EXHIBIT 13
CNB CORPORATION
ANNUAL REPORT
December 31, 2007, 2006 and 2005
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.
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CNB CORPORATION
ANNUAL REPORT
December 31, 2007, 2006 and 2005
CONTENTS
FINANCIAL HIGHLIGHTS .................................................... 1
CONSOLIDATED BALANCE SHEETS ............................................. 2
CONSOLIDATED STATEMENTS OF INCOME ....................................... 3
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY .............. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS ................................... 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .............................. 6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ................. 33
MANAGEMENT'S DISCUSSION AND ANALYSIS .................................... 35
OFFICERS, COMMUNITY ADVISORS AND STAFF .................................. 48
DIRECTORS AND DIRECTORS EMERITI ......................................... 50
CNB CORPORATION
FINANCIAL HIGHLIGHTS
2007 2006 2005 2004 2003
-------- -------- -------- -------- --------
(In thousands, except per share data)
OPERATING STATISTICS
Interest income $ 16,180 $ 14,969 $ 13,356 $ 12,466 $ 13,282
Interest expense 5,858 4,672 3,132 2,764 3,380
Net interest income 10,322 10,297 10,224 9,702 9,902
Income before income taxes 4,170 4,649 4,528 4,131 5,385
Net income 3,088 3,323 3,288 2,955 3,885
Basic earnings per share 2.51 2.68 2.66 2.38 3.12
Diluted earnings per share 2.50 2.68 2.65 2.37 3.11
Return on average assets (ROA) 1.19% 1.31% 1.28% 1.14% 1.53%
Return on average
shareholders' equity (ROE) 12.18% 13.09% 13.23% 11.68% 15.14%
BALANCE SHEET STATISTICS
Securities $ 50,290 $ 56,882 $ 74,485 $ 88,951 $ 86,921
Total loans 174,652 167,234 156,326 144,619 143,500
Deposits 225,026 221,365 223,437 225,411 224,914
Total assets 255,193 251,900 252,731 254,094 254,406
CAPITAL STATISTICS
Shareholders' equity $ 24,400 $ 24,998 $ 24,499 $ 24,156 $ 25,138
Book value per share 20.11 20.17 19.80 19.51 20.21
Cash dividends per share 2.28 2.28 2.20 2.20 2.10
Dividend payout ratio 90.50% 85.00% 82.79% 92.32% 67.16%
Average equity to average
total assets 9.79% 10.01% 9.66% 9.79% 10.13%
CREDIT STATISTICS
Net charge-offs to total loans 0.06% 0.05% 0.01% 0.16% 0.07%
Nonperforming loans
to total loans 0.70% 0.11% 0.16% 0.47% 0.28%
Allowance for loan losses
to total loans 0.96% 0.90% 0.93% 0.93% 1.10%
Allowance for loan losses
to nonperforming loans 1.37x 8.46x 5.72x 2.00x 3.86x
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 2007 and 2006. As of December
31, 2007, there is no established public trading market for the Company's common
stock. Beginning in March 2007 the stock is now traded on the over-the-counter
bulletin. The Company's trading symbol is CNBZ. The Company had 1,019
shareholders as of December 31, 2007.
2007 2006
--------------------------- ---------------------------
Market Price Cash Market Price Cash
--------------- Dividends --------------- Dividends
Quarter High Low Declared High Low Declared
- ------- ------ ------ --------- ------ ------ ---------
1st $48.00 $40.00 $0.42 $50.00 $47.00 $0.42
2nd 45.00 38.00 0.42 49.00 45.00 0.42
3rd 40.75 37.00 0.42 47.00 40.00 0.42
4th 41.00 34.00 1.02 48.00 36.50 1.02
1.
CNB CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
2007 2006
-------- --------
(In thousands, except
share and per share data)
ASSETS
Cash and due from banks $ 8,844 $ 8,444
Federal funds sold 8,428 6,368
-------- --------
Total cash and cash equivalents 17,272 14,812
Securities available for sale 40,493 51,331
Securities held to maturity 8,789 4,543
Other securities 1,008 1,008
Loans held for sale 150 --
Loans, net of allowance for loan losses of $1,670
in 2007 and $1,498 in 2006 172,804 165,730
-------- --------
Total net loans 172,954 165,730
Premises and equipment, net 6,353 6,626
Other assets 8,324 7,850
-------- --------
Total assets $255,193 $251,900
======== ========
LIABILITIES
Deposits
Noninterest-bearing $ 37,984 $ 39,620
Interest-bearing 187,042 181,745
-------- --------
Total deposits 225,026 221,365
Other liabilities 5,767 5,537
-------- --------
Total liabilities 230,793 226,902
SHAREHOLDERS' EQUITY
Common stock - $2.50 par value; 2,000,000 shares
authorized; 1,213,632 and 1,239,512 shares
issued and outstanding in 2007 and 2006 3,034 3,099
Additional paid-in capital 19,509 20,482
Retained earnings 2,528 2,235
Accumulated other comprehensive loss, net of tax (671) (818)
-------- --------
Total shareholders' equity 24,400 24,998
-------- --------
Total liabilities and shareholders' equity $255,193 $251,900
======== ========
See accompanying notes to consolidated financial statements.
2.
CNB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2007, 2006 and 2005
2007 2006 2005
------- ------- -------
(In thousands,
except per share data)
INTEREST INCOME
Loans, including fees $12,977 $12,149 $10,460
Securities
Taxable 2,054 1,861 2,073
Tax exempt 489 482 571
Other interest income 660 477 252
------- ------- -------
Total interest income 16,180 14,969 13,356
INTEREST EXPENSE ON DEPOSITS 5,858 4,672 3,132
------- ------- -------
NET INTEREST INCOME 10,322 10,297 10,224
Provision for loan losses 275 120 120
------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,047 10,177 10,104
------- ------- -------
NONINTEREST INCOME
Service charges and fees 1,194 1,049 942
Net realized gains from sales of loans 154 166 256
Loan servicing fees, net of amortization 127 119 113
Gain on life insurance 39 -- 300
Gain on the sale of premises and equipment 12 521 --
Other income 178 171 205
------- ------- -------
Total noninterest income 1,704 2,026 1,816
NONINTEREST EXPENSES
Salaries and employee benefits 3,727 3,535 3,303
Deferred compensation 311 317 690
Pension 103 239 260
Hospitalization 567 591 545
Occupancy 1,152 1,053 913
Supplies 220 222 168
Legal and professional 396 329 457
Marketing 191 193 191
Other expenses 914 1,075 865
------- ------- -------
Total noninterest expense 7,581 7,554 7,392
------- ------- -------
INCOME BEFORE INCOME TAXES 4,170 4,649 4,528
Income tax expense 1,082 1,326 1,240
------- ------- -------
NET INCOME 3,088 3,323 3,288
======= ======= =======
Basic earnings per share $ 2.51 $ 2.68 $ 2.66
Diluted earnings per share 2.50 2.68 2.65
See accompanying notes to consolidated financial statements.
3.
CNB CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
Accumulated
Other
Comprehensive
Additional Income (Loss), Total
Outstanding Common Paid-In Retained Net Shareholders'
Shares Stock Capital Earnings of Tax Equity
------------- ---------- ----------- ------------ ----------------- -------------
(Dollars in thousands, except per share data)
Balance January 1, 2005 1,237,994 $ 3,095 $ 20,475 $ 1,010 $ (424) $ 24,156
Net income 3,288 3,288
Other comprehensive income (loss):
Change in unrealized gains (losses) on available
for sale securities, net of tax of $254 (492) (492)
Change in minimum pension liability, net
of tax of $162 315 315
-------------
Total comprehensive income 3,111
Cash dividends - $2.20 per share (2,722) (2,722)
Shares issued under stock option plan 1,382 4 48 52
Purchase and retirement of common stock (1,958) (5) (93) (98)
------------- ---------- ----------- ------------ ----------------- -------------
Balance December 31, 2005 1,237,418 3,094 20,430 1,576 (601) 24,499
Adjustment to beginning retained earnings
pursuant to SAB 108 159 159
------------- ---------- ----------- ------------ ----------------- -------------
Adjusted balance January 1, 2006 1,237,418 3,094 20,430 1,735 (601) 24,658
Net income 3,323 3,323
Other comprehensive income:
Change in unrealized gains (losses) on available
for sale securities, net of tax of $246 475 475
-------------
Total comprehensive income 3,798
Cash dividends - $2.28 per share (2,823) (2,823)
Adjustment to initially apply SFAS No. 158,
net of tax of $357 (692) (692)
Shares issued under stock option plan 2,194 5 57 62
Purchase and retirement of common stock (100) (5) (5)
------------- ---------- ----------- ------------ ----------------- -------------
Balance December 31, 2006 1,239,512 3,099 20,482 2,235 (818) 24,998
Net income 3,088 3,088
Other comprehensive income:
Change in unrealized gains (losses) on available
for sale securities, net of tax of $115 222 222
Defined benefit pension plan:
Net gain/loss during the period, net
of tax of $36 (70) (70)
Transition adjustment recognized, net
of tax of $3 (6) (6)
Prior service costs recognized 1 1
-------------
Total comprehensive income 3,235
Cash dividends - $2.28 per share (2,795) (2,795)
Purchase and retirement of common stock (25,880) (65) (973) (1,038)
------------- ---------- ----------- ------------ ----------------- -------------
Balance December 31, 2007 1,213,632 $ 3,034 $ 19,509 $ 2,528 $ (671) $ 24,400
============= ========== =========== ============ ================= =============
See accompanying notes to consolidated financial statements.
4.
CNB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2007, 2006 and 2005
2007 2006 2005
-------- -------- --------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,088 $ 3,323 $ 3,288
Adjustments to reconcile net income to net cash
from operating activities
Depreciation, amortization and accretion, net 119 320 458
Provision for loan losses 275 120 120
Loans originated for sale (9,114) (7,369) (11,613)
Proceeds from sales of loans originated for sale 9,012 7,441 11,739
Gain on sales of loans (154) (166) (256)
(Gain)loss on premises and equipment 12 (521) --
(Increase) decrease in other assets 162 (1,643) (596)
Increase in other liabilities 137 878 732
-------- -------- --------
Total adjustments 449 (940) 584
-------- -------- --------
Net cash provided by operating activities 3,537 2,383 3,872
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities
available for sale 29,106 41,950 22,706
Purchase of securities available for sale (17,465) (22,992) (14,458)
Proceeds from maturities of securities held
to maturity 2,657 2,845 2,154
Purchase of securities held to maturity (6,903) (3,271) (1,650)
Proceeds from maturities of other securities -- 45 5,055
Purchase of other securities -- -- (58)
Net change in portfolio loans (7,955) (12,041) (12,314)
Premises and equipment expenditures (324) (1,785) (1,330)
Proceeds from the sale of premises and equipment -- 550 --
-------- -------- --------
Net cash (used in) provided by investing activities (884) 5,301 105
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 3,661 (2,072) (1,974)
Dividends paid (2,816) (2,800) (2,709)
Net proceeds from exercise of stock options -- 62 52
Purchases of common stock (1,038) (5) (98)
-------- -------- --------
Net cash used in financing activities (193) (4,815) (4,729)
-------- -------- --------
Net change in cash and cash equivalents 2,460 2,869 (752)
Cash and cash equivalents at beginning of year 14,812 11,943 12,695
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 17,272 $ 14,812 $ 11,943
======== ======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 5,847 $ 4,594 $ 3,069
Income taxes 1,063 1,156 1,214
Non-cash transactions:
Transfer from loans to other real estate owned 606 1,053 590
See accompanying notes to consolidated financial statements.
5.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
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 (the Bank and the Mortgage Corporation are hereafter 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, pension obligation, the 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. Declines in the fair value of securities below their cost that are other
than temporary are reflected as realized losses. In estimating
other-than-temporary losses, management considers: (1) the length of time and
extent that fair value has been less than cost, (2) the financial condition and
near term prospects of the issuer, and (3) the Company's ability and intent to
hold the security for a period sufficient to allow for any anticipated recover
in fair value.
(Continued)
6.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
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.
Interest income includes amortization of purchase premium or discount. Premiums
and discounts on securities are amortized on the level-yield method without
anticipating prepayments, except for mortgage-backed securities where
prepayments are anticipated. Gains and losses on sales are recorded on the trade
date and determined using the specific identification method.
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. Subsequent recoveries, if any,
are credited to the allowance.
(Continued)
7.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The allowance consists of specific and general components. The specific
component relates to loans that are individually classified as impaired or loans
otherwise classified as substandard or doubtful. The general component covers
non-classified loans and is based on historical loss experience adjusted for
current factors.
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. For furniture and fixtures
the useful life ranges from three to five years while the useful life for
buildings is thirty-nine years. 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.
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
or 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. As of December 31, 2007, other assets on the consolidated balance
sheet includes $1,446,000 of other real estate owned. As of December 31, 2006
the balance was $1,059,000.
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 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 directors and executives. Company owned life insurance is recorded at
its cash surrender value, or the amount that can be effectively realized at the
balance sheet date. At December 31, 2007 and 2006, the cash surrender value of
the underlying policies was $3,231,000 and $3,191,000, which is included in
other assets on the balance sheet.
(Continued)
8.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 expensed as made.
Stock Compensation: Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standard 123R, Share Based Payment, using the modified
prospective method which will require recording compensation cost for the fair
value of stock based compensation. No awards were granted or vested in 2006,
therefore adoption of this standard had no impact in 2006. The stock option plan
created in 1996 ended in May 2006. A new stock option plan has not been adopted
and no stock compensation was paid in 2007, therefore this accounting standard
had no impact in 2007.
Prior to January 1, 2006 employee compensation expense under stock options was
reported using the intrinsic value method. 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.
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 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 are restated for all stock splits and stock dividends.
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.
(Continued)
9.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income: Comprehensive Income: Comprehensive income consists of net
income and other comprehensive income. Other comprehensive income includes the
net change in unrealized gains (loss) on securities available for sale, net of
tax, and components of the defined benefit pension obligation net yet recognized
as components of periodic pension expense, including unrecognized gains or
losses, prior service cost, and the transition asset which are also recognized
as a separate component of shareholder's equity.
Unrealized gains and losses on securities available for sale recognized in
accumulated other comprehensive income totaled $147,000 and ($190,000) at
December 31, 2007 and 2006 respectively (see Note 2). Amounts related to the
defined benefit pension plan recognized in accumulated other comprehensive
income consist of the following at December 31:
2007 2006
------ ------
(In thousands)
Unrecognized net gains/losses $1,134 $1,028
Unrecognized transition amount (4) (13)
Unrecognized prior service amount 33 34
------ ------
Net amount recognized $1,163 $1,049
====== ======
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.
Transfers of Financial Assets: Transfers of financial assets are accounted for
as sales, when control over the assets has been relinquished. Control over
transferred assets is deemed to be surrendered when the assets have been
isolated from the Company, the transferee obtains the right (free of conditions
that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets, and the Company does not maintain effective control over the
transferred assets through an agreement to repurchase them before their
maturity.
Operating Segments: While the chief decision-makers monitor the revenue streams
of the various products and services, operations are managed and financial
performance is evaluated on a Company-wide basis. Operating segments are
aggregated into one as operating results for all segments are similar.
Accordingly, all of the financial service operations are considered by
management to be aggregated in one reportable operating segment.
(Continued)
10.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Adoption of New Accounting Standards: Effective January 1, 2006, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 123(R),
Share-based Payment. See "Stock Compensation" above for further discussion of
the effect of adopting this standard.
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 158, Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans -- an amendment of FASB Statements No. 87, 88, 106 and
132(R). This Statement requires an employer to recognize the overfunded or
underfunded status of a defined benefit retirement plan (other than a
multiemployer plan) as an asset or liability in its balance sheet, beginning
with year end 2006, and to recognize changes in the funded status in the year in
which the changes occur through comprehensive income beginning in 2007.
Additionally, defined benefit plan assets and obligations are to be measured as
of the date of the employer's fiscal year-end, starting in 2008. Adoption had
the following effect on individual line items in the 2006 balance sheet:
Before After
Application of Application of
SFAS No. 158 Adjustments SFAS No.158
-------------- ----------- --------------
(in thousands)
Asset (liability) for pension benefits $ 1,131 $(1,049) $ 82
Deferred income tax assets 728 357 1,085
Total assets 252,592 (692) 251,900
Accumulated other comprehensive income (126) (692) (818)
Total stockholders' equity 25,690 (692) 24,998
(Continued)
11.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In September 2006, the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements (SAB 108),
which is effective for fiscal years ending on or after November 15, 2006. SAB
108 provides guidance on how the effects of prior-year uncorrected financial
statement misstatements should be considered in quantifying a current year
misstatement. SAB 108 requires public companies to quantify misstatements using
both an income statement (rollover) and balance sheet (iron curtain) approach
and evaluate whether either approach results in a misstatement that, when all
relevant quantitative and qualitative factors are considered, is material. If
prior year errors that had been previously considered immaterial now are
considered material based on either approach, no restatement is required so long
as management properly applied its previous approach and all relevant facts and
circumstances were considered. Adjustments considered immaterial in prior years
under the method previously used, but now considered material under the dual
approach required by SAB 108, are to be recorded upon initial adoption of SAB
108. The amount so recorded is shown as a cumulative effect adjustment is
recorded in opening retained earnings as of January 1, 2006.
The cumulative effect adjustment primarily reflects an over accrual of income
tax liabilities relating primarily to years prior to 2006. Over a course of
years, accrual differences that were considered immaterial to any particular
prior year's statement of operations accumulated to a total of a net credit of
$159,000. The impact of the over accrual on the 2006 opening consolidated
shareholder's equity and retained earnings was $159,000. The impact on selected
balance sheet accounts as of January 1, 2006 is as follows:
January 1, 2006
----------------------------------
Previously Opening
Reported Adjustment Balance
---------- ---------- --------
(In thousands)
Other liabilities $ 4,795 $(159) $ 4,636
Total liabilities 228,232 (159) 228,073
Retained earnings 1,576 159 1,735
Total shareholder' equity 24,499 159 24,658
(Continued)
12.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Effect of Newly Issued But Not Yet Effective Accounting Standards:
EMERGING ISSUES TASK FORCE ISSUE 06-4 - ACCOUNTING FOR DEFERRED COMPENSATION AND
POSTRETIREMENT BENEFIT ASPECTS OF ENDORSEMENT SPLIT-DOLLAR LIFE INSURANCE
ARRANGEMENTS - In September 2006, the Emerging Issues Task Force Issue 06-4
(EITF 06-4), Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split-Dollar Life Insurance Arrangements was ratified.
EITF 06-4 Addresses accounting for separate agreements which split life
insurance policy benefits between an employer and employee. The Issue requires
the employer to recognize a liability for future benefits payable to the
employee under these agreements. The effects of applying EITF 06-4 must be
recognized through either a change in accounting principle through an adjustment
to equity or through the retrospective application to all prior periods. For
calendar year companies, EITF 06-4 was effective beginning January 1, 2007. The
adoption of EITF 06-4 did not have an effect on our financial statements.
FASB NO. 157 AND FASB NO. 159 - FAIR VALUE MEASUREMENT AND THE FAIR VALUE OPTION
FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES - SFAS No. 157 clarifies the
definition of fair value, establishes a framework for measuring fair value, and
expands the disclosures on fair value measurements. It applies under other
accounting pronouncements that require or permit fair value measurements and
does not require any new fair value measurements. SFAS No. 159 permits entities
to choose to measure many financial instruments and certain other items at fair
value. SFAS No. 157 and SFAS No. 159 are effective for fiscal years beginning
after November 15, 2007. The Corporation did not early adopt and does not
anticipate the adoption of these statements to have a significant effect on the
consolidated financial statements.
FASB INTERPRETATION NO. 48 - ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES - In
July 2006, the Financial Accounting Standards Board (FASB) issued this
interpretation to clarify the accounting for uncertainty in tax positions. FIN
48 requires, among other matters, that the Corporation recognizes in its
consolidated financial statements the impact of a tax position, if that position
is more likely than not of being sustained on audit, based on the technical
merits of the position. The provisions of FIN 48 became effective as of the
beginning of the Corporation's 2007 fiscal year with no significant effect on
the financial statements.
FASB NO. 141(R) -- BUSINESS COMBINATIONS - In December 2007, the FASB issued
Statement No. 141(Revised), Business Combinations. This statement prescribes
changes to the method of accounting for acquisitions. All assets and liabilities
acquired are to be adjusted to fair value at the acquisition date. Costs are to
be expensed rather than capitalized. Restructuring costs that
(Continued)
13.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
the acquirer expects to incur are expensed rather than set up as a liability at
the date of acquisition. The standard is effective for fiscal years beginning
after December 15, 2008. We have determined that the adoption of FASB 14(R) will
not have an effect on our financials, but will result in a difference in the
costs if an acquisition were completed after the effective date.
NOTE 2 -- SECURITIES
The year end fair values and related gross unrealized gains and losses
recognized in accumulated other comprehensive income/(loss) for securities
available for sale, were as follows:
Gross Gross
Fair Unrealized Unrealized
Available for Sale Value Gains Losses
- ------------------ ------- ---------- ----------
(In thousands)
2007
U.S. Government and agency $12,304 $ 111 $ (1)
Mortgage-backed 10,238 39 (31)
State and municipal 3,951 31 (2)
Money market preferred stocks 14,000 -- --
------- ----- -----
$40,493 $ 181 $ (34)
======= ===== =====
2006
U.S. Government and agency $21,307 $ 8 $(125)
Mortgage-backed 10,491 4 (107)
State and municipal 8,549 59 (13)
Money market preferred stocks 10,984 -- (16)
------- ----- -----
$51,331 $ 71 $(261)
======= ===== =====
The 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
Held to Maturity Amount Gains Losses Value
- ---------------- -------- ------------ ------------ ------
(In thousands)
2007
State and municipal $8,789 $118 $(25) $8,882
====== ==== ==== ======
2006
State and municipal $4,543 $ 54 $(15) $4,582
====== ==== ==== ======
There were no sales of securities during 2007, 2006 and 2005.
(Continued)
14.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 2 -- SECURITIES (Continued)
Securities with unrealized losses at year end 2007 and 2006, aggregated by
investment category and length of time that individual securities have been in a
continuous unrealized loss position, are as follows (in thousands):
Less Than 12 Months 12 Months or More Total
------------------- ------------------- -------------------
Fair Unrealized Fair Unrealized Fair Unrealized
2007 Value Loss Value Loss Value Loss
- ---- ------ ---------- ------ ---------- ------ ----------
U.S. Government and agency $ -- $ -- $ 998 $ (1) $ 998 $ (1)
Mortgage-backed -- -- 3,897 (31) 3,897 (31)
State and municipal 1,270 (15) 1,694 (12) 2,964 (27)
Money market preferred stocks -- -- -- -- -- --
------ ---- ------ ---- ------ ----
Total temporarily impaired $1,270 $(15) $6,589 $(44) $7,859 $(59)
====== ==== ====== ==== ====== ====
Less Than 12 Months 12 Months or More Total
-------------------- -------------------- --------------------
Fair Unrealized Fair Unrealized Fair Unrealized
2006 Value Loss Value Loss Value Loss
- ---- ------- ---------- ------- ---------- ------- ----------
U.S. Government and agency $ 2,724 $ (3) $17,911 $(122) $20,635 $(125)
Mortgage-backed 1,848 (3) 6,546 (104) 8,394 (107)
State and municipal 2,591 (3) 3,306 (25) 5,897 (28)
Money market preferred stocks 10,984 (16) -- -- 10,984 (16)
------- ---- ------- ----- ------- -----
Total temporarily impaired $18,147 $(25) $27,763 $(251) $45,910 $(276)
======= ==== ======= ===== ======= =====
Unrealized losses at year end 2007 and 2006 have not been recognized into income
because they are not considered to be other-than-temporary. Management considers
the unrealized losses to be market driven, resulting from changes in interest
rates, and the Company has the intent and ability to hold the securities until
their value recovers.
(Continued)
15.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 2 -- SECURITIES (Continued)
Contractual maturities of debt securities at year end 2007 are shown below (in
thousands). Expected maturities may differ from contractual maturity because
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties. Securities not due at a single maturity date, primarily
mortgage-backed securities, are shown separately.
Available Held to Maturity
for sale -----------------
Fair Carrying Fair
Value Amount Value
--------- -------- ------
Due in one year or less $20,839 $2,810 $2,812
Due from one to five years 8,201 2,382 2,448
Due from five to ten years 545 2,757 2,795
Due after ten years 670 840 827
Mortgage-backed 10,238 -- --
------- ------ ------
$40,493 $8,789 $8,882
======= ====== ======
There were no securities pledged at December 31, 2007 and securities with a
carrying value of $678,000 were pledged at December 31, 2006 to secure public
deposits and for other purposes.
The Company held securities exceeding 10% of shareholders' equity from the
following states (including its political subdivisions) at December 31:
2007 2006
------ ------
(In thousands)
Michigan $9,392 $8,369
NOTE 3 -- LOANS
Year end loans were as follows:
2007 2006
-------- --------
(In thousands)
Residential real estate $ 83,264 $ 82,842
Consumer 8,709 9,444
Commercial real estate 68,445 61,740
Commercial 14,234 13,208
-------- --------
174,652 167,234
Deferred loan origination fees, net (28) (6)
Allowance for loan loses (1,670) (1,498)
-------- --------
$172,954 $165,730
======== ========
(Continued)
16.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 3 -- LOANS (Continued)
Activity in the allowance for loan losses is summarized as follows:
2007 2006 2005
------ ------ ------
(In thousands)
Beginning balance $1,498 $1,456 $1,350
Provision for loan losses 275 120 120
Charge-offs (126) (104) (28)
Recoveries 23 26 14
------ ------ ------
Ending Balance $1,670 $1,498 $1,456
====== ====== ======
There were eight loans in the real estate mortgage and commercial loan
portfolios that were considered impaired as of year end 2007. These loan
balances totaled $1.2 million at December 31, 2007. Six of the eight loans
considered impaired have a valuation allowance against loss potential. The
balance of these six loans at December 31, 2007 totaled $518,000 and the
valuation allowance was $83,000. The income recorded on these loans during 2007
while they were considered impaired was $52,000. There were no impaired loans
during 2006 or 2005.
Nonperforming loans were as follows:
2007 2006
---- ----
(In thousands)
Loans past due over 90 days still on accrual $387 $177
Nonaccrual loans 831 --
NOTE 4 -- LOAN SERVICING
Mortgage loans serviced for others are not reported as assets. These loans
totaled $74,849,000 and $73,102,000 at year end 2007 and 2006. Related escrow
deposit balances were $99,000 and $110,000. Capitalized mortgage servicing
rights balances were $664,000 and $618,000 at year end 2007 and 2006. There was
no valuation allowance at year end 2007 or 2006. The related additions
recognized were $106,000, $94,000 and $130,000 and the amortization was $59,000,
$62,000 and $62,000 in 2007, 2006 and 2005.
(Continued)
17.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 5 -- PREMISES AND EQUIPMENT
Year end premises and equipment were as follows:
2007 2006
------- -------
(In thousands)
Real estate and buildings $ 7,156 $ 7,106
Furniture and fixtures 4,447 4,911
------- -------
11,603 12,017
Less accumulated depreciation (5,250) (5,391)
------- -------
$ 6,353 $ 6,626
======= =======
Depreciation expense amounted to $585,000, $573,000 and $487,000 in 2007, 2006
and 2005.
NOTE 6 -- DEPOSITS
Time deposit accounts individually exceeding $100,000 total $25,503,000 and
$26,415,000 at year end 2007 and 2006.
At year end 2007, the scheduled maturities of time deposits are as follows:
(In thousands)
2008 $51,996
2009 32,429
2010 1,491
2011 2,925
2012 1,505
-------
$90,346
=======
(Continued)
18.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
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 Company uses a December 31 measurement date for its plan. The
following sets forth the plan's funded status and amounts recognized in the
financial statements:
2007 2006
------- -------
(In thousands)
Change in benefit obligation:
Beginning benefit obligation $(4,672) $(4,551)
Service cost (164) (242)
Interest cost (301) (293)
Actuarial loss (gain) (71) 169
Benefits paid 920 245
------- -------
Ending benefit obligation (4,288) (4,672)
Change in plan assets, at fair value:
Beginning plan assets 4,754 4,185
Actual return 206 503
Employer contribution 200 311
Benefits paid (920) (245)
------- -------
Ending plan assets 4,240 4,754
------- -------
Funded status $ (48) $ 82
======= =======
Amounts recognized in the balance sheet consist of:
2007 2006
---- ----
(In thousands)
Other assets $ -- $82
Accrued pension costs - other
liabilities (48) --
(Continued)
19.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 7 -- EMPLOYEE BENEFITS (Continued)
The accumulated benefit obligation for the defined benefit pension plan was
$3,145,000 and $3,465,000 at year end 2007 and 2006, respectively.
Components of net periodic benefit cost are as follows:
2007 2006 2005
----- ----- -----
(In thousands)
Service cost $ 164 $ 242 $ 189
Interest cost on benefit obligation 301 293 290
Expected return on plan assets (385) (344) (279)
Net amortization and deferral 23 48 60
----- ----- -----
Pension expense $ 103 $ 239 $ 260
===== ===== =====
The estimated net (gain)/loss and prior service costs that will be amortized
from accumulated other comprehensive income into net periodic benefit cost over
the next fiscal year are $41,000 and $1,000.
The following weighted-average assumptions were used to determine benefit
obligations at year end and net cost:
2007 2006 2005
---- ---- ----
Weighted Average discount rate 6.50% 6.50% 6.50%
Rate of increase in future compensation 3.00% 4.00% 4.00%
Expected long term return on plan assets 8.00% 8.00% 8.00%
(Continued)
20.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 7 -- EMPLOYEE BENEFITS (Continued)
The Company's pension plan asset allocation at year end 2007 and 2006, target
allocation for 2008, and expected long-term rate of return by asset category are
as follows:
Percentage of Plan
Assets Weighted-
Target at Year end Average Expected
Allocation ------------------ Long-Term Rate
Asset Category 2008 2007 2006 of Return - 2007
- -------------- ---------- ----- ----- ----------------
Equity securities 70.0% 58.4% 67.5% 9.45%
Fixed Income securities 30.0 31.2 29.4 5.20
Other -- 10.4 3.1 3.25
----- ----- ----- ----
Total 100.0% 100.0% 100.0% 8.00%
===== ===== ===== ====
Plan assets are administered by Huntington National Bank as trustee of the plan.
Plan assets are invested in diversified mutual funds.
The estimates of weighted average expected long-term rate of return is an
estimate based on past performance and actual returns in the future are likely
to vary over time.
The overall expected long-term rate of return and risk expectations of the
investments in the plan are based on Standard and Poor's 500 and 5-year Treasury
bonds from 1950-2005.
The asset mix of the portfolio will be maintained by periodically re-balancing
this account back to the stock and fixed income target allocations stated above.
The investments in the plan are managed for the benefits of the participants.
They are structured to meet the cash flow necessary to pay retiring employees.
ERISA guidelines for diversification of the investments are followed.
During 2007, the Company contributed $200,000 into the plan. The Company expects
to contribute approximately $220,000 to this pension plan in 2008.
(Continued)
21.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 7 -- EMPLOYEE BENEFITS (Continued)
Estimated Future Payments
The following benefit payments, which reflect expected future service, are
anticipated:
Year End Benefit Payments
- -------- ----------------
(In thousands)
2008 $103
2009 97
2010 91
2011 108
2012 132
Years 2013 - 2018 928
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 using a 6.00%
discount rate. Total liabilities under the plan are $2,593,000 and $2,476,000 at
December 31, 2007 and 2006 and included in other liabilities on the balance
sheet. The expense for the plan was $266,000, $280,000 and $656,000 in 2007,
2006 and 2005. During 2005 an additional $315,000 was expensed to the deferred
compensation plan to recognize the accelerated benefit amount payable due to the
death of a director.
The Company also has a 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. Total liabilities
under the plan are $682,000 and $671,000 at December 31, 2007 and 2006. The
expense of the plan was $44,000, $37,000 and $33,000 in 2007, 2006 and 2005.
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 100% of their eligible compensation or the limitations set by the IRS.
The employees may also make "catch-up" contributions to the extent the IRS
allows. During 2007, 2006 and 2005, 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 $81,000, $80,000 and $71,000 in 2007, 2006 and 2005.
(Continued)
22.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 8 -- STOCK OPTIONS
Stock Option Plan: The shareholders approved an incentive stock option plan in
May 1996 under which up to 67,005 options, as adjusted for stock splits, 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. Shares issued when
options are exercised come from authorized but unissued shares. All options
outstanding are exercisable. Due to the plan end date, there were no options
available for grant as of December 31, 2007.
Activity in the option plan for the years ended, and as restated for all stock
dividends, is summarized as follows:
Weighted Weighted
Number of Average Average Aggregate
Outstanding Exercise Exercise Contractual Intrinsic
Options Price Price Term Value
----------- ------------ -------- ----------- ---------
Outstanding at January 1, 2007 23,438 $33.62-57.01 $49.00
Exercised --
Forfeitures --
------ ------------ ------
Outstanding at December 31, 2007 23,438 $33.62-57.01 $49.00 2.8 years $2,000
====== ============ ====== ========= ======
Exercisable at December 31, 2007 23,438 $33.62-57.01 $49.00 2.8 years $2,000
====== ============ ====== ========= ======
No compensation expense was required to be recognized under the plan for 2007,
2006 and 2005. There was no unrecognized compensation expense at December 31,
2007.
Information related to the stock option plan during each year follows:
2007 2006 2005
---- ------- -------
Intrinsic value of options exercised -- $36,000 $11,000
Cash received from option exercises -- 62,000 52,000
No tax benefit was realized from exercises in 2007 and 2006. There were no
options granted in 2007, 2006 and 2005.
(Continued)
23.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 9 -- INCOME TAXES
Income tax expense consists of:
2007 2006 2005
------ ------ ------
(In thousands)
Current $1,221 $1,206 $ 944
Deferred expense (benefit) (139) 120 296
------ ------ ------
$1,082 $1,326 $1,240
====== ====== ======
Year end deferred tax assets and liabilities consist of:
2007 2006
------ ------
(In thousands)
Deferred tax assets
Allowance for loan losses $ 420 $ 362
Deferred compensation 1,114 1,070
Recognized pension liability 396 357
Unrealized losses on securities available for sale 50 65
Other 24 5
------ ------
Total deferred tax assets 2,004 1,859
------ ------
Deferred tax liabilities
Pension expense 418 385
Fixed assets 373 382
Mortgage servicing rights 226 210
Accretion 39 67
Other 39 69
------ ------
Total deferred tax liability 1,095 1,113
------ ------
Net deferred tax asset $ 909 $ 746
====== ======
(Continued)
24.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 9 -- INCOME TAXES (Continued)
Income tax expense calculated at the statutory rate of 34% differs from actual
income tax expense as follows:
2007 2006 2005
------ ------ ------
(In thousands)
Statutory rate applied to income before taxes $1,418 $1,581 $1,540
Deduct
Tax-exempt interest income, net (311) (188) (183)
Life insurance (50) (6) (113)
Other 25 (61) (4)
------ ------ ------
$1,082 $1,326 $1,240
====== ====== ======
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:
2007 2006 2005
---------- ---------- ----------
Basic earnings per share
Net income available to common
shareholders (in thousands) $ 3,088 $ 3,323 $ 3,288
========== ========== ==========
Weighted average shares outstanding 1,232,211 1,238,354 1,237,217
Basic earnings per share $ 2.51 $ 2.68 $ 2.66
========== ========== ==========
(Continued)
25.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 10 -- EARNINGS PER SHARE (Continued)
2007 2006 2005
---------- ---------- ----------
Diluted earnings per share
Net income available to common
shareholders (in thousands) $ 3,088 $ 3,323 $ 3,288
========== ========== ==========
Weighted average shares outstanding
1,232,211 1,238,354 1,237,217
Add dilutive effects of assumed exercises
of stock options
704 1,427 2,603
---------- ---------- ----------
Weighted average dilutive
potential shares outstanding 1,232,915 1,239,781 1,239,820
========== ========== ==========
Diluted earnings per share $ 2.50 $ 2.68 $ 2.65
========== ========== ==========
Stock options for 19,407 shares of common stock were not considered in computing
diluted earnings per share for 2007 and 2006 because they were antidilutive.
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 to these individuals follows:
2007 2006
------ ------
(In thousands)
Balance outstanding, January 1 $2,145 $2,186
New loans and rewrites 511 363
Payments and payoffs (382) (403)
Change in persons included 42 (1)
------ ------
Balance outstanding, December 31 $2,316 $2,145
====== ======
Related party deposits totaled $3,014,000 and $2,402,000 at year end 2007 and
2006.
(Continued)
26.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
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 the financial condition or result of operations of the Company.
At year end 2007 and 2006, reserves of $1,646,000 and $1,770,000 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 unused contractual amounts of financial instruments with
off-balance-sheet risk at year end were as follows:
2007 2006
------- -------
(In thousands)
Commitments to extend credit $23,893 $19,232
Standby letters of credit 579 501
The fair values of these commitments are not material. Substantially all of
these commitments are at variable or uncommitted rates.
(Continued)
27.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
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:
2007 2006
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
(In thousands)
Assets
Cash and cash equivalents $ 17,272 $ 17,272 $ 14,812 $ 14,812
Securities available for sale 40,493 40,493 51,331 51,331
Securities held to maturity 8,789 8,882 4,543 4,582
Other securities 1,008 1,008 1,008 1,008
Loans, net 172,954 173,666 165,730 168,837
Accrued interest receivable on loans 850 850 823 823
Liabilities
Deposits
Noninterest-bearing $ (37,984) $ (37,984) $ (39,620) $ (39,620)
Interest bearing (187,042) (186,860) (181,745) (181,613)
Accrued interest payable on deposits 217 217 206 206
NOTE 14 -- REGULATORY CAPITAL
The Bank is 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)
28.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
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 Tier 1
Assets Capital To
-------------- Average
Total Tier 1 Assets
----- ------ ----------
Well Capitalized 10% 6% 5%
Adequately Capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
The Bank was categorized as well capitalized at year end. There are no
conditions or events since year-end that management believes has changed the
Bank's category. Actual capital levels (in millions) and minimum required levels
were:
Minimum
Required
To Be Well
Minimum Capitalized
Required Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Regulations
-------------- -------------- --------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
2007
Total capital (to risk weighted assets)
Bank $26.6 14.4% $14.8 8.0% $18.5 10.0%
Tier 1 capital (to risk weighted assets)
Bank 24.9 13.5 7.4 4.0 11.1 6.0
Tier 1 capital (to average assets)
Bank 24.9 9.9 10.1 4.0 12.6 5.0
2006
Total capital (to risk weighted assets)
Bank $27.1 15.4% $14.1 8.0% $17.6 10.0%
Tier 1 capital (to risk weighted assets)
Bank 25.7 14.6 7.0 4.0 10.6 6.0
Tier 1 capital (to average assets)
Bank 25.7 10.1 10.1 4.0 12.7 5.0
(Continued)
29.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
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 2008, the Bank is limited to paying
dividends of approximately the 2008 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, 2007 and 2006
2007 2006
------- -------
(In thousands)
ASSETS
Cash $ 32 $ 94
Investment in subsidiary 24,341 24,912
Dividends receivable 1,266 1,266
Other assets 14 --
------- -------
Total assets $25,653 $26,272
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $ 1,253 $ 1,274
Shareholders' equity 24,400 24,998
------- -------
Total liabilities and shareholders' equity $25,653 $26,272
======= =======
(Continued)
30.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 15 -- PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 2007, 2006 and 2005
2007 2006 2005
------ ------ ------
(In thousands)
Dividends from subsidiary $3,832 $2,832 $2,826
Operating expenses (40) (46) (44)
------ ------ ------
Income before income taxes and equity
in undistributed income of subsidiary 3,792 2,786 2,782
Income tax benefit 14 15 15
Equity in undistributed/(over distributed) income
of subsidiary (718) 522 491
------ ------ ------
NET INCOME $3,088 $3,323 $3,288
====== ====== ======
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 2007, 2006 and 2005
2007 2006 2005
------- ------- -------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,088 $ 3,323 $ 3,288
Equity in (undistributed)/overdistributed net income of subsidiary 718 (522) (491)
Change in dividends receivable -- (30) 24
Change in other assets (14) -- --
Change in other liabilities (21) -- --
------- ------- -------
Net cash from operating activities 3,771 2,771 2,821
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (2,795) (2,800) (2,709)
Net shares purchased (1,038) 57 (46)
------- ------- -------
Net cash from financing activities (3,833) (2,743) (2,755)
------- ------- -------
Net change in cash and cash equivalents (62) 28 66
Cash at beginning of year 94 66 --
------- ------- -------
CASH AT END OF YEAR $ 32 $ 94 $ 66
======= ======= =======
(Continued)
31.
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
NOTE 16 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
Earnings
Net Per Share
Interest Interest Net ---------------
Income Income Income Basic Diluted
-------- -------- ------ ----- -------
(In thousands, except per share data)
2007
First quarter $3,929 $2,461 $630 $0.51 $0.51
Second quarter 4,077 2,559 801 0.65 0.65
Third quarter 4,161 2,662 831 0.67 0.67
Fourth quarter 4,013 2,640 826 0.68 0.67
2006
First quarter $3,507 $2,512 $694 $0.56 $0.56
Second quarter 3,628 2,497 996 0.80 0.80
Third quarter 3,886 2,657 794 0.64 0.64
Fourth quarter 3,948 2,631 839 0.68 0.68
During the second quarter of 2006 the Bank received a gain on the sale of
property in the amount of $521,000.
(Continued)
32.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Of CNB Corporation
Cheboygan, Michigan
We have audited the accompanying consolidated balance sheet of CNB Corporation
as of December 31, 2007, and the related consolidated statement of income,
changes in shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. 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 audit provides 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, 2007, and the results of its operations and its cash flows for
the years ended December 31, 2007, in conformity with U.S. generally accepted
accounting principles.
Plante & Moran, PLLC
Grand Rapids, Michigan
March 28, 2008
33.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
CNB Corporation
Cheboygan, Michigan
We have audited the accompanying consolidated balance sheet of CNB Corporation
as of December 31, 2006, and the related consolidated statements of income and
comprehensive income, changes in shareholders' equity and cash flows for each of
the two years in the period ended December 31, 2006. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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, 2006 and the results of its operations and its cash flows for
the years ended December 31, 2006 and 2005, in conformity with accounting
principles generally accepted in the United States of America.
As disclosed in Note 1, the Company adopted Staff Accounting Bulletin No. 108,
"Considering the Effects of Prior Year Misstatement when Quantifying
Misstatements in Current Year Financial Statements" (SAB 108) and Statement of
Financial Accounting Standards No. 158, "Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans -- an amendment of FASB Statement
No. 87, 88, 106 and 132(R)" (SFAS No. 158) during 2006. Accordingly liabilities
at the beginning of 2006 were adjusted with an offsetting adjustment to the
opening balance of retained earnings under SAB 108 and year-end assets were
adjusted with an offsetting adjustment to accumulated other comprehensive loss
under SFAS No. 158.
Crowe Chizek and Company LLC
Grand Rapids, Michigan
March 30, 2007
34.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
This discussion provides information about the consolidated financial condition
and results of operations of CNB Corporation (the Company) and its wholly-owned
subsidiary, Citizens National Bank of Cheboygan and the Bank's wholly-owned
subsidiary, CNB Mortgage Corporation (the Bank and the Mortgage Corporation are
hereafter 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
The overall financial condition of the Company was strong for 2007. The Company
recognized a 4.4% increase in the loan portfolio. Deposits increased by 1.7%
during 2007 while the Company's equity decreased during 2007 due to the stock
repurchase program.
CASH AND CASH EQUIVALENTS
The Company's balances of cash and cash equivalents increased $2,460,000 from
2006 to 2007. During the year, $3.5 million of cash was provided from operating
activities due primarily to net income, while $884,000 was used in investing
activities. The company utilized $193,000 on financing activities. 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 and money market preferred investments.
Security balances decreased $6.6 million during 2007. Securities available for
sale represent 80.5% of the portfolio. Currently, the Company primarily
maintains a short-term securities portfolio. The Company is looking to extend
the average life of the portfolio moving forward to gain some additional
interest rate due to the changing rate environment and decreasing short-term
rates. As the amount of securities maturing on a regular basis decreases,
liquidity will be maintained by adding to the available for sale portfolio. The
reason for the decrease in the securities portfolio during 2007 is due to the
fact that as the securities matured, the Company did not reinvest as many
dollars back into securities as it has in the past. This was due to the
increased loan demand. The Company used the dollars from the securities
maturities to fund higher yielding loans. It is management's expectation that
the Company will continue to change the balance sheet mix in this manner during
2008.
35.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
The chart below shows the change in each of the categories of the portfolio.
2007 2006 2005
------- -------- --------
(In thousands)
U.S. Government and agency $(9,004) $(27,792) $ (7,687)
Mortgage-backed (252) 2,351 4,991
Tax exempt state and municipal (407) (1,609) (4,149)
Taxable state and municipal 55 (1,492) (2,624)
Money market preferred stocks 3,016 10,984 --
Other securities -- (45) (4,997)
------- -------- --------
Total change in securities $(6,592) $(17,603) $(14,466)
======= ======== ========
Holdings in U.S. government and agencies decreased due to a change in the focus
of our securities portfolio. Upon the availability of a newly approved
securities investment option, during the second half of 2006, monies from
securities maturities were mainly placed into money market preferred stock
investments due to their superior rate and tax favorable treatment. Securities
investments as a total decreased during the year primarily due to our increased
loan activity funding requirements. The Company maintains a short-term
investment portfolio with maturities averaging less than two years. The Company
will continue to monitor the rate environment and may extend the maturities of
the investment portfolio in the future. The chart below shows the percentage
composition of the portfolio as of December 31.
2007 2006
------ ------
U.S. Government and agency 24.47% 37.46%
Mortgage backed 20.36% 18.44%
Tax exempt state and municipal 24.31% 22.21%
Taxable state and municipal 1.02% 0.81%
Money market preferred stocks 27.84% 19.31%
Other securities 2.00% 1.77%
------ ------
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, 2007 was $97,000, 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.
36.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
The Company maintains a conservative security portfolio with the majority of the
mix of its investments spread amongst U.S. Government and agency securities,
issues of governmental units in its service area and money market preferred
stocks. The maturities of the investment portfolio have typically been very
short, two years or less, providing liquidity in addition to quality to the
balance sheet. Investments in mortgage backed securities are not part of the
subprime sector.
During 2008, management feels that there will be sufficient liquidity to
increase the maturity of the investment portfolio.
LOANS
Total loans increased $7.4 million or 4.4% during 2007, with the primary
increase in commercial real estate loans of $6.7 million or 10.9%. 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. 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. The
Company does not practice subprime lending and does not have any loans that it
would consider to be subprime mortgage loans. The Company originated $9.1
million in loans for sale in 2007 and $7.4 million in 2006 as compared to $11.6
million in 2005. Although the real estate market in our service area has
declined somewhat, it has not been effected by the current economy as much as
some areas in the state of Michigan. In fact, management anticipates the volume
of mortgage refinancing in 2008 will increase comparable to 2007 due to the
decreasing rate environment. In addition to mortgage loans, the Company makes
loans for personal and business use, secured and unsecured, to customers in its
service area. The Company intends to look for loan opportunities in both the
commercial and commercial real estate areas in 2008; however growth is not
expected to increase significantly.
Current economic conditions warrant the bank adhering to conservative, strict
credit underwriting standards. All loans are domestic. An annual review of loan
concentrations at December 31, 2007 indicated the pattern of loans in the
portfolio has not changed. There is no individual industry with more than a 10%
concentration, except for all tourism-related businesses which, when combined,
represent 11.3% of total loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents that amount which management estimates
is adequate to provide for probable incurred losses 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.
37.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
The quality of the Company's loan portfolio compares well with its peer group
with non-performing loans at .76% of total loans at December 31, 2007 and 0.11%
at December 31, 2006. Net loans charged off were .06% of total loans during 2007
and .05% in 2006. There were no significant changes in the allowance for loan
losses in 2007 and 2006 due to stable loan quality and a continued modest
identified loss potential for individual loans and groups of loans. A provision
expense of $275,000 was recorded in 2007 while $120,000 was recorded during 2006
and 2005 due to net charge-offs and responding to overall loan growth.
CREDIT QUALITY
The Company continues to maintain an acceptable 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.
2007 2006
------ ----
(Dollars in thousands)
Nonaccrual loans $ 831 $ --
Loans past due 90 days or more
still on accural 387 177
Troubled debt restructurings -- --
------ ----
Total nonperforming $1,218 $177
====== ====
Percent of total loans 0.70% 0.11%
====== ====
DEPOSITS
Deposits increased $3.7 million or 1.7% during 2007. This was due to several
factors including a new deposit product offered to high balance municipal
deposits. As the interest rate environment changes the Company will in turn
change the rates it offers its customers.
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, 2007, the loan to deposit ratio was 77.6% compared to 75.5%
at December 31, 2006. This ratio increased due to a greater increase in the loan
portfolio as compared to the increase in the deposit portfolio. Management
continues to emphasize loan
38.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
growth with a targeted loan to deposit ratio at a minimum of 65.0%. A change in
asset mix from securities to higher yielding loans provides an increase in the
net interest margin.
As of December 31, 2007, long-term debt obligations consist of the Company's
time deposits which are presented in Note 6 to the consolidated financial
statements.
EQUITY
Total equity for the Company at year end 2007 was $24.4 million compared to
$25.0 million in 2006. The Company had a stock repurchase program in place and
during 2007 in which it repurchased $1 million under the plan. There is no
formal stock repurchase plan in effect at this time. The Company also had a
stock repurchase program in place during 2005 in which it repurchased $98,000
worth of stock under the plan before the plan ended. In addition, the Company
occasionally repurchases stock at its discretion. During 2006 the Company
repurchased $5,000 worth of stock. Accumulated other comprehensive income
increased by $147,000 as the market value of the Company's available for sale
securities improved. This increase to accumulated other comprehensive income was
offset by a $75,000 adjustment to reflect the impact of the change in the
pension liability as was implemented in 2006 due to SFAS No. 158.
LIQUIDITY AND FUNDS MANAGEMENT
Effective liquidity management ensures that the cash flow requirements of the
Company'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 Company'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, 2007, the Company held $8.4 million in federal funds sold, $40.5
million in securities available for sale, and $2.8 million in held to maturity
securities maturing within one year. These short-term assets represent 22.3% of
total deposits as of December 31, 2007. 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. In addition to
the above readily available sources of liquidity, the Company has lines of
credit available from other institutions totaling $14 million. There were no
advances outstanding on these lines of credit at December 31, 2007 or 2006.
39.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
INTEREST RATE SENSITIVITY
The following tables provide information about the Company's financial
instruments that are sensitive to changes in interest rates at December 31, 2007
and 2006. For loans receivable, securities, and liabilities with contractual
maturities, the tables present 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 tables present 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 these tables 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.
The following market risk disclosure tables allow management to measure the
imbalance between the amount of assets and liabilities repricing in the next
five years and thereafter.
40.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
MARKET RISK DISCLOSURE AT DECEMBER 31, 2007
(Dollars in thousands)
Fair Value
2008 2009 2010 2011 2012 Thereafter Total 12/31/2007
------- ------- ------- ------- ------- ---------- -------- ----------
RATE-SENSITIVE ASSETS
Variable interest rate loans $34,701 $ 1,026 $ 557 $ 29 $ -- $ -- $ 36,313 $ 36,461
Average interest rate 7.90% 7.59% 7.81% 7.13% --% --% 7.89%
Fixed interest rate loans 13,476 12,831 17,391 18,087 14,884 61,670 138,339 138,903
Average interest rate 7.37% 7.31% 7.19% 7.75% 7.79% 6.70% 7.14%
Variable interest rate securities 515 -- -- -- -- 980 1,495 1,495
Average interest rate 4.78% --% --% --% --% 5.25% 5.09%
Fixed interest rate securities 23,134 6,048 10,571 2,989 1,387 4,666 48,795 48,888
Average interest rate 5.13% 4.75% 5.16% 5.21% 4.68% 4.47% 4.99%
RATE-SENSITIVE LIABILITIES
Noninterest-bearing deposits 37,984 -- -- -- -- -- 37,984 37,984
Average interest rate --% --% --% --% --% --% --%
Fixed interest rate savings and
interest-bearing deposits 96,695 -- -- -- -- -- 96,695 96,667
Average interest rate 1.81% --% --% --% --% --% 1.81%
Variable interest rate time
deposits 16,626 4,933 -- -- -- -- 21,559 21,553
Average interest rate 3.47% 3.47% --% --% --% --% 3.47%
Fixed interest rate time deposits 35,370 27,496 1,715 1,501 2,579 -- 68,661 68,641
Average interest rate 3.81% 4.09% 4.20% 5.10% 4.87% --% 3.99%
MARKET RISK DISCLOSURE AT DECEMBER 31, 2006
(Dollars in thousands)
Fair Value
2007 2008 2009 2010 2011 Thereafter Total 12/31/2006
------- ------- ------- ------- ------- ---------- -------- ----------
RATE-SENSITIVE ASSETS
Variable interest rate loans $30,247 $ 1,229 $ 1,141 $ -- $ -- $ -- $ 32,617 $ 33,223
Average interest rate 8.76% 7.33% 7.72% --% --% --% 8.67%
Fixed interest rate loans 15,196 6,563 13,842 17,589 20,160 61,267 134,617 137,118
Average interest rate 7.83% 7.32% 7.24% 7.08% 7.72% 6.58% 7.06%
Variable interest rate securities 460 -- -- -- -- 1,073 1,533 1,533
Average interest rate 6.40% --% --% --% --% 5.78% 5.96%
Fixed interest rate securities 35,709 6,539 5,055 3,515 1,194 3,337 55,349 55,388
Average interest rate 3.65% 4.16% 4.43% 5.03% 4.58% 4.24% 3.92%
RATE-SENSITIVE LIABILITIES
Noninterest-bearing deposits 39,620 -- -- -- -- -- 39,620 39,620
Average interest rate --% --% --% --% --% --% --%
Fixed interest rate savings and
interest-bearing deposits 94,039 -- -- -- -- -- 94,039 93,970
Average interest rate 1.58% --% --% --% --% --% 1.58%
Variable interest rate time
deposits 11,399 9,837 -- -- -- -- 21,236 21,221
Average interest rate 5.05% 5.05% --% --% --% --% 5.05%
Fixed interest rate time deposits 48,093 12,582 1,715 1,501 2,579 -- 66,470 66,422
Average interest rate 4.42% 4.32% 3.83% 4.14% 5.12% --% 4.41%
41.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
CAPITAL RESOURCES
The capital ratios of the Bank exceed the regulatory guidelines for well
capitalized institutions. This strong capital position of the Company provides
the Company with the flexibility to take advantage of expansion opportunities
and to continue with a high dividend payout ratio.
The stock of the Company is generally traded locally, although beginning in 2007
it is available on the over-the-counter market. Additional information
concerning capital ratios and shareholder return is included in the Financial
Highlights on page 1. 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 INCOME
Consolidated net income was $3.1 million for 2007 and $3.3 million for 2006.
Noninterest income decreased during 2007 by $322,000 primarily due to a $521,000
gain recorded on the sale of premises in 2006. Basic earnings per share for 2007
were $2.51 compared to $2.68 for 2006. Diluted earnings per share for 2007 were
$2.50 compared to $2.68 for 2006.
Consolidated net income was $3.3 million for 2006 and 2005. Noninterest income
increased during 2006 by $210,000 primarily due to a gain on sale as mentioned
above. This increase in noninterest income was offset by additional noninterest
expense of $162,000 a portion of which is attributable to increased occupancy
expense to record additional depreciation due to the purchase of new equipment.
Basic earnings per share for 2006 were $2.68 compared to $2.66 for 2005. Diluted
earnings per share for 2006 was $2.68 compared to $2.65 for 2005.
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 2007, net interest income increased by $25,000, due primarily to
the change in the rate on our interest-earning assets and the change in asset
mix due to the increase in loan volume and decrease in the securities portfolio.
Interest expense paid on the Company's deposit accounts also increased in 2007
due to the increase in deposits and the rate environment.
The $73,000 increase in net interest income from 2005 to 2006 was due primarily
for the same reasons as noted above.
42.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
The following table shows the daily average consolidated balance sheets, revenue
on average interest-earning assets on a tax-equivalent basis, expense on average
interest-bearing liabilities and the annualized effective yield or rate.
Interest on loans includes loan fees. For the periods ending:
Yield Analysis of Consolidated Average Assets and Liabilities
(Dollars in thousands)
Year Ended Year Ended Year Ended
December 31, 2007 December 31, 2006 December 31, 2005
--------------------------- --------------------------- ---------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Int Rate Balance Int Rate Balance Int Rate
-------- ------- ------ -------- ------- ------ -------- ------- ------
Interest-earning
assets:
Other interest-
earning assets $ 12,129 $ 660 5.44% $ 9,044 $ 477 5.27% $ 7,460 $ 252 3.38%
Total securities(1)(2) 55,078 2,774 5.04 66,012 2,572 3.90 85,035 2,921 3.44
Loans(2) 172,136 13,070 7.59 163,139 12,218 7.49 149,672 10,473 7.00
-------- ------- -------- ------- -------- -------
Total
interest-earning
assets 239,343 16,504 6.90% 238,195 15,267 6.41% 242,167 13,646 5.63%
Cash and due from
banks 6,635 6,788 6,376
Premises and
equipment, net 6,495 5,886 4,785
Allowance for loan
losses (1,610) (1,488) (1,412)
Other assets 8,020 4,196 5,309
-------- -------- --------
Total $258,883 $253,577 $257,225
======== ======== ========
Interest-bearing liabilities:
Interest-bearing
demand deposits $ 23,575 $ 529 2.24% $ 16,227 $ 104 0.64% $ 18,145 $ 88 0.48%
Savings deposits 75,677 1,383 1.83 88,781 1,549 1.74 104,415 1,345 1.29
Time deposits 89,984 3,917 4.35 79,320 3,017 3.80 66,300 1,699 2.56
Fed Funds Purchased -- -- 0.00 47 2 4.26 -- -- 0.00
Other interest-bearing
liabilities 259 29 11.20 -- -- 0.00 -- -- 0.00
-------- ------- -------- ------- -------- -------
Total
interest-bearing
liabilities 189,495 5,858 3.09% 184,375 4,672 2.53% 188,860 3,132 1.66%
Noninterest-bearing
deposits 39,790 40,688 39,825
Other liabilities 4,305 3,128 3,702
Shareholders' equity 25,293 25,386 24,838
-------- -------- --------
Total $258,883 $253,577 $257,225
======== ======== ========
Net interest income
$10,646 $10,595 $10,514
======= ======= =======
Net interest spread (FTE) 3.81% 3.88% 3.97%
===== ==== ====
Net yield on interest-
earning assets (FTE) 4.45% 4.45% 4.34%
===== ==== ====
Ratio of interest-earning
assets to interest-
bearning liabilities 1.26x 1.29x 1.28x
===== ==== ====
(1) Yield computed using the average amortized cost for securities available
for sale.
(2) Tax exempt income was converted to a fully taxable equivalent basis at a
34% tax rate. The tax equivalent rate for tax exempt loans and tax exempt
securities acquired after January 1, 1983 included the TEFRA adjustment
applicable to nondeductible interest expenses.
43.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
The table below shows the effect of volume and rate changes on net interest
income on a pre-tax basis.
2007 Compared to 2006 2006 Compared to 2005
---------------------- ------------------------
Volume Rate Net Volume Rate Net
------ ---- ------ ----- ------ ------
(In thousands)
Other interest-earning assets $ 167 $ 16 $ 183 $ 62 $ 163 $ 225
Total Securities (456) 658 202 (708) 359 (349)
Loans, net 681 171 852 980 765 1,745
----- ---- ------ ----- ------ ------
Total interest-earning assets 392 845 1,237 334 1,287 1,621
Interest-bearing demand deposits 65 360 425 (10) 26 16
Savings deposits (237) 71 (166) (223) 427 204
Time deposits 434 467 901 380 938 1,318
Fed Funds Purchased (2) -- (2) 2 -- 2
Other interest-bearing liabilities 29 -- 29 -- -- --
----- ---- ------ ----- ------ ------
Total interest-bearing liabilities 289 898 1,187 149 1,391 1,540
----- ---- ------ ----- ------ ------
Net change in net interest income (a) $ 103 $(53) $ 50 $ 185 $ (104) $ 81
===== ==== ====== ===== ====== ======
(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, loan
servicing fees, gains on sales of loans and other income. Noninterest income
decreased $322,000 from 2006 to 2007. This decreases was due to the $521,000
gain on the sale of property recognized in 2006, but was offset by addition
deposit fee income of $145,000 due in part to the success of our overdraft
privilege program.
Noninterest income increased $210,000 from 2005 to 2006 as a result of the
$521,000 gain on the sale of our old South Branch property as previously
mentioned. This increase was offset in part by $300,000 due to a gain on life
insurance that was recognized in 2005.
NONINTEREST EXPENSE
Noninterest expense increased $27,000 during 2007 compared to 2006. Salary and
benefits expense increased $192,000 during 2007 compared to 2006 as the company
recognized several retirements throughout the year. These retirees were offered
severance packages commensurate to their years of service and contribution to
the company. The company changed its hospitalization coverage in 2007. Although
the company still funds 100% of the employee hospitalization premium, the
company changed to a high deductible plan in 2007. One half of this new
deductible was funded by the company into a health savings account for each
employee. This change resulted in a decrease in hospitalization expense of
$24,000 during 2007 compared to 2006. Pension expense was $103,000 in 2007 as
compared to $239,000 in 2006, a decrease of $136,000. This decrease is due to
lower services costs on the plan and increased
44.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
revenue. Other expenses decreased $161,000 for 2007 compared to 2006 due
primarily to two reasons. The 2006 other expenses included losses on sales or
write-downs of other real estate owned and the company received a deduction in
the 2007 Michigan Single Business Tax expense due to the property and
real-estate placed in service for the new Alanson Branch previously mention.
Noninterest expense increased $162,000 during 2006 compared to 2005. Salary and
benefit expense increased $232,000 during 2006 compared to 2005 as the company
increased its number of employees from 78.0 full-time equivalent employees at
December 31, 2005 to 80.5 full-time equivalent employees at December 31, 2006.
This increase in employees is due to increased branch hours and new branch
facilities, both of which required additional staffing. The Company continues to
fund 100% of the employee hospitalization premium which was $591,000 for 2006
compared to $545,000 for 2005. The deferred compensation expense for 2006 was
$317,000 compared to $690,000 in 2005. The deferred compensation expense for
2005 includes an expense of $315,000 to recognize the accelerated amount payable
due to the death of a director. Occupancy expense increased $140,000 primarily
due to additional depreciation on the purchase of new operating equipment and a
new building for our relocated South Branch location. Other expense increased
$210,000 for 2006 compared to 2005 primarily due to $77,000 of expense due to
the loss on sale or write-down of other real estate owned.
FEDERAL INCOME TAXES
Income tax expense decreased during 2007 to $1.08 million compared to $1.33
million in 2006. Income before taxes decreased from 2006 which resulted in the
decrease in income tax expense.
The effective tax rates for 2006 and 2005 were fairly stable. The decrease in
the effective tax rate for 2007 was due to additional investments in tax
favorable money market preferred securities. The tax rates are shown in the
table below:
2007 2006 2005
------ ------ ------
Income before tax (In thousands) $4,170 $4,649 $4,528
Income tax expense (In thousands) 1,082 1,326 1,240
Effective tax rate 25.9% 28.5% 27.4%
The slightly lower effective tax rate in 2005 was due to the nontaxable income
in the form of life insurance proceeds received during the year which has been
previously discussed.
45.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
CRITICAL ACCOUNTING POLICIES
Certain of the Company's accounting policies are important to the portrayal of
the Company's financial condition, since they require management to make
difficult, complex or subjective judgments, some of which may relate to matters
that are inherently uncertain. Estimates associated with these policies are
susceptible to material changes as a result of changes in facts and
circumstances. Facts and circumstances which could effect these judgments
include, but without limitation, changes in interest rates, in the performance
of the economy or in the financial condition of borrowers. Management believes
that its critical accounting policies include determining the allowance for loan
losses and determining the fair value of securities.
The Company believes that the allowance for loan losses and related provision
expense are particularly susceptible to material change in the near term. Due to
overall loan growth, a provision expense of $120,000 was recorded during 2006
and 2005. Due to the continued loan growth and a downturn in the overall
Michigan economy, a provision expense of $275,000 was recorded during 2007. In
future periods the allowance for loan losses may be dramatically impacted due to
changes in the local economy, increased commercial loans and individual borrower
situations. The Company believes its significant concentration in residential
mortgage loans and the importance of the tourism industry to the local economy
are particularly important factors that could have a significant impact on the
allowance for loan losses and provision for loan losses if these factors
significantly change from current conditions. As of December 31, 2007, the
Company held $82.7 million of commercial and commercial real estate loans, and
the ability of our borrowers to repay such loans may be significantly impacted
by changes in the economy or individual borrower conditions. Management
continues to take steps to help ensure the asset quality of the loan portfolio;
however, the allowance for loan losses and related provision expense could
increase significantly in future periods depending on changes in the factors
discussed above.
Securities available for sale are carried at fair value, with unrealized holding
gains and losses reported separately in accumulated other comprehensive income,
net of tax. As a result of changes in the fair market value of the Company's
available for sale securities portfolio, total comprehensive income increased by
$222,000 and $475,000 for 2007 and 2006 and decreased by $492,000 for 2005.
Additionally, all investment securities are required to be written down to fair
value when a decline in fair value is not temporary; therefore, future changes
in the fair value of securities could have a significant impact on the Company's
operating results.
46.
CNB CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2007, 2006 and 2005
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 advises
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.
47.
CNB CORPORATION
OFFICERS, COMMUNITY ADVISORS AND STAFF
OFFICERS AND COMMUNITY ADVISORS OF
CNB CORPORATION AND CITIZENS NATIONAL BANK
CNB CORPORATION OFFICERS
VINCENT J. HILLESHEIM
CHAIRMAN
SUSAN A. ENO
PRESIDENT / CHIEF EXECUTIVE OFFICER & SECRETARY
DOUGLAS W. DAMM
SENIOR VICE PRESIDENT
SHANNA L. HANLEY
TREASURER
CITIZENS NATIONAL BANK OFFICERS AND COMMUNITY ADVISORS
VINCENT J. HILLESHEIM
CHAIRMAN
SUSAN A. ENO
PRESIDENT & CHIEF EXECUTIVE OFFICER
DOUGLAS W. DAMM
SENIOR VICE PRESIDENT & SENIOR LOAN OFFICER
STEPHEN J. CRUSOE
VICE PRESIDENT, MORTGAGE LOANS
VICTORIA J. HAND
VICE PRESIDENT & CASHIER
SHANNA L. HANLEY
VICE PRESIDENT & SENIOR CONTROLLER
MARIAN L. HARRISON
VICE PRESIDENT, COMMERCIAL LOANS
KENNETH N. SHELDON
VICE PRESIDENT, EXAMINATION
SUSAN L. CASWELL
ASSISTANT VICE PRESIDENT
CYRIL S. DRIER
ASSISTANT VICE PRESIDENT
SALLY J. LACROSS
ASSISTANT VICE PRESIDENT
NANCY K. LINDSAY
ASSISTANT VICE PRESIDENT, MARKETING
RANDY J. MALTBY
TECHNOLOGY OFFICER
SUSAN J. CLEARY
LOAN OFFICER
MICHELLE J. OSTWALD
LOAN OFFICER
JACK ZLOTOW
LOAN OFFICER
FLORENCE CASWELL
ASSISTANT LOAN OPERATIONS OFFICER
CHRISTINA E. SWEET
MANAGER OF INTERNAL AUDIT
GINA L. EUSTICE
CREDIT MANAGER
ONAWAY
LAURA L. SHACK
BANKING OFFICER & BRANCH MANAGER
INDIAN RIVER
MATTHEW J. KAVANAUGH
ASSISTANT VICE PRESIDENT & BRANCH MANAGER
PAUL FISHER
COMMUNITY ADVISOR
LISA RENAUD-LAPRAIRIE
COMMUNITY ADVISOR
MACKINAW CITY
SUSAN M. BRANDT
BANKING OFFICER & BRANCH MANAGER
DEAN SCHEERENS
COMMUNITY ADVISOR
JAMES E. TAMLYN
COMMUNITY ADVISOR
PELLSTON
LORA L. CLOUSER
BANKING OFFICER & BRANCH MANAGER
KELLEY ATKINS
COMMUNITY ADVISOR
RICHARD CONRAD
COMMUNITY ADVISOR
ALANSON
LORA L. CLOUSER
BANKING OFFICER & BRANCH MANAGER
48.
CNB CORPORATION
OFFICERS, COMMUNITY ADVISORS AND STAFF
STAFF OF CITIZENS NATIONAL BANK
MAIN OFFICE
Eugene Andrzejewski
Taryn Bednarz
Cheryl Blaskowski
Kurt Blaskowski
Maghan J. Brooks
Patricia K. Comps
Arlene Daniel
Trisha M. Dobias
Nicole Drake
Mary E. Greenwood
Debra Grice
Tonya Hiller
Kathy Johnson
Stacy King
Sherri Kosan
Susan Leonardi
Betty J. Lewis
Loretta Merchant
Adam Newman
Penny L. Newman
Kelli M. Reimann
Katherine H. Rhome
Ronald D. Rose
Carla Roznowski
Carolyn A. Scheele
Nancy Scott
Darren Selden
Sandra L. Shawl
Lee Sheets
David Shotwell
Sally A. Spray
M. Teresa Sullivan
Kathy S. Swackhamer
Rebecca Tomaski
Joel VanSlembrouck
Wendelin K. Whippo
Sherry M. Wichlacz
DOWNTOWN DRIVE-IN CHEBOYGAN
Deanna Hudson
Carla Jankoviak
EAST SIDE DRIVE-IN CHEBOYGAN
Lori Thornton
SOUTH BRANCH CHEBOYGAN
Karen Barrette
Susan D. Bliss
Sharon Coppernoll
Diane S. Mushlock
Diane S. Poirier
MACKINAW CITY
Deborah L. Closs
Jennifer M. LaHaie
PELLSTON
Sheri L. Kindell
Tammy Kirsch
ONAWAY
Pamela A. Kolasa
Sara L. LaLonde
Lynn D. Porter
Kathleen T. Robbins
Kathleen S. Wilson
INDIAN RIVER
Kelly Comps
Julie Davis
Amber Perkins
Michelle Miller
Helen K. Stumpf
ALANSON
Cheri Diot
Jill Hoffman
Amanda Nicholson
Cathy Ward
49.
CNB CORPORATION
DIRECTORS AND DIRECTORS EMERITI
DIRECTORS OF CNB CORPORATION &
CITIZENS NATIONAL BANK
VINCENT J. HILLESHEIM
Chairman
President, Anchor In Marina
STEVEN J. BAKER, D.V.M.
Retired Indian River Veterinary Clinic
JAMES C. CONBOY, JR.
Retired former President & Chief Executive Officer, CNB Corporation
Retired former President & Chief Executive Officer, Citizens National Bank
*Susan A. Eno
President & Chief Executive Officer, CNB Corporation
President & Chief Executive Officer, Citizens National Bank
KATHLEEN M. DARROW
President, Darrow Bros. Excavating, Inc.
Retired, formerly Group Sales & Special Events
Coordinator for the Mackinac State Historic Parks
THOMAS J. ELLENBERGER
Vice President & Secretary
Albert Ellenberger Lumber Company
KATHLEEN A. LIEDER
Retired Partner, Bodman LLP
Co-Owner, Log Mark Bookstore
JOHN L. ORMSBEE
Owner, Jack's Sales
R. JEFFERY SWADLING
Vice President, Ken's Village Market
FRANCIS J. VANANTWERP, JR.
Vice President Durocher Marine Division
Kokosing Construction Company, Inc.
*Director of Citizens National Bank only
DIRECTORS EMERITI
LYLE MCKINLEY, THOMAS A. ELLENBERGER,
JOHN P. WARD
HOW TO ORDER FORM 10-K
Shareholders may obtain, without charge, a copy of Form 10-K or the 2007 Annual
Report Summary & Highlights by writing Susan A. Eno, Secretary, CNB Corporation,
P.O. Box 10, Cheboygan, Michigan 49721.
50.