
There were no sales of securities during 2002, 2001 and 2000.
Contractual maturities of debt securities at year end 2002 were as follows.
Expected maturities may differ from contractual maturity because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
Available For Sale Held to Maturity
Fair Carrying Fair
Value Amount Value
----- ------ -----
(In thousands)
Due in one year or less $ 14,277 $ 870 $ 881
Due from one to five years 37,592 2,334 2,408
Due from five to ten years 2,401 848 903
Due after ten years 3,263 1,563 1,563
---------- ------------ -----------
$ 57,533 $ 5,615 $ 5,755
========== ============ ===========
Securities with a carrying value of $1,113,000 and $987,000 were pledged at
December 31, 2002 and 2001, to secure public deposits and for other purposes.
(Continued)
11.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 2 - SECURITIES (Continued)
The Company held securities exceeding 10% of shareholders' equity for the
following states (including its political subdivisions) at December 31:
2002 2001
---- ----
(In thousands)
Michigan $ 12,385 $ 13,087
Indiana 2,944 2,566
Washington 2,330 3,070
Wisconsin 2,538 2,526
NOTE 3 - LOANS
Year end loans were as follows:
2002 2001
---- ----
(In thousands)
Residential real estate $ 92,653 $ 84,588
Consumer 11,270 11,767
Commercial real estate 31,581 26,536
Commercial 10,824 11,912
----------- ----------
146,328 134,803
Deferred loan origination fees, net (22) (30)
Allowance for loan losses (1,669) (1,667)
----------- ----------
$ 144,637 $ 133,106
=========== ==========
Activity in the allowance for loan losses is summarized as follows:
2002 2001 2000
---- ---- ----
(In thousands)
Beginning balance $ 1,667 $ 1,652 $ 1,583
Provision for loan losses - 83 110
Charge-offs (50) (87) (86)
Recoveries 52 19 45
------------ ------------ ----------
Ending balance $ 1,669 $ 1,667 $ 1,652
============ ============ ==========
The Company had no impaired loans during 2002 and 2001. There were no loans held
for sale at year end 2002 and 2001.
(Continued)
12.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 3 - LOANS (Continued)
Nonperforming loans were as follows:
2002 2001
---- ----
(In thousands)
Loans past due over 90 days still on accrual $ 114 $ 647
Nonaccrual loans - -
Nonperforming loans and impaired loans are defined differently. Some loans may
be included in both categories, whereas other loans may only be included in one
category.
NOTE 4 - LOAN SERVICING
Mortgage loans serviced for others are not reported as assets. These loans
totaled $50,537,000 and $39,951,000 at year end 2002 and 2001. Related escrow
deposit balances were $52,000 and $59,000. Capitalized mortgage servicing rights
balances were $362,000 and $266,000 at year end 2002 and 2001. The related
additions recognized were $267,000, $163,000 and $34,000 and the amortization
was $171,000, $107,000 and $22,000 in 2002, 2001 and 2000.
NOTE 5 - PREMISES AND EQUIPMENT
Year end premises and equipment were as follows:
2002 2001
---- ----
(In thousands)
Real estate and buildings $ 4,160 $ 4,160
Furniture and fixtures 3,465 3,714
------------ ------------
7,625 7,874
Less accumulated depreciation 4,183 4,282
------------ ------------
$ 3,442 $ 3,592
============ ============
Depreciation expense amounted to $410,000, $357,000 and $306,000 in 2002, 2001
and 2000.
(Continued)
13.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 6 - DEPOSITS
Time deposit accounts individually exceeding $100,000 total $14,280,000 and
$17,445,000 at year end 2002 and 2001.
At year end 2002, the scheduled maturities of time deposits are as follows:
(In thousands)
2003 $ 27,608
2004 35,426
2005 2,935
2006 1,708
-------------
$ 67,677
=============
NOTE 7 - EMPLOYEE BENEFITS
Defined Benefit Retirement Plan: The Company has a defined benefit,
noncontributory pension plan which provides retirement benefits for essentially
all employees. The following sets forth the plan's funded status and amounts
recognized in the financial statements:
2002 2001
---- ----
(In thousands)
Change in benefit obligation:
Beginning benefit obligation $ (3,481) $ (3,245)
Service cost (163) (144)
Interest cost (266) (238)
Amendments (69) -
Actuarial loss (gain) (40) 32
Benefits paid 81 114
------------ ------------
Ending benefit obligation (3,938) (3,481)
Change in plan assets, at fair value:
Beginning plan assets 2,973 2,964
Actual return (301) (187)
Employer contribution 266 310
Benefits paid (81) (114)
------------ ------------
Ending plan assets 2,857 2,973
(Continued)
14.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 7 - EMPLOYEE BENEFITS (Continued)
2002 2001
---- ----
(In thousands)
Funded status $ (1,081) $ (508)
Unrecognized net actuarial loss 1,585 1,051
Unrecognized transition amount (59) (68)
Unrecognized prior service amount 38 (30)
------------ ------------
Prepaid pension cost $ 483 $ 445
============ ============
Net pension expense and related year end assumptions consist of the following:
2002 2001 2000
---- ---- ----
(In thousands)
Service cost $ 163 $ 144 $ 138
Interest cost on benefit obligation 266 238 231
Expected return on plan assets (234) (241) (266)
Net amortization and deferral (9) (13) (13)
Recognized net actuarial loss 42 18 -
------------ ------------ ------------
Pension expense $ 228 $ 146 $ 90
============ ============ ============
2002 2001 2000
---- ---- ----
Weighted average discount rate 7.50% 7.50% 7.50%
Rate of increase in future compensation 4.00% 4.00% 5.00%
Expected long term return on plan assets 8.00% 8.00% 8.00%
Plan assets are administered by Huntington National Bank as trustee of the plan.
Plan assets are invested in diversified mutual funds.
Deferred Compensation Plan: The Company has a deferred compensation plan to
provide retirement benefits to certain Directors, at their option, in lieu of
annual directors' fees. The present value of future benefits are accrued
annually over the period of active service of each participant. The expense for
the plan was $186,000, $180,000 and $177,000 in 2002, 2001 and 2000.
(Continued)
15.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 7 - EMPLOYEE BENEFITS (Continued)
During the year ended December 31, 2002 management changed the discount rate
used to estimate the liability under this deferred compensation plan to a
current rate. As a result of this change an additional liability of
approximately $512,000 will be recognized over the remaining service periods of
each individual in the plan.
The Company has also purchased insurance on the lives of participating directors
with the Company as the owner and beneficiary of the policies. At 2002 and 2001
the cash surrender value of the underlying policies was $1,387,000 and
$1,428,000.
The Company has another deferred compensation plan that allows executive
officers of the Bank, and certain Directors an opportunity to defer a portion of
their compensation. On a monthly basis, the account of each participant accrues
interest based on the interest rate determined for that year. The expense of the
plan was $22,000, $17,000 and $11,000 in 2002, 2001 and 2000.
401(k) Plan: The Company has a 401(k) savings and retirement plan covering
substantially all employees. Under the plan, employees may defer up to the
lesser of 20% of their eligible compensation or the limitations set by the IRS.
During 2002, 2001 and 2000, the Board of Directors elected to contribute a
matching contribution equal to 100% of the first 2% and 50% of the next 2% of
the employee's deferred compensation. Employee contributions and the Company's
matching percentages are vested immediately. The Company's matching percentages
are determined annually by the Board of Directors and resulted in total
contributions of $71,000, $67,000 and $64,000 in 2002, 2001 and 2000.
NOTE 8 - STOCK OPTIONS
Stock Option Plan: The shareholders approved an incentive stock option plan in
May 1996 under which options may be issued at market prices to employees. The
right to exercise the options vests over a one year period. The exercise price
of options granted is equivalent to the market value of underlying stock at the
grant date.
(Continued)
16.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 8 - STOCK OPTIONS (Continued)
Activity in the option plan for the years ended, and as restated for all stock
dividends, is summarized as follows:
Weighted
Number of Average
Outstanding Exercise Exercise
Options Price Price
----------- --------------- ------------
Balance at January 1, 2000 36,125 $ 25.08-59.86 $ 42.19
Exercised (2,415) 25.08-59.86 37.92
------ --------------- ------------
Balance at December 31, 2000 33,710 25.08-59.86 42.50
Exercised (2,938) 25.08-35.30 26.56
------ --------------- ------------
Balance at December 31, 2001 30,772 25.08-59.86 44.02
Exercised (1,274) 25.12 25.12
------ --------------- ------------
Balance at December 31, 2002 29,498 $ 25.12 - 59.87 $ 44.83
======
Options exercisable at December 31 are as follows:
Weighted
Number Average
Of Exercise
Options Price
------- -----
2000 33,723 $ 42.50
2001 30,785 44.02
2002 29,498 44.83
At December 31, 2002, options outstanding had a weighted-average remaining life
of 5.7 years.
NOTE 9 - INCOME TAXES
Income tax expense consists of:
2002 2001 2000
---- ---- ----
(In thousands)
Current $ 1,591 $ 1,390 $ 1,516
Deferred 18 19 (20)
------------ ------------ ------------
$ 1,609 $ 1,409 $ 1,496
============ ============ ============
(Continued)
17.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 9 - INCOME TAXES (Continued)
Year end deferred tax assets and liabilities consist of:
2002 2001
---- ----
(In thousands)
Deferred tax assets
Allowance for loan losses $ 442 $ 442
Deferred compensation 587 444
Other 14 102
------------ ------------
Total deferred tax assets 1,043 988
------------ ------------
Deferred tax liabilities
Pension 172 159
Unrealized gains on securities available for sale 513 464
Fixed assets 96 77
Mortgage servicing rights 123 90
Accretion 94 86
------------ ------------
Total deferred tax liabilities 998 876
------------ ------------
Net deferred tax asset $ 45 $ 112
============ ============
Income tax expense calculated at the statutory rate of 34% differs from actual
income tax expense as follows:
2002 2001 2000
---- ---- ----
(In thousands)
Statutory rate applied to income before taxes $ 1,939 $ 1,669 $ 1,660
Deduct
Tax-exempt interest income, net (278) (243) (148)
Other (52) (17) (16)
------------ ------------ ------------
$ 1,609 $ 1,409 $ 1,496
============ ============ ============
(Continued)
18.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 10 - EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic earnings per
share and diluted earnings per share computations is presented below:
2002 2001 2000
---- ---- ----
Basic earnings per share
Net income available to common
shareholders (in thousands) $ 4,094 $ 3,501 $ 3,386
============ ============ ============
Weighted average shares outstanding 1,192,623 1,191,692 1,192,438
Basic earnings per share $ 3.43 $ 2.94 $ 2.84
============ ============ ============
Diluted earnings per share
Net income available to common
shareholders (in thousands) $ 4,094 $ 3,501 $ 3,386
============ ============ ============
Weighted average shares outstanding 1,192,623 1,191,692 1,192,438
Add dilutive effects of assumed exercises
of stock options 4,724 7,569 11,742
------------ ------------ ------------
Weighted average dilutive
potential shares outstanding 1,197,347 1,199,261 1,204,180
============ ============ ============
Diluted earnings per share $ 3.42 $ 2.92 $ 2.81
============ ============ ============
NOTE 11 - RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Company and the Bank (including
family members, affiliates and companies in which they are principal owners) had
loans outstanding with the Bank in the ordinary course of business. A summary of
the aggregate loans outstanding which exceeded $60,000 to these individuals
follows:
2002 2001
---- ----
(In thousands)
Balance outstanding, January 1 $ 2,397 $ 2,648
New loans and rewrites 1,717 1,396
Payments and payoffs (1,658) (1,654)
Other - 7
------------ ------------
Balance outstanding, December 31 $ 2,456 $ 2,397
============ ============
Related party deposits totaled $1,712,000 and $1,080,000 at year end 2002 and
2001.
(Continued)
19.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 12 - COMMITMENTS, OFF-BALANCE-SHEET RISK, AND CONTINGENCIES
There are various contingent liabilities that are not reflected in the financial
statements, including claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
effect on financial condition or result of operations.
At year end 2002 and 2001, reserves of $1,592,000 and $1,415,000 were required
as deposits with the Federal Reserve or as cash on hand. These reserves do not
earn interest.
Some financial instruments are used in the normal course of business to meet the
financing needs of customers and to reduce exposure to interest rate changes.
These financial instruments include commitments to extend credit and standby
letters of credit. These involve, to a varying degree, credit and interest-rate
risk in excess of the amount reported in the financial statements.
Exposure to credit loss if the other party does not perform is represented by
the contractual amount for commitments to extend credit and standby letters of
credit. The same credit policies are used for commitments and conditional
obligations as are used for loans.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being used, the total commitments do not necessarily represent
future cash requirements. Standby letters of credit are conditional commitments
to guarantee a customer's performance to a third party.
A summary of the notional or contractual amounts of financial instruments with
off-balance-sheet risk at year end were as follows:
2002 2001
---- ----
(In thousands)
Commitments to extend credit $ 21,163 $ 20,137
Standby letters of credit 109 117
Substantially all of these commitments are at variable or uncommitted rates.
(Continued)
20.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate fair values for
financial instruments. The carrying amount is considered to estimate fair value
for cash and variable rate loans or deposits that reprice frequently and fully.
Securities fair values are based on quoted market prices or, if no quotes are
available, on the rate and term of the security and on information about the
issuer. For fixed rate loans or deposits and for variable rate loans or deposits
with infrequent repricing or repricing limits, the fair value is estimated by
discounted cash flow analysis or underlying collateral values, where applicable.
The fair value of off-balance-sheet items approximates cost and is not
considered significant to this presentation.
The estimated year end values of financial instruments were:
2002 2001
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Assets (In thousands)
Cash and cash equivalents $ 22,733 $ 22,733 $ 16,847 $ 16,847
Securities available for sale 57,533 57,533 61,118 61,118
Securities held to maturity 5,615 5,755 7,168 7,114
Other securities 6,252 6,252 4,810 4,810
Loans, net 144,637 148,241 133,106 133,753
Liabilities
Deposits
Noninterest-bearing $ (32,281) $ (32,281) $ (32,919) $ (32,919)
Interest-bearing (184,163) (184,663) (171,670) (173,192)
NOTE 14 - REGULATORY CAPITAL
The Company and Bank are subject to regulatory capital requirements administered
by federal banking agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgments by regulators about components, risk weightings and other factors, and
the regulators can lower classifications in certain cases. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
(Continued)
21.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 14 - REGULATORY CAPITAL (Continued)
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
Capital to Risk-
Weighted Assets Tier 1 Capital
Total Tier 1 To Average Assets
----- ------ -----------------
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
The Company and Bank were categorized as well capitalized at year end. Actual
capital levels (in millions) and minimum required levels were:
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
2002
Total capital (to risk weighted assets)
Consolidated $ 25.4 17.9% $ 11.3 8.0% $ 14.1 10.0%
Bank 25.4 17.9 11.3 8.0 14.1 10.0
Tier 1 capital (to risk weighted assets)
Consolidated 23.7 16.8 5.7 4.0 8.5 6.0
Bank 23.7 16.8 5.7 4.0 8.5 6.0
Tier 1 capital (to average assets)
Consolidated 23.7 9.7 9.8 4.0 12.2 5.0
Bank 23.7 9.7 9.8 4.0 12.2 5.0
2001
Total capital (to risk weighted assets)
Consolidated $ 24.1 18.3% $ 10.6 8.0% $ 13.2 10.0%
Bank 24.0 18.2 10.5 8.0 13.2 10.0
Tier 1 capital (to risk weighted assets)
Consolidated 22.4 17.0 5.3 4.0 7.9 6.0
Bank 22.4 17.0 5.3 4.0 7.9 6.0
Tier 1 capital (to average assets)
Consolidated 22.4 9.8 9.2 4.0 11.4 5.0
Bank 22.4 9.8 9.2 4.0 11.4 5.0
(Continued)
22.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 14 - REGULATORY CAPITAL (Continued)
One of the principal sources of cash for the Company is dividends from the Bank.
Regulatory agencies can place dividend restrictions on the Bank based on their
evaluation of its financial condition. No restrictions are currently imposed by
regulatory agencies on the Bank other than the limitations found in the
regulations which govern the payment of dividends to the Company. Under the most
restrictive of these regulations, in 2003, the Bank is limited to paying
dividends of approximately $2,383,000 plus 2003 net income, without prior
regulatory approval.
NOTE 15 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
Following are condensed parent company financial statements:
CONDENSED BALANCE SHEETS
December 31, 2002 and 2001
2002 2001
---- ----
(In thousands)
ASSETS
Cash $ 19 $ 72
Investment in subsidiary 24,714 23,323
Dividends receivable 1,458 1,056
Other assets 4 4
-------- --------
Total Assets $ 26,195 $ 24,455
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $ 1,188 $ 1,078
Other liabilities 270 -
Shareholders' equity 24,737 23,377
-------- --------
Total Liabilities and Shareholders' Equity $ 26,195 $ 24,455
======== ========
(Continued)
23.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 15 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 2002, 2001 and 2000
2002 2001 2000
---- ---- ----
(In thousands)
Dividends from subsidiary $ 2,826 $ 2,442 $ 2,346
Operating expenses (40) (44) (32)
------- ------- -------
Income before income tax and equity
in undistributed income of subsidiary 2,786 2,398 2,314
Income tax benefit 13 15 11
Equity in undistributed income of subsidiary 1,295 1,088 1,061
------- ------- -------
NET INCOME $ 4,094 $ 3,501 $ 3,386
======= ======= =======
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 2002, 2001 and 2000
2002 2001 2000
---- ---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,094 $ 3,501 $ 3,386
Equity in undistributed net income of subsidiary (1,295) (1,088) (1,061)
Change in dividends receivable (402) - (84)
Change in other assets - (4) 1
Change in other liabilities 270 - -
------- ------- -------
Net cash from operating activities 2,667 2,409 2,242
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends (2,438) (2,349) (2,192)
Net shares purchased (282) - (66)
------- ------- -------
Net cash from financing activities (2,720) (2,349) (2,258)
------- ------- -------
Net change in cash and cash equivalents (53) 60 (16)
Cash at beginning of year 72 12 28
------- ------- -------
CASH AT END OF YEAR $ 19 $ 72 $ 12
======= ======= =======
(Continued)
24.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Net Earnings Per Share
Interest Interest Net -----------------
Income Income Income Basic Diluted
-------- -------- ------ ----- -------
(In thousands, except per share data)
2002
First quarter $ 3,714 $ 2,251 $1,030 $ .86 $ .86
Second quarter 3,701 2,257 908 .76 .76
Third quarter 3,726 2,409 1,021 .86 .85
Fourth quarter 3,679 2,603 1,135 .95 .95
2001
First quarter $ 4,017 $ 2,168 $ 808 $ .68 $ .68
Second quarter 3,968 2,203 857 .72 .71
Third quarter 3,935 2,202 832 .69 .69
Fourth quarter* 3,868 2,315 1,004 .85 .84
* The increase in net income during the fourth quarter of 2001 is primarily
the result of a significant decrease in interest expense as a result of the
general decrease in the interest rate environment. The fourth quarter of
2001 was also positively impacted by an increase in noninterest income and
a decrease in provision expense.
25.
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
CNB Corporation
Cheboygan, Michigan
We have audited the accompanying consolidated balance sheets of CNB Corporation
as of December 31, 2002 and 2001, and the related consolidated statements of
income and comprehensive income, changes in shareholders' equity and cash flows
for each of the three years in the period ended December 31, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CNB Corporation as
of December 31, 2002 and 2001, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.
Crowe, Chizek and Company LLP
South Bend, Indiana
February 21, 2003
26.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2002, 2001 and 2000
This discussion provides information about the consolidated financial condition
and results of operations of CNB Corporation (the Company) and its subsidiary,
Citizens National Bank of Cheboygan and the Bank's wholly owned subsidiary CNB
Mortgage Corporation (collectively referred to as the Bank). This discussion
should be read in conjunction with the consolidated financial statements
beginning on page 2 and the related footnotes.
FINANCIAL CONDITION
CASH AND CASH EQUIVALENTS
The Company's balances of cash and cash equivalents increased $5.9 million from
2001 to 2002. During the year, $9.0 million of cash was provided from financing
activities due primarily to increases in deposits, while $5.1 million of cash
was provided from operating activities. Investing activities utilized $8.3
million of cash during 2002. The balances maintained in cash and cash
equivalents vary based on daily fluctuations in loan and deposit balances.
Sufficient cash is maintained on a daily basis to meet the anticipated liquidity
needs of the Company for customer transactions and to clear checks drawn on
other financial institutions. The amount of clearings can vary by as much as
$3.0 million in one day, causing the Company's cash position to vary.
SECURITIES
The Company maintains securities portfolios that include obligations of federal
agencies and government sponsored entities as well as securities issued by
states and political subdivisions. Security balances decreased $5.1 million
during 2002. Securities available for sale represent 91.1% of the portfolio.
Currently, the Company primarily maintains a short-term securities portfolio.
The average life of the security portfolio is being extended as securities of a
longer maturity are added to the portfolio when appropriate. As the amount of
securities maturing on a regular basis decreases, liquidity will be maintained
by adding to the available for sale portfolio.
The chart below shows the change in each of the categories of the portfolio.
2002 2001 2000
---- ---- ----
(In thousands)
U.S. Government and agency securities $ (6,068) $ (4,056) $ (1,129)
Tax exempt state and municipal 501 13,709 1,672
Taxable state and municipal 429 2,782 (4,287)
-------- -------- --------
Total change in securities $ (5,138) $ 12,435 $ (3,744)
======== ======== ========
27.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2002, 2001 and 2000
Holdings in state and municipal securities increased during the year primarily
as a result of better yielding investments. The chart below shows the percentage
composition of the portfolio as of December 31.
2002 2001
---- ----
U.S. Government and agency securities 42.74% 48.41%
Tax exempt state and municipal 41.33 37.49
Taxable state and municipal 15.93 14.10
------ ------
100.00% 100.00%
====== ======
Securities available for sale are recorded at fair value and securities held to
maturity are recorded at amortized cost. The net unrealized gain on securities
available for sale at December 31, 2002 was $997,000, net of taxes. The
unrealized gains and losses are temporary, since they are a result of market
changes rather than a reflection of credit quality. Management has no specific
intent to sell these securities at the present time.
The Company maintains a conservative security portfolio with a majority of the
investments in U.S. Government and agency securities and issues of governmental
units in its service area. The maturities of the U.S. Government and agency
securities have typically been very short, two years or less, providing
liquidity in addition to quality.
During 2003, management feels that there will be sufficient liquidity to
increase maturity of the investment portfolio, which has the general impact of
increasing yield.
LOANS
Total loans increased $11.5 million or 8.6% during 2002, with the primary growth
occurring in residential and commercial real estate loans. Residential real
estate loans grew from $84.6 million in 2001 to $92.7 million in 2002, while
commercial real estate loans grew from $26.5 million in 2001 to $31.9 million in
2002. As a full service lender, the Company offers a variety of personal and
commercial loans. Home mortgages comprise the largest portion of the loan
portfolio. The Company generally retains the ownership of adjustable rate loans
and short to medium-term fixed-rate loans and originates and sells long-term
single family residential fixed-rate mortgage loans to the secondary market. The
Company originated $35.6 million in loans for sale in 2002 and $21.8 million in
2001. This practice allows the Company to meet the housing credit needs of its
service area while maintaining an appropriate interest rate sensitivity and
liquidity position. In addition to mortgage loans, the Company makes loans for
personal and business use, secured and unsecured, to customers in its services
area.
28.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2002, 2001 and 2000
The Company maintains a conservative loan policy and strict credit underwriting
standards. All loans are domestic. An annual review of loan concentrations at
December 31, 2002 indicated 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, represent 9.6% of total
loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents that amount which management estimates
is adequate to provide for probable losses inherent in the loan portfolio.
Management determines the adequacy of the allowance for loan losses by reviewing
selected loans (including large loans, nonaccrual loans, problem loans and
delinquent loans) and establishes specific loss allowances on these loans.
Historical loss information, local economic conditions and other factors are
considered in establishing allowances on the remaining loan portfolio. The
allowance is increased by provisions charged to expense and reduced by
charge-offs, net of recoveries.
The quality of the Company's loan portfolio compares well with its peer group
with non-performing loans at .08% of total loans at December 31, 2002 and 0.48%
at December 31, 2001. Net loans charged off were -0-% of total loans during 2002
and 0.05% in 2001. There were no significant changes in the allowance for loan
losses in 2002 and 2001 due to stable loan quality and insignificant loss
potential identified for individual loans and groups of loans.
CREDIT QUALITY
The Company continues to maintain 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 the 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.
2002 2001
---- ----
(Dollars in thousands)
Nonaccrual loans $ - $ -
Loans past due 90 days or more 114 647
Troubled debt restructurings - -
---- ----
Total nonperforming loans $114 $647
==== ====
Percent of total loans .08% .48%
==== ====
29.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2002, 2001 and 2000
DEPOSITS
The Company offers competitive deposit products and has, therefore, shown steady
deposit growth as it increases its market share. Deposits increased $11.9
million or 5.8% during 2002. Money market deposits increased $14.5 million or
40.0% during 2002.
The majority of the Company's deposits are derived from core customers, as a
result of long-term personal, business and public relationships. Deposit rates
are monitored continually to assure that the Company pays a competitive rate.
As of December 31, 2002 the loan to deposit ratio was 67.6% compared to 65.9%
for December 31, 2001. Management continues to emphasize loan growth and hopes
to maintain this ratio at a minimum of 65.0%. The change in asset mix from
securities to higher yielding loans will increase the net interest margin.
EQUITY
Total equity for the Company at year end 2002 was $24.7 million compared to
$23.4 million in 2001. The Company realized $4.1 million in income and declared
$2.5 million in dividends during 2002. The unrealized gain on securities
available for sale increased equity $96,000.
LIQUIDITY AND FUNDS MANAGEMENT
Effective liquidity management ensures that the cash flow requirements of the
Bank's depositors and borrowers, as well as the operating cash needs of the
Company are met. The Company's primary source of funds is dividends from the
Bank. The Company manages its liquidity position to provide cash necessary to
pay dividends to shareholders and satisfy other operating requirements.
The Bank manages liquidity to insure adequate funds are available to meet the
cash flow needs of depositors and borrowers. The Bank's most readily available
sources of liquidity are federal funds sold, securities classified as available
for sale and securities classified as held to maturity maturing within one year.
These sources of liquidity are supplemented by new deposits and by loan payments
received from customers. As of December 31, 2002, the Company held $7.7 million
in federal funds sold, $57.5 million in securities available for sale, and
$870,000 in held to maturity securities maturing within one year. These
short-term assets represents 30.5% of total deposits as of December 31, 2002.
Historically, the Company's security portfolio has been short term in nature,
with the average life of the portfolio consistently being less than two years.
The Company serves a market which is highly tied to the tourist industry.
Consequently, the Company experiences seasonal swings in liquidity. Deposit
growth occurs during July, August, and September, then may decline through the
fall and winter months. The Company does not anticipate any significant change
in its seasonal pattern.
30.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2002, 2001 and 2000
INTEREST RATE SENSITIVITY
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates at December 31, 2002
and 2001. For loans receivable, securities, and liabilities with contractual
maturities, the table presents principal cash flows and related weighted-average
interest rates by contractual maturities, as well as the Company's historical
experience relative to the impact of interest rate fluctuations on the
prepayment of loans. For core deposits (demand deposits, interest-bearing
checking, savings, and money market deposits) that have no contractual maturity,
the table presents principal cash flows and, as applicable, related
weighted-average interest rates based upon the Company's historical experience,
management's judgment, and statistical analysis concerning their most likely
withdrawal behaviors. The current historical interest rates for core deposits
are assumed to apply for future periods in this table as the actual interest
rates that will need to be paid to maintain these deposits are not currently
known. Weighted-average variable rates are based upon contractual rates existing
at the reporting date.
The primary source of market risk for the financial instruments presented is
interest rate risk, that is, the risk that a change in market rates could
adversely affect the market value of the instruments. Generally, the longer the
maturity, the greater 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 assuring sufficient capital and liquidity
in support of future balance sheet growth to reducing the exposure of the
Company's net interest margin from swings in interest rates. 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
establishes policies and rates which lead to the 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.
31.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2002, 2001 and 2000
MARKET RISK DISCLOSURE AT DECEMBER 31, 2002
(Dollars in thousands)
Fair Value
2003 2004 2005 2006 2007 Thereafter Total 12/31/02
---- ---- ---- ---- ---- ---------- ----- ----------
RATE-SENSITIVE ASSETS
Variable interest rate loans $ 9,191 $ 2,102 $ 1,951 $1,899 $1,740 $ 13,694 $ 30,577 $ 31,163
Average interest rate 8.46% 7.32% 7.26% 7.45% 7.45% 7.51% 7.76%
Fixed interest rate loans 21,158 12,626 13,565 9,593 9,392 49,417 115,751 118,769
Average interest rate 7.72% 7.92% 7.50% 7.54% 7.24% 6.81% 7.27%
Variable interest rate
securities - - - - - 1,420 1,420 1,420
Average interest rate -% -% -% -% -% 3.50% 3.50%
Fixed interest rate securities 15,136 13,761 11,460 7,611 7,119 6,641 61,728 61,868
Average interest rate 5.98% 4.85% 4.63% 5.01% 4.45% 5.33% 5.11%
RATE-SENSITIVE LIABILITIES
Noninterest-bearing
deposits 32,281 - - - - - 32,281 32,281
Average interest rate -% -% -% -% -% -% -%
Fixed interest rate
savings and
interest-bearing deposits 114,157 - - - - - 114,157 114,157
Average interest rate 1.61% -% -% -% -% -% 1.61%
Fixed interest rate
time deposits 26,963 36,071 2,935 1,708 2,309 20 70,006 70,506
Average interest rate 3.55% 2.66% 4.69% 4.55% 4.58% 3.49% 3.20%
MARKET RISK DISCLOSURE AT DECEMBER 31, 2001
(Dollars in thousands)
Fair Value
2002 2003 2004 2005 2006 Thereafter Total 12/31/01
---- ---- ---- ---- ---- ---------- ----- ----------
<c>
RATE-SENSITIVE ASSETS
Variable interest rate loans $ 9,216 $ 2,436 $ 2,210 $1,994 $1,999 $ 13,922 $ 31,777 $ 32,518
Average interest rate 8.68% 7.89% 7.63% 7.49% 7.73% 7.89% 8.07%
Fixed interest rate loans 20,636 10,529 11,203 8,190 8,291 44,177 103,026 102,932
Average interest rate 8.66% 8.65% 8.35% 8.25% 7.83% 7.25% 7.98%
Variable interest rate
securities - - - - - 1,506 1,506 1,320
Average interest rate -% -% -% -% -% 3.50% 3.50%
Fixed interest rate securities 24,886 21,441 11,393 4,330 2,756 1,974 66,780 66,912
Average interest rate 5.78% 6.14% 5.87% 5.81% 4.16% 8.06% 5.91%
RATE-SENSITIVE LIABILITIES
Noninterest-bearing deposits 32,919 - - - - - 32,919 32,919
Average interest rate -% -% -% -% -% -% -%
Fixed interest rate
savings and
interest-bearing deposits 95,124 - - - - - 95,124 95,124
Average interest rate 2.44% -% -% -% -% -% 2.44%
Fixed interest rate
time deposits 54,901 17,828 1,989 1,131 697 - 76,546 78,068
Average interest rate 5.64% 4.13% 5.53% 5.75% 4.95% -% 5.28%
32.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2002, 2001 and 2000
CAPITAL RESOURCES
The capital ratios of the Company exceed the regulatory guidelines for well
capitalized institutions. The Company has maintained an average leverage ratio
of 10.0% for the last three years. This strong capital position provides the
Company with the flexibility to take advantage of expansion opportunities and to
continue with a high dividend payout ratio which has averaged 65.3% over the
past three years. As earnings continue at current levels or better, the Company
anticipates continuing to pay dividends at this level.
A five percent stock dividend was declared to shareholders in 2001 and 2000. The
stock of the Company is generally traded locally. Additional information
concerning capital ratios and shareholder return is included in the Financial
Highlights schedule. The Company maintains a five-year plan and utilizes a
formal strategic planning process. Management and the Board continue to monitor
long-term goals, which include increasing market share and maintaining long-term
earnings sufficient to pay consistent dividends.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Interest income is the total amount earned on funds invested in federal funds
sold, securities and loans. Interest expense is the amount of interest paid on
interest-bearing checking, money market, savings and time deposits accounts. Net
interest income is the difference between interest income and interest expense.
The net margin is the net interest income as a percentage of average
interest-earning assets. Interest spread is the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities. In 2002, net interest income increased by $632,000, due primarily
to the greater increase in the volume of interest-earning assets over
interest-bearing liabilities.
The $23,000 increase in net interest income from 2000 to 2001 was primarily due
to the general decrease in interest rates which resulted in the yield on
interest-earning assets decreasing more rapidly than the cost of average
interest-bearing liabilities. The negative impact of these rate and yield
changes was fully offset by the impact of increasing interest-earning asset
balances.
During 2000, net interest income increased substantially due primarily to an
increase in the Company's loan portfolio and an increase in the overall yield on
interest-earning assets compared to the cost of average interest-bearing
liabilities.
33.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2002, 2001 and 2000
The following table shows the daily average consolidated balance sheets, revenue
on average interest-earning assets (on a pre-tax basis), expense on average
interest-bearing liabilities and the annualized effective yield or rate for the
periods ending:
Yield Analysis of Consolidated Average Assets and Liabilities
(Dollars in thousands)
Year Ended Year Ended Year Ended
December 31, 2002 December 31, 2001 December 31, 2000
----------------- ----------------- -----------------
Average Yield/ Average Yield/ Average Yield/
Balance Int Rate Balance Int Rate Balance Int Rate
------- --- ---- ------- --- ---- ------- --- ----
Interest-earning assets:
Other interest-
earning assets $ 11,350 $ 192 1.69% $ 13,294 $ 613 4.60% $ 8,215 $ 555 6.76%
Total securities (1) 69,844 3,243 4.64 68,477 3,729 5.45 66,459 3,886 5.85
Loans, net 143,840 11,385 7.92 128,878 11,446 8.88 124,732 11,244 9.01
-------- ------- -------- ------- -------- -------
Total
interest-earning
assets 225,034 14,820 6.59% 210,649 15,788 7.49% 199,406 15,685 7.87%
------- ------- -------
Cash and due from
banks 6,885 6,660 6,666
Premises and
equipment, net 3,475 3,161 3,066
Allowance for loan
losses (1,692) (1,696) (1,614)
Other assets 6,100 5,839 4,224
-------- -------- --------
Total $239,802 $224,613 $211,748
======== ======== ========
Interest-bearing
liabilities:
Interest-bearing
demand deposits $ 16,795 $ 231 1.38% $ 15,151 $ 267 1.76% $ 15,664 $ 301 1.92%
Savings deposits 88,662 1,689 1.90 73,316 2,233 3.05 72,730 2,641 3.63
Time deposits 73,197 3,380 4.62 78,842 4,400 5.58 70,793 3,878 5.48
-------- ------- -------- ------- -------- -------
Total
interest-bearing
liabilities 178,654 5,300 2.97% 167,309 6,900 4.12% 159,187 6,820 4.28%
-------- ------- ------- -------
Noninterest-bearing
deposits 33,780 31,962 29,439
Other liabilities 2,786 2,370 2,279
Shareholders' equity 24,582 22,972 20,843
-------- -------- --------
Total $239,802 $224,613 $211,748
======== ======== ========
Net interest income $ 9,520 $ 8,888 $ 8,865
======= ======= =======
Net interest spread 3.62% 3.37% 3.59%
==== ==== ======
Net yield on
Interest-earning
assets 4.23% 4.22% 4.45%
==== ==== ======
Ratio of interest-
earning assets
to interest-bearing
liabilities 1.26x 1.26x 1.25x
======== ======== ========
(1) Yield computed using the average amortized cost for securities available
for sale.
34.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2002, 2001 and 2000
The table below shows the effect of volume and rate changes on net interest
income on a pre-tax basis.
2002 Compared to 2001 2001 Compared to 2000
--------------------- ---------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In thousands)
Other interest-earning assets $ (79) $ (342) $ (421) $ 271 $ (213) $ 58
Total securities 73 (559) (486) 115 (272) (157)
Loans, net 1,254 (1,315) (61) 370 (168) 202
------- ------- ------- ------ ------- ------
Total interest-earning assets 1,248 (2,216) (968) 756 (653) 103
Interest-bearing demand deposits 27 (63) (36) (10) (24) (34)
Savings deposits 405 (949) (544) 21 (429) (408)
Time deposits (299) (721) (1,020) 448 74 522
------- ------- ------- ------ ------ ------
Total interest-bearing liabilities 133 (1,733) (1,600) 459 (379) 80
------- ------- ------- ------ ------ ------
Net change in net interest income (a) $ 1,115 $ (483) $ 632 $ 297 $ (274) $ 23
======= ======= ======= ====== ====== ======
(a) The net change in interest due to both rate and volume has been allocated
to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
NONINTEREST INCOME
Noninterest income includes fees and service charges on deposit accounts and
gains on sales of loans. Noninterest income increased during 2002 and 2001,
primarily due to a high volume of sales of residential real estate mortgages to
the secondary market which was a result of interest rates decreasing during 2002
and 2001. This volume is expected to decline during 2003 as interest rates
stabilize or increase. The increase in noninterest income during 2001 was also
attributed to fees and service charges on deposit accounts.
35.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2002, 2001 and 2000
NON-INTEREST EXPENSE
Noninterest expense increased during 2002 and 2001 primarily due to an increase
in salaries, wages and employee benefits. The Company continues to fund 100% of
the employees' health insurance and to offer a defined benefit pension plan in
conjunction with a matching 401(k) plan. Both of these benefit packages
increased expense during 2002 and 2001 by $147,000 and $91,000, respectively.
Expense increases related to these benefit packages are expected to continue in
the future. The decrease in other expenses in 2002 from the prior two years was
attributable to the receipt of life insurance proceeds under the Directors
Deferred Compensation Plan.
FEDERAL INCOME TAXES
Income tax expense increased during 2002 to $1.6 million compared to $1.4
million in 2001. Tax-exempt interest income for 2002 was $922,000 compared to
$834,000 for 2001, partially offsetting the increase in income tax expense.
The effective tax rates for 2002, 2001 and 2000 are shown in the table below:
2002 2001 2000
---- ---- ----
Income before tax (In thousands) $ 5,703 $ 4,910 $ 4,882
Income tax expense (In thousands) 1,609 1,409 1,496
Effective tax rate 28.2% 28.7% 30.6%
NET INCOME
Consolidated net income was $4.1 million for 2002, with the increase over last
year attributed to an increase in net interest income and non-interest income.
The Company experienced a decline in interest expense on deposits due to a
slightly declining interest rate environment during 2002. Also an increase in
the volume of loans sold to the secondary market allowed the Company to
experience an increase in non-interest income.
36.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2002, 2001 and 2000
FORWARD-LOOKING STATEMENTS
When used in this filing and in future filings involving the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phases, "anticipate,"
"would be," "will allow," "intends to," "will likely result," "are expected to,"
"will continue," "is anticipated," "estimated," "project," or similar
expressions are intended to identify, "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to risks and uncertainties, including but not limited to changes in
economic conditions in the Company's market area and competition, all or some of
which could cause actual results to differ materially from historical earnings
and those presently anticipated or projected.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and advise
readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investing activities, and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation, to
update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
37.
CNB CORPORATION
OFFICERS, COMMUNITY ADVISORS AND STAFF
December 31, 2002, 2001 and 2000
OFFICERS AND COMMUNITY ADVISORS
CITIZENS NATIONAL BANK OFFICERS AND COMMUNITY ADVISORS
CNB CITIZENS NATIONAL RICHARD L. WINE ONAWAY PELLSTON
CORPORATION BANK OFFICERS AND VICE PRESIDENT
OFFICERS COMMUNITY ADVISORS SUSAN L. CASWELL LAURA L. SHACK BARBARA ANDERSON
ASSISTANT VICE PRESIDENT BANKING OFFICE R & BANKING OFFICER &
ROBERT E. CHURCHILL ROBERT E. CHURCHILL STEPHEN J. CRUSOE BRANCH MANAGER BRANCH MANAGER
CHAIRMAN & CHIEF CHAIRMAN & CHIEF ASSISTANT VICE PRESIDENT RICHARD CONRAD
EXECUTIVE OFFICER EXECUTIVE OFFICER MARIAN L. HARRISON INDIAN RIVER COMMUNITY ADVISOR
JAMES C. CONBOY, JR JAMES C. CONBOY, JR ASSISTANT VICE PRESIDENT BARBARA J. JOPPICH
PRESIDENT & CHIEF PRESIDENT & CHIEF SALLY J. LACROSS ASSISTANT VICE PRESIDENT &
OPERATING OFFICER OPERAING OFFICER ASSISTANT VICE PRESIDENT BRANCH MANAGER
JOHN F. EKDAHL SUSAN A. ENO PAUL F. SCHWIND PAUL FISHER
SENIOR VICE PRESIDENT EXECUTIVE VICE PRESIDENT INTERNAL AUDITOR COMMUNITY ADVISOR
SUSAN A. ENO JOHN F. EKDAHL RANDY J. MALTBY JOHN L. OLSZEWSKI
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT TECHNOLOGY OFFICE COMMUNITY ADVISOR
JOHN P. WARD DOUGLAS W. DAMM SUSAN J. CLEARY JEFF SWADLING
SECRETARY SENIOR VICE PRESIDENT & LOAN OFFICER COMMUNITY ADVISOR
IRENE M. ENGLISH SENIOR LOAN OFFICER VICTORIA J. HAND
TREASURER IRENE M. ENGLISH LOAN OFFICER
VICE PRESIDENT & MICHELLE J. OSTWALD
CONTROLLER LOAN OFFICER MACKINAW CITY
KENNETH N. SHELDON FLORENCE CASWELL
VICE PRESIDENT ASSISTANT LOAN SUSAN M. BRANDT
EXAMINATION OPERATIONS OFFICER BANKING OFFICER &
BRANCH MANAGER
STAFF OF CITIZENS NATIONAL BANK
MAIN OFFICE DOWNTOWN MACKINAW CITY INDIAN RIVER
DRIVE-IN
Eugene Andrzejewski Penny L. Newman CHEBOYGAN Susan M. Brandt Barbara J. Joppich
Karen Barrette Kelli M. Reimann Deborah L. Closs Jody L. Jacobs
Susan M. Bohn Katherine H. Rhome Carla Konwinski Jennifer M. LaHaie Tammy Kirsch
Kim Chapman Ronald D. Rose Carla Roznowski Amber LaPrairie
Kathleen A. Charboneau LeRoy Ruotanen Susan Sova
Joan T. Clarey Bernard J. Schramm EAST SIDE PELLSTON Helen K. Stumpf
Lora L. Clouser Karen K. Schramm DRIVE-IN Kathryn A. Szarenski
Patricia K. Comps Nancy Scott CHEBOYGAN Barbara A. Anderson
Sharon Coppernoll Sandra L. Shawl Sheri L. Kindell
Arlene Daniel Kim Sinclair Deanna Hudson
Trisha M. Dobias Sally A. Spray Carolyn A. Scheele
Mary E. Greenwood M. Teresa Sullivan ONAWAY
Debra Grice Kathy S. Swackhamer SOUTH BRANCH
Helen R. Hart Christina Sweet DRIVE-IN Laura L. Shack
Linda K. Johnson Lori Thorton CHEBOYGAN Rachel Bischoff-Peel
Miranda Lake Darlene L. Vallance Pamela A. Kolasa
Betty J. Lewis Wendelin K. Whippo Diane S. Mushlock Sara L. LaLonde
Steven R. Luttmann Nicole M. Wichlacz Diane S. Poirier Lynn D. Porter
Loretta Merchant Sherry M. Wichlacz Laura Merchant Kathleen T. Robbins
Adam Newman Kathleen S. Wilson
38.
CNB CORPORATION
DIRECTORS AND DIRECTORS EMERITI
December 31, 2002, 2001 and 2000
DIRECTORS OF CNB CORPORATION &
CITIZENS NATIONAL BANK
ROBERT E. CHURCHILL
Chairman & Chief Executive Officer, CNB Corporation
Chairman & Chief Executive Officer,
Citizens National Bank
STEVEN J. BAKER, D.V.M.
Indian River Veterinary Clinic
JAMES C. CONBOY, JR.
President & Chief Operating Officer, CNB Corporation
President & Chief Operating Officer, Citizens National Bank
KATHLEEN M. DARROW
President, Darrow Bros. Excavating, Inc.
Retired, formerly Group Sales & Special Events
Coordinator for the Mackinac State Historic Park
THOMAS J. ELLENBERGER
Vice President & Secretary
Albert Ellenberger Lumber Company
VINCENT J. HILLESHEIM
President, Crusoe's Rivertown Motors, Inc.
Co-Manager, Crusoe Enterprises, LLC
JOHN L. ORMSBEE
Owner, Jack's Sales
FRANCIS J. VANANTWERP, JR.
Vice President Durocher Marine Division
Kokosing Construction Company, Inc.
President/Owner of Salvor, LTD
JOHN P. WARD
Retired, formerly Senior Vice President,
CNB Corporation and Citizens National Bank
Secretary, CNB Corporation
DIRECTORS EMERTI
KENNETH A. HUBACKER, LYLE MCKINLEY,
JAMES H. TAYLOR, THOMAS A. ELLENBERGER, THOMAS J. FISHER
HOW TO ORDER FORM 10-K
Shareholders may obtain, without charge, a copy of Form 10-K or the 2002
Annual Report
Summary & Highlights by writing John P. Ward, Secretary, CNB Corporation,
P.O. Box 10,
Cheboygan, Michigan 49721.
39.