1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[ x ] QUARTERLY REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File # 0-28388
CNB CORPORATION
(Exact name of small business issuer as specified in its charter)
MICHIGAN 38-2662386
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
303 NORTH MAIN STREET, CHEBOYGAN, MI 49721
(Address of principal executive offices, including Zip code)
(616) 627-7111
Issuer's telephone number, including area code
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ----
As of September 30, 1996, there were outstanding 930,772 shares of the issuer's
common stock, $2.50
2
INDEX
ITEM NO. DESCRIPTION PAGE NO.
- -------------------------------------------------------------------------------
Part I - Financial Information
Item 1. Financial Statements
(a) Consolidated Balance Sheet 2
(b) Consolidated Statement of Income 3
(c) Consolidated Statement of Changes in Shareholder's Equity 4
(d) Consolidated Statement of Cash Flows 5
(e) Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation
Financial Condition 8
Liquidity and Funds Management 9
Results of Operations 11
Part II - Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Signatures 15
Page 1
3
PART I
Financial Information
ITEM 1 - FINANCIAL STATEMENTS
(a) Consolidated Balance Sheet (unaudited)
- ---------------------------------------------------------------------------------------------------------
September 30 December 31
In thousands of dollars 1996 1995
==========================================================================================================
Assets
Cash and demand balances in other banks $ 6,883 $ 7,340
Federal funds sold 3,000 7,950
- ---------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 9,883 15,290
Securities available for sale 11,240 11,821
Securities held to maturity (fair value of
$53,920 and $47,325 respectively) 53,958 47,011
- ---------------------------------------------------------------------------------------------------------
Total securities 65,198 58,832
Total loans 95,504 88,147
Less: allowance for loan losses (1,339) (1,306)
- ---------------------------------------------------------------------------------------------------------
94,165 86,841
Premises and equipment, net 1,908 1,945
Accrued interest receivable and other assets 4,459 3,652
- ---------------------------------------------------------------------------------------------------------
Total Assets $175,613 $166,560
=========================================================================================================
Liabilities
Deposits
Noninterest bearing $ 23,399 $ 20,778
Interest bearing 133,179 127,371
- ---------------------------------------------------------------------------------------------------------
Total deposits 156,578 148,149
Accrued interest payable and other liabilities 1,884 2,160
- ---------------------------------------------------------------------------------------------------------
Total liabilities 158,462 150,309
Shareholders' Equity
Common stock, $2.50 par value; 1,000,000 shares authorized;
930,772 shares issued and outstanding 2,327 2,327
Capital surplus 4,979 4,979
Retained earnings 9,870 8,893
Unrealized gain (loss) on securities available for sale,
net of tax of ($18) and $27 respectively (25) 52
- ---------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 17,151 16,251
- ---------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $175,613 $166,560
=========================================================================================================
(a) All per share statistics have been retroactively adjusted to reflect the 2
for 1 stock split of May 31, 1996.
See Notes to consolidated financial statements.
Page 2
4
(b) Consolidated Statement of Income (unaudited)
Three months ended Nine months ended
September 30, September 30,
In thousands of dollars 1996 1995 1996 1995
=================================================================================================
Interest income
Interest and fees on loans $2,274 $2,159 $6,657 $6,270
Interest on securities
Taxable 858 770 2,464 2,063
Tax exempt 103 25 302 172
Interest on federal funds sold 87 161 252 377
- ------------------------------------------------------------------------------------------------
Total interest income 3,322 3,115 9,675 8,882
Interest on Deposits 1,459 1,337 4,271 3,747
Net Interest income 1,863 1,778 5,404 5,135
Provision for loan losses 25 25 75 75
- ------------------------------------------------------------------------------------------------
Net Interest Income after Provision for
Loan Losses 1,838 1,753 5,329 5,060
Other Income
Service charges on deposit accounts 158 134 472 435
Other service charges 14 31 63 67
Other income 101 112 239 248
- ------------------------------------------------------------------------------------------------
Total other income 273 277 774 750
Other Expense
Salaries and employee benefits 751 718 2,037 1,947
Occupancy and equipment expense 66 57 172 166
Federal deposit insurance premiums 1 (10) 1 143
Furniture & equipment expense 82 73 243 228
Other expense 227 208 885 872
- ------------------------------------------------------------------------------------------------
Total other expense 1,127 1,046 3,338 3,356
- ------------------------------------------------------------------------------------------------
Income Before Federal Income Tax 984 984 2,765 2,454
Federal income tax 298 299 834 741
- ------------------------------------------------------------------------------------------------
Net Income $ 686 $ 685 $1,931 $1,713
=================================================================================================
Net income per share of common stock (a) $ 0.74 $ 0.74 $ 2.07 $ 1.84
Cash dividends declared per share of
common stock (a) $0.350 $0.325 $1.025 $0.875
Return on average assets (annualized) 1.54% 1.66% 1.50% 1.45%
Return on average equity (annualized) 16.06% 16.88% 15.32% 14.42%
(a) All per share statistics have been retroactively adjusted to reflect the 2
for 1 stock split of May 31, 1996.
See Notes to consolidated financial statements.
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5
(c) Statement of Changes in Shareholders' Equity (unaudited)
Common Capital Retained
In thousands of dollars Stock Surplus Earnings (a) Total
====================================================================================================
Balance, December 31, 1994 $2,327 $4,979 $8,110 $(115) $15,301
Net income, 1995 2,365 2,365
Cash dividends declared, $1.70 per share (b) (1,582) (1,582)
Net change in unrealized gain (loss)
on securities available for sale 167 167
- ----------------------------------------------------------------------------------------------------
Balance, December 31, 1995 2,327 4,979 8,893 52 $16,251
Net Income YTD 1996 1,931 1,931
Cash dividends declared, $1.025 per share (b) (954) (954)
Net change in unrealized gain (loss)
on securities available for sale (77) (77)
- ----------------------------------------------------------------------------------------------------
Balance, September 30, 1996 $2,327 $4,979 $9,870 $(25) $17,151
====================================================================================================
(a) Net Unrealized Appreciation (Depreciation) on Securities Available For Sale
Net of Taxes
(b) All per share statistics have been retroactively adjusted to reflect the 2
for 1 stock split of May 31, 1996.
See Notes to consolidated financial statements.
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6
(d) Year to Date Consolidated Statement of Cash Flows (unaudited)
Nine months ended September 30,
- -------------------------------------------------------------------------------------
In thousands of dollars 1996 1995
=====================================================================================
Cash Flows from Operating Activities
Net Income $1,931 $ 1,713
- -------------------------------------------------------------------------------------
Adjustments to Reconcile Net Income to Net Cash from
Operating Activities
Depreciation 188 168
Accretion/amortization on securities 657 594
Provision for loan losses 75 75
Loans originated for sale (3,040) (3,186)
Proceeds from sales of loans originated for sale 3,050 3,204
Gain on sales of loans (10) (18)
Change in income taxes receivable (62) 5
Change in interest receivable (50) (50)
Change in interest payable 9 61
Change in other assets (653) (61)
Change in other liabilities 156 178
- -------------------------------------------------------------------------------------
Total adjustments 320 970
- -------------------------------------------------------------------------------------
Net cash from operating activities 2,251 2,683
- -------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Proceeds from maturities of securities available for sale 3,485 0
Purchase of securities available for sale (3,049) (1,990)
Proceeds from maturities of securities held to maturity 28,801 22,853
Purchase of securities held to maturity (36,378) (23,413)
Net increase in portfolio loans (7,398) (3,318)
Premises and equipment expenditures, net (152) (106)
- -------------------------------------------------------------------------------------
Net cash from investing activities (14,691) (5,974)
- -------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net change in deposits 8,429 10,799
Cash dividends paid (1,396) (974)
- -------------------------------------------------------------------------------------
Net cash from financing activities 7,033 9,825
- -------------------------------------------------------------------------------------
Net change in cash and cash equivalents (5,407) 6,534
- -------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 15,290 9,298
- -------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $9,883 $15,832
=====================================================================================
Cash Paid During the Period for
Interest $4,262 $ 3,686
Income taxes $1,870 $ 1,718
=====================================================================================
See Notes to consolidated financial statements.
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(e) Notes to Financial Statements (unaudited)
Note 1 - Basis of Presentation
The unaudited condensed consolidated financial statements of CNB Corporation
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial statements. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine month period ending September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Registration of Securities on
Form 10-SB/X Amendment No. 1 as of December 31, 1995.
Note 2 - Securities
The amortized cost and fair value of securities at September 30, 1996 are shown
below in thousands of dollars.
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------- ---------- ----------- -------
Securities Available for Sale
U.S. Treasury and agency securities $ 9,982 $ 16 $ 58 $ 9,940
Tax-exempt obligations of states and
political subdivisions 1,116 4 1,120
Other securities 180 180
-----------------------------------------------------
Total $11,278 $ 20 $ 58 $11,240
=====================================================
Securities Held to Maturity
U.S. Treasury and agency securities $44,061 $ 92 $197 $43,956
Tax-exempt obligations of states and
political subdivisions 7,769 43 32 7,780
Other securities 2,128 56 2,184
-----------------------------------------------------
Total $53,958 $191 $229 $53,920
=====================================================
The amortized cost and fair value of securities by contractual maturity at
September 30, 1996 are shown below, in thousands of dollars
------------------------- ------------------------
Available for Sale Held to Maturity
------------------------- ------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------------------- ------------------------
Due in one year or less $ 5,280 $ 5,295 $15,600 $15,527
Due after one year through five years 5,998 5,945 36,759 36,737
Due after five years through ten years 1,051 1,043
Due after ten years 518 508
------------------------- ------------------------
Total $11,278 $11,240 $53,928 $53,815
========================= ========================
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties. Equity securities are included with securities available
for sale due in one year or less.
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There were no sales of securities for the period ending September 30, 1996 and
1995.
Securities carried at $985,625 as of September 30, 1996 were pledged to secure
deposits of public funds and for other purposes as required by law.
Note 3 - Allowance for Loan Losses
An analysis of the allowance for loan losses, in thousands of dollars, for the
nine months ended September 30, 1996 and 1995, follows:
1996 1995
------- -------
Balance at beginning of period $1,306 $1,246
Loans charged off (53) (53)
Recoveries credited to allowance 11 12
Provision charged to operations 75 75
------- -------
Balance at end of period $1,339 $1,280
======= =======
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," ("SFAS No. 114") at January
1, 1995. Under this standard, the carrying value of loans considered to be
impaired is reduced to the present value of expected future cash flows or to
the fair value of the collateral by allocating a portion of the allowance for
loan losses to such loans. If these allocations cause the allowance for loan
losses to require an increase, such increase is reported as bad debt expense.
The impact of SFAS No. 114 on the Company's financial position or results of
operations has not been material.
Note 4 - Per share calculations
Earnings per share is calculated on the weighted average number of shares
outstanding during the period, giving retroactive effect for the 2 for 1 stock
split to shareholders of record as of May 31, 1996.
Note 5 - Commitments, Contingencies and Financial Instruments
The following table shows the commitments to make loans and the unused lines of
credit, in thousands of dollars, available to Bank customers at September 30.
1996 1995
------- -------
Outstanding commitments to make fixed rate loans $ 3,385 $ 2,634
Outstanding commitments to make variable rate loans 6,659 5,514
Unused lines of credit - variable rate 3,812 3,484
Standby letters of credit - variable rate 29 39
------- -------
$13,885 $11,671
======= =======
Page 7
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
OR PLAN OF OPERATION
This discussion provides information about the consolidated financial condition
and results of operations of CNB Corporation and its subsidiary, Citizens
National Bank of Cheboygan ("Bank") for the nine month period ending September
30, 1996.
Financial Condition
Securities
Investment balances increased $2.2 million during the third quarter as seasonal
deposit growth exceeded seasonal loan demand. Securities available-for-sale
represent 17.11% of the portfolio. Since the Bank maintains a short term
securities portfolio, not many securities are needed in the available-for-sale
portfolio to meet anticipated liquidity needs. The Asset/Liability Committee
has decided to purchase longer term securities in an attempt to increase the
overall investment yield. As the amount of securities maturing on a regular
monthly basis decreases, liquidity will be maintained by adding to the
available-for-sale portfolio.
Loans
Total loans increased $517 thousand during the third quarter. A decrease of
$2.4 million for the quarter in commercial loans and commercial mortgages is
typical for this time of year as seasonal businesses make annual principal
reductions. Residential mortgages increased for the quarter by $3.3 million as
the Bank continues to retain, rather than sell on the secondary market,
residential mortgages of 15 years or less. This pattern is expected to
continue throughout the year. As the yield on these loans is greater than the
yield available on the types of security that the Bank typically invests in,
this increase in mortgages will help to increase the Bank's net interest
margin.
The table below shows total portfolio loans outstanding, in thousands of
dollars, at December 31 and September 30, and their percentage of the total
loan portfolio. All loans are domestic. A semi-annual review of loan
concentrations at June 30, 1996 indicates that the pattern of loans in the
portfolio has not changed. There is no individual industry with more than a
10% concentration. However, all tourism related businesses, when combined,
total 13.67% of total loans.
September 30, 1996 December 31, 1995
Portfolio loans: Balance % of total Balance % of total
--------------------------- -----------------------
Commercial & Agriculture $29,491 30.88% $30,017 34.05%
Real estate - mortgage 54,412 56.97% 46,506 52.76%
Real estate - construction 2,498 2.62% 2,229 2.53%
Installment loans to
individuals 9,103 9.53% 9,395 10.66%
----------------------------------------------------------
$95,504 100.00% $88,147 100.00%
==========================================================
Credit Quality
The Company continues to maintain a high level of asset quality as a result of
actively monitoring delinquencies, nonperforming assets and potential problem
loans. The Bank performs 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
Page 8
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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, in thousands of dollars, is shown in the table
below.
9/30/96 12/31/95 9/30/95
------------ ------------ -----------
Nonaccrual loans $ 24 $ 0 $ 26
Loans past due 90 days or more 231 80 75
Troubled debt restructurings 0 0 0
----- ----- -----
Total nonperforming loans $ 255 $ 80 $ 101
----- ----- -----
Percent of total loans 0.27% 0.09% 0.12%
===== ===== =====
Deposits
Typically the Bank's deposit activity starts to pick up late in the second
quarter as summer businesses in the area prepare to reopen for the season.
Deposits at September 30, 1996 were up by $3.0 million as compared to June 30,
1996 and $9.8 million from one year ago. Growth for the quarter was in nearly
every category of deposit with the exception of municipal deposits. The
increase in noninterest bearing deposits will help the net interest margin over
the summer months, but is not expected to continue past fall. Management
anticipates that deposit growth during the balance of 1996 will continue to be
steady with part of this growth coming through increased market share.
Liquidity and Funds Management
Liquidity
Both loan and deposit growth continued during the third quarter of 1996.
Typically the September balance represents the annual peak in deposits from
summer businesses. The Bank maintains a steady schedule of investment
securities maturing each month to meet anticipated decline in deposits through
next spring when deposits are again expected to increase. The security
portfolio continues to have short maturities, adding to available liquidity.
The loan to deposit ratio was 60.99% at September 30, 1996. Management would
like to continue to increase loans until the Bank reaches a loan to deposit
ratio of at least 65%. This change in the mix from investments to loans will
help to increase the net interest margin over time.
Funds Management
The following chart shows the Bank's interest rate sensitivity as of September
30, 1996 in thousands of dollars
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up to 4 to 12 1 to 5 over
3 months months years 5 years
---------------------------------------------------------------
Federal funds sold $ 3,000
Taxable investment securities 4,000 14,443 $35,601
Non-taxable investment securities 312 3,403 5,587 $1,672
Loans 30,911 33,485 24,411 6,019
---------------------------------------------------------------
Total Rate Sensitive Assets 38,223 51,331 65,599 7,691
Interest bearing demand deposits 13,925
Money market savings 33,509
Other time deposits 18,799 26,454 14,115
---------------------------------------------------
Total Rate Sensitive Liabilities $ 66,233 $26,454 $14,115
---------------------------------------------------
Gap $(28,010) $24,877 $51,484 $ 7,691
---------------------------------------------------------------
Cumulative Gap $(28,010) $(3,133) $48,351 $56,042
===============================================================
Cumulative Ratio 57.71% 96.62%
===============================
Management believes that the Gap overstates true interest sensitivity.
Interest exposure is not as significant as expressed in the above schedule as
rates on interest-bearing liabilities may not reprice on an "instant basis"
even though the Bank has the contractual right to make a change. Management
believes liabilities do not need to be repriced as soon as rates begin to move.
In actuality, these rates typically remain unchanged for years at a time.
Capital Resources
The capital ratios of the Company exceed the regulatory guidelines for well
capitalized institutions. The following table shows the Company's capital
ratios and ratio calculations at September 30, 1996 and 1995 and December 31,
1995. Dollars are shown in thousands.
Regulatory guidelines CNB Corporation
Adequate Well 9/30/96 12/31/95 9/30/95
-------- ---- ------- -------- -------
Tier 1 leverage ratio 4.00% 5.00% 9.77% 9.76% 9.90%
Tier 1 risk adjusted capital ratio 4.00% 6.00% 19.73% 18.88% 19.18%
Total risk adjusted capital ratio 8.00% 10.00% 18.48% 20.13% 20.43%
Total shareholders' equity $17,151 $16,251 $16,321
Unrealized gain (loss) on securities available
for sale, net of tax (25) 52 6
------------------------------------
Tier 1 capital 17,176 16,199 16,315
Qualifying loan loss reserves 1,164 1,075 1,066
------------------------------------
Tier 2 capital $18,340 $17,274 $17,381
====================================
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income continued to increase during the third quarter of 1996 due
to the increase in interest earning assets despite a decrease in the net
interest spread. The Bank continues to experience pressure for lower interest
rates on loan products and higher interest rates on deposit products as
competition increases. The net spread at September 30, 1996 was 3.44%
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compared to 3.64% at September 30, 1995.
The table below shows the year to date daily average Consolidated Balance
Sheet, revenue on earning assets,(on a pre-tax basis) or expense of interest
bearing liabilities, and the annualized effective rate or yield for the period
ending September 30,1996 and 1995.
YIELD ANALYSIS OF CONSOLIDATED AVERAGE ASSETS AND LIABILITIES
in thousands of dollars
Nine months ended Sept 30, 1996 Nine months ended Sept 30, 1995
-------------------------------- ---------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ----- ------- -------- ------
Assets
Interest earning assets
Time deposits in other banks $ 332 $ 15 6.02% $ 454 $19 5.58%
Federal funds sold 5,737 252 5.86% 8,168 377 6.15%
Taxable securities 54,591 2,449 5.98% 49,504 2,044 5.51%
Tax exempt securities 8,313 302 4.84% 4,413 172 5.20%
Taxable loans 90,967 6,303 9.24% 84,341 5,968 9.43%
Tax exempt loans 1,215 52 5.71% 1,403 60 5.70%
--------------------- -----------------------
Total int. earning assets 161,155 $9,373 7.75% 148,283 $8,640 7.77%
--------------------- -----------------------
Cash and due from banks 5,479 5,209
Premises and equipment, net 1,941 1,992
Other assets 3,856 3,677
Unrealized gain securities-AFS 17 (77)
Less allowance for loan losses (1,329) (1,285)
-------- --------
Total Assets $171,119 $157,799
======== ========
Liabilities and Shareholders' Equity
Interest bearing liabilities
Interest bearing demand
deposits $ 13,974 $ 251 2.39% $13,293 $239 2.40%
Savings deposits 25,631 553 2.88% 26,937 579 2.87%
CDs $100,000 and over 10,242 421 5.48% 7,492 302 5.37%
Other interest bearing deposits 82,245 3,046 4.94% 73,268 2,627 4.78%
--------------------- ----------------------
Total int bearing deposits 132,092 4,271 4.31% 120,990 3,747 4.13%
Noninterest bearing deposits 20,582 19,432
Other liabilities 1,643 1,544
Shareholders' equity 16,802 15,834
-------- --------
Total Liabilities and
Shareholders' Equity $171,119 $157,800
======== ========
Net interest income $5,102 $4,893
Net spread 3.44% 3.64%
Net yield on interest earning assets 4.22% 4.40%
Ratio of interest earning assets to
interest bearing liabilities 1.22 1.23
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The table below shows the effect of volume and rate changes on net interest
income for the nine months ended September 30, on a pre-tax basis, in thousands
of dollars.
1996 Compared to 1995 1995 Compared to 1994
----------------------------------- ------------------------------------
Volume Rate Net Volume Rate Net
------ ------ ------ ------- ------- -------
Time deposits in other banks $ (5) $ 1 $ (4) $ 10 $ 10 $ 19
Federal funds sold (109) (16) (125) 175 79 254
Taxable securities 219 186 405 (53) 328 275
Tax exempt securities 147 (17) 130 23 0 23
Taxable loans 464 (129) 335 158 673 831
Tax exempt loans (8) 0 (8) (45) 15 (30)
--------------------------------------------------------------------------------------
Total interest income $ 708 $ 25 $ 733 $ 268 $ 1,105 $ 1,372
======================================================================================
Interest bearing demand
deposits $ 12 $ (0) $ 12 $ (7) $ (1) $ (8)
Savings deposits (28) 2 (26) (64) 0.0 (64)
CDs $100,000 and over 112 7 119 87 69 156
Other interest bearing deposits 327 92 419 154 570 724
--------------------------------------------------------------------------------------
Total interest expense $ 423 $ 101 $ 524 $ 170 $ 638 $ 808
======================================================================================
Net change in net interest
income (a) $ 285 $ (76) $ 209 $ 98 $ 467 $ 564
(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.
Other Income
Noninterest income continues to improve, although at a slower rate than in
previous periods. Year to date figures are up 3.20%. The Company continues to
search for new opportunities for noninterest income.
Other Expenses
Most categories of other expense showed minimal change from last year. All
noninterest expenses, exclusive of FDIC premiums paid, increased 3.86% from
September 30, 1995 to September 30, 1996. A change in the FDIC premium rates
reduced this expense from $143 thousand to $1 thousand during this same nine
month period leaving the Company with a net reduction in noninterest expense of
0.54%.
Federal Income Tax
There was no significant change in the income tax position of the Company
during the first nine months of 1996.
Net Income
Year to date consolidated net income for the third quarter was $1,931,000
compared to $1,713,000 for 1995. Improved net interest income, combined with
improved noninterest income and a reduction in noninterest expense have
contributed to this improvement. Net income for the quarter is unchanged
compared to the same period one year ago while year to date net income is up
12.73%. Return on consolidated average assets for the quarter was 1.54%,
compared to 1.66% for the third quarter of 1995. The Bank's income for the
third quarter of 1995 included a refund of previously paid FDIC assessments
which increased income for the third quarter.
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ACCOUNTING CHANGES
Effective January 1, 1996, the Company adopted Financial Accounting Standards
Board Statement 122, Accounting for Mortgage Servicing Rights. The Statement
requires that the Company recognize mortgage servicing rights on loans it
purchases or originates with the intent to sell as an asset. Capitalized
mortgage servicing rights are included in other assets and are not material at
September 30, 1996.
CURRENT ACCOUNTING ISSUES
Several new accounting standards have been issued by the FASB that will apply
for the year ending December 31, 1996. SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of,"
requires a review of long-term assets for impairment of recorded value and
resulting write-downs if the value is impaired. SFAS No. 122, "Accounting for
Mortgage Servicing Rights," requires recognition of an asset when servicing
rights are retained on in-house originated loans that are sold. SFAS No. 123,
"Accounting for Stock-Based Compensation," encourages, but does not require,
entities to use a "fair value based method" to account for stock-based
compensation plans and requires disclosure of the pro forma effect on net
income and on earnings per share had the accounting been adopted. SFAS No.
125, "Accounting for Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities," provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
and requires a consistent application of a financial-components approach that
focuses on control. Under that approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred and derecognizes liabilities when extinguished.
SFAS No. 125 also supersedes SFAS No. 122, and requires that servicing assets
and liabilities be subsequently measures by amortization in proportion to and
over the period of estimated net servicing income or loss and requires
assessment for asset impairment or increased obligation based on their fair
values. SFAS No. 125 applies to transfers and extinguishments occurring after
December 31, 1996, and early or retroactive application is not permitted. Upon
adoption, these statements are not expected to have a material effect on the
Company's consolidated financial position or results of operations.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
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ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits (numbered as in Item 601 of Regulation S-B):
10(D)(ii)(A) CNB Corporation 1996 Stock Option Plan and Agreement
27 Financial Data Schedule
(b) The Company has filed no reports on Form 8-K during the quarter ended
September 30, 1996.
Page 14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CNB Corporation
November 13, 1996
/s/ Robert E. Churchill /s/ Jean K. Hunt
- ------------------------------------- ------------------------------------
Robert E. Churchill Jean K. Hunt
President and Chief Executive Officer Treasurer (Chief Accounting Officer)
Page 15
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EXHIBIT INDEX
Exhibit No. Description Page No.
- ------------ ------------ --------
10(D)(ii)(A) Stock Option Plan
27 Financial Data Schedule 12