Attached files
file | filename |
---|---|
EX-21 - EX-21 - CNB CORP /MI/ | k49030exv21.htm |
EX-23 - EX-23 - CNB CORP /MI/ | k49030exv23.htm |
EX-31.2 - EX-31.2 - CNB CORP /MI/ | k49030exv31w2.htm |
EX-32.1 - EX-32.1 - CNB CORP /MI/ | k49030exv32w1.htm |
EX-32.2 - EX-32.2 - CNB CORP /MI/ | k49030exv32w2.htm |
EX-31.1 - EX-31.1 - CNB CORP /MI/ | k49030exv31w1.htm |
10-K - FORM 10-K - CNB CORP /MI/ | k49030e10vk.htm |
EXHIBIT 13
CNB CORPORATION
ANNUAL REPORT
December 31, 2009, 2008 and 2007
December 31, 2009, 2008 and 2007
CNB CORPORATION
ANNUAL REPORT
December 31, 2009, 2008 and 2007
ANNUAL REPORT
December 31, 2009, 2008 and 2007
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 |
36 | |||
MANAGEMENTS DISCUSSION AND ANALYSIS |
37 | |||
OFFICERS, COMMUNITY ADVISORS AND STAFF |
51 | |||
DIRECTORS AND DIRECTORS EMERITI |
53 |
CNB CORPORATION
FINANCIAL HIGHLIGHTS
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
(In thousand,except per share data) | ||||||||||||||||||||
Operating Statistics |
||||||||||||||||||||
Interest income |
$ | 12,168 | $ | 14,357 | $ | 16,180 | $ | 14,969 | $ | 13,356 | ||||||||||
Interest expense |
3,500 | 4,871 | 5,858 | 4,672 | 3,132 | |||||||||||||||
Net interest income |
8,668 | 9,486 | 10,322 | 10,297 | 10,224 | |||||||||||||||
Income/(loss) before income taxes |
1,879 | (5,743 | ) | 4,170 | 4,649 | 4,528 | ||||||||||||||
Net income/(loss) |
2,115 | (5,225 | ) | 3,088 | 3,323 | 3,288 | ||||||||||||||
Basic earnings/(loss) per share |
1.74 | (4.31 | ) | 2.51 | 2.68 | 2.66 | ||||||||||||||
Diluted earnings/(loss) per share |
1.74 | (4.31 | ) | 2.50 | 2.68 | 2.65 | ||||||||||||||
Return/(loss) on average assets (ROA) |
0.82 | % | (1.99 | )% | 1.19 | % | 1.31 | % | 1.28 | % | ||||||||||
Return/(loss) on average
shareholders equity (ROE) |
11.19 | % | (21.73 | )% | 12.18 | % | 13.09 | % | 13.23 | % | ||||||||||
Balance Sheet Statistics |
||||||||||||||||||||
Securities |
$ | 56,783 | $ | 49,329 | $ | 50,290 | $ | 56,882 | $ | 74,485 | ||||||||||
Total loans |
151,207 | 161,848 | 174,652 | 167,234 | 156,326 | |||||||||||||||
Deposits |
224,558 | 230,543 | 225,026 | 221,365 | 223,437 | |||||||||||||||
Total assets |
249,502 | 253,916 | 255,193 | 251,900 | 252,731 | |||||||||||||||
Capital Statistics |
||||||||||||||||||||
Shareholders equity |
$ | 20,320 | $ | 17,540 | $ | 24,400 | $ | 24,998 | $ | 24,499 | ||||||||||
Book value per share |
16.74 | 14.45 | 20.11 | 20.17 | 19.80 | |||||||||||||||
Cash dividends per share |
| 0.72 | 2.28 | 2.28 | 2.20 | |||||||||||||||
Dividend payout ratio |
| % | 16.71 | % | 90.50 | % | 85.00 | % | 82.79 | % | ||||||||||
Average equity to average
total assets |
7.34 | % | 9.18 | % | 9.79 | % | 10.01 | % | 9.66 | % | ||||||||||
Credit Statistics |
||||||||||||||||||||
Net charge-offs to total loans |
0.57 | % | 0.93 | % | 0.06 | % | 0.05 | % | 0.01 | % | ||||||||||
Nonperforming loans
to total loans |
5.59 | % | 3.73 | % | 0.70 | % | 0.11 | % | 0.16 | % | ||||||||||
Allowance for loan losses
to total loans |
1.90 | % | 1.23 | % | 0.96 | % | 0.90 | % | 0.93 | % | ||||||||||
Allowance for loan losses
to nonperforming loans |
0.34 | x | 0.33 | x | 1.37 | x | 8.46 | x | 5.72 | x |
1
CNB CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
December 31, 2009 and 2008
2009 | 2008 | |||||||
(In thousands, except share data) | ||||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 4,055 | $ | 5,188 | ||||
Interest-bearing deposits with other financial institutions |
13,192 | | ||||||
Federal funds sold |
| 18,098 | ||||||
Total cash and cash equivalents |
17,247 | 23,286 | ||||||
Time deposits with other financial institutions |
8,669 | 5,757 | ||||||
Securities available for sale |
45,473 | 37,438 | ||||||
Securities held to maturity |
10,302 | 10,883 | ||||||
Other securities |
1,008 | 1,008 | ||||||
Loans held for sale |
| 201 | ||||||
Loans, net of allowance for loan losses of
$2,863 in 2009 and $1,996 in 2008 |
148,171 | 159,569 | ||||||
Premises and equipment, net |
5,921 | 6,019 | ||||||
Other assets |
12,711 | 9,755 | ||||||
Total assets |
$ | 249,502 | $ | 253,916 | ||||
LIABILITIES |
||||||||
Deposits: |
||||||||
Noninterest-bearing |
$ | 40,016 | $ | 37,163 | ||||
Interest-bearing |
184,542 | 193,380 | ||||||
Total deposits |
224,558 | 230,543 | ||||||
Other liabilities |
4,624 | 5,833 | ||||||
Total liabilities |
229,182 | 236,376 | ||||||
SHAREHOLDERS EQUITY |
||||||||
Common stock $2.50 par value; 2,000,000 shares
authorized; 1,213,598 shares issued and
outstanding in 2009 and 2008 |
3,034 | 3,034 | ||||||
Additional paid-in capital |
19,509 | 19,509 | ||||||
Retained earnings (deficit) |
(1,456 | ) | (3,571 | ) | ||||
Accumulated other comprehensive loss, net of tax |
(767 | ) | (1,432 | ) | ||||
Total shareholders equity |
20,320 | 17,540 | ||||||
Total liabilities and shareholders equity |
$ | 249,502 | $ | 253,916 | ||||
See accompanying notes to consolidated financial statements.
2
CNB
CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2009, 2008 and 2007
Years ended December 31, 2009, 2008 and 2007
2009 | 2008 | 2007 | ||||||||||
(In thousands, except per share data) | ||||||||||||
INTEREST INCOME |
||||||||||||
Loans, including fees |
$ | 10,097 | $ | 11,653 | $ | 12,977 | ||||||
Securities: |
||||||||||||
Taxable |
1,295 | 1,718 | 2,054 | |||||||||
Tax exempt |
541 | 553 | 489 | |||||||||
Other interest income |
235 | 433 | 660 | |||||||||
Total interest income |
12,168 | 14,357 | 16,180 | |||||||||
INTEREST EXPENSE ON DEPOSITS |
3,500 | 4,871 | 5,858 | |||||||||
NET INTEREST INCOME |
8,668 | 9,486 | 10,322 | |||||||||
Provision for loan losses |
1,725 | 1,831 | 275 | |||||||||
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES |
6,943 | 7,655 | 10,047 | |||||||||
NONINTEREST INCOME |
||||||||||||
Service charges and fees |
1,118 | 1,200 | 1,194 | |||||||||
Net realized gains from sales of loans |
429 | 128 | 154 | |||||||||
Loan servicing fees, net of amortization |
(31 | ) | 117 | 127 | ||||||||
Gain on the sale of other real estate owned |
3 | 304 | | |||||||||
Gain
(loss) on the sale of premises and equipment |
(2 | ) | | (12 | ) | |||||||
Gains on the sale of securities |
1,799 | | | |||||||||
Other income |
355 | 283 | 241 | |||||||||
Total noninterest income |
3,671 | 2,032 | 1,704 | |||||||||
NONINTEREST EXPENSES |
||||||||||||
Salaries and employee benefits |
3,251 | 3,608 | 3,727 | |||||||||
Deferred compensation |
321 | 344 | 311 | |||||||||
Pension |
303 | 142 | 103 | |||||||||
Hospitalization |
576 | 648 | 567 | |||||||||
Occupancy |
1,053 | 1,098 | 1,152 | |||||||||
Legal and professional |
605 | 493 | 396 | |||||||||
FDIC Premiums |
623 | 149 | 26 | |||||||||
ORE losses and carrying costs |
739 | 605 | 73 | |||||||||
Securities impairment write-down |
37 | 7,107 | | |||||||||
Other expenses |
1,227 | 1,236 | 1,226 | |||||||||
Total noninterest expense |
8,735 | 15,430 | 7,581 | |||||||||
INCOME (LOSS) BEFORE INCOME TAXES |
1,879 | (5,743 | ) | 4,170 | ||||||||
Income tax expense (benefit) |
(236 | ) | (518 | ) | 1,082 | |||||||
NET INCOME (LOSS) |
$ | 2,115 | $ | (5,225 | ) | $ | 3,088 | |||||
Basic earnings (loss) per share |
$ | 1.74 | $ | (4.31 | ) | $ | 2.51 | |||||
Diluted earnings (loss) per share |
1.74 | (4.31 | ) | 2.50 |
See accompanying notes to consolidated financial statements.
3
CNB
CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Years ended December 31, 2009, 2008 and 2007
Years ended December 31, 2009, 2008 and 2007
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Comprehensive | ||||||||||||||||||||||||
Additional | Retained | Income (Loss), | Total | |||||||||||||||||||||
Outstanding | Common | Paid-In | Earnings | Net | Shareholders | |||||||||||||||||||
Shares | Stock | Capital | (Deficit) | of Tax | Equity | |||||||||||||||||||
(Dollars in thousands, except share data) | ||||||||||||||||||||||||
Balance January 1, 2007 |
1,239,512 | $ | 3,099 | $ | 20,482 | $ | 2,235 | $ | (818 | ) | $ | 24,998 | ||||||||||||
Net income |
3,088 | 3,088 | ||||||||||||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||||||||
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 | |||||||||||||||||
Net loss |
(5,225 | ) | (5,225 | ) | ||||||||||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||||||||
Change in unrealized gains (losses) on available
for sale securities, net of tax of $61 |
118 | 118 | ||||||||||||||||||||||
Defined benefit pension plan: |
||||||||||||||||||||||||
Net gain/loss during the period, net
of tax of $452 |
(877 | ) | (877 | ) | ||||||||||||||||||||
Transition adjustment recognized, net
of tax of $1 |
(3 | ) | (3 | ) | ||||||||||||||||||||
Prior service costs recognized |
1 | 1 | ||||||||||||||||||||||
Total comprehensive loss |
(5,986 | ) | ||||||||||||||||||||||
Cash dividends $0.72 per share |
(874 | ) | (874 | ) | ||||||||||||||||||||
Purchase and retirement of common stock |
(34 | ) | | |||||||||||||||||||||
Balance December 31, 2008 |
1,213,598 | 3,034 | 19,509 | (3,571 | ) | (1,432 | ) | 17,540 | ||||||||||||||||
Net income |
2,115 | 2,115 | ||||||||||||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||||||||
Change in unrealized gains (losses) on available
for sale securities, net of tax of $103 |
196 | 196 | ||||||||||||||||||||||
Defined benefit pension plan: |
||||||||||||||||||||||||
Net gain/loss during the period, net
of tax of $241 |
467 | 467 | ||||||||||||||||||||||
Prior service costs recognized |
2 | 2 | ||||||||||||||||||||||
Total comprehensive income |
2,780 | |||||||||||||||||||||||
Balance December 31, 2009 |
1,213,598 | $ | 3,034 | $ | 19,509 | $ | (1,456 | ) | $ | (767 | ) | $ | 20,320 | |||||||||||
See accompanying notes to consolidated financial statements.
4
CNB
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2009, 2008 and 2007
Years ended December 31, 2009, 2008 and 2007
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Cash flows from operating activities |
||||||||||||
Net income (loss) |
$ | 2,115 | $ | (5,225 | ) | $ | 3,088 | |||||
Adjustments to reconcile net income (loss) to
net cash from operating activities: |
||||||||||||
Depreciation, amortization and accretion, net |
602 | 630 | 119 | |||||||||
Provision for loan losses |
1,725 | 1,831 | 275 | |||||||||
Loans originated for sale |
(23,116 | ) | (5,880 | ) | (9,114 | ) | ||||||
Proceeds from sales of loans originated for sale |
23,375 | 5,736 | 9,012 | |||||||||
Gain on sales of investment securities |
(1,799 | ) | | | ||||||||
Gain on sales of loans |
(429 | ) | (128 | ) | (154 | ) | ||||||
Gain on sales of other real estate owned properties |
(3 | ) | (304 | ) | | |||||||
Other real estate owned writedowns/losses |
430 | 316 | | |||||||||
Loss on premises and equipment |
2 | | 12 | |||||||||
Net losses on impairment of investment securities |
37 | 7,107 | | |||||||||
Increase (decrease) in deferred tax benefit |
157 | 1,050 | | |||||||||
(Increase) decrease in other assets |
(2,087 | ) | (405 | ) | 162 | |||||||
Increase(decrease) in other liabilities |
(498 | ) | 284 | 137 | ||||||||
Total adjustments |
(1,604 | ) | 10,237 | 449 | ||||||||
Net cash provided by operating activities |
511 | 5,012 | 3,537 | |||||||||
Cash flows from investing activities |
||||||||||||
Proceeds from sales of securities available for sale |
5,534 | | | |||||||||
Proceeds from maturities of securities available for
sale |
35,356 | 25,207 | 29,106 | |||||||||
Purchase of securities available for sale |
(45,935 | ) | (29,181 | ) | (17,465 | ) | ||||||
Proceeds from maturities of securities held to
maturity |
3,659 | 4,483 | 2,657 | |||||||||
Purchase of securities held to maturity |
(4,087 | ) | (6,577 | ) | (6,903 | ) | ||||||
Proceeds from maturities of time deposits |
3,492 | 496 | | |||||||||
Purchase of time deposits |
(6,404 | ) | (6,253 | ) | | |||||||
Net change in portfolio loans |
8,246 | 9,625 | (7,955 | ) | ||||||||
Premises and equipment expenditures |
(431 | ) | (195 | ) | (324 | ) | ||||||
Proceeds from the sale of premises and equipment |
5 | | | |||||||||
Net cash used in investing activities |
(565 | ) | (2,395 | ) | (884 | ) | ||||||
Cash flows from financing activities |
||||||||||||
Net increase (decrease) in deposits |
(5,985 | ) | 5,517 | 3,661 | ||||||||
Dividends paid |
| (2,120 | ) | (2,816 | ) | |||||||
Purchases of common stock |
| | (1,038 | ) | ||||||||
Net cash provided by (used) in financing
activities |
(5,985 | ) | 3,397 | (193 | ) | |||||||
Net change in cash and cash equivalents |
(6,039 | ) | 6,014 | 2,460 | ||||||||
Cash and cash equivalents at beginning of year |
23,286 | 17,272 | 14,812 | |||||||||
Cash and cash equivalents at end of year |
$ | 17,247 | $ | 23,286 | $ | 17,272 | ||||||
Supplemental disclosure of cash flow information |
||||||||||||
Cash paid during the period for: |
||||||||||||
Interest |
$ | 3,560 | $ | 4,941 | $ | 5,847 | ||||||
Income taxes |
286 | 342 | 1,063 | |||||||||
Non-cash transactions: |
||||||||||||
Transfer from loans to other real estate owned |
2,077 | 2,563 | 606 |
See accompanying notes to consolidated financial statements.
5
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements for 2008 and 2007
include CNB Corporation (the Company) and its wholly-owned subsidiary, Citizens National Bank of
Cheboygan and the Banks 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. In November 2009, Citizens
National Bank of Cheboygan and CNB Mortgage Corporation merged leaving Citizens National Bank of
Cheboygan as the survivor. The consolidated financial statements for 2009 include CNB Corporation
and its wholly-owned subsidiary, Citizens National Bank of Cheboygan.
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 Banks 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 seven 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, other real estate
owned properties 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,
interest-bearing deposits with other financial institutions and federal funds sold. Net cash flows
are reported for customer loan and deposit transactions.
Securities: Securities are classified as held to maturity when management has the positive
intent and ability to hold them to maturity and carried at amortized cost. Securities are
classified as available for sale when they might be sold before maturity. Securities available for
sale are carried at fair value, with temporary unrealized holding gains and losses reported in
shareholders equity, net of tax. Declines in the fair value of securities below their cost that
are
(Continued)
6
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
other than temporary are reflected as realized losses. In estimating other-than-temporary charges,
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 Companys ability
and intent to hold the security for a period sufficient to allow for any anticipated recovery in
fair value.
Other securities, which include Federal Reserve Bank stock and Federal Home Loan Bank stock 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 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 considering 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 managements 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, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
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 loans 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.
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, 2009 and
2008, the cash surrender value of the underlying policies was $3,500,000 and $3,360,000, which is
included in other assets on the balance sheet.
(Continued)
8
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
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. The plan was amended to no
longer accept new participants as of December 31, 2008. Current participants will receive benefits
as originally outlined in the plan. 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: The Company records compensation costs for the fair value of stock
based compensation. 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 reported in 2007, 2008 or 2009.
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.
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 13.
(Continued)
9
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, and components of the defined benefit pension obligation not yet
recognized as components of periodic pension expense, including unrecognized gains or losses, prior
service cost, and the unrecognized transition asset. These items are reported in comprehensive
income net of tax.
Accumulated other comprehensive income, a component of stockholders equity, includes unrealized
gains and losses on securities available for sale and amounts related to the defined benefit
pension plan as follows at December 31:
2009 | 2008 | |||||||
(In thousands) | ||||||||
Net unrealized gains on available for sale
securities |
$ | 625 | $ | 326 | ||||
Pension components: |
||||||||
Unrecognized net gains (losses) |
(1,755 | ) | (2,463 | ) | ||||
Unrecognized transition asset |
| | ||||||
Unrecognized prior service cost |
(30 | ) | (32 | ) | ||||
Tax effects |
393 | 737 | ||||||
Comprehensive income |
$ | (767 | ) | $ | (1,432 | ) | ||
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, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Adoption of New Accounting Standards:
On June 29, 2009, the Financial Accounting Standards Board (FASB) issued an accounting
pronouncement establishing the FASB Accounting Standards Codification (ASC) as the source of
authoritative accounting principles recognized by the FASB to be applied by nongovernmental
entities. Other than resolving certain minor inconsistencies in current U.S. generally accepted
accounting principles (GAAP), the ASC is not intended to change GAAP, but rather to make it easier
to review and research GAAP applicable to a particular transaction or specific accounting issue.
ASC Topic 820, Fair Value Measurement and Disclosure. In April 2009, an amendment to the
accounting and reporting standards of fair value measurements and disclosures was issued. The
amendment provides additional guidance for estimating fair value when the volume and level of
activity for the asset or liability have significantly decreased. This amendment also provides
guidance on identifying circumstances that indicate a transaction is not orderly. The adoption of
this standard did not have an effect on the Corporations financial statements.
ASC Topic 855, Subsequent Events. On May 28, 2009, the FASB issued an accounting pronouncement
establishing general standards of accounting for and disclosure of subsequent events, which are
events occurring after the balance sheet date but before the date the financial statements are
issued or available to be issued. In particular, the pronouncement requires entities to recognize
in the financial statements the effect of all subsequent events that provide additional evidence of
conditions that existed at the balance sheet date, including the estimates inherent in the
financial preparation process. Entities may not recognize the impact of subsequent events that
provide evidence about conditions that did not exist at the balance sheet date but arose after that
date.
(Continued)
11
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 2 SECURITIES
The year end fair values and related gross unrealized gains and losses recognized in accumulated
other comprehensive loss for securities available for sale, were as follows:
Gross | Gross | |||||||||||
Fair | Unrealized | Unrealized | ||||||||||
Available for Sale | Value | Gains | Losses | |||||||||
(In thousands) | ||||||||||||
2009 |
||||||||||||
U.S. Government and agency |
$ | 26,312 | $ | 179 | $ | | ||||||
Mortgage-backed |
9,259 | 136 | | |||||||||
State and municipal |
7,836 | 285 | (21 | ) | ||||||||
Corporate Obligations |
1,020 | 22 | | |||||||||
Auction rate securities |
1,000 | | | |||||||||
Preferred shares |
46 | 24 | | |||||||||
$ | 45,473 | $ | 646 | $ | (21 | ) | ||||||
2008 |
||||||||||||
U.S. Government and agency |
$ | 17,061 | $ | 265 | $ | | ||||||
Mortgage-backed |
9,629 | 78 | (38 | ) | ||||||||
State and municipal |
5,955 | 77 | (56 | ) | ||||||||
Auction rate securities |
4,793 | | | |||||||||
$ | 37,438 | $ | 420 | $ | (94 | ) | ||||||
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) | ||||||||||||||||
2009 |
||||||||||||||||
State and municipal |
$ | 10,302 | $ | 556 | $ | (21 | ) | $ | 10,837 | |||||||
2008 |
||||||||||||||||
U.S. Government and
agency |
$ | 2,001 | $ | 19 | $ | | $ | 2,020 | ||||||||
State and municipal |
8,882 | 236 | (19 | ) | 9,099 | |||||||||||
$ | 10,883 | $ | 255 | $ | (19 | ) | $ | 11,119 | ||||||||
At December 31, 2008 the Company held six investments in its auction rate securities
investment category. The fair value of these securities was less than amortized cost. Pricing of
auction rate securities had suffered from the absence of a liquid functioning secondary market,
uncertainty regarding potential losses of financial companies, collateral deficiencies or other
challenges encountered by the issuer. At the time, the decline in fair value was not expected to
(Continued)
12
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 2 SECURITIES (Continued)
be recovered within a reasonable timeframe based upon available information. For these reasons,
during 2008 the Companys auction rate securities recognized an other-than-temporary impairment
charge of $7.1 million. These investment securities were written down through the income statement
and a new cost basis was established. The underlying asset for these investments was preferred
stock whose fair values continued to be susceptible to change.
During 2009, the Company received the underlying asset of preferred stock from its auction rate
security investment in the Federal Home Loan Mortgage Corporation (Freddie Mac). The Company is
now holding this investment as preferred shares with a fair value of $46,000. This investment had
an original cost of $2.0 million. The loss in value of this investment occurred on September 7,
2008 when the U.S. Treasury Department announced a plan to place Freddie Mac into conservatorship.
The Company intends to hold this investment for an undetermined amount of time.
During 2009, the Company sold four of its holdings in auction rate securities. Proceeds from the
sales totaled $5.5 million. These sales resulted in gains of $1.8 million over the recorded book
value.
The Company continues to hold one investment security in the auction rate securities category.
There were no sales of securities during 2008 or 2007.
(Continued)
13
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 2 SECURITIES (Continued)
Securities with unrealized losses at year end 2009 and 2008, 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 | |||||||||||||||||||
2009 | Value | Loss | Value | Loss | Value | Loss | ||||||||||||||||||
State and municipal |
$ | 2,198 | $ | (42 | ) | $ | | $ | | $ | 2,198 | $ | (42 | ) |
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
2008 | Value | Loss | Value | Loss | Value | Loss | ||||||||||||||||||
Mortgage-backed |
$ | 2,895 | $ | (37 | ) | $ | 1,389 | $ | (1 | ) | $ | 4,284 | $ | (38 | ) | |||||||||
State and municipal |
1,476 | (69 | ) | 999 | (6 | ) | 2,475 | (75 | ) | |||||||||||||||
Total temporarily
impaired |
$ | 4,371 | $ | (106 | ) | $ | 2,388 | $ | (7 | ) | $ | 6,759 | $ | (113 | ) | |||||||||
These unrealized losses remaining on the balance sheet at year end 2009 and 2008 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)
14
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 2 SECURITIES (Continued)
Contractual maturities of debt securities at year end 2009 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 for sale | Held to Maturity | |||||||||||
Fair | Carrying | Fair | ||||||||||
Value | Amount | Value | ||||||||||
Due in one year or less |
$ | 13,460 | $ | 3,380 | $ | 3,412 | ||||||
Due from one to five years |
19,083 | 4,079 | 4,456 | |||||||||
Due from five to ten years |
1,905 | 2,123 | 2,165 | |||||||||
Due after ten years |
720 | 720 | 804 | |||||||||
35,168 | 10,302 | 10,837 | ||||||||||
Mortgage-backed |
9,259 | | | |||||||||
Auction rate securities |
1,000 | | | |||||||||
Preferred shares |
46 | | | |||||||||
$ | 45,473 | $ | 10,302 | $ | 10,837 | |||||||
Securities pledged at December 31, 2009 totaled $10.1 million to secure public deposits and
for other purposes. There were no securities pledged at December 31, 2008 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:
2009 | 2008 | |||||||
(In thousands) | ||||||||
Michigan |
$ | 13,626 | $ | 9,291 |
(Continued)
15
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 3 LOANS
Year end loans were as follows:
2009 | 2008 | |||||||
(In thousands) | ||||||||
Residential real estate |
$ | 77,152 | $ | 77,533 | ||||
Consumer |
7,002 | 7,518 | ||||||
Commercial real estate |
60,150 | 67,282 | ||||||
Commercial |
6,903 | 9,314 | ||||||
151,207 | 161,647 | |||||||
Deferred loan origination fees, net |
(173 | ) | (82 | ) | ||||
Allowance for loan losses |
(2,863 | ) | (1,996 | ) | ||||
$ | 148,171 | $ | 159,569 | |||||
Activity in the allowance for loan losses is summarized as follows:
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Beginning balance |
$ | 1,996 | $ | 1,670 | $ | 1,498 | ||||||
Provision for loan losses |
1,725 | 1,831 | 275 | |||||||||
Charge-offs |
(958 | ) | (1,551 | ) | (126 | ) | ||||||
Recoveries |
100 | 46 | 23 | |||||||||
Ending Balance |
$ | 2,863 | $ | 1,996 | $ | 1,670 | ||||||
There were thirty loans in the real estate mortgage and commercial loan portfolios that were
considered impaired as of year end 2009. Ten of the thirty loans considered impaired have a
valuation allowance against probable losses.
Impaired Loans | Valuation Allowance | |||||||||||||||||||||||
2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Balances December 31: |
||||||||||||||||||||||||
Impaired loans with valuation allowance |
$ | 5,114 | $ | 1,403 | $ | 518 | $ | 1,880 | $ | 446 | $ | 83 | ||||||||||||
Impaired loans with no valuation allowance |
4,011 | 5,646 | 707 | | | | ||||||||||||||||||
Total impaired loans |
$ | 9,125 | $ | 7,049 | $ | 1,225 | $ | 1,880 | $ | 446 | $ | 83 | ||||||||||||
Income recorded on loans while considered impaired |
$ | 63 | $ | 104 | $ | 52 | ||||||||||||||||||
(Continued)
16
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 3 LOANS (Continued)
Nonperforming loans were as follows:
2009 | 2008 | |||||||
(In thousands) | ||||||||
Loans past due over 90 days still on accrual |
$ | 83 | $ | 295 | ||||
Nonaccrual loans |
8,095 | 5,356 | ||||||
Troubled debt restructurings |
260 | 393 | ||||||
Total nonperforming loans |
$ | 8,438 | $ | 6,044 | ||||
NOTE 4 LOAN SERVICING
For the three years ended December 31, activity for capitalized mortgage servicing rights was as
follows:
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Mortgage Servicing Rights: |
||||||||||||
Beginning of year |
$ | 599 | $ | 664 | $ | 618 | ||||||
Additions |
170 | 72 | 106 | |||||||||
Amortization |
(210 | ) | (69 | ) | (60 | ) | ||||||
Impairment valuation allowance |
62 | (68 | ) | | ||||||||
End of year |
$ | 621 | $ | 599 | $ | 664 | ||||||
Loans servicing for others that have
servicing rights capitalized |
$ | 73,142 | $ | 73,009 | $ | 74,849 |
The fair value of mortgage servicing rights is estimated by calculating the present value of
estimated future net servicing cash flows, taking into consideration the expected prepayment rates
and other economic factors that are based on current market conditions. Increases in mortgage loan
prepayments reduce estimated future net servicing cash flows because the life of the underlying
loan is reduced. The fair value calculation is performed by a third-party model. At December 31,
2008 the mortgage servicing rights had a valuation impairment of $68,000. At December 21, 2009
$62,000 of the impairment had been recovered. There was no recorded impairment allowance during
2007.
Mortgage loans serviced for others are not reported as assets. Related escrow deposit balances
were $114,000 and $105,000 at year end 2009 and 2008.
(Continued)
17
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 5 PREMISES AND EQUIPMENT
Year end premises and equipment were as follows:
2008 | 2008 | |||||||
(In thousands) | ||||||||
Real estate and buildings |
$ | 7,244 | $ | 7,156 | ||||
Furniture and fixtures |
4,032 | 4,168 | ||||||
11,276 | 11,324 | |||||||
Less accumulated depreciation |
(5,355 | ) | (5,305 | ) | ||||
$ | 5,921 | $ | 6,019 | |||||
Depreciation expense amounted to $522,000, $530,000 and $585,000 in 2009, 2008 and 2007.
NOTE 6 OTHER REAL ESTATE OWNED
During 2009 and 2008 the Bank foreclosed on certain loans secured by real estate and transferred
this real estate collateral to other real estate in each of those years. At the time of
acquisition, amounts were charged-off against the allowance for loan losses to bring the carrying
amount of these properties to their estimated fair value, less estimated costs to sell. Gains or
losses on the sale of other real estate are included in the non-interest income and non-interest
expense, respectively, on the income statement.
2009 | 2008 | |||||||
(In thousands) | ||||||||
Balance at beginning of year |
$ | 1,762 | $ | 1,446 | ||||
Transfers from loans |
2,077 | 2,563 | ||||||
Sales |
(750 | ) | (1,275 | ) | ||||
Charge-off and write-down adjustments |
(419 | ) | (494 | ) | ||||
Donations |
(10 | ) | | |||||
Proceeds from insurance claims |
| (478 | ) | |||||
Balance at end of year |
$ | 2,660 | $ | 1,762 | ||||
Management periodically reviews the other real estate owned properties for a valuation
allowance to determine if the values of these properties have declined since the date of
acquisition.
(Continued)
18
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 7 DEPOSITS
Time deposit accounts individually exceeding $100,000 total $25,148,000 and $27,496,000 at year end
2009 and 2008.
At year end 2009, the scheduled maturities of time deposits are as follows:
(In thousands) | ||||
2010 |
$ | 50,022 | ||
2011 |
20,945 | |||
2012 |
3,267 | |||
2013 |
5,801 | |||
2014 |
611 | |||
$ | 80,646 | |||
NOTE 8 EMPLOYEE BENEFITS
Defined Benefit Retirement Plan: The Company has a defined benefit, noncontributory
pension plan which provides retirement benefits for essentially all employees. The plan was
amended to no longer accept new participants as of December 31, 2008. Current participants will
receive benefits as originally outlined in the plan. The Company uses a December 31 measurement
date for its plan. The following sets forth the plans funded status and amounts recognized in the
financial statements:
2009 | 2008 | |||||||
(In thousands) | ||||||||
Change in benefit obligation: |
||||||||
Beginning benefit obligation |
$ | (4,589 | ) | $ | (4,288 | ) | ||
Service cost |
(178 | ) | (170 | ) | ||||
Interest cost |
(296 | ) | (276 | ) | ||||
Actuarial loss (gain) |
241 | 66 | ||||||
Benefits paid |
619 | 79 | ||||||
Ending benefit obligation |
(4,203 | ) | (4,589 | ) | ||||
Change in plan assets, at fair value: |
||||||||
Beginning plan assets |
3,293 | 4,240 | ||||||
Actual return |
638 | (1,088 | ) | |||||
Employer contribution |
600 | 220 | ||||||
Benefits paid |
(619 | ) | (79 | ) | ||||
Ending plan assets |
3,912 | 3,293 | ||||||
Funded status |
$ | (291 | ) | $ | (1,296 | ) | ||
(Continued)
19
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 8 EMPLOYEE BENEFITS (Continued)
Amounts recognized in the balance sheet consist of:
2009 | 2008 | |||||||
(In thousands) | ||||||||
Other assets |
$ | | $ | | ||||
Accrued pension costs other liabilities |
(291 | ) | (1,296 | ) |
The accumulated benefit obligation for the defined benefit pension plan was $3,283,000 and
$3,467,000 at year end 2009 and 2008, respectively.
Components of net periodic benefit cost are as follows:
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Service cost |
$ | 178 | $ | 170 | $ | 164 | ||||||
Interest cost on benefit obligation |
296 | 276 | 301 | |||||||||
Expected return on plan assets |
(284 | ) | (344 | ) | (385 | ) | ||||||
Net amortization and deferral |
113 | 40 | 23 | |||||||||
Pension expense |
$ | 303 | $ | 142 | $ | 103 | ||||||
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 $111,000
and $3,000.
The following weighted-average assumptions were used to determine benefit obligations at year end
and net cost:
2009 | 2008 | 2007 | ||||||||||
Weighted Average discount rate |
6.50 | % | 6.50 | % | 6.50 | % | ||||||
Rate of increase in future compensation |
3.00 | % | 3.00 | % | 3.00 | % | ||||||
Expected long term return on plan assets |
8.00 | % | 8.00 | % | 8.00 | % |
(Continued)
20
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 8 EMPLOYEE BENEFITS (Continued)
The Companys pension plan asset allocation at year end 2009 and 2008, target allocation for 2010,
and expected long-term rate of return by asset category are as follows:
Percentage of Plan | Weighted- | |||||||||||||||
Target | Assets | Average Expected | ||||||||||||||
Allocation | at Year end | Long-Term Rate | ||||||||||||||
Asset Category | 2010 | 2009 | 2008 | of Return - 2009 | ||||||||||||
Equity securities |
70.0 | % | 65.1 | % | 53.4 | % | 9.45 | % | ||||||||
Fixed Income securities |
30.0 | 32.3 | 38.6 | 5.20 | ||||||||||||
Other |
| 2.6 | 8.0 | 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 Poors 500 and 5-year Treasury bonds from 1950-2009.
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 2009, the Company contributed $600,000 into the plan. The Company expects to contribute
approximately $500,000 to this pension plan in 2010.
(Continued)
21
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 8 EMPLOYEE BENEFITS (Continued)
Estimated Future Payments
The following benefit payments, which reflect expected future service, are anticipated:
Year End | Benefit Payments | |||
(In thousands) | ||||
2010 |
$ | 90 | ||
2011 |
128 | |||
2012 |
121 | |||
2013 |
133 | |||
2014 |
141 | |||
Years 2015 - 2020 |
951 |
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
plan was amended as of December 31, 2009 and participants are no longer able to defer compensation
in accordance with this plan and no additional benefits will accrue under this plan. The present
value of future benefits was accrued annually over the period of active service of each participant
using a 6.00% discount rate. Total liabilities under the plan are $2,829,000 and $2,757,000 at
December 31, 2009 and 2008 and are included in other liabilities on the balance sheet. The expense
for the plan was $278,000, $339,000 and $266,000 in 2009, 2008 and 2007. Distributions under the
plan were $206,000, $176,000 and $150,000 in 2009, 2008 and 2007.
The following benefit payments reflect expected future cash flows as anticipated:
Year End | Benefit Payments | |||
(In thousands) | ||||
2010 |
$ | 230 | ||
2011 |
218 | |||
2012 |
231 | |||
2013 |
328 | |||
2014 |
326 | |||
Years 2015 - 2020 |
3,276 |
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 $738,000 and $719,000 at December 31, 2009 and 2008.
The expense of the plan was $43,000, $47,000 and $44,000 in 2009, 2008 and 2007.
(Continued)
22
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 8 EMPLOYEE BENEFITS (Continued)
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 2009, 2008 and 2007, 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 employees deferred compensation. The Board of Directors elected to change the matching
contribution for 2010 to 100% of the first 1%. Employee contributions and the Companys matching
percentages are vested immediately. The Companys matching percentages are determined annually by
the Board of Directors and resulted in total contributions of $82,000, $78,000 and $81,000 in 2009,
2008 and 2007.
NOTE 9 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, 2009 or 2008.
Activity in the option plan for the years ended 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, 2008 |
23,438 | $ | 33.62-57.01 | $ | 49.00 | |||||||||||||||
Exercised |
| |||||||||||||||||||
Expired |
(7,676 | ) | $ | 33.62-49.38 | ||||||||||||||||
Forfeitures |
(5,216 | ) | $ | 51.00-57.01 | ||||||||||||||||
Outstanding at December 31, 2008 |
10,546 | $ | 50.00-57.01 | $ | 53.96 | |||||||||||||||
Exercised |
| |||||||||||||||||||
Expired |
(5,244 | ) | $ | 57.01 | ||||||||||||||||
Forfeitures |
(840 | ) | $ | 50.00-51.00 | ||||||||||||||||
Outstanding at December 31, 2009 |
4,462 | $ | 50.00 | $ | 50.00 | 4.0 years | | |||||||||||||
Exercisable at December 31, 2009 |
4,462 | $ | 50.00 | $ | 50.00 | 4.0 years | | |||||||||||||
(Continued)
23
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 9 STOCK OPTIONS (Continued)
No compensation expense was required to be recognized under the plan for 2009, 2008 and 2007.
There was no unrecognized compensation expense at December 31, 2009.
There were no options granted or exercised in 2009, 2008 and 2007.
NOTE 10 INCOME TAXES
Income tax expense consists of:
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Current expense (benefit) |
$ | (393 | ) | $ | 345 | $ | 1,221 | |||||
Deferred expense (benefit) |
157 | (863 | ) | (139 | ) | |||||||
$ | (236 | ) | $ | (518 | ) | $ | 1,082 | |||||
Year end deferred tax assets and liabilities consist of:
2009 | 2008 | |||||||
(In thousands) | ||||||||
Deferred tax assets |
||||||||
Allowance for loan losses |
$ | 730 | $ | 531 | ||||
Deferred compensation |
1,213 | 1,182 | ||||||
Investment writedown |
| 2,416 | ||||||
Capital loss carryforward |
1,145 | | ||||||
Pension liability |
642 | 848 | ||||||
Other |
473 | 121 | ||||||
Total deferred tax assets |
4,203 | 5,098 | ||||||
Deferred tax liabilities |
||||||||
Pension |
545 | 444 | ||||||
Fixed assets |
311 | 344 | ||||||
Mortgage servicing rights |
211 | 204 | ||||||
Unrealized gains on securities available for sale |
213 | 111 | ||||||
Accretion |
56 | 51 | ||||||
Other |
60 | 59 | ||||||
Total deferred tax liabilities |
1,396 | 1,213 | ||||||
Net valuation allowance for capital losses |
1,145 | 1,758 | ||||||
Net deferred tax asset |
$ | 1,662 | $ | 2,127 | ||||
(Continued)
24
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 10 INCOME TAXES (Continued)
Income tax expense (benefit) calculated at the statutory rate of 34% differs from actual income tax
expense (benefit) as follows:
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Statutory rate applied to income before taxes |
$ | 639 | $ | (1,952 | ) | $ | 1,418 | |||||
Deduct |
||||||||||||
Change in valuation allowance |
(613 | ) | 1,758 | | ||||||||
Tax-exempt interest income, net |
(262 | ) | (354 | ) | (311 | ) | ||||||
Life insurance |
(48 | ) | (44 | ) | (50 | ) | ||||||
Other |
48 | 74 | 25 | |||||||||
$ | (236 | ) | $ | (518 | ) | $ | 1,082 | |||||
NOTE 11 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:
2009 | 2008 | 2007 | ||||||||||
Basic earnings (loss) per share: |
||||||||||||
Net income (loss) available to common
shareholders (in thousands) |
$ | 2,115 | $ | (5,225 | ) | $ | 3,088 | |||||
Weighted average shares outstanding |
1,213,598 | 1,213,618 | 1,232,211 | |||||||||
Basic earnings(loss) per share |
$ | 1.74 | $ | (4.31 | ) | $ | 2.51 | |||||
2009 | 2008 | 2007 | ||||||||||
Diluted earnings (loss) per share: |
||||||||||||
Net income (loss) available to common
shareholders (in thousands) |
$ | 2,115 | $ | (5,225 | ) | $ | 3,088 | |||||
Weighted average shares outstanding |
1,213,598 | 1,213,618 | 1,232,211 | |||||||||
Add dilutive effects of assumed exercises
of stock options |
| | 704 | |||||||||
Weighted average dilutive
potential shares outstanding |
1,213,598 | 1,213,618 | 1,232,915 | |||||||||
Diluted earnings (loss) per share |
$ | 1.74 | $ | (4.31 | ) | $ | 2.50 | |||||
(Continued)
25
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 11 EARNINGS PER SHARE (Continued)
Stock options for 4,462, 10,546 and 19,407 shares of common stock were not considered in computing
diluted earnings per share for 2009, 2008 and 2007 because they were antidilutive.
NOTE 12 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:
2009 | 2008 | |||||||
(In thousands) | ||||||||
Balance outstanding, January 1 |
$ | 1,988 | $ | 2,316 | ||||
New loans and rewrites |
1,044 | 1,129 | ||||||
Payments and payoffs |
(1,332 | ) | (1,387 | ) | ||||
Change in persons included |
(5 | ) | (70 | ) | ||||
Balance outstanding, December 31 |
$ | 1,695 | $ | 1,988 | ||||
Related party deposits totaled $3,317,000 and $3,712,000 at year end 2009 and 2008.
NOTE 13 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 2009 and 2008, reserves of $2,551,000 and $1,817,000 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.
(Continued)
26
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 13 COMMITMENTS, OFF-BALANCE-SHEET RISK, AND CONTINGENCIES
(Continued)
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 customers
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:
2009 | 2008 | |||||||
(In thousands) | ||||||||
Commitments to extend credit |
$ | 20,317 | $ | 22,388 | ||||
Standby letters of credit |
532 | 316 |
The fair values of these commitments are not material. Substantially all of these commitments
are at variable or uncommitted rates.
NOTE 14 FAIR VALUE MEASUREMENTS
The Company utilizes fair value measurements to record fair value adjustments of certain
assets and liabilities and to determine fair value disclosure. The following presents information
about the Companys assets measured at fair value on a recurring basis at December 31, 2009 and the
valuation techniques used by the Company to determine those fair values.
Fair Value Hierarchy
Under SFAS 157, the Company groups assets and liabilities at fair value into three levels, based on
the markets in which the assets and liabilities are traded and the reliability of the assumptions
used to determine fair value.
Level 1: In general, fair values determined by Level 1 inputs use quoted prices in active markets
for identical assets or liabilities that the company has the ability to access.
(Continued)
27
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 14 FAIR VALUE MEASUREMENTS (Continued)
Level 2: Fair values determined by Level 2 inputs use other inputs that are observable, either
directly or indirectly. These Level 2 inputs included quoted prices for similar assets and
liabilities in active markets, and other inputs such as interest rates and yield curves that are
observable at commonly quoted intervals.
Level 3: Inputs are unobservable inputs, including inputs that are available in situations where
there is little, if any, market activity for the related assets or liabilities.
In instances where inputs used to measure fair value fall into different levels in the above fair
value hierarchy, fair value measurements in their entirely are categorized based on the lowest
level input that is significant to the valuation. The Companys assessment of the significance of
particular inputs to these fair value measurements required judgment and considers factors specific
to each asset or liability.
The Company uses the following methods and significant assumptions to estimate fair vaule:
Securities: Where quoted market prices are available in an active market, securities are
classified as level 1 of the valuation hierarchy. If quoted market prices are not available for
the specific security, then Level 2 valuations are estimated by (1) using quoted market prices of
securities with similar characteristics and (2) model pricing, which is a mathematical technique
used widely in the industry to value debt securities without relying exclusively on quoted prices
for specific securities but rather by relying on the securities relationship to other benchmark
quoted prices. Level 3 valuations of securities include a discounted cash flow analysis whose
significant fair value inputs can generally be verified and typically involve little judgment by
management.
(Continued)
28
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 14 FAIR VALUE MEASUREMENTS (Continued)
Disclosures concerning assets measured at fair value are as follows:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
(In thousands)
(In thousands)
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||||||
Identical Assets | Observable Inputs | Unobservable Inputs | Balance at December | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | 31, | |||||||||||||
Assets |
||||||||||||||||
2009 |
||||||||||||||||
Investment securities: |
||||||||||||||||
Available-for-sale |
$ | 36,637 | $ | | $ | 8,836 | $ | 45,473 | ||||||||
2008 |
||||||||||||||||
Investment securities: |
||||||||||||||||
Available-for-sale |
$ | 26,691 | $ | 3,792 | $ | 6,955 | $ | 37,438 |
Fair value measurement for available-for-sale securities is based upon quoted prices, if
available. Level 1 securities include those traded on an active exchange, such as the New York
Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active
over-the-counter markets and money market funds. The Company did not have any securities
classified as Level 2 as of December 31, 2009.
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
(In thousands)
(In thousands)
Investment | ||||
securities-available-for-sale | ||||
Balance at December 31, 2008 |
$ | 6,955 | ||
Total realized and unrealized gains (losses) included in income |
| |||
Total unrealized gains (losses) included in other comprehensive income |
218 | |||
Net purchases, sales, calls and maturities |
1,663 | |||
Net transfers in/out of Level 3 |
| |||
Balance at December 31, 2009 |
$ | 8,836 | ||
Available-for-sale investment securities categorized as Level 3 assets primarily consist of
bonds issued by local municipalities. The Company estimates the fair value of these assets based
on the present value of expected future cash flows using managements best estimate of key
assumptions, including forecasted interest yield and payment rates, credit quality and a discount
rate commensurate with the current market and other risks involved.
(Continued)
29
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 14 FAIR VALUE MEASUREMENTS (Continued)
Both observable and unobservable inputs may be used to determine the fair value of positions
classified as Level 3 assets and liabilities. As a result, the unrealized gains and losses for
these assets presented in the tables above may include changes in fair value that were attributable
to both observable and unobservable inputs.
Assets Measured at Fair Value on a Nonrecurring Basis at December 31,
(In thousands)
Prices in Active | ||||||||||||||||||||
Markets for | Significant Other | Significant | Total Losses for | |||||||||||||||||
Balance at December | Identical Assets | Observable Inputs | Unobservable Inputs | the Period Ended | ||||||||||||||||
31 | (Level 1) | (Level 2) | (Level 3) | December 31 | ||||||||||||||||
Assets |
||||||||||||||||||||
2009 |
||||||||||||||||||||
Impaired loans accounted for
under FAS 114 |
$ | 248 | | | $ | 248 | $ | (211 | ) | |||||||||||
Other real estate owned |
1,336 | | | 1,336 | (343 | ) | ||||||||||||||
2008 |
||||||||||||||||||||
Impaired loans accounted for
under FAS 114 |
$ | 339 | $ | 339 | $ | (202 | ) | |||||||||||||
Other real estate owned |
980 | | | 980 | (192 | ) |
Impaired loans accounted for under FAS 114 categorized as Level 3 assets consist of
non-homogeneous loans that are considered impaired. The Company estimates the fair value of the
loans based on the present value of expected future cash flows using managements best estimate of
key assumptions. These assumptions include future payments ability, timing of payment streams, and
estimated realizable values of available collateral (typically based on outside appraisals). The
losses for the period ending December 31, 2009 represents charge-offs of loan balances written down
through the allowance for loan losses.
The Companys other real estate owned is held at an estimated realizable value and that value
changes periodically with the real estate market. Losses for the period associated with other real
estate owned represent valuation adjustments and are write downs through the income statement.
(Continued)
30
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 15 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:
2009 | 2008 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
(In thousands) | ||||||||||||||||
Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 17,247 | $ | 17,247 | $ | 23,286 | $ | 23,286 | ||||||||
Time deposits with other financial institutions |
8,669 | 8,669 | 5,757 | 5,757 | ||||||||||||
Securities available for sale |
45,473 | 45,473 | 37,438 | 37,438 | ||||||||||||
Securities held to maturity |
10,302 | 10,837 | 10,883 | 11,119 | ||||||||||||
Other securities |
1,008 | 1,008 | 1,008 | 1,008 | ||||||||||||
Loans held for sale |
| | 201 | 204 | ||||||||||||
Loans, net |
148,171 | 148,376 | 159,569 | 162,566 | ||||||||||||
Accrued interest receivable on loans |
544 | 544 | 608 | 608 | ||||||||||||
Liabilities |
||||||||||||||||
Deposits |
||||||||||||||||
Noninterest-bearing |
$ | (40,016 | ) | $ | (40,016 | ) | $ | (37,163 | ) | $ | (37,163 | ) | ||||
Interest bearing |
(184,542 | ) | (185,023 | ) | (193,380 | ) | (194,258 | ) | ||||||||
Accrued interest payable on deposits |
(87 | ) | (87 | ) | (147 | ) | (147 | ) |
NOTE 16 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)
31
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 16 REGULATORY CAPITAL (Continued)
The prompt corrective action regulations provide five classifications, including well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized, although these terms are not used to represent overall financial condition. If
adequately capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans
for capital restoration are required.
The minimum requirements are:
Capital to Risk- | ||||||||||||
Weighted Assets | Tier 1 Capital | |||||||||||
Total | Tier 1 | To Average Assets | ||||||||||
Well Capitalized |
10 | % | 6 | % | 5 | % | ||||||
Adequately Capitalized |
8 | % | 4 | % | 4 | % | ||||||
Undercapitalized |
6 | % | 3 | % | 3 | % |
The Bank was categorized as well capitalized at year end. There are no conditions or events since
year-end that management believes has changed the Banks category. Actual capital levels (in
millions) and minimum required levels were:
Minimum Required | ||||||||||||||||||||||||
To Be Well | ||||||||||||||||||||||||
Minimum Required | Capitalized Under | |||||||||||||||||||||||
For Capital | Prompt Corrective | |||||||||||||||||||||||
Actual | Adequacy Purposes | Action Regulations | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
2009 |
||||||||||||||||||||||||
Total capital (to risk weighted assets)
Bank |
$ | 22.9 | 14.9 | % | $ | 12.3 | 8.0 | % | $ | 15.4 | 10.0 | % | ||||||||||||
Tier 1 capital (to risk weighted assets)
Bank |
21.0 | 13.6 | 6.1 | 4.0 | 9.2 | 6.0 | ||||||||||||||||||
Tier 1 capital (to average assets)
Bank |
21.0 | 8.4 | 10.0 | 4.0 | 12.5 | 5.0 | ||||||||||||||||||
2008 |
||||||||||||||||||||||||
Total capital (to risk weighted assets)
Bank |
$ | 20.8 | 12.2 | % | $ | 13.7 | 8.0 | % | $ | 17.1 | 10.0 | % | ||||||||||||
Tier 1 capital (to risk weighted assets)
Bank |
18.8 | 11.0 | 6.8 | 4.0 | 10.3 | 6.0 | ||||||||||||||||||
Tier 1 capital (to average assets)
Bank |
18.8 | 7.3 | 10.4 | 4.0 | 13.0 | 5.0 |
(Continued)
32
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 16 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 2010, the Bank is limited to paying dividends of the
Companys net income of 2010 and the retained net income of the prior two calendar years.
NOTE 17 PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
Following are condensed parent company financial statements:
CONDENSED BALANCE SHEETS
December 31, 2009 and 2008
December 31, 2009 and 2008
2009 | 2008 | |||||||
(In thousands) | ||||||||
ASSETS |
||||||||
Cash |
$ | 52 | $ | 70 | ||||
Investment in subsidiary |
20,271 | 17,476 | ||||||
Other Assets |
1 | 1 | ||||||
Total assets |
$ | 20,324 | $ | 17,547 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Other liabilities |
$ | 4 | $ | 7 | ||||
Shareholders equity |
20,320 | 17,540 | ||||||
Total liabilities and shareholders equity |
$ | 20,324 | $ | 17,547 | ||||
(Continued)
33
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 17 PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 2009, 2008 and 2007
Years ended December 31, 2009, 2008 and 2007
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Dividends from subsidiary |
$ | | $ | 906 | $ | 3,832 | ||||||
Operating expenses |
(23 | ) | (40 | ) | (40 | ) | ||||||
Income before income taxes and equity
in undistributed income of subsidiary |
(23 | ) | 866 | 3,792 | ||||||||
Income tax benefit |
8 | 13 | 14 | |||||||||
Equity in undistributed (overdistributed)
income of subsidiary |
2,130 | (6,104 | ) | (718 | ) | |||||||
Net income (loss) |
$ | 2,115 | $ | (5,225 | ) | $ | 3,088 | |||||
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Cash flows from operating activities: |
||||||||||||
Net income (loss) |
$ | 2,115 | $ | (5,225 | ) | $ | 3,088 | |||||
Equity in (undistributed) overdistributed
net income of subsidiary |
(2,130 | ) | 6,104 | 718 | ||||||||
Change in dividends receivable |
| 1,266 | | |||||||||
Change in other assets |
| 13 | (14 | ) | ||||||||
Change in other liabilities |
(3 | ) | (1,246 | ) | (21 | ) | ||||||
Net cash from operating activities |
(18 | ) | 912 | 3,771 | ||||||||
Cash flows from financing activities: |
||||||||||||
Dividends paid |
| (874 | ) | (2,795 | ) | |||||||
Net shares purchased |
| | (1,038 | ) | ||||||||
Net cash from financing activities |
| (874 | ) | (3,833 | ) | |||||||
Net change in cash and cash equivalents |
(18 | ) | 38 | (62 | ) | |||||||
Cash at beginning of year |
70 | 32 | 94 | |||||||||
Cash at end of year |
$ | 52 | $ | 70 | $ | 32 | ||||||
(Continued)
34
CNB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
NOTE 18 QUARTERLY FINANCIAL DATA (UNAUDITED)
Net | ||||||||||||||||||||
Interest | Interest | Net | Earnings Per Share | |||||||||||||||||
Income | Income | Income | Basic | Diluted | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
2009 |
||||||||||||||||||||
First quarter |
$ | 3,207 | $ | 2,218 | $ | 322 | $ | 0.27 | $ | 0.27 | ||||||||||
Second quarter |
3,151 | 2,219 | 805 | 0.66 | 0.66 | |||||||||||||||
Third quarter |
2,918 | 2,050 | (382 | ) | (0.31 | ) | (0.31 | ) | ||||||||||||
Fourth quarter |
2,892 | 2,181 | 1,370 | 1.12 | 1.12 | |||||||||||||||
2008 |
||||||||||||||||||||
First quarter |
$ | 3,888 | $ | 2,543 | $ | 467 | $ | 0.38 | $ | 0.38 | ||||||||||
Second quarter |
3,579 | 2,368 | 462 | 0.38 | 0.38 | |||||||||||||||
Third quarter |
3,572 | 2,332 | (1,545 | ) | (1.27 | ) | (1.27 | ) | ||||||||||||
Fourth quarter |
3,318 | 2,243 | (4,609 | ) | (3.80 | ) | (3.80 | ) |
(Continued)
35
Plante & Moran, PLLC | ||
Suite 400 | ||
634 Front Avenue N.W. | ||
Grand Rapids, MI 49504 | ||
Tel: 616.774.8221 | ||
Fax: 616.774.0702 | ||
plantemoran.com |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Of CNB Corporation
Cheboygan, Michigan
Of CNB Corporation
Cheboygan, Michigan
We have audited the consolidated balance sheet of CNB Corporation as of December 31, 2009 and 2008,
and the related consolidated statement of income, changes in shareholders equity and cash flows
for each of the years in the three-year period ended December 31, 2009. These financial statements
are the responsibility of the Companys 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 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 Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, 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, 2009 and 2008, and
the results of its operations and its cash flows for each of the years in the three-year period
ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.
Plante & Moran, PLLC | ||
Grand Rapids, Michigan
March 25, 2010
March 25, 2010
36
CNB CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
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 (the Bank). During 2008 and 2007 the Bank owned a subsidiary, CNB Mortgage
Corporation, collectively referred to as the Bank during those years. In November 2009, Citizens
National Bank of Cheboygan and CNB Mortgage Corporation merged leaving Citizens National Bank of
Cheboygan as the survivor. The consolidated financial statements for 2009 include CNB Corporation
and its wholly-owned subsidiary, Citizens National Bank of Cheboygan. This discussion should be
read in conjunction with the consolidated financial statements beginning on page 2 and the related
footnotes.
Financial Condition
As of
December 31, 2009 total assets of the Company were $249.5 million which represents a decrease
of $4.4 million or 1.7% from December 31, 2008. The Company recognized a 6.6% decrease in the loan
portfolio. Deposits decreased by 2.6% during 2009 while the
Companys equity increased $2.8
million during 2009.
Cash and Cash Equivalents
The Companys balances of cash and cash equivalents decreased $6.0 million from 2008 to 2009.
During the year, $910,000 of cash was provided by operating activities, while $964,000 was used in
investing activities and $6.0 million was used in 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 Companys 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,
auction rate money market preferred investments and preferred stocks. Security balances increased
$7.5 million during 2009. Securities available for sale
represent 80.1% of the portfolio.
Currently, the Company primarily maintains a short-term securities portfolio. The Company will
continue to monitor the rate environment and may extend the maturities of the investment portfolio
in the future. It is managements expectation that the Company will moderately increase the
securities portfolio in 2010 as loan demand continues to be slow due to the current economic
environment.
37
CNB CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
The chart below shows the change in each of the categories of the portfolio.
2009 | 2008 | 2007 | ||||||||||
(In thousands) | ||||||||||||
U.S. Government and agency |
$ | 7,250 | $ | 6,760 | $ | (9,004 | ) | |||||
Mortgage-backed |
(370 | ) | (609 | ) | (252 | ) | ||||||
Tax exempt state and municipal |
2,431 | 455 | (407 | ) | ||||||||
Taxable state and municipal |
870 | 1,640 | 55 | |||||||||
Corporate obligations |
1,020 | | | |||||||||
Auction rate securities |
(3,793 | ) | (9,207 | ) | 3,016 | |||||||
Preferred shares |
46 | | | |||||||||
Other securities |
| | | |||||||||
Total change in securities |
$ | 7,454 | $ | (961 | ) | $ | (6,592 | ) | ||||
Holdings in U.S. government and agencies increased due to additional volume in the securities
portfolio. Due to the uncertainty of the auction rate securities market, the Company attempted to
decrease its holdings in the auction rate securities investments at the beginning of 2008.
Starting in early 2008, while the Company was attempting to liquidate its holdings in auction rate
securities, the market for these types of investments ceased to exist. The collapse of this market
had a profound impact on the value of these auction rate investments. Therefore, as of December
31, 2008 the entire portfolio of auction rate securities was deemed to be other than temporarily
impaired as defined in FAS 115.
Securities
investments as a total increased 15.1% during the year. 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.
2009 | 2008 | |||||||
U.S. Government and agency |
46.34 | % | 38.65 | % | ||||
Mortgage backed |
16.31 | % | 19.52 | % | ||||
Tax exempt state and municipal |
26.61 | % | 25.70 | % | ||||
Taxable state and municipal |
5.33 | % | 4.37 | % | ||||
Corporate obligations |
1.80 | % | | |||||
Auction rate securities |
1.76 | % | 9.72 | % | ||||
Preferred shares |
0.08 | % | | |||||
Other securities |
1.77 | % | 2.04 | % | ||||
100.00 | % | 100.00 | % | |||||
38
CNB CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
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, 2009 was $412,000,
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.
Overall, the Company has historically maintained a conservative security portfolio with the
majority of the mix of its investments spread amongst U.S. Government and agency securities and
issues of governmental units in its service area. 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 2010, management feels that there will be sufficient liquidity to increase the maturity of
the investment portfolio.
Loans
Total loans decreased $10.6 million or 6.7% during 2009, with the primary decrease in commercial
real estate loans of $7.1 million or 4.4%. As a full service lender, the Company offers a variety
of personal and commercial loans.
Home mortgages comprise a large 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 engage in
subprime lending and does not have any loans that it would consider to be subprime mortgage loans.
The Company originated $23.1 million in loans for sale in 2009 and $5.9 million in 2008 as compared
to $9.1 million in 2007. For the most part, activity in 2009 included mainly refinances as
borrowers took advantage of the continued low rate environment. Although the real estate market in
our service area has declined, it has not been affected by the current economy as much as some
areas in the state of Michigan. Management anticipates the volume of mortgage refinancing in 2010
will decrease comparable to 2009 as most borrowers have already taken advantage of 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. Overall total loan growth is not
expected in 2010.
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, 2009
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 12.7% of total loans.
39
CNB CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
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.
The quality of the Companys loan portfolio is indicative of the current economic conditions with
non-performing loans at 5.59% of total loans at December 31, 2009 and 3.73% at December 31, 2008.
Net loans charged off decreased to .57% of total loans during 2009 and .92% in 2008. Allowance for
loan losses was increased in 2009 due to increased credit quality concerns and a continued overall
unstable economic environment. The Company continues to identify loss potential for individual
loans and groups of loans. A provision expense of $1.7 million was recorded in 2009 while $1.8
million was recorded during 2008 and $275,000 in 2007 due to net charge-offs and responding to
overall loan quality.
Credit Quality
The Company continues to maintain a manageable level of asset quality as a result of actively
monitoring 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.
2009 | 2008 | |||||||
(Dollars in thousands) | ||||||||
Nonaccrual loans |
$ | 8,095 | $ | 5,356 | ||||
Loans past due 90 days or more still on accrual |
83 | 295 | ||||||
Troubled debt restructurings |
260 | 393 | ||||||
Total nonperforming |
$ | 8,438 | $ | 6,044 | ||||
Percent of total loans |
5.59 | % | 3.73 | % | ||||
40
CNB CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
Deposits
Deposits decreased $6.0 million or 2.6% during 2009. The majority of the Companys 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
the interest rate environment changes the Company will in turn change the rates it offers its
customers.
As of December 31, 2009, the loan to deposit ratio was 67.3% compared to 70.2% at December 31,
2008. This ratio decreased due to a decrease in the Companys loan portfolio. Managements
emphasis is on a stable loan portfolio with a targeted loan to deposit ratio at a minimum of 65.0%.
Any change in asset mix from securities to higher yielding loans provides an increase in the net
interest margin.
As of December 31, 2009, long-term debt obligations consist of the Companys time deposits which
are presented in Note 7 to the consolidated financial statements.
Equity
Total
equity for the Company at year end 2009 was $20.3 million compared to $17.5 million in 2008.
There is no formal stock repurchase plan in effect at this time although; the Company occasionally
repurchases stock at its discretion. During 2009 the Company did not repurchase any stock and less
than $1,000 worth of stock was repurchased during 2008. Accumulated other comprehensive income
increased by $196,000 related to an improved market value of the Companys available for sale
securities and by $469,000 related to the adjustment to reflect the impact of the change in the
pension liability as was implemented in 2006 due to SFAS No. 158.
In response to the Emergency Economic Stabilization Act passed by the federal government on October
3, 2008 the Company, after evaluating the programs available under the Act, determined that it
would not participate in the Capital Purchase Program (CPP). CPP provides for the U.S. Treasury to
make preferred stock investments in financial institutions under specific criteria and with
specific requirements placed upon participating institutions.
The Bank is considered to be well capitalized as it relates to the capital adequacy guidelines
administered by federal banking agencies.
41
CNB CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
Liquidity and Funds Management
Effective liquidity management ensures that the cash flow requirements of the Companys depositors
and borrowers, as well as the operating cash needs of the Company are met. The Companys 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 Companys most readily available sources of liquidity are interest bearing deposits with other
financial institutions, 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,
2009, the Company held $13.2 million in interest bearing deposits with other financial
institutions, no federal funds sold, $45.5 million in securities available for sale, and $3.4
million in held to maturity securities maturing within one year. These short-term assets represent
27.6% of total deposits as of December 31, 2009. Historically, the Companys 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, and 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 an available borrowing capacity at the
Federal Reserve Discount Window and Federal Home Loan Bank of Indianapolis. There were no advances
outstanding on these borrowing capacities at December 31, 2009 or 2008.
42
CNB CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
Interest Rate Sensitivity
The following tables provide information about the Companys financial instruments that are
sensitive to changes in interest rates at December 31, 2009 and 2008. For loans receivable,
securities, and liabilities with contractual maturities, the tables present principal cash flows
and related weighted-average interest rates by contractual maturities. For core deposits (demand
deposits, interest-bearing checking, savings, and money market deposits) that have no contractual
maturity, the tables present principal balances and, as applicable, related weighted-average
interest rates.
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 Companys 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.
43
CNB CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
Market Risk Disclosure at December 31, 2009
(Dollars in thousands)
(Dollars in thousands)
Fair Value | ||||||||||||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | 12/31/2009 | |||||||||||||||||||||||||
Rate-sensitive assets |
||||||||||||||||||||||||||||||||
Variable interest rate loans |
$ | 11,852 | $ | 446 | $ | 726 | $ | | $ | | $ | | $ | 13,024 | $ | 13,042 | ||||||||||||||||
Average interest rate |
4.00 | % | 5.52 | % | 5.91 | % | | % | | % | | % | 4.16 | % | ||||||||||||||||||
Fixed interest rate loans |
22,371 | 16,936 | 10,614 | 15,893 | 12,478 | 59,891 | 138,183 | 138,370 | ||||||||||||||||||||||||
Average interest rate |
5.71 | % | 5.57 | % | 7.30 | % | 6.54 | % | 6.40 | % | 6.06 | % | 6.15 | % | ||||||||||||||||||
Variable interest rate
securities |
710 | | | | | 753 | 1,463 | 1,463 | ||||||||||||||||||||||||
Average interest rate |
4.07 | % | | % | | % | | % | | % | 2.28 | % | 3.15 | % | ||||||||||||||||||
Fixed interest rate securities |
17,470 | 15,729 | 5,020 | 3,316 | 1,749 | 12,036 | 55,320 | 55,855 | ||||||||||||||||||||||||
Average interest rate |
1.92 | % | 2.32 | % | 2.17 | % | 4.69 | % | 4.05 | % | 3.60 | % | 3.97 | % | ||||||||||||||||||
Rate-sensitive liabilities |
||||||||||||||||||||||||||||||||
Noninterest-bearing
deposits |
40,016 | | | | | | 40,016 | 40,016 | ||||||||||||||||||||||||
Average interest rate |
| % | | % | | % | | % | | % | | % | | % | ||||||||||||||||||
Fixed interest rate
savings and
interest-bearing deposits |
103,896 | | | | | | 103,896 | 104,167 | ||||||||||||||||||||||||
Average interest rate |
0.43 | % | | % | | % | | % | | % | | % | 0.91 | % | ||||||||||||||||||
Variable interest rate
time deposits |
1,337 | 500 | | | | | 1,837 | 1,842 | ||||||||||||||||||||||||
Average interest rate |
0.22 | % | 0.22 | % | | % | | % | | % | | % | 0.22 | % | ||||||||||||||||||
Fixed interest rate
time deposits |
48,685 | 20,445 | 3,267 | 5,801 | 611 | | 78,809 | 79,014 | ||||||||||||||||||||||||
Average interest rate |
2.68 | % | 1.97 | % | 4.19 | % | 4.66 | % | 2.86 | % | | % | 2.70 | % |
Market Risk Disclosure at December 31, 2008
(Dollars in thousands)
(Dollars in thousands)
Fair Value | ||||||||||||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | 12/31/2008 | |||||||||||||||||||||||||
Rate-sensitive assets |
||||||||||||||||||||||||||||||||
Variable interest rate loans |
$ | 20,092 | $ | 445 | $ | 500 | $ | | $ | | $ | | $ | 21,037 | $ | 21,427 | ||||||||||||||||
Average interest rate |
4.21 | % | 8.00 | % | 6.32 | % | | % | | % | | % | 4.34 | % | ||||||||||||||||||
Fixed interest rate loans |
22,573 | 13,154 | 16,659 | 12,054 | 19,237 | 57,134 | 140,811 | 143,421 | ||||||||||||||||||||||||
Average interest rate |
6.17 | % | 6.98 | % | 7.51 | % | 7.43 | % | 6.52 | % | 6.69 | % | 6.77 | % | ||||||||||||||||||
Variable interest rate
securities |
655 | | | | | 868 | 1,523 | 1,523 | ||||||||||||||||||||||||
Average interest rate |
2.30 | % | | % | | % | | % | | % | 2.80 | % | 2.58 | % | ||||||||||||||||||
Fixed interest rate securities |
15,345 | 9,605 | 9,073 | 1,170 | 3,613 | 8,999 | 47,805 | 48,041 | ||||||||||||||||||||||||
Average interest rate |
3.27 | % | 4.01 | % | 4.28 | % | 4.66 | % | 4.08 | % | 3.84 | % | 3.97 | % | ||||||||||||||||||
Rate-sensitive liabilities |
||||||||||||||||||||||||||||||||
Noninterest-bearing
deposits |
37,163 | | | | | | 37,163 | 37,163 | ||||||||||||||||||||||||
Average interest rate |
| % | | % | | % | | % | | % | | % | | % | ||||||||||||||||||
Fixed interest rate
savings and
interest-bearing deposits |
101,484 | | | | | | 101,484 | 101,945 | ||||||||||||||||||||||||
Average interest rate |
0.91 | % | | % | | % | | % | | % | | % | 0.91 | % | ||||||||||||||||||
Variable interest rate
time deposits |
4,587 | 797 | | | | | 5,384 | 5,408 | ||||||||||||||||||||||||
Average interest rate |
0.23 | % | 0.23 | % | | % | | % | | % | | % | 0.23 | % | ||||||||||||||||||
Fixed interest rate
time deposits |
40,748 | 34,550 | 3,619 | 1,992 | 5,603 | | 86,512 | 86,905 | ||||||||||||||||||||||||
Average interest rate |
3.77 | % | 2.85 | % | 4.75 | % | 4.62 | % | 4.72 | % | | % | 3.53 | % |
44
CNB CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
Capital Resources
The capital ratios of the Bank exceed the regulatory guidelines for well capitalized institutions.
The stock of the Company is generally traded locally, although beginning in 2007 it became readily
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 dividends.
Results of Operations
Net Income
Consolidated net income/(loss) was $2.1 million for 2009 and ($5.2 million) for 2008. Basic and
diluted earnings/(loss) per share for 2009 were $1.74 compared to ($4.31) for 2008.
Consolidated net income was $3.1 million for 2007. Basic earnings per share for 2007 were $2.51
while diluted earnings per share for 2007 were $2.50.
Net Interest Income
Interest income is the total amount earned on interest bearing deposits at financial institutions,
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 2009, net interest income decreased by $818,000, due to multiple
factors including the change in the rates on our interest-earning assets, the change in asset mix
due to the increase in the securities portfolio and decreases in total loans. Also contributing to
the decreased net interest income were asset quality factors including an increased level of
nonaccrual loans over 2008.
In 2008, net interest income decreased by $836,000, due to similar factors as noted above for 2009.
These factors include the change in the rate on our interest-earning assets, the change in asset
mix due to the decrease in the securities portfolio in 2008 and increases in other interest earning
assets. Asset quality factors were also an issue in 2008 due to an increased level of nonaccrual
loans. Offsetting these decreases in interest income in 2008 was decreases in rates paid on the
Companys deposit accounts due to the decreasing rate environment.
45
CNB CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
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)
(Dollars in thousands)
Year Ended | Year Ended | Year Ended | ||||||||||||||||||||||||||||||||||
December 31, 2009 | December 31, 2008 | December 31, 2007 | ||||||||||||||||||||||||||||||||||
Average | Yield/ | Average | Yield/ | Average | Yield/ | |||||||||||||||||||||||||||||||
Balance | Int | Rate | Balance | Int | Rate | Balance | Int | Rate | ||||||||||||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||||||||||||||
Other interest-
earning assets |
$ | 18,342 | $ | 235 | 1.28 | % | $ | 21,892 | $ | 423 | 1.93 | % | $ | 12,129 | $ | 660 | 5.44 | % | ||||||||||||||||||
Total securities (1) (2) |
55,889 | 2,133 | 3.82 | 50,480 | 2,545 | 5.04 | 55,078 | 2,774 | 5.04 | |||||||||||||||||||||||||||
Loans (2) |
161,256 | 10,130 | 6.28 | 170,293 | 11,706 | 6.87 | 172,136 | 13,070 | 7.59 | |||||||||||||||||||||||||||
Total
interest-earning
assets |
235,487 | 12,498 | 5.31 | % | 242,665 | 14,674 | 6.05 | % | 239,343 | 16,504 | 6.90 | % | ||||||||||||||||||||||||
Cash and due from
banks |
8,607 | 6,094 | 6,635 | |||||||||||||||||||||||||||||||||
Premises and
equipment, net |
6,011 | 6,176 | 6,495 | |||||||||||||||||||||||||||||||||
Allowance for loan
losses |
(2,466 | ) | (1,720 | ) | (1,610 | ) | ||||||||||||||||||||||||||||||
Other assets |
9,840 | 8,785 | 8,020 | |||||||||||||||||||||||||||||||||
Total |
$ | 257,479 | $ | 262,000 | $ | 258,883 | ||||||||||||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||||||||||||||
Interest-bearing
demand deposits |
$ | 29,924 | $ | 103 | 0.34 | % | $ | 28,854 | $ | 389 | 1.35 | % | $ | 23,575 | $ | 529 | 2.24 | % | ||||||||||||||||||
Savings deposits |
76,012 | 435 | 0.57 | 71,981 | 1,012 | 1.41 | 75,677 | 1,383 | 1.83 | |||||||||||||||||||||||||||
Time deposits |
88,437 | 2,952 | 3.34 | 93,234 | 3,455 | 3.71 | 89,984 | 3,917 | 4.35 | |||||||||||||||||||||||||||
Fed Funds Purchased |
| | 0.00 | | | 0.00 | | | 0.00 | |||||||||||||||||||||||||||
Other interest-bearing
liabilities |
148 | 10 | 6.76 | 207 | 15 | 7.25 | 259 | 29 | 11.20 | |||||||||||||||||||||||||||
Total
interest-bearing
liabilities |
194,521 | 3,500 | 1.80 | % | 194,276 | 4,871 | 2.51 | % | 189,495 | 5,858 | 3.09 | % | ||||||||||||||||||||||||
Noninterest-bearing
deposits |
38,939 | 39,264 | 39,790 | |||||||||||||||||||||||||||||||||
Other liabilities |
5,116 | 4,417 | 4,305 | |||||||||||||||||||||||||||||||||
Shareholders equity |
18,903 | 24,043 | 25,293 | |||||||||||||||||||||||||||||||||
Total |
$ | 257,479 | $ | 262,000 | $ | 258,883 | ||||||||||||||||||||||||||||||
Net interest income |
$ | 8,998 | $ | 9,803 | $ | 10,646 | ||||||||||||||||||||||||||||||
Net interest spread (FTE) |
3.51 | % | 3.54 | % | 3.81 | % | ||||||||||||||||||||||||||||||
Net yield on interest-
earning assets (FTE) |
3.82 | % | 4.04 | % | 4.45 | % | ||||||||||||||||||||||||||||||
Ratio of interest-earning
assets to interest-
bearning liabilities |
1.21 | x | 1.25 | x | 1.26 | x | ||||||||||||||||||||||||||||||
(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. |
46
CNB CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
The table below shows the effect of volume and rate changes on net interest income on a pre-tax
basis.
2009 Compared to 2008 | 2008 Compared to 2007 | |||||||||||||||||||||||
Volume | Rate | Net | Volume | Rate | Net | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Other interest-earning assets |
$ | 55 | $ | (243 | ) | $ | (188 | ) | $ | 352 | $ | (589 | ) | $ | (237 | ) | ||||||||
Total Securities |
178 | (590 | ) | (412 | ) | (169 | ) | (60 | ) | (229 | ) | |||||||||||||
Loans, net |
(601 | ) | (975 | ) | (1,576 | ) | (139 | ) | (1,225 | ) | (1,364 | ) | ||||||||||||
Total interest-earning assets |
(368 | ) | (1,808 | ) | (2,176 | ) | 44 | (1,874 | ) | (1,830 | ) | |||||||||||||
Interest-bearing demand deposits |
14 | (300 | ) | (286 | ) | 101 | (241 | ) | (140 | ) | ||||||||||||||
Savings deposits |
54 | (631 | ) | (577 | ) | (65 | ) | (305 | ) | (370 | ) | |||||||||||||
Time deposits |
(172 | ) | (331 | ) | (503 | ) | 137 | (599 | ) | (462 | ) | |||||||||||||
Other interest-bearing liabilities |
(5 | ) | | (5 | ) | (5 | ) | (10 | ) | (15 | ) | |||||||||||||
Total interest-bearing liabilities |
(109 | ) | (1,262 | ) | (1,371 | ) | 168 | (1,155 | ) | (987 | ) | |||||||||||||
Net change in net interest income
(a) |
$ | (259 | ) | $ | (546 | ) | $ | (805 | ) | $ | (124 | ) | $ | (719 | ) | $ | (843 | ) | ||||||
(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. Non interest income increased during 2009 by $1.6
million. This increase can be attributed for the most part to the gains on the sales of auction
rate investment securities as previously in Note 2 of the financial statements. The increase in
net realized gains from the sales of loans added to the increased noninterest income for 2009.
This increase was offset by a year over year decrease in the gains on sales of other real estate
owned.
The Company recorded $304,000 of gains on the sale of other real estate owned in 2008 while gains
in 2009 were only $3,000.
Noninterest income increased from 2007 to 2008 by $328,000 primarily due to the $304,000 gain on
sale of other real estate owned in 2008 as mentioned above.
Noninterest Expense
Noninterest expense decreased $6.7 million during 2009 compared to 2008. Non interest expenses in
2008 included a write down on investment securities due to an other-than-temporary impairment.
Results for 2009 included a securities write down of $37,000. This single difference between the
two years is the primary reason for the change in total noninterest expense. Other contributing
factors included an increase in FDIC Premiums from $149,000 in
47
CNB CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
2008 to $623,000 in 2009 and increases in other real estate owned losses and carrying costs in the
amount of $134,000 compared to the prior year. These increases were offset by decreases in
salaries and employee benefits including decreased expense for hospitalization. Salaries and
benefits decreased $357,000 from 2008 to 2009 and the number of employees decreased from 84 at
December 31, 2008 to 78 at December 31, 2009. 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. For the first two years of the new plan, one half of
the deductible was funded by the Company to assist employees as they transitioned to the new type
of coverage. The decreased hospital expense of $72,000 from 2008 to 2009 is due in most part to
the fact that the Company did not fund any part of the hospitalization deductible in 2009 and due
to the decreased number of employees as stated above.
Noninterest expense increased $7.8 million during 2008 compared to 2007. This increase was due
primarily to the write down of investment securities due to an other-than-temporary impairment as
previously discussed. Salaries and benefits expense decreased $119,000 during 2008 compared to
2007 due to the departure of a highly compensated officer whose position was not filled. The
deferred compensation expense increase $33,000 from 2007 to 2008 due primarily to additional
expense due to the accelerated amount payable as a result of the impending retirement of a
director. The increase of $81,000 in hospitalization expense from 2007 to 2008 was due to
increased premiums. Supplies expense decreased $50,000 and marketing expense decreased $45,000
during 2008 compared to 2007 due to cost cutting measures. ORE Losses and carrying costs increased
$632,000 in 2008 compared to 2007 results. This increase is the result of increased levels of
other real estate owned property and the associated expenses related to those properties.
Write-downs and losses on ORE sales totaled $316,000 in 2008 compared to $9,000 in 2007. Other
real estate owned also has associated costs of ownership. These carrying costs totaled $289,000 in
2008 compared to $64,000 in 2007.
Federal Income Taxes
The Company had an income tax benefit of $236,000 for the year ended December 31, 2009 compared to
a tax benefit of $518,000 for 2008 and an expense of $1.1 million for 2007.
Income/(loss) before tax for 2009 and 2008 included gains and losses, respectively, which were not
tax effected for income reporting purposes, thus dramatically effecting the effective tax rate for
those years. The difference between the effective tax rate and the federal corporate tax rate of
34% is also due to tax-exempt interest earned on investments and loans and other tax-related items.
The tax rates are shown in the table below:
2009 | 2008 | 2007 | ||||||||||
Income/(loss) before tax (In thousands) |
$ | 1,879 | $ | (5,743 | ) | $ | 4,170 | |||||
Income tax expense/(benefit) (In thousands) |
(236 | ) | (518 | ) | 1,082 | |||||||
Effective tax rate |
(12.6 | )% | (9.0 | )% | 25.9 | % |
48
CNB CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
We assess the need for a valuation allowance against our deferred tax assets periodically. The
realization of deferred tax assets is largely dependent upon future taxable income, future
reversals of existing taxable temporary differences and ability to carry-back losses to available
tax years. In assessing the need for a valuation allowance, all positive and negative evidence was
considered, including anticipated operating results, taxable income in carry-back years, scheduled
reversals of deferred tax liabilities and tax planning strategies. In 2009, the conclusion that a
valuation allowance was not required was based on a number of factors including the 2010 budget.
Critical Accounting Policies
Certain of the Companys accounting policies are important to the portrayal of the Companys
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, determining the fair value of securities and other
financial instruments, the valuation of mortgage servicing rights and deferred tax and tax
provision estimates.
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 $275,000 was recorded during 2007. Due to the continued loan growth and a
downturn in the overall Michigan economy, a provision expense of $1.8 million was recorded during
2008. Due to additional asset quality concerns and continued downturn in the Michigan and National
economy, a provision expense of $1.7 million was recorded in 2009. In future periods the allowance
for loan losses may be impacted due to changes in the local economy, commercial loans asset quality
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. As of December
31, 2009, the Company held $67.1 million of commercial and commercial real estate loans, and the
ability of our borrowers to repay such loans may be significantly impacted by the current economy
or individual borrower conditions. Management continues to take steps to help preserve the asset
quality of the loan portfolio; however, the allowance for loan losses and related provision expense
could increase 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 Companys available for sale securities portfolio, total
comprehensive income increased by $196,000, $118,000 and $222,000 for 2009, 2008 and 2007.
Additionally, all investment securities are required to be written down to fair value when a
49
CNB CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
MANAGEMENTS DISCUSSION AND ANALYSIS
December 31, 2009, 2008 and 2007
decline in fair value is not temporary; therefore, future changes in the fair value of securities
could have a significant impact on the Companys operating results.
FORWARD-LOOKING STATEMENTS
When used in this filing and in future filings involving the Company with the Securities and
Exchange Commission, in the Companys 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 Companys 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 Companys financial performance and could cause the Companys
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.
50
CNB CORPORATION
OFFICERS, COMMUNITY ADVISORS AND STAFF
OFFICERS, COMMUNITY ADVISORS AND STAFF
OFFICERS AND COMMUNITY ADVISORS OF
CNB CORPORATION AND CITIZENS NATIONAL BANK
CNB CORPORATION AND CITIZENS NATIONAL BANK
CNB
CORPORATION
OFFICERS |
VINCENT J. HILLESHEIM |
CHAIRMAN |
SUSAN A. ENO |
PRESIDENT & CHIEF
EXECUTIVE OFFICER |
DOUGLAS W. DAMM |
SENIOR VICE PRESIDENT |
SHANNA L. HANLEY |
TREASURER |
REBECCA L. TOMASKI |
SECRETARY |
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 |
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 |
NICOLE M. DRAKE |
BANKING OFFICER-
COMMERCIAL LOANS |
DARREN M. SELDEN |
BANKING OFFICER-
COLLECTIONS |
FLORENCE CASWELL |
ASSISTANT LOAN
OPERATIONS OFFICER |
NANCY A. STEMPKY |
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 |
51
CNB CORPORATION
OFFICERS, COMMUNITY ADVISORS AND STAFF
OFFICERS, COMMUNITY ADVISORS AND STAFF
STAFF OF CITIZENS NATIONAL BANK
MAIN OFFICE |
Taryn Bednarz |
Cheryl Blaskowski |
Kurt Blaskowski |
Maghan J. Brooks |
Patricia K. Comps |
Arlene Daniel |
Trisha M. Dobias |
Katherine H. Eldridge |
Mary E. Greenwood |
Debra Grice |
Tonya Hiller |
Deanna Hudson |
Kathy Johnson |
Sherri Kosan |
Susan Leonardi |
Betty J. Lewis |
Loretta Merchant |
Adam Newman |
Penny L. Reynolds |
Ronald D. Rose |
Carla Roznowski |
Carolyn A. Scheele |
Lee Sheets |
David Shotwell |
Sally A. Spray |
Helen K. Stumpf |
M. Teresa Sullivan |
Kathy S. Swackhamer |
Lori Thornton |
David Tomaski |
Rebecca Tomaski |
Joel VanSlembrouck |
Wendelin K. Whippo |
Sherry M. Wichlacz |
DOWNTOWN DRIVE-IN CHEBOYGAN |
Carla Jankoviak |
SOUTH BRANCH CHEBOYGAN |
Karen Barrette |
Susan D. Bliss |
Sharon Coppernoll |
Diane S. Mushlock |
MACKINAW CITY |
Deborah L. Closs |
Jennifer M. LaHaie |
PELLSTON |
Sheri L. Kindell |
Tammy Crocker |
ONAWAY |
Pamela A. Kolasa |
Sara L. LaLonde |
Lynn D. Porter |
Kathleen T. Robbins |
Kathleen S. Wilson |
INDIAN RIVER |
Christopher Brazier |
Cheri Diot |
Kelly Saker |
Julie Davis |
Michelle Miller |
ALANSON |
Jill Hoffman |
Amanda Nicholson |
Cathy Ward |
52
CNB CORPORATION
DIRECTORS AND DIRECTORS EMERITI
DIRECTORS AND DIRECTORS EMERITI
DIRECTORS OF CNB CORPORATION &
CITIZENS NATIONAL BANK
CITIZENS NATIONAL BANK
VINCENT J. HILLESHEIM
Chairman
President, Anchor In Marina
Chairman
President, Anchor In Marina
STEVEN J. BAKER, D.V.M.
Retired, Indian River Veterinary Clinic
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
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
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
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
Vice President & Secretary
Albert Ellenberger Lumber Company
KATHLEEN A. LIEDER
Retired, Partner, Bodman LLP
Co-Owner, Log Mark Bookstore
Retired, Partner, Bodman LLP
Co-Owner, Log Mark Bookstore
R. JEFFERY SWADLING
Vice President, Kens Village Market
Vice President, Kens Village Market
FRANCIS J. VANANTWERP, JR.
Vice President Durocher Marine Division
Kokosing Construction Company, Inc.
Vice President Durocher Marine Division
Kokosing Construction Company, Inc.
DIRECTORS EMERITI
LYLE MCKINLEY, THOMAS A. ELLENBERGER,
JOHN P. WARD, JOHN L. ORMSBEE
LYLE MCKINLEY, THOMAS A. ELLENBERGER,
JOHN P. WARD, JOHN L. ORMSBEE
53
CNB CORPORATION COMMON STOCK
CNB Corporation common stock is listed on the Over the Counter Bulletin Board and is traded under
the symbol CNBZ. The Company had 987 shareholders as of December 31, 2009.
SHAREHOLDER RELATIONS AND
FORM 10-K AVAILABLE
Shareholders may obtain, without charge, a copy of Form 10-K or the 2009 Annual Report by writing
Shareholder Relations
CNB Corporation
303 N. Main St. P.O. Box 10,
Cheboygan, Michigan 49721.
CNB Corporation
303 N. Main St. P.O. Box 10,
Cheboygan, Michigan 49721.
The reports can also be downloaded from www.cnbismybank.com. Click on the shareholder relations
link.
WEBSITE INFORMATION
The most current news releases and CNB Corporation financial reports and product information are
available at our website, www.cnbismybank.com
ANNUAL MEETING
The Annual Meeting of Shareholders will be held on Tuesday, May 18, 2010 at the Knights of Columbus
Hall, 9840 N. Straits Highway, Cheboygan, Michigan, 49721 at 7:00 p.m.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Plante & Moran, PLLC
Grand Rapids, Michigan
Grand Rapids, Michigan
STOCK SALES & MARKET MAKERS
Stock sales will be handled by stockbrokers serving as market makers. You may work with a broker
of your choice and other firms familiar with CNB Corporation are identified on the Over the Counter
(OTC) Bulletin Board website at www.otcbb.com.
TRANSFER AGENT
The transfer agent for CNB Corporation continues to be Citizens National Bank. Inquiries regarding
a change of name, address or ownership of stock, as well as information on shareholder records,
lost or stolen certificates should be directed to shareholder relations.
The following table shows the high and low selling prices of known transactions in common stock of
the Company for each quarter of 2009 and 2008.
2009 | Cash | 2008 | Cash | |||||||||||||||||||||
Market Price | Dividends | Market Price | Dividends | |||||||||||||||||||||
Quarter | High | Low | Declared | High | Low | Declared | ||||||||||||||||||
1st |
$ | 20.00 | $ | 8.05 | $ | | $ | 40.00 | $ | 29.00 | $ | 0.42 | ||||||||||||
2nd |
12.50 | 8.05 | | 36.00 | 32.00 | 0.30 | ||||||||||||||||||
3rd |
11.00 | 6.38 | | 35.50 | 20.00 | | ||||||||||||||||||
4th |
10.50 | 9.70 | | 28.49 | 13.00 | |
54