1 U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB [x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 Commission File # 0-28388 CNB Corporation (Exact name of small business issuer as specified in its charter) MICHIGAN 38-2662386 (State or 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 March 31, 1997, there were outstanding 930,772 shares of the issuer's common stock, $2.50 par value. 2 INDEX ITEM NO. DESCRIPTION PAGE NO. - ------------------------------------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (unaudited) 2 (a) Consolidated Balance Sheets 3 (b) Consolidated Statements of Income 4 (c) Consolidated Statements of Changes in Shareholders' Equity 5 (d) Consolidated Statements of Cash Flows 6 (e) Notes to Financial Statements 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 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 3 PART I FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS, MARCH 31, 1997 (a) CONSOLIDATED BALANCE SHEET (UNAUDITED) - ------------------------------------------------------------------------------- March 31 December 31 March 31 1997 1996 1996 In thousands of dollars ==================================================================================================================================== ASSETS Cash and demand balances in other banks $ 5,481 $ 6,054 $ 5,340 Federal funds sold 4,900 4,050 2,750 - ------------------------------------------------------------------------------------------------------------------------------------ Total cash and cash equivalents 10,381 10,104 8,090 Securities available for sale 8,186 8,165 10,455 Securities held to maturity (fair value of $50,047 and $53,416 and $52,821 respectively) 49,981 53,085 52,325 - ------------------------------------------------------------------------------------------------------------------------------------ Total securities 58,167 61,250 62,780 Total loans 98,588 96,741 91,055 Less: allowance for loan losses (1,394) (1,361) (1,332) - ------------------------------------------------------------------------------------------------------------------------------------ 97,194 95,380 89,723 Premises and equipment, net 2,615 2,679 1,942 Accrued interest receivable and other assets 3,838 3,672 3,753 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $172,195 $173,085 $166,288 ==================================================================================================================================== LIABILITIES Deposits Noninterest bearing $ 19,112 $ 22,419 $ 16,801 Interest bearing 133,966 131,449 131,299 - ------------------------------------------------------------------------------------------------------------------------------------ Total deposits 153,078 153,868 148,100 Accrued interest payable and other liabilities 1,763 2,164 1,689 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES 154,841 156,032 149,789 SHAREHOLDERS' EQUITY Common stock, $2.50 par value; 1,000,000 shares authorized; 465,386 shares issued and outstanding 2,327 2,327 2,327 Capital surplus 4,979 4,979 4,979 Retained earnings 10,063 9,749 9,194 Unrealized gain (loss) on securities available for sale, net of tax of ($8) and ($1), and $0 respectively (15) (2) (1) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL SHAREHOLDERS' EQUITY 17,354 17,053 16,499 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $172,195 $173,085 $166,288 ==================================================================================================================================== See Notes to consolidated financial statements. Page 2 4 (b) CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - -------------------------------------------------------------------------------- Three months ended March 31, In thousands of dollars 1997 1996 ==================================================================================================================================== INTEREST INCOME Interest and fees on loans $2,248 $2,164 Interest on securities Taxable 793 779 Tax exempt 98 101 Interest on federal funds sold 65 111 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest income 3,204 3,155 INTEREST ON DEPOSITS 1,409 1,405 - ------------------------------------------------------------------------------------------------------------------------------------ NET INTEREST INCOME 1,795 1,750 Provision for loan losses 25 25 - ------------------------------------------------------------------------------------------------------------------------------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,770 1,725 OTHER INCOME Service charges on deposit accounts 150 151 Other service charges 9 17 Other income 97 68 - ------------------------------------------------------------------------------------------------------------------------------------ Total other income 256 236 OTHER EXPENSE Salaries and employee benefits 694 687 Occupancy and equipment expense 61 58 Supplies and Printing 44 36 Furniture & equipment expense 76 79 Other expense 235 241 - ------------------------------------------------------------------------------------------------------------------------------------ Total other expense 1,110 1,101 - ------------------------------------------------------------------------------------------------------------------------------------ INCOME BEFORE FEDERAL INCOME TAX 916 860 Federal income tax 276 256 - ------------------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 640 $ 604 ==================================================================================================================================== Net income per share of common stock $ 0.69 $ 0.65 Cash dividends declared per share of common stock $ 0.35 $ 0.33 Return on average assets (annualized) 1.49% 1.45% Return on average equity (annualized) 14.78% 14.63% 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 3 5 (c) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) - -------------------------------------------------------------------------------- Common Capital Retained In thousands of dollars Stock Surplus Earnings (a) Total ==================================================================================================================================== Balance, December 31, 1995 $ 2,327 $4,979 $8,893 $52 $16,251 Net income, 1996 2,601 2,601 Cash dividends declared, $1.875 per share (1,745) (1,745) Net change in unrealized gain (loss) on securities available for sale (54) (54) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1996 2,327 4,979 9,749 (2) 17,053 Net income YTD 1997 640 640 Cash dividends declared, $0.35 per share (326) (326) Net change in unrealized gain (loss) on securities available for sale (13) (13) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, March 31, 1997 $ 2,327 $4,979 $10,063 ($15) $17,354 ==================================================================================================================================== (a) Unrealized Gain (Loss) on Securities Available for Sale 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 4 6 (d) YEAR TO DATE CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three months ended March 31, - ------------------------------------------------------------------------------------------------------------------------------------ In thousands of dollars 1997 1996 ==================================================================================================================================== Cash flows from operating activities - ------------------------------------ Net income $640 $604 - ------------------------------------------------------------------------------------------------------------------------------------ Adjustments to reconcile net income to net cash from operating activities - ------------------------------------------------------------------------- Depreciation 65 69 Amortization and accretion of investment securities (net) 45 316 Provision for loan losses 25 25 Loans originated for sale (1,028) (1,459) Proceeds from sales of loans 1,030 1,463 Gain on sales of loans (2) (4) Increase in other assets (166) (65) Increase (decrease) in other liabilities 71 (15) - ------------------------------------------------------------------------------------------------------------------------------------ Total adjustments 40 330 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash from operating activities 680 934 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities - ------------------------------------ Proceeds from maturities of securities available for sale 1,000 3,485 Proceeds from maturities of securities held to maturity 4,305 9,769 Purchase of securities available for sale (1,038) (2,029) Purchase of securities held to maturity (1,250) (15,569) Net increase in loans (1,837) (2,907) Property and equipment expenditures (1) (66) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash from investing activities 1,179 (7,317) - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities - ------------------------------------ Net change in deposits (790) (49) Dividends paid (792) (768) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash from financing activities (1,582) (817) - ------------------------------------------------------------------------------------------------------------------------------------ Net change in cash and cash equivalents 277 (7,200) - ------------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at beginning of year 10,104 15,290 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of period $ 10,381 $8,090 ==================================================================================================================================== Cash paid during the period for - ------------------------------- Interest $ 1,405 $1,397 Income taxes $ 507 $ 512 ==================================================================================================================================== See Notes to consolidated financial statements. Page 5 7 (e) NOTES TO CONSOLIDATED 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 information and with the instructions to Form 10 Q-SB and Rule 310 of Regulation S-B. 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 three month period ending March 31, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's filing with the Securities and Exchange Commission on Form 10-KSB as of December 31, 1996. NOTE 2 - SECURITIES The amortized cost and fair value of securities at March 31, 1997 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 $6,991 $ 6 $ 31 6,966 Tax-exempt obligations of states and political subdivisions 1,038 2 - 1,040 Other 180 - - 180 ----------------------------------------------------------------- Total $8,209 $8 $ 31 $8,186 ================================================================= Securities Held to Maturity U.S. Treasury and agency securities $38,519 $100 $ 122 $38,497 Tax-exempt obligations of states and political subdivisions 11,462 105 17 11,550 Other securities - - - - ----------------------------------------------------------------- Total $49,981 $205 $ 139 $50,047 ================================================================= The amortized cost and fair value of securities by contractual maturity at March 31, 1997 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 $4,168 $4,159 $18,751 $18,801 Due after one year through five years 4,041 4,027 29,766 29,788 Due after five years through ten years - - 1,014 1,011 Due after ten years - - 450 447 ----------------------------------------------------------------- Total $8,209 $8,186 $49,981 $50,047 ================================================================= 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. Page 6 8 There were no sales of securities for the periods ending March 31, 1997 and 1996. Securities carried at $1,000,000 as of March 31, 1997 were pledged to secure deposits of public funds and for other purposes as required by law. The Company had no security holdings the value of which individually exceeds ten percent of stockholders' equity at March 31, 1997, other than those issued by the U.S. Government, its agencies and other political subdivisions. NOTE 3 - ALLOWANCE FOR LOAN LOSSES An analysis of the allowance for loan losses, in thousands of dollars, for the three months ended March 31, 1997 and 1996 follows: 1997 1996 ------------------- Balance at beginning of period $1,361 $1,306 Loans charged off (1) (3) Recoveries credited to allowance 9 4 Provision charged to operations 25 25 -------------------- Balance at end of period $1,394 $1,332 ==================== 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 increase, such increase is reported as bad debt expense. There was no increase in the allowance for loan losses due to the adoption of SFAS No. 114 at January 1, 1995. The Company had no impaired loans during 1996, nor during the first quarter of 1997. NOTE 4 - 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 March 31, 1997. Commitments to extend credit $15,889 Standby letters of credit 29 ------- $15,918 ======= Page 7 9 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 three month period ending March 31, 1997. FINANCIAL CONDITION SECURITIES Investment balances decreased $3.1 million during the first quarter as available funds were used to fund seasonal loan demand. Securities available-for-sale represent 14.07% 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 $1.8 million during the first quarter. An increase of $1.6 million for the quarter in commercial loans and commercial mortgages is typical for this time of year as businesses prepare for the summer season. Residential mortgages increased for the quarter by $920 thousand 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 securities 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 loans outstanding by type, in thousands of dollars, at March 31, 1997 and December 31, 1996, and their percentage of the total loan portfolio. All loans are domestic. A quarterly review of loan concentrations at March 31, 1997 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 12.58% of total loans. March 31, 1997 December 31, 1996 Portfolio loans: Balance % of total Balance % of total ------- ---------- -------- ---------- Residential real estate $57,619 58.44% $56,699 58.61% Commercial real estate 18,786 19.06% 18,110 18.72% Construction 2,556 2.59% 3,221 3.33% Consumer loans 9,233 9.37% 9,239 9.55% Commercial loans 10,555 10.71% 9,632 9.96% Net deferred fees and costs (161) -0.16% (160) -0.17% ------------------------------------------------------------------ $98,588 100.00% $96,741 100.00% ================================================================== 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 in an attempt to detect 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 Page 8 10 of loans in (1) or (2) above). The aggregate amount of nonperforming loans, in thousands of dollars, is shown in the table below. 3/31/97 12/31/96 ---------------------------------- Nonaccrual loans $ 44 $ 70 Loans past due 90 days or more 144 72 Troubled debt restructurings - - ------------------------------- Total nonperforming loans $ 188 $ 142 =============================== Percent of total loans 0.19% 0.15% =============================== DEPOSITS Typically the Bank's deposit activity is slow in the first quarter of the year as many seasonal businesses in the area are closed. Deposits at March 31, 1997 were down by $790 thousand as compared to December 31, 1996 but up $5.0 million from one year ago. The decline of $5.2 million in demand deposits and NOW accounts is typical during the first quarter of the year. Municipal money market deposits increased $4.5 million during the same period due to the tax collection season. Management anticipates that deposit growth during the balance of 1997 will continue to be steady with part of this growth coming through increased market share. LIQUIDITY AND FUNDS MANAGEMENT LIQUIDITY Loan growth continued steady during the first quarter of 1997. Typically, March deposit balances represent a near low for the year. The Bank maintains a steady schedule of investment securities maturing each month to meet the anticipated decline in deposits through 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 64.40% at March 31, 1997, an increase from 61.47% one year ago. Management would like to see this trend continue. The change in the mix from investments to loans will help to increase net interest income over time. Page 9 11 Funds Management The following chart shows the Bank's interest rate sensitivity as of March 31, 1997 in thousands of dollars. UP TO 4 TO 12 1 TO 5 OVER 3 MONTHS MONTHS YEARS 5 YEARS --------------------------------------------------- Federal funds sold $ 4,900 Taxable investment securities 5,473 17,027 $ 27,346 Non-taxable investment securities 2,565 727 3,485 $ 1,544 Loans 31,019 33,606 26,629 7,334 -------------------------------------------------- Total rate sensitive assets 43,957 51,360 57,460 8,878 Interest bearing demand deposits 1,329 3,591 8,379 Savings 5,907 5,317 12,405 Money market savings 19,263 5,940 13,862 Other time deposits 14,635 24,238 19,100 -------------------------------------------------- Total rate sensitive liabilities $ 41,134 $39,086 $53,746 -------------------------------------------------- Gap $ 2,823 $12,274 $ 3,714 $8,878 -------------------------------------------------- Cumulative gap $ 2,823 $15,097 $18,811 $27,689 ================================================== Cumulative ratio 106.86% 118.82% ======================== The asset and liability portfolios are managed to ensure adequate liquidity and to control interest rate risk exposure. Management seeks to minimize the risk of a reduction in net interest income that could result from fluctuations in market interest rates. This process is carried out through regular meetings of executive and senior management representing various areas of the Company including finance, lending, investment and deposit gathering areas. Page 10 12 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 March 31, 1997 and December 31, 1996. Dollars are shown in millions. Minimum Required To Be Well (Adequately) Minimum Required Capitalized Under For Capital Adequacy Prompt Corrective Actual Purposes Action Regulations --------------------------------------------------------------------------------------- March 31, 1997 Amt Ratio Amt Ratio Amt Ratio --------------------------------------------------------------------------------------- Total capital to risk weighted assets $ 18.5 19.6% $ 7.6 8.0% $9.5 10.00% Tier I capital to risk weighted assets 17.3 18.3% 3.8 4.0% 5.7 6.0% Tier I capital to average assets 17.3 10.1% 6.9 4.0% 8.6 5.0% December 31, 1996 Total capital to risk weighted assets $ 18.2 19.6% $ 7.4 8.0% $9.2 10.0% Tier I capital to risk weighted assets 17.1 18.3% 3.7 4.0% 5.6 6.0% Tier I capital to average assets 17.1 9.9% 6.9 4.0% 8.6 5.0% RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income continued to increase during the first quarter of 1997 due to the increase in interest earning assets and despite a slight decrease in the net interest spread compared to the first quarter of 1996. 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 March 31, 1997 was 3.69% compared to 3.70% at March 31, 1996. 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 Page 11 13 effective rate or yield for the period ending March 31,1997 and 1996. YIELD ANALYSIS OF CONSOLIDATED AVERAGE ASSETS AND LIABILITIES in thousands of dollars THREE MONTHS ENDED 3/31/97 THREE MONTHS ENDED 3/31/96 ------------------------------------------------------------------------------------------ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE ------------------------------------------------------------------------------------------ ASSETS Interest earning assets Federal funds sold 5,026 65 5.17% 8,161 111 5.44% Taxable securities 51,210 793 6.19% 52,260 779 5.96% Tax exempt securities 8,135 98 4.82% 8,562 101 4.72% Loans 97,488 2,248 9.22% 88,718 2,164 9.76% Total int. earning assets ------------------------------------------------------------------------------------------ 161,859 $3,204 7.92% 157,701 $3,155 8.00% ------------------------------------------------------------------------------------------ Cash and due from banks 5,347 4,841 Premises and equipment, net 2,647 1,929 Other assets 2,381 2,198 ---------- -------- TOTAL ASSETS $172,234 $166,669 ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities Interest bearing demand deposits $13,898 $82 2.36% $14,077 $ 84 2.39% Savings deposits 23,788 169 2.84% 25,302 181 2.86% CDs $100,000 and over 11,124 137 4.93% 12,011 155 5.16% Other time deposits 84,583 1,021 4.83% 79,251 985 4.97% ------------------------------------------------------------------------------------------ Total int bearing deposits 133,393 1,409 4.23% 130,641 1,405 4.30% ------------------------------------------------------------------------------------------ Noninterest bearing deposits 19,893 17,913 Other liabilities 1,623 1,598 Shareholders' equity 17,325 16,517 ---------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $172,234 $166,669 ========== ======== Net interest income $1,795 $1,750 ====== ====== Net spread 3.69% 3.70% ===== ===== Net yield on interest earning assets 4.44% 4.44% ===== ===== Ratio of interest earning assets to interest bearing liabilities 1.21 1.21 ========== ======== The table below shows the effect of volume and rate changes on net interest income for the Page 12 14 three months ended March 31, on a pre-tax basis, in thousands of dollars. 1997 Compared to 1996 1996 Compared to 1995 -------------------------------------------------------------------------------------- Volume Rate Net Volume Rate Net -------------------------------------------------------------------------------------- Federal funds sold (42) (5) (47) 48 (37) 11 Taxable securities (78) 92 14 41 82 123 Tax exempt securities (14) 12 (2) 69 (23) 46 Loans 663 (579) 84 111 60 171 -------------------------------------------------------------------------------------- Total interest income $529 $(480) $49 $269 $82 $351 -------------------------------------------------------------------------------------- Interest bearing demand deposits $(1) $(1) $(2) $6 $(2) $ 4 Savings deposits (11) (1) (12) (24) 10 (14) CDs $100,000 and over (11) (7) (18) 59 18 77 Other interest bearing deposits 184 (148) 36 110 75 185 -------------------------------------------------------------------------------------- Total interest expense $161 $(157) $4 $151 $101 $252 -------------------------------------------------------------------------------------- Net change in net interest income (a) $368 $(323) $45 $118 $(19) $ 99 ====================================================================================== (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 with year to date figures up 8.47%. The Bank continues to search for new opportunities for noninterest income to replace a decline in the traditional sources of bank fee income. OTHER EXPENSES Most categories of other expense showed minimal change from last year. Total noninterest expenses increased less than one percent for the quarter ended March 31, 1997 compared to the same quarter last year. FEDERAL INCOME TAX There was no significant change in the income tax position of the Company during the first quarter of 1997 with the increase corresponding to an increase in pre-tax income. NET INCOME Year to date consolidated net income for the first quarter was $640,000 compared to $604,000 for 1996. Improved net interest income, combined with improved noninterest income with a less than 1% increase in noninterest expense have contributed to this improvement. Net income for the quarter is up 6.0% compared to the same period one year ago. Return on consolidated average assets for the quarter was 1.49%, compared to 1.45% for the first quarter of 1996. ACCOUNTING CHANGES The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities". This pronouncement revises the accounting for transfers of financial assets, such as loans and securities, and for distinguishing between sales and secured borrowings. SFAS No. 125, as amended by SFAS No. 127, is effective for some transactions in Page 13 15 1997 and others in 1998. The effect of adopting this standard was not material to the consolidated financial statements of the Company. In March of 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which revises the accounting requirements for calculating earnings per share. Effective beginning with year-end 1997, basic earnings per share will be calculated solely on average common shares outstanding. Diluted earnings per share will reflect the potential dilution of stock options and other common stock equivalents. All prior calculations will be restated to be comparable to the new methods. As the Company has not had significant dilution from stock options, the new calculation methods will not significantly affect future basic earnings per share and diluted earnings per share. PART II Other Information ITEM 1 - LEGAL PROCEEDINGS None ITEM 2 - CHANGES IN SECURITIES None ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None 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): None (b) The Company has filed no reports on Form 8-K during the quarter ended March 31, 1997. Page 14 16 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 May 13, 1997 /s/ Robert E. Churchill /s/ Jean K. Hunt ----------------------------- ---------------------------- Robert E. Churchill Jean K. Hunt President and Chief Executive Treasurer (Chief Accounting Officer Officer) Page 15 17 SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------ ----------- ------------ 27 Financial Data Schedule