UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
Commission file # 0-28388
CNB CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-2662386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
303 North Main Street, Cheboygan MI 49721
(Address of principal executive offices, including Zip Code)
(231) 627-7111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate by check mark whether the registrant is a shell company (as defined in
rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of August 4, 2006 there were 1,238,762 shares of the issuer's common stock
outstanding.
CNB CORPORATION
Index
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Condensed):
Consolidated Balance Sheets - June 30, 2006 and December 31, 2005 ... 3
Consolidated Statements of Income - Three and Six Months Ended
June 30, 2006 and 2005 ........................................... 4
Consolidated Statements of Cash Flows - Six Months Ended June 30,
2006 and 2005 .................................................... 5
Notes to Consolidated Financial Statements .......................... 6-7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................... 8-11
Item 3 - Quantitative and Qualitative Disclosures About Market Risk .... 11
Item 4 - Controls and Procedures ....................................... 12
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings ............................................. 13
Item 1A - Risk Factors ................................................. 13
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds ... 13
Item 3 - Defaults Upon Senior Securities ............................... 13
Item 4 - Submission of Matters to a Vote of Security Holders ........... 13
Item 5 - Other Information ............................................. 13
Item 6 - Exhibits and Reports on Form 8-K .............................. 13
Signatures ............................................................. 14-17
Exhibit Index .......................................................... 18
2
PART I - FINANCIAL INFORMATION
ITEM 1-FINANCIAL STATEMENTS (CONDENSED)
CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data)
June 30, December 31,
2006 2005
----------- ------------
(Unaudited)
ASSETS
Cash and due from banks $ 8,747 $ 6,586
Federal funds sold 3,119 5,357
-------- --------
Total cash and cash equivalents 11,866 11,943
Securities available for sale 58,009 69,315
Securities held to maturity (market value of $4,851
in 2006 and $4,128 in 2005) 4,843 4,117
Other securities 1,053 1,053
Loans, held for sale 411
51
Loans, net of allowance for loan losses of $1,487
in 2006 and $1,456 in 2005 163,399 154,811
Premises and equipment, net 5,714 5,443
Other assets 6,335 5,998
-------- --------
Total assets $251,630 $252,731
======== ========
LIABILITIES
Deposits
Noninterest-bearing $ 40,424 $ 38,943
Interest-bearing 180,997 184,494
-------- --------
Total deposits 221,421 223,437
Other liabilities 4,946 4,795
-------- --------
Total liabilities 226,367 228,232
SHAREHOLDERS' EQUITY
Common stock - $2.50 par value; 2,000,000 shares
authorized; and 1,238,762 and 1,237,418 shares
issued and outstanding in 2006 and 2005 3,097 3,094
Additional paid-in capital 20,459 20,430
Retained earnings 2,226 1,576
Accumulated other comprehensive loss, net of tax (519) (601)
-------- --------
Total shareholders' equity 25,263 24,499
-------- --------
Total liabilities and shareholders' equity $251,630 $252,731
======== ========
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data)
Three months Six months
ended June 30, ended June 30,
--------------- ---------------
2006 2005 2006 2005
------ ------ ------ ------
(Unaudited)
INTEREST INCOME
Loans, including fees $3,007 $2,575 $5,829 $5,024
Securities
Taxable 453 538 909 1,046
Tax exempt 110 152 237 304
Other interest income 58 55 160 107
------ ------ ------ ------
Total interest income 3,628 3,320 7,135 6,481
INTEREST EXPENSE ON DEPOSITS 1,131 726 2,126 1,379
------ ------ ------ ------
NET INTEREST INCOME 2,497 2,594 5,009 5,102
Provision for loan losses 30 30 60 60
------ ------ ------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,467 2,564 4,949 5,042
------ ------ ------ ------
NONINTEREST INCOME
Service charges and fees 244 237 469 457
Net realized gains from sales of loans 32 60 82 112
Loan servicing fees, net of amortization 30 35 59 57
Gain on sale of premises and equipment 509 -- 509 --
Other income 52 348 92 403
------ ------ ------ ------
Total noninterest income 867 680 1,211 1,029
NONINTEREST EXPENSES
Salaries and employee benefits 869 821 1,749 1,614
Deferred compensation 79 391 160 466
Pension 65 78 129 156
Hospitalization 144 134 285 263
Occupancy 268 207 537 419
Supplies 77 49 111 92
Legal and professional 97 138 195 232
Other expenses 298 259 621 518
------ ------ ------ ------
Total noninterest expense 1,897 2,077 3,787 3,760
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 1,437 1,167 2,373 2,311
Income tax expense 441 235 683 574
------ ------ ------ ------
NET INCOME $ 996 $ 932 $1,690 $1,737
====== ====== ====== ======
TOTAL COMPREHENSIVE INCOME $ 985 $1,147 $1,772 $1,666
====== ====== ====== ======
Return on average assets (annualized) 1.60% 1.45% 1.34% 1.35%
Return on average equity (annualized) 15.89% 15.11% 13.57% 14.12%
Basic earnings per share $ 0.80 $ 0.75 $ 1.37 $ 1.40
Diluted earnings per share $ 0.80 $ 0.75 $ 1.36 $ 1.40
Dividends declared per share $ 0.42 $ 0.40 $ 0.84 $ 0.80
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands).
Six months ended
June 30,
------------------
2006 2005
------- --------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,690 $ 1,737
Adjustments to reconcile net income to net cash
from operating activities
Depreciation, amortization and accretion, net 72 295
Provision for loan losses 60 60
Loans originated for sale (3,867) (5,862)
Proceeds from sales of loans originated for sale 3,542 5,380
Gain on sales of loans (82) (112)
Gain on sales of premises and equipment (509) --
Increase in other assets (297) (392)
Increase in other liabilities 867 849
------- --------
Total adjustments (214) 218
------- --------
Net cash provided by operating activities 1,476 1,955
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 16,360 9,425
Purchase of securities available for sale (4,697) (10,440)
Proceeds from maturities of securities held to maturity 709 688
Purchase of securities held to maturity (1,435) (1,450)
Proceeds from maturities of other securities -- 2,000
Purchase of other securities -- (58)
Net change in portfolio loans (8,683) (5,019)
Premises and equipment expenditures (609) (305)
Proceeds from sale of premises and equipment 542 --
------- --------
Net cash provided by (used in) investing activities 2,187 (5,159)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase(decrease) in deposits (2,016) 4,012
Dividends paid (1,756) (1,716)
Net proceeds from exercise of stock options 37 11
Purchases of common stock (5) (64)
------- --------
Net cash (used in) provided by financing activities (3,740) 2,243
------- --------
Net change in cash and cash equivalents (77) (961)
Cash and cash equivalents at beginning of year 11,943 12,695
------- --------
Cash and cash equivalents at end of period $11,866 $ 11,734
======= ========
Cash paid during the period for:
Interest $ 2,079 $ 1,351
Income taxes 186 655
Non-cash transactions:
Transfer from loans to other real estate owned 35 389
See accompanying notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1-Basis of Presentation
The consolidated financial statements include the accounts of CNB Corporation
("Company") and its wholly owned subsidiary, Citizens National Bank of Cheboygan
("Bank") and the Bank's wholly owned subsidiary CNB Mortgage Corporation. All
significant intercompany accounts and transactions are eliminated in the
consolidation process. The statements have been prepared by management without
an audit by independent certified public accountants. However, these statements
reflect all adjustments (consisting of normal recurring accruals) and
disclosures which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented and should be read
in conjunction with the notes to the consolidated financial statements included
in the CNB Corporation's Form 10-K for the year ended December 31, 2005.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission.
Because the results of operations are so closely related to and responsive to
changes in economic conditions, the results for any interim period are not
necessarily indicative of the results that can be expected for the entire year.
Stock Compensation: Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 123(R), Share-Based Payment, which
requires companies to record compensation expense for stock options provided to
employees in return for employee service. The cost is measured at the fair value
of the options when granted, and this cost is expensed over the employee's
service period, which is normally the vesting period of the options. This will
apply to awards granted or modified after adoption and for prior grants that
vest after the date of adoption. As of and for the six months ended June 30,
2006 there was no unrecognized compensation expense or recorded compensation
expense as there were no options granted or modified during this period and all
previously granted options were fully vested prior to 2006. The effect on future
results of operations will depend on the level of future option grants and the
calculation of the fair value of the options granted at such future date, as
well as the vesting periods provided, and so cannot currently be predicted.
Prior to December 31, 2005 stock-based compensation was accounted for using the
intrinsic value method prescribed in Accounting Principles Board Opinion ("APB")
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, compensation cost of stock options was measured as the excess, if
any, of the fair value of our stock at the date of grant over the grant price
and no stock-based employee compensation cost was reflected in the income
statements for the periods ended prior to December 31, 2005. The effect on net
income and earnings per share if expense was measured using the fair value
recognition provisions of FASB Statement No. 123, was less than $.01 per share
for the three and six months ended June 30, 2005.
There were no stock options granted during the six months ended June 30, 2006
and 2005.
The Company adopted a stock option plan in May 1996 under which the options may
be issued at market prices to employees. Stock options are used to reward
certain officers and provide them with an additional equity interest. Options
are issued for 10 year periods and have varying vesting schedules. The exercise
price of options granted is equivalent to the market value of underlying stock
at the grant date. The Company has a policy of issuing new shares to satisfy
option exercises.
6
Information about options available for grant, options outstanding and options
exercisable follows:
Weighted
Options Weighted Average
Outstanding Average Remaining Aggregate
Available and Exercise Contractual Intrinsic
For Grant Exercisable Price Term Value
--------- ----------- -------- ----------- ---------
Balance at January 1, 2006 9,952 25,932 $47.35
Options exercised (1,444) 25.69
----- ------
Balance at June 30, 2006 9,952 24,488 $48.63 4.2 years $(89,000)
===== ======
The aggregate intrinsic value of options exercised for the three and six months
ended June 30, 2006 was approximately $24,000 and $28,000 respectively. The
aggregate intrinsic value of options exercised for the three and six months
ended June 30, 2005 was approximately $3,400. There were no shares vested for
the same periods.
Cash received from option exercises for the three and six month periods ending
June 30, 2006 was approximately $29,000 and $37,000 and for the three and six
month periods ending June 30, 2005 was approximately $7,000 and $11,000,
respectively. There was no tax benefit realized from option exercises during the
same periods.
There have been no significant changes in the Company's critical accounting
policies since December 31, 2005.
Note 2-New Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109." FIN 48 requires that realization of
an uncertain income tax position be "more likely than not" before it can be
recognized in the financial statements. Further, FIN 48 prescribes the benefit
to be recorded in the financial statements as the amount most likely to be
realized assuming a review by tax authorities having all relevant information
and applying current conventions. FIN 48 also clarifies the financial statement
classification of tax-related penalties and interest and sets forth new
disclosures regarding unrecognized tax benefits. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company is currently evaluating the
requirements of FIN 48 and the impact this interpretation may have on its
financial statements.
Note 3-Earnings Per Share
Basic earnings per share are calculated solely on weighted-average common shares
outstanding. Diluted earnings per share will reflect the potential dilution of
stock options and other common stock equivalents. For the three and six month
periods ending June 30, 2006 the weighted average shares outstanding in
calculating basic earnings per share were 1,238,088 and 1,237,763 while the
weighted average number of shares for diluted earnings per share were 1,239,378
and 1,239,601. As of June 30, 2006 there were 19,707 options not considered in
the three and six month earnings per share calculations because they were
antidilutive. For the three and six month periods ending June 30, 2005 the
weighted average shares outstanding in calculating basic earnings per share were
1,237,518 and 1,237,683 while the weighted average number of shares for diluted
earnings per share were 1,239,342 and 1,240,520. As of June 30, 2005 there were
8,340 options not considered in the three and six month earnings per share
calculations because they were antidilutive.
7
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion provides information about the consolidated financial condition
and results of operations of CNB Corporation ("Company") and its wholly owned
subsidiary, Citizens National Bank of Cheboygan ("Bank") and the Bank's wholly
owned subsidiary CNB Mortgage Corporation for the three and six month periods
ending June 30, 2006.
FINANCIAL CONDITION
The Company's balances of cash and cash equivalents decreased $77,000 or 0.6%.
During the six month period ending June 30, 2006, $1.5 million in cash was
provided by operating activities. Investing activities provided $2.2 million
during the six months ended June 30, 2006, primarily due to proceeds of maturing
securities and financing activities utilized $3.7 million.
SECURITIES
The securities portfolio decreased $10.6 million since December 31, 2005. The
available for sale portfolio decreased to 90.8% of the investment portfolio down
from 93.1% at year-end.
The fair values and related unrealized gains and losses for securities available
for sale were as follows, in thousands of dollars:
Gross Gross
Fair Unrealized Unrealized
Value Gains Losses
------- ---------- ----------
Available for Sale
JUNE 30, 2006
U.S. Government agency $42,099 $-- $(536)
Mortgage-backed 7,205 -- (240)
State and municipal 8,705 37 (48)
------- --- -----
$58,009 $37 $(824)
======= === =====
DECEMBER 31, 2005
U.S. Government agency $49,099 $-- $(717)
Mortgage-backed 8,140 -- (180)
State and municipal 12,076 38 (52)
------- --- -----
$69,315 $38 $(949)
======= === =====
The carrying amount, unrecognized gains and losses, and fair value of securities
held to maturity were as follows, in thousand of dollars:
Gross Gross
Carrying Unrecognized Unrecognized Fair
Amount Gains Losses Value
-------- ------------ ------------ ------
Held to Maturity
JUNE 30, 2006
State and municipal $4,843 $30 $(22) $4,851
====== === ==== ======
DECEMBER 31, 2005
State and municipal $4,117 $37 $(26) $4,128
====== === ==== ======
8
The carrying amount and fair value of securities by contractual maturity at June
30, 2006 are shown below, in thousands of dollars.
Available
for sale Held to Maturity
--------- -----------------
Fair Carrying Fair
Value Amount Value
--------- -------- ------
Due in one year or less $ 36,341 $1,621 $1,622
Due from one to five years 20,289 1,683 1,700
Due from five to ten years 628 1,539 1,529
Due after ten years 751 -- --
--------- ------ ------
$ 58,009 $4,843 $4,851
========= ====== ======
LOANS
Net loans at June 30, 2006 increased $8.6 million from December 31, 2005. The
table below shows total loans outstanding by type, in thousands of dollars, at
June 30, 2006 and December 31, 2005 and their percentages of the total loan
portfolio. All loans are domestic. A quarterly review of loan concentrations at
June 30, 2006 indicates the pattern of loans in the portfolio has not changed
significantly. There is no individual industry with more than a 10%
concentration. However, all tourism related businesses, when combined, total
12.8% of total loans.
June 30, 2006 December 31, 2005
--------------------- ---------------------
Balance % of total Balance % of total
-------- ---------- -------- ----------
Portfolio loans:
Residential real estate $ 83,209 50.46% $ 83,183 53.23%
Consumer 9,914 6.01% 9,922 6.35%
Commercial real estate 58,970 35.77% 53,133 34.00%
Commercial 12,800 7.76% 10,037 6.42%
-------- ------ -------- ------
164,893 100.00% 156,275 100.00%
====== ======
Deferred loan origination fees, net (7) (8)
Allowance for loan losses (1,487) (1,456)
-------- --------
Loans, net $163,399 $154,811
======== ========
ALLOWANCE AND PROVISION FOR LOAN LOSSES
An analysis of the allowance for loan losses, in thousands of dollars, for the
six months ended June 30, follows:
2006 2005
------ ------
Beginning balance $1,456 $1,350
Provision for loan losses 60 60
Charge-offs (47) (11)
Recoveries 18 10
------ ------
Ending balance $1,487 $1,409
====== ======
The Company had no impaired loans during the first six months of 2006 or 2005.
Since December 31, 2005 commercial mortgages have increased $5.8 million and
commercial business loans have increased $2.8 million while consumer mortgages
have remained level. This is primarily due to a slow down in residential
refinancing and a stronger emphasis on commercial lending. There has been no
change in the bank's lending policies. The lending staff continues to be
well-trained and experienced. The trend and volume of past due loans continues
to be well-controlled and in line with peer averages. In response to the change
in portfolio composition and loan growth management recorded a provision of
$60,000 in the first six months of 2006 and 2005.
9
CREDIT QUALITY
The Company maintains a high level of asset quality as a result of actively
managing delinquencies, nonperforming assets and potential loan problems. The
Company performs an ongoing review of all large credits to watch for any
deterioration in quality. Nonperforming loans are comprised of: (1) loans
accounted for on a nonaccrual basis; (2) loans contractually past due 90 days or
more as to interest or principal payments (but not included in nonaccrual loans
in (1) above); and (3) other loans whose terms have been renegotiated to provide
a reduction or deferral of interest or principal because of a deterioration in
the financial position of the borrower (exclusive of loans in (1) or (2) above).
The aggregate amount of nonperforming loans is shown in the table below.
June December
30, 31,
2006 2005
---- --------
(dollars in
thousands)
Nonaccrual $ - $ -
Loans past due 90 days or more 325 255
Troubled debt restructurings -- --
---- ----
Total nonperforming loans $325 $255
==== ====
Percent of total loans 0.20% 0.16%
DEPOSITS
Deposits at June 30, 2006 decreased $2 million since December 31, 2005.
Interest-bearing deposits decreased $3.5 million or 1.9% for the six months
ended June 3, 2006, while noninterest-bearing deposits increased $1.5 million or
3.8%. This change in the deposit mix can be attributed to seasonal activity.
LIQUIDITY AND FUNDS MANAGEMENT
As of June 30, 2006, the Company had $3.1 million in federal funds sold, $58
million in securities available for sale and $1.6 million in held to maturity
securities maturing within one year. These sources of liquidity are supplemented
by new deposits and loan payments received by customers. These short-term assets
represent 28.3% of total deposits as of June 30, 2006.
Total equity of the Company at June 30, 2006 was $25.3 million compared to $24.5
million at December 31, 2005.
RESULTS OF OPERATIONS
CNB Corporation's 2006 net income for the first six months was $1,690,000, a
decrease of $47,000 compared to 2005 results. This decrease in net income can be
attributed to a decrease in net interest income resulting from the increased
deposit rates from the same time last year. Basic earnings per share were $1.37
and diluted earnings per share were $1.36 for 2006 compared to basic and diluted
earnings per share of $1.40 for 2005. The return on assets was 1.34% for the
first six months of the year versus 1.35% for the same period in 2005. The
return on equity was 13.57% compared to 14.12% for the same period last year.
Net income for the three months ending June 30, 2006 was $996,000 compared to
$932,000 for 2005. This was an increase of $64,000 or 6.7%. Basic and diluted
earnings per share were $0.80 compared to $0.75 for 2005. The return on average
assets was 1.60% compared to 1.45% for 2005. The return on average equity was
15.89% compared to 15.11% for 2005.
10
For the first six months of 2006, net interest income was $5.0 million
representing a decrease of 1.8% from the same period in 2005. The fully taxable
equivalent net interest margin increased to 4.35% for the six month period
ending June 30, 2006 compared to 4.32% for the same period ending June 30, 2005.
Net interest income decreased due to the changing interest rate environment.
Deposits are repricing faster than earning assets and at higher rates. Although
net interest income is down slightly from the same period last year, the fully
taxable equivalent (FTE) net interest margin has increased. The FTE net interest
margin is calculated by dividing the FTE net interest income by the year to date
average earning assets. The calculated increase in the FTE net interest margin
is due to a decrease in average earning assets compared to the same period last
year. Average earning assets have decreased, but a change in the asset mix has
aided in continuing a level interest income. As the loan portfolio has grown,
maturities of lower yielding investment securities have been used to fund loan
growth at higher yields.
In response to the change in the loan portfolio composition and loan growth,
management recorded a provision expense of $60,000 in the first six months in
2006 and 2005.
Noninterest income for the six months ending June 30, 2006 was $1.2 million, an
increase of $182,000 or 17.7% from the same period last year. The majority of
this increase can be attributed to the recording of a gain on the sale of
property where our old south branch was located. This increase was offset in
part by a decline in other income from the prior year period. Other income for
the six months ending June 30, 2005 included life insurance proceeds of $300,000
due to the death of a director.
Noninterest income for the quarter ending June 30, 2006 was $867,000 compared to
$680,000 from the same period last year. This represents an increase of $187,000
or 27.5% from the same period last year. This change between the two periods is
for the same reasons as noted above for the six month period. Noninterest income
for the second quarter of 2006 includes $509,000 as a gain on the sale of
property as mentioned above.
Noninterest expense for the first six months of 2006 and 2005 was $3.8 million.
Although the 2005 expense included $315,000 of additional expense to recognize
the amount payable to a director upon death under the deferred compensation
plan, 2006 also includes some additional noninterest expenses. The 2006
noninterest expense includes an increase to the occupancy expense which can
largely be attributed to increases in depreciation expense due to the purchase
of new processing equipment and new branch facilities in Cheboygan and Indian
River. Also, an increase in salary and benefit expenses as the Company increased
its number of employees from 77 full-time equivalent employees at June 30, 2005
to 81 full-time equivalent employees at June 30, 2006. This increase in
employees is due to increased branch hours and a new branch facility, both of
which require additional staffing. Also during 2006, the Company has recognized
$51,000 of expense due to the loss on sale or write-down of other real estate
properties owned.
The provision for federal income tax was 28.8% of pretax income for the six
months ended June 30, 2006 as compared to 24.8% for the same period in 2005. The
difference between the tax rates for the two periods is due to the non-taxable
character of the income from insurance proceeds during 2005. The difference
between the effective tax rate and the federal corporate tax rate of 34% is
generally due to tax-exempt interest earned on investments and loans and other
tax-related items.
ITEM 3-QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary source of market risk for the financial instruments held by the
Company is interest rate risk. That is, the risk that a change in market rates
will adversely affect the market value of the instruments. Generally, the longer
the maturity, the higher the interest rate risk exposure. While maturity
information does not necessarily present all aspects of exposure, it may provide
an indication of where risks are prevalent.
All financial institutions assume interest rate risk as an integral part of
normal operations. Managing and measuring interest rate risk is a dynamic,
multi-faceted process that ranges from reducing the exposure of the Company's
net interest margin to swings in interest rates, to assuring sufficient capital
and liquidity to support future balance sheet growth. The Company manages
interest rate risk through the Asset Liability Committee. The Asset Liability
Committee is comprised of bank officers from various disciplines. The Committee
reviews policies and establishes rates which lead to prudent investment of
resources, the effective management of risks associated with changing interest
rates, the maintenance of adequate liquidity, and the earning of an adequate
return of shareholders' equity.
11
Management believes that there has been no significant changes to the interest
rate sensitivity since the presentation in the December 31, 2005 Management
Discussion and Analysis appearing in the December 31, 2005 10K.
ITEM 4-CONTROLS AND PROCEDURES
The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"). These
rules refer to the controls and other procedures of a company that are designed
to ensure that information required to be disclosed by a company in the reports
that it files under the Exchange Act is recorded, processed summarized and
reported within required time periods. Our Chief Executive Officer and
Treasurer, who serves as the Company's CFO have evaluated the effectiveness of
our disclosure controls and procedures as of the end of the period covered by
this report (the "Evaluation Date"), and have concluded that, as of the
Evaluation Date, our disclosure controls and procedures are effective in
providing them with material information relating to the Corporation which is
required to be included in our periodic reports filed under the Exchange Act.
There have been no significant changes in the Company's internal controls over
financial reporting or in other factors that could significantly affect internal
controls over financial reporting.
12
PART II-OTHER INFORMATION
ITEM 1-LEGAL PROCEEDINGS
None
ITEM 1A.-RISK FACTORS
None
ITEM 2- UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3-DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of CNB Corporation was held on May 16, 2006.
Elected as Directors for one year term were Steven J. Baker; James C. Conboy,
Jr.; Kathleen M. Darrow; Thomas J. Ellenberger; Vincent J. Hillesheim; Kathleen
A. Lieder; John L. Ormsbee; R. Jeffery Swadling; and Francis J. VanAntwerp Jr..
Votes cast for: 886,687
Votes cast against: 5,990
Votes withheld: 4,219
Votes cast for were for all nine directors listed above with the exception of
the votes cast against as noted. Votes cast against were 2,246 for Kathleen A.
Lieder, 3,553 for John L. Ormsbee, 86 for R. Jeffrey Swadling and 105 for
Francis J. VanAntwerp. Votes withheld were for all nine directors listed above.
ITEM 5-OTHER INFORMATION
CNB Corporation announces the retirement of John P. Ward as Chairman of the
Corporation. Mr. Ward was Chairman of the Corporation for one year and his
retirement is due to the Corporation's mandatory retirement policy of age 70.
Mr. Ward served as Secretary of the Corporation since its formation in 1985. He
served as Senior Vice President of the Corporation from 1993 until his
retirement in 1998 and as Senior Vice President and Cashier of the Bank from
1984 until his retirement in 1998. He served as a director of the Corporation
and the Bank since 1994.
Mr. Ward is succeeded by Vincent J. Hillesheim (55) as Chairman, who was elected
for a one year term by the Board of Directors at the May 16, 2006 annual
meeting. Mr. Ward's retirement and Mr. Hillesheim's appointment as Chairman were
both effective as of May 17, 2006. Mr. Hillesheim is President of Anchor In
Marina of Northern Michigan, Inc and Co-Manager of Crusoe Enterprises, LLC. He
has served as a director of the Corporation and the Bank since 1994.
ITEM 6-EXHIBITS AND REPORTS OF FORM 8-K
a.) Exhibits
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification pursuant to section 906 of the Sarbanes-Oxley Act of
2002
b.) Reports on Form 8-K
None
13
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNB Corporation
(Registrant)
Date: August 9, 2006 /s/ James C. Conboy, Jr.
----------------------------------------
James C. Conboy, Jr.
President and Chief Executive Officer
Date: August 9, 2006 /s/ Susan A. Eno
----------------------------------------
Susan A. Eno
Executive Vice President
14
EXHIBIT INDEX
Number Exhibit
- ------ -------
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
18