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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission File Number 0-17501
CNB BANCORP, INC.
NEW YORK 14-1709485
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10-24 NORTH MAIN STREET, P.O. BOX 873, GLOVERSVILLE, NEW YORK 12078
(Address of principal executive offices)
Registrant's telephone number, including area code: (518) 773-7911
Securities registered pursurant to Section 12 (b) of the Act:
Title of each class Name of exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2.50 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [x]
Indicate the number of shares outstanding of each of the issurer's
classes of common stock:
Class of Common Stock Number of Shares Outstanding as of March 1, 2000
$2.50 Par Value 2,400,419
The aggregate market value of the Registrant's common stock (based upon
the average bid and asked prices on March 1, 2000) held by non-affiliates was
approximately $69,600,000.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to stockholders for the fiscal
year ended December 31, 1999.
(2) Portions of the Registrant's Proxy Statement for its Annual Meeting of
stockholders.
ITEM 1. Business
On January 3, 1989, the corporate structure of City National Bank
and Trust Company (the Bank) was revised by the establishment of a
one-bank holding company, CNB Bancorp, Inc. (the Company).
Stockholders of the Bank retained their outstanding shares which
automatically became shares of the Company. The Company, in turn,
acquired all of the outstanding shares of the Bank.
Prior to the merger, the Bank was independently owned and operated and
organized in 1887. The Bank is headquartered in Gloversville, New York, with
five branches located in the county of Fulton and one branch located in the
county of Saratoga.
The Bank is engaged in a general banking business with a range of banking and
fiduciary services including checking, negotiable orders of withdrawal,
savings and certificates of deposit; the Bank offers a wide range of loan
products including commercial, real estate, and installment type lending.
Overdraft banking lines of credit are also provided.
On June 1, 1999, the Company acquired Adirondack Financial Services Bancorp,
Inc. (Adirondack) and its wholly owned subsidiary, Gloversville Federal
Savings and Loan Association. At the date of the merger, Adirondack had
approximately $68.5 million in assets, $56.4 million in deposits and $9.5
million in shareholders' equity. Pursuant to the merger agreement, Adirondack
was merged into CNB Bancorp, Inc. and Gloversville Federal Savings and Loan
Association was merged into City National Bank and Trust Company. The
combined bank now operates as one institution under the name of City National
Bank and Trust Company.
Upon consummation of the merger, each share of Adirondack received $21.92 in
cash which totaled approximately $14.6 million. In addition, under the merger
agreement, the Company agreed to issue 35,624 stock options to purchase CNB
Bancorp, Inc. stock at an exercise price of $15.22 per share. The estimated
fair value of these options as of the acquisition date was $11.04 per share.
The issuance of these options was included in the computation of goodwill,
with the offsetting increase to surplus.
The acquisition was accounted for using purchase accounting in accordance
with APB Opinion No. 16, "Business Combinations" (APB No. 16). Under purchase
accounting, the purchase price is allocated to the respective assets acquired
and liabilities assumed based on their estimated fair values. The acquisition
of Adirondack resulted in approximately $4.8 million in excess of cost over
net assets acquired ("goodwill"). Goodwill is being amortized to expense over
a period of fifteen years using the straight-line method and is generally not
deductible for tax purposes. The results of operations of Adirondack have
been included in the Company's consolidated statements of income for periods
subsequent to the date of acquisition.
Competition
Competition for banking business is experienced from regional based
commercial bank holding companies, as well as from savings banks, and credit
unions. The competition is reflected in both lending efforts and deposit
solicitations.
The Bank has a relatively stable deposit base and no material amount of
deposits is obtained from a single depositor or group of depositors. The Bank
has not experienced any significant seasonal fluctuations in the amount of
its deposits.
Employees
The Bank employs approximately 80 persons on a full time basis. There are
also 12 part time employees. The Bank provides a variety of employment
benefits and considers its relationship with its employees to be good.
Supervision and Regulation
The operations of the Bank are subject to federal and state statutes
applicable to banks chartered under the banking laws of the United States, to
members of the Federal Reserve System, and to banks whose deposits are
insured by the Federal Deposit Insurance Corporation (the "FDIC"). Bank
operations are also subject to regulations of the Comptroller of the
Currency, the Federal Reserve Board, the FDIC, and the New York State Banking
Department.
The primary supervisory authority of the Bank is the Comptroller of the
Currency, who regularly examines the Bank. The Comptroller of the Currency
has the authority under the Financial Institutions Supervisory Act to prevent
a national bank from engaging in unsafe or unsound practice in conducting its
business.
Federal and state banking laws and regulations govern, among other things,
the scope of a bank's business, the investments a bank may make, the reserves
against deposits a bank must maintain, the loans a bank makes and collateral
it takes, the activities of a bank with respect to mergers and
consolidations, and the establishment of branches. Branches may be
established within the permitted area only after approval by the Comptroller
of the Currency. The Comptroller of the Currency is required to grant
approval only if it finds that there is a need for the banking services or
facilities contemplated by the proposed branch and may disapprove the
application if the bank does not have the capital and surplus deemed
necessary by the Comptroller of the Currency, or if the application relates
to the establishment of a branch in a county contiguous to the county in
which the applicant's principal place of business is located and another
banking institution that has its principal place of business in the county in
which the proposed branch would be located has in good faith notified the
Comptroller of the Currency of its intention to establish a branch in the
same municipal location in which the proposed branch would be located.
A subsidiary bank (which the Bank is) of a bank holding company is subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, on investments in the
stock or other securities of the bank holding company or its subsidiaries and
on taking such securities as collateral for loans. The Federal Reserve Act
and Federal Reserve Board regulations also place certain limitations and
reporting requirements on extensions of credit by a bank to principal
shareholders of its parent holding company, among others, and to related
interest of such principal shareholders. In addition, such legislation and
regulations may affect the terms upon which any person becoming a principal
shareholder of a holding company may obtain credit from banks with which the
subsidiary bank maintains a correspondent relationship.
Federal law also prohibits acquisitions of control of a bank holding company
without prior notice to certain federal bank regulators. Control is defined
for this purpose as the power, directly or indirectly, to direct the
management or policies of the bank or bank holding company or to vote 25% or
more of any class of voting securities of the bank holding company.
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From time to time, various types of federal and state legislation has been
proposed that could result in additional regulation of, and restrictions on,
the business of the Bank. It cannot be predicted whether any such legislation
will be adopted or how such legislation would affect the business of the
Bank. As a consequence of the extensive regulation of commercial banking
activities in the United States, the Bank's business is particularly
susceptible to being affected by federal legislation and regulations that may
increase the costs of doing business.
The Depository Institutions Deregulation and Monetary Control Act of 1980
became effective in March, 1980. The principal effects of this law are to:
phase in the deregulation of the interest rates paid on personal deposits by
gradually eliminating regulatory ceilings on interest rates and dividends
paid on deposit accounts, as well as eliminating the interest rate
differential allowed thrifts and savings institutions; enable all banks to
offer personal interest bearing checking type accounts; phase in mandatory
and uniform reserve requirements; and override certain usury limits on loan
interest rates established by state laws. On October 1, 1983, the Depository
Institutions' Deregulation Committee, acting under the provisions of the Act,
removed all remaining interest rate ceilings and other regulations on time
deposits, except for early withdrawal penalties.
Under the Federal Deposit Insurance Act, the Comptroller of the Currency
possesses the power to prohibit institutions regulated by it (such as the
Bank) from engaging in any activity that would be an unsafe and unsound
banking practice or would otherwise be in violation of law. Moreover, the
Financial Institutions and Interest Rate Control Act of 1978 ("FIRA")
generally expands the circumstances under which officers or directors of a
bank may be removed by the institution's federal supervisory agency,
restricts lending by a bank to its executive officers, directors, principal
shareholders, or related interest thereof, restricts management personnel of
a bank from serving as directors or in other management positions with
certain depository institutions whose assets exceed a specified amount or
which have an office within a specified geographic area, and restricts
management personnel from borrowing from another institution that has a
correspondent relationship with their bank. Additionally, FIRA requires that
no person may acquire control of a bank unless the appropriate federal
supervisory agency has been given 60 days prior written notice and within
that time has not disapproved the acquisition or extended the period for
disapproval.
Under the Community Reinvestment Act of 1977, the Comptroller of the Currency
is required to assess the record of all financial institutions regulated by
it to determine if these institutions are meeting the credit needs of the
community (including low and moderate neighborhoods) which they serve and to
take this record into account in its evaluation of any applications made by
any such institutions for, among other things, approval of a branch or other
deposit facility, office relocation, a merger, or an acquisition of bank
shares.
The Garn-St. Germain Depository Institutions Act of 1982 (the "1982 Act")
removes certain restrictions on a bank's lending powers and liberalizes the
depository capabilities. The 1982 Act also amends FIRA (see above) by
eliminating the statutory limits on lending by a bank to its executive
officers, directors, principal shareholders, or related interest thereof and
by relaxing certain reporting requirements. However, the 1982 Act
strengthened FIRA provisions with regard to management interlocks and
correspondent bank relationships involving management personnel.
On December 19, 1991, President Bush signed the Federal Deposit Insurance
Corporation Improvement Act ('FDIC Act") into law. The FDIC Act makes a
number of far-reaching changes in the legal environment for insured banks.
The FDIC Act provides for an increase in the borrowing authority of the Bank
Insurance Fund ("BIF") to $30 billion from $5 billion, to be used to cover
losses in failed banks. The banking industry will repay BIF debt through
deposit insurance assessments. Statutory caps on deposit insurance
assessments were removed under the FDIC Act, therefore the FDIC may levy
deposit insurance assessments at any level in its sole discretion. Under the
FDIC Act, accepting brokered deposits is limited to institutions that have
capital in excess of regulatory minimums. The FDIC Act will require banks and
thrifts to devote greater time and resources to compliance and internal
controls. The FDIC Act details provisions and requires prompt regulatory
action by regulators in dealing with undercapitalized and poorly performing
institutions. The FDIC Act also contains expanded disclosure of consumer
provisions, extends the date for the required use of licensed or certified
appraisers to December 31, 1992 and sets limits on state bank powers.
The Gramm-Leach-Bliley Act of 1999 (the "GLBA") was enacted on November 12,
1999, providing for a range of new activities for qualifying financial
institutions. The GLBA repeals significant provisions of the Glass Steagall
Act to permit commercial banks, among other things, to have affiliates that
underwrite and deal in securities and make merchant banking investments
provided certain conditions are met. The GLBA modifies the BHCA to permit
bank holding companies that meet certain specified standards (known as
"financial holding companies") to engage in a broader range of financial
activities than previously permitted under the BHCA, and allows subsidiaries
of commercial banks meet certain specified standards (known as "financial
subsidiaries") to engage in a wide range of financial activities that are
prohibited to such banks themselves under certain circumstances.
Deposit Insurance Premiums
To the extent allowable by law, the deposits of the subsidiary Bank are
insured by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance
Corporation ("FDIC"). During 1995, BIF reached its statutory target of 1.25%
of total insured deposits and the BIF assessment rates were reduced from
0.23% to 0.04% for the highest rated banks. For 1996, the highest rated banks
were not assessed on the level of their deposits but rather paid a minimum
fee of $2,000 to BIF. During 1997, 1998 and 1999, BIF-assessable deposits
were subject to an assessment schedule providing for as assessment range of
0% to 0.27%, with banks in the lowest risk category paying no assessments.
The subsidiary Bank was in the lowest risk category and paid no FDIC
insurance assessments during 1997, 1998 and 1999. BIF assessment rates are
subject to semi-annual adjustment by the FDIC Board of Directors. The FDIC
Board of Directors has retained the 1997, 1998 and 1999 BIF assessment
schedule through June 30, 2000.
In 1996, Congress enacted the Deposit Insurance Funds Act which establishes a
schedule to merge BIF with the Savings Association Insurance Fund ("SAIF").
The act also provides for funding Financing Corp ("FICO") bonds, to provide
funding for the Federal Savings and Loan Insurance Corporation prior to 1991.
BIF-assessable deposits are subject to assessment for payment on the FICO
bond obligation at one-fifth the rate of SAIF-assessable deposits through
year-end 1999, or until the insurance funds are merged, whichever occurs
first. The FICO assessment is adjusted quarterly based on call report
submissions to reflect changes in the assessment bases of the respective
funds. During 1999, BIF insured banks paid a rate of 0.0122% for purposes of
funding FICO bond obligations, resulting in an assessment of $48,021 for the
subsidiary Bank. The assessment rate for BIF member institutions has been set
at 0.0208% on an annualized basis for the first half of 2000.
Monetary Policy
The earnings of the Bank are affected by the policies of other regulatory
authorities including the Federal Reserve Board and the FDIC. An important
function of the Federal Reserve System is to regulate the money supply and
prevailing interest rates. Among the instruments used to implement those
objectives are open market operations in United States government securities
and changes in reserve requirements against member bank deposits. These
instruments are used in varying combinations to influence overall growth and
distribution of bank loans, investments and deposits, and their use may also
affect interest rates charged on loans or paid for deposits.
- 2-
The Bank is a member of the Federal Reserve System and, therefore, the
policies and regulations of the Federal Reserve Board have had and will
probably continue to have a significant effect on the Bank's reserve
requirements, deposits, loans, and investment growth, as well as the rate of
interest earned and paid thereon, and are expected to affect the Bank's
operation in the future. The effect of such policies and regulations upon the
future business and earnings of the Bank cannot be predicted.
On August 9, 1989, the Financial Institutions Reform, Recovery & Enforcement
Act of 1989 (FIRREA) was signed into law. FIRREA was enacted to deal with the
problems involving the savings and loan industry. The basic provision of
FIRREA established a new regulatory structure for all financial institutions.
However, the principal changes were with respect to the savings associations
previously insured by the Federal Savings and Loan Insurance Corporation.
FIRREA created a new deposit insurance system which consists of two funds;
the Bank Insurance Fund (BIF) and the Savings Associations Insurance Fund
(SAIF). The Company's subsidiary bank is insured under BIF. FIRREA also
increased the insurance premiums and limited certain activities of savings
associations. The majority of the provisions of FIRREA have little effect on
the Company or its subsidiary.
General
In addition to historical information, this Report includes certain
forward-looking statements with respect to the financial condition, results
of operations and business of the Company and its subsidiary Bank based on
current management expectations. The Company's ability to predict results or
the effect of future plans and strategies is inherently uncertain and actual
results, performance or achievements could differ materially from those
management expectations. Factors that could cause future results to vary from
current management expectations include, but are not limited to, general
economic conditions, legislative and regulatory changes, monetary and fiscal
policies of the federal government, changes in tax policies, rates and
regulations of federal, state, and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of the
subsidiary Bank's loan and securities portfolios, changes in accounting
principles, polices or guidelines, and other economic, competitive,
governmental, and technological factors affecting the Company's operations,
markets, products, services and prices.
STATISTICAL DISCLOSURE REQUIRED BY BANK HOLDING COMPANIES
The following are exhibits included herewith:
Exhibit No. Exhibit
I. A.B. Distribution of Assets, Liabilities and Stockholders'
Equity; Interest Rates and Interest Differential
I. C. Rate Volume Analysis and Interest Rate Sensitivity Analysis
II. Securities Portfolio
III. Loan Portfolio
IV. Summary of Loan Loss Experience
V. Deposits
VI. Return on Equity and Assets
- 3-
I. A.B. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential
1999 1998 1997
Interest Interest Interest
(in thousands) Average Earned/ Average Earned/ Average Earned/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
ASSETS
Interest Earning Assets:
Securities:
U.S Treasury & Government
Agencies $ 81,038 $ 5,066 6.25 % $ 68,002 $ 4,244 6.24 % $ 63,741 $ 4,094 6.42 %
State & Political
Subdivisions 23,667 1,994 8.43 21,432 1,952 9.11 21,555 2,012 9.33
Other 4,116 274 6.66 1,589 113 7.11 877 55 6.27
Total Securities 108,821 7,334 6.74 91,023 6,309 6.93 86,173 6,161 7.15
Interest Bearing Balances With
Other Financial Institutions 1,655 80 4.83 206 15 7.28 59 3 5.08
Federal Funds Sold 9,042 449 4.97 11,710 627 5.35 6,170 343 5.56
Loans:
Loans,Less
Unearned Income 152,974 12,816 8.38 121,252 10,598 8.74 112,785 9,990 8.86
Total Interest-Earning Assets 272,492 $20,679 7.59 % 224,191 $17,549 7.83 % 205,187 $16,497 8.04 %
Cash and Due From Banks 9,068 6,328 6,175
Reserve for Loan Losses (2,291) (1,541) (1,558)
Other Assets 11,593 8,237 5,757
Total Assets $290,862 $237,215 $215,561
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing Liabilities:
Deposits:
Savings:
Regular Savings $ 47,363 $ 1,189 2.51 % $ 38,862 $ 1,048 2.70 % $ 40,834 $ 1,136 2.78 %
NOW 27,158 333 1.23 21,721 319 1.47 21,457 322 1.50
Money Market Accounts 22,812 749 3.28 13,555 427 3.15 14,630 469 3.21
Certificates of Deposit
$100,000 or More 44,503 2,234 5.02 39,792 2,213 5.56 33,311 1,887 5.66
Other Time Interest-Bearing 74,148 3,798 5.12 61,420 3,340 5.44 57,324 3,095 5.40
Total Int.-Bearing Deposits 215,984 8,303 3.84 175,350 7,347 4.19 167,556 6,909 4.12
Other Short-Term Borrowings
& Repurchase Agreements 11,547 611 5.29 10,229 544 5.32 592 32 5.41
Notes Payable - FHLB 7,135 355 4.98 548 26 4.74 0 0 0.00
Total Interest-Bearing
Liabilities 234,666 $ 9,269 3.95 % 186,127 $ 7,917 4.25 % 168,148 $ 6,941 4.13 %
Demand Deposits 23,375 19,382 17,900
Other Liabilities 1,359 1,037 808
Total Liabilities 259,400 206,546 186,856
Stockholders' Equity 31,462 30,669 28,705
Total Liabilities and
Stockholders' Equity $290,862 $237,215 $215,561
Includes available for sale and investment securities, both at amortized
cost, and FHLB and FRB stock.
Portions of income earned on U.S. Government obligations and
obligations of states and political subdivisions are exempt from
federal and/or state taxation. Appropriate adjustments have been made
to reflect the equivalent amount of taxable income that would have been
necessary to generate an equal amount of after tax income. The taxable
equivalent adjustment is based on a marginal Federal income tax rate of
34% for all periods presented, and a marginal state income tax rate of
9.00% for all periods presented.
For the purposes of this analysis, non-accruing loans have been
included in average balances; in accordance with Company policy on
non-accruing assets, income on such assets is not recorded unless
received.
Other assets include all assets except those specifically identified
above including the valuation adjustment related to the securities
available for sale.
- 4-
I. A.B. The following table represents the average yield on all
interest-earning assets, the average effective rate paid on all
interest-bearing liabilities; and the net yield on
interest-earning assets for CNB Bancorp, Inc.
(Cont'd)
1999 1998 1997
Average yield on interest-
earning assets* 7.59 % 7.83 % 8.04 %
Average effective rate paid
on interest-bearing liabilities 3.95 % 4.25 % 4.13 %
Spread between interest-earning
assets and interest-bearing
liabilities* 3.64 % 3.58 % 3.91 %
Net interest income* (in thousands) $11,410 $9,632 $9,556
Net interest margin* 4.19 % 4.30 % 4.66 %
* On a fully taxable equivalent basis.
1. C. Rate Volume Analysis
The following tables set forth, for the periods indicated, a summary of
changes in interest earned and interest paid resulting from changes in
volume and changes in rates (in thousands)
1999 Compared to 1998 1998 Compared to 1997
Increase (decrease) due to: Increase (decrease) due to:
Volume Rate Total Volume Rate Total
Interest Earned on:
Loans $2,632 ($414) $2,218 $ 742 ($134) $ 608
Taxable Securities 975 8 983 358 (150) 208
Non-Taxable Securities 148 (106) 42 (12) (49) (61)
Federal Funds Sold (136) (42) (178) 296 (12) 284
Interest-Bearing Balances
with Banks 68 (3) 65 11 2 13
Total 3,687 (557) 3,130 1,395 (343) 1,052
Interest Paid on:
Deposits 1,485 (529) 956 326 112 438
Short-Term Borrowings & Repos 70 (3) 67 513 (1) 512
Notes Payable - FHLB 328 1 329 26 0 26
Total 1,883 (531) 1,352 865 111 976
Net Interest Differential $1,804 ($26) $1,778 $ 530 ($454) $76
Notes to Rate Volume Analysis
The change in interest due to both rate and volume have been allocated
to changes due to volume and changes due to rate in proportion to the
relationship of the absolute dollar amounts of the changes in each.
A "tax equivalent adjustment" has been included in the calculations to
reflect this income as if it had been fully taxable. The "tax
equivalent adjustment" is based upon the federal and state income tax
rates.
Includes securities available for sale, investment securities, FHLB and
FRB stock.
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1. C. Interest Rate Sensitivity Analysis
Maturity/Repricing Period at December 31, 1999
After 3 Mo. After One
Within But Within But Within After
(in thousands) 3 Months 1 Year Five Years Five Years Total
Rate sensitive assets(RSA):
Securities $25,778 $27,001 $25,581 $34,494 $112,854
Loans, net of unearned discount 42,033 21,881 59,101 49,398 172,413
Cash & Cash Equivalents 7,428 0 0 0 7,428
Total rate sensitive assets $75,239 $48,882 $84,682 $83,892 $292,695
Rate sensitive liabilities(RSL):
Savings, NOW & MMDA accounts $42,366 $ 3,449 $ 3,285 $72,617 $121,717
Time deposits 31,556 50,658 35,478 0 117,692
All other rate sensitive liabilities 8,984 3,252 5,388 130 17,754
Total rate sensitive liabilities $82,906 $57,359 $44,151 $72,747 $257,163
Includes securities available for sale and investment securities at
amortized cost and FHLB and FRB stock at cost.
GAP (RSA - RSL) ($7,667) ($8,477) $40,531 $11,145
CUMULATIVE GAP (RSA - RSL) (7,667) (16,144) 24,387 35,532
RSA divided by RSL 90.8 % 85.2 % 191.8 % 115.3 %
RSA divided by RSL - Cumulative 90.8 88.5 113.2 113.8
GAP divided by equity (24.5) (27.1) 129.6 35.6
GAP divided by equity - Cumulative (24.5) (51.6) 78.0 113.6
RSA divided by total assets 23.9 15.5 26.9 26.6
RSA divided by total assets - Cumulative 23.9 39.4 66.3 92.9
RSL divided by total assets 26.3 18.2 14.0 23.1
RSL divided by total assets - Cumulative 26.3 44.5 58.6 81.7
GAP divided by total assets (2.4) (2.7) 12.9 3.5
GAP divided by total assets - Cumulative (2.4) (5.1) 7.7 11.3
CNB Bancorp, Inc., through its subsidiary Bank, actively manages its interest
rate sensitivity position through the use of new products and repricing
techniques. The objectives of interest rate risk management are to control
exposure of net interest income to risks associated with interest rate
movements and to achieve consistent growth in net interest income. The
measurement of the interest rate sensitivity position at any specific point
in time involves many assumptions and estimates. Nonetheless, the
accompanying interest sensitivity analysis, broken into future repricing time
frames, helps to illustrate the potential impact of future changes in
interest rates on net interest income. The table above shows the interest
rate sensitivity gap position. The table presents data at a single point in
time. The under one year cumulative gap was (5.1)% of assets at December 31,
1999. Interest sensitivity, however, is only one measure of the extent to
which changes in interest rates might affect net interest income; the mix
within the interest earning asset and interest bearing liability portfolios
is continually changing as well. To date, the Company has not used financial
futures or interest rate swaps in the management of interest rate risk. The
Asset Liability Management Committee, using policies and procedures set by
the board of directors and senior management, is responsible for managing CNB
Bancorp, Inc.'s rate sensitivity position.
In evaluating the Company's exposure to interest rate risk, certain factors
inherent in the method of analysis presented in the table above must be
considered. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different
degrees to changes in market rates. Further, certain assets, such as
adjustable rate mortgages, have features which restrict changes in interest
rates on a short-term basis and over the life of the asset. The Company
considers the anticipated effects of these various factors in implementing
its interest rate risk management objectives. It should also be noted that
the interest rate sensitivity level shown in the table above could be changed
by external factors such as loan prepayments or by factors controllable by
CNB Bancorp, Inc. such as asset sales.
The Company has identified a portion of it's savings deposits as being rate
sensitive based on prior years historical experience, due mainly to the shift
in dollar volume from certificates of deposit to savings accounts over and
above the historical level of core deposits. In addition, the Asset/Liability
Management Committee reviews, on a quarterly basis, the potential impact to
the Company's net interest margin based on a shift of +/- 200 bp change in
interest rates. At December 31, 1999 the net interest margin exposure,
expressed in dollars, for the one year cumulative gap based on a +200bp
change was an increase of approximately $173,000.
Another function of asset/liability management is to assure adequate
liquidity by maintaining an appropriate balance between interest sensitive
assets and interest sensitive liabilities. Liquidity management involves the
ability to meet the cash flow requirements of the Company's loan and deposit
customers. Interest sensitivity is related to liquidity because each is
affected by maturing assets and liabilities. Interest sensitivity analysis,
however, also considers that certain assets and liabilities may be subject to
rate adjustments prior to maturity. It is the Company's policy to manage its
affairs so that liquidity needs are fully satisfied through normal bank
operations. To maintain short-term liquidity, the Company strives to be a net
seller of Federal Funds, to keep a significant amount of the investments
available for sale portfolio in unpledged assets that are less than 18 months
to maturity, and to maintain lines of credit with correspondent banks.
Long-term liquidity involves the laddering of the investment portfolio to
provide stable cash flow, and the matching of fixed rate mortgage loans with
identified core deposits.
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II. Securities Portfolio
A. The carrying amounts of the Company's securities for the years ended
December 31 are summarized below:
(in thousands)
1999 1998 1997
Securities Available for Sale:
Debt Securities:
U.S. Treasury and other U.S. Government Agencies $77,966 $74,865 $44,548
State and Political Subdivisions 12,863 10,897 9,810
Corporate securities 2,970 3,395 0
Total Debt Securities Available for Sale 93,799 89,157 54,358
Equity Securities:
Corporate securities 50 0 0
Total Equity Securities Available for Sale 50 0 0
Total Securities Available for Sale $93,849 $89,157 $54,358
1999 1998 1997
Investment Securities:
Obligations of U.S. Government Agencies $ 2,269 $ 6,105 $20,732
State and Political Subdivisions 11,174 11,292 12,315
Total $13,443 $17,397 $33,047
1999 1998 1997
Investments Required By Law:
Federal Reserve Bank stock $ 692 $ 240 $ 240
Federal Home Loan Bank stock 1,296 735 644
Total $ 1,988 $ 975 $ 884
B. Maturity Distribution of the Company's securities as of December 31,
1999: (in thousands)
Maturing
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
Debt Securities Available for Sale
US Treasury and other U.S. Gov't Agencies $40,652 6.27 % $12,052 6.55 % $11,032 6.56 % $14,230 6.62 %
State and Political Subdivisions 1,638 10.35 2,734 8.54 8,181 7.27 310 7.39
Corporate securities 0 0.00 1,967 7.74 1,003 8.12 0 0.00
Total $42,290 6.42 % $16,753 7.00 % $20,216 6.92 % $14,540 6.63 %
Maturities are based on the earlier of the maturity date or the call date.
A "tax equivalent adjustment" has been included in the calculation of
the yields to reflect this income as if it had been fully taxable. The
"tax equivalent adjustment" is based on federal and state income tax
rates. The yield on securities available for sale is calculated based
upon the amortized cost of the securities.
There are no securities of individual issuers that represent greater than
10% of stockholders' equity at December 31, 1999.
Maturing
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
Investment Securities
U.S. Government Agencies $1,597 7.02 % $ 672 6.95 % $ 0 0.00 % $ 0 0.00 %
State and Political Subdivisions 3,580 8.43 5,034 9.29 2,480 8.17 80 7.44
Total $5,177 8.00 % $ 5,706 9.02 % $ 2,480 8.17 % $ 80 7.44 %
Maturities are based on the earlier of the maturity date or the call date.
A "tax equivalent adjustment" has been included in the calculation of
the yields to reflect this income as if it had been fully taxable. The
"tax equivalent adjustment" is based on federal and state income tax
rates. The yield on securities available for sale is calculated based
upon the amortized cost of the securities.
There are no securities of individual issuers that represent greater than
10% of stockholders' equity at December 31, 1999.
Investments Required By Law
Federal Reserve Bank Stock and Federal Home Loan Bank Stock are nonmarketable
equity securities carried at cost with no stated maturity date. The fully tax
effected yield on these stocks as of December 31, 1999 was 6.53%.
- 7-
III. Loan Portfolio
A. Types of Loans 1999 1998 1997
December 31 (in thousands) Balance % Balance % Balance %
Real Estate Loans $ 90,780 49.4 % $ 46,423 35.1 % $ 46,750 36.4 %
Commercial and Commercial
Real Estate 37,868 20.6 35,877 27.2 37,265 29.0
Consumer Loans 55,137 30.0 49,727 37.7 44,537 34.6
Total 183,785 100.0 % 132,027 100.0 % 128,552 100.0 %
Less: Allowance for loan losses 2,697 1,580 1,492
Unearned Income 11,372 10,190 9,414
Total $169,716 $120,257 $117,646
% represents the percentage of loans in the category to total loans
(gross of reserves and unearned).
Real Estate Loans consists of only regular residential mortgage loans.
At December 31, 1999, 1998 and 1997 the subsidiary Bank did not have any
construction loans in the loan portfolio.
B. Maturities and Sensitivity to changes in Interest Rates
Shown below are the amounts of loans outstanding (excluding certain mortgages
and consumer loans) as of December 31, 1999, which, based on remaining
scheduled repayments or repricing of principal, are due in the periods
indicated and the relative sensitivity of such loans to changes in interest
rates:
After One
One Year But Within After
(in thousands) or Less Five Years Five Years Total
Commercial and Commercial
Real Estate $28,695 $8,045 $1,128 $37,868
Includes demand loans having no stated schedule of repayments and no
stated maturity and overdrafts.
Includes floating rate loans of $20,044 that are repriceable at
least quarterly.
C. Risk Elements
1. Nonaccrual, Past Due, and Restructured Loans
Risk elements consist of nonaccrual, past due, and restructured loans.
(in thousands) 1999 1998 1997
Loans on a non-accrual basis $1,507 $280 $283
Loans past due 90 days or more 108 249 88
Restructured loans 0 0 0
Total non-performing loans $1,615 $529 $371
Total non-performing loans as a percent
of total loans - net of unearned income 0.9% 0.4% 0.3%
For loans on a non-accrual basis, loans past due 90 days or more and
restructured loans the difference between the interest collected and
recognized as income and the amounts which would have been accrued is
not significant.
Non-Performing Loans
Non-Performing loans are composed of (1) loans on a non-accrual basis, (2)
loans which are contractually past due 90 days or more as to interest or
principal payments but have not been classified non-accrual, and (3) loans
whose terms have been restructured to provide a reduction of interest or
principal because of a deterioration in the financial position of the
borrower.
The Company's policy with regard to non-accrual loans varies by the type
of loan involved. Generally, commercial, financial, and agricultural loans
are placed on a non-accrual status when they are 90 days past due unless
they are well secured and in the process of collection. In some instances,
consumer loans are classified non-accrual when payments are past due 90
days; but as a matter of general policy, these loans are charged off after
they become 120 days past due unless they are well secured and in the
process of collection. Mortgage loans are generally not placed on a
non-accrual basis unless it is determined that the value or marketability
of real estate securing the loans has deteriorated to the point that a
potential loss of principal or interest exists. Once a loan is on
non-accrual basis, interest is recorded only as received. Interest
previously accrued on non-accrual loans which has not been paid is
reversed and charged against income during the period in which the loan is
placed on non-accrual status. Interest on restructured loans is only
recognized in current income at the renegotiated rate and then only to the
extent that such interest is deemed collectible.
- 8-
III. Loan Portfolio
(cont'd)
C. Risk Elements
2. Potential Problem Loans
In addition to the total non-performing loans set forth above, loans in
the amount of $2.8 million at December 31, 1999 were classified as
potential problem loans. These are loans for which management has
information which indicates that the borrower may not be able to comply
with the present payment terms. Although there is some doubt about the
ability of these borrowers to comply with payment terms, minimal losses,
if any, are anticipated in 2000.
3. Foreign Outstandings - None
4. Loan Concentrations
Loan concentrations, as defined by the Securities and Exchange Commission,
are considered to exist when there are amounts loaned to a multiple number
of borrowers engaged in similar activities which would cause them to be
similarly impacted by economic or other conditions. CNB Bancorp, Inc.'s
business area consists of the Counties of Fulton and Saratoga and,
therefore, there are certain concentrations of loans within this
geographic area. The subsidiary Bank strives to maintain a diverse loan
portfolio and accomplishes this through rigid underwriting standards and
by offering a wide variety of business and consumer loans. At December 31,
1999, the only concentration of loans that existed within the Bank's
portfolio were loans to the leather and leather related industries. Loans
to this segment were $4.1 million, which represented 2.2% of the gross
loans outstanding at December 31, 1999.
- 9-
IV. Summary of Loan Loss Experience
The following table summarizes year end loan balances, average loans
outstanding and changes in the allowance for loan losses due to loan losses,
recoveries and additions charged to expense.
Years Ended December 31, 1999 1998 1997
(in thousands)
Amount of loans outstanding at end
of year (less unearned income) $172,413 $121,837 $119,138
Average loans outstanding during the year
(less average unearned income) $152,974 $121,252 $112,785
Balance of allowance at beginning of year $ 1,580 $ 1,492 $ 1,620
Loans charged off:
Commercial and Commercial Real Estate (30) (17) (230)
Real Estate (105) (8) (41)
Consumer (146) (124) (133)
Total loans charged off (281) (149) (404)
Recoveries of loans previously charged off:
Commercial and Commercial Real Estate 1 0 1
Real Estate 28 0 0
Consumer 22 17 20
Total Recoveries 51 17 21
Net loans charged off (230) (132) (383)
Merger-related addition to allowance 1,167 0 0
Additions to allowance charged to operating expense 180 220 255
Balance of allowance at end of year $ 2,697 $ 1,580 $ 1,492
Net charge-offs as percent of average
loans outstanding during year
(less average unearned income) 0.15 % 0.11 % 0.34 %
Net charge-offs as percent of allowance
beginning of year. 14.56 % 8.85 % 23.64 %
Allowance as percent of loans outstanding
at end of year
(less unearned income) 1.56 % 1.30 % 1.25 %
The provision for loan losses charged to expense, as well as the amount of
the allowance for loan losses, are determined by management as a result of
its evaluation of the loan portfolio. Management considers general economic
conditions, changes in the volume of loans and changes in the nature of the
collateral and other relevant factors, including risk elements. The primary
risk element considered by management with respect to consumer and real
estate mortgage loans is lack of current payments. The primary risk elements
considered with respect to commercial, financial and agricultural loans are
the financial condition of the borrower, the sufficiency of collateral and
the record of payment. A subjective review of all non-performing loans, other
problem loans, and overall delinquency is made prior to the end of each
calendar quarter to determine current adequacy of the allowance.
During 1999, the subsidiary Bank made a provision to its reserve for loan
losses in the amount of $180,000. The subsidiary Bank's allowance for loan
losses at December 31, 1999 totaled $2,697,000 or 1.56% of total loans, net
of unearned income. Net charge offs for 1999 totaled $230,000. Certain other
commercial, financial, and agricultural loans known to have problems are not
expected to increase the subsidiary Bank's losses during 2000. At year-end
1999, there were $1,507,000 of loans in a non-accrual status. At December 31,
1999, $300,000 of the allowance for loan losses was allocated to the
non-accrual loans outstanding. Losses during 2000 in the real estate and
consumer categories are expected to approximate the average of the past three
years. Although management of the Company believes that the allowance is
adequate to provide for inherent risk of loss, there can be no assurance that
the Company will not sustain losses in any given period which could be
substantial to the size of the allowance.
-10-
V. Deposits
A. The following table presents the average amount of deposits and rates paid
by major category for the year ended December 31:
1999 1998 1997
Average Average Average
(in thousands) Balance Rate Balance Rate Balance Rate
Demand Deposits $ 23,375 $ 19,382 $ 17,900
Regular Savings, NOW, and
Money Market 97,333 2.33 % 74,138 2.42 % 76,921 2.51 %
Certificates of Deposit and
Other Time Deposits 118,651 5.08 % 101,212 5.49 % 90,635 5.50 %
Total $239,359 $194,732 $185,456
B. There were no foreign deposits in domestic offices at the end of any year
in the three year period ended December 31, 1999.
C. The following table indicates the maturities of time certificates of
deposit in amounts of $100,000 or more at December 31, 1999. (in thousands)
Maturing in:
Three months or less $17,294
Over three months through six months 6,377
Over six months through twelve months 6,017
Over twelve months 5,651
D. There are no time certificates of deposit and other time deposits in the
amount of $100,000 or more issued by foreign offices.
VI. Return on Equity and Assets
The following table shows the ratio of net income to average stockholders'
equity and average total assets, and certain other ratios for the years ended
December 31:
1999 1998 1997
Percentage of net income to:
Average total assets 1.13 % 1.36 % 1.44 %
Average total stockholders' equity 10.49 10.52 10.81
Percentage of cash dividends paid
to net income 42.92 41.71 41.28
Percentage of average stockholders' equity
to average total assets 10.82 12.93 13.32
-11-
ITEM 2. Properties
The Bank's main office building is owned by the Company. In addition,
the Company owns property located at 52 N. Main Street and 185 Fifth
Avenue, Gloversville, New York, 231 Bridge Street, Northville, New York,
142 North Comrie Avenue, Johnstown, New York, 4178 State Highway 30,
Amsterdam, New York and 295 Broadway, Saratoga Springs, New York.
ITEM 3. Legal Proceedings
The nature of the Company's business generates a certain amount of
litigation involving matters arising in the ordinary course of
business. However, in the opinion of management of the Company,
after consultation with counsel, there are no proceedings pending
to which the Company is a party to or which its property is subject
which are material in relation to the Company's net worth or
consolidated financial condition, nor are there any proceedings
pending other than ordinary routine litigation incident to the
business of the Company. In addition, no material proceedings are
pending or are known to be threatened or contemplated against the
Company by governmental authorities or others.
ITEM 4. Submission of Matter to a Vote of Security Holders
None
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholders Matters
The information set forth under the heading "Market and Dividend
Information" on page 32 of the registrant's 1999 Annual Report is
incorporated herein by reference.
ITEM 6. Selected Financial Data
The information set forth under the heading "Five Year Summary of
Operations" on page 12 of the registrant's 1999 Annual Report is
incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information set forth under the heading "Financial Review" on
pages 5 through 11 of the registrant's 1999 Annual Report is
incorporated herein by reference.
Liquidity
Liquidity represents a banking enterprise's capacity to meet its daily
obligations, such as loan demand and the maturity or withdrawal of deposits
and other financial obligations. In addition to maintaining liquid assets,
factors such as capital position, profitability, asset quality, and
availability of funding affect a bank's ability to meet its liquidity needs.
The Company's primary sources of liquidity continue to be federal funds sold
and interest bearing time deposits. Other sources of liquidity include
repayment of loans and the federal funds market, which is a vehicle banks use
to trade surplus funds. When the Company experiences a net outflow of funds,
maturing long term investments are not reinvested until sufficient excess
funds are available. See Financial Review" section page 9 of Company's 1999
Annual Report for additional discussion on liquidity.
The Company, on average, during 1999 sold $9.0 million of federal funds.
Capital
At December 31, 1999, stockholders' equity was $31.3 million, which represents
a decrease of $0.2 million, or 0.6% over 1998. This follows an increase of
$1.8 million, or 6.1% over 1997. The decrease from 1998 to 1999 was primarily
due to the increase in the net unrealized loss in market value of the available
for sale securities. The increase from 1997 to 1998 was due to the retention
of earnings.
The adequacy of the Company's capital is reviewed by management on an ongoing
basis in relation to the size, composition and quality of the Company's
resources and in conjunction with regulatory guidelines.
The currently required risk-based capital ratio, as established by the Federal
Reserve Board, is 8.00% as of December 31, 1999. The Company's risk-based
capital ratio was 18.7% and 24.6% at December 31, 1999 and 1998 respectively.
Dividends per share declared in 1999 were $0.59 as compared to $0.56 in 1998
and $0.53 in 1997 after adjusting for the 3 for 2 stock split declared in July
1999 and the 2 for 1 stock split declared in January 1997.
See "Financial Review" section page 9 of Company's 1998
Annual Report for additional discussion on capital.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. During the second quarter of 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities Deferral
of the Effective Date of FASB Statement No. 133" which deferred the effective
date of SFAS No. 133 one year from fiscal quarters of fiscal years beginning
after June 15, 1999 to fiscal years beginning after June 15, 2000. Management
is currently evaluating the impact of this Statement on the Company's
consolidated financial statements.
ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk
The information set forth under the heading "Financial Review - Market Risk"
pages 10 and 11 of the registrant's 1999 Annual Report is incorporated herein
by reference.
ITEM 8. Financial Statements and Supplementary Data
The information set forth on pages 13 through 31 of the registrant's 1999
Annual Report is incorporated by references.
Additional supplementary data not found in registrant's annual report.
-12-
UNAUDITED INTERIM FINANCIAL INFORMATION (In thousands, except per share data).
The following is a summary of unaudited quarterly financial information for
each quarter of 1999 and 1998.
1999 Quarters ended 1998 Quarters ended
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
Interest and Dividend Income $4,315 $4,754 $5,455 $5,444 $4,084 $4,187 $4,261 $4,311
Net Interest and Dividend Income 2,398 2,558 2,899 2,844 2,254 2,202 2,201 2,269
Provision for Loan Losses 60 60 60 0 60 60 60 40
Income Before Income Taxes 1,178 1,114 1,205 1,190 1,116 1,109 1,121 1,257
Net Income 831 802 829 837 786 784 789 863
Per Share: Basic Earnings 0.35 0.33 0.35 0.34 0.32 0.33 0.33 0.36
Per Share: Diluted Earnings 0.35 0.33 0.34 0.34 0.32 0.33 0.33 0.36
Per share figures and shares outstanding have been adjusted to reflect the 3
for 2 stock split effected through the 50% stock dividend declared in July 1999.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant Election
of Directors
The by-laws of the Company provide that the Board of Directors shall consist
of not less than five nor more than 25 members, and that the total number of
directors may be fixed by action of the Board of Directors or the shareholders.
The by-laws further provide that the directors shall be divided into three (3)
classes as nearly equal in number as possible, known as Class 1, consisting of
not more than eight (8) directors; Class 2, consisiting of not more than eight
(8) directors; and Class 3, consisting of not more than nine (9) directors.
Such classes became effective after the first annual meeting of shareholders
in 1989. Each class holds office for a term of three years, but only one class
comes up for election each year. Each director shall serve until his successor
shall have been elected and shall qualify, even though his term of office as
herein provided has otherwise expired, except in the event of his earlier
resignation, removal, or disqualification.
The twelve persons listed below are currently directors of the Corporation.
Except as noted below, all of the nominees have held the same or another
executive position with the same employer during the past five years.
Principal Occupation Director of
Name, Age for Past Five Years Class the Corp. Since
John C. Miller, 69 President, John C. Miller, Inc. 2 1988
Automobile Dealer
Frank E. Perrella, 72 President, Sira Corp. 2 1988
Consultant
Robert L. Maider, 68 Attorney-at-Law, Maider & Smith 2 1988
William N. Smith, 59 Chairman of the Board, President 1 1988
and Chief Executive Officer
of the Company and the Bank
George A. Morgan, 57 Vice President & Secretary 3 1991
of the Company and Executive Vice President,
Cashier & Trust Officer of the Bank
Clark Easterly, Sr., 73 Chairman of the Board 1 1992
The Johnstown Knitting Mill Company
Manufacturer of Knitwear
Brian K. Hanaburgh, 50 Owner 1 1994
D/B/A McDonald's Restaurants
Fast Food Restaurants
Clark D. Subik, 45 President, Superb Leather, Inc. 3 1995
Leather Merchandiser
Deborah H. Rose, 49 Vice President, Hathaway Agency, Inc. 3 1996
General Insurance
Theodore E. Hoye, III, 51 President, First Credit Corporation 3 1998
Financing and Insuring of Manufactured Housing
Timothy E. Delaney, 37 President, Delaney Construction Corporation 2 1999
Heavy/Highway Construction
Richard D. Ruby, 53 President, Ruby & Quiri, Inc. 1 1999
Home Furnishings Retailer
-13-
Management is not aware of any family relationships between the above
name directors.
The Board of Directors of the Company does not have a standing nominating
committee or compensation committee. These functions are performed by the
Company's Executive Committee which met four times during 1999. Its members
are Messrs. Smith, Chairman, Hannaburgh, Morgan and Maider, and in addition,
up to two other members of the Board may serve as rotating members on a monthly
basis. The Executive Committee reviews and recommends to the full Board of
Directors, nominees for election or re-election as directors. The Executive
Committee will consider the names of individuals recommended by shareholders
for nomination to be directors of the Company. Persons wishing to recommend
individuals for consideration should send such recommendations to the
Secretary of the Company.
The Board of Directors of the Company met nine times during 1999. All members
attended at least 75% of the aggregate number of meetings of the Board of
Directors and committees of the Board of which they are menbers.
The subsidiary Bank does not have a standing nomininating committee. This
function is performed by the Executive and Discount Committee. The Executive
and Discount Committee, in addition to matters pertaining to loans and
discounts, exercises, when the Board is not in session, all other powers of
the Board which may be delegated. The Committee met 45 times during 1999 and
these functions were discussed at various times during these meetings.
Its permanent members are Messrs. Maider, Hannaburgh, Morgan and Smith, in
addition up to two other members of the subsidiary Bank Board may serve as
rotating members on a monthly basis.
The Board of Directors of the subsidiary Bank had 15 meetings during 1999.
All members attended at least 75% of the aggregate number of meetings of the
Board of Directors and committees of the Board of which they are members.
The subsidiary Bank has a compensation committee that met three times during
1999. Its members are Messrs. Perrella, Chairman; Easterly and Miller. The
committee reviews the salaries and other forms of compensation of the key
executive officers of the subsidiary Bank, reviews salary policies and general
salary administration throughout the subsidiary Bank and recommends to the
Board of Directors profit sharing contributions to be made to the employee
profit sharing plan.
The subsidiary Bank has a trust investment committee that met twelve times
during 1999. Its members are Messrs. Morgan, Chairman; Smith, Ruby, Miller
and Easterly. The committee reviews the investments made by the trust
department and other actions taken on a monthly basis.
The Company and the subsidiary Bank have standing audit committees. Their
members are Company and subsidiary Bank directors; Rose, Chairman; Hoye,
Delaney and Subik. These Committees met six times in 1999. The Committees
each year verify certain assets of the subsidiary Bank. KPMG LLP, certified
public accountants, are engaged to perform an audit of the full consolidated
financial statements of the Company, in accordance with generally accepted
auditing standards. The committees meet with representatives of KPMG LLP to
discuss the results of their audit, and these results are then reported to
the full Board of Directors. The Chairman of the Committees, from time to time
during the year, held informal meetings with the Company and subsidiary Bank's
internal auditor.
Principal Officers
The Following table sets forth, as of December 31, 1999, selected information
about the principal officers of the subsidiary Bank, each of whom is elected
by the Board of Directors and each of whom holds offices at the discretion of
the Board of Directors:
Bank
Office and Position Employee Shares of Hldg. Co.
Name, Age with the Bank Held Since Since Common Stock Owned
Bill Argotsinger, 48 Vice President 1999 1998 15
Robert W. Bisset, 63 Senior Vice President 1999 1968 4,500
Ronald J. Bradt, 56 Senior Vice President 1999 1966 5,136
Deborah A. Brandis, 40 Vice President 1999 1979 1,630
Denise L. Cerasia, 27 Vice President 1999 1996 65
George E. Doherty, 43 Vice President 1988 1983 2.520
Michael J. Frank, 53 Vice President and 1994 1990 5.750
Comptroller
Donald R. Houghton, 62 Vice President 1989 1955 2.490
David W. McGrattan, 59 Senior Vice President 1993 1988 3,450
George A. Morgan, 57 Executive Vice President, 1988 1967 31,224
Cashier and Trust Officer
Lawrence D. Peck, 58 Vice President 1999 1993 6,390
Michael J. Pepe, 41 Vice President 1999 1999 0
William N. Smith, 59 Chairman of the Board, 1984 1974 48,000
President and Chief
Executive Officer
The number of shares owned includes exercisable stock options held as
of December 31, 1999.
-14-
With the exceptions of Mr. Argotsinger, Ms. Cerasia and Mr. Pepe, each of the
principal officers of the subsidiary Bank, as listed above, have been
principally employed as an officer or employee of the subsidiary Bank for more
than the past five years. Prior to joining the subsidiary Bank in 1998,
Mr. Argotsinger was employed by the State Employee's Federal Credit Union as
a mortgage loan officer. Prior to joining the subsidiary Bank in 1996,
Ms. Cerasia was employed by the Cohoes Savings Bank as a policy and procedure
analyst . Prior to joining the subsidiary Bank in 1999, Mr. Pepe was employed
by Gloversville Federal Savings and Loan as Vice President in charge of
commercial lending.
ITEM 11. Executive Compensation
Remuneration of Directors and Officers
At present, directors of the Company are not compensated in any way for their
services. The Board of Directors of the subsidiary Bank are the same
individuals who are directors of the Company. Directors of the subsidiary Bank
are compensated for all services as directors as follows:
For attending regular and special meetings of the Board; $600 for each meeting.
For service as regular members of the Executive and Discount Committee, except
salaried officers; $11,700 per annum, payable quarterly. For service as special
members of the Executive and Discount Committee; $900 for the month of service.
For service as members of the Trust Investment Committee, except salaried
officers, $2,700 per annum, payable quarterly. For service as members of the
Examining Committee; $225 for each meeting attended. In addition to the
foregoing, the Chairman of the Examining Committee received an annual fee of
$600, payable quarterly. For service as members of the Compensation Committee,
except for salaried officers; $225 for each meeting attended. Total directors'
fees during 1999 amounted to $226,106. At present, officers of the Company are
not compensated in any way for their services. The following summary
compensation table shows the annual compensation for the last three years for
the subsidiary Bank's chief executive officer and executive vice president,
the only officers whose total salary and bonus exceeded $100,000 in 1999.
Summary Compensation Table
Long Term
Annual Compensation Compensation
All Other
Name and Principal Position Year Salary Bonus Options # Compensation
William N. Smith, Chief
Executive Officer, 1999 $184,000 $17,360 39,900 $22,471
Chairman of the Board 1998 176,000 7,040 45,000 20,223
and President of both 1997 169,000 6,760 0 16,567
the Company and the
subsidiary Bank
George A. Morgan, Vice 1999 $123,000 $12,420 26,700 $18,556
President and Secretary 1998 117,000 4,680 30,000 16,457
of the Company and Executive 1997 113,000 4,520 0 14,764
Vice President, Cashier
and Trust Officer of the Bank
Includes contributions to Mr. Smith's profit sharing plan account of $13,121, $11,973 and $9,167 and Board of
Directors fees of $9,350, $8,250 and $7,400 for the years 1999, 1998 and 1997, respectively and contributions
to Mr. Morgan's profit sharing account of $9,206, $8,207 and $7,364 and Board of Directors fees of $9,350, $8,250
and $7,400 for the same periods.
The aggregate amount of personal benefits, on an individual basis, for these officers did not exceed $10,000 in 1999.
Option Grants in Last Fiscal Year
The following table provides information on grants of stock options in 1999 to
the named executives.
Potential realizable
Number of Percent of value at assumed
securities total options annual rate of stock
underlying granted to Exercise price appreciation
options employees in or base Expiration for option term
granted(#) fiscal year price($/sh) date 5% ($) 10% ($)
William N. Smith 39,900 37.7 % $26.25 04/20/09 $658,689 $1,669,246
George A. Morgan 26,700 25.2 26.25 04/20/09 440,777 1,117,014
-15-
Aggregated Option Exercises in 1999
and Year-end Option Values
The following table sets forth the options exercised in 1999 and the
December 31, 1999 unexercised value of both vested and unvested options for
the named executives.
Value of
Number of unexercised
unexercised in-the-money
options options
at year end (#) at year end ($)
Shares
acquired on Value Exercisable/ Exercisable/
exercise (#) realized ($) Unexercisable Unexercisable
William N. Smith 0 0 45,000/39,900 $149,850/$29,925
George A. Morgan 0 0 30,000/26,700 $99,900/$20,025
None of the named executive officers elected to exercise any options during
the fiscal year ended December 31, 1999.
Value is based on the difference between the fair market value and the exercise price of the securities underlying the
options at December 31, 1999. The actual amount, if any, realized upon the exercise of stock options will depend upon the
market value of the Company's common stock relative to the exercise price per share of the optioned stock at the time the
stock option is exercised.
Employment Arrangements
The Company and the subsidiary Bank have entered into agreements with
William N. Smith and George A. Morgan which provide that if a "change of
control" of the Company or the subsidiary Bank should occur, Mr. Smith and
Mr. Morgan will be entitled to continued employment by the Company and the
subsidiary Bank for a minimum of five years following the "change of control"
with the same position and duties held at the time of a "change of control" and
at salaries which are no less than those in effect at the time the "change of
control" occurs. If, within five years of a "change of control", the Company or
the subsidiary Bank should terminate Mr. Smith's or Mr. Morgan's employment for
reasons other than "cause" or disability or if Mr. Smith or Mr. Morgan should
resign for "good reason" he would be entitled to a lump sum termination payment
equal to three times his annual compensation plus, if applicable, a grossed up
amount so that the after tax amount is equal to any excise tax imposed on such
termination payment pursuant to Internal Revenue Code Section 4999.
Employee Benefit Plans
The subsidiary Bank has a non-contributory defined benefit Retirement Plan by
participation in the New York State Bankers Retirement System. This Plan covers
all employees of the Bank age 21 years, and less than 65 years, with more than
one year of service who complete 1,000 or more hours of service during the
year. An employee becomes fully vested in the Plan after five years of service.
The amount of contributions, payment, or accrual in respect to a specified
person, is not and cannot readily be separately or individually calculated by
the actuaries of the Plan. During 1999, the aggregate amount expensed for
retirement contributions to the Plan equaled approximately 2.51% of the total
covered remuneration paid to participants in the Plan. In addition, the
subsidiary Bank has entered into an agreement with William N. Smith whereby
the subsidiary Bank has agreed to pay Mr. Smith a supplemental retirement
benefit equivalent to the excess of the benefit he would receive under the
Plan if the compensation limitations provided by Section 401(a) (17) of the
Internal Revenue Code did not exist over his Plan benefit. The agreement also
provides that, for purposes of computing the supplemental benefit payable to
Mr. Smith, he will receive credit for an additional ten years of service
beyond his actual service with the subsidiary Bank and the Company. Mr. Smith's
supplemental retirement benefit under this Agreement is only payable on his
termination of employment on or after his normal retirement date, his earlier
death or disability or if his employment terminates within four years of a
change in control of the Company or the subsidiary Bank. The subsidiary Bank
has purchased a life insurance policy on Mr. Smith's life so that it will have
funds available to satisify its obligations under this Agreement. This life
insurance is held in a so-called "Rabbi" trust but is available to the
creditors of the subsidiary Bank. Amounts expensed for retirement contributions
are not included in the above cash compensation table. Under the Plan, as
supplemented by the Agreement, each participant who retires at age 65 is
entitled to receive an annual retirement income for life equal to 1.75% of the
average of the highest consecutive five years of compensation during his or
her career (average compensation) times creditable service up to 35 years,
plus 1.25% of the average compensation times creditable service in excess of
35 years (up to five such years), less .49% of the final three year average
compensation (limited to covered compensation, which is defined as the average
of the individual's last 35 years of taxable social security wage base) times
creditable service up to 35 years. The following are examples of estimated
annual benefits to individual employees for the years of service indicated,
exclusive of social security benefits. (The Plan and the Agreement contain
provisions for optional benefits of equivalent actuarial value which may be
elected by the employee). As of December 31, 1999, William N. Smith had 24
years of credited service with the subsidiary Bank and George A. Morgan
had 32 years.
ESTIMATED ANNUAL BENEFITS FOR YEARS OF SERVICE INDICATED
Years of Service
Highest 5-Year Average
Base Compensation 20 30 40
$ 25,000 $ 6,300 $ 9,450 $ 12,588
50,000 14,260 21,390 28,080
75,000 23,010 34,515 44,955
100,000 31,760 47,640 61,830
125,000 40,510 60,765 78,705
150,000 49,260 73,890 95,580
175,000 58,010 87,015 112,455
200,000 66,760 100,140 129,330
250,000 84,260 126,390 163,080
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The subsidiary Bank has a non-contributory deferred profit sharing plan. At
present, the profit sharing plan provides for annual contributions, if any,
by the subsidiary Bank at the discretion of the Board of Directors. Employees
are eligible to participate in the profit sharing plan after completing one
year of service with the subsidiary Bank and having reached age 21 years.
Contributions on behalf of participating employees are allocated to
participants' shares in proportion to their annual compensation. Amounts
expensed for deferred profit sharing plan contributions are included in the
above summary compensation table. Participants are fully vested over a six
year period. Contributions are invested and administered by the subsidiary
Bank as sole trustee and administrator. In addition, the Agreement between
William N. Smith and the subsidiary Bank provides that Mr. Smith will receive
credit in an account maintained on the books of the subsidiary Bank for an
amount equal to the difference between the amount actually credited to
Mr. Smith's account under the profit sharing plan and the contribution he would
have received without regard to the compensation limitations of Section 401
(a)(17) of the Internal Revenue Code. The balance in Mr. Smith's supplemental
profit sharing account is payable on his termination of employment on or after
his normal retirement date, his earlier death or disability or if his
employment terminates within four years of a change in control of the Company
or the subsidiary Bank. The subsidiary Bank is contributing money to the
"Rabbi" trust previously referred to so that it will have funds available to
satisfy its obligation under the Agreement to pay Mr.Smith supplemental profit
sharing benefits.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Principal Beneficial Owners Common Stock
As of December 31, 1999, the Trust Department of the Bank held, in various
fiduciary capacities, 15,180 shares of the Company's common stock as co-trustee
and 21,670 shares of the Company's common stock as sole trustee. Management
does not exercise voting power over these shares. These holdings represent
1.53% of the total shares outstanding.
The following table sets forth, as of December 31, 1999, the amount and
percentage of the common stock of the Company beneficially owned by each
director and by all directors and principal officers as a group.
Name of Individual or Shares of Company Common Percent of
Identity of Group Stock Owned (1) Class
Robert L. Maider 23,089 (2) 0.96
John C. Miller 75,000 3.12
George A. Morgan 31,224 (3) 1.26
Frank E. Perrella 52,076 (4) 2.17
William N. Smith 48,000 (5) 1.94
Clark Easterly, Sr. 5,448 (6) 0.23
Brian K. Hanaburgh 2,100 (7) 0.09
Clark D. Subik 6,600 0.27
Deborah H. Rose 6,525 (8) 0.27
Theodore E. Hoye, III 11,415 (9) 0.48
Timothy E. Delaney 6,028 (10) 0.24
Richard D. Ruby 3,782 (11) 0.15
All Directors and Principal Officers
of the Company as a Group (13 persons) 277,037 (12) 11.17
(1) The securities "benefically owned" by an individual are determined in
accordance with the definition of "beneficial ownership" as set forth in
the regulations of the Securities and Exchange Commission. Accordingly,
they may include securities owned by or for the individual's spouse and
minor children and any other relative who has the same home, as well as
other securities as to which the individual has or shares voting or
investment power. Beneficial ownership may be disclaimed as to certain
of the securities.
(2) Includes 370 shares owned individually by his spouse.
(3) Includes 30,000 shares issuable upon the exercise of exercisable
stock options.
(4) Includes 51,000 shares owned individually by his spouse and 600 shares
owned by his spouse as custodian.
(5) Includes 45,000 shares issuable upon the exercise of exercisable
stock options.
(6) Includes 2,100 shares owned individually by his spouse.
(7) Includes 450 shares owned individually by his spouse.
(8) Includes 2,025 shares owned as custodian.
(9) Includes 6,600 shares in the name of First Credit
Corporation and 4,140 shares in a Money Purchase and Profit Sharing Plan.
(10) Includes 570 shares issuable upon the exercise of exercisable
stock options.
(11) Includes 300 shares owned individually by his spouse and 570 shares
issuable upon the exercise of exercisable stock options.
(12) Includes 2,250 shares issuable upon the exercise of exercisable
stock options.
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ITEM 13. Certain Relationships and Related Transactions
The subsidiary Bank has had, and expects to have in the future, banking
transactions in the ordinary course of business with many of its directors,
executive officers and the businesses in which they are associated. During the
calendar year 1999, loans to directors and executive officers, together with
their business interests, reached maximum aggregate totals of $6,396,608, or
20.45% of the December 31, 1999 equity capital accounts. At year-end, 1999,
loans to directors and executive officers, together with their business
interests, were $4,084,325, or 13.06% of the December 31, 1999 equity capital
accounts. All extensions of credit to such persons have been made in the
ordinary course of business on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and in the opinion of the management of the
subsidiary Bank, do not involve more than a normal risk of collectibility or
present other unfavorable features.
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following consolidated financial statements of the registrant and its
subsidiary and the independent auditors' report thereon included in the
registrant's Annual Report to Shareholders for the fiscal year ended December
31, 1999, are incorporated herein by reference:
Financial Statements (Consolidated)
Independent Auditors' Report
Statements of Condition - Decmeber 31, 1999 and 1998
Statements of Income - Years ended December 31, 1999, 1998 and 1997
Statements of Changes in Stockholders' Equity - Years ended December 31, 1999,
1998, and 1997
Statements of Cash flows - Years ended December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
(All financial statement schedules for the registrant and its subsidiary have
been omitted as the required information is included in the consolidated
financial statements or the related notes thereto.)
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The following are the exhibits:
Exhibit No. Exhibit
3. Articles of Incorporation and Bylaws
(incorporated by reference)
10. Material contracts:
Contract with data processing servicer
(incorporated by reference)
Supplemental Executive Retirement Plan
(incorporated by reference)
13. Annual Report to Security Holders(included herewith)
21. Subsidiaries of the Registrant(incorporated by reference)
22. Published report regarding matters submitted to a vote of
security holders April 20, 1999 proxy materials
(incorporated by reference)
23. Independent auditors' consent of KPMG LLP filed herewith
EXHIBIT INDEX
Reg. S - K
Exhibit Number Description
3. Articles of Incorporation and Bylaws
10. Material contracts:
Contract with data processing servicer
Supplemental Executive Retirement Plan
13. Annual Report to Security Holders
21. Subsidiaries of the Registrant
22. Published report regarding matters submitted
to vote of security holders
April 20, 1999 proxy materials
23. Independent auditors' consent of KPMG LLP filed herewith
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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CNB Bancorp, Inc.
By: /s/ William N. Smith
William N. Smith, Chairman of the Board, President and
Chief Executive Officer
By: /s/ George A. Morgan
George A. Morgan, Vice President and Secretary
(principal financial officer)
Dated: March 17, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
CNB Bancorp, Inc.
By /s/ John C. Miller By /s/ Brian K. Hanaburgh
By /s/ Frank E. Perrella By /s/ Clark D. Subik
By /s/ Robert L. Maider By /s/ Deborah H. Rose
By /s/ William N. Smith By /s/ Theodore E. Hoye III
By /s/ George A. Morgan By /s/ Timothy E. Delaney
By /s/ Clark Easterly, Sr. By /s/ Richard D. Ruby
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